-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, AmZTpzvYN5t6ih1fuJtdankLqzSersJenDgUfSQrmL8guR/iUJIDvDOJbCmpl+oC La7etb+HPnprRY6voVoRRw== 0000916641-94-000131.txt : 19941117 0000916641-94-000131.hdr.sgml : 19941117 ACCESSION NUMBER: 0000916641-94-000131 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19941109 ITEM INFORMATION: Other events FILED AS OF DATE: 19941109 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: CRESTAR FINANCIAL CORP CENTRAL INDEX KEY: 0000101880 STANDARD INDUSTRIAL CLASSIFICATION: 6022 IRS NUMBER: 540722175 STATE OF INCORPORATION: VA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-07083 FILM NUMBER: 94558359 BUSINESS ADDRESS: STREET 1: 919 E MAIN ST STREET 2: PO BOX 26665 CITY: RICHMOND STATE: VA ZIP: 23261 BUSINESS PHONE: 8047825000 MAIL ADDRESS: STREET 1: 919 EAST MAIN STREET STREET 2: P O BOX 26665 CITY: RICHMOND STATE: VA ZIP: 23261-6665 FORMER COMPANY: FORMER CONFORMED NAME: UNITED VIRGINIA BANKSHARES INC DATE OF NAME CHANGE: 19871115 8-K 1 FORM 8-K SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ___________________ FORM 8-K CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Date of Report (Date of earliest event reported): November 9, 1994 CRESTAR FINANCIAL CORPORATION (Exact name of as specified in charter) Virginia 1-7083 54-0722175 (State or other (Commission (IRS Employer jurisdiction of File Number) Identification No.) incorporation) 919 East Main Street, P. O. Box 26665, Richmond, Virginia 23261-6665 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: 804-782-5000 Item 5. Other Events This Current Report on Form 8-K is being filed in order to file as an exhibit hereto Crestar Financial Corporation's consolidated financial statements for the nine months ended September 30, 1994. 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 Date: November 9, 1994 By: /s/ John C. Clark, III John C. Clark, III Senior Vice President, General Counsel and Secretary EXHIBIT INDEX 99.1 Consolidated financial statements for the nine months ended September 30, 1994 EX-99 2 FINANCIAL STATEMENTS Consolidated Balance Sheets Crestar Financial Corporation And Subsidiaries Dollars in thousands September December 31, Assets 1994 1993 1993 Cash and due from banks $ 690,992 $ 596,907 $ 716,652 Securities held to maturity (note 2) 944,626 1,964,061 1,824,617 Securities available for sale (note 3) 1,866,204 1,671,773 1,697,000 Money market investments (note 4) 1,327,457 687,389 650,633 Mortgage loans held for sale 334,281 434,743 591,233 Loans - net of unearned income (note 5): Commercial 2,708,714 2,426,268 2,608,069 Tax-exempt 207,799 251,312 230,852 Instalment 1,763,961 1,520,988 1,532,936 Bank card 1,224,093 777,480 976,200 Real estate 2,520,345 1,845,299 1,713,876 Construction 221,646 230,695 224,460 Foreign 1,313 232 729 Loans - net of unearned income of $1,465 and $3,610 at September 30, 1994 and 1993, respectively, and $2,988 at December 31, 1993 8,647,871 7,052,274 7,287,122 Less: Allowance for loan losses (note 6) (225,890) (212,982) (210,958) Loans - net 8,421,981 6,839,292 7,076,164 Premises and equipment - net 320,829 299,568 302,704 Customers' liability on acceptances 4,866 14,766 11,578 Intangible assets - net (note 7) 126,217 103,261 96,152 Foreclosed properties - net (notes 5 and 8) 23,644 34,699 16,951 Other assets 389,260 340,643 303,263 Total Assets $14,450,357 $12,987,102 $13,286,947 Liabilities Demand deposits $ 2,116,154 $ 2,062,467 $ 2,234,536 Interest checking deposits 1,865,839 1,662,185 1,791,100 Money market deposit accounts 2,367,640 2,256,712 2,214,537 Regular savings deposits 1,460,391 1,201,739 1,241,592 Money market certificates 620,819 561,186 538,869 Other domestic time deposits 2,487,926 2,145,945 2,097,448 Certificates of deposit $100,000 and over 67,352 43,666 45,914 Deposits in foreign offices - 1,782 1,782 Total deposits 10,986,121 9,935,682 10,165,778 Short-term borrowings (note 9) 1,905,049 1,506,682 1,616,743 Liability on acceptances 4,866 14,766 11,578 Other liabilities 218,998 244,498 239,215 Long-term debt (note 10) 218,564 190,559 191,156 Total Liabilities 13,333,598 11,892,187 12,224,470 Shareholders' Equity Preferred stock. Authorized 2,000,000 shares; issued and outstanding: Adjustable Rate Cumulative Series B, $50 stated value; 900,000 shares at September 30, 1993 - 45,000 - Common stock, $5 par value. Authorized 100,000,000 shares; outstanding 37,597,723 and 37,763,565 at September 30, 1994 and 1993, respectively, and 37,515,671 shares at December 31, 1993 187,989 188,818 187,578 Capital surplus 276,424 244,978 248,896 Retained earnings 683,133 616,119 626,003 Net unrealized loss on securities available for sale (note 15) (30,787) - - Total Shareholders' Equity 1,116,759 1,094,915 1,062,477 Total Liabilities And Shareholders' Equity $14,450,357 $12,987,102 $13,286,947
See accompanying notes to consolidated financial statements. Consolidated Statements Of Income Crestar Financial Corporation And Subsidiaries In thousands, except per share data Three Months Ended Sept. 30, Nine Months Ended Sept. 30, 1994 1993 1994 1993 Income From Earning Assets Interest and fees on loans $180,842 $146,760 $504,830 $426,925 Interest and dividends on taxable securities held to maturity 11,937 31,426 35,924 88,433 Interest on tax-exempt securities held to maturity 1,105 1,643 3,730 5,363 Interest and dividends on securities available for sale 31,352 22,299 102,470 62,807 Income on money market investments 9,047 4,436 19,854 19,775 Interest on mortgage loans held for sale 5,197 6,555 18,074 16,869 Total income from earning assets 239,480 213,119 684,882 620,172 Interest Expense Interest checking deposits 10,544 9,628 30,690 28,434 Money market deposit accounts 17,966 14,631 47,337 44,585 Regular savings deposits 10,177 8,299 27,891 22,950 Money market certificates 5,265 4,262 15,060 13,797 Other domestic time deposits 27,836 24,667 80,651 73,383 Certificates of deposit $100,000 and over 733 476 1,780 1,528 Deposits in foreign offices - 13 11 48 Total interest on deposits 72,521 61,976 203,420 184,725 Short-term borrowings 13,197 11,011 33,190 32,900 Long-term debt 4,484 4,486 13,399 13,494 Total interest expense 90,202 77,473 250,009 231,119 Net Interest Income 149,278 135,646 434,873 389,053 Provision for loan losses (note 6) 8,100 13,769 26,982 35,275 Net Credit Income 141,178 121,877 407,891 353,778 Noninterest Income Trust and investment advisory income 13,244 14,172 42,688 43,439 Service charges on deposit accounts 20,640 20,062 62,535 59,802 Bank card-related income 10,321 7,140 27,296 19,329 Other income 21,172 20,365 66,223 59,792 Securities gains (losses) 12 (385) (1,755) 2,237 Total noninterest income 65,389 61,354 196,987 184,599 Net Credit And Noninterest Income 206,567 183,231 604,878 538,377 Noninterest Expense Personnel costs 77,631 66,397 228,420 193,878 Occupancy expense - net 11,098 10,124 31,953 28,511 Equipment expense 6,370 6,232 18,367 18,428 Other expense 45,005 46,395 136,107 151,962 Total noninterest expense 140,104 129,148 414,847 392,779 Income Before Income Taxes 66,463 54,083 190,031 145,598 Income tax expense (note 11) 22,859 16,930 63,337 43,841 Net Income 43,604 37,153 126,694 101,757 Preferred dividend requirements - 618 - 1,856 Income Applicable To Common Shares $ 43,604 $ 36,535 $126,694 $ 99,901 Earnings Per Share (note 12): Primary $ 1.15 $ .96 $ 3.34 $ 2.67 Fully diluted 1.15 .96 3.34 2.67
See accompanying notes to consolidated financial statements. Consolidated Statements Of Cash Flows Crestar Financial Corporation And Subsidiaries In thousands Nine Months Ended Sept. 30, 1994 1993 Operating Net Income $ 126,694 $ 101,757 Activities Adjustments to reconcile net income to net cash provided (used) by operating activities: Provisions for loan losses, foreclosed properties and other losses 27,185 43,541 Depreciation and amortization of premises and equipment 24,541 23,734 Securities losses (gains) 1,755 (2,237) Amortization of intangible assets 11,320 14,716 Deferred income tax expense 664 2,712 Loss (gain) on foreclosed properties (856) 10,887 Gain on sale of mortgage servicing rights (14,132) (2,300) Net decrease (increase) in trading account 7,538 (209,454) Net decrease (increase) in loans held for sale 272,093 (67,508) Net decrease (increase) in accrued interest receivable, prepaid expenses and other assets 24,205 (36,227) Net increase (decrease) in accrued interest payable, accrued expenses and other liabilities (53,152) 28,909 Other, net 9,238 (2,414) Net cash provided (used) by operating activities 437,093 (93,884) Investing Proceeds from maturities and calls of securities held to maturity 204,142 516,205 Activities Proceeds from maturities and calls of securities available for sale 385,096 52,294 Proceeds from sales of securities available for sale 1,511,787 386,290 Purchases of securities held to maturity (562,311) (804,704) Purchases of securities available for sale (496,360) (528,498) Net decrease (increase) in money market investments (642,632) 710,347 Principal collected on non-bank subsidiary loans 8,942 17,885 Loans originated by non-bank subsidiaries (192,910) (71,436) Net decrease in other loans 2,998 173,579 Purchases of premises and equipment (28,115) (25,518) Proceeds from sales of foreclosed properties 30,623 53,029 Proceeds from sales of mortgage servicing rights 24,168 3,175 Aquisitions of net assets of financial institutions 23,703 26,419 Other, net (7,856) (6,844) Net cash provided by investing activities 261,275 502,223 Financing Net increase (decrease) in demand, interest checking, Activities money market and regular savings deposits (269,558) 80,232 Net increase (decrease) in short-term borrowings 82,098 (143,834) Net decrease in certificates of deposit (477,635) (405,994) Proceeds from issuance of long-term debt 158 - Principal payments on long-term debt (5,606) (70,695) Cash dividends paid (42,496) (31,643) Common stock purchased and retired (29,571) (4,346) Proceeds from the issuance of common stock 18,582 10,265 Net cash used by financing activities (724,028) (566,015) Cash and Decrease in cash and cash equivalents (25,660) (157,676) Cash Cash and cash equivalents at beginning of year 716,652 754,583 Equivalents Cash and cash equivalents at end of quarter $ 690,992 $ 596,907 Cash and cash equivalents consist of cash and due from banks. See accompanying notes to consolidated financial statements.
Consolidated Statements Of Changes In Shareholders' Equity Crestar Financial Corporation And Subsidiaries Dollars in thousands Shareholders' Equity Shares of Common Stock 1994 1993 1994 1993 Balance, July 1 $1,104,684 $1,066,225 37,717,023 37,720,229 Net Income 43,604 37,153 - - Cash dividends declared on: Preferred stock, Series B - (618) - - Common stock (15,092) (10,560) - - Change in valuation allowance for marketable equity securities - 639 - - Change in net unrealized loss on securities available for sale (note 15) (9,956) - - - Value of stock options issued for acquisition of financial institution - 694 - - Common stock purchased and retired (10,213) (1,267) (214,700) (30,000) Common stock issued: For dividend reinvestment plan 2,862 2,159 62,561 51,967 Upon exercise of stock options (including tax benefit of $154 in 1994 and $83 in 1993) 870 490 32,839 21,369 Balance, September 30 $1,116,759 $1,094,915 37,597,723 37,763,565 Balance, January 1 $1,062,477 $ 958,905 37,515,671 36,156,605 Net Income 126,694 101,757 - - Cash dividends declared on: Preferred stock, Series B - (1,856) - - Common stock (42,496) (29,786) - - Change in valuation allowance for marketable equity securities - 4,767 - - Cumulative effect of change in accounting for securities available for sale (note 15) 32,209 - - - Change in net unrealized gain on securities available for sale (note 15) (62,996) - - - Value of stock options issued for acquisition of financial institution - 694 - - Common stock purchased and retired (30,490) (4,346) (684,400) (115,000) Common stock issued: For acquisition of financial institutions 12,588 54,513 264,208 1,411,343 Upon conversion of debentures 113 2 12,210 216 For dividend reinvestment plan 8,279 6,384 185,928 165,786 For directors' stock compensation plan 78 - 1,859 - For thrift and profit sharing plan 4,993 - 115,770 - Upon exercise of stock options (including tax benefit of $1,022 in 1994 and $825 in 1993) 5,310 3,881 186,477 144,615 Balance, September 30 $1,116,759 $1,094,915 37,597,723 37,763,565
See accompanying notes to consolidated financial statements. 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 acquisitions, have been included. All adjustments are of a normal nature. Certain reclassifications have been made to the prior years' consolidated financial statements to conform to the 1994 presentation. The notes included herein should be read in conjunction with the notes to consolidated financial statements included in the Corporation's 1993 Annual Report and Form 10-K and in the Corporation's 1994 First Quarter and Second Quarter Form 10-Qs. On September 16, 1994, Crestar acquired from the Resolution Trust Corporation (RTC) approximately $17 million in deposits related to two branches of Second National Federal Savings Association, Salisbury, Maryland, located in Fairfax and Woodbridge, Virginia. In connection with this acquisition, Crestar paid a $112 thousand premium to the RTC. (2) Securities Held To Maturity The amortized cost (carrying values) and approximate market values of securities held to maturity at September 30 follow: In thousands 1994 1993 Amortized Market Amortized Market Cost Value Cost Value U.S. Treasury and Federal agencies $ 10,360 $ 10,146 $ 79,309 $ 79,577 Mortgage-backed obligations of Federal agencies 645,333 624,798 1,611,234 1,639,586 Other taxable securities 219,877 211,581 159,359 160,728 States and political subdivisions 69,056 69,276 90,465 93,749 Common and preferred stocks - - 23,694 23,694 Total securities held to maturity $944,626 $915,801 $1,964,061 $1,997,334
(3) Securities Available For Sale The amortized cost and approximate market values of securities available for sale at September 30 follow: In thousands 1994 1993 Amortized Market Amortized Market Cost Value Cost Value U.S. Treasury and Federal agencies $ 999,647 $ 978,776 $1,455,276 $1,497,804 Mortgage-backed obligations of Federal agencies 704,834 680,160 36,453 36,486 Other mortgage-backed obligations 152,666 149,834 180,044 181,248 Other taxable securities 5,622 5,598 - - Common and preferred stocks 51,677 51,836 - - Total securities available for sale $1,914,446 $1,866,204 $1,671,773 $1,715,538
At September 30, 1994, gross unrealized gains were $3.9 million and gross unrealized losses were $52.1 million for securities available for sale. The majority of U.S. Treasury and Federal agency securities mature within one to five years. The majority of mortgage-backed obligations have a stated maturity of over ten years. See note 15 for a discussion of accounting changes applicable to these securities. (4) Money Market Investments Money market investments at September 30 included: In thousands 1994 1993 Trading account securities $ 257 $229,348 Federal funds sold 738,580 148,900 Securities purchased under agreements to resell 586,000 50,000 Domestic time deposits 138 50,228 U.S. Treasury and other 2,482 208,913 Total money market investments $1,327,457 $687,389
(5) Nonperforming Assets Nonperforming assets at September 30 were: In thousands 1994 1993 Nonaccrual loans $62,934 $100,035 Restructured loans - 34 Total nonperforming loans 62,934 100,069 Foreclosed properties - net 23,644 34,699 Total nonperforming assets $86,578 $134,768
Non-cash additions to foreclosed properties were $9.7 million and $12.9 million in the first nine months of 1994 and 1993, respectively. (6) Allowance For Loan Losses Transactions in the allowance for loan losses for the three months and nine months ended September 30 were: In thousands Three Months Nine Months 1994 1993 1994 1993 Beginning balance $226,666 $212,981 $210,958 $205,017 Charge-offs (14,438) (20,357) (49,127) (64,244) Recoveries 5,583 6,589 21,390 14,934 Net charge-offs (8,855) (13,768) (27,737) (49,310) Provision for loan losses 8,100 13,769 26,982 35,275 Allowance from acquisitions - net (21) - 15,687 22,000 Net increase (decrease) (776) 1 14,932 7,965 Ending balance $225,890 $212,982 $225,890 $212,982
(7) Intangible Assets Intangible assets at September 30 included: In thousands 1994 1993 Goodwill and deposit base intangibles $107,466 $ 75,498 Mortgage servicing rights 18,156 24,803 Favorable lease rights 595 2,960 Total intangible assets $126,217 $103,261 (8) Allowance For Foreclosed Properties Transactions in the allowance for losses on foreclosed properties for the three months and nine months ended September 30 were: In thousands Three Months Nine Months 1994 1993 1994 1993 Beginning balance $9,166 $12,546 $ 5,574 $10,264 Write-downs (156) (1,402) (801) (8,666) Provision for foreclosed properties 979 - (323) 7,500 Allowance from acquisitions - - 5,539 2,046 Net increase (decrease) 823 (1,402) 4,415 880 Ending balance $9,989 $11,144 $ 9,989 $11,144
(9) Short-Term Borrowings Borrowings, exclusive of deposits, with maturities of less than one year at September 30 were: In thousands 1994 1993 Federal funds purchased $1,522,138 $ 438,665 Securities sold under repurchase agreements 231,368 813,631 Commercial paper 132 222 Notes payable 149,347 104,202 U.S. Treasury demand notes - 3,278 Other 2,064 146,684 Total short-term borrowings $1,905,049 $1,506,682 The Corporation paid $235,134,000 and $226,120,000 in interest on deposits and short-term borrowings in the first nine months of 1994 and 1993, respectively. (10) Long-Term Debt Long-term debt at September 30 included: In thousands 1994 1993 8 1/4% Subordinated notes due 2002 $125,000 $125,000 8 5/8% Subordinated notes due 1998 49,963 49,953 7 - 10 1/2% Mortgage indebtedness maturing through 2009 12,378 13,387 6 - 14% Capital lease obligations maturing through 2006 1,502 2,085 4 1/8 - 6 1/4% Federal Home Loan Bank obligations payable through 2008 11,109 - 4 3/4 - 9 1/2% Collateralized mortgage obligation bonds maturing through 2019 18,612 - 5% Convertible subordinated debentures due 1994 - 134 Total long-term debt $218,564 $190,559
The Corporation made payments of $15,126,000 and $15,431,000 in interest on long-term debt in the first nine months of 1994 and 1993, respectively. There were no new capital lease agreements in the third quarter of 1994. (11) Income Taxes The current and deferred components of income tax expense allocated to continuing operations in the accompanying consolidated statements of income for the three months and nine months ended September 30 were: In thousands Three Months Nine Months 1994 1993 1994 1993 Current: Federal $23,986 $15,529 $61,171 $42,083 State and local 620 (81) 1,502 (954) Total current tax expense 24,606 15,448 62,673 41,129 Deferred: Federal (1,609) 1,125 489 3,269 State and local (138) 357 175 (557) Total deferred tax expense (benefit) (1,747) 1,482 664 2,712 Total income tax expense $22,859 $16,930 $63,337 $43,841
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: Dollars in thousands Three Months Nine Months 1994 1993 1994 1993 Income before income taxes $66,463 $54,083 $190,031 $145,598 Tax expense at statutory rate 23,262 18,929 66,511 50,959 Increase (decrease) in taxes resulting from: Tax-exempt interest and dividends (1,861) (2,053) (5,419) (6,511) Nondeductible interest expense 119 126 331 417 Amortization of goodwill 827 297 1,333 796 State income taxes 314 (180) 1,090 (10) Adoption of new accounting standard - - - (540) Deferred tax effect of tax rate change - (1,557) - (1,557) Other - net 198 1,368 (509) 287 Total decrease in taxes (403) (1,999) (3,174) (7,118) Total income tax expense $22,859 $16,930 $ 63,337 $ 43,841 Effective tax rate 34.4% 31.3% 33.3% 30.1%
The Corporation made income tax payments of $56,405,000 and $43,286,000 during the first nine months of 1994 and 1993, respectively. At September 30, 1994, the Corporation had a net deferred tax asset of $99,430,000. There was no valuation allowance relating to the tax asset. Crestar has sufficient taxable income in the available carryback periods and future taxable income from reversing taxable differences to realize its deferred tax assets. Management believes, based on the Corporation's history of generating significant earnings and expectations of future earnings, that it is more likely than not that all recorded deferred tax assets will be realized. (12) Earnings Per Share Average common and common equivalent shares used in the determination of earnings per share for the three months and nine months ended September 30 were: In thousands Three Months Nine Months 1994 1993 1994 1993 Primary 38,063 38,154 37,933 37,429 Plus assumed conversion of debentures - 14 - 15 Other - 6 20 36 Fully diluted 38,063 38,174 37,953 37,480
Primary earnings per share are computed by dividing net income applicable to common shares by the weighted average number of common shares outstanding during the period, including average common equivalent shares attributable to dilutive stock options. Fully diluted earnings per common share are computed using average common shares, including the maximum dilutive effect of average common equivalent shares, increased by the number of shares that would result from assuming that the 5% convertible subordinated debentures were converted into common stock at the beginning of the applicable period and using net income increased by interest and amortization of debt issuance expense, net of tax effect, relating to those debentures. Net income for 1993 is further reduced by the dividends applicable to the Series B preferred stock. The following table provides the net adjustment to net income: In thousands Three Months Nine Months 1994 1993 1994 1993 Interest and amortization of debt issuance expense $ - $ 2 $ 2 $ 5 Tax effect - (1) (1) (2) Preferred dividends, Series B - (618) - (1,856) Net adjustment to net income $ - $(617) $ 1 $(1,853)
In the first nine months of 1994 and 1993, $113,000 and $2,000 of subordinated debentures were converted into 12,210 and 216 shares of common stock, respectively. (13) Condensed Crestar Financial Corporation (Parent) Information The following shows the Parent's Condensed Balance Sheets at September 30: In thousands 1994 1993 Cash in banks $ 40,765 $ 32,975 Securities held to maturity 11,569 12,240 Securities available for sale 34,164 - Money market investments 4,973 94,835 Securities purchased under agreements to resell 97,521 50,000 Notes receivable from subsidiaries 175,000 176,000 Investments in subsidiaries: Bank subsidiaries 1,121,887 1,042,732 Non-bank subsidiaries 7,822 7,798 Other assets 12,406 12,597 Total Assets $1,506,107 $1,429,177 Commercial paper $ 132 $ 222 Master notes 149,347 104,203 Securities sold to subsidiary under repurchase agreements 2,653 3,574 Other liabilities 62,253 51,176 Long-term debt 174,963 175,087 Total shareholders' equity 1,116,759 1,094,915 Total Liabilities and Shareholders' Equity $1,506,107 $1,429,177
The Parent's Condensed Statements of Income for the three months and nine months ended September 30 were: In thousands Three Months Nine Months 1994 1993 1994 1993 Cash dividends from bank subsidiaries $16,595 $12,462 $ 53,705 $ 33,676 Interest from subsidiaries 3,668 3,687 10,947 10,965 Interest on securities held to maturity and available for sale 417 236 859 1,339 Income on money market investments 61 715 332 1,338 Interest on securities purchased under agreements to resell 1,196 527 3,107 2,254 Other income 1 - 134 41 Securities losses (145) (365) (145) (1,859) Total income 21,793 17,262 68,939 47,754 Interest on short-term borrowings 1,353 749 3,010 2,080 Interest on long-term debt 3,659 4,030 10,976 12,100 Other expense 389 350 1,931 952 Total expense 5,401 5,129 15,917 15,132 Income before income taxes and equity in undistributed net income of subsidiaries 16,392 12,133 53,022 32,622 Income tax benefit (235) (130) (601) (1,568) Income before equity in undistributed net income of subsidiaries 16,627 12,263 53,623 34,190 Equity in undistributed net income of subsidiaries 26,977 24,890 73,071 67,567 Net Income $43,604 $37,153 $126,694 $101,757
(14) Commitments and Contingencies In the normal course of business, there are outstanding commitments and contingent liabilities and other financial instruments that are not reflected in the accompanying consolidated financial statements. These include commitments to extend credit, standby letters of credit, interest rate caps, floors and collars, interest rate swaps, and forward contracts. No material losses are expected to result from these transactions. Commercial lines of credit are established for a potential borrower as an indication of the aggregate amount of outstanding loans that the banks are willing to extend. Sometimes these lines of credit are supported by balances left on deposit, investment securities, real estate or inventory. Loan advances made under such lines usually do not extend beyond the borrower's fiscal year. Such advances are normally given for working capital purposes and require repayment within twelve months. Formal long-term commitments are made under legal and binding agreements for which the borrower pays a commitment fee. These agreements typically contain clauses that permit cancellation of the commitment in the event of credit deterioration of the borrower. Crestar's outstanding standby letters of credit amounted to approximately $380.0 million at September 30, 1994 and $402.6 million at September 30, 1993. At September 30, 1994, approximately $23.9 million of these standby letters of credit were participated to other financial institutions. The Corporation services mortgage loans other than those included in the accompanying consolidated financial statements and, in some cases, accepts a recourse liability on the serviced loans. At September 30, 1994, Crestar serviced a total of $849.4 million of loans for which it had accepted a recourse liability. Of this amount, approximately $496.1 million was insured by agencies of the Federal government or private insurance companies. In addition, at September 30, 1994, Crestar had forward contracts totaling $331.9 million outstanding as hedges of lending commitments. As a financial institution, Crestar entails a degree of interest rate risk as a provider of banking services to its customers. This risk can be managed through derivative interest rate contracts, such as interest rate swaps, caps and floors. Changes in the fair value of such derivatives are generally offset by changes in the implied fair value of the underlying hedged asset or liability. As hedges against interest rate risk at September 30, 1994, Crestar was participating in interest rate (fixed receive) swaps having a notional value of $1.64 billion. Of these interest rate swaps, $1.48 billion were used to convert certain variable rate commercial and real estate loans to fixed rates, and $150 million were used to convert variable rate securities to fixed rates. An additional $10 million in interest rate swaps were used to convert specifically identified time deposits to variable rates in order to lock in a spread on the variable rate assets which they fund. Notional balances of $876.2 million of the above swaps were indexed amortizing swaps, whose notional value amortizes more slowly as rates rise. Unrealized gains and unrealized losses on interest rate swap contracts utilized as hedges were $2.2 million and $63.8 million, respectively, as of September 30, 1994. Crestar also had a notional amount outstanding of $200 million of interest rate floor agreements on September 30, 1994 to minimize interest rate risk associated with variable rate assets. Unrealized gains on these floor agreements approximated $58,000 as of September 30, 1994. The notional amount of these over-the-counter traded interest rate swaps and floors does not represent Crestar's credit exposure, which the Corporation believes is a combination of current replacement cost plus an amount for additional market movement. At September 30, 1994, such estimated credit exposure was $33.5 million. Four counterparties constituted 30%, 18%, 13% and 10% of the estimated credit exposure at September 30, 1994; no other counterparties represented 10% or more of the estimated credit exposure at September 30, 1994. The average expected maturity at September 30, 1994 was 1.6 years for interest rate swaps and 0.3 years for interest rate floors used by Crestar as hedge instruments. The average fixed rate for these swaps was 5.88%. The interest rate floors used by Crestar as hedges against interest rate risk are tied to the London Inter-Bank Offered Rate (LIBOR). The average strike rate at September 30, 1994 for these interest rate floors was 5.50%. Crestar serves as a financial intermediary in interest rate swap, cap, floor and collar agreements, and at September 30, 1994 had aggregate notional amounts outstanding of $148.9 million in offsetting swap, $73.1 million in offsetting cap, $57.6 million in offsetting floor, and $52.5 million in offsetting collar agreements. Certain litigation is pending against Crestar. Management, after reviewing this litigation with legal counsel, is of the opinion that these matters, when resolved, will not have a material effect on the accompanying consolidated financial statements. (15) New Accounting Standards Effective January 1, 1994, Crestar adopted Statement of Financial Accounting Standards No. 115 (SFAS 115), "Accounting for Certain Investments in Debt and Equity Securities." In accordance with SFAS 115, securities are classified as either securities held to maturity, securities available for sale or trading account securities. Securities held to maturity are carried at amortized cost, as the Corporation has the ability and positive intent to hold these securities to maturity. Trading account securities are carried at fair value as they are intended to be sold in the near term: trading securities are classified as money market investments on the Corporation's Consolidated Balance Sheets. Securities available for sale are carried at fair value and represent securities not classified as held to maturity or as trading account securities. With the adoption of SFAS 115, unrealized holding gains and losses on securities available for sale are excluded from the Consolidated Statements of Income and reported, net of tax, as a separate component of shareholders' equity. On January 1, 1994, securities having an amortized cost of $2.932 billion, and a fair value of $2.983 billion, were classified as securities available for sale. The initial effect of adoption of SFAS 115 was an increase in shareholders' equity of $32.2 million, which was the amount, net of tax, by which the fair value of securities available for sale exceeded the amortized cost of such securities on January 1, 1994. At September 30, 1994, on an after-tax basis, the amortized cost of securities available for sale exceeded the fair value of such securities by $30.8 million. The net unrealized gain or loss of securities available for sale, which is recorded as a component of shareholders' equity, will continue to be subject to change in future periods due to fluctuations in market value, acquisition activities, and sales, purchases, maturities and calls of securities classified as available for sale. In accordance with SFAS 115, the Corporation's consolidated financial statements for periods prior to January 1, 1994 have not been retroactively changed to conform to current securities classifications. Prior to January 1, 1994, investment securities which management intended to sell as a part of its asset/liability management strategy, or that may have been sold in response to changes in interest rates, prepayment risk or other similar factors, were classified as securities held for sale, and were stated at the lower of aggregate amortized cost or market value. All other investment securities were accounted for in a manner similar to securities held to maturity or trading account securities. Statement of Financial Accounting Standards No. 112 (SFAS 112), "Employers' Accounting for Postemployment Benefits," was adopted by Crestar on January 1, 1994. Under SFAS 112, benefits provided to inactive or former employees before retirement are accrued during the period of active employment, rather than being expensed as paid. For Crestar, such benefits consist principally of short-term disability benefits. Adoption of SFAS 112 resulted in a pre-tax charge to employee benefit expense of $1.8 million in the first quarter of 1994. Postemployment benefits expense for periods prior to January 1, 1994 has not been restated. -----END PRIVACY-ENHANCED MESSAGE-----