-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, QQ2EFHpxwm/aMvXHLpYK8Vc6+Tb11xIkTBXg8jI8JVDWefAPiEuQw4AqiNzVozEE t657EQFEiaklelHzKAr4qA== 0000916641-95-000401.txt : 19951121 0000916641-95-000401.hdr.sgml : 19951121 ACCESSION NUMBER: 0000916641-95-000401 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19951117 ITEM INFORMATION: Other events FILED AS OF DATE: 19951120 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: CRESTAR FINANCIAL CORP CENTRAL INDEX KEY: 0000101880 STANDARD INDUSTRIAL CLASSIFICATION: STATE COMMERCIAL BANKS [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: 95595207 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 17, 1995 CRESTAR FINANCIAL CORPORATION (Exact name of registrant as specified in charter) Virginia 1-7083 54-0722175 (State or other (Commission (IRS Employer jurisdiction of File Number) Identification No.) incorporation) 991 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 to file as an exhibit (i) consolidated financial statements (unaudited) of Loyola Capital Corporation and Subsidiaries at September 30, 1995 and the three months and nine months periods then ended and (ii) consolidated statements of financial condition of Loyola Capital Corporation and Subsidiaries as of December 31, 1994 and 1993, and the related consolidated statements of income, stockholders' equity and cash flows for each of the years in the three-year period ended December 31, 1994, and the report of KPMG Peat Marwick LLP, independent auditors, dated February 3, 1995 thereon. -2- 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 17, 1995 By: /s/ John C. Clark, III ---------------------------- John C. Clark, III Senior Vice President, General Counsel and Secretary -3- EXHIBIT INDEX 99.1 Consolidated financial statements of Loyola Capital Corporation and Subsidiaries (unaudited) at September 30, 1995 and for the three months and nine months periods then ended. 99.2 Consolidated statements of financial condition of Loyola Capital Corporation and Subsidiaries as of December 31, 1994 and 1993, and the related consolidated statements of income, stockholders' equity and cash flows for each of the years in the three-year period ended December 31, 1994, and the report of KPMG Peat Marwick LLP, independent auditors, dated February 3, 1995 thereon. 99.3 Consent dated November 17, 1995 of KPMG Peat Marwick LLP. -4- EX-99 2 EXHIBIT 99.1 EXHIBIT 99.1 Part I - Financial Information Item 1. Financial Statements LOYOLA CAPITAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (Unaudited)
September 30, December 31, 1995 1994 (In Thousands) Assets Cash and demand deposits $ 26,439 24,426 Money market investments 47,306 3,286 Investment securities, fair value $45,824 in 1995 and $114,709 in 1994 46,710 117,907 Mortgage-backed securities, fair value $208,735 in 1995 and $207,521 in 1994 213,679 229,429 Loans held for sale 42,561 31,006 Loans receivable, net 2,063,844 1,952,272 Investments in real estate, net 16,754 26,374 Federal Home Loan Bank of Atlanta stock, at cost 36,053 37,418 Property and equipment 24,949 24,707 Prepaid expenses and other assets 18,626 19,933 Deferred income taxes 5,930 6,078 ---------- ---------- $2,542,851 2,472,836 ========= ========= Liabilities and Stockholders' Equity Liabilities: Deposits $1,532,640 1,469,925 Notes payable and other borrowings 781,712 777,577 Mortgage escrow accounts 23,088 27,918 Drafts payable 12,222 16,908 Federal and state income taxes 3,885 2,876 Accrued expenses and other liabilities 11,774 8,538 ---------- ---------- Total liabilities 2,365,321 2,303,742 --------- --------- Stockholders' Equity: Preferred stock, $.10 par value, 15,000,000 shares authorized, none issued -- -- Common stock, $.10 par value, 35,000,000 shares authorized, 8,120,541 shares issued and outstanding in 1995 and 8,091,699 shares in 1994 812 809 Additional paid-in capital 44,327 44,118 Retained income, substantially restricted 132,391 124,167 --------- --------- Total stockholders' equity 177,530 169,094 --------- --------- $2,542,851 2,472,836 ========= =========
See accompanying note to consolidated financial statements. -5- LOYOLA CAPITAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
Three Months Ended Nine Months Ended September 30, September 30, 1995 1994 1995 1994 (In Thousands Except Per-Share Data) INTEREST INCOME Loans receivable $ 42,649 34,961 124,176 100,053 Mortgage-backed securities 3,298 3,606 10,142 10,970 Investments 2,002 1,981 6,403 7,188 -------- -------- -------- -------- Total interest income 47,949 40,548 140,721 118,211 -------- -------- -------- -------- INTEREST EXPENSE Deposits 18,889 14,833 53,283 42,605 Notes payable and other borrowings 11,500 8,986 34,407 25,749 -------- -------- -------- -------- Total interest expense 30,389 23,819 87,690 68,354 -------- -------- -------- -------- NET INTEREST INCOME 17,560 16,729 53,031 49,857 PROVISION FOR LOAN LOSSES 231 150 668 510 --------- --------- --------- --------- Net interest income after provision for loan losses 17,329 16,579 52,363 49,347 -------- -------- -------- -------- NONINTEREST INCOME Service fees on loans 1,494 1,667 4,576 4,893 Service fees on deposits 399 270 1,112 744 Insurance commissions 679 641 1,911 1,707 Gain on sales of loans, net 547 460 433 1,628 Other 349 265 994 715 --------- --------- --------- --------- Total noninterest income 3,468 3,303 9,026 9,687 -------- -------- -------- -------- NONINTEREST EXPENSE Salaries and employee benefits 6,583 6,644 19,818 19,923 Rent and other occupancy 1,313 1,269 3,726 3,602 Advertising 644 483 1,815 1,630 Data processing 1,591 1,572 4,821 4,847 Equipment 376 435 1,219 1,311 Federal deposit insurance and fees 969 926 2,838 2,765 (Income) loss on investments in real estate, net (68) 20 (1,326) (44) Other 2,690 2,359 7,655 7,016 Total noninterest expense 14,118 13,708 40,566 41,050 INCOME BEFORE INCOME TAXES 6,679 6,174 20,823 17,984 -------- -------- -------- -------- INCOME TAXES 3,009 2,418 8,704 7,097 -------- -------- -------- -------- NET INCOME $ 3,670 3,756 12,119 10,887 ======== ======== ======== ======== NET INCOME PER SHARE Primary $ .41 .43 1.38 1.25 Average shares primary 8,802 8,692 8,743 8,648 Fully diluted $ .41 .43 1.38 1.25 Average shares fully diluted 8,811 8,692 8,767 8,667
See accompanying note to consolidated financial statements. -6- LOYOLA CAPITAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Nine Months Ended September 30, 1995 1994 (In Thousands) OPERATING ACTIVITIES: Net income $ 12,119 10,887 Adjustments to reconcile net income to net cash provided by operating activities: Loans originated for sale, net (246,861) (379,024) Purchase of loans acquired for sale (126,016) (249,277) Sales of loans originated for sale 361,756 708,970 Amortization of unearned loan fees (1,383) (1,287) Depreciation and amortization 3,046 3,199 Deferred income taxes 148 489 Equity in net income of real estate joint ventures (1,461) (2,177) Net increase (decrease) in accrued interest payable on deposits (194) 17 Provision for losses on loans and investments in real estate 1,564 2,605 Gain on sales of loans (433) (1,628) Gain on sale of real estate owned (933) (514) Net increase (decrease) in accrued expenses and other liabilities 3,236 (269) Net increase in federal and state income taxes payable 1,009 400 Other, net 843 (3,277) --------- -------- Net cash provided by operating activities 6,440 89,114 -------- -------- INVESTING ACTIVITIES: Loan originations (333,921) (392,653) Loan fees deferred 1,375 3,931 Purchases of loans and participations in loans (34,615) (82,987) Principal repayments on loans 262,460 275,518 Purchases of investment securities and Federal Home Loan Bank stock (14,167) (6,161) Redemptions of investment securities and Federal Home Loan Bank stock 86,061 67,196 Purchases of mortgage-backed securities -- (23) Repayments of mortgage-backed securities 15,079 9,177 Net (increase) decrease in investments in and advances to real estate joint ventures 459 (434) Net decrease in other real estate 6,026 4,736 Purchase of equipment (3,288) (2,384) Other, net -- (467) ---------- --------- Net cash used by investing activities (14,531) (124,551) ---------- ---------
(continued) -7- LOYOLA CAPITAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Nine Months Ended September 30, 1995 1994 (In Thousands) FINANCING ACTIVITIES: Net increase in deposits 62,909 8,436 Net increase (decrease) in short-term borrowings (original maturities less than three months) 27,583 (166,085) Proceeds from advances from Federal Home Loan Bank of Atlanta 1,980,945 961,718 Repayment of advances from Federal Home Loan Bank of Atlanta (2,008,800) (836,178) Net increase in mortgage escrow accounts (4,830) (527) Payment of dividends on common stock (3,894) (2,420) Proceeds from exercise of stock options 211 262 --------- --------- Net cash provided (used) by financing activities 54,124 (34,794) --------- --------- Increase (decrease) in cash and cash equivalents 46,033 (70,231) Cash and cash equivalents at beginning of period 27,712 94,000 Cash and cash equivalents at end of period $ 73,745 23,769 ========= =========
See accompanying note to consolidated financial statements. -8- LOYOLA CAPITAL CORPORATION AND SUBSIDIARIES NOTE TO CONSOLIDATED FINANCIAL STATEMENTS September 30, 1995 and 1994 (Unaudited) (1) BASIS OF PRESENTATION In the opinion of management of Loyola Capital Corporation (the "Corporation"), the unaudited Consolidated Financial Statements contain all adjustments (comprising only normal recurring accruals) necessary for a fair presentation of the statements of financial condition, income and cash flows for the periods presented (the "Statements"). The Statements have been prepared using the accounting policies described in the 1994 Annual Report to Stockholders. Cash equivalents for purposes of the Consolidated Statements of Cash Flows includes money market investments. Cash payments for income taxes were $7.5 million and $6.1 million for the nine months ended September 30, 1995 and 1994, respectively. Interest paid on deposits and borrowings was $87.7 million and $68.6 million for the nine months ended September 30, 1995 and 1994, respectively. Loans transferred to real estate acquired through foreclosures were $1.9 million and $2.8 million for the nine months ended September 30, 1995 and 1994, respectively. Loans originated to finance the sale of investments in real estate were $6.0 million and $4.0 million for the nine months ended September 30, 1995 and 1994, respectively. Primary net income per common share has been computed based on the weighted average number of shares of common stock and common stock equivalents outstanding during the nine months ended September 30, 1995 and 1994. Fully diluted net income per common share is based on the average shares outstanding during the nine months ended September 30, 1995 and 1994, adjusted for the dilutive effect of stock options, which are considered common stock equivalents in the calculation of net income per common share. The consolidated results of operations for the nine months ended September 30, 1995 are not necessarily indicative of the results that may be expected for the entire year. Certain amounts in the 1994 financial statements have been reclassified to conform with the 1995 presentation. The market values of investment securities and mortgage-backed securities are shown in the Consolidated Statements of Financial Condition. Gross unrealized gains and losses on such securities were as follows: -9-
September 30, 1995 December 31, 1994 ------------------------ -------------------- Gross Gross Gross Gross Unrealized Unrealized Unrealized Unrealized Gains Gains Gains Gains (In Thousands) Investment securities $ 4 890 18 3,216 Mortgage-backed securities 2 4,946 -- 21,908
The Corporation adopted Financial Accounting Standards Board Statement of Financial Accounting Standards No. 114 "Accounting by Creditors for Impairment of a Loan" ("Statement 114"), as amended by Statement 118 "Accounting by Creditors for Impairment of a Loan Income Recognition and Disclosures" (collectively referred to as "Statement 114") effective January 1, 1995. As of January 1, 1995 and September 30, 1995 the Corporation did not have any loans which are considered to be impaired as defined in Statement 114. -10- Loyola Capital Corporation and Subsidiaries Consolidated Statements of Financial Condition
December 31, --------------------------------- 1994 1993 --------------- --------------- (In Thousands) Assets Cash and demand deposits $ 24,426 22,770 Money market investments 3,286 71,230 Investment securities, fair value $114,709 in 1994 and $190,637 in 1993 117,907 190,524 Mortgage-backed securities, fair value $207,521 in 1994 and $242,632 in 1993 229,429 242,922 Loans held for sale 31,006 134,400 Loans receivable, net 1,952,272 1,591,207 Investments in real estate, net 26,374 40,649 Federal Home Loan Bank of Atlanta stock, at cost 37,418 27,379 Property and equipment 24,707 25,445 Prepaid expenses and other assets 15,638 14,581 Deferred income taxes 6,078 5,409 --------------- --------------- $ 2,468,541 2,366,516 =============== =============== Liabilities and Stockholders' Equity Liabilities: Deposits $ 1,465,630 1,424,794 Notes payable and other borrowings 777,577 727,564 Mortgage escrow accounts 27,918 24,085 Drafts payable 16,908 22,010 Federal and state income taxes 2,876 562 Accrued expenses and other liabilities 8,538 10,545 --------------- --------------- Total liabilities 2,299,447 2,209,560 --------------- --------------- Stockholders' equity: Preferred stock, $.10 par value, 15,000,000 shares authorized, none issued --- --- Common stock, $.10 par value, 35,000,000 shares authorized, 8,091,699 shares issued and outstanding in 1994 and 8,046,216 shares in 1993 809 805 Additional paid-in capital 44,118 43,795 Retained income, substantially restricted 124,167 112,356 --------------- --------------- Total stockholders' equity 169,094 156,956 --------------- --------------- $ 2,468,541 2,366,516 =============== ===============
-11- See accompanying notes to consolidated financial statements. -12- EX-99 3 EXHIBIT 99.2 Loyola Capital Corporation and Subsidiaries Consolidated Statements of Income
Years Ended December 31, ---------------------------------------------------- 1994 1993 1992 --------------- ---------------- --------------- (In Thousands Except Per-Share Data) Interest income: Loans receivable $ 137,641 122,866 142,228 Mortgage-backed securities 14,501 5,975 268 Investments 9,269 11,749 10,747 --------------- ---------------- --------------- Total interest income 161,411 140,590 153,243 --------------- ---------------- --------------- Interest expense: Deposits 58,354 58,612 77,270 Notes payable and other borrowings 36,152 20,364 10,187 --------------- ---------------- --------------- Total interest expense 94,506 78,976 87,457 --------------- ---------------- --------------- Net interest income 66,905 61,614 65,786 Provision for loan losses 660 3,085 7,065 --------------- ---------------- --------------- Net interest income after provision for loan losses 66,245 58,529 58,721 --------------- ---------------- --------------- Noninterest income: Service fees on loans 6,551 6,346 6,486 Service fees on deposits 1,063 909 789 Insurance commissions 2,201 1,802 2,671 Gain on sales of loans, net 1,841 1,841 1,521 Gain on sales of mortgage-backed securities --- --- 2,900 Other 1,017 625 1,107 --------------- ---------------- --------------- Total noninterest income 12,673 11,523 15,474 --------------- ---------------- --------------- Noninterest expenses: Salaries and employee benefits 26,364 23,260 22,891 Rent and other occupancy 4,901 4,467 4,275 Advertising 2,105 1,635 2,340 Data processing 6,495 6,261 6,217 Equipment 1,755 1,684 1,655 Federal deposit insurance and fees 3,692 2,997 3,812 (Income) loss on investments in real estate, net (448) 585 5,819 Other 8,989 8,738 8,321 --------------- ---------------- --------------- Total noninterest expenses 53,853 49,627 55,330 --------------- ---------------- --------------- Income before income taxes and cumulative effect of accounting change 25,065 20,425 18,865
Continued -13- Loyola Capital Corporation and Subsidiaries Consolidated Statements of Income, continued
Years Ended December 31, ---------------------------------------------------- 1994 1993 1992 --------------- ---------------- --------------- (In Thousands Except Per-Share Data) Income taxes $ 10,026 8,160 7,460 --------------- ---------------- --------------- Income before cumulative effect of accounting change 15,039 12,265 11,405 Cumulative effect of change in accounting for income taxes --- --- 2,708 --------------- ---------------- --------------- Net income $ 15,039 12,265 14,113 =============== ================ =============== Net income per common share: Primary: Income before cumulative effect of accounting change $ 1.74 1.42 1.30 Cumulative effect of change in accounting for income --- --- .31 taxes --------------- ---------------- --------------- Net income $ 1.74 1.42 1.61 =============== ================ =============== Fully diluted: Income before cumulative effect of accounting change $ 1.73 1.42 1.29 Cumulative effect of change in accounting for income --- --- .31 taxes --------------- ---------------- --------------- Net income $ 1.73 1.42 1.60 =============== ================ ===============
See accompanying notes to consolidated financial statements. -14- Loyola Capital Corporation and Subsidiaries Consolidated Statements of Stockholders' Equity
Additional Common Paid-in Retained Stock Capital Income Total --------------- --------------- ---------------- --------------- (In Thousands) Balance at December 31, 1991 $ 424 50,375 89,759 140,558 Two-for-one stock split 424 (424) --- --- Purchase of 401,669 shares of common stock (40) (4,370) --- (4,410) Exercise of 114,790 shares of common stock options 11 667 --- 678 Dividends on common stock --- --- (1,838) (1,838) Net income --- --- 14,113 14,113 --------------- --------------- ---------------- --------------- Balance at December 31, 1992 819 46,248 102,034 149,101 Purchase of 213,458 shares of common stock (21) (2,883) --- (2,904) Exercise of 74,369 shares of common stock options 7 430 --- 437 Dividends on common stock --- --- (1,943) (1,943) Net income --- --- 12,265 12,265 --------------- --------------- ---------------- --------------- Balance at December 31, 1993 805 43,795 112,356 156,956 Exercise of 45,483 shares of common stock options 4 323 --- 327 Dividends on common stock --- --- (3,228) (3,228) Net income --- --- 15,039 15,039 --------------- --------------- ---------------- --------------- Balance at December 31, 1994 $ 809 44,118 124,167 169,094 =============== =============== ================ ===============
See accompanying notes to consolidated financial statements. -15- Loyola Capital Corporation and Subsidiaries Consolidated Statements of Cash Flows
Years Ended December 31, ---------------------------------------------------- 1994 1993 1992 --------------- ---------------- --------------- (In Thousands) Operating activities: Net income $ 15,039 12,265 14,113 Adjustments to reconcile net income to net cash provided (used) by operating activities: Loans originated for sale, net (464,349) (708,033) (865,982) Purchase of loans acquired for sale (264,627) (211,909) (30,943) Sales of loans originated or purchased for 834,211 894,183 859,046 sale Amortization of unearned loan fees (1,768) (1,320) (1,179) Depreciation and amortization 4,276 4,059 3,962 Deferred income taxes (669) 1,919 (6,423) Equity in net income of real estate joint (2,913) (2,732) (1,817) ventures Net increase (decrease) in accrued interest 117 (102) (425) payable on deposits Provision for losses on loans and investments in real estate 3,048 6,690 13,950 Gain on sales of loans (1,841) (1,841) (1,521) Gain on sales of real estate owned (781) (1,010) (167) Gain on sales of mortgage-backed securities --- --- (2,900) Net increase (decrease) in accrued expenses and other liabilities (2,007) 3,310 (9,658) Net increase (decrease) in federal and state income taxes payable 2,314 170 (704) Other, net (1,721) (3,439) 4,126 --------------- ---------------- --------------- Net cash provided (used) by operating 118,329 (7,790) (26,522) activities --------------- ---------------- --------------- Investing activities: Loan originations (536,723) (672,561) (139,583) Loan fees deferred 5,188 4,451 2,486 Purchases of loans and participations in loans (181,183) (32,555) (20,355) Principal repayments on loans 359,341 395,495 463,273 Purchases of investment securities and Federal Home Loan Bank stock (10,369) (223,346) (195,497) Sales of investment securities --- 26,295 --- Redemptions of investment securities and Federal Home Loan Bank stock 72,196 129,272 110,000 Purchases of mortgage-backed securities (23) (248,850) ---
Continued -16- Loyola Capital Corporation and Subsidiaries Consolidated Statements of Cash Flows, continued
Years Ended December 31, ---------------------------------------------------- 1994 1993 1992 --------------- ---------------- --------------- (In Thousands) Repayments of mortgage-backed securities $ 13,679 6,413 558 Sales of mortgage-backed securities --- 490 133,058 Net decrease in investments in and advances to real estate joint ventures 4,954 6,083 2,750 Net decrease in other real estate 5,868 5,123 5,989 Purchase of equipment (3,538) (3,398) (4,295) --------------- ---------------- --------------- Net cash provided (used) by investing activities (270,610) (607,088) 358,384 --------------- ---------------- --------------- Financing activities: Net increase (decrease) in deposits 7,920 (40,979) (148,722) Proceeds from deposits purchased, net 32,360 --- --- Net increase (decrease) in short-term borrowings (original maturities less than three months) (164,919) 221,553 (47,965) Proceeds from advances from Federal Home Loan Bank of Atlanta 1,539,532 530,253 7,492 Repayment of advances from Federal Home Loan Bank of Atlanta (1,329,832) (144,575) (25,827) Net increase in mortgage escrow accounts 3,833 1,942 242 Payment of dividends on common stock (3,228) (1,943) (1,838) Purchase of common stock --- (2,904) (4,410) Proceeds from exercise of stock options 327 437 678 --------------- ---------------- --------------- Net cash provided (used) by financing activities 85,993 563,784 (220,350) --------------- ---------------- --------------- Increase (decrease) in cash and cash equivalents (66,288) (51,094) 111,512 Cash and cash equivalents at beginning of year 94,000 145,094 33,582 --------------- ---------------- --------------- Cash and cash equivalents at end of year $ 27,712 94,000 145,094 =============== ================ ===============
See accompanying notes to consolidated financial statements. -17- Loyola Capital Corporation and Subsidiaries Notes to Consolidated Financial Statements December 31, 1994, 1993 and 1992 (1) Summary of Significant Accounting Policies Business -- Loyola Capital Corporation (the "Corporation") provides a full range of retail banking services primarily in the mid-Atlantic region through its wholly-owned subsidiary Loyola F.S.B. (the "Bank") and its subsidiaries. The Corporation also engages in real estate development activity, mortgage banking operations, insurance and appraisal services to supplement its retail banking services. The Corporation is subject to competition from other financial institutions. The Bank is subject to the regulations of certain federal agencies and undergoes periodic examinations by those regulatory authorities. Basis of financial statement presentation -- The consolidated financial statements have been prepared in conformity with generally accepted accounting principles. All significant intercompany accounts and transactions have been eliminated. In preparing the consolidated financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the statements of financial condition and revenues and expenses for the period. Actual results could differ significantly from those estimates. Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for loan losses and the valuation of investments in real estate. In connection with these determinations, management obtains independent appraisals for significant properties and prepares fair value analyses as appropriate. A major portion of the Corporation's loans and investments in real estate is secured by single family homes. Substantially all of these loans and investments are in the mid-Atlantic region. Accordingly, the ultimate collectibility of the Corporation's loan portfolio and the recovery of the carrying amount of its investments in real estate are susceptible to changes in market conditions in the mid-Atlantic region. Management believes that the allowances for losses on loans and investments in real estate are adequate. While management uses available information to recognize losses on loans and investments in real estate, future additions to the allowances may be necessary based on changes in economic conditions, particularly in the mid-Atlantic region. In addition, various regulatory agencies, as an integral part of their examination process, periodically review the Corporation's allowances for losses on loans and investments in real estate. Such agencies may require the Corporation to recognize additions to the allowances based on their judgments about information available to them at the time of their examination. Investment and mortgage-backed securities -- Prior to December 31, 1993 investment securities were carried at cost, adjusted for amortization of premium or accretion of discount over the term of the security. The lower of cost or market was not used since it was management's intention to hold these securities to maturity. Gain or loss on sale was reflected in income at the time of sale using the specific identification method. -18- As of December 31, 1993, the Corporation adopted Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities," (Statement 115"), which addresses the accounting and reporting for certain investments in debt and equity securities. Statement 115 requires classification of such securities into three categories. Debt securities that the Corporation has the positive intent and ability to hold to maturity are classified as held to maturity and recorded at amortized cost. Debt and equity securities are classified as trading securities if bought and held principally for the purpose of selling them in the near term. Trading securities are reported at fair value, with unrealized gains and losses included in earnings. Debt and equity securities not classified as held to maturity or trading securities are considered available for sale and are reported at fair value, with unrealized gains and losses excluded from earnings and reported as a separate component of stockholders' equity, net of tax effects. Management reviewed the Corporation's securities portfolios as of December 31, 1993 and designated the investment and mortgage-backed securities portfolios as held to maturity. Accordingly, there was no financial effect to the Corporation of the initial adoption of Statement 115. At December 31, 1994, the investment and mortgage-backed securities portfolios are classified as held to maturity. If a decline in value of an individual security classified as held to maturity or available for sale is judged to be other than temporary, the cost basis of that security is reduced to its fair value and the amount of the write-down is reflected in earnings. Fair value is determined based on bid prices published in financial newspapers or bid quotations received from securities dealers. For purposes of computing realized gains or losses on the sales of investments, cost is determined using the specific identification method. Premiums and discounts on investment and mortgage-backed securities are amortized over the term of the security using methods that approximate the interest method. Acquisition, development and construction loans -- The Corporation analyzes whether acquisition, development and construction loan transactions are to be accounted for as real estate investments, joint ventures or loans. Even though certain of these transactions are structured as loans in legal form, the Corporation applies real estate investment or joint venture accounting, as appropriate, whenever in management's opinion, transactions have essentially the same risks and potential rewards as those of owners of real estate or as real estate joint venture partners. Loans held for sale -- These loans are carried at the lower of cost or market on an aggregate basis. Loan servicing rights -- The cost of loan servicing rights acquired is amortized in proportion to, and over the period of, estimated net servicing revenues using a method approximating the interest method. The cost of loan servicing rights purchased and the amortization thereon is periodically evaluated in relation to estimated future net servicing revenues. The Corporation evaluates the carrying value of the servicing portfolio by projecting the future net servicing income of the portfolio based on management's best estimate of remaining loan lives. The amortized cost of loan servicing rights totaled approximately $4.9 million, $3.0 million and $1.5 million at December 31, 1994, 1993 and 1992, respectively, and is included with prepaid expenses and other assets in the Consolidated Statements of Financial Condition. Investments in real estate -- Real estate purchased for development and sale includes real estate development projects, which are carried at the lower of cost or estimated net realizable value. Costs relating to such projects, including interest, are capitalized until a saleable condition is reached. Real estate acquired through foreclosure is initially recorded at the lower of cost or estimated fair value, and subsequently at the lower of book value or estimated fair value less estimated costs to sell. Costs relating to holding such real estate are charged against income in the current period, while costs relating to improvements are capitalized until a saleable condition is reached. Investments in and advances to real estate joint ventures are accounted for using the equity method. These investments are carried at the lower of cost or net realizable value. Interest income and fees on loans to joint ventures are deferred. Such interest and fees, in excess of related capitalized interest costs, are recognized as the loans are repaid. Property and equipment -- Property and equipment are carried at cost less accumulated depreciation and amortization. Depreciation and amortization are computed on a straight-line basis over the estimated useful lives of the -19- assets or leases, as appropriate. Gains or losses on sales of property and equipment are recognized upon sale. Income taxes -- The Corporation and its subsidiaries file consolidated federal income tax returns. Deferred income taxes are provided for income and expense items which are reported for financial statement purposes in different accounting periods than for income tax return purposes. Effective January 1, 1992, the Corporation adopted Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes," ("Statement 109") which requires, among other things, a change from the deferred method to the asset and liability method of accounting for deferred income taxes. The cumulative effect of this change was to increase net income for 1992 by $2.7 million ($.31 per share). Under the asset and liability method required by Statement 109, deferred income taxes are recognized, with certain exceptions, for temporary differences between the financial reporting basis and income tax basis of assets and liabilities based on enacted tax rates expected to be in effect when such amounts are realized or settled. Deferred tax assets (including tax loss carryforwards) are recognized only to the extent that it is more likely than not that such amounts will be realized based on consideration of available evidence, including tax planning strategies and other factors. Statement 109 continues the exception for providing a deferred tax liability on bad debt reserves for tax purposes of qualified thrift lenders such as the Bank that arose in fiscal years beginning before December 31, 1987. Such bad debt reserve for the Bank amounted to approximately $32.5 million with an income tax effect of approximately $12.8 million at December 31, 1994. This bad debt reserve would become taxable if the Bank does not maintain certain qualified assets as defined, if the reserve is charged for other than bad debt losses, or if the Bank does not maintain its thrift charter. The effects of changes in tax laws or rates on deferred tax assets and liabilities are recognized in the period that includes the enactment date. Origination and commitment fees -- Origination and commitment fees and direct origination costs for loans held for investment are deferred and amortized to income over the contractual lives of the related loans using the interest method. Under certain circumstances, commitment fees are recognized over the commitment period or upon expiration of the commitment. Fees received for issuing standby letters of credit are deferred and amortized into income using the straight-line method over the life of the letters of credit. Origination and commitment fees and direct origination costs on loans originated for sale are deferred and recognized as a component of gain or loss at the time of sale of the related loans. Capitalization of interest -- Interest costs of approximately $850,000, $1.2 million and $1.2 million were capitalized in 1994, 1993 and 1992, respectively. Interest costs are capitalized based on the average cost of funds to the Corporation and the average investment in real estate and real estate joint ventures with development in process. Provision for loan losses -- Provisions for losses on loans receivable are charged to income, based on management's judgment with respect to the risks inherent in the portfolio. Such judgment considers a number of factors including historical loss experience, the present and prospective financial condition of borrowers, estimated value of underlying collateral, geographical and industry concentrations, current and prospective economic conditions, delinquency experience and status of nonperforming assets. Loans or portions thereof are charged off when considered uncollectible in the opinion of management. Interest on loans is excluded from income when the full collection of principal or interest is in doubt, or when the payment of principal or interest has become contractually 90 days past due unless the obligation is both well secured and in the process of collection. Such interest ultimately collected is credited to income in the period of recovery. In October 1994 the Financial Accounting Standards Board Statement of Financial Accounting Standards No. 114 "Accounting by Creditors for Impairment of a Loan" was amended by Statement 118 "Accounting by Creditors for Impairment of a Loan - Income Recognition and Disclosures" (collectively referred to as "Statement 114"). Statement 114 -20- is effective for fiscal years beginning after December 15, 1994. Statement 114 addresses the accounting by creditors for impairment of certain loans. It is generally applicable for all loans except large groups of smaller-balance homogenous loans, including residential mortgage loans and consumer installment loans that are collectively evaluated for impairment. It also applies to all loans that are restructured in a troubled debt restructuring involving a modification of terms. However, if a loan that was restructured in a troubled debt restructuring involving a modification of terms before the effective date of Statement 114 is not impaired based on the terms specified by the restructuring agreement, a creditor may continue to account for the loan in accordance with the provisions of Statement 15, "Accounting for Troubled Debt Restructurings" prior to its amendment by Statement 114. Statement 114 requires that impaired loans be measured on the present value of expected future cash flows discounted at the loan's effective interest rate, or at the loan's observable market price or the fair value of the collateral if the loan is collateral dependent. A loan is considered impaired when, based on current information and events, it is probable that a creditor will be unable to collect all amounts due according to the contractual terms of the loan agreement. The Corporation adopted the provisions of Statement 114 as of January 1, 1995. Adoption of Statement 114 did not have a material impact on the Corporation's financial statements. Statements of cash flows -- Cash equivalents for purposes of the consolidated statements of cash flows include money market investments. Cash payments for income taxes were $8.3 million, $6.1 million and $11.8 million in 1994, 1993 and 1992, respectively. Interest paid on deposits and notes payable and other borrowings net of interest capitalized was $94.3 million, $79.1 million $88.0 million in 1994, 1993 and 1992, respectively. Loans transferred to real estate acquired through foreclosures were $3.7 million, $2.2 million and $4.4 million in 1994, 1993 and 1992, respectively. Loans to facilitate the sale of investments in real estate were $8.4 million, $7.0 million and $2.3 million in 1994, 1993 and 1992, respectively. Reclassifications -- Certain amounts in the 1993 and 1992 financial statements have been reclassified to conform to the 1994 presentation. -21- (2) Money Market Investments A summary of money market investments as of December 31 follows: 1994 1993 --------------- --------------- (In Thousands) Overnight deposits $ 3,285 1,148 Repurchase agreements --- 70,000 Accrued interest receivable 1 82 --------------- --------------- $ 3,286 71,230 =============== =============== The Corporation purchases mortgage-backed securities and mortgage loans under agreements to resell ("repurchase agreements"). The advances under these agreements represent short-term loans by the Corporation to primary securities dealers. The Corporation has granted the sellers the right of securities substitution. The sellers have guaranteed that actual securities identified with the transactions will have a market value that is equal to or exceeds the repurchase agreement amounts. All outstanding repurchase agreements at December 31, 1993 matured within 30 days. At December 31, 1993, the counterparties for the outstanding repurchase agreements were Salomon Brothers Holding Company, Inc. ($20 million), PaineWebber Real Estate Securities, Inc. ($20 million), Kidder Peabody & Co., Inc. ($10 million), and Bear, Stearns Government Securities, Inc. ($20 million). Securities purchased under repurchase agreements averaged $29.0 million and $77.6 million in 1994 and 1993, respectively. The maximum amount outstanding at any month-end was $80.0 million and $117.8 million in 1994 and 1993, respectively. -22- (3) Investment Securities A summary of investment securities classified as held to maturity as of December 31 follows:
1994 ---------------------------------------------------------------------- Gross Gross Amortized Unrealized Unrealized Fair Cost Gains Losses Value --------------- --------------- --------------- --------------- (In Thousands) U.S. Government and Agency obligations $ 116,680 18 (3,216) 113,482 Accrued interest receivable 1,227 --- --- 1,227 --------------- --------------- --------------- --------------- $ 117,907 18 (3,216) 114,709 =============== =============== =============== =============== 1993 ---------------------------------------------------------------------- Gross Gross Amortized Unrealized Unrealized Fair Cost Gains Losses Value --------------- --------------- --------------- --------------- (In Thousands) U.S. Government and Agency obligations $ 188,087 245 (132) 188,200 Accrued interest receivable 2,437 --- --- 2,437 --------------- --------------- --------------- --------------- $ 190,524 245 (132) 190,637 =============== =============== =============== ===============
An investment security maturity distribution summary based on maturity dates as of December 31 follows:
1994 1993 ---------------------------------- ---------------------------------- Amortized Fair Amortized Fair Cost Value Cost Value --------------- --------------- --------------- ---------------- (In Thousands) Due within one year $ 61,502 61,367 69,179 69,090 Due one through five years 50,178 47,550 111,808 111,994 Due after five years 5,000 4,565 7,100 7,116 --------------- --------------- --------------- ---------------- Accrued interest receivable 1,227 1,227 2,437 2,437 --------------- --------------- --------------- ---------------- $ 117,907 114,709 190,524 190,637 =============== =============== =============== ================
Investment securities with book values of $55.0 million and $95.2 million and fair values of $54.9 million and $95.3 million were sold under repurchase agreements at December 31, 1994 and 1993, respectively. -23- (4) Mortgage-Backed Securities A summary of mortgage-backed securities as of December 31 follows:
1994 1993 ------------------------------------------- ------------------------------------------------------------ Gross Gross Gross Amortized Unrealized Fair Amortized Unrealized Unrealized Fair Cost Losses Value Cost Gains Losses Value -------------- --------------- ----------- -------------- -------------- --------------- ------------ (In Thousands) Federal Home Loan Mortgage $ 134,945 (12,718) 122,227 143,360 131 (104) 143,387 Corporation Federal National Mortgage Association 93,284 (9,190) 84,094 98,905 --- (317) 98,588 Accrued interest receivable 1,200 --- 1,200 657 --- --- 657 -------------- --------------- ----------- -------------- -------------- --------------- ------------ $ 229,429 (21,908) 207,521 242,922 131 (421) 242,632 ============== =============== =========== ============== ============== =============== ============
At December 31, 1994, the Corporation did not have any mortgage-backed securities sold under repurchase agreements. At December 31, 1993, mortgage-backed securities with book values of $119.4 million and fair values of $119.2 million were sold under repurchase agreements. The Corporation has pledged mortgage-backed securities with book values of $205.0 million and fair values of $185.3 million to the Federal Home Loan Bank of Atlanta ("FHLB of Atlanta") as collateral for short-term credit advances at December 31, 1994. The Corporation has also pledged mortgage-backed securities with book values of $18.7 million and fair values of $16.9 million as collateral for standby letters of credit at December 31, 1994. At December 31, 1993, the Corporation had pledged mortgage-backed securities with book values of $27.7 million and fair values of $28.1 million as collateral for standby letters of credit. See note 15. -24- (5) Loans Receivable A summary of loans receivable as of December 31 follows: 1994 1993 --------------- --------------- (In Thousands) Real estate: Mortgage loans: Residential - single family $ 1,382,627 1,110,912 Residential - multi-family 31,739 39,864 Commercial 88,859 70,784 Construction 153,223 104,881 Consumer 366,337 313,892 Commercial 10,051 10,961 Accrued interest receivable 10,292 8,501 --------------- --------------- 2,043,128 1,659,795 1994 1993 --------------- --------------- (In Thousands) Less: Undisbursed loan funds 70,484 48,526 Unearned loan fees 6,639 5,437 Allowance for loan losses 13,733 14,625 --------------- --------------- Loans receivable, net $ 1,952,272 1,591,207 =============== =============== The Corporation's lending operations are concentrated in the mid-Atlantic region. Substantially all of the Corporation's loans receivable are mortgage loans secured by residential and commercial property and consumer loans secured by automobiles and boats. Loans are extended only after evaluation by management of borrowers' creditworthiness, value of collateral and other relevant factors on a case-by-case basis. The Corporation generally does not lend over 95% of the appraised value of a residential property and requires private mortgage insurance on first mortgages with loan-to-value ratios in excess of 80%. With respect to construction, commercial and multi-family residential loans the Corporation generally does not lend over 80% of the appraised value of the property. In addition, the Corporation generally obtains personal guarantees of partial to full repayment from the borrower and/or others for such loans and disburses the proceeds of construction and similar loans only as work progresses on the related projects. Residential lending is generally considered to involve less risk than other forms of lending although repayment of these loans is dependent to some extent on economic and market conditions in the Corporation's primary lending area. Multi-family residential, commercial and construction loan repayments are generally dependent on the operations of the related properties and/or the financial condition of the borrower and/or guarantor. Accordingly, repayment of such loans can be more susceptible to adverse conditions in the real estate market and the national and local economy. Repayment of consumer loans is largely dependent on the condition of the regional economy and the used automobile and boat market. -25- A summary of activity in the allowance for loan losses for the years ended December 31 follows:
1994 1993 1992 --------------- --------------- --------------- (Dollars in Thousands) Balance at beginning of year $ 14,625 15,151 14,338 --------------- --------------- --------------- Charge-offs: Real estate - mortgage loans 438 225 354 Real estate - construction loans --- --- 306 Consumer loans 3,525 5,886 7,938 Commercial loans --- --- --- Recoveries - consumer loans (2,411) (2,500) (2,346) --------------- --------------- --------------- Net charge-offs 1,552 3,611 6,252 --------------- --------------- --------------- Provision for loan losses: Real estate - mortgage loans 300 600 675 Real estate - construction loans 300 --- (1,150) Consumer loans 5 2,419 4,062 Commercial loans 55 66 3,478 --------------- --------------- --------------- 660 3,085 7,065 --------------- --------------- --------------- 1994 1993 1992 --------------- --------------- --------------- (Dollars in Thousands) Balance at end of year $ 13,733 14,625 15,151 =============== =============== =============== Ratio of net charge-offs to average loans outstanding .09% .25% .41% Balance at end of year applicable to: Real estate - mortgage loans $ 2,333 2,471 2,096 Real estate - construction loans 840 540 540 Consumer loans 6,533 7,642 8,609 Commercial loans 4,027 3,972 3,906
Nonperforming loans as of December 31 were as follows: 1994 1993 --------------- ---------------- (In Thousands) Repossessed autos and boats $ 581 1,650 Nonaccrual loans 7,682 10,149 --------------- ---------------- $ 8,263 11,799 =============== ================ In addition to nonperforming loans, the Corporation also has an investment in a loan modified under a troubled debt restructuring. The recorded investment in this loan was approximately $1.5 million at December 31, 1994 and 1993. The contractual amount of interest that would have been recorded on the above nonaccrual loans and loan modified -26- under a troubled debt restructuring during 1994 and 1993 was approximately $824,000 and $1.0 million, respectively. Actual interest income recorded on such loans totaled $201,000 in 1994 and $257,000 in 1993. The Corporation, through its normal asset review process, has classified certain loans which management believes involve a degree of risk warranting additional attention. These classifications are special mention, substandard, doubtful and loss. In addition to those included above in nonperforming and restructured loans a total of $7.4 million and $9.9 million in loans were classified as substandard or doubtful at December 31, 1994 and 1993, respectively. These are loans that are current but have been classified by management due to a specific identified weakness, such as cash flow or collateral. Loans classified as special mention totaled $3.8 million and $3.6 million at December 31, 1994 and 1993, respectively. These are loans which, while current in required payments, have exhibited some potential weaknesses that, if not corrected, could weaken the asset and increase the level of risk in the future. At December 31, 1994, 1993 and 1992, the Corporation was servicing approximately $1.65 billion, $1.41 billion and $1.34 billion, respectively, of whole and participating interests in loans for third-party investors, which are not reflected in the Consolidated Statements of Financial Condition. Such servicing operations result in the generation of an average annual fee income of between .25% and .50% of the principal balances of such loans serviced. -27- A summary of activity in loans to directors and executive officers of the Corporation including advances to real estate joint ventures in which such individuals hold an interest, excluding aggregate amounts under $60,000 per individual for the year ended December 31, 1994 is presented in the following table:
Commercial Investments Real Estate in and Residential Loans and Advances and Consumer Lines of to Real Estate Loans Credit Joint Ventures Total -------------------- ----------------- ------------------- --------------- (In Thousands) Balance at December 31, 1993 $ 1,331 9,322 5,036 15,689 New loans and advances 205 900 2,372 3,477 Principal payments (250) (1,365) (3,297) (4,912) -------------------- ----------------- ------------------- --------------- Balance at December 31, 1994 $ 1,286 8,857 4,111 14,254 ==================== ================= =================== ===============
(6) Investments in Real Estate The following is a summary of investments in real estate at December 31:
1994 1993 --------------- --------------- (In Thousands) Purchased for development and sale $ 7,347 10,238 Acquired through foreclosure 20,601 27,370 Investments in and advances to joint ventures 9,731 14,810 --------------- --------------- 37,679 52,418 Allowance for losses (11,305) (11,769) --------------- --------------- $ 26,374 40,649 =============== ===============
A summary of income (loss) on investments in real estate for the years ended December 31 follows:
1994 1993 1992 --------------- ---------------- --------------- (In Thousands) Equity in net income of real estate joint $ 2,913 2,732 1,817 ventures (Loss) gain from sales of real estate acquired for development and sale, net (32) 124 43 Income from sales of real estate acquired through foreclosure, net 781 1,010 167 Provision for losses on real estate (2,388) (3,605) (6,885) Expenses of holding real estate acquired through foreclosure, net (826) (846) (961) --------------- ---------------- --------------- $ 448 (585) (5,819) ================ ================ =============== -28- A summary of activity in the allowance for losses on investments in real estate for the years ended December 31 follows:
1994 1993 1992 --------------- --------------- --------------- (In Thousands) Balance at beginning of year $ 11,769 10,606 4,539 Charge-offs, net of recoveries: Real estate acquired through foreclosure 1,151 45 (366) Real estate purchased for development and 1,194 2,207 1,184 sale Investments in and advances to real estate joint ventures 507 190 --- --------------- --------------- --------------- Total charge-offs, net 2,852 2,442 818 --------------- --------------- --------------- Provision for losses: Real estate acquired through foreclosure 1,456 1,670 4,395 Real estate purchased for development and 380 1,453 3,309 sale Investments in and advances to real estate joint ventures 552 482 (819) --------------- --------------- --------------- Total provisions for losses 2,388 3,605 6,885 --------------- --------------- --------------- Balance at end of year $ 11,305 11,769 10,606 =============== =============== =============== Balance at end of year applicable to: Real estate acquired through foreclosure $ 9,008 8,703 7,078 Real estate purchased for development and 1,473 2,287 3,041 sale Investments in and advances to real estate joint ventures 824 779 487 --------------- --------------- --------------- $ 11,305 11,769 10,606 =============== =============== ===============
Real estate purchased for development and sale includes several residential real estate projects. The Corporation, through its subsidiaries, is a partner in several real estate joint ventures in which its partnership interests range from 16% to 50%. The joint ventures were formed for the purpose of acquiring and developing residential real estate for sale. -29- Combined condensed financial information for these joint ventures, which are accounted for using the equity method, is presented below: Balance Sheets
December 31, --------------------------------- 1994 1993 --------------- --------------- (In Thousands) Assets (primarily land and construction in progress) $ 21,601 31,894 =============== =============== Liabilities Due to Loyola Capital Corporation and subsidiaries $ 7,171 9,875 Due to others 6,532 9,400 Partners' equity Loyola Capital Corporation and subsidiaries 4,139 5,333 Others 3,759 7,286 --------------- --------------- $ 21,601 31,894 =============== ===============
Operations
Years Ended December 31, ---------------------------------------------------- 1994 1993 1992 ---------------- --------------- --------------- (In Thousands) Sales $ 41,029 40,338 26,364 Cost of sales 35,471 34,741 22,568 ---------------- --------------- --------------- Gain on sales of real estate $ 5,558 5,597 3,796 ================ =============== ===============
(7) Insurance of Deposit Accounts and Related Matters The Federal Deposit Insurance Corporation ("FDIC"), through the Savings Association Insurance Fund, insures deposits of accountholders up to $100,000. The Bank pays an annual premium to provide for this insurance. The Bank is a member of the Federal Home Loan Bank System and is required to maintain an investment in the stock of the FHLB of Atlanta equal to at least 1% of the unpaid principal balances of its residential mortgage loans, .3% of its total assets or 5% of its outstanding credit from the bank, whichever is greater. Purchases and sales of stock are made directly with the bank at par value. In connection with the insurance of their deposits, thrift institutions are required to maintain certain minimum levels of regulatory capital. The minimum levels are tangible and core capital of 1.5% and 3%, respectively, of adjusted total assets and risk-based capital of 8.0% of risk-weighted assets. For risk-based capital purposes, the Bank is permitted to include its general valuation loss allowance subject to a limitation of 1.25% of risk-weighted assets. In addition, investments (debt or equity) in subsidiaries and joint ventures engaged in real estate development and certain other activities not permissible for national banks, as defined, must be excluded from capital to the extent that they exceed the total balance of such investments as of April 12, 1989. The total of such investments below the balance as of April 12, 1989 are subject to a phase-in exclusion at specified rates of 25% on July 1, 1991; 40% on July 1, 1994; 60% on July 1, 1995 and 100% -30- on July 1, 1996. In August 1993, the OTS adopted a final rule for calculating an interest rate risk ("IRR") component of risk-based capital. The new rule became effective January 1, 1994; with institutions first required to meet the new standard at March 31, 1995. The OTS began calculating the IRR component quarterly for each institution starting in 1994. To estimate IRR, the OTS computes each institution's net portfolio value ("NPV") in the present interest rate environment versus NPVs derived after applying parallel rate shifts of plus and minus 200 basis points. If there is a measured decline in NPV greater than 2% of the estimated market value of the institution's assets at each of the three most recent quarter ends, then an institution will be required to deduct an IRR component in calculating its risk-based capital. This component is equal to one-half of the difference between its measured IRR and 2%, multiplied by the market value of its assets. Based upon the latest available quarterly proforma computations of NPV by the OTS in 1994, the Bank's measured IRR exceeded 2% of the estimated market value of its assets at September 30. If the measured IRR exceeds 2% for the next two quarters the Bank's risk-based capital ratio would be reduced. Such reduction is not expected to affect the Bank's ability to meet its minimum capital requirements. However, it could affect the Bank's capital category discussed below. The Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA") included prompt corrective action provisions for which implementing regulations became effective on December 19, 1992. FDICIA also includes significant changes to the legal and regulatory environment for insured depository institutions, including reduction in insurance coverage for certain kinds of deposits, increased supervision by the federal regulatory agencies, increased reporting requirements for insured institutions, and new regulations concerning internal controls, accounting, and operations. The prompt corrective action regulations of FDICIA define specific capital categories based on an institution's capital ratios. The capital categories, in declining order, are "well capitalized," "adequately capitalized," "undercapitalized," "significantly undercapitalized," and "critically undercapitalized." Institutions categorized as "undercapitalized" or worse are subject to certain restrictions, including the requirement to file a capital plan with its primary federal regulator, prohibitions on the payment of dividends and management fees, restrictions on executive compensation, and increased supervisory monitoring, among other things. To be considered "well capitalized," an institution must generally have a leverage capital ratio of at least 5%, a tier one risk-based capital ratio of at least 6% and a total risk-based capital ratio of at least 10%. At December 31, 1994, the Bank met the criteria required to be considered "well-capitalized" under this regulation. At December 31, 1994, the Bank was in compliance with the current and fully phased-in regulatory capital requirements. Dividends may not be paid if doing so would cause the Bank to fail to meet the minimum levels of regulatory capital. See also note 12 for additional restrictions on the payment of dividends. -31- (8) Property and Equipment The following is a summary of property and equipment as of December 31:
Estimated 1994 1993 Useful Lives ------- ------ ------------ (In Thousands) Land ......................................... $ 3,082 3,291 -- Office buildings and improvements ............ 23,509 22,629 15-40 years Furniture, fixtures and equipment ............ 19,917 18,535 3-10 years Computer software ............................ 5,461 5,221 3-7 years ------- ------- =========== Total cost ............................... 51,969 49,676 Less accumulated depreciation and amortization 27,262 24,231 ------- --------- $24,707 25,445 ======= =========
-32- (9) Deposits The following is a summary of deposits as of December 31:
Weighted Average Rates ---------------------------------- 1994 1993 ---------------- --------------- Negotiable order of withdrawal (NOW) 2.44% 2.32% Passbook and statement savings 2.85 3.00 Money market 4.03 3.04 Noninterest-bearing --- ---
Maturities ------------------ Certificates: Short-term fixed rate 3-12 months 4.02 3.04 Negotiable rate 1-12 months --- 3.14 Long-term variable rate 18-23 months 5.10 4.36 Long-term fixed rate 12-60 months 5.40 5.40 Other 3-96 months --- 8.66
1994 1993 --------------------------------- --------------------------------- Amount % Amount % ----------------- ------------ ----------------- ------------ (Dollars in Thousands) Negotiable order of withdrawal (NOW) $ 86,577 6 $ 79,540 6 Passbook and statement savings 153,060 10 161,910 11 Money market 411,925 28 340,129 24 Noninterest-bearing 27,151 2 56,983 4 ----------------- ------------ ----------------- ------------ 678,713 46 638,562 45 ----------------- ------------ ----------------- ------------ Certificates: Short-term fixed rate 94,074 7 120,748 8 Negotiable rate --- --- 1,688 --- Long-term variable rate 90,204 6 101,148 7 Long-term fixed rate 606,659 41 555,451 39 Other --- --- 7,700 1 ----------------- ------------ ----------------- ------------ 790,937 54 786,735 55 ----------------- ------------ ----------------- ------------ Accrued interest 275 --- 158 --- Premium on purchased deposits (4,295) --- (661) --- ----------------- ------------ ----------------- ------------ $ 1,465,630 100 1,424,794 100 ================= ============ ================= ============ Scheduled certificate maturities: 0-6 months $ 263,938 33 289,335 37 7-12 months 158,710 20 158,608 20 13-24 months 117,075 15 166,057 21 25-36 months 119,698 15 44,904 6 37-48 months 46,134 6 66,255 8 49-60 months 85,362 11 61,340 8 Over 60 months $ 790,937 100 786,735 100 ================= ============ ================= ============
Certificates of $100,000 or more totaled $58.0 million and $52.1 million at December 31, 1994 and 1993, respectively. -33- (9) Deposits, continued The following is a summary of interest expense on deposits for the years ended December 31: 1994 1993 1992 ------- ------- ------- (In Thousands) NOW and money market $17,581 12,096 13,853 Passbook and statement savings 4,518 4,813 4,956 Certificates 36,255 41,703 58,461 ------- ------- ------- $58,354 58,612 77,270 ======= ======= ======= (10) Notes Payable and Other Borrowings The following is a summary of notes payable and other borrowings as of December 31:
1994 1993 ---------------------------------- ---------------------------------- Weighted Weighted Average Average Amount Rates Amount Rates --------------- --------------- --------------- --------------- (Dollars in Thousands) Notes payable: Advances from FHLB of Atlanta due in: 1994 $ -- --- % 96,800 6.81% 1995 371,200 6.27 93,600 6.93 1996 61,200 5.73 54,600 5.54 1997 61,200 5.73 54,600 5.54 1998 61,200 5.73 54,600 5.54 1999 61,200 5.73 54,600 5.54 2000 to 2004 93,700 5.69 93,700 5.69 2005 and beyond 9,670 5.63 7,170 5.79 -------- ---------- 719,370 6.00 509,670 6.07 -------- ---------- Securities sold with agreements to repurchase - due within one month 55,231 6.05 215,048 2.93 Accrued interest payable 2,976 2,846 -------- ---------- $777,577 727,564 ======== ==========
Under a blanket floating lien security agreement with the FHLB of Atlanta, the Corporation is required to maintain as collateral for its advances qualifying first mortgage loans in an amount equal to 133% of the advances. In addition, all of its stock in the FHLB of Atlanta is pledged as collateral for such advances. At December 31, 1994, the Corporation has pledged mortgage-backed securities to the FHLB of Atlanta as additional collateral for certain short-term credit advances under the above mentioned line of credit. See note 4. -34- The Corporation enters into sales of U.S. Treasury and mortgage-backed securities with agreements to repurchase ("reverse repurchase agreements"). Fixed-coupon reverse repurchase agreements are treated as financings, and the obligations to repurchase securities sold are reflected as a liability in the consolidated statements of financial condition. The securities underlying the agreements are book-entry securities. The securities are delivered by appropriate entry into the counterparties' accounts maintained at the Federal Reserve Bank of New York. For mortgage-backed securities, the dealers may have sold, loaned or otherwise disposed of such securities to other parties in the normal course of their operations, and have agreed to resell to the Corporation substantially identical securities at the maturities of the agreements. Identical U.S. Treasury securities are required to be resold to the Corporation. The dollar amount of U.S. Treasury and mortgage-backed securities remains in the asset accounts. All agreements mature within 30 days. At December 31, 1994 and 1993, details of securities sold with agreements to repurchase are as follows:
1994 1993 ---------------------------------- --------------------------------- Book Value Fair Value Book Value Fair Value --------------- ---------------- --------------- --------------- (In Thousands) U.S. Treasury Securities $ 54,998 54,863 95,156 95,258 Mortgage-Backed Securities --- --- 119,375 119,247 --------------- ---------------- --------------- --------------- $ 54,998 54,863 214,531 214,505 =============== ================ =============== ===============
Certain additional information regarding short-term borrowings for the years ended December 31 is presented below:
1994 1993 1992 --------------- --------------- ---------------- (Dollars in Thousands) Maximum amount of short-term borrowings outstanding at any month-end: Securities sold with agreements to repurchase $ 241,050 215,048 40,576 Advances from FHLB of Atlanta 371,200 96,800 20,827 Approximate average month-end short-term borrowings outstanding with respect to: Securities sold with agreements to repurchase 99,614 44,317 1,413 Advances from FHLB of Atlanta 208,561 45,105 901 Approximate weighted average rate paid on (computed using average month-end short-term borrowings outstanding): Securities sold with agreements to repurchase 3.63 % 2.84 % 4.33% Advances from FHLB of Atlanta 6.26 7.41 6.61
The following is a summary of interest expense on notes payable and other borrowings for the years ended December 31:
1994 1993 1992 --------------- --------------- ---------------- (In Thousands) Short-term $ 16,667 4,600 121 Long-term 19,485 15,764 10,066 --------------- --------------- ---------------- $ 36,152 20,364 10,187 =============== =============== ================
-35- (11) Income Taxes The components of the provision for income taxes for the years ended December 31 are as follows:
1994 1993 1992 --------------- --------------- --------------- (In Thousands) Current: Federal $ 8,822 5,232 9,197 State 1,873 1,009 1,978 --------------- --------------- --------------- 10,695 6,241 11,175 --------------- --------------- --------------- Deferred: Federal (551) 1,579 (3,040) State (118) 340 (675) --------------- --------------- --------------- (669) 1,919 (3,715) --------------- --------------- --------------- Provision for income taxes $ 10,026 8,160 7,460 =============== =============== ===============
The net deferred tax asset consists of total deferred tax assets and total deferred tax liabilities of approximately $10.3 million and $4.2 million at December 31, 1994 and $11.0 million and $5.6 million at December 31, 1993, respectively. The tax effects of temporary differences between the financial reporting basis and income tax basis of assets and liabilities that are included in the net deferred tax asset at December 31, 1994 and 1993 relate to the following:
1994 1993 --------------- --------------- (In Thousands) Interest and fees on loans $ 3,423 3,671 Equity in net income of joint ventures (491) (1,985) FHLB of Atlanta stock dividends (2,342) (2,345) Allowances for losses on loans and investments in real estate 5,766 6,994 Depreciation and amortization (192) (843) Other, net (86) (83) --------------- --------------- Total $ 6,078 5,409 =============== ===============
A reconciliation between the provision for income taxes and the amount computed by multiplying income before income taxes by the statutory federal income tax rate of 35% in 1994 and 1993 and 34% in 1992 is as follows for the years ended December 31:
1994 1993 1992 --------------- --------------- --------------- (In Thousands) Income tax provision at federal statutory rate $ 8,773 7,149 6,414 State income tax net of federal tax benefit 1,141 877 860 Other, net 112 134 186 --------------- --------------- --------------- Provision for income taxes $ 10,026 8,160 7,460 =============== =============== ===============
The Internal Revenue Service has examined the Corporation's consolidated federal income tax returns through December, 1990. -36- (12) Stockholders' Equity In 1986, the Bank completed its conversion from mutual to stock ownership and became a wholly-owned subsidiary of Loyola Capital Corporation, a unitary savings and loan holding company. Federal regulations require that, upon conversion from mutual to stock form of ownership, a "liquidation account" be established by restricting a portion of net worth for the benefit of eligible savings account holders who maintain their savings accounts with the Bank after conversion. In the event of complete liquidation (and only in such event), each savings account holder who continues to maintain his savings account shall be entitled to receive a distribution from the liquidation account after payment to all creditors, but before any liquidation distribution with respect to capital stock. This account will be proportionately reduced for any subsequent reduction in the eligible holders' savings accounts. Under federal regulations, the Bank may not declare or pay a cash dividend on any of its stock if the effect thereof would cause the Bank's capital to be reduced below the amount required for the liquidation account or the capital requirements imposed by FIRREA and the OTS. Since the Bank currently meets the fully phased-in capital requirements under FIRREA, it may pay a cash dividend on its capital stock up to the higher of (i) 100% of its net income to date during the calendar year plus an amount not to exceed 50% of its surplus capital ratio at the beginning of the calendar year or (ii) 75% of its net income over the most recent four quarter period. Based upon this calculation, the amount available for payment of a dividend was $21.1 million at December 31, 1994. See also note 7. During 1994, stock options for 45,483 shares were exercised at an average price of $6.09, resulting in an increase of $4,548 and $322,850 to common stock and additional paid-in capital, respectively. The Corporation paid cash dividends of $3.2 million during the year. On January 18, 1995, the Corporation's Board of Directors declared a $.12 per share dividend payable March 31, 1995 to holders of record on March 15, 1995. (13) Net Income Per Common Share Primary net income per common share has been computed based on the weighted average number of shares of common stock and common stock equivalents outstanding during the year of 8,645,777 in 1994, 8,619,753 in 1993 and 8,776,389 in 1992. Weighted average shares used in computing fully diluted net income per common share were 8,659,574 in 1994, 8,630,055 in 1993 and 8,811,470 in 1992. It is assumed that all dilutive stock options are exercised at the later of the beginning of the year or the date of the grant, and the proceeds used to purchase shares of common stock. The fully diluted weighted average shares reflect the maximum dilutive effect of stock issuable upon the exercise of stock options. Shares outstanding have been retroactively adjusted for the two-for-one stock split issued on September 30, 1992. (14) Stock Option Plan Pursuant to the Corporation's Stock Option Plan ("Option Plan"), 1.4 million shares of common stock are reserved for issuance upon exercise of stock options granted to officers, full-time employees and directors of the Corporation and its subsidiaries. Options granted under the Option Plan may be incentive stock options within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended, or nonqualifying stock options. Options are exercisable at the market price of the common stock on the date of grant. The options must be exercised within 10 years from the date of grant. The Option Plan contains provisions authorizing the granting of stock appreciation rights in connection with options granted under the Stock Option Plan. These stock appreciation rights permit an optionee to surrender an option for cancellation and receive cash or common stock equal to the difference between the exercise price and the then fair market value of the shares of common stock subject to the option. There were no stock appreciation rights outstanding as of December 31, 1994. -37- A summary of changes in shares under option and options exercisable for the years ended December 31 is presented below. The number of shares and option price per share have been restated to give effect to the two-for-one stock split issued on September 30, 1992.
1994 1993 1992 --------------- --------------- ---------------- Outstanding at beginning of year 1,071,101 1,024,250 1,143,700 Granted 51,000 131,000 6,000 Cancelled --- (9,780) (10,660) Exercised (45,483) (74,369) (114,790) --------------- --------------- ---------------- Outstanding at end of year 1,076,618 1,071,101 1,024,250 --------------- --------------- ---------------- Exercisable at end of year 1,076,618 762,133 735,734 =============== =============== ================
The options outstanding are exercisable as follows at December 31, 1994: Stock Option Expiration Options Per Share Year --------------- --------------- --------------- 388,992 $ 6.25 1996 50,619 4.50 1997 64,640 5.88 1998 106,340 7.63 1999 15,000 6.25 2000 97,527 4.25 2000 168,000 6.31 2001 6,000 8.13 2002 30,000 13.38 2003 98,500 15.50 2003 51,000 21.63 2004 -38- (15) Commitments and Contingencies In the normal course of business, the Corporation is a party to various commitments to meet the financing needs of its customers. Commitments to extend credit are agreements to lend to customers provided that terms and conditions established in the related contracts are met. At December 31, 1994, the Corporation had the following contractual commitment to extend credit, exclusive of undisbursed loan funds.
Fixed Floating Rate Rate Total --------------- --------------- --------------- (In Thousands) Mortgage loans $ 64,123 4,819 68,942 Lines of credit: Home equity --- 61,286 61,286 Unsecured --- 35,600 35,600 Commercial --- 7,960 7,960 Standby letters of credit 27,927 --- 27,927 Other letters of credit 18,232 --- 18,232
Commitments to extend credit for mortgage loans includes approximately $32.3 million of commitments to purchase mortgage loans. Commitments to originate mortgage loans generally expire within 60 days. Commitments under lines of credit are generally longer than one year but are subject to periodic re-evaluation and cancellation. The Corporation has three standby letters of credit supporting financing on various real estate properties. Two of the standby letters of credit, which expire in ten years, are secured by confirming letters of credit issued by the FHLB of Atlanta. The third standby letter of credit, which expires in three years, has mortgage-backed securities with book values of approximately $18.7 million pledged as collateral at December 31, 1994. See note 4. Other letters of credit are generally issued to various governmental units to guarantee builder performance concerning the installation of roads and utilities in residential real estate development projects for which the Corporation has made the construction loan. Substantially all such letters of credit expire within two years. Commitments may be funded from loan principal repayments, excess liquidity, savings deposits and, if necessary, borrowings. Since certain of the commitments may expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. Substantially all of the Corporation's outstanding commitments at December 31, 1994 are for loans which will be secured by real estate with appraised values in excess of the commitment amounts. The Corporation's exposure to credit loss under these contracts in the event of nonperformance by the other parties, assuming that the collateral proves to be of no value, is represented by the commitment amounts. The Corporation has assumed the recourse risk related to foreclosure and losses, after private mortgage insurance coverage, for $120.7 million of loans sold by the Corporation to third party investors at December 31, 1994. Management does not believe these recourse provisions subject the Corporation to any material risk of loss. The credit risk associated with such loans is considered by management not materially different than the credit risk associated with similar loans in the Corporation's loan portfolio. Management considers the above commitments and loans sold with recourse in evaluating the adequacy of the allowance for losses. The allowance established for these items is included with the allowance for losses on loans receivable since such amounts are not material. The Corporation enters into commitments to sell loans and mortgage-backed securities. These agreements are -39- fulfilled through loan originations. At December 31, 1994, such commitments totaled $74.7 million and the Corporation held $31.0 million in loans to fulfill these commitments. In the event that the outstanding commitments cannot be satisfied through loan production, the Corporation would settle the obligation for the difference between the commitment price and the current market price in a transaction referred to as a pair-off. The Corporation, as lessee, has entered into operating leases for certain retail banking branch offices expiring at various dates through 2007 most of which are subject to options for renewal. The average remaining term of such leases is approximately three years at December 31, 1994. Rent expense under such leases aggregated approximately $2.0 million, $1.8 million and $1.7 million for the years ended December 31, 1994, 1993 and 1992, respectively. The minimum rental payments due under operating leases in effect at December 31, 1994 are $2.1 million in 1995; $1.9 million in 1996; $1.6 million in 1997; $1.1 million in 1998, $663,000 in 1999 and $996,000 subsequent to 1999. In December 1991, the Corporation entered into a five-year data processing outsourcing agreement with a third party vendor. Pursuant to this agreement, the vendor will provide the Corporation facilities management and data processing services, including the use of various software products. Outside data processing expenses incurred under this agreement were $3.4 million, $3.1 million and $3.3 million for the years ended December 31, 1994, 1993 and 1992, respectively. The minimum payments due under this agreement are $3.6 million in 1995 and $3.4 million in 1996. The Corporation is involved in pending litigation of the usual character incidental to its business. In the opinion of management, such litigation will not have a material effect on the Corporation's financial statements. -40- (16) Pension and Profit Sharing Plans Substantially all employees are participants in the Corporation's noncontributory defined benefit pension plan. The benefits are based on a career compensation formula. The Corporation's policy is to fund the maximum amount that can be deducted for federal income tax purposes. The Corporation also has an unfunded and nonqualified supplemental plan to provide retirement benefits to certain senior officers. Benefits under this plan are also based on a career compensation formula. A summary of the plans' funded status and amounts recognized in the consolidated statements of financial condition as of December 31 follows:
1994 1993 ----------------------------------- ---------------------------------- Unfunded Unfunded Funded Supplemental Funded Supplemental Plan Plan Plan Plan --------------- ------------------ --------------- ----------------- (In Thousands) Actuarial present value of accumulated benefit obligations: Vested $ 5,423 2,676 6,119 1,722 Nonvested 170 --- 250 1,001 --------------- ------------------ --------------- ----------------- Total accumulated benefits $ 5,593 2,676 6,369 2,723 obligations =============== ================== =============== ================= Projected benefit obligation for service rendered to date $ 6,285 3,070 7,452 3,277 Plan assets at fair value - primarily U.S. Government and Agency securities and pooled funds 5,799 --- 6,120 --- --------------- ------------------ --------------- ----------------- Plan assets less than projected benefit obligation (486) (3,070) (1,332) (3,277) Unrecognized prior service costs (99) 1,337 26 1,357
-41-
1994 1993 ----------------------------------- ---------------------------------- Unfunded Unfunded Funded Supplemental Funded Supplemental Plan Plan Plan Plan --------------- ------------------ --------------- ----------------- (In Thousands) Unrecognized net assets at January 1, 1987 being amortized over 13.22 years (595) --- (709) --- Unrecognized net loss from past experience different from that assumed 892 269 1,974 1,032 Adjustment required to recognize minimum liability --- (1,212) (207) (1,835) --------------- ------------------ --------------- ----------------- Pension liability recognized in the statements of financial condition $ (288) (2,676) (248) (2,723) =============== ================== =============== =================
Net pension cost included the following components for the years ended December 31:
1994 1993 1992 --------------- --------------- --------------- (In Thousands) Service cost - benefits earned $ 442 352 325 Interest cost on projected benefit obligations 718 653 598 Actual return on plan assets (33) (504) (367) Net amortization and deferral (304) 54 (82) --------------- --------------- --------------- Net pension cost $ 823 555 474 =============== =============== =============== Funded plan $ 247 131 72 Unfunded supplemental plan 576 424 402 --------------- --------------- --------------- Net pension cost $ 823 555 474 =============== =============== ===============
The weighted average discount rate used in determining the actuarial present value of the projected benefit obligation was 8.0% in 1994, 7.0% in 1993 and 8.5% in 1992. The rate of increase of future compensation levels was 5.0% for 1994 and 1993 and 6.0% for 1992. The expected long-term rate of return on assets was 8.5% for all years shown. Substantially all employees are also participants in a defined contribution profit sharing retirement plan. The contribution for each year is based on a percentage of employees' contributions. The Corporation's contributions were $457,000 in 1994, $463,000 in 1993 and $381,000 in 1992. (17) Fair Value of Financial Instruments Statement of Financial Accounting Standards No. 107, "Disclosures about Fair Value of Financial Instruments" (Statement 107"), requires all entities to disclose the estimated fair value of certain on- and off-balance sheet financial instruments. -42- In many instances, the assumptions used in estimating fair values were based upon subjective assessments of market conditions and perceived risks of the financial instruments at a certain point in time. The fair value estimates can be subject to significant variability with changes in assumptions. Furthermore, these fair value estimates do not reflect any premium or discount that could result from offering for sale at one time the Corporation's entire holdings of a particular financial instrument. The tax ramifications related to the realization of unrealized gains and losses permitted are not to be considered in the estimation of fair value. In addition, fair value estimates are based solely on existing on- and offbalance sheet financial instruments without attempting to estimate the value of anticipated future business and the value of assets and liabilities that are not considered financial instruments. Examples would include portfolios of loans serviced for others, net fee income from the Corporation's subsidiaries, mortgage banking operations, investments in real estate, property and equipment, and deferred tax assets. Fair value estimates, methods and assumptions are set forth below for the Corporation's financial instruments. Investments and Mortgage-Backed Securities The carrying amounts for money market investments approximate fair value because they mature in 90 days or less and do not present unanticipated credit concerns. The fair value of longer-term investments such as U.S. Treasury securities, U.S. Agency securities and mortgage-backed securities is estimated based on bid prices published in financial newspapers or bid quotations received from securities dealers. The fair value of FHLB of Atlanta stock is estimated to be equal to its carrying amount given it is not a publicly traded equity security, it has an adjustable dividend rate and all transactions in the stock are executed at the stated par value. The following table represents the carrying amount and estimated fair value of money market investments, investment securities and mortgage-backed securities at December 31:
1994 1993 ---------------------------------- ---------------------------------- Carrying Estimated Carrying Estimated Amount Fair Value Amount Fair Value --------------- --------------- --------------- --------------- (In Thousands) Money market investments $ 3,286 3,286 71,230 71,230 Investment securities 117,907 114,709 190,524 190,637 Mortgage-backed securities 229,429 207,521 242,922 242,632
Loans Fair values are estimated for portfolios of loans with similar financial characteristics. Mortgage loans are segregated by Type, including but not limited to residential, commercial, and construction. Consumer loans are segregated by type, including but not limited to automobile loans, boat loans, home equity lines of credit and unsecured, personal lines of credit. Each loan category may be segmented, as appropriate, into fixed and adjustable interest rate terms, ranges of interest rates, performing and nonperforming, and repricing frequency. The fair value of each loan portfolio is calculated by discounting both scheduled and unscheduled cash flows through the remaining contractual maturity using the origination rate that the Corporation would charge under current conditions to originate similar financial instruments. Unscheduled cash flows take the form of estimated prepayments and may be based upon the Corporation's historical experience as well as anticipated experience derived from current and prospective economic and interest rate environments. For certain types of loans, anticipated prepayment experience exists in published tables from securities dealers. The fair value of significant nonperforming mortgage loans is based on recent external appraisals. Where appraisals are not available, estimated cash flows are discounted using a rate commensurate with the credit risk associated with those cash flows. Assumptions regarding credit risk, cash flows and discount rates are judgmentally determined using available market information and specific borrower information. The fair value of nonperforming consumer loans is based on the Corporation's historical experience with such loans. -43- The following table represents the carrying amount and estimated fair value of loans receivable at December 31:
1994 1993 ---------------------------------- ---------------------------------- Carrying Estimated Carrying Estimated Amount Fair Value Amount Fair Value --------------- --------------- --------------- --------------- (In Thousands) Mortgage loans $ 1,535,431 1,481,260 1,357,169 1,372,485 Construction loans 82,505 82,600 55,759 56,440 Consumer and other loans 379,075 363,396 327,304 324,019 --------------- --------------- --------------- --------------- 1,997,011 1,927,256 1,740,232 1,752,944 Allowance for loan losses (13,733) --- (14,625) --- --------------- --------------- --------------- --------------- Total loans $ 1,983,278 1,927,256 1,725,607 1,752,944 =============== =============== =============== ===============
Deposits and Borrowings The fair value of deposits with no stated maturity, such as interest-bearing or noninterest-bearing checking accounts, passbook and statement savings accounts, money market accounts and mortgage escrow accounts, is equal to the amount payable upon demand as of December 31. The fair value of certificates of deposit is based on the lower of redemption (net of penalty) or discounted value of contractual cash flows. Discount rates for certificates of deposit are estimated using the rates currently offered by the Corporation for deposits of similar remaining maturities. Borrowings are segregated by type into reverse and dollar reverse repurchase agreements, and FHLB of Atlanta advances. The carrying amount for reverse and dollar reverse repurchase agreements approximates the fair value because the borrowings mature in 90 days or less and are subject to daily margin maintenance. The fair value of FHLB of Atlanta advances is based on the discounted value of contractual cash flows. Discount rates are estimated using the rates currently offered for advances with both similar contractual terms and remaining maturities. The following table represents the carrying amount and estimated fair value of mortgage escrow accounts, deposit liabilities and borrowings at December 31:
1994 1993 ---------------------------------- --------------------------------- Carrying Estimated Carrying Estimated Amount Fair Value Amount Fair Value --------------- ---------------- --------------- --------------- (In Thousands) Mortgage escrow accounts and deposits with no stated maturity $ 706,631 706,631 662,647 662,647 Certificates of deposit 786,917 783,869 786,232 804,093 Reverse and dollar reverse repurchase agreements 55,231 55,231 215,048 215,048 FHLB of Atlanta advances 722,346 690,036 512,516 523,258
Unrecognized Financial Instruments The fair value of commitments to extend credit is estimated using the fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the present creditworthiness of the counterparties. For fixed-rate loan commitments, fair value also considers the difference between current levels of interest rates and the committed rates. The fair value of guarantees and letters of credit is based on fees currently charged for -44- similar agreements or on the estimated cost to terminate them or otherwise settle the obligations with the counterparties at the reporting date. The fair value of unrecognized financial instruments is estimated to equal the carrying value. See note 15 to the consolidated financial statements for the carrying amounts of unrecognized financial instruments. Nonfinancial Instruments Statement 107 does not permit the Corporation to take into account the value of its long-term relationships with depositors, commonly known as core deposit intangibles, when estimating the fair value of deposit liabilities. These intangibles are considered to be separate intangible assets that are not financial instruments. Nonetheless financial institutions' core deposits have typically traded at premiums to their book values under both historical and current market conditions. Likewise, Statement 107 does not permit the Corporation to take into account the value of the cash flows and income stream derived from its portfolio of loans serviced for others. At December 31, 1994 and 1993 the outstanding principal balances of the Corporation's portfolio of residential mortgage loans serviced for others were approximately $1.7 billion and $1.4 billion, respectively. -45- (18) Condensed Financial Information (parent company only) Statements of Condition
December 31, ---------------------------------- 1994 1993 --------------- --------------- (In Thousands) Assets: Cash $ 890 1,067 Loans receivable, net 4,281 1,280 Receivable from Loyola F.S.B. 10,726 14,042 Equity in net assets of Loyola F.S.B. 152,209 137,577 Investments in and advances to nonbanking subsidiaries 1,012 1,639 Investments in real estate 589 1,767 Other assets 14 1,269 --------------- --------------- $ 169,721 158,641 =============== =============== Liabilities and Stockholders' Equity: Liabilities - Accrued expenses and other liabilities $ 627 1,685 --------------- --------------- Stockholders' equity: Common stock 809 805 Additional paid-in capital 44,118 43,795 Retained income 124,167 112,356 --------------- --------------- Total stockholders' equity 169,094 156,956 --------------- --------------- $ 169,721 158,641 =============== ===============
Statements of Operations
Years Ended December 31, ---------------------------------------------------- 1994 1993 1992 --------------- --------------- --------------- (In Thousands) Income: Interest income from subsidiary $ 915 830 460 Other income 509 481 287 --------------- --------------- --------------- 1,424 1,311 747 --------------- --------------- --------------- Expenses - management fees and other 409 483 347 --------------- --------------- --------------- Income before equity in net income of subsidiaries 1,015 828 400 Equity in net income of subsidiaries 14,427 11,757 13,867 --------------- --------------- --------------- Income before income taxes 15,442 12,585 14,267 Income taxes 403 320 154 --------------- --------------- --------------- Net income $ 15,039 12,265 14,113 =============== =============== ===============
-46- (18) Condensed Financial Information (parent company only), continued Statements of Cash Flows
Years Ended December 31, ---------------------------------------------------- 1994 1993 1992 --------------- --------------- --------------- (In Thousands) Cash flows from operating activities: Net income $ 15,039 12,265 14,113 Adjustments to reconcile net income to net cash provided by operating activities: Equity in net income of subsidiaries (14,427) (11,757) (13,867) Other, net 102 103 19 --------------- --------------- --------------- Net cash provided by operating activities 714 611 265 --------------- --------------- --------------- Investing activities: Purchase of loans (2,049) (1,025) (215) Net increase in construction loans (1,000) --- --- Net decrease in investments in and advances to subsidiaries 3,736 4,061 7,255 Net (increase) decrease in investments in real estate 1,178 900 (1,334) Other, net 145 300 71 --------------- --------------- --------------- Net cash provided by investing activities 2,010 4,236 5,777 --------------- --------------- --------------- Financing activities: Repurchase of common stock (213,458 and 401,669 shares in 1993 and 1992, respectively) --- (2,904) (4,410) Proceeds from exercise of stock options 327 437 678 Payment of dividends on common stock (3,228) (1,943) (1,838) --------------- --------------- --------------- Net cash used by financing activities (2,901) (4,410) (5,570) --------------- --------------- --------------- Increase (decrease) in cash (177) 437 472 Cash at beginning of year 1,067 630 158 --------------- --------------- --------------- Cash at end of year $ 890 1,067 630 =============== =============== ===============
The parent company's current primary activity is that of a unitary savings bank holding company. A nonbanking subsidiary invests in real estate and real estate joint ventures. During 1994 the Corporation did not repurchase shares of its common stock and did not receive cash dividends from the Bank. The Corporation received cash dividends of $10 million and $11.2 million from the Bank in 1993 and 1992, respectively. -47- Independent Auditors' Report The Board of Directors Loyola Capital Corporation Baltimore, Maryland: We have audited the accompanying consolidated statements of financial condition of Loyola Capital Corporation and subsidiaries as of December 31, 1994 and 1993, and the related consolidated statements of income, stockholders' equity and cash flows for each of the years in the three-year period ended December 31, 1994. These consolidated financial statements are the responsibility of the Corporation's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Loyola Capital Corporation and subsidiaries as of December 31, 1994 and 1993, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1994, in conformity with generally accepted accounting principles. As discussed in note 1 to the consolidated financial statements, the Corporation adopted the provisions of Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes," in 1992. Baltimore, Maryland February 3, 1995 -48- Selected Quarterly Financial Data A summary of selected quarterly financial data for the years ended December 31, 1994 and 1993 is as follows:
First Second Third Fourth Quarter Quarter Quarter Quarter --------------- --------------- --------------- --------------- (In Thousands Except Per-Share Data) 1994: Interest income $ 39,136 38,527 40,548 43,200 Net interest income 16,606 16,323 16,645 17,331 Provision for loan losses 180 180 150 150 Net income 3,490 3,641 3,756 4,152 =============== =============== =============== =============== Primary net income per common share $ .41 .42 .43 .48 =============== =============== =============== =============== Fully diluted net income per common $ .40 .42 .43 .48 share =============== =============== =============== =============== 1993: Interest income $ 32,701 32,641 36,056 39,192 Net interest income 15,238 15,121 15,054 16,201 Provision for loan losses 935 800 695 655 Net income 3,012 3,160 3,009 3,084 =============== =============== =============== =============== Primary and fully diluted net income per common share $ .35 .36 .35 .36 =============== =============== =============== ===============
-49- EX-99 4 EXHIBIT 99.3 EXHIBIT 99.3 The Board of Directors Loyola Capital Corporation: We consent to incorporation by reference in Registration Statement No. 33-50387 on Form S- 3 of Crestar Financial Corporation of our report dated February 3, 1995, relating to the consolidated financial statements of financial condition of Loyola Capital Corporation and Subsidiaries as of December 31, 1994 and 1993, and the related consolidated statements of income, stockholders' equity and cash flows for each of the years in the three-year period ended December 31, 1994, which report appears in the current report on Form 8-K dated November 17, 1995 of Crestar Financial Corporation. Our report refers to a change in accounting for income taxes. KPMG Peat Marwick LLP Baltimore, Maryland November 17, 1995 -----END PRIVACY-ENHANCED MESSAGE-----