Form 10-K
Crestar Financial Corporation And Subsidiaries
FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1995
or
[ ] 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)
State of Virginia 54-0722175
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
919 East Main Street, Post Office Box 26665, Richmond, VA 23261-6665
(Address of principal executive offices) (Zip Code)
Registrant's telephone number including area code (804)782-5000
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
Common Stock $5 Par Value New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
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.
[X] Yes [ ] No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
[ ]
The aggregate market value (average of the high and low prices) of Crestar
Financial Corporation voting stock held by non-affiliates as of January 31, 1996
was $2,469,579,000.
As of January 31, 1996, Crestar Financial Corporation had 42,902,579 shares of
Common Stock $5 Par Value outstanding.
The Proxy Statement of the annual meeting of shareholders to be held April 26,
1996 is incorporated by reference in Part III of this Form 10-K.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATIONS AND FINANCIAL CONDITION
Crestar Financial Corporation And Subsidiaries
This commentary provides an overview of Crestar Financial Corporation's (Crestar
or the Corporation) financial condition, changes in financial condition and
results of operations for the years 1993 through 1995. The following discussion
should assist readers in their analysis of the accompanying consolidated
financial statements and supplemental financial information. On December 31,
1995, Crestar completed its merger with Loyola Capital Corporation (Loyola), a
$2.5 billion asset thrift holding company headquartered in Baltimore, Maryland.
The transaction was accounted for as a pooling of interests. Accordingly, the
accompanying consolidated financial information reflects the results of
operations of both Crestar and Loyola, on a combined basis, for all periods
presented.
EARNINGS OVERVIEW
Crestar Financial Corporation reported net income of $179.8 million in 1995,
representing $4.12 in earnings per share. Net income in 1994 was $184.1 million
or $4.24 per share. Net income for 1995 was reduced by $29.3 million in one-time
merger expenses associated with the December 31, 1995 merger with Loyola.
Excluding the non-recurring charges, net income for 1995 was a record $209.1
million, or $4.79 per share. Net income for 1994 of
<TABLE>
<CAPTION>
TABLE 1 SELECTED FINANCIAL INFORMATION
Dollars in thousands, except per share data
RESULTS OF OPERATIONS (for the year): 1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
Income from earning assets $ 1,236,115 $ 1,088,644 $ 975,144 $ 1,019,324 $ 1,170,445
Net interest income 682,816 650,595 591,038 550,853 483,264
Provision for loan losses 59,570 30,342 51,860 106,307 220,921
Net income 1 179,797 184,118 152,756 93,914 44,399
Preferred dividend requirements - - 2,221 2,475 2,576
Income applicable to
common shares 179,797 184,118 150,535 91,439 41,823
EARNINGS PER SHARE
Primary:
Net Income $ 4.12 $ 4.24 $ 3.49 $ 2.35 $ 1.11
Average shares
outstanding (000s) 43,685 43,398 43,103 38,903 37,682
Fully diluted:
Net Income $ 4.11 $ 4.24 $ 3.49 $ 2.34 $ 1.11
Average shares
outstanding (000s) 43,780 43,409 43,189 39,008 37,732
Dividends declared
per common share 2 $ 1.75 $ 1.53 $ 1.14 $ .80 $ .86
===========================================================================================================
FINANCIAL CONDITION (at December 31):
Total assets $18,302,685 $16,482,866 $15,653,463 $14,459,663 $13,829,926
Long-term debt 671,296 715,132 604,026 334,423 283,365
Total equity 1,451,397 1,295,159 1,219,433 1,108,006 935,480
===========================================================================================================
SELECTED RATIOS (for the year):
Return on average assets 1.08% 1.16% 1.05% .68% .33%
Equity leverage 11.92x 12.63x 12.24x 13.99x 14.59x
Return on average common equity 12.88% 14.59% 13.14% 9.71% 4.74%
Net interest margin 4.61 4.57 4.59 4.57 4.10
Dividend payout ratio:
On common stock 39.05 32.97 29.36 31.15 65.61
On common and preferred stock 39.05 32.97 30.39 32.97 67.60
Equity formation rate 7.85 9.78 8.94 6.38 1.55
Based on averages:
Total equity to total assets 8.39 7.92 8.17 7.15 6.85
Net loans to total equity 8.33x 7.91x 6.93x 8.34x 9.67x
===========================================================================================================
</TABLE>
1 Net income in 1995 reflects $29.3 million of merger costs associated
with Crestar's merger with Loyola Capital Corporation on December 31, 1995
2 Historical dividends per common share as declared by Crestar Financial
Corporation
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<TABLE>
<CAPTION>
MANAGEMENT'S DISCUSSION
Crestar Financial Corporation And Subsidiaries
TABLE 2 POOLING OF INTERESTS MERGER WITH LOYOLA CAPITAL CORPORATION
Dollars in thousands, except per share data
RESULTS OF OPERATIONS (for the year ended December 31, 1995):
Excluding Merger Costs Combined
Crestar (1) Loyola (1) Merger Results
1995 1995 Subtotal Costs 1995
<S> <C> <C> <C> <C> <C>
Net interest income (2) $622,406 $71,671 $694,077 $ - $694,077
Provision for loan losses 54,200 858 55,058 4,512 59,570
- ------------------------------------------------------------------------------------------------------------
Net credit income 568,206 70,813 639,019 (4,512) 634,507
Securities gains (losses) (2,213) - (2,213) - (2,213)
Other noninterest income 283,484 13,034 296,518 (5,763) 290,755
- ------------------------------------------------------------------------------------------------------------
Net credit and noninterest income 849,477 83,847 933,324 (10,275) 923,049
Noninterest expense 548,867 52,136 601,003 18,431 619,434
- ------------------------------------------------------------------------------------------------------------
Income before taxes 300,610 31,711 332,321 (28,706) 303,615
- ------------------------------------------------------------------------------------------------------------
Tax-equivalent adjustment 11,261 - 11,261 - 11,261
Book tax expense 99,411 12,572 111,983 574 112,557
- ------------------------------------------------------------------------------------------------------------
Income tax expense 110,672 12,572 123,244 574 123,818
- ------------------------------------------------------------------------------------------------------------
Net income $189,938 $19,139 $209,077 $(29,280) $179,797
============================================================================================================
Earnings per share (3) $ 4.35 $ .44 $ 4.79 $ (.67) $ 4.12
Return on average assets 1.34% .76% 1.26% 1.08%
Return on average equity 15.57 10.88 14.98 12.88
Net interest margin 4.92 2.96 4.61 4.61
Overhead ratio 60.74 61.55 60.81 63.04
============================================================================================================
</TABLE>
1 Results of operations before December 31, 1995 pooling of interests
business combination
2 Tax-equivalent basis
3 Based on 43,685,000 primary average common shares outstanding for 1995
$184.1 million represented an increase of 21% over 1993 net income of $152.8
million. Excluding the impact of fourth quarter 1995 merger costs related to
the Loyola merger, Crestar's results reflect the continued positive effects
of growth in earning assets and noninterest income, an improvement in net
interest margin and management of controllable expenses.
The key profitability measures of return on average assets (ROA) and return
on average total shareholders' equity (ROE) for 1995 in comparison to 1994
reflect the impact of the pooling of interests merger with Loyola. ROA for 1995
was 1.08%, down slightly from 1.16% in 1994. ROE was 12.88% for 1995, versus
14.59% in 1994. These ratios, along with other selected earnings and balance
sheet information for each of the years in the five-year period ended December
31, 1995, are shown in Table 1. Excluding one-time costs arising from the Loyola
merger, Crestar's return on average assets was 1.26% in 1995, versus 1.16% in
1994. Return on average equity, excluding one-time costs related to the Loyola
merger, was 14.98% in 1995, versus 14.59% in 1994. Table 2 provides a summary of
1995 results for both Crestar and Loyola before the year-end pooling of
interests merger, and displays the impact of the merger and the incurrence of
one-time expenses associated with the combination of the two financial
institutions. These expenses included investment banking and professional fees,
severance benefits related to staff reductions, write-offs and lease
terminations of facilities and systems and other acquisition related costs. The
tax benefit of deductible merger related costs was almost entirely offset by
recording a $10.6 million tax liability associated with the tax bad debt
reserves of Loyola's thrift subsidiary. Significant items affecting the change
in earnings per share for 1995 and 1994 are summarized in Table 3. Each
applicable item is net of federal income taxes computed using a 35% rate.
MERGERS AND ACQUISITIONS
Crestar continued to enhance its presence in current markets, and expand into
contiguous markets, through the completion of acquisitions during 1995. The most
significant of these acquisitions was the December 31, 1995 combination with
Loyola. Crestar exchanged 5.2 million of its shares of common stock for all of
the outstanding common stock of Loyola, in a business combination accounted for
as a pooling of interests. Loyola was the holding company for Loyola
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<PAGE>
F.S.B., a Maryland savings institution with approximately $2.5 billion in
assets, $1.9 billion in loans and $1.5 billion in deposits. The merger with
Loyola resulted in a net addition of 25 full service branches to Crestar's
operating structure, including 15 branches in the Baltimore metropolitan
area. Other branches are located in central Maryland and Maryland's Eastern
Shore. At the time of the merger, Loyola F.S.B. was renamed Crestar Bank
FSB, and now operates as a savings bank subsidiary of Crestar.
Including the merger with Loyola, Crestar completed five acquisitions during
1995, as summarized below.
========================================================
(Dollars in millions) Banking
Offices
Quarter Acquired: Added
Financial Institution Loans Deposits (net)
1st Quarter 1995:
Jefferson Savings $ 200 $ 250 5
Independent Bank 50 70 2
TideMark Bancorp 170 240 3
4th Quarter 1995:
Chase MD 260 450 2
Loyola Capital 1,865 1,470 25
- --------------------------------------------------------
Total $2,545 $2,480 37
========================================================
On January 20, 1995, Crestar completed the acquisitions of Jefferson Savings
and Loan Association, F.A. (Jefferson Savings) and Independent Bank. Jefferson
Savings, a Warrenton, Virginia based thrift institution, represented Crestar's
first operations in Warrenton, Culpeper, Front Royal and Luray, while further
strengthening Crestar's market position in Charlottesville and Loudon County.
The acquisition was for $5 million in cash and 471 thousand shares of Crestar
stock, for a combined value of $23 million. The purchase of Independent Bank, a
Manassas-based commercial bank, added two branches in Prince William County and
enhanced Crestar's leading market position in one of Virginia's fastest growing
areas. The acquisition was valued at $12 million, based on a payment of $5
million in cash and 198 thousand shares of Crestar common stock.
Crestar's acquisition of TideMark Bancorp, Inc. (TideMark) was completed on
March 24, 1995. TideMark, based in Newport News, Virginia, operated in the
Hampton Roads metropolitan area. The acquisition was for a combination of $13
million in cash and 648 thousand shares of Crestar stock, for a combined value
of approximately $40 million. Upon acquisition, three of TideMark's 12 branches
were converted to Crestar offices; the remaining TideMark branches were
consolidated into nearby Crestar branches.
On November 10, 1995, Crestar completed the purchase of the deposits and
customer accounts, plus selected loans, of six branches of the Chase Manhattan
Bank of Maryland (Chase MD). The transaction brought to Crestar approximately
$450 million in deposits and $260 million in primarily consumer loans. The cost
of the cash transaction, which was recorded as a purchase, was $38 million.
With the exception of Loyola, each of the acquisitions completed in 1995 have
been accounted for under the purchase method of accounting, whereby the purchase
price has been allocated to the underlying assets acquired and liabilities
assumed based on their respective fair values at the date of acquisition.
Crestar's 1995 results include the results of operations of the four purchased
institutions from the date of their respective purchase. The acquisition of
Loyola was accounted for as a pooling of interests and, accordingly, all
premerger historical financial data have been restated to reflect the combined
results of both Crestar and Loyola. Financial statement note 2 contains
additional information concerning mergers and acquisitions.
In February 1996, Crestar announced an agreement to purchase the deposits and
customer accounts, plus selected loans, of ten branches of Mellon Bank (MD), a
bank operating in the Maryland suburbs of the metropolitan Washington, DC area.
The purchase, which is expected to be completed during the second quarter of
1996, will add approximately $220 million
TABLE 3 ANALYSIS OF EARNINGS
PER COMMON SHARE
1995 1994
vs. vs.
1994 1993
Earnings Per Common Share -
prior period $ 4.24 $ 3.49
- ----------------------------------------------------
Interest income 2.19 1.66
Interest expense (1.71) (.80)
Provision for loan losses (.37) .32
Securities gains or losses .13 (.19)
Other noninterest income .39 .38
Foreclosed properties expense .07 .48
Loyola one-time merger costs (.67) -
Other noninterest expense (.09) (1.05)
Income taxes (.03) (.08)
Increased shares outstanding (.03) (.02)
Preferred dividends - .05
- ----------------------------------------------------
Net increase (decrease) (.12) .75
- ----------------------------------------------------
Earnings Per Common Share -
current period $ 4.12 $ 4.24
====================================================
15
<PAGE>
MANAGEMENT'S DISCUSSION
Crestar Financial Corporation And Subsidiaries
[graph goes here]
COMMON STOCK PRICE & BOOK VALUE*
($ per share)
1991 1992 1993 1994 1995
Book Value $ 23.62 $ 25.65 $ 28.58 $ 30.47 $ 33.90
High 25 39 3/4 46 1/2 49 3/4 61
Low 11 1/4 17 1/4 35 1/8 36 1/8 37
* Price range for the year and book value at year end
[graph goes here]
RETURN ON AVERAGE ASSETS
(percent)
1991 1992 1993 1994 1995
.33 .68 1.05 1.16 1.08
[graph goes here]
RETURN ON AVERAGE COMMON EQUITY
(percent)
1991 1992 1993 1994 1995
4.74 9.71 13.14 14.59 12.88
in deposits to Crestar's Maryland bank subsidiary. Also in February, Crestar
Mortgage Corporation announced its agreement to purchase, in a cash
transaction, Ryland Funding Group, a wholesale mortgage banker. Ryland
Funding Group operates out of four offices, and originated approximately
$750 million in real estate mortgages in 1995.
Under interstate banking and branching legislation enacted by Congress in
1994, previously existing restrictions on interstate bank acquisitions were
abolished as of September 29, 1995. Bank holding companies from any state are
now able to acquire banks and bank holding companies located in any other state,
irrespective of state laws. 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 branch acquisitions and new branch
activity by out-of-state banks 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 by the state
of the acquiring bank or bank holding company. Similar legislation has been
introduced 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. However, management expects the level of bank competition to
remain high, and potentially increase, in the Corporation's marketing area in
the future. Moreover, Crestar increasingly competes with other financial service
providers, including consumer finance companies, savings and loan associations,
stock brokerage firms, investment bankers, insurance companies, credit card
issuers, credit unions and leasing companies.
COMMON STOCK AND DIVIDENDS
On December 31, 1995, Crestar's common stock price was $59 1/8, an increase of
57% from the December 31, 1994 closing price of $37 5/8. Significant increases
were noted in many financial institution stocks during 1995. The Keefe Index of
bank stocks increased 50% during 1995, while the S&P 500 posted an increase of
34%. The Keefe Index is a composite of bank stocks tracked by Keefe, Bruyette
and Woods, Inc., a widely known banking industry analyst and investment banking
company.
Book value per common share was $33.90 at December 31, 1995, and represented
an 11% increase over Crestar's December 31, 1994 book value per share of $30.47.
The ratio of year-end market value to book value was 1.74x at December 31, 1995.
Total market capitalization at December 31, 1995 was $2.53 billion. On the basis
of 1995 earnings per common share of $4.12 and the year-end market price of
$59 1/8, the December 31, 1995 price/earnings ratio was 14.4x. Excluding the
impact of one-time merger costs related to the Loyola acquisition, the December
31, 1995 price/earnings ratio was 12.3x.
Dividends declared in 1995 were $1.75 per common share, an increase of 14%
when compared with dividends declared of $1.53 per share in 1994. Reflecting
improved earnings, the common dividend was increased during the second quarter
of 1995.
16
<PAGE>
[graph goes here]
NET INTEREST INCOME*
($ in millions)
1991 1992 1993 1994 1995
$505 567 604 662 694
*Tax-equivalent basis
[graph goes here]
NET INTEREST MARGIN*
(percent)
1991 1992 1993 1994 1995
4.10 4.57 4.59 4.57 4.61
* Tax-equivalent basis
[graph goes here]
SOURCES OF FUNDS-AVERAGES
($ in millions)
1991 1992 1993 1994 1995
Long-Term Debt $ 260 $ 308 $ 463 $ 588 $ 696
Other Sources - Net 1,467 1,590 1,980 2,164 2,300
Purchased Liabilities 2,515 1,255 1,592 1,579 1,820
Interest-Bearing Core Deposits 8,135 9,259 9,122 10,159 10,252
TABLE 4 CAPITAL ADEQUACY
Dollars in thousands
RISK-ADJUSTED CAPITAL AT DECEMBER 31 1995 1994
Tier 1 Capital:
Shareholders' equity $ 1,451,397 $ 1,295,159
Goodwill and other adjustments (182,777) (83,523)
- -------------------------------------------------------------------------------
Total Tier 1 capital 1,268,620 1,211,636
- -------------------------------------------------------------------------------
Tier 2 Capital:
Allowable long-term debt 294,634 304,595
Allowable allowance for loan losses
net of other adjustments 177,984 151,265
- -------------------------------------------------------------------------------
Total Tier 2 capital 472,618 455,860
- -------------------------------------------------------------------------------
Total risk-adjusted capital 1,741,238 1,667,496
- -------------------------------------------------------------------------------
Risk-adjusted assets, net of allowance 14,490,555 12,863,109
Fourth quarter average assets, net of adjustments 16,912,344 15,963,575
Risk-adjusted capital ratios:
Tier 1 8.8% 9.4%
Total 12.0 13.0
Tier 1 leverage ratio 7.5 7.6
- -------------------------------------------------------------------------------
OTHER CAPITAL RATIOS
Average equity to:
Average total assets 8.39 7.92
Average loans, net of unearned income 12.00 12.64
Equity leverage 11.92x 12.63x
Equity formation rate 7.85% 9.78%
Period-end equity to assets 7.93 7.86
Tangible leverage ratio 7.0 7.2
===============================================================================
17
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MANAGEMENT'S DISCUSSION
Crestar Financial Corporation And Subsidiaries
The current quarterly dividend of $.45 represents an annualized dividend
of $1.80, equating to a yield of 3.0% based on the year-end market price.
The Corporation's objective is to pay dividends of approximately 30% to 40% of
earnings to common shareholders. Excluding the impact of one-time merger costs
associated with the Loyola acquisition, dividends declared per common share
in 1995 represented 34% of net income.
[graph goes here]
USES OF FUNDS - AVERAGES
($ in millions)
1991 1992 1993 1994 1995
Mortgage Loans Held for Sale $ 204 $ 368 $ 430 $ 408 $ 375
Money Market Investments 874 1,075 768 639 337
Securities Held to Maturity &
Securities Available for Sale 2,293 2,743 3,718 3,458 2,724
Loans 9,006 8,227 8,242 9,985 11,632
---------------------------------------------
$12,377 $12,413 $13,158 $14,490 $15,068
CAPITAL RESOURCES AND ADEQUACY
Crestar's capital position strengthened during 1995 as evidenced by significant
equity growth and strong capital ratios. Average shareholders' equity grew 11%
and 6% in 1995 and 1994, respectively. Equity growth in 1995 was primarily
attributable to the earnings of the Corporation. This was partially offset by
Crestar's dividends declared, and by the purchase and retirement of common
stock. During 1995, Crestar purchased and retired 1,765,100 shares of common
stock at an average price of $46.54 per share, primarily to meet the needs of
the dividend reinvestment plan and thrift and profit sharing plan, and for
common stock issued for financial institution purchases. The 1994 increase in
average shareholders' equity was also primarily attributable to earnings. The
Corporation purchased and retired 1,120,300 shares of common stock at an average
price of $43.25 per share during 1994. The Consolidated Statements of Changes in
Shareholders' Equity provide details of these and other equity transactions. As
of December 31, 1995, Crestar had a remaining authorization to purchase and
retire up to 1.0 million shares of common stock in order to meet the needs of
the dividend reinvestment plan, thrift and profit sharing plan and stock option
plans.
Crestar's equity to assets ratio at December 31, 1995 was 7.93%, compared to
a ratio of 7.86% at December 31, 1994. The average equity to assets ratio was
8.39% for 1995, compared to 7.92% for 1994. The equity leverage ratio (defined
as average total assets divided by average total shareholders' equity) decreased
from 12.63x in 1994 to 11.92x in 1995. Other capital ratios for 1995 and 1994
are shown in Table 4. A key measure of equity's ability to absorb losses is the
ratio of average equity to average loans. Despite significant loan growth and
the Corporation's common stock repurchase program, this measure continued to
reflect Crestar's capital strength, totaling 12.00% for 1995. Reflecting
one-time merger related costs incurred in 1995, the equity formation rate
(calculated as net income less dividends declared divided by average total
equity) decreased to 7.85% in 1995 from 9.78% in 1994.
Risk-based capital ratios are another measure of capital adequacy. At
December 31, 1995, Crestar's consolidated risk-adjusted capital ratios were 8.8%
for Tier 1 and 12.0% for total capital, well above the required minimums of 4.0%
and 8.0%, respectively. These ratios are calculated using regulatory capital
(either Tier 1 or total capital) as the numerator and both on- and off-balance
sheet risk-weighted assets as the denominator. Tier 1 capital consists primarily
of common equity less goodwill and certain other intangible assets. Total
capital adds certain qualifying debt instruments and a portion of the allowance
for loan losses to Tier 1 capital. One of four risk weights, primarily based on
credit risk, is applied to both on- and off-balance sheet assets to determine
the asset denominator. Under Federal Deposit Insurance Corporation (FDIC) rules,
each of Crestar's three subsidiary banks was considered "well-capitalized", the
highest category of capitalization defined by the regulators allowing for the
lowest level of FDIC insurance premium payments, as of December 31, 1995.
Crestar Bank FSB, formerly Loyola F.S.B., was also considered "well-capitalized"
as of year-end 1995, under Office of Thrift Supervision (OTS) regulations.
Additional regulatory capital measures include the Tier 1 leverage ratio and
the tangible leverage ratio. The Tier 1 leverage ratio is defined as Tier 1
capital divided by average total assets less goodwill and certain other
intangibles and has a regulatory minimum of 3.0%, with most institutions
required to maintain a ratio of at least 4.0% to 5.0%, depending primarily upon
risk profiles. At December 31, 1995, Crestar's Tier 1 leverage ratio was 7.5%.
The tangible leverage ratio is calculated by excluding intangibles from both
assets and capital and is utilized by the Federal Reserve Board in evaluating
proposals for expansion or acquisitions. At December 31, 1995, Crestar's
tangible leverage ratio was 7.0%, well within accepted Federal Reserve Board
ranges.
A double leverage ratio of over 100% measures the extent to which the equity
capital of subsidiaries is supported by Parent Company debt rather than equity.
18
<PAGE>
Calculated as the investment in its subsidiaries divided by its own equity
accounts, Crestar Financial Corporation's double leverage was a comfortable
101.8% at December 31, 1995, compared to 98.6% at December 31, 1994. Financial
statement note 22 contains Parent Company financial statements.
In November 1995, Crestar filed a shelf registration statement with the
Securities and Exchange Commission pertaining to the possible future issuance of
securities. Under this registration statement, the Corporation may issue in the
future up to $150 million in subordinated debt securities, preferred stock or
common stock, or any combination thereof.
[graph goes here]
AVERAGE CORE DEPOSIT MIX
(percent)
1991 1992 1993 1994 1995
Demand Deposits 16 16 18 17 18
Interest Checking & Money
Market Deposits 32 38 39 39 39
Regular Savings Deposits 5 8 11 13 11
Other Domestic Time Deposits 47 38 32 31 32
------------------------------------------
100 100 100 100 100
NET INTEREST INCOME AND NET INTEREST MARGIN
A fundamental source of Crestar's earnings, net interest income, is defined as
the difference between income on earning assets and the cost of funds supporting
those assets. Significant categories of earning assets are loans and securities
while deposits and short-term borrowings represent the major portion of
interest-bearing liabilities. The level of net interest income is impacted
primarily by variations in the volume and mix of these assets and liabilities,
as well as changes in the levels of interest rates.
Net interest income in Table 5 is presented on a tax-equivalent basis to
enhance the comparability of assets with different tax attributes. This
comparability is achieved through increasing interest income on tax-exempt
assets by an amount equal to the Federal income taxes which would have been paid
had the income been fully taxable. This tax-equivalent adjustment is based on
the applicable statutory federal corporate income tax rate and resulted in an
increase to pre-tax income from earning assets in 1995, 1994 and 1993 of $11.3
million, $10.9 million and $12.6 million, respectively. On a tax-equivalent
basis, net interest income increased $32.6 million or 5% in 1995 following a
$57.9 million or 10% rise in 1994. These increases reflect an increase in
average earning assets of 4% in 1995 and 10% in 1994.
The net interest margin is calculated as tax-equivalent net interest income
divided by average earning assets and represents the Corporation's net yield on
its earning assets. In 1995 the net interest margin of 4.61% improved four basis
points from 4.57% in 1994. Significant items affecting the change in the net
interest margin from 1994 to 1995 are summarized in Table 6. Positive influences
on the 1995 margin include favorable changes in the composition of balance sheet
earning assets and in rates and yields on net earning assets. Changes in balance
sheet mix increased the 1995 net interest margin by approximately 24 basis
points. Loans as a percentage of total earning assets increased from an average
of 69% in 1994 to 77% in 1995, as growth in loans was partially funded from
declining levels of investment securities. With the exception of real
estate-construction loans, every loan category exhibited growth during 1995.
Consumer loans, composed of instalment, bank card and real estate-mortgage
loans, displayed the most growth in comparison to 1994 balances. Factors
influencing this growth included a stable economic environment, Crestar's
acquisition activity, and strong marketing efforts. Average balances of real
estate-mortgage loans increased by 24%, or $662 million, with instalment loan
average balances increasing 18%, or $370 million. Bank card loan average
balances were up $427 million in 1995, an increase of 37%. This growth reflects
Crestar's strong marketing emphasis, including promotional efforts outside of
Virginia, Maryland and Washington, DC.
The composition of Crestar's sources of funds shifted slightly to higher cost
sources during the year, negatively impacting the 1995 net interest margin by 7
basis points. A higher rate environment, with increased competitive pricing for
deposits among financial institutions, resulted in decreases in average balances
for two categories of lower-yielding deposits. Average balances of regular
savings deposits and interest checking deposits during 1995 fell by $180 million
and $20 million, respectively, as some customers used these deposits to purchase
higher yielding financial instruments like certificates of deposit. Increases in
the average balances of domestic time deposits and money market deposit accounts
during 1995 were $188 million and $105 million, respectively. Average total
deposit levels remained balanced, increasing 2% to $12.5 billion. Average
short-term borrowings increased by $227 million, or 15%, during 1995, and
represented 12% of Crestar's average total sources of funds for the year.
An additional positive impact on the net interest margin for 1995 stemmed
from changes in interest rates received on earning assets and paid on funding
sources. Such changes in interest rates contributed a
19
<PAGE>
MANAGEMENT'S DISCUSSION
Crestar Financial Corporation And Subsidiaries
<TABLE>
<CAPTION>
TABLE 5 AVERAGE BALANCES, NET INTEREST INCOME AND RATE/VOLUME ANALYSIS (1)
Dollars in millions
Average Balance Yield/Rate
1995 1994 1993 1995 1994 1993
<S> <C> <C> <C> <C> <C> <C>
$ $ $ % % %
2,993 2,893 2,796 8.42 7.90 7.73 Commercial
916 806 795 8.56 8.16 7.81 Real estate - income property
267 289 279 10.29 8.89 7.55 Real estate - construction
2,411 2,041 1,770 8.95 8.34 8.90 Instalment
1,571 1,144 702 11.30 11.94 13.67 Bank card
3,474 2,812 1,900 7.78 7.38 8.00 Real estate - mortgage
- -----------------------------------------------------------------------------------------------------
11,632 9,985 8,242 8.78 8.36 8.55 Total loans - net of unearned income (2)
983 1,160 2,003 6.25 6.01 6.47 Taxable securities held to maturity
63 74 99 9.37 9.79 10.53 Tax-exempt securities held to maturity
- -----------------------------------------------------------------------------------------------------
1,046 1,234 2,102 6.44 6.24 6.66 Total securities held to maturity
1,678 2,224 1,616 6.55 5.91 5.36 Securities available for sale
337 639 768 5.99 4.34 3.49 Money market investments
375 408 429 7.52 7.08 6.87 Mortgage loans held for sale
- -----------------------------------------------------------------------------------------------------
15,068 14,490 13,157 8.28 7.59 7.51 Total earning assets
=====================================================================================================
1,922 1,943 1,705 2.20 2.22 2.34 Interest checking deposits
2,883 2,779 2,607 3.87 2.99 2.64 Money market deposit accounts
1,414 1,594 1,289 2.76 2.68 2.85 Regular savings deposits
4,033 3,843 3,521 5.12 4.24 4.41 Domestic time deposits
- -----------------------------------------------------------------------------------------------------
10,252 10,159 9,122 3.89 3.27 3.30 Total interest-bearing core deposits
73 59 47 5.39 4.43 4.38 Certificates of deposit $100,000 and over
1,747 1,520 1,545 5.74 4.26 3.13 Short-term borrowings
- -----------------------------------------------------------------------------------------------------
1,820 1,579 1,592 5.73 4.27 3.17 Purchased liabilities
696 589 463 7.18 6.59 7.13 Long-term debt
- -----------------------------------------------------------------------------------------------------
12,768 12,327 11,177 4.33 3.55 3.44 Total interest-bearing liabilities
2,300 2,163 1,980 Other sources - net
- -----------------------------------------------------------------------------------------------------
15,068 14,490 13,157 3.67 3.02 2.92 Total sources of funds
- -----------------------------------------------------------------------------------------------------
4.61 4.57 4.59 Net Interest Margin/Income
=====================================================================================================
</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, and the tax-equivalent adjustment to interest
income was $11.3 million, $10.9 million and $12.6 million in 1995, 1994 and
1993, respectively
2 Nonaccrual loans are included in the average loan balances and income on such
loans is recognized on a cash basis
positive impact of 3 basis points in comparison to 1994 average interest rates.
During 1995, actions taken by the Federal Reserve Bank to increase short-term
interest rates were not accompanied immediately by corresponding increases in
rates on deposits. This resulted in an environment where loan and investment
yields generally increased at a faster pace than the rates paid on Crestar's
sources of funds. Yields on average earning assets rose 69 basis points from the
prior year, totaling 8.28% in 1995 versus 7.59% in 1994. Earning asset
categories of securities available for sale, securities held to maturity, money
market investments and mortgage loans held for sale all exhibited higher average
yields in 1995. The average yield on Crestar's loan portfolio rose from 8.36% in
1994 to 8.78% in 1995, an increase of 42 basis points. With the exception of
yields on bank card loans, which were affected by aggressive marketing programs,
all loan categories exhibited higher yields in 1995 in comparison to the prior
year. Real estate-mortgage, instalment and commercial loans, which combined
represented over 75% of Crestar's average loan portfolio during 1995, had
average yield increases of 40, 61 and 52 basis points, respectively. Marketing
programs resulted in a modest decline in the average rate earned on bank card
loans, from 11.94% in 1994 to 11.30% in 1995. Crestar's core deposits were a
benefit to the Corporation's net interest margin during this period of rising
yields on earning assets. During 1995, average yields on interest
20
<PAGE>
Income/Expense (3)
1995 1994 1993
In Thousands
$ $ $
Commercial 252,147 228,608 216,038
Real estate - income property 78,459 65,779 62,082
Real estate - construction 27,492 25,672 21,120
Instalment 215,800 170,158 157,577
Bank card 177,440 136,631 95,923
Real estate - mortgage 270,427 207,619 152,021
- -------------------------------------------------------------------------------
Total loans - net of unearned income (2) 1,021,765 834,467 704,761
Taxable securities held to maturity 61,394 69,693 129,600
Tax-exempt securities held to maturity 5,943 7,257 10,478
- -------------------------------------------------------------------------------
Total securities held to maturity 67,337 76,950 140,078
Securities available for sale 109,927 131,520 86,590
Money market investments 20,202 27,780 26,784
Mortgage loans held for sale 28,145 28,854 29,531
- -------------------------------------------------------------------------------
Total earning assets 1,247,376 1,099,571 987,744
===============================================================================
Interest checking deposits 42,279 43,143 39,820
Money market deposit accounts 111,493 83,202 68,772
Regular savings deposits 39,023 42,718 36,758
Domestic time deposits 206,307 162,794 155,270
- -------------------------------------------------------------------------------
Total interest-bearing core deposits 399,102 331,857 300,620
Certificates of deposit $100,000 and over 3,916 2,600 2,043
Short-term borrowings 100,365 64,836 48,387
- -------------------------------------------------------------------------------
Purchased liabilities 104,281 67,436 50,430
Long-term debt 49,916 38,756 33,056
- -------------------------------------------------------------------------------
Total interest-bearing liabilities 553,299 438,049 384,106
Other sources - net
- -------------------------------------------------------------------------------
Total sources of funds 553,299 438,049 384,106
- -------------------------------------------------------------------------------
Net Interest Margin/Income 694,077 661,522 603,638
===============================================================================
1995 vs. 1994
Increase Change due to (4)
(Decrease) Rate (5) Volume
$ $ $
Commercial 23,539 15,648 7,891
Real estate - income property 12,680 3,740 8,940
Real estate - construction 1,820 3,749 (1,929)
Instalment 45,642 14,701 30,941
Bank card 40,809 (9,279) 50,088
Real estate - mortgage 62,808 14,088 48,720
- --------------------------------------------------------------------------------
Total loans - net of unearned income 2 187,298 50,377 136,921
Taxable securities held to maturity (8,299) 2,305 (10,604)
Tax-exempt securities held to maturity (1,314) (263) (1,051)
- --------------------------------------------------------------------------------
Total securities held to maturity (9,613) 2,063 (11,676)
Securities available for sale (21,593) 10,737 (32,330)
Money market investments (7,578) 5,554 (13,132)
Mortgage loans held for sale (709) 1,648 (2,357)
- --------------------------------------------------------------------------------
Total earning assets 147,805 104,202 43,603
================================================================================
Interest checking deposits (864) (412) (452)
Money market deposit accounts 28,291 25,152 3,139
Regular savings deposits (3,695) 1,135 (4,830)
Domestic time deposits 43,513 35,701 7,812
- --------------------------------------------------------------------------------
Total interest-bearing core deposits 67,245 64,223 3,022
Certificates of deposit $100,000 and over 1,316 693 623
Short-term borrowings 35,529 25,843 9,686
- --------------------------------------------------------------------------------
Purchased liabilities 36,845 26,545 10,300
Long-term debt 11,160 4,093 7,067
- --------------------------------------------------------------------------------
Total interest-bearing liabilities 115,250 99,545 15,705
Other sources - net
- --------------------------------------------------------------------------------
Total sources of funds 115,250 97,739 17,511
- --------------------------------------------------------------------------------
Net Interest Margin/Income 32,555 6,463 26,092
================================================================================
1994 vs. 1993
Increase Change due to (4)
(Decrease) Rate (5) Volume
$ $ $
Commercial 12,570 5,177 7,393
Real estate - income property 3,697 2,883 814
Real estate - construction 4,552 3,865 687
Instalment 12,581 (11,640) 24,221
Bank card 40,708 (18,531) 59,239
Real estate - mortgage 55,598 (17,102) 72,700
- --------------------------------------------------------------------------------
Total loans - net of unearned income (2) 129,706 (18,318) 148,024
Taxable securities held to maturity (59,907) (5,279) (54,628)
Tax-exempt securities held to maturity (3,221) (609) (2,612)
- --------------------------------------------------------------------------------
Total securities held to maturity (63,128) (5,292) (57,836)
Securities available for sale 44,930 12,299 32,631
Money market investments 996 5,491 (4,495)
Mortgage loans held for sale (677) 824 (1,501)
- --------------------------------------------------------------------------------
Total earning assets 111,827 12,231 99,596
================================================================================
Interest checking deposits 3,323 (2,232) 5,555
Money market deposit accounts 14,430 9,902 4,528
Regular savings deposits 5,960 (2,749) 8,709
Domestic time deposits 7,524 (6,854) 14,378
- --------------------------------------------------------------------------------
Total interest-bearing core deposits 31,237 (3,110) 34,347
Certificates of deposit $100,000 and over 557 30 527
Short-term borrowings 16,449 17,229 (780)
- --------------------------------------------------------------------------------
Purchased liabilities 17,006 17,414 (408)
Long-term debt 5,700 (3,181) 8,881
- --------------------------------------------------------------------------------
Total interest-bearing liabilities 53,943 14,305 39,638
Other sources - net
- --------------------------------------------------------------------------------
Total sources of funds 53,943 14,898 39,045
- --------------------------------------------------------------------------------
Net Interest Margin/Income 57,884 (2,667) 60,551
================================================================================
3 Includes tax-equivalent net loan fees of $3.5 million, $5.1 million and $6.0
million for 1995, 1994 and 1993, respectively.
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
checking deposits declined 2 basis points, with yields on regular savings
deposits increasing 8 basis points. The average rate period on all
interest-bearing deposits during 1995 was 3.89%, in comparison to 3.27% in 1994.
Off-balance sheet hedging activities (primarily interest rate swaps) had a
detrimental impact on Crestar's 1995 margin when compared to 1994. Many of these
hedges, which had a beneficial impact in the recent declining interest rate
environment, had the opposite effect in the rising rate environment. Total
off-balance sheet interest rate hedges negatively impacted net interest income
by $6.5 million in 1995, which was composed of a $5.9 million reduction in
interest income and a $0.6 million increase in interest expense, based on the
underlying asset or liability being hedged. The detrimental impact on 1995's net
interest margin equated to 4 basis points. In 1994, the comparable impact of a
hedging activity was an increase to Crestar's total interest income of $16.8
million and a decrease to interest expense of $1.3 million, which represented a
positive impact on that year's net interest margin of 13 basis points. During
1993, off-balance sheet hedges increased income by $33.5 million and decreased
interest expense by $1.0 million, positively impacting the Corporation's 1993
net interest margin by 26 basis points.
Lower levels of nonperforming assets in 1995 had a favorable impact on the
net interest margin of approximately one basis point. Additional income of
21
<PAGE>
MANAGEMENT'S DISCUSSION
Crestar Financial Corporation and Subsidiaries
TABLE 6 ANALYSIS OF NET INTEREST MARGIN
<TABLE>
<CAPTION>
Percent of Average
Margin Change Earning Assets
1995 1994
<S> <C> <C> <C>
1994 Net Interest Margin 4.57%
Earning Asset Mix: 24 bp
Loans - net of unearned income 77.2% 68.9%
Securities held to maturity and securities available for sale 18.1 23.9
Money market investments 2.2 4.4
Mortgage loans held for sale 2.5 2.8
Funding Mix: (7)
Interest-bearing core deposits 68.0 70.1
Purchased liabilities 12.1 10.9
Long-term debt 4.6 4.1
Other sources - net 15.3 14.9
Decreased nonperforming assets 1
Off-balance sheet hedges (17)
Interest rate changes 3
- -------------------------------------------------------------------------------------------------------------
Net Interest Margin Net Change 4 bp
- -------------------------------------------------------------------------------------------------------------
1995 Net Interest Margin 4.61%
=============================================================================================================
</TABLE>
approximately $15.1 million for 1995 and $13.4 million for 1994 would have been
realized had all nonperforming assets performed as originally expected.
Nonperforming assets exclude loans that are both past due 90 days or more and
not deemed nonaccrual, due to an assessment of collectibility (see
"Nonperforming Assets and Other Risk Elements).
Purchase acquisitions completed during 1995 added over $13 million to
Crestar's 1995 net interest income. While the four acquisitions in the aggregate
were accretive to the Corporation's net interest income and earnings per share
for 1995, they had a slightly negative impact on Crestar's net interest margin
for the year. This was primarily due to their aggregate concentrations of
proportionally lower yielding real estate mortgage loans and short-term
investments, when compared to Crestar's overall earning asset composition.
From 1993 to 1994, the net interest margin fell slightly, moving from 4.59%
in 1993 to 4.57% in 1994. This reduction reflected declining income from hedging
activity and changes in Crestar's funding sources towards higher-yielding
deposit categories. These factors were partially offset by favorable changes in
the earning asset mix. Average loans as a percentage of earning assets increased
from 63% in 1993 to 69% in 1994. Table 5 presents a comparison of the earning
assets and sources of funds for these two years. All balances and yields reflect
the pooling of interests combination with Loyola.
NONINTEREST INCOME
Noninterest income increased 11% in 1995, following a 5% increase in 1994.
Excluding securities gains and losses, noninterest income in 1995 increased
$20.7 million or 8% over 1994, compared with a 1994 increase of $25.6 million or
10% over 1993. The 1995 increase resulted from growth in the noninterest income
categories of bank card-related fee income, trust and investment advisory income
and service charges on deposit accounts. Reflecting promotional activities and
increased merchant fee volume, bank card-related fee income increased by $7.9
million, or 20%, during 1995. Despite a higher interest rate environment during
1995 in comparison to 1994, mortgage origination income totaled $10.7 million in
1995, compared to $10.3 million in 1994. Gains on sales of mortgage servicing
rights totaled $11.0 million in 1995, versus gains of $18.7 million recorded in
the previous year. Mortgage servicing income fell slightly in 1995 to $15.9
million, from $16.9 million in 1994. Crestar's loan servicing portfolio was
$10.9 billion at December 31, 1995, compared to $9.5 billion at year-end 1994.
Service charges on deposit accounts increased 7%, or $5.6 million, from
1994 levels, reflecting growth in deposit accounts. Automated teller machine
income continues to be a growing source of noninterest income, due to a
significant increase in usage by banking customers. Such income experienced an
increase of 36% in 1995, totaling $14.8 million in
22
<PAGE>
<TABLE>
<CAPTION>
TABLE 7 NONINTEREST INCOME
In thousands 1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
Service charges on deposit accounts $ 89,379 $ 83,824 $ 80,237 $ 74,684 $ 58,796
Trust and investment advisory 60,645 55,609 57,440 51,007 48,322
Bank card-related 47,579 39,655 27,599 23,187 22,694
Mortgage servicing - net 15,924 16,949 7,557 12,398 13,333
Mortgage origination - net 10,659 10,336 22,472 18,153 10,859
Automated teller machine fees 14,794 10,913 9,585 8,046 5,463
Trading account activities 2,530 1,069 4,415 6,880 8,295
Commissions on letters of credit 4,805 5,575 7,712 5,460 6,683
Safe deposit box rentals 3,720 3,537 2,239 3,282 3,033
Annuities 8,414 7,950 5,746 4,082 2,529
Mutual funds 3,170 2,673 3,379 1,104 224
Insurance 3,138 2,581 2,512 2,454 2,734
Gain on sale of mortgage
servicing rights 11,000 18,732 3,600 1,761 -
Gain on pension settlement 4,340 - - - 2,236
Miscellaneous 10,658 10,609 9,944 8,420 10,424
Securities gains (losses) (2,213) (10,776) 2,084 6,463 48,165
- ------------------------------------------------------------------------------------------------------------
Total noninterest income $288,542 $259,236 $246,521 $227,381 $243,790
============================================================================================================
</TABLE>
1995 compared to $10.9 million in 1994. Trust and investment advisory income
increased $5.0 million or 9% from 1994. At year-end 1995, trust assets held by
Crestar's Trust and Investment Management Group approximated $35 billion, and
assets under management totaled $11 billion. During 1995 Crestar recorded a
gain of $4.3 million from the annuitization of certain of its pension
obligations.
Other noninterest income for 1995 includes net losses of $2.2 million from
disposal of equipment, of which $2.1 million were related to the Loyola merger.
Also, Crestar will periodically sell or close selected banking offices. Losses
on branch and office disposals associated with the Loyola merger totaled $3.7
million, with net gains on other branch closings and sales (including sale of
related branch deposit accounts) totaling $3.5 million during 1995. These
balances are included in miscellaneous noninterest income in Table 7. At year
end 1995 Crestar operated 377 banking offices.
NONINTEREST EXPENSE
Noninterest expense increased $19.7 million or 3% in 1995 following an increase
of $37.9 million or 7% in 1994. Excluding the impact of foreclosed properties
expense, noninterest expense increased 4% in 1995 and 13% in 1994. Aggregate
1995 noninterest expenses were below 1994 levels before the effects of
acquisitions. Increases in 1994 also reflect substantial acquisition activity in
that year, coupled with expenses incurred in expanding bank card lending.
With the consummation of the merger with Loyola in the fourth quarter of
1995, Crestar incurred approximately $18.4 million in nonrecurring noninterest
expenses. These merger-related expenses included severance and other personnel
costs of $11.3 million, professional fees of approximately $3.6 million and
outside data services expense of $1.2 million. Additional noninterest expenses
arising from the four purchase acquisitions completed in 1995 totaled
approximately $16.3 million.
Foreclosed properties expense declined from $2.2 million in 1994 to a net
recovery of $4.7 million in 1995. Many sectors of the commercial real estate
market experienced improvement during 1994 and 1995. Adjustments to the
allowance for foreclosed properties included a net credit provision expense of
$3.9 million in 1995, compared to a provision for foreclosed properties expense
of $1.1 million in 1994. Net gains of $3.9 million from the sale of foreclosed
properties were recorded in 1995, compared to net gains of $3.7 million in 1994.
Operating expenses and professional fees associated with foreclosed properties
also were lower in 1995 in comparison to the prior year.
During the third quarter of 1995, 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. The decrease was retroactive to June 1995.
The assessments for deposits insured under the Savings Association Insurance
Fund (SAIF) of the FDIC remained
23
<PAGE>
MANAGEMENT'S DISCUSSION
Crestar Financial Corporation And Subsidiaries
<TABLE>
<CAPTION>
TABLE 8 NONINTEREST EXPENSE
In thousands 1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
Salaries $272,553 $264,161 $234,061 $212,770 $194,289
Benefits 67,887 65,112 51,247 43,866 37,490
- -----------------------------------------------------------------------------------------------------------
Total personnel 340,440 329,273 285,308 256,636 231,779
Occupancy - net 48,650 47,084 42,777 39,878 36,875
Equipment 31,301 29,144 27,817 27,587 27,866
Communications 30,597 27,380 23,041 21,176 20,166
Stationery, printing and supplies 10,169 9,592 8,680 7,994 6,926
Professional fees and services 19,504 15,310 15,829 18,050 15,584
Loan expense 8,532 10,081 9,012 8,580 5,797
FDIC premiums 21,650 28,494 25,559 24,531 21,654
Advertising and marketing 15,998 22,011 15,344 10,477 9,403
Transportation 6,656 6,601 6,123 6,004 5,983
Outside data services 25,216 22,619 18,532 15,483 14,773
Bank franchise tax 3,789 3,199 2,810 2,845 3,330
Amortization of purchased intangibles 13,934 6,317 10,941 9,278 8,647
Miscellaneous 47,685 40,470 35,460 39,676 26,587
- -----------------------------------------------------------------------------------------------------------
Subtotal 624,121 597,575 527,233 488,195 435,370
Foreclosed properties (4,687) 2,153 34,561 65,377 12,265
- -----------------------------------------------------------------------------------------------------------
Total noninterest expense $619,434 $599,728 $561,794 $553,572 $447,635
===========================================================================================================
</TABLE>
unchanged. Due to the change in BIF assessments, FDIC premium expense declined
from the previous year, falling from $28.5 million in 1994 to $21.7 million in
1995.
Total capital expenditures for 1995, 1994 and 1993 were approximately $74
million, $53 million and $58 million, respectively. The 1995 figure included
expenditures for branch and office refurbishments, new branch computer
technology, and construction outlays for a new headquarters building for Crestar
Mortgage Corporation (CMC). Capital expenditures in 1996 are anticipated to
approximate $110 million. Of this amount, approximately $35 million will be
incurred for the initial stages of construction of a five-story office building
to be built adjacent to the CMC headquarters building. Total capital
expenditures for this building should approximate $65 million over a two-year
period.
INCOME TAXES
In 1995, Crestar's income tax expense was $112.6 million, up from $95.6 million
in 1994 and $71.1 million in 1993. The effective tax rates for 1995, 1994 and
1993 were 38.5%, 34.2% and 31.8%, respectively. The 1995 increase in the
effective tax rate was primarily attributable to recording the $10.6 million tax
charge associated with recapture of the tax bad debt reserves of Loyola's thrift
subsidiary. In addition, higher provisions for state income taxes and higher
amortization of nondeductible goodwill, contributed to the increase in the
effective tax rate for 1995. The increase in Crestar's effective tax rate from
1993 to 1994 was attributable to a favorable deferred tax adjustment recorded in
1993, which reflected an increase in net deferred tax assets due to provisions
of the Omnibus Budget Reconciliation Act of 1993.
Deferred tax assets and liabilities are based on the differences between
financial statement and tax bases of assets and liabilities. The tax effects of
these differences are measured using enacted tax rates that will be effective
for the period during which the differences are expected to reverse. A valuation
allowance is provided against deferred tax assets if, and to the extent, it is
more likely than not that the deferred tax assets will not be fully realized. In
management's judgment, no valuation allowance was necessary at December 31, 1995
and 1994. Deferred tax expense is measured by the change in the net deferred tax
assets or liabilities for the period.
LIQUIDITY AND INTEREST SENSITIVITY
Bank liquidity is a measure of the ability to generate and maintain sufficient
cash flows to fund operations and to meet financial obligations to depositors
and borrowers promptly and in a cost-effective manner. Liquidity is provided
through securities available for sale, money market investments, maturing loans
and investments, and the ability to generate new deposits or borrowings as
needed. Crestar's liquidity position is actively managed on a daily basis, and
monitored regularly by the Asset/Liability Management Committee (ALCO). ALCO's
objectives include optimizing net interest income after giving consideration to
capital adequacy, liquidity needs, interest rate risk, the
24
<PAGE>
economic outlook, market opportunities and customer needs. General strategies
to accomplish these objectives include maintaining a strong balance sheet,
maintaining adequate 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 64% of total funding sources at
December 31, 1995. As an additional indication of adequate liquidity, securities
available for sale represented 20%, and money market investments represented 3%,
of Crestar's total earning assets at December 31, 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.
The committee establishes a limit on the net interest income at risk for an
appropriate planning period, generally ranging from eight to eighteen months. At
year-end 1995, the limit established by ALCO was 5% of the next twelve-months
projected net interest income. The level of risk 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. An eight to eighteen month net interest income
forecast is prepared regularly based on a consensus interest rate forecast, in
addition to high and low interest rate scenarios. The time period evaluated is
linked to the current planning horizon. The high and low interest rate scenarios
represent a reasonable range of interest rates. By its nature the simulation
process includes numerous assumptions, including assumptions on changes in
average balances and yields, changes in deposit and loan mix, and forecasts of
interest rate movements and speeds. The expected dynamics of the balance sheet,
including shifts in loans and deposits, are included in the simulations. Also
taken into account are the effects of interest rate caps and floors, and
variances in the level of prepayment rates on loans and securities as a function
of interest rates. Prepayment assumptions are based on the expertise of
management along with input from external financial market sources. While the
simulation process is a powerful tool in analyzing interest sensitivity, 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.
At year-end 1995 Crestar's projection of pre-tax earnings at risk, as a
percentage of the next twelve month's projected net interest income under a
consensus interest rate scenario, is approximately 3.1% for a high interest rate
scenario and 1.0% for a falling interest rate scenario. These projections were
well within Crestar's 5.0% limit for interest sensitivity at year-end 1995, and
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 expected future cash flows. Assets and liabilities with option
characteristics are valued based on numerous interest rate path valuations using
statistical 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. However, the process of
modeling valuation risk is still relatively new to the financial industry, and
the measurement and interpretation process for market valuation models is still
in a developmental stage. A sub-committee of ALCO monitors the results of these
development activities.
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 9, and reflects the earlier of the
maturity or repricing dates for various assets and liabilities at December 31,
1995. At that point in time, Crestar had a cumulative net liability sensitive
twelve-month gap with $2.9 billion excess of interest-sensitive sources of funds
over uses of funds. This generally indicates that earnings should improve in a
declining interest rate environment as liabilities reprice more quickly than
assets. The opposite would be true of a positive, or asset-sensitive, gap.
While most assets and liabilities reprice either at maturity or in
accordance with their contractual terms, some demonstrate characteristics
that require adjustments to more accurately reflect their repricing behavior or
value to the Corporation. Table 9 presents interest sensitivity on an
adjusted basis to reflect these
25
<PAGE>
MANAGEMENT'S DISCUSSION
Crestar Financial Corporation And Subsidiaries
[graph goes here]
EARNING ASSET MIX
($ in millions)
December 31, 1995
Mortgage Loans Held For Sale 4% $ 688.2
Money Market Investments 3% $ 516.3
Securities Held To Maturity &
Securities Available For Sale 21% $ 3,316.8
Loans 72% $11,806.4
TOTAL $16,327.7
[graph goes here]
FUNDING MIX
($ in millions)
December 31, 1995
Long-Term Debt 4% $ 671.3
Other Sources-Net 18% $ 2,841.5
Purchased Funds 14% $ 2,343.6
Interest-Bearing Core Deposits 64% $10,471.3
TOTAL $16,327.7
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 deposit rates 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
9 demonstrates that for any given increase or decrease in the prime 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
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 a source of funds
that are less sensitive to 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 balances to interest bearing accounts. On a cumulative
twelve-month basis, Crestar had an asset sensitive "adjusted gap" at December
31, 1995, with a $104 million excess of interest-sensitive uses of funds over
sources of funds. This generally indicates a relatively neutral interest
sensitivity, in comparison to the level of total earning assets of $16.3
billion.
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 could 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.
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 December 31, 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. Crestar's direct credit
exposure is generally limited to the estimated replacement cost of those
instruments in a gain position. Crestar has established policies governing
derivative activities, and the counterparties used by Crestar are considered an
acceptable risk. In addition, Crestar may demand
26
<PAGE>
<TABLE>
<CAPTION>
TABLE 9 INTEREST SENSITIVITY ANALYSIS
December 31, 1995
In millions Maturity/Rate Sensitivity
0-3 3-6 6-12 one to over
USE OF FUNDS months months months five years five years Total
<S> <C> <C> <C> <C> <C> <C>
Loans:
Commercial $ 2,282.0 $ 36.9 $ 71.6 $ 75.7 $ 636.0 $ 3,102.2
Real estate - income property 359.2 22.4 33.8 28.4 430.6 874.4
Real estate - construction 170.6 29.1 43.6 3.4 15.6 262.3
Instalment 1,152.8 160.8 274.0 359.1 785.9 2,732.6
Bank card 210.1 495.6 181.5 479.3 320.2 1,686.7
Real estate - mortgage 185.9 283.5 439.3 909.9 1,329.6 3,148.2
Securities held to maturity 3.4 2.8 3.6 5.5 70.1 85.4
Securities available for sale 550.7 230.4 184.4 332.4 1,933.5 3,231.4
Money market investments 511.3 .1 4.9 - - 516.3
Mortgage loans held for sale 688.2 - - - - 688.2
- --------------------------------------------------------------------------------------------------------------
Total earning assets 6,114.2 1,261.6 1,236.7 2,193.7 5,521.5 16,327.7
Interest sensitivity hedges on assets (450.0) (650.0) - - 1,100.0 -
- --------------------------------------------------------------------------------------------------------------
Total uses $ 5,664.2 $ 611.6 $ 1,236.7 $ 2,193.7 $6,621.5 $16,327.7
==============================================================================================================
SOURCES OF FUNDS
Interest checking deposits $ 1,984.6 $ - $ - $ - $ - $ 1,984.6
Money market deposit accounts 2,991.1 - - - - 2,991.1
Regular savings deposits 1,310.9 - - - - 1,310.9
Domestic time deposits 394.1 582.9 842.0 924.4 1,441.3 4,184.7
Certificates of deposit
$100,000 and over 81.5 12.3 11.2 5.6 5.7 116.3
Short-term borrowings 2,049.1 32.4 145.8 - - 2,227.3
Long-term debt .2 - 3.2 5.5 662.4 671.3
- --------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities 8,811.5 627.6 1,002.2 935.5 2,109.4 13,486.2
Other sources - net - - - - 2,841.5 2,841.5
Interest sensitivity hedges on liabilities - (40.0) - - 40.0 -
- --------------------------------------------------------------------------------------------------------------
Total sources $ 8,811.5 $ 587.6 $ 1,002.2 $ 935.5 $4,990.9 $16,327.7
==============================================================================================================
Cumulative maturity/rate
sensitivity gap $(3,147.3) $(3,123.3) $(2,888.8) $(1,630.6) $ - $ -
==============================================================================================================
ADJUSTMENTS
Beta adjustments:
Interest checking (beta factor .18) $ 1,627.3
Money market accounts
(beta factor .55) 1,346.0
Regular savings (beta factor .12) 1,155.1
Demand deposit sensitivity (1,135.8)
- --------------------------------------------------------------------------------------------------------------
Cumulative adjusted maturity/rate
sensitivity gap $ (154.7) $ (130.7) $ 103.8 $ 1,362.0 $ - $ -
==============================================================================================================
</TABLE>
collateral from a counterparty to further minimize credit risk. There were no
past due amounts or reserves for possible derivative credit losses at
December 31, 1995, nor has Crestar ever experienced any charge-offs
related to the credit risk of derivative transactions. Interest rate
simulation techniques are used by Crestar to assess and monitor market risk
in the Corporation's derivative portfolio. Such simulation techniques
(see above) can confirm that the interest rate "spread" between floating rate
loans converted to fixed rates, and the fixed rate deposits utilized to
fund the loans, remains relatively constant given a change in prime rates or
the London Interbank Offered Rates (LIBOR).
The notional amount of Crestar's interest rate swaps, caps and
floors (excluding customer positions
27
<PAGE>
MANAGEMENT'S DISCUSSION
Crestar Financial Corporation And Subsidiaries
TABLE 10 OFF-BALANCE SHEET DERIVATIVE FINANCIAL INSTRUMENTS (1)
<TABLE>
<CAPTION>
December 31, 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 $1,200,000 3.0 yrs. 5.91% Notional amounts of
Carrying amount (2) $ (62) $750 million, $250
Commercial loan program million and $200 million
Unrealized gross gains 8,557 convert floating rate
Instalment loan program commercial, instalment
Unrealized gross gains 3,513 and real estate mortgage
Real estate mortgage loan loans, respectively, to
program fixed rate. Floating rates
Unrealized gross gains 1,408 paid tied to LIBOR.
------
Estimated fair value 13,416
------
Interest rate caps 40,000 1.7 yrs. 5.88% (3) Minimize interest rate
Carrying amount (2) 8 risk associated with
Unrealized gross gains 143 rising rates on floating
Estimated fair value --- rate money market
151 deposits. Tied to LIBOR.
---
HEDGES OF LENDING COMMITMENTS
Forward contracts 547,790 .1 yrs. n/a Hedges of residential
Unrealized gross losses (6,076) mortgage lending
Estimated fair value ------- commitments.
Total hedges against (6,076)
---------- -------
interest rate risk $1,787,790 $ 7,491
=============================================================================================================
</TABLE>
1 Includes only off-balance sheet derivative financial instruments related
to interest rate risk management activities
2 Includes any accrued interest receivable and 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.
n/a - Not applicable
LIBOR - London Interbank Offered Rates
where Crestar simply acts as an intermediary) was $1.24 billion at December 31,
1995. Forward contracts with a notional balance of $548 million, utilized to
hedge lending commitments of Crestar's mortgage banking subsidiary, were
also outstanding at December 31, 1995, bringing the total notional value of
derivative financial instruments related to interest rate risk management
activities to $1.8 billion at year-end 1995. Maturities on such instruments
ranged from 2 months to 4.9 years. Tables 10, 11 and 12 present information
regarding the fair values, maturity, average rates and activity for 1995 for
these off-balance sheet derivative instruments. The net unrealized gains on
these instruments totaled $7.5 million as of December 31, 1995, which was
composed of gross unrealized gains of $13.6 million and gross unrealized
losses of $6.1 million. At December 31, 1994, derivatives used as hedges of
interest rate risk had gross unrealized gains of $0.4 million and gross
unrealized losses of $95.6 million, and at December 31, 1993, such derivatives
had gross unrealized gains of $25.9 million and gross unrealized losses of $1.4
million. Financial statement note 23 also contains additional information
pertaining to these types of agreements.
During the course of 1995, Crestar terminated prior to maturity certain
interest swaps, caps and floors being utilized as hedges against interest rate
risk. Gains and losses upon termination, which were not material, are included
in securities gains and losses in the consolidated statement of income. The
Corporation had no unamortized deferred gain or loss at year-end 1995 from
terminated instruments. The terminations reflect decisions by ALCO to refine
28
<PAGE>
TABLE 11 OFF-BALANCE SHEET DERIVATIVES--EXPECTED MATURITIES (1)
December 31, 1995
<TABLE>
<CAPTION>
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 $600,000 $500,000 $1,200,000
Average fixed receive rate 6.32% 5.69% 6.08% 5.91%
Estimated fair value $ 80 $ 4,081 $ 9,255 $ 13,416
Interest rate caps
Notional amount $ 5,000 $ 30,000 $ 5,000 $ 40,000
Average strike rate 5.50% 5.92% 6.00% 5.88%
Estimated fair value $ 10 $ 93 $ 48 $ 151
HEDGES OF LENDING COMMITMENTS
Forward contracts:(2)
Notional amount $547,790 $ - $ - $ 547,790
Estimated fair value (6,076) - - (6,076)
Total hedges against interest rate risk:
Notional amount $652,790 $630,000 $505,000 $1,787,790
Estimated fair value (5,986) 4,174 9,303 7,491
============================================================================================================
</TABLE>
1 Includes only off-balance sheet derivative financial instruments related to
interest rate risk management activities
2 Hedges of residential mortgage lending commitments
balance sheet management strategies. Additional terminations of derivative
instruments prior to maturity may occur in the future in response to
modifications of interest rate risk management strategies.
Estimated fair values of financial instruments held at December 31, 1995 and
1994 are presented in financial statement note 24. Management is concerned about
the comparability of fair value estimates between financial institutions due to
the wide range of valuation techniques utilized and the numerous estimates and
assumptions that must be made, given the absence of active secondary markets for
many financial instruments. This is particularly true for estimated fair values
computed for loan portfolios and deposit liabilities. Lack of uniform valuation
methodologies introduces a great degree of subjectivity to such fair value
estimates.
A brief description of the methodologies used in computing fair value
estimates, and the resulting estimated fair values, are provided in financial
statement note 24. Crestar's loan portfolio, which constitutes the Corporation's
largest financial instrument asset category, had an estimated fair value of
approximately one percent in excess of recorded book value at December 31, 1995.
Credit quality trends and the effects of a rising interest rate environment were
major factors in the determination of the estimated fair value for net loans.
Deposit liabilities payable on short notice or demand, which constituted 68% of
Crestar's total deposits at December 31, 1995, were assigned an estimated fair
value equal to the balance payable on demand, in accordance with mandatory
accounting standards. However, recent purchase transactions of such deposits
have generally reflected premiums of approximately 4% to 10% of recorded book
value, reflecting the relationship value of such deposits over their projected
life and their value as a low cost source of funds.
Securities held to maturity are carried at amortized cost on the
Corporation's Consolidated Balance Sheets, as Crestar has the ability and
positive intent to hold these securities to maturity. Trading account securities
are carried at fair value as they are intended to be sold in the near term.
Securities available for sale are carried at fair value and represent securities
not classified as held to maturity or trading account securities. Unrealized
gains or losses on securities available for sale are excluded from the
Consolidated Statement of Income and reported, net of tax, as a separate
component of shareholders' equity. In accordance with Statement of Financial
Accounting Standards No. 115, the Corporation's consolidated financial
statements for periods prior to January 1, 1994 have not been retroactively
changed to conform to current securities classifications.
In November 1995 the Financial Accounting Standards Board (FASB)
issued Financial Accounting Series No 155-B, "A Guide to Implementation of
Statement 115 on Accounting for Certain Investments in Debt and Equity
Securities." As implementation guidance issued subsequent to SFAS 115, the
guide
29
<PAGE>
MANAGEMENT'S DISCUSSION
Crestar Financial Corporation And Subsidiaries
TABLE 12 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, January 1, 1995 $ 600,000 $ 860,166 $ 200,000 $ - $ 266,439 $ 1,926,605
Additions from
acquisitions - - - 45,000 - 45,000
Other additions 900,000 - 250,000 200,000 2,078,871 3,428,871
Terminations - (742,653) (250,000) (200,000) - (1,192,653)
Maturities/Amortizations (300,000) (117,513) (200,000) (5,000) (1,797,520) (2,420,033)
- ------------------------------------------------------------------------------------------------------------
Balance, December 31,
1995 $1,200,000 $ - $ - $ 40,000 $ 547,790 $ 1,787,790
============================================================================================================
</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
specifically allowed a company to reassess the appropriateness of the
classifications of all securities held at the time of the guide's issuance, and
to perform an elective, one-time only transfer of any debt securities from
the held to maturity classification to the available for sale classification.
Such transfers, if performed no later than December 31, 1995, would not
call into question a company's future ability or intent to hold other debt
securities to maturity in the future. In connection with the guidance
issued by the FASB, Crestar transferred in the fourth quarter of 1995
selected securities from the held to maturity portfolio to the available for
sale securities portfolio. At the time of transfer, the securities
reclassified had a carrying amount of approximately $966 million and a fair
market value of approximately $963 million. The transfer further strengthened
the liquidity position of Crestar by increasing the balance of securities
available for sale.
TABLE 13 DEBT RATINGS
(AS OF JANUARY 31, 1996)
Standard Thomson
Security Moody's & Poor's BankWatch
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
====================================================
At December 31, 1995, the fair market value of securities classified as
available for sale was $3.231 billion. The amortized cost of these securities
was $3.214 billion. The net unrealized gain on securities available for sale,
net of tax, at December 31, 1995 was $11.1 million. At December 31, 1994, the
net unrealized loss on securities available for sale, net of tax, was $36.6
million. The net unrealized gain or loss on securities available for sale,
recorded as a component of shareholders' equity, will continue to be subject to
change in future periods due to fluctuations in market values, acquisition
activities, and sales, purchases, maturities and calls of securities classified
as available for sale.
Securities held to maturity at December 31, 1995 had an amortized cost of
$85.4 million and a market value of $88.4 million. Unrealized gross gains on
such securities at year-end 1995 were $3.1 million, with unrealized gross losses
of $0.1 million. No sales of investments classified as securities held to
maturity occurred during 1995 or 1994.
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.
30
<PAGE>
TABLE 14 ANALYSIS OF SECURITIES HELD TO MATURITY (1)
<TABLE>
<CAPTION>
Average Average
Expected Stated
December 31, 1995 Par Amortized Market Average Maturity Maturity
Dollars in thousands Value Cost Value Yield2 (Yrs/Mos) (Yrs/Mos)
<S> <C> <C> <C> <C> <C> <C>
Mortgage-backed obligations
of Federal agencies:
One to five years $ 191 $ 197 $ 205 10.5%
Five to ten years 24,515 24,373 25,781 9.4
- -----------------------------------------------------------------------------------------------------------
Total mortgage-backed
obligations of Federal agencies 24,706 24,570 25,986 9.4 07/03 08/01
- -----------------------------------------------------------------------------------------------------------
States and political subdivisions:
Within one year 4,595 4,561 4,632 9.5
One to five years 13,685 13,667 14,115 9.7
Five to ten years 10,205 10,134 10,443 7.8
After ten years 30,415 30,181 30,976 8.8
- -----------------------------------------------------------------------------------------------------------
Total states and political
subdivisions 58,900 58,543 60,166 8.9 08/07 09/03
- -----------------------------------------------------------------------------------------------------------
Other taxable securities:
Within one year 5 5 5 5.5
Five to ten years 2,250 2,250 2,249 7.6
- -----------------------------------------------------------------------------------------------------------
Total other taxable securities 2,255 2,255 2,254 7.6 06/02 06/02
- -----------------------------------------------------------------------------------------------------------
Total securities held to maturity $85,861 $85,368 $88,406 9.0% 08/02 08/10
===========================================================================================================
</TABLE>
1 Maturity line classifications are based on stated maturity
2 Tax-equivalent basis, based on amortized cost
In assessing risk in asset-backed securities, bank regulatory authorities
have designed tests to determine those securities with the highest risk
characteristics. The Federal Financial Institutions Examination Council (FFIEC)
has issued regulations, endorsed by the Federal Reserve Bank (FRB) and the
Office of the Comptroller of the Currency (OCC), defining a high-risk mortgage
security. These regulations define a high-risk mortgage security as any mortgage
derivative product (including mortgage backed pass-through securities and
collateralized mortgage obligations) that exhibits greater price volatility than
a benchmark fixed rate thirty-year mortgage backed pass-through security. The
regulations further quantify the characteristics of a high-risk mortgage
security through the use of three tests: (a) the mortgage security has an
expected weighted average life greater than ten years, (b) the expected weighted
average life of the mortgage security extends by more than four years, assuming
an immediate and sustained parallel shift in the yield curve of plus 300 basis
points, or shortens by more than six years, assuming an immediate and sustained
parallel shift in the yield curve of minus 300 basis points, or (c) the
estimated change in the price of the mortgage security is more than 17%, due to
an immediate and sustained parallel shift in the yield curve of plus or minus
300 basis points. The yield curve relates to interest yields on U.S. Treasury
securities of various maturity dates. Floating rate mortgage instruments are
subject to the price sensitivity test, but are exempt from the average life and
average life sensitivity tests as long as their interest rate at the time
purchase, or interest rate reset date, is below the contractual interest rate
cap of the floating rate instrument.
A mortgage backed pass-through security or collateralized mortgage obligation
(CMO) that meets any one of the three tests is considered a high-risk security;
securities purchased before February 10, 1992 are exempt from this
classification. Institutions must evaluate quarterly that any holdings of
high-risk securities reduce the institution's overall interest rate
TABLE 15 SECURITIES OF STATES AND
POLITICAL SUBDIVISIONS BY QUALITY RATING
December 31, 1995
Amortized Percent
Dollars in thousands Cost of Total
Moody's Ratings:
Aaa $44,454 75.9%
Aa 6,870 11.7
A 3,328 5.7
Baa 290 .5
Not rated by Moody's 3,601 6.2
- ----------------------------------------------------
Total $58,543 100.0%
====================================================
31
<PAGE>
MANAGEMENT'S DISCUSSION
Crestar Financial Corporation And Subsidiaries
TABLE 16 ANALYSIS OF SECURITIES AVAILABLE FOR SALE (1)
<TABLE>
<CAPTION>
Average Average
December 31, 1995 Expected Stated
Par Amortized Market Average Maturity Maturity
Dollars in thousands Value Cost Value Yield (2) (Yrs/Mos) (Yrs/Mos)
<S> <C> <C> <C> <C> <C> <C>
U.S. Treasury and Federal agencies:
Within one year $ 186,000 $ 186,367 $ 187,563 5.3%
One to five years 251,000 250,137 250,892 5.3
Five to ten years 51,500 51,604 52,215 5.8
- -----------------------------------------------------------------------------------------------------------
Total U.S. Treasury and
Federal agencies 488,500 488,108 490,670 5.3 01/06 01/06
- -----------------------------------------------------------------------------------------------------------
Mortgage-backed obligations
of Federal agencies:
Within one year 5,838 5,875 5,877 6.2
One to five years 227,681 230,027 232,601 6.2
Five to ten years 428,420 431,113 435,738 6.8
After ten years 1,307,867 1,310,104 1,315,801 6.8
- -----------------------------------------------------------------------------------------------------------
Total mortgage-backed
obligations of Federal agencies 1,969,806 1,977,119 1,990,017 6.7 07/09 09/06
- -----------------------------------------------------------------------------------------------------------
Other taxable securities:
One to five years 60,446 60,338 60,186 5.7
Five to ten years 131,667 131,640 136,488 6.0
After ten years 377,219 378,521 375,294 6.8
- -----------------------------------------------------------------------------------------------------------
Total other mortgage-backed
obligations: 569,332 570,499 571,968 6.5 04/03 16/01
- -----------------------------------------------------------------------------------------------------------
Total interest-earning investments 3,027,638 3,035,726 3,052,655 6.5 06/01 10/07
Common and preferred stocks 178,520 178,520 178,734 6.3
- -----------------------------------------------------------------------------------------------------------
Total securities available
for sale $3,206,158 $3,214,246 $3,231,389 6.5%
===========================================================================================================
</TABLE>
1 Maturity line classifications are based on stated maturity
2 Tax-equivalent basis, based on amortized cost
risk profile. The Corporation had no security holdings at December 31, 1995 that
met the definition of a high-risk mortgage derivative product, per the FFIEC
regulations.
All investment securities, including mortgage backed pass-through securities,
CMO securities and automobile collateralized receivables, are also managed with
respect to their credit risk. Credit risk arises because payments of interest
and principal can be dependent on the payment of the underlying mortgage
payments, in addition to the contractual obligation of the issuer to collect and
remit such payments to individual security owners. In some respects, such credit
risk is similar to the risks incurred by purchasers of corporate bond
securities. The Corporation monitors credit risk by assessing, and monitoring on
an ongoing basis, the financial strength and performance of the issuers of such
securities. At December 31, 1995 the fair value of Crestar's holdings of
mortgage-backed pass-through securities was $2.0 billion, with all but $26.0
million classified as securities available for sale. Crestar's securities
available for sale at year-end 1995 also included CMO securities with a fair
value of approximately $433 million. See "Uses Of Funds" for a further
description of the Corporation's security holdings.
The Corporation's debt ratings are presented in Table 13. During August 1995,
Thomson BankWatch raised its rating on Crestar's subordinated notes from BBB+ to
A-.
SOURCES OF FUNDS
Crestar's largest and most important funding source is core deposits, which
totaled $13.1 billion at December 31, 1995, an increase of $786 million, or 6%,
over December 31, 1994 balances. Average core deposits increased by $196 million
or 2% from 1994 to 1995. Demand deposits increased $377 million, or 16%, from
year-end 1994 to year-end 1995. Money market deposit accounts and other domestic
time deposits increased 9% and 12%, respectively, during this period. These
increases reflect successful promotional efforts during 1995, including "Welcome
Aboard" campaigns aimed at welcoming customers to
32
<PAGE>
Crestar from acquired financial institutions. Declines were noted in regular
savings accounts and, to a lesser degree, interest checking deposits.
Purchased liabilities represent a relatively small portion of total funding
sources and are composed of certificates of deposit of $100,000 and over (large
CDs) and short-term borrowings. Total purchased liabilities increased $470
million from December 31, 1994, reflecting balance sheet growth and management
strategies in a changing interest rate environment. At December 31, 1995,
approximately 38% of Crestar's purchased funds consisted of funds invested by
local customers and, as such, are less volatile than other categories of
purchased funds. National sources accounted for approximately 62% of purchased
liabilities. At December 31, 1995, Crestar had $1.5 billion in market value of
unpledged marketable securities.
Long-term debt decreased $44 million during 1995, or 6%, reflecting net
reductions of Federal Home Loan Bank obligations.
USES OF FUNDS
Total earning assets at December 31, 1995 increased $1.5 billion or 10% from
year-end 1994, compared with a 4% increase in the prior year. Average earning
assets for 1995 increased $577 million or 4% above the average level of earning
assets in 1994. This increase was attributable to the financial institutions
acquired in purchase transactions during 1995. In 1995, higher levels of average
loans were partially offset by declines in average balances of securities and
money market investments.
Total securities (classified as either held to maturity or available for
sale) as of December 31, 1995 increased $406 million or 14% from December 31,
1994. This followed a $1.1 billion or 27% decrease in 1994 from 1993 year-end
levels, as strong loan growth during this period was partially funded from
maturities and sales of securities. The composition of Crestar's securities
portfolio along with related yield and maturity information as of December 31,
1995 are presented in Table 14 (Analysis of Securities Held to Maturity) and
Table 16 (Analysis of Securities Available For Sale). Both average expected
maturity and actual stated maturity are shown in these tables. The average
expected maturity considers prepayments and amortization, resulting in a more
realistic measure of maturities than actual stated maturity.
The "Other taxable securities" category in Table 16 consists largely of
collateralized mortgage obligations and certificates of automobile
collateralized receivables. The Corporation's securities portfolio includes
investments in both mortgage-backed pass-through securities and collateralized
mortgage obligations (CMO). A mortgage-backed pass-through obligation depends on
the underlying pool of mortgage loans to provide a stream of cash flows to the
investor consisting of both principal and interest payments from the underlying
mortgages. A CMO is a mortgage-backed security that is comprised of classes of
bonds created by prioritizing the cash flows from underlying mortgage pools in
order to meet different objectives of investors. The Corporation had
approximately $433 million invested in CMO securities (fair market value) at
December 31, 1995. The CMO securities held by Crestar are primarily shorter
term. Automobile collateralized receivables depend on the underlying pool of
automobile installment loans to provide a stream of cash flows, representing
principal and interest payments, but typically have a shorter maturity than
mortgage pass-through securities. Certain holdings of such collateralized
receivables were approximately $10 million (fair market value) at year-end 1995.
Crestar's holdings of tax-exempt securities have declined over the past five
years and management expects that trend to continue as maturities occur within
the portfolio. Table 15 presents the distribution of tax-exempt securities by
investment grade as determined by Moody's Investors Service. All of the $3.6
million of securities shown as not rated by Moody's at year end are rated A or
better by Standard & Poor's. None of Crestar's securities holdings by individual
issuer (excluding U.S. Treasury and Federal agencies) exceeded 10% of total
shareholders' equity at December 31, 1995.
During 1995, approximately $1.9 billion (face value) of securities were sold,
generating net securities losses of $2.2 million. In 1994, approximately $1.7
billion (face value) of securities were sold at a loss of $10.8 million. All
securities sold were from the Corporation's securities available for sale
portfolio.
Money market investments increased by $64 million or 14% from December 31,
1994 to $516 million at December 31, 1995. Year-end money market investment
levels reflect an appropriate level of money market investments given liquidity
needs and balance sheet management strategies. Average balances of money market
investments declined from $639 million in 1994 to $337 million in 1995,
reflecting the use of these investments to fund growth in the loan portfolio.
Mortgage origination and refinancing activity resulted in a higher level of
mortgage loans held for sale at year-end, which increased from $241 million at
December 31, 1994 to $688 million at December 31, 1995.
Total loans net of unearned income increased $565 million, or 5%,
from December 31,1994 to December 31, 1995. The comparable increase from
year-end 1993 to year-end 1994 was approximately $2.3 billion, or 26%,
reflecting a combination of loan
33
<PAGE>
MANAGEMENT'S DISCUSSION
Crestar Financial Corporation And Subsidiaries
TABLE 17 ALLOWANCE FOR LOAN LOSSES
<TABLE>
<CAPTION>
Dollars in thousands 1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
Beginning balance $ 232,922 $ 225,583 $ 220,168 $ 224,342 $ 163,372
- ----------------------------------------------------------------------------------------------------------
Allowance from acquisitions 8,353 15,687 22,000 9,700 1,850
- ----------------------------------------------------------------------------------------------------------
Provision for loan losses 59,570 30,342 51,860 106,307 220,921
- ----------------------------------------------------------------------------------------------------------
Loans charged off:
Commercial 9,004 14,138 28,491 44,224 68,894
Real estate - income property 1,883 10,903 22,600 17,819 20,611
Real estate - construction 1,043 817 5,307 29,970 34,587
Instalment 19,923 12,981 15,175 18,969 23,283
Bank card 57,595 28,573 21,064 24,458 26,078
Real estate - mortgage 1,303 1,815 2,807 3,820 6,594
- ----------------------------------------------------------------------------------------------------------
Total loans charged off 90,751 69,227 95,444 139,260 180,047
- ----------------------------------------------------------------------------------------------------------
Recoveries:
Commercial 8,282 7,149 9,827 5,348 4,856
Real estate - income property 5,146 6,187 668 239 456
Real estate - construction 3,461 4,389 4,092 1,020 32
Instalment 7,997 7,779 7,351 7,676 8,717
Bank card 4,924 4,676 4,882 4,707 3,612
Real estate - mortgage 381 357 179 89 573
- ----------------------------------------------------------------------------------------------------------
Total recoveries 30,191 30,537 26,999 19,079 18,246
- ----------------------------------------------------------------------------------------------------------
Net charge-offs 60,560 38,690 68,445 120,181 161,801
- ----------------------------------------------------------------------------------------------------------
Allowance, December 31:
Commercial 51,076 65,031 66,980 89,923 97,928
Real estate - income property 33,515 32,738 44,350 42,465 35,330
Real estate - construction 17,040 15,840 16,540 16,540 35,996
Instalment 20,929 20,033 21,642 21,609 19,139
Bank card 56,430 27,000 20,000 12,000 11,500
Real estate - mortgage 12,772 11,595 8,121 7,631 7,445
Unallocated 48,523 60,685 47,950 30,000 17,004
- ----------------------------------------------------------------------------------------------------------
Balance, December 31 $ 240,285 $ 232,922 $ 225,583 $ 220,168 $ 224,342
==========================================================================================================
Loans:
Total at year end $11,806,428 $11,241,575 $8,892,954 $7,880,159 $8,679,794
Average during year 11,632,399 9,984,727 8,241,881 8,226,866 8,958,583
Net charge-offs to:
Average total loans .52% .39% .83% 1.46% 1.81%
Provision for loan losses 101.66 127.51 131.98 113.05 73.24
Allowance for loan losses to:
Year-end loans 2.04 2.07 2.54 2.79 2.58
Net charge-offs 3.97x 6.02x 3.30x 1.83x 1.39x
Net charge-offs earnings coverage 5.81 8.02 4.03 1.87 1.73
==========================================================================================================
</TABLE>
growth and bank acquisitions. Period-end loans attributable to 1995 purchase
acquisitions (which exclude the Loyola pooling of interests acquisition) were
approximately $330 million. Business loan levels were stable in comparison to
year-end 1994 balances, with an increase in real estate-income property loans
offset by declines in general commercial and real estate-construction lending.
The percentage of business loans to total loans at year-end declined from 38%
in 1994 to 36% in 1995. This reduction is the result of strong consumer loan
growth in 1995, and the impact of acquisitions activity which was centered on
institutions with primarily consumer loan portfolios. Of Crestar's loan growth
from year-end 1993 to 1994, approximately $1.0 billion was attributable to
purchases of financial institutions during 1994.
Bank card loans increased $209 million or 14% in 1995 as a result of
emphasis on promotional activity and solicitation efforts, including
efforts outside Virginia, Maryland and Washington, DC. In 1994,
34
<PAGE>
TABLE 18 LOAN PORTFOLIO ANALYSIS
December 31,
<TABLE>
<CAPTION>
Dollars in millions 1995 1994 1993 1992 1991
$ % $ % $ % $ % $ %
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Business Loans:
Commercial 3,102 26 3,206 29 2,927 33 3,014 38 3,483 40
Real estate -
income property 874 8 778 7 808 9 783 10 720 8
Real estate -
construction 262 2 266 2 319 4 285 4 547 6
- -------------------------------------------------------------------------------------------------------------
Subtotal -
business loans 4,238 36 4,250 38 4,054 46 4,082 52 4,750 54
- ------------------------------------------------------------------------------------------------------------
Consumer Loans:
Instalment 2,733 23 2,170 19 1,838 20 1,707 22 1,808 21
Bank card 1,687 14 1,477 13 976 11 564 7 567 7
Real estate - mortgage 3,148 27 3,345 30 2,025 23 1,527 19 1,555 18
- -------------------------------------------------------------------------------------------------------------
Subtotal -
consumer loans 7,568 64 6,992 62 4,839 54 3,798 48 3,930 46
- -------------------------------------------------------------------------------------------------------------
Total loans - net of
unearned income 11,806 100 11,242 100 8,893 100 7,880 100 8,680 100
=============================================================================================================
</TABLE>
bank card loans increased by $501 million or 51%, which was also attributable
to significant sales efforts and promotional activity. Instalment loans
increased 26% in 1995, reflecting both acquisitions and internally generated
growth in both direct and indirect loans. In 1994, instalment loans increased
18%. In 1995, real estate mortgage loans decreased $197 million or 6% from year
end 1994, and totaled $3.1 billion at December 31, 1995. To attain a more
diverse and balanced loan portfolio, Crestar sold approximately $107 million
in mortgage loans during 1995 (excluding mortgage banking activity). Consumer
real estate-mortgage loans represented 27% of the Corporation's total loan
portfolio at December 31, 1995, down from 30% at year-end 1994.
TYPES OF LENDING
Crestar's loan portfolio is broadly segmented into commercial and consumer
loans.
The commercial loans are more specifically segmented into loans to
corporations, partnerships and sole proprietorships. These loans can have
various purposes to include financing working capital, equipment, real estate,
and to a lesser degree acquisitions and recapitalizations. Loan types can be
either short-term lines of credit, term loans or mortgage financing. Loan
maturities are managed such that they are compatible with the maturity structure
of the Corporation's sources of funding.
Due to its concentration, commercial real estate can be further segmented
into owner-occupied property, income property and construction. Owner-occupied
property is considered to be similar to traditional commercial loans since
repayment is primarily from the cash flow of the owner, with the real estate
being a secondary repayment source. Income property loans are made to entities
or individuals engaged in real estate investment and the primary source of
repayment is expected from the rental or sale of the property. Construction
loans are to build or develop real estate properties and can be expected to
either be refinanced at completion, convert to income property or be
owner-occupied. Table 18 shows the various loan categories.
Consumer loans are comprised of residential real estate, bank card and
instalment. Instalment loans represent a broad loan category that can be for
various purposes, including car or boat purchases, home improvement, and college
tuition among others. Bank card loans are unsecured lines of credit while most
of the remainder of consumer loans are secured. Instalment loans have various
maturity structures with most maturing within five years. Real estate-mortgage
loans are mostly underwritten to maturity, which may extend to 30 years. Most
residential real estate loans are underwritten to national market standards and
therefore can be securitized and sold into the secondary market.
CREDIT UNDERWRITING
AND RISK MANAGEMENT
Crestar has comprehensive policies and procedures which define and govern both
commercial and consumer loan origination and management of risk.
35
<PAGE>
MANAGEMENT'S DISCUSSION
Crestar Financial Corporation And Subsidiaries
All loans are underwritten in an evaluative manner which first measures the
borrowers capacity to pay. The measurement of capacity to pay delineates the
potential risk of nonpayment or default. The higher potential for default
determines the need for and amount of collateral required. Crestar makes
unsecured loans when the capacity to pay is considered substantial. As
capacity lessens, collateral is required to provide a secondary source of
repayment and to mitigate the risk of loss. Various policies and procedures
provide guidance to the lenders on such things as amount, terms, price,
maturity and collateral margins. All of these risk factors are considered
critical to assuring that Crestar receives an adequate return for the risk
undertaken and seeks to minimize the risks of loss.
Commercial loans are generally larger loans than consumer and
therefore represent a more concentrated asset class. Crestar effectively
manages the risk associated with concentration by having lending
professionals work in tandem with credit underwrit-
TABLE 19 LOANS TO REAL ESTATE DEVELOPERS AND INVESTORS (REDI)
December 31,
-------------------
In millions 1995 1994
Commercial - developer lines $ 105.2 $ 98.7
Commercial - other 51.5 67.5
Real estate - income property 910.2 865.6
Real estate - construction 182.7 234.8
- ---------------------------------------------------
Total REDI loans $1,249.6 $1,266.6
===================================================
ing personnel to maintain a balance between growth and risk requirements. To
further assess loan portfolio quality, there is a Credit Review group that
independently reviews various individual loans and loan segments to assess
quality and support the credit management process.
Crestar's commercial loans are not considered to be concentrated, except
those loans to real estate developers and investors (REDI). Diversification is
achieved through lending to various industries located within Crestar's market
area. This diversification is believed to reduce investment risk associated with
changes in economic conditions.
Due to its concentration and its specialized nature, real estate investment
lending is governed by its own distinct policies and procedures. Also, this loan
class is mostly underwritten and managed by a specialized division of lending
professionals. Underwriting policies delineate such things as concentrations by
property type, amount, terms, price and collateral. This loan type is almost
entirely collateralized and, as such, market conditions are monitored
pro-actively. Key market measurements include absorption rates, vacancy rates,
rental rates and loan-to-value ratios. In 1991, the Federal Deposit Insurance
Corporation Improvement Act was passed by Congress. This act established
guidelines for all types of real estate lending to specifically detail
loan-to-value ratios for various types of real estate property. Maximum real
estate loan-to-value ratios under these guidelines include 65% for undeveloped
(raw) land, 75% for land development, 80% for commercial, multifamily and other
nonresidential construction loans, and 85% for residential (1 to 4 family)
construction loans.
TABLE 20 LOANS TO REAL ESTATE DEVELOPERS AND INVESTORS--
GEOGRAPHIC DISTRIBUTION AND PROPERTY TYPE
<TABLE>
<CAPTION>
December 31, 1995 Region
---------------------------------------------------------------
Total Greater
In millions Corporation Washington Maryland Eastern Western Capital
----------- ---------- -------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Land acquisition and
development $ 88.1 $ 41.2 $ 14.0 $ 25.1 $ 3.2 $ 4.6
Residential developments 342.8 132.1 105.0 62.3 36.0 7.4
Commercial projects:
Office buildings 186.1 98.1 36.7 32.2 9.0 10.1
Retail stores and malls 211.7 155.5 7.9 25.6 11.5 11.2
Hotels and motels 122.7 37.6 11.3 41.4 19.8 12.6
Industrial buildings 133.1 77.1 21.4 13.5 5.7 15.4
- --------------------------------------------------------------------------------------------------------
Total commercial
projects 653.6 368.3 77.3 112.7 46.0 49.3
- --------------------------------------------------------------------------------------------------------
Special use 65.3 26.4 14.0 16.6 7.3 1.0
Other 99.8 70.6 8.7 14.2 2.7 3.6
- --------------------------------------------------------------------------------------------------------
Total REDI loans $1,249.6 $638.6 $219.0 $230.9 $95.2 $65.9
========================================================================================================
</TABLE>
36
<PAGE>
Crestar's policies for loan-to-value are within the parameters established by
the act.
Based upon Standard Industrial Classification codes used for bank regulatory
reporting purposes, the Corporation had no aggregate loan concentrations of 10%
or more of total loans in any particular industry at year-end 1995. However,
under a broader view of the portfolio, Crestar had $1.25 billion in loans
outstanding at year-end 1995 to real estate developers and investors (REDI),
compared to $1.27 billion at year-end 1994 (see Table 19). The REDI designation
is based on borrower type and encompasses non-owner occupied real estate and
construction loans as well as other forms of credit extended to real estate
developers or investors. The slight decline in REDI loans in 1995, coupled with
growth in consumer lending categories, has led to a decline in REDI loans as a
percentage of total loans outstanding, from 11.3% at December 31, 1994 to 10.6%
at December 31, 1995. Diversification of the REDI loan portfolio by geographic
region and by project type is detailed in Table 20.
Consumer loans, by their nature and size, are generally not subject to risks
associated with concentration. However, a portfolio of a consumer loan type may
create concentration risk and therefore portfolios are monitored closely. The
underwriting of consumer loans at Crestar is done primarily by two lending
groups. The Consumer Finance Group concentrates on instalment and bank card
lending, with Crestar's mortgage banking subsidiary, Crestar Mortgage
Corporation, handling real estate-mortgage loans. Having two groups is
considered to be the most effective approach to cost management and reduction of
credit risk. Credit underwriting across product types utilizes the skills of
lending professionals and incorporates the use of statistically-based
credit-scoring models as well. The underwriting process considers both
macro-economic factors, such as interest rates, employment, consumer income,
consumer debt and delinquency levels, in conjunction with micro-factors, such as
an individual's employment history, payment history, current debt levels and
collateral values if applicable. Underwriting guidelines are continually
evaluated and subject to modification based upon these factors. Losses in
consumer lending are expected and are generally predictable within a given
range. Consumer loan types have demonstrated over many years a range of loss
that varies by class. For example, residential real estate loss rates are
typically the lowest on average, while unsecured bank card loans are on average
considerably higher. To compensate for this risk of loss, Crestar establishes
its yield expectations for each loan type by considering its historical loss
experience and by estimating future losses. Future loss expectations consider
prevailing economic and consumer trends, in conjunction with the current product
underwriting guidelines.
PROVISION AND
ALLOWANCE FOR LOAN LOSSES
Both the amount of the provision and the level of the allowance for loan losses
are effected by many factors, including general economic conditions, actual and
expected credit losses, loan performance measures, historical trends and other
circumstances, both internal and external. The amount of the provision for loan
losses is established based on evaluation of the current level of the allowance.
Individual loan-by-loan reviews are performed quarterly on large commercial and
real estate exposures in the lower quality risk ratings categories. For the
remainder of the portfolio, a formula-based approach is utilized. The formula is
determined by a statistical analysis of risk rating movements and loss rates.
The formula may be adjusted for changes in the subjective factors listed above.
Loan loss allowances for the consumer loan portfolio are also based on
historical and anticipated losses and the current and projected characteristics
of the different types of consumer loans. Management's evaluation and resulting
provision and allowance decisions are reviewed by the Board of Directors on a
quarterly basis.
Total credit costs, which equals the sum of the provision for loan losses and
foreclosed properties expense, were $54.9 million in 1995, an increase of $22.4
million or 69% from the $32.5 million in credit costs recorded in 1994. Crestar
made provisions for loan losses of $59.6 million in 1995, up $29.2 million or
96% from 1994. The increase in provision expense primarily reflects the
significant growth of Crestar's consumer loan balances during this period.
Average consumer loan balances for 1995 were $7.5 billion, compared to an
average of $4.4 billion for 1993, representing an increase of 71%. In comparison
to average balances for 1994, consumer loan balances for 1995 grew by 24%.
Instalment and bank card loan balances, which historically carry greater risk
(and higher yields) than consumer real estate-mortgage loans, increased 26% and
14%, respectively, from December 31, 1994 to December 31, 1995. Provision
expense of $4.5 million was recorded as part of the one-time Loyola merger costs
in 1995 to recognize Crestar's accelerated disposition strategy with respect to
specific loans in the Loyola portfolio.
Total credit costs in 1994 of $32.5 million represented a reduction of $53.9
million from the total credit costs recorded in 1993. Crestar experienced a 41%
decrease in the provision for loan losses from 1993 to 1994. This decline was
attributable to strengthening real estate markets in the Mid-Atlantic region and
the strengthening financial condition of
37
<PAGE>
MANAGEMENT'S DISCUSSION
Crestar Financial Corporation And Subsidiaries
TABLE 21 NONPERFORMING ASSETS AND PAST DUE LOANS
December 31,
Dollars in thousands
<TABLE>
<CAPTION>
Nonaccrual loans: 1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
Commercial $21,731 $ 28,708 $ 37,788 $ 87,121 $144,830
Real estate - income property 23,913 21,926 26,572 35,262 37,980
Real estate - construction 4,712 7,279 5,843 8,506 48,745
Instalment 5,425 5,644 3,701 4,577 7,778
Real estate - mortgage 19,925 13,532 14,326 18,717 16,714
- ----------------------------------------------------------------------------------------------------------
Total nonaccrual loans 75,706 77,089 88,230 154,183 256,047
Restructured loans - 8,339 3,208 249 27,005
- ----------------------------------------------------------------------------------------------------------
Total nonperforming loans (1) 75,706 85,428 91,438 154,432 283,052
Foreclosed properties - net 17,655 30,221 37,268 107,193 116,449
- ----------------------------------------------------------------------------------------------------------
Total nonperforming assets (1) $93,361 $115,649 $128,706 $261,625 $399,501
==========================================================================================================
Nonperforming assets (1) to:
Loans and foreclosed properties - net .79% 1.03% 1.44% 3.28% 4.54%
Total assets .51 .70 .82 1.81 2.89
Allowance for loan losses to:
Nonperforming assets (1) 257 201 175 84 56
Nonperforming loans (1) 317 273 247 143 79
Allowance for loan losses plus
shareholders' equity to
nonperforming assets (1) 18.12x 13.21x 11.23x 5.08x 2.90x
==========================================================================================================
Accruing loans past due 90 days:
Commercial $ 5,992 $ 1,608 $ 2,089 $ 3,252 $ 3,364
Real estate - income property 19 1,071 4,949 1,439 860
Real estate - construction 926 198 197 46 3,760
Instalment
Student 9,101 14,705 7,879 9,057 11,456
Other 3,448 1,368 1,049 2,562 1,701
Bank card 20,430 10,831 6,216 7,266 7,935
Real estate - mortgage 10,304 5,920 2,809 2,340 3,727
- ----------------------------------------------------------------------------------------------------------
Total accruing loans past due
90 days $50,220 $ 35,701 $ 25,188 $ 25,962 $ 32,803
==========================================================================================================
</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
commercial borrowers in general, following the recessionary climate of
previous years.
Net loan charge-offs in 1995 of $60.6 million were up $21.9 million or 57%
from 1994 levels. Net charge-offs as a percentage of average loans were 0.52% in
1995, compared to 0.39% in 1994 and 0.83% in 1993. Business loans experienced
net recoveries of $5.0 million in 1995, compared to net charge-offs of $8.1
million in 1994. All categories of business loans displayed historically low
levels of loan charge-offs: net charge-offs for commercial loans totaled only
$722 thousand for 1995.
The largest proportion of net loan charge-offs during 1995 occurred in the
bank card loan portfolio. Net charge-offs of bank card loans were $52.7 million
for 1995, compared to $23.9 million in 1994. The increase in bank card net
charge-offs, while largely attributable to the significant growth of Crestar's
bank card loan portfolio, reflects current industry-wide trends of adverse
payment performance by the consumer as evidenced by a nationwide rise in
delinquencies. Net bank card loan charge-offs as a percentage of bank card loans
(on an annualized basis) were 4.05% for the fourth quarter of 1995, compared to
3.53% for the third quarter, 3.11% for the second quarter, and 2.67% for the
first quarter of 1995. The ratio for the full-year 1995 was 3.35%, compared to
2.09% in 1994. The delinquency and loss characteristics of newly underwritten
bank card loans typically do not reach their highest levels until after 24
months from origination. A bank card loan portfolio will, therefore, generally
produce higher net charge-off
38
<PAGE>
TABLE 22 NONACCRUAL LOANS AS A PERCENT OF LOAN CATEGORY(1)
<TABLE>
<CAPTION>
December 31, 1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
Commercial .7% .9% 1.3% 2.9% 4.2%
Real estate - income property 2.7 2.8 3.3 4.5 5.3
Real estate - construction 1.8 2.7 1.8 3.0 8.9
Instalment .2 .3 .2 .3 .4
Real estate - mortgage .6 .4 .7 1.2 1.1
- -----------------------------------------------------------------------------------------------------------
Total .6% .7% 1.0% 2.0% 2.9%
===========================================================================================================
</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
levels as the newer loans "season." Crestar's expectations are that the ratio
of total net charge-offs to average total loans for 1996 will increase from the
average experienced in 1995. This expectation recognizes that a sizeable
percentage of Crestar's consumer loans, particularly the bank card portfolio,
is now reaching a maturity that should see loss rates peak, assuming no economic
deterioration.
Net loan charge-offs of $38.7 million in 1994 were down $29.8 million from
1993 levels. In the years 1990 through 1993, charge-offs related to loans to
real estate developers and investors (REDI) contributed disproportionately to
total net charge-offs, as the REDI portfolio was the primary source of weaker
credit quality during this recessionary period. REDI net charge-offs comprised
46% of total net charge-offs of $68.4 million in 1993. In comparison, REDI net
charge-offs in 1994 comprised 16% of total net charge-offs. As a percentage of
average REDI loans, REDI net charge-offs were 2.42% in 1993 and 0.46% in 1994,
with net recoveries experienced in 1995.
The allowance for loan losses at December 31, 1995 was $240 million,
representing 2.04% of year-end loans, 257% of total nonperforming assets and
317% of total nonperforming loans. At December 31, 1994, the allowance for loan
losses was $233 million, representing 2.07% of loans, 201% coverage of total
nonperforming assets and 273% coverage of total nonperforming loans at that
date. Improvement in the two coverage ratios was due to reductions in both
nonperforming loans and nonperforming assets from 1994 levels. Details of the
activity in the allowance for loan losses for the past five years are shown in
Table 17. Based on current expectations relative to portfolio characteristics
and performance measures including loss projections, management considers the
level of the allowance adequate.
Although the allowance for loan losses is a general allowance applicable to
all loan categories, the allocation provided in Table 17 is made to provide an
indication of the relative risk assessment of the components of the loan
portfolio.
NONPERFORMING ASSETS
AND OTHER RISK ELEMENTS
Nonperforming assets consist of nonaccrual loans, formally restructured loans
and foreclosed properties. Generally, commercial and consumer real
estate-mortgage loans are placed in nonaccrual status when principal or interest
is 90 days or more past due, or earlier if it is known or expected that interest
will not be paid or full collection of all principal and interest is unlikely.
Bank card loans are not placed in nonaccrual status, but are charged off when
past due 180 days. Instalment loans are generally placed in nonaccrual status
when past due 120 days, and charged off when past due 180 days. Loans may be
restructured as to rate, maturity or other terms as determined on an individual
credit basis. Using the Corporation's criteria for classification of
nonperforming loans, loans that are both past due 90 days or more, but are
deemed to be adequately secured and are in the near-term process of collection
are not necessarily placed in nonaccrual status and are therefore excluded from
the definition of nonperforming assets. As mentioned, the consumer loan
charge-off policy does not require certain loans to be placed in nonaccrual
status since active collection efforts are underway and since account resolution
via charge-off will automatically occur within no more than an additional 90
days. Accruing loans past due 90 days or more, excluded from classification as
nonperforming assets, totaled $50.2 million at December 31, 1995, with consumer
loan balances representing 86% of this balance (see Table 21). These loans are
in the process of collection, with the intention of collecting all principal and
interest due. Foreclosed properties represent properties acquired through legal
foreclosure or similar proceedings.
At December 31, 1995, nonperforming assets of $93.4 million were down $22.3
million or 19% from December 31, 1994, despite $15.5 million in balances
acquired in purchase transactions during 1995. REDI nonperforming assets totaled
$50.1 million and comprised 54% of total nonperforming assets and
39
<PAGE>
MANAGEMENT'S DISCUSSION
Crestar Financial Corporation And Subsidiaries
4.0% of total REDI loans at December 31, 1995. The REDI nonperforming asset
balance reflects a decrease of $9.0 million from December 31, 1994. Apart from
the REDI portfolio, commercial and instalment nonperforming assets declined
during the year, while increases were experienced in real estate-mortgage
nonperforming assets. Foreclosed properties decreased $12.6 million or 42%
from December 31, 1994 to December 31, 1995. The December 31, 1995 foreclosed
properties balance of $17.7 million is net of a $7.5 million valuation
allowance to address the impact of prevailing market and economic conditions on
the marketability of the portfolio. The ratio of nonperforming assets to loans
and foreclosed properties at December 31, 1995 was 0.79%, compared to 1.03% at
December 31, 1994 and 1.44% at December 31, 1993.
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 December 31, 1995, potential problem loans that are not included in Table 21
as nonperforming or past due loans amounted to approximately $151 million. Over
90% of this balance represents commercial or real estate-income property related
loans. In addition, $11 million of standby letters of credit in various
industries were being monitored at December 31, 1995. Depending on changes in
the economy and other future events, these loans and others not presently
identified as problem loans could be classified as nonperforming assets in the
future. Potential problem loans were $221 million at December 31, 1994. There
are no loans classified for regulatory purposes as loss, doubtful, substandard,
or special mention that have not been disclosed above, that either (i) represent
or result from trends or uncertainties that management reasonably expects will
materially impact future operating results, liquidity or capital resources or
(ii) represent material loans about which management is aware of any information
that causes management to have serious doubts as to the ability of such
borrowers to comply with loan repayment terms.
The Financial Accounting Standards Board (FASB) issued Statement of Financial
Accounting Standards No. 114, "Accounting by Creditors for Impairment of a Loan"
(SFAS 114) in May 1993. SFAS 114 was further amended by the FASB in October 1994
through the issuance of Statement of Financial Accounting Standards No. 118
(SFAS 118). Effective January 1, 1995, SFAS 114, as amended by SFAS 118,
requires that impaired loans within the scope of the statements 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 December 31, 1995, impaired loans of $30.0 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
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. Adopting SFAS 114, as amended by SFAS 118,
was immaterial to the financial condition and operations of Crestar as of and
for the year ended December 31, 1995, and had no material impact on the
comparability of the credit risk information included in Tables 17 through 22.
The Corporation operates primarily in Virginia, Maryland and the District of
Columbia. Most economic indicators in Crestar's market area compare favorably
with national indicators. According to federal and state government agencies,
unemployment rates in the Corporation's market area averaged 4.7%, compared with
a national unemployment rate of 5.6% in December 1995. Crestar's market area has
historically had a higher per capita income level than the national level, and
has also generally exhibited stable residential housing values in recent years.
However, as a provider of credit to both business and consumer customers,
Crestar's future financial results can be impacted by significant changes in the
regional and national economy.
FUTURE ACCOUNTING CHANGES
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
40
<PAGE>
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,
a 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. SFAS 121 also establishes
standards for recording an impairment loss for certain assets that are subject
to disposal. The Statement does not impact or change the accounting for
financial instruments, long-term customer relationships of financial
institutions, mortgage servicing rights and deferred income tax assets. Crestar
adopted this new accounting standard as of January 1, 1996. There was no impact
to the Corporation's net income or balance sheet upon implementation of SFAS
121.
The FASB issued Statement of Financial Accounting Standards No 123,
"Accounting for Stock-Based Compensation" (SFAS 123), in October 1995. The
Standard establishes financial accounting and reporting standards for
stock-based employee compensation plans, including stock option plans. While
SFAS 123 defines a fair value based method of accounting for an employee stock
option or similar equity instrument, it also allows an entity to continue to
measure compensation cost for those plans using the intrinsic value method of
accounting prescribed by Accounting Principles Board Opinion No. 25 (APB 25),
"Accounting for Stock Issued to Employees." Crestar has evaluated SFAS 123 and
elected to continue to measure the costs of its stock-based compensation plans
under the intrinsic value method of APB 25, and believes that this will be
consistent with a majority of public companies. Accordingly, the implementation
of SFAS 123 in 1996 will have no impact on reported net income or earnings per
share of the Corporation. Companies electing to remain with the accounting in
APB 25 will make pro forma disclosures of net income and earnings per share, as
if the fair value based method of accounting defined in SFAS 123 had been
applied. In compliance with the guidelines of SFAS 123, Crestar will begin
making such additional annual disclosures beginning with the consolidated
financial statements for the year ending December 31, 1996.
DEPOSIT INSURANCE
RECAPITALIZATION PROPOSAL
Legislative efforts to resolve the undercapitalization of the Savings
Association Insurance Fund (SAIF) of the FDIC, and the disparity between deposit
insurance premiums for SAIF-insured deposits and deposits insured under the Bank
Insurance Fund (BIF), may result in a one-time special assessment on
SAIF-insured deposits. Earnings in 1996 may be impacted by a legislatively
proposed one-time assessment of approximately 80 basis points (0.80%) on
SAIF-insured deposits. Any one-time assessment on SAIF-insured deposits would
impact each of Crestar's three bank subsidiaries and its savings bank
subsidiary. Approximately 44% of Crestar's current deposit base is SAIF-insured.
An 80 basis point assessment, on an after-tax basis, would result in a one-time
charge to Crestar of approximately $25 million. As a consequence of any one-time
assessment, future earnings would be expected to be augmented by a reduction in
ongoing SAIF deposit insurance assessment rates. The estimated $25 million
charge reflects a proposed 20% reduction in the assessments on certain
SAIF-insured deposits (known as Oakar deposits) acquired by banks in certain
thrift acquisitions. Crestar would accrue such a liability if and when such
legislation is enacted into law.
INFLATION
The effect of changing prices on financial institutions is typically different
than on non-banking companies since virtually all of a bank's assets and
liabilities are monetary in nature. In particular, interest rates are
significantly affected by inflation, but neither the timing nor magnitude of the
changes are directly related to price level indices; therefore, the Corporation
can best counter inflation over the long term by managing net interest income
and controlling net increases in noninterest income and expenses.
41
<PAGE>
CONSOLIDATED BALANCE SHEETS
Crestar Financial Corporation And Subsidiaries
<TABLE>
<CAPTION>
Dollars in thousands December 31,
-----------------------------
1995 1994
<S> <C> <C>
ASSETS Cash and due from banks $ 1,084,047 $ 930,599
Securities held to maturity (note 3) 85,368 1,252,278
Securities available for sale (note 4) 3,231,389 1,658,780
Money market investments (note 5) 516,268 452,650
Mortgage loans held for sale 688,218 240,531
Loans - net of unearned income (notes 6, 17 and 23):
Business Loans:
Commercial 3,102,156 3,205,659
Real estate - income property 874,396 777,546
Real estate - construction 262,340 266,340
Consumer Loans:
Instalment 2,732,557 2,169,942
Bank card 1,686,765 1,477,285
Real estate - mortgage 3,148,214 3,344,803
- --------------------------------------------------------------------------------------------------------------
Loans - net of unearned income of $664 in 1995;
$1,369 in 1994 11,806,428 11,241,575
Less: Allowance for loan losses (note 7) (240,285) (232,922)
- --------------------------------------------------------------------------------------------------------------
Loans - net 11,566,143 11,008,653
- --------------------------------------------------------------------------------------------------------------
Premises and equipment - net (notes 8 and 13) 357,159 341,603
Customers' liability on acceptances 5,143 6,464
Intangible assets - net (note 9) 186,732 111,506
Foreclosed properties - net (notes 6 and 11) 17,655 30,221
Other assets 564,563 449,581
- --------------------------------------------------------------------------------------------------------------
TOTAL ASSETS (note 24) $18,302,685 $16,482,866
==============================================================================================================
LIABILITIES Demand deposits $ 2,665,888 $ 2,288,448
Interest checking deposits 1,984,569 1,998,701
Money market deposit accounts 2,991,141 2,752,326
Regular savings deposits 1,310,903 1,567,638
Domestic time deposits 4,184,703 3,743,428
Certificates of deposit $100,000 and over 116,211 66,218
- --------------------------------------------------------------------------------------------------------------
Total deposits 13,253,415 12,416,759
Short-term borrowings (note 12) 2,227,338 1,807,237
Liability on acceptances 5,143 6,464
Other liabilities 694,096 242,115
Long-term debt (note 13) 671,296 715,132
- --------------------------------------------------------------------------------------------------------------
Total Liabilities (note 24) 16,851,288 15,187,707
- --------------------------------------------------------------------------------------------------------------
SHAREHOLDERS' Preferred stock. Authorized 2,000,000 shares; none issued - -
EQUITY Common stock, $5 par value. Authorized 100,000,000 shares;
outstanding 42,809,761 in 1995; 42,509,900 in 1994 214,049 212,549
Capital surplus 371,075 300,241
Retained earnings 855,195 818,924
Net unrealized gain (loss) on securities available
for sale (notes 4 and 14) 11,078 (36,555)
- --------------------------------------------------------------------------------------------------------------
Total Shareholders' Equity (notes 13, 15, 17 and 19) 1,451,397 1,295,159
- --------------------------------------------------------------------------------------------------------------
Commitments and contingencies (notes 8 and 23)
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $18,302,685 $16,482,866
==============================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
42
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME
Crestar Financial Corporation And Subsidiaries
<TABLE>
<CAPTION>
In thousands, except per share data Years Ended December 31,
--------------------------------------------
1995 1994 1993
<S> <C> <C> <C> <C>
INCOME Interest and fees on loans $1,013,613 $ 826,012 $695,819
FROM Interest on taxable securities held to maturity 60,322 69,693 129,600
EARNING Interest on tax-exempt securities
ASSETS held to maturity 3,906 4,785 6,820
Interest and dividends on securities available
for sale 109,927 131,520 86,590
Income on money market investments 20,202 27,780 26,784
Interest on mortgage loans held for sale 28,145 28,854 29,531
- -------------------------------------------------------------------------------------------------------------------------
Total income from earning assets 1,236,115 1,088,644 975,144
- -------------------------------------------------------------------------------------------------------------------------
INTEREST Interest checking deposits 42,279 43,143 39,820
EXPENSE Money market deposit accounts 111,493 83,202 68,772
Regular savings deposits 39,023 42,718 36,758
Domestic time deposits 206,307 162,794 155,270
Certificates of deposit $100,000 and over 3,916 2,600 2,043
- -------------------------------------------------------------------------------------------------------------------------
Total interest on deposits 403,018 334,457 302,663
Short-term borrowings 100,365 64,836 48,387
Long-term debt 49,916 38,756 33,056
- -------------------------------------------------------------------------------------------------------------------------
Total interest expense 553,299 438,049 384,106
- -------------------------------------------------------------------------------------------------------------------------
NET CREDIT Net Interest Income 682,816 650,595 591,038
INCOME Provision for loan losses (note 7) 59,570 30,342 51,860
- -------------------------------------------------------------------------------------------------------------------------
Net credit income 623,246 620,253 539,178
- -------------------------------------------------------------------------------------------------------------------------
NONINTEREST Service charges on deposit accounts 89,379 83,824 80,237
INCOME Trust and investment advisory income 60,645 55,609 57,440
Bank card-related income 47,579 39,655 27,598
Other income (note 16) 93,152 90,924 79,162
Securities gains (losses) (note 4) (2,213) (10,776) 2,084
- -------------------------------------------------------------------------------------------------------------------------
Total noninterest income 288,542 259,236 246,521
- -------------------------------------------------------------------------------------------------------------------------
Net Credit And Noninterest Income 911,788 879,489 785,699
- -------------------------------------------------------------------------------------------------------------------------
NONINTEREST Personnel expense (notes 18 and 19) 340,440 329,273 285,308
EXPENSE Occupancy expense - net 48,650 47,084 42,777
Equipment expense 31,301 29,144 27,817
Other expense (note 20) 199,043 194,227 205,892
- -------------------------------------------------------------------------------------------------------------------------
Total noninterest expense 619,434 599,728 561,794
- -------------------------------------------------------------------------------------------------------------------------
NET INCOME Income before income taxes 292,354 279,761 223,905
Income tax expense (note 14) 112,557 95,643 71,149
- -------------------------------------------------------------------------------------------------------------------------
Net income 179,797 184,118 152,756
Preferred dividend requirements - - 2,221
- -------------------------------------------------------------------------------------------------------------------------
Net income applicable to common shares $ 179,797 $ 184,118 $150,535
=========================================================================================================================
EARNINGS PER COMMON SHARE $ 4.12 $ 4.24 $ 3.49
=========================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
43
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
Crestar Financial Corporation And Subsidiaries
<TABLE>
<CAPTION>
In thousands Years Ended December 31,
---------------------------------------
1995 1994 1993
<S> <C> <C> <C> <C>
OPERATING Net Income $ 179,797 $ 184,118 $ 152,756
ACTIVITIES Adjustments to reconcile net income to net
cash provided (used) by operating activities:
Provisions for loan losses, foreclosed
properties and other losses 56,592 33,484 64,685
Depreciation and amortization of premises
and equipment 39,723 37,561 35,519
Securities losses (gains) 2,213 10,776 (2,084)
Amortization of intangible assets 13,934 6,317 10,941
Deferred income tax expense 8,601 4,605 11,210
Loss (gain) on foreclosed properties (1,322) (3,298) 10,016
Gain on sales of mortgage servicing rights (11,000) (18,732) (3,600)
Net decrease (increase) in trading account (3,565) 1,486 14,834
Origination and purchase of loans held for sale (2,740,165) (3,181,983) (4,158,956)
Proceeds from sales of loans held for sale 2,292,478 3,684,067 3,909,199
Net decrease (increase) in accrued interest
receivable, prepaid expenses and other assets 18,605 30,328 (4,183)
Net increase (decrease) in accrued interest
payable, accrued expenses and other liabilities 14,846 (51,357) (103,335)
Other, net 6,563 4,861 300
- ----------------------------------------------------------------------------------------------------------------------
Net cash provided (used) by operating activities (122,700) 742,233 (62,698)
- ----------------------------------------------------------------------------------------------------------------------
INVESTING Proceeds from maturities and calls of securities
ACTIVITIES held to maturity 247,136 332,791 928,140
Proceeds from maturities and calls of securities
available for sale 408,180 549,581 79,820
Proceeds from sales of securities held to maturity - - 26,785
Proceeds from sales of securities available for sale 1,922,019 1,739,244 376,493
Purchases of securities held to maturity (48,083) (568,359) (1,279,188)
Purchases of securities available for sale (2,320,429) (674,391) (578,215)
Net decrease (increase) in money market investments (60,053) 238,321 522,815
Principal collected on non-bank subsidiary loans 21,636 11,284 26,189
Loans originated by non-bank subsidiaries (164,147) (459,856) (91,945)
Net decrease (increase) in other loans 186,264 (734,166) (372,706)
Purchases of premises and equipment (52,657) (39,273) (40,446)
Proceeds from sales of foreclosed properties 40,944 44,348 81,106
Proceeds from sales of mortgage servicing rights 16,518 32,198 7,625
Purchases of net assets of financial institutions 144,875 23,703 26,419
Proceeds from sales of branch deposits and premises (91,861) - -
Other, net (14,252) (2,629) (5,948)
- ----------------------------------------------------------------------------------------------------------------------
Net cash provided (used) by investing activities 236,090 492,796 (293,056)
- ----------------------------------------------------------------------------------------------------------------------
FINANCING Net increase (decrease) in demand, interest checking,
ACTIVITIES money market and regular savings deposits (43,062) (150,134) 421,957
Net decrease in certificates of deposit (8,532) (629,748) (558,602)
Net increase (decrease) in short-term borrowings 289,664 (332,664) 284,580
Proceeds from issuance of long-term debt 8,626 181,643 289,850
Principal payments on long-term debt (82,447) (103,396) (71,072)
Cash dividends paid (70,207) (60,705) (47,034)
Common stock purchased and retired (82,144) (48,450) (23,958)
Proceeds from the issuance of common stock 28,160 24,539 15,416
Redemption of preferred stock - - (46,350)
Other, net - 3,833 1,942
- ----------------------------------------------------------------------------------------------------------------------
Net cash provided (used) by financing activities 40,058 (1,115,082) 266,729
- ----------------------------------------------------------------------------------------------------------------------
CASH AND Increase (decrease) in cash and cash equivalents 153,448 119,947 (89,025)
CASH Cash and cash equivalents at beginning of year 930,599 810,652 899,677
EQUIVALENTS ------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $1,084,047 $ 930,599 $ 810,652
======================================================================================================================
</TABLE>
Cash and cash equivalents consist of cash and due from banks. See accompanying
notes to consolidated financial statements.
44
<PAGE>
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
Crestar Financial Corporation And Subsidiaries
<TABLE>
<CAPTION>
Net Unrealized
Gain (Loss) On
Preferred Common Stock Securities
Stock ----------------- Capital Retained Available
In thousands (note 15) Shares Amount Surplus Earnings For Sale Total
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1992 $ 45,000 41,395 $206,975 $208,989 $647,042 $ - $ 1,108,006
Net income - - - - 152,756 - 152,756
Cash dividends declared on:
Preferred stock ($2.46 per
share) - - - - (2,221) - (2,221)
Common stock ($1.14 per share) - - - - (44,195) - (44,195)
Change in valuation allowance
for marketable equity securities - - - - 4,769 - 4,769
Common stock purchased and
retired (note 15) - (659) (3,295) (2,221) (18,442) - (23,958)
Common stock issued:
For acquisition of financial
institution - 1,411 7,057 48,151 - - 55,208
For dividend reinvestment plan - 235 1,173 7,720 - - 8,893
Upon exercise of stock options
(including tax benefit of
$1,198) - 283 1,415 5,108 - - 6,523
Upon conversion of
debentures (note 13) - - 1 1 - - 2
Redemption of preferred stock (45,000) - - - (1,350) - (46,350)
- ----------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1993 $ - 42,665 $213,326 $267,748 $738,359 $ - $ 1,219,433
Net income - - - - 184,118 - 184,118
Cash dividends declared on
common stock ($1.53 per share) - - - - (60,705) - (60,705)
Cumulative effect of change in
accounting for securities
available for sale (note 4) - - - - - 32,209 32,209
Change in net unrealized gain on
securities available for sale
(notes 4, 14) - - - - - (68,764) (68,764)
Common stock purchased
and retired (note 15) - (1,120) (5,602) - (42,848) - (48,450)
Common stock issued:
For acquisition of financial
institution - 264 1,321 11,267 - - 12,588
For dividend reinvestment plan - 266 1,330 9,842 - - 11,172
For thrift and profit sharing plan - 160 803 5,940 - - 6,743
For directors' stock
compensation plan - 2 9 69 - - 78
Upon exercise of stock options
(including tax benefit of
$1,193) - 261 1,301 5,323 - - 6,624
Upon conversion of
debentures (note 13) - 12 61 52 - - 113
- ----------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1994 $ - 42,510 $212,549 $300,241 $818,924 $(36,555) $ 1,295,159
Net income - - - - 179,797 - 179,797
Cash dividends declared on
common stock ($1.75 per share) - - - - (70,207) - (70,207)
Change in net unrealized loss on
securities available for sale
(notes 4, 14) - - - - - 47,633 47,633
Common stock purchased
and retired (note 15) - (1,765) (8,825) - (73,319) - (82,144)
Common stock issued:
For acquisition of financial
institutions - 1,318 6,589 45,973 - - 52,562
For dividend reinvestment plan - 299 1,496 12,566 - - 14,062
For thrift and profit sharing plan - 207 1,036 7,227 - - 8,263
For other stock compensation plans - 10 50 387 - - 437
Upon exercise of stock options
(including tax benefit of $1,290) - 231 1,154 4,681 - - 5,835
- ----------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1995 $ - 42,810 $214,049 $371,075 $855,195 $ 11,078 $1,451,397
============================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
45
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Crestar Financial Corporation And Subsidiaries
(1) NATURE OF OPERATIONS, USE OF ESTIMATES AND ACCOUNTING POLICIES
Crestar Financial Corporation and Subsidiaries (Crestar or the Corporation)
provide banking and non-banking financial services throughout Virginia, Maryland
and Washington, DC, which compose Crestar's primary market area. Through a
network of 377 banking offices and 343 automated teller machines, Crestar
provides a broad range of banking services, including various types of deposit
accounts and instruments, commercial and consumer loans, trust and investment
management services, bank credit cards and international banking services. These
services are offered through three bank subsidiaries and one savings bank
subsidiary. Other financial services are provided through non-bank subsidiaries.
Mortgage loan origination, servicing and wholesale mortgage lending are offered
by Crestar Mortgage Corporation, and Capitoline Investment Services Incorporated
provides investment advisory services. Crestar Insurance Agency, Inc. offers a
variety of personal and business insurance products. Securities brokerage and
investment banking services are offered by Crestar Securities Corporation.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the consolidated financial statements and
accompanying footnotes. Actual results could differ from those estimates.
The accounting and reporting policies of Crestar conform to generally
accepted accounting principles and to general practice within the banking and
financial institutions industry. Certain reclassifications have been made to
prior years' consolidated financial statements to conform to the 1995
presentation. The following is a summary of the more significant policies:
(A) PRINCIPLES OF CONSOLIDATION
The consolidated financial statements of Crestar include the accounts of all
wholly-owned subsidiaries. All significant intercompany balances and
transactions have been eliminated in consolidation. In the condensed financial
statements of Crestar Financial Corporation (Parent), the investments in
subsidiaries are stated at equity in the net assets of such subsidiaries (note
22).
On December 31, 1995 Crestar merged with Loyola Capital Corporation (Loyola),
a savings bank holding company, in a transaction accounted for as a pooling of
interests. Accordingly, historical financial data for periods before the merger
have been restated to include the combined results of both Crestar and Loyola.
Business combinations accounted for as purchases are included only from their
respective dates of acquisition. The excess of cost over the estimated fair
value of the tangible assets and liabilities acquired is recorded as intangible
assets and amortized over the periods estimated to be benefited (generally 15
years).
Assets held in an agency or fiduciary capacity are not assets of Crestar and
are not included in the accompanying consolidated balance sheets.
(B) SECURITIES
Effective January 1, 1994, Crestar prospectively adopted Statement of Financial
Accounting Standards No. 115 (SFAS 115), "Accounting for Certain Investments in
Debt and Equity Securities." In accordance with SFAS 115, securities are
classified as either securities held to maturity, securities available for sale
or trading securities. Securities held to maturity are carried at amortized
cost, as the Corporation has the positive intent and ability to hold these
securities to maturity. Trading securities are carried at estimated fair value
as they are intended to be sold in the near term; trading securities are
classified as money market investments on the accompanying consolidated balance
sheets. Securities not classified as held to maturity or trading are classified
as available for sale. Available for sale securities are stated at estimated
fair value, with the unrealized gains and losses, net of tax, reported in a
separate component of shareholders' equity. Quoted market prices are used to
determine estimated fair value. In accordance with SFAS 115, the Corporation's
consolidated financial statements for periods prior to January 1, 1994 have not
been retroactively changed to conform to current securities classifications.
Prior to January 1, 1994, investment securities which management intended to
sell as a part of its asset/liability management strategy, or that may have been
sold in response to changes in interest rates, prepayment risk or other similar
factors, were classified as securities held for sale, and were stated at the
lower of aggregate amortized cost or estimated market value.
The amortized cost of securities classified as held to maturity or available
for sale is adjusted for amortization of premiums and accretion of discounts to
maturity, or earlier call date if appropriate, using the level yield method.
Such amortization is included in interest income from securities. Realized gains
and losses, and declines in value judged to be other than temporary are included
in securities gains (losses) in the accompanying consolidated statements of
income. Realized gains and losses are computed using the specific identification
method.
46
<PAGE>
(C) MONEY MARKET INVESTMENTS
Money market investments are stated at cost, which approximates market value,
except for trading securities, which are carried at market value. Trading
securities primarily include U.S. Treasury and municipal debt obligations.
Trading securities may include from time to time positions in certain derivative
financial instruments such as futures contracts and purchased options (see
related discussion in note 23). Adjustments to market and trading account gains
and losses are classified as other income in the accompanying consolidated
statements of income. Trading account interest and dividend income are included
in income on money market investments.
(D) MORTGAGE LOANS HELD FOR SALE
Mortgage loans held for sale are carried at the lower of aggregate cost or
market value. Adjustments to market and realized gains and losses are classified
as other income in the accompanying consolidated statements of income.
(E) LOANS
Loans are stated at the principal amount outstanding net of unearned income.
Interest on loans is accrued by multiplying the applicable rates by the
principal amounts outstanding.
Interest receipts on nonaccrual loans are recognized as interest revenue or
are applied to principal when management believes the ultimate collectibility of
principal is in doubt. Generally, business and consumer real estate-mortgage
loans are placed in nonaccrual status when principal or interest is 90 days or
more past due, or earlier if it is known or expected that interest will not be
paid, or full collection of all principal and interest is unlikely, based upon
an evaluation of the financial strength of the borrower and the net realizable
value of the collateral. Bank card loans are not placed in nonaccrual status,
but are charged off when past due 180 days. Instalment loans are generally
placed in nonaccrual status when past due 120 days. Charge-offs of instalment
loans occur upon reaching 180 days past due, or sooner in instances of
collateral repossession and deficiency. Loans may be restructured as to rate,
maturity or other terms as determined on an individual credit basis. Past due
loans are loans which are delinquent 90 days or more but which are currently not
in nonaccrual status based on various accounting and collectibility criteria.
Loan origination and commitment fees and certain direct loan origination
costs are deferred and the net amount is amortized as an adjustment of the
related loan's yield. Crestar amortizes these amounts over the contractual life
of the related loans or over the commitment period.
(F) IMPAIRED LOANS
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 fair 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 nonaccrual 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 evaluation of the
financial strength of the borrower and the fair value of the collateral.
Restructured loans are impaired loans in the year of restructuring; thereafter,
such loans are subject to management's evaluation of impairment based on the
restructured terms.
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.
47
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Crestar Financial Corporation And Subsidiaries
SFAS 118 allows a creditor to use existing methods for recognizing interest
income on an impaired loan. Consistent with Crestar's method for nonaccrual
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. In accordance with SFAS 114 and SFAS 118, no retroactive application of
their provisions have been made to the consolidated financial statements for
periods prior to January 1, 1995.
(G) ALLOWANCE FOR LOAN LOSSES
Both the amount of the provision and the level of the allowance for loan losses
are effected by many factors, including general economic conditions, actual and
expected credit losses, loan performance measures, historical trends and other
circumstances, both internal and external. The amount of the provision for loan
losses is established based on evaluation of the current level of the allowance.
Individual loan-by-loan reviews are performed quarterly on large commercial and
real estate exposures in the lower quality risk ratings categories. For the
remainder of the portfolio, a formula-based approach is utilized. The formula is
determined by a statistical analysis of risk rating movements and loss rates.
The formula may be adjusted for changes in the subjective factors listed above.
Loan loss allowances for the consumer loan portfolio are also based on
historical and anticipated losses and the current and projected characteristics
of the different types of consumer loans. Management's evaluation and resulting
provision and allowance decisions are reviewed by the Board of Directors on a
quarterly basis.
Loan charge-offs to the allowance are made when a loan, or a portion thereof,
is considered uncollectible or is transferred to foreclosed properties.
(H) PREMISES AND EQUIPMENT
Premises and equipment are stated at cost less accumulated depreciation and
amortization. Depreciation and amortization charges are computed using the
straight-line method. Premises and equipment are depreciated over the estimated
useful lives of the assets, except for leasehold improvements which are
amortized over the terms of the respective leases or the estimated useful lives
of the improvements, whichever is shorter. Certain noncancelable leases have
been capitalized and are classified as premises and equipment in the
accompanying consolidated balance sheets. Related amounts representing capital
lease obligations are classified as long-term debt in the accompanying
consolidated balance sheets and are amortized using the interest method to
allocate payments between principal and interest. The initial carrying amounts
represent the present value of the future rental payments, discounted at the
incremental borrowing rate of the lessee. Most of these capital lease assets are
amortized over the lease term.
Estimated lives of the principal items of premises and equipment are:
buildings and improvements--3 to 50 years; and furniture, fixtures and
equipment--3 to 12 years. The costs of major renovations are capitalized, while
the costs of ordinary maintenance and repairs are expensed as incurred. Interest
costs are capitalized based on a rate representative of the Corporation's long
term cost of funds and the average balance of construction in progress during
the period.
(I) INTANGIBLE ASSETS
Goodwill is amortized on a straight-line basis over 15 years. Deposit base
intangibles are amortized over the estimated lives of the related deposit
relationships, ranging from 8 to 15 years.
(J) CAPITALIZED MORTGAGE SERVICING RIGHTS
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.
These impairment provisions apply to all capitalized mortgage servicing rights.
Fair value in
48
<PAGE>
excess of the amount capitalized, net of amortization, is not recognized.
Capitalized mortgage servicing rights, formerly classified as intangible
assets, have been reclassified as other assets in the accompanying consolidated
balance sheets. Amortization of capitalized mortgage servicing rights, formerly
classified as noninterest expense, has been reclassified as a reduction of
mortgage servicing income, resulting in a net presentation of such income in
note 16 to the consolidated financial statements.
(K) FORECLOSED PROPERTIES
Property acquired through legal foreclosure proceedings, abandonment of the
property, acceptance of deed in lieu of foreclosure or transfer in exchange for
an outstanding loan is initially recorded at estimated fair value less estimated
selling costs at the date of foreclosure, establishing a new cost basis. At the
time of foreclosure, any excess of cost over the estimated fair value is charged
to the allowance for loan losses, and estimated selling costs are expensed as
foreclosed properties expense. After foreclosure, valuations are routinely
performed by management and the property is carried at the lower of cost or fair
value less estimated selling costs. Write-downs are charged against any
applicable foreclosed property valuation allowance or current earnings.
(L) INCOME TAXES
The Parent and its subsidiaries file a consolidated federal income tax return.
The provision for income taxes for each company is recorded on the basis of
filing separate income tax returns, after adjustments relating to consolidated
income tax regulations and signed tax sharing agreements. Income taxes currently
payable or receivable by each subsidiary are paid to or received from the
Parent.
In 1993, the Corporation changed its method of accounting for income taxes
(note 14) and, accordingly, records a provision for income taxes based on the
amounts of current and deferred taxes payable (or refundable) for the year. The
deferred tax expense or benefit represents the change in the net deferred tax
asset or liability during the period. Deferred tax assets and liabilities are
recognized for the tax effects of differing carrying values of assets and
liabilities for tax and financial statement reporting purposes that will reverse
in future periods.
(M) EARNINGS PER COMMON SHARE
Earnings per common share are computed by dividing net income applicable to
common shares by the weighted average number of common shares outstanding during
the period, including average common equivalent shares attributable to dilutive
stock options.
(N) FEE REVENUE
Crestar generally records mortgage loan servicing income as payments are
collected, based on a percentage of the principal balance of loans serviced.
Loan servicing expenses are charged to operations when incurred. Trust and
investment advisory revenues are recorded on an accrual basis, with income
recognized when earned. Fee income from matched swap, cap and floor arrangements
for which Crestar serves as a financial intermediary is recognized over the
lives of the related agreements and is classified as other income in the
consolidated statements of income.
(O) RISK MANAGEMENT INSTRUMENTS
Interest rate swaps, caps and floors used to achieve interest rate risk
management objectives are accounted for in a manner consistent with the
accounting basis of the related asset or liability. An instrument designated to
an asset or liability carried at historical cost is accounted for on an accrual
basis, whereby the interest income or expense of the related asset or liability
is adjusted for the net amount of any receivable or payable generated by the
instrument during the reporting period. For such instruments, no amounts other
than any accrued interest receivable or payable, or any deferred premiums paid,
are included in the accompanying consolidated balance sheets.
Interest rate swaps involve the exchange of payments between counterparties
based on the interest differential between a fixed and a floating interest rate
applied to a notional balance. Under accrual accounting, this interest
differential is recognized as an adjustment to the interest income or expense of
the related asset or liability in the accompanying statements of income. In
exchange for a premium paid, purchased interest rate caps and floors provide for
a payment to Crestar based on the difference between an index interest rate and
the contractual cap or floor rate. Under accrual accounting, this payment is
recognized as an increase to the interest income or as a decrease to the
interest expense of the related asset or liability, respectively. The premium
paid for interest rate caps or floors is amortized over the life of the
instrument as a decrease to the interest income or as an increase to the
interest expense of the related asset or liability, respectively.
To qualify for accrual accounting, these derivative instruments are required
to meet an identified risk management objective, to be designated to specific
pools of assets or liabilities in the consolidated balance sheets, and to have
underlying indices that highly correlate (i.e., move concurrently and are of the
same relative duration) with the indices of the designated assets or
liabilities. In addition to establishing expected index and balance correlation
at inception,
49
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Crestar Financial Corporation And Subsidiaries
management performs a quarterly assessment to demonstrate ongoing
correlation. Should these derivative instruments fail to meet the accrual
criteria at inception or over the life of the instruments, the instruments would
be marked to market as trading securities as discussed in note 1(c). Crestar has
had no derivative instruments used for risk management purposes which have
failed to meet accrual criteria over the life of the instruments.
Upon early termination of derivative instruments which otherwise meet accrual
criteria, the net proceeds received or paid are deferred, if material, in the
accompanying consolidated balance sheet and amortized to the interest income or
expense of the related asset or liability over the lesser of the remaining
contractual life of the instrument or the maturity of the related asset or
liability. At December 31, 1995 and 1994, there were no deferred gains or losses
in the accompanying consolidated balance sheets arising from the termination of
instruments qualifying for accrual accounting prior to maturity.
Forward contracts are used to hedge interest rate exposure on mortgage loan
commitments and mortgage loans held for sale. Unrealized gains and losses on the
contracts are included in the cost basis used in adjusting the carrying value of
mortgage loans held for sale to the lower of cost or market value. Realized
gains and losses and adjustments to the lower of cost or market value are
included in mortgage loan origination income in the accompanying consolidated
statements of income.
(P) RETIREMENT, POSTRETIREMENT AND POSTEMPLOYMENT BENEFITS
Substantially all employees are covered by a pension plan. The net periodic
pension expense includes a service cost component, a component reflecting the
actual return on plan assets, an interest cost component, and the effect of
deferring and amortizing certain actuarial gains and losses and the unrecognized
net transition asset over 15 years. Costs of retiree benefits other than
pensions are accrued in a manner similar to pension costs.
Statement of Financial Accounting Standards No. 112 (SFAS 112), "Employers'
Accounting for Postemployment Benefits," was adopted by Crestar on January 1,
1994. Under SFAS 112, benefits provided to inactive or former employees before
retirement are accrued during the period of active employment, rather than being
expensed as paid. Adoption of SFAS 112 resulted in a pre-tax charge to employee
benefit expense of $1.8 million in the first quarter of 1994. Postemployment
benefits expense for periods prior to 1994 has not been restated.
(2) MERGERS AND ACQUISITIONS
On December 31, 1995 Crestar merged with Loyola Capital Corporation (Loyola), a
savings bank holding company, in a transaction accounted for as a pooling of
interests. Accordingly, historical financial data for periods before the merger
have been restated to include the combined results of both Crestar and Loyola.
Based on an exchange ratio of .64 shares of Crestar common stock for each
outstanding share of Loyola common stock, Crestar issued approximately 5,213,000
shares of common stock. Loyola had total assets of approximately $2.53 billion
at the date of acquisition. Excluding the impact of $29.3 million (after-tax) in
merger related expenses, Loyola had net income of approximately $19.1 million,
and Crestar had net income of $189.9 million, on a pre-merger basis for the year
ended December 31, 1995. Net interest income for the year ended December 31,
1995, on a pre-merger basis, was $71.7 million for Loyola and $611.1 million for
Crestar. Net interest income, net income and net income per share amounts of
Crestar and Loyola, prior to restatement for the pooling of interests merger,
for the years ended December 31, 1994 and 1993 were as follows:
================================================================================
In millions, except per share amounts 1994 1993
Crestar Financial Corporation:
Net interest income $581.8 $527.0
Net income 169.1 140.5
Net income per common share 4.47 3.68
Loyola Capital Corporation
Net interest income 66.9 61.6
Net income 15.0 12.3
Net income per common share 1.74 1.42
================================================================================
In addition to the Loyola merger, Crestar acquired four financial institutions
in 1995. On January 20, 1995, Crestar completed the acquisition of Jefferson
Savings and Loan Association, F.A. (Jefferson Savings),
50
<PAGE>
for a purchase price of $5 million in cash and 471 thousand shares of common
stock having a combined value of $23 million. Also on January 20, 1995, Crestar
acquired Independent Bank for a combination of $5 million in cash and 198
thousand shares of common stock, for a combined value of $12 million. The excess
of the cost over the estimated fair value of the tangible net assets acquired
for the Jefferson and Independent acquisitions was approximately $23.1 million
and $9.5 million, respectively.
On March 24, 1995 Crestar acquired TideMark Bancorp, Inc. (TideMark) in a
transaction valued at $40 million. The purchase price consisted of 648,000
shares of Crestar common stock and $13 million in cash. The excess of the cost
over the estimated fair value of the tangible net assets acquired was
approximately $26.5 million.
On November 10, 1995 Crestar completed the purchase of deposits and selected
loans of Chase Manhattan Bank of Maryland (Chase MD). The fair value of
liabilities assumed, over the fair value of assets acquired and cash received,
totaled $30.1 million and is classified as an intangible asset in the
consolidated balance sheet.
The acquisitions of Jefferson Savings, Independent Bank, TideMark and Chase
MD were accounted for as purchases and, accordingly, the results of their
operations are included in the accompanying consolidated financial statements
since their respective acquisition dates. The results of operations of the four
purchased institutions for the periods prior to their respective acquisition
dates were not material to the results of Crestar. Crestar expects each
acquisition completed in 1995 to have a positive contribution to 1996 earnings.
The five acquisitions are summarized as follows:
<TABLE>
<CAPTION>
===========================================================================================================
Dollars in millions
1995 At Acquisition Date
Primary Acquisition ----------------------
Name Location Date Assets Deposits
<S> <C> <C> <C> <C>
Jefferson Savings and Loan Warrenton, VA January 20 $ 300 $ 250
Independent Bank Manassas, VA January 20 85 70
TideMark Bancorp, Inc. Newport News, VA March 24 400 240
Chase Manhattan Bank of MD Baltimore, MD November 10 260 450
Loyola Capital Corporation Baltimore, MD December 31 2,530 1,470
- -----------------------------------------------------------------------------------------------------------
Total $3,575 $2,480
===========================================================================================================
</TABLE>
In February 1996, Crestar announced an agreement to purchase the deposits and
customer accounts, plus selected loans, of ten branches of Mellon Bank (MD), a
bank operating in the Maryland suburbs of the metropolitan Washington, DC area.
The purchase, which is expected to be completed during the second quarter of
1996, will add approximately $220 million in deposits to Crestar's Maryland bank
subsidiary. Also in February, Crestar Mortgage Corporation announced its
agreement to purchase, in a cash transaction, Ryland Funding Group, a wholesale
mortgage banker. Ryland Funding Group operates out of four offices, and
originated approximately $750 million in real estate mortgages in 1995.
51
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Crestar Financial Corporation And Subsidiaries
(3) SECURITIES HELD TO MATURITY
The amortized cost (carrying values) and estimated fair values of securities
held to maturity at December 31 follow:
<TABLE>
<CAPTION>
============================================================================================================
Amortized Unrealized Unrealized Market
In thousands Cost Gains Losses Value
1995
<S> <C> <C> <C> <C>
Mortgage-backed obligations of Federal agencies $ 24,570 $1,416 $ - $ 25,986
Other taxable securities 2,255 - 1 2,254
States and political subdivisions 58,543 1,692 69 60,166
- ----------------------------------------------------------------------------------------------------------
Total $ 85,368 $3,108 $ 70 $ 88,406
- ----------------------------------------------------------------------------------------------------------
1994
U.S. Treasury and Federal agencies $ 126,987 $ 18 $ 3,536 $ 123,469
Mortgage-backed obligations of Federal agencies 826,906 846 55,196 772,556
Other taxable securities 231,021 20 12,057 218,984
States and political subdivisions 67,364 755 2,553 65,566
- ----------------------------------------------------------------------------------------------------------
Total $1,252,278 $1,639 $73,342 $1,180,575
==========================================================================================================
<CAPTION>
The stated maturities of securities held to
maturity at December 31, 1995 follow:
==========================================================================================================
Amortized Market
In thousands Cost Value
<S> <C> <C>
Due in one year or less $ 4,566 $ 4,637
Due after one year through five years 13,864 14,320
Due after five years through ten years 36,757 38,473
Due after ten years 30,181 30,976
- ----------------------------------------------------------------------------------------------------------
Total $85,368 $ 88,406
==========================================================================================================
</TABLE>
At December 31, 1995 and 1994 securities held to maturity with an aggregate
carrying value of $60,709,000 and $702,400,000, respectively, were pledged to
secure deposits and for other purposes. Securities losses of $153 thousand were
incurred in 1993 from the sale of $26.9 million of securities held to maturity.
(4) SECURITIES AVAILABLE FOR SALE
The amortized cost and estimated fair values (carrying values) of securities
available for sale at December 31 follow:
<TABLE>
<CAPTION>
============================================================================================================
Amortized Unrealized Unrealized Market
In thousands Cost Gains Losses Value
1995
<S> <C> <C> <C> <C>
U.S. Treasury and Federal agencies $ 488,108 $ 2,999 $ 437 $ 490,670
Mortgage-backed obligations of Federal agencies 1,977,119 16,465 3,567 1,990,017
Other taxable securities 570,499 2,545 1,076 571,968
Common and preferred stocks 178,520 214 - 178,734
- ------------------------------------------------------------------------------------------------------------
Total $3,214,246 $22,223 $ 5,080 $3,231,389
- ------------------------------------------------------------------------------------------------------------
1994
U.S. Treasury and Federal agencies $ 716,430 $ 69 $20,795 $ 695,704
Mortgage-backed obligations of Federal agencies 682,577 1,430 34,400 649,607
Other taxable securities 179,390 116 3,869 175,637
Common and preferred stocks 137,839 18 25 137,832
- ------------------------------------------------------------------------------------------------------------
Total $1,716,236 $ 1,633 $59,089 $1,658,780
============================================================================================================
</TABLE>
52
<PAGE>
The stated maturities of securities available for sale at December 31, 1995
follow:
======================================================================
Amortized Market
In thousands Cost Value
Due in one year or less $ 192,242 $ 193,440
Due after one year through five years 540,502 543,679
Due after five years through ten years 614,357 624,441
Due after ten years 1,688,625 1,691,095
- ----------------------------------------------------------------------
3,035,726 3,052,655
Common and preferred stocks 178,520 178,734
- ----------------------------------------------------------------------
Total $3,214,246 $3,231,389
======================================================================
At December 31, 1995 and 1994, securities available for sale with an aggregate
carrying value of $1.3 billion and $791 million, respectively, were pledged to
secure deposits and for other purposes.
Proceeds from sales of securities available for sale were $1.9 billion in
1995, $1.7 billion in 1994 and $376 million in 1993. Gross gains of $5.1, $6.2
and $4.1 million and gross losses of $7.3 million, $17.0 million and $2.0
million were realized on such sales during 1995, 1994 and 1993, respectively.
As a result of the issuance of Financial Accounting Series No. 155-B, "A
Guide to Implementation of Statement 115 on Accounting for Certain Investments
in Debt and Equity Securities," Crestar transferred securities having an
amortized cost of $966 million and an estimated market value of $963 million
from held to maturity to available for sale during the fourth quarter of 1995.
As a result of Crestar's initial adoption of SFAS 115 as discussed in note 1(b)
to the consolidated financial statements, securities having an amortized cost of
$2.932 billion and an estimated market value of $2.983 billion were classified
as securities available for sale on January 1, 1994, resulting in an increase in
shareholders' equity of $32.2 million. This increase was the amount by which the
fair value of securities available for sale, net of tax, exceeded the amortized
cost of such securities on January 1, 1994.
(5) MONEY MARKET INVESTMENTS
Money market investments at December 31 included:
==============================================================================
In thousands 1995 1994
Federal funds sold $269,285 $268,155
Securities purchased under agreements to resell 194,000 175,500
Trading account securities 4,490 3,574
U.S. Treasury 5,501 5,189
Domestic time deposits and other 42,992 232
- ------------------------------------------------------------------------------
Total $516,268 $452,650
==============================================================================
(6) NONPERFORMING ASSETS AND IMPAIRED LOANS
Nonperforming assets at December 31 are shown below. Nonperforming assets
include nonaccrual loans, loans which meet the accounting definition of a
troubled debt restructuring (restructured loans) and foreclosed properties.
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. Such accruing loans past due 90 days or
more, excluded from the amounts shown below, totaled $50.2 million and $35.7
million at December 31, 1995 and 1994, respectively.
===============================================================================
In thousands 1995 1994
Nonaccrual loans $ 75,706 $ 77,089
Restructured loans - 8,339
- -------------------------------------------------------------------------------
Total nonperforming loans 75,706 85,428
Foreclosed properties - net 17,655 30,221
- -------------------------------------------------------------------------------
Total nonperforming assets $ 93,361 $115,649
===============================================================================
Average nonperforming loans for the year $ 78,385 $ 86,269
===============================================================================
Average nonperforming assets for the year $103,009 $124,750
===============================================================================
53
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Crestar Financial Corporation And Subsidiaries
Non-cash additions to foreclosed properties were $5.8 million, $14.1 million and
$19.4 million in 1995, 1994 and 1993, respectively. There were no material
commitments to lend additional funds to customers whose loans were classified as
nonaccrual at December 31, 1995. At December 31, 1995 and 1994 loans accounted
for as restructured loans, included in nonaccrual loans, totaled $7.1 million
and $7.9 million, respectively. Nonaccrual loans are classified as loans in the
accompanying consolidated balance sheets.
The aggregate recorded investment in nonperforming loans outstanding at
December 31, 1995, 1994 and 1993, the pro forma interest income that would have
been earned in 1995, 1994 and 1993 if such loans had not been classified as
nonperforming, and the amount of interest income actually included in net
interest income for such years follows:
<TABLE>
<CAPTION>
===============================================================================================
In thousands Nonperforming Loan Category
---------------------------------------------------------------------
Real Estate-
1995 Commercial Construction Income Property All Other Total
<S> <C> <C> <C> <C> <C>
RECORDED INVESTMENT $21,731 $4,712 $23,913 $25,350 $75,706
PRO FORMA INTEREST 5,799 1,100 5,718 1,219 13,837
INTEREST EARNED 16 - 216 219 451
- -----------------------------------------------------------------------------------------------
1994
Recorded investment $28,708 $7,279 $30,265 $19,176 $85,428
Pro forma interest 4,041 769 4,082 957 9,849
Interest earned 156 - 181 201 538
- -----------------------------------------------------------------------------------------------
1993
Recorded investment $39,487 $5,843 $28,081 $18,027 $91,438
Pro forma interest 4,990 948 1,696 1,088 8,722
Interest earned 421 - - 257 678
===============================================================================================
</TABLE>
Included in Crestar's nonperforming loans above are certain impaired loans as
defined by SFAS 114. SFAS 114, as amended by SFAS 118, was adopted by Crestar
effective January 1, 1995 as discussed in note 1(f) to the consolidated
financial statements. Impaired loans and the allocated valuation allowances at
December 31, 1995 were:
===========================================================================
In thousands Loan Valuation
Balance Allowance
Impaired with valuation allowance $30,050 $4,930
Impaired without valuation allowance - -
- ---------------------------------------------------------------------------
Total impaired loans $30,050 $4,930
===========================================================================
Collateral dependent loans, which were measured at the fair value of the
collateral, constituted $26.0 million or 87% of impaired loans at December 31,
1995. Remaining impaired loans of $4.1 million were measured based on the
present value of expected cash flows. The allocated valuation allowance for
impaired loans at December 31, 1995, and activity related thereto for the year
ended December 31, 1995, is included in the allowance for loan losses discussed
in note (7) to the consolidated financial statements.
The average recorded investment in impaired loans, the amount of interest
income recognized, and the amount of interest income recognized on a cash basis
for the year ended December 31, 1995 were:
===============================================================================
In thousands
Average recorded investment in impaired loans $35,240
Interest income recognized during impairment -
Interest income recognized on a cash basis during impairment -
===============================================================================
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, and the continuing application
of SFAS 114 and SFAS 118 has not been material to Crestar's consolidated
financial statements as of and for the year ended December 31, 1995.
54
<PAGE>
(7) ALLOWANCE FOR LOAN LOSSES
Transactions in the allowance for loan losses for the years ended December 31
were:
===============================================================================
In thousands 1995 1994 1993
Beginning balance $232,922 $225,583 $220,168
- -------------------------------------------------------------------------------
Charge-offs (90,751) (69,227) (95,444)
Recoveries 30,191 30,537 26,999
- -------------------------------------------------------------------------------
Net charge-offs (60,560) (38,690) (68,445)
Provision for loan losses 59,570 30,342 51,860
Allowance from acquisitions 8,353 15,687 22,000
- -------------------------------------------------------------------------------
Net increase 7,363 7,339 5,415
- -------------------------------------------------------------------------------
Ending balance $240,285 $232,922 $225,583
===============================================================================
In 1995, 1994 and 1993 there were no loans charged off representing allocated
transfer risk reserves. Foreign activities represented less than 1 percent of
total assets, revenues, income before income taxes and net income for all years
presented.
(8) PREMISES AND EQUIPMENT
Premises and equipment at December 31 included:
=======================================================
In thousands 1995 1994
Land $ 63,399 $ 58,827
Buildings and improvements 323,017 297,325
Furniture, fixtures and
equipment 288,562 274,990
Capitalized leases:
Land and buildings 3,154 3,947
Equipment - 518
Less: Accumulated deprecia-
tion and amortization (336,662) (311,500)
- -------------------------------------------------------
341,470 324,107
Construction in progress 15,689 17,496
- -------------------------------------------------------
Total premises and
equipment - net $ 357,159 $ 341,603
=======================================================
At December 31, 1995, future minimum lease payments under noncancelable capital
and operating leases that have an initial term in excess of one year follow:
==========================================================
Operating Capital
In thousands Leases Leases
1996 $17,523 $ 267
1997 15,485 259
1998 12,116 184
1999 9,311 177
2000 6,153 177
Later years 22,612 873
- ----------------------------------------------------------
Total minimum lease
payments $83,200 $1,937
Imputed interest (rates
of 8 5/8-14 3/8%) (818)
- ----------------------------------------------------------
Present value of net
minimum lease payments
(included in long-term debt) $1,119
==========================================================
Total minimum lease payments included in the preceding table have not been
reduced by future minimum sublease rentals of $1.0 million. There were no new
capital lease obligations incurred in 1995, 1994 or 1993.
Crestar owns and, along with its subsidiaries, is the principal tenant of the
corporate headquarters building in Richmond, Virginia, the Crestar Mortgage
Corporation headquarters building in Richmond, an operations center in Richmond,
and regional office buildings in Roanoke and Norfolk, Virginia, Washington, DC,
and Baltimore, Maryland. At December 31, 1995, Crestar had 377 banking
locations, the majority of which were located in bank owned facilities.
Management considers these properties to be suitable and adequate for current
operations.
During 1995, Crestar capitalized interest of $1.4 million associated with
construction completed during 1995 and construction in progress.
Lease expense relating to both cancelable and noncancelable operating lease
agreements (including month-to-month rental agreements) is shown below.
Customarily, these leases provide that the lessee pay taxes, maintenance,
insurance and certain other operating expenses applicable to the leased
property.
============================================================
In thousands 1995 1994 1993
Buildings $21,514 $20,515 $18,398
Equipment 2,376 2,426 2,042
- ------------------------------------------------------------
Total lease expense $23,890 $22,941 $20,440
============================================================
55
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Crestar Financial Corporation And Subsidiaries
(9) INTANGIBLE ASSETS
Intangible assets at December 31 included:
=============================================================================
In thousands 1995 1994
Goodwill and deposit base intangibles $186,249 $110,934
Favorable lease rights 483 572
- -----------------------------------------------------------------------------
Total intangible assets - net $186,732 $111,506
=============================================================================
Accumulated amortization on goodwill was $34,153,000 and $23,421,000 for 1995
and 1994, respectively.
(10) Capitalized Mortgage Servicing Rights
Effective January 1, 1995, Crestar adopted Statement of Financial Accounting
Standards No. 122, "Accounting for Mortgage Servicing Rights" (SFAS 122) as
discussed in note 1(j) to the consolidated financial statements. The effect of
Crestar's adoption of SFAS 122 on the consolidated financial statements for 1995
was an increase in mortgage origination income of $4,227,000, 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 1995.
Capitalized mortgage servicing rights of $26,832,000 and $20,684,000 at
December 31, 1995 and 1994, respectively, were included in other assets in the
consolidated financial statements. Mortgage servicing rights of $17.2 and $16.1
million were capitalized during 1995 and 1994, respectively. At December 31,
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
$174,000 at December 31, 1994 was not material to the consolidated financial
statements for 1995, 1994 and 1993. The fair value of capitalized mortgage
servicing rights was approximately $50.0 million and $42.3 million at December
31, 1995 and 1994, respectively. 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. Amortization of capitalized mortgage servicing rights was $5.6
million and $6.4 million in 1995 and 1994, respectively.
(11) ALLOWANCE FOR FORECLOSED PROPERTIES
Transactions in the allowance for losses on foreclosed properties for the years
ended December 31 were:
===============================================================================
In thousands 1995 1994 1993
Beginning balance $16,188 $14,277 $ 17,342
- -------------------------------------------------------------------------------
Provision for foreclosed properties (3,900) 1,133 8,070
Write-downs (7,470) (4,761) (13,181)
Allowance from acquisitions 2,694 5,539 2,046
- -------------------------------------------------------------------------------
Net increase (decrease) (8,676) 1,911 (3,065)
- -------------------------------------------------------------------------------
Ending balance $ 7,512 $16,188 $ 14,277
===============================================================================
56
<PAGE>
(12) SHORT-TERM BORROWINGS
Short-term borrowings outstanding as of December 31 and their weighted average
interest rates were:
<TABLE>
<CAPTION>
===========================================================================================================
In thousands 1995 1994 1993
-------------------- ------------------- -------------------
Amount Rate Amount Rate Amount Rate
<S> <C> <C> <C> <C> <C> <C>
Federal funds purchased $1,126,715 5.33% $ 742,672 6.29% $ 670,407 3.23%
Securities sold under repurchase
agreements 513,955 5.25 537,169 5.94 1,034,180 2.80
Federal Home Loan Bank borrowings 427,200 5.83 371,200 6.27 96,800 6.81
Notes payable 157,929 4.90 153,976 5.42 110,792 2.64
Other 1,539 2.91 2,220 3.75 16,412 2.66
- -----------------------------------------------------------------------------------------------------------
Total $2,227,338 $1,807,237 $1,928,591
===========================================================================================================
</TABLE>
Federal funds purchased generally mature daily. Securities sold under repurchase
agreements generally mature within two weeks or are due upon demand. The Federal
Home Loan Bank borrowings mature within 365 days. Notes payable are due upon
demand.
At December 31, 1995, the Parent's unused committed lines of credit totaled
$30 million.
The Corporation paid $499,299,000, $392,587,000 and $360,676,000 in interest
on deposits and short-term borrowings in 1995, 1994 and 1993, respectively.
(13) LONG-TERM DEBT
Long-term debt at December 31 included:
<TABLE>
<CAPTION>
==============================================================================================================
In thousands 1995 1994
<S> <C> <C>
Parent:
8 3/4% Subordinated notes due 2004 $149,654 $149,615
8 1/4% Subordinated notes due 2002 125,000 125,000
8 5/8% Subordinated notes due 1998 49,976 49,966
- --------------------------------------------------------------------------------------------------------------
Total Parent 324,630 324,581
7-8 1/4% Mortgage indebtedness maturing through 2009 9,369 10,101
8 5/8-14 3/8% Capital lease obligations maturing through 2006 1,119 1,370
4 3/8-7 3/8% Federal Home Loan Bank obligations payable through 2015 317,591 361,269
7 7/8-11 1/4% Collateralized mortgage obligation bonds maturing through 2019 18,587 17,811
- --------------------------------------------------------------------------------------------------------------
Total consolidated long-term debt $671,296 $715,132
==============================================================================================================
</TABLE>
In 1994, Crestar completed the sale of $150 million of 8 3/4% subordinated
notes. Net of underwriting discounts, the notes resulted in net proceeds
to the Corporation of $148.6 million. Neither the 8 3/4% nor the 8 1/4%
subordinated notes are redeemable prior to maturity. The 8 5/8% subordinated
notes may not be exchanged or redeemed prior to maturity, except upon the
occurrence of certain events relating to the federal income tax treatment
of the notes to the Corporation. The 8 3/4%, 8 1/4% and 8 5/8% subordinated
notes all qualify as Tier 2 capital for Federal bank regulatory purposes.
Expenses relating to the issuance of the 8 3/4%, 8 1/4% and 8 5/8% notes are
being amortized to maturity on a straight-line basis. Outstanding debt
agreements at December 31, 1995 place restrictions upon the disposal of
subsidiaries common stock.
During 1995, $15,797,000 of Federal Home Loan Bank obligations and
$13,993,000 of collateralized mortgage obligation bonds were assumed in the
purchase acquisitions of TideMark and Jefferson, respectively, as discussed in
note 2 to the consolidated financial statements.
Mortgage indebtedness consists of the debt relating to two pledged facilities
owned by Crestar Bank which have an aggregate carrying value of $21,753,000 at
December 31, 1995. Mortgage payments in 1995, including interest, were
$1,529,000; payments in 1996 are expected to approximate the 1995 amount.
The Corporation made payments of $48,174,000, $38,514,000 and $32,835,000 in
interest on long-term debt in 1995, 1994 and 1993, respectively.
The combined maturities of all long-term debt for the years 1996 through 2000
are as follows:
==========================================================================
In thousands 1996 1997 1998 1999 2000
Parent $ - $ - $ 49,976 $ - $ -
Consolidated 19,775 64,502 116,881 63,595 55,896
==========================================================================
57
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Crestar Financial Corporation And Subsidiaries
(14) INCOME TAXES
The current and deferred components of income tax expense allocated to
continuing operations for the years ended December 31 in the accompanying
consolidated statements of income were:
============================================================================
In thousands 1995 1994 1993
Current:
Federal $ 98,802 $87,174 $59,292
State and local 5,154 3,864 647
- ----------------------------------------------------------------------------
Total current tax expense 103,956 91,038 59,939
- ----------------------------------------------------------------------------
Deferred:
Federal 6,610 4,367 11,554
State and local 1,991 238 (344)
- ----------------------------------------------------------------------------
Total deferred tax expense 8,601 4,605 11,210
- ----------------------------------------------------------------------------
Total income tax expense $112,557 $95,643 $71,149
============================================================================
In addition to the state and local income tax expense above, which pertains to
the non-bank affiliates and to the non-Virginia bank subsidiaries, Crestar Bank
incurred Virginia bank franchise tax expense of $3,789,000 in 1995, $3,199,000
in 1994 and $2,810,000 in 1993. This tax is imposed on banks in Virginia in lieu
of income and personal property taxes. Crestar Bank remits 80 percent of the tax
to the Virginia municipalities in which it does business and the remaining 20
percent to the Commonwealth of Virginia.
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 years ended December 31 were:
<TABLE>
<CAPTION>
=========================================================================================
In thousands 1995 1994 1993
<S> <C> <C> <C>
Income before income taxes $292,354 $279,761 $223,905
- -----------------------------------------------------------------------------------------
Tax expense at statutory rate 102,324 97,916 78,367
- -----------------------------------------------------------------------------------------
Increase (decrease) in taxes resulting from:
Allowance for loan loss recapture 8,694 - -
Tax-exempt interest and dividends (7,271) (7,296) (8,355)
Nondeductible interest expense 627 459 531
Amortization of goodwill 3,496 2,141 1,075
State income taxes 5,299 2,666 1,169
Adoption of SFAS 109 - - (540)
Deferred tax effect of 1993 tax rate change - - (1,593)
Other - net (612) (243) 495
- -----------------------------------------------------------------------------------------
Total increase (decrease) in taxes 10,233 (2,273) (7,218)
- -----------------------------------------------------------------------------------------
Total income tax expense $112,557 $ 95,643 $ 71,149
- -----------------------------------------------------------------------------------------
Effective tax rate 38.5% 34.2% 31.8%
=========================================================================================
</TABLE>
The Corporation made income tax payments of $84,179,000, $88,008,000 and
$58,334,000 during 1995, 1994 and 1993, respectively.
Effective January 1, 1993, Crestar adopted Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes" as discussed in note 1(l) to
the consolidated financial statements. The sources and tax effects of temporary
differences that gave rise to significant portions of deferred income tax
assets (liabilities) at December 31 were:
58
<PAGE>
===============================================================================
In thousands 1995 1994
Deferred income tax assets:
Allowance for loan losses $ 54,366 $ 70,582
Loans 5,207 -
Intangible assets 22,304 13,983
Foreclosed properties 4,036 8,827
Compensation and employee benefits 24,554 19,435
Unrealized loss on securities available for sale - 20,901
Other 8,873 11,892
- -------------------------------------------------------------------------------
Total deferred income tax assets 119,340 145,620
- -------------------------------------------------------------------------------
Deferred income tax liabilities:
Premises and equipment (16,432) (13,059)
Securities (4,987) (4,440)
Deferred loan fees and costs (6,082) (1,935)
Loans - (790)
Unrealized gain on securities available for sale (6,065) -
Other (7,714) (15,931)
- -------------------------------------------------------------------------------
Total deferred income tax liabilities (41,280) (36,155)
- -------------------------------------------------------------------------------
Net deferred income tax asset $ 78,060 $109,465
===============================================================================
The net deferred income tax asset is included in other assets in the
accompanying consolidated balance sheets. There was no valuation allowance
relating to the net deferred tax asset at December 31, 1995 and 1994. 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.
(15) SHAREHOLDERS' EQUITY
During 1995, 1994 and 1993 the Corporation purchased and retired 1,765,100,
1,120,300 and 658,900 shares of common stock at an average cost of $46.54,
$43.25 and $36.36 per share, respectively.
During 1994, all remaining subordinated debentures were converted into 12,210
shares of common stock. During 1993, $2,000 of subordinated debentures were
converted into 216 shares of common stock.
At December 31, 1995, common stock was reserved for issuance to directors,
officers or employees, with respect to stock options granted from 1987 through
1995 as explained in note 19 to the consolidated financial statements. There
were 2,300,000 shares reserved for the Performance Equity Plan and the 1993
Stock Incentive Plan, which provide awards to key executives based upon
attainment of specific long-term corporate goals. No shares were beneficially
owned by a subsidiary.
In December 1993, all 900,000 shares of the Adjustable Rate Cumulative
Preferred Stock Series B were redeemed at 103% of the stock's stated value, or a
price per share of $51.50, plus accrued and unpaid dividends.
(16) OTHER INCOME
Other income in the consolidated statements of income includes:
==============================================================================
In thousands 1995 1994 1993
Mortgage servicing - net $15,924 $16,949 $ 7,557
Mortgage origination - net 10,659 10,336 22,472
Automated teller machine fees 14,794 10,913 9,585
Trading account activities 2,530 1,069 4,415
Commissions on letters of credit 4,805 5,575 7,712
Safe deposit box rental 3,720 3,537 2,239
Gain on sale of mortgage servicing rights 11,000 18,732 3,600
Miscellaneous 29,720 23,813 21,582
- ------------------------------------------------------------------------------
Total other income $93,152 $90,924 $79,162
==============================================================================
59
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Crestar Financial Corporation And Subsidiaries
(17) REGULATORY REQUIREMENTS AND RESTRICTIONS
Crestar Bank, Crestar Bank N.A., Crestar Bank MD and Crestar Bank FSB (the Bank
and Savings subsidiaries) are subject to certain requirements imposed by state
and federal banking statutes and regulations. These requirements, among other
things, establish minimum levels for capital and restrict the amount of
dividends that may be distributed and the amount of loans that may be made by
the Bank and Savings subsidiaries to the Parent and require that the Bank and
Savings subsidiaries maintain a minimum reserve balance with the Federal Reserve
Bank.
Under the current supervisory practices of the Bank subsidiaries' regulatory
agencies, prior approval from those agencies is required if cash dividends
declared in any given year exceed net income for that year plus retained
earnings of the two preceding years. Under the current supervisory practices of
the Savings subsidiary's regulatory agency, cash dividends declared in any given
year may not exceed the higher of (i) 100% of its net income during the calendar
year plus the amount that would reduce by one-half its surplus capital ratio
(total regulatory capital less minimum required total regulatory capital) at the
beginning of the calendar year or (ii) 75% of its net income over the most
recent four-quarter period. The amount of dividends available to the Parent from
the Bank and Savings subsidiaries at January 1, 1996, without prior approval,
was approximately $226.9 million. Cash dividends paid by the Bank and Savings
subsidiaries to the Parent in 1995, 1994 and 1993 were $72.8 million, $95.2
million and $103.8 million, respectively.
Section 23A of the Federal Reserve Act imposes limitations on the amount of
credit that may be extended to the Parent by the Bank and Savings subsidiaries.
Generally, up to 10% of the Bank and Savings subsidiaries' regulatory capital,
surplus, undivided profits, allowance for loan losses and contingency reserves
may be loaned by the Bank and Savings subsidiaries to the Parent. As of December
31, 1995, $166 million of credit was available to the Parent under this
limitation, although no extensions of credit were outstanding.
For the reserve maintenance period in effect at December 31, 1995 and 1994,
the Bank and Savings subsidiaries were required to maintain average daily
balances totaling approximately $389.7 million and $348.7 million, respectively,
with the Federal Reserve Bank. The average amount of reserve balances for the
year ended December 31, 1995 totaled approximately $352.1 million.
As of January 1, 1995, aggregate loans to directors and executive officers
and their associates were $23,379,000. Additions and repayments totaled
$4,019,000 and $4,545,000, respectively, during 1995 and the balance was
$22,853,000 at year end. These loans were made in the ordinary course of
business and were arms-length in terms of credit risk, interest rates and
collateral requirements prevailing at the time for comparable transactions.
These loans do not represent more than a normal credit risk. None of these loans
were nonaccrual, past due or restructured at December 31, 1995.
(18) PENSION PLANS
Substantially all employees are participants in the Corporation's
noncontributory defined benefit pension plans. Benefits under the plans are
based on length of service and a percentage of qualifying compensation during
the final years of employment. The Corporation's funding policy is to contribute
annually the maximum amount that can be contributed for federal income tax
purposes. Contributions are intended to provide not only for benefits attributed
to service to date but also for those expected to be earned in the future.
Crestar also has unfunded and nonqualified supplemental plans to provide
retirement benefits to certain senior officers. Benefits under these plans are
also based on length of service and compensation levels.
A summary of the plans' funded status and amounts recognized in the
Corporation's consolidated balance sheets at December 31, 1995 and 1994, based
on a measurement date of September 30 for each year, follows.
60
<PAGE>
<TABLE>
<CAPTION>
====================================================================================================================
In thousands 1995 1994
-------------------------- ---------------------------
Unfunded Unfunded
Funded Supplemental Funded Supplemental
Plans Plans Plans Plans
<S> <C> <C> <C> <C>
Accumulated benefit obligations:
Vested $ 77,650 $ 14,621 $ 76,402 $ 5,276
Nonvested 3,322 2,706 2,015 90
- --------------------------------------------------------------------------------------------------------------------
Total accumulated benefit obligations 80,972 17,327 78,417 5,366
====================================================================================================================
Projected benefit obligations for service rendered to date (120,037) (17,299) (110,056) (7,452)
Plan assets at fair value, primarily listed stocks and
U.S. Treasury bonds 126,325 - 128,751 -
- --------------------------------------------------------------------------------------------------------------------
Plan assets in excess of (less than) projected benefit
obligations 6,288 (17,299) 18,695 (7,452)
Unrecognized net loss (gain) from past experience different
from that assumed and effects of changes in assumptions (6,798) 1,966 (22,633) 1,512
Unrecognized prior service costs 2,174 8,166 (99) 1,337
Adjustment required to recognize minimum liability (449) (83) - (1,212)
Unrecognized net assets (obligations) being amortized
over approximately 15 years (2,613) 350 (275) 1,901
- --------------------------------------------------------------------------------------------------------------------
Accrued pension expense $ (1,398) $ (6,900) $ (4,312) $(3,914)
====================================================================================================================
</TABLE>
Net periodic pension expense included the following components in 1995,
1994 and 1993:
<TABLE>
<CAPTION>
=============================================================================================
In thousands 1995 1994 1993
<S> <C> <C> <C>
Service cost - benefits earned during the year $ 6,507 $ 6,981 $ 5,301
Interest expense on projected benefit obligations 10,494 9,790 7,437
Actual return on plan assets (72) (1,218) (19,410)
Net amortization and deferral (12,261) (10,158) 9,221
- ---------------------------------------------------------------------------------------------
Net periodic pension expense $ 4,668 $ 5,395 $ 2,549
=============================================================================================
</TABLE>
Net periodic pension expense for funded plans constituted 30%, 76% and 71% of
total pension expense in 1995, 1994 and 1993, respectively. During 1995, Crestar
established an unfunded supplemental pension benefit plan for certain management
personnel. Also during 1995, Crestar purchased annuities to settle pension
obligations for selected retirees of the Corporation. As a result, the projected
benefit obligation was reduced by $18,948,000 in 1995, and a pre-tax gain of
$4,340,000 was recognized as noninterest income.
The Loyola plans were each valued separately for periods prior to the merger
with Crestar, and each plan independently determined its assumptions. The
aggregate disclosures above, therefore, reflect the following weighted average
assumptions used in determining the actuarial present value of the projected
benefit obligations.
<TABLE>
<CAPTION>
==============================================================================================================
Crestar Loyola
-------------------------- --------------------------
1995 1994 1993 1995 1994 1993
<S> <C> <C> <C> <C> <C> <C>
Weighted average discount rate 7.75% 8.50% 7.25% 7.75% 8.00% 7.00%
Expected long-term rate of return 9.25 9.00 8.50 9.25 8.50 8.50
Rate of increase in future compensation 4.75 5.00 5.00 4.75 5.00 5.00
==============================================================================================================
</TABLE>
61
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Crestar Financial Corporation And Subsidiaries
(19) OTHER EMPLOYEE BENEFIT PLANS
The Corporation maintains a stock incentive plan which allows for the granting
of incentive and nonqualified stock options to all employees on a discretionary
basis. The Corporation also maintains a stock option plan under which no future
options will be granted, but under which previously granted options were
outstanding at December 31, 1995. Stock options are granted at prices equal to
the fair market value of the stock on the date of grant. Options are exercisable
starting one year from the date of grant, or upon retirement, disability or
death; options expire seven years from the date of grant for options granted
prior to 1989 and ten years from the date of grant for options granted in 1989
and thereafter.
Summarized activity relating to options for the years ended December 31
follows:
<TABLE>
<CAPTION>
============================================================================================================
1995 1994 1993
<S> <C> <C> <C>
Outstanding, January 1 1,716,553 1,738,806 1,776,320
Granted 339,542 247,840 291,570
Canceled or retired (2,900) (1,200) (10,609)
Exercised ($6.64 to $48.25 per share) (244,114) (268,893) (318,475)
- ------------------------------------------------------------------------------------------------------------
Outstanding, December 31 ($6.64 to $54.88 per share) 1,809,081 1,716,553 1,738,806
- ------------------------------------------------------------------------------------------------------------
Exercisable, December 31 1,486,990 1,504,053 1,372,916
============================================================================================================
</TABLE>
The Corporation provides postretirement life and contributory health insurance
benefit plans for eligible retirees. The cost of such benefits are accrued in a
manner similar to pension costs. The projected status of Crestar's
postretirement life and contributory health insurance benefit plans for eligible
retirees as of December 31 follow:
<TABLE>
<CAPTION>
============================================================================================================
In thousands 1995 1994
<S> <C> <C>
Accumulated postretirement benefit obligations (other than pensions):
Retirees $(31,124) $(29,155)
Eligible active plan participants (7,977) (7,786)
Ineligible active participants (8,782) (8,400)
- ------------------------------------------------------------------------------------------------------------
Total (47,883) (45,341)
Unrecognized net loss from past experience different from that assumed
and effects of changes in assumptions 7,199 6,627
Unrecognized transition obligation to be recognized over 20 years 29,070 30,780
- ------------------------------------------------------------------------------------------------------------
Accrued postretirement benefit expense $(11,614) $ (7,934)
============================================================================================================
</TABLE>
Postretirement benefit expense for the years ended December 31 included:
===========================================================================
In thousands 1995 1994
Service cost $ 626 $ 873
Interest cost 3,735 2,977
Net amortization and deferral 1,972 1,710
- ---------------------------------------------------------------------------
Net postretirement benefit expense $6,333 $5,560
===========================================================================
The weighted average annual assumed rate of increase in the per capita cost of
covered benefits for health insurance is 11% for 1996 and is assumed to decrease
gradually to 7% in 2000 and remain at that level thereafter. Increasing the
assumed health care trend rates by one percentage point in each year would
increase the accumulated postretirement benefit obligation for the medical plan
by approximately $3.9 million, and would increase the aggregate of the service
and interest components of net postretirement benefit expense by approximately
$330 thousand for 1995. The weighted average discount rate used in projecting
the accumulated plan benefit obligation was 7.75% for 1995, and the average rate
of annual compensation increase was 4.75%.
The Corporation maintains a grantor trust to pay certain employee benefits as
they become due. Assets of the trust are restricted to use for applicable
62
<PAGE>
employee benefit plans, including deferred compensation and medical benefit
plans. Such trust assets of approximately $70 million and $62 million at
December 31, 1995 and 1994, respectively, are included in the Corporation's
total assets.
The Corporation has thrift and profit-sharing plans covering substantially
all full-time employees beginning January 1 after date of hire. The Corporation
makes matching contributions of 50 cents for every $1 of employee contributions
to the thrift plan, up to 6 percent of base pay. Employer profit-sharing
contributions are determined by applying a formula based on return on equity to
covered compensation. Thrift and profit-sharing plan expenses totaled $15.4
million, $17.1 million and $11.5 million in 1995, 1994 and 1993, respectively.
(20) OTHER EXPENSE
Other expense in the consolidated statements of income includes:
================================================================================
In thousands 1995 1994 1993
Communications $ 30,597 $ 27,380 $ 23,041
Stationery, printing and supplies 10,169 9,592 8,680
Professional fees and services 19,504 15,310 15,829
Loan expense 8,532 10,081 9,012
FDIC premiums 21,650 28,494 25,559
Advertising and marketing 15,998 22,011 15,344
Transportation 6,656 6,601 6,123
Outside data services 25,216 22,619 18,532
Amortization of purchased intangibles 13,934 6,317 10,941
Foreclosed properties (4,687) 2,153 34,561
Miscellaneous 51,474 43,669 38,270
- --------------------------------------------------------------------------------
Total other expense $199,043 $194,227 $205,892
================================================================================
63
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Crestar Financial Corporation And Subsidiaries
(21) CONDENSED BANK AND SAVINGS BANK INFORMATION
Condensed Consolidated Balance Sheets for Crestar Bank, Crestar Bank N.A.,
Crestar Bank MD and Crestar Bank FSB at December 31, 1995 follow:
<TABLE>
<CAPTION>
===========================================================================================================
In thousands Crestar Bank Crestar Bank N.A. Crestar Bank MD Crestar Bank FSB
------------ ----------------- --------------- -----------------
<S> <C> <C> <C> <C>
Cash and due from banks $ 929,871 $ 178,758 $ 77,513 $ 72,340
Securities held to maturity 72,678 1,000 1,571 -
Securities available for sale 2,127,297 473,375 215,265 285,953
Money market investments 417,453 482,040 372,000 40,143
Mortgage loans held for sale 460,797 - - 227,421
Loans - net of unearned income 8,754,367 372,510 814,905 1,875,077
Less: Allowance for loan losses (196,121) (14,525) (14,425) (15,118)
- -----------------------------------------------------------------------------------------------------------
Loans - net 8,558,246 357,985 800,480 1,859,959
Premises and equipment - net 268,158 46,598 16,637 23,955
Customers' liability on acceptances 5,143 - - -
Intangible assets 121,098 8,434 53,597 3,603
Other assets 495,266 34,664 44,816 22,707
- -----------------------------------------------------------------------------------------------------------
Total Assets $13,456,007 $1,582,854 $1,581,879 $2,536,081
===========================================================================================================
Deposits $ 9,379,972 $1,282,827 $1,347,392 $1,468,768
Short-term borrowings 2,192,518 122,444 56,635 525,508
Notes payable to Parent 213,000 10,000 25,000 23,988
Liability on acceptances 5,143 - - -
Other liabilities 615,738 4,816 11,606 55,818
Long-term debt 33,870 5,158 6,038 301,601
- -----------------------------------------------------------------------------------------------------------
Total Liabilities 12,440,241 1,425,245 1,446,671 2,375,683
- -----------------------------------------------------------------------------------------------------------
Total Shareholder's Equity 1,015,766 157,609 135,208 160,398
- -----------------------------------------------------------------------------------------------------------
Total Liabilities and
Shareholder's Equity $13,456,007 $1,582,854 $1,581,879 $2,536,081
===========================================================================================================
</TABLE>
Condensed Consolidated Statements of Income for Crestar Bank, Crestar Bank N.A.,
Crestar Bank MD and Crestar Bank FSB for the year ended December 31, 1995
follow:
<TABLE>
<CAPTION>
===========================================================================================================
In thousands Crestar Bank Crestar Bank N.A. Crestar Bank MD Crestar Bank FSB
------------ ----------------- --------------- -----------------
<S> <C> <C> <C> <C>
Income from earning assets $ 899,941 $ 92,994 $ 83,101 $ 188,284
Interest expense 385,338 41,477 35,190 118,613
- -----------------------------------------------------------------------------------------------------------
Net interest income 514,603 51,517 47,911 69,671
Provision for loan losses 49,347 - 5,888 5,160
- -----------------------------------------------------------------------------------------------------------
Net credit income 465,256 51,517 42,023 64,511
Noninterest income 226,732 27,947 23,816 11,562
Securities gains (losses) (2,370) 396 (58) -
- -----------------------------------------------------------------------------------------------------------
Net credit and noninterest income 689,618 79,860 65,781 76,073
Noninterest expense 442,579 53,586 49,284 67,376
- -----------------------------------------------------------------------------------------------------------
Income before income taxes 247,039 26,274 16,497 8,697
Applicable income tax expense 83,788 9,962 7,123 14,772
- -----------------------------------------------------------------------------------------------------------
Net income (loss) $ 163,251 $ 16,312 $ 9,374 $ (6,075)
===========================================================================================================
</TABLE>
64
<PAGE>
(22) CONDENSED PARENT INFORMATION
The Parent's Condensed Balance Sheets at December 31 were:
==========================================================================
In thousands 1995 1994
Cash in banks $ 35,241 $ 34,033
Securities held to maturity 10,119 11,544
Securities available for sale 114,200 81,200
Money market investments 73,402 178,528
Notes receivable from subsidiaries 273,206 235,207
Investments in subsidiaries:
Bank and savings subsidiaries 1,468,981 1,269,545
Non-bank subsidiaries 8,810 7,375
Other assets 18,101 18,448
- --------------------------------------------------------------------------
Total Assets $2,002,060 $1,835,880
==========================================================================
Securities sold to subsidiary under
repurchase agreements $7,976 $4,565
Other short-term borrowings 157,929 154,206
Other liabilities 60,128 57,369
Long-term debt 324,630 324,581
Total shareholders' equity 1,451,397 1,295,159
- --------------------------------------------------------------------------
Total Liabilities and Shareholders' Equity $2,002,060 $1,835,880
==========================================================================
The Parent's retained earnings were $855,195,000 and $818,924,000 at December
31, 1995 and 1994, respectively, and were comprised primarily of the
undistributed earnings of its subsidiaries. The Parent's Condensed Statements of
Income for each of the last three years ended December 31 were:
<TABLE>
<CAPTION>
===========================================================================================================
In thousands 1995 1994 1993
<S> <C> <C> <C>
Cash dividends from bank and savings subsidiaries $ 72,777 $ 95,229 $103,834
Interest from subsidiaries 20,145 15,692 15,674
Interest on securities held to maturity 716 778 784
Interest on securities available for sale 2,829 764 650
Income on other money market investments 302 398 1,762
Interest on securities purchased under agreements to resell 8,329 5,208 3,014
Other income 721 744 717
Securities losses - (145) (1,859)
- -----------------------------------------------------------------------------------------------------------
Total income 105,819 118,668 124,576
- -----------------------------------------------------------------------------------------------------------
Interest on securities sold to subsidiary under repurchase agreements 142 79 325
Interest on other short-term borrowings 7,869 4,703 2,696
Interest on long-term debt 27,800 16,318 15,754
Other expense 5,848 2,555 1,582
- -----------------------------------------------------------------------------------------------------------
Total expense 41,659 23,655 20,357
- -----------------------------------------------------------------------------------------------------------
Income before income taxes and equity in undistributed
net income of subsidiaries 64,160 95,013 104,219
Income tax benefit (3,876) (647) (1,131)
- -----------------------------------------------------------------------------------------------------------
Income before equity in undistributed net income of subsidiaries 68,036 95,660 105,350
Equity in undistributed net income of subsidiaries 111,761 88,458 47,406
- -----------------------------------------------------------------------------------------------------------
Net Income $179,797 $184,118 $152,756
===========================================================================================================
</TABLE>
65
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Crestar Financial Corporation And Subsidiaries
The Parent's Condensed Statements of Cash Flows for each of the last three years
ended December 31 were:
<TABLE>
<CAPTION>
===========================================================================================================
In thousands 1995 1994 1993
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 179,797 $ 184,118 $ 152,756
Adjustments to reconcile net income to
net cash provided by operating activities:
Equity in undistributed net income of subsidiaries (111,761) (88,458) (47,406)
Depreciation and amortization of premises and equipment 52 51 52
Securities losses - 145 1,859
Amortization and accretion, net 407 259 248
Net increase in accrued interest receivable, prepaid
expenses and other assets (651) (1,222) (3,780)
Net increase (decrease) in accrued interest payable,
accrued expenses and other liabilities 1,295 7,466 (3,796)
- -------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 69,139 102,359 99,933
- -------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Proceeds from maturities of securities held to maturity 1,347 - -
Proceeds from maturities of securities available for sale 485,234 108,500 -
Proceeds from sales of securities available for sale - 606 22,191
Purchases of securities held to maturity (2) - (749)
Purchases of securities available for sale (518,000) (189,700) -
Net decrease (increase) in money market investments 105,126 (37,588) 73,501
Net increase in notes receivable from subsidiaries (37,999) (50,000) -
Decrease in payable to subsidiary - - (45,000)
Net decrease (increase) in investment in subsidiaries 35,037 (4,264) (8,439)
Net cash paid for acquisitions (22,643) (28,877) (5,524)
Other, net 1,026 (1,726) 175
- -------------------------------------------------------------------------------------------------------------
Net cash provided (used) by investing activities 49,126 (203,049) 36,155
- -------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Net increase (decrease) in short-term borrowings 7,134 37,381 (12,636)
Principal payments on long-term debt - - (19,349)
Proceeds from the issuance of long-term debt - 149,615 -
Redemption of preferred stock - - (46,350)
Cash dividends paid (70,207) (60,705) (47,034)
Common stock purchased and retired (82,144) (48,450) (23,958)
Proceeds from the issuance of common stock 28,160 24,539 15,416
- -------------------------------------------------------------------------------------------------------------
Net cash provided (used) by financing activities (117,057) 102,380 (133,911)
- -------------------------------------------------------------------------------------------------------------
Increase in cash and cash equivalents 1,208 1,690 2,177
Cash and cash equivalents at beginning of year 34,033 32,343 30,166
- -------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 35,241 $ 34,033 $ 32,343
=============================================================================================================
</TABLE>
Cash and cash equivalents consist of cash in banks.
(23) COMMITMENTS, CONTINGENCIES AND OTHER FINANCIAL INSTRUMENTS
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, which are some of the instruments used by
Crestar to meet the financing needs of its customers and to manage its own
interest rate risk. These instruments involve, to varying degrees, elements of
credit and interest rate risk in excess of the amounts recognized in the
consolidated balance sheets. Any losses which may result from these transactions
are not expected to have a material effect on the accompanying consolidated
financial statements. Notional principal amounts often are used to express the
volume of the transaction, but the amounts potentially subject to credit risk
are much
66
<PAGE>
smaller. The contract or notional amount, the estimated fair value and
the credit risk amount of each class of such instruments at December 31 was:
<TABLE>
<CAPTION>
===================================================================================================================
In thousands
1995 1994
---------------------------------------- -----------------------------------------
Estimated Estimated
Fair Value Contract/ Fair Value Contract/
Asset Notional Credit Risk Asset Notional Credit Risk
(Liability) Amount Amount (Liability) Amount Amount
<S> <C> <C> <C> <C> <C> <C>
Financial instruments whose
notional or contract
amounts equaled
maximum credit risk:
Legally binding unfunded
commitments to extend
credit $(1,173) $6,733,212 $6,733,212 $ (4,660) $5,706,731 $5,706,731
Standby letters of credit - 401,452 401,452 - 400,040 400,040
Commercial and similar
letters of credit - 67,628 67,628 - 110,671 110,671
Recourse obligations - 1,027,338 1,027,338 - 890,005 890,005
- -------------------------------------------------------------------------------------------------------------------
Total $(1,173) $8,229,630 $8,229,630 $ (4,660) $7,107,447 $7,107,447
===================================================================================================================
Financial instruments whose
notional or contract
amounts exceeded the
amount of credit risk:
Interest rate risk management
Interest rate swaps
Asset rate
conversions:
Receive fixed $13,416 $1,200,000 $ 86,288 $(95,147) $1,460,166 $ 30,869
Interest rate floors - - - (83) 200,000 1,000
Interest rate caps 151 40,000 3,325 - - -
Forward contracts (6,076) 547,790 - 24 266,439 265
As a financial intermediary
Interest rate swaps 264 98,434 15,522 - 133,682 3,532
Interest rate floors - - - - 7,000 18
Interest rate collars - 30,897 2,037 31 37,688 1,408
Interest rate caps - 67,600 599 18 113,104 1,113
- -------------------------------------------------------------------------------------------------------------------
Total $ 7,755 $1,984,721 $ 107,771 $(95,157) $2,218,079 $ 38,205
===================================================================================================================
</TABLE>
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. Standby letters
of credit are conditional commitments issued by Crestar to guarantee the
performance of customers to a third party. Crestar receives a commitment fee for
entering into such agreements.
The credit risk associated with commitments to extend credit and standby
letters of credit is similar to direct lending; therefore, all of these items
are subject to the Corporation's loan approval and review procedures and
policies. Based upon management's credit evaluation of the customer, 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. The maximum credit risk associated with commitments to extend credit
and standby letters of credit assumes that the counterparty defaults and the
collateral proves to be worthless.
The total contract amounts do not necessarily represent future cash
requirements, since many of these items are expected to expire without being
drawn upon. At December 31, 1995, approximately $16.4 million of the standby
letters of credit and $3.3 million of the commercial and similar letters of
credit were participated to other financial institutions.
A geographic concentration exists within Crestar's loan portfolio since most
of Crestar's business activity is with customers located in Virginia, Maryland
or Washington, DC. Based upon Standard Industrial Classification codes used for
regulatory purposes, the
67
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Crestar Financial Corporation And Subsidiaries
Corporation had no aggregate loan concentration of 10% or more of total loans in
any particular industry at December 31, 1995. However, under a broader view of
the portfolio, Crestar had $1.2 billion in loans outstanding to real
estate developers and investors at year-end 1995. These loans are
diversified by geographic region within Crestar's market and by project
type and are made in accordance with the Corporation's normal credit and
underwriting guidelines and risk management policies.
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 at December 31,
1995 include $125 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 December 31, 1995 based on estimates of future losses on this
contractual recourse liability. The remaining notional balance of recourse
obligations of $902 million at December 31, 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 $646
million of this notional balance was insured by agencies of the Federal
government or private insurance companies at December 31, 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 December 31, 1995, Crestar
was participating in interest rate (fixed receive) swaps, $750 million, $250
million and $200 million of which were used to convert certain floating rate
commercial, instalment and real estate mortgage loans, respectively, to fixed
rates. Crestar also had interest rate cap agreements outstanding at December 31,
1995, which the Corporation uses to minimize interest rate risk associated with
floating rate money market deposits. In addition, Crestar serves as a financial
intermediary in interest rate swap, cap, collar and floor agreements, providing
risk management services to customers. As an intermediary, Crestar typically
becomes a principal in the exchange of interest payments between parties and,
therefore, is exposed to loss should one of the parties default. The Corporation
performs normal credit review on each counterparty and minimizes its exposure to
the interest rate risk inherent in these items by entering into offsetting
positions or by using hedging techniques to minimize risk.
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 $14.4
million plus an amount for additional market movement. Three counterparties
constituted 19%, 12% and 10% of the estimated credit and market exposure of
$107.8 million at December 31, 1995.
Crestar also had forward agreements outstanding at December 31, 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.
Crestar may, from time to time, enter into certain derivative contracts, such
as purchased futures or options contracts, for trading purposes as discussed in
note 1(c). Such contract amounts were not material in 1995.
The fair values of commitments to extend credit, standby letters of credit
and commercial and similar letters of credit were estimated based on the fees
currently charged to enter into similar agreements, taking into account the
remaining terms of the agreements and creditworthiness of counterparties.
Unfunded loan commitments are generally priced at market at the time of funding
and are subject to certain credit standards. The fair values of forward
agreements are estimated based on current settlement values. The fair values of
interest rate swaps, caps and floors are estimated based on the amount the
Corporation would receive or pay to terminate the contracts or agreements. Such
amounts are determined using a valuation model which considers current market
yields, counterparty credit risk and other relevant variables. The carrying
value of interest rate swaps, caps and floors, and other off-balance sheet
financial instruments was not material at December 31, 1995 and 1994.
Legislative efforts to resolve the undercapitalization of the Savings
Association Insurance Fund (SAIF) of the FDIC, and the disparity between deposit
insurance premiums for SAIF-insured deposits and deposits insured under the Bank
Insurance Fund (BIF), may result in a one-time special assessment on
SAIF-insured deposits. Earnings in 1996 may be impacted if a legislatively
proposed one-time assessment of
68
<PAGE>
approximately 80 basis points (0.80%) on SAIF-insured deposits is enacted.
Any one-time assessment on SAIF-insured deposits would impact each of
Crestar's three bank subsidiaries and its savings bank subsidiary.
Approximately 44% of Crestar's current deposit base is SAIF-insured. An
80 basis point assessment, on an after-tax basis, would result in a one-time
charge to Crestar of approximately $25 million. As a consequence of the
one-time assessment, future earnings are expected to be augmented by a
substantial reduction in ongoing SAIF assessment rates. The estimated $25
million charge for Crestar reflects a proposed 20% reduction in the assessments
on certain SAIF-insured deposits (known as Oakar deposits) acquired by banks in
certain thrift acquisitions. Crestar would accrue such a liability if and when
such legislation is enacted into law.
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.
(24) FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107 (SFAS 107), "Disclosures
about Fair Value of Financial Instruments," defines the fair value of a
financial instrument as the amount at which the instrument could be exchanged in
a current transaction between willing parties, other than in a forced or
liquidation sale. As the majority of Crestar's financial instruments lack an
available trading market, significant estimates, assumptions and present value
calculations are required to determine estimated fair value. Comparability among
financial institutions is difficult due to the wide range of acceptable
valuation techniques and the subjectivity of required assumptions. Crestar's
remaining assets and liabilities, not considered financial instruments, have not
been valued differently than customary, historical cost accounting, nor have
lines of business been separately valued. Information regarding the estimated
fair values of Crestar's financial instruments at December 31 follows:
<TABLE>
<CAPTION>
=============================================================================================================
In thousands Estimated Fair Value Carrying Value
Assets (Liabilities) Assets (Liabilities)
-------------------------- -----------------------------
1995 1994 1995 1994
<S> <C> <C> <C> <C>
Cash and due from banks $ 1,084,047 $ 930,599 $ 1,084,047 $ 930,599
Securities held to maturity 88,406 1,180,575 85,368 1,252,278
Securities available for sale 3,231,389 1,658,780 3,231,389 1,658,780
Money market investments 516,268 452,650 516,268 452,650
Net loans, including loans held for sale 12,387,000 11,164,000 12,254,361 11,249,184
Other financial instrument assets 321,213 191,528 320,848 191,569
Deposits with no stated maturities (8,952,501) (8,607,113) (8,952,501) (8,607,113)
Deposits with stated maturities (4,315,000) (3,745,000) (4,300,914) (3,809,646)
Short-term borrowings (2,227,338) (1,807,237) (2,227,338) (1,807,237)
Long-term debt (717,253) (679,590) (671,296) (715,132)
Other financial instrument liabilities (630,220) (233,076) (630,220) (233,076)
Off-balance sheet financial instruments - net 6,582 (99,817) - -
=============================================================================================================
</TABLE>
The carrying amounts in the table are included in the consolidated balance
sheets under the indicated captions, except for off-balance sheet financial
instruments which are discussed in note 23.
The carrying value of cash and due from bank balances and money market
investments approximates fair value. Financial instruments actively traded in a
secondary market, such as securities, were valued using available quoted market
prices.
The Corporation's loan portfolio was valued based on estimated future cash
flows, discounted at various rates. The discount rates used were commensurate
with rates paid on U.S. Treasury securities with various maturity dates,
adjusted for noninterest operating costs, anticipated credit losses and
prepayment risk. The estimated fair value of the loan portfolio excludes the
intangible value attributable to account relationships, including bank card,
home equity line or similar revolving line of credit arrangements.
Other financial instrument assets consist largely of customers' liability on
acceptances and accrued interest receivable, for which carrying amount
approximates fair value. The fair value of other financial instruments included
in other assets was based on estimates of the present value of future net cash
flows.
The carrying value of demand deposits, interest checking deposits, money
market deposit accounts and regular savings deposits is defined by SFAS 107
69
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Crestar Financial Corporation And Subsidiaries
to approximate fair value. Deposits with stated maturities were valued based
on estimated future cash flows, discounted at various rates. The discount
rates used were commensurate with rates paid on U.S. Treasury securities,
adjusted for factors such as operating expenses and prepayment risk. The
estimated fair value of deposits excludes the intangible value
attributable to long-term relationships with depositors.
The carrying value of short-term borrowings approximates fair value.
Long-term debt was valued based on interest rates currently available to Crestar
for debt with similar terms and remaining maturities.
Other financial instrument liabilities consist largely of liability on
acceptances, interest payable on deposits and balances due upon settlement of
securities purchases, for which carrying value approximates fair value. The fair
value of other financial instrument liabilities was estimated based on estimates
of the present value of future net cash payments.
(25) QUARTERLY FINANCIAL RESULTS (UNAUDITED)
Consolidated quarterly results of operations for the years ended December 31
were:
<TABLE>
<CAPTION>
=============================================================================================================
Dollars in thousands, except per share data First Second Third Fourth
1995 Quarter Quarter Quarter Quarter
<S> <C> <C> <C> <C>
Income from earning assets $299,960 $308,780 $309,584 $317,791
Net interest income 169,723 171,025 169,277 172,791
Provision for loan losses 10,301 13,736 14,231 21,302
Securities gains (losses) (2,410) (1,050) (69) 1,316
Other noninterest income 68,955 73,871 75,044 72,885
Net credit and noninterest income 225,967 230,110 230,021 225,690
Noninterest expense 149,910 152,087 148,570 168,867
Income before income taxes 76,057 78,023 81,451 56,823
Net Income 49,659 51,765 52,076 26,297
- -------------------------------------------------------------------------------------------------------------
Per Common Share
Net Income $ 1.14 $ 1.18 $ 1.19 $ .61
Dividends declared .40 .45 .45 .45
Average shares outstanding (000s) 43,641 43,782 43,686 43,634
=============================================================================================================
1994
Income from earning assets $256,454 $267,199 $280,343 $284,648
Net interest income 157,725 161,757 166,350 164,763
Provision for loan losses 10,212 9,030 8,250 2,850
Securities gains (losses) (1,718) (49) 12 (9,021)
Other noninterest income 65,870 69,701 66,733 67,708
Net credit and noninterest income 211,665 222,379 224,845 220,600
Noninterest expense 145,779 152,887 152,210 148,852
Income before income taxes 65,886 69,492 72,635 71,748
Net Income 43,972 46,250 47,358 46,538
- -------------------------------------------------------------------------------------------------------------
Per Common Share
Net Income $ 1.01 $ 1.06 $ 1.09 $ 1.08
Dividends declared .33 .40 .40 .40
Average shares outstanding (000s) 43,337 43,470 43,626 43,165
=============================================================================================================
</TABLE>
70
<PAGE>
Crestar Financial Corporation
THE BOARD OF DIRECTORS AND SHAREHOLDERS
We have audited the accompanying consolidated balance sheets of Crestar
Financial Corporation and subsidiaries as of December 31, 1995 and 1994 and the
related consolidated statements of income, cash flows and changes in
shareholders' equity for each of the years in the three-year period ended
December 31, 1995. These consolidated financial statements are the
responsibility of the Corporation's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Crestar
Financial Corporation and subsidiaries as of December 31, 1995 and 1994, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1995 in conformity with generally accepted
accounting principles.
Effective January 1, 1994, the Corporation adopted the provisions of the
Financial Accounting Standards Board's Statement of Financial Accounting
Standards No. 115, "Accounting for Certain Investments in Debt and Equity
Securities."
/s/KPMG Peat Marwick LLP
Richmond, Virginia
January 17, 1996
STATEMENT ON CORPORATE RESPONSIBILITY
The financial statements on pages 42 to 70 have been prepared by management in
accordance with generally accepted accounting principles and include some
amounts that are necessarily based on our best estimates and judgments. We are
responsible for the accuracy, integrity, objectivity, consistency and fair
presentation of the financial statements and all other financial information
contained in this Annual Report. One way we fulfill these responsibilities is by
relying on a system of internal controls, which has been designed to ensure that
transactions are properly authorized and recorded in our financial records.
Included in the system is an internal auditing function that independently
assesses the effectiveness of internal controls and recommends possible
improvements thereto. Because of inherent limitations in any system of controls,
there can be no absolute assurance that errors or irregularities will not occur.
Nevertheless, we believe that our system of internal controls provides
reasonable assurance as to the integrity and reliability of our financial
records.
Some of the financial information in this Annual Report is presented on a
tax-equivalent basis to improve comparative analysis. In addition, some of the
business segment information incorporates allocation methods for which there is
no generally accepted accounting principles. However, in all other respects, it
is consistent with the audited financial statements.
Through its Audit Committee, which is composed of directors who are not
officers or employees of the Corporation, the Board of Directors fulfills its
oversight responsibility for determining that the accounting policies employed
by management in preparing the Corporation's financial statements are
appropriate and that our system of internal controls is adequately reviewed and
maintained. The Committee periodically reviews, with management and the internal
auditors, accounting policies, control procedures, and audit and regulatory
examination reports of the Corporation and its subsidiaries. In addition, our
external auditors meet regularly with and have full and free access to the
Committee, privately and with management present, to discuss the results of
their audits and other auditing, accounting and financial reporting matters. The
Committee reports to the full Board after each of its meetings.
KPMG Peat Marwick LLP have audited the accompanying consolidated financial
statements. Their report, located above, represents their judgment as to whether
our consolidated financial statements present fairly our financial position and
results of operations and cash flows in conformity with generally accepted
accounting principles.
We are committed to ensuring that corporate affairs are conducted in
accordance with consistently applied standards of conduct applicable to all
officers and associates. In essence, everyone is expected to manage their
responsibilities with integrity. Our standards provide guidance on general
business conduct, political activities, community involvement, outside
employment and business activities, conflict of interests, personal finances,
and the use and safeguard of confidential information.
Crestar Financial Corporation
71
<PAGE>
BOARD OF DIRECTORS CRESTAR FINANCIAL CORPORATION
Crestar Financial Corporation And Subsidiaries
RICHARD M. BAGLEY
President
Bagley Investment Company
Hampton, Virginia
Real Estate Investments
Audit Committee
J. CARTER FOX
Chairman & Chief Executive Officer
Chesapeake Corporation
Richmond, Virginia
Packaging and Paper Products Manufacturer
Executive Committee
BONNIE GUITON HILL
Dean of the McIntire School Of Commerce
University Of Virginia
Charlottesville, Virginia
Audit Committee
GENE A. JAMES
President & Chief Executive Officer
Southern States Cooperative, Inc.
Richmond, Virginia
Farm Supply Cooperative
Human Resources and Compensation Committee
H. GORDON LEGGETT, JR.
Executive Vice President
Leggett Stores
Lynchburg, Virginia
Retail Department Store
Human Resources and Compensation Committee
CHARLES R. LONGSWORTH
Chairman Emeritus
The Colonial Williamsburg Foundation
Williamsburg, Virginia
Educational Museum, Hotels and Restaurants
Executive Committee and Human Resources and Compensation Committee
(Chairman)
PATRICK J. MAHER
Chairman & Chief Executive Officer
Washington Gas
Washington, DC
Natural Gas Utility
Executive Committee and Audit Committee
(Chairman)
FRANK E. MCCARTHY
Executive Vice President
National Automobile Dealers Association
McLean, Virginia
Executive Committee
PAUL D. MILLER
President & Chief Executive Officer
Sperry Marine, Inc.
Charlottesville, Virginia
Marine Navigation and Control Systems
Audit Committee
G. GILMER MINOR III
Chairman, President & Chief Executive Officer
Owens & Minor, Inc.
Richmond, Virginia
Medical/Surgical Supply Distributor
Human Resources and Compensation Committee
GORDON F. RAINEY, JR.
Partner, Chairman of the Executive Committee
Hunton & Williams
Richmond, Virginia
Attorneys
Audit Committee
FRANK S. ROYAL
Member & President
Frank S. Royal, M.D., P.C.
Richmond, Virginia
Family Medicine
Executive Committee
RICHARD G. TILGHMAN
Chairman & Chief Executive Officer
Crestar Financial Corporation and Crestar Bank
Executive Committee
(Chairman)
EUGENE P. TRANI
President
Virginia Commonwealth University
Richmond, Virginia
Audit Committee
L. DUDLEY WALKER
Chairman
Bassett-Walker, Inc.
Martinsville, Virginia
Textile and Apparel Manufacturer
Audit Committee
JAMES M. WELLS III
President
Crestar Financial Corporation and Crestar Bank
Executive Committee
KAREN HASTIE WILLIAMS
Partner
Crowell & Moring
Washington, DC
Attorneys
Human Resources and Compensation Committee
72
<PAGE>
PRINCIPAL OFFICERS CRESTAR FINANCIAL CORPORATION
Crestar Financial Corporation and Subsidiaries
RICHARD G. TILGHMAN, 55
Chairman & Chief Executive Officer
29 years of service. Elected President and Chief Executive Officer in 1985 and
Chairman in 1986.
JAMES M. WELLS III, 49
President
27 years of service. Elected Executive Vice President of Corporate Banking in
1985 and of the Banking Group in 1986 and to current position in 1988.
THOMAS M. ECKIS, 47
Corporate Executive Vice President & Senior Credit Officer
21 years of service. He was named manager of Real Estate Finance in
Northern Virginia in 1984. In 1990, he became group head for all of Crestar's
commercial real estate finance activities and to current position in 1995.
C. GARLAND HAGEN, 50
Corporate Executive Vice President-Investment Bank
23 years of service. Elected Executive Vice President in 1987.
WILLIAM C. HARRIS, 58
Corporate Executive Vice President & Chairman-Greater Washington Banking &
Maryland Banking 32 years of service. Elected President-Northern Region in
1983 and to current position in 1995.
RICHARD F. KATCHUK, 49
Corporate Executive Vice President & Chief Financial Officer
Elected to current position in 1995.
O.H. PARRISH, JR., 53
Corporate Executive Vice President & President-Virginia Banking
30 years of service. Elected Executive Vice President & Senior Credit Officer in
1985 and to current position in 1994.
WILLIAM K. BUTLER II, 49
President-Eastern Region
23 years of service. Elected President-Norfolk in 1984 and to current position
in 1985.
F. EDWARD HARRIS, 54
President-Western Region
31 years of service. Elected Executive Vice President-Western Region in 1982 and
to current position in 1985.
C.T. HILL, 45
President-Capital Region
25 years of service. Elected Senior Vice President-Commercial Banking in 1983,
Executive Vice President-Capital Region Commercial Division in 1990 and to
current position in 1994.
PETER F. NOSTRAND, 48
President-Greater Washington Region
22 years of service. Elected Senior Executive Vice President of Greater
Washington Region in 1988 and to current position in 1995.
WILLIAM A. WYCOFF, 47
President-Maryland Region
14 years of service. Previously served as Executive Vice President and Manager
of Community Banking, Marketing and Administration at Loyola Capital
Corporation. Elected to current position in 1995.
WILLIAM M. GINTHER, 49
Group Executive Vice President-Technology & Operations
25 years of service. Elected Executive Vice President in 1987 and to current
position in 1994.
JAMES J. KELLEY, 51
Group Executive Vice President-Management Resources Group
22 years of service. Elected Senior Vice President in 1986 and to current
position in 1995
73
<PAGE>
STATEMENT OF BUSINESS
Crestar Financial Corporation And Subsidiaries
Crestar Financial Corporation (Crestar) is the holding company for Crestar Bank
(Virginia), Crestar Bank, N.A. (Washington, DC), Crestar Bank MD (Maryland) and
Crestar Bank FSB (Maryland), a federally chartered thrift acquired in 1995. At
December 31, 1995, Crestar Financial Corporation had $13.3 billion in total
deposits and $1.5 billion in total shareholders' equity.
In 1963, six Virginia banks combined to form United Virginia Bankshares
Incorporated (UVB), a Virginia stock corporation and registered bank holding
company. During the 1960s and 1970s, UVB acquired 18 other Virginia banks and
formed one de novo bank. On December 31, 1979, all of the UVB banks were merged
into United Virginia Bank. During the 1980s, nine more banks were acquired,
including NS&T Bank, N.A., in the District of Columbia in 1985 and Bank of
Bethesda in Maryland in 1986. In September 1987, UVB changed its name to Crestar
Financial Corporation and its bank subsidiaries adopted their present names, all
using the common identifier "Crestar." Since 1990, Crestar Financial Corporation
has acquired 20 banks and thrifts in Virginia, Maryland and Washington, DC. The
most significant transaction in 1995 was the acquisition of Loyola Federal
Savings Bank (renamed Crestar Bank FSB) which added 25 full service banking
offices and $1.5 billion in deposits.
Crestar Financial Corporation is supervised and examined by the Board of
Governors of the Federal Reserve System under the Bank Holding Company Act of
1956 (BHCA). The BHCA requires Federal Reserve approval for bank acquisitions
and regulates non-banking activities of bank holding companies. Deposits of
Crestar's three subsidiary banks and Crestar Bank FSB are insured by the Federal
Deposit Insurance Corporation (FDIC). At December 31, 1995, approximately 56% of
Crestar's deposits were insured by the Bank Insurance Fund (BIF) of the FDIC,
with the remainder insured by the Savings Association Insurance Fund (SAIF) of
the FDIC. Each subsidiary has a different group of regulators: Crestar Bank, the
lead bank located in Virginia, is regulated by the State Corporation Commission
of Virginia and the Federal Reserve Bank of Richmond; Crestar Bank N.A. of
Washington, DC is regulated by the Comptroller of the Currency; Crestar Bank MD
of Maryland is regulated by the Maryland Bank Commissioner and the Federal
Reserve Bank of Richmond; and Crestar Bank FSB is regulated by the Office of
Thrift Supervision.
Since September 1995, the BHCA has permitted bank holding companies from any
state to acquire banks and bank holding companies located in any other state,
subject to certain conditions, including nationwide and state imposed
concentration limits. Banks will be able to branch across state lines by
acquisition, merger or de novo, effective June 1, 1997 (unless state law permits
interstate branching at any earlier date), if state law expressly permits
interstate branching.
A fundamental principle underlying the Federal Reserve's supervision and
regulation of bank holding companies is that bank holding companies should be a
source of managerial and financial strength to their subsidiary banks.
Subsidiary banks in turn are to be operated in a manner that protects the
overall soundness of the institution and the safety of deposits. Bank regulators
can take various remedial measures to deal with banks and bank holding companies
that fail to meet legal and regulatory standards.
The 1989 Financial Reform, Recovery and Enforcement Act (FIRREA) expanded
federal regulatory enforcement powers. The Federal Deposit Insurance Corporation
Improvement Act of 1991 (FDICIA) created five capital-based supervisory levels
for banks and requires bank holding companies to guarantee compliance with
capital restoration plans of under-capitalized insured depository affiliates.
All Crestar banks, including newly-acquired Crestar Bank FSB, were considered
"well-capitalized" under regulatory definitions in effect at December 31, 1995.
This is the highest rating presently available.
Crestar serves customers through a network of 377 banking offices and 343
automated teller machines as of December 31, 1995. The Crestar banks offer a
broad range of banking services, including various types of deposit accounts and
instruments, commercial and consumer loans, trust and investment management
services, bank credit cards and international banking services. Services also
are provided through non-bank subsidiaries. Crestar Insurance Agency, Inc.
offers a variety of personal and business insurance products. Securities
brokerage and investment banking services are offered by Crestar Securities
Corporation. Mortgage loan origination, servicing and wholesale lending are
offered by Crestar Mortgage Corporation, and Capitoline Investment Services
Incorporated provides investment advisory services. Both Crestar Mortgage and
Capitoline are subsidiaries of Crestar Bank.
The mission of Crestar Financial Corporation is to provide a broad array of
financial products and services at a price that represents the best value for
our customers' money and, by doing so, to provide a superior return for our
shareholders.
Crestar's executive offices are located at Crestar Center, 919 East Main
Street, Richmond, Virginia. Regional headquarters are located in Norfolk and
Roanoke, Virginia, Washington, DC and Baltimore, Maryland. Crestar's Operations
Center is located in Richmond.
74
<PAGE>
FORM 10-K CROSS REFERENCE INDEX
Crestar Financial Corporation And Subsidiaries
PART I
Item I Business 74
Guide 3 Disclosures 20-21, 31-32, 34-40,
47-48, 52-55, 57, 76,
78-80
Item 2 Properties 74, 55
Item 3 Legal Proceedings None
Item 4 Submission of Matters to a Vote of
Security Holders None
PART II
Item 5 Market for the Registrant's Common Equity and
Related Shareholder Matters 60, 80, Back Cover
Item 6 Selected Financial Data 13
Item 7 Management's Discussion and Analysis of
Financial Condition and Results of Operations 13-41
Item 8 Financial Statements and Supplementary Data
Consolidated Financial Statements:
Crestar Financial Corporation and Subsidiaries
Consolidated Balance Sheets 42
Consolidated Statements of Income 43
Consolidated Statements of Cash Flows 44
Consolidated Statements of Changes in
Shareholders' Equity 45
Notes to Consolidated Financial Statements 46-70
Independent Auditors' Report 71
Condensed Financial Information of Registrant 57, 60, 65-66
Selected Quarterly Financial Data 70
Item 9 Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure. None
PART III
Item 10 Directors (1) and Executive Officers of
the Registrant 72, 73
Item 11 Executive Compensation (1)
Item 12 Security Ownership of Certain Beneficial
Owners and Management (1)
Item 13 Certain Relationships and Related Transactions (1)
PART IV
Item 14 Exhibits, Financial Statement Schedules, and
Reports on Form 8-K:
See Item 8 for a listing of all Financial
Statements and Supplementary Data
Reports on Form 8-K None
Exhibits (2)
Signatures
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused
this report to be signed on its behalf on February 23, 1996 by the
undersigned, thereunto duly authorized.
CRESTAR FINANCIAL CORPORATION,
Registrant
/s/John C. Clark III
JOHN C. CLARK III,
Corporate Senior Vice President,
General Counsel and Secretary
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed on February 23, 1996 by the
following persons in the capacities indicated.
/s/Richard G. Tilghman
RICHARD G. TILGHMAN,
Chairman and Chief Executive Officer
/s/James M. Wells III
JAMES M. WELLS III, President
/s/Richard F. Katchuk
RICHARD F. KATCHUK,
Corporate Executive Vice President and Chief Financial Officer
/s/James D. Barr
JAMES D. BARR, Group Executive Vice President,
Controller and Treasurer
A MAJORITY OF THE DIRECTORS OF THE REGISTRANT
whose names appear on page 72.
- -------------------------------------------------------------------------------
1 This information is omitted pursuant to Instruction G of Form 10-K since
the Registrant intends to file with the Commission a definitive Proxy
Statement, pursuant to Regulation 14A, not later than 120 days after December
31, 1995.
2 A list of Exhibits was filed separately. Copies of any Exhibits not contained
herein may be obtained by writing to John C. Clark III, Secretary, Crestar
Financial Corporation, 919 East Main Street, Richmond, VA 23261-6665.
NOTE: Any information not included herein has been omitted because it is not
applicable.
75
<PAGE>
SUPPLEMENTAL FINANCIAL INFORMATION
Crestar Financial Corporation And Subsidiaries
MATURITY AND RATE SENSITIVITY OF SELECTED LOANS
<TABLE>
<CAPTION>
December 31, 1995
In millions Maturity
-------------------------------------------
within 1 year 1-5 years over 5 years Total
<S> <C> <C> <C> <C>
Commercial $1,856.2 $ 870.3 $375.6 $3,102.1
Real estate - income property 307.1 434.0 133.3 874.4
Real estate - construction 183.9 54.1 24.3 262.3
- ---------------------------------------------------------------------------------------------------------
Total business loans 2,347.2 1,358.4 533.2 4,238.8
Less: Business loans with predetermined rates 406.4 672.0 278.8 1,357.2
- ---------------------------------------------------------------------------------------------------------
Business loans with adjustable rates $1,940.8 $ 686.4 $254.4 $2,881.6
=========================================================================================================
</TABLE>
TIME DEPOSITS $100,000 AND OVER
December 31, 1995
In millions Maturity
-----------------------------------------
0-3 mos. 3-6 mos. 6-12 mos. over 1 yr. Total
Certificates of deposit
$100,000 and over $81.5 $12.3 $11.2 $ 11.2 $116.2
Domestic time deposits 17.2 25.4 36.6 103.0 182.2
- -------------------------------------------------------------------------------
Total $98.7 $37.7 $47.8 $114.2 $298.4
===============================================================================
MAXIMUM SHORT-TERM BORROWINGS
In thousands Maximum Outstanding At Any Month End
------------------------------------------
1995 1994 1993
Federal funds purchased $1,318,928 $1,522,138 $ 699,202
Securities sold under
repurchase agreements 826,671 1,026,502 1,359,351
Federal Home Loan Bank borrowings 484,200 371,200 96,800
Notes payable 177,300 163,731 112,365
Term federal funds purchased - - 50,000
Other 5,200 4,660 39,318
================================================================================
SHORT-TERM BORROWINGS--AVERAGE BALANCES AND RATES
<TABLE>
<CAPTION>
1995 1994 1993
-------------------- ------------------ -------------------
Dollars in thousands Amount Rate Amount Rate Amount Rate
<S> <C> <C> <C> <C> <C> <C>
Federal funds purchased $ 739,734 5.89% $ 595,390 4.23% $ 525,956 3.28%
Securities sold under
repurchase agreements 478,346 5.53 581,513 3.73 847,875 2.90
Federal Home Loan Bank
borrowings 368,879 6.08 208,561 6.26 45,105 7.41
Notes payable 158,249 4.95 131,562 3.67 108,200 2.48
Term federal funds purchased - - - - 4,658 3.21
Other 2,206 3.26 3,166 6.30 13,283 3.27
- ---------------------------------------------------------------------------------------------------------
Total $1,747,414 5.74% $1,520,192 4.26% $1,545,077 3.13%
=========================================================================================================
</TABLE>
76
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME (FIVE YEARS) AND SUPPLEMENTARY DATA
Crestar Financial Corporation And Subsidiaries
<TABLE>
<CAPTION>
In thousands, except per share data Years Ended December 31,
----------------------------------------------------------------------
INCOME FROM EARNING ASSETS 1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
Interest and fees on loans $1,013,613 $ 826,012 $695,819 $ 762,646 $ 901,769
Interest on securities held to maturity 64,228 74,478 136,420 181,376 178,989
Interest and dividends on securities
available for sale 109,927 131,520 86,590 5,464 18,987
Income on money market investments 20,202 27,780 26,784 41,316 51,688
Interest on mortgage loans held
for sale 28,145 28,854 29,531 28,522 19,012
- ----------------------------------------------------------------------------------------------------------------
Total income from earning assets 1,236,115 1,088,644 975,144 1,019,324 1,170,445
- ----------------------------------------------------------------------------------------------------------------
INTEREST EXPENSE
Interest checking deposits 42,279 43,143 39,820 46,276 47,164
Money market deposit accounts 111,493 83,202 68,772 87,791 112,807
Regular savings deposits 39,023 42,718 36,758 32,634 24,807
Domestic time deposits 206,307 162,794 155,270 228,722 325,686
Certificates of deposit $100,000
and over 3,916 2,600 2,043 7,797 39,596
- ----------------------------------------------------------------------------------------------------------------
Total interest on deposits 403,018 334,457 302,663 403,220 550,060
Short-term borrowings 100,365 64,836 48,387 38,217 113,234
Long-term debt 49,916 38,756 33,056 27,034 23,887
- ----------------------------------------------------------------------------------------------------------------
Total interest expense 553,299 438,049 384,106 468,471 687,181
- ----------------------------------------------------------------------------------------------------------------
NET INTEREST INCOME 682,816 650,595 591,038 550,853 483,264
Provision for loan losses 59,570 30,342 51,860 106,307 220,921
- ----------------------------------------------------------------------------------------------------------------
NET CREDIT INCOME 623,246 620,253 539,178 444,546 262,343
- ----------------------------------------------------------------------------------------------------------------
NONINTEREST INCOME
Service charges on deposit accounts 89,379 83,824 80,237 74,684 58,796
Trust and investment advisory income 60,645 55,609 57,440 51,007 48,322
Bank card-related income 47,579 39,655 27,598 23,187 22,694
Other income 93,152 90,924 79,162 72,040 65,813
Securities gains (losses) (2,213) (10,776) 2,084 6,463 48,165
- ----------------------------------------------------------------------------------------------------------------
Total noninterest income 288,542 259,236 246,521 227,381 243,790
- ----------------------------------------------------------------------------------------------------------------
NET CREDIT AND NONINTEREST INCOME 911,788 879,489 785,699 671,927 506,133
- ----------------------------------------------------------------------------------------------------------------
NONINTEREST EXPENSE
Personnel expense 340,440 329,273 285,308 256,636 231,779
Occupancy expense - net 48,650 47,084 42,777 39,878 36,875
Equipment expense 31,301 29,144 27,817 27,587 27,866
Other expense 199,043 194,227 205,892 229,471 151,115
- ----------------------------------------------------------------------------------------------------------------
Total noninterest expense 619,434 599,728 561,794 553,572 447,635
- ----------------------------------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES 292,354 279,761 223,905 118,355 58,498
Income tax expense 112,557 95,643 71,149 24,441 14,099
- ----------------------------------------------------------------------------------------------------------------
NET INCOME $ 179,797 $ 184,118 $152,756 $ 93,914 $ 44,399
================================================================================================================
EARNINGS PER SHARE
Primary $ 4.12 $ 4.24 $ 3.49 $ 2.35 $ 1.11
Fully diluted 4.11 4.24 3.49 2.34 1.11
================================================================================================================
SUPPLEMENTARY DATA
Average shares outstanding (000s):
Primary 43,685 43,398 43,103 38,903 37,682
Fully diluted 43,780 43,409 43,189 39,008 37,732
================================================================================================================
</TABLE>
77
<PAGE>
CONSOLIDATED AVERAGE BALANCES/NET INTEREST INCOME/RATES (1)
Crestar Financial Corporation And Subsidiaries
<TABLE>
<CAPTION>
1995 1994
--------------------------------- --------------------------------
Income (4)/ Yield/ Income (4)/ Yield/
Dollars in thousands Balance Expense Rate Balance Expense Rate
--------------------------------- --------------------------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS $ $ % $ $ %
Taxable securities held to maturity 982,542 61,394 6.25 1,159,874 69,693 6.01
Tax-exempt securities held to maturity 63,401 5,943 9.37 74,136 7,257 9.79
- -----------------------------------------------------------------------------------------------------------
Total securities held to maturity (2) 1,045,943 67,337 6.44 1,234,010 76,950 6.24
Securities available for sale (2) 1,677,560 109,927 6.55 2,224,337 131,520 5.91
Money market investments (2) 337,168 20,202 5.99 639,413 27,780 4.34
Mortgage loans held for sale (2) 374,482 28,145 7.52 407,796 28,854 7.08
- -----------------------------------------------------------------------------------------------------------
Commercial 2,993,249 252,147 8.42 2,892,586 228,608 7.90
Real estate - income property 916,106 78,459 8.56 805,801 65,779 8.16
Real estate - construction 267,123 27,492 10.29 288,844 25,672 8.89
Instalment 2,411,274 215,800 8.95 2,041,054 170,158 8.34
Bank card 1,570,725 177,440 11.30 1,144,186 136,631 11.94
Real estate - mortgage 3,473,922 270,427 7.78 2,812,256 207,619 7.38
- -----------------------------------------------------------------------------------------------------------
Total loans - net of unearned 11,632,399 1,021,765 8.78 9,984,727 834,467 8.36
income (2)(3)
Allowance for loan losses (237,302) (240,579)
- -----------------------------------------------------------------------------------------------------------
Loans - net 11,395,097 9,744,148
Cash and due from banks 781,657 734,140
Premises and equipment - net 356,712 342,458
Customers' liability on acceptances 9,335 8,537
Intangible assets - net 159,802 108,291
Foreclosed properties - net 24,624 38,481
Other assets 477,216 456,505
- -----------------------------------------------------------------------------------------------------------
TOTAL ASSETS 16,639,596 15,938,116
========== ==========
TOTAL EARNING ASSETS 15,067,552 1,247,376 8.28 14,490,283 1,099,571 7.59
========== ========= ==== ========== ========= ====
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest checking deposits 1,922,313 42,279 2.20 1,942,644 43,143 2.22
Money market deposit accounts 2,883,429 111,493 3.87 2,778,602 83,202 2.99
Regular savings deposits 1,414,291 39,023 2.76 1,594,576 42,718 2.68
Domestic time deposits 4,031,506 206,307 5.12 3,843,562 162,794 4.24
Certificates of deposit $100,000 and over 72,665 3,916 5.39 58,671 2,600 4.43
- -----------------------------------------------------------------------------------------------------------
Total savings and time deposits (2) 10,324,204 403,018 3.90 10,218,055 334,457 3.27
Demand deposits 2,224,269 2,120,674
- -----------------------------------------------------------------------------------------------------------
Total deposits 12,548,473 12,338,729
Short-term borrowings (2) 1,747,414 100,365 5.74 1,520,192 64,836 4.26
Long-term debt (2) 695,537 49,916 7.18 588,269 38,756 6.59
Liability on acceptances 9,335 8,537
Other liabilities 242,888 220,444
- -----------------------------------------------------------------------------------------------------------
Total liabilities 15,243,647 14,676,171
- -----------------------------------------------------------------------------------------------------------
Preferred stock - -
Common shareholders' equity 1,395,949 1,261,945
- -----------------------------------------------------------------------------------------------------------
Total shareholders' equity 1,395,949 1,261,945
- -----------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY 16,639,596 15,938,116
========== ==========
Total interest-bearing liabilities 12,767,155 553,299 4.33 12,326,516 438,049 3.55
Other sources - net 2,300,397 2,163,767
- -----------------------------------------------------------------------------------------------------------
TOTAL SOURCES OF FUNDS 15,067,552 553,299 3.67 14,490,283 438,049 3.02
========== ======= ==== ========== ======= ====
NET INTEREST SPREAD 3.95 4.04
NET INTEREST INCOME/MARGIN 694,077 4.61 661,522 4.57
==========================================================================================================
</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
78
<PAGE>
<TABLE>
<CAPTION>
1993 1992
------------------------------ -------------------------------
Income (4)/ Yield/ Income (4)/ Yield/
Dollars in thousands Balance Expense Rate Balance Expense Rate
------------------------------ -------------------------------
<C> <C> <C> <C> <C> <C>
ASSETS $ $ % $ $ %
Taxable securities held to maturity 2,002,583 129,600 6.47 2,522,407 172,692 6.84
Tax-exempt securities held to maturity 99,548 10,478 10.53 131,789 14,048 10.66
- -----------------------------------------------------------------------------------------------------------
Total securities held to maturity (2) 2,102,131 140,078 6.66 2,654,196 186,740 7.03
Securities available for sale (2) 1,615,535 86,590 5.36 89,189 5,464 6.13
Money market investments (2) 768,038 26,784 3.49 1,074,990 41,316 3.84
Mortgage loans held for sale (2) 429,638 29,531 6.87 367,734 28,522 7.76
- -----------------------------------------------------------------------------------------------------------
Commercial 2,795,853 216,038 7.73 3,106,095 255,992 8.24
Real estate - income property 795,371 62,082 7.81 736,446 64,899 8.81
Real estate - construction 279,705 21,120 7.55 394,859 27,500 6.97
Instalment 1,769,718 157,577 8.90 1,760,830 188,188 10.69
Bank card 701,669 95,923 13.67 538,324 81,409 15.12
Real estate - mortgage 1,899,565 152,021 8.00 1,690,312 155,264 9.19
- -----------------------------------------------------------------------------------------------------------
Total loans - net of unearned
income (2)(3) 8,241,881 704,761 8.55 8,226,866 773,252 9.40
Allowance for loan losses (230,832) (241,720)
- -----------------------------------------------------------------------------------------------------------
Loans - net 8,011,049 7,985,146
Cash and due from banks 699,705 672,910
Premises and equipment - net 319,478 303,610
Customers' liability on acceptances 16,260 20,991
Intangible assets - net 71,629 63,227
Foreclosed properties - net 76,742 132,208
Other assets 457,606 435,558
- -----------------------------------------------------------------------------------------------------------
TOTAL ASSETS 14,567,811 13,799,759
========== ==========
TOTAL EARNING ASSETS 13,157,223 987,744 7.51 12,412,975 1,035,294 8.34
========== ======= ==== ========== ========= ====
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest checking deposits 1,704,814 39,820 2.34 1,506,618 46,276 3.07
Money market deposit accounts 2,606,943 68,772 2.64 2,644,467 87,791 3.32
Regular savings deposits 1,289,149 36,758 2.85 940,603 32,634 3.47
Domestic time deposits 3,520,716 155,270 4.41 4,167,734 228,722 5.49
Certificates of deposit $100,000 and over 46,650 2,043 4.38 120,481 7,797 6.48
- -----------------------------------------------------------------------------------------------------------
Total savings and time deposits (2) 9,168,272 302,663 3.30 9,379,903 403,220 4.30
Demand deposits 1,984,250 1,734,545
- -----------------------------------------------------------------------------------------------------------
Total deposits 11,152,522 11,114,448
Short-term borrowings (2) 1,545,077 48,387 3.13 1,134,230 38,217 3.37
Long-term debt (2) 463,691 33,056 7.13 308,491 27,034 8.76
Liability on acceptances 16,260 20,991
Other liabilities 200,434 234,847
- -----------------------------------------------------------------------------------------------------------
Total liabilities 13,377,984 12,813,007
- -----------------------------------------------------------------------------------------------------------
Preferred stock 43,890 45,000
Common shareholders' equity 1,145,937 941,752
- -----------------------------------------------------------------------------------------------------------
Total shareholders' equity 1,189,827 986,752
- -----------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY 14,567,811 13,799,759
========== ==========
Total interest-bearing liabilities 11,177,040 384,106 3.44 10,822,624 468,471 4.33
Other sources - net 1,980,183 1,590,351
- -----------------------------------------------------------------------------------------------------------
TOTAL SOURCES OF FUNDS 13,157,223 384,106 2.92 12,412,975 468,471 3.77
========== ======= ==== ========== ======= ====
NET INTEREST SPREAD 4.07 4.01
NET INTEREST INCOME/MARGIN 603,638 4.59 566,823 4.57
===========================================================================================================
</TABLE>
(continued)
<TABLE>
<CAPTION>
1991
-------------------------------
Income (4)/ Yield/
Dollars in thousands Balance Expense Rate
-------------------------------
<S> <C> <C> <C>
ASSETS $ $ %
Taxable securities held to maturity 1,926,143 168,117 8.73
Tax-exempt securities held to maturity 159,466 17,680 11.09
- --------------------------------------------------------------------------------
Total securities held to maturity (2) 2,085,609 185,797 8.91
Securities available for sale (2) 207,042 18,987 9.17
Money market investments (2) 873,716 51,688 5.92
Mortgage loans held for sale (2) 204,033 19,012 9.32
- -------------------------------------------------------------------------------
Commercial 3,566,924 342,277 9.60
Real estate - income property 752,652 65,561 8.71
Real estate - construction 674,126 56,760 8.42
Instalment 1,883,865 208,502 11.07
Bank card 526,442 82,223 15.62
Real estate - mortgage 1,554,574 161,717 10.40
- -------------------------------------------------------------------------------
Total loans - net of unearned income (2)(3) 8,958,583 917,040 10.24
Allowance for loan losses (213,312)
- --------------------------------------------------------------------------------
Loans - net 8,745,271
Cash and due from banks 639,736
Premises and equipment - net 294,844
Customers' liability on acceptances 26,416
Intangible assets - net 92,405
Foreclosed properties - net 85,391
Other assets 268,712
- --------------------------------------------------------------------------------
TOTAL ASSETS 13,523,175
==========
TOTAL EARNING ASSETS 12,328,983 1,192,524 9.67
========== ========= ====
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest checking deposits 1,025,073 47,164 4.60
Money market deposit accounts 2,074,183 112,807 5.44
Regular savings deposits 504,548 24,807 4.92
Domestic time deposits 4,530,873 325,686 7.19
Certificates of deposit $100,000 and over 555,967 39,596 7.12
- --------------------------------------------------------------------------------
Total savings and time deposits (2) 8,690,644 550,060 6.33
Demand deposits 1,554,487
- --------------------------------------------------------------------------------
Total deposits 10,245,131
Short-term borrowings (2) 1,958,580 113,234 5.78
Long-term debt (2) 259,918 23,887 9.19
Liability on acceptances 26,416
Other liabilities 106,297
- --------------------------------------------------------------------------------
Total liabilities 12,596,342
- --------------------------------------------------------------------------------
Preferred stock 45,000
Common shareholders' equity 881,833
- --------------------------------------------------------------------------------
Total shareholders' equity 926,833
- --------------------------------------------------------------------------------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY 13,523,175
==========
Total interest-bearing liabilities 10,909,142 687,181 6.30
Other sources - net 1,419,841
- --------------------------------------------------------------------------------
TOTAL SOURCES OF FUNDS 12,328,983 687,181 5.57
========== ======= ====
NET INTEREST SPREAD 3.37
NET INTEREST INCOME/MARGIN 505,343 4.10
================================================================================
</TABLE>
3 Nonaccrual loans are included in the average loan balances and income on such
loans is recognized on a cash basis
4 The tax-equivalent adjustment to net interest income was $11.3 million in
1995, $10.9 million in 1994, $12.6 million in 1993, $16.0 million in 1992
and $22.1 million in 1991.
79
<PAGE>
SELECTED RATIOS AND OTHER DATA
Crestar Financial Corporation And Subsidiaries
<TABLE>
<CAPTION>
RATIOS 1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
Net interest margin (1) 4.61% 4.57% 4.59% 4.57% 4.10%
Noninterest expense to:
Net interest income (1) and noninterest income 63.04 65.13 66.08 69.70 59.75
Average assets 3.72 3.76 3.86 4.01 3.31
Net Income to net interest and noninterest income 18.51 20.24 18.24 12.07 6.11
Average earning assets to average total assets 90.55 90.92 90.32 89.95 91.17
Net Income to:
Average earning assets 1.19 1.27 1.16 .76 .36
Average assets 1.08 1.16 1.05 .68 .33
Average total equity 12.88 14.59 12.84 9.52 4.79
Income applicable to common shares to average
common equity 12.88 14.59 13.14 9.71 4.74
Average total equity to:
Average loans 12.00 12.64 14.44 11.99 10.35
Average assets 8.39 7.92 8.17 7.15 6.85
Dividend payout ratio:
On common stock 39.05 32.97 29.36 31.15 65.61
On common and preferred stock 39.05 32.97 30.39 32.97 67.60
Equity formation rate 7.85 9.78 8.94 6.38 1.55
Long-term debt at year end to:
Total equity at year end 46.25 55.22 49.53 30.18 30.29
Total equity and long-term debt at year end 31.62 35.57 33.13 23.18 23.25
Net charge-offs to:
Average total loans .52 .39 .83 1.46 1.81
Provision for loan losses 101.66 127.51 131.98 113.05 73.24
Allowance for loan losses to year-end loans 2.04 2.07 2.54 2.79 2.58
Nonperforming assets to year-end loans and
foreclosed properties - net (2) .79 1.03 1.44 3.28 4.54
Net charge-offs earnings coverage 5.81x 8.02x 4.03x 1.87x 1.73x
Average Equity leverage 11.92 12.63 12.24 13.99 14.59
==========================================================================================================================
OTHER DATA
Cash dividends declared per common share (3) $ 1.75 $ 1.53 $ 1.14 $ .80 $ .86
Number of average primary shares (000s) 43,685 43,398 43,103 38,903 37,682
Market price of common stock:
High $ 61 $ 49 3/4 $ 46 1/2 $ 39 3/4 $ 25
Low 37 36 1/8 35 1/8 17 1/4 11 1/4
Last 59 1/8 37 5/8 41 7/8 39 17 3/4
At year end:
Book value per common share 33.90 30.47 28.58 25.65 23.62
Fully diluted price/earnings multiple 14.39x 8.87x 12.00x 16.67x 15.99x
Dividend yield on common stock 2.96% 4.07% 2.72% 2.05% 4.85%
Number of common shareholders of record 17,547 16,604 16,791 16,292 17,182
Number of banking offices 377 371 335 322 300
Number of employees 7,169 7,993 7,415 6,903 6,503
Full-time equivalent employees 6,712 7,548 7,092 6,648 6,292
===========================================================================================================================
</TABLE>
1 Tax-equivalent basis
2 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
3 Dividends declared per common share represent historical dividends per
common share declared by Crestar Financial Corporation
80
<PAGE>
GENERAL INFORMATION
Crestar Financial Corporation And Subsidiaries
CORPORATE HEADQUARTERS
Crestar Center
919 East Main Street, P.O. Box 26665
Richmond, Virginia 23261-6665
(804)782-5000 TELEX: 827420
ANNUAL MEETING
The 1996 Annual Meeting of Shareholders will be held at 10:00 a.m. on Friday,
April 26, 1996 in our Corporate Headquarters auditorium.
COMMON STOCK
Crestar's common stock is traded on the New York Stock Exchange where our symbol
is CF. Dividends are customarily paid on the 21st of February, May, August and
November.
QUARTERLY COMMON STOCK
PRICES AND DIVIDENDS
The high, low and last price of Crestar's common stock for each quarter of 1995
and 1994 and the dividends declared per share are shown below.
Market Price
Quarter ---------------------- Dividends
Ended High Low Last Declared
1995
March 31 $44 1/4 $37 $44 $.40
June 30 49 1/4 43 1/8 49 .45
September 30 58 3/8 47 3/4 55 7/8 .45
December 31 61 55 59 1/8 .45
- ----------------------------------------------------
1994
March 31 $46 $39 3/8 $42 5/8 $.33
June 30 49 1/2 40 3/4 45 1/2 .40
September 30 49 3/4 44 5/8 45 5/8 .40
December 31 45 5/8 36 1/8 37 5/8 .40
====================================================
In January 1996, a quarterly dividend on common stock of $.45 per share was
declared.
FINANCIAL INFORMATION
To obtain financial information on Crestar, contact Eugene S. Putnam, Jr.,
Senior Vice President-Investor Relations and Corporate Finance, at the Corporate
Headquarters, (804)782-5619.
CORPORATE PUBLICATIONS
Crestar's Annual Report and Form 10-K, Quarterly Reports and other corporate
publications are available on request by writing or calling our Investor
Relations Department at the Corporate Headquarters, (804)782-7152.
SHAREHOLDER INFORMATION
In you have questions about a specific stock ownership account, write or call
our Investor Relations Department at the Corporate Headquarters, (804)782-7933.
DIVIDEND REINVESTMENT AND STOCK PURCHASE PLAN
Common shareholders receive a 5% discount from market price when they reinvest
their Crestar dividends in additional shares. Shareholders participating in the
Plan can also make optional cash purchases of common stock at market price and
pay no brokerage commissions. To obtain our Plan prospectus and enrollment card,
write or call our Investor Relations Department at the Corporate Headquarters,
(804)782-7933.
CASH DIVIDEND DIRECT DEPOSIT
Shareholders may elect to have their Crestar dividends directly deposited to a
checking, savings or money market account. This service provides a convenient
and safe method of receiving dividends and is offered at no cost to
shareholders. To obtain additional information and an enrollment form, write or
call our Investor Relations Department at the Corporate Headquarters,
(804)782-7933.
[RECYCLE LOGO] This annual report is printed on recycled paper.
<PAGE>
EXHIBITS
The following exhibits are filed with this form or are incorporated by reference
in response to Item 14(c). Those exhibits not included herein are not
applicable or the required information is shown in the Consolidated Financial
Statements or the notes thereto.
2(a) Agreement and Plan of Merger By and Between Crestar Financial
Corporation and Loyola Capital Corporation dated May 16, 1995 (filed as
Annex 1 to Registrant's Form S-4, Registration Statement No. 33-60637,
and incorporated by reference herein).
3(a) Restated Articles of Incorporation (filed as Exhibit 3(a) to
Registrant's 1993 Form 10-K and incorporated by reference herein).
3(b) Bylaws as amended through September 22, 1995 (filed herewith).
4(a) Indenture dated as of September 1, 1993 for subordinated debt
securities (filed as Exhibit 4.1 to Registration Statement No. 33-50387
and incorporated by reference herein). Pursuant to his indenture, a
series of $150,000,000 of 8 3/4% subordinated Notes due 2004 have been
issued, the terms of which are described in 4(g) below.
4(b) Indenture dated as of February 1, 1985 for subordinated debt securities
(filed as Exhibit 4(c) to Registrant's 1985 Form 10-K and incorporated
by reference herein). Pursuant to this Indenture, a series of
$50,000,000 of 8 5/8% Subordinated Notes Due 1998 and a series of
$125,000,000 of 8 1/4% Subordinated Notes Due 2002 have been issued,
the terms of which are described in 4(c) and 4(e) below.
4(c) First Supplemental Indenture dated as of March 1, 1986 covering
$50,000,000 of 8 5/8% Subordinated Notes due 1998 (filed as Exhibit
4(b) to Registration Statement No., 33-4332 and incorporated by
reference herein).
4(d) Second Supplemental Indenture dated as of September 1, 1986 (filed as
Exhibit 4.1 to Registrant's Form 8-K current report dated July 16, 1992
and incorporated by reference herein).
4(e) Third Supplemental Indenture dated as of July 1, 1992 covering
$125,000,000 of 8 1/4% Subordinated Notes Due 2002 (filed as Exhibit
4(c) to Registrant's 1992 Form 10-K and incorporated by reference
herein).
4(f) Rights Agreement dated June 23, 1989, between the Registrant and Mellon
Bank, NA, as Rights Agent (filed as Exhibit 4.1 to the Registrant's
Form 8-K current report dated June 23, 1989, and incorporated by
reference herein).
4(g) Board of Directors Resolutions approving issuance of $150,000,000 of 8
3/4% Subordinated Notes due 2004 (filed as Exhibit 4(g) to Registrant's
1994 Form 10-K and incorporated by reference herein).
10(a) Performance Equity Plan of United Virginia Bankshares Incorporated
(filed as Exhibit 10(a) to Registrant's 1987 Form 10-K and incorporated
by reference herein).
10(b) Management Incentive Compensation Plan of Crestar Financial Corporation
(filed as Exhibit 10(b) to Registrant's 1989 Form 10-K and incorporated
by reference herein).
10(c) Crestar Financial Corporation Executive Life Insurance Plan as amended
and restated effective January 1, 1991 (filed as Exhibit 10(d) to
Registrant's 1993 Form 10-K and incorporated by reference herein).
10(d) Crestar Financial Corporation Executive Welfare Plan (filed as Exhibit
10(d) to Registrant's 1990 Form 10-K and incorporated by reference
herein).
10(e) Amendments (effective December 18, 1992) to Crestar Financial
Corporation Executive Welfare Plan (filed as Exhibit 10(e) to
Registrant's 1992 Form 10-K and incorporated by reference herein).
10(f) 1981 Stock Option Plan of Crestar Financial Corporation and Affiliated
Corporations as amended through January 25, 1991 (filed as Exhibit
10(e) to Registrant's 1991 Form 10-K and incorporated by reference
herein).
10(g) Severance Agreement between the Corporation and Richard G. Tilghman
dated February 23, 1996 (filed herewith).
10(h) Severance Agreement between the Corporation and James M. Wells III
dated February 23, 1996 (filed herewith).
10(i) Severance Agreement between the Corporation and O. H. Parrish, Jr.
dated February 23, 1996 (filed herewith).
10(j) Severance Agreement between the Corporation and William C. Harris dated
February 23, 1996 (filed herewith).
10(k) Severance Agreement between the Corporation and C. Garland Hagen dated
February 23, 1996 (filed herewith).
10(l) Crestar Financial Corporation Executive Severance Plan, as amended and
restated effective February 23, 1996 (filed herewith).
10(m) Crestar Financial Corporation Excess Benefit Plan (filed as Exhibit
10(k) to Registrant's 1990 Form 10-K and incorporated by reference
herein).
10(n) Amendments (effective December 18, 1992) to Crestar Financial
Corporation Excess Benefit Plan (filed as Exhibit 10(m) to Registrant's
1992 Form 10-K and incorporated by reference herein).
10(o) United Virginia Bankshares Incorporated Deferred Compensation Program
under Incentive Compensation Plan of United Virginia Bankshares
Incorporated and Affiliated Corporations (filed as Exhibit 10(m) to
Registrant's 1988 Form 10-K and incorporated by reference herein).
10(p) Amendment (effective 1/1/87) to United Virginia Bankshares Incorporated
Deferred Compensation Program Under Incentive Compensation Plan of
United Virginia Bankshares Incorporated and Affiliated Corporations
(filed herewith).
10(q) Amendments (effective 1/1/87 and 1/1/88) to United Virginia Bankshares
Incorporated Deferred Compensation Program Under Incentive Compensation
Plan of United Virginia Bankshares Incorporated and Affiliated
Corporations (filed herewith).
10(r) Amendment (effective 1/1/94) to Crestar Financial Corporation Deferred
Compensation Program Under Incentive Compensation Plan of Crestar
Financial Corporation and Affiliated Corporations (filed herewith).
10(s) Crestar Financial Corporation Deferred Compensation Plan for Outside
Directors of Crestar Financial Corporation and Crestar Bank (filed as
Exhibit 10(n) to Registrant's 1988 10-K and incorporated by reference
herein).
10(t) Amendments (effective April 24, 1991) to Crestar Financial Corporation
Deferred Compensation Plan for Outside Directors of Crestar Financial
Corporation and Crestar Bank (filed as Exhibit 10(p) to Registrant's
1992 Form 10-K and incorporated by reference herein).
10(u) Crestar Financial Corporation Additional Nonqualified Executive Plan
(filed as Exhibit 10(n) to Registrant's 1990 Form 10-K and incorporated
by reference herein).
10(v) Amendments (effective December 18, 1992) to Crestar Financial
Corporation Additional Nonqualified Executive Plan (filed as Exhibit
10(r) to Registrant's 1992 Form 10-K and incorporated by reference
herein).
10(w) Crestar Financial Corporation Benefit Assurance Plan (filed as Exhibit
10(p) to Registrant's 1990 Form 10-K and incorporated by reference
herein).
10(x) Amendments (effective December 18, 1992) to Crestar Financial
Corporation Benefit Assurance Plan (filed as Exhibit 10(v) to
Registrant's 1992 Form 10-K and incorporated by reference herein).
10(y) Crestar Financial Corporation Supplemental Benefit Plan (filed as
Exhibit 10(q) to Registrant's 1990 Form 10-K and incorporated by
reference herein).
10(z) Amendments (effective December 18, 1992) to Crestar Financial
Corporation Supplemental Benefit Plan (filed as Exhibit 10(x) to
Registrant's 1992 Form 10-K and incorporated by reference herein).
10(aa) Deferred Compensation Plan for Selected Employees of United Virginia
Bankshares Incorporated and Affiliated Corporations (filed as Exhibit
10(r) to Registrant's 1990 Form 10-K and incorporated by reference
herein).
10(ab) Amendment (effective January 1, 1987) to Deferred Compensation Plan for
Selected Employees of United Virginia Bankshares Incorporated and
Affiliated Corporations (filed as Exhibit 10(z) to Registrant's 1992
Form 10-K and incorporated by reference herein).
10(ac) Amendments (effective 1/1/87 and 1/1/88) to Deferred Compensation Plan
for Selected Employees of United Virginia Bankshares Incorporated and
Affiliated Corporations (filed herewith).
10(ad) Amendment (effective 1/1/94) to Deferred Compensation Plan for Selected
Employees of Crestar Financial Corporation and Affiliated Corporations
(filed herewith).
10(ae) Crestar Financial Corporation Premium Assurance Plan (filed as Exhibit
10(s) to Registrant's 1991 Form 10-K and incorporated by reference
herein).
10(af) Amendments (effective December 18, 1992) to Crestar Financial
Corporation Premium Assurance Plan (filed as Exhibit 10(ab) to
Registrant's 1992 Form 10-K and incorporated by reference herein).
10(ag) Crestar Financial Corporation 1993 Stock Incentive Plan (filed as
Exhibit 10(ad) to Registrant's 1993 Form 10-K and incorporated by
reference herein).
10(ah) Amendments (effective October 27, 1995) to Crestar Financial
Corporation 1993 Stock Incentive Plan (filed herewith).
10(ai) Crestar Financial Corporation Directors' Stock Compensation Plan (filed
as Exhibit 10(ae) to Registrant's 1993 Form 10-K and incorporated by
reference herein).
10(aj) Crestar Financial Corporation Temporary Executive Benefit Plan as
amended through December 18, 1992 (filed as Exhibit 10(af) to
Registrant's 1993 Form 10-K and incorporated by reference herein).
10(ak) Crestar Financial Corporation Permanent Executive Benefit Plan as
amended through December 18, 1992 (filed as Exhibit 10(ag) to
Registrant's 1993 Form 10-K and incorporated by reference herein).
10(al) Crestar Financial Corporation Supplemental Executive Retirement Plan,
effective January 1, 1995 (filed herewith).
21 Subsidiaries (filed herewith).
23 Consent of KPMG Peat Marwick LLP (filed herewith).
Note: All Item 10 documents represent Executive Compensation Plans or
Arrangements, or Amendments thereto.
EXHIBIT 3(b)
Bylaws
of
Crestar Financial Corporation
Incorporated Under The Laws
Of The Commonwealth Of Virginia
Adopted December 20, 1979
(And Including Amendments Adopted
Thereto Through September 22, 1995)
<PAGE>
Index
To
Bylaws
Of
Crestar Financial Corporation
Article I - Meetings Of Stockholders
1.1 - Place of Meetings..............................................1
1.2 - Annual Meetings................................................1
1.3 - Special Meetings...............................................1
1.4 - Notice of Meetings.............................................1
1.5 - Quorum.........................................................1
1.6 - Voting.........................................................1
1.7 - Conduct of Meetings............................................2
1.8 - Inspectors.....................................................3
Article II - Board Of Directors
2.1 - General Powers.................................................3
2.2 - Number of Directors............................................3
2.3 - Quorum.........................................................3
2.4 - Meetings of the Board..........................................3
2.5 - Compensation...................................................4
2.6 - Eligibility....................................................4
Article III - Committees
3.1 - Standing Committees............................................5
3.2 - Executive Committee............................................6
3.3 - Audit Committee................................................6
3.4 - Human Resources and Compensation Committee.....................7
3.5 - Other Committees...............................................7
Article IV - Officers
4.1 - Number and Manner of Election or Appointment...................7
4.2 - Term of Office.................................................8
4.3 - Removal........................................................8
4.4 - Resignations...................................................8
4.5 - Vacancies, New Offices and Promotions..........................8
4.6 - Chairman of the Board..........................................8
4.7 - President......................................................8
<PAGE>
Article IV - Officers (continued)
4.8 - Secretary......................................................9
4.9 - Treasurer......................................................9
4.10 - Auditor........................................................9
4.11 - Powers and Duties of Other Officers............................9
4.12 - Deposit Accounts...............................................9
4.13 - Securities Accounts...........................................10
Article V - Capital Stock
5.1 - Certificates..................................................10
5.2 - Lost, Destroyed and Mutilated Certificates....................10
5.3 - Transfer of Stock.............................................10
5.4 - Closing of Transfer Books and Fixing Record Date..............11
Article VI - Miscellaneous Provisions
6.1 - Seal..........................................................11
6.2 - Voting of Stock Held..........................................11
6.3 - Fiscal Year...................................................12
6.4 - Checks, Notes and Drafts......................................12
Article VII - Emergency Bylaws...............................................12
Article VIII - Indemnification Of Directors And Officers.....................13
Article IX - Amendments......................................................15
<PAGE>
Crestar Financial Corporation
Bylaws
Article I
Meeting Of Stockholders
1.1 Place of Meetings. All meetings of the stockholders shall be held at
such place, either within or without the State of Virginia, as may be designated
by the Board of Directors.
1.2 Annual Meetings. The annual meeting of stockholders, for the election
of Directors and transaction of such other business as may come before the
meeting, shall be held at such time and date as designated by the Board of
Directors.
1.3 Special Meetings. Special meetings of the stockholders for any purpose
or purposes may be called at any time by the Chairman of the Board, by the
President, or by a majority of the Board of Directors. No business shall be
transacted and no corporate action shall be taken at a special meeting other
than that stated in the notice of the meeting.
1.4 Notice of Meetings. Unless waived in the manner prescribed by law,
notice of each meeting of stockholders shall be given in writing, not less than
ten nor more than sixty days before the day of the meeting, or such other notice
as is required by law, to each stockholder entitled to vote at such meeting and
shall state the place, date and hour of the meeting and, in the case of a
special meeting, the purpose or purposes for which the meeting is called. If
mailed, such notice shall be deemed to have been given when deposited in the
United States mail, with postage thereon prepaid, directed to the stockholder at
his address as it appears on the stock transfer books of the Corporation.
1.5 Quorum. Any number of stockholders together holding a majority of
outstanding shares of capital stock entitled to vote with respect to the
business to be transacted, who shall be present in person or represented by
proxy at any meeting duly called, shall constitute a quorum for the transaction
of business. If less than a quorum shall be in attendance at the time for which
a meeting shall have been called, the meeting may be adjourned from time to time
by a majority of the stockholders present or represented by proxy without notice
other than by announcement at the meeting until a quorum shall attend.
1.6 Voting. At any meeting of the stockholders, each stockholder of a class
entitled to vote on any matter coming before the meeting shall, as to such
matter, have one vote, in person or by proxy, for each share of capital stock of
such class standing in his name on the stock transfer books of the Corporation
on that date, not more than seventy days prior to such meeting, as designated by
the Board of Directors, for the purpose of determining stockholders entitled to
vote, as the date on which the stock transfer books of the Corporation are to be
closed or as the record date. Every proxy shall be in writing and signed by the
stockholder entitled to vote or signed by his duly authorized attorney in fact.
At a meeting where a quorum is present, the affirmative vote of the majority of
the shares represented at the meeting and entitled to vote shall be the act of
the stockholders.
1.7 Conduct of Meetings. At each meeting of the stockholders, the Chairman
of the Board or the President shall act as chairman and preside. In their
absence, the Chairman of the Board may designate another officer of the
Corporation who need not be a Director to preside. The Secretary of the
Corporation or an Assistant Secretary, or in their absence, a person whom the
chairman of such meeting shall appoint, shall act as secretary of such meeting.
At any meeting of stockholders of the Corporation, only that business that is
properly brought before the meeting may be presented to and acted upon by
stockholders. To be properly brought before the meeting, business must be
brought (a) by or at the direction of the Board of Directors or (b) by a
stockholder who has given written notice of business he expects to bring before
the meeting to the Secretary of the Corporation not less than 60 or more than 90
days prior to the anniversary date of the immediately preceding Annual Meeting.
If mailed, such notice shall be sent by certified mail, return receipt
requested, and shall be deemed to have been given when received by the Secretary
of the Corporation. A stockholder's notice to the Secretary shall set forth as
to each matter the stockholder proposes to bring before the meeting (a) a brief
description of the business to be brought before the meeting and the reasons for
conducting such business at the meeting, (b) the name and address, as they
appear on the Corporation's books, of the stockholder proposing such business,
(c) the class and number of shares of the Corporation's stock beneficially owned
by the stockholder, and (d) any material interest of the stockholder in such
business. No business shall be conducted at a meeting of stockholders except in
accordance with the procedures set forth in this Section 1.7. The chairman of a
meeting of stockholders shall, if the facts warrant, determine and declare to
the meeting that business was not properly brought before the meeting in
accordance with the provisions of this Section 1.7, and if he should so
determine, he shall so declare to the meeting and any such business not properly
brought before the meeting shall not be transacted.
Any nomination for Director made by a stockholder must be made in writing to the
Secretary of the Corporation not less than 60 or more than 90 days prior to the
anniversary date of the immediately preceding Annual Meeting. If mailed, such
notice shall be sent by certified mail, return receipt requested, and shall be
deemed to have been given when received by the Secretary of the Corporation. A
stockholder's nomination for Director shall set forth (a) the name and business
address of the stockholder's nominee, (b) the fact that the nominee has
consented to his name being placed in nomination, (c) the name and address, as
they appear on the Corporation's books, of the stockholder making the
nomination, (d) the class and number of shares of the Corporation's stock
beneficially owned by the stockholder, and (e) any material interest of the
stockholder in the proposed nomination. The chairman of a meeting of
stockholders shall, if the facts warrant, determine and declare to the meeting
that a director nomination was not properly brought before the meeting in
accordance with the provisions of this Section 1.7, and if he should so
determine, he shall so declare to the meeting and any such nomination not
properly brought before the meeting shall not be considered.
Notwithstanding compliance with this Section 1.7, the chairman of a meeting of
stockholders may rule out of order any business brought before the meeting that
is not a proper matter for stockholder consideration. This Section 1.7 shall not
limit the right of stockholders to speak at meetings of stockholders on matters
germane to the Corporation's business, subject to any rules for the orderly
conduct of the meeting imposed by the Chairman of the meeting. The Corporation
shall not have any obligation to communicate with stockholders regarding any
business or Director nomination submitted by a stockholder in accordance with
this Section 1.7 unless otherwise required by law.
1.8 Inspectors. An appropriate number of inspectors for any meeting of
stockholders may be appointed by the chairman of such meeting. Inspectors so
appointed will open and close the polls, will receive and take charge of proxies
and ballots, and will decide all questions as to the qualifications of voters,
validity of proxies and ballots, and the number of votes properly cast.
Article II
Board Of Directors
2.1 General Powers. The business and affairs of the Corporation shall be
managed by the Board of Directors and, except as otherwise expressly provided by
law, in accordance with the Articles of Incorporation or these Bylaws.
2.2 Number of Directors. The Board of Directors shall consist of not less
than five nor more than twenty-six Directors, the exact number to be designated
by the Board.
2.3 Quorum. A majority of the number of Directors pursuant to these Bylaws
at the time of the meeting, shall constitute a quorum for the transaction of
business. The act of a majority of Directors present at a meeting at which a
quorum is present shall be the act of the Board of Directors. Less than a quorum
may adjourn any meeting.
2.4 Meetings of the Board.
(a) Place of Meetings. Meetings of the Board of Directors shall be held at
such place and at such time, either within or without the State of Virginia as
may be designated by the Board, or upon call of the Chairman of the Board or the
President.
(b) Organizational Meeting. An organizational meeting shall be held as soon
as practicable after the adjournment of the annual meeting of stockholders at
which the Board of Directors is elected, for the purpose of electing officers,
appointing committees for the ensuing year, and for transacting such other
business as may properly come before the meeting.
(c) Regular Meetings. Regular meetings of the Board of Directors may be
held at such time and place as the Board may designate, and no notice thereof
need be given.
(d) Special Meetings. Special meetings of the Board of Directors may be
held at any time or place upon the call of the Chairman of the Board or the
President, or any three members of the Board.
Notice of each such meeting shall be given to each Director by mail at his
business or residence address at least forty-eight hours before the meeting, or
by telephoning or telegraphing notice to him at least twenty-fours hours before
the meeting. Meetings may be held at any time without notice if all of the
Directors are present, or if those not present waive notice in writing either
before or after the meeting. The notice of meetings of the Board need not state
the purpose of the meeting.
(e) Conduct of Meetings. At each meeting of the Board of Directors, the
Chairman of the Board or the President shall act as chairman and preside. In
their absence, the Chairman of the Board may designate another officer of the
Corporation who need not be a Director, to preside. The Secretary of the
Corporation or an Assistant Secretary, or in their absence, a person whom the
chairman of such meeting shall appoint, shall act as secretary of such meeting.
Any action required or permitted to be taken by the Board may be taken without a
meeting if all Directors consent in writing to the adoption of a resolution
authorizing the action. The resolution and the written consents of the directors
shall be filed with the minutes of the proceedings of the Board meeting.
2.5 Compensation. Directors, and members of any committee of the Board who
are not officers of the Corporation or subsidiaries thereof, shall be paid such
compensation as the Board of Directors from time to time may determine for his
services as Director, or as chairman or a member of any committee of the Board,
and shall, in addition, be reimbursed for such expenses as shall be incurred by
him in the performance of his duties. Nothing herein shall preclude Directors,
and members of any committee of the Board from serving the Corporation in other
capacities and receiving compensation therefor.
2.6 Eligibility. No person shall be eligible to serve as a Director unless,
when his term commences, he is not less than twenty-one years of age nor more
than seventy years of age. No Director shall be eligible for reelection after he
has attained the age of 70 or after his separation from the business or
professional organization with which he was primarily associated at the time he
first became a Director, unless elected after becoming associated with another
business or professional organization. Except for the Chief Executive Officer,
no Director who is an officer of the Corporation or any subsidiary shall be
eligible for reelection after he has retired.
<PAGE>
Article III
Committees
3.1 Standing Committees.
(a) Number. There shall be three standing committees of the Board of
Directors which shall be comprised only of Directors. The standing committees
are as follows: Executive, Audit, and Human Resources and Compensation. In order
to broaden the experience of Directors, it shall be the policy of the
Corporation to seek rotation among Directors as members of various committees.
At the first meeting of the Board of Directors after the annual meeting of the
stockholders, the Chairman of the Board shall recommend the membership of each
committee and the Board shall elect the membership of each committee, who shall
serve at the pleasure of the Board.
(b) Quorum. A majority of the number of members of any standing committee
shall constitute a quorum for the transaction of business. The action of a
majority of members present at a committee meeting at which a quorum is present
shall constitute the act of the committee.
(c) Conduct of Meetings. Any action required or permitted to be taken by
the committee may be taken without a meeting if all members of the committee
consent in writing to the adoption of a resolution authorizing the action. The
resolution and written consents of the members shall be filed with the minutes
of the proceedings of the committee.
(d) Meetings and Minutes. Subject to the foregoing, and unless the Board
shall otherwise decide, each committee shall fix its rules of procedure,
determine its action and fix the time and place of its meetings. Special
meetings of a committee may be held at anytime upon the call of the Chairman of
the Board, the chairman of the committee, or any two members of the committee.
Each committee shall keep minutes of all meetings which shall be at all times
available to Directors. Action taken by a committee shall be reported promptly
to the Board but not less frequently than quarterly.
(e) Term of Office. A member of any standing committee shall hold office
until the next organizational meeting of the Board of Directors or until he is
removed or ceases to be a Director.
(f) Vacancies. Should a vacancy occur on any standing committee resulting
from any cause whatsoever, the Board, by resolution, may fill such vacancy at
any time.
(g) Resignation and Removal. A member of a standing committee may resign at
any time by giving written notice of his intention to do so to the Chairman of
the Board or the Secretary of the Corporation, and may be removed at any time by
the Board of Directors.
3.2 Executive Committee.
(a) How Constituted. The Executive Committee shall consist of not less than
five nor more than nine Directors, including the Chairman of the Board, who
shall be Chairman of the Committee, and the President. If the Chairman of the
Board will not be present at a meeting, the President shall preside, and if the
President will not be present, the Chairman may designate another officer of the
Corporation, who need not be a member of the Committee or a Director, to preside
at the meeting.
(b) Primary Responsibilities. The primary responsibilities of the Executive
Committee shall consist of: exercise of all powers of the Board of Directors
between meetings of the Board except as to matters exclusively reserved to the
Board under law; annual review of management's financial goals and business
plan; service as the Board's steering committee on capital, liquidity,
asset/liability and credit issues, as well as the Board's advisor on mergers and
acquisitions and corporate structure matters; review of loan policy and
procedure, the quarterly classification of loans and the adequacy of the
allowance for loan loss reserves; review and recommendation to the Board of the
annual capital budget and authorization of capital expenditures within a level
established by the Board; supervision over the exercise of fiduciary powers;
oversight over the Corporation's contributions policy, approval of the annual
contributions budget and authorization or recommendation to the Board of larger
individual contributions as specified by the Board; joint consultation with the
Human Resources and Compensation Committee and recommendation to the Board of
any titling changes and management succession involving the top five officers of
the Corporation; and evaluation and recommendation to the Board of nominees for
election as Directors.
3.3 Audit Committee.
(a) How Constituted. The Audit Committee shall consist of not less than
five nor more than nine Directors, none of whom shall be officers of the
Corporation or any subsidiary thereof. The Chairman of the Committee shall be
appointed by the Board of Directors upon recommendation of the Chairman of the
Board. If the Chairman of the Committee will not be present at a meeting, he may
designate any member of the Committee to preside at the meeting.
(b) Primary Responsibilities. The primary responsibilities of the Audit
Committee shall consist of: recommendation of the selection of independent
accountants and auditors; review of the scope of the accountant's examination
and approval of any non-audit services to be performed by the independent
accountants; review of examination reports by the independent accountants and
regulatory agencies; approval of, and review of the results of, the internal
audit plan; review of the procedures for establishing the allowance for loan
losses and monitoring of the credit process review function; review of Crestar's
Community Reinvestment Act policy, plans and performance; review of internal
programs to assure compliance with laws and regulations and the adequacy of
internal controls; review of the adequacy of insurance coverage; and review of
compliance with the Standards of Conduct.
3.4 Human Resources and Compensation Committee.
(a) How Constituted. The Human Resources and Compensation Committee shall
consist of not less than five nor more than eight Directors none of whom shall
be officers of the Corporation or any subsidiary thereof. The Chairman of the
Committee shall be appointed by the Board of Directors upon recommendation of
the Chairman of the Board. If the Chairman of the Committee will not be present
at the meeting, he may designate any member of the Committee to preside at the
meeting.
(b) Primary Responsibilities. The primary responsibilities of the Human
Resources and Compensation Committee shall consist of: review and approval of
major compensation policies; determination of appropriate performance targets
under the Corporation's benefit plans; recommendation to the Board of salaries,
and approval of other compensation to be paid or awarded to the highest level
and most highly paid officers; recommendation of officers requiring Board
approval and joint consultation with the Executive Committee to the Board and
recommendation of any titling changes and management succession involving the
top five officers of the Corporation; review of other matters pertaining to
management structure, succession planning and executive development; review and
recommendation for Board approval of new and significant changes to qualified
and nonqualified benefit plans; and recommendation for Board approval of
appropriate changes in Director compensation.
3.5 Other Committees. The Board of Directors may, by resolution establish
such other committees of the Board as it may deem advisable. The members, terms
and authority of such committees shall be set forth in the resolutions.
The Chairman of the Board may establish such other committees of the Board of
Directors as he deems advisable, and may appoint the members of such committees.
Any such committees shall have the authority to consider, review, advise and
recommend to the Chairman of the Board with respect to such matters as may be
referred to it by the Chairman of the Board, but shall have no authority to act
for the Corporation except with the prior approval of the Board of Directors.
Article IV
Officers
4.1 Number and Manner of Election or Appointment. The officers of the
Corporation shall be:
(a) The Chairman of the Board, the President, a Secretary, a Treasurer, an
Auditor, one or more Regional Presidents, and one or more corporate Executive
Vice Presidents, each of whom shall be elected by the Board.
<PAGE>
(b) Such other officers as the Chairman of the Board or President may deem
necessary, each of whom shall be appointed by the Chairman of the Board or
President.
One person may hold more than one office except that the offices of the
President and Secretary may not be held by the same person.
4.2 Term of Office. The officers designated in Section 4.1(a) shall be
elected annually by the Board at its organizational meeting. Such officers shall
each hold office until the next organizational meeting of the Board and until
their successors are elected.
The officers designated in Section 4.1(b) may be appointed at any time by the
Chairman of the Board or the President.
4.3 Removal. Any officer may be removed from office, with or without cause,
at any time, by the Board of Directors. Any officer appointed by the Chairman of
the Board or the President may be removed from office by him with or without
cause at any time.
4.4 Resignations. Any officer may resign at any time by giving written
notice to the Board, Human Resources and Compensation, Chairman of the Board,
President, or the Secretary. Such resignation shall be effective on the date of
receipt of such notice or any later date specified therein, and unless otherwise
specified therein, the acceptance of such resignation shall not be necessary to
make it effective.
4.5 Vacancies, New Offices and Promotions. A vacancy from any cause in any
office may be filled at any time for the unexpired portion of the term, in the
manner prescribed in these Bylaws for regular election to such office. New
offices may be created and filled, and the promotions and changes in officers'
titles may be made at any time in the manner prescribed in these Bylaws for
regular election to such office.
4.6 Chairman of the Board. The Chairman of the Board shall be the Chief
Executive Officer and shall have general supervision of the policies and
operations of the Corporation, and subject to the direction and control of the
Board. He shall preside at all meetings of the stockholders, the Board of
Directors and the Executive Committee. He shall have the power to sign checks,
orders, contracts, leases, notes, drafts and other documents and instruments in
connection with the business of the Corporation, and have such other powers and
perform such other duties as shall be designated by the Board of Directors or as
may be incidental to his office. The Chairman of the Board shall have the
authority to appoint officers of the Corporation below the rank of Executive
Vice President.
4.7 President. The President shall participate in the supervision of the
policies and management of the Corporation, and may, if so designated by the
Board of Directors, be the chief administrative officer of the Corporation. He
shall perform all duties incidental to the office of President and shall perform
such other duties as may be assigned to him from time to time by the Board of
Directors or the Chairman of the Board. In the absence of the Chairman of the
Board, he shall preside at meetings of stockholders, the Board of Directors and
the Executive Committee. He shall have the same power to sign for the
Corporation and to appoint officers as prescribed in these Bylaws for the
Chairman of the Board.
4.8 Secretary. The Secretary shall: a) keep the minutes of all meetings of
the Stockholders, the Board of Directors, the Executive Committee, and such
other Committees as the Board may designate; b) see that all notices of such
meetings are given in accordance with these Bylaws or as required by law; c) be
custodian of the seal to any documents requiring such seal and to attest the
same; d) sign, with the Chief Executive Officer, certificates for shares of the
Corporation, the issuance of which shall have been authorized by resolution of
the Board of Directors; and e) in general perform all duties incident to the
office of Secretary and such other duties as from time to time may be assigned
to him by the Board of Directors or the Chief Executive Officer. In the absence
of the Secretary, an Assistant Secretary shall act in his stead.
4.9 Treasurer. The Treasurer shall perform such duties with respect to
securities and funds of the Bank as may be prescribed by the Board of Directors
or the Chief Executive Officer, and such other duties as may be incidental to
the office of Treasurer.
4.10 Auditor. The Auditor shall have general supervision over the internal
audit of the Corporation and its subsidiaries. He shall be responsible to the
Board of Directors, through the Audit Committee, for independently evaluating
the adequacy, effectiveness, and efficiency of the Corporation's systems of
internal control and of employee compliance therewith. He shall have the duty of
reporting his findings and recommendations to the Audit Committee at least
quarterly on any matters concerning the Corporation, except those with respect
to credit quality, responsibility for which has been vested in the officer in
charge of credit administration. Should the Auditor deem any matter to be of
special importance or his independence to be in jeopardy, he shall report
immediately to the Chairman of the Audit Committee or, in his absence, any
member of the Committee. The Auditor shall have such other duties and perform
such special audits and examinations as may be prescribed from time to time by
the Audit Committee or the Board of Directors. For administrative purposes, the
Auditor shall be accountable to the Chief Executive Officer.
4.11 Powers and Duties of Other Officers. The powers and duties of all
other officers of the Corporation shall be those usually pertaining to their
respective offices, subject to the direction and control of the Board of
Directors and as otherwise provided in these Bylaws, or as prescribed by the
Chief Executive Officer.
4.12 Deposit Accounts. The President, the Executive Vice President -
Investment Bank, the Executive Vice President, Controller and Treasurer, the
Managing Director - Asset/Liability Management Division, and the Managing
Director - Funds Management Division are individually authorized and empowered
to open and maintain in the name of the Corporation one or more deposit accounts
at other financial institutions. The aforementioned officers shall designate the
personnel authorized to sign for and transact business in such accounts and may
agree to any terms governing such accounts. Any resolutions required of this
Corporation in connection with such accounts may be certified by the Secretary
as if specifically adopted by the Board of Directors.
4.13 Securities Accounts. The President, the Executive Vice President -
Investment Bank, the Managing Director Asset/Liability Management Division, and
the Managing Director - Funds Management Division are individually authorized
and empowered to open and maintain in the name of the Corporation one or more
securities accounts for the purpose of purchasing, selling, reselling,
borrowing, lending, and otherwise dealing in money market instruments and
securities of any and every kind, including agreements or contracts for their
repurchase or future delivery, with banks, brokers, dealers, securities firms,
or other organizations, and to issue written, telephonic, telegraphic, or verbal
orders or instructions for transactions to be carried out in such accounts. The
aforementioned officers shall designate the personnel authorized to sign for and
transact business in such accounts and may agree to any terms governing such
accounts. Any resolutions required of this Corporation in connection with such
accounts may be certified by the Secretary as if specifically adopted by the
Board of Directors.
Article V
Capital Stock
5.1 Certificates. The shares of capital stock of the Corporation shall be
evidenced by certificates in forms prescribed by the Board of Directors and
executed in any manner permitted by law and stating thereon the information
required by law. Transfer agents and/or registrars for one or more classes of
the stock of the Corporation may be appointed by the Board of Directors and may
be required to countersign certificates representing stock of such class or
classes. If any officer whose signature or facsimile thereof shall have been
used on a stock certificate shall for any reason cease to be an officer of the
Corporation and such certificate shall not then have been delivered by the
Corporation the Board of Directors may nevertheless adopt such certificate and
it may then be issued and delivered as though such person had not ceased to be
an officer of the Corporation.
5.2 Lost, Destroyed and Mutilated Certificates. Holders of the stock of the
Corporation shall immediately notify the Corporation of any loss, destruction of
mutilation of the certificate therefor, and the Board of Directors or the
Executive Committee may cause one or more new certificates for the same number
of shares in the aggregate to be issued to such stockholder upon the surrender
of the mutilated certificate or upon satisfactory proof of such loss or
destruction, and the deposit of a bond in such form and amount and wish such
surety as the Board of Directors may require.
5.3 Transfer of Stock. The stock of the Corporation shall be transferable
or assignable only on the books of the Corporation by the holders in person or
by attorney on surrender of the Certificate for such shares duly endorsed and,
if sought to be transferred by attorney, accompanied by a written power of
attorney to have the same transferred on the books of the Corporation. The
Corporation shall recognize, however, the exclusive right of the person
registered on its books as the owner of shares to receive dividends and to vote
as such owner. To the extent that any provision of the Rights Agreement between
the Corporation and Mellon Bank, N.A., as Rights Agent, dated as of June 23,
1989, is deemed to constitute a restriction on the transfer of any securities of
the Corporation, including, without limitation, the Rights, as defined therein,
such restriction is hereby authorized by the Bylaws of the Corporation.
5.4 Closing of Transfer Books and Fixing Record Date. For the purpose of
determining stockholders entitled to notice of or to vote at any meeting of
stockholders or any adjournment thereof, or entitled to receive payment of any
dividend, or in order to make a determination of stockholders for any other
proper purpose, the Board of Directors may provide that the stock transfer books
shall be closed for a stated period but not to exceed in any case, seventy days.
In lieu of closing the stock transfer books, the Board of Directors may fix in
advance a date as the record date for any such determination of stockholders,
such date in any case to be not more than seventy days prior to the date on date
which the particular action requiring such determination of stockholders, is to
be taken. If the stock transfer books are not closed and no record date is fixed
for the determination of stockholders entitled to notice of or to vote at a
meeting of stockholders, or stockholders entitled to receive payment of a
dividend, the date on which notices of the meeting are mailed or the date on
which the resolution of the Board of Directors declaring such dividend is
adopted, as the case may be, shall be the record date for such determination of
stockholders. When determination of stockholders entitled to vote at any meeting
of stockholders has been made as provided in this section, such determination
shall apply to any adjournment thereof.
Article VI
Miscellaneous Provisions
6.1 Seal. The corporate seal of the Corporation shall consist of a
flat-faced circular die, on which there shall be engraved the Crestar logogram
and the name of the Corporation. Any officer of the Corporation designated in
writing by the Chief Executive Officer, the President or Secretary shall have
authority to affix and attest the seal. Failure to use the corporate seal shall
not affect the validity of any instrument.
6.2 Voting of Stock Held. Unless otherwise provided by resolution of the
Board of Directors or of the Executive Committee, the Chairman of the Board, the
President, or any Executive or Senior Vice President may from time to time
appoint an attorney or attorneys or agent or agents of this Corporation, in the
name and on behalf of this Corporation, to cast the vote which this Corporation
may be entitled to cast as a stockholder or otherwise in any other corporation,
any of whose stock or securities may be held by this Corporation, at meetings of
the holders of the stock or other securities of such other corporation, or to
consent in writing to any action by any such other corporation. Such officer
shall instruct the person or persons so appointed as to the manner of casting
such votes or giving such consent and may execute or cause to be executed on
behalf of this Corporation such written proxies, consents, waivers or other
instruments as may be necessary or proper. In lieu of an appointment of an
attorney or agent, the officer may himself attend any meetings of the holders of
stock or other securities of any such other corporation and there vote or
exercise any or all power of this Corporation as the holder of such stock or
other securities of such other corporation.
6.3 Fiscal Year. The fiscal year of the Corporation shall be the calendar
year.
6.4 Checks, Notes and Drafts. Checks, notes, drafts and other orders for
the payment of money shall be signed by such persons as the Board of Directors
from time to time may authorize. When the Board of Directors so authorizes,
however, the signature of any such person may be a facsimile.
Article VII
Emergency Bylaws
7.1 The Emergency Bylaws provided in this Article VII shall be operative
during any emergency resulting from an attack of the United States or any
nuclear or atomic disaster, notwithstanding any different provision in the
preceding articles of the Bylaws or in the Articles of Incorporation of the
Corporation or in the Virginia Stock Corporation Act (other than those
provisions relating to emergency bylaws). To the extent not inconsistent with
these Emergency Bylaws, the Bylaws provided in the preceding articles shall
remain in effect during such emergency and upon the termination of such
emergency the Emergency Bylaws shall cease to be operative unless and until
another such emergency shall occur.
During any such emergency:
(a) Any meeting of the Board of Directors may be called by any officer of
the Corporation or by any Director. The notice thereof shall specify the time
and place of the meeting. To the extent feasible, notice shall be given only to
such of the Directors as it may be feasible to reach at the time, by such means
as may be feasible at the time, including publication or radio, and at a time
less than twenty-four hours before the meeting if deemed necessary by the person
giving notice. Notice shall be similarly given, to the extent feasible, to the
other persons referred to in (b) below.
(b) At any meeting of the Board of Directors, a quorum shall consist of a
majority of the number of Directors fixed at the time in accordance with Article
II of the Bylaws. If the Directors present at any particular meeting shall be
fewer than the number required for such quorum, other persons present may be
included in the number necessary to make up such quorum, and shall be deemed
Directors for such particular meeting as determined by the following provisions
and in the following order of priority:
(i) Officers designated in Section 4.1(a) of the Bylaws, Executive Vice
Presidents not already serving as Directors, in the order of their seniority of
first election to such offices, or if two or more shall have been first elected
to such offices on the same day, in the order of their seniority in age;
(ii) All other officers of the Corporation in the order of their
seniority of first election to such offices, or if two or more shall have been
first elected to such offices on the same day, in order of their seniority in
age; and
(iii) Any other persons that are designated on a list that shall have
been approved by the Board of Directors before the emergency, such persons to be
taken in such order of priority and subject to such conditions as may be
provided in the resolution approving the list.
(c) The Board of Directors, during as well as before any such emergency,
may provide, and from time to time modify, lines of succession in the event that
during such an emergency any or all officers or agents of the Corporation shall
for any reason be rendered incapable of discharging their duties.
(d) The Board of Directors, during as well as before any such emergency,
may provide, and from time to time change the principal office, or designate
several alternative offices, or authorize the officers to do so.
No officer, Director or employee acting in accordance with these Emergency
Bylaws shall be liable except for willful misconduct.
These Emergency Bylaws shall be subject to repeal or change by further action of
the Board of Directors or by action of the stockholders, except that no such
repeal or change shall modify the provisions of the next preceding paragraph
with regard to action or inaction prior to the time of such repeal or change.
Any such amendment of these Emergency Bylaws may make any further or different
provision that may be practical and necessary for the circumstances of the
emergency.
Article VIII
Indemnification Of Directors And Officers
8.1 A. To the full extent that the Virginia Stock Corporation Act, as it
exists on the date hereof or may hereafter be amended, permits the limitation or
elimination of the liability of directors or officers, a Director or officer of
the Corporation shall not be liable to the Corporation or its stockholders for
monetary damages.
B. To the full extent permitted and in the manner prescribed by the
Virginia Stock Bank Act and any other applicable law, the Corporation shall
indemnify a Director or officer of the Corporation who is or was a party to any
proceeding by reason of the fact that he is or was such a Director or officer or
is or was serving at the request of the Corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust,
employee benefit plan or other enterprise. The Board of Directors is hereby
empowered, by majority vote of a quorum of disinterested Directors, to contract
in advance to indemnify any Director or officer.
C. The Board of Directors is hereby empowered, by majority vote of a quorum
of disinterested Directors, to cause the Corporation to indemnify or contract in
advance to indemnify any person not specified in Section B of this Article who
was or is a party to any proceeding, by reason of the fact that he is or was an
employee or agent of the Corporation, or is or was serving at the request of the
Corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise, to
the same extent as if such person were specified as one to whom indemnification
is granted in Section B.
D. The Corporation may purchase and maintain insurance to indemnify it
against the whole or any portion of the liability assumed by it in accordance
with this Article and may also procure insurance, in such amounts as the Board
of Directors may determine, on behalf of any person who is or was a Director,
officer, employee or agent of the Corporation, or is or was serving at the
request of the Corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise, against any liability asserted against or incurred by such person in
any such capacity or arising from his status as such, whether or not the
Corporation would have power to indemnify him against such liability under the
provisions of this Article.
E. In the event there has been a change in the composition of a majority of
the Board of Directors after the date of the alleged act or omission with
respect to which indemnification is claimed, any determination as to
indemnification and advancement of expenses with respect to any claim for
indemnification made pursuant to Section A of this Article VIII shall be made by
special legal counsel agreed upon by the Board of Directors and the proposed
indemnitee. If the Board of Directors and the proposed indemnitee are unable to
agree upon such special legal counsel, the Board of Directors and the proposed
indemnitee each shall select a nominee, and the nominees shall select such
special legal counsel.
F. The provisions of this Article VIII shall be applicable to all actions,
claims, suits or proceedings commenced after the adoption hereof, whether
arising from any action taken or failure to act before or after such adoption.
No amendment, modification or repeal of this Article shall diminish the rights
provided hereby or diminish the right to indemnification with respect to any
claim, issue or matter in any then pending or subsequent proceeding that is
based in any material respect on any alleged action or failure to act prior to
such amendment, modification or repeal.
G. Reference herein to Directors, officers, employees or agents shall
include Area Board Directors, former Directors, officers, employees and agents
and their respective heirs, executors and administrators.
Article IX
Amendments
9.1 These Bylaws may be amended, altered, or repealed at any meeting of the
Board of Directors by affirmative vote of a majority of the number of Directors
fixed by resolution of the Board pursuant to these Bylaws. The stockholders
entitled to vote in an election of Directors, however, shall have the power to
rescind, alter, amend or repeal any Bylaws and to enact Bylaws which, if
expressly so provided, may not be amended, altered or repealed by the Board of
Directors.
EXHIBIT 10(g)
CRESTAR FINANCIAL CORPORATION
EXECUTIVE SEVERANCE PLAN
AGREEMENT
THIS AGREEMENT, dated February 23, 1996, is made by and between Crestar
Financial Corporation, a Virginia corporation (the "Company"), and Richard G.
Tilghman ("Executive").
WHEREAS, the Company considers it essential to the best interests of
its shareholders to foster the continuous employment of key management
personnel; and
WHEREAS, the Board of Directors of the Company (the "Board") recognizes
that, as is the case with many publicly held corporations, the possibility of a
Change in Control (as defined in the last section of this Agreement) exists and
that such possibility, and the uncertainty and questions which it may raise
among management, may result in the departure or distraction of management
personnel to the detriment of the Company and its shareholders; and
WHEREAS, the Board has determined that appropriate steps should be
taken to reinforce and encourage the continued attention and dedication of
members of the Company's management, including Executive, to their assigned
duties without distraction in the face of potentially disturbing circumstances
arising from the possibility of a Change in Control; and
WHEREAS, the Company has adopted the Crestar Financial Corporation
Executive Severance Plan (the "Plan") with the intent of fulfilling the above
objectives and Executive has been designated as a participant in the Plan;
NOW THEREFORE, in consideration of the premises and the mutual
covenants herein contained, the Company and Executive agree to the terms of the
Plan, including the following provisions as set forth in this Agreement:
1. DEFINED TERMS. The definitions of capitalized terms used in this
Agreement are provided in the last Section of this Agreement and, if not defined
there, are defined in the Plan document.
2. TERM OF AGREEMENT. This Agreement shall commence on the date first
written above and shall continue in effect through December 31, 1998; provided,
however, that if a Change in Control shall have occurred during the term of this
Agreement, this Agreement shall continue in effect for a period of not less than
thirty-six months following the month in which the Control Change Date occurs.
Beginning on December 31, 1996, and on each December 31 thereafter, the term of
this Agreement shall automatically be extended for one additional calendar year
unless the Human Resources and Compensation Committee of the Company's Board
adopts a resolution prior to that date affirmatively electing not to extend this
Agreement and notifies Executive of its decision not to extend this Agreement.
3. COMPANY'S COVENANTS SUMMARIZED. In order to describe the amount and
circumstances under which Executive will receive benefits under the Plan and
this Agreement and to induce Executive to remain in the employ of the Company
and its Affiliates and in consideration of Executive's covenants as set forth in
Section 4 of this Agreement, the Company agrees, under the conditions described
in this Agreement, to pay Executive the severance payments determined pursuant
to Section 6 of this Agreement and the other payments and benefits described
herein in the event Executive's employment with the Company is terminated for
certain reasons after a Change in Control and during the term of this Agreement.
No amount or benefit shall be payable under this Agreement unless there shall
have been (or, under the terms of this Agreement, there shall be deemed to have
been) a termination of Executive's employment with the Company and all its
Affiliates following a Change in Control. This Agreement shall not be construed
as creating an express or implied contract of employment and, except as
otherwise agreed in writing between the Company and Executive, Executive shall
not have any right to be retained in the employ of the Company or any of its
Affiliates.
4. EXECUTIVE'S COVENANTS. Executive agrees that, subject to the terms
and conditions of this Agreement, in the event of a Potential Change in Control
during the term of this Agreement, Executive will remain in the employ of the
Company until the earliest of (a) a date which is six months after the date of
such Potential Change in Control, (b) the Control Change Date, (c) the date of
termination by Executive of Executive's employment for Good Reason (determined
by treating the Potential Change in Control as a Change in Control in applying
the definition of Good Reason), by reason of death or Disability, or (d) the
termination by the Company of Executive's employment for any reason.
5. COMPENSATION OTHER THAN SEVERANCE PAYMENTS.
(a) EXECUTIVE'S INCAPACITY. Following a Change in Control and during the
term of this Agreement, during any period that Executive fails to perform
Executive's full-time duties with the Company as a result of incapacity due to
physical or mental illness, the Company shall pay Executive's full salary to
Executive at the rate in effect at the commencement of such period of
Executive's incapacity, together with all compensation and benefits then payable
to Executive under the terms of any compensation or benefit plan, program or
arrangement maintained by the Company during such period until Executive's
employment is terminated by the Company for Disability.
(b) PAYMENT AFTER NOTICE OF TERMINATION. If Executive's employment shall
be terminated for any reason following a Change in Control and during the term
of this Agreement, the Company shall pay Executive's full salary to Executive
through the Date of Termination at the rate in effect at the time the Notice of
Termination is given, together with all compensation and benefits payable to
Executive through the Date of Termination under the terms of any compensation or
benefit plan, program or arrangement maintained by the Company during such
period.
(c) NORMAL POST-TERMINATION COMPENSATION AND BENEFITS. If Executive's
employment shall be terminated for any reason following a Change in Control and
during the term of this Agreement, the Company shall pay Executive's normal
post-termination compensation and benefits to Executive as such payments become
due. Such post-termination compensation and benefits shall be determined under,
and paid in accordance with, the Company's retirement, insurance, incentive and
other compensation or benefit plans, programs and arrangements.
6. SEVERANCE PAYMENTS.
(a) CALCULATION OF SEVERANCE AMOUNT. Subject to Subsections (b), (c),
and (d) of this Section 6, the Company shall pay Executive the Severance Amount,
which is equal to the sum of the amounts described in paragraphs (1) and (2)
below, upon the termination of Executive's employment following a Change in
Control and during the term of this Agreement, in addition to the payments and
benefits described in Section 5 of this Agreement, unless such termination is
(i) by the Company for Cause, (ii) by reason of Executive's death or Disability,
or (iii) by Executive without Good Reason. Executive's employment shall be
deemed to have been terminated following a Change in Control by the Company
without Cause or by Executive with Good Reason if Executive's employment is
terminated without Cause prior to a Change in Control at the direction of a
Person who has entered into an agreement with the Company, the consummation of
which will constitute a Change in Control, or if Executive terminates his
employment with Good Reason prior to a Change in Control (determined by treating
a Potential Change in Control as a Change in Control in applying the definition
of Good Reason) if the circumstance or event which constitutes Good Reason
occurs at the direction of such Person.
(1) SEVERANCE PAY. In lieu of any further salary payments to
Executive for periods subsequent to the Date of Termination, the
Company shall pay to Executive a lump sum severance payment, in cash,
equal to 3.75 times Executive's Annual Base Salary.
(2) QUALIFIED PLAN BENEFITS. In addition to the severance pay
described in paragraph (1) above, the Severance Amount shall also
include an amount equal to the amount of the Company's profit sharing
contribution that would have been allocated to Executive's profit
sharing account under the Thrift Plan for the plan year that includes
Executive's Date of Termination, based on Executive's compensation (as
defined under the Thrift Plan) calculated as follows: Executive's
annualized cash compensation on Executive's Date of Termination or, if
higher, Executive's annualized cash compensation immediately before the
Control Change Date.
The portion of Executive's Severance Amount determined under this
paragraph (2) will be calculated with reference to the benefits that
would have been allocated under the Thrift Plan but for the limitations
prescribed by the Code and without regard to any deferral election that
Executive may have made under the Crestar Financial Corporation
Additional Nonqualified Executive Plan. Notwithstanding the preceding
sentence, the portion of Executive's Severance Amount determined under
this paragraph (2) will be reduced to the extent such amounts are
allocated to or accrued on behalf of Executive under the Crestar
Financial Corporation Additional Nonqualified Executive Plan or the
Crestar Financial Corporation Excess Benefit Plan.
(b) CERTAIN REDUCTION IN SEVERANCE AMOUNT.
(1) The Severance Amount and other payments that Executive is
entitled to receive under other plans, programs, and agreements may
constitute Parachute Payments that are subject to the "golden
parachute" rules of Code section 280G and the excise tax of Code
section 4999. The Company and Executive intend to reduce any Parachute
Payments if, and only to the extent that, a reduction will allow
Executive to receive a greater Net After Tax Amount than Executive
would receive absent a reduction. The remaining provisions of this
subsection (b) describe how that intent will be effectuated.
(2) The Accounting Firm will first determine the amount of any
Parachute Payments that are payable to Executive. The Accounting Firm
will also determine the Net After Tax Amount attributable to
Executive's total Parachute Payments.
(3) The Accounting Firm will next determine the amount of
Executive's Capped Parachute Payments. Thereafter, the Accounting Firm
will determine the Net After Tax Amount attributable to Executive's
Capped Parachute Payments.
(4) Executive will receive the total Parachute Payments unless
the Accounting Firm determines that the Capped Parachute Payments will
yield Executive a higher Net After Tax Amount, in which case Executive
will receive the Capped Parachute Payments. If Executive will receive
the Capped Parachute Payments, Executive's total Parachute Payments
will be adjusted by first reducing the amount payable under any other
plan, program, or agreement that, by its terms, requires a reduction to
prevent a "golden parachute" payment under Code section 280G; by next
reducing Executive's benefit, if any, under the Crestar Financial
Corporation Supplemental Executive Retirement Plan, to the extent it is
a Parachute Payment; by next reducing the Severance Amount payable
under Subsection 6(a) of this Agreement; and thereafter by reducing
Parachute Payments payable under other plans and agreements (with the
reductions first coming from cash benefits and then from noncash
benefits). The Accounting Firm will notify Executive and the Company if
it determines that the Parachute Payments must be reduced to the Capped
Parachute Payments and will send Executive and the Company a copy of
its detailed calculations supporting that determination.
(5) As a result of any uncertainty in the application of Code
sections 280G and 4999 at the time that the Accounting Firm makes its
determinations under this Subsection 6(b), it is possible that amounts
will have been paid or distributed to Executive that should not have
been paid or distributed under this Section 6 ("Overpayments"), or that
additional amounts should be paid or distributed to Executive under
this Section 6 ("Underpayments"). If the Accounting Firm determines,
based on either controlling precedent, substantial authority or the
assertion of a deficiency by the Internal Revenue Service against
Executive or the Company, which assertion the Accounting Firm believes
has a high probability of success, that an Overpayment has been made,
then Executive shall have an obligation to pay the Company upon demand
an amount equal to the sum of the Overpayment plus interest on such
Overpayment at the prime rate of Crestar Bank (or its successor) as
such prime rate shall change from time to time (or, if higher, the rate
provided in Code section 7872(f)(2)) from the date of Executive's
receipt of such Overpayment until the date of such repayment; provided,
however, that Executive shall be obligated to make such repayment if,
and only to the extent, that the repayment would either reduce the
amount on which Executive is subject to tax under Code section 4999 or
generate a refund of tax imposed under Code section 4999. If the
Accounting Firm determines, based upon controlling precedent or
substantial authority, that an Underpayment has occurred, the
Accounting Firm will notify Executive and the Company of that
determination and the Company will pay the amount of that Underpayment
to Executive promptly in a lump sum, with interest calculated on such
Underpayment at the prime rate of Crestar Bank (or its successor) as
such prime rate shall change from time to time (or, if higher, the rate
provided in Code section 7872(f)(2)) from the date such Underpayment
should have been paid until actual payment.
(6) All determinations made by the Accounting Firm under this
Subsection 6(b) are binding on Executive and the Company and must be
made as soon as practicable but no later than thirty days after
Executive's Date of Termination. Within thirty days after Executive's
Date of Termination, the Company will pay to Executive the Severance
Amount under Section 6(a) or the reduced Severance Amount as calculated
by the Accounting Firm pursuant to Section 6(b).
(c) SECURITIES VIOLATION PAYMENTS. Notwithstanding any other provision
of this Agreement, no payment will be made to Executive under this Agreement to
the extent that such payment would be described in Code section 280G(b)(2)(B)
(relating to payments pursuant to an agreement that violates any generally
enforceable securities laws or regulations).
(d) FEDERAL LAWS AND REGULATIONS. Notwithstanding any other provision of
this Agreement, no payment will be made to Executive under this Agreement to the
extent that such payment would be prohibited by federal rules or regulations
that apply to the Company as a bank holding company or to any Affiliate of the
Company for which Executive serves as an officer.
7. WITHHOLDING ON PAYMENTS. All payments under this Agreement and the
Plan shall be paid net of applicable withholding required under federal, state
or local law and any additional withholding to which Executive has agreed.
8. NO MITIGATION OR SETOFFS. The Company agrees that if Executive's
employment by the Company is terminated during the term of this Agreement,
Executive is not required to seek other employment or to attempt in any way to
reduce any amounts payable to Executive by the Company pursuant to this
Agreement. Further, any amount payable under the Plan or this Agreement to
Executive shall not be reduced by any compensation earned by Executive as the
result of employment by another employer, by retirement benefits or amount, or
by offset against any amount claimed to be owed by Executive to the Company or
any Affiliate or otherwise.
9. EXPENSES AND LEGAL FEES. The Company shall pay any legal fees and
expenses incurred by Executive in seeking in good faith to obtain or enforce any
right or benefit provided by this Agreement or the Plan, including all fees
incurred in disputing any termination of employment, regardless of whether
Executive obtains a successful result, and expenses incurred in connection with
any tax audit or proceeding to the extent attributable to the application of
section 4999 of the Code to any payment or benefit provided hereunder. Such
payments shall be made within five business days after delivery of Executive's
written request for payment accompanied with such evidence of fees and expenses
incurred, as the Company may reasonably require. Any expenses attributable to
determinations by independent experts under any section of the Agreement (for
example, under Section 6) shall be paid by the Company.
10. TERMINATION PROCEDURES AND COMPENSATION DURING DISPUTE.
(a) NOTICE OF TERMINATION. After a Change in Control and during the term
of this Agreement, any purported termination of Executive's employment (other
than by reason of death) shall be communicated by written Notice of Termination
from one party to the other party to this Agreement, in accordance with Section
12 of this Agreement. For purposes of this Agreement, a "Notice of Termination"
shall mean a notice which shall indicate the Date of Termination and the
specific termination provision in this Agreement relied upon and shall set forth
in reasonable detail the facts and circumstances claimed to provide a basis for
termination of Executive's employment under the provision so indicated. Further,
a Notice of Termination for Cause is required to include a copy of a resolution
duly adopted by the affirmative vote of not less than three-quarters (3/4) of
the entire membership of the Board at a meeting of the Board which was called
and held for the purpose of considering such termination (after reasonable
notice to Executive and an opportunity for Executive, together with Executive's
counsel, to be heard before the Board) finding that, in the good faith opinion
of the Board, Executive was guilty of conduct set forth in clause (i) or (ii) of
the definition of Cause in this Agreement, and specifying the particulars of
such Cause in detail.
(b) DATE OF TERMINATION. "Date of Termination," with respect to any
purported termination of Executive's employment after a Change in Control and
during the term of this Agreement, shall mean (1) if Executive's employment is
terminated for Disability, thirty days after Notice of Termination is given
(provided that Executive shall not have returned to the full-time performance of
Executive's duties during such thirty-day period), and (2) if Executive's
employment is terminated for any other reason, the date specified in the Notice
of Termination (which, in the case of a termination by the Company, shall not be
less than thirty days (except in the case of a termination for Cause) and, in
the case of a termination by the Executive, shall not be less than fifteen days
nor more than thirty days, respectively, from the date such Notice of
Termination is given).
(c) DISPUTE CONCERNING TERMINATION. If within fifteen days after any
Notice of Termination is given, or, if later, prior to the Date of Termination
(as determined without regard to this subsection (c)), the party receiving such
Notice of Termination notifies the other party that a dispute exists concerning
the termination, the Date of Termination shall be the date on which the dispute
is finally resolved, either by mutual written agreement of the parties or by a
final judgment, order or decree of a court of competent jurisdiction (which is
not appealable or with respect to which the time for appeal therefrom has
expired and no appeal has been perfected); provided further that the Date of
Termination shall be extended by a notice of dispute only if such notice is
given in good faith and the party giving such notice pursues the resolution of
such dispute with reasonable diligence.
(d) COMPENSATION DURING DISPUTE. If a purported termination occurs
following a Change in Control and during the term of this Agreement, and such
termination is disputed in accordance with subsection (c) above, the Company
shall continue to pay Executive the full compensation in effect when the notice
giving rise to the dispute was given (including, but not limited to, base
salary) and continue Executive as a participant in all compensation, benefit and
insurance plans in which Executive was participating when the notice giving rise
to the dispute was given, until the dispute is finally resolved in accordance
with subsection (c) above. Amounts paid under this subsection (d) are in
addition to all other amounts due under this Agreement (other than those due
under Section 5(b) hereof) and shall not be offset against or reduce any other
amounts due under this Agreement, unless the Accounting Firm determines a
reduction is required pursuant to Section 6(b) of this Agreement.
11. SUCCESSORS; BINDING AGREEMENT.
(a) SUCCESSORS BOUND. In addition to any other obligations imposed by
law upon any successor to the Company, the Company will require any successor
(whether direct or indirect, by purchase, merger, consolidation or otherwise) to
all or substantially all of the business and/or assets of the Company,
regardless of whether such occurrence constitutes a Change in Control, to
expressly assume and agree to perform this Agreement in the same manner and to
the same extent that the Company would be required to perform it if no such
succession had taken place. Failure of the Company to obtain such assumption and
agreement prior to the effective date of any such succession shall be a breach
of this Agreement and shall entitle Executive to compensation from the Company
in the same amount and on the same terms as Executive would be entitled to under
this Agreement if Executive were to terminate Executive's employment for Good
Reason after a Change in Control, except that, for purposes of implementing the
foregoing, the date on which any such succession becomes effective shall be
deemed the Date of Termination.
(b) EXECUTIVE. This Agreement shall inure to the benefit of, and be
enforceable by, Executive's personal or legal representatives, executors,
administrators, successors, heirs, distributees, devisees and legatees. If
Executive should die while any amount would still be payable to Executive under
this Agreement (other than any amounts which, by their terms, terminate upon the
death of the Executive) if Executive had continued to live, all such amounts,
unless otherwise provided herein, shall be paid in accordance with the terms of
this Agreement to the executors, personal representatives or administrators of
Executive's estate.
12. NOTICES. For purposes of this Agreement, notices and all other
communications provided for in the Agreement shall be in writing and shall be
deemed to have been duly given when delivered in person or mailed by United
States registered mail, return receipt requested, postage prepaid, addressed to
the respective addresses set forth below or to a different address that is
delivered in writing to by one party to the other party, except that notice of
change of address shall be effective only upon actual receipt:
To the Company:
Crestar Financial Corporation
919 East Main Street
Richmond, Virginia 23219
Attention: Director of Human Resources
To the Executive:
Richard G. Tilghman
Crestar Financial Corporation
919 East Main Street
Richmond, Virginia 23219-
13. MISCELLANEOUS. This Agreement is part of and subject to the terms of
the Plan. No provision of this Agreement may be modified, waived, or discharged
unless that waiver, modification, or discharge is agreed to in writing and
signed by Executive and by the Chairman of the Board's Human Resources and
Compensation Committee or by such officer of the Company as may be specifically
designated by the Board's Human Resources and Compensation Committee. No waiver
by either party to this Agreement at any time of any breach by the other party
of, or compliance with, any condition or provision of this Agreement to be
performed by that other party is a waiver of similar or dissimilar provisions or
conditions at the same or any prior or subsequent time. No agreements or
representations, oral or otherwise, express or implied, with respect to the
subject matter of this Agreement and the Plan have been made by either party
which are not expressly set forth in this Agreement and the Plan. The
obligations of the Company and Executive under Sections 6 and 10 shall survive
the expiration of this Agreement.
14. VALIDITY. The validity, interpretation, construction, and
performance of this Agreement are governed by the laws of Virginia (other than
its choice-of-law rules if those rules would require the application of the laws
of a state other than Virginia), to the extent that state laws are not
superseded by federal law. The invalidity or unenforceability of any provisions
of this Agreement does not affect the validity or enforceability of any other
provision of this Agreement, each of which will remain in full force and effect.
15. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which is deemed to be an original but all of which
together constitute one and the same instrument.
16. DISPUTES.
(a) CLAIMS FOR BENEFITS. All claims for benefits by Executive shall be
submitted to the Plan Administrator in writing as set forth in the claims
procedures under the Plan.
(b) ARBITRATION. Any further dispute or controversy arising under or in
connection with this Agreement that is not settled between the parties and which
Executive wishes to pursue after the claims procedures under the Plan have been
exhausted, shall be settled exclusively by arbitration in accordance with the
rules of the American Arbitration Association then in effect at such location in
the Commonwealth of Virginia as Executive may select. Judgment may be entered on
the arbitrator's award in any court having jurisdiction; provided, however, that
Executive shall be entitled to seek specific performance of Executive's right to
be paid through the Date of Termination during the pendency of any dispute or
controversy arising under or in connection with this Agreement or the Plan.
17. PRIOR AGREEMENTS SUPERSEDED. Effective as of the date set forth on
the first page of this Agreement, any prior severance agreement between
Executive and the Company or an Affiliate is superseded in its entirety by this
Agreement and is of no further force or effect.
18. DEFINITIONS. For purposes of this Agreement and the Plan, the
following terms shall have the meanings indicated below:
(a) "Accounting Firm" means the accounting firm most recently approved
by the Company's shareholders as the Company's independent auditor. If, however,
such firm declines or is unable to undertake the determinations assigned to it
under this Agreement, then "Accounting Firm" shall mean such other independent
accounting firm mutually agreed upon by the Company and the Executive.
(b) "Annual Base Salary" means Executive's annual base salary,
determined according to the Company's normal pay practices, as in effect on the
Date of Termination, one year before the Date of Termination, on the Control
Change Date, or one year before the Control Change Date, whichever date produces
the greatest amount.
(c) "Board" means the Board of Directors of the Company.
(d) "Capped Parachute Payments" means the largest amount of Parachute
Payments that may be paid to Executive without liability for any excise tax
under Code section 4999.
(e) "Cause" for termination by the Company of Executive's employment,
after any Change in Control, shall mean (i) the willful and continued failure by
Executive to substantially perform Executive's duties with the Company (other
than such failure resulting from Executive's incapacity due to physical or
mental illness or any such actual or anticipated failure after the issuance of a
Notice of Termination for Good Reason pursuant to Section 10(a) of this
Agreement) after a written demand for substantial performance is delivered to
Executive by the Board, which demand specifically identifies the manner in which
the Board believes that Executive has not substantially performed Executive's
duties, or (ii) the willful engaging by Executive in conduct which is
demonstrably and materially injurious to the Company or its Affiliates,
monetarily or otherwise. For purposes of clauses (i) and (ii) of this
definition, no act, or failure to act, on Executive's part shall be deemed
"willful" unless Executive has acted, or failed to act, with an absence of good
faith and without a reasonable belief that Executive's act, or failure to act,
was in the best interests of the Company and its Affiliates. If the purpose
alleged by the Board is as set forth in clause (i) above, then Executive shall
be given the opportunity to cure such failure within a reasonable period of
time, not less than thirty days, following Executive's receipt of the Board's
demand for substantial performance.
(f) "Change in Control" means "Change in Control" as defined under the
Crestar Financial Corporation 1993 Stock Incentive Plan, as amended from time to
time, and any successor thereto.
(g) "Code" means the Internal Revenue Code of 1986, as amended at the
relevant time.
(h) "Company" means Crestar Financial Corporation and any successor to
its business and/or assets which assumes and agrees to perform this Agreement by
operation of law, or otherwise.
(i) "Control Change Date" means the date on which a Change in Control
occurs. If a Change in Control occurs on account of a series of transactions,
the Control Change Date is the date of the last of such transactions.
(j) "Date of Termination" is defined in Section 10(b) of this
Agreement.
(k) "Disability" means a mental or physical condition that qualifies
Executive to receive benefits under the Company's long-term disability plan
available to executive officers or that would qualify Executive to receive such
benefits if Executive were a participant in such plan. Disability shall be
deemed the reason for the termination by the Company of Executive's employment
if Executive is determined to have a Disability and the Company shall have given
Executive a Notice of Termination for Disability, and within thirty days after
such Notice of Termination is given, Executive shall not have returned to the
full-time performance of Executive's duties.
(l) "Executive" means the individual named in the first paragraph of
this Agreement.
(m) "Good Reason" for termination of Executive's employment with the
Company or its successor means the occurrence (without Executive's express
written consent) of any one of the following acts by the Company, or failures by
the Company to act, unless in the case of any act or failure to act described in
paragraph (1), (5), (6) or (7) below, such act or failure to act is corrected
prior to the Date of Termination specified in the Notice of Termination given in
respect thereof:
(1) the assignment to Executive of any duties inconsistent
with Executive's status as a senior officer of the Company, or a
substantial adverse alteration in the nature or status of Executive's
responsibilities from those in effect immediately prior to the Control
Change Date; or
(2) a reduction by the Company in Executive's annual base
salary as in effect on the date of this Agreement or as the same may be
increased from time to time (except for across-the-board salary
reductions similarly affecting all senior officers of the Company and
all senior officers of any Person in control of the Company); or
(3) the Company's requiring Executive as a condition of
Executive's continuing employment to be based at a principal office
more than twenty-five miles from the principal office out of which
Executive is working immediately prior to a Change in Control (except
for required travel on the Company's business to an extent
substantially consistent with Executive's current business travel
obligations); or
(4) the failure by the Company, without Executive's written
consent, to pay Executive any portion of Executive's current
compensation (except pursuant to an across-the-board compensation
deferral by the Company which similarly affects all senior officers of
the Company and all senior officers of any Person in control of the
Company), or to pay Executive any portion of an installment of deferred
compensation under any deferred compensation program of the Company,
within seven days of the date such payment is due; or
(5) the failure by the Company to continue in effect any
compensation plan in which Executive participates immediately prior to
the Change in Control which is material to Executive's total
compensation, including but not limited to, the Company's stock
incentive plan and any programs in effect under such plan, the
management incentive plan and the deferred compensation plan for
incentive awards, the supplemental executive retirement plan, and
nonqualified plans providing make-whole benefits not provided under
qualified plans, and the executive life insurance plan, or any
substitute plans adopted prior to the Change in Control, unless an
equitable arrangement (embodied in an ongoing substitute or alternative
plan) has been made with respect to such plan, or the failure by the
Company to continue Executive's participation in any such plan (or in
such substitute or alternative plan) on a basis not materially less
favorable, both in terms of the amount of benefits provided and the
level of Executive's participation relative to other participants, as
existed immediately prior to the Control Change Date; or
(6) the failure by the Company to continue to provide
Executive with benefits substantially similar to those Executive
enjoyed under any of the Company's pension, life insurance, incentive,
medical, health and accident, or disability plans in which Executive
was participating immediately prior to the Control Change Date, the
taking of any action by the Company which would directly or indirectly
materially reduce any of such benefits or deprive Executive of any
material fringe benefit enjoyed by Executive immediately prior to the
Control Change Date, or the failure by the Company to provide Executive
at least as many paid vacation days as Executive is entitled to receive
under the Company's normal vacation policy as in effect immediately
prior to the Control Change Date; or
(7) any purported termination of Executive's employment which
is not effected pursuant to a Notice of Termination satisfying the
requirements of Section 10(a) of this Agreement; for purposes of this
Agreement, no such purported termination shall be effective.
Executive's right to terminate Executive's employment for Good Reason shall not
be affected by Executive's incapacity due to physical or mental illness.
Executive's continued employment shall not constitute consent to, or a waiver of
rights with respect to, any act or failure to act constituting Good Reason
hereunder.
(n) "Net After Tax Amount" means the amount of any Parachute Payments or
Capped Parachute Payments, as applicable, net of taxes imposed under Code
sections 1, 3101(b) and 4999 and any state or local income taxes applicable to
Executive as in effect on the date of the payment under Section 6 of this
Agreement. The determination of the Net After Tax Amount shall be made using the
highest combined effective rate imposed by the foregoing taxes on income of the
same character as the Parachute Payments or Capped Parachute Payments, as
applicable, in effect for the year for which the determination is made.
(o) "Notice of Termination" is defined in Section 10(a) of this
Agreement.
(p) "Parachute Payment" means a payment that is described in Code
section 280G(b)(2) (without regard to whether the aggregate present value of
such payments exceeds the limit prescribed by Code section 280G(b)(2)(A)(ii)).
The amount of any Parachute Payment shall be determined in accordance with Code
section 280G and the regulations promulgated thereunder, or, in the absence of
final regulations, the proposed regulations promulgated under Code section 280G.
(r) "Plan" means the Crestar Financial Corporation Executive Severance
Plan, as in effect at the relevant time.
(s) "Potential Change in Control" shall be deemed to have occurred if
the conditions set forth in any one of the following paragraphs shall have been
satisfied:
(1) the Company or any Person publicly announces an intention
to take or to consider taking actions which, if consummated, would
constitute a Change in Control;
(2) any Person who is or becomes the beneficial owner (within
the meaning of Rule 13d-3 under the Securities Exchange Act of 1934, as
amended), directly or indirectly, of securities of the Company
representing ten percent (10%) or more of the combined voting power of
the Company's then outstanding securities, increases such Person's
beneficial ownership of such securities by five percent (5%) or more
over the percentage so owned by such Person on the date hereof; or
(3) the Board adopts a resolution to the effect that, for
purposes of this Agreement, a Potential Change in Control has occurred.
(t) "Retirement" means termination of Executive's employment on or after
attaining the Retirement Plan's normal retirement age.
(u) "Retirement Plan" means the Retirement Plan for Employees of Crestar
Financial Corporation and Affiliated Corporation or any successor plan or
program as in effect on Executive's Date of Termination.
(v) "Thrift Plan" means the Crestar Employees' Thrift and Profit-Sharing
Plan.
(w) "Severance Amount" is defined in Section 6 of this Agreement.
IN WITNESS WHEREOF, the parties have duly executed this Agreement
effective as of the date first written above.
CRESTAR FINANCIAL CORPORATION
By: _____________________________
Director of Human Resources
EXECUTIVE
--------------------------------
Richard G. Tilghman
EXHIBIT 10(h)
CRESTAR FINANCIAL CORPORATION
EXECUTIVE SEVERANCE PLAN
AGREEMENT
THIS AGREEMENT, dated February 23, 1996, is made by and between Crestar
Financial Corporation, a Virginia corporation (the "Company"), and James M.
Wells III ("Executive").
WHEREAS, the Company considers it essential to the best interests of
its shareholders to foster the continuous employment of key management
personnel; and
WHEREAS, the Board of Directors of the Company (the "Board") recognizes
that, as is the case with many publicly held corporations, the possibility of a
Change in Control (as defined in the last section of this Agreement) exists and
that such possibility, and the uncertainty and questions which it may raise
among management, may result in the departure or distraction of management
personnel to the detriment of the Company and its shareholders; and
WHEREAS, the Board has determined that appropriate steps should be
taken to reinforce and encourage the continued attention and dedication of
members of the Company's management, including Executive, to their assigned
duties without distraction in the face of potentially disturbing circumstances
arising from the possibility of a Change in Control; and
WHEREAS, the Company has adopted the Crestar Financial Corporation
Executive Severance Plan (the "Plan") with the intent of fulfilling the above
objectives and Executive has been designated as a participant in the Plan;
NOW THEREFORE, in consideration of the premises and the mutual
covenants herein contained, the Company and Executive agree to the terms of the
Plan, including the following provisions as set forth in this Agreement:
1. DEFINED TERMS. The definitions of capitalized terms used in this
Agreement are provided in the last Section of this Agreement and, if not defined
there, are defined in the Plan document.
2. TERM OF AGREEMENT. This Agreement shall commence on the date first
written above and shall continue in effect through December 31, 1998; provided,
however, that if a Change in Control shall have occurred during the term of this
Agreement, this Agreement shall continue in effect for a period of not less than
thirty-six months following the month in which the Control Change Date occurs.
Beginning on December 31, 1996, and on each December 31 thereafter, the term of
this Agreement shall automatically be extended for one additional calendar year
unless the Human Resources and Compensation Committee of the Company's Board
adopts a resolution prior to that date affirmatively electing not to extend this
Agreement and notifies Executive of its decision not to extend this Agreement.
3. COMPANY'S COVENANTS SUMMARIZED. In order to describe the amount and
circumstances under which Executive will receive benefits under the Plan and
this Agreement and to induce Executive to remain in the employ of the Company
and its Affiliates and in consideration of Executive's covenants as set forth in
Section 4 of this Agreement, the Company agrees, under the conditions described
in this Agreement, to pay Executive the severance payments determined pursuant
to Section 6 of this Agreement and the other payments and benefits described
herein in the event Executive's employment with the Company is terminated for
certain reasons after a Change in Control and during the term of this Agreement.
No amount or benefit shall be payable under this Agreement unless there shall
have been (or, under the terms of this Agreement, there shall be deemed to have
been) a termination of Executive's employment with the Company and all its
Affiliates following a Change in Control. This Agreement shall not be construed
as creating an express or implied contract of employment and, except as
otherwise agreed in writing between the Company and Executive, Executive shall
not have any right to be retained in the employ of the Company or any of its
Affiliates.
4. EXECUTIVE'S COVENANTS. Executive agrees that, subject to the terms
and conditions of this Agreement, in the event of a Potential Change in Control
during the term of this Agreement, Executive will remain in the employ of the
Company until the earliest of (a) a date which is six months after the date of
such Potential Change in Control, (b) the Control Change Date, (c) the date of
termination by Executive of Executive's employment for Good Reason (determined
by treating the Potential Change in Control as a Change in Control in applying
the definition of Good Reason), by reason of death or Disability, or (d) the
termination by the Company of Executive's employment for any reason.
5. COMPENSATION OTHER THAN SEVERANCE PAYMENTS.
(a) EXECUTIVE'S INCAPACITY. Following a Change in Control and during the
term of this Agreement, during any period that Executive fails to perform
Executive's full-time duties with the Company as a result of incapacity due to
physical or mental illness, the Company shall pay Executive's full salary to
Executive at the rate in effect at the commencement of such period of
Executive's incapacity, together with all compensation and benefits then payable
to Executive under the terms of any compensation or benefit plan, program or
arrangement maintained by the Company during such period until Executive's
employment is terminated by the Company for Disability.
(b) PAYMENT AFTER NOTICE OF TERMINATION. If Executive's employment shall
be terminated for any reason following a Change in Control and during the term
of this Agreement, the Company shall pay Executive's full salary to Executive
through the Date of Termination at the rate in effect at the time the Notice of
Termination is given, together with all compensation and benefits payable to
Executive through the Date of Termination under the terms of any compensation or
benefit plan, program or arrangement maintained by the Company during such
period.
(c) NORMAL POST-TERMINATION COMPENSATION AND BENEFITS. If Executive's
employment shall be terminated for any reason following a Change in Control and
during the term of this Agreement, the Company shall pay Executive's normal
post-termination compensation and benefits to Executive as such payments become
due. Such post-termination compensation and benefits shall be determined under,
and paid in accordance with, the Company's retirement, insurance, incentive and
other compensation or benefit plans, programs and arrangements.
6. SEVERANCE PAYMENTS.
(a) CALCULATION OF SEVERANCE AMOUNT. Subject to Subsections (b), (c),
and (d) of this Section 6, the Company shall pay Executive the Severance Amount,
which is equal to the sum of the amounts described in paragraphs (1) and (2)
below, upon the termination of Executive's employment following a Change in
Control and during the term of this Agreement, in addition to the payments and
benefits described in Section 5 of this Agreement, unless such termination is
(i) by the Company for Cause, (ii) by reason of Executive's death or Disability,
or (iii) by Executive without Good Reason. Executive's employment shall be
deemed to have been terminated following a Change in Control by the Company
without Cause or by Executive with Good Reason if Executive's employment is
terminated without Cause prior to a Change in Control at the direction of a
Person who has entered into an agreement with the Company, the consummation of
which will constitute a Change in Control, or if Executive terminates his
employment with Good Reason prior to a Change in Control (determined by treating
a Potential Change in Control as a Change in Control in applying the definition
of Good Reason) if the circumstance or event which constitutes Good Reason
occurs at the direction of such Person.
(1) SEVERANCE PAY. In lieu of any further salary payments to
Executive for periods subsequent to the Date of Termination, the
Company shall pay to Executive a lump sum severance payment, in cash,
equal to 3.75 times Executive's Annual Base Salary.
(2) QUALIFIED PLAN BENEFITS. In addition to the severance pay
described in paragraph (1) above, the Severance Amount shall also
include an amount equal to the amount of the Company's profit sharing
contribution that would have been allocated to Executive's profit
sharing account under the Thrift Plan for the plan year that includes
Executive's Date of Termination, based on Executive's compensation (as
defined under the Thrift Plan) calculated as follows: Executive's
annualized cash compensation on Executive's Date of Termination or, if
higher, Executive's annualized cash compensation immediately before the
Control Change Date.
The portion of Executive's Severance Amount determined under this
paragraph (2) will be calculated with reference to the benefits that
would have been allocated under the Thrift Plan but for the limitations
prescribed by the Code and without regard to any deferral election that
Executive may have made under the Crestar Financial Corporation
Additional Nonqualified Executive Plan. Notwithstanding the preceding
sentence, the portion of Executive's Severance Amount determined under
this paragraph (2) will be reduced to the extent such amounts are
allocated to or accrued on behalf of Executive under the Crestar
Financial Corporation Additional Nonqualified Executive Plan or the
Crestar Financial Corporation Excess Benefit Plan.
(b) CERTAIN REDUCTION IN SEVERANCE AMOUNT.
(1) The Severance Amount and other payments that Executive is
entitled to receive under other plans, programs, and agreements may
constitute Parachute Payments that are subject to the "golden
parachute" rules of Code section 280G and the excise tax of Code
section 4999. The Company and Executive intend to reduce any Parachute
Payments if, and only to the extent that, a reduction will allow
Executive to receive a greater Net After Tax Amount than Executive
would receive absent a reduction. The remaining provisions of this
subsection (b) describe how that intent will be effectuated.
(2) The Accounting Firm will first determine the amount of any
Parachute Payments that are payable to Executive. The Accounting Firm
will also determine the Net After Tax Amount attributable to
Executive's total Parachute Payments.
(3) The Accounting Firm will next determine the amount of
Executive's Capped Parachute Payments. Thereafter, the Accounting Firm
will determine the Net After Tax Amount attributable to Executive's
Capped Parachute Payments.
(4) Executive will receive the total Parachute Payments unless
the Accounting Firm determines that the Capped Parachute Payments will
yield Executive a higher Net After Tax Amount, in which case Executive
will receive the Capped Parachute Payments. If Executive will receive
the Capped Parachute Payments, Executive's total Parachute Payments
will be adjusted by first reducing the amount payable under any other
plan, program, or agreement that, by its terms, requires a reduction to
prevent a "golden parachute" payment under Code section 280G; by next
reducing Executive's benefit, if any, under the Crestar Financial
Corporation Supplemental Executive Retirement Plan, to the extent it is
a Parachute Payment; by next reducing the Severance Amount payable
under Subsection 6(a) of this Agreement; and thereafter by reducing
Parachute Payments payable under other plans and agreements (with the
reductions first coming from cash benefits and then from noncash
benefits). The Accounting Firm will notify Executive and the Company if
it determines that the Parachute Payments must be reduced to the Capped
Parachute Payments and will send Executive and the Company a copy of
its detailed calculations supporting that determination.
(5) As a result of any uncertainty in the application of Code
sections 280G and 4999 at the time that the Accounting Firm makes its
determinations under this Subsection 6(b), it is possible that amounts
will have been paid or distributed to Executive that should not have
been paid or distributed under this Section 6 ("Overpayments"), or that
additional amounts should be paid or distributed to Executive under
this Section 6 ("Underpayments"). If the Accounting Firm determines,
based on either controlling precedent, substantial authority or the
assertion of a deficiency by the Internal Revenue Service against
Executive or the Company, which assertion the Accounting Firm believes
has a high probability of success, that an Overpayment has been made,
then Executive shall have an obligation to pay the Company upon demand
an amount equal to the sum of the Overpayment plus interest on such
Overpayment at the prime rate of Crestar Bank (or its successor) as
such prime rate shall change from time to time (or, if higher, the rate
provided in Code section 7872(f)(2)) from the date of Executive's
receipt of such Overpayment until the date of such repayment; provided,
however, that Executive shall be obligated to make such repayment if,
and only to the extent, that the repayment would either reduce the
amount on which Executive is subject to tax under Code section 4999 or
generate a refund of tax imposed under Code section 4999. If the
Accounting Firm determines, based upon controlling precedent or
substantial authority, that an Underpayment has occurred, the
Accounting Firm will notify Executive and the Company of that
determination and the Company will pay the amount of that Underpayment
to Executive promptly in a lump sum, with interest calculated on such
Underpayment at the prime rate of Crestar Bank (or its successor) as
such prime rate shall change from time to time (or, if higher, the rate
provided in Code section 7872(f)(2)) from the date such Underpayment
should have been paid until actual payment.
(6) All determinations made by the Accounting Firm under this
Subsection 6(b) are binding on Executive and the Company and must be
made as soon as practicable but no later than thirty days after
Executive's Date of Termination. Within thirty days after Executive's
Date of Termination, the Company will pay to Executive the Severance
Amount under Section 6(a) or the reduced Severance Amount as calculated
by the Accounting Firm pursuant to Section 6(b).
(c) SECURITIES VIOLATION PAYMENTS. Notwithstanding any other provision
of this Agreement, no payment will be made to Executive under this Agreement to
the extent that such payment would be described in Code section 280G(b)(2)(B)
(relating to payments pursuant to an agreement that violates any generally
enforceable securities laws or regulations).
(d) FEDERAL LAWS AND REGULATIONS. Notwithstanding any other provision of
this Agreement, no payment will be made to Executive under this Agreement to the
extent that such payment would be prohibited by federal rules or regulations
that apply to the Company as a bank holding company or to any Affiliate of the
Company for which Executive serves as an officer.
7. WITHHOLDING ON PAYMENTS. All payments under this Agreement and the
Plan shall be paid net of applicable withholding required under federal, state
or local law and any additional withholding to which Executive has agreed.
8. NO MITIGATION OR SETOFFS. The Company agrees that if Executive's
employment by the Company is terminated during the term of this Agreement,
Executive is not required to seek other employment or to attempt in any way to
reduce any amounts payable to Executive by the Company pursuant to this
Agreement. Further, any amount payable under the Plan or this Agreement to
Executive shall not be reduced by any compensation earned by Executive as the
result of employment by another employer, by retirement benefits or amount, or
by offset against any amount claimed to be owed by Executive to the Company or
any Affiliate or otherwise.
9. EXPENSES AND LEGAL FEES. The Company shall pay any legal fees and
expenses incurred by Executive in seeking in good faith to obtain or enforce any
right or benefit provided by this Agreement or the Plan, including all fees
incurred in disputing any termination of employment, regardless of whether
Executive obtains a successful result, and expenses incurred in connection with
any tax audit or proceeding to the extent attributable to the application of
section 4999 of the Code to any payment or benefit provided hereunder. Such
payments shall be made within five business days after delivery of Executive's
written request for payment accompanied with such evidence of fees and expenses
incurred, as the Company may reasonably require. Any expenses attributable to
determinations by independent experts under any section of the Agreement (for
example, under Section 6) shall be paid by the Company.
10. TERMINATION PROCEDURES AND COMPENSATION DURING DISPUTE.
(a) NOTICE OF TERMINATION. After a Change in Control and during the term
of this Agreement, any purported termination of Executive's employment (other
than by reason of death) shall be communicated by written Notice of Termination
from one party to the other party to this Agreement, in accordance with Section
12 of this Agreement. For purposes of this Agreement, a "Notice of Termination"
shall mean a notice which shall indicate the Date of Termination and the
specific termination provision in this Agreement relied upon and shall set forth
in reasonable detail the facts and circumstances claimed to provide a basis for
termination of Executive's employment under the provision so indicated. Further,
a Notice of Termination for Cause is required to include a copy of a resolution
duly adopted by the affirmative vote of not less than three-quarters (3/4) of
the entire membership of the Board at a meeting of the Board which was called
and held for the purpose of considering such termination (after reasonable
notice to Executive and an opportunity for Executive, together with Executive's
counsel, to be heard before the Board) finding that, in the good faith opinion
of the Board, Executive was guilty of conduct set forth in clause (i) or (ii) of
the definition of Cause in this Agreement, and specifying the particulars of
such Cause in detail.
(b) DATE OF TERMINATION. "Date of Termination," with respect to any
purported termination of Executive's employment after a Change in Control and
during the term of this Agreement, shall mean (1) if Executive's employment is
terminated for Disability, thirty days after Notice of Termination is given
(provided that Executive shall not have returned to the full-time performance of
Executive's duties during such thirty-day period), and (2) if Executive's
employment is terminated for any other reason, the date specified in the Notice
of Termination (which, in the case of a termination by the Company, shall not be
less than thirty days (except in the case of a termination for Cause) and, in
the case of a termination by the Executive, shall not be less than fifteen days
nor more than thirty days, respectively, from the date such Notice of
Termination is given).
(c) DISPUTE CONCERNING TERMINATION. If within fifteen days after any
Notice of Termination is given, or, if later, prior to the Date of Termination
(as determined without regard to this subsection (c)), the party receiving such
Notice of Termination notifies the other party that a dispute exists concerning
the termination, the Date of Termination shall be the date on which the dispute
is finally resolved, either by mutual written agreement of the parties or by a
final judgment, order or decree of a court of competent jurisdiction (which is
not appealable or with respect to which the time for appeal therefrom has
expired and no appeal has been perfected); provided further that the Date of
Termination shall be extended by a notice of dispute only if such notice is
given in good faith and the party giving such notice pursues the resolution of
such dispute with reasonable diligence.
(d) COMPENSATION DURING DISPUTE. If a purported termination occurs
following a Change in Control and during the term of this Agreement, and such
termination is disputed in accordance with subsection (c) above, the Company
shall continue to pay Executive the full compensation in effect when the notice
giving rise to the dispute was given (including, but not limited to, base
salary) and continue Executive as a participant in all compensation, benefit and
insurance plans in which Executive was participating when the notice giving rise
to the dispute was given, until the dispute is finally resolved in accordance
with subsection (c) above. Amounts paid under this subsection (d) are in
addition to all other amounts due under this Agreement (other than those due
under Section 5(b) hereof) and shall not be offset against or reduce any other
amounts due under this Agreement, unless the Accounting Firm determines a
reduction is required pursuant to Section 6(b) of this Agreement.
11. SUCCESSORS; BINDING AGREEMENT.
(a) SUCCESSORS BOUND. In addition to any other obligations imposed by
law upon any successor to the Company, the Company will require any successor
(whether direct or indirect, by purchase, merger, consolidation or otherwise) to
all or substantially all of the business and/or assets of the Company,
regardless of whether such occurrence constitutes a Change in Control, to
expressly assume and agree to perform this Agreement in the same manner and to
the same extent that the Company would be required to perform it if no such
succession had taken place. Failure of the Company to obtain such assumption and
agreement prior to the effective date of any such succession shall be a breach
of this Agreement and shall entitle Executive to compensation from the Company
in the same amount and on the same terms as Executive would be entitled to under
this Agreement if Executive were to terminate Executive's employment for Good
Reason after a Change in Control, except that, for purposes of implementing the
foregoing, the date on which any such succession becomes effective shall be
deemed the Date of Termination.
(b) EXECUTIVE. This Agreement shall inure to the benefit of, and be
enforceable by, Executive's personal or legal representatives, executors,
administrators, successors, heirs, distributees, devisees and legatees. If
Executive should die while any amount would still be payable to Executive under
this Agreement (other than any amounts which, by their terms, terminate upon the
death of the Executive) if Executive had continued to live, all such amounts,
unless otherwise provided herein, shall be paid in accordance with the terms of
this Agreement to the executors, personal representatives or administrators of
Executive's estate.
12. NOTICES. For purposes of this Agreement, notices and all other
communications provided for in the Agreement shall be in writing and shall be
deemed to have been duly given when delivered in person or mailed by United
States registered mail, return receipt requested, postage prepaid, addressed to
the respective addresses set forth below or to a different address that is
delivered in writing to by one party to the other party, except that notice of
change of address shall be effective only upon actual receipt:
To the Company:
Crestar Financial Corporation
919 East Main Street
Richmond, Virginia 23219
Attention: Director of Human Resources
To the Executive:
James M. Wells III
Crestar Financial Corporation
919 East Main Street
Richmond, Virginia 23219-
13. MISCELLANEOUS. This Agreement is part of and subject to the terms of
the Plan. No provision of this Agreement may be modified, waived, or discharged
unless that waiver, modification, or discharge is agreed to in writing and
signed by Executive and by the Chairman of the Board's Human Resources and
Compensation Committee or by such officer of the Company as may be specifically
designated by the Board's Human Resources and Compensation Committee. No waiver
by either party to this Agreement at any time of any breach by the other party
of, or compliance with, any condition or provision of this Agreement to be
performed by that other party is a waiver of similar or dissimilar provisions or
conditions at the same or any prior or subsequent time. No agreements or
representations, oral or otherwise, express or implied, with respect to the
subject matter of this Agreement and the Plan have been made by either party
which are not expressly set forth in this Agreement and the Plan. The
obligations of the Company and Executive under Sections 6 and 10 shall survive
the expiration of this Agreement.
14. VALIDITY. The validity, interpretation, construction, and
performance of this Agreement are governed by the laws of Virginia (other than
its choice-of-law rules if those rules would require the application of the laws
of a state other than Virginia), to the extent that state laws are not
superseded by federal law. The invalidity or unenforceability of any provisions
of this Agreement does not affect the validity or enforceability of any other
provision of this Agreement, each of which will remain in full force and effect.
15. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which is deemed to be an original but all of which
together constitute one and the same instrument.
16. DISPUTES.
(a) CLAIMS FOR BENEFITS. All claims for benefits by Executive shall be
submitted to the Plan Administrator in writing as set forth in the claims
procedures under the Plan.
(b) ARBITRATION. Any further dispute or controversy arising under or in
connection with this Agreement that is not settled between the parties and which
Executive wishes to pursue after the claims procedures under the Plan have been
exhausted, shall be settled exclusively by arbitration in accordance with the
rules of the American Arbitration Association then in effect at such location in
the Commonwealth of Virginia as Executive may select. Judgment may be entered on
the arbitrator's award in any court having jurisdiction; provided, however, that
Executive shall be entitled to seek specific performance of Executive's right to
be paid through the Date of Termination during the pendency of any dispute or
controversy arising under or in connection with this Agreement or the Plan.
17. PRIOR AGREEMENTS SUPERSEDED. Effective as of the date set forth on
the first page of this Agreement, any prior severance agreement between
Executive and the Company or an Affiliate is superseded in its entirety by this
Agreement and is of no further force or effect.
18. DEFINITIONS. For purposes of this Agreement and the Plan, the
following terms shall have the meanings indicated below:
(A) "Accounting Firm" means the accounting firm most recently approved
by the Company's shareholders as the Company's independent auditor. If, however,
such firm declines or is unable to undertake the determinations assigned to it
under this Agreement, then "Accounting Firm" shall mean such other independent
accounting firm mutually agreed upon by the Company and the Executive.
(B) "Annual Base Salary" means Executive's annual base salary,
determined according to the Company's normal pay practices, as in effect on the
Date of Termination, one year before the Date of Termination, on the Control
Change Date, or one year before the Control Change Date, whichever date produces
the greatest amount.
(C) "Board" means the Board of Directors of the Company.
(D) "Capped Parachute Payments" means the largest amount of Parachute
Payments that may be paid to Executive without liability for any excise tax
under Code section 4999.
(E) "Cause" for termination by the Company of Executive's employment,
after any Change in Control, shall mean (i) the willful and continued failure by
Executive to substantially perform Executive's duties with the Company (other
than such failure resulting from Executive's incapacity due to physical or
mental illness or any such actual or anticipated failure after the issuance of a
Notice of Termination for Good Reason pursuant to Section 10(a) of this
Agreement) after a written demand for substantial performance is delivered to
Executive by the Board, which demand specifically identifies the manner in which
the Board believes that Executive has not substantially performed Executive's
duties, or (ii) the willful engaging by Executive in conduct which is
demonstrably and materially injurious to the Company or its Affiliates,
monetarily or otherwise. For purposes of clauses (i) and (ii) of this
definition, no act, or failure to act, on Executive's part shall be deemed
"willful" unless Executive has acted, or failed to act, with an absence of good
faith and without a reasonable belief that Executive's act, or failure to act,
was in the best interests of the Company and its Affiliates. If the purpose
alleged by the Board is as set forth in clause (i) above, then Executive shall
be given the opportunity to cure such failure within a reasonable period of
time, not less than thirty days, following Executive's receipt of the Board's
demand for substantial performance.
(F) "Change in Control" means "Change in Control" as defined under the
Crestar Financial Corporation 1993 Stock Incentive Plan, as amended from time to
time, and any successor thereto.
(G) "Code" means the Internal Revenue Code of 1986, as amended at the
relevant time.
(H) "Company" means Crestar Financial Corporation and any successor to
its business and/or assets which assumes and agrees to perform this Agreement by
operation of law, or otherwise.
(I) "Control Change Date" means the date on which a Change in Control
occurs. If a Change in Control occurs on account of a series of transactions,
the Control Change Date is the date of the last of such transactions.
(J) "Date of Termination" is defined in Section 10(b) of this
Agreement.
(K) "Disability" means a mental or physical condition that qualifies
Executive to receive benefits under the Company's long-term disability plan
available to executive officers or that would qualify Executive to receive such
benefits if Executive were a participant in such plan. Disability shall be
deemed the reason for the termination by the Company of Executive's employment
if Executive is determined to have a Disability and the Company shall have given
Executive a Notice of Termination for Disability, and within thirty days after
such Notice of Termination is given, Executive shall not have returned to the
full-time performance of Executive's duties.
(L) "Executive" means the individual named in the first paragraph of
this Agreement.
(M) "Good Reason" for termination of Executive's employment with the
Company or its successor means the occurrence (without Executive's express
written consent) of any one of the following acts by the Company, or failures by
the Company to act, unless in the case of any act or failure to act described in
paragraph (1), (5), (6) or (7) below, such act or failure to act is corrected
prior to the Date of Termination specified in the Notice of Termination given in
respect thereof:
(1) the assignment to Executive of any duties inconsistent
with Executive's status as a senior officer of the Company, or a
substantial adverse alteration in the nature or status of Executive's
responsibilities from those in effect immediately prior to the Control
Change Date; or
(2) a reduction by the Company in Executive's annual base
salary as in effect on the date of this Agreement or as the same may be
increased from time to time (except for across-the-board salary
reductions similarly affecting all senior officers of the Company and
all senior officers of any Person in control of the Company); or
(3) the Company's requiring Executive as a condition of
Executive's continuing employment to be based at a principal office
more than twenty-five miles from the principal office out of which
Executive is working immediately prior to a Change in Control (except
for required travel on the Company's business to an extent
substantially consistent with Executive's current business travel
obligations); or
(4) the failure by the Company, without Executive's written
consent, to pay Executive any portion of Executive's current
compensation (except pursuant to an across-the-board compensation
deferral by the Company which similarly affects all senior officers of
the Company and all senior officers of any Person in control of the
Company), or to pay Executive any portion of an installment of deferred
compensation under any deferred compensation program of the Company,
within seven days of the date such payment is due; or
(5) the failure by the Company to continue in effect any
compensation plan in which Executive participates immediately prior to
the Change in Control which is material to Executive's total
compensation, including but not limited to, the Company's stock
incentive plan and any programs in effect under such plan, the
management incentive plan and the deferred compensation plan for
incentive awards, the supplemental executive retirement plan, and
nonqualified plans providing make-whole benefits not provided under
qualified plans, and the executive life insurance plan, or any
substitute plans adopted prior to the Change in Control, unless an
equitable arrangement (embodied in an ongoing substitute or alternative
plan) has been made with respect to such plan, or the failure by the
Company to continue Executive's participation in any such plan (or in
such substitute or alternative plan) on a basis not materially less
favorable, both in terms of the amount of benefits provided and the
level of Executive's participation relative to other participants, as
existed immediately prior to the Control Change Date; or
(6) the failure by the Company to continue to provide
Executive with benefits substantially similar to those Executive
enjoyed under any of the Company's pension, life insurance, incentive,
medical, health and accident, or disability plans in which Executive
was participating immediately prior to the Control Change Date, the
taking of any action by the Company which would directly or indirectly
materially reduce any of such benefits or deprive Executive of any
material fringe benefit enjoyed by Executive immediately prior to the
Control Change Date, or the failure by the Company to provide Executive
at least as many paid vacation days as Executive is entitled to receive
under the Company's normal vacation policy as in effect immediately
prior to the Control Change Date; or
(7) any purported termination of Executive's employment which
is not effected pursuant to a Notice of Termination satisfying the
requirements of Section 10(a) of this Agreement; for purposes of this
Agreement, no such purported termination shall be effective.
Executive's right to terminate Executive's employment for Good Reason shall not
be affected by Executive's incapacity due to physical or mental illness.
Executive's continued employment shall not constitute consent to, or a waiver of
rights with respect to, any act or failure to act constituting Good Reason
hereunder.
(N) "Net After Tax Amount" means the amount of any Parachute Payments or
Capped Parachute Payments, as applicable, net of taxes imposed under Code
sections 1, 3101(b) and 4999 and any state or local income taxes applicable to
Executive as in effect on the date of the payment under Section 6 of this
Agreement. The determination of the Net After Tax Amount shall be made using the
highest combined effective rate imposed by the foregoing taxes on income of the
same character as the Parachute Payments or Capped Parachute Payments, as
applicable, in effect for the year for which the determination is made.
(O) "Notice of Termination" is defined in Section 10(a) of this
Agreement.
(P) "Parachute Payment" means a payment that is described in Code
section 280G(b)(2) (without regard to whether the aggregate present value of
such payments exceeds the limit prescribed by Code section 280G(b)(2)(A)(ii)).
The amount of any Parachute Payment shall be determined in accordance with Code
section 280G and the regulations promulgated thereunder, or, in the absence of
final regulations, the proposed regulations promulgated under Code section 280G.
(R) "Plan" means the Crestar Financial Corporation Executive Severance
Plan, as in effect at the relevant time.
(S) "Potential Change in Control" shall be deemed to have occurred if
the conditions set forth in any one of the following paragraphs shall have been
satisfied:
(1) the Company or any Person publicly announces an intention
to take or to consider taking actions which, if consummated, would
constitute a Change in Control;
(2) any Person who is or becomes the beneficial owner (within
the meaning of Rule 13d-3 under the Securities Exchange Act of 1934, as
amended), directly or indirectly, of securities of the Company
representing ten percent (10%) or more of the combined voting power of
the Company's then outstanding securities, increases such Person's
beneficial ownership of such securities by five percent (5%) or more
over the percentage so owned by such Person on the date hereof; or
(3) the Board adopts a resolution to the effect that, for
purposes of this Agreement, a Potential Change in Control has
occurred.
(T) "Retirement" means termination of Executive's employment on or after
attaining the Retirement Plan's normal retirement age.
(U) "Retirement Plan" means the Retirement Plan for Employees of Crestar
Financial Corporation and Affiliated Corporation or any successor plan or
program as in effect on Executive's Date of Termination.
(V) "Thrift Plan" means the Crestar Employees' Thrift and
Profit-Sharing Plan.
(w) "Severance Amount" is defined in Section 6 of this Agreement.
IN WITNESS WHEREOF, the parties have duly executed this Agreement
effective as of the date first written above.
CRESTAR FINANCIAL CORPORATION
By: _____________________________
Director of Human Resources
EXECUTIVE
--------------------------------
James M. Wells III
EXHIBIT 10(i)
CRESTAR FINANCIAL CORPORATION
EXECUTIVE SEVERANCE PLAN
AGREEMENT
THIS AGREEMENT, dated February 23, 1996, is made by and between Crestar
Financial Corporation, a Virginia corporation (the "Company"), and O. H.
Parrish, Jr. ("Executive").
WHEREAS, the Company considers it essential to the best interests of
its shareholders to foster the continuous employment of key management
personnel; and
WHEREAS, the Board of Directors of the Company (the "Board") recognizes
that, as is the case with many publicly held corporations, the possibility of a
Change in Control (as defined in the last section of this Agreement) exists and
that such possibility, and the uncertainty and questions which it may raise
among management, may result in the departure or distraction of management
personnel to the detriment of the Company and its shareholders; and
WHEREAS, the Board has determined that appropriate steps should be
taken to reinforce and encourage the continued attention and dedication of
members of the Company's management, including Executive, to their assigned
duties without distraction in the face of potentially disturbing circumstances
arising from the possibility of a Change in Control; and
WHEREAS, the Company has adopted the Crestar Financial Corporation
Executive Severance Plan (the "Plan") with the intent of fulfilling the above
objectives and Executive has been designated as a participant in the Plan;
NOW THEREFORE, in consideration of the premises and the mutual
covenants herein contained, the Company and Executive agree to the terms of the
Plan, including the following provisions as set forth in this Agreement:
1. Defined Terms. The definitions of capitalized terms used in this
Agreement are provided in the last Section of this Agreement and, if not defined
there, are defined in the Plan document.
2. Term of Agreement. This Agreement shall commence on the date first
written above and shall continue in effect through December 31, 1998; provided,
however, that if a Change in Control shall have occurred during the term of this
Agreement, this Agreement shall continue in effect for a period of not less than
thirty-six months following the month in which the Control Change Date occurs.
Beginning on December 31, 1996, and on each December 31 thereafter, the term of
this Agreement shall automatically be extended for one additional calendar year
unless the Human Resources and Compensation Committee of the Company's Board
adopts a resolution prior to that date affirmatively electing not to extend this
Agreement and notifies Executive of its decision not to extend this Agreement.
3. Company's Covenants Summarized. In order to describe the amount and
circumstances under which Executive will receive benefits under the Plan and
this Agreement and to induce Executive to remain in the employ of the Company
and its Affiliates and in consideration of Executive's covenants as set forth in
Section 4 of this Agreement, the Company agrees, under the conditions described
in this Agreement, to pay Executive the severance payments determined pursuant
to Section 6 of this Agreement and the other payments and benefits described
herein in the event Executive's employment with the Company is terminated for
certain reasons after a Change in Control and during the term of this Agreement.
No amount or benefit shall be payable under this Agreement unless there shall
have been (or, under the terms of this Agreement, there shall be deemed to have
been) a termination of Executive's employment with the Company and all its
Affiliates following a Change in Control. This Agreement shall not be construed
as creating an express or implied contract of employment and, except as
otherwise agreed in writing between the Company and Executive, Executive shall
not have any right to be retained in the employ of the Company or any of its
Affiliates.
4. Executive's Covenants. Executive agrees that, subject to the terms
and conditions of this Agreement, in the event of a Potential Change in Control
during the term of this Agreement, Executive will remain in the employ of the
Company until the earliest of (a) a date which is six months after the date of
such Potential Change in Control, (b) the Control Change Date, (c) the date of
termination by Executive of Executive's employment for Good Reason (determined
by treating the Potential Change in Control as a Change in Control in applying
the definition of Good Reason), by reason of death or Disability, or (d) the
termination by the Company of Executive's employment for any reason.
5. Compensation Other Than Severance Payments.
(a) Executive's Incapacity. Following a Change in Control and during the
term of this Agreement, during any period that Executive fails to perform
Executive's full-time duties with the Company as a result of incapacity due to
physical or mental illness, the Company shall pay Executive's full salary to
Executive at the rate in effect at the commencement of such period of
Executive's incapacity, together with all compensation and benefits then payable
to Executive under the terms of any compensation or benefit plan, program or
arrangement maintained by the Company during such period until Executive's
employment is terminated by the Company for Disability.
(b) Payment after Notice of Termination. If Executive's employment shall
be terminated for any reason following a Change in Control and during the term
of this Agreement, the Company shall pay Executive's full salary to Executive
through the Date of Termination at the rate in effect at the time the Notice of
Termination is given, together with all compensation and benefits payable to
Executive through the Date of Termination under the terms of any compensation or
benefit plan, program or arrangement maintained by the Company during such
period.
(c) Normal Post-termination Compensation and Benefits. If Executive's
employment shall be terminated for any reason following a Change in Control and
during the term of this Agreement, the Company shall pay Executive's normal
post-termination compensation and benefits to Executive as such payments become
due. Such post-termination compensation and benefits shall be determined under,
and paid in accordance with, the Company's retirement, insurance, incentive and
other compensation or benefit plans, programs and arrangements.
6. Severance Payments.
(a) Calculation of Severance Amount. Subject to Subsections (b), (c),
and (d) of this Section 6, the Company shall pay Executive the Severance Amount,
which is equal to the sum of the amounts described in paragraphs (1) and (2)
below, upon the termination of Executive's employment following a Change in
Control and during the term of this Agreement, in addition to the payments and
benefits described in Section 5 of this Agreement, unless such termination is
(i) by the Company for Cause, (ii) by reason of Executive's death or Disability,
or (iii) by Executive without Good Reason. Executive's employment shall be
deemed to have been terminated following a Change in Control by the Company
without Cause or by Executive with Good Reason if Executive's employment is
terminated without Cause prior to a Change in Control at the direction of a
Person who has entered into an agreement with the Company, the consummation of
which will constitute a Change in Control, or if Executive terminates his
employment with Good Reason prior to a Change in Control (determined by treating
a Potential Change in Control as a Change in Control in applying the definition
of Good Reason) if the circumstance or event which constitutes Good Reason
occurs at the direction of such Person.
(1) Severance Pay. In lieu of any further salary payments to
Executive for periods subsequent to the Date of Termination, the
Company shall pay to Executive a lump sum severance payment, in cash,
equal to 3.75 times Executive's Annual Base Salary.
(2) Qualified Plan Benefits. In addition to the severance pay
described in paragraph (1) above, the Severance Amount shall also
include an amount equal to the amount of the Company's profit sharing
contribution that would have been allocated to Executive's profit
sharing account under the Thrift Plan for the plan year that includes
Executive's Date of Termination, based on Executive's compensation (as
defined under the Thrift Plan) calculated as follows: Executive's
annualized cash compensation on Executive's Date of Termination or, if
higher, Executive's annualized cash compensation immediately before the
Control Change Date.
The portion of Executive's Severance Amount determined under this
paragraph (2) will be calculated with reference to the benefits that
would have been allocated under the Thrift Plan but for the limitations
prescribed by the Code and without regard to any deferral election that
Executive may have made under the Crestar Financial Corporation
Additional Nonqualified Executive Plan. Notwithstanding the preceding
sentence, the portion of Executive's Severance Amount determined under
this paragraph (2) will be reduced to the extent such amounts are
allocated to or accrued on behalf of Executive under the Crestar
Financial Corporation Additional Nonqualified Executive Plan or the
Crestar Financial Corporation Excess Benefit Plan.
(b) Certain Reduction in Severance Amount.
(1) The Severance Amount and other payments that Executive is
entitled to receive under other plans, programs, and agreements may
constitute Parachute Payments that are subject to the "golden
parachute" rules of Code section 280G and the excise tax of Code
section 4999. The Company and Executive intend to reduce any Parachute
Payments if, and only to the extent that, a reduction will allow
Executive to receive a greater Net After Tax Amount than Executive
would receive absent a reduction. The remaining provisions of this
subsection (b) describe how that intent will be effectuated.
(2) The Accounting Firm will first determine the amount of any
Parachute Payments that are payable to Executive. The Accounting Firm
will also determine the Net After Tax Amount attributable to
Executive's total Parachute Payments.
(3) The Accounting Firm will next determine the amount of
Executive's Capped Parachute Payments. Thereafter, the Accounting Firm
will determine the Net After Tax Amount attributable to Executive's
Capped Parachute Payments.
(4) Executive will receive the total Parachute Payments unless
the Accounting Firm determines that the Capped Parachute Payments will
yield Executive a higher Net After Tax Amount, in which case Executive
will receive the Capped Parachute Payments. If Executive will receive
the Capped Parachute Payments, Executive's total Parachute Payments
will be adjusted by first reducing the amount payable under any other
plan, program, or agreement that, by its terms, requires a reduction to
prevent a "golden parachute" payment under Code section 280G; by next
reducing Executive's benefit, if any, under the Crestar Financial
Corporation Supplemental Executive Retirement Plan, to the extent it is
a Parachute Payment; by next reducing the Severance Amount payable
under Subsection 6(a) of this Agreement; and thereafter by reducing
Parachute Payments payable under other plans and agreements (with the
reductions first coming from cash benefits and then from noncash
benefits). The Accounting Firm will notify Executive and the Company if
it determines that the Parachute Payments must be reduced to the Capped
Parachute Payments and will send Executive and the Company a copy of
its detailed calculations supporting that determination.
(5) As a result of any uncertainty in the application of Code
sections 280G and 4999 at the time that the Accounting Firm makes its
determinations under this Subsection 6(b), it is possible that amounts
will have been paid or distributed to Executive that should not have
been paid or distributed under this Section 6 ("Overpayments"), or that
additional amounts should be paid or distributed to Executive under
this Section 6 ("Underpayments"). If the Accounting Firm determines,
based on either controlling precedent, substantial authority or the
assertion of a deficiency by the Internal Revenue Service against
Executive or the Company, which assertion the Accounting Firm believes
has a high probability of success, that an Overpayment has been made,
then Executive shall have an obligation to pay the Company upon demand
an amount equal to the sum of the Overpayment plus interest on such
Overpayment at the prime rate of Crestar Bank (or its successor) as
such prime rate shall change from time to time (or, if higher, the rate
provided in Code section 7872(f)(2)) from the date of Executive's
receipt of such Overpayment until the date of such repayment; provided,
however, that Executive shall be obligated to make such repayment if,
and only to the extent, that the repayment would either reduce the
amount on which Executive is subject to tax under Code section 4999 or
generate a refund of tax imposed under Code section 4999. If the
Accounting Firm determines, based upon controlling precedent or
substantial authority, that an Underpayment has occurred, the
Accounting Firm will notify Executive and the Company of that
determination and the Company will pay the amount of that Underpayment
to Executive promptly in a lump sum, with interest calculated on such
Underpayment at the prime rate of Crestar Bank (or its successor) as
such prime rate shall change from time to time (or, if higher, the rate
provided in Code section 7872(f)(2)) from the date such Underpayment
should have been paid until actual payment.
(6) All determinations made by the Accounting Firm under this
Subsection 6(b) are binding on Executive and the Company and must be
made as soon as practicable but no later than thirty days after
Executive's Date of Termination. Within thirty days after Executive's
Date of Termination, the Company will pay to Executive the Severance
Amount under Section 6(a) or the reduced Severance Amount as calculated
by the Accounting Firm pursuant to Section 6(b).
(c) Securities Violation Payments. Notwithstanding any other provision
of this Agreement, no payment will be made to Executive under this Agreement to
the extent that such payment would be described in Code section 280G(b)(2)(B)
(relating to payments pursuant to an agreement that violates any generally
enforceable securities laws or regulations).
(d) Federal Laws and Regulations. Notwithstanding any other provision of
this Agreement, no payment will be made to Executive under this Agreement to the
extent that such payment would be prohibited by federal rules or regulations
that apply to the Company as a bank holding company or to any Affiliate of the
Company for which Executive serves as an officer.
7. Withholding on Payments. All payments under this Agreement and the
Plan shall be paid net of applicable withholding required under federal, state
or local law and any additional withholding to which Executive has agreed.
8. No Mitigation Or Setoffs. The Company agrees that if Executive's
employment by the Company is terminated during the term of this Agreement,
Executive is not required to seek other employment or to attempt in any way to
reduce any amounts payable to Executive by the Company pursuant to this
Agreement. Further, any amount payable under the Plan or this Agreement to
Executive shall not be reduced by any compensation earned by Executive as the
result of employment by another employer, by retirement benefits or amount, or
by offset against any amount claimed to be owed by Executive to the Company or
any Affiliate or otherwise.
9. Expenses and Legal Fees. The Company shall pay any legal fees and
expenses incurred by Executive in seeking in good faith to obtain or enforce any
right or benefit provided by this Agreement or the Plan, including all fees
incurred in disputing any termination of employment, regardless of whether
Executive obtains a successful result, and expenses incurred in connection with
any tax audit or proceeding to the extent attributable to the application of
section 4999 of the Code to any payment or benefit provided hereunder. Such
payments shall be made within five business days after delivery of Executive's
written request for payment accompanied with such evidence of fees and expenses
incurred, as the Company may reasonably require. Any expenses attributable to
determinations by independent experts under any section of the Agreement (for
example, under Section 6) shall be paid by the Company.
10. Termination Procedures and Compensation During Dispute.
(a) Notice of Termination. After a Change in Control and during the term
of this Agreement, any purported termination of Executive's employment (other
than by reason of death) shall be communicated by written Notice of Termination
from one party to the other party to this Agreement, in accordance with Section
12 of this Agreement. For purposes of this Agreement, a "Notice of Termination"
shall mean a notice which shall indicate the Date of Termination and the
specific termination provision in this Agreement relied upon and shall set forth
in reasonable detail the facts and circumstances claimed to provide a basis for
termination of Executive's employment under the provision so indicated. Further,
a Notice of Termination for Cause is required to include a copy of a resolution
duly adopted by the affirmative vote of not less than three-quarters (3/4) of
the entire membership of the Board at a meeting of the Board which was called
and held for the purpose of considering such termination (after reasonable
notice to Executive and an opportunity for Executive, together with Executive's
counsel, to be heard before the Board) finding that, in the good faith opinion
of the Board, Executive was guilty of conduct set forth in clause (i) or (ii) of
the definition of Cause in this Agreement, and specifying the particulars of
such Cause in detail.
(b) Date of Termination. "Date of Termination," with respect to any
purported termination of Executive's employment after a Change in Control and
during the term of this Agreement, shall mean (1) if Executive's employment is
terminated for Disability, thirty days after Notice of Termination is given
(provided that Executive shall not have returned to the full-time performance of
Executive's duties during such thirty-day period), and (2) if Executive's
employment is terminated for any other reason, the date specified in the Notice
of Termination (which, in the case of a termination by the Company, shall not be
less than thirty days (except in the case of a termination for Cause) and, in
the case of a termination by the Executive, shall not be less than fifteen days
nor more than thirty days, respectively, from the date such Notice of
Termination is given).
(c) Dispute Concerning Termination. If within fifteen days after any
Notice of Termination is given, or, if later, prior to the Date of Termination
(as determined without regard to this subsection (c)), the party receiving such
Notice of Termination notifies the other party that a dispute exists concerning
the termination, the Date of Termination shall be the date on which the dispute
is finally resolved, either by mutual written agreement of the parties or by a
final judgment, order or decree of a court of competent jurisdiction (which is
not appealable or with respect to which the time for appeal therefrom has
expired and no appeal has been perfected); provided further that the Date of
Termination shall be extended by a notice of dispute only if such notice is
given in good faith and the party giving such notice pursues the resolution of
such dispute with reasonable diligence.
(d) Compensation During Dispute. If a purported termination occurs
following a Change in Control and during the term of this Agreement, and such
termination is disputed in accordance with subsection (c) above, the Company
shall continue to pay Executive the full compensation in effect when the notice
giving rise to the dispute was given (including, but not limited to, base
salary) and continue Executive as a participant in all compensation, benefit and
insurance plans in which Executive was participating when the notice giving rise
to the dispute was given, until the dispute is finally resolved in accordance
with subsection (c) above. Amounts paid under this subsection (d) are in
addition to all other amounts due under this Agreement (other than those due
under Section 5(b) hereof) and shall not be offset against or reduce any other
amounts due under this Agreement, unless the Accounting Firm determines a
reduction is required pursuant to Section 6(b) of this Agreement.
11. Successors; Binding Agreement.
(a) Successors Bound. In addition to any other obligations imposed by
law upon any successor to the Company, the Company will require any successor
(whether direct or indirect, by purchase, merger, consolidation or otherwise) to
all or substantially all of the business and/or assets of the Company,
regardless of whether such occurrence constitutes a Change in Control, to
expressly assume and agree to perform this Agreement in the same manner and to
the same extent that the Company would be required to perform it if no such
succession had taken place. Failure of the Company to obtain such assumption and
agreement prior to the effective date of any such succession shall be a breach
of this Agreement and shall entitle Executive to compensation from the Company
in the same amount and on the same terms as Executive would be entitled to under
this Agreement if Executive were to terminate Executive's employment for Good
Reason after a Change in Control, except that, for purposes of implementing the
foregoing, the date on which any such succession becomes effective shall be
deemed the Date of Termination.
(b) Executive. This Agreement shall inure to the benefit of, and be
enforceable by, Executive's personal or legal representatives, executors,
administrators, successors, heirs, distributees, devisees and legatees. If
Executive should die while any amount would still be payable to Executive under
this Agreement (other than any amounts which, by their terms, terminate upon the
death of the Executive) if Executive had continued to live, all such amounts,
unless otherwise provided herein, shall be paid in accordance with the terms of
this Agreement to the executors, personal representatives or administrators of
Executive's estate.
12. Notices. For purposes of this Agreement, notices and all other
communications provided for in the Agreement shall be in writing and shall be
deemed to have been duly given when delivered in person or mailed by United
States registered mail, return receipt requested, postage prepaid, addressed to
the respective addresses set forth below or to a different address that is
delivered in writing to by one party to the other party, except that notice of
change of address shall be effective only upon actual receipt:
To the Company:
Crestar Financial Corporation
919 East Main Street
Richmond, Virginia 23219
Attention: Director of Human Resources
To the Executive:
O. H. Parrish, Jr.
Crestar Financial Corporation
919 East Main Street
Richmond, Virginia 23219-
13. Miscellaneous. This Agreement is part of and subject to the terms of
the Plan. No provision of this Agreement may be modified, waived, or discharged
unless that waiver, modification, or discharge is agreed to in writing and
signed by Executive and by the Chairman of the Board's Human Resources and
Compensation Committee or by such officer of the Company as may be specifically
designated by the Board's Human Resources and Compensation Committee. No waiver
by either party to this Agreement at any time of any breach by the other party
of, or compliance with, any condition or provision of this Agreement to be
performed by that other party is a waiver of similar or dissimilar provisions or
conditions at the same or any prior or subsequent time. No agreements or
representations, oral or otherwise, express or implied, with respect to the
subject matter of this Agreement and the Plan have been made by either party
which are not expressly set forth in this Agreement and the Plan. The
obligations of the Company and Executive under Sections 6 and 10 shall survive
the expiration of this Agreement.
14. Validity. The validity, interpretation, construction, and
performance of this Agreement are governed by the laws of Virginia (other than
its choice-of-law rules if those rules would require the application of the laws
of a state other than Virginia), to the extent that state laws are not
superseded by federal law. The invalidity or unenforceability of any provisions
of this Agreement does not affect the validity or enforceability of any other
provision of this Agreement, each of which will remain in full force and effect.
15. Counterparts. This Agreement may be executed in one or more
counterparts, each of which is deemed to be an original but all of which
together constitute one and the same instrument.
16. Disputes.
(a) Claims for Benefits. All claims for benefits by Executive shall be
submitted to the Plan Administrator in writing as set forth in the claims
procedures under the Plan.
(b) Arbitration. Any further dispute or controversy arising under or in
connection with this Agreement that is not settled between the parties and which
Executive wishes to pursue after the claims procedures under the Plan have been
exhausted, shall be settled exclusively by arbitration in accordance with the
rules of the American Arbitration Association then in effect at such location in
the Commonwealth of Virginia as Executive may select. Judgment may be entered on
the arbitrator's award in any court having jurisdiction; provided, however, that
Executive shall be entitled to seek specific performance of Executive's right to
be paid through the Date of Termination during the pendency of any dispute or
controversy arising under or in connection with this Agreement or the Plan.
17. Prior Agreements Superseded. Effective as of the date set forth on
the first page of this Agreement, any prior severance agreement between
Executive and the Company or an Affiliate is superseded in its entirety by this
Agreement and is of no further force or effect.
18. Definitions. For purposes of this Agreement and the Plan, the
following terms shall have the meanings indicated below:
(a) "Accounting Firm" means the accounting firm most recently approved
by the Company's shareholders as the Company's independent auditor. If, however,
such firm declines or is unable to undertake the determinations assigned to it
under this Agreement, then "Accounting Firm" shall mean such other independent
accounting firm mutually agreed upon by the Company and the Executive.
(b) "Annual Base Salary" means Executive's annual base salary,
determined according to the Company's normal pay practices, as in effect on the
Date of Termination, one year before the Date of Termination, on the Control
Change Date, or one year before the Control Change Date, whichever date produces
the greatest amount.
(c) "Board" means the Board of Directors of the Company.
(d) "Capped Parachute Payments" means the largest amount of Parachute
Payments that may be paid to Executive without liability for any excise tax
under Code section 4999.
(e) "Cause" for termination by the Company of Executive's employment,
after any Change in Control, shall mean (i) the willful and continued failure by
Executive to substantially perform Executive's duties with the Company (other
than such failure resulting from Executive's incapacity due to physical or
mental illness or any such actual or anticipated failure after the issuance of a
Notice of Termination for Good Reason pursuant to Section 10(a) of this
Agreement) after a written demand for substantial performance is delivered to
Executive by the Board, which demand specifically identifies the manner in which
the Board believes that Executive has not substantially performed Executive's
duties, or (ii) the willful engaging by Executive in conduct which is
demonstrably and materially injurious to the Company or its Affiliates,
monetarily or otherwise. For purposes of clauses (i) and (ii) of this
definition, no act, or failure to act, on Executive's part shall be deemed
"willful" unless Executive has acted, or failed to act, with an absence of good
faith and without a reasonable belief that Executive's act, or failure to act,
was in the best interests of the Company and its Affiliates. If the purpose
alleged by the Board is as set forth in clause (i) above, then Executive shall
be given the opportunity to cure such failure within a reasonable period of
time, not less than thirty days, following Executive's receipt of the Board's
demand for substantial performance.
(f) "Change in Control" means "Change in Control" as defined under the
Crestar Financial Corporation 1993 Stock Incentive Plan, as amended from time to
time, and any successor thereto.
(g) "Code" means the Internal Revenue Code of 1986, as amended at the
relevant time.
(h) "Company" means Crestar Financial Corporation and any successor to
its business and/or assets which assumes and agrees to perform this Agreement by
operation of law, or otherwise.
(i) "Control Change Date" means the date on which a Change in Control
occurs. If a Change in Control occurs on account of a series of transactions,
the Control Change Date is the date of the last of such transactions.
(j) "Date of Termination" is defined in Section 10(b) of this Agreement.
(k) "Disability" means a mental or physical condition that qualifies
Executive to receive benefits under the Company's long-term disability plan
available to executive officers or that would qualify Executive to receive such
benefits if Executive were a participant in such plan. Disability shall be
deemed the reason for the termination by the Company of Executive's employment
if Executive is determined to have a Disability and the Company shall have given
Executive a Notice of Termination for Disability, and within thirty days after
such Notice of Termination is given, Executive shall not have returned to the
full-time performance of Executive's duties.
(l) "Executive" means the individual named in the first paragraph of
this Agreement.
(m) "Good Reason" for termination of Executive's employment with the
Company or its successor means the occurrence (without Executive's express
written consent) of any one of the following acts by the Company, or failures by
the Company to act, unless in the case of any act or failure to act described in
paragraph (1), (5), (6) or (7) below, such act or failure to act is corrected
prior to the Date of Termination specified in the Notice of Termination given in
respect thereof:
(1) the assignment to Executive of any duties inconsistent
with Executive's status as a senior officer of the Company, or a
substantial adverse alteration in the nature or status of Executive's
responsibilities from those in effect immediately prior to the Control
Change Date; or
(2) a reduction by the Company in Executive's annual base
salary as in effect on the date of this Agreement or as the same may be
increased from time to time (except for across-the-board salary
reductions similarly affecting all senior officers of the Company and
all senior officers of any Person in control of the Company); or
(3) the Company's requiring Executive as a condition of
Executive's continuing employment to be based at a principal office
more than twenty-five miles from the principal office out of which
Executive is working immediately prior to a Change in Control (except
for required travel on the Company's business to an extent
substantially consistent with Executive's current business travel
obligations); or
(4) the failure by the Company, without Executive's written
consent, to pay Executive any portion of Executive's current
compensation (except pursuant to an across-the-board compensation
deferral by the Company which similarly affects all senior officers of
the Company and all senior officers of any Person in control of the
Company), or to pay Executive any portion of an installment of deferred
compensation under any deferred compensation program of the Company,
within seven days of the date such payment is due; or
(5) the failure by the Company to continue in effect any
compensation plan in which Executive participates immediately prior to
the Change in Control which is material to Executive's total
compensation, including but not limited to, the Company's stock
incentive plan and any programs in effect under such plan, the
management incentive plan and the deferred compensation plan for
incentive awards, the supplemental executive retirement plan, and
nonqualified plans providing make-whole benefits not provided under
qualified plans, and the executive life insurance plan, or any
substitute plans adopted prior to the Change in Control, unless an
equitable arrangement (embodied in an ongoing substitute or alternative
plan) has been made with respect to such plan, or the failure by the
Company to continue Executive's participation in any such plan (or in
such substitute or alternative plan) on a basis not materially less
favorable, both in terms of the amount of benefits provided and the
level of Executive's participation relative to other participants, as
existed immediately prior to the Control Change Date; or
(6) the failure by the Company to continue to provide
Executive with benefits substantially similar to those Executive
enjoyed under any of the Company's pension, life insurance, incentive,
medical, health and accident, or disability plans in which Executive
was participating immediately prior to the Control Change Date, the
taking of any action by the Company which would directly or indirectly
materially reduce any of such benefits or deprive Executive of any
material fringe benefit enjoyed by Executive immediately prior to the
Control Change Date, or the failure by the Company to provide Executive
at least as many paid vacation days as Executive is entitled to receive
under the Company's normal vacation policy as in effect immediately
prior to the Control Change Date; or
(7) any purported termination of Executive's employment which
is not effected pursuant to a Notice of Termination satisfying the
requirements of Section 10(a) of this Agreement; for purposes of this
Agreement, no such purported termination shall be effective.
Executive's right to terminate Executive's employment for Good Reason shall not
be affected by Executive's incapacity due to physical or mental illness.
Executive's continued employment shall not constitute consent to, or a waiver of
rights with respect to, any act or failure to act constituting Good Reason
hereunder.
(n) "Net After Tax Amount" means the amount of any Parachute Payments or
Capped Parachute Payments, as applicable, net of taxes imposed under Code
sections 1, 3101(b) and 4999 and any state or local income taxes applicable to
Executive as in effect on the date of the payment under Section 6 of this
Agreement. The determination of the Net After Tax Amount shall be made using the
highest combined effective rate imposed by the foregoing taxes on income of the
same character as the Parachute Payments or Capped Parachute Payments, as
applicable, in effect for the year for which the determination is made.
(o) "Notice of Termination" is defined in Section 10(a) of this
Agreement.
(p) "Parachute Payment" means a payment that is described in Code
section 280G(b)(2) (without regard to whether the aggregate present value of
such payments exceeds the limit prescribed by Code section 280G(b)(2)(A)(ii)).
The amount of any Parachute Payment shall be determined in accordance with Code
section 280G and the regulations promulgated thereunder, or, in the absence of
final regulations, the proposed regulations promulgated under Code section 280G.
(r) "Plan" means the Crestar Financial Corporation Executive Severance
Plan, as in effect at the relevant time.
(s) "Potential Change in Control" shall be deemed to have occurred if
the conditions set forth in any one of the following paragraphs shall have been
satisfied:
(1) the Company or any Person publicly announces an intention
to take or to consider taking actions which, if consummated, would
constitute a Change in Control;
(2) any Person who is or becomes the beneficial owner (within
the meaning of Rule 13d-3 under the Securities Exchange Act of 1934, as
amended), directly or indirectly, of securities of the Company
representing ten percent (10%) or more of the combined voting power of
the Company's then outstanding securities, increases such Person's
beneficial ownership of such securities by five percent (5%) or more
over the percentage so owned by such Person on the date hereof; or
(3) the Board adopts a resolution to the effect that, for
purposes of this Agreement, a Potential Change in Control has
occurred.
(t) "Retirement" means termination of Executive's employment on or after
attaining the Retirement Plan's normal retirement age.
(u) "Retirement Plan" means the Retirement Plan for Employees of Crestar
Financial Corporation and Affiliated Corporation or any successor plan or
program as in effect on Executive's Date of Termination.
(v) "Thrift Plan" means the Crestar Employees' Thrift and Profit-Sharing
Plan.
(w) "Severance Amount" is defined in Section 6 of this Agreement.
IN WITNESS WHEREOF, the parties have duly executed this Agreement
effective as of the date first written above.
CRESTAR FINANCIAL CORPORATION
By: _____________________________
Director of Human Resources
EXECUTIVE
__________________________________
O. H. Parrish, Jr.
EXHIBIT 10(j)
CRESTAR FINANCIAL CORPORATION
EXECUTIVE SEVERANCE PLAN
AGREEMENT
THIS AGREEMENT, dated February 23, 1996, is made by and between Crestar
Financial Corporation, a Virginia corporation (the "Company"), and William C.
Harris ("Executive").
WHEREAS, the Company considers it essential to the best interests of
its shareholders to foster the continuous employment of key management
personnel; and
WHEREAS, the Board of Directors of the Company (the "Board") recognizes
that, as is the case with many publicly held corporations, the possibility of a
Change in Control (as defined in the last section of this Agreement) exists and
that such possibility, and the uncertainty and questions which it may raise
among management, may result in the departure or distraction of management
personnel to the detriment of the Company and its shareholders; and
WHEREAS, the Board has determined that appropriate steps should be
taken to reinforce and encourage the continued attention and dedication of
members of the Company's management, including Executive, to their assigned
duties without distraction in the face of potentially disturbing circumstances
arising from the possibility of a Change in Control; and
WHEREAS, the Company has adopted the Crestar Financial Corporation
Executive Severance Plan (the "Plan") with the intent of fulfilling the above
objectives and Executive has been designated as a participant in the Plan;
NOW THEREFORE, in consideration of the premises and the mutual
covenants herein contained, the Company and Executive agree to the terms of the
Plan, including the following provisions as set forth in this Agreement:
1. DEFINED TERMS. The definitions of capitalized terms used in this
Agreement are provided in the last Section of this Agreement and, if not defined
there, are defined in the Plan document.
2. TERM OF AGREEMENT. This Agreement shall commence on the date first
written above and shall continue in effect through December 31, 1998; provided,
however, that if a Change in Control shall have occurred during the term of this
Agreement, this Agreement shall continue in effect for a period of not less than
thirty-six months following the month in which the Control Change Date occurs.
Beginning on December 31, 1996, and on each December 31 thereafter, the term of
this Agreement shall automatically be extended for one additional calendar year
unless the Human Resources and Compensation Committee of the Company's Board
adopts a resolution prior to that date affirmatively electing not to extend this
Agreement and notifies Executive of its decision not to extend this Agreement.
3. COMPANY'S COVENANTS SUMMARIZED. In order to describe the amount and
circumstances under which Executive will receive benefits under the Plan and
this Agreement and to induce Executive to remain in the employ of the Company
and its Affiliates and in consideration of Executive's covenants as set forth in
Section 4 of this Agreement, the Company agrees, under the conditions described
in this Agreement, to pay Executive the severance payments determined pursuant
to Section 6 of this Agreement and the other payments and benefits described
herein in the event Executive's employment with the Company is terminated for
certain reasons after a Change in Control and during the term of this Agreement.
No amount or benefit shall be payable under this Agreement unless there shall
have been (or, under the terms of this Agreement, there shall be deemed to have
been) a termination of Executive's employment with the Company and all its
Affiliates following a Change in Control. This Agreement shall not be construed
as creating an express or implied contract of employment and, except as
otherwise agreed in writing between the Company and Executive, Executive shall
not have any right to be retained in the employ of the Company or any of its
Affiliates.
4. EXECUTIVE'S COVENANTS. Executive agrees that, subject to the terms
and conditions of this Agreement, in the event of a Potential Change in Control
during the term of this Agreement, Executive will remain in the employ of the
Company until the earliest of (a) a date which is six months after the date of
such Potential Change in Control, (b) the Control Change Date, (c) the date of
termination by Executive of Executive's employment for Good Reason (determined
by treating the Potential Change in Control as a Change in Control in applying
the definition of Good Reason), by reason of death or Disability, or (d) the
termination by the Company of Executive's employment for any reason.
5. COMPENSATION OTHER THAN SEVERANCE PAYMENTS.
(a) EXECUTIVE'S INCAPACITY. Following a Change in Control and during the
term of this Agreement, during any period that Executive fails to perform
Executive's full-time duties with the Company as a result of incapacity due to
physical or mental illness, the Company shall pay Executive's full salary to
Executive at the rate in effect at the commencement of such period of
Executive's incapacity, together with all compensation and benefits then payable
to Executive under the terms of any compensation or benefit plan, program or
arrangement maintained by the Company during such period until Executive's
employment is terminated by the Company for Disability.
(b) PAYMENT AFTER NOTICE OF TERMINATION. If Executive's employment shall
be terminated for any reason following a Change in Control and during the term
of this Agreement, the Company shall pay Executive's full salary to Executive
through the Date of Termination at the rate in effect at the time the Notice of
Termination is given, together with all compensation and benefits payable to
Executive through the Date of Termination under the terms of any compensation or
benefit plan, program or arrangement maintained by the Company during such
period.
(c) NORMAL POST-TERMINATION COMPENSATION AND BENEFITS. If Executive's
employment shall be terminated for any reason following a Change in Control and
during the term of this Agreement, the Company shall pay Executive's normal
post-termination compensation and benefits to Executive as such payments become
due. Such post-termination compensation and benefits shall be determined under,
and paid in accordance with, the Company's retirement, insurance, incentive and
other compensation or benefit plans, programs and arrangements.
6. SEVERANCE PAYMENTS.
(a) CALCULATION OF SEVERANCE AMOUNT. Subject to Subsections (b), (c),
and (d) of this Section 6, the Company shall pay Executive the Severance Amount,
which is equal to the sum of the amounts described in paragraphs (1) and (2)
below, upon the termination of Executive's employment following a Change in
Control and during the term of this Agreement, in addition to the payments and
benefits described in Section 5 of this Agreement, unless such termination is
(i) by the Company for Cause, (ii) by reason of Executive's death or Disability,
or (iii) by Executive without Good Reason. Executive's employment shall be
deemed to have been terminated following a Change in Control by the Company
without Cause or by Executive with Good Reason if Executive's employment is
terminated without Cause prior to a Change in Control at the direction of a
Person who has entered into an agreement with the Company, the consummation of
which will constitute a Change in Control, or if Executive terminates his
employment with Good Reason prior to a Change in Control (determined by treating
a Potential Change in Control as a Change in Control in applying the definition
of Good Reason) if the circumstance or event which constitutes Good Reason
occurs at the direction of such Person.
(1) SEVERANCE PAY. In lieu of any further salary payments to
Executive for periods subsequent to the Date of Termination, the
Company shall pay to Executive a lump sum severance payment, in cash,
equal to 3.75 times Executive's Annual Base Salary.
(2) QUALIFIED PLAN BENEFITS. In addition to the severance pay
described in paragraph (1) above, the Severance Amount shall also
include an amount equal to the amount of the Company's profit sharing
contribution that would have been allocated to Executive's profit
sharing account under the Thrift Plan for the plan year that includes
Executive's Date of Termination, based on Executive's compensation (as
defined under the Thrift Plan) calculated as follows: Executive's
annualized cash compensation on Executive's Date of Termination or, if
higher, Executive's annualized cash compensation immediately before the
Control Change Date.
The portion of Executive's Severance Amount determined under this
paragraph (2) will be calculated with reference to the benefits that
would have been allocated under the Thrift Plan but for the limitations
prescribed by the Code and without regard to any deferral election that
Executive may have made under the Crestar Financial Corporation
Additional Nonqualified Executive Plan. Notwithstanding the preceding
sentence, the portion of Executive's Severance Amount determined under
this paragraph (2) will be reduced to the extent such amounts are
allocated to or accrued on behalf of Executive under the Crestar
Financial Corporation Additional Nonqualified Executive Plan or the
Crestar Financial Corporation Excess Benefit Plan.
(b) CERTAIN REDUCTION IN SEVERANCE AMOUNT.
(1) The Severance Amount and other payments that Executive is
entitled to receive under other plans, programs, and agreements may
constitute Parachute Payments that are subject to the "golden
parachute" rules of Code section 280G and the excise tax of Code
section 4999. The Company and Executive intend to reduce any Parachute
Payments if, and only to the extent that, a reduction will allow
Executive to receive a greater Net After Tax Amount than Executive
would receive absent a reduction. The remaining provisions of this
subsection (b) describe how that intent will be effectuated.
(2) The Accounting Firm will first determine the amount of any
Parachute Payments that are payable to Executive. The Accounting Firm
will also determine the Net After Tax Amount attributable to
Executive's total Parachute Payments.
(3) The Accounting Firm will next determine the amount of
Executive's Capped Parachute Payments. Thereafter, the Accounting Firm
will determine the Net After Tax Amount attributable to Executive's
Capped Parachute Payments.
(4) Executive will receive the total Parachute Payments unless
the Accounting Firm determines that the Capped Parachute Payments will
yield Executive a higher Net After Tax Amount, in which case Executive
will receive the Capped Parachute Payments. If Executive will receive
the Capped Parachute Payments, Executive's total Parachute Payments
will be adjusted by first reducing the amount payable under any other
plan, program, or agreement that, by its terms, requires a reduction to
prevent a "golden parachute" payment under Code section 280G; by next
reducing Executive's benefit, if any, under the Crestar Financial
Corporation Supplemental Executive Retirement Plan, to the extent it is
a Parachute Payment; by next reducing the Severance Amount payable
under Subsection 6(a) of this Agreement; and thereafter by reducing
Parachute Payments payable under other plans and agreements (with the
reductions first coming from cash benefits and then from noncash
benefits). The Accounting Firm will notify Executive and the Company if
it determines that the Parachute Payments must be reduced to the Capped
Parachute Payments and will send Executive and the Company a copy of
its detailed calculations supporting that determination.
(5) As a result of any uncertainty in the application of Code
sections 280G and 4999 at the time that the Accounting Firm makes its
determinations under this Subsection 6(b), it is possible that amounts
will have been paid or distributed to Executive that should not have
been paid or distributed under this Section 6 ("Overpayments"), or that
additional amounts should be paid or distributed to Executive under
this Section 6 ("Underpayments"). If the Accounting Firm determines,
based on either controlling precedent, substantial authority or the
assertion of a deficiency by the Internal Revenue Service against
Executive or the Company, which assertion the Accounting Firm believes
has a high probability of success, that an Overpayment has been made,
then Executive shall have an obligation to pay the Company upon demand
an amount equal to the sum of the Overpayment plus interest on such
Overpayment at the prime rate of Crestar Bank (or its successor) as
such prime rate shall change from time to time (or, if higher, the rate
provided in Code section 7872(f)(2)) from the date of Executive's
receipt of such Overpayment until the date of such repayment; provided,
however, that Executive shall be obligated to make such repayment if,
and only to the extent, that the repayment would either reduce the
amount on which Executive is subject to tax under Code section 4999 or
generate a refund of tax imposed under Code section 4999. If the
Accounting Firm determines, based upon controlling precedent or
substantial authority, that an Underpayment has occurred, the
Accounting Firm will notify Executive and the Company of that
determination and the Company will pay the amount of that Underpayment
to Executive promptly in a lump sum, with interest calculated on such
Underpayment at the prime rate of Crestar Bank (or its successor) as
such prime rate shall change from time to time (or, if higher, the rate
provided in Code section 7872(f)(2)) from the date such Underpayment
should have been paid until actual payment.
(6) All determinations made by the Accounting Firm under this
Subsection 6(b) are binding on Executive and the Company and must be
made as soon as practicable but no later than thirty days after
Executive's Date of Termination. Within thirty days after Executive's
Date of Termination, the Company will pay to Executive the Severance
Amount under Section 6(a) or the reduced Severance Amount as calculated
by the Accounting Firm pursuant to Section 6(b).
(c) SECURITIES VIOLATION PAYMENTS. Notwithstanding any other provision
of this Agreement, no payment will be made to Executive under this Agreement to
the extent that such payment would be described in Code section 280G(b)(2)(B)
(relating to payments pursuant to an agreement that violates any generally
enforceable securities laws or regulations).
(d) FEDERAL LAWS AND REGULATIONS. Notwithstanding any other provision of
this Agreement, no payment will be made to Executive under this Agreement to the
extent that such payment would be prohibited by federal rules or regulations
that apply to the Company as a bank holding company or to any Affiliate of the
Company for which Executive serves as an officer.
7. WITHHOLDING ON PAYMENTS. All payments under this Agreement and the
Plan shall be paid net of applicable withholding required under federal, state
or local law and any additional withholding to which Executive has agreed.
8. NO MITIGATION OR SETOFFS. The Company agrees that if Executive's
employment by the Company is terminated during the term of this Agreement,
Executive is not required to seek other employment or to attempt in any way to
reduce any amounts payable to Executive by the Company pursuant to this
Agreement. Further, any amount payable under the Plan or this Agreement to
Executive shall not be reduced by any compensation earned by Executive as the
result of employment by another employer, by retirement benefits or amount, or
by offset against any amount claimed to be owed by Executive to the Company or
any Affiliate or otherwise.
9. EXPENSES AND LEGAL FEES. The Company shall pay any legal fees and
expenses incurred by Executive in seeking in good faith to obtain or enforce any
right or benefit provided by this Agreement or the Plan, including all fees
incurred in disputing any termination of employment, regardless of whether
Executive obtains a successful result, and expenses incurred in connection with
any tax audit or proceeding to the extent attributable to the application of
section 4999 of the Code to any payment or benefit provided hereunder. Such
payments shall be made within five business days after delivery of Executive's
written request for payment accompanied with such evidence of fees and expenses
incurred, as the Company may reasonably require. Any expenses attributable to
determinations by independent experts under any section of the Agreement (for
example, under Section 6) shall be paid by the Company.
10. TERMINATION PROCEDURES AND COMPENSATION DURING DISPUTE.
(a) NOTICE OF TERMINATION. After a Change in Control and during the term
of this Agreement, any purported termination of Executive's employment (other
than by reason of death) shall be communicated by written Notice of Termination
from one party to the other party to this Agreement, in accordance with Section
12 of this Agreement. For purposes of this Agreement, a "Notice of Termination"
shall mean a notice which shall indicate the Date of Termination and the
specific termination provision in this Agreement relied upon and shall set forth
in reasonable detail the facts and circumstances claimed to provide a basis for
termination of Executive's employment under the provision so indicated. Further,
a Notice of Termination for Cause is required to include a copy of a resolution
duly adopted by the affirmative vote of not less than three-quarters (3/4) of
the entire membership of the Board at a meeting of the Board which was called
and held for the purpose of considering such termination (after reasonable
notice to Executive and an opportunity for Executive, together with Executive's
counsel, to be heard before the Board) finding that, in the good faith opinion
of the Board, Executive was guilty of conduct set forth in clause (i) or (ii) of
the definition of Cause in this Agreement, and specifying the particulars of
such Cause in detail.
(b) DATE OF TERMINATION. "Date of Termination," with respect to any
purported termination of Executive's employment after a Change in Control and
during the term of this Agreement, shall mean (1) if Executive's employment is
terminated for Disability, thirty days after Notice of Termination is given
(provided that Executive shall not have returned to the full-time performance of
Executive's duties during such thirty-day period), and (2) if Executive's
employment is terminated for any other reason, the date specified in the Notice
of Termination (which, in the case of a termination by the Company, shall not be
less than thirty days (except in the case of a termination for Cause) and, in
the case of a termination by the Executive, shall not be less than fifteen days
nor more than thirty days, respectively, from the date such Notice of
Termination is given).
(c) DISPUTE CONCERNING TERMINATION. If within fifteen days after any
Notice of Termination is given, or, if later, prior to the Date of Termination
(as determined without regard to this subsection (c)), the party receiving such
Notice of Termination notifies the other party that a dispute exists concerning
the termination, the Date of Termination shall be the date on which the dispute
is finally resolved, either by mutual written agreement of the parties or by a
final judgment, order or decree of a court of competent jurisdiction (which is
not appealable or with respect to which the time for appeal therefrom has
expired and no appeal has been perfected); provided further that the Date of
Termination shall be extended by a notice of dispute only if such notice is
given in good faith and the party giving such notice pursues the resolution of
such dispute with reasonable diligence.
(d) COMPENSATION DURING DISPUTE. If a purported termination occurs
following a Change in Control and during the term of this Agreement, and such
termination is disputed in accordance with subsection (c) above, the Company
shall continue to pay Executive the full compensation in effect when the notice
giving rise to the dispute was given (including, but not limited to, base
salary) and continue Executive as a participant in all compensation, benefit and
insurance plans in which Executive was participating when the notice giving rise
to the dispute was given, until the dispute is finally resolved in accordance
with subsection (c) above. Amounts paid under this subsection (d) are in
addition to all other amounts due under this Agreement (other than those due
under Section 5(b) hereof) and shall not be offset against or reduce any other
amounts due under this Agreement, unless the Accounting Firm determines a
reduction is required pursuant to Section 6(b) of this Agreement.
11. SUCCESSORS; BINDING AGREEMENT.
(a) SUCCESSORS BOUND. In addition to any other obligations imposed by
law upon any successor to the Company, the Company will require any successor
(whether direct or indirect, by purchase, merger, consolidation or otherwise) to
all or substantially all of the business and/or assets of the Company,
regardless of whether such occurrence constitutes a Change in Control, to
expressly assume and agree to perform this Agreement in the same manner and to
the same extent that the Company would be required to perform it if no such
succession had taken place. Failure of the Company to obtain such assumption and
agreement prior to the effective date of any such succession shall be a breach
of this Agreement and shall entitle Executive to compensation from the Company
in the same amount and on the same terms as Executive would be entitled to under
this Agreement if Executive were to terminate Executive's employment for Good
Reason after a Change in Control, except that, for purposes of implementing the
foregoing, the date on which any such succession becomes effective shall be
deemed the Date of Termination.
(b) EXECUTIVE. This Agreement shall inure to the benefit of, and be
enforceable by, Executive's personal or legal representatives, executors,
administrators, successors, heirs, distributees, devisees and legatees. If
Executive should die while any amount would still be payable to Executive under
this Agreement (other than any amounts which, by their terms, terminate upon the
death of the Executive) if Executive had continued to live, all such amounts,
unless otherwise provided herein, shall be paid in accordance with the terms of
this Agreement to the executors, personal representatives or administrators of
Executive's estate.
12. NOTICES. For purposes of this Agreement, notices and all other
communications provided for in the Agreement shall be in writing and shall be
deemed to have been duly given when delivered in person or mailed by United
States registered mail, return receipt requested, postage prepaid, addressed to
the respective addresses set forth below or to a different address that is
delivered in writing to by one party to the other party, except that notice of
change of address shall be effective only upon actual receipt:
To the Company:
Crestar Financial Corporation
919 East Main Street
Richmond, Virginia 23219
Attention: Director of Human Resources
To the Executive:
William C. Harris
Crestar Bank N.A.
1445 New York Avenue, NW
Washington, DC 20005-2108
13. MISCELLANEOUS. This Agreement is part of and subject to the terms of
the Plan. No provision of this Agreement may be modified, waived, or discharged
unless that waiver, modification, or discharge is agreed to in writing and
signed by Executive and by the Chairman of the Board's Human Resources and
Compensation Committee or by such officer of the Company as may be specifically
designated by the Board's Human Resources and Compensation Committee. No waiver
by either party to this Agreement at any time of any breach by the other party
of, or compliance with, any condition or provision of this Agreement to be
performed by that other party is a waiver of similar or dissimilar provisions or
conditions at the same or any prior or subsequent time. No agreements or
representations, oral or otherwise, express or implied, with respect to the
subject matter of this Agreement and the Plan have been made by either party
which are not expressly set forth in this Agreement and the Plan. The
obligations of the Company and Executive under Sections 6 and 10 shall survive
the expiration of this Agreement.
14. VALIDITY. The validity, interpretation, construction, and
performance of this Agreement are governed by the laws of Virginia (other than
its choice-of-law rules if those rules would require the application of the laws
of a state other than Virginia), to the extent that state laws are not
superseded by federal law. The invalidity or unenforceability of any provisions
of this Agreement does not affect the validity or enforceability of any other
provision of this Agreement, each of which will remain in full force and effect.
15. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which is deemed to be an original but all of which
together constitute one and the same instrument.
16. DISPUTES.
(a) CLAIMS FOR BENEFITS. All claims for benefits by Executive shall be
submitted to the Plan Administrator in writing as set forth in the claims
procedures under the Plan.
(b) ARBITRATION. Any further dispute or controversy arising under or in
connection with this Agreement that is not settled between the parties and which
Executive wishes to pursue after the claims procedures under the Plan have been
exhausted, shall be settled exclusively by arbitration in accordance with the
rules of the American Arbitration Association then in effect at such location in
the Commonwealth of Virginia as Executive may select. Judgment may be entered on
the arbitrator's award in any court having jurisdiction; provided, however, that
Executive shall be entitled to seek specific performance of Executive's right to
be paid through the Date of Termination during the pendency of any dispute or
controversy arising under or in connection with this Agreement or the Plan.
17. PRIOR AGREEMENTS SUPERSEDED. Effective as of the date set forth on
the first page of this Agreement, any prior severance agreement between
Executive and the Company or an Affiliate is superseded in its entirety by this
Agreement and is of no further force or effect.
18. DEFINITIONS. For purposes of this Agreement and the Plan, the
following terms shall have the meanings indicated below:
(A) "Accounting Firm" means the accounting firm most recently approved
by the Company's shareholders as the Company's independent auditor. If, however,
such firm declines or is unable to undertake the determinations assigned to it
under this Agreement, then "Accounting Firm" shall mean such other independent
accounting firm mutually agreed upon by the Company and the Executive.
(B) "Annual Base Salary" means Executive's annual base salary,
determined according to the Company's normal pay practices, as in effect on the
Date of Termination, one year before the Date of Termination, on the Control
Change Date, or one year before the Control Change Date, whichever date produces
the greatest amount.
(C) "Board" means the Board of Directors of the Company.
(D) "Capped Parachute Payments" means the largest amount of Parachute
Payments that may be paid to Executive without liability for any excise tax
under Code section 4999.
(E) "Cause" for termination by the Company of Executive's employment,
after any Change in Control, shall mean (i) the willful and continued failure by
Executive to substantially perform Executive's duties with the Company (other
than such failure resulting from Executive's incapacity due to physical or
mental illness or any such actual or anticipated failure after the issuance of a
Notice of Termination for Good Reason pursuant to Section 10(a) of this
Agreement) after a written demand for substantial performance is delivered to
Executive by the Board, which demand specifically identifies the manner in which
the Board believes that Executive has not substantially performed Executive's
duties, or (ii) the willful engaging by Executive in conduct which is
demonstrably and materially injurious to the Company or its Affiliates,
monetarily or otherwise. For purposes of clauses (i) and (ii) of this
definition, no act, or failure to act, on Executive's part shall be deemed
"willful" unless Executive has acted, or failed to act, with an absence of good
faith and without a reasonable belief that Executive's act, or failure to act,
was in the best interests of the Company and its Affiliates. If the purpose
alleged by the Board is as set forth in clause (i) above, then Executive shall
be given the opportunity to cure such failure within a reasonable period of
time, not less than thirty days, following Executive's receipt of the Board's
demand for substantial performance.
(F) "Change in Control" means "Change in Control" as defined under the
Crestar Financial Corporation 1993 Stock Incentive Plan, as amended from time to
time, and any successor thereto.
(G) "Code" means the Internal Revenue Code of 1986, as amended at the
relevant time.
(H) "Company" means Crestar Financial Corporation and any successor to
its business and/or assets which assumes and agrees to perform this Agreement by
operation of law, or otherwise.
(I) "Control Change Date" means the date on which a Change in Control
occurs. If a Change in Control occurs on account of a series of transactions,
the Control Change Date is the date of the last of such transactions.
(J) "Date of Termination" is defined in Section 10(b) of this
Agreement.
(K) "Disability" means a mental or physical condition that qualifies
Executive to receive benefits under the Company's long-term disability plan
available to executive officers or that would qualify Executive to receive such
benefits if Executive were a participant in such plan. Disability shall be
deemed the reason for the termination by the Company of Executive's employment
if Executive is determined to have a Disability and the Company shall have given
Executive a Notice of Termination for Disability, and within thirty days after
such Notice of Termination is given, Executive shall not have returned to the
full-time performance of Executive's duties.
(L) "Executive" means the individual named in the first paragraph of
this Agreement.
(M) "Good Reason" for termination of Executive's employment with the
Company or its successor means the occurrence (without Executive's express
written consent) of any one of the following acts by the Company, or failures by
the Company to act, unless in the case of any act or failure to act described in
paragraph (1), (5), (6) or (7) below, such act or failure to act is corrected
prior to the Date of Termination specified in the Notice of Termination given in
respect thereof:
(1) the assignment to Executive of any duties inconsistent
with Executive's status as a senior officer of the Company, or a
substantial adverse alteration in the nature or status of Executive's
responsibilities from those in effect immediately prior to the Control
Change Date; or
(2) a reduction by the Company in Executive's annual base
salary as in effect on the date of this Agreement or as the same may be
increased from time to time (except for across-the-board salary
reductions similarly affecting all senior officers of the Company and
all senior officers of any Person in control of the Company); or
(3) the Company's requiring Executive as a condition of
Executive's continuing employment to be based at a principal office
more than twenty-five miles from the principal office out of which
Executive is working immediately prior to a Change in Control (except
for required travel on the Company's business to an extent
substantially consistent with Executive's current business travel
obligations); or
(4) the failure by the Company, without Executive's written
consent, to pay Executive any portion of Executive's current
compensation (except pursuant to an across-the-board compensation
deferral by the Company which similarly affects all senior officers of
the Company and all senior officers of any Person in control of the
Company), or to pay Executive any portion of an installment of deferred
compensation under any deferred compensation program of the Company,
within seven days of the date such payment is due; or
(5) the failure by the Company to continue in effect any
compensation plan in which Executive participates immediately prior to
the Change in Control which is material to Executive's total
compensation, including but not limited to, the Company's stock
incentive plan and any programs in effect under such plan, the
management incentive plan and the deferred compensation plan for
incentive awards, the supplemental executive retirement plan, and
nonqualified plans providing make-whole benefits not provided under
qualified plans, and the executive life insurance plan, or any
substitute plans adopted prior to the Change in Control, unless an
equitable arrangement (embodied in an ongoing substitute or alternative
plan) has been made with respect to such plan, or the failure by the
Company to continue Executive's participation in any such plan (or in
such substitute or alternative plan) on a basis not materially less
favorable, both in terms of the amount of benefits provided and the
level of Executive's participation relative to other participants, as
existed immediately prior to the Control Change Date; or
(6) the failure by the Company to continue to provide
Executive with benefits substantially similar to those Executive
enjoyed under any of the Company's pension, life insurance, incentive,
medical, health and accident, or disability plans in which Executive
was participating immediately prior to the Control Change Date, the
taking of any action by the Company which would directly or indirectly
materially reduce any of such benefits or deprive Executive of any
material fringe benefit enjoyed by Executive immediately prior to the
Control Change Date, or the failure by the Company to provide Executive
at least as many paid vacation days as Executive is entitled to receive
under the Company's normal vacation policy as in effect immediately
prior to the Control Change Date; or
(7) any purported termination of Executive's employment which
is not effected pursuant to a Notice of Termination satisfying the
requirements of Section 10(a) of this Agreement; for purposes of this
Agreement, no such purported termination shall be effective.
Executive's right to terminate Executive's employment for Good Reason shall not
be affected by Executive's incapacity due to physical or mental illness.
Executive's continued employment shall not constitute consent to, or a waiver of
rights with respect to, any act or failure to act constituting Good Reason
hereunder.
(N) "Net After Tax Amount" means the amount of any Parachute Payments or
Capped Parachute Payments, as applicable, net of taxes imposed under Code
sections 1, 3101(b) and 4999 and any state or local income taxes applicable to
Executive as in effect on the date of the payment under Section 6 of this
Agreement. The determination of the Net After Tax Amount shall be made using the
highest combined effective rate imposed by the foregoing taxes on income of the
same character as the Parachute Payments or Capped Parachute Payments, as
applicable, in effect for the year for which the determination is made.
(O) "Notice of Termination" is defined in Section 10(a) of this
Agreement.
(P) "Parachute Payment" means a payment that is described in Code
section 280G(b)(2) (without regard to whether the aggregate present value of
such payments exceeds the limit prescribed by Code section 280G(b)(2)(A)(ii)).
The amount of any Parachute Payment shall be determined in accordance with Code
section 280G and the regulations promulgated thereunder, or, in the absence of
final regulations, the proposed regulations promulgated under Code section 280G.
(R) "Plan" means the Crestar Financial Corporation Executive Severance
Plan, as in effect at the relevant time.
(S) "Potential Change in Control" shall be deemed to have occurred if
the conditions set forth in any one of the following paragraphs shall have been
satisfied:
(1) the Company or any Person publicly announces an intention
to take or to consider taking actions which, if consummated, would
constitute a Change in Control;
(2) any Person who is or becomes the beneficial owner (within
the meaning of Rule 13d-3 under the Securities Exchange Act of 1934, as
amended), directly or indirectly, of securities of the Company
representing ten percent (10%) or more of the combined voting power of
the Company's then outstanding securities, increases such Person's
beneficial ownership of such securities by five percent (5%) or more
over the percentage so owned by such Person on the date hereof; or
(3) the Board adopts a resolution to the effect that, for
purposes of this Agreement, a Potential Change in Control has occurred.
(T) "Retirement" means termination of Executive's employment on or after
attaining the Retirement Plan's normal retirement age.
(U) "Retirement Plan" means the Retirement Plan for Employees of Crestar
Financial Corporation and Affiliated Corporation or any successor plan or
program as in effect on Executive's Date of Termination.
(V) "Thrift Plan" means the Crestar Employees' Thrift and Profit-Sharing
Plan.
(W) "Severance Amount" is defined in Section 6 of this Agreement.
IN WITNESS WHEREOF, the parties have duly executed this Agreement
effective as of the date first written above.
CRESTAR FINANCIAL CORPORATION
By: _____________________________
Director of Human Resources
EXECUTIVE
--------------------------------
William C. Harris
EXHIBIT 10(k)
CRESTAR FINANCIAL CORPORATION
EXECUTIVE SEVERANCE PLAN
AGREEMENT
THIS AGREEMENT, dated February 23, 1996, is made by and between Crestar
Financial Corporation, a Virginia corporation (the "Company"), and C. Garland
Hagen ("Executive").
WHEREAS, the Company considers it essential to the best interests of
its shareholders to foster the continuous employment of key management
personnel; and
WHEREAS, the Board of Directors of the Company (the "Board") recognizes
that, as is the case with many publicly held corporations, the possibility of a
Change in Control (as defined in the last section of this Agreement) exists and
that such possibility, and the uncertainty and questions which it may raise
among management, may result in the departure or distraction of management
personnel to the detriment of the Company and its shareholders; and
WHEREAS, the Board has determined that appropriate steps should be
taken to reinforce and encourage the continued attention and dedication of
members of the Company's management, including Executive, to their assigned
duties without distraction in the face of potentially disturbing circumstances
arising from the possibility of a Change in Control; and
WHEREAS, the Company has adopted the Crestar Financial Corporation
Executive Severance Plan (the "Plan") with the intent of fulfilling the above
objectives and Executive has been designated as a participant in the Plan;
NOW THEREFORE, in consideration of the premises and the mutual
covenants herein contained, the Company and Executive agree to the terms of the
Plan, including the following provisions as set forth in this Agreement:
1. DEFINED TERMS. The definitions of capitalized terms used in this
Agreement are provided in the last Section of this Agreement and, if not defined
there, are defined in the Plan document.
2. TERM OF AGREEMENT. This Agreement shall commence on the date first
written above and shall continue in effect through December 31, 1998; provided,
however, that if a Change in Control shall have occurred during the term of this
Agreement, this Agreement shall continue in effect for a period of not less than
thirty-six months following the month in which the Control Change Date occurs.
Beginning on December 31, 1996, and on each December 31 thereafter, the term of
this Agreement shall automatically be extended for one additional calendar year
unless the Human Resources and Compensation Committee of the Company's Board
adopts a resolution prior to that date affirmatively electing not to extend this
Agreement and notifies Executive of its decision not to extend this Agreement.
3. COMPANY'S COVENANTS SUMMARIZED. In order to describe the amount and
circumstances under which Executive will receive benefits under the Plan and
this Agreement and to induce Executive to remain in the employ of the Company
and its Affiliates and in consideration of Executive's covenants as set forth in
Section 4 of this Agreement, the Company agrees, under the conditions described
in this Agreement, to pay Executive the severance payments determined pursuant
to Section 6 of this Agreement and the other payments and benefits described
herein in the event Executive's employment with the Company is terminated for
certain reasons after a Change in Control and during the term of this Agreement.
No amount or benefit shall be payable under this Agreement unless there shall
have been (or, under the terms of this Agreement, there shall be deemed to have
been) a termination of Executive's employment with the Company and all its
Affiliates following a Change in Control. This Agreement shall not be construed
as creating an express or implied contract of employment and, except as
otherwise agreed in writing between the Company and Executive, Executive shall
not have any right to be retained in the employ of the Company or any of its
Affiliates.
4. EXECUTIVE'S COVENANTS. Executive agrees that, subject to the terms
and conditions of this Agreement, in the event of a Potential Change in Control
during the term of this Agreement, Executive will remain in the employ of the
Company until the earliest of (a) a date which is six months after the date of
such Potential Change in Control, (b) the Control Change Date, (c) the date of
termination by Executive of Executive's employment for Good Reason (determined
by treating the Potential Change in Control as a Change in Control in applying
the definition of Good Reason), by reason of death or Disability, or (d) the
termination by the Company of Executive's employment for any reason.
5. COMPENSATION OTHER THAN SEVERANCE PAYMENTS.
(a) EXECUTIVE'S INCAPACITY. Following a Change in Control and during the
term of this Agreement, during any period that Executive fails to perform
Executive's full-time duties with the Company as a result of incapacity due to
physical or mental illness, the Company shall pay Executive's full salary to
Executive at the rate in effect at the commencement of such period of
Executive's incapacity, together with all compensation and benefits then payable
to Executive under the terms of any compensation or benefit plan, program or
arrangement maintained by the Company during such period until Executive's
employment is terminated by the Company for Disability.
(b) PAYMENT AFTER NOTICE OF TERMINATION. If Executive's employment shall
be terminated for any reason following a Change in Control and during the term
of this Agreement, the Company shall pay Executive's full salary to Executive
through the Date of Termination at the rate in effect at the time the Notice of
Termination is given, together with all compensation and benefits payable to
Executive through the Date of Termination under the terms of any compensation or
benefit plan, program or arrangement maintained by the Company during such
period.
(c) NORMAL POST-TERMINATION COMPENSATION AND BENEFITS. If Executive's
employment shall be terminated for any reason following a Change in Control and
during the term of this Agreement, the Company shall pay Executive's normal
post-termination compensation and benefits to Executive as such payments become
due. Such post-termination compensation and benefits shall be determined under,
and paid in accordance with, the Company's retirement, insurance, incentive and
other compensation or benefit plans, programs and arrangements.
6. SEVERANCE PAYMENTS
(a) CALCULATION OF SEVERANCE AMOUNT. Subject to Subsections (b), (c),
and (d) of this Section 6, the Company shall pay Executive the Severance Amount,
which is equal to the sum of the amounts described in paragraphs (1) and (2)
below, upon the termination of Executive's employment following a Change in
Control and during the term of this Agreement, in addition to the payments and
benefits described in Section 5 of this Agreement, unless such termination is
(i) by the Company for Cause, (ii) by reason of Executive's death or Disability,
or (iii) by Executive without Good Reason. Executive's employment shall be
deemed to have been terminated following a Change in Control by the Company
without Cause or by Executive with Good Reason if Executive's employment is
terminated without Cause prior to a Change in Control at the direction of a
Person who has entered into an agreement with the Company, the consummation of
which will constitute a Change in Control, or if Executive terminates his
employment with Good Reason prior to a Change in Control (determined by treating
a Potential Change in Control as a Change in Control in applying the definition
of Good Reason) if the circumstance or event which constitutes Good Reason
occurs at the direction of such Person.
(1) SEVERANCE PAY. In lieu of any further salary payments to
Executive for periods subsequent to the Date of Termination, the
Company shall pay to Executive a lump sum severance payment, in cash,
equal to 3.75 times Executive's Annual Base Salary.
(2) QUALIFIED PLAN BENEFITS. In addition to the severance pay
described in paragraph (1) above, the Severance Amount shall also
include an amount equal to the amount of the Company's profit sharing
contribution that would have been allocated to Executive's profit
sharing account under the Thrift Plan for the plan year that includes
Executive's Date of Termination, based on Executive's compensation (as
defined under the Thrift Plan) calculated as follows: Executive's
annualized cash compensation on Executive's Date of Termination or, if
higher, Executive's annualized cash compensation immediately before the
Control Change Date.
The portion of Executive's Severance Amount determined under this
paragraph (2) will be calculated with reference to the benefits that
would have been allocated under the Thrift Plan but for the limitations
prescribed by the Code and without regard to any deferral election that
Executive may have made under the Crestar Financial Corporation
Additional Nonqualified Executive Plan. Notwithstanding the preceding
sentence, the portion of Executive's Severance Amount determined under
this paragraph (2) will be reduced to the extent such amounts are
allocated to or accrued on behalf of Executive under the Crestar
Financial Corporation Additional Nonqualified Executive Plan or the
Crestar Financial Corporation Excess Benefit Plan.
(b) CERTAIN REDUCTION IN SEVERANCE AMOUNT.
(1) The Severance Amount and other payments that Executive is
entitled to receive under other plans, programs, and agreements may
constitute Parachute Payments that are subject to the "golden
parachute" rules of Code section 280G and the excise tax of Code
section 4999. The Company and Executive intend to reduce any Parachute
Payments if, and only to the extent that, a reduction will allow
Executive to receive a greater Net After Tax Amount than Executive
would receive absent a reduction. The remaining provisions of this
subsection (b) describe how that intent will be effectuated.
(2) The Accounting Firm will first determine the amount of any
Parachute Payments that are payable to Executive. The Accounting Firm
will also determine the Net After Tax Amount attributable to
Executive's total Parachute Payments.
(3) The Accounting Firm will next determine the amount of
Executive's Capped Parachute Payments. Thereafter, the Accounting Firm
will determine the Net After Tax Amount attributable to Executive's
Capped Parachute Payments.
(4) Executive will receive the total Parachute Payments unless
the Accounting Firm determines that the Capped Parachute Payments will
yield Executive a higher Net After Tax Amount, in which case Executive
will receive the Capped Parachute Payments. If Executive will receive
the Capped Parachute Payments, Executive's total Parachute Payments
will be adjusted by first reducing the amount payable under any other
plan, program, or agreement that, by its terms, requires a reduction to
prevent a "golden parachute" payment under Code section 280G; by next
reducing Executive's benefit, if any, under the Crestar Financial
Corporation Supplemental Executive Retirement Plan, to the extent it is
a Parachute Payment; by next reducing the Severance Amount payable
under Subsection 6(a) of this Agreement; and thereafter by reducing
Parachute Payments payable under other plans and agreements (with the
reductions first coming from cash benefits and then from noncash
benefits). The Accounting Firm will notify Executive and the Company if
it determines that the Parachute Payments must be reduced to the Capped
Parachute Payments and will send Executive and the Company a copy of
its detailed calculations supporting that determination.
(5) As a result of any uncertainty in the application of Code
sections 280G and 4999 at the time that the Accounting Firm makes its
determinations under this Subsection 6(b), it is possible that amounts
will have been paid or distributed to Executive that should not have
been paid or distributed under this Section 6 ("Overpayments"), or that
additional amounts should be paid or distributed to Executive under
this Section 6 ("Underpayments"). If the Accounting Firm determines,
based on either controlling precedent, substantial authority or the
assertion of a deficiency by the Internal Revenue Service against
Executive or the Company, which assertion the Accounting Firm believes
has a high probability of success, that an Overpayment has been made,
then Executive shall have an obligation to pay the Company upon demand
an amount equal to the sum of the Overpayment plus interest on such
Overpayment at the prime rate of Crestar Bank (or its successor) as
such prime rate shall change from time to time (or, if higher, the rate
provided in Code section 7872(f)(2)) from the date of Executive's
receipt of such Overpayment until the date of such repayment; provided,
however, that Executive shall be obligated to make such repayment if,
and only to the extent, that the repayment would either reduce the
amount on which Executive is subject to tax under Code section 4999 or
generate a refund of tax imposed under Code section 4999. If the
Accounting Firm determines, based upon controlling precedent or
substantial authority, that an Underpayment has occurred, the
Accounting Firm will notify Executive and the Company of that
determination and the Company will pay the amount of that Underpayment
to Executive promptly in a lump sum, with interest calculated on such
Underpayment at the prime rate of Crestar Bank (or its successor) as
such prime rate shall change from time to time (or, if higher, the rate
provided in Code section 7872(f)(2)) from the date such Underpayment
should have been paid until actual payment.
(6) All determinations made by the Accounting Firm under this
Subsection 6(b) are binding on Executive and the Company and must be
made as soon as practicable but no later than thirty days after
Executive's Date of Termination. Within thirty days after Executive's
Date of Termination, the Company will pay to Executive the Severance
Amount under Section 6(a) or the reduced Severance Amount as calculated
by the Accounting Firm pursuant to Section 6(b).
(c) SECURITIES VIOLATION PAYMENTS. Notwithstanding any other provision
of this Agreement, no payment will be made to Executive under this Agreement to
the extent that such payment would be described in Code section 280G(b)(2)(B)
(relating to payments pursuant to an agreement that violates any generally
enforceable securities laws or regulations).
(d) FEDERAL LAWS AND REGULATIONS. Notwithstanding any other provision of
this Agreement, no payment will be made to Executive under this Agreement to the
extent that such payment would be prohibited by federal rules or regulations
that apply to the Company as a bank holding company or to any Affiliate of the
Company for which Executive serves as an officer.
7. WITHHOLDING ON PAYMENTS. All payments under this Agreement and the
Plan shall be paid net of applicable withholding required under federal, state
or local law and any additional withholding to which Executive has agreed.
8. NO MITIGATION OR SETOFFS. The Company agrees that if Executive's
employment by the Company is terminated during the term of this Agreement,
Executive is not required to seek other employment or to attempt in any way to
reduce any amounts payable to Executive by the Company pursuant to this
Agreement. Further, any amount payable under the Plan or this Agreement to
Executive shall not be reduced by any compensation earned by Executive as the
result of employment by another employer, by retirement benefits or amount, or
by offset against any amount claimed to be owed by Executive to the Company or
any Affiliate or otherwise.
9. EXPENSES AND LEGAL FEES. The Company shall pay any legal fees and
expenses incurred by Executive in seeking in good faith to obtain or enforce any
right or benefit provided by this Agreement or the Plan, including all fees
incurred in disputing any termination of employment, regardless of whether
Executive obtains a successful result, and expenses incurred in connection with
any tax audit or proceeding to the extent attributable to the application of
section 4999 of the Code to any payment or benefit provided hereunder. Such
payments shall be made within five business days after delivery of Executive's
written request for payment accompanied with such evidence of fees and expenses
incurred, as the Company may reasonably require. Any expenses attributable to
determinations by independent experts under any section of the Agreement (for
example, under Section 6) shall be paid by the Company.
10. TERMINATION PROCEDURES AND COMPENSATION DURING DISPUTE.
(a) NOTICE OF TERMINATION. After a Change in Control and during the term
of this Agreement, any purported termination of Executive's employment (other
than by reason of death) shall be communicated by written Notice of Termination
from one party to the other party to this Agreement, in accordance with Section
12 of this Agreement. For purposes of this Agreement, a "Notice of Termination"
shall mean a notice which shall indicate the Date of Termination and the
specific termination provision in this Agreement relied upon and shall set forth
in reasonable detail the facts and circumstances claimed to provide a basis for
termination of Executive's employment under the provision so indicated. Further,
a Notice of Termination for Cause is required to include a copy of a resolution
duly adopted by the affirmative vote of not less than three-quarters (3/4) of
the entire membership of the Board at a meeting of the Board which was called
and held for the purpose of considering such termination (after reasonable
notice to Executive and an opportunity for Executive, together with Executive's
counsel, to be heard before the Board) finding that, in the good faith opinion
of the Board, Executive was guilty of conduct set forth in clause (i) or (ii) of
the definition of Cause in this Agreement, and specifying the particulars of
such Cause in detail.
(b) DATE OF TERMINATION. "Date of Termination," with respect to any
purported termination of Executive's employment after a Change in Control and
during the term of this Agreement, shall mean (1) if Executive's employment is
terminated for Disability, thirty days after Notice of Termination is given
(provided that Executive shall not have returned to the full-time performance of
Executive's duties during such thirty-day period), and (2) if Executive's
employment is terminated for any other reason, the date specified in the Notice
of Termination (which, in the case of a termination by the Company, shall not be
less than thirty days (except in the case of a termination for Cause) and, in
the case of a termination by the Executive, shall not be less than fifteen days
nor more than thirty days, respectively, from the date such Notice of
Termination is given).
(c) DISPUTE CONCERNING TERMINATION. If within fifteen days after any
Notice of Termination is given, or, if later, prior to the Date of Termination
(as determined without regard to this subsection (c)), the party receiving such
Notice of Termination notifies the other party that a dispute exists concerning
the termination, the Date of Termination shall be the date on which the dispute
is finally resolved, either by mutual written agreement of the parties or by a
final judgment, order or decree of a court of competent jurisdiction (which is
not appealable or with respect to which the time for appeal therefrom has
expired and no appeal has been perfected); provided further that the Date of
Termination shall be extended by a notice of dispute only if such notice is
given in good faith and the party giving such notice pursues the resolution of
such dispute with reasonable diligence.
(d) COMPENSATION DURING DISPUTE. If a purported termination occurs
following a Change in Control and during the term of this Agreement, and such
termination is disputed in accordance with subsection (c) above, the Company
shall continue to pay Executive the full compensation in effect when the notice
giving rise to the dispute was given (including, but not limited to, base
salary) and continue Executive as a participant in all compensation, benefit and
insurance plans in which Executive was participating when the notice giving rise
to the dispute was given, until the dispute is finally resolved in accordance
with subsection (c) above. Amounts paid under this subsection (d) are in
addition to all other amounts due under this Agreement (other than those due
under Section 5(b) hereof) and shall not be offset against or reduce any other
amounts due under this Agreement, unless the Accounting Firm determines a
reduction is required pursuant to Section 6(b) of this Agreement.
11. SUCCESSORS; BINDING AGREEMENT.
(a) SUCCESSORS BOUND. In addition to any other obligations imposed by
law upon any successors to the Company, the Company will require any successor
(whether direct or indirect, by purchase, merger, consolidation or otherwise) to
all or substantially all of the business and/or assets of the Company,
regardless of whether such occurrence constitutes a Change in Control, to
expressly assume and agree to perform this Agreement in the same manner and to
the same extent that the Company would be required to perform it if no such
succession had taken place. Failure of the Company to obtain such assumption and
agreement prior to the effective date of any such succession shall be a breach
of this Agreement and shall entitle Executive to compensation from the Company
in the same amount and on the same terms as Executive would be entitled to under
this Agreement if Executive were to terminate Executive's employment for Good
Reason after a Change in Control, except that, for purposes of implementing the
foregoing, the date on which any such succession becomes effective shall be
deemed the Date of Termination.
(b) EXECUTIVE. This Agreement shall inure to the benefit of, and be
enforceable by, Executive's personal or legal representatives, executors,
administrators, successors, heirs, distributees, devisees and legatees. If
Executive should die while any amount would still be payable to Executive under
this Agreement (other than any amounts which, by their terms, terminate upon the
death of the Executive) if Executive had continued to live, all such amounts,
unless otherwise provided herein, shall be paid in accordance with the terms of
this Agreement to the executors, personal representatives or administrators of
Executive's estate.
12. NOTICES. For purposes of this Agreement, notices and all other
communications provided for in the Agreement shall be in writing and shall be
deemed to have been duly given when delivered in person or mailed by United
States registered mail, return receipt requested, postage prepaid, addressed to
the respective addresses set forth below or to a different address that is
delivered in writing to by one party to the other party, except that notice of
change of address shall be effective only upon actual receipt:
To the Company:
Crestar Financial Corporation
919 East Main Street
Richmond, Virginia 23219
Attention: Director of Human Resources
To the Executive:
C. Garland Hagen
Crestar Financial Corporation
919 East Main Street
Richmond, Virginia 23219-
13. MISCELLANEOUS. This Agreement is part of and subject to the terms of
the Plan. No provision of this Agreement may be modified, waived, or discharged
unless that waiver, modification, or discharge is agreed to in writing and
signed by Executive and by the Chairman of the Board's Human Resources and
Compensation Committee or by such officer of the Company as may be specifically
designated by the Board's Human Resources and Compensation Committee. No waiver
by either party to this Agreement at any time of any breach by the other party
of, or compliance with, any condition or provision of this Agreement to be
performed by that other party is a waiver of similar or dissimilar provisions or
conditions at the same or any prior or subsequent time. No agreements or
representations, oral or otherwise, express or implied, with respect to the
subject matter of this Agreement and the Plan have been made by either party
which are not expressly set forth in this Agreement and the Plan. The
obligations of the Company and Executive under Sections 6 and 10 shall survive
the expiration of this Agreement.
14. VALIDITY. The validity, interpretation, construction, and
performance of this Agreement are governed by the laws of Virginia (other than
its choice-of-law rules if those rules would require the application of the laws
of a state other than Virginia), to the extent that state laws are not
superseded by federal law. The invalidity or unenforceability of any provisions
of this Agreement does not affect the validity or enforceability of any other
provision of this Agreement, each of which will remain in full force and effect.
15. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which is deemed to be an original but all of which
together constitute one and the same instrument.
16. DISPUTES.
(a) CLAIMS FOR BENEFITS. All claims for benefits by Executive shall be
submitted to the Plan Administrator in writing as set forth in the claims
procedures under the Plan.
(b) ARBITRATION. Any further dispute or controversy arising under or in
connection with this Agreement that is not settled between the parties and which
Executive wishes to pursue after the claims procedures under the Plan have been
exhausted, shall be settled exclusively by arbitration in accordance with the
rules of the American Arbitration Association then in effect at such location in
the Commonwealth of Virginia as Executive may select. Judgment may be entered on
the arbitrator's award in any court having jurisdiction; provided, however, that
Executive shall be entitled to seek specific performance of Executive's right to
be paid through the Date of Termination during the pendency of any dispute or
controversy arising under or in connection with this Agreement or the Plan.
17. PRIOR AGREEMENTS SUPERSEDED. Effective as of the date set forth on
the first page of this Agreement, any prior severance agreement between
Executive and the Company or an Affiliate is superseded in its entirety by this
Agreement and is of no further force or effect.
18. DEFINITIONS. For purposes of this Agreement and the Plan, the
following terms shall have the meanings indicated below:
(A) "Accounting Firm" means the accounting firm most recently approved
by the Company's shareholders as the Company's independent auditor. If, however,
such firm declines or is unable to undertake the determinations assigned to it
under this Agreement, then "Accounting Firm" shall mean such other independent
accounting firm mutually agreed upon by the Company and the Executive.
(B) "Annual Base Salary" means Executive's annual base salary,
determined according to the Company's normal pay practices, as in effect on the
Date of Termination, one year before the Date of Termination, on the Control
Change Date, or one year before the Control Change Date, whichever date produces
the greatest amount.
(C) "Board" means the Board of Directors of the Company.
(D) "Capped Parachute Payments" means the largest amount of Parachute
Payments that may be paid to Executive without liability for any excise tax
under Code section 4999.
(E) "Cause" for termination by the Company of Executive's employment,
after any Change in Control, shall mean (i) the willful and continued failure by
Executive to substantially perform Executive's duties with the Company (other
than such failure resulting from Executive's incapacity due to physical or
mental illness or any such actual or anticipated failure after the issuance of a
Notice of Termination for Good Reason pursuant to Section 10(a) of this
Agreement) after a written demand for substantial performance is delivered to
Executive by the Board, which demand specifically identifies the manner in which
the Board believes that Executive has not substantially performed Executive's
duties, or (ii) the willful engaging by Executive in conduct which is
demonstrably and materially injurious to the Company or its Affiliates,
monetarily or otherwise. For purposes of clauses (i) and (ii) of this
definition, no act, or failure to act, on Executive's part shall be deemed
"willful" unless Executive has acted, or failed to act, with an absence of good
faith and without a reasonable belief that Executive's act, or failure to act,
was in the best interests of the Company and its Affiliates. If the purpose
alleged by the Board is as set forth in clause (i) above, then Executive shall
be given the opportunity to cure such failure within a reasonable period of
time, not less than thirty days, following Executive's receipt of the Board's
demand for substantial performance.
(F) "Change in Control" means "Change in Control" as defined under the
Crestar Financial Corporation 1993 Stock Incentive Plan, as amended from time to
time, and any successor thereto.
(G) "Code" means the Internal Revenue Code of 1986, as amended at the
relevant time.
(H) "Company" means Crestar Financial Corporation and any successor to
its business and/or assets which assumes and agrees to perform this Agreement by
operation of law, or otherwise.
(I) "Control Change Date" means the date on which a Change in Control
occurs. If a Change in Control occurs on account of a series of transactions,
the Control Change Date is the date of the last of such transactions.
(J) "Date of Termination" is defined in Section 10(b) of this Agreement.
(K) "Disability" means a mental or physical condition that qualifies
Executive to receive benefits under the Company's long-term disability plan
available to executive officers or that would qualify Executive to receive such
benefits if Executive were a participant in such plan. Disability shall be
deemed the reason for the termination by the Company of Executive's employment
if Executive is determined to have a Disability and the Company shall have given
Executive a Notice of Termination for Disability, and within thirty days after
such Notice of Termination is given, Executive shall not have returned to the
full-time performance of Executive's duties.
(L) "Executive" means the individual named in the first paragraph of
this Agreement.
(M) "Good Reason" for termination of Executive's employment with the
Company or its successor means the occurrence (without Executive's express
written consent) of any one of the following acts by the Company, or failures by
the Company to act, unless in the case of any act or failure to act described in
paragraph (1), (5), (6) or (7) below, such act or failure to act is corrected
prior to the Date of Termination specified in the Notice of Termination given in
respect thereof:
(1) the assignment to Executive of any duties inconsistent
with Executive's status as a senior officer of the Company, or a
substantial adverse alteration in the nature or status of Executive's
responsibilities from those in effect immediately prior to the Control
Change Date; or
(2) a reduction by the Company in Executive's annual base
salary as in effect on the date of this Agreement or as the same may be
increased from time to time (except for across-the-board salary
reductions similarly affecting all senior officers of the Company and
all senior officers of any Person in control of the Company); or
(3) the Company's requiring Executive as a condition of
Executive's continuing employment to be based at a principal office
more than twenty-five miles from the principal office out of which
Executive is working immediately prior to a Change in Control (except
for required travel on the Company's business to an extent
substantially consistent with Executive's current business travel
obligations); or
(4) the failure by the Company, without Executive's written
consent, to pay Executive any portion of Executive's current
compensation (except pursuant to an across-the-board compensation
deferral by the Company which similarly affects all senior officers of
the Company and all senior officers of any Person in control of the
Company), or to pay Executive any portion of an installment of deferred
compensation under any deferred compensation program of the Company,
within seven days of the date such payment is due; or
(5) the failure by the Company to continue in effect any
compensation plan in which Executive participates immediately prior to
the Change in Control which is material to Executive's total
compensation, including but not limited to, the Company's stock
incentive plan and any programs in effect under such plan, the
management incentive plan and the deferred compensation plan for
incentive awards, the supplemental executive retirement plan, and
nonqualified plans providing make-whole benefits not provided under
qualified plans, and the executive life insurance plan, or any
substitute plans adopted prior to the Change in Control, unless an
equitable arrangement (embodied in an ongoing substitute or alternative
plan) has been made with respect to such plan, or the failure by the
Company to continue Executive's participation in any such plan (or in
such substitute or alternative plan) on a basis not materially less
favorable, both in terms of the amount of benefits provided and the
level of Executive's participation relative to other participants, as
existed immediately prior to the Control Change Date; or
(6) the failure by the Company to continue to provide
Executive with benefits substantially similar to those Executive
enjoyed under any of the Company's pension, life insurance, incentive,
medical, health and accident, or disability plans in which Executive
was participating immediately prior to the Control Change Date, the
taking of any action by the Company which would directly or indirectly
materially reduce any of such benefits or deprive Executive of any
material fringe benefit enjoyed by Executive immediately prior to the
Control Change Date, or the failure by the Company to provide Executive
at least as many paid vacation days as Executive is entitled to receive
under the Company's normal vacation policy as in effect immediately
prior to the Control Change Date; or
(7) any purported termination of Executive's employment which
is not effected pursuant to a Notice of Termination satisfying the
requirements of Section 10(a) of this Agreement; for purposes of this
Agreement, no such purported termination shall be effective.
Executive's right to terminate Executive's employment for Good Reason shall not
be affected by Executive's incapacity due to physical or mental illness.
Executive's continued employment shall not constitute consent to, or a waiver of
rights with respect to, any act or failure to act constituting Good Reason
hereunder.
(N) "Net After Tax Amount" means the amount of any Parachute Payments or
Capped Parachute Payments, as applicable, net of taxes imposed under Code
sections 1, 3101(b) and 4999 and any state or local income taxes applicable to
Executive as in effect on the date of the payment under Section 6 of this
Agreement. The determination of the Net After Tax Amount shall be made using the
highest combined effective rate imposed by the foregoing taxes on income of the
same character as the Parachute Payments or Capped Parachute Payments, as
applicable, in effect for the year for which the determination is made.
(O) "Notice of Termination" is defined in Section 10(a) of this
Agreement.
(P) "Parachute Payment" means a payment that is described in Code
section 280G(b)(2) (without regard to whether the aggregate present value of
such payments exceeds the limit prescribed by Code section 280G(b)(2)(A)(ii)).
The amount of any Parachute Payment shall be determined in accordance with Code
section 280G and the regulations promulgated thereunder, or, in the absence of
final regulations, the proposed regulations promulgated under Code section 280G.
(R) "Plan" means the Crestar Financial Corporation Executive Severance
Plan, as in effect at the relevant time.
(S) "Potential Change in Control" shall be deemed to have occurred if
the conditions set forth in any one of the following paragraphs shall have been
satisfied:
(1) the Company or any Person publicly announces an intention
to take or to consider taking actions which, if consummated, would
constitute a Change in Control;
(2) any Person who is or becomes the beneficial owner (within
the meaning of Rule 13d-3 under the Securities Exchange Act of 1934, as
amended), directly or indirectly, of securities of the Company
representing ten percent (10%) or more of the combined voting power of
the Company's then outstanding securities, increases such Person's
beneficial ownership of such securities by five percent (5%) or more
over the percentage so owned by such Person on the date hereof; or
(3) the Board adopts a resolution to the effect that, for
purposes of this Agreement, a Potential Change in Control has
occurred.
(T) "Retirement" means termination of Executive's employment on or after
attaining the Retirement Plan's normal retirement age.
(U) "Retirement Plan" means the Retirement Plan for Employees of Crestar
Financial Corporation and Affiliated Corporation or any successor plan or
program as in effect on Executive's Date of Termination.
(V) "Thrift Plan" means the Crestar Employees' Thrift and Profit-Sharing
Plan.
(W) "Severance Amount" is defined in Section 6 of this Agreement.
IN WITNESS WHEREOF, the parties have duly executed this Agreement
effective as of the date first written above. CRESTAR FINANCIAL CORPORATION
By: _____________________________
Director of Human Resources
EXECUTIVE
__________________________________
C. Garland Hagen
EXHIBIT 10(l)
CRESTAR FINANCIAL CORPORATION
EXECUTIVE SEVERANCE PLAN
AS AMENDED AND RESTATED
EFFECTIVE FEBRUARY 23, 1996
<PAGE>
Crestar Financial Corporation
Executive Severance Plan
As Amended and Restated
Effective February 23, 1996
TABLE OF CONTENTS
Section Page
ARTICLE I
DEFINITIONS I-1
1.01. Affiliate I-1
1.02. Agreement I-1
1.03. Administrator I-1
1.04. Board I-1
1.05. Code I-1
1.06. Committee I-1
1.07. Company I-1
1.08. Effective Date I-1
1.09. Employee I-1
1.10. ERISA I-2
1.11. Fiduciary I-2
1.12. Named Fiduciary I-2
1.13. Participant I-2
1.14. Plan I-2
1.15. Plan Year I-2
1.16. Separation Date I-2
1.17. Top Hat Group I-2
ARTICLE II
PARTICIPATION II-1
2.01. Eligibility Requirements II-1
2.02. Determination of Eligibility II-1
ARTICLE III
BENEFITS III-1
3.01. Severance Pay III-1
3.02. Other Benefits III-1
<PAGE>
ARTICLE IV
AMENDMENT AND TERMINATION IV-1
4.01. Amendment IV-1
4.02. Termination IV-1
ARTICLE V
ADMINISTRATION V-1
5.01. Named Fiduciaries, Allocation of Responsibility V-1
5.02. Assignment of Administrative Authority V-2
5.03. Administrator Powers and Duties V-2
5.04. Committee Powers and Duties V-3
5.05. Discretion of Administrator and Committee V-3
5.06. Records and Reports V-3
5.07. Payment of Expenses V-3
5.08. Limitation of Liability V-4
5.09. Claims V-4
5.10. Review of Claims V-5
ARTICLE VI
GENERAL PROVISIONS VI-1
6.01. Construction VI-1
6.02. Governing Law VI-1
6.03. Plan Creates No Separate Rights VI-1
6.04. Mistake-of-Fact Contributions VI-1
6.05. Non-Alienation of Benefits VI-2
<PAGE>
Crestar Financial Corporation
Executive Severance Plan
As Amended and Restated
Effective February 23, 1996
INTRODUCTION
The Crestar Financial Corporation Executive Severance Plan (the
Plan) was established by Crestar Financial Corporation (the Company) in order to
assist eligible Employees upon termination of employment from the Company and
its Affiliates. In accordance with the terms of each Agreement, the Plan
provides severance benefits to Employees who become Participants. The Plan, as
amended and restated effective February 23, 1996, supersedes any other severance
policy, plans or agreements previously maintained by the Company and its
Affiliates for Participants.
The Plan is intended to be a plan described in ERISA Sections
201(2), 301(a)(3), 401(a)(1) and 4021(b)(6) that is unfunded and provides
deferred compensation to Participants who are included in the Top Hat Group. The
Plan must be interpreted and administered in a manner that is consistent with
those intentions.
<PAGE>
Crestar Financial Corporation
Executive Severance Plan
As Amended and Restated
Effective February 23, 1996
ARTICLE I
DEFINITIONS
1.01. AFFILIATE means an entity that directly or indirectly, through one or more
intermediaries, controls or is controlled by, or is under common control with,
the Company.
1.02. AGREEMENT means a written agreement (including any amendment or supplement
thereto) between a Participant and the Company or an Affiliate specifying the
terms and conditions under which a Plan benefit may be payable to the
Participant. The form or forms of Agreement which are used under the Plan are
substantially the same as those attached to the Plan from time to time.
1.03. ADMINISTRATOR means the person or the Committee, if any, appointed by the
Company according to Plan Article V.
1.04. BOARD means the Company's Board of Directors or other governing body.
1.05. CODE means the Internal Revenue Code of 1986, as amended at any relevant
time.
1.06. COMMITTEE means the Human Resources and Compensation Committee of the
Board.
1.07. COMPANY means Crestar Financial Corporation and any successor
corporation.
1.08. EFFECTIVE DATE means February 23, 1996.
1.09. EMPLOYEE means an individual who renders personal services to the Company
or an Affiliate, and who, in accordance with the established payroll accounting
and personnel policies of the Company or an Affiliate is characterized as a
regular full-time employee and who is subject to the control of the Company or
an Affiliate. An individual who is in an employer-employee relationship with a
Company or an Affiliate as determined for Federal Insurance Contribution Act
purposes and Federal Employment Tax purposes, including Code section 3401(c),
automatically satisfies the preceding sentence's requirements for determinations
of whether that individual renders personal services and is subject to the
control of a Company or an Affiliate. Notwithstanding the foregoing, an
individual who, in accordance with the established payroll accounting and
personnel policies of the Company or an Affiliate is characterized as a
temporary employee, an individual employed by the Company or an Affiliate as an
independent contractor, and a leased employee (as described in Code section
414(n)) are not Employees for purposes of the Plan.
1.10. ERISA means the Employee Retirement Income Security Act of 1974, as
amended at any relevant time.
1.11. FIDUCIARY means a fiduciary, as defined in ERISA Section 3(21)(A).
1.12. NAMED FIDUCIARY means a named fiduciary, as defined in ERISA Section
402(a)(2).
1.13. PARTICIPANT means an Employee who has satisfied the eligibility
requirements provided in Plan Article II.
1.14. PLAN means the Crestar Financial Corporation Executive Severance Plan.
1.15. PLAN YEAR means the 12-month period beginning January 1 and ending
December 31 of each year. The initial Plan Year begins on the Effective Date
and ends on December 31, 1996.
1.16. SEPARATION DATE means the date that a Participant's employment with the
Company and its affiliates terminates.
1.17. TOP HAT GROUP means a "select group of management or highly compensated
employees" as that phrase is used in ERISA Sections 201(2), 301(a)(3), 401(a)(1)
and 4021(b)(6) and Department of Labor Regulation Section 2520.104-23.
<PAGE>
Crestar Financial Corporation
Executive Severance Plan
As Amended and Restated
Effective February 23, 1996
ARTICLE II
PARTICIPATION
2.018. ELIGIBILITY REQUIREMENTS
Only an Employee is eligible to become a Participant in this Plan.
An Employee becomes a Participant if (i) he is selected to participate in the
Plan by the Committee and (ii) he enters into an Agreement.
2.019. DETERMINATION OF ELIGIBILITY
20. The Administrator must determine whether an Employee has
satisfied the eligibility requirements of Section 2.01. All good-faith
determinations by the Administrator are conclusive and binding on all persons
for the Plan Year in question, and there is no right of appeal.
21. At the Company's request, the Administrator must provide a list
of Employees who are Participants or who have become Participants since the last
list of Participants was provided.
2.032 TERMINATION OF ELIGIBILITY
Except as otherwise provided in the applicable Agreement, a
Participant who has a Separation Date prior to satisfying the requirements to
receive a benefit in accordance with Plan Article III ceases to be a Participant
on his Separation Date.
<PAGE>
Crestar Financial Corporation
Executive Severance Plan
As Amended and Restated
Effective February 23, 1996
ARTICLE III
BENEFITS
3.022. SEVERANCE PAY
23. A Participant is entitled to receive severance pay and other
benefits equal to the amount, and subject to the terms and conditions, as
approved by the Committee and set forth in an Agreement between the Company or
an Affiliate and the Participant.
24. The severance pay and any other benefits provided under this
Section 3.01 (less any applicable federal, state, and local income or employment
taxes), will be paid in a single lump sum on a payday that is at least one week
after the Participant's Separation Date or the date specified in the
Participant's Agreement.
3.025. OTHER BENEFITS
The benefits, if any, that a Participant is entitled to receive
under the Plan are in addition to any other benefit that he is entitled to
receive from the Company or an Affiliate or under any other employee benefit
plan, except as may be specifically limited by the terms of the Participant's
Agreement.
<PAGE>
Crestar Financial Corporation
Executive Severance Plan
As Amended and Restated
Effective February 23, 1996
ARTICLE IV
AMENDMENT AND TERMINATION
4.026. AMENDMENT
The Board may modify, alter, or amend the Plan, in whole or in
part. An amendment may be made retroactively if it is necessary to make this
Plan conform to applicable law. All amendments shall be in writing and signed by
an officer of the Company or the Chairman of the Committee or by the delegate of
the Committee. No amendment shall, without the Participant's written consent,
adversely affect any rights of that Participant under an Agreement during the
term of that Agreement.
4.027. TERMINATION
The Board may terminate the Plan at any time by a written
instrument signed by an officer of the Company or the Chairman of the Committee
or the Committee's delegate; provided, however, that outstanding Agreements
shall continue to be valid and enforceable in accordance with their terms
following the termination of the Plan.
<PAGE>
Crestar Financial Corporation
Executive Severance Plan
As Amended and Restated
Effective February 23, 1996
ARTICLE V
ADMINISTRATION
5.028. NAMED FIDUCIARIES, ALLOCATION OF RESPONSIBILITY
29. There are two Named Fiduciaries__the Company and the
Administrator. Each is severally liable for its responsibilities.
30. The Committee has only the responsibilities described in
this Plan or set forth in an Agreement. The Administrator has only the
responsibilities described in this Plan and those delegated by the Company.
31. All responsibilities not specifically delegated to another
Named Fiduciary remain with the Company, including designating all Named
Fiduciaries not named in this Plan. The Company's responsibilities include
drafting and designing the Plan and amendments to it and designating all
additional Fiduciaries not named in this Plan. The Company has the power to
delegate fiduciary responsibilities that the Plan does not specifically
delegate. A delegation may be made to any legal person. Each person to whom
fiduciary responsibility is delegated serves at the Company's pleasure and for
the compensation that the Company and that person determine in advance, except
as prohibited by law. A person to whom responsibility is delegated may resign
after 30 days' written notice to the Company. The Company may make additional
delegations, including delegations occasioned by resignation, death, or other
cause.
32. This Plan allocates to each Named Fiduciary the individual
responsibilities assigned. Named Fiduciaries do not share responsibilities
unless the Plan so provides.
33. Whenever the Plan requires one Named Fiduciary to follow the
directions of another Named Fiduciary, the two have not been assigned to share
the responsibility. The Named Fiduciary giving directions bears the sole
responsibility for those directions, and the responsibility of the Named
Fiduciary receiving those directions is to follow directions as long as on their
face the directions are not improper under applicable law.
5.034. ASSIGNMENT OF ADMINISTRATIVE AUTHORITY
The Company shall appoint an Administrator to administer the Plan.
The Administrator may be one person or a committee, as the Company determines.
Each Administrator or each committee member serves at the Company's pleasure.
The Administrator or a committee member may resign by giving oral or written
notice to that effect to the Company or to another committee member. The Company
may remove the Administrator or a committee member by delivering written notice
to that person and, if there is a committee, to at least one other committee
member. The Company may fill vacancies in the membership of a committee or a
vacancy in the position of Administrator arising from resignation, death,
removal, or other causes; but until a vacancy has been filled, the remaining
members of the committee possess the full powers and authority of the
Administrator. If there is no Administrator, the Company is the Administrator
until an Administrator is named.
5.035. ADMINISTRATOR POWERS AND DUTIES
(a) Except for matters assigned to the Committee, the Administrator
must administer the Plan by its terms and has all powers necessary to do so. The
Administrator is agent for service of legal process unless it designates another
person to be agent for service of legal process. If a committee is the
Administrator, that committee may designate a committee member or someone else
as agent for the service of legal process. The Administrator must interpret the
Plan. The Administrator's duties include, but are not limited to determining the
answers to all questions relating to an Employee's eligibility to become a
Participant.
(b) A determination that the Administrator makes in good faith is
conclusive and binding on all persons. The Administrator's decisions, however,
may not take away any rights that the Plan specifically gives to a Participant.
If an individual who is the Administrator or a committee member is also a
Participant, he must abstain from any action that directly affects him as a
Participant in a manner different from other similarly situated Participants.
The Plan, however, does not prevent an individual who is the Administrator or a
committee member who is also a Participant or a beneficiary from receiving any
benefit to which he may be entitled.
(c) The Administrator may employ and compensate from the Company's
assets according to Plan section 5.07 such accountants, counsel, specialists,
and other advisory and clerical persons as it deems necessary or desirable in
connection with the Plan's administration. The Administrator is entitled to rely
conclusively on any opinions from its accountant or counsel. Except to the
extent prohibited by law, the Administrator is fully protected by the Company
and the Employees and the Participants whenever it takes action based in good
faith on advice from its advisors.
5.036. COMMITTEE POWERS AND DUTIES
(a) The Committee has all of the powers and duties assigned to it
under the Plan including, by way of example and not of limitation, selecting
Employees to participate in the Plan, prescribing the terms and conditions upon
which Employees may participate in the Plan, prescribing the form of Agreements,
and all other powers and duties set forth in an Agreement.
(b) Any action taken by the Committee in good faith is conclusive
and binding on all persons. The Committee's actions, however, may not take away
any rights that the Plan or an Agreement specifically gives to a Participant.
(c) The Committee may employ and compensate from the Company's
assets according to Plan section 5.07 such accountants, counsel, specialists,
and other advisory and clerical persons as it deems necessary or desirable in
connection with the Plan. The Committee is entitled to rely conclusively on any
opinions from its accountant or counsel. Except to the extent prohibited by law,
the Committee is fully protected by the Company and the Employees and
Participants whenever it takes action in good faith on advice from its advisors.
5.037. DISCRETION OF ADMINISTRATOR AND COMMITTEE
The Administrator's and the Committee's discretion to perform or
consent to any act is exclusive.
5.038. RECORDS AND REPORTS
The Company must supply information to the Administrator sufficient
to enable the Administrator to fulfill its duties. The Administrator must keep
all books of account, records, and other data necessary for proper
administration of the Plan. The Administrator may appoint any person as agent to
keep records.
5.039. PAYMENT OF EXPENSES
Until the Company determines otherwise, the Administrator and all
members of a committee acting as the Administrator serve without compensation.
The Company must pay the Administrator's expenses, including any expenses
incident to the functioning of the Administrator, fees of accountants, legal
counsel, and other similar specialists, and other costs of administering the
Plan.
5.040. LIMITATION OF LIABILITY
(a) If permissible by law, the Administrator (including the members
of a committee acting as the Administrator) and all Committee members serve
without bond. If the law requires bond, the Administrator must secure the
minimum bond required and obtain necessary payments according to Plan section
5.07. Unless the Plan provides otherwise, the Administrator (including each
member of a committee serving as the Administrator) or a member of the Committee
is not liable for another Fiduciary's act or omission. To the extent allowed by
law and except as otherwise provided in the Plan, the Administrator (including
each member of a committee serving as the Administrator) or a member of the
Committee is not liable for any action or omission that is not the result of the
Administrator's or member's own negligence or bad faith.
(b) As permitted by law and as limited by any agreement in writing
between the Company and the Administrator, the Company must indemnify and save
the Administrator (including each member of a committee serving as the
Administrator) or a member of the Committee harmless against expenses, claims,
and liabilities arising out of being the Administrator or a Committee member,
except expenses, claims, and liabilities arising out of the Administrator's or
member's own negligence or bad faith. The Company may obtain insurance against
acts or omissions of the Administrator or Committee members. If the Company
fails to obtain that insurance, the Administrator (including each member of a
committee serving as the Administrator) or a member of the Committee may obtain
insurance and must be reimbursed according to section 5.07 and as permitted by
law. At its own expense, the Company may employ its own counsel to defend or
maintain, either in its own name or in the name of the Administrator (including
each member of a committee serving as the Administrator) or any member of the
Committee, any suit or litigation arising under the Plan concerning the
Administrator or any Committee member.
5.041. CLAIMS
42. Except as otherwise provided in an Agreement, it is not
necessary to file a claim in order to receive Plan benefits.
43. On receipt of a claim for Plan benefits, the Administrator must
respond in writing within 60 days. If necessary, the Administrator's first
notice must indicate any special circumstances requiring an extension of time
for the Administrator's decision. The extension notice must indicate the date by
which the Administrator expects to render a decision; an extension of time for
processing may not exceed 30 days after the end of the initial period.
1. If a claim is wholly or partially denied, the Administrator must
give written notice within the time provided in subsection (b). An adverse
notice must specify each reason for denial. There must be specific reference to
the provisions of the Plan or Agreement or related documents on which the denial
is based. If additional material or information is necessary for the claimant to
perfect the claim, it must be described and there must be an explanation of why
that material or information is necessary. Adverse notice must disclose
appropriate information about the steps that the claimant must take if he wishes
to submit the claim for review. If notice that a claim has been denied is not
furnished within the time required in subsection (b), the claim is deemed
denied.
2. The full value of a payment made according to the provisions of
the Plan and any Agreement satisfies that much of the claim and all related
claims under the Plan and that Agreement against the Administrator and the
Company, each of whom, as a condition to a payment from it or directed by it,
may require the Participant, beneficiary, or legal representative to execute a
receipt and release of the claim in a form determined by the person requesting
the receipt and release.
5.3. REVIEW OF CLAIMS
4. Except as otherwise provided in an Agreement, on proper written
request for review from a claimant to the Administrator, there must be a review
by the Committee. The Administrator must receive the written request before 61
days after the claimant's receipt of notice that a claim has been denied
according to Plan section 5.09. The claimant and an authorized representative
are entitled to be present and heard if any hearing is used as part of the
review.
5. The Committee must determine whether there will be a hearing.
Before any hearing, the claimant or a duly authorized representative may review
all Plan documents, including Agreements and other papers that affect the claim,
and may submit issues and comments in writing. The Committee must schedule any
hearing to give sufficient time for this review and submission, giving notice of
the schedule and deadlines for submissions.
6. The Committee must advise the claimant in writing of the final
determination after review. The decision on review must be written in a manner
calculated to be understood by the claimant, and it must include specific
reasons for the decision and specific references to the pertinent provisions of
the Plan or Agreement or related documents on which the decision is based. The
written advice must be rendered within 60 days after the request for review is
received, unless special circumstances require an extension of time for
processing. If an extension is necessary, the decision must be rendered as soon
as possible but no later than 120 days after receipt of the request for review.
If an extension of time for review is required, written notice of the extension
must be furnished to the claimant before the extension begins. If notice that a
claim has been denied on review is not received by the claimant within the time
required in this paragraph, the claim is deemed denied on review.
<PAGE>
Crestar Financial Corporation
Executive Severance Plan
As Amended and Restated
Effective February 23, 1996
ARTICLE VI
GENERAL PROVISIONS
6.07. CONSTRUCTION
One gender includes the other, and the singular and plural include
each other when the meaning would be appropriate. The Plan's headings and
subheadings have been inserted for convenience of reference only and must be
ignored in any construction of the provisions. If a provision of this Plan is
illegal or invalid, that illegality or invalidity does not affect other
provisions. Any term with an initial capital not expected by capitalization
rules is a defined term according to Plan article I. This Plan must be construed
according to the applicable provisions of the Code and Treasury Regulations in a
manner that assures that the Plan provides the benefits and tax consequences
intended for Participants. Any terms defined in the Code or Treasury Regulations
that are not defined terms according to Plan article I are incorporated in this
Plan by reference.
6.08. GOVERNING LAW
This Plan is construed, enforced, and administered in accordance
with the laws of the Commonwealth of Virginia (other than its choice of law
rules if those rules would require application of the laws of a state other than
Virginia), except to the extent that those laws are superseded by the laws of
the United States of America.
6.09. PLAN CREATES NO SEPARATE RIGHTS
The creation, continuance, or change of the Plan or any payment
does not give any person a non-statutory legal or equitable right against the
Company or any Affiliate; or any of the officers, agents, or other persons
employed by the Company or an Affiliate. Except as otherwise specifically
provided in an Agreement, the Plan does not modify the terms of a Participant's
employment.
6.010. MISTAKE-OF-FACT CONTRIBUTIONS
If the Company or an Affiliate makes any benefit payment because of
a mistake of fact, the portion of the benefit payment due to the mistake of fact
must be returned to the contributor, as authorized by regulations under ERISA
Section 403.
6.011. NON-ALIENATION OF BENEFITS
Except as permitted by law and this Plan, no assignment of any
rights or benefits arising under the Plan is permitted or recognized. No rights
or benefits are subject to attachment or other legal or equitable process or
subject to the jurisdiction of any bankruptcy court. If any Participant is
adjudicated bankrupt or attempts to assign any benefits, then in the Company's
discretion, those benefits cease. If that happens, the Administrator may apply
those benefits for that Participant or his dependents as the Administrator sees
fit. The Company is not liable for or subject to the debts, contracts,
liabilities, or torts of any person entitled to benefits under this Plan.
IN WITNESS WHEREOF, the Company has adopted this amended and
restated Crestar Financial Corporation Executive Severance Plan effective
February 23, 1996.
CRESTAR FINANCIAL CORPORATION
By:
Title:
EXHIBIT 10(p)
AMENDMENTS TO THE
UNITED VIRGINIA BANKSHARES INCORPORATED
DEFERRED COMPENSATION PROGRAM UNDER
INCENTIVE COOMPENSATION PLAN OF
UNITED VIRGINIA BANKSHARES INCORPORATED
AND AFFILIATED CORPORATIONS
Effective for the Award Year 1987, Plan Section 3 is amended by adding new
Subsection (h), to read as follows:
(h) Notwithstanding any other provision of the Plan, a Participant's
Deferred Income Benefit Award Election Form for any Award Year
is not valid if that Participant is not an Employee on
December 31 of the Year following that Award Year. If a Participant's
Deferred Income Benefit Award Election Form is invalid because
of this subsection (h), that Participant must be paid the amounts
he would then have been entitled to receive if he had not submitted
that Deferred Income Benefit Award Election Form.
EXHIBIT 10(q)
AMENDMENTS TO THE
UNITED VIRGINIA BANKSHARES INCORPORATED
DEFERRED COMPENSATION PROGRAM UNDER
INCENTIVE COMPENSATION PLAN OF
UNITED VIRGINIA BANKSHARES INCORPORATED
AND AFFILIATED CORPORATIONS
FIRST: Effective January 1, 1988, the name of the program is changed
to the Crestar Financial Corporation Deferred Compensation Program Under
Management Incentive Compensation Plan of Crestar Financial Corporation and
Affiliated Corporations (the "Program"), and all references in the Program
to "United Virginia Bankshares Incorporated" are changed to "Crestar Financial
Corporation."
SECOND: Effective January 1, 1988, Program section 2 is amended by
adding new Subsection (o); and its remaining Subsections are realphabetized
accordingly. New Subsection (o) reads as follows:
(o) Security means the same as it does under section 2(1) of the
Securities Act of 1933, 15 U.S.C. 77B(1), except when it refers to
an Employer Security. An Employer Security means a Security issued
by an Employer or by an Employee Retirement Income Security Act of
1974 (ERISA) Affiliate. A contract to which ERISA section 408(b)(5)
applies is not treated as a Security for purposes of this Plan.
THIRD: Effective for the Award Year 1987, Program section 3 is amended
by adding new subsection (h), to read as follows:
(h) Notwithstanding any other provision of the Plan, a Participant's
Deferred Income Benefit Award Election Form for any Award Year is not
valid if that Participant is not an Employee on December 31 of the Year
following that Award Year. If a Participant's Deferred Income Benefit
Award Election Form is invalid because of this subsection (h), that
Participant must be paid the amounts he would then have been entitled
to receive if he had not submitted that Deferred Income Benefit Award
Election Form.
FOURTH: Effective January 1, 1988, Program subsection 11(b) is amended
by deleting from its first sentence the phrase: "if there is a change in the
voting control of the Employer that the Board does not recommend to the
shareholders," and substituting the following phrase:
if there is a Control Change in the Corporation,
FIFTH: Effective January 1, 1988, Program subsection 11(b) is further
amended by substituting the word "Program" for the word "Plan" at the end of
the second sentence.
SIXTH: Effective January 1, 1988, Program subsection 11(b) is further
amended by substituting in its last sentence the phrase "Control Change" for
the phrase "change in control."
SEVENTH: Effective January 1, 1988, Program section 11 is amended by
adding a new Subsection (c) at the end thereof, to read as follows:
(c) Control Change. For purposes of this Program, a Control Change
occurs if
(1) any person (within the meaning of sections 13(d) and
14(d)(2) of the Securities Exchange Act of 1934) is or becomes the
beneficial owner, directly or indirectly, of Securities of Corporation
representing thirty percent or more of the combined voting power of
the Corporation's then outstanding Securities; or
(2) during any period of two consecutive calendar years,
individuals who at the beginning of such period constitute the
Corporation's board of directors cease for any reason to constitute
a majority of the Corporation's board of directors, unless the election
(or the nomination for election by the Corporation's shareholders) of
each new director was approved by a vote of at least two-thirds of the
directors then still in office who were directors at the beginning of
such period; and
(3) in the case of an ownership change described in paragraph
(1), a majority of the directors in office immediately before the
ownership change and who are not employees of the Corporation or any
corporation within its controlled group (within the meaning of section
1563(a) of the Internal Revenue Code of 1986, as amended) determine,
within ten days of the ownership change, that a Control Change has
occurred.
EXHIBIT 10(r)
CRESTAR FINANCIAL CORPORATION
CERTIFICATE
I, Richard G. Tilghman, hereby certify that I am the duly
authorized Chief Executive Officer of Crestar Financial Corporation and that the
amendments to the Deferred Compensation Plan for Selected Employees of Crestar
Financial Corporation and Affiliated Corporations (the "Plan") and the Deferred
Compensation Program Under Incentive Compensation Plan of Crestar Financial
Corporation and Affiliated Corporations (the "Program") as reflected on the
attached Exhibits I and II, are hereby adopted, pursuant to, respectively,
section 11 of the Plan and by the authority granted to me by the Compensation
Committee of the Board of Directors of Crestar Financial Corporation on December
7, 1986, both of which remain in full force as of the date of this certificate.
Signed:______________________________
Richard G. Tilghman
Dated: _______________________ EXHIBIT II
<PAGE>
AMENDMENT TO THE
DEFERRED COMPENSATION PROGRAM
UNDER INCENTIVE COMPENSATION PLAN OF
CRESTAR FINANCIAL CORPORATION AND AFFILIATED CORPORATIONS
Effective for the Award Year 1994 and subsequent Award Years, Plan
section 3(h) is amended to read as follows:
(h) Notwithstanding any other provision of the Plan,
a Participant's Deferred Income Benefit Award Election Form
for any Award Year is not valid if that Participant is not an
Employee on December 31 of the Year following that Award Year
for any reason other than Termination because of Retirement,
total disability, or death. If a Participant's Deferred Income
Benefit Award Election Form is invalid because of this
subsection (h), that Participant must be paid the amounts he
would then have been entitled to receive if he had not
submitted that Deferred Income Benefit Award Election Form.
EXHIBIT 10(ac)
AMENDMENTS TO THE
DEFERRED COMPENSATION PLAN FOR
SELECTED EMPLOYEES OF UNITED VIRGINIA
BANKSHARES INCORPORATED AND AFFILIATED
CORPORATIONS
FIRST: Effective January 1, 1988, the name of the plan is changed
to the Deferred Compensation Plan for Selected Employees of Crestar
Financial Corporation and Affiliated Corporations (the "Plan"), and all
references in the Plan to "United Virginia Bankshares Incorporated" are
changed to "Crestar Financial Corporation."
SECOND: Effective January 1, 1988, Plan section 2 is amended by adding
new Subsection (v); and its remaining Subsections are realphabetized
accordingly. New Subsection (v) reads as follows:
(v) Security means the same as it does under section 2(l) of the
Securities Act of 1933, 15 U.S.C. 77B(l), except when it refers
to an Employer Security. An Employer Security means a Security
issued by an Employer or by an Employee Retirement Income
Security Act of 1974 (ERISA) Affiliate. A contract to which ERISA
section 408(b)(5) applies is not treated as a Security for
purposes of this Plan.
THIRD: Effective for the Award Year 1987, Plan section 3 is amended
by adding new Subsection (h), to read as follow:
(h) Notwithstanding any other provision of the Plan, a Participant's
Deferred Income Benefit Award Election Form for any Award Year is
not valid if that Participant is not an Employee on December 31
of the Year following that Award Year. If a Participant's
Deferred Income Benefit Award Election Form is invalid because of
this subsection (h), that Participant must be paid the amounts he
would then have been entitled to receive if he had not submitted
that Deferred Income Benefit Award Election Form.
FOURTH: Effective January 1, 1988, Plan subsection 11(b) is amended
by deleting from its first sentence the phrase: "if the CEO defines a
change in control, which definition may be changed by the CEO periodically
in the CEO's discretion, and if such a change in control occurs," and
substituting the following phrase: "if there is a Change in Control,".
FIFTH: Effective January 1, 1988, Plan subsection 11(b) is further
amended by deleting from its last sentence the phrase "change in control"
and substituting the phrase "Control Change."
SIXTH: Effective January 1, 1988, Plan section 11 is amended by adding
new Subsection (c), to read as follows:
(c) Control Change. For purposes of this Plan,
a Control Change occurs if
(1) any person (within the meaning of sections 13(d) and
14(d)(2) of the Securities Exchange Act of 1934) is or becomes the
beneficial owner, directly or indirectly, of the Corporation's
Securities representing thirty percent or more of the combined
voting power of the Corporation's then outstanding Securities; or
(2) during any period of two consecutive calendar years,
individuals who at the beginning of such period constitute the
Corporation's board of directors cease for any reason to constitute
a majority of the Corporation's board of directors, unless the
election (or the nomination for election by the Corporation's
shareholders) of each new director was approved by a vote of at
least two-thirds of the directors then still in office who were
directors at the beginning of such period; and
(3) in the case of an ownership change described in paragraph
(l), a majority of the directors in office immediately before the
ownership change and who are not employees of the Corporation or of
any corporation within its controlled group (within the meaning of
section 1563(a) of the the Internal Revenue Code of 1986, as
amended) determine, within ten days of the ownership change, that a
Control Change has occurred.
<PAGE>
DEFERRED COMPENSATION PLAN FOR SELECTED
EMPLOYEES OF UNITED VIRGINIA BANKSHARES
INCORPORATED AND AFFILIATED CORPORATIONS (THE "PLAN")
CERTIFICATE
I, Richard G. Tilghman, hereby certify that I am the duly
authorized Chief Executive Officer of Crestar Financial Corporation and
that the amendments to the Plan reflected on the attached Exhibit I are
hereby adopted, effective __________, 1987, by the authority given to
me pursuant to Plan section 11, which remains in full force as of the
date of this certificated.
Signed: ________________________
Dated: __________________________
EXHIBIT 10(ad)
AMENDMENT TO THE
DEFERRED COMPENSATION PLAN
FOR SELECTED EMPLOYEES OF
CRESTAR FINANCIAL CORPORATION AND AFFILIATED CORPORATIONS
Effective for the Award Year 1994 and subsequent Award Years, Plan
section 3(h) is amended to read as follows:
(h) Notwithstanding any other provision of the Plan,
a Participant's Deferred Income Benefit Award Election Form
for any Award Year is not valid if that Participant is not an
Employee on December 31 of the Year following that Award Year
for any reason other than Termination because of Retirement,
total disability, or death. If a Participant's Deferred Income
Benefit Award Election Form is invalid because of this
subsection (h), that Participant must be paid the amounts he
would then have been entitled to receive if he had not
submitted that Deferred Income Benefit Award Election Form.
<PAGE>
CRESTAR FINANCIAL CORPORATION
CERTIFICATE
I, Richard G. Tilghman, hereby certify that I am the duly
authorized Chief Executive Officer of Crestar Financial Corporation and that the
amendments to the Deferred Compensation Plan for Selected Employees of Crestar
Financial Corporation and Affiliated Corporations (the "Plan") and the Deferred
Compensation Program Under Incentive Compensation Plan of Crestar Financial
Corporation and Affiliated Corporations (the "Program") as reflected on the
attached Exhibits I and II, are hereby adopted, pursuant to, respectively,
section 11 of the Plan and by the authority granted to me by the Compensation
Committee of the Board of Directors of Crestar Financial Corporation on December
7, 1986, both of which remain in full force as of the date of this certificate.
Signed:______________________________
Richard G. Tilghman
Dated: _______________________
EXHIBIT 10(ah)
RESOLUTIONS ADOPTED
BY THE BOARD OF DIRECTORS OF
CRESTAR FINANCIAL CORPORATION
RESOLVED, That the Crestar Financial Corporation 1993 Stock Incentive
Plan is hereby amended as follows:
FIRST: The definition of the term "Change in Control"
is amended to include a merger or combination in which the
Corporation's shareholders own less than sixty-five percent of
the voting power of the surviving entity.
SECOND: Sections 7.04, 9.03 and 10.03 are amended to
provide that a participant's rights following a Change in
Control may be prescribed by the applicable Agreement,
effective October 27, 1995.
THIRD: Section 13.07 is amended to conform the
limitation on Change in Control benefits to the limitation set
forth in the revised agreements under the Executive Severance
Plan.
RESOLVED FINALLY, That the Corporation's Director of Human Resources is
hereby authorized and directed to take such actions and to execute such
documents as may be necessary or desirable to implement the foregoing
resolution, all without the necessity of further action by this Board.
EXHIBIT 10(al)
CRESTAR FINANCIAL CORPORATION
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
EFFECTIVE JANUARY 1, 1995
<PAGE>
CRESTAR FINANCIAL CORPORATION
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
INTRODUCTION
The Board of Directors of Crestar Financial Corporation (the
Corporation) determined that the adoption of the Crestar Financial Corporation
Supplemental Executive Retirement Plan (the Plan) should assist it in attracting
and retaining those employees whose judgment, abilities and experience will
contribute to its continued progress and success. The Board of Directors also
determined that the Plan should further those objectives by providing retirement
and related benefits that supplement the amounts payable under the deferred
compensation plans and arrangements currently maintained by the Corporation.
The Plan is effective January 1, 1995. The Plan is intended to
provide an unfunded supplemental retirement benefit to a select group of
management and highly compensated employees as such terms are used in sections
201, 301, and 501 of the Employee Retirement Income Security Act of 1974. The
Plan must be interpreted and administered in a manner that is consistent with
that intent.
ARTICLE I
DEFINITIONS
1.01. ACCOUNTING FIRM means the accounting firm most recently approved by the
Corporation's shareholders as the Corporation's auditor; provided, however, that
if such accounting firm declines to undertake the determinations assigned to it
under this Agreement, then the "Accounting Firm" shall mean such other
accounting firm designated by the Corporation.
1.02. ACTUARIAL EQUIVALENT means, when used in reference to any form of benefit,
a form of benefit which has the same value as the referenced benefit based on
the actuarial assumptions, methods and procedures adopted for such purposes
under the Retirement Plan.
1.03. ADMINISTRATOR means the Committee and any delegate of the Committee
appointed in accordance with Section 6.07.
<PAGE>
1.04. AFFILIATE means any corporation which, when considered with the
Corporation, would constitute a controlled group of corporations within the
meaning of Code section 1563(a) determined without reference to Code sections
1563(a)(4) and 1563(e)(3)(C) and any entity, whether or not incorporated, which
would be under common control with the Corporation within the meaning of Code
section 414(c).
1.05. ANEX PLAN means the portion of the Crestar Financial Corporation
Additional Nonqualified Executive Plan that provides "Defined-benefit Benefit
Entitlements" (as such term is defined therein), as amended from time to time,
and any successor thereto.
1.06. AVERAGE COMPENSATION means the average of the Compensation paid to the
Executive during the three calendar years, whether or not consecutive, that
yields the highest number.
1.07. BOARD means the Board of Directors of the Corporation.
1.08. CAPPED PARACHUTE PAYMENTS means the largest amount of Parachute Payments
that may be paid to the Participant without liability under Code section 4999.
1.09. CHANGE IN CONTROL is defined in Section 1.06 of the Crestar Financial
Corporation 1993 Stock Incentive Plan, as amended from time to time, and any
successor thereto.
1.10. CODE means the Internal Revenue Code of 1986, as amended, or any
successor thereto, as in effect at the relevant time.
1.11. COMMITTEE means the Human Resources and Compensation Committee of the
Board.
1.12. COMPENSATION means the sum of the base salary and bonus earned by the
Executive and paid by the Corporation, an Affiliate, or both, for a calendar
year. For purposes of this Section 1.12, an Executive's "bonus" for any calendar
year shall be the Executive's incentive award under the Management Incentive
Compensation Plan of Crestar Financial Corporation (or any successor or
substitute plan) earned for the calendar year, regardless of whether such award
is determined or payable after the end of the calendar year. An Executive's
Compensation shall be determined without regard to any compensation reductions
or deferrals under Code section 125 or 401(k) and without regard to any salary
or bonus deferrals under nonqualified deferred compensation plans of the
Corporation or an Affiliate.
1.13. CONTROL CHANGE DATE is defined in Section 1.13 of the Crestar Financial
Corporation 1993 Stock Incentive Plan, as amended from time to time, and any
successor thereto.
1.14. CORPORATION means Crestar Financial Corporation and any successor
corporation.
1.15. DESIGNATED PARTICIPANT means a Participant who (i) will not be credited
with twenty Years of Service on his Normal Retirement Date even if he remains in
the continuous employ of the Corporation until his Normal Retirement Date and
(ii) is identified as a Designated Participant on Exhibit I to the Plan as
approved by the Committee from time to time.
1.16. EARLY RETIREMENT ALLOWANCE means the benefit described in Section 3.02.
1.17. EARLY RETIREMENT DATE means the date prior to the Normal Retirement Date
which is the first day of the month coincident with or next following a
Participant's retirement from the Corporation or an Affiliate after attaining
age 55.
1.18. EXCESS PLAN means the Crestar Financial Corporation Excess Benefit Plan,
as amended from time to time, and any successor thereto.
1.19. EXECUTIVE means an individual employed by the Corporation or an Affiliate
whose position is evaluated at Grade 41 or above as of January 1, 1995, and such
other individual who is an employee of the Corporation or an Affiliate and who
is designated as an Executive by the Committee for purposes of this Plan.
1.20. NET AFTER-TAX AMOUNT means the amount of any Parachute Payments or Capped
Parachute Payments, as applicable, net of taxes imposed under Code sections 1,
3101(b) and 4999 and any State or local income taxes applicable to the
Participant as in effect on the date of the first payment to the Participant
under the Crestar Financial Corporation Executive Severance Plan after a Control
Change Date. The determination of the Net After Tax Amount shall be made using
the highest combined effective rate imposed by the foregoing taxes on income of
the same character as the Parachute Payments or Capped Parachute Payments, as
applicable, in effect for the year for which the determination is made.
1.21. NORMAL RETIREMENT ALLOWANCE means the benefit described in Section 3.01.
1.22. NORMAL RETIREMENT DATE means the first day of the month coincident with or
next following a Participant's retirement from the Corporation or an Affiliate
after attaining age 60.
1.23. OFFSET AMOUNT means the sum of the annual benefits, if any, payable to or
on behalf of a Participant, for his lifetime under the Retirement Plan, the ANEX
Plan, the Excess Plan, any other supplemental executive retirement plan
maintained by the Corporation or an Affiliate and any other qualified defined
benefit pension plan maintained by the Corporation or an Affiliate and assuming
a benefit commencement date as of the date that benefits are scheduled to
commence under Article III or IV.
1.24. PARACHUTE PAYMENT means a payment that is described in Code section
280G(b)(2) (without regard to whether the aggregate present value of such
payments exceeds the limit prescribed by Code section 280G(b)(2)(A)(ii)). The
amount of any Parachute Payment shall be determined in accordance with Code
section 280G and the regulations promulgated thereunder, or, in the absence of
final regulations, the proposed regulations promulgated under Code section 280G.
1.25. PARTICIPANT means an Executive who satisfies the requirements of Article
II.
1.26. PLAN means the Crestar Financial Corporation Supplemental Executive
Retirement Plan.
1.27. PRO RATA COMPENSATION means the amount determined by multiplying a
Participant's Average Compensation by a fraction, the numerator of which is the
Participant's Years of Service as of the date of reference (not to exceed
twenty), and the denominator of which is twenty.
1.28. RETIREMENT PLAN means the Retirement Plan for Employees of Crestar
Financial Corporation and Affiliated Corporations, as amended from time to time,
and any successor thereto.
1.29. SURVIVING SPOUSE means the person to whom the Participant is legally
married on the date of reference and who survives the Participant.
1.30. TOTAL AND PERMANENT DISABILITY means a disability which entitles the
Participant to benefits under a long-term disability plan maintained by the
Corporation and its Affiliates or, in the absence of such a plan, entitles the
Participant to Social Security disability benefits.
1.31. YEARS OF SERVICE means the total years of service as determined under the
terms of the Retirement Plan for purposes of determining the Participant's
vested or nonforfeitable interest in the Retirement Plan. In addition, Years of
Service also includes service with a successor corporation following a Change in
Control to the extent that such service would be recognized for purposes of
determining the Participant's vested or nonforfeitable interest in the
Retirement Plan if such successor were the Corporation. To the extent approved
by the Committee, Years of Service also includes service with a predecessor
employer or entity acquired by the Corporation or an Affiliate. Notwithstanding
the foregoing, a Participant's Years of Service shall not be less than the
number of years determined in accordance with the provisions of Exhibit I to the
Plan as approved by the Committee from time to time. A period of service with
the Corporation, an Affiliate, a predecessor employer or entity, a successor or
any other period shall only be counted once in determining a Participant's Years
of Service.
<PAGE>
ARTICLE II
PARTICIPATION
2.01. Beginning Participation
Each person who is an Executive on January 1, 1995 shall be a
Participant in the Plan effective January 1, 1995. Each person who becomes an
Executive after January 1, 1995 shall be a Participant in the Plan as of the
date that his participation is approved in writing by a resolution adopted by
the Committee.
2.02. Change in Status
Except as provided in Section 2.03, a Participant shall cease
to be a Participant in the Plan as of the date that he ceases to be an Executive
if, as of that date, he has not satisfied the requirements to receive a
retirement allowance under Article III. Despite the preceding sentence, with the
written approval of, and subject to such terms and conditions as may be
prescribed by, the Committee in its sole discretion, a Participant who ceases to
be an Executive before he has satisfied the requirements to receive a retirement
allowance under Article III may continue to be a Participant if he continues to
be an employee of the Corporation or an Affiliate.
2.03. Change in Control
Section 2.02 to the contrary notwithstanding, each person who
is a Participant on a Control Change Date shall continue to be a Participant in
the Plan thereafter until the date that he ceases to be an employee of the
Corporation, an Affiliate or a successor of the Corporation or an Affiliate and
all of the benefits payable to or on behalf of the Participant have been paid.
ARTICLE III
RETIREMENT ALLOWANCES
3.032. Normal Retirement Allowance
(a) Subject to the requirements of Article V and Section 8.01,
a Participant who retires from the Corporation or an Affiliate on or after his
Normal Retirement Date and after being credited with twenty Years of Service
shall be entitled to receive his Normal Retirement Allowance under the Plan. The
Normal Retirement Allowance is an annual benefit which shall be equal to the
difference between (i) and (ii) below where
(i) = 50% times the Participant's Average Compensation
(determined as of his Normal Retirement Date), and
(ii) = Offset Amount.
The Normal Retirement Allowance shall be payable in equal or nearly equal
monthly installments, or more frequently based on the payroll practices of the
Corporation and its Affiliates, commencing as of the Participant's Normal
Retirement Date and ending with the payment for the month in which the
Participant dies. Payments of the Normal Retirement Allowance shall be reduced
in accordance with income and employment tax withholding requirements.
(b) Subject to the requirements of Article V and Section 8.01,
a Designated Participant who retires from the Corporation or an Affiliate on or
after his Normal Retirement Date shall be entitled to receive his Normal
Retirement Allowance under the Plan. The Normal Retirement Allowance payable to
the Designated Participant is an annual benefit which shall be equal to the
difference between (i) and (ii) below where
(i) = 50% times the Designated Participant's Pro Rata
Compensation (determined as of his Normal Retirement
Date), and
(ii) = Offset Amount.
The Normal Retirement Allowance shall be payable in equal or nearly equal
monthly installments, or more frequently based on the payroll practices of the
Corporation and its Affiliates, commencing as of the Designated Participant's
Normal Retirement Date and ending with the payment for the month in which the
Designated Participant dies. Payments of the Normal Retirement Allowance shall
be reduced in accordance with income and employment tax withholding
requirements.
3.033. Early Retirement Allowance
(a) Subject to the requirements of Article V and Section 8.01,
a Participant who retires from the Corporation or an Affiliate on or after being
credited with twenty Years of Service is eligible for an Early Retirement
Allowance beginning as of the first day of any month coincident with or
following the Participant's Early Retirement Date. The Early Retirement
Allowance is an annual benefit which shall be the difference between (i) and
(ii) below where
(i) = the Applicable Percentage times the Participant's
Average Compensation (determined as of his Early
Retirement Date), and
(ii) = the Offset Amount.
For purposes of this Section 3.02(a), the "Applicable Percentage" is equal to
50% reduced by 0.20833% for each full month that the commencement of the
Participant's Early Retirement Allowance precedes the Participant's Normal
Retirement Date. The Early Retirement Allowance shall be payable in equal or
nearly equal monthly installments, or more frequently based on the payroll
practices of the Corporation and its Affiliates, until the payment for the month
in which the Participant dies. Payments of the Early Retirement Allowance shall
be reduced in accordance with income and employment tax withholding
requirements.
(b) Subject to the requirements of Article V and Section 8.01,
a Designated Participant who retires from the Corporation or an Affiliate on or
after his Early Retirement Date is eligible for an Early Retirement Allowance
beginning as of the first day of any month coincident with or following the
Designated Participant's Early Retirement Date. The Early Retirement Allowance
is an annual benefit which shall be the difference between (i) and (ii) below
where
(i) = the Applicable Percentage times the Designated
Participant's Pro Rata Compensation (determined as of
his Early Retirement Date), and
(ii) = the Offset Amount.
For purposes of this Section 3.02(b), the "Applicable Percentage" is equal to
50% reduced by 0.20833% for each full month that the commencement of the
Designated Participant's Early Retirement Allowance precedes the Participant's
Normal Retirement Date. The Early Retirement Allowance shall be payable in equal
or nearly equal monthly installments, or more frequently based on the payroll
practices of the Corporation and its Affiliates, until the payment for the month
in which the Designated Participant dies. Payments of the Early Retirement
Allowance shall be reduced in accordance with income and employment tax
withholding requirements.
3.034. Change in Control Benefit
(a) Subject to the requirements of Article V and Section 8.01,
a Participant who is credited with twenty Years of Service may retire from the
Corporation, an Affiliate or a successor of the Corporation or an Affiliate on
or after a Control Change Date. In that event, the Participant shall be entitled
to an annual benefit (with the benefit payments commencing on the first day of a
month selected by the Participant if such election is made while the Participant
is employed by the Corporation or an Affiliate or, absent such an election, on
the first day of the month following the date he attains age 55 (the "Benefit
Commencement Date")), equal to the difference between (i) and (ii) below where
(i) = the Applicable Percentage times the Participant's
Average Compensation (determined as of the date that the
Participant ceases to be employed by the Corporation and
its Affiliates after a Control Change Date), and
(ii) = the Offset Amount.
For purposes of this Section 3.03(a), the "Applicable Percentage" is equal to
50% reduced by 0.20833% for each full month that the Benefit Commencement Date
precedes the month in which the Participant will attain age 60. The benefit
payable under this Section 3.03(a) shall be payable in equal or nearly equal
monthly installments, or more frequently based on the payroll practices of the
Corporation and its Affiliates, commencing as of the Benefit Commencement Date
and ending with the payment for the month in which the Participant dies.
Payments of the benefit described in this Section 3.03(a) shall be reduced in
accordance with income and employment tax withholding requirements.
(b) Subject to the requirements of Article V and Section 8.01,
a Participant who is credited with less than twenty Years of Service may retire
from the Corporation, an Affiliate or a successor of the Corporation or an
Affiliate on or after a Control Change Date. In that event, the Participant
shall be entitled to an annual benefit (with the benefit payments commencing on
the first day of a month selected by the Participant if such election is made
while the Participant is employed by the Corporation or an Affiliate or, absent
such an election, on the first day of the month following the date he attains
age 55 (the "Benefit Commencement Date")), equal to the difference between (i)
and (ii) below where
(i) = the Applicable Percentage times the Participant's
Pro Rata Compensation (determined as of the date that the
Participant ceases to be employed by the Corporation and
its Affiliates after a Control Change Date), and
(ii) = the Offset Amount.
For purposes of this Section 3.03(b), the "Applicable Percentage" is equal to
50% reduced by 0.20833% for each full month that the Benefit Commencement Date
precedes the month in which the Participant will attain age 60. The benefit
payable under this Section 3.03(b) shall be payable in equal or nearly equal
monthly installments, or more frequently based on the payroll practices of the
Corporation and its Affiliates, commencing as of the Benefit Commencement Date
and ending with the payment for the month in which the Participant dies.
Payments of the benefit described in this Section 3.03(b) shall be reduced in
accordance with income and employment tax withholding requirements.
3.035. Disability Retirement Allowance
Subject to the requirements of Article V and Section 8.01, a
Participant shall be entitled to receive a retirement allowance under Section
3.02 if his employment with the Corporation and its Affiliates terminates on
account of Total and Permanent Disability and such Total and Permanent
Disability continues without interruption until the date that would have been
the Participant's Early Retirement Date had he remained employed by the
Corporation and its Affiliates. The retirement allowance under Section 3.02
shall commence as of the first day of the month coincident with or next
following the date that would have been the Participant's earliest Early
Retirement Date.
3.036. Optional Forms of Benefit
A Participant who is entitled to receive a retirement
allowance under this Article III may elect to have his benefit payable in a form
other than a single life annuity. The optional forms of payment that are
available under this Plan are the same optional forms of payment provided under
the Retirement Plan (without regard to any requirement that the Participant's
Spouse consent to such payment election) as in effect on the date that the
Participant retires; provided, however, that only the Surviving Spouse may be
designated under this Plan as the contingent annuitant for any form of payment
that provides lifetime benefits to another person after the Participant's death.
If the Participant elects an optional form of payment under this Section 3.05,
any contingent annuitant or beneficiary designated in connection with that
election need not be the same as any contingent annuitant or beneficiary
designated under the Retirement Plan, the Excess Plan, the ANEX Plan or any
other plan providing a benefit that is part of the Offset Amount. If the
Participant elects an optional form of payment under this Section 3.05, the
amount payable under the optional form shall be the Actuarial Equivalent of the
amount of the retirement allowance otherwise payable under this Article III in
the form of a single life annuity. A Participant shall be entitled to elect an
optional form of payment at such time and in such manner as the Administrator
may decide; provided, however, that a Participant may not change his payment
election after benefit payments have begun.
ARTICLE IV
PAYMENTS IN THE EVENT OF DEATH
4.037. Death Prior to Age 55
(a) Subject to the requirements of Article V and Section 8.01,
a benefit will be payable under this Plan to the Surviving Spouse of a
Participant who dies before attaining age 55, after completing twenty Years of
Service, but before the commencement of a retirement allowance under Article
III. The benefit payable to the Surviving Spouse will be determined as follows:
(i) First: Calculate the Participant's Early Retirement
Allowance under Article III using the Participant's
Average Compensation as of his date of death and an
Applicable Percentage equal to 37.5002%.
(ii) Second: Calculate the Actuarial Equivalent, payable
as a Joint and 50% Survivor Annuity, of the single life
annuity determined in (i) above.
The Surviving Spouse's benefit is the survivor's portion of the Joint and 50%
Survivor Annuity determined in (ii) above. For purposes of this Section 4.01(a),
the term "Joint and 50% Survivor Annuity" means an annuity for the life of the
Participant with a survivor annuity for the life of the Surviving Spouse which
is equal to 50% of the amount of the annuity which is payable during the joint
lives of the Participant and Surviving Spouse and which is the Actuarial
Equivalent of an annuity for the life of the Participant.
The benefit payable under this Section 4.01(a) shall be payable in
equal or nearly equal monthly installments, or more frequently based on the
payroll practices of the Corporation and its Affiliates, commencing as of the
month in which the Participant would have attained age 55 and ending with the
month in which the Surviving Spouse dies. Payments of the benefit described in
this Section 4.01(a) shall be reduced in accordance with income and employment
tax withholding requirements. Except as provided in this Section 4.01(a), no
death benefit shall be payable under this Plan on behalf of a Participant who
dies before attaining age 55.
(b) Subject to the requirements of Article V and Section 8.01,
a benefit will be payable under this Plan to the Surviving Spouse of a
Participant who dies before attaining age 55, after completing less than twenty
Years of Service, but before the commencement of a retirement allowance under
Article III. The benefit payable to the Surviving Spouse will be determined as
follows:
(i) First: Calculate the Participant's Early Retirement
Allowance under Article III using the Participant's Pro
Rata Compensation as of his date of death and an
Applicable Percentage equal to 37.5002%.
(ii) Second: Calculate the Actuarial Equivalent, payable
as a Joint and 50% Survivor Annuity, of the single life
annuity determined in (i) above.
The Surviving Spouse's benefit is the survivor's portion of the Joint and 50%
Survivor Annuity determined in (ii) above. For purposes of this Section 4.01(b),
the term "Joint and 50% Survivor Annuity" means an annuity for the life of the
Participant with a survivor annuity for the life of the Surviving Spouse which
is equal to 50% of the amount of the annuity which is payable during the joint
lives of the Participant and Surviving Spouse and which is the Actuarial
Equivalent of an annuity for the life of the Participant.
The benefit payable under this Section 4.01(b) shall be payable in
equal or nearly equal monthly installments, or more frequently based on the
payroll practices of the Corporation and its Affiliates, commencing as of the
month in which the Participant would have attained age 55 and ending with the
month in which the Surviving Spouse dies. Payments of the benefit described in
this Section 4.01(b) shall be reduced in accordance with income and employment
tax withholding requirements. Except as provided in this Section 4.01(b), no
death benefit shall be payable under this Plan on behalf of a Participant who
dies before attaining age 55.
4.038. Death on or After Age 55
(a) Subject to the requirements of Article V and Section 8.01,
a benefit will be payable under this Plan to the Surviving Spouse of a
Participant who dies on after attaining age 55, after completing 20 Years of
Service, but before the commencement of a retirement allowance under Article
III. The benefit payable to the Surviving Spouse will be determined as follows:
(i) First: Calculate the Participant's Early Retirement
Allowance under Article III using the Participant's
Average Compensation as of his date of death and an
Applicable Percentage equal to 50% reduced by 0.20833%
times each month that the Participant's death precedes
the Participant's Normal Retirement Date.
(ii) Second: Calculate the Actuarial Equivalent, payable
as a Joint and 100% Survivor Annuity, of the single life
annuity determined in (i) above.
The Surviving Spouse's benefit is the survivor's portion of the Joint and 100%
Survivor Annuity determined in (ii) above. For purposes of this Section 4.02,
the term "Joint and 100% Survivor Annuity" means an annuity for the life of the
Participant with a survivor annuity for the Surviving Spouse which is equal to
100% of the amount of the annuity which is payable for the joint lives of the
Participant and Surviving Spouse and which is the Actuarial Equivalent of an
annuity for the life of the Participant.
The benefit payable under this Section 4.02 shall be payable
in equal or nearly equal monthly installments, or more frequently based on the
payroll practices of the Corporation and its Affiliates, commencing as of the
first day of the month following the Participant's death and ending with the
payment for the month in which the Surviving Spouse dies. Payments of the
benefit described in this Section 4.02 shall be reduced in accordance with
income and employment tax withholding requirements. Except as provided in this
Section 4.02, no death benefit shall be payable under this Plan on behalf of a
Participant who dies after attaining age 55 but before the commencement of a
retirement allowance under Article III.
(b) Subject to the requirements of Article V and Section 8.01,
a benefit will be payable under this Plan to the Surviving Spouse of a
Participant who dies on after attaining age 55, after completing less than 20
Years of Service, but before the commencement of a retirement allowance under
Article III. The benefit payable to the Surviving Spouse will be determined as
follows:
(i) First: Calculate the Participant's Early Retirement
Allowance under Article III using the Participant's Pro
Rata Compensation as of his date of death and an
Applicable Percentage equal to 50% reduced by 0.20833%
times each month that the Participant's death precedes
the Participant's Normal Retirement Date.
(ii) Second: Calculate the Actuarial Equivalent, payable
as a Joint and 100% Survivor Annuity, of the single life
annuity determined in (i) above.
The Surviving Spouse's benefit is the survivor's portion of the Joint and 100%
Survivor Annuity determined in (ii) above. For purposes of this Section 4.02(b),
the term "Joint and 100% Survivor Annuity" means an annuity for the life of the
Participant with a survivor annuity for the Surviving Spouse which is equal to
100% of the amount of the annuity which is payable for the joint lives of the
Participant and Surviving Spouse and which is the Actuarial Equivalent of an
annuity for the life of the Participant.
The benefit payable under this Section 4.02(b) shall be
payable in equal or nearly equal monthly installments, or more frequently based
on the payroll practices of the Corporation and its Affiliates, commencing as of
the first day of the month following the Participant's death and ending with the
payment for the month in which the Surviving Spouse dies. Payments of the
benefit described in this Section 4.02(b) shall be reduced in accordance with
income and employment tax withholding requirements. Except as provided in this
Section 4.02(b), no death benefit shall be payable under this Plan on behalf of
a Participant who dies after attaining age 55 but before the commencement of a
retirement allowance under Article III.
4.039. Death After Retirement
If a Participant dies after the commencement of a retirement
allowance under Article III, all payments from this Plan shall cease with the
payment made for the month in which the Participant dies if the Participant was
receiving a retirement allowance under this Plan in the form of a single life
annuity. If the Participant elected an optional form of payment as provided in
Section 3.05 and dies after the commencement of a retirement allowance under
Article III, the amount of benefit, if any, payable under this Plan following
the Participant's death shall be determined on the basis of the optional form of
payment selected by the Participant.
ARTICLE V
VESTING AND CONTINUOUS PARTICIPATION
No benefit will be payable to a Participant or Surviving
Spouse under the Plan unless the Participant is a Participant on the date he
ceases to be an employee of the Corporation or an Affiliate or a successor.
ARTICLE VI
ADMINISTRATION OF THE PLAN
6.040. Generally
The Plan shall be administered by the Administrator. Subject
to the provisions of the Plan, the Administrator may adopt such rules and
regulations as may be necessary to carry out the purposes of the Plan. The
Administrator's discretion to perform or consent to any act or to interpret the
Plan is exclusive and shall be final and conclusive if all similarly situated
Participants are treated in a consistent manner.
6.041. Indemnification
The Corporation shall indemnify and save harmless the
Administrator against any and all expenses and liabilities arising out of the
administration of the Plan, excepting only expenses and liabilities arising out
of his own willful misconduct. Expenses against which the Administrator shall be
indemnified hereunder shall include without limitation, the amount of any
settlement or judgment, costs, counsel fees, and related charges reasonably
incurred in connection with a claim asserted, or a proceeding brought or
settlement of a claim. The foregoing right of indemnification shall be in
addition to any other rights to which the Administrator may be entitled.
6.042. Determining Benefits
In addition to the powers hereinabove specified, the
Administrator shall have the power to compute and certify the amount and kind of
benefits from time to time payable to or on behalf of Participants under the
Plan, to authorize all disbursements for such purposes, and to determine whether
a Participant or Surviving Spouse is entitled to a benefit under the Plan.
6.043. Cooperation
To enable the Administrator to perform its functions, the
Corporation and its Affiliates shall supply full and timely information to the
Administrator on all matters relating to the compensation of all Participants,
their retirement, death or other reason for termination of employment, and such
other pertinent facts as the Administrator may require.
6.05. Claims
It is not necessary to file a claim in order to receive Plan
benefits.
On receipt of a claim for Plan benefits, the Administrator
must respond in writing within ninety days. If necessary, the Administrator's
first notice must indicate any special circumstances requiring an extension of
time for the Administrator's decision. The extension notice must indicate the
date by which the Administrator expects to render a decision; an extension of
time for processing may not exceed ninety days after the end of the initial
period.
If a claim is wholly or partially denied, the Administrator
must give written notice within the time provided in the preceding paragraph. An
adverse notice must specify each reason for denial. There must be specific
reference to provisions of the Plan or related documents on which the denial is
based. If additional material or information is necessary for the claimant to
perfect the claim, it must be described and there must be an explanation of why
that material or information is necessary. Adverse notice must disclose
appropriate information about the steps that the claimant must take if he wishes
to submit the claim for review. If notice that a claim has been denied is not
furnished within the time required in the preceding paragraph, the claim is
deemed denied.
The full value of a payment made according to the provisions
of the Plan satisfies that much of the claim and all related claims under the
Plan against the Administrator and the Corporation and its Affiliates, each of
whom, as a condition to a payment from it or directed by it, may require the
Participant, Surviving Spouse, beneficiary or contingent annuitant or legal
representative to execute a receipt and release of the claim in a form
determined by the person requesting the receipt and release.
6.06. Review of Claims
The Committee must review a claimant's proper written request
for review of a denied claim. The Committee must receive the written request
before sixty-one days after the claimant's receipt of notice that a claim has
been denied according to the preceding Plan Section. The claimant and an
authorized representative are entitled to be present and heard if any hearing is
used as part of the review.
The Committee must determine whether there will be a hearing.
Before any hearing, the claimant or a duly authorized representative may review
all Plan documents and other papers that affect the claim and may submit issues
and comments in writing. The Committee must schedule any hearing to give
sufficient time for this review and submission, giving notice of the schedule
and deadlines for submissions.
The Committee must advise the claimant in writing of the final
determination after review. The decision on review must be written in a manner
calculated to be understood by the claimant, and it must include specific
reasons for the decision and specific references to the pertinent provisions of
the Plan or related documents on which the decisions is based. Except as
otherwise provided in this Section, the written advice must be rendered within
sixty days after the request for review is received, unless special
circumstances require an extension of time for processing. If an extension is
necessary, the decision must be rendered as soon as possible but no later than
120 days after receipt of the request for review. If the Committee has regularly
scheduled meetings at least quarterly, the following rules govern the time for
the decision after review. If the claimant's written request for review is
received more than thirty days before a Committee meeting, the decision of the
Committee must be rendered at the next meeting after the request for review is
received. If the claimant's written request for review is received thirty days
or less before a Committee meeting, the decision of the Committee must be
rendered at the Committee's second meeting after the request for review has been
received. If special circumstances (such as the need to hold a hearing) require
an extension of time for processing, the decision of the Committee must be
rendered not later than the Committee's third meeting after the request for
review has been received. If an extension of time for review is required,
written notice of the extension must be furnished to the claimant before the
extension begins. If notice that a claim has been denied on review is not
received by the claimant within the time required in this paragraph, the claim
is deemed denied on review.
6.07. Delegation of Committee Responsibilities
The Committee, in its discretion, may delegate to one or more
officers of the Corporation or an Affiliate all or part of the Committee's
authority and duties under the Plan; provided, however, that the Committee may
not delegate its authority or duties under Article II, Article VII or Section
6.06. The Committee may revoke or amend the terms of a delegation in accordance
with the preceding sentence but such action shall not invalidate any prior
actions of the Committee's delegate or delegates that were consistent with the
terms of the Plan and the prior delegation.
ARTICLE VII
TERMINATION, AMENDMENT OR MODIFICATION OF PLAN
7.044. Reservation of Rights
Except as otherwise specifically provided, the Corporation
reserves the right to terminate, amend or modify this Plan wholly or partially
at any time and from time to time. Such right to terminate, amend or modify the
Plan shall be exercised by the Committee or its delegate. Notwithstanding the
preceding, with respect to an affected Participant, the Plan may not be amended,
modified or terminated after a Change in Control unless the affected Participant
agrees to such amendment, modification or termination in writing.
7.045. Limitation on Actions
The rights of the Corporation set forth in the preceding
Section are subject to the condition that unless required by regulatory
authorities governing the Corporation or its Affiliates, the Committee or its
delegate shall take no action to terminate the Plan or decrease the benefit that
would become payable or is payable, as the case may be, with respect to a
Participant or his Surviving Spouse after the Participant has satisfied the
requirements for an Early Retirement Allowance (regardless of whether he has
retired) or the Participant or his Surviving Spouse has become entitled to a
benefit under the Plan.
7.046. Effect of Termination
Except as otherwise provided in this Article VII, upon the
termination of this Plan by the Committee, the Plan shall be of no further force
or effect, and neither the Corporation or its Affiliates or the Administrator
nor the Participant or his Surviving Spouse shall have any further obligation or
right under this Plan. Likewise, except as otherwise provided in this Article
VII, the rights of any individual who was a Participant and who ceases to be a
Participant shall be forfeited on the date that the individual ceases to be a
Participant.
ARTICLE VIII
MISCELLANEOUS
8.047. Limitation on Benefits
(a) If any benefits payable under this Plan and any other
payments that the Participant is entitled to receive under other plans and
agreements constitute Parachute Payments that are subject to the "golden
parachute" rules of Code section 280G and the excise tax of Code section 4999,
the Parachute Payments shall be reduced if, and only to the extent that, a
reduction will allow the Participant to receive a greater Net After Tax Amount
than he would receive absent a reduction. The remaining provisions of this
Section describe how that intent will be effectuated.
(b) The Accounting Firm will first determine the amount of any
Parachute Payments that are payable to the Participant. The Accounting Firm will
also determine the Net After Tax Amount attributable to the Participant's total
Parachute Payments.
(c) The Accounting Firm will next determine the amount of the
Participant's Capped Parachute Payments. Thereafter, the Accounting Firm will
determine the Net After Tax Amount attributable to the Participant's Capped
Parachute Payments.
(d) The Participant will receive the total Parachute Payments
unless the Accounting Firm determines that the Capped Parachute Payments will
yield the Participant a higher Net After Tax Amount, in which case the
Participant will receive the Capped Parachute Payments. If the Participant will
receive the Capped Parachute Payments, the Participant's total Parachute
Payments will be adjusted by first reducing the amount payable under any other
plan, program, or agreement that, by its terms, requires a reduction to prevent
a "golden parachute" payment under Code section 280G; by next reducing any
benefit payable under this Plan to the extent such benefit is a Parachute
Payment; and by next reducing the Participant's Parachute Payments as provided
under the terms of the Crestar Financial Corporation Executive Severance Plan.
The Accounting Firm will notify the Participant and the Corporation if it
determines that the Parachute Payments must be reduced to the Capped Parachute
Payments and will send the Participant and the Corporation a copy of its
detailed calculations supporting that determination.
(e) As a result of any uncertainty in the application of Code
sections 280G and 4999 at the time that the Accounting Firm makes its
determinations under this Section, it is possible that amounts will have been
paid or distributed to the Participant that should not have been paid or
distributed under this Section 8.01 ("Overpayments"), or that additional amounts
should be paid or distributed to the Participant under this Section 8.01
("Underpayments"). If the Accounting Firm determines, based on either
controlling precedent, substantial authority or the assertion of a deficiency by
the Internal Revenue Service against the Participant or the Corporation, which
assertion the Accounting Firm believes has a high probability of success, that
an Overpayment has been made, then the Participant shall have an obligation to
pay the Corporation upon demand an amount equal to the sum of the Overpayment
plus interest on such Overpayment at the prime rate of Crestar Bank (or its
successor) as such prime rate shall change from time to time (or, if higher, the
rate provided in Code section 7872(f)(2)) from the date of the Participant's
receipt of such Overpayment until the date of such repayment; provided, however,
the Participant shall not be obligated to make such repayment if, and only to
the extent, that the repayment would either reduce the amount on which the
Participant is subject to tax under Code section 4999 or generate a refund of
tax imposed under Code section 4999. If the Accounting Firm determines, based
upon controlling precedent or substantial authority, that an Underpayment has
occurred, the Accounting Firm will notify the Participant and the Corporation of
that determination and the Corporation will pay the amount of that Underpayment
to the Participant promptly in a lump sum, with interest calculated on such
Underpayment at the prime rate of Crestar Bank (or its successor) as such prime
rate shall change from time to time (or, if higher, the rate provided in Code
section 7872(f)(2)) from the date such Underpayment should have been paid until
actual payment.
(f) All determinations made by the Accounting Firm under this
Section 8.01 are binding on the Participant and the Corporation and must be made
within thirty days after the Participant's termination of employment with the
Corporation and its Affiliates.
8.048. Unfunded Plan
The Corporation and its Affiliates have only a contractual
obligation to make payments of the benefits described in the Plan. All benefits
are to be satisfied solely out of the general corporate assets of the
Corporation and its Affiliates which shall remain subject to the claims of its
creditors. No assets of the Corporation or its Affiliates will be segregated or
committed to the satisfaction of its obligations to any Participant or Surviving
Spouse under this Plan. If the Corporation or an Affiliate, in its sole
discretion, elects to purchase life insurance on the life of a Participant in
connection with the Plan, the Participant must submit to a physical examination,
if required by the insurer, and otherwise cooperate in the issuance of such
policy or his rights under the Plan will be forfeited.
8.049. Other Benefits and Agreements
The benefits, if any, provided for a Participant or a
Surviving Spouse under the Plan are in addition to any other benefits available
to such persons under any other plan or program of the Corporation for its
employees, and, except as may otherwise be expressly provided for, the Plan
shall supplement and shall not supersede, modify or amend any other plan or
program of the Corporation or an Affiliate in which a Participant is
participating.
8.050. Restrictions on Transfer of Benefits
No right or benefit under the Plan shall be subject to
anticipation, alienation, sale, assignment, pledge, encumbrance or charge, and
any attempt to do so shall be void. No right or benefit hereunder shall in any
manner be liable for or subject to the debts, contracts, liabilities, or torts
of the person entitled to such benefit. If any Participant or his Surviving
Spouse should become bankrupt or attempt to anticipate, alienate, sell, assign,
pledge, encumber or charge any right to a benefit hereunder, then such right or
benefit, in the discretion of the Administrator, shall cease and terminate, and,
in such event, the Administrator may hold or apply all or part of the benefit of
such Participant or Surviving Spouse in such manner and in such portion as the
Administrator may deem proper.
8.051. No Guarantee of Employment
The Plan does not in any way limit the right of the
Corporation or an Affiliate at any time and for any reason to terminate the
Participant's employment or such Participant's status as an officer of the
Corporation or an Affiliate. In no event shall the Plan by its terms or
implications constitute an employment contract of any nature whatsoever between
the Corporation or an Affiliate and a Participant.
8.052. Successors
The Plan shall be binding upon the Corporation and its
successors and assigns; subject to the powers set forth in Article VII, and upon
a Participant and his Surviving Spouse and either of their assigns, heirs,
executors and administrators.
8.053. Construction
Headings are given for ease of reference and must be
disregarded in interpreting the Plan. Masculine pronouns wherever used shall
include feminine pronouns and the use of the singular shall include the plural.
8.054. Governing Law
This Plan shall be governed by the laws of the Commonwealth of
Virginia (other than its choice-of-laws provisions) except to the extent that
the laws of the Commonwealth of Virginia are preempted by the laws of the United
States.
As evidence of its adoption of the Plan, Crestar Financial
Corporation has caused this instrument to be signed by its duly authorized
officer effective as of January 1, 1995.
CRESTAR FINANCIAL CORPORATION
By______________________________
Title___________________________
EXHIBIT 21
All subsidiaries of the Registrant included in the Consolidated
Financial Statements as of December 31, 1995 are listed below:
<TABLE>
<CAPTION>
- --------------------------------------------------- --------------------------------------- -----------------------------------
JURISDICTION OF
SUBSIDIARY DESCRIPTION OF ACTIVITY INCORPORATION
- --------------------------------------------------- --------------------------------------- -----------------------------------
<S> <C> <C>
Crestar Bank (1) Banking Services Virginia
- --------------------------------------------------- --------------------------------------- -----------------------------------
Crestar Mortgage Corporation (2) Mortgage Banking Services Virginia
- --------------------------------------------------- --------------------------------------- -----------------------------------
CMC OREO, Inc. (3) Real Estate Holding Virginia
- --------------------------------------------------- --------------------------------------- -----------------------------------
Crestar Leasing Corporation (2) Equipment Leasing Virginia
- --------------------------------------------------- --------------------------------------- -----------------------------------
Capitoline Investment Services Incorporated (2) Investment Advisory Services Virginia
- --------------------------------------------------- --------------------------------------- -----------------------------------
Southern Service Corporation (2) Real Estate Holding (Inactive) Virginia
- --------------------------------------------------- --------------------------------------- -----------------------------------
Crestar Securities Corporation (1) Securities Brokerage Services Virginia
- --------------------------------------------------- --------------------------------------- -----------------------------------
Crestar Insurance Agency, Incorporated (1) Insurance Agency Virginia
- --------------------------------------------------- --------------------------------------- -----------------------------------
Crestar Bank, N.A. (1) Banking Services National Banking
Association
- --------------------------------------------------- --------------------------------------- -----------------------------------
Crestar Bank MD (1) Banking Services Maryland
- --------------------------------------------------- --------------------------------------- -----------------------------------
Annapolis Federal Funding Corporation I (4) Investment Securities Holding Maryland
- --------------------------------------------------- --------------------------------------- -----------------------------------
First Arlington Service Corp. (2) Real Estate Mortgage Trustee Virginia
- --------------------------------------------------- --------------------------------------- -----------------------------------
CRPC, Inc. (2) Real Estate Holding Virginia
- --------------------------------------------------- --------------------------------------- -----------------------------------
The Plaza Company of Virginia (2) Real Estate Holding Virginia
- --------------------------------------------------- --------------------------------------- -----------------------------------
Capital REFG, Inc. (2) Real Estate Holding Virginia
- --------------------------------------------------- --------------------------------------- -----------------------------------
Eastern REFG, Inc. (2) Real Estate Holding Virginia
- --------------------------------------------------- --------------------------------------- -----------------------------------
Second Eastern REFG, Inc. (2) Real Estate Holding Virginia
- --------------------------------------------------- --------------------------------------- -----------------------------------
Mortgage Investment OREO, Inc. (2) Real Estate Holding Virginia
- --------------------------------------------------- --------------------------------------- -----------------------------------
GWR REFG, Inc. (2) Real Estate Holding Virginia
- --------------------------------------------------- --------------------------------------- -----------------------------------
Second GWR REFG, Inc. (2) Real Estate Holding Virginia
- --------------------------------------------------- --------------------------------------- -----------------------------------
Third GWR REFG, Inc. (2) Real Estate Holding Virginia
- --------------------------------------------------- --------------------------------------- -----------------------------------
Fourth GWR REFG, Inc. (2) Real Estate Holding Virginia
- --------------------------------------------------- --------------------------------------- -----------------------------------
Fifth GWR REFG, Inc. (2) Real Estate Holding Virginia
- --------------------------------------------------- --------------------------------------- -----------------------------------
Capital OREO, Inc. (2) Real Estate Holding Virginia
- --------------------------------------------------- --------------------------------------- -----------------------------------
Eastern OREO, Inc. (2) Real Estate Holding Virginia
- --------------------------------------------------- --------------------------------------- -----------------------------------
GWR OREO, Inc. (2) Real Estate Holding Virginia
- --------------------------------------------------- --------------------------------------- -----------------------------------
Western OREO, Inc. (2) Real Estate Holding Virginia
- --------------------------------------------------- --------------------------------------- -----------------------------------
Corporate OREO, Inc. (2) Real Estate Holding Virginia
- --------------------------------------------------- --------------------------------------- -----------------------------------
Villages Of KC Properties, Inc. (2) Real Estate Holding Virginia
- --------------------------------------------------- --------------------------------------- -----------------------------------
Hilltop of Virginia, Inc. (2) Real Estate Holding Virginia
- --------------------------------------------------- --------------------------------------- -----------------------------------
CFG Vessels, Inc. (2) Real Estate Holding Virginia
- --------------------------------------------------- --------------------------------------- -----------------------------------
MDRP, Inc. (2) Real Estate Holding Maryland
- --------------------------------------------------- --------------------------------------- -----------------------------------
MD Oreo, Inc. (4) Real Estate Holding Maryland
- --------------------------------------------------- --------------------------------------- -----------------------------------
DCRP, Inc. (5) Real Estate Holding District of Columbia
- --------------------------------------------------- --------------------------------------- -----------------------------------
DC OREO, Inc. (5) Real Estate Holding District of Columbia
- --------------------------------------------------- --------------------------------------- -----------------------------------
Jefferson Investment Service Corporation (2) Real Estate Mortgage Trustee Virginia
- --------------------------------------------------- --------------------------------------- -----------------------------------
Jefferson Funding Corporation I (2) Investment Securities Holding Virginia
- --------------------------------------------------- --------------------------------------- -----------------------------------
Jefferson Funding Corporation II (2) Investment Securities Holding Virginia
- --------------------------------------------------- --------------------------------------- -----------------------------------
Crestar Bank FSB (1) Savings Bank Federal Savings Association
- --------------------------------------------------- --------------------------------------- -----------------------------------
Loyola Insurance Services, Inc. (7) Insurance Agency Maryland
- --------------------------------------------------- --------------------------------------- -----------------------------------
Loyola Investment Services, Inc. (7) Securities Broker Maryland
- --------------------------------------------------- --------------------------------------- -----------------------------------
Bay State Appraisal Corp. (7) Real Estate Appraisal Maryland
- --------------------------------------------------- --------------------------------------- -----------------------------------
Covenant Towers Holding Corp. (7) Real Estate Development South Carolina
- --------------------------------------------------- --------------------------------------- -----------------------------------
Loyola Financial Corporation (1) Real Estate Holding Maryland
- --------------------------------------------------- --------------------------------------- -----------------------------------
Bay Woods, Inc. (6) Real Estate Development Maryland
- --------------------------------------------------- --------------------------------------- -----------------------------------
Loyola Financial and Development Corporation (7) Real Estate Holding Maryland
- --------------------------------------------------- --------------------------------------- -----------------------------------
Cromwell Station, Inc. (8) Real Estate Development Maryland
- --------------------------------------------------- --------------------------------------- -----------------------------------
Dover Meadows, Inc. (8) Real Estate Development Maryland
- --------------------------------------------------- --------------------------------------- -----------------------------------
Hunt Country, Inc. (8) Real Estate Development Maryland
- --------------------------------------------------- --------------------------------------- -----------------------------------
Loyola Investors, Inc. (8) Real Estate Development Maryland
- --------------------------------------------------- --------------------------------------- -----------------------------------
Mid-Atlantic Builders, Inc. (8) Real Estate Development Maryland
- --------------------------------------------------- --------------------------------------- -----------------------------------
Valley Manor, Inc. (8) Real Estate Development Maryland
- --------------------------------------------------- --------------------------------------- -----------------------------------
Woodmore Highlands, Inc. (8) Real Estate Development Maryland
- --------------------------------------------------- --------------------------------------- -----------------------------------
FSB Development, Inc. (8) Real Estate Development Maryland
- --------------------------------------------------- --------------------------------------- -----------------------------------
Mid-Atlantic Financial Group, Inc. (3) Mortgage Origination Maryland
- --------------------------------------------------- --------------------------------------- -----------------------------------
Loyola Westpalm Corp. (7) Real Estate Development Maryland
- --------------------------------------------------- --------------------------------------- -----------------------------------
Loyola Mortgage of South Florida (7) Mortgage Origination Florida
- --------------------------------------------------- --------------------------------------- -----------------------------------
</TABLE>
Table
(1) Wholly-owned by Crestar Financial Corporation
(2) Wholly-owned by Crestar Bank
(3) Wholly-owned by Crestar Mortgage Corporation
(4) Wholly-owned by Crestar Bank MD
(5) Wholly-owned by Crestar Bank N.A.
(6) Wholly-owned by Loyola Financial Corporation
(7) Wholly-owned by Crestar Bank FSB
(8) Wholly-owned by Loyola Financial and Development Corporation
EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
Crestar Financial Corporation:
We consent to incorporation by reference in Registration Statement No. 33-57710
on Form S-3, in Registration Statement No. 33-50387 on Form S-3, in Registration
Statement No. 33-64195 on Form S-3, in Registration Statement No. 33-50921 on
Form S-8, in Registration Statement No. 33-63606 on Form S-8, in Registration
Statement No. 33-54523 on Form S-8, in Registration Statement No. 333-00049 on
Form S-8 and in Registration Statement No. 333-00051 on Form S-8 of Crestar
Financial Corporation of our report dated January 17, 1996, relating to the
consolidated balance sheets of Crestar Financial Corporation and subsidiaries as
of December 31, 1995 and 1994, and the related consolidated statements of
income, cash flows and changes in shareholders' equity for each of the years in
the three-year period ended December 31, 1995, which report appears in the
December 31, 1995 annual report on Form 10-K of Crestar Financial Corporation.
Our report refers to a change in accounting for certain investments in debt and
equity securities in 1994.
/s/ KPMG Peat Marwick LLP
Richmond, Virginia
March 28, 1996
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