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 June 30, 1997
( ) Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
Commission File Number 1-7083 .
Crestar Financial Corporation
(Exact name of registrant as specified in its charter)
Virginia 54-0722175
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
919 E. Main Street, P.O. Box 26665, Richmond, Virginia 23261-6665
(Address of principal executive offices) (Zip Code)
(804)782-5000
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
Yes X . No .
----- -----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at July 31, 1997
Common Stock, $5 par value 110,700,011
<PAGE>
Crestar Financial Corporation And Subsidiaries
Form 10-Q
For The Quarter Ended June 30, 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..................................................................
Part II. Other Information
Item 4. Submission Of Matters To A Vote Of Security Holders...................................
Item 6. Exhibits And Reports On Form 8-K:
There were no reports on Form 8-K filed during the three
months ended June 30, 1997.
</TABLE>
<PAGE>
Consolidated Balance Sheets
Crestar Financial Corporation And Subsidiaries
<TABLE>
<CAPTION>
Dollars in thousands, except share data June 30,
------------------------ December 31,
<S> <C>
Assets 1997 1996 1996
Cash and due from banks $ 974,362 $ 949,496 $ 1,105,036
Securities held to maturity (note 2) 715,516 1,063,843 967,510
Securities available for sale (note 3) 3,518,420 4,028,278 4,318,349
Money market investments (note 4) 1,364,741 905,952 745,672
Mortgage loans held for sale 643,080 997,943 658,838
Loans (note 5):
Business Loans:
Commercial 4,028,852 3,926,691 4,002,574
Real estate - income property 1,289,423 1,254,398 1,242,097
Real estate - construction 328,459 343,346 314,016
Consumer Loans:
Instalment 4,093,346 3,700,770 4,060,174
Bank card 1,210,242 1,533,639 1,422,934
Real estate - mortgage 3,308,393 2,946,439 3,007,910
- ----------------------------------------------------------------------------------------------------------
Total Loans 14,258,715 13,705,283 14,049,705
Less: Allowance for loan losses (note 6) (279,190) (272,896) (268,868)
- ----------------------------------------------------------------------------------------------------------
Loans - net 13,979,525 13,432,387 13,780,837
- ----------------------------------------------------------------------------------------------------------
Premises and equipment - net 459,275 412,836 435,316
Customers' liability on acceptances 4,101 13,882 3,186
Intangible assets - net 172,280 188,859 180,420
Foreclosed properties - net (notes 5 and 7) 34,243 34,747 27,515
Other assets 944,260 634,756 639,262
- ----------------------------------------------------------------------------------------------------------
Total Assets $22,809,803 $22,662,979 $22,861,941
==========================================================================================================
Liabilities
Demand deposits $ 3,383,317 $ 3,134,570 $ 3,352,921
Interest-bearing demand deposits 5,748,638 5,816,764 5,913,373
Regular savings deposits 1,552,860 1,717,689 1,620,925
Domestic time deposits 4,317,373 5,023,650 4,643,409
Certificates of deposit $100,000 and over 844,271 161,277 140,582
- ----------------------------------------------------------------------------------------------------------
Total deposits 15,846,459 15,853,950 15,671,210
Short-term borrowings (note 8) 3,841,043 3,988,801 4,116,051
Liability on acceptances 4,101 13,882 3,186
Other liabilities 399,060 332,503 432,648
Long-term debt (note 9) 819,071 696,697 859,336
- ----------------------------------------------------------------------------------------------------------
Total Liabilities 20,909,734 20,885,833 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 June 30, 1997 and December 31, 1996; 100,000,000 at
June 30, 1996; outstanding 110,638,161 and 55,401,632 at
June 30, 1997 and 1996, respectively; 109,869,886 at
December 31, 1996 553,191 277,008 549,350
Capital surplus 261,789 489,408 227,079
Retained earnings 1,114,028 1,061,638 1,024,365
Net unrealized loss on securities available for sale (28,939) (50,908) (21,284)
- ----------------------------------------------------------------------------------------------------------
Total Shareholders' Equity 1,900,069 1,777,146 1,779,510
- ----------------------------------------------------------------------------------------------------------
Total Liabilities And Shareholders' Equity $22,809,803 $22,662,979 $22,861,941
==========================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
Consolidated Statements Of Income
Crestar Financial Corporation And Subsidiaries
<TABLE>
<CAPTION>
In thousands, except per share data Three Months Ended June 30, Six Months Ended June 30,
--------------------------- -------------------------
<S> <C>
Income From Earning Assets 1997 1996 1997 1996
Interest and fees on loans $301,991 $297,260 $597,537 $593,876
Interest on taxable securities held to maturity 10,182 13,477 22,217 27,665
Interest on tax-exempt securities held to maturity 700 1,328 1,757 2,711
Interest and dividends on securities available for sale 59,875 60,690 123,724 117,195
Income on money market investments 2,248 3,993 6,912 6,833
Interest on mortgage loans held for sale 10,618 16,152 22,258 30,446
- ----------------------------------------------------------------------------------------------------------
Total income from earning assets 385,614 392,900 774,405 778,726
- ----------------------------------------------------------------------------------------------------------
Interest Expense
Interest-bearing demand deposits 42,939 42,096 84,753 85,821
Regular savings deposits 9,768 11,050 19,732 22,452
Domestic time deposits 53,450 66,152 108,513 136,563
Certificates of deposit $100,000 and over 11,608 2,150 18,486 3,599
- ----------------------------------------------------------------------------------------------------------
Total interest on deposits 117,765 121,448 231,484 248,435
Short-term borrowings 33,949 40,310 73,746 74,765
Long-term debt 15,591 12,519 31,206 25,250
- ----------------------------------------------------------------------------------------------------------
Total interest expense 167,305 174,277 336,436 348,450
- ----------------------------------------------------------------------------------------------------------
Net Interest Income 218,309 218,623 437,969 430,276
Provision for loan losses (note 6) 36,000 24,430 65,698 46,660
- ----------------------------------------------------------------------------------------------------------
Net Credit Income 182,309 194,193 372,271 383,616
- ----------------------------------------------------------------------------------------------------------
Noninterest Income
Service charges on deposit accounts 31,731 28,428 61,894 55,063
Trust and investment advisory income 17,887 15,848 35,340 31,740
Bank card-related income 9,771 13,228 22,419 25,053
Other income 51,718 33,816 90,857 64,642
Securities gains (losses) (91) 270 3,973 2,643
- ----------------------------------------------------------------------------------------------------------
Total noninterest income 111,016 91,590 214,483 179,141
- ----------------------------------------------------------------------------------------------------------
Net Credit And Noninterest Income 293,325 285,783 586,754 562,757
- ----------------------------------------------------------------------------------------------------------
Noninterest Expense
Personnel expense 96,547 96,987 195,889 192,762
Occupancy expense - net 13,685 15,276 29,843 31,400
Equipment expense 11,462 9,528 21,281 19,010
Other expense 57,316 58,938 112,002 112,675
- ----------------------------------------------------------------------------------------------------------
Total noninterest expense 179,010 180,729 359,015 355,847
- ----------------------------------------------------------------------------------------------------------
Income Before Income Taxes 114,315 105,054 227,739 206,910
Income tax expense (note 10) 38,525 38,178 80,169 74,923
- ----------------------------------------------------------------------------------------------------------
Net Income $ 75,790 $ 66,876 $147,570 $131,987
==========================================================================================================
Earnings Per Share
Primary $ .68 $ .60 $ 1.32 $ 1.18
Fully diluted .68 .60 1.32 1.18
==========================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
Consolidated Statements Of Cash Flows
Crestar Financial Corporation And Subsidiaries
<TABLE>
<CAPTION>
In thousands Six Months Ended June 30,
-------------------------
1997 1996
<S> <C>
Operating Net Income $ 147,570 $ 131,987
Activities Adjustments to reconcile net income to net cash used
by operating activities:
Provisions for loan losses, foreclosed properties and
other losses 65,698 44,822
Depreciation and amortization of premises and equipment 23,361 22,848
Securities gains (3,973) (2,643)
Amortization of intangible assets 8,433 8,275
Deferred income tax expense (benefit) (6,727) 7,267
Gain on sales of mortgage servicing rights (10,450) (4,750)
Gain on sale and disposal of branches and other properties (5,807) (354)
Gain on sale of merchant card processing (17,325) -
Net decrease (increase) in trading account (4,143) 3,368
Origination and purchase of loans held for sale (1,683,708) (2,086,676)
Proceeds from sales of loans held for sale 1,234,527 1,776,934
Net decrease in accrued interest receivable,
prepaid expenses and other assets 15,350 135,718
Net increase (decrease) in accrued interest payable, accrued
expenses and other liabilities 18,442 (371,359)
Other, net 4,902 545
--------------------------------------------------------------------------------------
Net cash used by operating activities (213,850) (334,018)
- ----------------------------------------------------------------------------------------------------------
Investing Proceeds from maturities and calls of securities held to maturity 265,758 160,166
Activities Proceeds from maturities and calls of securities
available for sale 213,309 472,528
Proceeds from sales of securities available for sale 1,966,411 2,049,371
Purchases of securities held to maturity (11,957) (119,328)
Purchases of securities available for sale (1,557,756) (2,828,719)
Net increase in money market investments (614,926) (393,052)
Principal collected on non-bank subsidiary loans 58,504 26,279
Loans originated by non-bank subsidiaries (60,282) (172,244)
Net decrease in other loans 37,752 225,656
Purchases of premises and equipment (60,937) (27,818)
Proceeds from the sale of foreclosed properties, mortgage
servicing rights and merchant card processing 49,026 21,339
Acquisitions of net assets of financial institutions - 138,628
Other, net (3,018) (25,837)
------------------------------------------------------------------------------------------
Net cash provided (used) by investing activities 281,884 (473,031)
- ----------------------------------------------------------------------------------------------------------
Financing Net decrease in demand, interest-bearing demand and
Activities regular savings deposits (202,404) (391,016)
Net increase (decrease) in certificates of deposit 377,653 (197,559)
Net increase (decrease) in short-term borrowings (275,008) 1,170,639
Principal payments on long-term debt (40,314) (27,948)
Cash dividends paid (61,974) (50,661)
Common stock purchased and retired (29,739) (53,874)
Proceeds from the issuance of common stock 33,242 21,742
Other, net (164) (23)
------------------------------------------------------------------------------------------
Net cash provided (used) by financing activities (198,708) 471,300
- ----------------------------------------------------------------------------------------------------------
Cash And Decrease in cash and cash equivalents (130,674) (335,749)
Cash Cash and cash equivalents at beginning of year 1,105,036 1,285,245
- ----------------------------------------------------------------------------------------------------------
Equivalents Cash and cash equivalents at end of quarter $ 974,362 $ 949,496
==========================================================================================================
</TABLE>
Cash and cash equivalents consist of cash and due from banks; see accompanying
notes to consolidated financial statements.
<PAGE>
Consolidated Statements Of Changes In Shareholders' Equity
Crestar Financial Corporation And Subsidiaries
<TABLE>
<CAPTION>
Dollars in thousands Shareholders' Equity Shares of Common Stock
----------------------- ------------------------
1997 1996 1997 1996
<S> <C>
Balance, April 1 $1,817,347 $1,779,959 110,299,785 55,575,728
Net Income 75,790 66,876 - -
Cash dividends declared on common stock (32,309) (26,778) - -
Change in net unrealized gain or loss on securities
available for sale 28,627 (28,682) - -
Common stock purchased and retired - (24,773) - (445,500)
Common stock issued:
For dividend reinvestment plan 7,589 5,337 212,354 105,736
For thrift and profit sharing plan 105 99 2,929 1,980
For other stock compensation plans 421 847 19,128 17,185
Upon exercise of stock options (including tax benefit
of $780 in 1997; $1,248 in 1996) 2,499 4,261 103,965 146,503
- ----------------------------------------------------------------------------------------------------------
Balance, June 30 $1,900,069 $1,777,146 110,638,161 55,401,632
==========================================================================================================
Balance, January 1 $1,779,510 $1,785,588 109,869,886 55,382,341
Net Income 147,570 131,987 - -
Cash dividends declared on common stock (32,309) (50,661) - -
Change in net unrealized gain or loss on securities
available for sale (7,655) (64,136) - -
Common stock purchased and retired (29,739) (53,874) (823,566) (955,500)
Cash paid in lieu of fractional shares (164) (86) (4,736) (1,484)
Common stock issued:
For dividend reinvestment plan 13,547 10,148 382,084 198,236
For thrift and profit sharing plan 6,662 6,604 184,848 118,747
For other stock compensation plans 2,267 965 72,807 19,313
Upon exercise of stock options (including tax benefit
of $7,347 in 1997; $5,621 in 1996) 20,380 10,611 956,838 639,979
- ----------------------------------------------------------------------------------------------------------
Balance, June 30 $1,900,069 $1,777,146 110,638,161 55,401,632
==========================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
Notes To Consolidated Financial Statements
Crestar Financial Corporation And Subsidiaries
(1) General
The consolidated financial statements conform to generally accepted accounting
principles and to general practices within the banking industry. The
accompanying interim statements are unaudited; however, in the opinion of
management, all adjustments necessary for a fair presentation of the
consolidated financial statements, including adjustments related to completed
business combinations, have been included. All adjustments are of a normal
nature. Certain reclassifications have been made to the prior years'
consolidated financial statements to conform to the 1997 presentation. The notes
included herein should be read in conjunction with the notes to the consolidated
financial statements included in the Corporation's 1996 Annual Report and Form
10-K and First Quarter 1997 Financial Supplement and Form 10-Q.
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 second quarter and first six months
of 1996, have been restated to include the combined results of Crestar and
Citizens. During the fourth quarter of 1996, Crestar recorded a $50.0 million
(pre-tax) charge in connection with the December 31, 1996 merger with Citizens.
The charge consisted of $11.3 million in severance and other personnel costs,
$18.2 million for facilities consolidations and branch closures, professional
fees of approximately $5.4 million, and $15.1 million related to cancellation of
contractual obligations and other merger-related expenses. An additional $1.5
million and $3.5 million in merger-related charges were accrued during the
second quarter and first six months of 1997, respectively. Total cash payments
of merger-related charges totaled $35.9 million through June 30, 1997. The
balance of accrued merger-related charges totaled $17.7 million as of June 30,
1997.
Intangible assets consisted of goodwill and deposit based intangibles, having a
combined balance of $171,880,000 and $188,404,000 at June 30, 1997 and 1996,
respectively, and favorable lease rights of $400,000 and $455,000, respectively.
Capitalized mortgage servicing rights of $45.9 million and $45.8 million at June
30, 1997 and 1996, respectively, were included in other assets in the
consolidated financial statements. Mortgage servicing rights of approximately
$11 million were capitalized during the first six months of 1997. At June 30,
1997 and 1996 mortgage servicing rights were net of a related valuation
allowance of $538,000. The activity in such valuation allowance was not material
to the consolidated financial statements for the three and six months ended June
30, 1997 and 1996. The fair value of capitalized mortgage servicing rights was
approximately $79 million at June 30, 1997. Amortization of capitalized mortgage
servicing rights was approximately $6 million in the first six months of 1997.
During the second quarter and first six months of 1997, Crestar capitalized
interest of $701,000 and $1.2 million, respectively, associated with
construction in progress.
<PAGE>
(2) Securities Held To Maturity
The amortized cost (carrying values) and estimated market values of securities
held to maturity at June 30 follow:
<TABLE>
<CAPTION>
==========================================================================================================
In thousands 1997 1996
----------------------- -----------------------
Amortized Market Amortized Market
Cost Value Cost Value
<S> <C>
U.S. Treasury and Federal agencies $197,788 $196,323 $ 213,866 $ 210,430
Mortgage-backed obligations of Federal agencies 464,173 464,524 756,400 751,053
Other taxable securities 3,034 3,025 13,231 13,277
States and political subdivisions 50,521 51,444 80,346 80,818
- ----------------------------------------------------------------------------------------------------------
Total securities held to maturity $715,516 $715,316 $1,063,843 $1,055,578
==========================================================================================================
</TABLE>
(3) Securities Available For Sale
The amortized cost and estimated market values (carrying values) of securities
available for sale at June 30 follow:
<TABLE>
<CAPTION>
==========================================================================================================
In thousands 1997 1996
---------------------- -----------------------
Amortized Market Amortized Market
Cost Value Cost Value
<S> <C>
U.S. Treasury and Federal agencies $ 604,863 $ 599,569 $ 561,770 $ 553,142
Mortgage-backed obligations of Federal agencies 2,164,126 2,125,494 2,728,141 2,663,223
Other taxable securities 546,437 544,686 615,488 640,728
Common and preferred stocks 247,983 248,671 202,285 171,185
- ----------------------------------------------------------------------------------------------------------
Total securities available for sale $3,563,409 $3,518,420 $4,107,684 $4,028,278
==========================================================================================================
</TABLE>
At June 30, 1997, the amortized cost and market value of Mortgage-backed
obligations of Federal agencies includes the amortized cost and market value,
respectively, of interest rate caps purchased to hedge the probable market value
decline in a rising interest rate environment. The interest rate caps, which
have a notional balance of $1.75 billion, have a cost basis of $15.1 million and
a market value of $7.0 million at June 30, 1997. The cost basis of the interest
rate caps is being amortized as a reduction of interest income on securities
available for sale.
(4) Money Market Investments
Money market investments at June 30 included:
===========================================================================
In thousands 1997 1996
Securities purchased under agreements to resell $1,095,300 $610,000
Federal funds sold 163,506 194,279
Time deposits 75,042 75,030
U.S. Treasury securities 8,263 10,838
Trading account securities 11,706 1,555
Other 10,924 14,250
- ---------------------------------------------------------------------------
Total money market investments $1,364,741 $905,952
===========================================================================
<PAGE>
(5) Nonperforming Assets And Impaired Loans
Nonperforming assets at June 30 are shown below. Loans that are both (a) past
due 90 days or more and (b) not deemed nonaccrual due to an assessment of
collectibility are specifically excluded from the definition of nonperforming
assets. Such accruing loans past due 90 days or more not shown below totaled
$58.7 million and $58.0 million at June 30, 1997 and 1996, respectively.
==============================================================================
In thousands 1997 1996
Nonaccrual loans $57,813 $ 88,156
Foreclosed properties - net 34,243 34,747
- ------------------------------------------------------------------------------
Total nonperforming assets $92,056 $122,903
==============================================================================
Transfers from nonperforming loans to foreclosed properties (non-cash additions)
were $7.5 million and $6.0 million in the first six months of 1997 and 1996,
respectively. Included in Crestar's non-performing loans above are certain
impaired loans. Impaired loans and their allocated valuation allowances at June
30, 1997 and 1996 were $12.1 million with an allowance of $2.2 million and $38.5
million with an allowance of $6.1 million, respectively. All impaired loans had
an allocated valuation allowance at June 30, 1997 and 1996. Collateral dependent
loans, which were measured at the fair value of the collateral, constituted 100%
of impaired loans at June 30, 1997. The average recorded investment in impaired
loans for the six months ended June 30, 1997 and 1996 was $22.8 million and
$33.4 million, respectively. There was no material interest income recognized on
impaired loans in the three and six months ended June 30, 1997 and 1996.
(6) Allowance For Loan Losses
Transactions in the allowance for loan losses for the three months and six
months ended June 30 were:
<TABLE>
<CAPTION>
==========================================================================================================
In thousands Three Months Six Months
---------------------- ----------------------
1997 1996 1997 1996
<S> <C>
Beginning balance $268,870 $273,957 $268,868 $274,430
- ----------------------------------------------------------------------------------------------------------
Charge-offs (33,341) (33,159) (70,416) (62,418)
Recoveries 7,661 8,168 15,040 15,112
- ----------------------------------------------------------------------------------------------------------
Net charge-offs (25,680) (24,991) (55,376) (47,306)
Provision for loan losses 36,000 24,430 65,698 46,660
Allowance from acquisitions and other activity - net - (500) - (888)
- ----------------------------------------------------------------------------------------------------------
Net increase (decrease) 10,320 (1,061) 10,322 (1,534)
- ----------------------------------------------------------------------------------------------------------
Ending balance $279,190 $272,896 $279,190 $272,896
==========================================================================================================
</TABLE>
(7) Allowance For Foreclosed Properties
Transactions in the allowance for losses on foreclosed properties for the three
months and six months ended June 30 were:
<TABLE>
<CAPTION>
==========================================================================================================
In thousands Three Months Six Months
--------------------- ---------------------
1997 1996 1997 1996
<S> <C>
Beginning balance $18,076 $13,103 $18,449 $13,574
- ----------------------------------------------------------------------------------------------------------
Provision for foreclosed properties - (450) - (388)
Write-downs (91) (140) (464) (202)
Allowance from acquisitions - net - - - (471)
- ----------------------------------------------------------------------------------------------------------
Net decrease (91) (590) (464) (1,061)
- ----------------------------------------------------------------------------------------------------------
Ending balance $17,985 $12,513 $17,985 $12,513
==========================================================================================================
</TABLE>
<PAGE>
(8) Short-Term Borrowings
Short-term borrowings, exclusive of deposits, with maturities of less than one
year at June 30 were:
============================================================================
In thousands 1997 1996
Federal funds purchased $1,463,056 $2,579,501
Securities sold under repurchase agreements 1,053,541 563,707
Federal Home Loan Bank borrowings 575,000 640,000
U.S. Treasury demand notes 499,401 931
Notes payable 247,911 202,558
Other 2,134 2,104
- ----------------------------------------------------------------------------
Total short-term borrowings $3,841,043 $3,988,801
============================================================================
The Corporation paid $286,096,000 and $318,342,000 in interest on deposits and
short-term borrowings in the first six months of 1997 and 1996, respectively.
(9) Long-Term Debt
Long-term debt at June 30 included:
<TABLE>
<CAPTION>
==========================================================================================================
In thousands 1997 1996
<S> <C>
4 3/8-7 3/8% Federal Home Loan Bank obligations payable through 2015 $271,601 $345,272
8 3/4% Subordinated notes due 2004 149,712 149,674
8 1/4% Subordinated notes due 2002 125,000 125,000
8 5/8% Subordinated notes due 1998 49,992 49,981
7 7/8-11 1/4% Collateralized mortgage obligation bonds maturing through 2019 13,661 16,734
7-8 1/4% Mortgage indebtedness maturing through 2009 8,162 8,981
8 5/8-14 3/8% Capital lease obligations maturing through 2006 943 1,055
Crestar Capital Trust I preferred stock 200,000 -
- ----------------------------------------------------------------------------------------------------------
Total long-term debt $819,071 $696,697
==========================================================================================================
</TABLE>
The Corporation paid $31,202,000 and $25,677,000 in interest on long-term debt
in the first six months of 1997 and 1996, respectively. There were no new
capital lease agreements in the second 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.
<PAGE>
(10) Income Taxes
The current and deferred components of income tax expense allocated to
continuing operations for the three months and six months ended June 30 in the
accompanying consolidated statements of income were:
<TABLE>
<CAPTION>
==========================================================================================================
In thousands Three Months Six Months
--------------------- ---------------------
1997 1996 1997 1996
<S> <C>
Current:
Federal $41,917 $31,910 $81,499 $64,605
State and local 1,927 1,161 5,397 3,051
- ----------------------------------------------------------------------------------------------------------
Total current tax expense 43,844 33,071 86,896 67,656
- ----------------------------------------------------------------------------------------------------------
Deferred:
Federal (5,287) 3,819 (6,419) 5,660
State and local (32) 1,288 (308) 1,607
- ----------------------------------------------------------------------------------------------------------
Total deferred tax expense (benefit) (5,319) 5,107 (6,727) 7,267
- ----------------------------------------------------------------------------------------------------------
Total income tax expense $38,525 $38,178 $80,169 $74,923
==========================================================================================================
</TABLE>
The differences between the amounts computed by applying the statutory federal
income tax rate to income before income taxes and the actual income tax expense
allocated to operations for the three months and six months ended June 30 were:
<TABLE>
<CAPTION>
===========================================================================================================
In thousands Three Months Six Months
1997 1996 1997 1996
-------------- -------------- -------------- --------------
Amount % Amount % Amount % Amount %
<S> <C>
Income before income taxes $114,315 $105,054 $227,739 $206,910
- -----------------------------------------------------------------------------------------------------------
Tax expense at statutory rate 40,011 35.0 36,769 35.0 79,709 35.0 72,419 35.0
- -----------------------------------------------------------------------------------------------------------
Increase (decrease) in taxes
resulting from:
Tax-exempt interest and dividends (2,198) (1.9) (1,782) (1.7) (3,900) (1.7) (3,609) (1.7)
Nondeductible interest expense 447 .4 181 .2 876 .4 393 .2
Amortization of goodwill 1,035 .9 1,036 1.0 2,080 .9 2,082 1.0
State income taxes 1,232 1.1 1,592 1.5 3,308 1.5 3,028 1.5
Other - net (2,002) (1.8) 382 .3 (1,904) (.8) 610 .2
- -----------------------------------------------------------------------------------------------------------
Total increase (decrease) in taxes (1,486) (1.3) 1,409 1.3 460 .2 2,504 1.2
- -----------------------------------------------------------------------------------------------------------
Total income tax expense $38,525 33.7 $ 38,178 36.3 $80,169 35.2 $ 74,923 36.2
===========================================================================================================
</TABLE>
The Corporation made income tax payments of $77,199,000 and $72,662,000 during
the first six months of 1997 and 1996, respectively. At June 30, 1997, the
Corporation had a net deferred income tax asset of $120,086,000. 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, floors, swaps and
forward contracts. These instruments involve varying degrees of credit and
interest rate risk in excess of the amounts recorded in the consolidated balance
sheets.
Commitments to extend credit are legally binding agreements to lend to a
customer which typically contain clauses that permit cancellation of the
commitment in the event of credit deterioration of the borrower. Similar to
direct lending, these commitments are subject to the Corporation's loan approval
and review procedures and policies. Based upon management's review, Crestar may
require the customer to provide various types of collateral as security for the
agreement, including balances on deposit, securities, real estate and inventory.
Crestar receives a commitment fee for entering into such agreements. Legally
binding, unfunded commitments to extend credit were $9.7 billion and $7.7
billion at June 30, 1997 and 1996, respectively.
<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 $400 million at June 30, 1997.
Recourse obligations on mortgage loans serviced of $1.6 billion at June 30,
1997 included $982 million which was insured by agencies of the Federal
government or private insurance companies. Crestar maintained an allowance of
$309,000 at June 30, 1997 based on estimates of future losses on this
contractual recourse liability.
For interest rate risk management purposes at June 30, 1997, Crestar was
using interest rate (fixed receive) swaps with notional balances of $900 million
and $250 million to convert floating rate commercial and instalment loans,
respectively, to fixed rates. Crestar was using purchased interest rate caps
with notional balances of $1.75 billion and $200 million to hedge the market
value of fixed rate securities available for sale and real estate income
property loans, respectively, and $465 million to minimize interest rate risk
associated with rising rates on floating rate money market deposits. Crestar was
using interest rate floors with notional balances of $1 billion and $250 million
to hedge the fair value of fixed rate domestic time deposits and the prepayment
risk associated with fixed rate real estate mortgage loans, respectively. The
carrying value and net unrealized loss on these swaps, caps and floors were
$31.5 million and $18.2 million at June 30, 1997, respectively. Crestar also
serves as a financial intermediary in interest rate swap, cap and collar
agreements, providing interest rate risk management services to customers. As a
financial intermediary, Crestar had $86.8 million in offsetting swap, $53.8
million in offsetting cap and $10 million in offsetting collar agreements at
June 30, 1997.
The notional amount of these over-the-counter traded interest rate swaps,
caps, floors and collars does not fully represent Crestar's credit and market
exposure, which the Corporation believes is a combination of current replacement
cost of approximately $23.6 million, less collateral held of approximately $9
million, plus an amount for prospective market movement. Four counterparties
constituted 15%, 13%, 12% and 10% of the estimated credit and market exposure of
$71.7 million at June 30, 1997.
Crestar also had forward agreements outstanding at June 30, 1997, which are
primarily used to reduce the interest rate risk arising from changes in market
rates from the time residential mortgage lending commitments are made until
those commitments are funded. The net unrealized loss on such forward
agreements, which had a notional balance of $978 million, was $4.9 million at
June 30, 1997.
As previously reported, 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" violated the Real Estate Settlement Procedures Act
(RESPA) prohibition on referral fees. The suit was similar to a number of other
suits brought against mortgage lenders nationwide. This suit was recently
settled on a basis favorable to Crestar after plaintiffs' motion for class
certification was denied. 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.
<PAGE>
Financial Commentary
Crestar Financial Corporation and Subsidiaries
Information contained in the following "Financial Commentary," other than
historical information, may contain forward-looking statements that 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. Such statements
are provided to assist the reader in understanding anticipated future financial
operations, and are made pursuant to the safe harbor provisions of the Private
Litigation Reform Act of 1995. The Corporation's actual results may differ
materially from those projected in forward-looking statements.
Overview
(Tables 1, 2 and 12)
Crestar Financial Corporation (Crestar) reported net income of $75.8 million for
the quarter ended June 30, 1997, an increase of $8.9 million or 13% over net
income earned in the second quarter of 1996. For the first six months, earnings
were $147.6 million in 1997, an increase of 12% from the $132.0 million earned
in 1996. These increases reflect the continued positive effects of growth in
noninterest income and management of controllable expenses. Earnings per common
share were $.68 for the second quarter of 1997, compared to $.60 in 1996. For
the first six months of 1997, earnings per common share were $1.32, an increase
of 12% from the $1.18 per share recorded in the first six months of 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.
Net income for the second quarter of 1997 includes a pre-tax gain of $17.3
million from the sale, effective May 1, of Crestar's merchant bank card
processing operations to Nova Information Systems, Inc. (Nova). Crestar has
formed an exclusive marketing alliance with Nova which will benefit commercial
and small business customers through Nova's card acceptance products and
technology. The sale will have no material impact on Crestar's ongoing
operations.
Crestar's subsidiaries provide banking and non-banking services throughout
Virginia, Maryland and Washington, D.C., which compose Crestar's primary market
area. This market is characterized as economically diverse and stable. Crestar's
market area is also characterized by active competition in all principal areas
where the Corporation provides services. In addition to banks, other firms
competing in the market area include savings associations, consumer finance
companies, national credit card companies, securities brokerage firms, credit
unions and mortgage banking companies.
Mergers And Acquisitions
On June 23, 1997, Crestar announced that it had reached a definitive agreement
to acquire American National Bancorp, Inc. (American National) in a purchase
transaction expected to be completed during the fourth quarter of 1997. American
National is the holding company for American National Savings Bank, F.S.B., a
Baltimore-based thrift institution with approximately $500 million in total
assets, $330 million in deposits and 10 branches serving the Baltimore
metropolitan area. Upon completion of the merger, American National will become
part of Crestar's Baltimore-based Maryland Region, which currently includes 35
Crestar branches.
Under terms of the purchase agreement, American National shareholders will
receive approximately $20.25 per common share, in Crestar common stock or cash,
for each share of American National common stock held. There are approximately
3.6 million shares of American National common stock outstanding. Crestar
intends to purchase in the open market any Crestar shares issued in the
transaction. The acquisition is subject to approval by bank regulatory
authorities and American National shareholders.
Profitability Measures And Capital Resources
(Table 1)
Increased earnings in both the second quarter and the first six months of 1997
resulted in improvements in key profitability measures over 1996. Return on
average assets was 1.42% in the second quarter, and 1.37% for the first six
months of 1997, compared to 1.23% for both the second quarter and first six
months of 1996. Return on average equity was 16.48% for the second quarter of
1997, compared to 15.20% for the second quarter of 1996. For the first six
months of 1997, return on average equity was 16.27%, compared to 14.93% for the
first six months of the previous year.
Average equity to assets of 8.64% for the second quarter of 1997 compared to
8.10% in the second quarter of 1996. Average equity to assets for the first six
months of 1997 was 8.45%, compared to 8.22% for the same period of 1996.
Period-end equity to assets of 8.33% at June 30, 1997 compared to a June 30,
1996 ratio of 7.84%.
<PAGE>
Risk-based capital ratios are another measure of capital adequacy. At June
30, 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 9.3% at June 30, 1997 also was
significantly above the regulatory minimum of 3.0%. Crestar's tangible leverage
ratio, defined as total equity less intangible assets divided by total assets
less intangible assets, was 7.63% at June 30, 1997. Under Federal Deposit
Insurance Corporation (FDIC) rules, Crestar's sole subsidiary bank (Crestar
Bank) was considered "well-capitalized" as of June 30, 1997, the highest
category of capitalization defined by regulatory authorities, allowing for the
lowest level of FDIC insurance premium payments.
Crestar has filed shelf registration statements with the Securities and
Exchange Commission 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 second quarter of 1997 was 4.58%, an
improvement of 10 basis points from the margin recorded in the second quarter of
1996. The improvement was due to favorable changes in both the composition of
and rates paid on funding sources. These factors served to offset the impact of
unfavorable changes in the composition of earning assets, yields earned on such
assets, and a negative impact from off-balance sheet derivative transactions.
Rates paid on total interest-bearing deposits averaged 3.77% during the
second quarter of 1997, down 7 basis points from the second quarter of 1996.
This decline was primarily driven by a decrease of 29 basis points on average
rates paid on domestic time deposits, which decreased from 5.27% in the second
quarter of 1996 to 4.98% in the second quarter of 1997. While rates paid on
interest-bearing demand deposits and on certificates of deposits of $100,000 and
over increased from the second quarter of 1996, the impact of the higher rates
paid were more than offset by declining rates on the Corporation's domestic time
deposits and on regular savings deposits. Yields on short-term borrowings and
long-term debt were up from the levels of second quarter 1996 by 13 and 31 basis
points, respectively. The average rate paid on Crestar's total sources of funds
in the second quarter of 1997 was 3.47%, reflecting a decline of 7 basis points
from the same period of 1996.
The yield on average loans decreased 9 basis points from the second quarter
of 1996, to 8.65%. Average rates on bank card loans increased from 12.51% in the
second quarter of 1996 to 14.39% in the second quarter of 1997, in part due to
the expiration of low introductory loan interest rates on selected bank card
accounts. Yields on real estate-income property loans also increased from second
quarter 1996 results, while all other loan categories displayed lower yields. A
lower interest rate environment for most consumer loans in the second quarter of
1997, compared to the second quarter of 1996, resulted in lower yields on
instalment and real estate-mortgage loan balances.
Yields on money market investments were 5.65% for the second quarter of 1997
versus 5.30% for the second quarter of 1996, in part reflecting a higher average
federal funds rate on overnight deposits. Average rates on securities available
for sale were 6.32% in second quarter 1997, versus 6.31% in the same period of
1996. Average yields also increased on the smaller securities held to maturity
portfolio. In total, interest rate spreads had a positive impact of 16 basis
points on Crestar's second quarter 1997 net interest margin, when compared to
the second quarter of 1996.
Changes in the earning asset mix decreased the second quarter 1997 net
interest margin by approximately 10 basis points when compared to the second
quarter of 1996. Loans as a percentage of total earning assets increased from an
average of 69% during the second quarter of 1996 to 73% for the same period of
1997. Average total loans were $14.1 billion during the second quarter of 1997,
compared to $13.8 billion during the second quarter of 1996. However, changes in
the composition of average loan balances negatively impacted net interest
margins. Average bank card loans, the highest yielding loan category,
experienced a decline of $330 million, or 21%, during the second quarter of 1997
when compared to the same period of 1996. Marketing efforts directed to new
accounts have been curtailed from previous levels, in light of higher
industry-wide delinquency statistics. Account balances have also declined as a
result of the expiration of introductory low interest rates on some bank card
products. Lower yielding secured consumer loans (instalment and real estate
mortgage loans) experienced significant growth during the second quarter of
1997. Average instalment loan balances increased by $410 million or 11% during
<PAGE>
this period, with average real estate-mortgage loans increasing $204 million, or
7%, from second quarter of 1996. Average business loans for the second quarter
were relatively unchanged from prior year balances, experiencing a net 1%
increase. Average money market investments decreased, from $303 million in the
second quarter of 1996 to $161 million for the same quarter of 1997. Decreases
in average balances of mortgage loans held for sale reflect lower origination
volume in Crestar's mortgage banking subsidiary, coupled with shorter holding
periods for loans held for sale. Average balances in the second quarter of 1997
were $551 million, representing 3% of average total earning assets during this
period. Average balances for mortgage loans held for sale during the second
quarter of 1996 totaled $864 million.
Favorable changes in the composition of Crestar's funding sources resulted in
a positive impact to the second quarter 1997 net interest margin of 6 basis
points, in comparison to second quarter 1996 results. Total sources of funding
needed for earning assets levels declined by 2% from second quarter of 1996 to
the second quarter of 1997. Average total deposits for the second quarter of
1997 decreased by $159 million, a 1% decrease over second quarter 1996 average
balances. Average balances of domestic time deposits, which include consumer
certificates of deposits, declined $746 million or 15% from the levels of the
second quarter of 1996. Balances of interest bearing demand deposits and regular
savings deposits were also lower in comparison to second quarter 1996 balances,
while certificates of deposits of $100,000 and over were higher by approximately
$671 million. Growth in average balances of non-interest bearing demand deposits
and in shareholders equity were an important reason for overall favorable change
in the composition of funding sources. Net non-interest bearing sources of funds
represented 18% of total funding sources in the second quarter of 1997, versus
16% during the second quarter of 1996. Interest-bearing deposits represented 65%
of total funding sources in both the second quarter of 1997 and 1996. Coupled
with the impact of changes to Crestar's earning asset mix, changes in the
composition of funding sources resulted in a net 4 basis point decrease in the
second quarter 1997 net interest margin, versus the second quarter of 1996,
arising from total changes in Crestar's total balance sheet mix.
Off-balance sheet hedge transactions resulted in a decrease in net interest
income of $1.3 million during the second quarter of 1997, which was composed of
a $0.8 million decrease in interest income and a $0.5 million increase in
interest expense, based on the underlying asset or liability being hedged. In
the second quarter of 1996 the comparable impact of hedging activity was an
increase to Crestar's net interest income of $1.1 million, which consisted of a
$1.1 million increase in interest income and a negligible decrease in interest
expense. In comparison to second quarter 1996, such off-balance sheet
transactions had a negative impact of 4 basis points on second quarter 1997's
net interest margin. The impact of nonperforming assets and recognition of loan
fees on second quarter 1997's net interest margin, in comparison to the same
period of 1996, was a positive impact of approximately 2 basis points.
The extent to which Crestar will be able to maintain its current,
historically high net interest margin is significantly influenced by the
economic environment in our markets and the economic policy of the Federal
Reserve Board, in addition to competitive market conditions for both loans and
deposits. Competitive pressures, especially with regard to deposit rates, may
lead to decreases in net interest margin in future periods.
A 2% decline in average earning assets, when coupled with the 10 basis point
increase in Crestar's net interest margin, resulted in net interest income for
the second quarter of 1997 decreasing by $0.3 million, virtually the same as the
second quarter of 1996. Similarly, tax-equivalent net interest income was stable
during this period. For the first six months, tax equivalent net interest income
increased 2% over 1996 as a result of a 10 basis point increase in the net
interest margin, which more than offset a slight decrease in average earning
assets. Most factors contributing to the increased year-to-date margin mirror
those previously discussed. Changes to the earning assets mix for the
year-to-date period had a unfavorable impact of 15 basis points, while changes
to the funding mix resulted in an 2 basis point positive impact to the
year-to-date margin. Favorable interest rate spreads for the comparable six
month period increased net interest margin by 24 basis points. Off-balance sheet
hedge transactions had a negative impact on the margin, in comparison to
year-to-date 1996 results, of approximately 3 basis points. Off-balance sheet
hedge transactions resulted in a decrease to net interest income of $2.3 million
during the first six months of 1997, which was composed of a $1.4 million
decrease in interest income and a $0.9 million increase in interest expense,
based on the underlying asset or liability being hedged. In the first six months
of 1996 the comparable impact of hedging activity was an increase to Crestar's
total interest income of $1.8 million, which consisted of a $1.8 million
increase in
<PAGE>
interest income and a negligible decrease in interest expense. Other positive
factors, impacting the margin by a combined 2 basis points, were improved levels
of nonperforming assets and increases in the amortization of loan fees
recognized as interest income.
Risk Exposures And Credit Quality
(Tables 4 and 5)
The allowance for loan losses was $279 million at June 30, 1997, representing
1.96% of period-end loans, 303% of period-end nonperforming assets, and a 483%
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 $58.7 million at June 30, 1997,
with consumer loans representing 93% of this balance.
At June 30, 1997, nonperforming assets of $92.1 million were down $30.8
million or 25% from June 30, 1996, and down $16.9 million or 16% from December
31, 1996. The ratio of nonperforming assets to loans and foreclosed properties
at June 30, 1997 was 0.64%, compared to 0.77% at December 31, 1996 and 0.89% at
June 30, 1996. Future operating results could show increases in the total
balance of nonperforming assets due to loan growth, future acquisitions of
financial institutions, or adverse changes in credit quality.
The provision for loan losses was $36.0 million for the second quarter of
1997, an increase of $11.6 million from the $24.4 million provision expense
recorded in the second quarter of 1996. Provision expense in the first quarter
of 1997 was $29.7 million. The higher provision expense for the second quarter
of 1997 had the effect of increasing the allowance for loan losses, as a
percentage of outstanding period-end loans, from 1.89% at March 31, 1997 to
1.96% at June 30, 1997. Net charge-offs totaled $25.7 million in the second
quarter of 1997, compared to $25.0 million in the comparable period of 1996. Net
charge-offs as a percentage of average loans were 0.73% for the second quarter
of 1997, compared to 0.73% in the same period of 1996, and 0.86% for the first
quarter of 1997. Business loans experienced net recoveries of $1.0 million in
the second quarter of 1997, compared to net recoveries of $0.3 million in the
comparable quarter of 1996. Consumer loan net charge-offs totaled $26.7 million
in the second quarter of 1997, compared to net charge-offs of $29.7 million in
the first quarter of 1997 and $25.3 million in the second quarter of 1996.
The largest proportion of net loan charge-offs during the second quarter of
1997, and for the first six months of 1997, occurred in the bank card loan
portfolio. Net charge-offs for bank card loans were $22.9 million in the second
quarter of 1997, compared to $23.4 million in the first quarter of 1997 and
$20.2 million in 1996's second quarter. Net bank card loan charge-offs as a
percentage of bank card loans (on an annualized basis) were 7.45% in the second
quarter of 1997, 6.98% for the first quarter of 1997, and 5.19% in the second
quarter of 1996. This increase in the ratio of bank card net charge-offs to
average bank card loans is partially attributable to both a decrease in
outstanding bank card loan balances and the current trend of adverse payment
performance by consumers, a trend similar to that evidenced by high nationwide
delinquency statistics. The increase also reflects the prior growth of Crestar's
bank card loan portfolio, especially during 1994 and 1995. The delinquency and
loss characteristics of newly underwritten bank card loans typically do not
reach their highest levels until after 24 months from origination. A bank card
portfolio will, therefore, generally produce higher net charge-off levels as the
newer loans "season." Crestar is encouraged by the decline in the balance of
bank card loan charge-offs in the second quarter of 1997 versus the prior
quarter. However, a factor in the increase in the loan provision expense
incurred during the second quarter of 1997 is the aforementioned level of
industry-wide consumer (including bank card) loan delinquency statistics and the
uncertainty surrounding those measures.
Net loan charge-offs of instalment loans experienced a decline during the
second quarter of 1997, totaling $3.0 million versus $5.5 million in the first
quarter of 1997 and $4.8 million in the second quarter of 1996. Net charge-offs
for real estate-mortgage loans were $0.8 million for the second quarter of 1997.
In addition to other loan categories, Crestar closely manages its portfolio
of loans to real estate developers and investors (REDI). The REDI designation is
based on borrower type and encompasses non-owner occupied real estate and
construction loans as well as other forms of credit extended to real estate
developers and investors. REDI outstanding balances have remained fairly
constant in 1997 and totaled $1.7
<PAGE>
billion at June 30, 1997. This balance represented 12% of the total loan
portfolio at that date. At both December 31, 1996 and at March 31, 1997, REDI
loan balances also constituted 12% of the total loan portfolio. REDI
nonperforming assets were $46.0 million at June 30, 1997, compared to $61.8
million at December 31, 1996 and $53.6 million at March 31, 1997.
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 June 30, 1997, not included in Table 5, totaled
approximately $123 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 approximately $191 million at June 30, 1996 and
$153 million at December 31, 1996. Fluctuations in potential problem loans
balances from quarter to quarter should be viewed in the context of the size of
Crestar's total loan portfolio, which totaled $14.3 billion at June 30, 1997.
Noninterest Income And Expense
(Table 6)
Noninterest income totaled $111.0 million in the second quarter of 1997, a $19.4
million or 21% increase over the second quarter period of 1996. Excluding
securities gains and losses, noninterest income increased $19.8 million or 22%
over second quarter 1996 results. As previously noted, Crestar recorded a gain
of $17.3 million (pre-tax) during the second quarter of 1997 from the sale of
merchant bank card processing operations.
Significant growth was experienced in several noninterest income categories.
Deposit account fee income for the three months ended June 30, 1997 was up $3.3
million, or 12%, from the results of the second quarter of 1996. Trust and
investment advisory income increased 13% from second quarter 1996 levels,
reflecting growth in assets under trust. Other service charges and fees totaled
$8.7 million for the second quarter of 1997, representing an increase of 20%
over second quarter 1996 results.
Bank card-related noninterest income declined to $9.8 million in the second
quarter of 1997, down from the $13.2 million recognized in the same period of
1996. The decline is primarily attributable to the sale of Crestar's merchant
bank card processing operations, effective May 1, 1997. Reflecting lower overall
levels of mortgage originations within the mortgage banking industry, Crestar's
mortgage origination income for the second quarter of 1997 totaled $2.4 million,
or $2.8 million lower than the results reported in the second quarter of 1996.
Mortgage servicing income totaled $3.6 million for the second quarter of 1997,
representing a decrease of $0.5 million from second quarter 1996 results. Gains
on sale of mortgage servicing rights totaled $4.0 million in the second quarter
of 1997, compared to $0.8 million in the second quarter of 1996. Miscellaneous
income for the second quarter of 1997 includes a gain of $4.6 million recognized
on the sale of selected real estate-mortgage loans. Miscellaneous income for the
second quarter of 1996 results include a gain of $2.8 million from the sale of
loans.
Noninterest expense decreased $1.7 million, or 1%, in the second quarter of
1997 when compared to the same period of 1996. Noninterest expense in the
quarter included $4.3 million of costs incurred in an ongoing project to prepare
Crestar's data processing systems for "Year 2000" compatibility. The second
quarter results also include $1.5 million in non-recurring expenses related to
the merger with Citizens Bancorp and related system conversions. Excluding these
non-recurring expenses and forecloses properties expense, noninterest expense
for the second quarter of 1997 was $8.0 million less than the second quarter of
1996. The reduction in expenses was primarily attributable to achieving cost
savings from the Citizens merger, which was accounted for as a
pooling-of-interests business combination. Total personnel costs, Crestar's
largest expense category, were $96.5 million in the three month period ended
June 30, 1997, basically flat in comparison to the same period of 1996.
Decreases in FDIC insurance premium rates, effective in the fourth quarter of
1996, led to lower FDIC premium expense compared to second quarter 1996 results.
FDIC insurance expense totaled $0.7 million in the second quarter of 1997,
versus $3.4 million for the same period of 1996.
Foreclosed properties expense for the quarter ended June 30, 1997 was $0.6
million, compared to an expense of $0.1 million in the quarter ended June 30,
1996. For the six month period ended June 30, 1997, foreclosed properties
expense was of $1.4 million, compared to a net recovery of $1.2 million for the
first six month of 1996.
The effective tax rate for second quarter and first six months of 1997 was
33.7% and 35.2%, respectively, compared to 36.3% and 36.2% for the comparable
<PAGE>
periods of 1996. Crestar's effective tax rate was favorably impacted by the
recognition of tax benefits relating to prior years, and lower state income tax
expense. Financial statement note 10 contains additional information concerning
income taxes.
As noted above, second quarter 1997 noninterest expense includes $4.3 million
of costs incurred in preparing the Corporation's data processing systems to be
"Year 2000" compatible. Crestar is implementing changes to its information
systems so that they will be fully operable for date recognition and data
processing when the year 2000 begins. The total cost for this conversion and
testing process is estimated to be between $22 and $27 million, with the
majority of costs expected to be incurred during fiscal 1998. This estimate
includes some costs, such as the purchase of computer hardware, that will
qualify as depreciable assets for accounting purposes, with the related
depreciation expense recognized over the estimated lives of the related assets.
However, the majority of costs will be expensed as incurred.
Financial Condition
(Table 7)
Crestar's assets totaled $22.8 billion at June 30, 1997, compared to $22.9
billion in assets at December 31, 1996, and $22.7 billion at June 30, 1996.
Loans totaled $14.3 billion at June 30, 1997, compared to $14.0 billion at
year-end 1996. Total deposits were $15.8 billion at June 30, 1997 compared to
$15.7 billion at December 31, 1996. Total deposits were up slightly from
year-end 1996. Increased competition for deposits resulted in declines in some
deposit categories, including interest-bearing demand deposits and domestic time
deposits. The consolidation of certain branches acquired in the December 31,
1996 merger with Citizens has also resulted in declines in some deposit
categories.
With respect to the securities held to maturity portfolio, carrying value
exceeded the market value at June 30, 1997 by $0.2 million, consisting of
approximately $4.4 million in unrealized gains and $4.6 million in unrealized
losses. At June 30, 1997, the amortized cost of securities available for sale
exceeded the fair value of such securities by $45.0 million, consisting of
approximately $6.5 million in unrealized gains and $51.5 million in unrealized
losses. Shareholders' equity at June 30, 1997 reflects a $28.9 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 arising from net unrealized losses on securities available for
sale. At June 30, 1996, Crestar's shareholders' equity reflected a $50.9 million
reduction for the excess, net of tax, of amortized cost of securities available
for sale over fair value. The net unrealized gain or loss on securities
available for sale, which is recorded as a component of shareholders' equity,
will continue to be subject to change in future periods due to fluctuations in
market value, acquisition activities, and purchases, sales, maturities and calls
of securities classified as available for sale. Net unrealized losses in the
securities available for sale portfolio primarily reflect ongoing interest rate
volatility, which is inherent in the securities marketplace. Based on current
market conditions, net unrealized losses on securities are not expected to have
a significant impact on the future operating results or liquidity of Crestar.
All mortgage-backed securities in the securities available for sale and
securities held to maturity portfolios are subject to prepayment risk, since the
mortgage loans underlying these securities can prepay at any time without
penalty. This risk becomes apparent during periods of declining interest rates,
when refinancing of existing mortgage loans can accelerate. During these
periods, the expected maturity of mortgage-backed securities shortens due to
prepayments, reducing the expected stream of future interest payments to be
received. The interest rate and prepayment risk associated with mortgage-backed
securities is considered by management in assessing the overall asset/liability
structure of the Corporation.
All investment securities, including mortgage backed pass-through securities,
collateralized mortgage obligation (CMO) securities, and securitized credit card
receivables, are also managed with respect to their credit risk. Credit risk
arises because payments of interest and principal can be dependent on the
payment of the underlying mortgage or receivable payment where applicable, in
addition to the contractual obligation of the issuer to collect and remit such
payments to the individual security owners. The Corporation monitors credit risk
by assessing, and monitoring on an ongoing basis, the financial strength and
performance of the issuers of such securities. Approximately 60% (market value)
of Crestar's securities available for sale portfolio, and 65% (amortized cost)
of the Corporation's securities held to maturity portfolio, was composed of
mortgage-backed obligations of Federal agencies as of June 30, 1997. This
category includes mortgage-backed securities of Federal agencies, as well as CMO
securities guaranteed by Federal agencies such as the Federal Hove Loan Mortgage
Corporation. Securities classified as "Other taxable securities" can include
<PAGE>
non-government CMO securities, corporate debt securities, and corporate
obligations securitized by credit card and instalment loans. Other taxable
securities classified as available for sale at June 30, 1997 included $540
million (market value) of non-government CMO securities.
During the second quarter of 1997, Crestar sold approximately $470 million of
securities classified as available for sale, generating securities losses of $91
thousand. Such sales were consummated in conjunction with the overall management
of interest rate risk for the Corporation. Securities gains recorded in the
second quarter of 1996 totaled $270 thousand.
During the second quarter, Crestar announced a common stock dividend
increase, effective with the dividend paid on May 21, 1997, to $.29 per share.
This represents a 7% increase from the previous quarterly dividend rate of $.27
per share. The second quarter 1997 dividend per share reflects an increase of
12% over the common stock dividend of $.26 declared and paid during the second
quarter of 1996.
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 57% of total funding sources at June
30, 1997, compared to 59% of total funding sources at December 31, 1996 and 61%
at June 30, 1996. As an additional indication of adequate liquidity, securities
available for sale represented 17%, and money market investments an additional
7%, of Crestar's total earning assets at June 30, 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
consists of the present value of all future cash flows from assets, liabilities
and off-balance sheet items. Potential changes in the fair value of equity are
calculated by projecting cash flows and then computing present values under
numerous interest rate scenarios. The fair value calculations include the
valuation of instruments with option characteristics, using numerous interest
rate path valuations and mathematical rate simulation techniques. Crestar has
been developing this tool and is incorporating it as its primary component of
interest rate risk management. However, the Corporation's measurement and
interpretation process for fair value models continues to be in a developmental
stage.
Another tool used by Crestar in assessing interest rate exposure is net
interest income simulations. The ALCO committee establishes limits on net income
at risk for a relevant planning period of 9 to 24 months. A net income forecast
is prepared regularly based on a consensus interest rate forecast, in addition
to numerous high and low interest rate scenarios of up to and including 300
basis points from current interest rates. The time period evaluated is linked to
the current planning horizon. The various interest rate scenarios represent a
reasonable range of interest rates. By its nature the simulation process
includes numerous assumptions, including assumptions on changes in average
balances and yields, changes in deposit and loan mix, and forecasts of interest
rate movements and speeds. The expected dynamics of the balance sheet, including
shifts in loans and deposits, are included in the simulations. Also taken into
account are the assumed effects of interest rate caps and floors, and variances
in the level of prepayment rates on loans and securities as a function of
interest rates. Prepayment assumptions are based on the expertise of management
along with input from external financial market sources. While the simulation
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.
<PAGE>
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 June 30, 1997, Crestar's projected
net income under the consensus interest rate scenario for the next nine months
would decrease by approximately 6% in a high interest rate scenario, and would
increase by approximately 1% in a low interest rate scenario. These projections
were within Crestar's tolerance for interest rate risk, and indicate a
sufficient liquidity position and acceptable operating environment under the
high, low and consensus interest rate scenarios.
A third interest rate risk tool used by Crestar is the interest rate "gap",
or mismatch in repricing between interest-sensitive assets and liabilities,
which provides a general indication of interest sensitivity at a specific point
in time. A gap schedule is shown in Table 8, and reflects the earlier of the
maturity or repricing dates for various assets and liabilities at June 30, 1997.
At that point in time, Crestar had a cumulative net liability sensitive
twelve-month gap with $5.2 billion excess of interest-sensitive sources of funds
over uses of funds. This generally indicates that earnings should improve in a
declining interest rate environment as liabilities reprice more quickly than
assets. The opposite would be true of a positive, or asset-sensitive, interest
rate gap.
In addition to the traditional gap measurement presentation, Table 8 also
presents interest sensitivity on an adjusted basis. These beta adjustments are
based on a ratio of actual changes in consumer deposit rates to changes in the
prime rate during interest rate cycles for the last several years. Essentially,
the beta factors recognize that certain consumer deposit rates are less
interest-sensitive than market-based rates, such as rates paid on short-term
commercial notes. In addition to a beta adjustment, the table also incorporates
an adjustment to reflect the sensitivity of the Corporation's commercial demand
deposit balances to the level of interest rates. This adjustment, based on
historical trends and estimated as a percentage of commercial interest bearing
demand deposits, reflects a greater sensitivity on the part of commercial demand
deposits to fluctuating interest rates than experienced with consumer deposits.
On a cumulative twelve-month basis, Crestar had a liability sensitive "adjusted
gap" at June 30, 1997, with $0.7 billion excess of interest-sensitive sources of
funds over uses of funds. In comparison, the level of total earning assets at
June 30, 1997 was $20.5 billion. The static and adjusted gap do not include
$1.25 billion (notional amount) of interest rate floors that would potentially
offset the effect of falling interest rates on the fair value of fixed rate
domestic time deposits and on prepayment risk within the Corporation's fixed
rate real estate - mortgage loan portfolio. In addition, the static gap and
adjusted gap do not include $2.41 billion (notional amount) of interest rate
caps that would potentially offset the effect of rising interest rates on
various earning assets and funding sources (see Table 9).
Each of the above three tools used to assess interest rate risk have
strengths and weaknesses. While Crestar believes that the above methodologies
provide a meaningful representation of the Corporation's interest rate
sensitivity, the methodologies do not necessarily take into account all business
developments which can have an impact on net 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 June 30, 1997 are utilized to
convert certain variable rate assets to fixed rates in order to lock in a
profitable interest spread based on the underlying fixed rate funding sources.
The majority of Crestar's outstanding interest rate cap instruments are utilized
to mitigate the declines in market value that can be experienced by fixed
interest rate securities in a rising interest rate environment. The majority of
outstanding interest rate floor instruments hedge the fair value of fixed rate
domestic time deposits in a declining interest rate environment. Table 9
provides further details on Crestar's outstanding derivative instruments at June
30, 1997. Because financial derivatives typically do not have actual principal
dollars transferred between parties, notional principal amounts are used to
express the volume of such transactions. However, the notional amount of
derivative contracts does not represent direct credit exposure. Crestar's direct
credit exposure is generally limited to the estimated replacement cost of those
instruments in a gain position. Crestar has established policies governing
derivative activities, and the counterparties used by Crestar are considered an
acceptable risk. In addition, Crestar may demand collateral from a counterparty
to further minimize credit risk. There were no past due amounts or reserves for
possible derivative losses at June 30, 1997, nor has Crestar ever experienced
any charge-offs related to the credit risk of derivative transactions. Interest
rate simulation
<PAGE>
techniques are used by Crestar to assess and monitor market risk in the
Corporation's derivative portfolio. During the second quarter of 1997, Crestar
terminated prior to maturity certain interest rate cap agreements with a
notional value of $200 million being used as hedges against interest rate risk.
Gains upon termination, which were not material, are included in securities
gains and losses in the consolidated statement of income. The Corporation had no
unamortized deferred gain or loss at June 30, 1997 from terminated derivative
instruments. The terminations reflect decisions by ALCO to refine balance sheet
management strategies. Additional terminations of derivative instruments prior
to maturity may occur in the future in response to modifications of interest
rate risk management strategies.
The notional amount of Crestar's interest rate swaps, caps and floors
(excluding customer positions where Crestar acts as an intermediary) was $4.8
billion at June 30, 1997. Forward contracts with a notional amount of $1.0
billion, utilized to hedge lending commitments of Crestar's mortgage banking
subsidiary, were also outstanding at June 30, 1997, bringing the total notional
value of derivative financial instruments related to interest rate risk
management activities to $5.8 billion at June 30, 1997. Tables 9, 10, and 11
present information regarding fair values, maturity, average rates, and activity
as of and for the six month period ending June 30, 1997 for these off-balance
sheet derivative instruments. Net unrealized losses on these instruments totaled
$23.1 million as of June 30, 1997. Financial statement note 11 contains
additional information pertaining to these types of agreements.
New Accounting Standard
In February 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 128, "Earnings Per Share" (SFAS
128), which is required to be adopted on December 31, 1997. At that time,
Crestar will be required to change the method currently being used to compute
earnings per share and to restate all prior periods. Under the requirements of
SFAS 128, the primary earnings per share calculation will be replaced with a
"basic" earnings per share calculation, which will exclude any dilutive effect
of outstanding common stock options. Also, the calculation for fully diluted
earnings per share will be replaced with "diluted" earnings per share, which
will include the effect of dilutive outstanding common stock options. The impact
of calculating basic earnings per share is expected to result in a $0.02 per
share increase in the primary earnings per share reported for both the year
ended December 31, 1996 and for the six months ended June 30, 1997. The impact
of SFAS 128 on the calculation of diluted earnings per share is expected to
result in a $0.01 per share increase in the fully diluted earnings per share
reported for the year ended December 31, 1996, and no change in the fully
diluted earnings per share reported for the six months ended June 30, 1997.
SEC Staff Finding Affecting Retirement of Common Stock
The Securities and Exchange Commission (SEC) staff has informed Crestar that the
Corporation's common stock repurchase plan for acquiring stock for subsequent
issuance under Crestar's dividend reinvestment plan, thrift and profit sharing
plan and applicable employee and director stock compensation plans is not a
systematic plan. Crestar has ceased common stock repurchases under the February
1997 authorization approving the purchase of up to 2.0 million shares of common
stock. A total of 223,750 common shares had previously been purchased under this
authorization. Related to the SEC staff decision, Crestar has rescinded the
remaining February 1997 authorization and further will not acquire or authorize
the acquisition of any tainted common stock (as defined by Accounting Principles
Board Opinion No. 16) until after December 31, 1998. The practical effect of
this development is that the Corporation will not buy back any shares for the
dividend reinvestment or employee benefit plans or to generally reduce the
number of shares outstanding. However, purchases to supply shares for
acquisitions accounted for using the purchase method of accounting generally
will be permitted.
<PAGE>
Table 1 Financial Highlights
<TABLE>
<CAPTION>
Dollars in millions, except per share data Three Months Six Months
----------------------------- -----------------------------
% %
For the Period Ended June 30 1997 1996 Change 1997 1996 Change
<S> <C>
Net Income $ 75.8 $ 66.9 13 $ 147.6 $ 132.0 12
Primary Earnings Per Share:
Net Income $ .68 $ .60 13 $ 1.32 $ 1.18 12
Average Shares Outstanding (000s) 111,602 111,923 - 111,573 112,160 (1)
Fully Diluted Earnings Per Share:
Net Income $ .68 $ .60 13 $ 1.32 $ 1.18 12
Average Shares Outstanding (000s) 111,697 111,923 - 111,695 112,160 -
Dividends Paid Per Common Share $ .29 $ .26 12 $ .56 $ .485 15
==========================================================================================================
Key Ratios
Return on Average Assets 1.42% 1.23% 1.37% 1.23%
Return on Average Equity 16.48 15.20 16.27 14.93
Average Equity to Average Assets 8.64 8.10 8.45 8.22
Net Interest Margin 4.58 4.48 4.54 4.44
At June 30
Book Value Per Share $ 17.17 $ 16.04 7
Equity to Assets 8.33% 7.84%
Risk Adjusted Capital Ratios:
Tier I 10.7 9.2
Total 13.5 12.1
Common Shares Outstanding (000s) 110,638 110,803
==========================================================================================================
</TABLE>
Table 2 Analysis Of Primary Earnings Per Share
<TABLE>
<CAPTION>
2nd Qtr. 1997 2nd Qtr. 1997
vs. vs.
2nd Qtr. 1996 1st Qtr. 1997
Primary Earnings Per Share - prior period $.60 $.64
- -------------------------------------------------------------------------------------
<S> <C>
Interest income (.04) (.02)
Interest expense .04 .01
Provision for loan losses (.07) (.04)
Securities gains or losses - (.02)
Other noninterest income .11 .07
Foreclosed properties expense (.01) -
Other noninterest expense .02 .01
Change in effective income tax rate .03 .03
- -------------------------------------------------------------------------------------
Net increase .08 .04
- -------------------------------------------------------------------------------------
Primary Earnings Per Share - current period $.68 $.68
=====================================================================================
</TABLE>
<PAGE>
Table 3 Average Balances, Net Interest Income And Rate/Volume Analysis(1)
Dollars in thousands
<TABLE>
<CAPTION>
2nd Qtr.
- ----------------------------------------- 1st Qtr.
Average Balance Average
- -------------------------- Increase Balance
1997 1996 (Decrease) 1997
- ---------- ---------- ---------- ----------
<S> <C>
$ $ % $
3,833,655 3,743,067 2 3,811,305 Commercial
1,270,639 1,260,932 1 1,244,956 Real estate - income property
334,572 371,492 (10) 311,353 Real estate - construction
4,099,809 3,689,582 11 4,105,535 Instalment
1,228,168 1,558,641 (21) 1,338,742 Bank card
3,333,024 3,129,135 7 3,051,743 Real estate - mortgage
- -------------------------------------------------------------------------------------------------------------------
14,099,867 13,752,849 3 13,863,634 Total loans - net of unearned income(2)
- -------------------------------------------------------------------------------------------------------------------
771,671 1,038,101 (26) 908,787 Securities held to maturity
3,778,013 3,846,012 (2) 4,071,188 Securities available for sale
160,914 302,943 (47) 357,462 Money market investments
551,352 863,544 (36) 580,563 Mortgage loans held for sale
- -------------------------------------------------------------------------------------------------------------------
19,361,817 19,803,449 (2) 19,781,634 Total earning assets
===================================================================================================================
5,805,429 5,838,850 (1) 5,796,084 Interest-bearing demand deposits
1,573,048 1,719,167 (8) 1,609,952 Regular savings deposits
4,336,813 5,083,150 (15) 4,501,822 Domestic time deposits
- -------------------------------------------------------------------------------------------------------------------
11,715,290 12,641,167 (7) 11,907,858 Total interest-bearing core deposits
- -------------------------------------------------------------------------------------------------------------------
3,419,958 3,318,619 3 3,627,747 Purchased liabilities
834,761 698,996 19 853,204 Long-term debt
- -------------------------------------------------------------------------------------------------------------------
15,970,009 16,658,782 (4) 16,388,809 Total interest-bearing liabilities
3,391,808 3,144,667 8 3,392,825 Other sources - net
- -------------------------------------------------------------------------------------------------------------------
19,361,817 19,803,449 (2) 19,781,634 Total sources of funds
- -------------------------------------------------------------------------------------------------------------------
Net Interest Income
===================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
2nd Qtr.
- -------------------------------------------------------
1997 vs. 1996 2nd Qtr. 1997 vs. 1st Qtr. 1997
---------------------------------- 1st Qtr. ---------------------------------
Income/Expense(3) Change due to(4) Income/ Change due to(4)
- ------------------- Increase Expense(3) Increase -------------------
1997 1996 (Decrease) Rate(5) Volume 1997 (Decrease) Rate(5) Volume
- ------- ------- ---------- --------- ------- ---------- ---------- --------- ------
<S> <C>
$ $ $ $ $ $ $ $ $
77,406 75,709 1,697 (133) 1,830 75,383 2,023 1,582 441
27,847 27,380 467 257 210 27,283 564 16 548
7,586 8,730 (1,144) (276) (868) 7,072 514 4 510
84,012 78,032 5,980 (2,686) 8,666 81,449 2,563 2,677 (114)
43,145 47,658 (4,513) 5,901 (10,414) 46,939 (3,794) 248 (4,042)
64,068 61,399 2,669 (1,316) 3,985 59,321 4,747 (720) 5,467
- -------------------------------------------------------------------------------------------------------
304,064 298,908 5,156 (2,412) 7,568 297,447 6,617 1,525 5,092
- -------------------------------------------------------------------------------------------------------
11,642 15,615 (3,973) 35 (4,008) 13,708 (2,066) 2 (2,068)
59,875 60,691 (816) 257 (1,073) 63,849 (3,974) 624 (4,598)
2,266 3,996 (1,730) 143 (1,873) 4,687 (2,421) 156 (2,577)
10,618 16,151 (5,533) 314 (5,847) 11,640 (1,022) (422) (600)
- -------------------------------------------------------------------------------------------------------
388,465 395,361 (6,896) 1,944 (8,840) 391,331 (2,866) 5,474 (8,340)
=======================================================================================================
42,939 42,096 843 1,012 (169) 41,814 1,125 975 150
9,768 11,051 (1,283) (344) (939) 9,964 (196) 32 (228)
53,450 66,152 (12,702) (2,944) (9,758) 55,063 (1,613) 421 (2,034)
- -------------------------------------------------------------------------------------------------------
106,157 119,299 (13,142) (4,367) (8,775) 106,841 (684) 1,051 (1,735)
- -------------------------------------------------------------------------------------------------------
45,557 42,459 3,098 1,804 1,294 46,675 (1,118) 1,550 (2,668)
15,591 12,519 3,072 641 2,431 15,615 (24) 314 (338)
- -------------------------------------------------------------------------------------------------------
167,305 174,277 (6,972) 251 (7,223) 169,131 (1,826) 2,505 (4,331)
- -------------------------------------------------------------------------------------------------------
167,305 174,277 (6,972) (3,076) (3,896) 169,131 (1,826) 1,771 (3,597)
- -------------------------------------------------------------------------------------------------------
221,160 221,084 76 5,020 (4,944) 222,200 (1,040) 3,703 (4,743)
=======================================================================================================
</TABLE>
(1) Tax-equivalent basis.
(2) Nonaccrual loans are included in the average loan balances and income on
such loans is recognized on a cash basis.
(3) Includes tax-equivalent net loan fees (costs) of $(68,000) and $484,000 for
the second quarter of 1997 and 1996, respectively, and $(48,000) for the
first quarter of 1997.
(4) Variances are computed on a line-by-line basis and are non-additive.
(5) Variances caused by the change in rate times the change in balances are
allocated to rate.
<PAGE>
Table 4 Allowance For Loan Losses
<TABLE>
<CAPTION>
Dollars in thousands Second Quarter Six Months Ended June 30,
---------------------- -------------------------
1997 1996 1997 1996
<S> <C>
Beginning balance $268,870 $273,957 $268,868 $274,430
- ----------------------------------------------------------------------------------------------------------
Allowance from acquisitions and other activities, net - (500) - (888)
- ----------------------------------------------------------------------------------------------------------
Provision for loan losses 36,000 24,430 65,698 46,660
Net charge-offs (recoveries):
Commercial (58) 626 468 272
Real estate - income property (433) (725) (895) (1,549)
Real estate - construction (515) (232) (611) (310)
Instalment 3,038 4,825 8,583 9,636
Bank card 22,865 20,221 46,235 38,201
Real estate - mortgage 783 276 1,596 1,056
- ----------------------------------------------------------------------------------------------------------
Total net charge-offs 25,680 24,991 55,376 47,306
- ----------------------------------------------------------------------------------------------------------
Balance, June 30 $279,190 $272,896 $279,190 $272,896
==========================================================================================================
Allowance for loan losses to period-end loans 1.96% 1.99% 1.96% 1.99%
Annualized net charge-offs to average loans .73 .73 .79 .69
==========================================================================================================
</TABLE>
Table 5 Nonperforming Assets(1) And Past Due Loans
<TABLE>
<CAPTION>
Dollars in thousands June 30, December 31,
-------------------------
Nonaccrual loans: 1997 1996 1996
<S> <C>
Commercial $11,990 $ 25,539 $ 20,348
Real estate - income property 7,303 26,727 22,624
Real estate - construction 10,243 13,351 10,368
Instalment 3,115 2,738 2,895
Real estate - mortgage 25,162 19,801 25,208
- -----------------------------------------------------------------------------------------
Total nonperforming loans(1) 57,813 88,156 81,443
Foreclosed properties - net 34,243 34,747 27,515
- -----------------------------------------------------------------------------------------
Total nonperforming assets(1) $92,056 $122,903 $108,958
=========================================================================================
Nonperforming assets(1) to:
Loans and foreclosed properties - net .64% .89% .77%
Total assets .40 .54 .48
Allowance for loan losses to:
Nonperforming assets(1) 303 222 247
Nonperforming loans(1) 483 310 330
Allowance for loan losses plus shareholders'
equity to nonperforming assets(1) 23.67x 16.68x 18.80x
=========================================================================================
Accruing loans past due 90 days:
Commercial $ 2,014 $ 3,467 $ 9,480
Real estate - income property 1,800 245 503
Real estate - construction 500 158 -
Instalment
Student 25,168 18,544 21,614
Other 4,953 5,280 7,587
Bank card 19,484 21,822 25,573
Real estate - mortgage 4,794 8,480 7,117
- -----------------------------------------------------------------------------------------
Total accruing loans past due 90 days: $58,713 $ 57,996 $ 71,874
=========================================================================================
</TABLE>
(1) Loans which are both past due 90 days or more and not deemed nonaccrual due
to an assessment of collectibility are specifically excluded from the
definition of nonperforming.
<PAGE>
Table 6 Noninterest Income And Expense
<TABLE>
<CAPTION>
In thousands Six Months Ended
Second Quarter First June 30,
-------------------- Quarter --------------------
Noninterest Income 1997 1996 1997 1997 1996
<S> <C>
Service charges on deposit accounts $ 31,731 $ 28,428 $ 30,163 $ 61,894 $ 55,063
Trust and investment advisory 17,887 15,848 17,453 35,340 31,740
Bank card-related 9,771 13,228 12,648 22,419 25,053
Other service charges and fees 8,730 7,300 8,443 17,173 14,465
Mortgage servicing - net 3,582 4,103 5,131 8,713 8,620
Mortgage origination - net 2,359 5,170 902 3,261 8,217
Trading account activities 1,162 1,425 947 2,109 1,771
Commissions on letters of credit 1,299 1,068 1,114 2,413 2,538
Gain on sale of mortgage servicing rights 4,000 750 6,450 10,450 4,750
Gain on sale and disposal of branches
and other properties - net - - 5,807 5,807 354
Gain on sale of merchant card processing 17,325 - - 17,325 -
Miscellaneous 13,261 14,000 10,345 23,606 23,927
Securities gains (losses) (91) 270 4,064 3,973 2,643
- ----------------------------------------------------------------------------------------------------------
Total noninterest income $111,016 $ 91,590 $103,467 $214,483 $179,141
==========================================================================================================
Noninterest Expense
Salaries $ 75,914 $ 77,264 $ 78,388 $154,302 $152,612
Benefits 20,633 19,723 20,954 41,587 40,150
- ----------------------------------------------------------------------------------------------------------
Total personnel 96,547 96,987 99,342 195,889 192,762
Occupancy - net 13,685 15,276 16,158 29,843 31,400
Equipment 11,462 9,528 9,819 21,281 19,010
Communications 9,278 9,620 8,845 18,123 18,806
Stationery, printing and supplies 2,615 3,271 2,713 5,328 6,203
Professional fees and services 8,333 5,719 7,035 15,368 10,543
Loan expense 2,783 3,765 2,815 5,598 6,268
FDIC premiums - net 682 3,358 1,107 1,789 6,739
Advertising and marketing 5,345 6,814 4,530 9,875 13,407
Transportation 1,774 1,750 1,725 3,499 3,487
Outside data services 6,837 6,182 6,222 13,059 12,086
Amortization of purchased intangibles 4,206 4,104 4,227 8,433 8,275
Miscellaneous 14,818 14,247 14,752 29,570 28,067
- ----------------------------------------------------------------------------------------------------------
Subtotal 178,365 180,621 179,290 357,655 357,053
Foreclosed properties (net recoveries) 645 108 715 1,360 (1,206)
- ----------------------------------------------------------------------------------------------------------
Total noninterest expense $179,010 $180,729 $180,005 $359,015 $355,847
==========================================================================================================
</TABLE>
Table 7 Debt And Other Security Ratings
(as of July 31, 1997)
Standard Thomson
Security Moody's & Poor's BankWatch
83/4% Subordinated Notes due 2004 Baa1 BBB+ A-
81/4% Subordinated Notes due 2002 Baa1 BBB+ A-
85/8% Subordinated Notes due 1998 Baa1 BBB+ A-
Commercial Paper P-2 Not rated TBW-1
Crestar Bank Deposits:
Long-Term A2 A Not rated
Short-Term P-1 A-1 TBW-1
Crestar Capital Trust 1
Preferred Stock Baa1 BBB Not rated
=========================================================================
<PAGE>
Table 8 Interest Sensitivity Analysis
<TABLE>
<CAPTION>
June 30, 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 $ 2,754.1 $ 54.9 $ 87.9 $ 101.9 $1,030.1 $ 4,028.9
Real estate - income property 516.7 13.7 25.2 42.9 690.9 1,289.4
Real estate - construction 280.9 0.7 2.7 5.4 38.8 328.5
Instalment 1,816.4 82.0 107.3 163.7 1,923.9 4,093.3
Bank card 393.6 70.8 109.7 554.3 81.8 1,210.2
Real estate - mortgage 78.7 322.2 428.2 911.7 1,567.6 3,308.4
Securities held to maturity 37.5 64.7 80.5 116.5 416.3 715.5
Securities available for sale 243.4 41.3 61.1 129.0 3,043.6 3,518.4
Money market investments 1,357.3 - 7.4 - - 1,364.7
Mortgage loans held for sale 643.1 - - - - 643.1
- ----------------------------------------------------------------------------------------------------------
Total earning assets 8,121.7 650.3 910.0 2,025.4 8,793.0 20,500.4
Interest sensitivity hedges on assets (1,150.0) - - 1,000.0 150.0 -
- ----------------------------------------------------------------------------------------------------------
Total uses $ 6,971.7 $ 650.3 $ 910.0 $ 3,025.4 $8,943.0 $20,500.4
==========================================================================================================
Sources of Funds
Interest-bearing demand deposits $ 5,748.6 $ - $ - $ - $ - $ 5,748.6
Regular savings deposits 1,552.9 - - - - 1,552.9
Domestic time deposits 309.3 525.7 874.4 1,378.6 1,229.4 4,317.4
Certificates of deposit $100,000
and over 344.8 406.0 68.9 20.9 3.7 844.3
Short-term borrowings 3,474.6 46.4 320.0 - - 3,841.0
Long-term debt 2.7 11.6 11.3 33.6 759.9 819.1
- ----------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities 11,432.9 989.7 1,274.6 1,433.1 1,993.0 17,123.3
Other sources - net - - - - 3,377.1 3,377.1
Interest sensitivity hedges on liabilities - (5.0) - - 5.0 -
- ----------------------------------------------------------------------------------------------------------
Total sources $11,432.9 $ 984.7 $ 1,274.6 $ 1,433.1 $5,375.1 $20,500.4
==========================================================================================================
Cumulative maturity/rate
sensitivity gap $(4,461.2) $(4,795.6) $(5,160.2) $(3,567.9) $ - $ -
==========================================================================================================
Adjustments
Beta adjustments:
Interest-bearing demand deposits
(beta factor .30) $ 4,031.6
Regular savings (beta factor .11) 1,383.6
Demand deposit sensitivity (965.5)
- ----------------------------------------------------------------------------------------------------------
Cumulative adjusted maturity/rate
sensitivty gap $ (11.5) $ (345.9) $ (710.5) $ 881.8 $ - $ -
==========================================================================================================
</TABLE>
<PAGE>
Table 9 Off-Balance Sheet Derivative Financial Instruments(1)
<TABLE>
<CAPTION>
June 30, 1997 Average
Weighted Fixed Estimated
Dollars in thousands Notional Average Receive Fair
Balance Maturity Rate Value Comments
<S> <C>
Interest Rate Conversions
Generic interest rate swaps $1,150,000 3.1 yrs. 6.09% Notional amounts of $900
Carrying amount(2) $ 674 million and $250 million
Commercial loan program convert floating rate commercial
Unrealized gains 3,278 and instalment loans, respectively,
Unrealized losses (7,361) to fixed rate. Floating rates paid
Instalment loan program tied to LIBOR.
Unrealized losses (2,357)
Estimated fair value ------
(5,766)
------
Interest rate caps 465,000 3.5 yrs. 6.91%(3) Notional amount of $465 million
Carrying amount(2) 7,197 hedges the interest rate risk
Money market deposit program associated with rising interest
Net unrealized loss (784) rates on floating rate money
------ market deposits (strike rate tied
Estimated fair value 6,413 to LIBOR).
------
Market Value Hedges
Interest rate caps 1,950,000 2.7 yrs. 7.56%(3) Notional amount of $1.75 billion
Carrying amount(2) 16,068 hedges the market value of fixed
Securities available for sale program(5) rate securities available for sale
Unrealized losses (8,016) in a rising rate environment (strike
Real estate income property loan program rate for $800 million tied to 5 year
Unrealized losses (798) CMT; strike rate for $950 million
tied to LIBOR). Notional amount
of $200 million hedges the
market value of fixed rate real
------ estate income property loans
Estimated fair value 7,254 (strike rate tied to LIBOR).
------
Interest rate floors 1,250,000 3.6 yrs. 5.68%(4) Notional amount of $250 million
Carrying amount(2) 7,516 hedges the prepayment risk
Real estate mortgage loan program associated with fixed rate
Unrealized losses (415) mortgage loans in a declining rate
Domestic time deposit program environment (strike rate tied to
Unrealized losses (1,735) 10 year CMT). Notional amount
of $1.0 billion hedges the fair value
------ of fixed rate domestic time deposits
Estimated fair value 5,366 (strike rate tied to 5 year CMT).
------
Hedges of Lending Commitments
Forward contracts 978,196 .2 yrs. n/a Hedges of residential mortgage
Unrealized gains 1,119 lending commitments.
Unrealized losses (6,010)
------
Estimated fair value (4,891)
Total hedges against ---------- ------
interest rate risk $5,793,196 $ 8,376
=======================================================================================================================
</TABLE>
(1) Includes only off-balance sheet derivative financial instruments related to
interest rate risk management activities.
(2) Includes any accrued interest receivable and or payable balances, and
unamortized premiums paid for interest rate caps and floors.
(3) Represents average strike rate. For interest rate caps purchased, Crestar
will receive interest if a specified market index rate rises above a fixed
strike rate during the term of the contract. Any interest received is based
on the difference between a higher index interest rate and the contractual
cap rate, applied to the underlying notional balance. No interest payments
are received if the index rate remains below the cap rate.
(4) Represents average strike rate. For interest rate floors purchased, Crestar
will receive interest if a specified market index rate falls below a fixed
strike rate during the term of the contract. Any interest received is based
on the difference between a lower index interest rate and the contractual
floor rate, applied to the underlying notional balance. No interest payments
are received if the index rate remains above the floor rate.
(5) The fair value of derivative interest rate caps hedging securities
classified as available for sale is included in the total fair value of the
securities available for sale portfolio. The unamortized premiums paid for
such interest rate caps are included in the amortized cost basis of
securities available for sale, with any unrealized gain or loss (net of tax)
pertaining to these interest rate caps included in shareholders' equity as
"Net unrealized gain (loss) on securities available for sale."
n/a - Not applicable
LIBOR - London Interbank Offered Rates
5 year CMT - Yield on 5 year constant maturity U.S. Treasury securities
10 year CMT - Yield on 10 year constant maturity U.S. Treasury securities
<PAGE>
Table 10 Off-Balance Sheet Derivatives--Expected Maturities(1)
<TABLE>
<CAPTION>
June 30, 1997
Dollars in thousands Within One to Three to Over
One Year Three Years Five Years Five Years Total
<S> <C>
Interest Rate Conversions
Generic interest rate swaps:
Notional amount $ - $ 550,000 $ 450,000 $150,000 $1,150,000
Average fixed receive rate - 5.91% 5.96% 7.16% 6.09%
Carrying amount $ - $ (80) $ 450 $ 304 $ 674
Unrealized gains (losses) - (2,867) (6,851) 3,278 (6,440)
Interest rate caps
Notional amount $ 10,000 $ 255,000 $ 200,000 $ - $ 465,000
Average strike rate 5.75% 7.47% 6.25 - 6.91%
Carrying amount $ 4 $ 1,501 $ 5,692 $ - $ 7,197
Net unrealized gain (loss) 18 (695) (107) - (784)
Market Value Hedges
Interest rate caps
Notional amount $ - $1,950,000 $ - $ - $1,950,000
Average strike rate - 7.56% - - 7.56%
Carrying amount $ - $ 16,068 $ - $ - $ 16,068
Unrealized losses - (8,814) - - (8,814)
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 $ - $ 821 $ 5,471 $ 1,224 $ 7,516
Unrealized losses - (433) (1,540) (177) (2,150)
Hedges of Lending Commitments
Forward contracts:(2)
Notional amount $978,196 $ - $ - $ - $ 978,196
Net unrealized loss (4,891) - - - (4,891)
Total hedges against
interest rate risk:
Notional amount $988,196 $3,055,000 $1,500,000 $250,000 $5,793,196
Carrying amount 4 18,310 11,613 1,528 31,455
Net unrealized gain (loss) (4,873) (12,809) (8,498) 3,101 (23,079)
Estimated fair value $ (4,869) $ 5,501 $ 3,115 $ 4,629 $ 8,376
==========================================================================================================
</TABLE>
(1) Includes only off-balance sheet derivative financial instruments related to
interest rate risk management activities.
(2) Hedges of residential mortgage lending commitments.
<PAGE>
Table 11 Off-Balance Sheet Derivatives Activity-Notional Balances(1)
<TABLE>
<CAPTION>
In thousands
Interest Rate Conversions Market Value Hedges
------------------------- ---------------------- Hedges of
Interest Interest Interest Interest Lending
Rate Rate Rate Rate Commit-
Swaps Caps Caps Floors ments(2) Total
<S> <C>
Balance, April 1, 1997 $1,000,000 $485,000 $1,750,000 $1,250,000 $ 774,380 $5,259,380
Additions 150,000 - 400,000 - 702,187 1,252,187
Terminations - - (200,000) - - (200,000)
Maturities - (20,000) - - (498,371) (518,371)
- ----------------------------------------------------------------------------------------------------------
Balance, June 30, 1997 $1,150,000 $465,000 $1,950,000 $1,250,000 $ 978,196 $5,793,196
==========================================================================================================
Balance, January 1, 1997 $ 900,000 $ 35,000 $1,750,000 $1,000,000 $ 706,731 $4,391,731
Additions 250,000 450,000 400,000 250,000 2,073,564 3,423,564
Terminations - - (200,000) - - (200,000)
Maturities - (20,000) - - (1,802,099) (1,822,099)
- ----------------------------------------------------------------------------------------------------------
Balance, June 30, 1997 $1,150,000 $465,000 $1,950,000 $1,250,000 $ 978,196 $5,793,196
==========================================================================================================
</TABLE>
(1) Includes only off-balance sheet derivative financial instruments related to
interest rate risk management activities.
(2) Forward contracts hedging residential mortgage lending commitments;
maturities represent contracts delivered.
<PAGE>
Table 12 Selected Quarterly Financial Information
<TABLE>
<CAPTION>
Dollars in thousands, except per share data
2nd Qtr. 1st Qtr. 4th Qtr.3 3rd Qtr.2 2nd Qtr.
Results of operations: 1997 1997 1996 1996 1996
<S> <C>
Net interest income(1) $221,160 $222,200 $222,977 $218,046 $221,084
Provision for loan losses 36,000 29,698 24,130 25,100 24,430
- ----------------------------------------------------------------------------------------------------------
Net credit income 185,160 192,502 198,847 192,946 196,654
Securities gains (losses) (91) 4,064 655 96 270
Other noninterest income 111,107 99,403 73,077 80,225 91,318
- ----------------------------------------------------------------------------------------------------------
Net credit and noninterest income 296,176 295,969 272,579 273,267 288,242
Noninterest expense 179,010 180,005 212,465 212,046 180,728
- ----------------------------------------------------------------------------------------------------------
Income before taxes 117,166 115,964 60,114 61,221 107,514
- ----------------------------------------------------------------------------------------------------------
Tax-equivalent adjustment 2,851 2,540 2,510 2,476 2,460
Book tax expense 38,525 41,644 19,438 10,627 38,178
- ----------------------------------------------------------------------------------------------------------
Income tax expense 41,376 44,184 21,948 13,103 40,638
- ----------------------------------------------------------------------------------------------------------
Net Income $ 75,790 $ 71,780 $ 38,166 $ 48,118 $ 66,876
==========================================================================================================
Primary
Earnings per share $ .68 $ .64 $ .34 $ .43 $ .60
Average shares outstanding (000s) 111,602 111,579 111,447 111,101 111,923
Fully diluted
Earnings per share $ .68 $ .64 $ .33 $ .43 $ .60
Average shares outstanding (000s) 111,697 111,580 111,647 111,141 111,923
Dividends paid per share .29 .27 .26 .26 .26
==========================================================================================================
Selected ratios and other data:
Return on average assets 1.42% 1.33% .70% .89% 1.23%
Return on average equity 16.48 16.06 8.42 10.94 15.20
Net interest margin(1) 4.58 4.51 4.47 4.44 4.48
Net charge-offs as % of average loans .73 .86 .84 .74 .69
Allowance as % of period-end loans 1.96 1.89 1.91 2.01 1.99
Overhead ratio 53.89 55.27 71.61 71.07 57.80
Average equity to assets 8.64 8.26 8.29 8.18 8.10
Equity leverage 11.57x 12.11x 12.06x 12.23x 12.35x
Full-time equivalent employees (period-end) 7,960 7,992 8,720 8,600 8,616
==========================================================================================================
</TABLE>
(1) Tax-equivalent basis.
(2) During the third quarter of 1996 Crestar recorded a one-time after-tax
charge of $21.5 million, or $.19 per share, associated with congressional
legislation regarding the recapitalization of the Savings Association
Insurance Fund. Also in the third quarter of 1996, a nonrecurring tax
benefit of $10.6 million, or $.09 per share, was recorded in connection with
the repeal of thrift bad debt tax legislation.
(3) During the fourth quarter of 1996, nonrecurring after-tax merger costs
totaling $32.5 million, or $.29 per share, were recorded as part of the
pooling-of-interests merger with Citizens Bancorp.
<PAGE>
Table 13 Consolidated Average Balances/Net Interest Income/Rates(1)
<TABLE>
<CAPTION>
Three Months Ended June 30,
--------------------------------------------------------------
1997 1996
----------------------------- ---------------------------
Dollars in thousands Income/ Yield/ Income/ Yield/
Balance Expense Rate Balance Expense Rate
--------- ------- ------ --------- ------- ------
<S> <C>
Assets $ $ % $ $ %
Securities held to maturity(2) 771,671 11,642 6.04 1,038,101 15,615 6.02
Securities available for sale(2) 3,778,013 59,875 6.32 3,846,012 60,691 6.31
Money market investments(2) 160,914 2,266 5.65 302,943 3,996 5.30
Mortgage loans held for sale(2) 551,352 10,618 7.89 863,544 16,151 7.49
- ----------------------------------------------------------------------------------------------------------
Commercial 3,833,655 77,406 8.06 3,743,067 75,709 8.13
Real estate - income property 1,270,639 27,847 8.77 1,260,932 27,380 8.72
Real estate - construction 334,572 7,586 9.09 371,492 8,730 9.45
Instalment 4,099,809 84,012 8.21 3,689,582 78,032 8.46
Bank card 1,228,168 43,145 14.39 1,558,641 47,658 12.51
Real estate - mortgage 3,333,024 64,068 7.68 3,129,135 61,399 7.83
- ----------------------------------------------------------------------------------------------------------
Total loans(2),(3) 14,099,867 304,064 8.65 13,752,849 298,908 8.74
Allowance for loan losses (269,823) (274,628)
- ----------------------------------------------------------------------------------------------------------
Loans - net 13,830,044 13,478,221
Cash and due from banks 876,737 967,814
Premises and equipment - net 452,803 412,745
Customers' liability on acceptances 3,854 16,976
Intangible assets - net 174,283 183,358
Foreclosed properties - net 29,107 37,961
Other assets 665,413 575,682
- ----------------------------------------------------------------------------------------------------------
Total Assets 21,294,191 21,723,357
========== ==========
Total Earning Assets 19,361,817 388,465 8.05 19,803,449 395,361 8.02
========== ======= ==== ========== ======= ====
Liabilities And Shareholders' Equity
Interest-bearing demand deposits 5,805,429 42,939 2.97 5,838,850 42,096 2.90
Regular savings deposits 1,573,048 9,768 2.49 1,719,167 11,051 2.59
Domestic time deposits 4,336,813 53,450 4.98 5,083,150 66,152 5.27
Certificates of deposit $100,000 and over 836,682 11,608 5.57 165,480 2,149 5.23
- ----------------------------------------------------------------------------------------------------------
Total interest-bearing deposits(2) 12,551,972 117,765 3.77 12,806,647 121,448 3.84
Demand deposits 3,124,043 3,027,985
- ----------------------------------------------------------------------------------------------------------
Total deposits 15,676,015 15,834,632
Short-term borrowings(2) 2,583,276 33,949 5.26 3,153,139 40,310 5.13
Long-term debt(2) 834,761 15,591 7.47 698,996 12,519 7.16
Liability on acceptances 3,854 16,976
Other liabilities 356,186 260,163
- ----------------------------------------------------------------------------------------------------------
Total liabilities 19,454,092 19,963,906
- ----------------------------------------------------------------------------------------------------------
Total shareholders' equity 1,840,099 1,759,451
- ----------------------------------------------------------------------------------------------------------
Total Liabilities And Shareholders' Equity 21,294,191 21,723,357
========== ==========
Total interest-bearing liabilities 15,970,009 167,305 4.21 16,658,782 174,277 4.21
Other sources - net 3,391,808 3,144,667
- ----------------------------------------------------------------------------------------------------------
Total Sources Of Funds 19,361,817 167,305 3.47 19,803,449 174,277 3.54
========== ======= ==== ========== ======= ====
Net Interest Spread 3.84 3.81
Net Interest Income/Margin 221,160 4.58 221,084 4.48
==========================================================================================================
</TABLE>
Table 13 Consolidated Average Balances/Net Interest Income/Rates(1) (continued)
<TABLE>
<CAPTION>
Three Months Ended March 31, Six Months Ended June 30,
------------------------------ ----------------------------------------------------------------
1997 1997 1996
------------------------------ ------------------------------ ------------------------------
Income/ Yield/ Income/ Yield/ Income/ Yield/
Balance Expense Rate Balance Expense Rate Balance Expense Rate
--------- -------- ------ --------- ------- ------ --------- -------- ------
<S> <C>
$ $ % $ $ % $ $ %
908,787 13,708 6.05 839,850 25,350 6.05 1,061,645 31,980 6.03
4,071,188 63,849 6.29 3,923,791 123,724 6.31 3,687,902 117,195 6.36
357,462 4,687 5.32 258,645 6,953 5.42 255,276 6,848 5.40
580,563 11,640 8.16 565,877 22,258 7.98 820,590 30,446 7.43
- ----------------------------------------------------------------------------------------------------------
3,811,305 75,383 8.01 3,822,540 152,786 8.04 3,687,130 149,651 8.16
1,244,956 27,283 8.71 1,257,868 55,130 8.84 1,259,023 55,146 8.81
311,353 7,072 8.98 323,027 14,658 8.83 380,867 18,254 9.60
4,105,535 81,449 7.99 4,102,657 165,464 8.09 3,681,054 154,967 8.43
1,338,742 46,939 14.47 1,283,150 90,084 14.31 1,598,217 96,235 12.16
3,051,743 59,321 7.77 3,193,160 123,389 7.73 3,161,403 122,966 7.77
- ----------------------------------------------------------------------------------------------------------
13,863,634 297,447 8.66 13,982,402 601,511 8.65 13,767,694 597,219 8.71
(269,094) (269,460) (275,025)
- ----------------------------------------------------------------------------------------------------------
13,594,540 13,712,942 13,492,669
863,561 870,186 971,334
443,699 448,276 411,963
4,250 4,051 15,620
178,388 176,324 184,254
28,503 28,807 38,480
617,730 641,703 557,711
- ----------------------------------------------------------------------------------------------------------
21,648,671 21,470,452 21,497,444
========== ========== ==========
19,781,634 391,331 7.98 19,570,565 779,796 8.01 19,593,107 783,688 8.02
========== ======= ==== ========== ======= ==== ========== ======= ====
5,796,084 41,814 2.93 5,800,783 84,752 2.95 5,844,020 85,821 2.95
1,609,952 9,964 2.51 1,591,398 19,732 2.50 1,721,281 22,452 2.62
4,501,822 55,063 4.99 4,418,860 108,513 3.45 5,152,852 136,563 3.63
515,895 6,878 5.41 677,175 18,487 5.51 137,422 3,599 5.27
- ----------------------------------------------------------------------------------------------------------
12,423,753 113,719 3.72 12,488,216 231,484 3.75 12,855,575 248,435 3.89
3,123,006 3,123,526 2,998,853
- ----------------------------------------------------------------------------------------------------------
15,546,759 15,611,742 15,854,428
3,111,852 39,797 5.18 2,846,104 73,746 5.22 2,886,575 74,765 5.20
853,204 15,615 7.32 843,932 31,206 7.40 707,591 25,250 7.14
4,250 4,051 15,620
344,434 350,344 265,452
- ----------------------------------------------------------------------------------------------------------
19,860,499 19,656,173 19,729,666
- ----------------------------------------------------------------------------------------------------------
1,788,172 1,814,279 1,767,778
- ----------------------------------------------------------------------------------------------------------
21,648,671 21,470,452 21,497,444
========== ========== ==========
16,388,809 169,131 4.19 16,178,252 336,436 4.19 16,449,741 348,450 4.26
3,392,825 3,392,313 3,143,366
- ----------------------------------------------------------------------------------------------------------
19,781,634 169,131 3.47 19,570,565 336,436 3.47 19,593,107 348,450 3.58
========== ======= ==== ========== ======= ==== ========== ======= ====
3.79 3.82 3.76
222,200 4.51 443,360 4.54 435,238 4.44
==========================================================================================================
</TABLE>
(1) Income and yields are computed on a tax-equivalent basis using the statutory
federal income tax rate exclusive of the alternative minimum tax and
nondeductible interest expense.
(2) Indicates earning asset or interest-bearing liability.
(3) Nonaccrual loans are included in the average loan balances and income on
such loans is recognized on a cash basis.
<PAGE>
Item 4. Submission Of Matters To A Vote Of Security Holders
The Annual Meeting of Shareholders of Crestar Financial Corporation was held on
April 25, 1997 for the purpose of electing five Class I directors for a term of
three years and one Class II director for a term of one year, approving the
amended and restated 1993 Stock Incentive Plan, and ratifying the Board of
Directors' appointment of independent auditors for the year. Proxies for the
meeting were solicited pursuant to Section 14(a) of the Securities Exchange Act
of 1934 and there were no solicitations in opposition to the recommendations of
the Board of Directors on the matters voted on.
Five Class I directors were elected for three-year terms and one Class II
director was elected for a one-year term, each having a minimum of 89,332,412
shares voted "for" election, with no more than 2,683,342 shares voted
"withheld." The five Class I directors and one Class II director elected were:
Class I - three-year term: Class II - one-year term:
J. Carter Fox Alfred H. Smith, Jr. Jeffrey R. Springer
Patrick J. Maher Robert C. Wilburn
Gordon F. Rainey, Jr.
The following Class II directors' terms expire in 1998:
Bonnie Guiton Hill Jeffrey R. Springer
Frank E. McCarthy Eugene P. Trani
G. Gilmer Minor III James M. Wells III
The following Class III directors' terms expire in
1999:
Charles R. Longsworth Richard G. Tilghman
Paul D. Miller L. Dudley Walker
Frank S. Royal Karen Hastie Williams
The amended and restated 1993 Stock Incentive Plan was approved as follows:
Shares Voted Shares Voted Shares Voted
"For" "Against" "Abstain"
85,263,173 5,435,176 1,317,405
The appointment of KPMG Peat Marwick LLP as the Corporation's independent
auditors for 1997 was ratified as follows:
Shares Voted Shares Voted Shares Voted
"For" "Against" "Abstain"
91,258,329 249,989 507,436
"Broker non-votes" were not included in determining the number of votes cast in
the election of directors or on other matters. All matters voted on were
considered "routine" under New York Stock Exchange rules.
<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 August 19, 1997 /s/ James D. Barr
--------------- -----------------------------
James D. Barr
Executive Vice President,
Controller and Treasurer
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C> <C>
<PERIOD-TYPE> 6-MOS 6-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1996
<PERIOD-END> JUN-30-1997 JUN-30-1996
<CASH> 974,362 949,496
<INT-BEARING-DEPOSITS> 12,463,142 12,719,380
<FED-FUNDS-SOLD> 1,258,806 804,279
<TRADING-ASSETS> 11,706 1,555
<INVESTMENTS-HELD-FOR-SALE> 3,518,420 4,028,278
<INVESTMENTS-CARRYING> 715,516 1,063,843
<INVESTMENTS-MARKET> 715,316 1,055,578
<LOANS> 14,258,715 13,705,283
<ALLOWANCE> 279,190 272,896
<TOTAL-ASSETS> 22,809,803 22,662,979
<DEPOSITS> 15,846,459 15,853,950
<SHORT-TERM> 3,841,043 3,988,801
<LIABILITIES-OTHER> 403,161 346,385
<LONG-TERM> 819,071 696,697
0 0
0 0
<COMMON> 553,191 277,008
<OTHER-SE> 1,346,878 1,500,138
<TOTAL-LIABILITIES-AND-EQUITY> 22,809,803 22,662,979
<INTEREST-LOAN> 597,537 593,876
<INTEREST-INVEST> 147,698 147,751
<INTEREST-OTHER> 29,170 37,279
<INTEREST-TOTAL> 774,405 778,726
<INTEREST-DEPOSIT> 231,484 248,435
<INTEREST-EXPENSE> 336,436 348,450
<INTEREST-INCOME-NET> 437,969 430,276
<LOAN-LOSSES> 65,698 46,660
<SECURITIES-GAINS> 3,973 2,643
<EXPENSE-OTHER> 359,015 355,847
<INCOME-PRETAX> 227,739 206,910
<INCOME-PRE-EXTRAORDINARY> 147,570 131,987
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 147,570 131,987
<EPS-PRIMARY> 1 1
<EPS-DILUTED> 1 1
<YIELD-ACTUAL> 5 4
<LOANS-NON> 57,813 88,156
<LOANS-PAST> 58,713 57,996
<LOANS-TROUBLED> 0 0
<LOANS-PROBLEM> 123,000 191,000
<ALLOWANCE-OPEN> 268,868 274,430
<CHARGE-OFFS> 70,416 62,418
<RECOVERIES> 15,040 15,112
<ALLOWANCE-CLOSE> 279,190 272,896
<ALLOWANCE-DOMESTIC> 0 0
<ALLOWANCE-FOREIGN> 0 0
<ALLOWANCE-UNALLOCATED> 0 0
</TABLE>
