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 March 31, 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 April 30, 1997
Common Stock, $5 par value 110,330,098
1
<PAGE>
Crestar Financial Corporation And Subsidiaries
Form 10-Q
For The Quarter Ended March 31, 1997
Part I. Financial Information
Item 1. Financial Statements:
<TABLE>
<CAPTION>
Page
<S> <C>
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..................................................................
</TABLE>
Part II. Other Information
Item 6. Exhibits And Reports On Form 8-K:
During the first quarter of 1997, Crestar filed a Form 8-K
dated January 14, 1997, amended by Form 8-K/A dated March
14, 1997, relating to the consummation on December 31, 1996
of the pooling of interests business combination with
Citizens Bancorp. The filing included financial statements
and applicable pro forma financial information pertaining to
the business combination.
2
<PAGE>
Consolidated Balance Sheets
Crestar Financial Corporation And Subsidiaries
<TABLE>
<CAPTION>
Dollars in thousands, except share data
March 31, December 31,
Assets 1997 1996 1996
<S> <C>
Cash and due from banks $ 938,417 $ 903,783 $ 1,105,036
Securities held to maturity (note 2) 818,199 1,046,027 967,510
Securities available for sale (note 3) 3,918,514 4,000,411 4,318,349
Money market investments (note 4) 578,664 366,738 745,672
Mortgage loans held for sale 543,177 758,848 658,838
Loans (note 5):
Business Loans:
Commercial 4,021,873 3,717,594 4,002,574
Real estate - income property 1,267,867 1,250,535 1,242,097
Real estate - construction 328,856 392,732 314,016
Consumer Loans:
Instalment 4,092,264 3,684,277 4,060,174
Bank card 1,259,193 1,598,375 1,422,934
Real estate - mortgage 3,244,002 3,127,768 3,007,910
- --------------------------------------------------------------------------------------------------------------------
Total Loans 14,214,055 13,771,281 14,049,705
Less: Allowance for loan losses (note 6) (268,870) (273,957) (268,868)
- --------------------------------------------------------------------------------------------------------------------
Loans - net 13,945,185 13,497,324 13,780,837
- --------------------------------------------------------------------------------------------------------------------
Premises and equipment - net 440,667 410,778 435,316
Customers' liability on acceptances 3,889 20,963 3,186
Intangible assets - net 176,366 182,736 180,420
Foreclosed properties - net (notes 5 and 7) 25,140 39,761 27,515
Other assets 594,514 737,606 639,262
- --------------------------------------------------------------------------------------------------------------------
Total Assets $21,982,732 $21,964,975 $22,861,941
====================================================================================================================
Liabilities
Demand deposits $ 3,256,506 $ 3,105,290 $ 3,352,921
Interest-bearing demand deposits 5,924,437 5,899,733 5,913,373
Regular savings deposits 1,597,757 1,736,130 1,620,925
Domestic time deposits 4,354,406 5,187,643 4,643,409
Certificates of deposit $100,000 and over 682,318 142,792 140,582
- --------------------------------------------------------------------------------------------------------------------
Total deposits 15,815,424 16,071,588 15,671,210
Short-term borrowings (note 8) 3,002,574 2,752,676 4,116,051
Liability on acceptances 3,889 20,963 3,186
Other liabilities 492,902 635,744 432,648
Long-term debt (note 9) 850,596 704,045 859,336
- --------------------------------------------------------------------------------------------------------------------
Total Liabilities 20,165,385 20,185,016 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 March 31, 1997 and December 31, 1996; 100,000,000 at
March 31, 1996;outstanding 110,299,785 and 55,575,728 at
March 31, 1997 and 1996, respectively; 109,869,886 at
December 31, 1996 551,499 277,879 549,350
Capital surplus 252,892 480,221 227,079
Retained earnings 1,070,523 1,044,085 1,024,365
Net unrealized loss on securities available for sale (57,567) (22,226) (21,284)
- --------------------------------------------------------------------------------------------------------------------
Total Shareholders' Equity 1,817,347 1,779,959 1,779,510
- --------------------------------------------------------------------------------------------------------------------
Total Liabilities And Shareholders' Equity $21,982,732 $21,964,975 $22,861,941
====================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
Consolidated Statements Of Income
Crestar Financial Corporation And Subsidiaries
<TABLE>
<CAPTION>
In thousands, except per share data Three Months Ended March 31,
Income From Earning Assets 1997 1996
<S> <C>
Interest and fees on loans $295,546 $296,616
Interest on taxable securities held to maturity 12,035 14,188
Interest on tax-exempt securities held to maturity 1,057 1,383
Interest and dividends on securities available for sale 63,849 56,505
Income on money market investments 4,664 2,840
Interest on mortgage loans held for sale 11,640 14,294
- --------------------------------------------------------------------------------------------------------------------
Total income from earning assets 388,791 385,826
- --------------------------------------------------------------------------------------------------------------------
Interest Expense
Interest-bearing demand deposits 41,814 43,725
Regular savings deposits 9,964 11,402
Domestic time deposits 55,063 70,411
Certificates of deposit $100,000 and over 6,878 1,449
- --------------------------------------------------------------------------------------------------------------------
Total interest on deposits 113,719 126,987
Short-term borrowings 39,797 34,455
Long-term debt (note 9) 15,615 12,731
- --------------------------------------------------------------------------------------------------------------------
Total interest expense 169,131 174,173
- --------------------------------------------------------------------------------------------------------------------
Net Interest Income 219,660 211,653
Provision for loan losses (note 6) 29,698 22,230
- --------------------------------------------------------------------------------------------------------------------
Net Credit Income 189,962 189,423
- --------------------------------------------------------------------------------------------------------------------
Noninterest Income
Service charges on deposit accounts 30,163 26,635
Trust and investment advisory income 17,453 15,892
Bank card-related income 12,648 11,825
Other income 39,139 30,826
Securities gains 4,064 2,373
- --------------------------------------------------------------------------------------------------------------------
Total noninterest income 103,467 87,551
- --------------------------------------------------------------------------------------------------------------------
Net Credit And Noninterest Income 293,429 276,974
- --------------------------------------------------------------------------------------------------------------------
Noninterest Expense
Personnel expense 99,342 95,775
Occupancy expense - net 16,158 16,124
Equipment expense 9,819 9,482
Other expense 54,686 53,737
- --------------------------------------------------------------------------------------------------------------------
Total noninterest expense 180,005 175,118
- --------------------------------------------------------------------------------------------------------------------
Income Before Income Taxes 113,424 101,856
Income tax expense (note 10) 41,644 36,745
- --------------------------------------------------------------------------------------------------------------------
Net Income $ 71,780 $ 65,111
====================================================================================================================
Earnings Per Share
Primary $ .64 $ .58
Fully diluted .64 .58
====================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
Consolidated Statements Of Cash Flows
Crestar Financial Corporation And Subsidiaries
<TABLE>
<CAPTION>
In thousands Three Months Ended March 31,
1997 1996
<S> <C>
Operating Net Income $ 71,780 $ 65,111
Activities Adjustments to reconcile net income to net cash provided (used)
by operating activities:
Provisions for loan losses, foreclosed properties and
other losses 29,698 20,392
Depreciation and amortization of premises and equipment 10,896 11,470
Securities gains (4,064) (2,373)
Amortization of intangible assets 4,227 4,171
Deferred income tax expense (benefit) (1,408) 2,160
Gain on sales of mortgage servicing rights (6,450) (4,000)
Loss (gain) on sale and disposal of branches
and other properties (5,807) 354
Net increase in trading account 6,282 3,368
Origination and purchase of loans held for sale (784,068) (922,033)
Proceeds from sales of loans held for sale 899,729 840,121
Net decrease (increase) in accrued interest receivable,
prepaid expenses and other assets 56,081 (34,179)
Net increase (decrease) in accrued interest payable, accrued
expenses and other liabilities 22,624 (404,956)
Other, net (169) 2,042
- --------------------------------------------------------------------------------------------------------------------
Net cash provided (used) by operating activities 299,351 (418,352)
- --------------------------------------------------------------------------------------------------------------------
Investing Proceeds from maturities and calls of securities held
Activities to maturity 154,961 74,266
Proceeds from maturities and calls of securities available
for sale 106,655 204,914
Proceeds from sales of securities available for sale 1,496,848 1,513,238
Purchases of securities held to maturity (3,679) (15,845)
Purchases of securities available for sale (1,149,597) (1,769,062)
Net decrease in money market investments 160,726 146,162
Principal collected on non-bank subsidiary loans 50,193 5,409
Loans originated by non-bank subsidiaries (51,362) (41,037)
Net decrease (increase) in other loans (220,587) 274,459
Purchases of premises and equipment (17,051) (13,363)
Proceeds from sales of foreclosed properties 4,872 4,123
Proceeds from sales of mortgage servicing rights 12,659 8,447
Proceeds from sales of premises and equipment 6,625 2,827
Other, net (3,467) (10,807)
- --------------------------------------------------------------------------------------------------------------------
Net cash provided by investing activities 547,796 383,731
- --------------------------------------------------------------------------------------------------------------------
Financing Net decrease in demand, interest-bearing demand and
Activities regular savings deposits (108,519) (175,430)
Net increase (decrease) in certificates of deposit 252,733 (45,890)
Net increase in short-term borrowings (1,113,477) (65,245)
Principal payments on long-term debt (8,764) (20,562)
Cash dividends paid (29,665) (23,883)
Common stock purchased and retired (29,739) (29,101)
Proceeds from the issuance of common stock 23,829 13,293
Other, net (164) (23)
- --------------------------------------------------------------------------------------------------------------------
Net cash used by financing activities (1,013,766) (346,841)
- --------------------------------------------------------------------------------------------------------------------
Cash And Decrease in cash and cash equivalents (166,619) (381,462)
Cash Cash and cash equivalents at beginning of year 1,105,036 1,285,245
- --------------------------------------------------------------------------------------------------------------------
Equivalents Cash and cash equivalents at end of quarter $ 938,417 $ 903,783
====================================================================================================================
</TABLE>
Cash and cash equivalents consist of cash and due from banks; see
accompanying notes to consolidated financial statements.
5
<PAGE>
Consolidated Statements Of Changes In Shareholders' Equity
Crestar Financial Corporation And Subsidiaries
<TABLE>
<CAPTION>
In thousands, except per share data Shareholders' Equity Shares of Common Stock
1997 1996 1997 1996
<S> <C>
Balance, January 1 $1,779,510 $1,785,588 109,869,886 55,382,341
Net Income 71,780 65,111 - -
Cash dividends declared on common stock - (23,883) - -
Change in net unrealized gain or loss on securities
available for sale (36,282) (35,454) - -
Common stock purchased and retired (29,739) (29,101) (823,566) (510,000)
Cash paid in lieu of fractional shares (164) (86) (4,736) (1,484)
Common stock issued:
For dividend reinvestment plan 5,958 4,811 169,730 92,500
For thrift and profit sharing plan 6,557 6,505 181,919 116,767
For other stock compensation plans 1,846 118 53,679 2,128
Upon exercise of stock options (including tax benefit
of $6,567 in 1997; $4,373 in 1996) 17,881 6,350 852,873 493,476
- --------------------------------------------------------------------------------------------------------------------
Balance, March 31 $1,817,347 $1,779,959 110,299,785 55,575,728
====================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
6
<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.
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 first quarter 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 $2.0
million in merger-related charges was accrued during the first quarter of 1997.
Total cash payments of merger-related charges have totaled $23.0 million through
March 31, 1997. The balance of accrued merger-related charges totaled $29.0
million as of March 31, 1997, the majority of which is expected to be disbursed
within the remaining nine months of 1997.
Intangible assets consisted of goodwill and deposit based intangibles, having
a combined balance of $175,953,000 and $182,267,000 at March 31, 1997 and 1996,
respectively, and favorable lease rights of $413,000 and $469,000, respectively.
Capitalized mortgage servicing rights of $44,191,000 and $30,574,000 at March
31, 1997 and 1996, respectively, were included in other assets in the
consolidated financial statements. Mortgage servicing rights of approximately $3
million were capitalized during the first three months of 1997. At March 31,
1997 and 1996 mortgage servicing rights were net of a related valuation
allowance of $305,000. The activity in such valuation allowance was not material
to the consolidated financial statements for the three months ended March 31,
1997 and 1996. The fair value of capitalized mortgage servicing rights was
approximately $77 million at March 31, 1997. Amortization of capitalized
mortgage servicing rights was $2 million in the first three months of 1997.
During the first quarter of 1997, Crestar capitalized interest of $486,000
associated with construction in progress.
7
<PAGE>
(2) Securities Held To Maturity
The amortized cost (carrying values) and estimated market values of securities
held to maturity at March 31 follow:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
In thousands 1997 1996
Amortized Market Amortized Market
Cost Value Cost Value
<S> <C>
U.S. Treasury and Federal agencies $208,155 $204,943 $ 210,308 $ 207,686
Mortgage-backed obligations of Federal agencies 546,421 542,480 737,561 733,511
Other taxable securities 13,075 13,052 13,309 13,357
States and political subdivisions 50,548 50,809 84,849 85,865
- --------------------------------------------------------------------------------------------------------------------
Total securities held to maturity $818,199 $811,284 $1,046,027 $1,040,419
====================================================================================================================
</TABLE>
(3) Securities Available For Sale
The amortized cost and estimated market values (carrying values) of securities
available for sale at March 31 follow:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
In thousands 1997 1996
Amortized Market Amortized Market
Cost Value Cost Value
<S> <C>
U.S. Treasury and Federal agencies $ 616,634 $ 604,989 $ 597,664 $ 592,453
Mortgage-backed obligations of Federal agencies 2,587,259 2,515,503 2,638,408 2,612,122
Other taxable securities 579,728 573,725 626,581 623,547
Common and preferred stocks 223,857 224,297 172,164 172,289
- --------------------------------------------------------------------------------------------------------------------
Total securities available for sale $4,007,478 $3,918,514 $4,034,817 $4,000,411
====================================================================================================================
</TABLE>
At March 31, 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 $1.55 billion, have a cost basis of $15.7 million and
a market value of $15.1 million at March 31, 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 March 31 included:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
In thousands 1997 1996
<S> <C>
Federal funds sold $301,590 $108,800
Securities purchased under agreements to resell 150,500 117,388
Time deposits 100,000 125,000
U.S. Treasury 6,034 10,562
Trading account securities 1,281 3,771
Other 19,259 1,217
- --------------------------------------------------------------------------------------------------------------------
Total money market investments $578,664 $366,738
====================================================================================================================
</TABLE>
8
<PAGE>
(5) Nonperforming Assets And Impaired Loans
Nonperforming assets at March 31 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
$76.0 million and $67.0 million at March 31, 1997 and 1996, respectively.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
In thousands 1997 1996
<S> <C>
Nonaccrual loans $ 75,635 $ 82,445
Foreclosed properties - net 25,140 39,761
- --------------------------------------------------------------------------------------------------------------------
Total nonperforming assets $100,775 $122,206
====================================================================================================================
</TABLE>
Transfers from nonperforming loans to foreclosed properties (non-cash additions)
were $3.6 million in the first three months of 1996. There were no non-cash
additions to foreclosed properties in the first three months of 1997. Included
in Crestar's non-performing loans above are certain impaired loans. Impaired
loans and their allocated valuation allowances at March 31, 1997 and 1996 were
$24.8 million with an allowance of $4.6 million and $31.6 million with an
allowance of $5.1 million, respectively. All impaired loans had an allocated
valuation allowance at March 31, 1997 and 1996. Collateral dependent loans,
which were measured at the fair value of the collateral, constituted 100% of
impaired loans at March 31, 1997. The average recorded investment in impaired
loans for the three months ended March 31, 1997 and 1996 was $27.3 million and
$31.7 million, respectively. There was no material interest income recognized on
impaired loans in the first three months of 1997 and 1996.
(6) Allowance For Loan Losses
Transactions in the allowance for loan losses for the three months ended
March 31 were:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
In thousands Three Months
1997 1996
<S> <C>
Beginning balance $268,868 $274,430
- --------------------------------------------------------------------------------------------------------------------
Charge-offs (37,075) (29,259)
Recoveries 7,379 6,944
- --------------------------------------------------------------------------------------------------------------------
Net charge-offs (29,696) (22,315)
Provision for loan losses 29,698 22,230
Allowance from acquisitions and other activity - net - (388)
- --------------------------------------------------------------------------------------------------------------------
Net increase (decrease) 2 (473)
- --------------------------------------------------------------------------------------------------------------------
Ending balance $268,870 $273,957
====================================================================================================================
</TABLE>
(7) Allowance For Foreclosed Properties
Transactions in the allowance for losses on foreclosed properties for the three
months ended March 31 were:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
In thousands Three Months
1997 1996
<S> <C>
Beginning balance $18,449 $13,574
- --------------------------------------------------------------------------------------------------------------------
Provision for foreclosed properties - 62
Write-downs (373) (62)
Allowance from acquisitions - net - (471)
- --------------------------------------------------------------------------------------------------------------------
Net decrease (373) (471)
- --------------------------------------------------------------------------------------------------------------------
Ending balance $18,076 $13,103
====================================================================================================================
9
<PAGE>
(8) Short-Term Borrowings
Short-term borrowings, exclusive of deposits, with maturities of less than one
year at March 31 were:
- --------------------------------------------------------------------------------------------------------------------
In thousands 1997 1996
Federal funds purchased $1,564,130 $1,729,063
Securities sold under repurchase agreements 666,244 586,992
Federal Home Loan Bank borrowings 525,000 249,000
Notes payable 228,297 185,643
Other 18,903 1,978
- --------------------------------------------------------------------------------------------------------------------
Total short-term borrowings $3,002,574 $2,752,676
====================================================================================================================
</TABLE>
The Corporation paid $143,051,000 and $158,823,000 in interest on deposits and
short-term borrowings in the first three months of 1997 and 1996, respectively.
(9) Long-Term Debt
Long-term debt at March 31 included:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
In thousands 1997 1996
<S> <C>
43/8-73/8% Federal Home Loan Bank obligations payable through 2015 $302,513 $351,569
83/4% Subordinated notes due 2004 149,703 149,664
81/4% Subordinated notes due 2002 125,000 125,000
85/8% Subordinated notes due 1998 49,989 49,979
77/8-111/4% Collateralized mortgage obligation bonds maturing through 2019 14,042 17,569
7-81/4% Mortgage indebtedness maturing through 2009 8,372 9,177
85/8-143/8% Capital lease obligations maturing through 2006 977 1,087
Crestar Capital Trust I preferred stock 200,000 -
- --------------------------------------------------------------------------------------------------------------------
Total long-term debt $850,596 $704,045
====================================================================================================================
</TABLE>
The Corporation paid $13,945,000 and $11,835,000 in interest on long-term debt
in the first three months of 1997 and 1996, respectively. There were no new
capital lease agreements in the first quarter of 1997.
Crestar Capital Trust I (the Trust) is a wholly-owned special purpose finance
subsidiary of the Parent Company, Crestar Financial Corporation (Crestar),
operating in the form of a grantor trust. The trust was created solely to issue
capital securities and remit the proceeds to Crestar. Crestar is the sole owner
of the common stock securities of the Trust. On December 31, 1996, the Trust
issued 200,000 shares of Preferred Stock capital securities (Trust Preferred
Stock) with a stated value of $1,000 per share, and a fixed dividend yield of
8.16% of the stated value. The stated value of the Trust Preferred Stock is
unconditionally guaranteed on a subordinated basis by Crestar. The securities
have a mandatory redemption date of December 15, 2026, and are subject to
varying call provisions at the option of Crestar beginning in December 2006.
Shares of the Trust Preferred Stock are capital securities which are distinct
from the common stock or preferred stock of Crestar, and the dividends thereon
are tax-deductible. Dividends accrued for payment by the Trust are classified as
interest expense on long-term debt in the consolidated income statement of
Crestar.
10
<PAGE>
(10) Income Taxes
The current and deferred components of income tax expense allocated to
continuing operations for the three months ended March 31 in the accompanying
consolidated statements of income were:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
In thousands Three Months
1997 1996
<S> <C>
Current:
Federal $39,582 $32,695
State and local 3,470 1,890
- --------------------------------------------------------------------------------------------------------------------
Total current tax expense 43,052 34,585
- --------------------------------------------------------------------------------------------------------------------
Deferred:
Federal (1,132) 1,841
State and local (276) 319
- --------------------------------------------------------------------------------------------------------------------
Total deferred tax expense (benefit) (1,408) 2,160
- --------------------------------------------------------------------------------------------------------------------
Total income tax expense $41,644 $36,745
====================================================================================================================
</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 ended March 31 were:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
In thousands Three Months
1997 1996
<S> <C>
Amount % Amount %
Income before income taxes $113,424 $101,856
- --------------------------------------------------------------------------------------------------------------------
Tax expense at statutory rate 39,698 35.0 35,650 35.0
- --------------------------------------------------------------------------------------------------------------------
Increase (decrease) in taxes resulting from:
Tax-exempt interest and dividends (1,702) (1.5) (1,827) (1.8)
Nondeductible interest expense 429 .4 212 .2
Amortization of goodwill 1,045 .9 1,046 1.0
State income taxes 2,076 1.8 1,436 1.5
Other - net 98 .1 228 .2
- --------------------------------------------------------------------------------------------------------------------
Total increase in taxes 1,946 1.7 1,095 1.1
- --------------------------------------------------------------------------------------------------------------------
Total income tax expense $41,644 36.7 $ 36,745 36.1
====================================================================================================================
</TABLE>
The Corporation made income tax payments of $6,618,000 and $7,638,000 during the
first three months of 1997 and 1996, respectively. At March 31, 1997, the
Corporation had a net deferred income tax asset of $130,423,000. There was no
valuation allowance relating to the net deferred income tax asset. Crestar has
sufficient taxable income in the available carryback period to realize all of
its deferred income tax assets.
(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, 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 $9.7 billion and $8.0
billion at March 31, 1997 and 1996, respectively.
11
<PAGE>
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 $409 million at March 31, 1997.
Recourse obligations on mortgage loans serviced of $1.5 billion at March 31,
1997 included $728 million which was insured by agencies of the Federal
government or private insurance companies. Recourse obligations also included
$113 million of contractual recourse liability accepted by Crestar on mortgage
loan sales to Federal agencies and $139.0 million on certain mortgage loan sales
to private investors. Crestar maintained an allowance of $309,000 at March 31,
1997 based on estimates of future losses on this contractual recourse liability.
For interest rate risk management purposes at March 31, 1997, Crestar was
using interest rate (fixed receive) swaps with notional balances of $750 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 $1.55 billion and $200 million to hedge the market
value of fixed rate securities available for sale and real estate income
property loans, respectively, and $485 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 real estate mortgage loans, respectively. The
carrying value and net unrealized loss on these swaps, caps and floors were
$32.6 million and $19.4 million at March 31, 1997. 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 $107.2 million in offsetting swap, $33.9 million in
offsetting cap and $10 million in offsetting collar agreements at March 31,
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 $32.3 million, less collateral held of approximately $8
million, plus an amount for prospective market movement. Three counterparties
constituted 13% each and one counterparty 11% of the estimated credit and market
exposure of $77.9 million at March 31, 1997.
Crestar also had forward agreements outstanding at March 31, 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 gain on such forward agreements
was $8.5 million at March 31, 1997.
In November 1996, a purported class action lawsuit was brought against
Crestar Mortgage Corporation (CMC), an affiliated subsidiary of the Corporation,
alleging that compensation paid to mortgage brokers in the form of "yield spread
premium" violates the Real Estate Settlement Procedures Act (RESPA) prohibition
on referral fees. The suit is similar to a number of other suits pending
nationwide against mortgage lenders. The suit seeks three times the amount of
all settlement charges paid by CMC to mortgage brokers for settlement services
on mortgage loans closed since November 12, 1995, plus interest, court costs,
attorney fees and other litigation expenses. Although the potential for
liability is open-ended because of the ongoing nature of the suit, CMC estimates
that yield spread premiums paid to mortgage brokers in the one year period prior
to the filing of the suit totaled between $14 million and $17 million, an amount
that could be trebled under RESPA. Management believes, however, that its
industry-accepted method of compensating mortgage brokers is entirely legal and
is vigorously contesting all aspects of the suit. Management, in consultation
with legal counsel, is of the opinion that there is no other 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.
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Financial Commentary
Crestar Financial Corporation And Subsidiaries
Overview
(Tables 1, 2 and 12)
Crestar Financial Corporation (Crestar) reported net income of $71.8 million for
the quarter ended March 31, 1997, an increase of $6.7 million or 10% over net
income reported in the first quarter of 1996. These increases reflect the
positive effects of improved net interest margins, growth in earning assets and
noninterest income, and management of controllable expenses. Earnings per share
were $.64 for the first quarter of 1997, compared to $.58 in 1996. The
predominant items affecting the change in earnings per share are given in Table
2. Each item is net of applicable federal income taxes. On December 31, 1996
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 first
quarter and fourth quarter of 1996, have been restated to include the combined
results of both Crestar and Citizens. Crestar's net income for the fourth
quarter of 1996 was reduced by $32.5 million in one-time after-tax merger
expenses associated with the merger with Citizens. Excluding the non-recurring
charges, net income for the fourth quarter of 1996 was $70.7 million, or $.63
per fully diluted share. During the first quarter of 1997, the former banking
subsidiaries of Citizens Bancorp (Citizens Bank of Maryland and Citizens Bank of
Washington, N.A.) were merged into Crestar Bank.
In December 1996, Crestar's Board of Directors declared a two-for-one stock
split, in the form of a common stock dividend. The two-for-one split was
distributed on January 24, 1997. For all periods presented in these financial
statements, average shares outstanding and per common share data have been
adjusted to reflect the common stock split.
Crestar's subsidiaries provide banking and non-banking services throughout
Virginia, Maryland and Washington, D.C., which compose Crestar's primary market
area. This market is characterized as economically diverse. Crestar's market
area is also characterized by active competition in all principal areas where
the Corporation provides services. In addition to banks, other firms competing
in the market area include savings associations, consumer finance companies,
national credit card companies, securities brokerage firms, insurance companies,
credit unions and mortgage banking companies.
Profitability Measures And Capital Resources
(Table 1)
Crestar's increased earnings in the first quarter of 1997 resulted in
improvements in key profitability measures when compared to the same period of
1996. Return on average assets was 1.33% in the first three months of 1997, up
from the 1.22% reported for the first three months of 1996. Return on average
equity was 16.06% for the quarter ended March 31, 1997, compared to 14.66% for
the first quarter of 1996.
Average equity to assets was 8.26% for the first quarter of 1997, compared to
8.35% for the first quarter of 1996. Period-end equity to assets of 8.27% at
March 31, 1997 reflected an increase from the March 31, 1996 ratio of 8.10%.
Total assets were relatively unchanged from March 31, 1996 to March 31, 1997;
growth in period-end stockholders' equity was 2% during this period.
Risk-based capital ratios are another measure of capital adequacy. At March
31, 1997, Crestar's consolidated risk-adjusted capital ratios were 10.7% for
Tier 1 and 13.5% for total capital, well above the required minimums of 4.0% and
8.0%, respectively. The Tier 1 leverage ratio of 8.8% at March 31, 1997 also was
significantly above the regulatory minimum of 3.0%. Crestar's tangible leverage
ratio, defined as total equity less all intangibles divided by total assets less
all intangibles, was 7.5% at March 31, 1997. Under Federal Deposit Insurance
Corporation (FDIC) rules, Crestar's sole subsidiary bank (Crestar Bank) was
considered "well-capitalized" as of March 31, 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 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 first quarter of 1997 was 4.51%, an
improvement of 9 basis points from the margin recorded in the first quarter of
1996. The improvement was attributable to favorable changes in interest rates
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impacting the Corporation's earning assets and funding sources. These favorable
changes offset the impact of unfavorable changes in the composition of earning
assets and funding sources, and the effect of off-balance sheet hedges on the
Corporation's net interest margin. The net interest margin in the fourth quarter
of 1996 was 4.47%.
The yield on average total loans during the first three months of 1997
decreased 3 basis points from the first quarter of 1996, to 8.66%, as higher
yields obtained on bank card and consumer real estate - mortgage loans were
offset by declines in average yields earned on the business and consumer
instalment loan portfolios. While yields on securities held to maturity
exhibited a 1 basis point increase in yield, the yield on the larger securities
available for sale portfolio decreased 12 basis points in the first quarter of
the current year, compared to first quarter 1996 results. During the same time
period, yields on money market investments experienced declines in average rates
earned, reflecting lower federal funds rates and short-term investment rates for
the current year period. Yields on mortgage loans held for sale, however, were
up 79 basis points for the first quarter of 1997 versus the same period of 1996.
The average rate earned on total earning assets was down 6 basis points, to
7.98% in the first quarter of 1997, in comparison to first quarter 1996 results.
Also reflecting an overall lower interest rate environment, the average rate
paid on total interest-bearing liabilities decreased by 13 basis points during
this period. Average rate decreases were experienced in all categories of
savings and time deposits, with the exception of certificates of deposit
$100,000 and over. The largest decrease came in domestic time deposits, where
average rates fell from 5.45% in the first quarter of 1996 to 4.99% in the first
three months of 1997. Average rates paid on interest-bearing demand and regular
savings deposit accounts fell 8 basis points and 15 basis points, respectively,
from first quarter 1996 levels. Also reflecting a lower short-term rate
environment, interest rates paid on short-term borrowings were 10 basis points
lower during the first three months of 1997, versus the same period of 1996.
Interest rates paid on long-term debt edged upward during the first quarter of
1997, in comparison to the same period of 1996, reflecting the December 1996
issuance of trust preferred debt securities by a subsidiary of the Corporation.
Such securities have been included in long-term debt for purposes of balance
sheet classification. Excluding the impact of derivative instruments utilized as
hedges, the total change in the Corporation's interest rate spreads had a
positive impact of 32 basis points on Crestar's first quarter 1997 net interest
margin, when compared to the first quarter of 1996.
Unfavorable changes in the earning asset mix decreased the first quarter 1997
net interest margin by approximately 19 basis points when compared to the first
quarter of 1996. Within the loan portfolio, average balances of bank card loans
fell by $299 million, or 18%, from average levels of the first quarter of 1996.
Bank card loans, which have typically been Crestar's highest yielding earning
asset category, have exhibited lower average balances, as marketing efforts
directed to new accounts were curtailed from previous levels, in light of higher
than desired delinquency statistics. Also, as lower promotional interest rates
on selected bank card loans expired, some customers elect to pay-off or pay-down
outstanding balances. Total business loans exhibited a 2% increase in average
balances outstanding, due to growth in commercial loans. Real estate -
construction and income property loan balances were down from the first quarter
of 1996. Consumer instalment loans increased 12% in the first quarter of 1997,
or $428 million, compared to first quarter 1996 average balances, reflecting
strong marketing efforts. Consumer real estate - mortgage loans, which has
historically been Crestar's lowest yielding loan category, decreased $142
million or 4% from first quarter 1996 to first quarter 1997. This reduction
reflects efforts to re-balance the Corporation's loan portfolio, through
selected sales of residential mortgage loans, during 1996.
Average balances of total securities increased $365 million, or 8%, from
first quarter 1996 to first quarter 1997. This growth came from increased
average balances of securities classified as available for sale, which rose 15%
from the first three months of 1996. Average balances of money market
investments also increased during this time period, with average balances of
$357 million for the first quarter of 1997 reflecting an increase of $150
million from the same period of 1996. Average balance of mortgage loans held for
sale exhibited a decrease from the first quarter of 1996, due to lower mortgage
loan origination volumes at the Corporation's mortgage banking subsidiary.
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Unfavorable changes in Crestar's funding sources resulted in a negative
impact to the first quarter 1997 net interest margin of 2 basis points, in
comparison to first quarter 1996 results. Average total deposits for the first
quarter of 1997 decreased by $327 million, to $15.5 billion, a 2% decrease over
first quarter 1996 average balances. Average balances of domestic time deposits,
which are primarily composed of consumer certificates of deposit, decreased by
$721 million or 14% from first quarter 1996 to first quarter 1997. Other deposit
categories exhibiting lower average balances were interest-bearing demand
deposits and regular savings deposits, which decreased 1% and 7%, respectively,
from the first quarter of 1996. Average balances of certificates of deposits
$100,000 and over increased by $407 million during the same time period, and
represented 3% of average total deposits during the first quarter of 1997.
Demand deposits, a noninterest bearing source of funds, exhibited an increase in
average balances of $153 million, or 5%, during the first quarter of 1997, in
comparison to the same period of 1996.
Total off-balance sheet interest rate hedges had a negative impact on net
interest income of $1.0 million during the first quarter of 1997, which was
composed of a $660 thousand decrease in interest income and a $380 thousand
increase in interest expense, based on the underlying asset or liability being
hedged. The negative impact on the first quarter 1997 net interest margin
equated to 2 basis points. In the first quarter of 1996, the comparable impact
of hedging activity was an increase to Crestar's total interest income of
approximately $700 thousand and an immaterial increase to interest expense,
resulting in a positive impact of 1 basis point to that quarter's net interest
margin. On a comparative basis, derivative instruments utilized as hedges
contributed to a 3 basis point decrease to Crestar's net interest margin in the
first quarter of 1997, compared to the first quarter of 1996.
Lower levels of average nonperforming assets during the first quarter of
1997, versus the same period of 1996, contributed to a 1 basis point improvement
in Crestar's net interest margin during this period.
The extent to which Crestar will be able to maintain its current net interest
margin is significantly influenced by the economic environment in our markets
and the economic policy of the Federal Reserve Board, in addition to competitive
market conditions for both loans and deposits. Competition among financial
institutions, in addition to acquisition strategies, may lead to further
pressures on the Corporation's net interest margin in future periods.
As a result of the increase in the net interest margin and a 2% increase in
average earning assets, net interest income for the first quarter of 1997
increased 4% over the first quarter of 1996. Tax-equivalent net interest income
similarly increased by 4% during this period.
Risk Exposures And Credit Quality
(Tables 4 and 5)
The allowance for loan losses was $269 million at March 31, 1997, representing
1.89% of period-end loans, 267% of period-end nonperforming assets, and a 355%
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 $76.0 million at March 31, 1997,
with consumer loans representing 82% of this balance.
At March 31, 1997, nonperforming assets of $100.8 million were down $21.4
million or 18% from March 31, 1996, and down $8.2 million from December 31,
1996. The ratio of nonperforming assets to loans and foreclosed properties-net
at March 31, 1997 was 0.71%, down from 0.77% at December 31, 1996 and 0.88% at
March 31, 1996. Interim periods in 1997 could show increases in the total
balance of nonperforming assets due to loan growth, future acquisitions of
financial institutions, and adverse changes in credit quality.
The provision for loan losses was $29.7 million for the first quarter of
1997, an increase of $7.5 million from the $22.2 million provision expense
recorded in the first quarter of 1996. Provision expense in the fourth quarter
of 1996 was $24.1 million. Net charge-offs totaled $29.7 million in the first
three months of 1997, compared to $22.3 million in the comparable period of
1996. Net charge-offs as a percentage of average loans were 0.86% for the first
quarter of 1997, compared to 0.65% in the same period of 1996, and 0.84% for the
fourth quarter of 1996. Business loans experienced net recoveries of $32
thousand during the first quarter of 1997, compared to net recoveries of $1.3
million in the comparable quarter of 1996. Consumer loan net charge-offs totaled
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$29.7 million in the first quarter of 1997, compared to net charge-offs of $28.3
million in the fourth quarter of 1996 and $23.6 million in the first quarter of
1996.
The largest proportion of net loan charge-offs during the first quarter of
1997 occurred in the bank card loan portfolio. Net charge-offs for bank card
loans were $23.4 million in the first three months of 1997, compared to $18.0
million in 1996's first quarter. Net bank card loan charge-offs as a percentage
of bank card loans (on an annualized basis) were 6.98% for the first quarter of
1997, compared to 6.54% in the fourth quarter of 1996, and 4.39% in the first
quarter of 1996. This increase in the bank card net charge-off rate is
attributable to both a decrease in outstanding loan balances and the
industry-wide trend of adverse payment performance by consumers, as evidenced by
a nationwide rise in delinquencies. The increase also reflects the prior growth
of Crestar's bank card loan portfolio, especially during the 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." Higher net charge-offs were also
recorded in consumer instalment and residential real estate loan portfolios in
the first quarter of 1997 compared to the fourth quarter of 1996.
In addition to other loan categories, Crestar closely manages its portfolio
of loans to real estate developers and investors (REDI). REDI outstanding
balances remained fairly constant and totaled $1.7 billion at March 31, 1997.
This balance represented 12% of the total loan portfolio at that date. At
December 31, 1996, REDI loans also represented 12% of the total loan portfolio.
REDI nonperforming assets were $53.6 million at March 31, 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 March 31, 1997, not included in Table 5, totaled
approximately $153 million. Over 90% of this balance represents commercial or
real estate-income property related loans. Depending on changes in the economy
and other future events, these loans and others not presently identified as
problem loans could be classified as nonperforming assets in the future.
Potential problem loans were $153 million at December 31, 1996 and $194 million
at March 31, 1996. Fluctuations in potential problem loan balances from quarter
to quarter should be viewed in the context of the size of Crestar's total loan
portfolio, which was $14.2 billion at March 31, 1997.
Noninterest Income And Expense
(Table 6)
Noninterest income totaled $103.5 million in the first quarter of 1997, a $15.9
million or 18% increase over the first quarter of 1996. Excluding securities
gains and losses, noninterest income increased $14.2 million or 17% over the
results for the first three months of 1996. This increase reflects growth in the
noninterest income categories of deposit account income, trust and investment
advisory income, and bank card income. Deposit account income, in part
reflecting higher average balances of transaction-based deposit accounts,
increased by $3.5 million or 13% from the first quarter of 1996. Trust and
investment advisory income increased $1.6 million or 10% from 1996 levels.
Mortgage servicing income for the first quarter of 1997 totaled $5.1 million,
compared to $4.5 million in the first quarter of 1996. Mortgage origination
income, net of expenses, was down $2.1 million from levels achieved in the first
quarter of 1996, reflecting lower levels of originations and competitive
industry pricing. Results for the first quarter of 1997 reflect gains on the
sale of mortgage servicing rights of $6.5 million, compared to $4.0 million in
the same period of 1996. Automated teller machine revenue, securities brokerage
fees, mutual fund and annuity income experienced gains during this period.
Included in noninterest income for the first quarter of 1997 was a non-recurring
gain of $5.8 million (pre-tax) arising from the sale of two properties acquired
during the Citizens Bancorp merger.
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Noninterest expense increased $4.9 million, or 3%, in the first quarter of
1997 compared to the same period of 1996. Excluding foreclosed properties
expense, noninterest expense increased 2% in the quarter. Included in first
quarter 1997 results are approximately $2.0 million in one-time expenses
associated with the Citizens merger. Total personnel costs, Crestar's largest
expense category, were $99.3 million in the first quarter of 1997, a 4% increase
over the same period of 1996. Management continues to emphasize prudent control
of noninterest expenses and assimilation of acquisitions in a cost effective
manner. Decreases in FDIC insurance premium rates effective in the fourth
quarter of 1996 led to lower FDIC premium expense compared to first quarter 1996
results. FDIC deposit insurance expense totaled $1.1 million in the first
quarter of 1997, versus $3.4 million in the first quarter of 1996. Foreclosed
properties expense for the quarter ended March 31, 1997 totaled $715 thousand,
compared to a net recovery of $1.3 million in the quarter ended March 31, 1996.
The effective tax rate for the first quarter of 1997 was 36.7%, compared to
36.1% in the first quarter of 1996. Financial statement note 10 contains
additional information concerning income taxes.
Financial Condition
(Table 7)
Crestar's assets totaled $22.0 billion at March 31, 1997, compared to $22.9
billion in assets at December 31, 1996, and $22.0 billion at March 31, 1996.
Loan balances totaled $14.2 billion at March 31, 1996 compared to $14.0 billion
at December 31, 1996 and $13.8 billion at March 31, 1996. Total deposits were
$15.8 billion at the end of the first quarter of 1997, compared to $15.7 billion
at December 31, 1996 and $16.1 billion at March 31, 1996. Some consumer deposit
accounts were down slightly from year-end 1996, reflecting increased competition
for deposits.
With respect to the securities held to maturity portfolio, carrying value
exceeded the market value at March 31, 1997 by $6.9 million, consisting of $1.5
million in unrealized gains and $8.4 million of unrealized losses. At March 31,
1997, the amortized cost of securities available for sale exceeded the fair
value of such securities by $89.0 million, consisting of $4.4 million in
unrealized gains and $93.4 million in unrealized losses. Shareholders' equity at
March 31, 1997 reflects a $57.6 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 decrease of $21.3 million at December 31, 1996. At
March 31, 1996, Crestar's shareholders' equity reflected a $22.2 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 sales, purchases, 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 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 64% (market value)
of Crestar's securities available for sale portfolio, and 67% (amortized cost)
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of the Corporation's securities held to maturity portfolio, was composed of
mortgage-backed obligations of Federal agencies as of March 31, 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 securities, and corporate
obligations securitized by credit card and instalment loans.
During the first quarter of 1997, Crestar sold approximately $1.1 billion of
securities classified as available for sale, generating securities gains of $4.1
million. Such sales were consummated in conjunction with the overall management
of interest rate risk for the Corporation. Securities gains recorded in the
first quarter of 1996 were $2.4 million.
Crestar purchased and retired approximately 824 thousand shares of common
stock during the first quarter of 1997, at an average price of $36.11 per share.
The purpose of these transactions is to meet the needs of the Corporation's
dividend reinvestment plan, employee stock options and thrift and profit sharing
plan. In February 1997, Crestar's Board of Directors authorized the purchase and
retirement of up to 2.0 million shares of common stock in order to meet the
needs of the Corporation's dividend reinvestment plan, thrift and profit sharing
plans and other benefit programs. At March 31, 1997, Crestar had a remaining
authorization to purchase and retire up to 1.8 million shares of common stock in
order to meet the needs of the dividend reinvestment plan, thrift and profit
sharing plan and other stock-based plans.
In December 1996, Crestar announced a common stock dividend increase,
effective with the dividend paid on February 21, 1997, to $.27 per share (on a
post-split basis). This represented a 4% increase from the previous quarterly
dividend rate of $.26 per share (on a post-split basis). The increased dividend
is intended to raise the Corporation's ratio of dividends paid to shareholders
as a percentage of net income to the higher end of the Corporation's targeted
range of 30% to 40%. Because the dividend paid in the first quarter of 1997 was
announced and declared by the Board in December 1996, there were no dividends
declared in the first quarter of 1997. In the prior year, a common stock
dividend of $.225, on a post-split basis, was declared and paid during the first
quarter.
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 59% of total funding sources at both
March 31, 1997 and December 31, 1996, compared to 64% at March 31, 1996. As an
additional indication of strong liquidity, securities available for sale
represented 20%, and money market investments an additional 3%, of Crestar's
total earning assets at March 31, 1997.
Interest sensitivity refers to the volatility of earnings and capital 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
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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 characteristic, 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 market valuation 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
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 March 31, 1997, Crestar's projected
net income under the consensus interest rate scenario for the remaining nine
months of 1997 would decrease by approximately 6% in a high interest rate
scenario, and would increase by 8% 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 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 March 31, 1997. At that
point in time, Crestar had a cumulative net liability sensitive twelve-month gap
with $4.9 billion excess of interest-sensitive sources of funds over uses of
funds. This generally indicates that earnings should improve in a declining
interest rate environment as liabilities reprice more quickly than assets. The
opposite would be true of a positive, or asset-sensitive, interest rate gap.
In addition to the traditional gap measurement presentation, Table 8 presents
interest sensitivity on a beta adjusted basis. These beta adjustments are based
on a ratio of actual changes in consumer deposit rates to changes in the prime
interest 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. The
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 March 31, 1997, with $0.6 billion
excess of interest-sensitive sources of funds over uses of funds. In comparison,
the level of total earning assets at March 31, 1997 was $20.1 billion. The
static gap 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 and adjusted gap do not include $2.23 billion
19
<PAGE>
(notional amount) of interest rate caps that would potentially offset the impact
of rising 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 interest 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 March 31, 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 at March 31,
1997 are utilized to mitigate the declines in market value that can be
experienced by mortgage backed securities in a rising interest rate environment.
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
possible derivative losses at March 31, 1997. 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 used
as hedges against interest rate risk were sold or terminated prior to maturity
during the first quarter of 1997, and at March 31, 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 $4.5
billion at March 31, 1997. Forward contracts with a notional amount of $774
million ,utilized to hedge lending commitments of Crestar's mortgage banking
subsidiary, were also outstanding at March 31, 1997, bringing the total notional
value of derivative financial instruments related to interest rate risk
management activities to $5.3 billion at March 31, 1997. Tables 9, 10, and 11
present information regarding fair values, maturity, average rates, and activity
as of and for the three month period ending March 31, 1997 for these off-balance
sheet derivative instruments. Net unrealized losses on these instruments totaled
$10.9 million as of March 31, 1997. Financial statement note 11 contains
additional information pertaining to these types of agreements.
New Accounting Standards
The Financial Accounting Standards Board (FASB) issued Statement of Financial
Accounting Standards No. 128, "Earnings per Share" (SFAS 128) in February 1997.
SFAS 128 simplifies the standards for computing earnings per share, and replaces
the presentation of primary earnings per share with a presentation of basic
earnings per share. SFAS 128 also requires dual presentation of basic and
diluted earnings per share in the financial statements. Basic earnings per share
excludes dilution, and is computed by dividing net income available to common
stockholders by the weighted-average number of common shares outstanding for the
period. Diluted earnings per share reflects the potential for dilution that
could occur if stock options outstanding or other stock-related contracts were
exercised or converted into common stock. Diluted earnings per share is computed
similarly to the Corporation's current computations for fully-diluted earnings
per share. Generally, computations of basic earnings per share will always be
equal to or greater than the current computations for primary earnings per
share. As required by the FASB, Crestar will be adopting the accounting required
under SFAS 128 in the fourth quarter of 1997, with all prior period earnings per
share data (including interim periods) being restated. The adoption of SFAS 128
will have no material adverse impact on the Corporation's earnings per share
results.
20
<PAGE>
Subsequent Event
In April, Crestar announced it had reached an agreement to sell its merchant
bank card processing portfolio to Nova Information Systems, Inc. (Nova). Crestar
also announced it had formed an exclusive marketing alliance with Nova, through
which the Corporation's commercial and small business customers will benefit
from access to Nova's card acceptance products and technology. Crestar's bank
card processing business processes credit and debit card sales for approximately
7,500 customers. The sale is expected to be consummated in the second quarter of
the current year; Crestar expects to recognize an after-tax gain of
approximately $12 million at time of sale. The impact of the sale of Crestar's
merchant card processing segment on the ongoing operations of the Corporation
will not be material.
Information in the above "Management's Discussion and Analysis of operations
and Financial Condition," other than historical information, may contain
forward-looking statements that involve 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. It is important to note that the Corporation's actual
results may differ materially from those projected in forward-looking
statements.
21
<PAGE>
Table 1 Financial Highlights
<TABLE>
<CAPTION>
Dollars in millions, except per share data Three Months
%
For the Period Ended March 31 1997 1996 Change
<S> <C>
Net Income $71.8 $65.1 10
Primary Earnings Per Share:
Net Income $ .64 $ .58 10
Average Shares Outstanding (000s) 111,579 112,405 (1)
Fully Diluted Earnings Per Share:
Net Income $ .64 $ .58 10
Average Shares Outstanding (000s) 111,580 112,413 (1)
Dividends Paid Per Common Share .27 .225 20
====================================================================================================================
Key Ratios
Return on Average Assets 1.33% 1.22%
Return on Average Equity 16.06 14.66
Average Equity to Average Assets 8.26 8.35
Net Interest Margin 4.51 4.42
At March 31
Book Value Per Share $16.48 $16.01
Equity to Assets 8.27% 8.10%
Risk Adjusted Capital Ratios:
Tier I 10.6 9.5
Total 13.4 12.5
Common Shares Outstanding (000s) 110,300 111,151
====================================================================================================================
</TABLE>
Table 2 Analysis Of Earnings Per Common Share
<TABLE>
<CAPTION>
1st Qtr. 1997 1st Qtr. 1997
vs. vs.
1st Qtr. 1996 4th Qtr. 1996
Primary Earnings Per Share - prior period $.58 $.34
- --------------------------------------------------------------------------------------------------------------------
<S> <C>
Interest income .02 (.04)
Interest expense .03 .03
Provision for loan losses (.04) (.03)
Securities gains .01 .02
Other noninterest income .08 .05
Foreclosed properties expense (.01) .02
Citizens Bancorp one-time merger costs - .29
Other noninterest expense (.02) (.01)
Change in effective income tax rate (.01) (.03)
- --------------------------------------------------------------------------------------------------------------------
Net increase .06 .30
- --------------------------------------------------------------------------------------------------------------------
Primary Earnings Per Share - current period $.64 $.64
====================================================================================================================
</TABLE>
22
<PAGE>
Table 3 Average Balances, Net Interest Income And Rate/Volume Analysis1
Dollars in thousands
<TABLE>
<CAPTION>
1st Qtr.
4th Qtr.
Average Balance Average
Increase Balance
1997 1996 (Decrease) 1996
<S> <C>
$ $ % $
3,815,837 3,631,192 5 3,771,838 Commercial
1,244,956 1,257,113 (1) 1,246,853 Real estate - income property
311,353 390,242 (20) 321,782 Real estate - construction
4,101,003 3,672,525 12 3,728,351 Instalment
1,338,742 1,637,792 (18) 1,418,891 Bank card
3,051,743 3,193,672 (4) 2,990,599 Real estate - mortgage
- --------------------------------------------------------------------------------------------------------------------
13,863,634 13,782,536 1 13,478,314 Total loans - net of unearned income2
- --------------------------------------------------------------------------------------------------------------------
908,787 1,085,189 (16) 1,028,706 Securities held to maturity
4,071,188 3,529,792 15 4,132,502 Securities available for sale
357,462 207,607 72 606,419 Money market investments
580,563 777,637 (25) 744,534 Mortgage loans held for sale
- --------------------------------------------------------------------------------------------------------------------
19,781,634 19,382,761 2 19,990,475 Total earning assets
====================================================================================================================
5,796,084 5,849,192 (1) 5,768,025 Interest-bearing demand deposits
1,609,952 1,723,395 (7) 1,632,096 Regular savings deposits
4,501,822 5,222,554 (14) 4,741,020 Domestic time deposits
- --------------------------------------------------------------------------------------------------------------------
11,907,858 12,795,141 (7) 12,141,141 Total interest-bearing core deposits
- --------------------------------------------------------------------------------------------------------------------
3,627,747 2,729,376 33 3,800,234 Purchased liabilities
853,204 716,186 19 667,062 Long-term debt
- --------------------------------------------------------------------------------------------------------------------
16,388,809 16,240,703 1 16,608,437 Total interest-bearing liabilities
3,392,825 3,142,058 8 3,382,038 Other sources - net
- --------------------------------------------------------------------------------------------------------------------
19,781,634 19,382,761 2 19,990,475 Total sources of funds
- --------------------------------------------------------------------------------------------------------------------
Net Interest Income
====================================================================================================================
</TABLE>
23
<PAGE>
<TABLE>
<CAPTION>
1st Qtr.
1997 vs. 1996
4th Qtr.
Income/Expense3 Change due to4 Income/
Increase Expense3
1997 1996 (Decrease) Rate5 Volume 1996
<S> <C>
$ $ $ $ $ $
Commercial 75,382 73,942 1,440 (2,317) 3,757 76,149
Real estate - income property 27,283 27,766 (483) (215) (268) 27,397
Real estate - construction 7,072 9,523 (2,451) (527) (1,924) 7,243
Instalment 81,450 76,935 4,515 (4,499) 9,014 78,252
Bank card 46,939 48,577 (1,638) 7,319 (8,957) 48,719
Real estate - mortgage 59,321 61,567 (2,246) 486 (2,732) 58,184
- ---------------------------------------------------------------------------------------------------------------------------
Total loans - net of unearned income2 297,447 298,310 (863) (2,622) 1,759 295,944
- ---------------------------------------------------------------------------------------------------------------------------
Securities held to maturity 13,708 16,365 (2,657) 3 (2,660) 16,063
Securities available for sale 63,849 56,505 7,344 (1,323) 8,667 63,994
Money market investments 4,687 2,853 1,834 (225) 2,059 8,221
Mortgage loans held for sale 11,640 14,294 (2,654) 983 (3,637) 14,073
- ---------------------------------------------------------------------------------------------------------------------------
Total earning assets 391,331 388,327 3,004 (5,000) 8,004 398,295
===========================================================================================================================
Interest-bearing demand deposits 41,813 43,725 (1,912) (1,665) (247) 42,547
Regular savings deposits 9,964 11,402 (1,438) (687) (751) 10,507
Domestic time deposits 55,064 70,411 (15,347) (5,602) (9,745) 59,896
- ---------------------------------------------------------------------------------------------------------------------------
Total interest-bearing core deposits 106,841 125,538 (18,697) (9,964) (8,733) 112,950
- ---------------------------------------------------------------------------------------------------------------------------
Purchased liabilities 46,675 35,904 10,771 (1,026) 11,797 50,400
Long-term debt 15,615 12,731 2,884 448 2,436 11,968
- ---------------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities 169,131 174,173 (5,042) (6,633) 1,591 175,318
Other sources - net
- ---------------------------------------------------------------------------------------------------------------------------
Total sources of funds 169,131 174,173 (5,042) (8,633) 3,591 175,318
- ---------------------------------------------------------------------------------------------------------------------------
Net Interest Income 222,200 214,154 8,046 3,633 4,413 222,977
===========================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
1st Qtr. 1997 vs. 4th Qtr. 1996
Change due to4
Increase
(Decrease) Rate5 Volume
<S> <C>
$ $ $
Commercial (767) (1,645) 878
Real estate - income property (114) (73) (41)
Real estate - construction (171) 64 (235)
Instalment 3,198 (4,649) 7,847
Bank card (1,780) 1,006 (2,786)
Real estate - mortgage 1,137 (59) 1,196
- --------------------------------------------------------------------------------
Total loans - net of unearned income2 1,503 (6,962) 8,465
- --------------------------------------------------------------------------------
Securities held to maturity (2,355) (482) (1,873)
Securities available for sale (145) 804 (949)
Money market investments (3,534) (159) (3,375)
Mortgage loans held for sale (2,433) 701 (3,134)
- --------------------------------------------------------------------------------
Total earning assets (6,964) (2,800) (4,164)
================================================================================
Interest-bearing demand deposits (734) (896) 162
Regular savings deposits (543) (400) (143)
Domestic time deposits (4,832) (1,809) (3,023)
- --------------------------------------------------------------------------------
Total interest-bearing core deposits (6,109) (3,931) (2,178)
- --------------------------------------------------------------------------------
Purchased liabilities (3,725) (1,446) (2,279)
Long-term debt 3,647 307 3,340
- --------------------------------------------------------------------------------
Total interest-bearing liabilities (6,187) (3,865) (2,322)
Other sources - net
- --------------------------------------------------------------------------------
Total sources of funds (6,187) (4,353) (1,834)
- --------------------------------------------------------------------------------
Net Interest Income (777) 1,553 (2,330)
================================================================================
</TABLE>
1Tax-equivalent basis.
2Nonaccrual loans are included in the average loan balances and income on such
loans is recognized on a cash basis.
3Includes tax-equivalent net loan fees (costs) of $(48,000) and $(323,000) for
the first quarter of 1997 and 1996, respectively, and $247,000 for the fourth
quarter of 1996.
4Variances are computed on a line-by-line basis and are non-additive.
5Variances caused by the change in rate times the change in balances are
allocated to rate.
24
<PAGE>
Table 4 Allowance For Loan Losses
<TABLE>
<CAPTION>
Dollars in thousands First Quarter
1997 1996
Beginning balance $268,868 $274,430
- --------------------------------------------------------------------------------------------------------------------
<S> <C>
Allowance from acquisitions - (388)
- --------------------------------------------------------------------------------------------------------------------
Provision for loan losses 29,698 22,230
- --------------------------------------------------------------------------------------------------------------------
Net charge-offs (recoveries):
Commercial 526 (354)
Real estate - income property (462) (824)
Real estate - construction (96) (78)
Instalment 5,545 4,811
Bank card 23,370 17,980
Real estate - mortgage 813 780
- --------------------------------------------------------------------------------------------------------------------
Total net charge-offs 29,696 22,315
- --------------------------------------------------------------------------------------------------------------------
Balance, March 31 $268,870 $273,957
====================================================================================================================
Allowance for loan losses to period-end loans 1.89% 1.99%
Annualized net charge-offs to average loans .86 .65
====================================================================================================================
</TABLE>
Table 5 Nonperforming Assets1 And Past Due Loans
<TABLE>
<CAPTION>
Dollars in thousands March 31, December 31,
Nonaccrual loans: 1997 1996 1996
<S> <C>
Commercial $15,921 $30,089 $20,348
Real estate - income property 12,612 27,078 22,624
Real estate - construction 17,302 7,651 10,368
Instalment 2,987 2,945 2,895
Real estate - mortgage 26,813 14,682 25,208
- --------------------------------------------------------------------------------------------------------------------
Total nonperforming loans1 75,635 82,445 81,443
Foreclosed properties - net 25,140 39,761 27,515
- --------------------------------------------------------------------------------------------------------------------
Total nonperforming assets1 $100,775 $122,206 $108,958
====================================================================================================================
Nonperforming assets1 to:
Loans and foreclosed properties - net .71% .88% .77%
Total assets .46 .56 .48
Allowance for loan losses to:
Nonperforming assets1 267 224 247
Nonperforming loans1 355 332 330
Allowance for loan losses plus shareholders'
equity to nonperforming assets1 20.70x 16.81x 18.80x
====================================================================================================================
Accruing loans past due 90 days:
Commercial $ 12,137 $ 3,337 $ 9,480
Real estate - income property 1,451 59 503
Real estate - construction - 16 -
Instalment
Student 26,475 19,379 21,614
Other 5,326 7,500 7,587
Bank card 23,404 21,441 25,573
Real estate - mortgage 7,179 15,302 7,117
- --------------------------------------------------------------------------------------------------------------------
Total accruing loans past due 90 days: $ 75,972 $ 67,034 $71,874
====================================================================================================================
</TABLE>
1Loans 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.
25
<PAGE>
Table 6 Noninterest Income And Expense
<TABLE>
<CAPTION>
In thousands
First Quarter Fourth
Quarter
Noninterest Income 1997 1996 1996
<S> <C>
Service charges on deposit accounts $ 30,163 $ 26,635 $ 29,919
Trust and investment advisory 17,453 15,892 17,399
Bank card-related 12,648 11,825 13,559
Mortgage servicing - net 5,131 4,517 4,578
Mortgage origination - net 902 3,047 2,981
Trading account activities 947 346 1,044
Commissions on letters of credit 1,114 1,470 1,141
Gain on sale of mortgage servicing rights 6,450 4,000 3,518
Gain (loss) on sale and disposal of branches and other properties - net 5,807 354
(18,249)
Miscellaneous 18,788 17,092 17,187
Securities gains 4,064 2,373 655
- --------------------------------------------------------------------------------------------------------------------
Total noninterest income $103,467 $ 87,551 $ 73,732
====================================================================================================================
Noninterest Expense
Salaries $ 78,388 $ 75,348 $ 90,807
Benefits 20,954 20,427 16,045
- --------------------------------------------------------------------------------------------------------------------
Total personnel 99,342 95,775 106,852
Occupancy - net 16,158 16,124 17,533
Equipment 9,819 9,482 10,053
Communications 8,845 9,186 10,285
Stationery, printing and supplies 2,713 2,932 3,845
Professional fees and services 7,035 4,824 14,243
Loan expense 2,815 2,503 3,392
FDIC premiums - net 1,107 3,381 (2,941)
Advertising and marketing 4,530 6,593 6,734
Transportation 1,725 1,737 1,855
Outside data services 6,222 5,904 11,023
Amortization of purchased intangibles 4,227 4,171 4,222
Miscellaneous 14,752 13,820 18,067
- --------------------------------------------------------------------------------------------------------------------
Subtotal 179,290 176,432 205,163
Foreclosed properties (net recoveries) 715 (1,314) 7,302
- --------------------------------------------------------------------------------------------------------------------
Total noninterest expense $180,005 $175,118 $212,465
====================================================================================================================
</TABLE>
Table 7 Debt And Other Security Ratings
(as of April 30, 1997)
<TABLE>
<CAPTION>
Standard Thomson
Security Moody's & Poor's BankWatch
<S> <C>
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
====================================================================================================================
</TABLE>
26
<PAGE>
Table 8 Interest Sensitivity Analysis
<TABLE>
<CAPTION>
March 31, 1997
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 $2,872.3 $ 211.2 $ 89.0 $ 109.3 $ 740.1 $ 4,021.9
Real estate - income property 525.9 37.0 16.4 39.2 649.4 1,267.9
Real estate - construction 263.1 1.1 5.5 5.7 53.5 328.9
Instalment 1,804.7 86.7 120.7 177.5 1,902.7 4,092.3
Bank card 394.5 107.4 166.2 591.1 - 1,259.2
Real estate - mortgage 120.8 289.1 393.3 702.7 1,738.1 3,244.0
Securities held to maturity 17.6 13.6 17.3 32.6 737.1 818.2
Securities available for sale 223.7 80.2 112.3 347.0 3,155.3 3,918.5
Money market investments 573.6 5.1 - - - 578.7
Mortgage loans held for sale 543.2 - - - - 543.2
- ----------------------------------------------------------------------------------------------------------------------
Total earning assets 7,339.4 831.4 920.7 2,005.1 8,976.2 20,072.8
Interest sensitivity hedges on assets (450.0) (550.0) - - 1,000.0 -
- ----------------------------------------------------------------------------------------------------------------------
Total uses $6,889.4 $ 281.4 $ 920.7 $2,005.1 $9,976.2 $20,072.8
======================================================================================================================
Sources of Funds
Interest-bearing demand deposits $5,924.4 $ - $ - $ - $ - $ 5,924.4
Regular savings deposits 1,597.8 - - - - 1,597.8
Domestic time deposits 448.0 557.5 928.7 1,262.7 1,157.5 4,354.4
Certificates of deposit $100,000
and over 289.0 161.1 198.5 28.3 5.4 682.3
Short-term borrowings 2,599.3 186.3 117.0 100.0 - 3,002.6
Long-term debt 3.3 8.0 19.3 30.6 789.4 850.6
- ----------------------------------------------------------------------------------------------------------------------
Total interest-bearing
liabilities 10,861.8 912.9 1,263.5 1,421.6 1,952.3 16,412.1
Other sources - net - - - - 3,660.7 3,660.7
Interest sensitivity hedges on liabilities - (5.0) - 5.0 - -
- ----------------------------------------------------------------------------------------------------------------------
Total sources $10,861.8 $ 907.9 $1,263.5 $1,426.6 $5,613.0 $20,072.8
======================================================================================================================
Cumulative asset (liability)
sensitivity gap $(3,972.4) $(4,598.9) $(4,941.7) $(4,363.2) $ - $ -
======================================================================================================================
Adjustments
Beta adjustments:
Interest-bearing demand deposits
(beta factor .30) $ 4,162.9
Regular savings (beta factor .11) 1,422.0
Demand deposit sensitivity (1,242.9)
- ------------------------------------------------------------------------------------ --------------------------------
Cumulative adjusted asset (liability)
sensitivty gap $ 369.6 $ (256.9) $ (599.7) $ (21.2) $ - $ -
==================================================================================== ================================
</TABLE>
27
<PAGE>
Table 9 Off-Balance Sheet Derivative Financial Instruments1
<TABLE>
<CAPTION>
March 31, 1997 Average
Weighted Fixed Estimated
Dollars in thousands Notional Average Receive Fair
Balance Maturity bate Value Comments
<S> <C>
Interest Rate Conversions
Generic interest rate swaps $1,000,000 2.7 yrs. 5.93% Notional amounts of $750
Carrying amount2 $ 420 million and $250 million
Commercial loan program convert floating rate commercial
Unrealized losses (13,547) and instalment loans, respectively,
Instalment loan program to fixed rate. Floating rates paid
Unrealized losses (4,616) tied to LIBOR.
-----------
Estimated fair value (17,743)
-----------
Interest rate caps 485,000 3.6 yrs. 6.87%3 Notional amount of $485 million
Carrying amount2 7,381 hedges the interest rate risk
Money market deposit program associated with rising interest
Unrealized gains 2,736 rates on floating rate money
market deposits (strike rate tied
to LIBOR).
Estimated fair value 10,117
Market Value Hedges
Interest rate caps 1,750,000 3.0 yrs. 7.57%3 Notional amount of $1.55 billion
Carrying amount2 16,845 hedges the market value of fixed
Securities available for sale program5 rate securities available for sale
Unrealized gains 1,616 in a rising rate environment (strike
Unrealized losses (2,206) rate for $1 billion tied to 5 year
Real estate income property loan program CMT; strike rate for $550 million
Unrealized losses (486) 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 15,769
Interest rate floors 1,250,000 3.9 yrs. 5.68%4 Notional amount of $250 million
Carrying amount2 7,960 million hedges the prepayment risk
Real estate mortgage loan program associated with fixed rate first
Unrealized losses (663) mortgage loans in a declining rate
Domestic time deposit program environment (strike rate tied to
Unrealized losses (2,199) 10 year CMT). Notional amount
of $1.0 billion hedges the fair value
of fixed rate domestic time deposits
(strike rate tied to 5 year CMT).
Estimated fair value 5,098
Hedges of Lending Commitments
Forward contracts 774,380 .2 yrs. n/a Hedges of residential mortgage
Unrealized gains 8,506 lending commitments.
Unrealized losses (9)
----------
Estimated fair value 8,497
Total hedges against
interest rate risk $5,259,380 $21,738
================================================================================
</TABLE>
1Includes only off-balance sheet derivative financial instruments related to
interest rate risk management activities.
2Includes any accrued interest receivable and or payable balances, and
unamortized premiums paid for interest rate caps and floors.
3Represents average strike rate. For interest rate caps purchased, Crestar will
receive interest if a specified market index raterises 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.
4Represents 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.
5The 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
28
<PAGE>
Table 10 Off-Balance Sheet Derivatives--Expected Maturities1
<TABLE>
<CAPTION>
March 31, 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 $ - $ 550,000 $ 450,000 $ - $1,000,000
Average fixed receive rate - 5.91% 5.96% - 5.93%
Carrying amount $ - $ 117 $ 303 $ - $ 420
Unrealized losses - (6,795) (11,368) - (18,163)
Interest rate caps
Notional amount $ 25,000 $ 260,000 $ 100,000 $100,000 $ 485,000
Average strike rate 5.80% 7.45% 6.00 6.50 6.87%
Carrying amount $ 4 $ 1,532 $ 3,450 $ 2,395 $ 7,381
Unrealized gains 48 301 1,241 1,146 2,736
Market Value Hedges
Interest rate caps
Notional amount $ - $1,200,000 $ 550,000 $ - $1,750,000
Average strike rate - 7.54% 7.64% - 7.57%
Carrying amount $ - $ 10,497 $ 6,348 $ - $ 16,845
Net unrealized gain (loss) - 1,064 (2,140) - (1,076)
Interest rate floors
Notional amount $ - $ 300,000 $ 850,000 $100,000 $1,250,000
Average strike rate - 5.63% 5.69% 5.75% 5.68%
Carrying amount $ - $ 915 $ 5,774 $ 1,271 $ 7,960
Unrealized losses - (535) (2,043) (284) (2,862)
Hedges of Lending Commitments
Forward contracts:2
Notional amount $774,380 $ - $ - $ - $ 774,380
Net unrealized gain 8,497 - - - 8,497
Total hedges against
interest rate risk:
Notional amount $799,380 $2,310,000 $1,950,000 $200,000 $5,259,380
Carrying amount 4 13,061 15,875 3,666 32,606
Net unrealized gain (loss) 8,545 (5,965) (14,310) 862 (10,868)
Estimated fair value $ 8,549 $ 7,096 $ 1,565 $ 4,528 $ 21,738
====================================================================================================================
</TABLE>
1Includes only off-balance sheet derivative financial instruments related to
interest rate risk management activities.
2Hedges of residential mortgage lending commitments.
Table 11 Off-Balance Sheet Derivatives Activity1
<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 ments2 Total
<S> <C>
Balance, January 1, 1997 $ 900,000 $ 35,000 $1,750,000 $1,000,000 $ 706,731 $4,391,731
Additions 100,000 450,000 - 250,000 1,371,377 2,171,377
Maturities - - - - (1,303,728) (1,303,728)
- --------------------------------------------------------------------------------------------------------------------
Balance, March 31, 1997 $1,000,000 $485,000 $1,750,000 $1,250,000 $ 774,380 $5,259,380
====================================================================================================================
</TABLE>
1Includes only off-balance sheet derivative financial instruments related to
interest rate risk management activities.
2Forward contracts hedging residential mortgage lending commitments; maturities
represent contracts delivered.
29
<PAGE>
Table 12 Selected Quarterly Financial Information
<TABLE>
<CAPTION>
Dollars in thousands, except per share data
1st Qtr. 4th Qtr.3 3rd Qtr.2 2nd Qtr. 1st Qtr.
Results of operations: 1997 1996 1996 1996 1996
<S> <C>
Net interest income1 $222,200 $222,977 $218,046 $221,084 $214,154
Provision for loan losses 29,698 24,130 25,100 24,430 22,230
- --------------------------------------------------------------------------------------------------------------------
Net credit income 192,502 198,847 192,946 196,654 191,924
Securities gains 4,064 655 96 270 2,373
Other noninterest income 99,403 73,077 80,225 91,318 85,178
- --------------------------------------------------------------------------------------------------------------------
Net credit and noninterest income 295,969 272,579 273,267 288,242 279,475
Noninterest expense 180,005 212,465 212,046 180,728 175,118
- --------------------------------------------------------------------------------------------------------------------
Income before taxes 115,964 60,114 61,221 107,514 104,357
- --------------------------------------------------------------------------------------------------------------------
Tax-equivalent adjustment 2,540 2,510 2,476 2,460 2,501
Book tax expense 41,644 19,438 10,627 38,178 36,745
- --------------------------------------------------------------------------------------------------------------------
Income tax expense 44,184 21,948 13,103 40,638 39,246
- --------------------------------------------------------------------------------------------------------------------
Net Income $ 71,780 $ 38,166 $ 48,118 $ 66,876 $ 65,111
====================================================================================================================
Primary
Earnings per share $ .64 $ .34 $ .43 $ .60 $ .58
Average shares outstanding (000s) 111,579 111,447 111,101 111,923 112,405
Fully diluted
Earnings per share $ .64 $ .33 $ .43 $ .60 $ .58
Average shares outstanding (000s) 111,580 111,647 111,141 111,923 112,413
Dividends paid .27 .26 .26 .26 .225
====================================================================================================================
Selected ratios and other data:
Return on average assets 1.33% .70% .89% 1.23% 1.22%
Return on average equity 16.06 8.42 10.94 15.20 14.66
Net interest margin1 4.51 4.47 4.44 4.48 4.42
Net charge-offs as % of average loans .86 .84 .74 .73 .65
Allowance as % of period-end loans 1.89 1.91 2.01 1.99 1.99
Overhead ratio 55.27 71.61 71.07 57.80 58.04
Average equity to assets 8.26 8.29 8.18 8.10 8.35
Equity leverage 12.11x 12.06x 12.23x 12.35x 11.98x
Full-time equivalent employees (period end) 7,992 8,720 8,600 8,616 8,423
====================================================================================================================
</TABLE>
1Tax-equivalent basis.
2During 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.
3During the fourth quarter of 1996, nonrecurring merger costs totaling $32.5
million (after-tax basis), or $.29 per share, were recorded as part of the
pooling-of-interests merger with Citizens Bancorp.
30
<PAGE>
Table 13 Consolidated Average Balances/Net Interest Income/Rates1
<TABLE>
<CAPTION>
Three Months Ended March 31,
1997 1996
Dollars in thousands Income/ Yield/ Income/ Yield/
Balance Expense Rate Balance Expense Rate
<S> <C>
Assets $ $ % $ $ %
Securities held to maturity2 908,787 13,708 6.05 1,085,189 16,365 6.04
Securities available for sale2 4,071,188 63,849 6.29 3,529,792 56,505 6.41
Money market investments2 357,462 4,687 5.32 207,607 2,853 5.53
Mortgage loans held for sale2 580,563 11,640 8.16 777,637 14,294 7.37
- --------------------------------------------------------------------------------------------------------------------
Commercial 3,815,837 75,382 8.00 3,631,192 73,942 8.19
Real estate - income property 1,244,956 27,283 8.71 1,257,113 27,766 8.87
Real estate - construction 311,353 7,072 8.98 390,242 9,523 9.81
Instalment 4,101,003 81,450 8.00 3,672,525 76,935 8.41
Bank card 1,338,742 46,939 14.47 1,637,792 48,577 11.95
Real estate - mortgage 3,051,743 59,321 7.77 3,193,672 61,567 7.70
- --------------------------------------------------------------------------------------------------------------------
Total loans2,3 13,863,634 297,447 8.66 13,782,536 298,310 8.69
Allowance for loan losses (269,094) (275,421)
- --------------------------------------------------------------------------------------------------------------------
Loans - net 13,594,540 13,507,115
Cash and due from banks 863,561 974,855
Premises and equipment - net 443,699 411,180
Customers' liability on acceptances 4,250 14,264
Intangible assets - net 178,388 185,150
Foreclosed properties - net 28,503 38,999
Other assets 617,730 539,739
- --------------------------------------------------------------------------------------------------------------------
Total Assets 21,648,671 21,271,527
========== ==========
Total Earning Assets 19,781,634 391,331 7.98 19,382,761 388,327 8.04
========== ======= ==== ========== ======= ====
Liabilities And Shareholders' Equity
Interest-bearing demand deposits 5,796,084 41,813 2.93 5,849,192 43,725 3.01
Regular savings deposits 1,609,952 9,964 2.51 1,723,395 11,402 2.66
Domestic time deposits 4,501,822 55,064 4.99 5,222,554 70,411 5.45
Certificates of deposit $100,000 and over 515,895 6,878 5.41 109,364 1,449 5.33
- --------------------------------------------------------------------------------------------------------------------
Total savings and time deposits2 12,423,753 113,719 3.73 12,904,505 126,987 3.97
Demand deposits 3,123,006 2,969,722
- --------------------------------------------------------------------------------------------------------------------
Total deposits 15,546,759 15,874,227
Short-term borrowings2 3,111,852 39,797 5.18 2,620,012 34,455 5.28
Long-term debt2 853,204 15,615 7.32 716,186 12,731 7.11
Liability on acceptances 4,250 14,264
Other liabilities 344,434 270,732
- --------------------------------------------------------------------------------------------------------------------
Total liabilities 19,860,499 19,495,421
- --------------------------------------------------------------------------------------------------------------------
Total shareholders' equity 1,788,172 1,776,106
- --------------------------------------------------------------------------------------------------------------------
Total Liabilities And Shareholders' Equity 21,648,671 21,271,527
========== ==========
Total interest-bearing liabilities 16,388,809 169,131 4.19 16,240,703 174,173 4.32
Other sources - net 3,392,825 3,142,058
- --------------------------------------------------------------------------------------------------------------------
Total Sources Of Funds 19,781,634 169,131 3.47 19,382,761 174,173 3.62
========== ======= ==== ========== ======= ====
Net Interest Spread 3.79 3.72
Net Interest Income/Margin 222,200 4.51 214,154 4.42
====================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended December 31,
1996
Dollars in thousands Income/ Yield/
Balance Expense Rate
<S> <C>
Assets $ $ %
Securities held to maturity2 1,028,706 16,063 6.24
Securities available for sale2 4,132,502 63,994 6.19
Money market investments2 606,419 8,221 5.39
Mortgage loans held for sale2 744,534 14,073 7.62
- ----------------------------------------------------------------------------------------------------------------------
Commercial 3,771,838 76,149 7.97
Real estate - income property 1,246,853 27,397 8.70
Real estate - construction 321,782 7,243 8.95
Instalment 3,728,351 78,252 8.41
Bank card 1,418,891 48,719 13.86
Real estate - mortgage 2,990,599 58,184 7.82
- ----------------------------------------------------------------------------------------------------------------------
Total loans2,3 13,478,314 295,944 8.77
Allowance for loan losses (273,696)
- ----------------------------------------------------------------------------------------------------------------------
Loans - net 13,204,618
Cash and due from banks 888,689
Premises and equipment - net 430,574
Customers' liability on acceptances 3,175
Intangible assets - net 182,479
Foreclosed properties - net 35,571
Other assets 588,578
- ----------------------------------------------------------------------------------------------------------------------
Total Assets 21,845,845
==========
Total Earning Assets 19,990,475 398,295 7.96
========== ======= ====
Liabilities And Shareholders' Equity
Interest-bearing demand deposits 5,768,025 42,547 2.93
Regular savings deposits 1,632,096 10,507 2.56
Domestic time deposits 4,741,020 59,896 5.05
Certificates of deposit $100,000 and over 1,343,960 18,589 5.50
- ----------------------------------------------------------------------------------------------------------------------
Total savings and time deposits2 13,485,101 131,539 3.89
Demand deposits 3,114,639
- ----------------------------------------------------------------------------------------------------------------------
Total deposits 16,599,740
Short-term borrowings2 2,456,274 31,811 5.13
Long-term debt2 667,062 11,968 7.18
Liability on acceptances 3,175
Other liabilities 307,527
- ----------------------------------------------------------------------------------------------------------------------
Total liabilities 20,033,778
- ----------------------------------------------------------------------------------------------------------------------
Total shareholders' equity 1,812,067
- ----------------------------------------------------------------------------------------------------------------------
Total Liabilities And Shareholders' Equity 21,845,845
===========
Total interest-bearing liabilities 16,608,437 175,318 4.21
Other sources - net 3,382,038
- ----------------------------------------------------------------------------------------------------------------------
Total Sources Of Funds 19,990,475 175,318 3.49
========== ======== =====
Net Interest Spread 3.75
Net Interest Income/Margin 222,977 4.47
=======================================================================================================================
</TABLE>
1Income and yields are computed on a tax-equivalent basis using the statutory
federal income tax rate exclusive of the alternative minimum tax and
nondeductible interest expense.
2Indicates earning asset or interest-bearing liability.
3Nonaccrual loans are included in the average loan balances and income on such
loans is recognized on a cash basis.
32
<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 May 15, 1997
/s/ JAMES D. BARR
--------------------------
James D. Barr
Executive Vice President,
Controller and Treasurer
<TABLE> <S> <C>
<ARTICLE> 9
<RESTATED>
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1996
<PERIOD-END> MAR-31-1997 MAR-31-1996
<CASH> 938,417 903,783
<INT-BEARING-DEPOSITS> 12,558,918 12,966,298
<FED-FUNDS-SOLD> 452,090 226,188
<TRADING-ASSETS> 1,281 3,771
<INVESTMENTS-HELD-FOR-SALE> 3,918,514 4,000,411
<INVESTMENTS-CARRYING> 818,199 1,046,027
<INVESTMENTS-MARKET> 811,284 1,040,419
<LOANS> 14,214,055 13,771,281
<ALLOWANCE> 268,870 273,957
<TOTAL-ASSETS> 21,982,732 21,964,975
<DEPOSITS> 15,815,424 16,071,588
<SHORT-TERM> 3,002,574 2,752,676
<LIABILITIES-OTHER> 496,791 656,707
<LONG-TERM> 850,596 704,045
0 0
0 0
<COMMON> 551,499 277,879
<OTHER-SE> 1,265,848 1,502,080
<TOTAL-LIABILITIES-AND-EQUITY> 21,982,732 21,964,975
<INTEREST-LOAN> 295,546 296,616
<INTEREST-INVEST> 76,941 72,076
<INTEREST-OTHER> 16,304 17,134
<INTEREST-TOTAL> 388,791 385,826
<INTEREST-DEPOSIT> 113,719 126,987
<INTEREST-EXPENSE> 169,131 174,173
<INTEREST-INCOME-NET> 219,660 211,653
<LOAN-LOSSES> 29,698 22,230
<SECURITIES-GAINS> 4,064 2,373
<EXPENSE-OTHER> 180,005 175,118
<INCOME-PRETAX> 113,424 101,856
<INCOME-PRE-EXTRAORDINARY> 71,780 65,111
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 71,780 65,111
<EPS-PRIMARY> 0.64 0.58
<EPS-DILUTED> 0.64 0.58
<YIELD-ACTUAL> 4.51 4.42
<LOANS-NON> 75,635 82,445
<LOANS-PAST> 75,972 67,034
<LOANS-TROUBLED> 0 0
<LOANS-PROBLEM> 153,000 194,000
<ALLOWANCE-OPEN> 268,868 274,430
<CHARGE-OFFS> 37,075 29,259
<RECOVERIES> 7,379 6,944
<ALLOWANCE-CLOSE> 268,870 273,957
<ALLOWANCE-DOMESTIC> 0 0
<ALLOWANCE-FOREIGN> 0 0
<ALLOWANCE-UNALLOCATED> 0 0
</TABLE>
