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, 1997
( ) 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, 1997
Common Stock, $5 par val 110,273,229
<PAGE>
Crestar Financial Corporation And Subsidiaries
Form 10-Q
For The Quarter Ended September 30, 1997
Part I. Financial Information
Item 1. Financial Statements:
Page
Consolidated Balance Sheets.........................
Consolidated Statements Of Income...................
Consolidated Statements Of Cash Flows...............
Consolidated Statements Of Changes In Shareholders'
Equity.........................................
Notes To Consolidated Financial Statements..........
Item 2. Management's Discussion And Analysis Of Financial
Condition And Results Of Operations:
Financial Commentary................................
Part II. Other Information
Item 6. Exhibits And Reports On Form 8-K:
There were no reports on Form 8-K filed during the three
months ended September 30, 1997.
<PAGE>
Consolidated Balance Sheets
Crestar Financial Corporation And Subsidiaries
<TABLE>
<CAPTION>
Dollars in thousands, except share data September 30,
December 31,
Assets 1997 1996 1996
<S> <C>
Cash and due from banks $ 885,956 $ 1,009,625 $ 1,105,036
Securities held to maturity (note 2) 662,517 1,070,708 967,510
Securities available for sale (note 3) 3,333,777 4,066,165 4,318,349
Money market investments (note 4) 1,167,335 742,036 745,672
Mortgage loans held for sale 851,660 909,633 658,838
Loans (note 5):
Business Loans:
Commercial 4,083,035 3,832,184 4,002,574
Real estate - income property 1,254,381 1,270,229 1,242,097
Real estate - construction 341,239 312,254 314,016
Consumer Loans:
Instalment 4,763,817 3,702,278 4,060,174
Bank card 1,148,260 1,461,786 1,422,934
Real estate - mortgage 3,087,841 2,992,214 3,007,910
- ----------------------------------------------------------------------------------------------------------
Total Loans 14,678,573 13,570,945 14,049,705
Less: Allowance for loan losses (note 6) (278,331) (272,903) (268,868)
- ----------------------------------------------------------------------------------------------------------
Loans - net 14,400,242 13,298,042 13,780,837
- ----------------------------------------------------------------------------------------------------------
Premises and equipment - net 469,676 422,376 435,316
Intangible assets - net 168,020 184,647 180,420
Foreclosed properties - net (notes 5 and 7) 26,757 37,957 27,515
Other assets 1,222,497 674,309 642,448
- ----------------------------------------------------------------------------------------------------------
Total Assets $23,188,437 $22,415,498 $22,861,941
==========================================================================================================
Liabilities
Demand deposits $ 3,319,797 $ 3,217,671 $ 3,352,921
Interest-bearing demand deposits 5,800,597 5,727,314 5,913,373
Regular savings deposits 1,464,576 1,646,767 1,620,925
Domestic time deposits 4,092,631 4,876,088 4,643,409
Certificates of deposit $100,000 and over 1,432,079 1,144,273 140,582
- ----------------------------------------------------------------------------------------------------------
Total deposits 16,109,680 16,612,113 15,671,210
Short-term borrowings (note 8) 3,755,235 2,853,651 4,116,051
Other liabilities 584,570 493,725 435,834
Long-term debt (note 9) 799,375 668,458 859,336
- ----------------------------------------------------------------------------------------------------------
Total Liabilities 21,248,860 20,627,947 21,082,431
- ----------------------------------------------------------------------------------------------------------
Shareholders' Equity
Preferred stock. Authorized 2,000,000 shares; none issued - - -
Common stock, $5 par value. Authorized 200,000,000 shares
at September 30, 1997 and December 31, 1996; 100,000,000 at
September 30, 1996; outstanding 110,188,084 and 54,985,234
at September 30, 1997 and 1996, respectively; 109,869,886 at
December 31, 1996 550,940 274,926 549,350
Capital surplus 271,868 494,491 227,079
Retained earnings 1,128,608 1,056,114 1,024,365
Net unrealized loss on securities available for sale (11,839) (37,980) (21,284)
- ----------------------------------------------------------------------------------------------------------
Total Shareholders' Equity 1,939,577 1,787,551 1,779,510
- ----------------------------------------------------------------------------------------------------------
Total Liabilities And Shareholders' Equity $23,188,437 $22,415,498 $22,861,941
==========================================================================================================
</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 1997 1996 1997 1996
<S> <C>
Interest and fees on loans $308,385 $290,221 $ 905,922 $ 884,097
Interest on securities held to maturity 9,841 16,029 33,815 46,405
Interest and dividends on securities available for sale 52,958 61,296 176,682 178,491
Income on money market investments 6,955 2,828 13,867 9,661
Interest on mortgage loans held for sale 13,598 18,494 35,856 48,940
- ----------------------------------------------------------------------------------------------------------
Total income from earning assets 391,737 388,868 1,166,142 1,167,594
- ----------------------------------------------------------------------------------------------------------
Interest Expense
Interest-bearing demand deposits 44,592 42,741 129,345 128,562
Regular savings deposits 9,337 10,891 29,069 33,343
Domestic time deposits 52,424 63,514 160,937 200,077
Certificates of deposit $100,000 and over 14,722 5,655 33,208 9,254
- ----------------------------------------------------------------------------------------------------------
Total interest on deposits 121,075 122,801 352,559 371,236
Short-term borrowings 38,231 38,220 111,977 112,985
Long-term debt 15,293 12,281 46,499 37,531
- ----------------------------------------------------------------------------------------------------------
Total interest expense 174,599 173,302 511,035 521,752
- ----------------------------------------------------------------------------------------------------------
Net Interest Income 217,138 215,566 655,107 645,842
Provision for loan losses (note 6) 19,099 25,100 84,797 71,760
- ----------------------------------------------------------------------------------------------------------
Net Credit Income 198,039 190,466 570,310 574,082
- ----------------------------------------------------------------------------------------------------------
Noninterest Income
Service charges on deposit accounts 30,893 29,267 92,787 84,330
Trust and investment advisory income 19,308 16,801 54,648 48,541
Bank card-related income 9,236 13,476 31,655 38,529
Other income 36,548 20,677 127,405 85,319
Securities gains 124 96 4,097 2,739
- ----------------------------------------------------------------------------------------------------------
Total noninterest income 96,109 80,317 310,592 259,458
- ----------------------------------------------------------------------------------------------------------
Net Credit And Noninterest Income 294,148 270,783 880,902 833,540
- ----------------------------------------------------------------------------------------------------------
Noninterest Expense
Personnel expense 95,134 97,833 291,023 290,595
Occupancy expense - net 14,957 15,518 44,800 46,918
Equipment expense 9,970 9,416 31,251 28,426
Other expense 53,170 89,272 165,172 201,947
- ----------------------------------------------------------------------------------------------------------
Total noninterest expense 173,231 212,039 532,246 567,886
- ----------------------------------------------------------------------------------------------------------
Income Before Income Taxes 120,917 58,744 348,656 265,654
Income tax expense (note 10) 41,374 10,626 121,543 85,549
- ----------------------------------------------------------------------------------------------------------
Net Income $ 79,543 $ 48,118 $ 227,113 $ 180,105
==========================================================================================================
Earnings Per Share
Primary $ .71 $ .43 $ 2.03 $ 1.61
Fully diluted .71 .43 2.03 1.61
==========================================================================================================
</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,
1997 1996
<S> <C>
Operating Net Income $ 227,113 $ 180,105
Activities Adjustments to reconcile net income to net cash provided
by operating activities:
Provisions for loan losses, foreclosed properties and
other losses 84,797 69,922
Depreciation and amortization of premises and equipment 35,776 34,575
Amortization of intangible assets 12,713 12,450
Deferred income tax benefit (3,271) (2,655)
Securities gains (4,097) (2,739)
Gain on sale of merchant card processing (17,325) -
Net gain on sale of other assets (26,945) (7,151)
Origination and purchase of loans held for sale (2,359,449) (3,056,853)
Proceeds from sales of loans held for sale 2,166,627 2,817,815
Net decrease (increase) in accrued interest receivable,
prepaid expenses and other assets (118,582) 21,300
Net increase in accrued interest payable,
accrued expenses and other liabilities 76,782 35,333
Other, net 17,681 934
--------------------------------------------------------------------------------------
Net cash provided by operating activities 91,820 103,036
- ----------------------------------------------------------------------------------------------------------
Investing Proceeds from maturities and calls of securities held
Activities to maturity 319,211 291,948
Proceeds from maturities and calls of securities available
for sale 341,432 1,975,553
Proceeds from sales of securities available for sale 2,894,281 3,569,471
Purchases of securities held to maturity (12,587) (257,731)
Purchases of securities available for sale (2,276,921) (6,032,167)
Net increase in money market investments (424,317) (225,067)
Principal collected on non-bank subsidiary loans 21,355 30,357
Loans originated by non-bank subsidiaries (29,928) (243,712)
Proceeds from sales of loans 151,845 199,038
Net decrease in other loans 95,534 216,449
Purchases of premises and equipment (73,128) (49,148)
Proceeds from sales of foreclosed properties, mortgage
servicing rights and merchant card processing 66,231 26,281
Acquisitions of net assets of financial institutions - 138,628
Purchases of loans and loan portfolios (1,269,119) -
Other, net (16,005) (34,396)
------------------------------------------------------------------------------------------
Net cash used by investing activities (212,116) (394,496)
- ----------------------------------------------------------------------------------------------------------
Financing Net decrease in demand, interest-bearing demand
Activities and regular savings deposits (302,249) (469,410)
Net increase in certificates of deposit 740,719 637,875
Net increase (decrease) in short-term borrowings (360,816) 37,241
Principal payments on long-term debt (60,283) (56,220)
Cash dividends paid (94,007) (76,923)
Common stock purchased and retired (66,545) (83,924)
Proceeds from the issuance of common stock 44,312 27,224
Other, net 85 (23)
------------------------------------------------------------------------------------------
Net cash provided (used) by financing activities (98,784) 15,840
- ----------------------------------------------------------------------------------------------------------
Cash And Decrease in cash and cash equivalents (219,080) (275,620)
Cash Cash and cash equivalents at beginning of year 1,105,036 1,285,245
------------------------------------------------------------------------------------------
Equivalents Cash and cash equivalents at end of quarter $ 885,956 $1,009,625
==========================================================================================================
</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
1997 1996 1997 1996
<S> <C>
Balance, July 1 $1,900,069 $1,777,146 110,638,161 55,401,632
Net Income 79,543 48,118 - -
Cash dividends declared on common stock (32,033) (26,262) - -
Change in net unrealized gain or loss on securities
available for sale 17,100 12,928 - -
Common stock purchased and retired (36,806) (30,050) (780,000) (531,500)
Common stock issued:
For dividend reinvestment plan 7,735 4,696 181,471 83,263
For thrift and profit sharing plan 1,508 - 33,500 -
For other stock compensation plans 4 - 75 -
Upon exercise of stock options (including tax
benefit of $630 in 1997; $189 in 1996) 2,457 975 114,877 31,839
- ----------------------------------------------------------------------------------------------------------
Balance, September 30 $1,939,577 $1,787,551 110,188,084 54,985,234
==========================================================================================================
Balance, January 1 $1,779,510 $1,785,588 109,869,886 55,382,341
Net Income 227,113 180,105 - -
Cash dividends declared on common stock (64,342) (76,923) - -
Change in net unrealized gain or loss on securities
available for sale 9,445 (51,208) - -
Common stock purchased and retired (66,545) (83,924) (1,603,566) (1,487,000)
Cash paid in lieu of fractional shares (164) (86) (4,736) (1,484)
Common stock issued:
For dividend reinvestment plan 21,282 14,844 563,555 281,499
For thrift and profit sharing plan 8,170 6,604 218,348 118,747
For other stock compensation plans 2,271 965 72,882 19,313
Upon exercise of stock options (including tax
benefit of $7,977 in 1997; $5,810 in 1996) 22,837 11,586 1,071,715 671,818
- ----------------------------------------------------------------------------------------------------------
Balance, September 30 $1,939,577 $1,787,551 110,188,084 54,985,234
==========================================================================================================
</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 1997 presentation. The notes
included herein should be read in conjunction with the notes to the consolidated
financial statements included in the Corporation's 1996 Annual Report and Form
10-K and First Quarter 1997 and Second Quarter 1997 Financial Supplement and
Form 10-Qs.
On December 31, 1996 Crestar Financial Corporation (Crestar) merged with
Citizens Bancorp (Citizens), a Maryland bank holding company, in a transaction
accounted for as a pooling of interests. Accordingly, historical financial data
for periods before the merger, including the third quarter and first nine months
of 1996, have been restated to include the combined results of Crestar and
Citizens. During the fourth quarter of 1996, Crestar recorded a $50.0 million
(pre-tax) charge in connection with the December 31, 1996 merger with Citizens.
The charge consisted of $11.3 million in severance and other personnel costs,
$18.2 million for facilities consolidations and branch closures, professional
fees of approximately $5.4 million, and $15.1 million related to cancellation of
contractual obligations and other merger-related expenses. An additional $3.5
million in merger-related charges was accrued during 1997. Total cash payments
of merger-related charges totaled $42.8 million through September 30, 1997. The
balance of accrued merger-related liabilities totaled $10.7 million as of
September 30, 1997.
Intangible assets consisted of goodwill and deposit based intangibles, having
a combined balance of $167,635,000 and $184,206,000 at September 30, 1997 and
1996, respectively, and favorable lease rights of $385,000 and $441,000,
respectively.
Capitalized mortgage servicing rights of $50.8 million and $52.5 million at
September 30, 1997 and 1996, respectively, were included in other assets in the
consolidated financial statements. Mortgage servicing rights of approximately
$25 million were capitalized during the first nine months of 1997. At September
30, 1997 and 1996 mortgage servicing rights were net of a related valuation
allowance of $538,000. The activity in such valuation allowance was not material
to the consolidated financial statements for the three and nine months ended
September 30, 1997 and 1996. The fair value of capitalized mortgage servicing
rights was approximately $84 million at September 30, 1997. Amortization of
capitalized mortgage servicing rights was approximately $9 million in the first
nine months of 1997.
During the third quarter and first nine months of 1997, Crestar capitalized
interest of $880,000 and $2.1 million, respectively, associated with
construction in progress. For the same periods in 1996, Crestar capitalized
interest of $131,000 and $193,000, respectively. Interest expense on short-term
borrowings is reported net of such capitalized interest in the consolidated
statements of income.
<PAGE>
(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 1997 1996
Amortized Market Amortized Market
Cost Value Cost Value
<S> <C>
U.S. Treasury and Federal agencies $197,402 $197,143 $ 238,226 $ 235,476
Mortgage-backed obligations of Federal agencies 413,007 415,957 738,811 734,640
Other taxable securities 2,986 2,982 13,186 13,217
States and political subdivisions 49,122 50,257 80,485 81,142
- ----------------------------------------------------------------------------------------------------------
Total securities held to maturity $662,517 $666,339 $1,070,708 $1,064,475
==========================================================================================================
</TABLE>
(3) Securities Available For Sale
The amortized cost and estimated market values (carrying values) of securities
available for sale at September 30 follow:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
In thousands 1997 1996
Amortized Market Amortized Market
Cost Value Cost Value
<S> <C>
U.S. Treasury and Federal agencies $ 238,580 $ 226,467 $ 423,493 $ 421,708
Mortgage-backed obligations of Federal agencies 2,226,465 2,216,823 2,925,245 2,879,532
Other taxable securities 675,727 677,684 606,333 602,129
Common and preferred stocks 211,680 212,803 162,729 162,796
- ----------------------------------------------------------------------------------------------------------
Total securities available for sale $3,352,452 $3,333,777 $4,117,800 $4,066,165
==========================================================================================================
</TABLE>
At September 30, 1997, 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 the probable market value
decline in a rising interest rate environment. The interest rate caps, which
have a notional balance of $1.75 billion, have a cost basis of $13.7 million and
a market value of $3.2 million at September 30, 1997. The cost basis of the
interest rate caps is being amortized as a reduction of interest income on
securities available for sale.
(4) Money Market Investments
Money market investments at September 30 included:
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
In thousands 1997 1996
Securities purchased under agreements to resell $ 650,000 $633,000
Federal funds sold 489,023 85,260
U.S. Treasury securities 8,361 5,809
Trading account securities 4,909 5,191
Other 15,042 12,776
- ----------------------------------------------------------------------------
Total money market investments $1,167,335 $742,036
============================================================================
<PAGE>
(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
$63.0 million and $63.7 million at September 30, 1997 and 1996, respectively.
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
In thousands 1997 1996
Nonaccrual loans $61,407 $ 78,732
Foreclosed properties - net 26,757 37,957
- -----------------------------------------------------------------------------
Total nonperforming assets $88,164 $116,689
=============================================================================
Transfers from nonperforming loans to foreclosed properties (non-cash additions)
were $7.6 million and $7.8 million in the first nine months of 1997 and 1996,
respectively. Included in Crestar's non-performing loans above are certain
impaired loans. Impaired loans and their allocated valuation allowances at
September 30, 1997 and 1996 were $17.5 million with an allowance of $2.7 million
and $27.0 million with an allowance of $4.7 million, respectively. All impaired
loans had an allocated valuation allowance at September 30, 1997 and 1996.
Collateral dependent loans, which were measured at the fair value of the
collateral, constituted 100% of impaired loans at September 30, 1997. The
average recorded investment in impaired loans for the nine months ended
September 30, 1997 and 1996 was $20.1 million and $33.2 million, respectively.
There was no material interest income recognized on impaired loans in the three
and nine months ended September 30, 1997 and 1996.
(6) Allowance For Loan Losses
Transactions in the allowance for loan losses for the three months and nine
months ended September 30 were:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
In thousands Three Months Nine Months
1997 1996 1997 1996
<S> <C>
Beginning balance $279,190 $272,896 $268,868 $274,430
Charge-offs (27,911) (33,796) (98,327) (96,214)
Recoveries 7,953 8,703 22,993 23,815
- ----------------------------------------------------------------------------------------------------------
Net charge-offs (19,958) (25,093) (75,334) (72,399)
Provision for loan losses 19,099 25,100 84,797 71,760
Allowance from acquisitions and other activity - net - - - (888)
- ----------------------------------------------------------------------------------------------------------
Net increase (decrease) (859) 7 9,463 (1,527)
- ----------------------------------------------------------------------------------------------------------
Ending balance $278,331 $272,903 $278,331 $272,903
==========================================================================================================
</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
1997 1996 1997 1996
<S> <C>
Beginning balance $17,985 $12,513 $18,449 $13,574
- ----------------------------------------------------------------------------------------------------------
Provision for foreclosed properties - - - (388)
Write-downs (1,525) (110) (1,989) (312)
Allowance from acquisitions - net - - - (471)
- ----------------------------------------------------------------------------------------------------------
Net decrease (1,525) (110) (1,989) (1,171)
- ----------------------------------------------------------------------------------------------------------
Ending balance $16,460 $12,403 $16,460 $12,403
==========================================================================================================
</TABLE>
<PAGE>
(8) Short-Term Borrowings
Short-term borrowings, exclusive of deposits, with maturities of less than one
year at September 30 were:
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
In thousands 1997 1996
Federal funds purchased $1,905,679 $1,477,314
Securities sold under repurchase agreements 739,899 634,875
Federal Home Loan Bank borrowings 385,000 525,000
U.S. Treasury demand notes 478,196 -
Notes payable 244,343 214,279
Other 2,118 2,183
- ------------------------------------------------------------------------------
Total short-term borrowings $3,755,235 $2,853,651
==============================================================================
The Corporation paid $438.9 million and $487.3 million in interest on deposits
and short-term borrowings in the first nine months of 1997 and 1996,
respectively.
(9) Long-Term Debt
Long-term debt at September 30 included:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
In thousands 1997 1996
<S> <C>
4 3/8 - 7 3/8% Federal Home Loan Bank obligations payable through 2015 $252,691 $318,529
8 3/4% Subordinated notes due 2004 149,722 149,683
8 1/4% Subordinated notes due 2002 125,000 125,000
8 5/8% Subordinated notes due 1998 49,994 49,984
7 7/8 - 11 1/4% Collateralized mortgage obligation bonds maturing through 2019 13,085 15,458
7 - 8 1/4% Mortgage indebtedness maturing through 2009 7,974 8,782
8 5/8 - 14 3/8% Capital lease obligations maturing through 2006 909 1,022
Crestar Capital Trust I preferred stock 200,000 -
- ----------------------------------------------------------------------------------------------------------
Total long-term debt $799,375 $668,458
==========================================================================================================
</TABLE>
The Corporation paid $40.4 million and $36.1 million in interest on long-term
debt in the first nine months of 1997 and 1996, respectively. There were no new
material capital lease agreements entered into during the third quarter of 1997.
<PAGE>
(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
1997 1996 1997 1996
<S> <C>
Current:
Federal $36,573 $20,349 $118,072 $84,954
State and local 1,345 199 6,742 3,250
- ----------------------------------------------------------------------------------------------------------
Total current tax expense 37,918 20,548 124,814 88,204
- ----------------------------------------------------------------------------------------------------------
Deferred:
Federal 3,150 (8,707) (3,269) (3,047)
State and local 306 (1,215) (2) 392
- ----------------------------------------------------------------------------------------------------------
Total deferred tax expense (benefit) 3,456 (9,922) (3,271) (2,655)
- ----------------------------------------------------------------------------------------------------------
Total income tax expense $41,374 $10,626 $121,543 $85,549
==========================================================================================================
</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
1997 1996 1997 1996
Amount % Amount % Amount % Amount %
<S> <C>
Income before income taxes $120,917 $58,744 $348,656 $265,654
- ------------------------------------------------------------------------------------------------------------
Tax expense at statutory rate 42,321 35.0 20,560 35.0 122,030 35.0 92,979 35.0
- ------------------------------------------------------------------------------------------------------------
Increase (decrease) in taxes
resulting from:
Repeal of thrift bad debt recapture - - (8,694) (14.8) - - (8,694) (3.3)
Tax-exempt interest and dividends (2,012) (1.7) (1,873) (3.2) (5,912) (1.7) (5,482) (2.1)
Nondeductible interest expense 466 .4 250 .4 1,342 .4 643 .2
Amortization of goodwill 1,034 .8 1,017 1.7 3,114 .9 3,099 1.2
State income taxes 1,073 .9 (660) (1.1) 4,381 1.3 2,368 .9
Other - net (1,508) (1.2) 26 .1 (3,412) (1.0) 636 .3
- ------------------------------------------------------------------------------------------------------------
Total decrease in taxes (947) (.8) (9,934) (16.9) (487) (0.1) (7,430) (2.8)
- ------------------------------------------------------------------------------------------------------------
Total income tax expense $ 41,374 34.2 $10,626 18.1 $121,543 34.9 $ 85,549 32.2
============================================================================================================
</TABLE>
The Corporation made income tax payments of $115.0 million and $99.8 million
during the first nine months of 1997 and 1996, respectively. At September 30,
1997, the Corporation had a net deferred income tax asset of $105.2 million.
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.
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.
<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. These instruments involve varying degrees of credit and
interest rate risk in excess of the amounts recorded in the consolidated balance
sheets.
Commitments to extend credit are legally binding agreements to lend to a
customer which typically contain clauses that permit cancellation of the
commitment in the event of credit deterioration of the borrower. Similar to
direct lending, these commitments are subject to the Corporation's loan approval
and review procedures and policies. Based upon management's review, Crestar may
require the customer to provide various types of collateral as security for the
agreement, including balances on deposit, securities, real estate and inventory.
Crestar receives a commitment fee for entering into such agreements. Legally
binding, unfunded commitments to extend credit were $9.9 billion and $8.1
billion at September 30, 1997 and 1996, respectively.
Standby letters of credit, which are conditional commitments to extend
credit, guarantee the performance of customers to a third party. Crestar's
outstanding standby letters of credit were $456 million at September 30, 1997.
Recourse obligations on mortgage loans serviced of $1.7 billion at September
30, 1997 included $1.0 billion which was insured by agencies of the Federal
government or private insurance companies. Crestar maintained an allowance of
$309,000 at September 30, 1997 based on estimates of future losses on this
contractual recourse liability.
For interest rate risk management purposes at September 30, 1997, Crestar was
using interest rate (fixed receive) swaps with notional balances of $900 million
and $250 million to convert floating rate commercial and instalment loans,
respectively, to fixed rates. Crestar was using purchased interest rate caps
with notional balances of $1.75 billion and $200 million to hedge the market
value of fixed rate securities available for sale and real estate income
property loans, respectively, and $465 million to minimize interest rate risk
associated with rising rates on floating rate money market deposits. Crestar was
using interest rate floors with notional balances of $1 billion and $250 million
to hedge the fair value of fixed rate domestic time deposits and the prepayment
risk associated with fixed rate real estate mortgage loans, respectively. The
carrying value and net unrealized loss on these swaps, caps and floors were
$29.2 million and $10.1 million at September 30, 1997, respectively. Crestar
also serves as a financial intermediary in interest rate swap, cap and collar
agreements, providing interest rate risk management services to customers. As a
financial intermediary, Crestar had $78.1 million in offsetting swap, $23.8
million in offsetting cap and $10 million in offsetting collar agreements at
September 30, 1997.
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 of approximately $24.4 million, less collateral held of approximately $9.5
million, plus an amount for prospective market movement. Three counterparties
constituted 15%, 13% and 11% of the estimated credit and market exposure of
$71.6 million at September 30, 1997.
Crestar also had forward agreements outstanding at September 30, 1997, 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. The net unrealized loss on such forward
agreements, which had a notional balance of $1.6 billion, was $7.6 million at
September 30, 1997.
Certain litigation is pending or threatened against Crestar. Management, in
consultation with legal counsel, is of the opinion that there is no pending or
threatened litigation that could, individually or in the aggregate, have a
material impact on the Corporation's financial condition or financial statements
beyond liabilities established for this purpose.
<PAGE>
Financial Commentary
Crestar Financial Corporation And Subsidiaries
Information contained in the following "Financial Commentary," other than
historical information, may contain forward-looking statements that are subject
to significant risks and uncertainties including, but not limited to, the
Corporation's interest rate risk position, credit and economic trends on both a
regional and national basis, technological change, the number and size of
competitors in the Corporation's market, and the impact of future legal and
regulatory actions, including the establishment of federal deposit insurance
rates. These statements are made pursuant to the safe harbor provisions of the
Private Litigation Reform Act of 1995. Such statements are provided to assist
the reader in understanding anticipated future financial operations. Although
the Corporation believes that the assumptions underlying the forward-looking
statements contained herein are reasonable, any of the assumptions could prove
to be inaccurate. The Corporation's actual results may differ materially from
those projected in forward-looking statements.
Overview
(Tables 1, 2 and 12)
Crestar Financial Corporation (Crestar) reported record net income of $79.5
million or $.71 per common share for the quarter ended September 30, 1997,
compared to net income of $48.1 million or $.43 per common share earned in the
third quarter of 1996. During the third quarter of 1996, Crestar recorded a
nonrecurring after-tax charge of $21.5 million, or $.19 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 third quarter of 1996, 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. The net impact of these two nonrecurring items
was an after-tax reduction in third quarter 1996 net income of $10.9 million, or
$.10 per common share.
For the first nine months, earnings were $227.1 million in 1997, compared to
$180.1 million earned in the first nine months of 1996. Earnings per share for
the first nine months of 1997 were $2.03, compared to $1.61 for the same period
of 1996. Through the first nine months of 1997, return on assets of was 1.41%
and return on equity was 16.38%. Crestar's results reflect the continued
positive effects of growth in noninterest income and management of controllable
expenses. Items affecting the change in earnings per share are given in Table 2.
Each item is net of applicable federal income taxes.
Crestar's subsidiaries provide banking and non-banking services throughout
Virginia, Maryland and Washington, D.C., which compose Crestar's primary market
area. This market is characterized as economically diverse and stable. Crestar's
market area is characterized by active competition in all principal areas where
the Corporation provides services. In addition to banks, other firms competing
in the market area include savings associations, consumer finance companies,
national credit card companies, securities brokerage firms, credit unions and
mortgage banking companies.
Mergers And Acquisitions
As previously announced, Crestar expects to complete the acquisition of American
National Bancorp, Inc. (American National) in a purchase transaction during the
fourth quarter of 1997. The expected merger date is November 13, 1997. American
National is the holding company for American National Savings Bank, FSB, a
Baltimore-based thrift institution with approximately $500 million in total
assets, $330 million in deposits and 10 branches serving the Baltimore
metropolitan area. Upon completion of the merger, American National will become
part of Crestar's Baltimore-based Maryland Region, which currently includes 35
Crestar branches.
Under terms of the purchase agreement, American National shareholders will
receive approximately $20.25 per common share, in Crestar common stock or cash,
for each share of American National common stock held. There are approximately
3.6 million shares of American National common stock outstanding.
Profitability Measures And Capital Resources
(Table 1)
Increased earnings in both the third quarter and the first nine months of
1997 resulted in improvements in key profitability measures over 1996. Return on
average assets was 1.47% in the third quarter and 1.41% the first nine months of
1997, compared to 0.89% and 1.12%, respectively, for 1996. Return on average
equity was 16.60% for the third quarter of 1997, compared to 10.94% for the
third quarter of 1996. For the first nine months of 1997, return on average
equity was 16.38%, compared to 13.61% for the first nine months of the previous
year.
Average equity to assets was 8.87% for the third quarter of 1997, compared to
8.18% in the third quarter of 1996. Average equity to assets for the first nine
months of 1997 was 8.59%, compared to 8.21% for the same period of 1996.
Period-end equity to assets was 8.36% at September 30, 1997, compared to a
September 30, 1996 ratio of 7.97%.
Risk-based capital ratios are additional measures of capital adequacy. At
September 30, 1997, Crestar's consolidated risk-adjusted capital ratios were
<PAGE>
10.4% for Tier 1 and 13.0% for total capital, well above the required minimums
of 4.0% and 8.0%, respectively. The Tier 1 leverage ratio of 9.3% at September
30, 1997 also was significantly above the regulatory minimum of 3.0%. Crestar's
tangible leverage ratio, defined as total equity less intangible assets divided
by total assets less intangible assets, was 7.70% at September 30, 1997. Under
Federal Deposit Insurance Corporation (FDIC) rules, Crestar's sole subsidiary
bank (Crestar Bank) was considered "well-capitalized" as of September 30, 1997,
the highest category of capitalization defined by regulatory authorities,
allowing for the lowest level of FDIC insurance premium payments.
Crestar has filed shelf registration statements with the Securities and
Exchange Commission (SEC) pertaining to the possible future issuance of
securities. Under currently effective registration statements, Crestar may issue
in the future approximately $300 million in subordinated debt securities,
preferred stock or common stock, or any combination thereof.
Net Interest Margin And Net Interest
Income
(Tables 3 and 13)
Crestar's net interest margin for the third quarter of 1997 was 4.47%, an
improvement of 3 basis points from the margin recorded in the third quarter of
1996. The improvement was due primarily to favorable changes in rates paid on
some funding sources, in comparison to market rates on short-term funds during
the quarter, coupled with improved yields on total earning assets. These factors
served to offset the impact of unfavorable changes in the composition of earning
assets and the impact of off-balance sheet hedge transactions on interest
income.
Positive influences on the third quarter 1997 margin include favorable
changes in the average rates paid on interest bearing core deposits. Average
rates paid on regular savings deposits decreased, from 2.57% in the third
quarter of 1996 to 2.45% in the third quarter of 1997. Similarly, rates paid on
domestic time deposits decreased, from 5.14% in the third quarter of 1996 to
5.00% in the third quarter of 1997. The average rate paid on total savings and
time deposits was 3.84% for both the third quarter of 1997 and 1996. Average
rates paid on interest-bearing demand deposits were 3.04% during the third
quarter of 1997, an increase of 9 basis points from the third quarter of 1996.
Rates paid on short-term borrowings increased from the levels of third quarter
1996, and averaged 5.32% for the third quarter of 1997. Yields on long-term debt
were also higher, and averaged 7.59% for the quarter ended September 30, 1997.
The average rate paid on Crestar's total sources of funds in the third quarter
of 1997 was 3.53%, reflecting an increase of 2 basis points from the same period
of 1996.
The yield on average loans for the quarter ended September 30, 1997 decreased
7 basis points from the third quarter of 1996, to 8.59%. Average rates on bank
card loans increased from 12.47% in the third quarter of 1996 to 14.51% in the
third quarter of 1997, 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 1996 results. All other loan
categories displayed lower yields.
Higher average yields on securities available for sale, which were 6.30% in
third quarter 1997 versus 6.24% in the same period of 1996, positively impacted
Crestar's net interest margin. Average yields were unchanged on the much smaller
securities held to maturity portfolio. Yields on money market investments were
5.65% for the third quarter of 1997 versus 5.36% for the third quarter of 1996,
in part reflecting a higher average federal funds rate on overnight deposits. In
total, interest rate spreads had a positive impact of 14 basis points on
Crestar's third quarter 1997 net interest margin, when compared to the third
quarter of 1996, exclusive of the impact of off-balance sheet derivative
instruments.
Changes in the earning asset mix decreased the third quarter 1997 net
interest margin by approximately 7 basis points when compared to the third
quarter of 1996. Loans as a percentage of total earning assets increased from an
average of 69% during the third quarter of 1996 to 73% for the same period of
1997. Average total loans were $14.4 billion during the third quarter of 1997,
compared to $13.5 billion during the third quarter of 1996. In September 1997,
Crestar acquired approximately $612 million of home equity loans and outstanding
balances under home equity lines of credit. These loans, classified as consumer
- - instalment loans on Crestar's balance sheet, increased Crestar's combined home
equity loans and outstanding balances under home equity lines of credit to
approximately $1.7 billion. Average bank card loans for the third quarter of
1997 reflect a decrease of $338 million, or 23%, in comparison to the third
quarter period of 1996. Marketing efforts directed to new accounts have been
curtailed from previous levels, in light of higher delinquencies and
charge-offs. Account balances have also declined as a result of the expiration
of introductory low interest rates on some bank card products. Average consumer
real estate loans were up $358 million, or 12%, from third quarter 1996, with
<PAGE>
average instalment loan balances increasing by $648 million or 18% during this
period. Average business loans for the third quarter of 1997 reflect an increase
of 4% over the same period of 1996, due to growth in Crestar's commercial loan
portfolio. Average money market investments increased, from $210 million in the
third quarter of 1996 to $490 million for the same quarter of 1997. Decreases in
average balances of mortgage loans held for sale primarily reflect shorter
holding periods for such loans at Crestar's mortgage banking subsidiary. Average
balances in the third quarter of 1997 were $725 million, representing 4% of
average total earning assets.
Changes in the balances and composition of funding sources had no material
impact on the net interest margin for the third quarter of 1997, when compared
to the same period of 1996. Interest-bearing deposits represented 64% of total
funding sources in the third quarter of 1997, versus 65% of funding sources in
the same period of 1996. 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 some consumer
deposit categories. Average total deposits experienced a decrease of $205
million, or 1%, from the third quarter of 1996. Average balances of short-term
borrowings were relatively unchanged, decreasing by $64 million or 2% from
average levels during the third quarter of 1996. When coupled with the impact of
changes to Crestar's earning asset mix, this resulted in a net 7 basis point
decrease in the third quarter 1997 net interest margin, versus the third quarter
of 1996, arising from changes in Crestar's total balance sheet composition of
earning assets and funding sources.
Off-balance sheet hedge transactions made a negative impact on net interest
income of $0.8 million during the third quarter of 1997, which was composed of
$0.6 million decrease in interest income and a $0.2 million increase in interest
expense, based on the underlying asset or liability being hedged. In the third
quarter of 1996 the comparable impact of hedging activity was a decrease to
Crestar's net interest income of $0.2 million, which consisted of a $0.2 million
decrease in interest income and a negligible decrease in interest expense. In
comparison to the third quarter of 1996, such off-balance sheet transactions had
a negative impact of 3 basis points on third quarter 1997's net interest margin.
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 3 basis point increase in the net interest margin and a
stable level of average earning assets, net interest income for the third
quarter of 1997 increased by $1.6 million, or 1% over the third quarter of 1996.
Tax-equivalent net interest income similarly increased by 1% during this period.
For the first nine months, tax equivalent net interest income increased 2% over
1996 as a result of a 7 basis point increase in the net interest margin and a
stable level of average earning assets. Changes to the earning assets mix for
the year-to-date period had a unfavorable impact of 10 basis points, while
changes to the funding mix resulted in an 1 basis point positive impact to the
year-to-date margin. Favorable interest rate spreads for the comparable nine
month period increased net interest margin by approximately 18 basis points.
Off-balance sheet hedge transactions had a negative impact on the margin, in
comparison to year-to-date 1996 results, of approximately 2 basis points.
Off-balance sheet hedge transactions had a detrimental impact on net interest
income of $3.1 million during the first nine months of 1997, which was composed
of a $2.0 million decrease in interest income and a $1.1 million increase in
interest expense, based on the underlying asset or liability being hedged. In
the first nine months of 1996 the comparable impact of hedging activity was an
increase to Crestar's net interest income of $1.6 million, which consisted of a
$1.6 million increase in interest income and a negligible decrease in interest
expense.
Risk Exposures And Credit Quality
(Tables 4 and 5)
Crestar's allowance for loan losses totaled $278 million at September 30, 1997,
representing 1.90% of period-end loans, 316% of period-end nonperforming assets,
and a 453% 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 $63.0 million at September 30,
1997, with consumer loans representing 90% of this balance.
<PAGE>
At September 30, 1997, nonperforming assets of $88.2 million were down $28.5
million or 24% from September 30, 1996, and down $20.8 million or 19% from
December 31, 1996. The ratio of nonperforming assets to loans and foreclosed
properties at September 30, 1997 was 0.60%, compared to 0.77% at December 31,
1996 and 0.86% at September 30, 1996. Future operating results could show
increases in the total balance of nonperforming assets due to loan growth,
future acquisitions of financial institutions, or adverse changes in credit
quality.
The provision for loan losses was $19.1 million for the third quarter of
1997, a decrease of $6.0 million from the $25.1 million provision expense
recorded in the third quarter of 1996. Provision expense in the second quarter
of 1997 was $36.0 million. Net charge-offs totaled $20.0 million in the third
quarter of 1997, compared to $25.1 million in the comparable period of 1996. Net
charge-offs as a percentage of average loans were 0.55% for the third quarter of
1997, compared to 0.74% in the same period of 1996, and 0.73% for the second
quarter of 1997. Business loans experienced net recoveries of $1.1 million in
the third quarter of 1997, compared to net recoveries of $0.9 million in the
comparable quarter of 1996. Consumer loan net charge-offs totaled $21.1 million
in the third quarter of 1997, compared to net charge-offs of $26.7 million in
the second quarter of 1997 and $26.0 million in the third quarter of 1996.
The largest proportion of net loan charge-offs during the third quarter of
1997, and for the first nine months of 1997, occurred in the bank card loan
portfolio. Net charge-offs for bank card loans were $16.9 million in the third
quarter of 1997, compared to $22.9 million in the second quarter of 1997 and
$20.8 million in 1996's third quarter. Net bank card loan charge-offs as a
percentage of bank card loans (on an annualized basis) were 5.81% in the third
quarter of 1997, 7.45% for the second quarter of 1997, and 5.54% in the third
quarter of 1996.
Bank card charge-off results for the third quarter of 1997 were favorably
impacted by two non-recurring items. During the third quarter, Crestar sold a
portfolio of fully charged-off loans to another corporation, and recorded the
proceeds of $1.5 million as a recovery. In addition, Crestar instituted selected
changes in its policy with respect to the timing of consumer loans charge-offs.
These changes had the impact of a temporary reduction in charge-offs in the
period of implementation, and reduced third quarter net bank card charge-offs by
an estimated $2.8 million. Excluding the impact of these two non-recurring
items, bank card net charge-offs for the third quarter of 1997 would have been
approximately $21.2 million (versus reported results of $16.9 million), and
total net charge-offs for the third quarter of 1997 would have been $24.3
million (versus reported results of $20.0 million). Excluding the non-recurring
items mentioned above, the third quarter 1997 bank card net charge-off rate was
7.28%, compared to a charge-off rate of 7.45% for the second quarter of 1997,
and 5.54% for the third quarter of 1996.
The increase in the ratio of bank card net charge-offs to average bank card
loans, for the third quarter of 1997 versus the third quarter of 1996, is
partially attributable to both a decrease in outstanding bank card loan balances
and the current trend of adverse payment performance by consumers, a trend
similar to that evidenced by high nationwide delinquency statistics. The
increase also reflects the prior growth of Crestar's bank card portfolio,
especially during 1994 and 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. A bank card portfolio will, therefore,
generally produce higher net charge-off levels as the newer loans "season."
The balance of bank card loan charge-offs declined in the third quarter
of 1997, the second consecutive quarterly decline.
Net charge-offs of instalment loans totaled $3.6 million during the third
quarter of 1997, versus $3.0 million in the second quarter of 1997 and $4.8
million in the third quarter of 1996. Net charge-offs for real estate-mortgage
loans were $0.6 million for the third quarter of 1997.
In addition to other loan categories, Crestar closely manages its portfolio
of loans to real estate developers and investors (REDI). The REDI designation is
based on borrower type and encompasses non-owner occupied real estate and
construction loans as well as other forms of credit extended to real estate
developers and investors. REDI outstanding balances have remained fairly stable
in 1997 and totaled $1.7 billion at September 30, 1997. This balance represented
11% of the total loan portfolio at that date. At December 31, 1996, REDI loan
balances totaled $1.6 billion and constituted 12% of the total loan portfolio.
REDI nonperforming assets were $43.9 million at September 30, 1997, compared to
$61.8 million at December 31, 1996.
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.
Potential problem loans at September 30, 1997, not included in Table 5, totaled
approximately $103 million. Over 90% of this balance represents commercial or
<PAGE>
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 $123 million at June 30, 1997 and $153 million at
December 31, 1996. 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 $14.7 billion at September 31, 1997.
Noninterest Income And Expense
(Table 6)
Noninterest income totaled $96.1 million in the third quarter of 1997, a $15.8
million or 20% increase from the third quarter period of 1996. During the third
quarter of 1996, Crestar recorded an accrued charge for the cost of closing
selected branches as part of the Corporation's ongoing 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 recorded in the third quarter of 1996. Excluding the impact
of this item from third quarter 1996 results, and excluding securities gains and
losses, third quarter 1997 noninterest income increased $11.3 million or 13%
from the third quarter 1996. This increase reflects growth in several
noninterest income categories, including strong increases in mortgage
origination income and trust and investment advisory income.
Service charges on deposit accounts totaled $30.9 million, for an increase of
6% in comparison to the third quarter of 1996. Trust and investment advisory
income increased 15% from third quarter 1996 levels, due primarily to strong
growth in assets under management. Mortgage origination income, net of direct
expenses, for the third quarter of 1997 totaled $7.3 million, or $6.2 million
higher than the results reported in the third quarter of 1996. Origination
income in the third quarter of 1997 reflects favorable pricing conditions
for the sale of mortgage loans held for sale and higher levels of mortgage
originations. Mortgage servicing income decreased by $0.6 million during the
quarter, a result of higher amortization charges for capitalized servicing
rights. Other service charges and fees increased $1.5 million, or 19%, to $9.7
million for the third quarter of 1997, as Crestar continued to see increased
growth in automated teller machine fee income. Miscellaneous income for the
third quarter of 1997 totaled $13.0 million, and includes a gain of $4.7 million
arising from the sale of selected mortgage loans during the quarter.
Miscellaneous income for the comparable period of 1996 was $9.8 million, and
included $1.9 million in gains arising from sale of mortgage loans.
As previously reported, Crestar completed the sale of merchant bank card
processing operations in the second quarter of 1997, and recorded a pre-tax gain
of $17.3 million at that time. As expected, the sale impacted bank card
noninterest income during the third quarter of 1997, versus the same period of
1996. Bank card-related noninterest income was $9.2 million for the third
quarter of 1997, down $4.2 million or 31% from the third quarter of 1996.
Noninterest expense decreased $38.8 million, or 18%, in the third quarter of
1997 when compared to the same period of 1996. Most of this decrease is
attributable to the third quarter 1996 $34.1 million pre-tax ($21.5 million
after-tax) charge for a non-recurring assessment on the Corporation's SAIF
insured deposits. Excluding the SAIF assessment, noninterest expense decreased
3% in the third quarter of 1997, versus the third quarter of 1996. Personnel
costs are Crestar's largest noninterest expense. Reflecting operating
efficiencies following the December 31, 1996 merger with Citizens Bancorp, Inc.,
total personnel costs were $95.1 million in the three month period ended
September 30, 1997, a decrease of 3% in comparison to the same period of 1996.
Decreases in FDIC insurance premiums, effective in the fourth quarter of 1996,
led to lower FDIC premium expense compared to third quarter 1996 results. FDIC
insurance expense totaled $0.2 million in the third quarter of 1997, versus $3.3
million (excluding the SAIF assessment) for the same period of 1996.
The effective federal and state income tax rate for third quarter and first
nine months of 1997 was 34.2% and 34.9%, respectively, compared to 18.1% and
32.2% for the comparable periods of 1996. 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 a tax law that previously
required, under certain circumstances, thrift institutions to recapture into
taxable income the pre-1988 loan loss allowance. Crestar had recorded such a
charge at the time of 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 36.2% for the first nine
months of 1996. Other fluctuations in Crestar's effective tax rates for the nine
months ended September 30, 1997, compared to the same period of 1996, were
caused by lower state income tax expense and by the recognition of tax benefits,
during 1997, relating to prior years. Financial statement note 10 contains
additional information concerning income taxes.
<PAGE>
Noninterest expense for the nine months ended September 30, 1997 includes
$4.6 million of costs incurred, primarily in the second quarter of 1997, in
preparing the Corporation's data processing systems to be "Year 2000"
compatible. Crestar is implementing changes to its information systems so that
they will be fully operable for date recognition and data processing when the
year 2000 begins. The total cost for this conversion and testing process is
estimated to be between $22 and $27 million, with the majority of costs expected
to be incurred during 1998. This estimate includes some costs, such as the
purchase of computer hardware, that will qualify as depreciable assets for
accounting purposes, with the related depreciation expense recognized over the
estimate lives of the applicable assets. However, the majority of costs will be
expensed as incurred.
Financial Condition
(Table 7)
Crestar's assets totaled $23.2 billion at September 30, 1997, compared to $22.9
billion in assets at December 31, 1996, and $22.4 billion at September 30, 1996.
Loans totaled $14.7 billion at September 30, 1997, compared to $14.0 billion at
year-end 1996. Total deposits were $16.1 billion at September 30, 1997 compared
to $15.7 billion at December 31, 1996. Excluding certificates of deposit of
$100,000 and over, deposits were down by 5% from year-end 1996, as increased
competition resulted in declines in some deposit categories, including
interest-bearing demand deposits and domestic time deposits. The consolidation
of certain branches acquired in the December 31, 1996 merger with Citizens has
also negatively impacted some deposit balances.
With respect to the securities held to maturity portfolio, market values
exceeded the carrying value, or amortized cost, at September 30, 1997 by $3.8
million, consisting of $6.4 million in unrealized gains and $2.6 million in
unrealized losses. At September 30, 1997, the amortized cost of securities
available for sale exceeded the market value of such securities by $18.7
million, consisting of $12.7 million in unrealized gains and $31.4 million in
unrealized losses. Shareholders' equity at September 30, 1997 reflects a $11.8
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 a reduction
of $21.3 million at December 31, 1996 arising from net unrealized losses on
securities available for sale. At September 30, 1996, Crestar's shareholders'
equity reflected a $38.0 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
performance of the issuers of such securities. Approximately 66% (market value)
of Crestar's securities available for sale portfolio, and 62% (amortized cost)
of the Corporation's securities held to maturity portfolio, was composed of
mortgage-backed obligations of Federal agencies as of September 30, 1997. This
category includes mortgage-backed securities of Federal agencies, as well as CMO
securities guaranteed by Federal agencies such as the Federal Home Loan Mortgage
Corporation. Securities classified as "Other taxable securities" can include
non-government CMO securities, corporate debt obligations, and corporate
<PAGE>
obligations securitized by credit card and instalment loans. Other taxable
securities classified as available for sale at September 30, 1997 included $672
million (market value) of non-government CMO obligations.
During the third quarter of 1997, Crestar sold approximately $928 million of
securities classified as available for sale, generating net securities gains of
$124 thousand. Such sales were consummated in conjunction with the overall
management of interest rate risk for the Corporation. Securities gains recorded
in the third quarter of 1996 totaled $96 thousand.
During the third quarter of this year, Crestar purchased and retired 780,000
shares of common stock. Purchases during the third quarter of 1997 were made at
an average price of approximately $47 per common share, and were made in
conjunction with the November 1997 acquisition of American National. Crestar
intends to purchase in the open market all common shares to be issued in the
American National transaction.
Liquidity And Interest Sensitivity
(Tables 8 - 11)
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 55% of total funding sources at
September 30, 1997, compared to 59% of total funding sources at December 31,
1996 and 60% at September 30, 1996. As an additional indication of adequate
liquidity, securities available for sale represented 16%, and money market
investments an additional 6%, of Crestar's total earning assets at September 30,
1997.
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 and Interest
Rate Risk committees. The committees establish limits on the earnings at risk
for a 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 to assess the interest rate exposure of capital is the
quantification of a fair value of shareholders' equity. Fair value of equity
consists of the present value of all future cash flows from assets, liabilities
and off-balance sheet items. Potential changes in the fair value of equity are
calculated by projecting cash flows and then computing present values under
numerous interest rate scenarios. The fair value calculations include the
valuation of instruments with option characteristics, using numerous interest
rate path valuations and mathematical rate simulation techniques. Crestar has
been developing this tool and is incorporating it as its primary component of
interest rate risk management. However, the Corporation's measurement and
interpretation process for fair value models continues to be in a developmental
stage.
Another tool used by Crestar in assessing interest rate exposure is net
interest income simulations. The ALCO committee establishes limits on net income
at risk for a relevant planning period of 9 to 24 months. A net 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 the expertise of management
along with input from external financial market sources. While the simulation
<PAGE>
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, 1997, Crestar's
projected net income under the consensus interest rate scenario through year-end
1998 would decrease by approximately 3% in a high rate scenario, and would
increase by approximately 3% in a low interest rate scenario. These projections
were 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 third 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 8, and reflects the earlier of the
maturity or repricing dates for various assets and liabilities at September 30,
1997. At that point in time, Crestar had a cumulative net liability sensitive
twelve-month gap with $4.7 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, interest
rate gap.
In addition to the traditional gap measurement presentation, Table 8 also
presents interest sensitivity on an adjusted basis. These beta adjustments 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 rates paid on short-term
commercial notes. 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, 1997, with $0.3 billion excess of interest-sensitive
sources of funds over uses of funds. In comparison, the level of total earning
assets at September 30, 1997 was $20.7 billion. The static and adjusted gap do
not include $1.25 billion (notional amount) of interest rate floors that would
potentially offset the effect of falling interest rates on the fair value of
fixed rate domestic time deposits and on prepayment risk within the
Corporation's fixed rate real estate - mortgage loan portfolio. In addition, the
static gap and adjusted gap do not include $2.41 billion (notional amount) of
interest rate caps that would potentially offset the effect of rising interest
rates on various earning assets and funding sources (see Table 9).
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 income, such as changes in credit
quality or changes in the amount and composition of earning assets and sources
of funds, or unusual market relationships for financial instruments.
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
outstanding interest rate swap instruments at September 30, 1997 are utilized to
convert certain variable rate assets to fixed rates in order to lock in a
profitable interest spread based on the underlying fixed rate funding sources.
The majority of Crestar's outstanding interest rate cap instruments are utilized
to mitigate the declines in market value that can be experienced by fixed
interest rate securities in a rising interest rate environment. The majority of
outstanding interest rate floor instruments hedge the fair value of fixed rate
domestic time deposits in a declining interest rate environment. Table 9
provides further details on Crestar's outstanding derivative instruments at
September 30, 1997. Because financial derivatives typically do not have actual
principal dollars transferred between parties, notional principal amounts are
used to express the volume of such transactions. However, the notional amount of
derivative contracts does not represent direct credit exposure. Crestar' s
direct credit exposure is generally limited to the estimated replacement cost of
those instruments in a gain position. Crestar has established policies governing
derivative activities, and the counterparties used by Crestar are considered an
acceptable risk. In addition, Crestar may demand collateral from a counterparty
to further minimize credit risk. There were no past due amounts or reserves for
<PAGE>
possible derivative credit losses at September 30, 1997, nor has Crestar ever
experienced any charge-offs related to the credit risk of derivative
transactions. Interest rate simulation techniques are used by Crestar to assess
and monitor market risk in the Corporation's derivative portfolio. No interest
rate swaps, floors or caps utilized as hedges against interest rate risk were
sold or terminated prior to maturity during the third quarter of 1997, and at
September 30, 1997 there were no deferred gains or losses arising from
termination of hedged transactions prior to maturity.
The notional amount of Crestar's interest rate swaps, caps and floors
(excluding customer positions where Crestar acts as an intermediary) was $4.8
billion at September 30, 1997. Forward contracts with a notional amount of $1.6
billion, utilized to hedge lending commitments of Crestar's mortgage banking
subsidiary, were also outstanding at September 30, 1997, bringing the total
notional value of derivative financial instruments related to interest rate risk
management activities to $6.4 billion at September 30, 1997. Tables 9, 10, and
11 present information regarding fair values, maturity, average rates, and
activity as of and for the nine month period ending September 30, 1997 for these
off-balance sheet derivative instruments. Net unrealized losses on these
instruments totaled $17.7 million as of September 30, 1997. Financial statement
note 11 contains additional information pertaining to these types of agreements.
New Accounting Standards
The Financial Accounting Standards Board (FASB) has issued Statement of
Financial Accounting Standards No. 130 (SFAS 130), "Reporting Comprehensive
Income," which will be effective for fiscal years beginning after December 15,
1997. SFAS 130 establishes standards for reporting and presentation of
comprehensive income and its components (revenues, expenses, gains and losses)
in a full set of general-purpose financial statements. Generally, comprehensive
income includes net income and other transactions not typically recorded as a
component of net income, including changes in unrealized gains and losses on
securities available for sale. SFAS 130 requires the disclosure of an amount
that represents total comprehensive income and the components of comprehensive
income in a consolidated financial statement.
The FASB has also issued Statement of Financial Accounting Standards No. 131
(SFAS 131), "Disclosures about Segments of an Enterprise and Related
Information," which will be effective for financial statements for periods
beginning after December 15, 1997, including interim periods. SFAS 131
establishes standards for determining a company's operating segments and the
type and level of financial information to be disclosed in both annual and
interim financial statements. It also establishes standards for related
disclosures about products and services, geographic areas, and major customers.
<PAGE>
Table 1 Financial Highlights
<TABLE>
<CAPTION>
Dollars in millions, except per share data Three Months Nine Months
% %
<S> <C>
For the Period Ended September 30 1997 1996 Change 1997 1996 Change
Net Income $79.5 $48.1 65 $227.1 $180.1 26
Primary Earnings Per Share:
Net Income $ .71 $ .43 65 $ 2.03 $ 1.61 26
Average Shares Outstanding (000s) 112,069 111,101 1 111,754 111,805 -
Fully Diluted Earnings Per Share:
Net Income $ .71 $ .43 65 $ 2.03 $ 1.61 26
Average Shares Outstanding (000s) 112,121 111,141 1 112,050 111,894 -
Dividends Paid Per Common Share $ .29 $ .26 12 $ .85 $.745 14
==========================================================================================================
Key Ratios
Return on Average Assets 1.47% .89% 1.41% 1.12%
Return on Average Equity 16.60 10.94 16.38 13.61
Average Equity to Average Assets 8.87 8.18 8.59 8.21
Net Interest Margin 4.47 4.44 4.51 4.44
At September 30
Book Value Per Share $17.60 $16.25 8
Equity to Assets 8.36% 7.97%
Risk Adjusted Capital Ratios:
Tier I 10.4 9.4
Total 13.0 12.3
Common Shares Outstanding (000s) 110,188 109,970
==========================================================================================================
</TABLE>
Table 2 Analysis Of Primary Earnings Per Share
3rd Qtr. 1997 3rd Qtr. 1997
vs. vs.
3rd Qtr. 1996 2nd Qtr. 1997
Primary Earnings Per Share - prior period $ .43 $ .68
- ------------------------------------------------------------------------------
Interest income .02 .04
Interest expense (.01) (.04)
Provision for loan losses .04 .10
Other noninterest income .09 (.09)
SAIF assessment expense(1) .19 -
Repeal of thrift bad debt tax legislation(2) (.09) -
Other noninterest expense .03 .03
Change in effective income tax rate .01 (.01)
- ------------------------------------------------------------------------------
Net increase .28 .03
- ------------------------------------------------------------------------------
Primary Earnings Per Share - current period $ .71 $ .71
==============================================================================
(1) During the third quarter of 1996 Crestar recorded a one-time after-tax
charge of $21.5 million, or $.19 per share, associated with congressional
legislation regarding the recapitalization of the Savings Association
Insurance Fund.
(2) During the third quarter of 1996, a nonrecurring tax benefit of $10.6
million, or $.09 per share, was recorded in connection with the repeal of
thrift bad debt tax legislation.
<PAGE>
Table 3 Average Balances, Net Interest Income And Rate/Volume Analysis(1)
Dollars in thousands
<TABLE>
<CAPTION>
3rd Qtr. 2nd Qtr.
Average Balance Average
Increase Balance
1997 1996 (Decrease) 1997
$ $ % $
<S> <C>
3,943,788 3,721,257 6 3,833,655 Commercial
1,268,940 1,270,153 - 1,270,639 Real estate - income property
334,002 332,543 - 334,572 Real estate - construction
4,349,511 3,701,600 18 4,099,809 Instalment
1,165,156 1,503,538 (23) 1,228,168 Bank card
3,336,618 2,978,421 12 3,333,024 Real estate - mortgage
- -------------------------------------------------------------------------------------------------------------
14,398,015 13,507,512 7 14,099,867 Total loans - net of unearned income(2)
- -------------------------------------------------------------------------------------------------------------
687,292 1,085,934 (37) 771,671 Securities held to maturity
3,361,761 3,937,194 (15) 3,778,013 Securities available for sale
489,870 210,087 133 160,914 Money market investments
725,458 957,035 (24) 551,352 Mortgage loans held for sale
- -------------------------------------------------------------------------------------------------------------
19,662,396 19,697,762 - 19,361,817 Total earning assets
=============================================================================================================
5,812,468 5,801,219 - 5,805,429 Interest-bearing demand deposits
1,514,018 1,685,945 (10) 1,573,048 Regular savings deposits
4,188,632 4,939,296 (15) 4,336,813 Domestic time deposits
- -------------------------------------------------------------------------------------------------------------
11,515,118 12,426,460 (7) 11,715,290 Total interest-bearing core deposits
- -------------------------------------------------------------------------------------------------------------
3,879,491 3,329,126 17 3,419,958 Purchased liabilities
806,319 676,147 19 834,761 Long-term debt
- -------------------------------------------------------------------------------------------------------------
16,200,928 16,431,733 (1) 15,970,009 Total interest-bearing liabilities
3,461,468 3,266,029 6 3,391,808 Other sources - net
- -------------------------------------------------------------------------------------------------------------
19,662,396 19,697,762 - 19,361,817 Total sources of funds
- -------------------------------------------------------------------------------------------------------------
Net Interest Income
=============================================================================================================
</TABLE>
<TABLE>
<CAPTION>
3rd Qtr.
1997 vs. 1996
Income/Expense(3) Change due to(4)
Increase
1997 1996 (Decrease) Rate(5) Volume
$ $ $ $ $
<S> <C>
Commercial 79,886 75,560 4,326 (183) 4,509
Real estate - income property 28,416 27,737 679 705 (26)
Real estate - construction 7,335 7,989 (654) (689) 35
Instalment 89,268 77,269 11,999 (1,596) 13,595
Bank card 41,156 46,000 (4,844) 5,769 (10,613)
Real estate - mortgage 64,452 57,415 7,037 147 6,890
- ------------------------------------------------------------------------------------------------------------------
Total loans - net of unearned income(2) 310,513 291,970 18,543 (789) 19,332
- ------------------------------------------------------------------------------------------------------------------
Securities held to maturity 10,599 16,750 (6,151) (2) (6,149)
Securities available for sale 52,958 61,296 (8,338) 621 (8,959)
Money market investments 6,972 2,833 4,139 367 3,772
Mortgage loans held for sale 13,598 18,494 (4,896) (406) (4,490)
- ------------------------------------------------------------------------------------------------------------------
Total earning assets 394,640 391,343 3,297 4,002 (705)
==================================================================================================================
Interest-bearing demand deposits 44,592 42,741 1,851 1,526 325
Regular savings deposits 9,337 10,891 (1,554) (443) (1,111)
Domestic time deposits 52,424 63,514 (11,090) (1,410) (9,680)
- ------------------------------------------------------------------------------------------------------------------
Total interest-bearing core deposits 106,353 117,146 (10,793) (2,170) (8,623)
- ------------------------------------------------------------------------------------------------------------------
Purchased liabilities 52,953 43,875 9,078 1,828 7,250
Long-term debt 15,293 12,281 3,012 648 2,364
- ------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities 174,599 173,302 1,297 3,737 (2,440)
Other sources - net
- ------------------------------------------------------------------------------------------------------------------
Total sources of funds 174,599 173,302 1,297 1,609 (312)
- ------------------------------------------------------------------------------------------------------------------
Net Interest Income 220,041 218,041 2,000 2,393 (393)
==================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
3rd Qtr. 1997 vs. 2nd Qtr. 1997
2nd Qtr.
Income/ Change due to(4)
Expense(3) Increase
1997 (Decrease) Rate(5) Volume
$ $ $ $
<S> <C>
Commercial 77,406 2,480 271 2,209
Real estate - income property 27,847 569 606 (37)
Real estate - construction 7,586 (251) (238) (13)
Instalment 84,012 5,256 135 5,121
Bank card 43,145 (1,989) 296 (2,285)
Real estate - mortgage 64,068 384 315 69
- ------------------------------------------------------------------------------------------------
Total loans - net of unearned income(2) 304,064 6,449 2 6,447
- ------------------------------------------------------------------------------------------------
Securities held to maturity 11,642 (1,043) 230 (1,273)
Securities available for sale 59,875 (6,917) (320) (6,597)
Money market investments 2,266 4,706 73 4,633
Mortgage loans held for sale 10,618 2,980 (483) 3,463
- ------------------------------------------------------------------------------------------------
Total earning assets 388,465 6,175 126 6,049
================================================================================================
Interest-bearing demand deposits 42,939 1,653 1,304 349
Regular savings deposits 9,768 (431) (64) (367)
Domestic time deposits 53,450 (1,026) 808 (1,834)
- ------------------------------------------------------------------------------------------------
Total interest-bearing core deposits 106,157 196 2,018 (1,822)
- ------------------------------------------------------------------------------------------------
Purchased liabilities 45,557 7,396 1,290 6,106
Long-term debt 15,591 (298) 233 (531)
- ------------------------------------------------------------------------------------------------
Total interest-bearing liabilities 167,305 7,294 4,870 2,424
Other sources - net
- ------------------------------------------------------------------------------------------------
Total sources of funds 167,305 7,294 4,691 2,603
- ------------------------------------------------------------------------------------------------
Net Interest Income 221,160 (1,119) (4,565) 3,446
================================================================================================
</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 (costs) of $167,000 and $572,000 for
the third quarter of 1997 and 1996, respectively, and $(68,000) for the
second quarter of 1997.
(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 Allowance For Loan Losses
<TABLE>
<CAPTION>
Dollars in thousands Third Quarter Nine Months Ended Sept. 30,
1997 1996 1997 1996
<S> <C>
Beginning balance $279,190 $272,896 $268,868 $274,430
- ----------------------------------------------------------------------------------------------------------
Allowance from acquisitions and other activities, net - - - (888)
- ----------------------------------------------------------------------------------------------------------
Provision for loan losses 19,099 25,100 84,797 71,760
- ----------------------------------------------------------------------------------------------------------
Net charge-offs (recoveries):
Commercial (1,115) (1,474) (647) (1,202)
Real estate - income property (502) 34 (1,397) (1,515)
Real estate - construction 512 500 (99) 190
Instalment 3,555 4,755 12,138 14,391
Bank card 16,922 20,810 63,157 59,011
Real estate - mortgage 586 468 2,182 1,524
- ----------------------------------------------------------------------------------------------------------
Total net charge-offs 19,958 25,093 75,334 72,399
- ----------------------------------------------------------------------------------------------------------
Balance, September 30 $278,331 $272,903 $278,331 $272,903
==========================================================================================================
Allowance for loan losses to period-end loans 1.90% 2.01% 1.90% 2.01%
Annualized net charge-offs to average loans .55 .74 .71 .71
==========================================================================================================
</TABLE>
<PAGE>
Table 5 Nonperforming Assets(1) And Past Due Loans
<TABLE>
<CAPTION>
Dollars in thousands September 30, December 31,
Nonaccrual loans: 1997 1996 1996
<S> <C>
Commercial $10,462 $ 20,768 $ 20,348
Real estate - income property 6,026 20,383 22,624
Real estate - construction 16,976 11,441 10,368
Instalment 2,895 2,547 2,895
Real estate - mortgage 25,048 23,593 25,208
- -----------------------------------------------------------------------------------------
Total nonperforming loans(1) 61,407 78,732 81,443
Foreclosed properties - net 26,757 37,957 27,515
- -----------------------------------------------------------------------------------------
Total nonperforming assets(1) $88,164 $116,689 $108,958
=========================================================================================
Nonperforming assets(1) to:
Loans and foreclosed properties - net .60% .86% .77%
Total assets .38 .52 .48
Allowance for loan losses to:
Nonperforming assets(1) 316 234 247
Nonperforming loans(1) 453 347 330
Allowance for loan losses plus shareholders'
equity to nonperforming assets(1) 25.16x 17.66x 18.80x
======================================================================================================================
Accruing loans past due 90 days:
Commercial $ 3,915 $ 9,110 $9,480
Real estate - income property 2,471 1,710 503
Real estate - construction 16 - -
Instalment
Student 23,766 16,717 21,614
Other 6,388 5,877 7,587
Bank card 21,315 23,810 25,573
Real estate - mortgage 5,089 6,520 7,117
- ----------------------------------------------------------------------------------------------------------------------
Total accruing loans past due 90 days $62,960 $ 63,744 $ 71,874
======================================================================================================================
</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 6 Noninterest Income And Expense
<TABLE>
<CAPTION>
In thousands Second Nine Months Ended
Third Quarter Quarter September 30,
Noninterest Income 1997 1996 1997 1997 1996
<S> <C>
Service charges on deposit accounts $ 30,893 $ 29,267 $ 31,731 $ 92,787 $ 84,330
Trust and investment advisory 19,308 16,801 17,887 54,648 48,541
Bank card-related 9,236 13,476 9,771 31,655 38,529
Other service charges and fees 9,656 8,130 8,730 26,829 22,595
Mortgage servicing - net 3,288 3,888 3,582 12,001 12,508
Mortgage origination - net 7,254 1,015 2,359 10,515 9,232
Trading account activities 1,444 1,017 1,162 3,553 2,788
Commissions on letters of credit 1,207 1,301 1,299 3,620 3,839
Gain on sale of mortgage servicing rights - - 4,000 10,450 4,750
Gain (loss) on sale and disposal of branches
and other properties - net 717 (4,485) - 6,524 (4,131)
Gain on sale of merchant card processing - - 17,325 17,325 -
Miscellaneous 12,982 9,811 13,261 36,588 33,738
Securities gains (losses) 124 96 (91) 4,097 2,739
- ----------------------------------------------------------------------------------------------------------
Total noninterest income $ 96,109 $ 80,317 $111,016 $310,592 $259,458
==========================================================================================================
Noninterest Expense
Salaries $ 74,426 $ 77,467 $ 75,914 $228,728 $230,079
Benefits 20,708 20,366 20,633 62,295 60,516
- ----------------------------------------------------------------------------------------------------------
Total personnel 95,134 97,833 96,547 291,023 290,595
Occupancy - net 14,957 15,518 13,685 44,800 46,918
Equipment 9,970 9,416 11,462 31,251 28,426
Communications 9,194 9,480 9,278 27,317 28,286
Stationery, printing and supplies 2,362 2,621 2,615 7,690 8,824
Professional fees and services 5,610 5,904 8,333 20,978 16,447
Loan expense 3,116 3,071 2,783 8,714 9,339
FDIC premiums - net 235 37,376 682 2,024 44,115
Advertising and marketing 6,146 6,025 5,345 16,021 19,432
Transportation 1,782 1,714 1,774 5,281 5,201
Outside data services 6,451 5,775 6,837 19,510 17,861
Amortization of purchased intangibles 4,280 4,175 4,206 12,713 12,450
Miscellaneous 13,310 12,356 14,818 42,880 40,423
- ----------------------------------------------------------------------------------------------------------
Subtotal 172,547 211,264 178,365 530,202 568,317
Foreclosed properties (net recoveries) 684 775 645 2,044 (431)
- ----------------------------------------------------------------------------------------------------------
Total noninterest expense $173,231 $212,039 $179,010 $532,246 $567,886
==========================================================================================================
</TABLE>
Table 7 Debt And Other Security Ratings
(as of October 31, 1997)
Standard Thomson
Security Moody's & Poor's BankWatch
83/4% Subordinated Notes due 2004 Baa1 BBB+ A-
81/4% Subordinated Notes due 2002 Baa1 BBB+ A-
85/8% Subordinated Notes due 1998 Baa1 BBB+ A-
Commercial Paper P-2 Not rated TBW-1
Crestar Bank Deposits:
Long-Term A2 A Not rated
Short-Term P-1 A-1 TBW-1
Crestar Capital Trust 1
Preferred Stock Baa1 BBB Not rated
=========================================================================
<PAGE>
Table 8 Interest Sensitivity Analysis
September 30, 1997
<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 $ 2,734.2 $ 68.1 $ 86.6 $ 121.5 $1,072.6 $ 4,083.0
Real estate - income property 504.0 19.5 15.0 45.7 670.2 1,254.4
Real estate - construction 286.5 2.2 0.9 3.0 48.6 341.2
Instalment 2,346.6 76.8 95.4 150.5 2,094.5 4,763.8
Bank card 373.5 67.2 104.1 525.9 77.6 1,148.3
Real estate - mortgage 139.0 272.5 646.8 652.5 1,377.0 3,087.8
Securities held to maturity 20.7 31.2 42.1 134.6 433.9 662.5
Securities available for sale 359.6 65.3 105.2 181.6 2,622.1 3,333.8
Money market investments 1,167.3 - - - - 1,167.3
Mortgage loans held for sale 851.7 - - - - 851.7
- ----------------------------------------------------------------------------------------------------------
Total earning assets 8,783.1 602.8 1,096.1 1,815.3 8,396.5 20,693.8
Interest sensitivity hedges on assets (1,150.0) - 100.0 900.0 150.0 -
- ----------------------------------------------------------------------------------------------------------
Total uses $ 7,633.1 $ 602.8 $1,196.1 $2,715.3 $8,546.5 $20,693.8
==========================================================================================================
Sources of Funds
Interest-bearing demand deposits $ 5,800.6 $ - $ - $ - $ - $ 5,800.6
Regular savings deposits 1,464.6 - - - - 1,464.6
Domestic time deposits 338.0 449.1 1,040.1 1,142.9 1,122.5 4,092.6
Certificates of deposit $100,000
and over 213.2 619.9 417.6 178.5 2.9 1,432.1
Short-term borrowings 3,057.9 445.5 176.8 75.0 - 3,755.2
Long-term debt 3.3 3.5 69.3 33.6 689.7 799.4
- ----------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities 10,877.6 1,518.0 1,703.8 1,430.0 1,815.1 17,344.5
Other sources - net - - - - 3,349.3 3,349.3
Interest sensitivity hedges on liabilities - (5.0) - 5.0 - -
- ----------------------------------------------------------------------------------------------------------
Total sources $10,877.6 $1,513.0 $1,703.8 $1,435.0 $5,164.4 $20,693.8
==========================================================================================================
Cumulative maturity/rate
sensitivity gap $(3,244.5) $(4,154.7) $(4,662.4) $(3,382.1) $ - $ -
==========================================================================================================
Adjustments
Beta adjustments:
Interest-bearing demand deposits
(beta factor .30) $ 4,038.0
Regular savings (beta factor .11) 1,303.5
Demand deposit sensitivity (956.9)
- ----------------------------------------------------------------------------------------------------------
Cumulative adjusted maturity/rate
sensitivity gap $ 1,140.1 $ 229.9 $ (277.8) $ 1,002.5 $ - $ -
==========================================================================================================
</TABLE>
<PAGE>
Table 9 Off-Balance Sheet Derivative Financial Instruments(1)
<TABLE>
<CAPTION>
September 30, 1997 Average
Weighted Fixed Estimated
Dollars in thousands Notional Average Receive Fair
Balance Maturity Rate Value Comments
<S> <C>
Interest Rate Conversions
Generic interest rate swaps $1,150,000 2.8 yrs. 6.09% Notional amounts of $900
Carrying amount(2) $ 884 million and $250 million
Commercial loan program convert floating rate commercial
Unrealized gains 7,234 and instalment loans, respectively,
Unrealized losses (3,496) to fixed rate. Floating rates paid
Instalment loan program tied to LIBOR.
Unrealized losses (827)
--------
Estimated fair value 3,795
--------
Interest rate caps 465,000 3.3 yrs. 6.91%(3) Notional amount of $465 million
Carrying amount(2) 6,749 hedges the interest rate risk
Money market deposit program associated with rising interest
Unrealized gains 17 rates on floating rate money
Unrealized losses (2,513) market deposits (strike rate tied
-------- to LIBOR).
Estimated fair value 4,253
--------
Market Value Hedges
Interest rate caps 1,950,000 2.5 yrs. 7.56%(3) Notional amount of $1.75 billion
Carrying amount(2) 14,596 hedges the market value of fixed
Securities available for sale program(5) rate securities available for sale
Unrealized losses (10,465) in a rising rate environment (strike
Real estate income property loan program rate for $800 million tied to 5 year
Unrealized losses (827) CMT; strike rate for $950 million
tied to LIBOR). Notional amount
of $200 million hedges the
market value of fixed rate real
estate income property loans
-------- (strike rate tied to LIBOR).
Estimated fair value 3,304
--------
Interest rate floors 1,250,000 3.4 yrs. 5.68%(4) Notional amount of $250 million
Carrying amount(2) 7,015 hedges the prepayment risk
Real estate mortgage loan program associated with fixed rate
Unrealized gains 647 mortgage loans in a declining rate
Domestic time deposit program environment (strike rate tied to
Unrealized gains 590 10 year CMT). Notional amount
Unrealized losses (444) of $1.0 billion hedges the fair value
of fixed rate domestic time deposits
-------- (strike rate tied to 5 year CMT).
Estimated fair value 7,808
--------
Hedges of Lending Commitments
Forward contracts 1,577,041 .2 yrs. n/a Hedges of residential mortgage
Unrealized gains 1,131 lending commitments.
Unrealized losses (8,721)
--------
Estimated fair value (7,590)
Total hedges against ---------- --------
interest rate risk $6,392,041 $11,570
=====================================================================================================================
</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
5 year CMT - Yield on 5 year constant maturity U.S. Treasury securities
10 year CMT - Yield on 10 year constant maturity U.S. Treasury securities
<PAGE>
Table 10 Off-Balance Sheet Derivatives--Expected Maturities(1)
<TABLE>
<CAPTION>
September 30, 1997
Dollars in thousands Within One to Three to Over
One Year Three Years Five Years Five Years Total
<S> <C>
Interest Rate Conversions
Generic interest rate swaps:
Notional amount $ 100,000 $ 650,000 $250,000 $150,000 $1,150,000
Average fixed receive rate 5.67% 5.85% 6.25% 7.16% 6.09%
Carrying amount $ (41) $ (7) $ 184 $ 748 $ 884
Net unrealized gain (loss) (283) (3,006) 282 5,918 2,911
Interest rate caps
Notional amount $ 10,000 $ 255,000 $200,000 $ - $ 465,000
Average strike rate 5.75% 7.47% 6.25% - 6.91%
Carrying amount $ 5 $ 1,362 $ 5,382 $ - $ 6,749
Net unrealized gain (loss) 4 (1,003) (1,497) - (2,496)
Market Value Hedges
Interest rate caps
Notional amount $ - $1,950,000 $ - $ - $1,950,000
Average strike rate - 7.56% - - 7.56%
Carrying amount $ - $ 14,596 $ - $ - $ 14,596
Unrealized loss - (11,292) - - (11,292)
Interest rate floors
Notional amount $ - $ 700,000 $450,000 $100,000 $1,250,000
Average strike rate - 5.63% 5.75% 5.75% 5.68%
Carrying amount $ - $ 2,464 $ 3,374 $ 1,177 $ 7,015
Net unrealized gain (loss) - (72) 601 264 793
Hedges of Lending Commitments
Forward contracts:(2)
Notional amount $1,577,041 $ - $ - $ - $1,577,041
Net unrealized loss (7,590) - - - (7,590)
Total hedges against
interest rate risk:
Notional amount $1,687,041 $3,555,000 $900,000 $250,000 $6,392,041
Carrying amount (36) 18,415 8,940 1,925 29,244
Net unrealized gain (loss) (7,869) (15,373) (614) 6,182 (17,674)
--------- ----------- ----------- --------- -----------
Estimated fair value $ (7,905) $ 3,042 $ 8,326 $ 8,107 $ 11,570
==========================================================================================================
</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 11 Off-Balance Sheet Derivatives Activity(1)
<TABLE>
<CAPTION>
In thousands
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, 1997 $1,150,000 $465,000 $1,950,000 $1,250,000 $ 978,196 $5,793,196
Additions - - - - 1,782,817 1,782,817
Maturities - - - - (1,183,972) (1,183,972)
- ----------------------------------------------------------------------------------------------------------
Balance, September 30, 1997 $1,150,000 $465,000 $1,950,000 $1,250,000 $1,577,041 $6,392,041
==========================================================================================================
Balance, January 1, 1997 $ 900,000 $ 35,000 $1,750,000 $1,000,000 $ 706,731 $4,391,731
Additions 250,000 450,000 400,000 250,000 3,856,381 5,206,381
Terminations - - (200,000) - - (200,000)
Maturities - (20,000) - - (2,986,071) (3,006,071)
- ----------------------------------------------------------------------------------------------------------
Balance, September 30, 1997 $1,150,000 $465,000 $1,950,000 $1,250,000 $1,577,041 $6,392,041
==========================================================================================================
</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 12 Selected Quarterly Financial Information
<TABLE>
<CAPTION>
Dollars in thousands, except per share data 3rd Qtr. 2nd Qtr. 1st Qtr. 4th Qtr.(3) 3rd Qtr.(2)
Results of operations: 1997 1997 1997 1996 1996
<S> <C>
Net interest income(1) $220,041 $221,160 $222,200 $222,976 $218,041
Provision for loan losses 19,099 36,000 29,698 24,130 25,100
- ----------------------------------------------------------------------------------------------------------
Net credit income 200,942 185,160 192,502 198,846 192,941
Securities gains (losses) 124 (91) 4,064 654 96
Other noninterest income 95,985 111,107 99,403 73,078 80,221
- ----------------------------------------------------------------------------------------------------------
Net credit and noninterest income 297,051 296,176 295,969 272,578 273,258
Noninterest expense 173,231 179,010 180,005 212,465 212,039
- ----------------------------------------------------------------------------------------------------------
Income before taxes 123,820 117,166 115,964 60,113 61,219
- ----------------------------------------------------------------------------------------------------------
Tax-equivalent adjustment 2,903 2,851 2,540 2,508 2,475
Book tax expense 41,374 38,525 41,644 19,439 10,626
- ----------------------------------------------------------------------------------------------------------
Income tax expense 44,277 41,376 44,184 21,947 13,101
- ----------------------------------------------------------------------------------------------------------
Net Income $ 79,543 $ 75,790 $ 71,780 $ 38,166 $ 48,118
==========================================================================================================
Primary
Earnings per share $ .71 $ .68 $ .64 $ .34 $ .43
Average shares outstanding (000s) 112,069 111,602 111,579 111,447 111,101
Fully diluted
Earnings per share $ .71 $ .68 $ .64 $ .33 $ .43
Average shares outstanding (000s) 112,121 111,697 111,580 111,647 111,141
Dividends paid .29 .29 .27 .26 .26
==========================================================================================================
Selected ratios and other data:
Return on average assets 1.47% 1.42% 1.33% .70% .89%
Return on average equity 16.60 16.48 16.06 8.42 10.94
Net interest margin(1) 4.47 4.58 4.51 4.47 4.44
Net charge-offs as % of average loans .55 .73 .86 .84 .74
Allowance as % of period-end loans 1.90 1.96 1.89 1.91 2.01
Overhead ratio 54.79 53.89 55.27 71.61 71.07
Average equity to assets 8.87 8.64 8.26 8.29 8.18
Average equity leverage 11.28x 11.57x 12.11x 12.06x 12.23x
Full-time equivalent employees (period-end) 7,934 7,960 7,992 8,720 8,600
==========================================================================================================
</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 $.19 per share, associated with congressional
legislation regarding the recapitalization of the Savings Association
Insurance Fund. Also in the third quarter of 1996, a nonrecurring tax
benefit of $10.6 million, or $.09 per share, was recorded in connection with
the repeal of thrift bad debt tax legislation.
(3) During the fourth quarter of 1996, nonrecurring after-tax merger costs
totaling $32.5 million, or $.29 per share, were recorded as part of the
pooling-of-interests merger with Citizens Bancorp.
<PAGE>
Table 13 Consolidated Average Balances/Net Interest Income/Rates(1)
<TABLE>
<CAPTION>
Three Months Ended September 30,
1997 1996
Dollars in thousands Income/ Yield/ Income/ Yield/
Balance Expense Rate Balance Expense Rate
<S> <C>
Assets $ $ % $ $ %
Securities held to maturity(2) 687,292 10,599 6.16 1,085,934 16,750 6.16
Securities available for sale(2) 3,361,761 52,958 6.30 3,937,194 61,296 6.24
Money market investments(2) 489,870 6,972 5.65 210,087 2,833 5.36
Mortgage loans held for sale(2) 725,458 13,598 7.53 957,035 18,494 7.75
- -----------------------------------------------------------------------------------------------------------
Commercial 3,943,788 79,886 8.01 3,721,257 75,560 8.07
Real estate - income property 1,268,940 28,416 8.75 1,270,153 27,737 8.68
Real estate - construction 334,002 7,335 8.72 332,543 7,989 9.56
Instalment 4,349,511 89,268 8.23 3,701,600 77,269 8.38
Bank card 1,165,156 41,156 14.51 1,503,538 46,000 12.47
Real estate - mortgage 3,336,618 64,452 7.61 2,978,421 57,415 7.70
- -----------------------------------------------------------------------------------------------------------
Total loans(2), (3) 14,398,015 310,513 8.59 13,507,512 291,970 8.66
Allowance for loan losses (280,792) (274,104)
- -----------------------------------------------------------------------------------------------------------
Loans - net 14,117,223 13,233,408
Cash and due from banks 861,622 860,252
Premises and equipment - net 464,710 418,936
Intangible assets - net 170,084 186,717
Foreclosed properties - net 33,469 34,445
Other assets 705,765 585,168
- -----------------------------------------------------------------------------------------------------------
Total Assets 21,617,254 21,509,176
========== ===========
Total Earning Assets 19,662,396 394,640 8.00 19,697,762 391,343 7.95
========== ======= ==== ========== ======= ====
Liabilities And Shareholders' Equity
Interest-bearing demand deposits 5,812,468 44,592 3.04 5,801,219 42,741 2.95
Regular savings deposits 1,514,018 9,337 2.45 1,685,945 10,891 2.57
Domestic time deposits 4,188,632 52,424 5.00 4,939,296 63,514 5.14
Certificates of deposit $100,000 and over 1,028,382 14,722 5.68 414,452 5,655 5.43
- -----------------------------------------------------------------------------------------------------------
Total savings and time deposits(2) 12,543,500 121,075 3.84 12,840,912 122,801 3.84
Demand deposits 3,131,322 3,038,931
- -----------------------------------------------------------------------------------------------------------
Total deposits 15,674,822 15,879,843
Short-term borrowings(2) 2,851,109 38,231 5.32 2,914,674 38,220 5.21
Long-term debt(2) 806,319 15,293 7.59 676,147 12,281 7.27
Other liabilities 368,618 279,357
- -----------------------------------------------------------------------------------------------------------
Total liabilities 19,700,868 19,750,021
- -----------------------------------------------------------------------------------------------------------
Total shareholders' equity 1,916,386 1,759,155
- -----------------------------------------------------------------------------------------------------------
Total Liabilities And Shareholders' Equity 21,617,254 21,509,176
========== ==========
Total interest-bearing liabilities 16,200,928 174,599 4.29 16,431,733 173,302 4.20
Other sources - net 3,461,468 3,266,029
- -----------------------------------------------------------------------------------------------------------
Total Sources Of Funds 19,662,396 174,599 3.53 19,697,762 173,302 3.51
========== ======= ==== ========== ======== ====
Net Interest Spread 3.71 3.75
Net Interest Income/Margin 220,041 4.47 218,041 4.44
===========================================================================================================
</TABLE>
Three Months Ended June 30,
1997
Dollars in thousands Income/ Yield/
Balance Expense Rate
Assets $ $ %
Securities held to maturity(2) 771,671 11,642 6.04
Securities available for sale(2) 3,778,013 59,875 6.32
Money market investments(2) 160,914 2,266 5.65
Mortgage loans held for sale(2) 551,352 10,618 7.89
- -----------------------------------------------------------------------------
Commercial 3,833,655 77,406 8.06
Real estate - income property 1,270,639 27,847 8.77
Real estate - construction 334,572 7,586 9.09
Instalment 4,099,809 84,012 8.21
Bank card 1,228,168 43,145 14.39
Real estate - mortgage 3,333,024 64,068 7.68
- -----------------------------------------------------------------------------
Total loans(2), (3) 14,099,867 304,064 8.65
Allowance for loan losses (269,823)
- -----------------------------------------------------------------------------
Loans - net 13,830,044
Cash and due from banks 876,737
Premises and equipment - net 452,803
Intangible assets - net 174,283
Foreclosed properties - net 29,107
Other assets 669,267
- -----------------------------------------------------------------------------
Total Assets 21,294,191
==========
Total Earning Assets 19,361,817 388,465 8.05
========== ======== ====
Liabilities And Shareholders' Equity
Interest-bearing demand deposits 5,805,429 42,939 2.97
Regular savings deposits 1,573,048 9,768 2.49
Domestic time deposits 4,336,813 53,450 4.98
Certificates of deposit $100,000 and over 836,682 11,608 5.57
- -----------------------------------------------------------------------------
Total savings and time deposits(2) 12,551,972 117,765 3.77
Demand deposits 3,124,043
- -----------------------------------------------------------------------------
Total deposits 15,676,015
Short-term borrowings(2) 2,583,276 33,949 5.26
Long-term debt(2) 834,761 15,591 7.47
Other liabilities 360,040
- -----------------------------------------------------------------------------
Total liabilities 19,454,092
- -----------------------------------------------------------------------------
Total shareholders' equity 1,840,099
- -----------------------------------------------------------------------------
Total Liabilities And Shareholders' Equity 21,294,191
Total interest-bearing liabilities 15,970,009 167,305 4.21
Other sources - net 3,391,808
- -----------------------------------------------------------------------------
Total Sources Of Funds 19,361,817 167,305 3.47
========== ======== ====
Net Interest Spread 3.84
Net Interest Income/Margin 221,160 4.58
=============================================================================
<TABLE>
<CAPTION>
Nine Months Ended September 30,
1997 1996
Dollars in thousands Income/ Yield/ Income/ Yield/
Balance Expense Rate Balance Expense Rate
<S> <C>
Assets $ $ % $ $ %
Securities held to maturity(2) 788,439 35,949 6.08 1,069,800 48,730 6.08
Securities available for sale(2) 3,734,389 176,682 6.31 3,771,606 178,491 6.31
Money market investments(2) 336,567 13,925 5.53 240,103 9,681 5.39
Mortgage loans held for sale(2) 619,655 35,856 7.75 866,404 48,940 7.54
- -------------------------------------------------------------------------------------------------------------
Commercial 3,863,402 232,672 8.04 3,698,589 225,211 8.13
Real estate - income property 1,261,599 83,546 8.85 1,262,760 82,883 8.77
Real estate - construction 326,725 21,993 8.84 364,641 26,243 9.60
Instalment 4,185,846 254,732 8.13 3,687,951 232,236 8.40
Bank card 1,243,386 131,240 14.20 1,566,427 142,235 12.17
Real estate - mortgage 3,241,506 187,841 7.71 3,099,963 180,381 7.75
- -------------------------------------------------------------------------------------------------------------
Total loans2, 3 14,122,464 912,024 8.63 13,680,331 889,189 8.68
Allowance for loan losses (273,279) (274,674)
- -------------------------------------------------------------------------------------------------------------
Loans - net 13,849,185 13,405,657
Cash and due from banks 867,300 934,037
Premises and equipment - net 453,814 414,304
Intangible assets - net 174,221 185,081
Foreclosed properties - net 30,378 37,125
Other assets 665,977 577,306
- -------------------------------------------------------------------------------------------------------------
Total Assets 21,519,925 21,501,423
========== ==========
Total Earning Assets 19,601,514 1,174,436 8.00 19,628,244 1,175,031 7.99
========== ========== ==== ========== =========== ====
Liabilities And Shareholders' Equity
Interest-bearing demand deposits 5,804,721 129,345 2.98 5,829,648 128,562 2.95
Regular savings deposits 1,565,321 29,069 2.48 1,709,416 33,343 2.61
Domestic time deposits 4,341,275 160,937 4.97 5,081,148 200,077 5.27
Certificates of deposit $100,000 and over 795,530 33,208 5.58 230,440 9,254 5.37
- -------------------------------------------------------------------------------------------------------------
Total savings and time deposits(2) 12,506,847 352,559 3.77 12,850,652 371,236 3.86
Demand deposits 3,126,154 3,012,310
- -------------------------------------------------------------------------------------------------------------
Total deposits 15,633,001 15,862,962
Short-term borrowings(2) 2,847,790 111,977 5.25 2,896,010 112,985 5.21
Long-term debt(2) 831,256 46,499 7.46 697,033 37,531 7.18
Other liabilities 359,189 280,542
- -------------------------------------------------------------------------------------------------------------
Total liabilities 19,671,236 19,736,547
- -------------------------------------------------------------------------------------------------------------
Total shareholders' equity 1,848,689 1,764,876
- -------------------------------------------------------------------------------------------------------------
Total Liabilities And Shareholders' Equity 21,519,925 21,501,423
========== ==========
Total interest-bearing liabilities 16,185,893 511,035 4.22 16,443,695 521,752 4.24
Other sources - net 3,415,621 3,184,549
- -------------------------------------------------------------------------------------------------------------
Total Sources Of Funds 19,601,514 511,035 3.49 19,628,244 521,752 3.55
========== ======= ==== ========== ======== ====
Net Interest Spread 3.78 3.75
Net Interest Income/Margin 663,401 4.51 653,279 4.44
=============================================================================================================
</TABLE>
(1) Income and yields are computed on a tax-equivalent basis using the statutory
federal income tax rate exclusive of the
(2) Indicates earning asset or interest-bearing liability. alternative minimum
tax and nondeductible interest expense.
(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, 1997 /s/ James D. Barr
----------------- ----------------------------------
James D. Barr
Executive Vice President,
Controller and Treasurer
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C> <C>
<PERIOD-TYPE> 9-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1996
<PERIOD-END> SEP-30-1997 SEP-30-1996
<CASH> 885,956 1,009,625
<INT-BEARING-DEPOSITS> 12,789,883 13,394,442
<FED-FUNDS-SOLD> 1,139,023 718,260
<TRADING-ASSETS> 4,909 5,191
<INVESTMENTS-HELD-FOR-SALE> 3,333,777 4,066,165
<INVESTMENTS-CARRYING> 662,517 1,070,708
<INVESTMENTS-MARKET> 666,339 1,064,475
<LOANS> 14,678,573 13,570,945
<ALLOWANCE> 278,331 272,903
<TOTAL-ASSETS> 23,188,437 22,415,498
<DEPOSITS> 16,109,680 16,612,113
<SHORT-TERM> 3,755,235 2,853,651
<LIABILITIES-OTHER> 584,570 493,725
<LONG-TERM> 799,375 668,458
0 0
0 0
<COMMON> 550,940 274,926
<OTHER-SE> 1,388,637 1,512,625
<TOTAL-LIABILITIES-AND-EQUITY> 23,188,437 22,415,498
<INTEREST-LOAN> 905,922 884,097
<INTEREST-INVEST> 210,497 224,896
<INTEREST-OTHER> 49,723 58,601
<INTEREST-TOTAL> 1,166,142 1,167,594
<INTEREST-DEPOSIT> 352,559 371,236
<INTEREST-EXPENSE> 511,035 521,752
<INTEREST-INCOME-NET> 655,107 645,842
<LOAN-LOSSES> 84,797 71,760
<SECURITIES-GAINS> 4,097 2,739
<EXPENSE-OTHER> 532,246 567,886
<INCOME-PRETAX> 348,656 265,654
<INCOME-PRE-EXTRAORDINARY> 227,113 180,105
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 227,113 180,105
<EPS-PRIMARY> 2.03 1.61
<EPS-DILUTED> 2.03 1.61
<YIELD-ACTUAL> 4.51 4.44
<LOANS-NON> 61,407 78,732
<LOANS-PAST> 62,960 63,744
<LOANS-TROUBLED> 0 0
<LOANS-PROBLEM> 103,000 169,000
<ALLOWANCE-OPEN> 268,868 274,430
<CHARGE-OFFS> 98,327 96,214
<RECOVERIES> 22,993 23,815
<ALLOWANCE-CLOSE> 278,331 272,903
<ALLOWANCE-DOMESTIC> 0 0
<ALLOWANCE-FOREIGN> 0 0
<ALLOWANCE-UNALLOCATED> 0 0
</TABLE>
