-----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, ADEiA+WtRn9Q7HbjwNVhaj7J0CSVFaiOuHrTMfrfsKjnO2etwd/EdwWy0FZo0Y6j cLHdhBsPIvq8Id9rdZEzOw== 0000916641-94-000142.txt : 19941116 0000916641-94-000142.hdr.sgml : 19941116 ACCESSION NUMBER: 0000916641-94-000142 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19940930 FILED AS OF DATE: 19941114 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: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-07083 FILM NUMBER: 94559615 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 10-Q 1 FORM 10-Q 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, 1994 ( ) 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, 1994 Common Stock, $5 par value 37,441,995 1 Crestar Financial Corporation And Subsidiaries Form 10-Q For The Quarter Ended September 30, 1994 Part I. Financial Information Item 1. Financial Statements: Page Consolidated Balance Sheets 3 Consolidated Statements Of Income 4 Consolidated Statements Of Cash Flows 5 Consolidated Statements Of Changes In Shareholders' Equity 6 Notes To Consolidated Financial Statements 7-14 Item 2. Management's Discussion And Analysis Of Financial Condition And Results Of Operations: Financial Commentary 15-30 Part II. Other Information Item 6. Exhibits And Reports On Form 8-K: There was one report on Form 8-K filed during the three months ended September 30, 1994. Financial information relating to Jefferson Savings and Loan Association, F.A. (Jefferson) was included in a Form 8-K filed on September 23, 1994. The Form 8-K was filed solely to permit incorporation by reference of the financial information into a registration statement on Form S-4, filed October 6, 1994, relating to the pending acquisition of Jefferson by Crestar Financial Corporation. 2 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. 3 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. 4 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.
5 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. 6 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. 7 (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 (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. 9 (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. 10 (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. 11 (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
12 (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. 13 (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. (16) Subsequent Event On November 9, 1994, Crestar announced the sale of $150 million of 8 3/4% subordinated notes due November 15, 2004. Net of underwriting discounts, the notes will result in net proceeds to the Corporation of $148.6 million. Proceeds from the sale of the notes will be used for general corporate purposes, including cash requirements for pending acquisitions. 14 Financial Commentary Crestar Financial Corporation And Subsidiaries Overview (Tables 1, 2 and 14) Crestar Financial Corporation (Crestar) reported record earnings of $43.6 million for the quarter ended September 30, 1994, an increase of 17% from the $37.2 million earned in third quarter 1993. For the first nine months, earnings were $126.7 million in 1994, an increase of 25% from the $101.8 million in 1993. These increases reflected the continued positive effects of growth in net interest income and noninterest income and continuing improvement in credit quality. Earnings per share were $1.15 for the third quarter of 1994 compared with $.96 in 1993. For the first nine months of the year, earnings per share were $3.34 for 1994, an increase of 25% from the $2.67 per share recorded in the first nine months of 1993. The predominant items affecting the change in earnings per share are given in Table 2. Each applicable item is net of applicable federal income taxes. Mergers And Acquisitions During the third quarter, Crestar announced its intention to acquire three Virginia-based financial institutions, in separate transactions which are expected to be completed by the end of the first quarter of 1995. Each of the three pending acquisitions is subject to receipt of regulatory approvals, in addition to shareholder approvals from the institutions being purchased. In August, Crestar announced its intention to acquire Independent Bank (Independent), headquartered in Manassas, Virginia. Independent has four branches in Prince William County, with total assets of approximately $93 million and total deposits of approximately $85 million. The purchase of Independent will be for a combination of cash and Crestar stock with a value of approximately $12 million, and will strengthen Crestar's current market presence in Prince William County. In September, Crestar announced a definitive agreement to acquire Jefferson Savings and Loan Association, F.A. (Jefferson), a Warrenton based thrift institution. Jefferson has eight branches, approximately $265 million in deposits and approximately $300 million in total assets. The acquisition is for a combination of cash and Crestar stock valued at approximately $22 million. The acquisition will represent Crestar's first operations in Warrenton, Culpeper, Front Royal and Luray, and further strengthen Crestar's market position in Charlottesville and Loudon County. Also in September, Crestar entered into a binding letter agreement with TideMark Bancorp Inc. (TideMark) of Newport News, Virginia, providing for the purchase of TideMark and its subsidiary, TideMark Bank, F.S.B. TideMark has nine branches in the Hampton Roads metropolitan area, and a branch in Kilmarnock which is expected to be sold by TideMark before the Crestar acquisition. TideMark had previously entered into an agreement to acquire eight branches from Bay Savings Bank, a division of FirstFed Michigan Corp., which is expected to be completed by year-end. Crestar's acquisition of TideMark will initially bring to Crestar approximately $300 million in deposits and $450 million in assets. The acquisition is for a combination of cash and Crestar stock with a combined value of approximately $38 million. Crestar completed one acquisition during the third quarter of this year. On September 16, 1994, Crestar Bank acquired from the Resolution Trust Corporation (RTC) approximately $17 million in deposits related to two branches, located in Fairfax and Woodbridge, Virginia, of Second National Federal Savings Association of Salisbury, Maryland. The acquisition had no material impact on third quarter operations. Financial statement note 1 contains additional information concerning acquisitions. Profitability Measures And Capital Resources (Table 1) Increased earnings in both the third quarter and the first nine months of 1994 resulted in improvements in key profitability measures over 1993. Return on average assets was 1.26% for the third quarter and 1.24% for the first nine months of 1994, compared to 1.15% and 1.09%, respectively, for 1993. Return on average equity and return on average common equity were both 15.70% for the third quarter, up from 13.84% and 14.20%, respectively, for the third quarter of 1993. Return on average equity and return on average common equity for the first nine months of 1994 were both 15.44%, up from 13.29% and 13.65%, respectively, for the first nine months of 1993. Average equity to assets of 8.02% for third quarter 1994 decreased 32 basis points from 8.34% in third quarter 1993, and average equity to assets of 8.04% for the first nine months was down 15 basis points from 8.19% in 1993, reflecting in part the net impact of acquisitions and Crestar's common stock repurchase program. Period-end equity to assets of 7.73% at September 30, 1994 was 70 basis points below the 8.43% in 1993, also reflecting an increase in period-end assets as a result of completed acquisitions and the impact of a net unrealized loss on securities available for sale included in Crestar's shareholders' equity. At June 30, 1994, Crestar's equity to assets ratio was 7.71%. Crestar's consolidated Tier 1 risk-adjusted capital ratio was 9.6% and total risk-based capital was 12.2% at September 30, 1994, well above the required minimums of 4.0% and 8.0%, respectively. The Tier 1 leverage ratio of 7.7% at September 30, 1994 also was well above the regulatory minimum of 3%. Crestar's tangible leverage ratio, defined as total 15 equity less all intangibles divided by total assets less all intangibles, was 6.9% at September 30, 1994. Each of Crestar's three subsidiary banks continued to be "well capitalized" as of September 30, 1994, the highest level of capitalization defined by the Federal Deposit Insurance Corporation for purposes of determining deposit insurance rates. Net Interest Margin And Net Interest Income (Tables 3 and 15) Crestar's third quarter 1994 net interest margin of 4.82% improved five basis points from 4.77% in the third quarter of 1993. This increase reflects favorable changes in the composition and yield of balance sheet earning assets, which offset both higher rates paid on deposits and declines in interest income arising from off-balance sheet hedge transactions. Changes in the earning asset mix increased the third quarter 1994 net interest margin by approximately 15 basis points, fueled by growth in loans. Average bank card loans increased $437 million, or 59%, to $1.2 billion in third quarter 1994. Average real estate loans were up 35%, or $656 million, from third quarter 1993. Also, average instalment loans and commercial loans grew 16% and 9%, respectively, during this period. As a percentage of average total earning assets, average loans increased from 61% in third quarter 1993 to 68% for third quarter 1994. On the funding side, the proportion of lower-cost sources increased due to growth in deposits. Average total deposits for third quarter 1994 increased $1.2 billion to $11.1 billion, a 12% increase over third quarter 1993 balances. Average short-term borrowings were down 20% from third quarter 1993 balances, reflecting Crestar's growth in deposits. These changes to Crestar's funding mix had a positive impact of two basis points on third quarter 1994 net interest margin when compared to third quarter 1993. The yield on average loans increased nine basis points from third quarter 1993, as higher yields on commercial, tax-exempt and construction loans offset declines in average rates on credit card, instalment and real estate loans. Higher rates on securities available for sale, which earned 6.38% in third quarter 1994 versus 5.25% in the same period of 1993, were partially offset by lower yields on securities classified as held to maturity, which were 6.84% during third quarter 1993 and 5.66% in third quarter 1994. Yields on money market investments were 80 basis points higher, as the average yield increased from 3.80% in third quarter 1993 to 4.60% in third quarter 1994. Reflecting the higher rate environment, the average rate paid on savings and time deposits increased 12 basis points, rising from 3.11% in third quarter 1993 to 3.23% in third quarter 1994. In total, interest rate spreads had a marginally positive impact (one basis point) on third quarter 1994 net interest margin, versus third quarter 1993. Decreased levels of nonperforming assets in the third quarter of 1994 had a favorable impact on the net interest margin of approximately four basis points when compared to third quarter results for 1993. This was offset by a 17 basis point decline in the favorable impact on the net interest margin, for the same time period, arising from off-balance sheet hedge transactions. The extent to which Crestar will be able to maintain the 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. As a result of the increase in the net interest margin and an eight percent increase in average earning assets, reported net interest income for third quarter 1994 increased 10% over 1993, with tax-equivalent net interest income also registering a 10% increase. For the first nine months, tax equivalent net interest income increased 11% over 1993 as a result of a 10% increase in average earning assets and a six basis point increase in net interest margin. Factors contributing to the increased year-to-date margin include many of the factors previously mentioned. Positive changes to the earning assets mix for the year-to-date period had a favorable impact of 21 basis points, primarily attributable to loan growth. Improvements in funding mix, led by higher levels of core deposits, aided the year-to-date net interest margin by four basis points. These positive factors helped to offset a 12 basis point negative impact arising from changes in yields on earning assets and their funding sources. For the first nine months of 1994, the yield on the Crestar's loan portfolio was 8.39%, compared to 8.58% for the same period in 1993. During this same time period, average rates paid on total interest bearing liabilities fell only three basis points. Maturities of high yielding fixed rate securities contributed to the decline in earning asset yields in the first nine months of 1994. Reduced nonperforming assets had a favorable impact of five basis points on Crestar's year-to-date net interest margin, while declining levels of favorable off-balance sheet hedge transactions had a negative impact of 12 basis points. Risk Exposures And Credit Quality (Tables 4-10) In addition to other loan categories, Crestar closely manages its portfolio of loans to real estate developers and investors (REDI). Table 5 shows the property type and geographic diversification of the current REDI loan portfolio. The REDI portfolio was the primary source of weaker credit quality for the recessionary period from 1990 into 1993. As detailed in Table 4, despite additions to REDI loans caused by acquisitions of financial institutions, REDI outstandings declined to $1.1 billion or 13% of total loans at September 30, 1994 compared with $1.2 16 billion or 17% of total loans at September 30, 1993. REDI nonperforming assets were $56.4 million at September 30, 1994, compared to $79.8 million at September 30, 1993. Continued improvement in credit quality throughout the entire portfolio was evident in third quarter 1994 levels of provision for loan losses, charge-offs and nonperforming assets. The provision for loan losses of $8.1 million for third quarter 1994 declined 41% from the $13.8 million provision for third quarter 1993. Nine month year-to-date provision expense was down 24%, from $35.3 million in 1993 to $27.0 million in 1994. Net charge-offs of $8.9 million for third quarter 1994 declined 36% from 1993. For the first nine months of 1994, net charge-offs were down 44% to $27.7 million. With improvements in commercial and REDI loan net charge-off levels, the largest proportion of net charge-offs during 1994 has occurred in the bank card loan portfolio. For the three and nine month periods ended September 30, 1994, net charge-offs for bank card loans were $6.0 million and $16.3 million, respectively. Net charge-offs for bank card loans for the three and nine month periods ended September 30, 1993 were $4.0 million and $12.3 million, respectively. This increase in bank card net charge-offs is attributable to growth in the bank card loan portfolio, as bank card net charge-offs as a percentage of bank card average balances have improved during 1994. For the nine months ended September 30, 1994, the annualized ratio of bank card net charge-offs to bank card loan average balances was 2.02%; the ratio for the comparable period of 1993 was 2.53%. Current expectations are that net charge-offs for the full year of 1994 will be less than in 1993. The allowance for loan losses was $226 million at September 30, 1994, representing 2.61% of period-end loans. Based on portfolio characteristics and market conditions, management considers the level of the allowance adequate. Total nonperforming assets of $87 million at September 30, 1994 declined 36% from the $135 million reported at September 30, 1993, and were down $16 million or 15% from June 30, 1994. During the first nine months of 1994, nonperforming assets of $34 million were acquired through merger activity. Tables 9 and 10 provide details of how nonperforming loans and foreclosed properties have changed on a quarterly basis since third quarter 1993. Barring merger activity or an unexpected deterioration in the economy and in the Corporation's real estate markets, total nonperforming assets are expected to decrease during the remainder of 1994. Potential problem loans consist of loans that are currently performing in accordance with contractual terms but for which potential operating or financial concerns have caused management to have serious doubts regarding the ability of such obligors to continue to comply with present repayment terms. At September 30, 1994, potential problem loans, not included in Table 8, amounted to approximately $144 million compared with $224 million at September 30, 1993 and $205 million at December 31, 1993. Noninterest Income And Expense (Table 11) Noninterest income totaled $65.4 million in third quarter 1994, a $4.0 million or 7% increase over third quarter 1993. For the first nine months of 1994, noninterest income of $197.0 million increased 7% over 1993 results. Excluding securities gains (losses), noninterest income increased 6% in the third quarter of 1994, and 9% in the first nine months of 1994, when compared to prior year results. Both the quarter and year-to-date increases reflect growth in bank card-related fee income, mortgage servicing income and servicing sales, and service charges on deposit accounts, partially offset by a decline in trading account activities and price competition in trust and investment advisory services. Noninterest expense for the third quarter increased 8%, or $11.0 million, when compared to third quarter 1993 results. For the nine months ended September 30, noninterest expense for 1994 was up 6% in comparison to 1993. These results include a dramatic decline in Crestar's foreclosed properties expense in the current year, reflecting an improved credit environment in Crestar's market area. Excluding foreclosed properties expense, noninterest expense increased 12% in third quarter 1994 and 14% in the first nine months of 1994, largely due to acquisition expenses and costs incurred in servicing and fee-based businesses such as mortgage, bank card, investment banking and sales, and trust and investment advisory services. For the year-to-date period ended September 30, 1994, noninterest expense excluding foreclosed property expenses increased $52.3 million over the same period of 1993. Expenses attributable to acquisitions completed during the first nine months of 1994 were approximately $16.9 million, representing 32% of this increase. Expense increases in the mortgage, bank card, trust and investment advisory, and investment banking and sales groups amounted to approximately $19.1 million year-to-date, as Crestar continues its emphasis on expanding its sources of noninterest income. Employee benefits expense increased $3.6 million for the quarter and $11.3 million year-to-date, primarily due to the aforementioned acquisition activity, adoption of Statement on Financial Accounting Standards No. 112 (postemployment benefits), and to employee benefits that are tied to earnings. Foreclosed properties expense for third quarter 1994 and the first nine months declined $3.8 million or 82% and $30.2 million or 95%, respectively, from 1993. Foreclosed properties, net of reserves, were $23.6 million at September 30, 1994, versus $34.7 million at September 30, 1993. 17 The effective tax rate for third quarter 1994 and the first nine months was 34.4% and 33.3%, respectively, compared to 31.3% and 30.1% for the same periods of 1993. Both the quarterly and year-to-date increase in the effective tax rate are primarily attributable to reduced proportions of tax-exempt interest and dividends, higher provisions for state income taxes, and a favorable deferred tax adjustment, recorded in the third quarter of 1993, reflecting an increase in net deferred tax assets due to provisions of the Omnibus Budget Reconciliation Act of 1993. Financial statement note 11 contains additional information concerning income taxes. Financial Condition (Table 12) Crestar's assets totaled $14.5 billion at September 30, 1994, up 9% from $13.3 billion at December 31, 1993 primarily due to acquisitions completed during 1994. Loans net of unearned income increased $1.4 billion or 19% during this period, reflecting growth from a combination of acquisitions and internally generated lending. Total deposits increased $0.8 billion or 8% over December 31, 1993 balances, reflecting the impact of Crestar's acquisitions during the first nine months of 1994. Average loan balances for third quarter 1994 increased $1.5 billion, or 21%, over third quarter 1993 balances. Of this increase, approximately $0.8 billion was attributable to acquisitions completed during 1994. Similarly, average deposits for third quarter 1994 increased $1.2 billion, or 12%, over the same period of 1993. Acquisitions during 1994 contributed approximately $0.9 billion to this average total deposit growth. With respect to the securities held to maturity portfolio, carrying value exceeded the market value at September 30, 1994 by $28.8 million, consisting of $2.9 million in unrealized gains and $31.7 million in unrealized losses. At September 30, 1994, the amortized cost of securities available for sale exceeded the fair value of such securities by $48.2 million, consisting of $3.9 million in unrealized gains and $52.1 million in unrealized losses. On January 1, 1994, Crestar adopted Statement of Financial Accounting Standards Board No. 115, "Accounting for Certain Investments in Debt and Equity Securities" (SFAS 115). Upon adoption of SFAS 115, certain investment securities totaling $1.2 billion were reclassified from investment securities to securities available for sale. Shareholders' equity at September 30, 1994 reflects a $30.8 million reduction for the excess, net of tax, of amortized cost of securities available for sale over the fair value at quarter-end, as prescribed by SFAS 115. 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. Crestar purchased and retired 214,700 shares of common stock during third quarter 1994, to meet the needs of employee benefit plans, dividend reinvestment plans, and for shares expected to be issued for pending acquisitions. For the nine month period ended September 30, 1994, 684,400 shares of common stock have been purchased and retired, at an average price of $44.55. Debt ratings are presented in Table 12. In October 1994, Standard & Poor's raised its rating on Crestar's subordinated notes from BBB to BBB+. In its announcement, Standard & Poor's cited Crestar's strong financial condition, a continuing trend of profitability, strong market position and a logical and prudent acquisition strategy as reasons for the rating upgrade. Liquidity And Interest Sensitivity (Table 13) 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 investments, and the ability to generate new deposits or borrowings as needed. Core deposits provide a typically stable source of liquidity. Interest-bearing core deposits represented 83% of total funding sources at September 30, 1994. As an additional indication of strong liquidity, money market investments represented 10%, and securities available for sale represented 14%, of Crestar's total earning assets at September 30, 1994. Interest sensitivity refers to the volatility of net interest income as a result of changes in interest rates. Crestar's goal is to limit interest rate exposure to prudent levels as determined by the Corporation's Asset/Liability Management Committee (ALCO). ALCO establishes limits on the earnings at risk for a twenty-four month period. The level of exposure taken is based on an assessment of the market environment, and will vary from period to period. The primary tool used by ALCO in assessing interest rate exposure is net interest income simulations. A two year net interest income estimate is prepared regularly using a "most likely," high and low interest rate scenario. The high and low rate scenarios are based upon an assessment of the historic volatility of interest rates. The expected dynamics of the balance sheet, including shifts in loans and deposits, are included in the simulations. By its nature, this simulation process includes numerous assumptions, for both long-term and short-term timeframes, including assumptions on average balances and yields. Many of these assumptions are both qualitative and subjective. The high rate and low rate estimates generated by this process are then compared to the 18 "most likely" scenario. Crestar's current projection of pre-tax earnings at risk, as a percentage of the next twenty-four month's net interest income under a "most likely" scenario, is 0.9% for a high interest rate scenario and 3.6% for a falling interest rate scenario. This earnings at risk percentage does not consider discretionary actions, including hedging activity, that may be entered into to manage future earnings volatility. A second interest sensitivity tool is the quantification of market value changes for all assets and liabilities given an increase or decrease in interest rates. This approach provides a longer term view of interest rate risk, capturing predominantly all expected future cash flows. Assets and liabilities with option characteristics are valued based on numerous interest rate path valuations using Monte Carlo rate simulation techniques. The banking industry and its regulators are moving toward a market value method of interest sensitivity assessment. Crestar has been developing this tool and is incorporating it as another component of interest rate risk management to supplement the results achieved through net interest income simulation. Another interest rate risk tool used by Crestar is the interest rate "gap," or mismatch in repricing between interest-sensitive assets and liabilities, which provides a general indication of interest sensitivity at a specific point in time. A gap schedule is shown in Table 13, and reflects the earlier of the maturity or repricing date for various assets and liabilities at September 30, 1994. Financial statement note 14 contains additional information about certain off-balance sheet arrangements that may affect future net interest income and interest rate sensitivity. On a cumulative six-month basis, Crestar had a liability sensitive "static gap" at September 30, 1994 with $3.3 billion excess of interest-sensitive sources of funds over uses of funds. In addition to the traditional "static gap" presentation, the table also presents interest sensitivity on an adjusted basis. The first of these adjustments is made through the use of beta factors, which are based on a ratio of actual changes in consumer deposit rates to changes in the prime rate during interest rate cycles for the last several years. Essentially, the beta factors recognize that certain consumer deposit rates are less interest-sensitive than market-based rates such as commercial paper. In addition to a beta adjustment, the table also incorporates an adjustment to reflect the sensitivity of much of the Corporation's commercial demand deposit balances to the level of interest rates. On a cumulative six-month basis, Crestar had a liability sensitive "adjusted gap" at September 30, 1994, with $645 million excess of interest-sensitive sources of funds over uses of funds. The static gap and adjusted gap do not include $200 million in interest rate floors which Crestar has added to potentially offset the effect that falling interest rates would have on $200 million of variable rate loans. Each of the above three tools used to assess risk have strengths and weaknesses. While Crestar believes that the above methodologies provide a meaningful representation of the Corporation's interest rate sensitivity, the methodologies do not necessarily take into account all business developments which can have an impact on net interest income, such as changes in credit quality or changes in the amount and composition of earning assets and sources of funds. As noted, Crestar entails 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. The majority of Crestar's notional value of outstanding derivative instruments at September 30, 1994 are utilized to convert certain variable rate assets to fixed rates in order to lock in a profitable interest spread based on the underlying fixed rate funding sources. Footnote 14 of the financial statements provides additional information regarding Crestar's outstanding derivative contracts as of September 30, 1994, including notional balances and fair value information. The notional amount of derivative contracts does not represent direct credit exposure. Crestar's direct credit exposure is generally limited to the estimated replacement cost of those instruments in a gain position. Crestar has established policies governing derivative activities, and may demand collateral from a counterparty to further minimize credit risk. Counterparties used by Crestar are considered high quality credits. There were no past due amounts or reserves for possible derivative credit losses at September 30, 1994, nor has Crestar ever experienced any charge-offs related to derivative transactions. No interest rate swaps, floors or caps used as hedges against interest rate risk were sold or terminated prior to maturity during the past 12 months, and at September 30, 1994 there were no deferred gains or losses arising from termination of hedged transactions prior to maturity. Other New Accounting Standards Statement of Financial Accounting Standards No. 114, "Accounting by Creditors for Impairment of a Loan," (SFAS 114), as amended, will become effective for fiscal years beginning after December 15, 1994. This accounting standard requires that impaired loans within the scope of the statement be measured and reported on the basis of the present value of expected cash flows discounted at the loan's effective interest rate. Crestar currently believes that the future impact on results of operations and financial position of adopting SFAS 114 will be immaterial. Financial statement note 15 contains additional information concerning adoption of new accounting standards. 19 Table 1 Financial Highlights Dollars in millions, except per share data Three Months Nine Months % % For the Period Ended September 30 1994 1993 Change 1994 1993 Change Net Income $ 43.6 $ 37.2 17 $ 126.7 $ 101.8 25 Income Applicable to Common Shares 43.6 36.5 19 126.7 99.9 27 Dividends Declared on Common Stock 15.1 10.6 42 42.5 29.8 43 Primary Earnings Per Share: Net Income $ 1.15 $ 0.96 20 $ 3.34 $ 2.67 25 Average Shares Outstanding (000s) 38,063 38,154 - 37,933 37,429 1 Dividends Declared Per Share: Common Stock $ 0.40 $ 0.28 43 $ 1.13 $ 0.81 40 Preferred Stock, Series B - .69 (100) - 2.06 (100) Key Ratios Return on Average Assets 1.26% 1.15% 1.24% 1.09% Return on Average Total Equity 15.70 13.84 15.44 13.29 Return on Average Common Equity 15.70 14.20 15.44 13.65 Average Equity to Average Assets 8.02 8.34 8.04 8.19 Net Interest Margin 4.82 4.77 4.81 4.75 At September 30 Equity to Assets 7.73% 8.43% Risk Adjusted Capital Ratios: Tier I 9.6 10.5 Total 12.2 13.5 Book Value Per Share $ 29.70 $ 27.77
Table 2 Analysis Of Primary Earnings Per Share 3rd Qtr. 1994 3rd Qtr. 1994 vs. vs. 3rd Qtr. 1993 2nd Qtr. 1994 Earnings Per Share - prior period $ 0.96 $ 1.12 Interest income 0.45 0.19 Interest expense (0.22) (0.11) Provision for loan losses 0.10 0.01 Securities gains or losses 0.01 - Other noninterest income 0.06 (0.05) Foreclosed properties expense 0.06 - Other noninterest expense (0.25) 0.01 Income taxes (0.04) (0.02) Preferred dividends 0.02 - Increased shares outstanding - - Net increase 0.19 0.03 Earnings Per Share - current period $ 1.15 $ 1.15
20 Table 3 Average Balances, Net Interest Income And Rate/Volume Analysis/1/ Dollars in thousands 3rd Qtr. 2nd Qtr. Average Average Balance Increase Balance 1994 1993 (Decrease) 1994 $ $ % $ 2,626,261 2,411,370 9 2,564,103 Commercial loans 212,873 256,362 (17) 217,577 Tax-exempt loans 1,730,946 1,487,257 16 1,700,077 Instalment loans 1,179,880 742,455 59 1,075,560 Bank card loans 2,545,952 1,889,454 35 2,464,921 Real estate loans 225,788 246,867 (9) 225,441 Construction loans 912 60 200+ 379 Foreign loans 8,522,612 7,033,825 21 8,248,058 Total loans - net of unearned income /2/ 961,378 1,984,911 (52) 953,249 Securities held to maturity 1,949,879 1,684,128 16 2,129,177 Securities available for sale 780,606 464,317 68 680,182 Money market investments 268,309 394,267 (32) 308,872 Mortgage loans held for sale 12,482,784 11,561,448 8 12,319,538 Total earning assets 1,876,726 1,660,781 13 1,893,459 Interest checking deposits 2,410,600 2,315,236 4 2,409,660 Money market deposit accounts 1,486,232 1,178,703 26 1,446,340 Regular savings deposits 654,110 575,500 14 690,701 Money market certificates 2,550,105 2,173,735 17 2,572,655 Other domestic time deposits 8,977,773 7,903,955 14 9,012,815 Total interest-bearing core deposits 1,252,181 1,523,665 (18) 1,061,155 Purchased liabilities 220,584 223,981 (2) 220,094 Long-term debt 10,450,538 9,651,601 8 10,294,064 Total interest-bearing liabilities 2,032,246 1,909,847 6 2,025,474 Other sources - net 12,482,784 11,561,448 8 12,319,538 Total sources of funds Net Interest Income
21 3rd Quarter 1994 vs. 1993 2nd Qtr. Income/ Income/Expense/3/ Increase Change due to/4/ Expense/3/ 1994 1993 (Decrease) Rate/5/ Volume 1994 $ $ $ $ $ $ Commercial loans 52,156 45,950 6,206 2,129 4,077 48,983 Tax-exempt loans 5,339 5,550 (211) 727 (938) 5,084 Instalment loans 37,135 32,284 4,851 (427) 5,278 34,235 Bank card loans 35,034 24,467 10,567 (3,895) 14,462 32,547 Real estate loans 48,427 36,369 12,058 (495) 12,553 45,805 Construction loans 4,907 4,347 560 925 (365) 4,448 Foreign loans 8 - 8 8 - 3 Total loans - net of unearned income/2/ 183,006 148,967 34,039 2,615 31,424 171,105 Securities held to maturity 13,609 33,922 (20,313) (2,821) (17,492) 16,977 Securities available for sale 31,352 22,299 9,053 5,534 3,519 30,869 Money market investments 9,058 4,449 4,609 1,579 3,030 6,706 Mortgage loans held for sale 5,197 6,555 (1,358) 736 (2,094) 5,453 Total earning assets 242,222 216,192 26,030 8,842 17,188 231,110 Interest checking deposits 10,544 9,628 916 (336) 1,252 10,405 Money market deposit accounts 17,966 14,631 3,335 2,732 603 15,622 Regular savings deposits 10,177 8,299 1,878 (287) 2,165 9,393 Money market certificates 5,265 4,262 1,003 421 582 5,499 Other domestic time deposits 27,836 24,667 3,169 (926) 4,095 27,907 Total interest-bearing core deposits 71,788 61,487 10,301 1,908 8,393 68,826 Purchased liabilities 13,930 11,500 2,430 4,474 (2,044) 9,952 Long-term debt 4,484 4,486 (2) 66 (68) 4,665 Total interest-bearing liabilities 90,202 77,473 12,729 6,294 6,435 83,443 Other sources - net Total sources of funds 90,202 77,473 12,729 6,534 6,195 83,443 Net Interest Income 152,020 138,719 13,301 2,308 10,993 147,667
3rd Qtr. 1994 vs. 2nd Qtr. 1994 Increase Change due to/4/ (Decrease) Rate/5/ Volume $ $ $ Commercial loans 3,171 2,001 1,170 Tax-exempt loans 255 365 (110) Instalment loans 2,900 2,268 632 Bank card loans 2,487 (601) 3,088 Real estate loans 2,623 1,127 1,496 Construction loans 459 452 7 Foreign loans 6 2 4 Total loans - net of unearned income/2/ 11,901 6,244 5,657 Securities held to maturity (3,368) (3,501) 133 Securities available for sale 483 3,168 (2,685) Money market investments 2,352 1,362 990 Mortgage loans held for sale (256) 460 (716) Total earning assets 11,112 8,070 3,042 Interest checking deposits 139 231 (92) Money market deposit accounts 2,344 2,338 6 Regular savings deposits 784 525 259 Money market certificates (236) 55 (291) Other domestic time deposits (69) 189 (258) Total interest-bearing core deposits 2,962 3,231 (269) Purchased liabilities 3,978 2,179 1,799 Long-term debt (181) (191) 10 Total interest-bearing liabilities 6,759 5,485 1,274 Other sources - net Total sources of funds 6,759 5,649 1,110 Net Interest Income 4,353 2,421 1,932 /1/ Tax-equivalent basis /2/ Nonaccrual loans are included in the average loan balances and income on such loans is recognized on a cash basis /3/ Includes tax-equivalent loan fees of $2.2 million and $1.9 million for the third quarter of 1994 and 1993, respectively, and $2.1 million for the second quarter of 1994. /4/ Variances are computed on a line-by-line basis and are non-additive /5/ Variances caused by the change in rate times the change in balances are allocated to rate
22 Table 4 Loans To Real Estate Developers And Investors (REDI) In millions September 30, June 30, December 31, 1994 1993 1994 1993 Commercial - developer lines $ 98.5 $ 95.9 $ 87.5 $ 101.1 Tax-exempt: Construction 0.1 0.2 0.2 0.2 Income property mortgage 77.2 86.8 75.7 82.0 Real estate mortgage - income property 761.4 799.6 784.8 769.0 Construction 190.6 201.2 200.6 191.0 Total REDI loans $1,127.8 $1,183.7 $1,148.8 $1,143.3
Table 5 Loans To Real Estate Developers And Investors- Geographic Distribution And Property Type September 30, 1994 In millions Region Total Greater Corporation Washington Eastern Western Capital Land acquisition and development $ 109.6 $ 66.9 $ 31.7 $ 4.4 $ 6.6 Residential developments 260.5 133.9 77.2 40.7 8.7 Commercial projects: Office buildings 155.1 95.0 31.6 10.6 17.9 Retail stores and malls 206.2 147.9 42.6 8.2 7.5 Hotels and motels 94.6 46.3 34.0 14.3 - Industrial buildings 151.8 105.1 18.5 4.6 23.6 Total commercial projects 607.7 394.3 126.7 37.7 49.0 Special use 57.5 24.4 12.4 18.7 2.0 Other 92.5 63.4 15.8 1.7 11.6 Total REDI loans $1,127.8 $682.9 $263.8 $103.2 $77.9
Table 6 Real Estate Loans In millions September 30, June 30, December 31, 1994 1993 1994 1993 Residential $1,758.9 $1,045.7 $1,743.0 $ 944.9 Income property 761.4 799.6 784.8 769.0 Total real estate loans $2,520.3 $1,845.3 $2,527.8 $1,713.9
23 Table 7 Allowance For Loan Losses Dollars in thousands Third Quarter Nine Months Ended June 30, 1994 1993 1994 1993 Beginning balance $226,666 $212,981 $210,958 $205,017 Allowance from acquisitions - net (21) - 15,687 22,000 Provision for loan losses 8,100 13,769 26,982 35,275 Net charge-offs (recoveries): Commercial 769 4,796 3,991 17,375 Instalment 1,138 878 2,774 3,225 Bank card 5,990 3,965 16,272 12,289 Real estate 2,489 4,917 7,025 13,370 Construction (1,529) (765) (2,297) 3,101 Foreign (2) (23) (28) (50) Total net charge-offs 8,855 13,768 27,737 49,310 Balance, September 30 $225,890 $212,982 $225,890 $212,982 Allowance for loan losses to period-end loans 2.61% 3.02% 2.61% 3.02% Annualized net charge-offs to average loans .42 .78 .46 .97
Table 8 Nonperforming Assets And Past Due Loans Dollars in thousands September 30, December 31, 1994 1993 1993 Nonaccrual loans: Commercial $26,224 $ 60,639 $37,788 Instalment 2,787 1,201 902 Real estate 30,255 27,282 33,548 Construction 3,668 10,913 5,843 Total nonaccrual loans 62,934 100,035 78,081 Restructured loans - 34 1,733 Total nonperforming loans 62,934 100,069 79,814 Foreclosed properties - net 23,644 34,699 16,951 Total nonperforming assets $86,578 $134,768 $96,765 Past due loans: Commercial $ 2,204 $ 4,467 $ 2,089 Instalment: Student 11,092 7,457 7,879 Other 1,160 985 1,049 Bank card 8,486 5,607 6,216 Real estate 9,438 8,186 7,758 Construction 133 197 197 Total past due loans $32,513 $ 26,899 $25,188 Nonperforming assets to: Loans and foreclosed properties - net 1.00% 1.90% 1.32% Total assets 0.60 1.04 0.73 Allowance for loan losses to: Nonperforming assets 261 158 218 Nonperforming loans 359 213 264 Allowance for loan losses plus shareholders' equity to nonperforming assets 15.51x 9.70x 13.16x
24 Table 9 Nonperforming Loans - Quarterly Activity In millions Three Months Ended 1994 1993 Sept. 30 June 30 Mar. 31 Dec. 31 Sept. 30 Beginning balance $ 77.4 $ 89.5 $ 79.8 $100.1 $117.8 Acquisition additions - 4.0 8.1 - - Other additions 20.9 19.2 27.4 24.7 11.7 Payments, sales and reductions (18.9) (22.1) (15.0) (22.8) (15.8) Charge-offs (4.8) (6.6) (7.1) (7.6) (9.5) Reinstatements to accrual status (5.5) (4.1) (2.7) (10.3) (2.8) Transfers to foreclosed properties (6.2) (2.5) (1.0) (4.3) (1.3) Net increase (decrease) (14.5) (12.1) 9.7 (20.3) (17.7) Ending balance $ 62.9 $ 77.4 $ 89.5 $ 79.8 $100.1
Table 10 Foreclosed Properties - Quarterly Activity In millions Three Months Ended 1994 1993 Sept. 30 June 30 Mar. 31 Dec. 31 Sept. 30 Beginning balance $ 25.0 $ 24.5 $ 17.0 $ 34.7 $ 45.0 Acquisition additions - net - 6.1 15.8 - - Additions 7.4 2.7 3.8 4.3 3.4 Market write-downs (0.1) (0.2) - (4.9) (1.5) Reductions (7.7) (8.1) (13.4) (18.2) (12.2) Provision for losses (1.0) - 1.3 1.1 - Net increase (decrease) (1.4) 0.5 7.5 (17.7) (10.3) Ending balance $ 23.6 $ 25.0 $ 24.5 $ 17.0 $ 34.7
25 Table 11 Summary Of Noninterest Income And Expense In thousands Second Nine Months Ended Third Quarter Quarter September 30, 1994 1993 1994 1994 1993 Noninterest Income Trust and investment advisory $ 13,244 $ 14,172 $ 14,441 $ 42,688 $ 43,439 Service charges on deposit accounts 20,640 20,062 21,116 62,535 59,802 Bank card-related 10,321 7,140 9,247 27,296 19,329 Trading account activities 49 952 302 444 3,705 Mortgage servicing 4,846 3,736 5,102 14,748 11,352 Mortgage origination - net 1,140 5,574 1,921 7,108 13,862 Gain on sale of mortgage servicing rights 4,800 - 6,230 14,132 2,300 Commissions on letters of credit 874 3,170 1,352 3,624 5,622 Miscellaneous 9,463 6,933 8,481 26,167 22,951 Securities gains (losses) 12 (385) (49) (1,755) 2,237 Total noninterest income $ 65,389 $ 61,354 $ 68,143 $196,987 $184,599 Noninterest Expense Salaries $ 62,655 $ 55,039 $ 60,735 $182,580 $159,328 Benefits 14,976 11,358 15,257 45,840 34,550 Total personnel costs 77,631 66,397 75,992 228,420 193,878 Occupancy - net 11,098 10,124 10,061 31,953 28,511 Equipment 6,370 6,232 6,069 18,367 18,428 Communications 6,670 5,347 6,086 18,767 15,397 Stationery, printing and supplies 2,023 1,722 2,251 6,118 5,151 Professional fees and services 2,743 2,840 3,318 8,550 9,774 Loan expense 1,943 1,920 2,876 7,567 6,424 FDIC premiums 6,429 5,344 6,402 18,716 17,482 Advertising and marketing 6,199 3,721 4,623 14,680 10,453 Transportation 1,489 1,376 1,451 4,368 4,009 Outside data services 4,670 3,926 4,729 13,859 10,535 Amortization of purchased intangibles 1,399 5,682 5,092 11,320 14,716 Miscellaneous 10,582 9,873 10,899 30,411 26,027 Subtotal 139,246 124,504 139,849 413,096 360,785 Foreclosed properties 858 4,644 884 1,751 31,994 Total noninterest expense $140,104 $129,148 $140,733 $414,847 $392,779
Table 12 Debt Ratings (as of October 25, 1994) Standard Thomson Security Moody's & Poor's Bankwatch 8 1/4% Subordinated Notes due 2002 Baa1 BBB+ BBB+ 8 5/8% Subordinated Notes due 1998 Baa1 BBB+ BBB+ Commercial Paper P-2 Not rated TBW-1 Crestar Bank Deposit Notes: Long-Term A2 A Not rated Short-Term P-1 A-1 TBW-1
26 Table 13 Interest Sensitivity Analysis September 30, 1994 In millions Maturity/Rate Sensitivity within 2-3 4-6 7-12 over one month months months months one year Total Uses of Funds Loans: Commercial $ 2,045.2 $ 35.2 $ 56.9 $ 60.1 $ 511.3 $ 2,708.7 Tax-exempt 156.5 3.5 1.5 2.7 43.6 207.8 Instalment 509.5 67.8 94.9 471.8 620.0 1,764.0 Bank card 221.7 79.0 103.9 189.6 629.9 1,224.1 Real estate 544.6 277.2 277.3 563.9 857.3 2,520.3 Foreign 1.3 - - - - 1.3 Construction 179.8 12.5 0.9 4.2 24.2 221.6 Securities held to maturity 25.4 24.4 26.1 94.0 774.7 944.6 Securities available for sale 256.0 56.2 98.3 195.8 1,259.9 1,866.2 Money market investments 1,322.4 5.0 0.1 - - 1,327.5 Mortgage loans held for sale 334.3 - - - - 334.3 Total earning assets 5,596.7 560.8 659.9 1,582.1 4,720.9 13,120.4 Interest sensitivity hedges on assets (861.9) (346.9) 50.7 35.4 1,122.7 - Total uses $ 4,734.8 $ 213.9 $ 710.6 $ 1,617.5 $5,843.6 $13,120.4 Sources of funds Interest checking deposits $ 1,865.8 $ - $ - $ - $ - $ 1,865.8 Money market deposit accounts 2,367.6 - - - - 2,367.6 Regular savings deposits 1,460.4 - - - - 1,460.4 Money market certificates and other domestic time deposits 355.9 338.7 638.2 832.1 943.8 3,108.7 Certificates of deposit $100,000 and over 28.0 15.1 8.5 8.6 7.2 67.4 Short-term borrowings 1,904.9 0.1 - - - 1,905.0 Long-term debt - 0.3 0.3 10.7 207.3 218.6 Total interest-bearing liabilities 7,982.6 354.2 647.0 851.4 1,158.3 10,993.5 Other sources - net - - - - 2,126.9 2,126.9 Total sources $ 7,982.6 $ 354.2 $ 647.0 $ 851.4 $3,285.2 $13,120.4 Cumulative maturity/rate sensitivity gap $(3,247.8) $(3,388.1) $(3,324.5) $(2,558.4) $ - $ - Adjustments Beta adjustments: Interest checking (beta factor .21) $ 1,474.0 Money market accounts (beta factor .57) 1,018.1 Regular savings (beta factor .13) 1,270.5 Demand deposit sensitivity (1,083.2) Cumulative adjusted maturity/rate sensitivity gap $ (568.4) $ (708.7) $ (645.1) $ 121.0 $ - $ -
27 Table 14 Selected Quarterly Financial Information Dollars in thousands, except per share data 3rd Qtr. 2nd Qtr. 1st Qtr. 4th Qtr. 3rd Qtr. 1994 1994 1994 1993 1993 Results of operations: Net interest income/1/ $152,020 $147,667 $143,367 $140,845 $138,719 Provision for loan losses 8,100 8,850 10,032 13,500 13,769 Net credit income 143,920 138,817 133,335 127,345 124,950 Securities gains (losses) 12 (49) (1,718) - (385) Other noninterest income 65,377 68,192 65,173 63,666 61,739 Net credit and noninterest income 209,309 206,960 196,790 191,011 186,304 Noninterest expense 140,104 140,733 134,010 130,243 129,148 Income before taxes 69,205 66,227 62,780 60,768 57,156 Tax-equivalent adjustment 2,742 2,738 2,701 2,886 3,073 Book tax expense 22,859 20,881 19,597 19,148 16,930 Income tax expense 25,601 23,619 22,298 22,034 20,003 Net Income 43,604 42,608 40,482 38,734 37,153 Preferred dividend requirements - - - 365 618 Income applicable to common shares $ 43,604 $ 42,608 $ 40,482 $ 38,369 $ 36,535 Earnings per share: Primary: Net income $ 1.15 $ 1.12 $ 1.07 $ 1.01 $ 0.96 Average shares outstanding (000s) 38,063 37,930 37,835 38,063 38,154 Fully diluted: Net income $ 1.15 $ 1.12 $ 1.07 $ 1.00 $ 0.96 Average shares outstanding (000s) 38,063 37,931 37,849 38,088 38,174 Dividends declared per common share $ 0.40 $ 0.40 $ 0.33 $ 0.33 $ 0.28 Selected ratios and other data: Return on average assets 1.26% 1.25% 1.22% 1.20% 1.15% Return on average total equity 15.70 15.79 14.83 14.19 13.84 Return on average common equity 15.70 15.79 14.83 14.60 14.20 Net interest margin/1/ 4.82 4.76 4.78 4.77 4.77 Net charge-offs as % of average loans 0.42 0.43 0.53 0.87 0.78 Allowance as % of period-end loans 2.61 2.64 2.75 2.89 3.02 Overhead ratio 64.44 65.21 64.79 63.69 64.55 Average total equity to average assets 8.02 7.90 8.20 8.45 8.34 Equity leverage 12.47x 12.66x 12.19x 11.84x 11.99x Full-time equivalent employees (period end) 6,817 6,868 6,733 6,279 6,179
/1/ Tax-equivalent basis 28 Table 15 Consolidated Average Balances/Net Interest Income/Rates/1/ Three Months Ended September 30, 1994 1993 Dollars in thousands Income/ Yield/ Income/ Yield/ Balance Expense Rate Balance Expense Rate $ $ % $ $ % Assets Securities held to maturity/2/ 961,378 13,609 5.66 1,984,911 33,922 6.84 Securities available for sale/2/ 1,949,879 31,352 6.38 1,684,128 22,299 5.25 Money market investments/2/ 780,606 9,058 4.60 464,317 4,449 3.80 Mortgage loans held for sale/2/ 268,309 5,197 7.75 394,267 6,555 6.65 Commercial loans 2,626,261 52,156 7.79 2,411,370 45,950 7.54 Tax-exempt loans 212,873 5,339 9.95 256,362 5,550 8.56 Instalment loans 1,730,946 37,135 8.55 1,487,257 32,284 8.66 Bank card loans 1,179,880 35,034 11.81 742,455 24,467 13.21 Real estate loans 2,545,952 48,427 7.55 1,889,454 36,369 7.63 Construction loans 225,788 4,907 8.61 246,867 4,347 6.91 Foreign loans 912 8 3.74 60 - - Total loans - net of unearned/2,3/ 8,522,612 183,006 8.51 7,033,825 148,967 8.42 Allowance for loan losses (228,985) (218,198) Loans - net 8,293,627 6,815,627 Cash and due from banks 708,356 698,852 Premises and equipment - net 323,292 300,728 Customers' liability on acceptances 5,132 14,282 Intangible assets - net 135,756 106,185 Foreclosed properties - net 22,311 42,958 Other assets 406,034 372,539 Total Assets 13,854,680 12,878,794 Total Earning Assets 12,482,784 242,222 7.69 11,561,448 216,192 7.44 Liabilities and Shareholders' Equity Interest checking deposits 1,876,726 10,544 2.23 1,660,781 9,628 2.30 Money market deposit accounts 2,410,600 17,966 2.96 2,315,236 14,631 2.51 Regular savings deposits 1,486,232 10,177 2.72 1,178,703 8,299 2.79 Money market certificates 654,110 5,265 3.29 575,500 4,262 2.97 Other domestic time deposits 2,550,105 27,836 4.46 2,173,735 24,667 4.54 Certificates of deposit $100,000 and over 64,637 733 4.55 43,953 476 4.29 Deposits in foreign offices - - - 1,789 13 2.90 Total savings and time deposits/2/ 9,042,410 72,521 3.23 7,949,697 61,976 3.11 Demand deposits 2,082,957 1,954,477 Total deposits 11,125,367 9,904,174 Short-term borrowings/2/ 1,187,544 13,197 4.39 1,477,923 11,011 2.95 Long-term debt/2/ 220,584 4,484 8.13 223,981 4,486 8.01 Liability on acceptances 5,132 14,282 Other liabilities 204,941 184,300 Total liabilities 12,743,568 11,804,660 Preferred stock - 45,000 Common shareholders' equity 1,111,112 1,029,134 Total shareholders' equity 1,111,112 1,074,134 Total Liabilities and Shareholders' Equity 13,854,680 12,878,794 Total interest-bearing liabilities 10,450,538 90,202 3.43 9,651,601 77,473 3.19 Other sources - net 2,032,246 1,909,847 Total Sources of Funds 12,482,784 90,202 2.87 11,561,448 77,473 2.67 Net Interest Spread 4.26 4.25 Net Interest Income/Margin 152,020 4.82 138,719 4.77
29 Three Months Ended June 30, Nine Months Ended September 30, 1994 1994 Dollars in thousands Income/ Yield/ Income/ Yield/ Balance Expense Rate Balance Expense Rate $ $ % $ $ % Assets Securities held to maturity/2/ 953,249 16,977 7.02 815,964 41,578 6.78 Securities available for sale/2/ 2,129,177 30,869 5.82 2,338,997 102,470 5.86 Money market investments/2/ 680,182 6,706 3.95 644,374 19,890 4.13 Mortgage loans held for sale/2/ 308,872 5,453 7.06 347,530 18,074 6.93 Commercial loans 2,564,103 48,983 7.58 2,556,284 147,361 7.68 Tax-exempt loans 217,577 5,084 9.37 218,324 15,193 9.30 Instalment loans 1,700,077 34,235 8.16 1,686,001 105,262 8.34 Bank card loans 1,075,560 32,547 11.91 1,074,677 98,150 12.14 Real estate loans 2,464,921 45,805 7.43 2,355,699 131,762 7.45 Construction loans 225,441 4,448 7.90 224,055 13,311 7.94 Foreign loans 379 3 2.96 561 12 2.90 Total loans - net of unearned/2,3/ 8,248,058 171,105 8.27 8,115,601 511,051 8.39 Allowance for loan losses (230,687) (226,123) Loans - net 8,017,371 7,889,478 Cash and due from banks 713,487 713,490 Premises and equipment - net 319,630 317,034 Customers' liability on acceptances 9,651 9,509 Intangible assets - net 147,382 129,876 Foreclosed properties - net 23,480 23,189 Other assets 362,053 382,044 Total Assets 13,664,534 13,611,485 Total Earning Assets 12,319,538 231,110 7.48 12,262,466 693,063 7.54 Liabilities and Shareholders' Equity Interest checking deposits 1,893,459 10,405 2.20 1,862,880 30,690 2.20 Money market deposit accounts 2,409,660 15,622 2.60 2,374,481 47,337 2.67 Regular savings deposits 1,446,340 9,393 2.60 1,416,851 27,891 2.63 Money market certificates 690,701 5,499 3.25 642,632 15,060 3.18 Other domestic time deposits 2,572,655 27,907 4.40 2,476,394 80,651 4.41 Certificates of deposit $100,000 and over 52,594 572 4.37 54,791 1,780 4.35 Deposits in foreign offices - - - 471 11 3.08 Total savings and time deposits/2/ 9,065,409 69,398 3.10 8,828,500 203,420 3.10 Demand deposits 2,075,899 2,058,101 Total deposits 11,141,308 10,886,601 Short-term borrowings/2/ 1,008,561 9,380 3.74 1,206,399 33,190 3.68 Long-term debt/2/ 220,094 4,665 8.48 214,751 13,399 8.32 Liability on acceptances 9,423 9,509 Other liabilities 205,990 200,160 Total liabilities 12,585,376 12,517,420 Preferred stock - - Common shareholders' equity 1,079,158 1,094,065 Total shareholders' equity 1,079,158 1,094,065 Total Liabilities and Shareholders' Equity 13,664,534 13,611,485 Total interest-bearing liabilities 10,294,064 83,443 3.26 10,249,650 250,009 3.26 Other sources - net 2,025,474 2,012,816 Total Sources of Funds 12,319,538 83,443 2.72 12,262,466 250,009 2.73 Net Interest Spread 4.22 4.28 Net Interest Income/Margin 147,667 4.76 443,054 4.81
Nine Months Ended September 30, 1993 Dollars in thousands Income/ Yield/ Balance Expense Rate $ $ % Assets Securities held to maturity/2/ 1,806,214 96,693 7.14 Securities available for sale/2/ 1,553,506 62,807 5.41 Money market investments/2/ 759,954 19,811 3.49 Mortgage loans held for sale/2/ 321,123 16,869 7.00 Commercial loans 2,462,420 140,696 7.63 Tax-exempt loans 268,875 17,246 8.57 Instalment loans 1,424,016 95,333 8.92 Bank card loans 647,662 67,457 13.86 Real estate loans 1,714,067 100,976 7.85 Construction loans 228,819 11,984 6.99 Foreign loans 43 14 42.04 Total loans - net of unearned/2,3/ 6,745,902 433,706 8.58 Allowance for loan losses (215,529) Loans - net 6,530,373 Cash and due from banks 678,216 Premises and equipment - net 291,051 Customers' liability on acceptances 17,000 Intangible assets - net 93,612 Foreclosed properties - net 61,486 Other assets 359,605 Total Assets 12,472,140 Total Earning Assets 11,186,699 629,886 7.51 Liabilities and Shareholders' Equity Interest checking deposits 1,593,173 28,434 2.39 Money market deposit accounts 2,286,016 44,585 2.61 Regular savings deposits 1,062,585 22,950 2.89 Money market certificates 578,707 13,797 3.18 Other domestic time deposits 2,132,682 73,383 4.59 Certificates of deposit $100,000 and over 44,695 1,528 4.57 Deposits in foreign offices 2,280 48 2.84 Total savings and time deposits/2/ 7,700,138 184,725 3.21 Demand deposits 1,872,790 Total deposits 9,572,928 Short-term borrowings/2/ 1,465,129 32,900 3.00 Long-term debt/2/ 223,764 13,494 8.04 Liability on acceptances 17,000 Other liabilities 172,453 Total liabilities 11,451,274 Preferred stock 45,000 Common shareholders' equity 975,866 Total shareholders' equity 1,020,866 Total Liabilities and Shareholders' Equity 12,472,140 Total interest-bearing liabilities 9,389,031 231,119 3.29 Other sources - net 1,797,668 Total Sources of Funds 11,186,699 231,119 2.76 Net Interest Spread 4.22 Net Interest Income/Margin 398,767 4.75
/1/ Income and yields on a tax-equivalent basis computed using the statutory federal income tax rate exclusive of the alternative minimum tax and nondeductible interest expense /2/ Indicates earning asset or interest-bearing liability /3/ Nonaccrual loans are included in the average loan balances and income on such loans is recognized on the cash basis 30 Signatures Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Crestar Financial Corporation Registrant Date November 14, 1994 \s\ James D. Barr James D. Barr Executive Vice President, Controller and Treasurer 31 EX-27 2 FINANCIAL DATA SCHEDULE
9 1,000 9-MOS DEC-31-1994 SEP-30-1994 690,992 8,869,967 1,324,580 257 1,866,204 944,626 915,801 8,647,871 225,890 14,450,357 10,986,121 1,905,049 218,998 218,564 187,989 0 0 928,770 14,450,357 504,830 142,124 37,928 684,882 203,420 250,009 434,873 26,982 (1,755) 414,847 190,031 126,694 0 0 126,694 3.34 3.34 4.81 62,934 32,513 0 144 210,958 49,127 21,390 225,890 0 0 0
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