United States Securities And Exchange Commission
Washington, DC 20549
Form 10-Q
(Mark One)
(X) Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the Quarter Ended September 30, 1998
( ) Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Commission File Number 1-7083 .
Crestar Financial Corporation
(Exact name of registrant as specified in its charter)
Virginia 54-0722175
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
919 E. Main Street, P.O. Box 26665, Richmond, Virginia 23261-6665
(Address of principal executive offices) (Zip Code)
(804)782-5000
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at October 31, 1998
Common Stock, $5 par value 112,734,205
<PAGE>
Crestar Financial Corporation And Subsidiaries
Form 10-Q
For The Quarter Ended September 30, 1998
Part I. Financial Information
Item 1. Financial Statements:
Page
Consolidated Balance Sheets.....................................3
Consolidated Statements Of Income...............................4
Consolidated Statements Of Changes In Shareholders' Equity....5-6
Consolidated Statements Of Cash Flows...........................7
Notes To Consolidated Financial Statements...................8-13
Item 2. Management's Discussion And Analysis Of Financial Condition And
Results Of Operations:
Financial Commentary........................................14-34
Part II. Other Information
Item 6. Exhibits And Reports On Form 8-K:
There were two reports on Form 8-K filed during the three months
ended September 30, 1998. On July 14, 1998, Crestar Financial
Corporation (Crestar) filed a Form 8-K relating to the sale of a
portion of Crestar's bank card loan portfolio. Under terms of the
sales agreement, Crestar recognized a pre-tax gain, net of
transaction costs, of $54 million. On July 22, 1998, Crestar
filed a Form 8-K reporting that Crestar had agreed to merge with
SunTrust Banks, Inc., a major Southeastern bank holding company
based in Atlanta, Georgia. The filing included the Agreement and
Plan of Merger between Crestar and SunTrust Banks, Inc., dated
July 20, 1998.
<PAGE>
Consolidated Balance Sheets
Crestar Financial Corporation And Subsidiaries
<TABLE>
<CAPTION>
Dollars in thousands, except share data September 30,
--------------------- December 31,
Assets 1998 1997 1997
<S> <C> <C> <C>
Cash and due from banks $ 887,047 $ 885,956 $ 1,175,314
Securities held to maturity (note 2) 499,253 662,517 626,716
Securities available for sale (note 3) 4,008,852 3,333,777 3,839,006
Money market investments (note 4) 631,471 1,167,335 1,431,790
Loans held for sale 1,717,821 851,660 964,697
Loans (note 5):
Business Loans:
Commercial 5,246,862 4,083,035 4,666,505
Real estate - income property 1,106,735 1,254,381 1,254,079
Real estate - construction 409,293 341,239 381,413
Consumer Loans:
Instalment 5,547,607 4,763,817 4,846,857
Bank card 506,953 1,148,260 1,153,937
Real estate - mortgage 3,851,224 3,087,841 3,374,199
------------ ------------ ------------
Total Loans 16,668,674 14,678,573 15,676,990
Less: Allowance for loan losses (note 6) (245,992) (278,331) (281,394)
------------ ------------ ------------
Loans - net 16,422,682 14,400,242 15,395,596
------------ ------------ ------------
Premises and equipment - net 474,747 469,676 486,111
Intangible assets - net 193,886 168,020 197,420
Foreclosed properties - net (notes 5 and 7) 16,628 26,757 25,731
Other assets 920,024 1,222,497 786,135
------------ ------------ ------------
Total Assets $ 25,772,411 $ 23,188,437 $ 24,928,516
============ ============ ============
Liabilities
Demand deposits $ 3,520,486 $ 3,319,797 $ 3,540,340
Interest-bearing demand deposits 7,028,252 5,800,597 6,257,114
Regular savings deposits 1,334,844 1,464,576 1,448,589
Domestic time deposits 3,907,418 4,092,631 4,191,151
Certificates of deposit $100,000 and over 1,252,075 1,432,079 932,058
------------ ------------ ------------
Total deposits 17,043,075 16,109,680 16,369,252
Short-term borrowings (note 8) 4,592,535 3,755,235 4,789,045
Other liabilities 698,733 584,570 879,073
Long-term debt (note 9) 1,127,262 799,375 831,383
------------ ------------ ------------
Total Liabilities 23,461,605 21,248,860 22,868,753
------------ ------------ ------------
Shareholders' Equity
Preferred stock. Authorized 2,000,000 shares; none issued -- -- --
Common stock, $5 par value. Authorized 200,000,000 shares;
outstanding 112,643,319 and 110,188,084 at September 30, 1998
and 1997, respectively; 111,420,187 at December 31, 1997 563,217 550,940 557,101
Capital surplus 404,001 271,868 340,623
Retained earnings 1,307,713 1,128,608 1,162,767
Accumulated other comprehensive income (note 3) 35,875 (11,839) (728)
------------ ------------ ------------
Total Shareholders' Equity 2,310,806 1,939,577 2,059,763
Commitments and contingencies (note 11)
------------ ------------ ------------
Total Liabilities And Shareholders' Equity $ 25,772,411 $ 23,188,437 $ 24,928,516
============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
Consolidated Statements Of Income
Crestar Financial Corporation And Subsidiaries
<TABLE>
<CAPTION>
In thousands, except per share data Three Months Ended Sept. 30, Nine Months Ended Sept. 30,
---------------------------- ---------------------------
<S> <C> <C> <C> <C>
Income From Earning Assets 1998 1997 1998 1997
Interest and fees on loans $ 321,328 $ 308,385 $ 982,720 $ 905,922
Interest on securities held to maturity 7,855 9,841 25,210 33,815
Interest and dividends on securities available for sale 66,822 52,958 198,024 176,682
Income on money market investments 2,768 6,955 14,980 13,867
Interest on mortgage loans held for sale 31,018 13,598 80,131 35,856
---------- ---------- ---------- ----------
Total income from earning assets 429,791 391,737 1,301,065 1,166,142
---------- ---------- ---------- ----------
Interest Expense
Interest-bearing demand deposits 58,563 44,592 164,041 129,345
Regular savings deposits 7,986 9,337 24,280 29,069
Domestic time deposits 49,738 52,424 149,721 160,937
Certificates of deposit $100,000 and over 18,817 14,722 55,853 33,208
---------- ---------- ---------- ----------
Total interest on deposits 135,104 121,075 393,895 352,559
Short-term borrowings 57,933 38,231 176,299 111,977
Long-term debt 17,755 15,293 51,478 46,499
---------- ---------- ---------- ----------
Total interest expense 210,792 174,599 621,672 511,035
---------- ---------- ---------- ----------
Net Interest Income 218,999 217,138 679,393 655,107
Provision for loan losses (note 6) 9,080 19,099 53,987 84,797
---------- ---------- ---------- ----------
Net Credit Income 209,919 198,039 625,406 570,310
---------- ---------- ---------- ----------
Noninterest Income
Service charges on deposit accounts 35,257 30,893 103,184 92,787
Trust and investment advisory income 20,468 19,308 61,537 54,648
Bank card-related income 6,895 9,236 25,065 31,655
Other income 95,390 36,548 188,242 127,405
Gains from sale of securities 948 124 6,103 4,097
---------- ---------- ---------- ----------
Total noninterest income 158,958 96,109 384,131 310,592
---------- ---------- ---------- ----------
Net Credit And Noninterest Income 368,877 294,148 1,009,537 880,902
---------- ---------- ---------- ----------
Noninterest Expense
Personnel expense 122,380 95,134 325,358 291,023
Occupancy expense - net 15,612 14,957 42,659 44,800
Equipment expense 12,312 9,970 34,076 31,251
Other expense 79,971 53,170 200,848 165,172
---------- ---------- ---------- ----------
Total noninterest expense 230,275 173,231 602,941 532,246
---------- ---------- ---------- ----------
Income Before Income Taxes 138,602 120,917 406,596 348,656
Income tax expense (note 10) 49,725 41,374 145,418 121,543
---------- ---------- ---------- ----------
Net Income $ 88,877 $ 79,543 $ 261,178 $ 227,113
========== ========== ========== ==========
Earnings Per Share
Basic $ .79 $ .71 $ 2.33 $ 2.05
Diluted .78 .71 2.30 2.03
========== ========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
Consolidated Statements Of Changes In Shareholders' Equity
Crestar Financial Corporation And Subsidiaries
For the three months ended September 30, 1998 and 1997
<TABLE>
<CAPTION>
In thousands Capital Accumulated
Shares of Surplus and Other
Common Common Retained Comprehensive
Stock Stock Earnings Income Total
<S> <C> <C> <C> <C> <C>
Balance, July 1, 1998 112,220 $ 561,099 $ 1,638,071 $ 6,430 $ 2,205,600
Comprehensive Income:
Net Income -- -- 88,877 -- 88,877
Net unrealized gain on securities
available for sale, net of
reclassification adjustment (note 3) -- -- -- 29,445 29,445
----------- ----------- ----------- ----------- -----------
Comprehensive Income -- -- 88,877 29,445 118,322
Cash dividends declared on
common stock -- -- (37,055) -- (37,055)
Common stock issued:
For dividend reinvestment plan 171 855 8,696 -- 9,551
For thrift and profit sharing plan 58 290 3,460 -- 3,750
For other stock compensation plans 111 555 7,508 -- 8,063
Upon exercise of stock options
(including tax benefit of $421) 83 418 2,157 -- 2,575
----------- ----------- ----------- ----------- -----------
Balance, September 30, 1998 112,643 $ 563,217 $ 1,711,714 $ 35,875 $ 2,310,806
=========== =========== =========== =========== ===========
Balance, July 1, 1997 110,638 $ 553,191 $ 1,375,817 $ (28,939) $ 1,900,069
Comprehensive Income:
Net Income -- -- 79,543 -- 79,543
Net unrealized gain on securities
available for sale, net of --
reclassification adjustment (note 3) -- -- -- 17,100 17,100
----------- ----------- ----------- ----------- -----------
Comprehensive Income -- -- 79,543 17,100 96,643
Cash dividends declared on
common stock -- -- (32,033) -- (32,033)
Common stock purchased and retired (780) (3,900) (32,906) -- (36,806)
Common stock issued:
For dividend reinvestment plan 181 905 6,830 -- 7,735
For thrift and profit sharing plan 34 170 1,338 -- 1,508
For other stock compensation plans -- -- 4 -- 4
Upon exercise of stock options
(including tax benefit of $630) 115 574 1,883 -- 2,457
----------- ----------- ----------- ----------- -----------
Balance, September 30, 1997 110,188 $ 550,940 $ 1,400,476 $ (11,839) $ 1,939,577
=========== =========== =========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
Consolidated Statements Of Changes In Shareholders' Equity
Crestar Financial Corporation And Subsidiaries
For the nine months ended September 30, 1998 and 1997
<TABLE>
<CAPTION>
In thousands Capital Accumulated
Shares of Surplus and Other
Common Common Retained Comprehensive
Stock Stock Earnings Income Total
<S> <C> <C> <C> <C> <C>
Balance, January 1, 1998 111,420 $ 557,101 $ 1,503,390 $ (728) $ 2,059,763
Comprehensive Income:
Net Income -- -- 261,178 -- 261,178
Net unrealized gain on securities
available for sale, net of
reclassification adjustment (note 3) -- -- -- 36,603 36,603
----------- ----------- ----------- ----------- -----------
Comprehensive Income -- -- 261,178 36,603 297,781
Cash dividends declared on
common stock -- -- (106,344) -- (106,344)
Common stock purchased and retired (195) (975) (9,888) -- (10,863)
Common stock issued:
For acquisition of financial institution 124 621 8,322 -- 8,943
For dividend reinvestment plan 469 2,345 23,463 -- 25,808
For thrift and profit sharing plan 295 1,475 15,232 -- 16,707
For other stock compensation plans 114 569 7,595 -- 8,164
Upon exercise of stock options
(including tax benefit of $3,231 416 2,081 8,766 -- 10,847
----------- ----------- ----------- ----------- -----------
Balance, September 30, 1998 112,643 $ 563,217 $ 1,711,714 $ 35,875 $ 2,310,806
=========== =========== =========== =========== ===========
Balance, January 1, 1997 109,870 $ 549,350 $ 1,251,444 $ (21,284) $ 1,779,510
Comprehensive Income:
Net Income -- -- 227,113 -- 227,113
Net unrealized loss on securities
available for sale, net of
reclassification adjustment (note 3) -- -- -- 9,445 9,445
----------- ----------- ----------- ----------- -----------
Comprehensive Income -- -- 227,113 9,445 236,558
Cash dividends declared on
common stock -- -- (64,342) -- (64,342)
Common stock purchased and retired (1,604) (8,020) (58,525) -- (66,545)
Cash paid in lieu of fractional shares (5) (25) (139) -- (164)
Common stock issued:
For dividend reinvestment plan 564 2,820 18,462 -- 21,282
For thrift and profit sharing plan 218 1,090 7,080 -- 8,170
For other stock compensation plans 73 365 1,906 -- 2,271
Upon exercise of stock options
(including tax benefit of $7,977) 1,072 5,360 17,477 -- 22,837
----------- ----------- ----------- ----------- -----------
Balance, September 30, 1997 110,188 $ 550,940 $ 1,400,476 $ (11,839) $ 1,939,577
=========== =========== =========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
Consolidated Statements Of Cash Flows
Crestar Financial Corporation And Subsidiaries
<TABLE>
<CAPTION>
In thousands Nine Months Ended Sept. 30,
---------------------------
1998 1997
<S> <C> <C>
Operating Net Income $ 261,178 $ 227,113
Activities Adjustments to reconcile net income to net cash provided
(used) by operating activities:
Provisions for loan losses, foreclosed properties
and other losses 52,887 84,797
Depreciation and amortization of premises and equipment 39,563 35,776
Amortization of intangible assets 14,994 12,713
Deferred income tax expense (benefit) 34,345 (3,271)
Net gain on sales of securities, loans and other assets (64,505) (31,042)
Gain on sale of merchant card processing - (17,325)
Origination and purchase of loans held for sale (7,763,240) (2,359,449)
Proceeds from sales of loans held for sale 7,578,116 2,166,627
Net decrease in accrued interest receivable,
prepaid expenses and other assets (132,591) (118,582)
Net increase in accrued interest payable, accrued
expenses and other liabilities 242,924 76,782
Other, net 94,559 17,681
--------- ---------
Net cash provided (used) by operating activities 358,230 91,820
---------- ---------
Investing Proceeds from maturities and calls of securities held to maturity 151,760 319,211
Activities Proceeds from maturities and calls of securities available for sale 637,614 341,432
Proceeds from sales of securities available for sale 3,397,940 2,894,281
Purchases of securities held to maturity (24,885) (12,587)
Purchases of securities available for sale (4,587,771) (2,276,921)
Net decrease (increase) in money market investments 806,831 (424,317)
Principal collected on non-bank subsidiary loans 109,298 21,355
Loans originated by non-bank subsidiaries (196,410) (29,928)
Proceeds from sales of loans 148,857 151,845
Net increase in other loans (1,148,569) 95,534
Purchases of premises and equipment (41,458) (73,128)
Proceeds from sales of foreclosed properties
and mortgage servicing rights 61,354 66,231
Purchases of loans and loan portfolios (560,021) (1,269,119)
Purchases of net assets of financial institutions 1,437 -
Proceeds from sales of branch deposits and premises - 9,003
Other, net (108,951) (25,008)
---------- ---------
Net cash used by investing activities (1,352,974) (212,116)
---------- ---------
Financing Net increase (decrease) in demand, interest-bearing demand
Activities and regular savings deposits 637,539 (302,249)
Net increase in certificates of deposit 36,284 740,719
Net increase (decrease) in short-term borrowings (196,510) (360,816)
Proceeds from issuance of long-term debt 402,695 -
Principal payments on long-term debt (106,727) (60,283)
Cash dividends paid (106,344) (94,007)
Common stock purchased and retired (10,863) (66,545)
Proceeds from the issuance of common stock 50,552 44,312
Other, net (149) 85
---------- ---------
Net cash provided (used) by financing activities 706,477 (98,784)
---------- ---------
Cash And Decrease in cash and cash equivalents (288,267) (219,080)
Cash Cash and cash equivalents at beginning of year 1,175,314 1,105,036
Equivalents ---------- ---------
Cash and cash equivalents at end of quarter $ 887,047 $ 885,956
========== =========
</TABLE>
Cash and cash equivalents consist of cash and due from banks; 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. Certain reclassifications have been
made to the prior years' consolidated financial statements to conform to the
1998 presentation. The notes included herein should be read in conjunction with
the notes to the consolidated financial statements included in the Corporation's
1997 Annual Report and Form 10-K and first quarter 1998 and second quarter 1998
Form 10-Qs.
On July 20, 1998 Crestar and Suntrust Banks, Inc. (SunTrust) announced the
signing of a definitive agreement to merge. The terms of the merger call for a
tax-free exchange of 0.96 shares of SunTrust common stock for each outstanding
share of Crestar common stock. The pooling-of-interests combination is expected
to be completed during the fourth quarter of 1998, and is subject to the
approval of regulatory authorities, in addition to shareholders of both
companies. Upon completion of the merger, Crestar will become a wholly-owned
subsidiary of SunTrust, and will operate under its current name and management
as one of SunTrust's four locally-focused bank holding companies. SunTrust
expects to incur pre-tax merger charges of approximately $250 million in the
fourth quarter of 1998.
Intangible assets consisted of goodwill and deposit based intangibles, having
a combined balance of $193.6 million and $167.6 million at September 30, 1998
and 1997, respectively, and favorable lease rights of $330,000 and $385,000,
respectively.
Capitalized mortgage servicing rights of $133.8 million and $50.8 million at
September 30, 1998 and 1997, respectively, were included in other assets in the
consolidated financial statements. Mortgage servicing rights of approximately
$124 million and $25 million were capitalized during the first nine months of
1998 and 1997, respectively. The fair value of capitalized mortgage servicing
rights was approximately $151 million at September 30, 1998. Amortization of
capitalized mortgage servicing rights was approximately $19 million and $9
million in the first nine months of 1998 and 1997, respectively.
During the first nine months of 1998 and 1997, Crestar capitalized interest of
$1.6 million and $2.1 million, respectively, associated with construction in
progress.
(2) Securities Held To Maturity
The amortized cost (carrying values) and estimated market values of securities
held to maturity at September 30 follow:
<TABLE>
<CAPTION>
In thousands 1998 1997
------------------ -------------------
Amortized Market Amortized Market
Cost Value Cost Value
<S> <C> <C> <C> <C>
U.S. Treasury and Federal agencies $132,324 $134,344 $197,402 $197,143
Mortgage-backed obligations of Federal agencies 318,548 324,068 413,007 415,957
Other taxable securities 2,735 2,739 2,986 2,982
States and political subdivisions 45,646 46,689 49,122 50,257
-------- -------- -------- --------
Total securities held to maturity $499,253 $507,840 $662,517 $666,339
======== ======== ======== ========
</TABLE>
<PAGE>
(3) Securities Available For Sale
The amortized cost and estimated market values (carrying values) of securities
available for sale at September 30 follow:
<TABLE>
<CAPTION>
In thousands 1998 1997
----------------------- ----------------------
Amortized Market Amortized Market
Cost Value Cost Value
<S> <C> <C> <C> <C>
U.S. Treasury and Federal agencies $ 187,830 $ 190,682 $ 238,580 $ 226,467
Mortgage-backed obligations of Federal agencies 2,628,228 2,663,823 2,226,465 2,216,823
Other taxable securities 911,862 927,775 675,727 677,684
Common and preferred stocks 225,911 226,572 211,680 212,803
----------- --------- --------- ----------
Total securities available for sale $3,953,831 $4,008,852 $3,352,452 $3,333,777
=========== ========= ========= ==========
</TABLE>
The period-end net unrealized gain or loss on securities available for sale, net
of tax, is reflected in the Consolidated Balance Sheet and the Consolidated
Statement of Changes in Shareholders' Equity as "Accumulated other comprehensive
income." For the three months and nine months ended September 30, 1998 and 1997,
the net unrealized gain or loss on securities available for sale reflected in
the Statement of Changes in Shareholders' Equity is net of reclassification
adjustments for gains from sale of securities, net of tax, as included in net
income. Gains from the sale of securities during the three months and nine
months ended September 30, 1998 totaled $0.9 million and $6.1 million,
respectively. Net of income tax expense of approximately $0.3 million, and $2.1
million for the three months and nine months ended September 30, 1998, the gains
resulted in reclassification adjustments of $0.6 million and $4.0 million,
respectively. Gains from sale of securities during the three months and nine
months ended September 30, 1997 totaled $124 thousand and $4.1 million,
respectively. Net of income tax expense of approximately $43 thousand and $1.4
million for the three months and nine months ended, September 30, 1997, the
gains resulted in reclassification adjustments of $81 thousand and $2.7 million,
respectively.
At September 30, 1998, 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 $8.3 million and
a market value of $44 thousand at September 30, 1998. The cost basis of the
interest rate caps is being amortized as a reduction of interest income on
securities available for sale. Amortization of the cost basis of the interest
rate caps totaled $1.4 million and $4.0 million for the three month and nine
month periods ended September 30, 1998, respectively.
(4) Money Market Investments
Money market investments at September 30 included:
In thousands 1998 1997
Federal funds sold $251,487 $ 489,023
Securities purchased under agreements to resell 300,000 650,000
Time deposits 50,042 -
U.S. Treasury securities 8,625 8,361
Trading account securities 7,226 4,909
Other 14,091 15,042
--------- ---------
Total money market investments $631,471 $1,167,335
========= ==========
<PAGE>
(5) Nonperforming Assets And Impaired Loans
Nonperforming assets at September 30 are shown below. Loans that are past due 90
days or more and continue to accrue interest, due to an assessment of
collectibility, are excluded from the definition of nonperforming assets. Such
loans totaled $51.1 million and $63.0 million at September 30, 1998 and 1997,
respectively.
In thousands 1998 1997
Nonaccrual loans $56,954 $61,407
Foreclosed properties - net 16,628 26,757
------- -------
Total nonperforming assets $73,582 $88,164
======= =======
Transfers from nonperforming loans to foreclosed properties (non-cash additions)
were $4.2 million and $7.6 million in the first nine months of 1998 and 1997,
respectively. Included in Crestar's non-performing loans above are certain
impaired loans. Impaired loans and their allocated valuation allowances at
September 30, 1998 and 1997 were $12.0 million with an allowance of $1.9 million
and $17.5 million with an allowance of $2.7 million, respectively. All impaired
loans had an allocated valuation allowance at September 30, 1998 and 1997.
Collateral dependent loans, which were measured at the fair value of the
collateral, constituted 100% of impaired loans at September 30, 1998. The
average recorded investment in impaired loans for the nine months ended
September 30, 1998 and 1997 was $14.0 million and $20.1 million, respectively.
There was no material interest income recognized on impaired loans in the three
months and nine months ended September 30, 1998 and 1997.
(6) Allowance For Loan Losses
Transactions in the allowance for loan losses for the three months and nine
months ended September 30 were:
<TABLE>
<CAPTION>
In thousands Three Months Nine Months
----------------- -----------------
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Beginning balance $246,017 $279,190 $281,394 $268,868
-------- -------- -------- --------
Charge-offs (14,694) (27,911) (73,460) (98,327)
Recoveries 5,616 7,953 17,541 22,993
-------- -------- -------- --------
Net charge-offs (9,078) (19,958) (55,919) (75,334)
Provision for loan losses 9,080 19,099 53,987 84,797
Allowance related to bankcard loans held for sale - - (35,000) -
Allowance from acquisitions and other activity - net (27) - 1,530 -
-------- -------- -------- --------
Net increase (decrease) (25) (859) (35,402) 9,463
Ending balance $245,992 $278,331 $245,992 $278,331
======== ======== ======== ========
</TABLE>
(7) Allowance For Foreclosed Properties
Transactions in the allowance for losses on foreclosed properties for the three
months and nine months ended September 30 were:
<TABLE>
<CAPTION>
In thousands Three Months Nine Months
----------------- ----------------
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Beginning balance $2,403 $17,985 $13,191 $18,449
Provision for foreclosed properties - - (1,100) -
Write-downs and other adjustments, net 331 (1,525) (9,357) (1,989)
-------- -------- -------- -------
Ending balance $2,734 $16,460 $ 2,734 $16,460
======== ======== ======== =======
</TABLE>
<PAGE>
(8) Short-Term Borrowings
Short-term borrowings, exclusive of deposits, with maturities of less than one
year at September 30 were:
In thousands 1998 1997
Federal funds and term Federal funds purchased $2,748,466 $1,905,679
Securities sold under repurchase agreements 922,104 739,899
Federal Home Loan Bank borrowings 200,000 385,000
U.S. Treasury demand notes 408,182 478,196
Notes payable 311,623 244,343
Other 2,160 2,118
---------- ----------
Total short-term borrowings $4,592,535 $3,755,235
========== ==========
The Corporation paid $565.6 million and $438.9 million in interest on deposits
and short-term borrowings in the first nine months of 1998 and 1997,
respectively.
(9) Long-Term Debt
Long-term debt at September 30 included:
<TABLE>
<CAPTION>
In thousands 1998 1997
<S> <C> <C>
4 - 8% Federal Home Loan Bank obligations payable through 2017 $ 480,634 $252,691
6 1/2% Subordinated notes due 2018 152,558 -
8 3/4% Subordinated notes due 2004 149,761 149,722
8 1/4% Subordinated notes due 2002 125,000 125,000
8 5/8% Subordinated notes due 1998 - 49,994
7 7/8 - 111/4% Collateralized mortgage obligation bonds maturing through 2019 10,136 13,085
8 1/4% Mortgage indebtedness maturing through 2009 7,567 7,974
8 1/8-14 3/8 Capital lease obligations maturing through 2006 1,606 909
Crestar Capital Trust I preferred stock 200,000 200,000
---------- ---------
Total long-term debt $1,127,262 $799,375
========== =========
</TABLE>
The Corporation paid $45.2 million and $40.4 million in interest on long-term
debt in the first nine months of 1998 and 1997, respectively.
<PAGE>
(10) Income Taxes
The current and deferred components of income tax expense allocated to
continuing operations for the three months and nine months ended September 30 in
the accompanying consolidated statements of income were:
In thousands Three Months Nine Months
----------------- ------------------
1998 1997 1998 1997
Current:
Federal $36,309 $36,573 $108,668 $118,072
State and local 1,561 1,345 2,405 6,742
------- ------- -------- --------
Total current tax expense 37,870 37,918 111,073 124,814
======== ======= ======== ========
Deferred:
Federal 12,141 3,150 32,551 (3,269)
State and local (286) 306 1,794 (2)
-------- ------- -------- --------
Total deferred tax expense (benefit) 11,855 3,456 34,345 (3,271)
Total income tax expense $49,725 $41,374 $145,418 $121,543
======== ======= ======== ========
The differences between the amounts computed by applying the statutory federal
income tax rate to income before income taxes and the actual income tax expense
allocated to operations for the three months and nine months ended September 30
were:
<TABLE>
<CAPTION>
In thousands Three Months Nine Months
----------------------- ---------------------
1998 1997 1998 1997
----------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Amount % Amount % Amount % Amount %
Income before income taxes $138,602 $120,917 $406,596 $348,656
Tax expense at statutory rate 48,511 35.0 42,321 35.0 142,309 35.0 122,030 35.0
- ----------------------------------------------------------------------------------------------------
Increase (decrease) in taxes resulting from:
Tax-exempt interest and dividends (2,364)(1.7) (2,012)(1.7) (6,710)(1.7) (5,912)(1.7)
Nondeductible interest expense 869 .6 466 .4 2,271 .6 1,342 .4
Amortization of goodwill 1,275 .9 1,034 .8 3,771 .9 3,114 .9
State income taxes 828 .6 1,073 .9 2,729 .7 4,381 1.3
Other - net 606 .5 (1,508)(1.2) 1,048 .3 (3,412)(1.0)
- ----------------------------------------------------------------------------------------------------
Total increase (decrease) in taxes 1,214 .9 (947) (.8) 3,109 .8 (487) (.1)
Total income tax expense $ 49,725 35.9 $ 41,374 34.2 $145,418 35.8 $121,543 34.9
====================================================================================================
</TABLE>
The Corporation made income tax payments of $83.3 million and $115.0 million
during the first nine months of 1998 and 1997, respectively. At September 30,
1998, the Corporation had a net deferred income tax asset of $67.8 million.
There was no valuation allowance relating to the net deferred income tax asset.
Crestar has sufficient taxable income in the available carryback period to
realize all of its deferred income tax assets.
<PAGE>
(11) Commitments And Contingencies
Legally binding, unfunded commitments to extend credit were $11.1 billion and
$9.9 billion at September 30, 1998 and 1997, respectively. Standby letters of
credit, which are conditional commitments that guarantee the performance of
customers to a third party, were $432 million at September 30, 1998.
Recourse obligations on mortgage loans serviced of $1.9 billion at September
30, 1998 included $1.2 billion which was insured by agencies of the Federal
government or private insurance companies. Recourse obligations also included
$85 million of contractual recourse liability accepted by Crestar on mortgage
loan sales to Federal agencies and $135 million on certain mortgage loan sales
to private investors.
For interest rate risk management purposes at September 30, 1998, Crestar was
using interest rate (fixed receive) swaps with notional balances of $1.675
billion to convert floating rate commercial and instalment loans to fixed rates.
Crestar was using purchased interest rate caps with notional balances of $1.95
billion to hedge the market value of fixed rate securities available for sale
and real estate income property loans, and $1.855 billion to minimize interest
rate risk associated with rising rates on floating rate money market deposits.
Crestar was using purchased interest rate floors with notional balances of $100
million and $150 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 gain on these swaps,
caps and floors were $23.4 million and $47.6 million, respectively, at September
30, 1998. As a financial intermediary for customers, Crestar had $270.4 million
in offsetting swaps, $3.7 million in offsetting caps and $8.0 million in
offsetting collar agreements at September 30, 1998.
The notional amount of these over-the-counter traded interest rate swaps, caps
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 $71.4 million, less collateral held of approximately $50.1
million, plus an amount for prospective market movement. Two counterparties
constituted 15% and 11% of the estimated credit and market exposure of $126.6
million at September 30, 1998.
Crestar also had forward agreements outstanding at September 30, 1998, 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 was $24.1 million at September 30, 1998.
Certain litigation is pending or threatened against Crestar. Management, in
consultation with legal counsel, is of the opinion that there is no pending or
threatened litigation that could, individually or in the aggregate, have a
material impact on the Corporation's financial condition or financial statements
beyond liabilities established for this purpose.
<PAGE>
Financial Commentary
Crestar Financial Corporation And Subsidiaries
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, compliance with year 2000 data processing standards, the
Corporation's proposed merger with SunTrust Banks, Inc., and the impact of
future legal and regulatory actions, including the establishment of federal
deposit insurance rates. These statements are made pursuant to the safe harbor
provisions of the Private Litigation Reform Act of 1995, and are provided to
assist the reader in understanding anticipated future financial operations.
Although the Corporation believes that the assumptions underlying the
forward-looking statements contained herein are reasonable, any of the
assumptions could ultimately prove to be inaccurate. The Corporation's actual
results may differ materially from those projected in forward-looking
statements.
Overview
(Tables 1, 2 and 11)
Crestar Financial Corporation (Crestar) reported record net income of $88.9
million or $.78 per diluted common share for the quarter ended September 30,
1998, compared to net income of $79.5 million or $.71 per common share earned in
the third quarter of 1997.
For the first nine months, earnings were $261.2 million in 1998, compared to
$227.1 million earned in the first nine months of 1997. Earnings per diluted
share for the first nine months of 1998 were $2.30, compared to $2.03 for the
same period of 1997. Through the first nine months of 1998, return on assets of
was 1.41% and return on equity was 16.20%. Exclusive of the unusual items
arising in the third quarter, Crestar's results reflect the continued positive
effects of growth in noninterest income and average earning assets. Items
affecting the change in earnings per share are given in Table 2. Each item is
net of applicable federal income taxes.
Crestar's subsidiaries provide banking and non-banking services throughout
Virginia, Maryland and Washington, D.C., which compose Crestar's primary market
area. This market is characterized as economically diverse and stable. Crestar's
market area is characterized by active competition in all principal areas where
the Corporation provides services. In addition to banks, other firms competing
in the market area include savings associations, consumer finance companies,
national credit card companies, securities brokerage firms, credit unions and
mortgage banking companies.
Merger With SunTrust
On July 20, 1998 Crestar and Suntrust Banks, Inc. (SunTrust) announced the
signing of a definitive agreement to merge. The terms of the merger call for a
tax-free exchange of 0.96 shares of SunTrust common stock for each outstanding
share of Crestar common stock. The pooling-of-interests combination is expected
to be completed during December 1998, and is subject to the approval of
regulatory authorities, in addition to shareholders of both companies. Upon
completion of the merger, Crestar will become a wholly-owned subsidiary of
SunTrust, and will operate under its current name and management as one of
SunTrust's four locally-focused bank holding companies. The merger will create
the tenth largest bank holding company in the United States, based on total
assets of approximately $87 billion, and will provide a full line of consumer
and commercial banking services to customers in Florida, Georgia, Tennessee,
Alabama, Virginia, Maryland and the District of Columbia. SunTrust expects to
incur pre-tax merger charges of $250 million in the fourth quarter of 1998.
Sale Of Selected Bank Card Loans
In July 1998, Crestar completed the sale of $576 million of outstanding bank
card loans to Fleet Financial Group. The accounts and balances represent
performing bank card loans to borrowers located outside of Crestar's primary
market. The sale of the bank card loans is consistent with Crestar's strategy of
focusing on providing financial services to customers in the Virginia, Maryland
and Washington, D.C. market. Under terms of the transaction, Crestar recognized
a pre-tax gain of $54 million, recorded as noninterest income in the
accompanying consolidated statements of income. Also in the third quarter of
this year, Crestar's noninterest expense was significantly higher, in comparison
to prior quarters, due to implementation of certain business initiatives. These
charges are discussed below under "Noninterest Income and Expense".
<PAGE>
Profitability Measures And Capital Resources
(Table 1)
Return on average assets was 1.42% in the third quarter and 1.41% for the first
nine months of 1998, compared to 1.47% and 1.41%, respectively, for 1997. Return
on average equity was 15.77% for the third quarter of 1998, compared to 16.60%
for the third quarter of 1997. For the first nine months of 1998, return on
average equity was 16.20%, compared to 16.38% for the first nine months of the
previous year.
Average equity to assets of 9.00% for the third quarter of 1998 compared to
8.87% in the third quarter of 1997. Average equity to assets for the first nine
months of 1998 was 8.68%, compared to 8.59% for the same period of 1997.
Period-end equity to assets was 8.97% at September 30, 1998, compared to a
September 30, 1997 ratio of 8.36%.
Risk-based capital ratios are additional measures of capital adequacy. At
September 30, 1998, Crestar's consolidated risk-adjusted capital ratios were
10.4% for Tier 1 and 13.4% for total capital, well above the required minimums
of 4.0% and 8.0%, respectively. The Tier 1 leverage ratio of 9.1% at September
30, 1998 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 8.28% at September 30, 1998. Under
Federal Deposit Insurance Corporation (FDIC) rules, Crestar's sole subsidiary
bank (Crestar Bank) was considered "well-capitalized" as of September 30, 1998,
the highest category of capitalization defined by regulatory authorities,
allowing for the lowest level of FDIC insurance premium payments.
Crestar has filed shelf registration statements with the Securities and
Exchange Commission (SEC) pertaining to the possible future issuance of
securities. Under currently effective registration statements, Crestar may issue
in the future approximately $175 million in subordinated debt securities,
preferred stock or common stock, or any combination thereof.
Net Interest Margin And Net Interest Income
(Tables 3 and 12)
Net interest income, on a tax-equivalent basis, was $222.4 million for the
quarter ended September 30, 1998, compared to $220.0 million in the same period
of 1997. The increase reflects strong growth in average earning assets from
levels of the prior year. Crestar's net interest margin for the third quarter of
1998 was 3.90%, a decrease of 57 basis points from the margin recorded in the
third quarter of 1997. The decrease was primarily due to unfavorable changes in
both the composition of earning assets and funding sources, and in the interest
yields impacting the Corporation's earning assets. These factors served to
offset the impact of favorable changes in the rates paid on funding sources, in
comparison to market movements in short-term funding sources, on the
Corporation's net interest margin.
Crestar's yield on average loans decreased 53 basis points from the third
quarter of 1997, to 8.06% for the third quarter of 1998. Reflecting a lower
long-term interest rate environment, almost all categories of loans experienced
a decline in average rates earned, in comparison to third quarter 1997 results.
Average rates on bank card loans decreased from 14.51% in the third quarter of
1997 to 13.68% in the third quarter of 1998. Lower interest rates and a
competitive marketing environment for most consumer loans in the third quarter
of 1998, compared to the third quarter of 1997, also resulted in lower yields on
instalment and real estate-mortgage loan balances. Average yields on most
business loans also demonstrated declines in the third quarter of 1998, with
yields on commercial and real estate-income property loans decreasing 15 basis
points and 14 basis points, respectively, from third quarter 1997 results.
Yields on real estate-construction loans displayed an increase of 11 basis
points during the same time period, and yielded 8.83% for the third quarter of
1998. Loans held for sale yielded an average of 7.06% for the third quarter of
1998, which was down 47 basis points from average yields for the same period of
1997. Yields on money market investments were 5.43% for the third quarter of
1998 versus 5.65% for the third quarter of 1997, in part reflecting lower
average federal funds rates on overnight deposits. Average rates on securities
available for sale were 6.18% in third quarter 1998, versus 6.30% in the same
period of 1997. Average yields increased on the smaller securities held to
maturity portfolio, which earned an average rate of 6.28% in the third quarter
of 1998, reflecting the maturity of lower-yielding securities. In total,
interest rate spreads for earning assets had a negative impact of approximately
34 basis points on Crestar's third quarter 1998 net interest margin, when
compared to the third quarter of 1997.
Reflecting a competitive environment for consumer deposits, and growth in new
consumer deposit products with rates tied to national money market yields, the
average rate paid on total interest-bearing liabilities increased by 16 basis
points from the third quarter of 1997 to the third quarter of 1998. Rates paid
on interest-bearing deposits averaged 3.95% during the third quarter of 1998, an
<PAGE>
increase of 11 basis points from the third quarter of 1997. This increase was
primarily driven by an increase of 27 basis points on average rates paid on
interest-bearing demand deposits, which increased from 3.04% in the third
quarter of 1997 to 3.31% in the third quarter of 1998. Interest rates paid on
regular savings deposits and certificates of deposit of $100,000 and over
decreased from the third quarter of 1997 by 14 and 3 basis points, respectively.
For the third quarter of 1998, however, average rates paid on domestic time
deposits, which compose a larger segment of Crestar's total deposits, increased
by 9 basis points when compared to the third quarter of 1997. Rates paid on
average short-term borrowings rose from 5.32% in the third quarter of 1997 to
5.44% in the third quarter of 1998. Rates paid on long-term debt, in part
reflecting the impact of a new issuance of $150 million in subordinated notes
during January 1998, decreased from 7.59% in the third quarter of 1997 to 7.00%
for the third quarter of 1998. The average rate paid on Crestar's total sources
of funds in the third quarter of 1998 was 3.66%, reflecting an increase of 13
basis points from the same period of 1997. Average rates paid on funding
sources, however, increased at a lower level than short-term market interest
rates, contributing to a favorable impact of 9 basis points for the
Corporation's third quarter 1998 net interest margin, in comparison to the same
quarter of 1997. Excluding the impact of derivative instruments utilized as
hedges, the change in the Corporation's interest rate spreads (encompassing both
the spread on earning assets and on all funding sources) had a negative impact
of 25 basis points on Crestar's third quarter 1998 net interest margin, compared
to the third quarter of 1997.
Changes in the earning asset mix decreased the third quarter 1998 net interest
margin by approximately 21 basis points when compared to the third quarter of
1997. Average total loans were $16.0 billion during the third quarter of 1998,
compared to $14.4 billion during the third quarter of 1997. However, loans as a
percentage of total earning assets decreased from an average of 73% during the
third quarter of 1997 to 70% for the same period of 1998. Average bank card
loans, the highest yielding loan category, experienced a decline of $662
million, or 57%, during the third quarter of 1998 when compared to the same
period of 1997. Crestar's transfer of $603 million in bank card loans to the
loans held for sale classification, as of June 30, 1998, had a negative impact
on average bank card loans balances for the third quarter of 1998. Also,
marketing efforts directed to new accounts have been curtailed from previous
levels. 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
growth during the third quarter of 1998. Average instalment loan balances
increased by $1.1 billion or 25% during this period, with average real
estate-mortgage loans increasing $79 million, or 2%, from the third quarter of
1997. The average balance of commercial loans increased by $1.2 billion, from
$3.9 billion for the third quarter of 1997 to $5.1 billion for the third quarter
of 1998, in part reflecting a strong business environment within the
Corporation's market area.
Average money market investments decreased, from $490 million in the third
quarter of 1997 to $203 million for the same quarter of 1998. Significant
increases in average balances of loans held for sale reflect record levels of
origination volume by Crestar's mortgage banking subsidiary. Average balances in
the third quarter of 1998 were $1.8 billion, representing 8% of average total
earning assets during this period. Average balances for loans held for sale
during the third quarter of 1997 were $725 million, or 4% of average total
earning assets.
Changes in the composition of Crestar's funding sources resulted in a negative
impact to the third quarter 1998 net interest margin of 11 basis points, in
comparison to third quarter 1997 results. Total sources of funding needed to
support earning assets levels increased by $3.2 billion, or 16%, from the third
quarter of 1997 to the third quarter of 1998, in part reflecting Crestar's
growth in average loan balances during this period. Average total deposits for
the third quarter of 1998 grew by $1.4 billion, a 9% increase over third quarter
1997 average balances. Interest-bearing demand deposits averaged $7.0 billion
during the third quarter of 1998, an increase of $1.2 billion or 21% over the
third quarter of 1997. Average balances of domestic time deposits, which include
consumer certificates of deposits, declined $285 million or 7% from the levels
of the third quarter of 1997. Balances of regular savings deposits were also
lower in comparison to third quarter 1997 balances, while average balances for
certificates of deposits of $100,000 and over were higher by $294 million. The
Corporation experienced growth in average balances of non-interest bearing
demand deposits and in shareholders equity occurred during the third quarter of
1998. Growth in total non-interest bearing sources of funds was comparable to
growth in total earning assets, as net non-interest bearing sources of funds
represented 18% of total funding sources in the third quarter of 1998. Such
sources also represented 18% of total funding sources during the third quarter
of 1997.
<PAGE>
Average balances of short-term borrowings increased by $1.4 billion during the
third quarter of 1998, in comparison to the third quarter of 1997, and totaled
$4.2 billion for the most recent quarter. Average balances of long-term debt
totaled $1.0 billion for the third quarter of 1998. Short-term borrowings and
long-term debt represented 18% and 4%, respectively, of total funding sources
for the third quarter of 1998.
Off-balance sheet hedge transactions made a negative impact on net interest
income of approximately $0.7 million during the third quarter of 1998, which was
composed of $0.1 million increase in interest income and an approximately $0.8
million increase in interest expense, based on the underlying asset or liability
being hedged. In the third quarter of 1997 the comparable impact of hedging
activity was a decrease to Crestar's net interest income of $0.8 million, which
consisted of a $0.6 million decrease in interest income and a $0.2 increase in
interest expense. In comparison to the third quarter of 1997, off-balance sheet
hedge transactions did not have a material impact on third quarter 1998's net
interest margin.
The extent to which Crestar will be able to maintain its current net interest
margin is significantly influenced by the economic environment in our markets
and the economic policy of the Federal Reserve Board, in addition to competitive
market conditions for both loans and deposits. Competition among financial
institutions, in addition to acquisition strategies, may lead to further
pressures on the Corporation's net interest margin in future periods.
For the first nine months of 1998, tax equivalent net interest income
increased 4% over 1997 as a result of a $3.1 billion or 16% increase in average
earning assets, which more than offset a 47 basis point decline in the net
interest margin. The net interest margin for the first nine months of 1998 was
4.04%, versus 4.51% for the same period of 1997. Most factors contributing to
the decrease in the 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 12 basis points, while changes to the funding mix resulted in a 14
basis point negative impact to the year-to-date margin. Unfavorable changes in
interest rate spreads for the comparable nine month period, exclusive of
off-balance sheet derivative transactions, decreased the net interest margin by
24 basis points, in part reflecting a 35 basis point decline in average yields
on the Corporation's loan portfolio. Off-balance sheet hedge transactions had a
positive impact on the margin, in comparison to year-to-date 1997 results, of
approximately 3 basis points. Off-balance sheet hedge transactions resulted in a
decrease to net interest income of approximately $0.2 million during the first
nine months of 1998, which was composed of an approximately $1.3 million
increase in interest income and a $1.5 million increase in interest expense,
based on the underlying asset or liability being hedged. In the first nine
months of 1997 the comparable impact of hedging activity was an decrease to
Crestar's total interest income of approximately $3.1 million, which consisted
of a $2.0 million decrease in interest income and a $1.1 increase in interest
expense.
Risk Exposures And Credit Quality
(Tables 4 - 5)
Crestar's allowance for loan losses was $246 million at September 30, 1998,
representing 1.48% of period-end loans, 334% of period-end nonperforming assets,
and a 432% 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 $51.1 million at September 30,
1998. Of this balance, $31.0 million represented student loan balances under
Federal government loan programs, which can carry a substantial guarantee (in
excess of 98%) as to principal loan balance.
At September 30, 1998, nonperforming assets of $73.6 million were down $14.6
million or 17% from September 30, 1997, and down $12.6 million or 15% from
December 31, 1997. The ratio of nonperforming assets to loans and foreclosed
properties at September 30, 1998 was 0.44%, compared to 0.55% at December 31,
1997 and 0.60% at September 30, 1997. 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 $9.1 million for the third quarter of 1998,
a decrease of $10.0 million from the $19.1 million provision expense recorded in
the third quarter of 1997. Provision expense in the second quarter of 1998 was
$21.8 million. Net charge-offs totaled $9.1 million in the third quarter of
1998, compared to $20.0 million in the comparable period of 1997. Net
charge-offs as a percentage of average loans were 0.23% for the third quarter of
1998, compared to 0.55% in the same period of 1997, and 0.54% for the second
quarter of 1998. Business loans experienced net charge-offs of $1.1 million in
the third quarter of 1998, compared to net recoveries of $1.1 million in the
comparable quarter of 1997. Consumer loan net charge-offs totaled $7.9 million
in the third quarter of 1998, compared to net charge-offs of $22.2 million in
the second quarter of 1998 and $21.1 million in the third quarter of 1997.
<PAGE>
Net charge-offs for bank card loans were $3.8 million in the third quarter of
1998, compared to $18.6 million in the second quarter of 1998 and $16.9 million
in the third quarter of 1997. Net bank card loan charge-offs as a percentage of
bank card loans (on an annualized basis) were 2.98% in the third quarter of
1998, 6.78% for the second quarter of 1998, and 5.81% in the third quarter of
1997. In July 1998, Crestar sold $576 million in bank card loans, recognizing a
pre-tax gain of $54 million. Crestar had previously transferred $603 million in
bank card loans to the loans held for sale classification as of June 30, 1998,
from which the sold portfolio originated. The transferred loans were composed of
bank card loans to borrowers outside of Crestar's primarily market of Virginia,
Maryland and Washington, D.C., and represented approximately 54% of Crestar's
total bank card loans at time of transfer. The improvement in the annualized
charge-off ratio for the bank card loan portfolio is primarily due to the
overall stronger credit quality of the remaining "in-market" bank card loan
portfolio.
Net charge-offs of instalment loans totaled $3.8 million during the third
quarter of 1998, versus $3.3 million in the second quarter of 1998 and $3.6
million in the third quarter of 1997. Net charge-offs for real estate-mortgage
loans were $0.4 million for the third quarter of 1998, compared to $0.6 million
for the third quarter of 1997.
In addition to other loan categories, Crestar closely manages its portfolio of
loans to real estate developers and investors (REDI). The REDI designation is
based on borrower type and encompasses non-owner occupied real estate and
construction loans as well as other forms of credit extended to real estate
developers and investors. REDI outstanding balances have remained fairly stable
in 1998 and totaled $1.7 billion at September 30, 1998. This balance represented
10% of the total loan portfolio at that date. At December 31, 1997, REDI loan
balances constituted approximately 11% of the total loan portfolio. REDI
nonperforming assets were $28.3 million at September 30, 1998, compared to $40.3
million at December 31, 1997 and $43.9 million at September 30, 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 September 30, 1998, not included in Table 5, totaled
approximately $69 million. Over 95% 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 $103 million at September 30, 1997 and $77 million
at December 31, 1997. Fluctuations in potential problem loan balances from
quarter to quarter should be viewed in the context of the size of Crestar's loan
portfolio, which totaled $16.7 billion at September 30, 1998.
Noninterest Income And Expense
(Table 6)
Noninterest income totaled $159.0 million in the third quarter of 1998, compared
to $96.1 million in the third quarter of 1997. As previously mentioned, in the
third quarter of 1998 Crestar recognized a pre-tax gain of $54.0 million arising
from the sale of selected bank card loans. Excluding the impact of this gain
from third quarter 1998 results, and excluding securities gains and losses,
third quarter 1998 noninterest income increased $8.0 million or 8% from the
third quarter 1997. This increase reflects growth in several noninterest income
categories, including strong increases in service charges on deposit accounts
and mortgage origination income.
Service charges on deposit accounts totaled $35.3 million, for an increase of
14% in comparison to the third quarter of 1997. The increase reflects growth in
Crestar's transaction-based consumer deposit accounts. Mortgage origination
income, net of direct expenses, for the third quarter of 1998 totaled $15.1
million, or $7.9 million higher than the results reported in the third quarter
of 1997. Origination income in the third quarter of 1998 reflects record levels
of mortgage originations by Crestar's mortgage banking subsidiary, Crestar
Mortgage Corporation, in an environment of declining interest rates. Mortgage
servicing income decreased by $0.3 million during the quarter, primarily due to
higher amortization charges for capitalized servicing rights. Trust and
investment advisory income increased 6% from third quarter 1997 levels,
reflecting growth in assets under management. Other service charges and fees
increased $0.6 million, or 6%, to $10.2 million for the third quarter of 1998,
in comparison to the third quarter of 1997, reflecting growth in automated
teller machine (ATM) revenues.
<PAGE>
Bank card-related noninterest income was $2.9 million for the third quarter of
1998, down $2.3 million or 25% from the third quarter of 1997. The decrease
reflects the sale of a $576 million portfolio of bank card loans in July 1998,
and the resulting decline in membership fees and other bank card fee income.
Noninterest expense increased $57.0 million, or 33%, in the third quarter of
1998 when compared to the same period of 1997. In comparison to the second
quarter of 1998, total noninterest expenses were up $38.6 million, or 20%.
First, costs were incurred during the third quarter which were directly related
to the Corporation's agreement to merge with SunTrust Banks, Inc., as announced
on July 20, 1998. Secondly, the increase in part reflects several initiatives
undertaken during the third quarter of 1998, which will modify certain aspects
of Crestar's retail and consumer delivery channels to better reflect its goals
and to recognize the strategic changes related to the sale of certain bank card
receivables. Included in the results for the third quarter of 1998 are costs
related to realignment and reconfiguration of customer delivery systems in
consumer lending and retail operations.
Total personnel costs, Crestar's largest expense category, were $122.4 million
in the three month period ended September 30, 1998, an increase of $27.2 million
or 29% in comparison to the same period of 1997. The signing of a definitive
agreement to merge with a larger financial institution, coupled with a resulting
increase in the market value of Crestar's common stock, necessitated the
recognition of additional compensation related costs during the third quarter of
approximately $18.9 million.
The realignment of both the retail branch structure and portions of the
Corporation's consumer finance operations resulted in additional noninterest
expenses of $13.1 million in the third quarter of 1998. Within retail
operations, Crestar will close eight bank branches and one mortgage origination
office, which were not meeting profitability targets. Crestar is also
streamlining selected indirect lending operations, primarily impacting
automobile lending through automobile dealer relationships. Of related costs
incurred in the third quarter of 1998, $2.0 million were personnel costs,
primarily for severance costs related to individual positions affected by the
realignment of operations. Other noninterest expenses of $7.5 million were
related to the write-off of specific assets due to impairment and the accrual of
the net present value of lease obligations for facilities to be closed, in view
of the realignment and reconfiguration of operations. Additionally, professional
fees and other miscellaneous expenses incurred were approximately $3.6 million.
Other unusual items incurred during the third quarter of 1998, not included
above, totaled approximately $3.4 million. Of this amount, $1.8 million were
professional fees incurred during the period, in part due to an acceleration of
projects in view of the announced merger with SunTrust Banks, Inc.
Also impacting personnel costs in the third quarter of 1998, in comparison to
the same period of 1997, are higher commission expenses. These expenses, related
to strong growth in fee-based business lines, were significantly higher during
the third quarter of 1998, reflecting the high levels of mortgage loan
originations at Crestar Mortgage Corporation. Strong growth in other fee-based
business lines, such as mutual fund and insurance annuity sales, also resulted
in higher commission-related personnel costs.
Noninterest expense in the quarter included $3.8 million of costs incurred in
the ongoing project to prepare Crestar's data processing systems for "Year 2000"
compatibility; comparable expenses in the third quarter of 1997 were not
material. 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 (see "Year 2000 Issue" for further discussion). The estimated
total cost for this conversion and testing process, as revised during the third
quarter of this year, is expected to be between $32 and $37 million. 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. Through September
30, 1998, Crestar had incurred approximately $14.6 million in noninterest
expense associated with the Year 2000 conversion process, of which $9.5 million
was incurred during the first nine months of 1998.
The effective tax rate for third quarter and first nine months of 1997 was
35.9% and 35.8%, respectively, compared to 34.2% and 34.9% for the comparable
periods of 1997. Crestar's effective tax rates during 1997 were favorably
impacted by the recognition of tax benefits upon the resolution of certain
federal tax filing positions taken in prior years. Financial statement note 10
contains additional information concerning income taxes.
<PAGE>
Financial Condition
(Table 7)
Crestar's assets totaled $25.8 billion at September 30, 1998, compared to $24.9
billion in assets at December 31, 1997, and $23.2 billion at September 30, 1997.
Loans totaled $16.7 billion at September 30, 1998, compared to $15.7 billion at
year-end 1997. Total deposits were $17.0 billion at September 30, 1998 compared
to $16.4 billion at December 31, 1997. Excluding certificates of deposit of
$100,000 and over, deposits increased 2% from year-end 1997.
With respect to the securities held to maturity portfolio, market value
exceeded the carrying value, or amortized cost, at September 30, 1998 by $8.6
million, consisting of $8.7 million in unrealized gains and $0.1 million in
unrealized losses. At September 30, 1998, the market value of securities
available for sale exceeded the amortized cost of such securities by $55.0
million, consisting of $66.1 million in unrealized gains and approximately $11.1
million in unrealized losses. Shareholders' equity at September 30, 1998
reflects a $35.9 million addition for the excess, net of tax, of fair value of
securities available for sale over the amortized cost at quarter-end, compared
to decrease of $0.7 million at December 31, 1997 arising from net unrealized
losses on securities available for sale. At September 30, 1997, Crestar's
shareholders' equity reflected a $11.8 million reduction for the excess, net of
tax, of amortized cost of securities available for sale over fair value. The net
unrealized gain or loss on securities available for sale, which is recorded as a
component of shareholders' equity, will continue to be subject to change in
future periods due to fluctuations in market value, acquisition activities, and
purchases, sales, maturities and calls of securities classified as available for
sale. Net unrealized losses in the securities available for sale portfolio
primarily reflect ongoing interest rate volatility, which is inherent in the
securities marketplace. Based on current market conditions, net unrealized
losses on securities are not expected to have a significant impact on the future
operating results or liquidity of Crestar.
All mortgage-backed securities in the securities available for sale and
securities held to maturity portfolios are subject to prepayment risk, since the
mortgage loans underlying these securities can prepay at any time without
penalty. This risk becomes apparent during periods of declining interest rates,
when refinancing of existing mortgage loans can accelerate. During these
periods, the expected maturity of mortgage-backed securities shortens due to
prepayments, reducing the expected stream of future interest payments to be
received. The interest rate and prepayment risk associated with mortgage-backed
securities is considered by management in assessing the overall asset/liability
structure of the Corporation.
All investment securities, including mortgage backed pass-through securities,
collateralized mortgage obligation (CMO) securities, and securitized credit card
receivables, are also managed with respect to their credit risk. Credit risk
arises because payments of interest and principal can be dependent on the
payment of the underlying mortgage or receivable payment where applicable, in
addition to the contractual obligation of the issuer to collect and remit such
payments to the individual security owners. The Corporation monitors credit risk
by assessing, and monitoring on an ongoing basis, the financial strength and
performance of the issuers of such securities. Approximately 66% (market value)
of Crestar's securities available for sale portfolio, and 64% (amortized cost)
of the Corporation's securities held to maturity portfolio, was composed of
mortgage-backed obligations of Federal agencies as of September 30, 1998. This
category includes mortgage-backed securities of Federal agencies, as well as CMO
securities guaranteed by Federal agencies such as the Federal Home Loan Mortgage
Corporation. Securities classified as "Other taxable securities" can include
non-government CMO securities, corporate debt obligations, and corporate
obligations securitized by credit card and instalment loans. Other taxable
securities classified as available for sale at September 30, 1998 included $878
million (market value) of non-government CMO obligations.
During the third quarter of 1998, Crestar sold approximately $1.14 billion of
securities classified as available for sale, generating net securities gains of
$948 thousand. Such sales were consummated in conjunction with the overall
management of interest rate risk for the Corporation. Securities gains recorded
in the third quarter of 1997 totaled $124 thousand.
Liquidity And Interest Sensitivity
(Tables 8 - 10)
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
<PAGE>
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 52% of total funding sources at
September 30, 1998, compared to 53% of total funding sources at December 31,
1997 and 55% at September 30, 1997. As an additional indication of adequate
liquidity, securities available for sale represented 17%, and money market
investments an additional 3%, of Crestar's total earning assets at September 30,
1998.
Market risk is the risk of loss arising from adverse changes in the fair value
of financial instruments due to changes in interest rates, exchange rates or
equity prices. Like many financial institutions, Crestar's principal market risk
is interest rate risk. Interest rate risk can be measured by looking at the
volatility of projected net income as a result of possible changes in interest
rates over a given period of time. Crestar's goal is to limit interest rate
exposure to prudent levels as determined by the Corporation's ALCO committees.
The committee establishes limits on the earnings at risk for a current planning
period, usually defined as either the current calendar year or the remainder of
the current year plus the next calendar year. Established limits are subject to
change, but have typically been 10% or less of projected net income for the
planning period. Actions that can be taken to manage interest rate risk include
changing the mix of floating rate versus fixed rate earning assets and funding
sources, changes in average maturities within the securities available for sale
portfolio through sales and purchases, the use of derivative instruments for
interest rate conversions or to hedge interest risk, and marketing and product
development efforts to attract new loans and deposits. The level of interest
rate risk taken is based on management's assessment of the market environment,
and will vary from period to period.
A significant tool used by Crestar in assessing interest rate exposure is net
interest income simulations. A net income forecast is prepared regularly based
on a current interest rate forecast, in addition to numerous high and low
interest rate scenarios involving changes in interest rates of up to and
including 300 basis points from current interest rates. 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 prepayment levels. Prepayment
assumptions are based on the expertise of management along with input from
external financial market sources. 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.
While the simulation process is a powerful tool in analyzing interest
sensitivity, many of the assumptions used in the simulation process are both
highly qualitative and subjective, and subject to the risk that past historical
activity may not generate accurate predictions of future results.
The high rate and low rate estimates generated by this simulation process are
compared to the estimate generated under the consensus interest rate scenario.
Based on the most recent simulations as of September 30, 1998, Crestar's
projected after-tax net income under the consensus interest rate scenario for
the 12 month period ending September 30, 1999 would decrease by approximately
$15 million in a high interest rate scenario, and would remain relatively
unchanged in a low interest rate scenario, if nothing else changed and no
management actions were taken. These projections were based on interest rate
increases of approximately 300 basis points under an 12 month high interest rate
scenario, and interest rate decreases of approximately 100 basis points under an
12 month low interest rate scenario, from market interest rates in effect at
September 30, 1998. Changes in interest rates under these simulations were
projected at 25 basis points per month. The results of 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
current interest rate scenarios.
Another management tool for assessing interest rate risk is the quantification
of the economic fair value of shareholders' equity. Economic 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 economic value of equity
are calculated by projecting cash flows and then computing present values under
a series of different interest rate scenarios. The economic value calculations
include the valuation of instruments with option characteristics, using numerous
interest rate path valuations and mathematical rate simulation techniques.
Crestar has incorporated this tool as a significant component of its management
of interest rate risk. Economic value measurement results at September 30, 1998
were within Crestar's internal guidelines.
<PAGE>
Each of the above tools used to assess interest rate risk have strengths and
weaknesses. While Crestar believes that its 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. Assumptions
can be inherently uncertain: actual results will differ from projected results
due to changes in market conditions, management strategies and the timing and
magnitude of interest rate changes.
As noted, Crestar incurs a degree of interest rate risk as a provider of
banking services to its customers. This risk can be reduced through derivative
interest rate contracts, such as interest rate swaps, caps and floors. Crestar's
outstanding interest rate swap instruments at September 30, 1998 are utilized to
convert certain variable rate assets to fixed rates as part of the Corporation's
interest risk management strategy. Interest rate caps are utilized to minimize
interest rate risk associated with rising rates on floating rate money market
deposits, fixed rate available for sale securities and fixed rate real
estate-income property loans. Interest rate floors are utilized to hedge the
fair value of fixed rate domestic time deposits and the prepayment risk
associated with fixed rate real estate mortgage loans. Because financial
derivatives typically do not have actual principal dollars transferred between
parties, notional principal amounts are used to express the volume of such
transactions. However, the notional amount of derivative contracts does not
represent direct credit exposure, which the Corporation believes is a
combination of current replacement cost of those instruments with a positive
market value plus an amount for prospective market movement. Crestar has
established policies governing derivative activities, and the counterparties
used by Crestar are considered high quality credits. In addition, Crestar may
demand collateral from a counterparty to further minimize credit risk. There
were no past due amounts or reserves for possible derivative losses at September
30, 1998, nor has Crestar ever experienced any charge-offs related to the credit
risk of derivative transactions. Interest rate simulation techniques are used by
Crestar to assess and monitor market risk in the Corporation's derivative
portfolio.
At September 30, 1998 Crestar had a deferred gain of approximately $3.3
million included in other assets, arising from the termination prior to maturity
of interest rate floors during 1997. The deferred gain is being amortized over
the remaining original contractual life of the underlying derivative
instruments, which range from approximately two to six years. 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 $5.7
billion at September 30, 1998. Forward contracts with a notional amount of $2.8
billion, utilized to hedge lending commitments of Crestar's mortgage banking
subsidiary, were also outstanding at September 30, 1998, bringing the total
notional value of derivative financial instruments related to interest rate risk
management activities to $8.5 billion at September 30, 1998. Tables 8, 9, and 10
present information regarding fair values, maturity, average rates, and activity
as of and for the nine month period ending September 30, 1998 for these
off-balance sheet derivative instruments. Net unrealized gains on these
instruments totaled $23.4 million as of September 30, 1998. Financial statement
note 11 contains additional information pertaining to these types of agreements.
Year 2000 Issue
Crestar is implementing changes to its information systems so that they
will be fully operable for date recognition and data processing before the year
2000 begins. The Corporation's "Year 2000" plans are subject to guidelines
promulgated by the Federal Financial Institutions Examination Council (FFIEC).
The Federal Reserve Bank of Richmond periodically measures the status of
Crestar's plans and progress, as outlined in the FFIEC guidelines. Accordingly,
a dedicated team of Crestar employees completed a thorough inventory and
assessment of each of the Corporation's computer systems in 1997, which
constituted the initial phases of Crestar's Year 2000 compliance efforts. Other
continuing phases of work towards Year 2000 compliance include remediation
efforts, testing of revised or new computer code, and redeployment into an
operating environment. The Corporation expects to have substantially completed
necessary changes to its computer systems by the end of the current year (the
remediation phase), and to further test its computer systems during 1999 to
confirm compliance with Year 2000 data processing standards. Crestar's Year 2000
project includes the assessment, and possible repair or replacement, of
non-information technology systems which include or rely on embedded technology,
such as equipment utilizing microcontrollers.
<PAGE>
The Corporation considers its current approach in addressing the Year
2000 issue to be adequate, and fully expects to meet its timetable regarding
Year 2000 compliance. The total cost for this conversion and testing process is
currently estimated to be between $32 and $37 million, which represents an
increase over Crestar's previous estimate. Crestar is experiencing escalating
demand and costs for skilled resources, requiring greater recruiting and
retention efforts and increased costs for outside contract resources. Estimated
time and costs related to testing to be performed in 1999 have also been revised
upward. Some costs, such as the purchase of computer hardware, will qualify as
depreciable assets for accounting purposes, and the depreciation expense will be
recognized over the estimated lives of the related assets. However, the majority
of costs will be expensed as incurred. Through September 30, 1998, Crestar had
incurred approximately $15 million in noninterest expense associated with the
Year 2000 conversion process.
As part of its planning process, the Corporation continues to develop
contingency plans based on alternative scenarios and their likelihood of
occurrence. Crestar's contingency plans address operational issues, including
communication links with other entities, utility and transportation services and
the availability of alternative services among key vendor relationships. The
Corporation also continues to engage in the exchange of information with major
borrowers and external vendors regarding each entity's progress with respect to
Year 2000 compliance efforts. Crestar expects to complete its contingency plans
in accordance with FFIEC requirements.
At this time, Crestar believes the most likely worst case Year 2000
scenario would not have a material effect on the Corporation's results of
operations, liquidity, and financial condition for the year ending December 31,
2000. The Corporation does not foresee a material loss of revenue due to the
Year 2000 issue. As noted, however, Crestar's contingency plans are based on
assessments of alternative scenarios; the Corporation believes that no entity
can address the virtually unlimited number of all possible circumstances
relating to Year 2000 issues, including risks outside Crestar's current primary
marketplace of Virginia, Maryland and the District of Columbia. Crestar's
ability to determine the readiness of third parties, including third parties
operating within the Corporation's primary market area, is limited by (a) the
Corporation's limited legal right to demand information and assurances regarding
Year 2000 compliance efforts, (b) the willingness and ability of such third
parties to provide information, and (c) the reliability of any information
provided. While unlikely, it is acknowledged that failure by the Corporation to
be successful in implementing its Year 2000 plans, its modifications and
conversions, or to adequately assess the likelihood of various events relating
to the Year 2000 issue, could have a material impact on Crestar's operations.
Therefore, this could potentially result in a material adverse effect on the
Corporation's results of operations and financial condition.
The projections of total costs of Crestar's Year 2000 project and the
expected completion dates are based on Crestar's best estimates, which are
necessarily based in part on assumptions of future events including the
continued availability of adequate resources and completion of third party
modification plans. There can be no guarantee that these estimates will be
achieved; actual results could differ materially from the Corporation's current
estimates. Specific risk factors that might cause material differences include,
but are not limited to, the future availability and cost of personnel with
adequate programming skills and the ability to locate and correct all relevant
computer codes. The inability to control the actions and plans of vendors,
customers, government entities and other third parties.
<PAGE>
Table 1 Financial Highlights
Dollars in millions, except per share data
<TABLE>
<CAPTION>
Three Months Nine Months
------------ -----------
% %
For the Period Ended September 30 1998 1997 Change 1998 1997 Change
<S> <C> <C> <C> <C> <C> <C>
Net Income $88.9 $79.5 12 $261.2 $227.1 15
Basic Earnings Per Share:
Net Income $.79 $ .71 11 $2.33 $2.05 14
Average Shares
Outstanding (000s) 112,487 110,760 2 112,117 110,518 1
Diluted Earnings Per Share:
Net Income $.78 $.71 10 $2.30 $2.03 13
Average Shares
Outstanding (000s) 113,928 112,069 2 113,542 111,754 2
Dividends Paid Per Common Share $ .33 $ .29 14 $ .95 $ .85 12
============================================================================================
Key Ratios
Return on Average Assets 1.42% 1.47% 1.41% 1.41%
Return on Average Equity 15.77 16.60 16.20 16.38
Average Equity to Average Assets 9.00 8.87 8.68 8.59
Net Interest Margin 3.90 4.47 4.04 4.51
At September 30
Book Value Per Share $20.51 $17.60 17
Equity to Assets 8.97% 8.36%
Risk Adjusted Capital Ratios:
Tier I 10.4 10.4
Total 13.4 13.0
Common Shares Outstanding (000s) 112,643 110,188
============================================================================================
</TABLE>
Table 2 Changes In Diluted Earnings Per Share
3rd Qtr. 1998 3rd Qtr. 1998
vs. vs.
3rd Qtr. 1997 2nd Qtr. 1998
Diluted Earnings Per Share - prior period $ .71 $ .77
- ---------------------------------------------------------------------------
Interest income .23 (.09)
Interest expense (.21) .01
Provision for loan losses .06 .07
Securities gains or losses - (.01)
Other noninterest income .36 .25
Noninterest expense (.33) (.22)
Change in effective income tax rate (.03) -
Increase in shares outstanding (.01) -
- -------------------------------------------------------------------------
Net increase .07 .01
- -------------------------------------------------------------------------
Diluted Earnings Per Share - current period $ .78 $ .78
===========================================================================
<PAGE>
Table 3 Average Balances, Net Interest Income And Rate/Volume Analysis1
Dollars in thousands
<TABLE>
<CAPTION>
3rd Qtr.
- ------------------------------
Average Balance 2nd Qtr.
- ------------------------------ Average
Increase Balance
1998 1997 (Decrease) 1998
---- ---- ---------- ----
$ $ % $
<S> <C> <C> <C> <C>
5,135,851 3,943,788 30 4,917,937 Commercial
1,146,856 1,268,940 (10) 1,171,884 Real estate - income property
398,798 334,002 19 386,861 Real estate - construction
5,437,768 4,349,511 25 5,273,448 Instalment
502,888 1,165,156 (57) 1,094,608 Bank card
3,415,639 3,336,618 2 3,398,345 Real estate - mortgage
- ------------------------------------------------------------------------------------------
16,037,800 14,398,015 11 16,243,083 Total loans - net of unearned income2
- ------------------------------------------------------------------------------------------
543,868 687,292 (21) 594,342 Securities held to maturity
4,326,279 3,361,761 29 4,415,174 Securities available for sale
202,908 489,870 (59) 238,260 Money market investments
1,767,622 725,458 144 1,676,327 Loans held for sale
- ------------------------------------------------------------------------------------------
22,878,477 19,662,396 16 23,167,186 Total earning assets
==========================================================================================
7,019,892 5,812,468 21 6,829,500 Interest-bearing demand deposits
1,373,154 1,514,018 (9) 1,418,043 Regular savings deposits
3,903,639 4,188,632 (7) 3,942,134 Domestic time deposits
- ------------------------------------------------------------------------------------------
12,296,685 11,515,118 7 12,189,677 Total interest-bearing core deposits
- ------------------------------------------------------------------------------------------
5,543,665 3,879,491 43 6,071,099 Purchased liabilities
1,014,831 806,319 26 922,961 Long-term debt
- ------------------------------------------------------------------------------------------
18,855,181 16,200,928 16 19,183,737 Total interest-bearing liabilities
4,023,296 3,461,468 16 3,983,449 Other sources - net
- ------------------------------------------------------------------------------------------
22,878,477 19,662,396 16 23,167,186 Total sources of funds
- ------------------------------------------------------------------------------------------
Net Interest Income
==========================================================================================
</TABLE>
1Tax-equivalent basis.
2Nonaccrual loans are included in the average loan balances and income on such
loans is recognized on a cash basis.
3Includes tax-equivalent net loan fees (costs) of $(431,000) and $167,000 for
the third quarter of 1998 and 1997, respectively, and $(172,000) for the second
quarter of 1998.
<TABLE>
<CAPTION>
3rd Qtr.
-----------------------------------
1998 vs. 1997 3rd Qtr. 1998 vs. 2nd Qtr. 1998
------------------------ ---------------------------------
2nd Qtr.
Inome/Expense3 Change due to4 Income/ Change due to4
-------------- Increase -------------- Expense3 Increase ---------------
1998 1997 (Decrease) Rate5 Volume 1998 (Decrease) Rate5 Volume
---- ---- ---------------- ------ ---- ---------------- ------
$ $ $ $ $ $ $ $ $
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial 101,967 79,886 22,081 (1,972) 24,053 96,593 5,374 1,102 4,272
Real estate - income property 26,958 28,416 (1,458) 1,222 (2,680) 26,091 867 1,401 (534)
Real estate - construction 8,871 7,335 1,536 113 1,423 8,840 31 (233) 264
Instalment 106,387 89,268 17,119 (5,332) 22,451 106,078 309 (2,977) 3,286
Bank card 16,857 41,156 (24,299) (68)(24,231) 36,786 (19,929) 634 (20,563)
Real estate - mortgage 62,930 64,452 (1,522) (3,017) 1,495 65,110 (2,180) (2,511) 331
--------------------------------------------------------------------------
Total loans - net of unearned income2 323,970 310,513 13,457 (21,879) 35,336 339,498 (15,528)(11,250) (4,278)
--------------------------------------------------------------------------
Securities held to maturity 8,561 10,599 (2,038) 174 (2,212) 9,202 (641) 141 (782)
Securities available for sale 66,822 52,958 13,864 (1,330) 15,194 68,791 (1,969) (584) (1,385)
Money market investments 2,778 6,972 (4,194) (110) (4,084) 3,192 (414) 60 (474)
Loans held for sale 31,018 13,598 17,420 (2,225) 19,645 28,542 2,476 914 1,562
--------------------------------------------------------------------------
Total earning assets 433,149 394,640 38,509 (26,012) 64,521 449,225 (16,076)(10,489) (5,587)
==========================================================================
Interest-bearing demand deposits 58,563 44,592 13,971 2,608 11,363 55,182 3,382 1,198 2,184
Regular savings deposits 7,986 9,337 (1,351) (482) (869) 8,168 (182) 77 (259)
Domestic time deposits 49,738 52,424 (2,686) 910 (3,596) 49,482 256 746 (490)
--------------------------------------------------------------------------
Total interest-bearing core deposits 116,287 106,353 9,934 2,680 7,254 112,832 3,456 2,461 995
--------------------------------------------------------------------------
Purchased liabilities 76,750 52,953 23,797 1,091 22,706 83,100 (6,350) 870 (7,220)
Long-term debt 17,755 15,293 2,462 (1,493) 3,955 16,600 1,155 (497) 1,652
--------------------------------------------------------------------------
Total interest-bearing liabilities 210,792 174,599 36,193 7,507 28,686 212,532 (1,739) 1,911 (3,650)
Other sources - net
--------------------------------------------------------------------------
Total sources of funds 210,792 174,599 36,193 7,554 28,639 212,532 (1,739) 917 (2,656)
--------------------------------------------------------------------------
Net Interest Income 222,357 220,041 2,316 (33,566) 35,882 236,693 (14,337)(11,406) (2,931)
==========================================================================
</TABLE>
4Variances are computed on a line-by-line basis and are non-additive.
5Variances caused by the change in rate times the change in
balances are allocated to rate.
<PAGE>
Table 4 Allowance For Loan Losses
Dollars in thousands Third Quarter Nine Months Ended Sept. 30,
------------- --------------------------
1998 1997 1998 1997
Beginning balance $246,017 $279,190 $281,394 $268,868
- -------------------------------------------------------------------------
Allowance from acquisitions
and other activities, net (27) - 1,530 -
Allowance related to
bankcard loans held for sale - - (35,000) -
Provision for loan losses 9,080 19,099 53,987 84,797
- -------------------------------------------------------------------------
Net charge-offs (recoveries):
Commercial (470) (1,115) (1,285) (647)
Real estate - income property 624 (502) 437 (1,397)
Real estate - construction 981 512 1,342 (99)
Instalment 3,822 3,555 11,619 12,138
Bank card 3,750 16,922 42,823 63,157
Real estate - mortgage 371 586 983 2,182
- -------------------------------------------------------------------------
Total net charge-offs 9,078 19,958 55,919 75,334
- -------------------------------------------------------------------------
Balance, September 30 $245,992 $278,331 $245,992 $278,331
=========================================================================
Allowance for loan losses to
period-end loans 1.48% 1.90% 1.48% 1.90%
Annualized net charge-offs
to average loans .23 .55 .47 .71
=========================================================================
Table 5 Nonperforming Assets1 And Past Due Loans
Dollars in thousands September 30, December 31,
--------------------
Nonaccrual loans: 1998 1997 1997
Commercial $ 9,001 $10,462 $11,247
Real estate - income property 4,312 6,026 6,412
Real estate - construction 11,961 16,976 14,239
Instalment 6,929 2,895 3,292
Real estate - mortgage 24,751 25,048 25,310
- ---------------------------------------------------------------------------
Total nonperforming loans1 56,954 61,407 60,500
Foreclosed properties - net 16,628 26,757 25,731
- ---------------------------------------------------------------------------
Total nonperforming assets1 $73,582 $88,164 $86,231
===========================================================================
Nonperforming assets1 to:
Loans and foreclosed properties - net .44% .60% .55%
Total assets .29 .38 .35
Allowance for loan losses to:
Nonperforming assets1 334 316 326
Nonperforming loans1 432 453 465
Allowance for loan losses plus
shareholders' equity to nonperforming
assets1 34.78x 25.16x 27.15x
===========================================================================
Accruing loans past due 90 days:
Commercial $ 3,864 $ 3,915 $ 3,524
Real estate - income property 1,330 2,471 1,750
Real estate - construction 3 16 216
Instalment
Student 31,016 23,766 25,742
Other 5,676 6,388 6,886
Bank card 5,319 21,315 24,126
Real estate - mortgage 3,934 5,089 6,023
- ---------------------------------------------------------------------------
Total accruing loans past due 90 days $51,143 $62,960 $68,267
===========================================================================
1Loans which are both past due 90 days or more and not deemed nonaccrual due to
an assessment of collectibility are specifically excluded from the definition of
nonperforming.
<PAGE>
Table 6 Noninterest Income And Expense
In thousands Nine Months Ended
Third Quarter Second September 30,
-------------- Quarter ------------------
Noninterest Income 1998 1997 1998 1998 1997
Service charges on deposit
accounts $ 35,257 $30,893 $34,860 $103,184 $92,787
Trust and investment advisory 20,468 19,308 20,950 61,537 54,648
Bank card-related 6,895 9,236 9,360 25,065 31,655
Other service charges and fees 10,223 9,656 11,592 31,468 26,829
Mortgage origination - net 15,123 7,254 18,488 48,713 10,515
Mortgage servicing - net 2,949 3,288 458 5,759 12,001
Trading account activities 1,432 1,444 1,570 4,347 3,553
Commissions on letters of credit 1,379 1,207 1,161 3,896 3,620
Gain on sale of mortgage
servicing rights - - - - 10,450
Gain (loss) on sale of premises
and equipment (1,748) 717 - (1,748) 6,524
Gain on sale of merchant
card processing - - - - 17,325
Gain on sale of bank card loans 54,000 - - 54,000 -
Miscellaneous 12,032 12,982 15,529 41,807 36,588
Securities gains (losses) 948 124 2,542 6,103 4,097
- ---------------------------------------------------------------------------
Total noninterest income $158,958 $96,109 $116,510 $384,131 $310,592
===========================================================================
Noninterest Expense
Salaries $ 96,369 $74,426 $ 81,932 $259,397 $228,728
Benefits 26,011 20,708 20,191 65,961 62,295
- ---------------------------------------------------------------------------
Total personnel 122,380 95,134 102,123 325,358 291,023
Occupancy - net 15,612 14,957 13,893 42,659 44,800
Equipment 12,312 9,970 10,962 34,076 31,251
Professional fees and services 12,148 5,610 6,840 25,315 20,978
Communications 9,439 9,194 10,433 29,842 27,317
Outside data services 6,774 6,451 7,693 21,429 19,510
Advertising and marketing 5,567 6,146 5,773 17,049 16,021
Amortization of purchased
intangibles 5,225 4,280 4,976 14,994 12,713
Stationery, printing and
supplies 3,226 2,362 3,220 10,054 7,690
Loan expense 4,286 3,116 4,826 11,995 8,714
Transportation 2,045 1,782 1,894 5,794 5,281
FDIC premiums - net 706 235 747 1,883 2,024
Foreclosed properties (net
recoveries) 467 684 914 864 2,044
Miscellaneous 30,088 13,310 17,386 61,629 42,880
- ---------------------------------------------------------------------------
Total noninterest expense $230,275 $173,231 $191,680 $602,941 $532,246
===========================================================================
Table 7 Debt And Other Security Ratings
(as of October 31, 1998)
Standard Thomson
Security Moody's & Poor's BankWatch
61/2% Subordinated Notes due 2018 Baa1 BBB+ A-
83/4% Subordinated Notes due 2004 Baa1 BBB+ A-
81/4% Subordinated Notes due 2002 Baa1 BBB+ A-
Commercial Paper P-2 Not rated TBW-1
Crestar Bank Deposits:
Long-Term A2 A Not rated
Short-Term P-1 A-1 TBW-1
Crestar Capital Trust 1
Preferred Stock Baa1 BBB Not rated
=============================================================================
Table 8 Off-Balance Sheet Derivative Financial Instruments1
<TABLE>
<CAPTION>
September 30, 1998 Average
Weighted Fixed Estimated
Dollars in thousands Notional Average Receive Fair
Balance Maturity Rate Value Comments
<S> <C> <C> <C> <C> <C>
Interest Rate Conversions
Generic interest rate swaps $1,675,000 3.0 yrs. 6.19% Notional amounts of $1.33
Carrying amount2 $ 2,244 billion and $350 million
Commercial loan program convert floating rate commercial
Unrealized gains 46,805 and instalment loans, respectively,
Instalment loan program to fixed rate. Floating rates paid
Unrealized gains 10,837 tied to LIBOR.
--------
Estimated fair value 59,886
--------
Interest rate caps 1,855,000 2.7 yrs. 6.46%3 Notional amount of $1.86 billion
Carrying amount2 10,910 hedges the interest rate risk
Money market deposit program associated with rising interest
Unrealized losses (7,959) rates on floating rate money
market deposits (strike rate tied
------ to LIBOR).
Estimated fair value 2,951
------
Market Value Hedges
Interest rate caps 1,950,000 1.5 yrs. 7.56%3 Notional amount of $1.75 billion
Carrying amount2 8,757 hedges the market value of fixed
Securities available for sale program5 rate securities available for sale
Unrealized losses (8,275) in a rising rate environment (strike
Real estate income property loan program rate for $800 million tied to 5 year
Unrealized losses (438) 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 44 (strike rate tied to LIBOR).
------
Interest rate floors 250,000 3.5 yrs. 5.26%4 Notional amount of $150 million
Carrying amount2 1,510 hedges the prepayment risk
Real estate mortgage loan program associated with fixed rate
Unrealized gains 4,045 mortgage loans in a declining rate
Domestic time deposit program environment (strike rate tied to
Unrealized gains 2,547 5 year CMT). Notional amount of
$100 million hedges the fair value
of fixed rate domestic time deposits
------- (strike rate tied to 3 year CMT).
Estimated fair value 8,102
-------
Hedges of Lending Commitments
Forward contracts 2,757,937 .2 yrs. n/a Hedges of residential mortgage
Unrealized gains 875 lending commitments associated
Unrealized losses (24,992) with mortgage loan originations
---------
Estimated fair value (24,117)
Total derivatives $8,487,937 $ 46,866
============================================================================================
</TABLE>
1Includes only off-balance sheet derivative financial instruments related to
interest rate risk management activities.
2Includes any accrued interest receivable and or payable balances, and
unamortized premiums paid for interest rate caps and floors.
3Represents average strike rate. For interest rate caps purchased, Crestar will
receive interest if a specified market index 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.
4Represents average strike rate. For interest rate floors purchased, Crestar
will receive interest if a specified market index rate falls below a fixed
strike rate during the term of the contract. Any interest received is based on
the difference between a lower index interest rate and the contractual floor
rate, applied to the underlying notional balance. No interest payments are
received if the index rate remains above the floor rate.
5The fair value of derivative interest rate caps hedging securities classified
as available for sale is included in the total fair value of the securities
available for sale portfolio. The unamortized premiums paid for such interest
rate caps are included in the amortized cost basis of securities available for
sale, with any unrealized gain or loss (net of tax) pertaining to these
interest rate caps included in shareholders' equity as "Net unrealized gain
(loss) on securities available for sale."
n/a - Not applicable
LIBOR - London Interbank Offered Rates
3 year CMT - Yield on 3 year constant maturity U.S. Treasury securities 5 year
CMT - Yield on 5 year constant maturity U.S. Treasury securities
Table 9 Off-Balance Sheet Derivatives--Expected Maturities1
September 30, 1998
Dollars in thousands Within One to Three to Over
One Year Three Years Five Years Five Years Total
Interest Rate Conversions
Generic interest rate swaps:
Notional amount $ 250,000 $ 415,000 $ 760,000 $250,000 $1,675,000
Average fixed
receive rate 6.15% 5.83% 6.21% 6.74% 6.19%
Carrying amount $ 34 $ 119 $ 1,088 $ 1,003 $ 2,244
Net unrealized gain 2,524 7,468 28,925 18,725 57,642
Interest rate caps
Notional amount $ 5,000 $1,150,000 $ 700,000 $ - $1,855,000
Average strike rate 6.00% 6.52% 6.36% - 6.46%
Carrying amount $ - 4,207 $ 6,703 $ - $ 10,910
Unrealized loss - (2,938) (5,021) - (7,959)
Market Value Hedges
Interest rate caps
Notional amount $ 200,000 $1,750,000 $ - $ - $1,950,000
Average strike rate 7.75% 7.54% - - 7.56%
Carrying amount $ 438 $ 8,319 $ - $ - $ 8,757
Unrealized loss (438) (8,275) - - (8,713)
Interest rate floors
Notional amount $ - $ - $ 250,000 $ - $ 250,000
Average strike rate - - 5.26% - 5.26%
Carrying amount $ - $ - $ 1,510 $ - $ 1,510
Unrealized gain - - 6,592 - 6,592
Hedges of Lending Commitments
Forward contracts:2
Notional amount $2,757,937 $ - $ - $ - $2,757,937
Net unrealized loss (24,117) - - - (24,117)
Total derivatives:
Notional
amount $3,212,937 $3,315,000 $1,710,000 $250,000 $8,487,937
Carrying amount $ 472 $ 12,645 $ 9,301 $ 1,003 $ 23,421
Net unrealized
gain (loss) (22,031) (3,745) 30,496 18,725 23,445
--------- --------- --------- -------- ----------
Estimated fair
value $(21,559) $ 8,900 $ 39,797 $ 19,728 $ 46,866
===============================================================================
1Includes only off-balance sheet derivative financial instruments related to
interest rate risk management activities.
2Hedges of residential mortgage lending commitments.
<PAGE>
Table 10 Off-Balance Sheet Derivatives Activity1
<TABLE>
<CAPTION>
In thousands
Interest Rate Conversions Market Value Hedges
--------------------------- ----------------------- Hedges of
Interest Interest Interest Interest Lending
Rate Rate Rate Rate Commit-
Swaps Caps Caps Floors ments2 Total
<S> <C> <C> <C> <C> <C> <C>
Balance, July 1,
1998 $1,675,000 $1,055,000 $1,950,000 $250,000 $ 2,813,321 $ 7,743,321
Additions - 800,000 - - 3,089,249 3,889,249
Terminations - - - - - -
Maturities - - - - (3,144,633) (3,144,633)
- --------------------------------------------------------------------------------------------
Balance, September 30,
1998 $1,675,000 $1,855,000 $1,950,000 $250,000 $ 2,757,937 $ 8,487,937
============================================================================================
Balance, January 1,
1998 $1,675,000 $ 460,000 $1,950,000 $ - $ 1,459,888 $ 5,544,888
Additions 300,000 1,400,000 - 250,000 9,057,112 11,007,112
Terminations (300,000) - - - - (300,000)
Maturities - (5,000) - - (7,759,063) (7,764,063)
- --------------------------------------------------------------------------------------------
Balance, September 30,
1998 $1,675,000 $1,855,000 $1,950,000 $250,000 $ 2,757,937 $ 8,487,937
============================================================================================
</TABLE>
1Includes only off-balance sheet derivative financial instruments related to
interest rate risk management activities.
2Forward contracts hedging residential mortgage lending commitments;
maturities represent contracts delivered.
<PAGE>
Table 11 Selected Quarterly Financial Information
<TABLE>
<CAPTION>
Dollars in thousands, except per share data
<S> <C> <C> <C> <C> <C>
3rd Qtr. 2nd Qtr. 1st Qtr. 4th Qtr. 3rd Qtr.
Results of operations: 1998 1998 1998 1997 1997
Net interest income1 $222,357 $236,693 $229,924 $224,051 $220,041
Provision for loan losses 9,080 21,811 23,096 23,300 19,099
- --------------------------------------------------------------------------------------
Net credit income 213,277 214,882 206,828 200,751 200,942
Securities gains (losses) 948 2,542 2,613 1,231 124
Other noninterest income 158,010 113,968 106,050 109,616 95,985
- --------------------------------------------------------------------------------------
Net credit and noninterest
income 372,235 331,392 315,491 311,598 297,051
Noninterest expense 230,275 191,680 180,986 182,011 173,231
- --------------------------------------------------------------------------------------
Income before taxes 141,960 139,712 134,505 129,587 123,820
Tax-equivalent adjustment 3,358 3,259 2,964 2,860 2,903
Book tax expense 49,725 49,025 46,668 44,032 41,374
- --------------------------------------------------------------------------------------
Income tax expense 53,083 52,284 49,632 46,892 44,277
- --------------------------------------------------------------------------------------
Net Income $ 88,877 $ 87,428 $ 84,873 $ 82,695 $ 79,543
======================================================================================
Basic
Earnings per share $ .79 $ .78 $ .76 $ .75 $ .71
Average shares
outstanding (000s) 112,487 112,150 111,704 110,916 110,760
Diluted
Earnings per share $ .78 $ .77 $ .75 $ .74 $ .71
Average shares
outstanding (000s) 113,928 113,547 113,222 112,423 112,069
Dividends paid .33 .33 .29 .29 .29
======================================================================================
Selected ratios and other data:
Return on average assets 1.42% 1.39% 1.41% 1.46% 1.47%
Return on average equity 15.77 16.46 16.41 16.70 16.60
Net interest margin1 3.90 4.06 4.18 4.35 4.47
Net charge-offs as % of
average loans .23 .54 .64 .64 .55
Allowance as % of
period-end loans1 1.48 1.54 1.74 1.79 1.90
Overhead ratio 60.39 54.27 53.45 54.35 54.79
Average equity to assets 9.00 8.42 8.61 8.74 8.87
Average equity leverage 11.11x 11.88x 11.61x 11.45x 11.28x
Full-time equivalent
employees (period-end) 8,209 8,125 8,170 8,215 7,934
======================================================================================
1Tax-equivalent basis.
</TABLE>
<PAGE>
Table 12 Consolidated Average Balances/Net Interest Income/Rates1
<TABLE>
<CAPTION>
Three Months Ended September 30,
--------------------------------------------------------------
1998 1997
------------------------------ -----------------------------
Dollars in thousands Income/ Yield/ Income/ Yield/
Balance Expense Rate Balance Expense Rate
<S> <C> <C> <C> <C> <C> <C>
Assets $ $ % $ $ %
Securities held to maturity2 543,868 8,561 6.28 687,292 10,599 6.16
Securities available for
sale2 4,326,279 66,822 6.18 3,361,761 52,958 6.30
Money market investments2 202,908 2,778 5.43 489,870 6,972 5.65
Loans held for sale2 1,767,622 31,018 7.06 725,458 13,598 7.53
- --------------------------------------------------------------------------------------------
Commercial 5,135,851 101,967 7.86 3,943,788 79,886 8.01
Real estate - income
property 1,146,856 26,958 8.61 1,268,940 28,416 8.75
Real estate - construction 398,798 8,871 8.83 334,002 7,335 8.72
Instalment 5,437,768 106,387 8.01 4,349,511 89,268 8.23
Bank card 502,888 16,857 13.68 1,165,156 41,156 14.51
Real estate - mortgage 3,415,639 62,930 7.37 3,336,618 64,452 7.61
- --------------------------------------------------------------------------------------------
Total loans2,3 16,037,800 323,970 8.06 14,398,015 310,513 8.59
Allowance for loan losses (247,603) (280,792)
- --------------------------------------------------------------------------------------------
Loans - net 15,790,197 14,117,223
Cash and due from banks 826,235 861,622
Premises and equipment - net 479,897 464,710
Intangible assets - net 196,545 170,084
Foreclosed properties - net 16,795 33,469
Other assets 887,535 705,765
- --------------------------------------------------------------------------------------------
Total Assets 25,037,881 21,617,254
========== ==========
Total Earning Assets 22,878,477 433,149 7.56 19,662,396 394,640 8.00
========== ======= ==== ========== ======= ====
Liabilities And
Shareholders' Equity
Interest-bearing
demand deposits 7,019,892 58,563 3.31 5,812,468 44,592 3.04
Regular savings deposits 1,373,154 7,986 2.31 1,514,018 9,337 2.45
Domestic time deposits 3,903,639 49,738 5.09 4,188,632 52,424 5.00
Certificates of
deposit $100,000 and over 1,322,451 18,817 5.65 1,028,382 14,722 5.68
- --------------------------------------------------------------------------------------------
Total savings and
time deposits2 13,619,136 135,104 3.95 12,543,500 121,075 3.84
Demand deposits 3,437,764 3,131,322
- --------------------------------------------------------------------------------------------
Total deposits 17,056,900 15,674,822
Short-term borrowings2 4,221,214 57,933 5.44 2,851,109 38,231 5.32
Long-term debt2 1,014,831 17,755 7.00 806,319 15,293 7.59
Other liabilities 491,101 368,618
- --------------------------------------------------------------------------------------------
Total liabilities 22,784,046 19,700,868
- --------------------------------------------------------------------------------------------
Total shareholders'
equity 2,253,835 1,916,386
- --------------------------------------------------------------------------------------------
Total Liabilities And
Shareholders' Equity 25,037,881 21,617,254
========== ==========
Total interest-bearing
liabilities 18,855,181 210,792 4.45 16,200,928 174,599 4.29
Other sources - net 4,023,296 3,461,468
- --------------------------------------------------------------------------------------------
Total Sources Of Funds 22,878,477 210,792 3.66 19,662,396 174,599 3.53
========== ======= ==== ========== ======= ====
Net Interest Spread 3.11 3.71
Net Interest Income/Margin 222,357 3.90 220,041 4.47
============================================================================================
</TABLE>
1Income and yields are computed on a tax-equivalent basis using the statutory
federal income tax rate exclusive of the
alternative minimum tax and nondeductible interest expense.
3Nonaccrual loans are included in the average loan balances and income on such
loans is recognized on a cash basis.
<TABLE>
<CAPTION>
Three Months Ended June 30, Nine Months Ended September 30,
--------------------------------- -------------------------------------------------------------
1998 1998 1997
-------------------------------- ----------------------------- -----------------------------
Dollars in thousands Income/ Yield/ Income/ Yield/ Income/ Yield/
Balance Expense Rate Balance Expense Rate Balance Expense Rate
------- ------- ---- ------- ------- ---- ------- ------- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Assets $ $ % $ $ % $ $ %
Securities held to maturity2 594,342 9,202 6.20 584,511 27,296 6.23 788,439 35,949 6.08
Securities available for
sale 4,415,174 68,791 6.23 4,241,233 198,024 6.23 3,734,389 176,682 6.31
Money market investments2 238,260 3,192 5.37 361,386 15,019 5.56 336,567 13,925 5.53
Loans held for sale2 1,676,327 28,542 6.84 1,533,625 80,131 6.98 619,655 35,856 7.75
---------------------------------------------------------------------------------------------------
Commercial 4,917,937 96,593 7.87 4,866,818 289,422 7.95 3,863,402 232,672 8.04
Real estate - income
property 1,171,884 26,091 8.65 1,180,274 79,442 9.00 1,261,599 83,546 8.85
Real estate - construction 386,861 8,840 8.94 389,183 26,142 8.60 326,725 21,993 8.84
Instalment 5,273,448 106,078 8.01 5,175,887 307,773 7.95 4,185,846 254,732 8.13
Bank card 1,094,608 36,786 13.79 907,029 91,760 13.61 1,243,386 131,240 14.20
Real estate - mortgage 3,398,345 65,110 7.66 3,442,836 195,637 7.58 3,241,506 187,841 7.71
---------------------------------------------------------------------------------------------------
Total loans2,3 16,243,083 339,498 8.35 15,962,027 990,176 8.28 14,122,464 912,024 8.63
Allowance for loan losses (283,650) (270,563) (273,279)
---------------------------------------------------------------------------------------------------
Loans - net 15,959,433 15,691,464 13,849,185
Cash and due from banks 847,408 851,979 867,300
Premises and equipment - net 494,425 489,569 453,814
Intangible assets - net 195,933 195,283 174,221
Foreclosed properties - net 19,447 18,736 30,378
Other assets 792,090 801,537 665,977
---------------------------------------------------------------------------------------------------
Total Assets 25,232,839 24,769,323 21,519,925
========== ========== ==========
Total Earning Assets 23,167,186 449,225 7.75 22,682,782 1,310,646 7.71 19,601,514 1,174,436 8.00
========== ======= ==== ========== ======== ===== ========== ======== ====
Liabilities And
Shareholders' Equity
Interest-bearing
demand deposits 6,829,500 55,181 3.24 6,761,790 164,041 3.24 5,804,721 129,345 2.98
Regular savings deposits 1,418,043 8,168 2.31 1,407,637 24,280 2.31 1,565,321 29,069 2.48
Domestic time deposits 3,942,134 49,482 5.08 3,978,282 149,721 5.04 4,341,275 160,937 4.97
Certificates of
deposit $100,000 and over 1,422,465 20,062 5.66 1,316,693 55,853 5.67 795,530 33,208 5.58
---------------------------------------------------------------------------------------------------
Total savings and
time deposits 13,612,142 132,893 3.93 13,464,402 393,895 3.92 12,506,847 352,559 3.77
Demand deposits 3,499,735 3,409,592 3,126,154
---------------------------------------------------------------------------------------------------
Total deposits 17,111,877 16,873,994 15,633,001
Short-term borrowings2 4,648,634 63,038 5.44 4,347,669 176,299 5.42 2,847,790 111,977 5.25
Long-term debt2 922,961 16,600 7.19 955,312 51,478 7.18 831,256 46,499 7.46
Other liabilities 425,086 442,484 359,189
---------------------------------------------------------------------------------------------------
Total liabilities 23,108,558 22,619,459 19,671,236
---------------------------------------------------------------------------------------------------
Total shareholders'
equity 2,124,281 2,149,864 1,848,689
---------------------------------------------------------------------------------------------------
Total Liabilities And
Shareholders' Equity 25,232,839 24,769,323 21,519,925
========== ========== ==========
Total interest-bearing
liabilities 19,183,737 212,531 4.45 18,767,383 621,672 4.43 16,185,893 511,035 4.22
Other sources - net 3,983,449 3,915,399 3,415,621
---------------------------------------------------------------------------------------------------
Total Sources Of Funds 23,167,186 212,531 3.69 22,682,782 621,672 3.67 19,601,514 511,035 3.49
========== ======= ==== ========== ======== ===== ========== ======== ====
Net Interest Spread 3.30 3.28 3.78
Net Interest Income/Margin 236,694 4.06 688,974 4.04 663,401 4.51
===================================================================================================
</TABLE>
2Indicates earning asset or interest-bearing liability.
<PAGE>
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Crestar Financial Corporation
--------------------------------
Registrant
Date November 13, 1998 /s/ James D. Barr
--------------------------------
James D. Barr
Executive Vice President,
Controller and Treasurer
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 887,047
<INT-BEARING-DEPOSITS> 13,522,589
<FED-FUNDS-SOLD> 251,487
<TRADING-ASSETS> 7,226
<INVESTMENTS-HELD-FOR-SALE> 4,008,852
<INVESTMENTS-CARRYING> 499,253
<INVESTMENTS-MARKET> 507,840
<LOANS> 16,668,674
<ALLOWANCE> (245,992)
<TOTAL-ASSETS> 25,772,411
<DEPOSITS> 17,043,075
<SHORT-TERM> 4,592,535
<LIABILITIES-OTHER> 698,733
<LONG-TERM> 1,127,262
0
0
<COMMON> 563,217
<OTHER-SE> 1,747,589
<TOTAL-LIABILITIES-AND-EQUITY> 25,772,411
<INTEREST-LOAN> 982,720
<INTEREST-INVEST> 223,234
<INTEREST-OTHER> 95,111
<INTEREST-TOTAL> 1,301,065
<INTEREST-DEPOSIT> 393,895
<INTEREST-EXPENSE> 621,672
<INTEREST-INCOME-NET> 679,393
<LOAN-LOSSES> 53,987
<SECURITIES-GAINS> 6,103
<EXPENSE-OTHER> 602,941
<INCOME-PRETAX> 406,596
<INCOME-PRE-EXTRAORDINARY> 261,178
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 261,178
<EPS-PRIMARY> 2.33<F1>
<EPS-DILUTED> 2.30<F2>
<YIELD-ACTUAL> 4.04
<LOANS-NON> 56,954
<LOANS-PAST> 51,143
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 68,500
<ALLOWANCE-OPEN> 281,394
<CHARGE-OFFS> 73,460
<RECOVERIES> 17,541
<ALLOWANCE-CLOSE> 245,992
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
<FN>
<F1>Basic EPS per Statement of Financial Accounting Standards No. 128
<F2>Diluted EPS per Statement of Financial Accounting Standards No. 128
</FN>
</TABLE>
