United States Securities And Exchange Commission
Washington, DC 20549
Form 10-Q
(Mark One)
(X) Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the Quarter Ended September 30, 1996
( ) Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Commission File Number 1-7083 .
Crestar Financial Corporation
(Exact name of registrant as specified in its charter)
Virginia 54-0722175
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
919 E. Main Street, P.O. Box 26665, Richmond, Virginia 23261-6665
(Address of principal executive offices) (Zip Code)
(804)782-5000
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
Yes X . No .
-------- --------
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at October 31, 1996
Common Stock, $5 par value 42,352,325
<PAGE>
Crestar Financial Corporation And Subsidiaries
Form 10-Q
For The Quarter Ended September 30, 1996
Part I. Financial Information
Item 1. Financial Statements:
Page
Consolidated Balance Sheets.....................................
Consolidated Statements Of Income...............................
Consolidated Statements Of Cash Flows...........................
Consolidated Statements Of Changes In Shareholders' Equity......
Notes To Consolidated Financial Statements......................
Item 2. Management's Discussion And Analysis Of Financial
Condition And Results Of Operations:
Financial Commentary............................................
Part II. Other Information
Item 4. Submission Of Matters To A Vote Of Security Holders.......
Item 6. Exhibits And Reports On Form 8-K:
During the third quarter of 1996, Crestar filed a Form 8-K
relating to the announcement of the signing of a definitive
agreement under which Citizens Bancorp, a $4.2 billion-asset
Maryland based bank holding company, will merge with Crestar
in a pooling of interests business combination. The Form 8-K
also noted the termination of a common stock repurchase plan
that had previously been approved by Crestar's Board of
Directors on July 11, 1996.
<PAGE>
Consolidated Balance Sheets
Crestar Financial Corporation And Subsidiaries
<TABLE>
<CAPTION>
Dollars in thousands September 30,
------------------------ December 31,
Assets 1996 1995 1995
<S> <C>
Cash and due from banks $ 810,669 $ 736,261 $ 1,084,047
Securities held to maturity (note 2) 69,849 1,085,231 85,368
Securities available for sale (note 3) 3,520,740 1,843,069 3,231,389
Money market investments (note 4) 742,036 658,262 516,268
Mortgage loans held for sale 909,633 489,282 688,218
Loans (note 5):
Business Loans:
Commercial 3,177,380 3,081,146 3,102,156
Real estate - income property 889,680 915,229 874,396
Real estate - construction 227,519 261,350 262,340
Consumer Loans:
Instalment 2,719,890 2,470,066 2,732,557
Bank card 1,450,299 1,576,302 1,686,765
Real estate - mortgage 2,772,243 3,429,311 3,148,214
- -----------------------------------------------------------------------------------------------------------
Total Loans 11,237,011 11,733,404 11,806,428
Less: Allowance for loan losses (note 6) (235,747) (234,960) (240,285)
- -----------------------------------------------------------------------------------------------------------
Loans - net 11,001,264 11,498,444 11,566,143
Premises and equipment - net 365,905 357,898 357,159
Customers' liability on acceptances 3,585 8,430 5,143
Intangible assets - net 183,784 160,000 186,732
Foreclosed properties - net (notes 5 and 7) 17,030 20,100 17,655
Other assets 627,516 448,067 564,563
- -----------------------------------------------------------------------------------------------------------
Total Assets $18,252,011 $17,305,044 $18,302,685
===========================================================================================================
Liabilities
Demand deposits $ 2,561,321 $ 2,244,724 $ 2,665,888
Interest-bearing demand deposits 4,833,045 4,729,563 4,975,710
Regular savings deposits 1,232,175 1,351,044 1,310,903
Domestic time deposits 3,813,760 4,045,189 4,184,703
Certificates of deposit $100,000 and over 1,144,273 62,991 116,211
- -----------------------------------------------------------------------------------------------------------
Total deposits 13,584,574 12,433,511 13,253,415
Short-term borrowings (note 8) 2,083,096 2,348,827 2,227,338
Liability on acceptances 3,585 8,430 5,143
Other liabilities 479,330 394,520 694,096
Long-term debt (note 9) 668,458 683,552 671,296
- -----------------------------------------------------------------------------------------------------------
Total Liabilities 16,819,043 15,868,840 16,851,288
- -----------------------------------------------------------------------------------------------------------
Shareholders' Equity
Preferred stock. Authorized 2,000,000 shares; none issued - - -
Common stock, $5 par value. Authorized 100,000,000 shares;
outstanding 42,349,513 and 42,906,252 at September 30, 1996
and 1995, respectively; 42,809,761 at December 31, 1995 211,748 214,531 214,049
Capital surplus 397,728 365,880 371,075
Retained earnings 863,907 858,427 855,195
Net unrealized gain (loss) on securities available for sale (40,415) (2,634) 11,078
- -----------------------------------------------------------------------------------------------------------
Total Shareholders' Equity 1,432,968 1,436,204 1,451,397
- -----------------------------------------------------------------------------------------------------------
Total Liabilities And Shareholders' Equity $18,252,011 $17,305,044 $18,302,685
===========================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
Consolidated Statements Of Income
Crestar Financial Corporation And Subsidiaries
<TABLE>
<CAPTION>
In thousands, except per share data Three Months Ended Sept. 30, Nine Months Ended Sept. 30,
---------------------------- ---------------------------
Income From Earning Assets 1996 1995 1996 1995
<S> <C>
Interest and fees on loans $244,752 $254,070 $750,027 $756,320
Interest on taxable securities held to maturity 158 15,501 550 50,091
Interest on tax-exempt securities held to maturity 739 979 2,429 2,969
Interest and dividends on securities available for sale 53,094 26,683 154,890 74,579
Income on money market investments 2,828 4,143 9,545 15,975
Interest on mortgage loans held for sale 18,494 8,799 48,940 18,981
- ---------------------------------------------------------------------------------------------------------------
Total income from earning assets 320,065 310,175 966,381 918,915
- ---------------------------------------------------------------------------------------------------------------
Interest Expense
Interest-bearing demand deposits 35,979 38,808 108,468 115,391
Regular savings deposits 7,977 9,421 24,586 30,230
Domestic time deposits 48,888 54,885 154,854 150,267
Certificates of deposit $100,000 and over 5,655 925 9,254 2,736
- ---------------------------------------------------------------------------------------------------------------
Total interest on deposits 98,499 104,039 297,162 298,624
Short-term borrowings 28,588 24,344 87,529 72,417
Long-term debt 12,238 12,515 37,426 37,849
- ---------------------------------------------------------------------------------------------------------------
Total interest expense 139,325 140,898 422,117 408,890
- ---------------------------------------------------------------------------------------------------------------
Net Interest Income 180,740 169,277 544,264 510,025
Provision for loan losses (note 6) 23,170 14,231 65,970 38,268
- ---------------------------------------------------------------------------------------------------------------
Net Credit Income 157,570 155,046 478,294 471,757
- ---------------------------------------------------------------------------------------------------------------
Noninterest Income
Service charges on deposit accounts 24,107 23,203 68,908 67,236
Trust and investment advisory income 16,462 15,064 47,541 42,802
Bank card-related income 12,926 12,138 36,501 35,192
Other income 21,077 24,639 85,092 72,640
Securities gains (losses) 97 (69) 2,740 (3,529)
- ---------------------------------------------------------------------------------------------------------------
Total noninterest income 74,669 74,975 240,782 214,341
- ---------------------------------------------------------------------------------------------------------------
Net Credit And Noninterest Income 232,239 230,021 719,076 686,098
- ---------------------------------------------------------------------------------------------------------------
Noninterest Expense
Personnel expense 87,793 82,268 259,272 247,801
Occupancy expense - net 11,985 11,885 36,666 35,845
Equipment expense 7,611 7,748 22,988 23,422
FDIC premiums - net 37,375 2,893 44,063 17,584
Other expense 46,416 43,776 139,438 125,915
- ---------------------------------------------------------------------------------------------------------------
Total noninterest expense 191,180 148,570 502,427 450,567
- ---------------------------------------------------------------------------------------------------------------
Income Before Income Taxes 41,059 81,451 216,649 235,531
Income tax expense (note 10) 4,252 29,375 67,690 82,031
- ---------------------------------------------------------------------------------------------------------------
Net Income $ 36,807 $ 52,076 $148,959 $153,500
===============================================================================================================
Earnings Per Common Share $ .86 $ 1.19 $ 3.44 $ 3.51
===============================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
Consolidated Statements Of Cash Flows
Crestar Financial Corporation And Subsidiaries
<TABLE>
<CAPTION>
In thousands Nine Months Ended Sept. 30,
----------------------------
1996 1995
<S> <C>
Operating Net Income $ 148,959 $ 153,500
Activities Adjustments to reconcile net income to net cash provided
by operating activities:
Provisions for loan losses, foreclosed properties and
other losses 64,070 39,454
Depreciation and amortization of premises and equipment 29,160 29,427
Securities losses (gains) (2,740) 3,529
Amortization of intangible assets 12,247 10,177
Deferred income tax expense (benefit) (2,462) 6,408
Gain on foreclosed properties (168) (2,632)
Gain on sales of mortgage servicing rights (4,750) (5,900)
Net increase in trading account (701) (3,565)
Origination and purchase of loans held for sale (2,897,539) (1,837,133)
Proceeds from sales of loans held for sale 2,676,124 1,588,756
Net decrease (increase) in accrued interest receivable,
prepaid expenses and other assets (7,706) 3,351
Net increase in accrued interest payable,
accrued expenses and other liabilities 27,721 34,100
Other, net 316 6,673
------------------------------------------------------------------------------------------------
Net cash provided by operating activities 42,531 26,145
- ----------------------------------------------------------------------------------------------------------------
Investing Proceeds from maturities and calls of securities held to maturity 27,649 201,440
Activities Proceeds from maturities and calls of securities available for sale 1,728,868 310,924
Proceeds from sales of securities available for sale 3,569,471 1,355,753
Purchases of securities held to maturity (12,258) (48,083)
Purchases of securities available for sale (5,712,115) (1,430,063)
Net increase in money market investments (225,067) (206,063)
Principal collected on non-bank subsidiary loans 30,357 16,227
Loans originated by non-bank subsidiaries (243,712) (123,110)
Net decrease (increase) in other loans 508,043 (8,231)
Purchases of premises and equipment (42,714) (44,928)
Proceeds from sales of foreclosed properties 14,584 28,694
Proceeds from sales of mortgage servicing rights 9,546 8,305
Acquisitions of net assets of financial institutions 138,628 (12,245)
Proceeds from sales of branch deposits and premises (7,837) (80,895)
Other, net (24,917) (7,664)
------------------------------------------------------------------------------------------------
Net cash used by investing activities (241,474) (39,939)
- ----------------------------------------------------------------------------------------------------------------
Financing Net decrease in demand, interest checking, money market (439,384) (476,454)
Activities and regular savings deposits
Net increase in certificates of deposit 629,008 26,720
Net increase (decrease) in short-term borrowings (91,042) 434,876
Proceeds from issuance of long-term debt 63 7,950
Principal payments on long-term debt (56,220) (69,430)
Cash dividends paid (63,770) (53,250)
Common stock purchased and retired (83,924) (68,390)
Proceeds from the issuance of common stock 30,920 22,264
Other, net (86) (4,830)
------------------------------------------------------------------------------------------------
Net cash used by financing activities (74,435) (180,544)
- ----------------------------------------------------------------------------------------------------------------
Cash And Decrease in cash and cash equivalents (273,378) (194,338)
Cash Cash and cash equivalents at beginning of year 1,084,047 930,599
Equivalents ------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of quarter $ 810,669 $ 736,261
================================================================================================================
</TABLE>
Cash and cash equivalents consist of cash and due from banks; see accompanying
notes to consolidated financial statements.
<PAGE>
Consolidated Statements Of Changes In Shareholders' Equity
Crestar Financial Corporation And Subsidiaries
<TABLE>
<CAPTION>
Dollars in thousands Shareholders' Equity Shares of Common Stock
------------------------ ------------------------
1996 1995 1996 1995
<S> <C>
Balance, July 1 $1,431,154 $1,404,742 42,768,051 42,925,185
Net Income 36,807 52,076 - -
Cash dividends declared on common stock (21,874) (18,918) - -
Change in net unrealized gain or loss on securities
available for sale 11,319 657 - -
Common stock purchased and retired (30,050) (7,101) (531,500) (135,000)
Common stock issued:
For acquisition of financial institutions - (72) - -
For dividend reinvestment plan 4,695 3,639 83,263 72,184
For other stock compensation plans - 64 - 1,271
Upon exercise of stock options (including tax
benefit of $189 in 1996; $198 in 1995) 917 1,117 29,699 42,612
- -----------------------------------------------------------------------------------------------------------
Balance, September 30 $1,432,968 $1,436,204 42,349,513 42,906,252
===========================================================================================================
Balance, January 1 $1,451,397 $1,295,159 42,809,761 42,509,900
Net Income 148,959 153,500 - -
Cash dividends declared on common stock (63,770) (53,250) - -
Change in net unrealized gain or loss on securities
available for sale (51,493) 33,921 - -
Common stock purchased and retired (83,924) (68,390) (1,487,000) (1,529,200)
Cash paid in lieu of fractional shares (86) - (1,484) -
Common stock issued:
For acquisition of financial institutions - 52,562 - 1,317,789
For dividend reinvestment plan 13,516 10,030 245,941 227,885
For thrift and profit sharing plan 6,300 8,263 110,526 207,272
For other stock compensation plans 965 437 19,313 9,965
Upon exercise of stock options (including tax benefit
of $5,810 in 1996; $957 in 1995) 11,104 3,972 652,456 162,641
- -----------------------------------------------------------------------------------------------------------
Balance, September 30 $1,432,968 $1,436,204 42,349,513 42,906,252
===========================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
Notes To Consolidated Financial Statements
Crestar Financial Corporation And Subsidiaries
(1) General
The consolidated financial statements conform to generally accepted accounting
principles and to general practices within the banking industry. The
accompanying interim statements are unaudited; however, in the opinion of
management, all adjustments necessary for a fair presentation of the
consolidated financial statements, including adjustments related to completed
business combinations, have been included. All adjustments are of a normal
nature. Certain reclassifications have been made to the prior years'
consolidated financial statements to conform to the 1996 presentation. The notes
included herein should be read in conjunction with the notes to consolidated
financial statements included in the Corporation's 1995 Annual Report and Form
10-K and the Corporation's First Quarter 1996 and Second Quarter 1996 Financial
Supplement and Form 10-Qs.
On December 31, 1995 Crestar Financial Corporation (Crestar) merged with
Loyola Capital Corporation (Loyola), a Maryland savings bank holding company, in
a transaction accounted for as a pooling of interests. Accordingly, historical
financial data for periods before the merger, including the three months and
nine months ended September 30, 1995, have been restated to include the combined
results of Crestar and Loyola.
Intangible assets consisted of goodwill and deposit based intangibles, having
a combined balance of $183,343,000 and $159,495,000 at September 30, 1996 and
1995, respectively, and favorable lease rights of $441,000 and $505,000,
respectively.
Capitalized mortgage servicing rights of $48,747,000 and $27,012,000 at
September 30, 1996 and 1995, respectively, were included in other assets in the
consolidated financial statements. Mortgage servicing rights of approximately
$32 million were purchased or originated during the first nine months of 1996.
At September 30, 1996 and 1995, capitalized mortgage servicing rights were net
of a related valuation allowance of $305,000 and $269,000, respectively. The
activity in the valuation allowance was not material to the consolidated
financial statements for the three months and nine months ended September 30,
1996. The fair value of capitalized mortgage servicing rights was approximately
$82 million at September 30, 1996. Amortization expense for capitalized mortgage
servicing rights totaled $5.9 million for the first nine months of 1996.
Included in net FDIC premiums in the consolidated statement of income for the
third quarter of 1996 is a $34.1 million pre-tax charge for a non-recurring
assessment on the Corporation's deposits insured through the Savings Association
Insurance Fund (SAIF) of the Federal Deposit Insurance Corporation (FDIC). This
charge, which arose from congressional legislation enacted on September 30,
1996, had an after-tax impact on net income for the third quarter of 1996 of
$21.5 million.
During the third quarter of 1996, Crestar announced the signing of a
definitive agreement under which Citizens Bancorp, a $4.2 billion-asset Maryland
based bank holding company, will merge with Crestar. Pending approval by
regulators and shareholders of both institutions, the transaction is expected to
be completed no later than March 31, 1997, but with a target date of December
31, 1996. One-time pre-tax merger costs of approximately $42 million are
expected to be recorded in connection with the merger. Citizens' shareholders
will receive .835 shares of Crestar common stock for each share of Citizens
common stock, with approximately 12.6 million shares of Crestar common stock
expected to be issued in the merger. The transaction is expected to be accounted
for as a pooling-of-interests business combination.
(2) Securities Held To Maturity
The amortized cost (carrying values) and estimated market values of securities
held to maturity at September 30 follow:
<TABLE>
<CAPTION>
===========================================================================================================
In thousands 1996 1995
----------------------- ------------------------
Amortized Market Amortized Market
Cost Value Cost Value
<S> <C>
U.S. Treasury and Federal agencies $ - $ - $ 104,366 $ 103,322
Mortgage-backed obligations of Federal agencies 17,911 18,571 740,277 733,892
Other taxable securities 2,250 2,250 178,369 176,148
States and political subdivisions 49,688 50,283 62,219 63,161
- -----------------------------------------------------------------------------------------------------------
Total securities held to maturity $69,849 $ 71,104 $1,085,231 $1,076,523
===========================================================================================================
</TABLE>
<PAGE>
(3) Securities Available For Sale
The amortized cost and estimated market values (carrying values) of securities
available for sale at September 30 follow:
<TABLE>
<CAPTION>
===========================================================================================================
In thousands 1996 1995
----------------------- ------------------------
Amortized Market Amortized Market
Cost Value Cost Value
<S> <C>
U.S. Treasury and Federal agencies $ 291,742 $ 286,098 $ 350,082 $ 348,324
Mortgage-backed obligations of Federal agencies 2,553,823 2,500,852 947,288 945,895
Other taxable securities 575,223 570,994 418,949 417,755
Common and preferred stocks 162,729 162,796 130,878 131,095
- -----------------------------------------------------------------------------------------------------------
Total securities available for sale $3,583,517 $3,520,740 $1,847,197 $1,843,069
===========================================================================================================
</TABLE>
At September 30, 1996, the amortized cost and market value of Mortgage-backed
obligations of Federal agencies includes the amortized cost and market value,
respectively, of interest rate caps purchased to hedge, in a rising interest
rate environment, the market value of fixed rate securities available for sale.
The interest rate caps, which have a notional balance of $1.55 billion, have a
cost basis of $18.3 million and a market value of $17.6 million at September 30,
1996. The cost basis of the interest rate caps is being amortized on a
straight-line basis, over the life of the caps, as a reduction of interest
income on securities available for sale.
(4) Money Market Investments
<TABLE>
===========================================================================================================
In thousands 1996 1995
<S> <C>
Federal funds sold $ 85,260 $515,800
Securities purchased under agreements to resell 633,000 127,000
U.S. Treasury 5,809 5,587
Trading account securities 5,191 7,139
Domestic time deposits and other 12,776 2,736
- -----------------------------------------------------------------------------------------------------------
Total money market investments $742,036 $658,262
===========================================================================================================
</TABLE>
(5) Nonperforming Assets And Impaired Loans
Nonperforming assets at September 30 are shown below. Loans that are both (a)
past due 90 days or more and (b) not deemed nonaccrual due to an assessment of
collectibility are specifically excluded from the definition of nonperforming
assets. Such accruing loans past due 90 days or more not shown below totaled
$62.0 million and $41.7 million at September 30, 1996 and 1995, respectively.
<TABLE>
<CAPTION>
===========================================================================================================
In thousands 1996 1995
<S> <C>
Nonaccrual loans $66,626 $67,497
Restructured loans - 1,455
- -----------------------------------------------------------------------------------------------------------
Total nonperforming loans 66,626 68,952
Foreclosed properties - net 17,030 20,100
- -----------------------------------------------------------------------------------------------------------
Total nonperforming assets $83,656 $89,052
===========================================================================================================
</TABLE>
Non-cash additions to foreclosed properties were $7.5 million and $7.9
million in the first nine months of 1996 and 1995, respectively.
Included in Crestar's non-performing loans above are certain impaired
loans. Impaired loans and the allocated valuation allowances at
September 30 were:
<TABLE>
<CAPTION>
===========================================================================================================
In thousands 1996 1995
<S> <C>
Loan Valuation Loan Valuation
Balance Allowance Balance Allowance
Impaired with valuation allowance $25,510 $4,480 $29,410 $3,790
Impaired without valuation allowance - - - -
- -----------------------------------------------------------------------------------------------------------
Total impaired loans $25,510 $4,480 $29,410 $3,790
===========================================================================================================
</TABLE>
<PAGE>
Collateral dependent loans, which were measured solely by the fair value of the
collateral, constituted $24.4 million or 96% of impaired loans at September 30,
1996. The remaining impaired loan of $1.1 million was measured based on the
present value of expected cash flows. The allocated valuation allowance for
impaired loans and activity related thereto is included in the allowance for
loan losses. 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 nine months ended September 30 were:
<TABLE>
<CAPTION>
===========================================================================================================
In thousands 1996 1995
<S> <C>
Average recorded investment in impaired loans $ 30,960 $ 38,080
Interest income recognized during impairment - -
Interest income recognized on a cash basis during impairment - -
===========================================================================================================
</TABLE>
(6) Allowance For Loan Losses
Transactions in the consolidated allowance for loan losses for the three months
and nine months ended September 30 were:
<TABLE>
<CAPTION>
===========================================================================================================
In thousands Three Months Nine Months
---------------------- -----------------------
1996 1995 1996 1995
<S> <C>
Beginning balance $237,020 $237,717 $240,285 $232,922
- -----------------------------------------------------------------------------------------------------------
Charge-offs (32,396) (25,763) (91,825) (64,401)
Recoveries 7,953 8,875 22,205 22,815
- -----------------------------------------------------------------------------------------------------------
Net charge-offs (24,443) (16,888) (69,620) (41,586)
Provision for loan losses 23,170 14,231 65,970 38,268
Allowance from acquisitions and other activity - net - (100) (888) 5,356
- -----------------------------------------------------------------------------------------------------------
Net increase (decrease) (1,273) (2,757) (4,538) 2,038
- -----------------------------------------------------------------------------------------------------------
Ending balance $235,747 $234,960 $235,747 $234,960
===========================================================================================================
</TABLE>
(7) Allowance For Foreclosed Properties
Transactions in the allowance for losses on foreclosed properties for the three
months and nine months ended September 30 were:
<TABLE>
<CAPTION>
===========================================================================================================
In thousands Three Months Nine Months
-------------------- ---------------------
1996 1995 1996 1995
<S> <C>
Beginning balance $6,450 $11,600 $7,512 $16,188
- -----------------------------------------------------------------------------------------------------------
Provision for foreclosed properties - 598 (450) 614
Write-downs (110) (969) (251) (8,267)
Allowance from acquisitions - net - - (471) 2,694
- -----------------------------------------------------------------------------------------------------------
Net decrease (110) (371) (1,172) (4,959)
- -----------------------------------------------------------------------------------------------------------
Ending balance $6,340 $11,229 $ 6,340 $11,229
===========================================================================================================
</TABLE>
(8) Short-Term Borrowings
Short-term borrowings, exclusive of deposits, with maturities of less
than one year at September 30 were:
<TABLE>
<CAPTION>
===========================================================================================================
In thousands 1996 1995
<S> <C>
Federal funds purchased $1,003,088 $1,318,928
Securities sold under repurchase agreements 368,925 475,754
Federal Home Loan Bank borrowings 525,000 388,200
Notes payable 183,900 164,003
Other 2,183 1,942
- -----------------------------------------------------------------------------------------------------------
Total short-term borrowings $2,083,096 $2,348,827
===========================================================================================================
</TABLE>
The Corporation paid $386,358,000 and $366,865,000 in interest on deposits and
short-term borrowings in the first nine months of 1996 and 1995, respectively.
<PAGE>
(9) Long-Term Debt
Long-term debt at September 30 included:
<TABLE>
<CAPTION>
===========================================================================================================
In thousands 1996 1995
<S> <C>
4 3/8 - 7 3/8% Federal Home Loan Bank obligations payable through 2015 $318,529 $319,291
8 3/4% Subordinated notes due 2004 149,683 149,644
8 1/4% Subordinated notes due 2002 125,000 125,000
8 5/8% Subordinated notes due 1998 49,984 49,974
7 7/8 - 11 1/4% Collateralized mortgage obligation bonds maturing through 2019 15,458 28,936
7 - 8 1/4% Mortgage indebtedness maturing through 2009 8,782 9,557
8 5/8 - 14 3/8% Capital lease obligations maturing through 2006 1,022 1,150
- -----------------------------------------------------------------------------------------------------------
Total long-term debt $668,458 $683,552
===========================================================================================================
</TABLE>
The Corporation paid $36,134,000 and $36,230,000 in interest on long-term debt
in the first nine months of 1996 and 1995, respectively. There were no new
capital lease agreements in the third quarter of 1996.
(10) Income Taxes
The current and deferred components of income tax expense allocated to
continuing operations for the three months and nine months ended September 30 in
the accompanying consolidated statements of income were:
<TABLE>
<CAPTION>
===========================================================================================================
In thousands Three Months Nine Months
--------------------- ----------------------
1996 1995 1996 1995
<S> <C>
Current:
Federal $14,263 $28,137 $67,892 $71,622
State and local (158) 1,013 2,260 4,001
- -----------------------------------------------------------------------------------------------------------
Total current tax expense 14,105 29,150 70,152 75,623
- -----------------------------------------------------------------------------------------------------------
Deferred:
Federal (8,642) (284) (2,865) 5,836
State and local (1,211) 509 403 572
- -----------------------------------------------------------------------------------------------------------
Total deferred tax expense (benefit) (9,853) 225 (2,462) 6,408
- -----------------------------------------------------------------------------------------------------------
Total income tax expense $4,252 $29,375 $67,690 $82,031
===========================================================================================================
</TABLE>
The differences between the amounts computed by applying the statutory federal
income tax rate to income before income taxes and the actual income tax expense
allocated to operations for the three months and nine months ended September 30
were:
<TABLE>
<CAPTION>
===========================================================================================================
In thousands Three Months Nine Months
--------------------- -----------------------
1996 1995 1996 1995
<S> <C>
Income before income taxes $41,059 $81,451 $216,649 $235,531
Tax expense at statutory rate 14,370 28,508 75,827 82,436
- -----------------------------------------------------------------------------------------------------------
Increase (decrease) in taxes resulting from:
Repeal of thrift bad debt recapture (8,694) - (8,694) -
Tax-exempt interest and dividends (1,674) (1,752) (4,926) (5,617)
Nondeductible interest expense 250 166 594 480
Amortization of goodwill 1,021 929 3,028 2,569
State income taxes (890) 988 1,731 2,972
Other - net (131) 536 130 (809)
- -----------------------------------------------------------------------------------------------------------
Total increase (decrease) in taxes (10,118) 867 (8,137) (405)
- -----------------------------------------------------------------------------------------------------------
Total income tax expense $ 4,252 $29,375 $67,690 $82,031
- -----------------------------------------------------------------------------------------------------------
Effective tax rate 10.4% 36.1% 31.2% 34.8%
===========================================================================================================
</TABLE>
During the third quarter of 1996, Crestar recorded a non-recurring $10.6 million
reduction of income tax expense, of which $8.7 million was Federal and $1.9
million was state tax related. This expense reduction arose from the repeal of
the tax provision that previously required thrift institutions to recapture into
taxable income, under certain circumstances, the pre-1988 loan loss allowance.
Crestar had previously recorded such a charge at the time of its merger with
Loyola on December 31, 1995.
The Corporation made income tax payments of $82,657,000 and $53,424,000
during the first nine months of 1996 and 1995, respectively. At September 30,
1996, the Corporation had a net deferred income tax asset of $110,089,000. There
was no valuation allowance relating to the net deferred income tax asset.
Crestar has sufficient taxable income in the available carryback period to
realize all of its deferred income tax assets.
<PAGE>
(11) Commitments And Contingencies
In the normal course of business, there are outstanding commitments, contingent
liabilities and other financial instruments that are not reflected in the
accompanying consolidated financial statements. These include commitments to
extend credit, standby letters of credit, interest rate caps, floors, swaps and
forward contracts.
Legally binding, unfunded commitments to extend credit were $7.4 billion at
September 30, 1996. Standby letters of credit, which are conditional commitments
to extend credit, were $404 million at September 30, 1996.
Recourse obligations on mortgage loans serviced of $1.5 billion at September
30, 1996 include $140 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). Crestar maintained an
allowance included in other liabilities of $306,000 at September 30, 1996 based
on estimates of future losses on this contractual recourse liability. The
remaining notional balance of recourse obligations of $1.4 billion 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. Approximately
$936 million of this notional balance was insured by agencies of the Federal
government or private insurance companies at September 30, 1996.
As hedges against interest rate risk at September 30, 1996, Crestar was
participating in interest rate (fixed receive) swaps with a notional balance of
$1.4 billion, of which $950 million, $250 million and $200 million were used to
convert floating rate commercial, instalment and real estate mortgage loans,
respectively, to fixed rates. Unrealized losses on such swaps were $18.5 million
at September 30, 1996. Crestar also had interest rate cap agreements outstanding
of $1.79 billion, of which $1.55 billion and $200 million were used to hedge the
market value of fixed rate securities available for sale and real estate income
property loans, respectively. The remaining $40 million was used to minimize
interest rate risk associated with rising rates on floating rate money market
deposits. Unrealized gross gains and gross losses on such caps were $1.2 million
and $1.9 million, respectively, at September 30, 1996. Crestar also had interest
rate floor agreements outstanding of $1.0 billion which were used to hedge the
fair value of fixed rate domestic time deposits. Unrealized gross gains and
gross losses on such floors were $569,000 and $567,000, respectively, at
September 30, 1996. As a financial intermediary, Crestar had $123.8 million in
offsetting swap, $73.9 million in offsetting cap and $34 million in offsetting
collar agreements at September 30, 1996.
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 $25.6
million, less collateral held of approximately $2.4 million, plus an amount for
prospective market movement. Three counterparties constituted 14%, 11% and 10%
of the estimated credit and market exposure of $88 million at September 30,
1996.
Crestar had forward agreements of $1.1 billion outstanding at September 30,
1996 which are primarily used to reduce the interest rate risk arising from
changes in market rates from the time residential mortgage lending commitments
are made until those commitments are funded.
Certain litigation is pending against Crestar. Management, after reviewing
this litigation with legal counsel, is of the opinion that such matters, when
resolved, will not have a material effect on the accompanying consolidated
financial statements.
<PAGE>
Financial Commentary
Crestar Financial Corporation And Subsidiaries
Overview
(Tables 1, 2 and 14)
Crestar Financial Corporation (Crestar) reported net income of $36.8 million or
$.86 per common share for the quarter ended September 30, 1996, compared to net
income of $52.1 million or $1.19 per common share earned in the third quarter of
1995. Crestar recorded a nonrecurring after-tax charge of $21.5 million, or $.50
per share, associated with congressional legislation regarding the
recapitalization of the Savings Association Insurance Fund (SAIF) of the Federal
Deposit Insurance Corporation (FDIC). Also during the quarter, Crestar
recognized an after-tax benefit of $10.6 million as a result of the repeal of
tax legislation regarding thrift bad debt recapture rules.
For the first nine months, earnings were $149.0 million in 1996, a decrease
of 3% from the $153.5 million earned in 1995. The decrease reflects the impact
of the above described legislative changes. Exclusive of the nonrecurring items
arising in the third quarter, Crestar's results reflect the continued positive
effects of growth in earning assets and noninterest income, and management of
controllable expenses. For the first nine months of 1996, earnings per common
share were $3.44, compared to $3.51 per share recorded in the first nine months
of 1995. Items affecting the change in earnings per share are given in Table 2.
Each item is net of applicable federal income taxes. On December 31, 1995
Crestar merged with Loyola Capital Corporation (Loyola), a Maryland savings bank
holding company, in a transaction accounted for as a pooling of interests.
Accordingly, historical financial data for periods before the merger, including
the first nine months of 1995, have been restated to include the combined
results of both Crestar and Loyola.
Crestar's subsidiaries provide banking and non-banking services throughout
Virginia, Maryland and Washington, D.C., which compose Crestar's primary market
area. This market is characterized as economically diverse. Crestar's market
area is also characterized by active competition in all principal areas where
the Corporation provides services. In addition to banks, other firms competing
in the market area include savings associations, consumer finance companies,
national credit card companies, securities brokerage firms, credit unions and
mortgage banking companies.
Crestar Bank FSB, the Corporation's thrift banking subsidiary, was merged
into Crestar Bank MD on November 7, 1996. On November 14, Crestar Financial
Corporation expects to merge its three banking subsidiaries (Crestar Bank,
Crestar Bank N.A., and Crestar Bank MD) into one banking subsidiary, named
Crestar Bank, which will carry on the business and operations conducted by the
former thrift and banking subsidiaries.
Mergers And Acquisitions
On September 16, 1996 Crestar announced the signing of a definitive agreement
under which Citizens Bancorp, (Citizens) will merge with Crestar. Citizens is a
$4.2 billion-asset bank holding company headquartered in Laurel, Maryland.
Citizens has 103 banking locations in the Washington-Baltimore metropolitan
area, with a significant presence in Prince Georges and Montgomery Counties. At
September 30, 1996, Citizens had total deposits of $3.0 billion and loan
balances of $2.3 billion. Pending approval by regulatory authorities and the
shareholders of both institutions, the merger is expected to be completed no
later than March 31, 1997, but with a current target date of December 31, 1996.
One-time pre-tax merger costs of approximately $42 million are expected to be
recorded in connection with the merger. Under terms of the agreement, Citizens'
shareholders will receive .835 shares of Crestar common stock for each share of
Citizens common stock, with approximately 12.6 million shares of Crestar common
stock expected to be issued in the merger. The merger is expected to be
accounted for as a pooling-of-interests business combination. Upon merger, the
combined organization will have the largest deposit market share in the Greater
Washington metropolitan area and hold the number two position in the state of
Maryland.
Common stock repurchase plans approved by Crestar's Board of Directors on
July 11, 1996 and by Citizens's Board of Directors on August 8, 1996 were
terminated at the time of the merger announcement.
Profitability Measures And Capital Resources
(Table 1)
Profitability measures for both the third quarter and the first nine months of
1996, in comparison to the same periods in 1995, reflect the impact of the
nonrecurring items recorded in the third quarter of the current year. Return on
average assets was 0.85% in the third quarter and 1.14% the first nine months of
1996, compared to 1.25% and 1.24%, respectively, for 1995. Return on average
equity was 10.42% for the third quarter of 1996, compared to 14.74% for the
<PAGE>
third quarter of 1995. For the first nine months of 1996, return on average
equity was 13.96%, compared to 14.84% for the first nine months of the previous
year.
Average equity to assets of 8.14% for the third quarter of 1996 compared to
8.51% in the third quarter of 1995. Average equity to assets for the first nine
months of 1996 was 8.51%, compared to 8.36% for the same period of 1995.
Period-end equity to assets of 7.85% at September 30, 1996 compared to a
September 30, 1995 ratio of 8.30%.
Risk-based capital ratios are additional measures of capital adequacy. At
September 30, 1996, Crestar's consolidated risk-adjusted capital ratios were
9.0% for Tier 1 and 12.2% for total capital, well above the required minimums of
4.0% and 8.0%, respectively. The Tier 1 leverage ratio of 7.5% at September 30,
1996 also was significantly above the regulatory minimum of 3.0%. Crestar's
tangible leverage ratio, defined as total equity less intangible assets divided
by total assets less intangible assets, was 6.9% at September 30, 1996. Under
Federal Deposit Insurance Corporation (FDIC) rules, each of Crestar's three
subsidiary banks as well as Crestar's savings bank subsidiary were considered
"well-capitalized" as of September 30, 1996, the highest category of
capitalization defined by regulatory authorities, allowing for the lowest level
of FDIC insurance premium payments.
Net Interest Margin And Net Interest Income
(Tables 3 and 15)
Crestar's net interest margin for the third quarter of 1996 was 4.66%, an
improvement of 9 basis points from the margin recorded in the third quarter of
1995. The improvement was due to favorable changes in rates paid on funding
sources, yields on loan and security portfolios, and in interest income arising
from off-balance sheet hedge transactions. These factors served to offset the
impact of unfavorable changes in the composition of earning assets and funding
sources.
Positive influences on the third quarter 1996 margin include favorable
changes in the average rates paid on interest bearing deposits and other sources
of funds. Average rates paid on interest-bearing demand deposits were 2.92%
during the third quarter of 1996, down 30 basis points from the third quarter of
1995. Average rates paid on regular savings deposits also decreased, from 2.72%
in the third quarter of 1995 to 2.51% in the third quarter of 1996. Similarly,
rates paid on domestic time deposits decreased, from 5.34% in the third quarter
of 1995 to 5.08% in the third quarter of 1996. The average rate paid on total
savings and time deposits fell from 4.01% to 3.77% during this time period.
Rates paid on short-term borrowings also declined from the levels of third
quarter 1995, and averaged 5.24% for the third quarter of 1996. Yields on
long-term debt were relatively unchanged. The average rate paid on Crestar's
total sources of funds in the third quarter of 1996 was 3.51%, reflecting a
decline of 21 basis points from the same period of 1995.
Despite the lower interest rate environment in the third quarter of 1996, the
average yield on loan balances outstanding increased from 8.79% in the third
quarter of 1995 to 8.81% in the third quarter of 1996, due primarily to the
higher yields in the bank card loan portfolio. Average rates on bank card loans
increased from 11.29% in the third quarter of 1995 to 12.47% in the third
quarter of 1996, in part due to the expiration of low introductory loan interest
rates on selected bank card accounts. Yields on real estate-income property
loans also increased from third quarter 1995 results, while other loan
categories displayed lower yields.
Lower average yields on securities available for sale, which were 6.32% in
third quarter 1996 versus 6.35% in the same period of 1995, negatively impacted
Crestar's net interest margin. Average yields increased on the much smaller
securities held to maturity portfolio. Yields on money market investments were
5.36% for the third quarter of 1996 versus 6.05% for the third quarter of 1995,
in part reflecting a lower average federal funds rate on overnight deposits. In
total, interest rate spreads had a positive impact of 20 basis points on
Crestar's third quarter 1996 net interest margin, when compared to the third
quarter of 1995.
Changes in the earning asset mix decreased the third quarter 1996 net
interest margin by approximately 8 basis points when compared to the third
quarter of 1995. Loans as a percentage of total earning assets decreased from an
average of 77% during the third quarter of 1995 to 71% for the same period of
1996. Average total loans were $11.2 billion during the third quarter of 1996,
compared to $11.6 billion during the third quarter of 1995. Average bank card
loans experienced a slight decline during the third quarter period. Marketing
efforts directed to new accounts have been curtailed from previous levels, in
<PAGE>
light of higher industry-wide delinquency statistics. Average consumer real
estate loans were down $695 million, or 20%, from third quarter 1995, with
average instalment loan balances increasing by $312 million or 13% during this
period. Reductions in consumer real estate mortgage loans reflect efforts to
rebalance the Corporation's loan portfolio, through selected sales of
residential mortgage loans, following the 1995 acquisitions of three savings and
loan institutions. Average business loans for the third quarter of 1996 reflect
an increase of 3% over the same period of 1995, as growth in Crestar's
commercial loan portfolio offset declines in real estate - income property and
real estate - construction loan balances. Average money market investments
decreased, from $271 million in the third quarter of 1995 to $210 million for
the same quarter of 1996. Significant increases in average balances of mortgage
loans held for sale primarily reflect higher volumes in Crestar's mortgage
banking subsidiary. Average balances in the third quarter of 1996 were $957
million, representing 6% of average total earning assets during this period.
Average balances during the second quarter of 1995 were $485 million.
With regards to funding sources, interest-bearing deposits represented 63% of
total funding sources in the third quarter of 1996, versus 68% of funding
sources in the same period of 1995. Competitive pricing for deposits among
financial institutions, in addition to the impact of selected branch closings
during the last twelve months, resulted in decreases in average balances for
most deposit categories. Average total deposits experienced a decrease of $198
million, or 2%, from the third quarter of 1995. Average balances of short-term
borrowings increased by $457 million during this same time period. When coupled
with the impact of changes to Crestar's earning asset mix, this resulted in a
net 14 basis point decrease in the third quarter 1996 net interest margin,
versus the third quarter of 1995, arising from changes in Crestar's total
balance sheet mix.
Off-balance sheet hedge transactions made a negative impact on net interest
income of $0.2 million during the third quarter of 1996, which was composed of
$0.2 million decrease in interest income and a negligible decrease in interest
expense, based on the underlying asset or liability being hedged. In the third
quarter of 1995 the comparable impact of hedging activity was a decrease to
Crestar's net interest income of $2.2 million, which consisted of a $1.9 million
decrease in interest income and a $0.3 million increase in interest expense. In
comparison to third quarter 1995, such off-balance sheet transactions had a
positive impact of 3 basis points on third quarter 1996's net interest margin,
partially offsetting the unfavorable impact on Crestar's net interest margin of
14 basis points from changes in balance sheet mix. The impact of nonperforming
assets on third quarter 1996's net interest margin, in comparison to the same
period of 1995, was not significant.
The extent to which Crestar will be able to maintain its current,
historically high net interest margin is significantly influenced by the
economic environment in our markets and the economic policy of the Federal
Reserve Board, in addition to competitive market conditions for both loans and
deposits. Competitive pressures, especially with regard to deposit rates, may
lead to decreases in net interest margin in future periods.
As a result of the 9 basis point increase in the net interest margin and a 5%
increase in average earning assets, net interest income for the third quarter of
1996 increased by $11.5 million, or 7% over the third quarter of 1995.
Tax-equivalent net interest income similarly increased by 6% during this period.
For the first nine months, tax equivalent net interest income increased 6% over
1995 as a result of a 3 basis point increase in the net interest margin and a 6%
increase in average earning assets. Changes to the earning assets mix for the
year-to-date period had a unfavorable impact of 4 basis points, while changes to
the funding mix resulted in an 6 basis point negative impact to the year-to-date
margin. Unfavorable interest rate spreads for the comparable nine month period
decreased net interest margin by 7 basis points. Off-balance sheet hedge
transactions had a positive impact on the margin, in comparison to year-to-date
1995 results, of approximately 20 basis points. Off-balance sheet hedge
transactions made a positive contribution to net interest income of $1.6 million
during the first nine months of 1996, which was composed of $1.6 million
increase in interest income and a negligible decrease in interest expense, based
on the underlying asset or liability being hedged. In the first nine months of
1995 the comparable impact of hedging activity was a decrease to Crestar's total
interest income of $5.4 million, which consisted of a $5.0 million decrease in
interest income and a $0.4 million increase in interest expense.
<PAGE>
Risk Exposures And Credit Quality
(Tables 4 - 7)
Crestar's financial condition as of the end of the third quarter of 1996
exhibited strong overall credit quality. The allowance for loan losses was $236
million at September 30, 1996, representing 2.10% of period-end loans, 282% of
period-end nonperforming assets, and a 354% coverage of nonperforming loans.
Based on current expectations relative to portfolio characteristics and
performance measures including loss projections, management considers the level
of the allowance adequate. Under the Corporation's criteria for classification
of nonperforming loans, loans that are both (a) past due 90 days or more and (b)
not deemed nonaccrual due to an assessment of collectibility are specifically
excluded from the definition of nonperforming assets. Accruing loans past due 90
days or more, and excluded from classification as nonperforming assets, totaled
$62.0 million at September 30, 1996, with consumer loans representing 83% of
this balance.
At September 30, 1996, nonperforming assets of $83.7 million were down $5.4
million or 6% from September 30, 1995, and down $9.7 million or 10% from
December 31, 1995. The ratio of nonperforming assets to loans and foreclosed
properties at September 30, 1996 was 0.74%, compared to 0.79% at December 31,
1995 and 0.76% at September 30, 1995.
The provision for loan losses was $23.2 million for the third quarter of
1996, an increase of $8.9 million from the $14.2 million provision expense
recorded in the third quarter of 1995. Provision expense in the second quarter
of 1996 was $22.5 million. Net charge-offs totaled $24.4 million in the third
quarter of 1996, compared to $16.9 million in the comparable period of 1995. Net
charge-offs as a percentage of average loans were 0.87% for the third quarter of
1996, compared to 0.58% in the same period of 1995, and 0.83% for the second
quarter of 1996. Business loans experienced net recoveries of $1.3 million in
the third quarter of 1996, compared to net recoveries of $2.7 million in the
comparable quarter of 1995. Consumer loan net charge-offs totaled $25.8 million
in the third quarter of 1996, compared to net charge-offs of $25.1 million in
the second quarter of 1996 and $19.6 million in the third quarter of 1995.
The largest proportion of net loan charge-offs during the third quarter of
1996, and for the first nine months of 1996, occurred in the bank card loan
portfolio. Net charge-offs for bank card loans were $20.8 million in the third
quarter of 1996, compared to $20.2 million in the second quarter of 1996 and
$14.1 million in 1995's third quarter. Net bank card loan charge-offs as a
percentage of bank card loans (on an annualized basis) were 5.58% in the third
quarter of 1996, 5.23% for the second quarter of 1996, and 3.53% in the third
quarter of 1995. A primary reason for the increase in net bank card loan
charge-offs is consumer bankruptcies relating to the significant growth of
Crestar's bank card portfolio experienced during 1993 through 1995. The
delinquency and loss characteristics of newly underwritten bank card loans
typically do not reach their highest levels until after 24 months from
origination. Crestar's bank card outstandings, which experienced considerable
growth from 1993 through mid-1995, have experienced higher net charge-off levels
as the newer portfolios have "seasoned." In addition, increases in the net bank
card loan charge-off ratio (net bank card loan charge-offs as a percentage of
average bank card loans) reflect (a) an industry-wide trend of adverse payment
performance by credit card holders, (b) increased competition for credit-worthy
bank card customers, and (c) Crestar's restrictions on its marketing programs
pending a reassessment of marketing strategies. Crestar's recent bank card loan
charge-off experience is comparable to current industry-wide averages. Lower net
charge-offs were recorded in the consumer instalment loan portfolio in the third
quarter of 1996 compared to the third quarter of 1995, while residential real
estate net charge-offs increased modestly.
In addition to other loan categories, Crestar closely manages its portfolio
of loans to real estate developers and investors (REDI). As shown in Table 4,
REDI outstanding balances have remained relatively stable and totaled $1.1
billion at September 30, 1996. This balance represented 10% of the total loan
portfolio at that date. At year-end 1995, REDI loan balances constituted 11% of
the total loan portfolio. REDI nonperforming assets were $44.8 million at
September 30, 1996, compared to $50.1 million at December 31, 1995. Table 5
provides the property type and geographic diversification of the current REDI
portfolio.
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.
<PAGE>
Potential problem loans, not included in Table 7, totaled approximately $127
million at September 30, 1996. Over 90% of this balance represents commercial or
real estate-income property related loans. 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 $202 million at June 30, 1996 and $190 million at
September 30, 1995. Fluctuations in potential problem loans balances from
quarter to quarter should be viewed in the context of the size of Crestar's
total loan portfolio, which was $11.2 billion at September 30, 1996.
Noninterest Income And Expense
(Table 8)
Noninterest income totaled $74.7 million in the third quarter of 1996, a $0.3
million decrease from the third quarter period of 1995. During the third quarter
of 1996, Crestar recorded a charge of $5.0 million to accrue for the cost of
closing selected branches as part of the Corporation's strategy of refining its
service delivery systems. Of the total charge of $5.0 million, $4.5 million was
classified as a loss on disposal of branches, resulting in a reduction of
noninterest income. Results for the third quarter of 1995 include a net gain of
$4.7 million on branch closings and sales (including sale of related branch
deposit accounts). Excluding the impact of these two items from third quarter
1996 and 1995 results, and excluding securities gains and losses, third quarter
1996 noninterest income increased $8.7 million or 12% from third quarter 1995
results. This increase reflects growth in most noninterest income categories,
with an especially strong increase in mortgage origination income. Reflecting
increased merchant fee volume, bank card-related fee income increased by $0.8
million, or 6%, in comparison to the third quarter of 1995. Trust and investment
advisory income increased 9% from third quarter 1995 levels, while service
charges on deposit accounts increased 4% in comparison to the third quarter of
1995. Mortgage origination income for the third quarter of 1996 totaled $6.0
million, or $2.5 million higher than the results reported in the third quarter
of 1995. These results for the third quarter of 1996 reflect a higher level of
mortgage originations, and increased gains recorded on the sale of mortgage
loans held for sale. Mortgage servicing income increased 4% during the quarter.
During the third quarter of 1996, Crestar recorded a gain of $1.9 million
arising from the sale of selected residential mortgage loans from the
Corporation's consumer loan portfolio. For the nine months ended September 30,
1996, gains on sale of loans amounted to a total of $6.5 million, versus $1.1
million in the comparable period of 1995. These gains are classified as
miscellaneous noninterest income in Table 8, as are gains and losses on branch
closings and sales.
Noninterest expense increased $42.6 million, or 29%, in the third quarter of
1996 when compared to the same period of 1995. Most of this increase is
attributable to the $34.1 million pre-tax ($21.5 million after-tax) charge for a
non-recurring assessment on the Corporation's SAIF insured deposits. The
assessment is included in net FDIC premium expense, in Table 8, for the third
quarter of 1996. Excluding the SAIF assessment, noninterest expense increased 7%
in the third quarter of 1996, versus the third quarter of 1995. Total personnel
costs, Crestar's largest expense category, were $87.8 million in the three month
period ended September 30, 1996, an increase of 7% in comparison to the same
period of 1995. A significant portion of this increase is to due higher
commission levels arising from significant growth in mortgage origination
revenue. Management continues to emphasize prudent control of noninterest
expenses and assimilation of acquisitions in a cost-effective manner.
Foreclosed properties expense for the quarter ended September 30, 1996 was
$838 thousand, compared to an expense of $707 thousand in the quarter ended
September 30, 1995. For the nine month period ended September 30, 1996,
foreclosed properties expense was a net recovery of $203 thousand, compared to a
net recovery of $835 thousand for the first nine months of 1995. The net
recoveries are primarily a result of gains recorded from sales of properties
exceeding foreclosed property operating expenses during the periods presented.
The effective tax rate for third quarter and first nine months of 1996 was
10.4% and 31.2%, respectively, compared to 36.1% and 34.8% for the comparable
periods of 1995. During the third quarter of 1996, Crestar recorded a
non-recurring $10.6 million reduction of income tax expense. This reduction of
expense arose from the repeal of the tax law that previously required, under
certain circumstances, thrift institutions to recapture into taxable income the
pre-1988 loan loss allowance. Crestar had recorded the charge at the time of
<PAGE>
the merger with Loyola Capital Corporation on December 31, 1995. Excluding the
impact of the repealed tax legislation, the effective income tax rate was 36.1%
for the third quarter of 1996, and 36.1% for the first nine months of 1996.
Other fluctuations in Crestar's effective tax rates for the nine months ended
September 30, 1996, compared to the same period of 1995, were caused by reduced
proportions of tax-exempt interest and dividends, increased provisions for state
income taxes and higher levels of nondeductible goodwill in 1996 versus the same
periods of 1995. Financial statement note 10 contains additional information
concerning income taxes.
Financial Condition
(Table 9)
Crestar's assets totaled $18.3 billion at September 30, 1996, compared to $18.3
billion in assets at December 31, 1995, and $17.3 billion at September 30, 1995.
The increase from September 30, 1995 is primarily due to an increase in the
Corporation's holdings of securities available for sale, and in certificates of
deposit of $100,000 and over. Loans totaled $11.2 billion at September 30, 1996,
compared to $11.8 billion at year-end 1995. Total deposits were $13.6 billion at
September 30, 1996 compared to $13.3 billion at December 31, 1995. Excluding
certificates of deposit of $100,000 and over, deposits were down by 5% from
year-end 1995. The consolidation of certain branches acquired in the December
31, 1995 merger with Loyola has been a factor in declines in some deposit
balances.
In the fourth quarter of 1995, Crestar transferred 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 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.
With respect to the securities held to maturity portfolio, market value exceeded
the carrying value at September 30, 1996 by $1.3 million, consisting of $1.6
million in unrealized gains and $0.3 million in unrealized losses. At September
30, 1996, the amortized cost of securities available for sale exceeded the fair
value of such securities by $62.8 million, consisting of $4.7 million in
unrealized gains and $67.5 million in unrealized losses. Shareholders' equity at
September 30, 1996 reflects a $40.4 million reduction for the excess, net of
tax, of amortized cost of securities available for sale over the fair value at
quarter-end, compared to an increase of $11.1 million at December 31, 1995
arising from net unrealized gains on securities available for sale. At September
30, 1995, Crestar's shareholders' equity reflected a $2.6 million reduction for
the excess, net of tax, of amortized cost of securities available for sale over
fair value. The net unrealized gain or loss on securities available for sale,
which is recorded as a component of shareholders' equity, will continue to be
subject to change in future periods due to fluctuations in market value,
acquisition activities, and purchases, sales, maturities and calls of securities
classified as available for sale. Net unrealized losses in the securities
available for sale portfolio primarily reflect ongoing interest rate volatility,
which is inherent in the securities marketplace. Based on current market
conditions, net unrealized losses on securities are not expected to have a
significant impact on the future operating results or liquidity of Crestar.
All mortgage-backed securities in the securities available for sale and
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.
All investment securities, including mortgage backed pass-through securities,
collateralized mortgage obligation (CMO) securities, and securitized credit card
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 or receivable payment where applicable, in
addition to the contractual obligation of the issuer to collect and remit such
payments to the individual security owners. The Corporation monitors credit risk
by assessing, and monitoring on an ongoing basis, the financial strength and
<PAGE>
performance of the issuers of such securities. The "Other taxable securities"
classification of Crestar's securities available for sale portfolio (see
footnote 3 to the consolidated financial statements) at September 30, 1996 is
primarily composed of CMO securities with a fair value of approximately $257
million, and pass-through securities backed by credit card receivables of
approximately $74 million (fair value).
During the third quarter of 1996, Crestar sold approximately $1.5 billion of
securities classified as available for sale, generating securities gains of $97
thousand. Such sales were consummated in conjunction with the overall management
of interest rate risk for the Corporation.
During the third quarter of this year, Crestar purchased and retired 531,500
shares of common stock, and has purchased and retired 1.5 million shares of
common stock during the first nine months of 1996. Purchases during the third
quarter of 1996 were made at an average price of $56.54 per common share. On
July 11, 1996 Crestar's Board of Directors approved the purchase on the open
market of up to 3.4 million shares of the Corporation's outstanding common
stock. A total of 492,000 common shares were repurchased under this
authorization in the third quarter of 1996, before the recission of the July
1996 repurchase plan by the Board on September 16, 1996. The Board decision
to rescind was based upon a coterminous decision to vote to merge with
Citizens Bancorp in a transaction to be accounted for as a pooling of
interests business combination. Also during the third quarter, 39,500 common
shares were repurchased under an April 1996 Board authorization, which approved
the repurchase of up to 1.0 million common shares to meet the recurring needs of
Crestar's dividend reinvestment plan, thrift and profit sharing plan and other
employee benefit plans. As of September 30, 1996 Crestar had a remaining
authorization to purchase and retire up to 515,000 shares of common stock, which
represented the remaining April 1996 Board authorization.
Liquidity And Interest Sensitivity
(Tables 10 - 13)
Bank liquidity is a measure of the ability to generate and maintain sufficient
cash flows to fund operations and to meet financial obligations to depositors
and borrowers promptly and in a cost-effective manner. Liquidity is provided
through securities available for sale, money market investments, maturing loans
and securities, and the ability to generate new deposits or borrowings as
needed. Crestar's liquidity position is actively managed on a daily basis, and
monitored regularly by the Asset/Liability Management Committee (ALCO). ALCO's
overall objective is to optimize net interest income after giving consideration
to capital adequacy, liquidity needs, interest rate risk, the economic outlook,
market opportunities and customer needs. General strategies to accomplish these
objectives include maintaining a strong balance sheet, maintaining adequate core
deposit levels, taking an acceptable level of 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 60% of total funding sources at
September 30, 1996, compared to 64% of total funding sources at September 30,
1995. As an additional indication of adequate liquidity, securities available
for sale represented 21%, and money market investments represented 5%, of
Crestar's total earning assets at September 30, 1996.
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 limits on the net interest income at risk for the
current planning period, generally either the current calendar year or the
remainder of the current year plus the next calendar year. The level of exposure
taken is based on an assessment of the market environment, and will vary from
period to period.
The primary tool used by ALCO in assessing interest rate exposure is net
interest income simulations. The committee establishes limits on net interest
income at risk for a relevant planning period of 9 to 24 months. A net interest
income forecast is prepared regularly based on a consensus interest rate
forecast, in addition to numerous high and low interest rate scenarios of up to
and including 300 basis points from current interest rates. The time period
evaluated is linked to the current planning horizon. The various 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 assumed 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
<PAGE>
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.
Based on the most recent simulations as of September 30, 1996, Crestar's
projected net interest income under the consensus interest rate scenario for
1997 would decrease by approximately 5% in a high rate scenario, and would
decrease by approximately 1% in a low interest rate scenario. These projections
were well within Crestar's tolerance for interest rate risk, 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 all expected future cash flows. Assets and liabilities with option
characteristics are valued based on numerous interest rate path valuations using
mathematical rate simulation techniques. 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 simulation. The
Corporation's measurement and interpretation process for market valuation models
continues to be in a developmental stage.
Another interest rate risk tool used by Crestar is the interest rate "gap",
or mismatch in repricing between interest-sensitive assets and liabilities,
which provides a general indication of interest sensitivity at a specific point
in time. A gap schedule is shown in Table 10, and reflects the earlier of the
maturity or repricing dates for various assets and liabilities at September 30,
1996. At that point in time, Crestar had a cumulative net liability sensitive
twelve-month gap with $3.7 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.
In addition to the traditional gap measurement presentation, Table 10 also
presents interest sensitivity on an adjusted basis. The first of these
adjustments is made through the use of beta factors, which are based on a ratio
of actual changes in consumer deposit rates to changes in the prime rate during
interest rate cycles for the last several years. Essentially, the beta factors
recognize that certain consumer deposit rates are less interest-sensitive than
market-based rates such as commercial paper. In addition to a beta adjustment,
the table also incorporates an adjustment to reflect the sensitivity of the
Corporation's commercial demand deposit balances to the level of interest rates.
This adjustment, based on historical trends and estimated as a percentage of
commercial interest bearing demand deposits, reflects a greater sensitivity on
the part of commercial demand deposits to fluctuating interest rates, than
experienced with consumer deposits. On a cumulative twelve-month basis, Crestar
had a liability sensitive "adjusted gap" at September 30, 1996, with $737
million excess of interest-sensitive sources of funds over uses of funds. In
comparison, the level of total earning assets at September 30, 1996 was $16.5
billion. The static gap and adjusted gap do not include $1.55 billion (notional
amount) of interest rate caps to potentially offset the effect of rising
interest rates on the securities available for sale portfolio, and $0.2 billion
(notional amount) of interest rate caps to potentially offset the effect of
rising interest rates on the value of fixed rate real estate-income property
loans. In addition, the static gap and adjusted gap do not include $1.0 billion
(notional amount) of interest rate floors to potentially offset the effect of
falling interest rates on the fair value of fixed rate domestic time deposits.
Each of the above three tools used to assess interest rate risk have
strengths and weaknesses. While Crestar believes that the above methodologies
provide a meaningful representation of the Corporation's interest rate
sensitivity, the methodologies do not necessarily take into account all business
developments which can have an impact on net interest income, such as changes in
credit quality or changes in the amount and composition of earning assets and
sources of funds.
As noted, Crestar incurs a degree of interest rate risk as a provider of
banking services to its customers. This risk can be reduced through derivative
interest rate contracts, such as interest rate swaps, caps and floors. Crestar's
<PAGE>
outstanding interest rate swap instruments at September 30, 1996 are utilized to
convert certain variable rate assets to fixed rates as part of the Corporation's
interest risk management strategy. Interest rate caps are utilized to minimize
interest rate risk associated with rising rates on both fixed rate securities
and floating rate money market deposits. Interest rate floors are utilized to
minimize interest rate risk associated with falling rates on fixed rate domestic
time deposits. Because financial derivatives typically do not have actual
principal dollars transferred between parties, notional principal amounts are
used to express the volume of such transactions. However, the notional amount of
derivative contracts does not represent direct credit exposure, which the
Corporation believes is a combination of current replacement cost of those
instruments with a positive market value plus an amount for prospective market
movement. Crestar has established policies governing derivative activities, and
the counterparties used by Crestar are considered high quality credits. In
addition, Crestar may demand collateral from a counterparty to further minimize
credit risk. There were no past due amounts or reserves for possible derivative
credit losses at September 30, 1996, nor has Crestar ever experienced any
charge-offs related to the credit risk of derivative transactions.
The notional amount of Crestar's interest rate swaps, caps and floors
(excluding customer positions where Crestar acts as an intermediary) was $4.2
billion at September 30, 1996. Forward contracts with a notional amount of $1.1
billion, utilized to hedge lending commitments of Crestar's mortgage banking
subsidiary, were also outstanding at September 30, 1996, bringing the total
notional value of derivative financial instruments related to interest rate risk
management activities to $5.2 billion at September 30, 1996. Tables 11, 12, and
13 present information regarding fair values, maturity, average rates, and
activity as of and for the nine month period ending September 30, 1996 for these
off-balance sheet derivative instruments. Net unrealized losses on these
instruments totaled $28.4 million as of September 30, 1996. Financial statement
note 11 contains additional information pertaining to these types of agreements.
New Accounting Standards
During the second quarter the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 125, "Accounting for Transfers
and Servicing of Financial Assets and Extinguishments of Liabilities" (SFAS
125). SFAS 125 is effective for transfers and servicing of financial assets and
extinguishments of liabilities occurring after December 31, 1996, and is to be
applied prospectively. The statement provides accounting and reporting standards
for transfers and servicing of financial assets and extinguishments of
liabilities. The standards are based on consistent application of a
financial-components approach that focuses on control. After a transfer of
financial assets, an entity recognizes the financial and servicing assets it
controls and the liabilities it has incurred, derecognizes financial assets when
control has been surrendered, and derecognizes liabilities when extinguished.
The statement provides consistent standards for distinguishing transfers of
financial assets that are sales from transfers that are secured borrowings. At
present, Crestar is assessing the impact of adoption of this new standand.
<PAGE>
Table 1 Financial Highlights
<TABLE>
<CAPTION>
Dollars in millions, except per share data Three Months Nine Months
% %
For the Period Ended September 30 1996 1995 Change 1996 1995 Change
<S> <C>
Net Income $36.8 $52.1 (29) $149.0 $153.5 (3)
Dividends Declared on Common Stock 21.9 18.9 16 63.8 53.3 20
Per Common Share:
Net Income $ .86 $1.19 (28) $ 3.44 $ 3.51 (2)
Dividends Declared .52 .45 16 1.49 1.30 15
Average Shares Outstanding (000s) 42,916 43,686 (2) 43,282 43,702 (1)
===========================================================================================================
Key Ratios
Return on Average Assets .85% 1.25% 1.14% 1.24%
Return on Average Equity 10.42 14.74 13.96 14.84
Average Equity to Average Assets 8.14 8.51 8.15 8.36
Net Interest Margin 4.66 4.57 4.65 4.62
At September 30
Book Value Per Share $33.84 $33.47 1
Equity to Assets 7.85% 8.30%
Risk Adjusted Capital Ratios:
Tier I 9.0 9.2
Total 12.2 12.6
Common Shares Outstanding (000s) 42,350 42,906
===========================================================================================================
</TABLE>
Table 2 Analysis Of Earnings Per Common Share
<TABLE>
<CAPTION>
3rd Qtr. 1996 3rd Qtr. 1996
vs. vs.
3rd Qtr. 1995 2nd Qtr. 1996
<S> <C>
Earnings Per Common Share - prior period $1.19 $1.31
- -----------------------------------------------------------------------------------------------------------
Interest income .14 (.09)
Interest expense .03 .03
Provision for loan losses (.13) (.01)
Other noninterest income (.01) (.17)
Foreclosed properties expense - (.01)
SAIF assessment(1) (.50) (.50)
Other noninterest expense (.13) .04
Income taxes .25 .25
Decreased shares outstanding .02 .01
- -----------------------------------------------------------------------------------------------------------
Net increase (.33) (.45)
- -----------------------------------------------------------------------------------------------------------
Earnings Per Common Share - current period $ .86 $ .86
===========================================================================================================
</TABLE>
(1) During the third quarter of 1996 Crestar recorded a one-time after-tax
charge of $21.5 million, or $.50 per share associated with congressional
legislation regarding the recapitalization of the Savings Association
Insurance Fund (SAIF).
<PAGE>
Table 3 Average Balances, Net Interest Income And Rate/Volume Analysis(1)
<TABLE>
<CAPTION>
Dollars in thousands
2nd Qtr.
3rd Qtr. Average
Average Balance Increase Balance
1996 1995 (Decrease) 1996
$ $ % $
<S> <C>
3,084,870 2,914,375 6 3,111,723 Commercial
898,370 921,335 (2) 898,461 Real estate - income property
230,157 265,137 (13) 245,620 Real estate - construction
2,736,200 2,424,481 13 2,743,503 Instalment
1,492,550 1,590,871 (6) 1,547,704 Bank card
2,773,341 3,467,947 (20) 2,945,326 Real estate - mortgage
- -------------------------------------------------------------------------------------------------------------------------------
11,215,488 11,584,146 (3) 11,492,337 Total loans - net of unearned income(2)
- -------------------------------------------------------------------------------------------------------------------------------
71,162 1,095,763 (94) 79,479 Securities held to maturity
3,367,969 1,597,599 111 3,275,398 Securities available for sale
210,087 271,073 (22) 298,163 Money market investments
957,035 484,852 97 863,544 Mortgage loans held for sale
- -------------------------------------------------------------------------------------------------------------------------------
15,821,741 15,033,433 5 16,008,921 Total earning assets
===============================================================================================================================
4,907,229 4,777,574 3 4,949,910 Interest-bearing demand deposits
1,264,078 1,374,628 (8) 1,291,885 Regular savings deposits
3,853,797 4,070,890 (5) 3,979,103 Domestic time deposits
- -------------------------------------------------------------------------------------------------------------------------------
10,025,104 10,223,092 (2) 10,220,898 Total interest-bearing core deposits
- -------------------------------------------------------------------------------------------------------------------------------
2,584,443 1,778,955 45 2,670,882 Purchased liabilities
676,147 692,134 (2) 698,996 Long-term debt
- -------------------------------------------------------------------------------------------------------------------------------
13,285,694 12,694,181 5 13,590,776 Total interest-bearing liabilities
2,536,047 2,339,252 8 2,418,145 Other sources - net
- -------------------------------------------------------------------------------------------------------------------------------
15,821,741 15,033,433 5 16,008,921 Total sources of funds
- -------------------------------------------------------------------------------------------------------------------------------
Net Interest Income
===============================================================================================================================
</TABLE>
(1) Tax-equivalent basis.
(2) Nonaccrual loans are included in the average loan balances and income on
such loans is recognized on a cash basis.
(3) Includes tax-equivalent net loan fees of $1.3 million and $622,000 for the
third quarter of 1996 and 1995, respectively, and $1.0 million for the
second quarter of 1996.
<PAGE>
<TABLE>
<CAPTION>
3rd Qtr.
1996 vs. 1995 2nd Qtr.
Income/Expense(3) Increase Change due to(4) Income/Expense(3)
1996 1995 (Decrease) Rate(5) Volume 1996
$ $ $ $ $ $
<S> <C>
Commercial 61,932 60,260 1,672 (1,879) 3,551 62,367
Real estate - income property 19,835 19,857 (22) 472 (494) 19,754
Real estate - construction 5,717 6,888 (1,171) (264) (907) 5,913
Instalment 60,073 55,989 4,084 (3,042) 7,126 61,327
Bank card 45,654 44,811 843 3,620 (2,777) 47,308
Real estate - mortgage 53,289 67,805 (14,516) (957) (13,559) 57,309
- ---------------------------------------------------------------------------------------------------------------------------------
Total loans - net of unearned income(2) 246,500 255,610 (9,110) (981) (8,129) 253,978
- ---------------------------------------------------------------------------------------------------------------------------------
Securities held to maturity 1,620 17,767 (16,147) 1,337 (17,484) 1,795
Securities available for sale 53,094 26,684 26,410 (2,127) 28,537 52,513
Money market investments 2,833 4,136 (1,303) (372) (931) 3,932
Mortgage loans held for sale 18,494 8,799 9,695 1,040 8,655 16,152
- ---------------------------------------------------------------------------------------------------------------------------------
Total earning assets 322,541 312,996 9,545 (6,863) 16,408 328,370
=================================================================================================================================
Interest-bearing demand deposits 35,979 38,809 (2,830) (4,327) 1,497 35,440
Regular savings deposits 7,977 9,420 (1,443) (685) (758) 8,145
Domestic time deposits 48,889 54,507 (5,618) (2,719) (2,899) 51,126
- ---------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing core deposits 92,845 102,736 (9,891) (7,894) (1,997) 94,711
- ---------------------------------------------------------------------------------------------------------------------------------
Purchased liabilities 34,243 25,270 8,973 (2,463) 11,436 34,213
Long-term debt 12,238 12,515 (277) 12 (289) 12,475
- ---------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities 139,326 140,521 (1,195) (7,760) 6,565 141,399
Other sources - net
- ---------------------------------------------------------------------------------------------------------------------------------
Total sources of funds 139,326 140,521 (1,195) (8,583) 7,388 141,399
- ---------------------------------------------------------------------------------------------------------------------------------
Net Interest Income 183,215 172,475 10,740 1,720 9,020 186,971
=================================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
3rd Qtr. 1996 vs. 2nd Qtr. 1996
Increase Change due to(4)
(Decrease) Rate(5) Volume
$ $ $
<S> <C>
Commercial (435) 103 (538)
Real estate - income property 81 83 (2)
Real estate - construction (196) 176 (372)
Instalment (1,254) (1,091) (163)
Bank card (1,654) 84 (1,738)
Real estate - mortgage (4,020) (687) (3,333)
- ------------------------------------------------------------------------------------------
Total loans - net of unearned income(2) (7,478) (1,335) (6,143)
- ------------------------------------------------------------------------------------------
Securities held to maturity (175) 13 (188)
Securities available for sale 581 (903) 1,484
Money market investments (1,099) 63 (1,162)
Mortgage loans held for sale 2,342 591 1,751
- ------------------------------------------------------------------------------------------
Total earning assets (5,829) (1,977) (3,852)
==========================================================================================
Interest-bearing demand deposits 539 734 (195)
Regular savings deposits (168) 7 (175)
Domestic time deposits (2,237) (625) (1,612)
- ------------------------------------------------------------------------------------------
Total interest-bearing core deposits (1,866) (43) (1,823)
- ------------------------------------------------------------------------------------------
Purchased liabilities 30 1,135 (1,105)
Long-term debt (237) 171 (408)
- ------------------------------------------------------------------------------------------
Total interest-bearing liabilities (2,073) 1,110 (3,183)
Other sources - net
- ------------------------------------------------------------------------------------------
Total sources of funds (2,073) (415) (1,658)
- ------------------------------------------------------------------------------------------
Net Interest Income (3,756) (1,562) (2,194)
==========================================================================================
</TABLE>
(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.
<PAGE>
Table 4 Loans To Real Estate Developers And Investors (REDI)
<TABLE>
<CAPTION>
In millions September 30,
June 30, December 31,
1996 1995 1996 1995
<S> <C>
Commercial - developer lines $ 101.8 $ 69.1 $ 134.2 $ 105.2
Commercial - other 0.7 57.0 47.4 51.5
Real estate - income property 886.0 917.6 883.6 910.2
Real estate - construction 153.2 212.6 166.1 182.7
- -----------------------------------------------------------------------------------------------------------
Total REDI loans $1,141.7 $1,256.3 $1,231.3 $1,249.6
===========================================================================================================
</TABLE>
Table 5 Loans To Real Estate Developers And Investors--
Geographic Distribution And Property Type
September 30, 1996
<TABLE>
<CAPTION>
Region
In millions
Total Greater
Corporation Washington Maryland Eastern Western Capital
<S> <C>
Land acquisition and development $ 84.2 $ 38.2 $ 16.9 $ 22.5 $ 2.7 $ 3.9
Residential developments 284.3 102.3 71.8 64.5 28.2 17.5
Commercial projects:
Office buildings 174.6 75.9 55.2 24.5 6.5 12.5
Retail stores and malls 226.1 136.0 38.8 25.8 10.4 15.1
Hotels and motels 110.0 37.4 12.5 32.7 14.4 13.0
Industrial buildings 115.5 63.0 21.1 12.9 5.4 13.1
- -----------------------------------------------------------------------------------------------------------
Total commercial projects 626.2 312.3 127.6 95.9 36.7 53.7
- -----------------------------------------------------------------------------------------------------------
Special use 61.1 14.4 22.8 17.6 5.3 1.0
Other 85.9 46.3 8.0 12.4 4.3 14.9
- -----------------------------------------------------------------------------------------------------------
Total REDI loans $1,141.7 $513.5 $247.1 $212.9 $77.2 $91.0
- -----------------------------------------------------------------------------------------------------------
Table 6 Allowance For Loan Losses
</TABLE>
<TABLE>
<CAPTION>
Dollars in thousands Third Quarter Nine Months Ended Sept. 30,
1996 1995 1996 1995
<S> <C>
Beginning balance $237,020 $237,717 $240,285 $232,922
- -----------------------------------------------------------------------------------------------------------
Allowance from acquisitions and other activity - net - (100) (888) 5,356
Provision for loan losses 23,170 14,231 65,970 38,268
- -----------------------------------------------------------------------------------------------------------
Net charge-offs (recoveries):
Commercial (1,188) (180) (1,450) 238
Real estate - income property (252) (1,511) (2,563) (1,225)
Real estate - construction 128 (990) (582) (1,956)
Instalment 4,477 5,430 13,680 7,523
Bank card 20,810 14,052 59,011 36,212
Real estate - mortgage 468 87 1,524 794
- -----------------------------------------------------------------------------------------------------------
Total net charge-offs 24,443 16,888 69,620 41,586
- -----------------------------------------------------------------------------------------------------------
Balance, June 30 $235,747 $234,960 $235,747 $234,960
===========================================================================================================
Allowance for loan losses to period-end loans 2.10% 2.00% 2.10% 2.00%
Annualized net charge-offs to average loans .87 .58 .81 .48
===========================================================================================================
</TABLE>
<PAGE>
Table 7 Nonperforming Assets(1) And Past Due Loans
<TABLE>
<CAPTION>
Dollars in thousands
September 30, December 31,
1996 1995 1995
<S> <C>
Nonaccrual loans:
Commercial $13,926 $22,540 $21,731
Real estate - income property 15,513 21,050 23,913
Real estate - construction 11,441 5,963 4,712
Instalment 2,153 5,666 5,425
Real estate - mortgage 23,593 12,278 19,925
- -----------------------------------------------------------------------------------------------------------
Total nonaccrual loans 66,626 67,497 75,706
Restructured loans - 1,455 -
- -----------------------------------------------------------------------------------------------------------
Total nonperforming loans(1) 66,626 68,952 75,706
Foreclosed properties - net 17,030 20,100 17,655
- -----------------------------------------------------------------------------------------------------------
Total nonperforming assets(1) $83,656 $89,052 $93,361
===========================================================================================================
Nonperforming assets1 to:
Loans and foreclosed properties - net .74% .76% .79%
Total assets .46 .51 .51
Allowance for loan losses to:
Nonperforming assets1 282 264 257
Nonperforming loans1 354 341 317
Allowance for loan losses plus shareholders'
equity to nonperforming assets(1) 19.95x 18.77x 18.12x
============================================================================================================
Accruing loans past due 90 days:
Commercial $8,981 $1,460 $ 5,992
Real estate - income property 1,710 991 19
Real estate - construction - 306 926
Instalment
Student 16,717 8,812 9,101
Other 5,603 2,962 3,448
Bank card 23,695 16,654 20,430
Real estate - mortgage 5,326 10,530 10,304
- -----------------------------------------------------------------------------------------------------------
Total accruing loans past due 90 days $62,032 $41,715 $50,220
===========================================================================================================
</TABLE>
(1) Loans which are both past due 90 days or more and not deemed nonaccrual due
to an assessment of collectibility are specifically excluded from the definition
of nonperforming.
<PAGE>
Table 8 Summary Of Noninterest Income And Expense
<TABLE>
<CAPTION>
In thousands Second Nine Months Ended
Third Quarter Quarter September 30,
Noninterest Income 1996 1995 1996 1996 1995
<S> <C>
Service charges on deposit accounts $ 24,107 $ 23,203 $ 23,191 $ 68,908 $ 67,236
Trust and investment advisory 16,462 15,064 15,517 47,541 42,802
Bank card-related 12,926 12,138 12,561 36,501 35,192
Mortgage origination - net 5,955 3,471 9,958 21,567 6,291
Mortgage servicing - net 3,842 3,709 4,019 12,320 11,792
Commissions on letters of credit 1,301 1,263 1,068 3,839 3,787
Trading account activities 694 416 994 1,740 1,697
Gain on sale of mortgage servicing rights - - 750 4,750 5,900
Gain on pension settlement - - - - 4,340
Miscellaneous 9,285 15,780 17,732 40,876 38,833
Securities gains (losses) 97 (69) 288 2,740 (3,529)
- ------------------------------------------------------------------------------------------------------------
Total noninterest income $ 74,669 $ 74,975 $ 86,078 $240,782 $214,341
============================================================================================================
Noninterest Expense
Salaries $ 69,787 66,032 69,944 $206,107 $198,615
Benefits 18,006 16,236 17,304 53,165 49,186
- ------------------------------------------------------------------------------------------------------------
Total personnel 87,793 82,268 87,248 259,272 247,801
Occupancy - net 11,985 11,885 11,927 36,666 35,845
Equipment 7,611 7,748 7,679 22,988 23,422
Communications 8,539 7,476 8,572 25,263 22,694
Professional fees and services 5,597 4,118 5,120 14,941 11,259
Advertising and marketing 4,773 3,972 5,160 15,123 13,294
Outside data services 5,629 5,831 6,003 17,356 17,672
Loan expense 2,810 2,155 3,436 8,514 6,075
FDIC premiums - net 37,375 2,893 3,310 44,063 17,584
Stationery, printing and supplies 2,097 1,936 2,524 6,907 6,681
Transportation 1,609 1,636 1,613 4,791 4,990
Amortization of purchased intangibles 4,185 3,600 4,015 12,247 10,177
Miscellaneous 10,339 12,345 12,131 34,499 33,908
- ------------------------------------------------------------------------------------------------------------
Subtotal 190,342 147,863 158,738 502,630 451,402
Foreclosed properties (net recoveries) 838 707 304 (203) (835)
- ------------------------------------------------------------------------------------------------------------
Total noninterest expense $191,180 $148,570 $159,042 $502,427 $450,567
============================================================================================================
</TABLE>
Table 9 Debt Ratings
(as of October 29, 1996)
<TABLE>
<CAPTION> Standard Thomson
Security Moody's & Poor's BankWatch
<S> <C>
8 3/4% Subordinated Notes due 2004 Baa1 BBB+ A-
8 1/4% Subordinated Notes due 2002 Baa1 BBB+ A-
8 5/8% Subordinated Notes due 1998 Baa1 BBB+ A-
Commercial Paper P-2 Not rated TBW-1
Crestar Bank Deposit Notes:
Long-Term A2 A Not rated
Short-Term P-1 A-1 TBW-1
===========================================================================================================
</TABLE>
<PAGE>
Table 10 Interest Sensitivity Analysis
September 30, 1996
<TABLE>
<CAPTION>
In millions Maturity/Rate Sensitivity
0-3 3-6 6-12 One to Over
Uses Of Funds months months months five years five years Total
<S> <C>
Loans:
Commercial $2,216.1 $ 68.5 $ 93.6 $ 80.5 $ 718.7 $ 3,177.4
Real estate - income property 470.8 9.1 14.0 28.8 367.0 889.7
Real estate - construction 192.5 2.7 .6 2.0 29.7 227.5
Instalment 1,150.8 127.6 178.5 264.8 998.2 2,719.9
Bank card 447.7 161.2 247.8 440.4 153.2 1,450.3
Real estate - mortgage 140.5 271.4 371.7 668.9 1,319.7 2,772.2
Securities held to maturity 2.9 1.0 2.3 3.9 59.7 69.8
Securities available for sale 414.0 147.0 67.6 132.2 2,759.9 3,520.7
Money market investments 737.0 4.9 .1 - - 742.0
Mortgage loans held for sale 909.6 - - - - 909.6
- ------------------------------------------------------------------------------------------------------------
Total earning assets 6,681.9 793.4 976.2 1,621.5 6,406.1 16,479.1
Interest sensitivity hedges on assets (450.0) (950.0) - - 1,400.0 -
- ------------------------------------------------------------------------------------------------------------
Total uses $6,231.9 $ (156.6) $ 976.2 $1,621.5 $7,806.1 $16,479.1
============================================================================================================
Sources of Funds
Interest-bearing demand deposits $4,833.0 $ - $ - $ - $ - $ 4,833.0
Regular savings deposits 1,232.2 - - - - 1,232.2
Domestic time deposits 281.8 383.0 842.4 1,149.9 1,156.7 3,813.8
Certificates of deposit $100,000
and over 82.0 1,005.5 38.2 15.2 3.4 1,144.3
Short-term borrowings 1,968.4 112.5 2.2 - - 2,083.1
Long-term debt 11.7 18.0 19.4 30.7 588.7 668.5
- ------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities 8,409.1 1,519.0 902.2 1,195.8 1,748.8 13,774.9
Other sources - net - - - - 2,704.2 2,704.2
Interest sensitivity hedges on liabilities - (40.0) - - 40.0 -
- ------------------------------------------------------------------------------------------------------------
Total sources $8,409.1 $1,479.0 $ 902.2 $1,195.8 $4,493.0 $16,479.1
============================================================================================================
Cumulative maturity/rate
sensitivity gap $(2,177.2) $(3,812.8) $(3,738.8) $(3,313.1) $ - $ -
============================================================================================================
Adjustments
Beta adjustments:
Interest-bearing demand deposits
(beta factor .40) $2,907.2
Regular savings (beta factor .13) 1,073.5
Demand deposit sensitivity (979.1)
- ------------------------------------------------------------------------------------------------------------
Cumulative adjusted maturity/rate
sensitivity gap $ 824.4 $ (811.2) $ (737.2) $ (311.5) $ - $ -
============================================================================================================
</TABLE>
<PAGE>
Table 11 Off-Balance Sheet Derivative Financial Instruments (1)
<TABLE>
<CAPTION>
September 30, 1996 Average
Dollars in thousands Weighted Fixed Estimated
Notional Average Receive Fair
Balance Maturity Rate Value Comments
<S> <C>
Interest Rate Conversions
Generic interest rate swaps $1,400,000 2.9 yrs. 5.87% Notional amounts of $950
Carrying amount (2) $150 million, $250 million and
Commercial loan program $200 million convert floating
Unrealized losses (13,495) rate commercial, instalment
Instalment loan program and real estate mortgage
Unrealized losses (3,568) loans respectively, to fixed rate.
Real estate mortgage loan program Floating rates paid tied
Unrealized losses (1,404) to LIBOR.
- -------------------------------------------------------------------------------------------------------------------
Estimated fair value (18,317)
- -------------------------------------------------------------------------------------------------------------------
Interest rate caps 40,000 1.0 yrs. 5.88%(3) Notional amount of $40 million
Carrying amount (2) 4 hedges the interest rate risk
Money market deposit program associated with rising interest
Unrealized gains 148 rates on floating rate money
market deposits (strike rate tied
- -------------------------------------------------------------------------------------------------------------------
Estimated fair value 152 to LIBOR).
- -------------------------------------------------------------------------------------------------------------------
Market Value Hedges
Interest rate caps 1,750,000 3.5 yrs. 7.57%(3) Notional amount of $1.55 billion
Carrying amount (2) 19,584 hedges the market value of fixed
Securities available for sale program (5) rate securities available for sale
Unrealized gross gains 1,079 (strike rate for $1 billion tied to
Unrealized gross losses (1,822) yield on 5 year constant maturity
Real estate income property loan program U.S. Treasury securities; strike
Unrealized losses (90) rate for $550 million tied to
LIBOR). Notional amount of
$200 million hedges the market
value of fixed rate real estate
income property loans (strike
- -------------------------------------------------------------------------------------------------------------------
Estimated fair value 18,751 rate tied to LIBOR).
- -------------------------------------------------------------------------------------------------------------------
Interest rate floors 1,000,000 3.9 yrs. 5.63%(4) Notional amount of $1.0 billion
Carrying amount (2) 5,670 hedges the fair value of fixed
Domestic time deposit program rate domestic time deposits (strike
Unrealized gross gains 569 rate tied to yield on 5 year
Unrealized gross losses (567) constant maturity U.S.
- -------------------------------------------------------------------------------------------------------------------
Estimated fair value 5,672 Treasury securities).
- -------------------------------------------------------------------------------------------------------------------
Hedges of Lending Commitments
Forward contracts 1,053,254 .1 yrs. n/a Hedges of residential
Unrealized gross gains 262 mortgage lending
Unrealized gross losses (9,528) commitments.
- -------------------------------------------------------------------------------------------------------------------
Estimated fair value (9,266)
Total hedges against
interest rate risk $5,243,254 $ (3,008)
===================================================================================================================
</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.
(4) Represents average strike rate. For interest rate floors purchased,
Crestar will receive interest if a specified market index rate falls
below a fixed strike rate during the term of the contract. Any interest
received is based on the difference between a lower index interest rate
and the contractual floor rate, applied to the underlying notional
balance. No interest payments are received if the index rate remains
above the floor rate.
(5) The fair value of derivative interest rate caps hedging securities
classified as available for sale is included in the total fair value of
the securities available for sale portfolio. The unamortized premiums
paid for such interest rate caps are included in the amortized cost
basis of securities available for sale, with any unrealized gain or loss
(net of tax) pertaining to these interest rate caps included in
shareholders' equity as "Net unrealized gain (loss) on securities
available for sale."
n/a - Not applicable
LIBOR - London Interbank Offered Rates
<PAGE>
Table 12 Off-Balance Sheet Derivatives--Expected Maturities (1)
September 30, 1996
<TABLE>
<CAPTION>
Dollars in thousands Within One to Three to
One Year Three Years Five Years Total
<S> <C>
Interest Rate Conversions
Generic interest rate swaps:
Notional amount $ - $ 600,000 $ 800,000 $1,400,000
Average fixed receive rate - 5.69% 6.00% 5.87%
Carrying amount $ - $ (97) $ 247 $ 150
Unrealized losses - (5,872) (12,595) (18,467)
Interest rate caps
Notional amount $ 25,000 $ 15,000 $ - $ 40,000
Average strike rate 5.90% 5.83% - 5.88%
Carrying amount $ - $ 4 $ - $ 4
Unrealized gains 13 135 - 148
Market Value Hedges
Interest rate caps
Notional amount $ - $ 200,000 $1,550,000 $1,750,000
Average strike rate - 7.75% 7.55% 7.57%
Carrying amount $ - $ 1,250 $ 18,334 $ 19,584
Net unrealized loss - (90) (743) (833)
Interest rate floors
Notional amount $ - $ 300,000 $ 700,000 $1,000,000
Average strike rate - 5.63% 5.63% 5.63%
Carrying amount $ - $ 1,043 $ 4,627 $ 5,670
Net unrealized gain (loss) - (87) 89 2
Hedges of Lending Commitments
Forward contracts: (2)
Notional amount $1,053,254 $ - $ - $1,053,254
Net unrealized loss (9,266) - - (9,266)
Total hedges against
interest rate risk:
Notional amount $1,078,254 $1,115,000 $3,050,000 $5,243,254
Carrying amount - 2,200 23,208 25,408
Net unrealized loss (9,253) (5,914) (13,249) (28,416)
Estimated fair value $ (9,253) $ (3,714) $ 9,959 $ (3,008)
===========================================================================================================
</TABLE>
(1) Includes only off-balance sheet derivative financial instruments
related to interest rate risk management activities.
(2) Hedges of residential mortgage lending commitments.
<PAGE>
Table 13 Off-Balance Sheet Derivatives Activity(1)
In thousands
<TABLE>
<CAPTION>
Interest Rate Conversions Market Value Hedges Hedges of
Interest Interest Interest Interest Lending
Rate Rate Rate Rate Commit-
Swaps Caps Caps Floors ments (2) Total
<S> <C>
Balance, July 1, 1996 $1,400,000 $40,000 $1,550,000 $ - $1,011,961 $4,001,961
Additions - - 200,000 1,000,000 953,051 2,153,051
Maturities - - - - (911,758) (911,758)
- -----------------------------------------------------------------------------------------------------------
Balance, September 30, 1996 $1,400,000 $40,000 $1,750,000 $1,000,000 $1,053,254 $5,243,254
===========================================================================================================
Balance, January 1, 1996 $1,200,000 $40,000 $ - $ - $ 547,790 $1,787,790
Additions 300,000 - 1,750,000 1,000,000 2,810,720 5,860,720
Maturities (100,000) - - - (2,305,256) (2,405,256)
- -----------------------------------------------------------------------------------------------------------
Balance, September 30, 1996 $1,400,000 $40,000 $1,750,000 $1,000,000 $1,053,254 $5,243,254
===========================================================================================================
</TABLE>
(1) Includes only off-balance sheet derivative financial instruments
related to interest rate risk management activities.
(2) Forward contracts hedging residential mortgage lending commitments;
maturities represent contracts delivered.
<PAGE>
Table 14 Selected Quarterly Financial Information
<TABLE>
<CAPTION>
Dollars in thousands, except per share data 3rd Qtr.(2) 2nd Qtr. 1st Qtr. 4th Qtr.(3) 3rd Qtr.
Results of operations: 1996 1996 1996 1995 1995
<S> <C>
Net interest income(1) $183,216 $186,971 $181,514 $175,359 $172,475
Provision for loan losses 23,170 22,500 20,300 21,302 14,231
- -------------------------------------------------------------------------------------------------------------
Net credit income 160,046 164,471 161,214 154,057 158,244
Securities gains (losses) 97 288 2,355 1,316 (69)
Other noninterest income 74,572 85,790 77,680 72,885 75,044
- -------------------------------------------------------------------------------------------------------------
Net credit and noninterest income 234,715 250,549 241,249 228,258 233,219
Noninterest expense 191,180 159,042 152,205 168,867 148,570
- -------------------------------------------------------------------------------------------------------------
Income before taxes 43,535 91,507 89,044 59,391 84,649
- -------------------------------------------------------------------------------------------------------------
Tax-equivalent adjustment 2,476 2,460 2,501 2,568 3,198
Book tax expense 4,252 32,317 31,121 30,526 29,375
- -------------------------------------------------------------------------------------------------------------
Income tax expense 6,728 34,777 33,622 33,094 32,573
- -------------------------------------------------------------------------------------------------------------
Net Income $ 36,807 $ 56,730 $ 55,422 $ 26,297 $ 52,076
=============================================================================================================
Per common share:
Net income $ .86 $ 1.31 $ 1.27 $ .61 $ 1.19
Dividends declared .52 .52 .45 .45 .45
Average shares outstanding (000s) 42,916 43,330 43,607 43,634 43,686
=============================================================================================================
Selected ratios and other data:
Return on average assets .85% 1.28% 1.28% .62% 1.25%
Return on average equity 10.42 16.03 15.41 7.28 14.74
Net interest margin(1) 4.66 4.68 4.63 4.55 4.57
Net charge-offs as % of average loans .87 .83 .74 .64 .58
Allowance as % of period-end loans 2.10 2.08 2.07 2.04 2.00
Overhead ratio 74.13 58.25 58.19 67.67 60.04
Average equity to assets 8.14 8.01 8.31 8.46 8.51
Equity leverage 12.29x 12.48x 12.04x 11.82x 11.75x
Full-time equivalent employees (period end) 6,891 6,894 6,705 6,712 7,018
=============================================================================================================
</TABLE>
(1) Tax-equivalent basis.
(2) During the third quarter of 1996 Crestar recorded a one-time after-tax
charge of $21.5 million, or $.50 per share associated with congressional
legislation regarding the recapitalization of the Savings Association
Insurance Fund.
(3) During the fourth quarter of 1995 Crestar recorded one-time after-tax merger
costs of $29.3 million, or $.67 per share, associated with the December 31,
1995 merger with Loyola Capital Corporation.
<PAGE>
Table 15 Consolidated Average Balances/Net Interest Income/Rates (1)
<TABLE>
<CAPTION>
Three Months Ended September 30,
1996 1995
Dollars in thousands Income/ Yield/ Income/ Yield/
Balance Expense Rate Balance Expense Rate
<S> <C>
Assets $ $ % $ $ %
Securities held to maturity (2) 71,162 1,620 9.11 1,095,763 17,767 6.83
Securities available for sale (2) 3,367,969 53,094 6.32 1,597,599 26,684 6.35
Money market investments (2) 210,087 2,833 5.36 271,073 4,136 6.05
Mortgage loans held for sale (2) 957,035 18,494 7.75 484,852 8,799 7.31
- ------------------------------------------------------------------------------------------------------------
Commercial 3,084,870 61,932 7.97 2,914,375 60,260 8.25
Real estate - income property 898,370 19,835 8.78 921,335 19,857 8.54
Real estate - construction 230,157 5,717 9.89 265,137 6,888 10.30
Instalment 2,736,200 60,073 8.82 2,424,481 55,989 9.16
Bank card 1,492,550 45,654 12.47 1,590,871 44,811 11.29
Real estate - mortgage 2,773,341 53,289 7.67 3,467,947 67,805 7.81
- ------------------------------------------------------------------------------------------------------------
Total loans (2,3) 11,215,488 246,500 8.81 11,584,146 255,610 8.79
Allowance for loan losses (237,486) (238,442)
- ------------------------------------------------------------------------------------------------------------
Loans - net 10,978,002 11,345,704
Cash and due from banks 699,597 790,204
Premises and equipment - net 363,038 358,988
Customers' liability on acceptances 4,675 8,566
Intangible assets - net 185,849 162,127
Foreclosed properties - net 13,936 20,594
Other assets 517,911 465,874
- ------------------------------------------------------------------------------------------------------------
Total Assets 17,369,261 16,601,344
Total Earning Assets 15,821,741 322,541 8.17 15,033,433 312,996 8.29
Liabilities And Shareholders' Equity
Interest-bearing demand deposits 4,907,229 35,979 2.92 4,777,574 38,809 3.22
Regular savings deposits 1,264,078 7,977 2.51 1,374,628 9,420 2.72
Domestic time deposits 3,853,797 48,889 5.08 4,070,890 54,507 5.34
Certificates of deposit $100,000 and over 414,452 5,655 5.43 66,433 925 5.52
- ------------------------------------------------------------------------------------------------------------
Total savings and time deposits (2) 10,439,556 98,500 3.77 10,289,525 103,661 4.01
Demand deposits 2,403,966 2,232,142
- ------------------------------------------------------------------------------------------------------------
Total deposits 12,843,522 12,521,667
Short-term borrowings (2) 2,169,991 28,588 5.24 1,712,522 24,345 5.64
Long-term debt (2) 676,147 12,238 7.24 692,134 12,515 7.23
Liability on acceptances 4,675 8,566
Other liabilities 261,469 253,347
- ------------------------------------------------------------------------------------------------------------
Total liabilities 15,955,804 15,188,236
Total shareholders' equity 1,413,457 1,413,108
- ------------------------------------------------------------------------------------------------------------
Total Liabilities And Shareholders' Equity 17,369,261 16,601,344
Total interest-bearing liabilities 13,285,694 139,326 4.18 12,694,181 140,521 4.40
Other sources - net 2,536,047 2,339,252
- ------------------------------------------------------------------------------------------------------------
Total Sources of Funds 15,821,741 139,326 3.51 15,033,433 140,521 3.72
Net Interest Spread 3.99 3.89
Net Interest Income/Margin 183,215 4.66 172,475 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.
<PAGE>
Table 15 Consolidated Average Balances/Net Interest Income/Rates (1)
<TABLE>
<CAPTION>
Three Months Ended June 30, Nine Months Ended September 30,
1996 1996
Income/ Yield/ Income/ Yield/
Balance Expense Rate Balance Expense Rate
<S> <C>
Assets $ $ % $ $ %
Securities held to maturity (2) 79,479 1,795 9.03 77,869 5,305 9.08
Securities available for sale (2) 3,275,398 52,513 6.41 3,228,526 154,890 6.40
Money market investments (2) 298,163 3,932 5.30 237,077 9,565 5.39
Mortgage loans held for sale (2) 863,544 16,152 7.49 866,404 48,940 7.54
- --------------------------------------------------------------------------------------------------------------
Commercial 3,111,723 62,367 8.05 3,065,831 184,659 8.04
Real estate - income property 898,461 19,754 8.83 900,047 59,855 8.88
Real estate - construction 245,620 5,913 9.68 242,733 18,050 9.93
Instalment 2,743,503 61,327 8.94 2,740,437 182,257 8.88
Bank card 1,547,704 47,308 12.51 1,555,388 141,158 12.17
Real estate - mortgage 2,945,326 57,309 7.76 2,922,659 169,139 7.71
- --------------------------------------------------------------------------------------------------------------
Total loans (2,3) 11,492,337 253,978 8.89 11,427,095 755,118 8.82
Allowance for loan losses (238,985) (239,023)
- --------------------------------------------------------------------------------------------------------------
Loans - net 11,253,352 11,188,072
Cash and due from banks 799,197 769,744
Premises and equipment - net 357,286 358,685
Customers' liability on acceptances 16,976 11,945
Intangible assets - net 182,465 184,168
Foreclosed properties - net 17,722 16,408
Other assets 521,920 509,827
- --------------------------------------------------------------------------------------------------------------
Total Assets 17,665,502 17,448,725
Total Earning Assets 16,008,921 328,370 8.24 15,836,971 973,818 8.21
Liabilities And Shareholders' Equity
Interest-bearing demand deposits 4,949,910 35,440 2.88 4,940,103 108,468 2.93
Regular savings deposits 1,291,885 8,145 2.54 1,284,765 24,586 2.56
Domestic time deposits 3,979,103 51,126 5.20 3,982,012 154,855 5.21
Certificates of deposit $100,000 and over 165,480 2,149 5.23 230,440 9,254 5.37
- --------------------------------------------------------------------------------------------------------------
Total savings and time deposits (2) 10,386,378 96,860 3.76 10,437,320 297,163 3.81
Demand deposits 2,393,145 2,384,441
- --------------------------------------------------------------------------------------------------------------
Total deposits 12,779,523 12,821,761
Short-term borrowings (2) 2,505,402 32,064 5.14 2,239,119 87,529 5.22
Long-term debt (2) 698,996 12,475 7.14 697,018 37,426 7.16
Liability on acceptances 16,976 11,945
Other liabilities 248,954 256,486
- --------------------------------------------------------------------------------------------------------------
Total liabilities 16,249,851 16,026,329
Total shareholders' equity 1,415,651 1,422,396
- --------------------------------------------------------------------------------------------------------------
Total Liabilities And Shareholders' Equity 17,665,502 17,448,725
Total interest-bearing liabilities 13,590,776 141,399 4.19 13,373,457 422,118 4.22
Other sources - net 2,418,145 2,463,514
- --------------------------------------------------------------------------------------------------------------
Total Sources of Funds 16,008,921 141,399 3.56 15,836,971 422,118 3.56
Net Interest Spread 4.05 3.99
Net Interest Income/Margin 186,971 4.68 551,700 4.65
==============================================================================================================
</TABLE>
<TABLE>
<CAPTION>
Nine Months Ended September 30,
1995
Income/ Yield/
Balance Expense Rate
<S> <C>
Assets $ $ %
Securities held to maturity (2) 1,149,121 55,396 6.43
Securities available for sale (2) 1,511,686 74,580 6.57
Money market investments (2) 356,669 15,976 5.99
Mortgage loans held for sale (2) 335,183 18,981 7.56
- ---------------------------------------------------------------------------------
Commercial 2,993,905 187,061 8.35
Real estate - income property 917,775 58,536 8.52
Real estate - construction 268,265 20,822 10.37
Instalment 2,341,094 159,610 9.08
Bank card 1,552,637 133,057 11.40
Real estate - mortgage 3,504,768 203,591 7.74
- ---------------------------------------------------------------------------------
Total loans (2,3) 11,578,444 762,677 8.78
Allowance for loan losses (237,602)
- ---------------------------------------------------------------------------------
Loans - net 11,340,842
Cash and due from banks 775,216
Premises and equipment - net 356,135
Customers' liability on acceptances 10,093
Intangible assets - net 154,548
Foreclosed properties - net 26,589
Other assets 473,863
- ---------------------------------------------------------------------------------
Total Assets 16,489,945
Total Earning Assets 14,931,103 927,610 8.28
Liabilities And Shareholders' Equity
Interest-bearing demand deposits 4,787,905 115,392 3.22
Regular savings deposits 1,445,623 30,229 2.80
Domestic time deposits 4,001,001 150,268 5.03
Certificates of deposit $100,000 and over 68,676 2,736 5.33
- ---------------------------------------------------------------------------------
Total savings and time deposits (2) 10,303,205 298,625 3.88
Demand deposits 2,188,408
- ---------------------------------------------------------------------------------
Total deposits 12,491,613
Short-term borrowings (2) 1,670,205 72,417 5.79
Long-term debt (2) 703,584 37,849 7.17
Liability on acceptances 10,093
Other liabilities 235,198
- ---------------------------------------------------------------------------------
Total liabilities 15,110,693
Total shareholders' equity 1,379,252
- ---------------------------------------------------------------------------------
Total Liabilities And Shareholders' Equity 16,489,945
Total interest-bearing liabilities 12,676,994 408,891 4.31
Other sources - net 2,254,109
- ---------------------------------------------------------------------------------
Total Sources of Funds 14,931,103 408,891 3.66
Net Interest Spread 3.97
Net Interest Income/Margin 518,719 4.62
=================================================================================
</TABLE>
(2) Indicates earning asset or interest-bearing liability.
(3) Nonaccrual loans are included in the average loan balances and income
on such loans is recognized on a cash basis.
<PAGE>
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Crestar Financial Corporation
Registrant
Date November 14, 1996 /s/ JAMES D. BARR
---------------------------
James D. Barr
Executive Vice President,
Controller and Treasurer
<TABLE> <S> <C>
<ARTICLE> 9
<RESTATED>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 9-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1995
<PERIOD-END> SEP-30-1996 SEP-30-1995
<CASH> 810,669 736,261
<INT-BEARING-DEPOSITS> 11,023,253 10,188,787
<FED-FUNDS-SOLD> 718,260 642,800
<TRADING-ASSETS> 5,191 7,139
<INVESTMENTS-HELD-FOR-SALE> 3,520,740 1,843,069
<INVESTMENTS-CARRYING> 69,849 1,085,231
<INVESTMENTS-MARKET> 71,104 1,076,523
<LOANS> 11,237,011 11,733,404
<ALLOWANCE> 235,747 234,960
<TOTAL-ASSETS> 18,252,011 17,305,044
<DEPOSITS> 13,584,574 12,433,511
<SHORT-TERM> 2,083,096 2,348,827
<LIABILITIES-OTHER> 482,915 402,950
<LONG-TERM> 668,458 683,552
211,748 214,531
0 0
<COMMON> 0 0
<OTHER-SE> 1,221,220 1,221,673
<TOTAL-LIABILITIES-AND-EQUITY> 18,252,011 17,305,044
<INTEREST-LOAN> 750,027 756,320
<INTEREST-INVEST> 157,869 127,639
<INTEREST-OTHER> 58,485 34,956
<INTEREST-TOTAL> 966,381 918,915
<INTEREST-DEPOSIT> 297,162 298,624
<INTEREST-EXPENSE> 422,117 408,890
<INTEREST-INCOME-NET> 544,264 510,025
<LOAN-LOSSES> 65,970 38,268
<SECURITIES-GAINS> 2,740 (3,529)
<EXPENSE-OTHER> 502,427 450,567
<INCOME-PRETAX> 216,649 235,531
<INCOME-PRE-EXTRAORDINARY> 148,959 153,500
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 148,959 153,500
<EPS-PRIMARY> 3.44 3.51
<EPS-DILUTED> 3.44 3.50
<YIELD-ACTUAL> 4.65 4.62
<LOANS-NON> 66,626 67,497
<LOANS-PAST> 62,032 41,715
<LOANS-TROUBLED> 0 0
<LOANS-PROBLEM> 127,000 190,000
<ALLOWANCE-OPEN> 240,285 232,922
<CHARGE-OFFS> 91,825 64,401
<RECOVERIES> 22,205 22,815
<ALLOWANCE-CLOSE> 235,747 234,960
<ALLOWANCE-DOMESTIC> 0 0
<ALLOWANCE-FOREIGN> 0 0
<ALLOWANCE-UNALLOCATED> 0 0
</TABLE>
