-----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, RUF1aKW59YG2rlOZqT47/Me3N7VfchEioiI8Ke9++TbP4FFILvOTUo25z/qiTrpr 5nOqoPwvxVufH6JNQNi51g== 0000916641-96-000700.txt : 19960816 0000916641-96-000700.hdr.sgml : 19960816 ACCESSION NUMBER: 0000916641-96-000700 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19960814 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: CRESTAR FINANCIAL CORP CENTRAL INDEX KEY: 0000101880 STANDARD INDUSTRIAL CLASSIFICATION: NATIONAL COMMERCIAL BANKS [6021] IRS NUMBER: 540722175 STATE OF INCORPORATION: VA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-07083 FILM NUMBER: 96614718 BUSINESS ADDRESS: STREET 1: 919 E MAIN ST STREET 2: PO BOX 26665 CITY: RICHMOND STATE: VA ZIP: 23261 BUSINESS PHONE: 8047825000 MAIL ADDRESS: STREET 1: 919 EAST MAIN STREET STREET 2: P O BOX 26665 CITY: RICHMOND STATE: VA ZIP: 23261-6665 FORMER COMPANY: FORMER CONFORMED NAME: UNITED VIRGINIA BANKSHARES INC DATE OF NAME CHANGE: 19871115 10-Q 1 CRESTAR 10-Q United States Securities And Exchange Commission Washington, DC 20549 Form 10-Q (Mark One) (X) Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the Quarter Ended June 30, 1996 ( ) Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Commission File Number 1-7083 . Crestar Financial Corporation (Exact name of registrant as specified in its charter) Virginia 54-0722175 (State or other jurisdiction (I.R.S. Employer of incorporation or organization) Identification No.) 919 E. Main Street, P.O. Box 26665, Richmond, Virginia 23261-6665 (Address of principal executive offices) (Zip Code) (804)782-5000 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes X . No . Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Class Outstanding at July 31, 1996 Common Stock, $5 par value 42,305,648 Crestar Financial Corporation And Subsidiaries Form 10-Q For The Quarter Ended June 30, 1996 Part I. Financial Information Item 1. Financial Statements: Page Consolidated Balance Sheets................................... Consolidated Statements Of Income............................. Consolidated Statements Of Cash Flows......................... Consolidated Statements Of Changes In Shareholders' Equity.... Notes To Consolidated Financial Statements.................... Item 2. Management's Discussion And Analysis Of Financial Condition And Results Of Operations: Financial Commentary.......................................... Part II Other Information Item 4. Submission Of Matters To A Vote Of Security Holders.......... Item 6. Exhibits And Reports On Form 8-K: There were no reports on Form 8-K filed during the three months ended June 30, 1996. Consolidated Balance Sheets Crestar Financial Corporation And Subsidiaries
Dollars in thousands June 30, December 31, Assets 1996 1995 1995 Cash and due from banks $ 765,724 $ 816,089 $ 1,084,047 Securities held to maturity (note 2) 75,597 1,093,943 85,368 Securities available for sale (note 3) 3,430,814 1,519,130 3,231,389 Money market investments (note 4) 905,952 573,372 516,268 Mortgage loans held for sale 997,943 417,480 688,218 Loans (note 5): Business Loans: Commercial 3,245,429 3,133,669 3,102,156 Real estate - income property 887,282 928,446 874,396 Real estate - construction 236,662 269,129 262,340 Consumer Loans: Instalment 2,747,930 2,377,041 2,732,557 Bank card 1,522,458 1,605,362 1,686,765 Real estate - mortgage 2,747,753 3,539,349 3,148,214 - ---------------------------------------------------------------------------------------------------- Total Loans 11,387,514 11,852,996 11,806,428 Less: Allowance for loan losses (note 6) (237,020) (237,717) (240,285) - ---------------------------------------------------------------------------------------------------- Loans - net 11,150,494 11,615,279 11,566,143 - ---------------------------------------------------------------------------------------------------- Premises and equipment - net 357,718 358,499 357,159 Customers' liability on acceptances 13,882 12,294 5,143 Intangible assets - net 188,006 164,294 186,732 Foreclosed properties - net (notes 5 and 7) 14,390 20,318 17,655 Other assets 587,797 620,853 564,563 - --------------------------------------------------------------------------------------------------- Total Assets $ 18,488,317 $17,211,551 $18,302,685 =================================================================================================== Liabilities Demand deposits $ 2,475,872 $ 2,278,131 $ 2,665,888 Interest-bearing demand deposits 4,926,373 4,789,245 4,975,710 Regular savings deposits 1,289,598 1,447,928 1,310,903 Domestic time deposits 3,924,719 4,110,221 4,184,703 Certificates of deposit $100,000 and over 161,277 67,643 116,211 - --------------------------------------------------------------------------------------------------- Total deposits 12,777,839 12,693,168 13,253,415 Short-term borrowings (note 8) 3,245,350 1,896,065 2,227,338 Liability on acceptances 13,882 12,294 5,143 Other liabilities 323,395 499,587 694,096 Long-term debt (note 9) 696,697 705,695 671,296 - --------------------------------------------------------------------------------------------------- Total Liabilities 17,057,163 15,806,809 16,851,288 - --------------------------------------------------------------------------------------------------- Shareholders' Equity Preferred stock. Authorized 2,000,000 shares; none issued - - - Common stock, $5 par value. Authorized 100,000,000 shares; outstanding 42,768,051 and 42,925,185 at June 30, 1996 and 1995, respectively; 42,809,761 at December 31, 1995 213,840 214,626 214,049 Capital surplus 392,694 361,709 371,075 Retained earnings 876,354 831,698 855,195 Net unrealized gain (loss) on securities available for sale (51,734) (3,291) 11,078 - --------------------------------------------------------------------------------------------------- Total Shareholders' Equity 1,431,154 1,404,742 1,451,397 - --------------------------------------------------------------------------------------------------- Total Liabilities And Shareholders' Equity $18,488,317 $17,211,551 $18,302,685 ===================================================================================================
See accompanying notes to consolidated financial statements. Consolidated Statements Of Income Crestar Financial Corporation And Subsidiaries
In thousands, except per share data Three Months Ended June 30, Six Months Ended June 30, 1996 1995 1996 1995 Income From Earning Assets Interest and fees on loans $252,330 $256,806 $505,275 $502,250 Interest on taxable securities held to maturity 158 16,670 392 34,590 Interest on tax-exempt securities held to maturity 827 986 1,690 1,990 Interest and dividends on securities available for sale 52,513 23,598 101,796 47,896 Income on money market investments 3,930 4,913 6,717 11,832 Interest on mortgage loans held for sale 16,152 5,807 30,446 10,182 - -------------------------------------------------------------------------------------------------------------- Total income from earning assets 325,910 308,780 646,316 608,740 - -------------------------------------------------------------------------------------------------------------- Interest Expense Interest-bearing demand deposits 35,440 39,018 72,489 76,583 Regular savings deposits 8,145 10,232 16,609 20,809 Domestic time deposits 51,125 51,557 105,966 95,382 Certificates of deposit $100,000 and over 2,150 954 3,599 1,811 - -------------------------------------------------------------------------------------------------------------- Total interest on deposits 96,860 101,761 198,663 194,585 Short-term borrowings 32,064 23,155 58,941 48,073 Long-term debt 12,475 12,839 25,188 25,334 - -------------------------------------------------------------------------------------------------------------- Total interest expense 141,399 137,755 282,792 267,992 - -------------------------------------------------------------------------------------------------------------- Net Interest Income 184,511 171,025 363,524 340,748 Provision for loan losses (note 6) 22,500 13,736 42,800 24,037 - -------------------------------------------------------------------------------------------------------------- Net Credit Income 162,011 157,289 320,724 316,711 - -------------------------------------------------------------------------------------------------------------- Noninterest Income Service charges on deposit accounts 23,191 22,125 44,801 44,033 Trust and investment advisory income 15,517 14,614 31,079 27,738 Bank card-related income 12,561 11,957 23,575 23,054 Other income 34,521 25,175 64,015 48,001 Securities gains (losses) 288 (1,050) 2,643 (3,460) - -------------------------------------------------------------------------------------------------------------- Total noninterest income 86,078 72,821 166,113 139,366 - -------------------------------------------------------------------------------------------------------------- Net Credit And Noninterest Income 248,089 230,110 486,837 456,077 - -------------------------------------------------------------------------------------------------------------- Noninterest Expense Personnel expense 87,248 82,866 171,479 165,533 Occupancy expense net 11,927 11,759 24,681 23,960 Equipment expense 7,679 7,773 15,377 15,674 Other expense 52,188 49,689 99,710 96,830 - -------------------------------------------------------------------------------------------------------------- Total noninterest expense 159,042 152,087 311,247 301,997 - -------------------------------------------------------------------------------------------------------------- Income Before Income Taxes 89,047 78,023 175,590 154,080 Income tax expense (note 10) 32,317 26,258 63,438 52,656 - -------------------------------------------------------------------------------------------------------------- Net Income $ 56,730 $ 51,765 $112,152 $101,424 ============================================================================================================== Earnings Per Common Share $ 1.31 $ 1.18 $ 2.58 $ 2.32 ==============================================================================================================
See accompanying notes to consolidated financial statements. Consolidated Statements Of Cash Flows Crestar Financial Corporation And Subsidiaries
In thousands Six Months Ended June 30, 1996 1995 Operating Net Income $ 112,152 $ 101,424 Activities Adjustments to reconcile net income to net cash used by operating activities: Provisions for loan losses, foreclosed properties and other losses 40,900 24,535 Depreciation and amortization of premises and equipment 19,178 19,536 Securities losses (gains) (2,643) 3,460 Amortization of intangible assets 8,062 6,229 Deferred income tax expense 7,391 6,183 Loss (gain) on foreclosed properties 49 (2,188) Gain on sales of mortgage servicing rights (4,750) (5,900) Net decrease (increase) in trading account 3,368 (621) Origination and purchase of loans held for sale (1,979,014) (1,007,590) Proceeds from sales of loans held for sale 1,669,289 830,599 Net decrease (increase) in accrued interest receivable, prepaid expenses and other assets 110,374 (19,978) Net increase (decrease) in accrued interest payable, accrued expenses and other liabilities (377,880) 21,112 Other, net 150 9,387 - -------------------------------------------------------------------------------------------------------------- Net cash used by operating activities (393,374) (13,812) - -------------------------------------------------------------------------------------------------------------- Investing Proceeds from maturities and calls of securities held to maturity 20,670 157,242 Activities Proceeds from maturities and calls of securities available for sale 312,301 189,236 Proceeds from sales of securities available for sale 2,049,371 977,747 Purchases of securities held to maturity (11,114) - Purchases of securities available for sale (2,540,699) (604,114) Net increase in money market investments (393,052) (121,091) Principal collected on non-bank subsidiary loans 26,279 11,067 Loans originated by non-bank subsidiaries (172,244) (91,024) Net decrease (increase) in other loans 319,262 (181,204) Purchases of premises and equipment (24,517) (33,728) Proceeds from sales of foreclosed properties 10,259 24,176 Proceeds from sales of mortgage servicing rights 9,197 8,305 Acquisitions of net assets of financial institutions 138,628 (12,173) Other, net (24,958) (5,554) - -------------------------------------------------------------------------------------------------------------- Net cash provided (used) by investing activities (280,617) 318,885 - -------------------------------------------------------------------------------------------------------------- Financing Net decrease in demand, interest checking, money market Activities and regular savings deposits (374,082) (362,698) Net increase (decrease) in certificates of deposit (243,029) 51,087 Net increase (decrease) in short-term borrowings 1,071,212 (14,249) Proceeds from issuance of long-term debt 63 1,237 Principal payments on long-term debt (27,948) (40,473) Cash dividends paid (41,896) (34,332) Common stock purchased and retired (53,874) (61,289) Proceeds from the issuance of common stock 25,308 17,509 Other, net (86) 23,625 - -------------------------------------------------------------------------------------------------------------- Net cash provided (used) by financing activities 355,668 (419,583) - -------------------------------------------------------------------------------------------------------------- Cash And Decrease in cash and cash equivalents (318,323) (114,510) Cash Cash and cash equivalents at beginning of year 1,084,047 930,599 ------------------------------------------------------------------------------------------------- Equivalents Cash and cash equivalents at end of quarter $ 765,724 $ 816,089 ==============================================================================================================
Cash and cash equivalents consist of cash and due from banks; see accompanying notes to consolidated financial statements. Consolidated Statements Of Changes In Shareholders' Equity Crestar Financial Corporation And Subsidiaries
Dollars in thousands Shareholders' Equity Shares of Common Stock 1996 1995 1996 1995 Balance, April 1 $1,439,616 $1,388,372 42,971,213 43,586,369 Net Income 56,730 51,765 - - Cash dividends declared on common stock (22,416) (18,068) - - Change in net unrealized gain or loss on securities available for sale (27,566) 14,116 - - Common stock purchased and retired (24,773) (36,807) (445,500) (807,000) Common stock issued: For acquisition of financial institutions - 17 - 393 For dividend reinvestment plan 4,667 3,435 87,209 80,618 For other stock compensation plans 847 295 17,185 6,627 Upon exercise of stock options (including tax benefit of $1,248 in 1996; $513 in 1995) 4,049 1,617 137,944 58,178 - ---------------------------------------------------------------------------------------------------------------- Balance, June 30 $1,431,154 $1,404,742 42,768,051 42,925,185 ================================================================================================================ Balance, January 1 $1,451,397 $1,295,159 42,809,761 42,509,900 Net Income 112,152 101,424 - - Cash dividends declared on common stock (41,896) (34,332) - - Change in net unrealized gain or loss on securities available for sale (62,812) 33,264 - - Common stock purchased and retired (53,874) (61,289) (955,500) (1,394,200) Cash paid in lieu of fractional shares (86) - (1,484) - Common stock issued: For acquisition of financial institutions - 52,634 - 1,317,789 For dividend reinvestment plan 8,821 6,391 162,678 155,701 For thrift and profit sharing plan 6,300 8,263 110,526 207,272 For other stock compensation plans 965 373 19,313 8,694 Upon exercise of stock options (including tax benefit of $5,621 in 1996; $759 in 1995) 10,187 2,855 622,757 120,029 - ---------------------------------------------------------------------------------------------------------------- Balance, June 30 $1,431,154 $1,404,742 42,768,051 42,925,185 ================================================================================================================
See accompanying notes to consolidated financial statements. Notes To Consolidated Financial Statements Crestar Financial Corporation And Subsidiaries (1) General The consolidated financial statements conform to generally accepted accounting principles and to general practices within the banking industry. The accompanying interim statements are unaudited; however, in the opinion of management, all adjustments necessary for a fair presentation of the consolidated financial statements, including adjustments related to completed business combinations, have been included. All adjustments are of a normal nature. Certain reclassifications have been made to the prior years' consolidated financial statements to conform to the 1996 presentation. The notes included herein should be read in conjunction with the notes to consolidated financial statements included in the Corporation's 1995 Annual Report and Form 10-K and the Corporation's First Quarter 1996 Financial Supplement and Form 10-Q. On December 31, 1995 Crestar Financial Corporation (Crestar) merged with Loyola Capital Corporation (Loyola), a Maryland savings bank holding company, in a transaction accounted for as a pooling of interests. Accordingly, historical financial data for periods before the merger, including the three months and six months ended June 30, 1995 have been restated to include the combined results of Crestar and Loyola. On June 6, 1996 Crestar completed its previously announced acquisition of approximately $150 million in deposits, plus selected loans, of ten branches of Mellon Bank (MD), a bank operating in the Maryland suburbs of the Washington, DC area. The acquisition was accounted for as a purchase and, accordingly, the results of operations of the acquired branches were included in the accompanying consolidated financial statements since the acquisition date. Such results of operations for the periods prior to the acquisition date were not material to the results of operations of Crestar. The excess of cost over the estimated fair value of the tangible assets and liabilities acquired was recorded as an intangible asset of $10.2 million on the accompanying consolidated balance sheet. Intangible assets consisted of goodwill and deposit based intangibles, having a combined balance of $187,551,000 and $163,766,000 at June 30, 1996 and 1995, respectively, and favorable lease rights of $455,000 and $528,000, respectively. Capitalized mortgage servicing rights of $42,123,000 and $23,555,000 at June 30, 1996 and 1995, respectively, were included in other assets in the consolidated financial statements. Mortgage servicing rights of approximately $23 million were purchased or originated during the first six months of 1996. At June 30, 1996 and 1995, mortgage servicing rights were net of a related valuation allowance of $305,000 and $213,000, respectively. The activity in such valuation allowance was not material to the consolidated financial statements for the three months and six months ended June 30, 1996. The fair value of capitalized mortgage servicing rights was approximately $53 million at June 30, 1996. Such fair value was estimated using a discounted cash flow method, with discount rates based on secondary market sources, adjusted for prepayment estimates and differences in servicing and credit costs. Amortization of capitalized mortgage servicing rights was $3.5 million for the first six months of 1996. (2) Securities Held To Maturity The amortized cost (carrying values) and estimated market values of securities held to maturity at June 30 follow:
- ----------------------------------------------------------------------------------------------- In thousands 1996 1995 Amortized Market Amortized Market Cost Value Cost Value U.S. Treasury and Federal agencies $ - $ - $ 61,360 $ 60,106 Mortgage-backed obligations of Federal agencies 20,133 21,025 777,854 769,655 Other taxable securities 2,250 2,250 190,576 188,108 States and political subdivisions 53,214 53,637 64,153 64,784 - ----------------------------------------------------------------------------------------------- Total securities held to maturity $75,597 $76,912 $1,093,943 $1,082,653 ===============================================================================================
(3) Securities Available For Sale The amortized cost and estimated market values (carrying values) of securities available for sale at June 30 follow:
- ------------------------------------------------------------------------------------------------ In thousands 1996 1995 Amortized Market Amortized Market Cost Value Cost Value U.S. Treasury and Federal agencies $ 393,683 $ 385,908 $ 332,478 $ 330,322 Mortgage-backed obligations of Federal agencies 2,331,014 2,263,938 782,352 779,250 Other taxable securities 615,488 609,783 277,517 277,344 Common and preferred stocks 171,260 171,185 131,903 132,214 - ------------------------------------------------------------------------------------------------ Total securities available for sale $3,511,445 $3,430,814 $1,524,250 $1,519,130 ================================================================================================
At June 30, 1996, the amortized cost and market value of Mortgage-backed obligations of Federal agencies includes the amortized cost and market value, respectively, of interest rate caps purchased to hedge, in a rising interest rate environment, the market value of fixed rate securities available for sale. The interest rate caps, which have a notional balance of $1.55 billion, have a cost basis of $19.5 million and a market value of $20.2 million at June 30, 1996. The cost basis of the interest rate caps is being amortized on a straight-line basis, over the life of the cap, as a reduction of interest income on securities available for sale. (4) Money Market Investments Money market investments at June 30 included: - ------------------------------------------------------------------------------ In thousands 1996 1995 Federal funds sold $194,279 $351,500 Securities purchased under agreements to resell 610,000 210,000 Time deposits 75,030 30 U.S. Treasury 10,838 7,550 Trading account securities 1,555 4,195 Other 14,250 97 - ------------------------------------------------------------------------------ Total money market investments $905,952 $573,372 ============================================================================== (5) Nonperforming Assets And Impaired Loans Nonperforming assets at June 30 are shown below. Loans that are both (a) past due 90 days or more and (b) not deemed nonaccrual due to an assessment of collectibility are specifically excluded from the definition of nonperforming assets. Such accruing loans past due 90 days or more not shown below totaled $56.5 million and $38.8 million at June 30, 1996 and 1995, respectively. - ----------------------------------------------------------------------------- In thousands 1996 1995 Nonaccrual loans $74,363 $75,935 Restructured loans - 1,455 - ----------------------------------------------------------------------------- Total nonperforming loans 74,363 77,390 Foreclosed properties - net 14,390 20,318 - ----------------------------------------------------------------------------- Total nonperforming assets $88,753 $97,708 ============================================================================= Non-cash additions to foreclosed properties were $5.7 million and $4.5 million in the first six months of 1996 and 1995, respectively. Included in Crestar's non-performing loans above are certain impaired loans. Impaired loans and the allocated valuation allowances at June 30 were: - -------------------------------------------------------------------------------- In thousands 1996 1995 Loan Valuation Loan Valuation Balance Allowance Balance Allowance Impaired with valuation allowance $33,510 $6,050 $39,030 $5,100 Impaired without valuation allowance - - - - - -------------------------------------------------------------------------------- Total impaired loans $33,510 $6,050 $39,030 $5,100 ================================================================================ Collateral dependent loans, which were measured solely by the fair value of the collateral, constituted $27.6 million or 82% of impaired loans at June 30, 1996. The remaining impaired loans of $5.9 million were measured based on the present value of expected cash flows. The allocated valuation allowance for impaired loans and activity related thereto is included in the allowance for loan losses. The average recorded investment in impaired loans, the amount of interest income recognized, and the amount of interest income recognized on a cash basis for the six months ended June 30 were: - ------------------------------------------------------------------------------- In thousands 1996 1995 Average recorded investment in impaired loans $31,180 $40,050 Interest income recognized during impairment - - Interest income recognized on a cash basis during impairment - - =============================================================================== (6) Allowance For Loan Losses Transactions in the allowance for loan losses for the three months and six months ended June 30 were:
=============================================================================================== In thousands Three Months Six Months 1996 1995 1996 1995 Beginning balance $238,847 $236,498 $240,285 $232,922 - ----------------------------------------------------------------------------------------------- Charge-offs (31,709) (18,978) (59,429) (38,638) Recoveries 7,882 6,636 14,252 13,940 - ----------------------------------------------------------------------------------------------- Net charge-offs (23,827) (12,342) (45,177) (24,698) Provision for loan losses 22,500 13,736 42,800 24,037 Allowance from acquisitions and other activity - net (500) (175) (888) 5,456 - ----------------------------------------------------------------------------------------------- Net increase (decrease) (1,827) 1,219 (3,265) 4,795 - ----------------------------------------------------------------------------------------------- Ending balance $237,020 $237,717 $237,020 $237,717 ===============================================================================================
(7) Allowance For Foreclosed Properties Transactions in the allowance for losses on foreclosed properties for the three months and six months ended June 30 were:
- ---------------------------------------------------------------------------------------- In thousands Three Months Six Months 1996 1995 1996 1995 Beginning balance $7,019 $17,438 $7,512 $16,188 - ---------------------------------------------------------------------------------------- Provision for foreclosed properties (450) 198 (450) 16 Write-downs (119) (5,536) (141) (7,298) Allowance from acquisitions - net - (500) (471) 2,694 - ---------------------------------------------------------------------------------------- Net decrease (569) (5,838) (1,062) (4,588) - ---------------------------------------------------------------------------------------- Ending balance $6,450 $11,600 $6,450 $11,600 ========================================================================================
(8) Short-Term Borrowings Short-term borrowings, exclusive of deposits, with maturities of less than one year at June 30 were: ============================================================================== In thousands 1996 1995 Federal funds purchased $2,089,420 $ 881,562 Securities sold under repurchase agreements 338,175 471,396 Federal Home Loan Bank borrowings 640,000 391,200 Notes payable 174,720 149,953 Other 3,035 1,954 - ------------------------------------------------------------------------------ Total short-term borrowings $3,245,350 $1,896,065 ============================================================================== The Corporation paid $251,742,000 and $245,222,000 in interest on deposits and short-term borrowings in the first six months of 1996 and 1995, respectively. (9) Long-Term Debt Long-term debt at June 30 included:
- ------------------------------------------------------------------------------------------------- In thousands 1996 1995 4 3/8-7 3/8% Federal Home Loan Bank obligations payable through 2015 $345,272 $339,959 8 3/4% Subordinated notes due 2004 149,674 149,634 8 1/4% Subordinated notes due 2002 125,000 125,000 8 5/8% Subordinated notes due 1998 49,981 49,971 7 7/8-11 1/4% Collateralized mortgage obligation bonds maturing through 2019 16,734 30,174 7-8 1/4% Mortgage indebtedness maturing through 2009 8,981 9,742 8 5/8-14 3/8% Capital lease obligations maturing through 2006 1,055 1,215 - ------------------------------------------------------------------------------------------------- Total long-term debt $696,697 $705,695 =================================================================================================
The Corporation paid $25,677,000 and $24,417,000 in interest on long-term debt in the first six months of 1996 and 1995, respectively. There were no new capital lease agreements in the second quarter of 1996. (10) Income Taxes The current and deferred components of income tax expense allocated to continuing operations for the three months and six months ended June 30 in the accompanying consolidated statements of income were:
======================================================================================= In thousands Three Months Six Months 1996 1995 1996 1995 Current: Federal $26,309 $20,754 $53,629 $43,485 State and local 837 1,157 2,418 2,988 - --------------------------------------------------------------------------------------- Total current tax expense 27,146 21,911 56,047 46,473 - --------------------------------------------------------------------------------------- Deferred: Federal 3,879 4,105 5,777 6,120 State and local 1,292 242 1,614 63 - --------------------------------------------------------------------------------------- Total deferred tax expense 5,171 4,347 7,391 6,183 - --------------------------------------------------------------------------------------- Total income tax expense $32,317 $26,258 $63,438 $52,656 =======================================================================================
The differences between the amounts computed by applying the statutory federal income tax rate to income before income taxes and the actual income tax expense allocated to operations for the three months and six months ended June 30 were:
========================================================================================== In thousands Three Months Six Months 1996 1995 1996 1995 Income before income taxes $89,047 $78,023 $175,590 $154,080 Tax expense at statutory rate 31,167 27,308 61,457 53,928 - ------------------------------------------------------------------------------------------ Increase (decrease) in taxes resulting from: Tax-exempt interest and dividends (1,607) (1,916) (3,252) (3,865) Nondeductible interest expense 181 166 344 314 Amortization of goodwill 1,004 930 2,007 1,640 State income taxes 1,384 911 2,621 1,984 Other - net 188 (1,141) 261 (1,345) - ------------------------------------------------------------------------------------------ Total increase (decrease) in taxes 1,150 (1,050) 1,981 (1,272) - ------------------------------------------------------------------------------------------ Total income tax expense $32,317 $26,258 $ 63,438 $ 52,656 - ------------------------------------------------------------------------------------------ Effective tax rate 36.3% 33.7% 36.1% 34.2% ==========================================================================================
The Corporation made income tax payments of $62,462,000 and $49,287,000 during the first six months of 1996 and 1995, respectively. At June 30, 1996, the Corporation had a net deferred income tax asset of $113,033,000. There was no valuation allowance relating to the net deferred income tax asset. Crestar has sufficient taxable income in the available carryback period to realize all of its deferred income tax assets. (11) Commitments and Contingencies In the normal course of business, there are outstanding commitments, contingent liabilities and other financial instruments that are not reflected in the accompanying consolidated financial statements. These include commitments to extend credit, standby letters of credit, interest rate caps, swaps and forward contracts. Legally binding, unfunded commitments to extend credit were $6.9 billion at June 30, 1996. Standby letters of credit, which are conditional commitments to extend credit, were $408 million at June 30, 1996. Recourse obligations on mortgage loans serviced of $1.4 billion at June 30, 1996 include $152 million of contractual recourse liability accepted by Crestar on mortgage loan sales to the Federal National Mortgage Association (FNMA) and Federal Home Loan Mortgage Corporation (FHLMC). Crestar maintained an allowance included in other liabilities of $306,000 at June 30, 1996 based on estimates of future losses on this contractual recourse liability. The remaining notional balance of recourse obligations of $1.3 billion results from the origination and acquisition by Crestar of mortgage servicing rights on Federal Housing Association and Veterans' Association loans, which are serviced under programs of the Government National Mortgage Association. Approximately $896 million of this notional balance was insured by agencies of the Federal government or private insurance companies at June 30, 1996. As hedges against interest rate risk at June 30, 1996 Crestar was participating in interest rate (fixed receive) swaps of $1.4 billion (notional balance), of which $950 million, $250 million and $200 million were used to convert floating rate commercial, instalment and real estate mortgage loans, respectively, to fixed rates. Unrealized gross losses on such swaps were $22.3 million at June 30, 1996. Crestar also had interest rate cap agreements outstanding at June 30, 1996, $1.55 billion (notional balance) of which was used to hedge, in a rising interest rate environment, the market value of fixed rate securities available for sale. The remaining $40 million was used to minimize interest rate risk associated with rising rates on floating rate money market deposits. Unrealized gross gains and gross losses on such caps were $2.2 million and $1.3 million, respectively, at June 30, 1996. As a financial intermediary, Crestar had $112.2 million in offsetting swap, $50 million in offsetting cap and $40.8 million in offsetting collar agreements at June 30, 1996. The notional amount of these over-the-counter traded interest rate swaps, caps and collars does not fully represent Crestar's credit and market exposure, which the Corporation believes is a combination of current replacement cost (any unrealized gain plus accrued receivable) of approximately $21.9 million, less collateral held of approximately $10.9 million, plus an amount for additional market movement. Four counterparties constituted 16%, 14%, 12% and 10% of the estimated credit and market exposure of $139.3 million at June 30, 1996. Crestar had forward agreements of $1.01 billion outstanding at June 30, 1996 which are primarily used to reduce the interest rate risk arising from changes in market rates from the time residential mortgage lending commitments are made until those commitments are funded. Legislative efforts to resolve the undercapitalization of the Savings Association Insurance Fund (SAIF) of the FDIC, and the disparity in deposit insurance premiums for SAIF-insured deposits and deposits insured under the Bank Insurance Fund (BIF), may result in a one-time special assessment on SAIF-insured deposits. Earnings in 1996 may be impacted if a legislatively proposed one-time assessment of approximately 75 basis points (0.75%) on SAIF-insured deposits is enacted. Any one-time assessment on SAIF-insured deposits would impact each of Crestar's three bank subsidiaries and one savings bank subsidiary. Approximately 45% of Crestar's current deposit base is SAIF-insured. A 75 basis point assessment, on an after-tax basis, would result in a one-time charge to Crestar of approximately $24 million. As a consequence of the one-time assessment, future earnings would likely be augmented by a reduction in ongoing SAIF assessment rates. The estimated $24 million charge for Crestar reflects a possible 20% reduction in the assessments on certain SAIF-insured deposits (known as Oakar deposits) acquired by banks in thrift acquisitions. Crestar would accrue such a liability if and when such legislation is enacted into law. Certain litigation is pending against Crestar. Management, after reviewing this litigation with legal counsel, is of the opinion that such matters, when resolved, will not have a material effect on the accompanying consolidated financial statements. Financial Commentary Crestar Financial Corporation And Subsidiaries Overview (Tables 1, 2 and 14) Crestar Financial Corporation (Crestar) reported record net income of $56.7 million for the quarter ended June 30, 1996, an increase of $5.0 million or 10% over net income earned in the second quarter of 1995. For the first six months, earnings were $112.2 million in 1996, an increase of 11% from the $101.4 million earned in 1995. These increases reflect the continued positive effects of growth in earning assets and noninterest income, and management of controllable expenses. Earnings per common share were $1.31 for the second quarter of 1996, compared to $1.18 in 1995. For the first six months of 1996, earnings per common share were $2.58, an increase of 11% from the $2.32 per share recorded in the first six months of 1995. The predominant items affecting the change in earnings per share are given in Table 2. Each item is net of applicable federal income taxes. On December 31, 1995 Crestar merged with Loyola Capital Corporation (Loyola), a Maryland savings bank holding company, in a transaction accounted for as a pooling of interests. Accordingly, historical financial data for periods before the merger, including the first six months of 1995, have been restated to include the combined results of Crestar and Loyola. Crestar's net income for the fourth quarter of 1995 was reduced by $29.3 million in one-time merger expenses associated with the merger with Loyola. Excluding the non-recurring charges, net income for the fourth quarter of 1995 was $55.6 million, or $1.28 per share. Crestar's subsidiaries provide banking and non-banking services throughout Virginia, Maryland and Washington, D.C., which compose Crestar's primary market area. This market is characterized as economically diverse. Crestar's market area is also characterized by active competition in all principal areas where the Corporation provides services. In addition to banks, other firms competing in the market area include savings associations, consumer finance companies, national credit card companies, securities brokerage firms, credit unions and mortgage banking companies. Mergers And Acquisitions On June 6, 1996 Crestar completed the previously announced purchase of the deposits and customer accounts, plus selected loans, of ten branches of Mellon Bank (MD), a bank operating in the Maryland suburbs of the metropolitan Washington, DC area. The purchase added approximately $150 million in deposits to Crestar's Maryland bank subsidiary. Also during the second quarter, Crestar Mortgage Corporation completed its purchase of Ryland Funding Group, a wholesale mortgage banker operating four loan production offices. Profitability Measures And Capital Resources (Table 1) Increased earnings in both the second quarter and the first six months of 1996 resulted in improvements in key profitability measures over 1995. Return on average assets was 1.28% in the second quarter and for the first six months of 1996, compared to 1.25% and 1.23%, respectively, for 1995. Return on average equity was 16.03% for the second quarter of 1996, compared to 14.98% for the second quarter of 1995. For the first six months of 1996, return on average equity was 15.72%, compared to 14.89% for the first six months of the previous year. Average equity to assets of 8.01% for the second quarter of 1996 compared to 8.36% in the second quarter of 1995. Average equity to assets for the first six months of 1996 was 8.16%, compared to 8.29% for the same period of 1995. Period-end equity to assets was 7.74% at June 30, 1996 compared to a June 30, 1995 ratio of 8.16%. Risk-based capital ratios are another measure of capital adequacy. At June 30, 1996, Crestar's consolidated risk-adjusted capital ratios were 8.8% for Tier 1 and 12.0% for total capital, well above the required minimums of 4.0% and 8.0%, respectively. The Tier 1 leverage ratio of 7.4% at June 30, 1996 also was significantly above the regulatory minimum of 3.0%. Crestar's tangible leverage ratio, defined as total equity less intangible assets divided by total assets less intangible assets, was 6.8% at June 30, 1996. Under Federal Deposit Insurance Corporation (FDIC) rules, each of Crestar's three subsidiary banks as well as Crestar's savings bank subsidiary were considered "well-capitalized" as of June 30, 1996, the highest category of capitalization defined by regulatory authorities, allowing for the lowest level of FDIC insurance premium payments. At June 30, 1996, approximately 55% of Crestar's deposits were insured by the Bank Insurance Fund (BIF) of the FDIC, with the remainder insured by the Savings Association Insurance Fund (SAIF) of the FDIC. Net Interest Margin And Net Interest Income (Tables 3 and 15) Crestar's net interest margin for the second quarter of 1996 was 4.68%, an improvement of 7 basis points from the margin recorded in the second quarter of 1995. The improvement was due to favorable changes in rates paid on funding sources, yields on loan and securities portfolios, and in interest income arising from off-balance sheet hedge transactions. These factors served to offset the impact of unfavorable changes in the composition of earning assets and funding sources. Positive influences on the second quarter 1996 margin include favorable changes in the average rates paid on interest bearing deposits and other sources of funds. Rates on interest-bearing demand deposits were 2.88% during the second quarter of 1996, down 38 basis points from the second quarter of 1995. Average rates paid on regular savings deposits also decreased, from 2.83% in the second quarter of 1995 to 2.54% in the second quarter of 1996. While rates paid on domestic time deposits edged up, from 5.12% in the second quarter of 1995 to 5.20% in the second quarter of 1996, the average rate paid on total savings and time deposits fell from 3.94% to 3.76% during this time period. Yields on short-term borrowings and long-term debt also declined from the levels of second quarter 1995. The average rate paid on Crestar's total sources of funds in the second quarter of 1996 was 3.56%, reflecting a decline of 16 basis points from the same period of 1995. The yield on average loans increased 8 basis points from the second quarter of 1995, to 8.89%. Average rates on bank card loans increased from 11.36% in the second quarter of 1995 to 12.51% in the second quarter of 1996, in part due to the expiration of low introductory loan interest rates on selected bank card accounts. Yields on real estate-income property loans also increased from second quarter 1995 results, while other loan categories displayed stable or lower yields. Despite a lower interest rate environment in the second quarter of 1996, the average yield on loan balances outstanding increased slightly, from 8.81% in the second quarter of 1995 to 8.89% in the second quarter of 1996, due primarily to the bank card loan portfolio. Higher average yields on securities available for sale, which were 6.41% in second quarter 1996 versus 6.27% in the same period of 1995, further benefited Crestar's net interest margin. Average yields also increased on the smaller securities held to maturity portfolio. Yields on money market investments were 5.30% for the second quarter of 1996 versus 6.14% for the second quarter of 1995, in part reflecting a lower average federal funds rate on overnight deposits. In total, interest rate spreads had a positive impact of 14 basis points on Crestar's second quarter 1996 net interest margin, when compared to the second quarter of 1995. Changes in the earning asset mix decreased the second quarter 1996 net interest margin by approximately 8 basis points when compared to the second quarter of 1995. Loans as a percentage of total earning assets decreased from an average of 79% during the second quarter of 1995 to 72% for the same period of 1996. Average total loans were $11.5 billion during the second quarter of 1996, compared to $11.7 billion during the second quarter of 1995. Average bank card loans experienced a slight decline during the second quarter as marketing efforts for these accounts were curtailed pending a reassessment of credit and charge-off experience and trends. Average consumer real estate loans were down $621 million, or 17%, from second quarter 1995, with average instalment loan balances increasing by $401 million or 17% during this period. Reductions in consumer real estate mortgage loans reflect efforts to rebalance the Corporation's loan portfolio, through selected sales of residential mortgage loans, following the 1995 acquisitions of several savings and loan institutions. Average business loans for the second quarter were relatively unchanged from prior year balances. Average money market investments decreased, from $321 million in the second quarter of 1995 to $298 million for the same quarter of 1996. Significant increases in average balances of mortgage loans held for sale reflect higher mortgage origination volumes in Crestar's mortgage banking subsidiary. Average balances in the second quarter of 1996 were $864 million, representing 5% of average total earning assets during this period. Average balances during the second quarter of 1995 were $294 million. With regards to funding sources, interest-bearing deposits represented 65% of total funding sources in the second quarter of 1996, versus 70% of funding sources in the same period of 1995. Increased competitive pricing for deposits among financial institutions resulted in decreases in average balances for regular savings deposits and domestic time deposits, with average total deposits experiencing an increase of $180 million, or 1%, from the second quarter of 1995. Average balances of short-term borrowings increased by $914 million during this same time period. When coupled with the impact of changes to Crestar's earning asset mix, this resulted in a net 17 basis point decrease in the second quarter 1996 net interest margin, versus the second quarter of 1995, arising from changes in Crestar's total balance sheet mix. Off-balance sheet hedge transactions made a positive contribution to net interest income of $1.1 million during the second quarter of 1996, which was composed of a $1.1 million increase in interest income and a negligible decrease in interest expense, based on the underlying asset or liability being hedged. In the second quarter of 1995 the comparable impact of hedging activity was a decrease of $1.6 million to Crestar's net interest income, which consisted of a $1.5 million decrease in interest income and a $0.1 million increase in interest expense. In comparison to second quarter 1995, such off-balance sheet transactions had a positive impact of 9 basis points on second quarter 1996's net interest margin, partially offsetting the unfavorable impact on Crestar's net interest margin of 17 basis points from changes in balance sheet mix. The impact of nonperforming assets on second quarter 1996's net interest margin, in comparison to the same period of 1995, was not significant. The extent to which Crestar will be able to maintain its current, historically high net interest margin is significantly influenced by the economic environment in our markets and the economic policy of the Federal Reserve Board, in addition to competitive market conditions for both loans and deposits. Competitive pressures, especially with regard to deposit rates, may lead to decreases in net interest margin in future periods. As a result of the 7 basis point increase in the net interest margin and a 7% increase in average earning assets, net interest income for the second quarter of 1996 increased by $13.5 million, or 8% over the second quarter of 1995. Tax-equivalent net interest income similarly increased by 8% during this period. For the first six months, tax equivalent net interest income increased 6% over 1995 as a result of a 4 basis point increase in the net interest margin and a 6% increase in average earning assets. Factors contributing to the increased year-to-date margin mirror those previously discussed. Changes to the earning asset mix for the year-to-date period had an unfavorable impact of 2 basis points, while changes to the funding mix resulted in a 6 basis point negative impact to the year-to-date margin. Favorable interest rate spreads for the comparable six month period increased net interest margin by 3 basis points. Off-balance sheet hedge transactions had a positive impact on the margin, in comparison to year-to-date 1995 results, of approximately 7 basis points. Off-balance sheet hedge transactions made a positive contribution to net interest income of $1.8 million during the first six months of 1996, which was composed of $1.8 million increase in interest income and a negligible decrease in interest expense, based on the underlying asset or liability being hedged. In the first six months of 1995 the comparable impact of hedging activity was a decrease to Crestar's net interest income of $3.2 million, which consisted of a $3.1 million decrease in interest income and a $0.1 million increase in interest expense. Other positive factors, impacting the margin by approximately one basis point each, were lower levels of nonperforming assets and increases in the amortization of loan fees recognized as interest income. Risk Exposures And Credit Quality (Tables 4 - 7) Crestar's financial condition as of the end of the second quarter of 1996 exhibited strong overall credit quality. The allowance for loan losses was $237 million at June 30, 1996, representing 2.08% of period-end loans, 267% of period-end nonperforming assets, and a 319% coverage of nonperforming loans. Based on current expectations relative to portfolio characteristics and performance measures including loss projections, management considers the level of the allowance adequate. Under the Corporation's criteria for classification of nonperforming loans, loans that are both (a) past due 90 days or more and (b) not deemed nonaccrual due to an assessment of collectibility are specifically excluded from the definition of nonperforming assets. Accruing loans past due 90 days or more, and excluded from classification as nonperforming assets, totaled $56.5 million at June 30, 1996, with consumer loans representing 93% of this balance. At June 30, 1996, nonperforming assets of $88.8 million were down $9.0 million or 9% from June 30, 1995, and down $4.6 million from December 31, 1995. The ratio of nonperforming assets to loans and foreclosed properties at June 30, 1996 was 0.78%, compared to 0.79% at December 31, 1995 and 0.82% at June 30, 1995. Based on current portfolio trends, and barring an unexpected deterioration in the economy, management does not expect the ratio of nonperforming assets to loans and foreclosed properties to change significantly during the remainder of 1996. However, interim periods in 1996 could show increases in the total balance of nonperforming assets due to loan growth, future acquisitions of financial institutions, and the impact of fluctuating interest rates on borrowers and other credit risk factors inherent with commercial and consumer lending. The provision for loan losses was $22.5 million for the second quarter of 1996, an increase of $8.8 million from the $13.7 million provision expense recorded in the second quarter of 1995. Provision expense in the first quarter of 1996 was $20.3 million. Net charge-offs totaled $23.8 million in the second quarter of 1996, compared to $12.3 million in the comparable period of 1995. Net charge-offs as a percentage of average loans were 0.83% for the second quarter of 1996, compared to 0.42% in the same period of 1995, and 0.74% for the first quarter of 1996. Business loans experienced net recoveries of $1.3 million in the second quarter of 1996, compared to net recoveries of $705 thousand in the comparable quarter of 1995. Consumer loan net charge-offs totaled $25.1 million in the second quarter of 1996, compared to net charge-offs of $23.3 million in the first quarter of 1996 and $13.0 million in the second quarter of 1995. The largest proportion of net loan charge-offs during the second quarter of 1996, and for the first six months of 1996, occurred in the bank card loan portfolio. Net charge-offs for bank card loans were $20.2 million in the second quarter of 1996, compared to $18.0 million in the first quarter of 1996 and $12.2 million in 1995's second quarter. Net bank card loan charge-offs as a percentage of bank card loans (on an annualized basis) were 5.23% in the second quarter of 1996, 4.42% for the first quarter of 1996, and 3.11% in the second quarter of 1995. A primary reason for the increase in net bank card loan charge-offs is the significant growth of Crestar's bank card portfolio experienced during 1993 through 1995. In addition, increases in the net bank card loan charge-off ratio (net bank card loan charge-offs as a percentage of average bank card loans) reflect an industry-wide trend of adverse payment performance by consumers, as evidenced by a nationwide rise in consumer loan delinquencies and bankruptcies. Crestar's recent bank card loan charge-off experience is similar to industry-wide averages. The delinquency and loss characteristics of newly underwritten bank card loans typically do not reach their highest levels until after 24 months from origination. Crestar's bank card outstandings, which experienced considerable growth from 1993 through mid-1995, have experienced higher net charge-off levels as the newer portfolios have "seasoned." Higher net charge-offs were also recorded in the consumer instalment loan portfolio in the second quarter of 1996 compared to the second quarter of 1995, while residential real estate net charge-offs declined. Crestar believes that in the current economic environment the ratio of net charge-offs to average total loans for the full year 1996 will increase from the level achieved during the full year of 1995, when net charge-offs averaged 0.52% of average loans. This expectation recognizes that a sizable percentage of Crestar's consumer loans, particularly in the bank card loan portfolio, is reaching an average maturity that should see loss rates peak. This expectation is based upon assumptions regarding the general economic climate in Crestar's principal markets, the performance characteristics of the loan portfolio, and moderate growth in consumer loan portfolios. Changes in these conditions may produce different results. In addition to other loan categories, Crestar closely manages its portfolio of loans to real estate developers and investors (REDI). As shown in Table 4, REDI outstanding balances have remained relatively stable and totaled $1.2 billion at June 30, 1996. This balance represented 11% of the total loan portfolio at that date. At year-end 1995, REDI loan balances also constituted 11% of the total loan portfolio. REDI nonperforming assets were $47.5 million at June 30, 1996, compared to $50.1 million at December 31, 1995. Table 5 provides the property type and geographic diversification of the current REDI portfolio. Potential problem loans consist of loans that are currently performing in accordance with contractual terms but for which potential operating or financial concerns of the obligors have caused management to have serious doubts regarding the ability of such obligors to continue to comply with present repayment terms. Potential problem loans, not included in Table 7, totaled approximately $148 million at June 30, 1996. Approximately 90% of this balance represents commercial or real estate-income property related loans. Depending on changes in the economy and other future events, these loans and others not presently identified as problem loans could be classified as nonperforming assets in the future. Potential problem loans were $182 million at March 31, 1996 and $202 million at June 30, 1995. Fluctuations in potential problem loans balances from quarter to quarter should be viewed in the context of the size of Crestar's total loan portfolio, which was $11.4 billion at June 30, 1996. Noninterest Income And Expense (Table 8) Noninterest income totaled $86.1 million in the second quarter of 1996, a $13.3 million or 18% increase over the second quarter period of 1995. Excluding securities gains and losses, noninterest income increased $11.9 million or 16% over second quarter 1995 results. This increase reflects growth in most noninterest income categories, with an especially strong increase in mortgage origination income. Reflecting increased merchant fee volume, bank card-related fee income increased by $0.6 million, or 5%, in comparison to the second quarter of 1995. Trust and investment advisory income increased 6% from second quarter 1995 levels, while service charges on deposit accounts increased 5% in comparison to the second quarter of 1995. Mortgage origination income for the second quarter of 1996 totaled $10.0 million, or $7.9 million higher than the results reported in the second quarter of 1995. These results for the second quarter of 1996 reflect a higher level of gains recorded on the sale of mortgage loans originated through Crestar's mortgage banking operations. Mortgage servicing income increased 4% during the quarter. Gains on sale of mortgage servicing rights totaled $750 thousand in the second quarter of 1996, while there were no such sales in the second quarter of 1995. During the second quarter of 1995, Crestar recorded a gain of $4.3 million from the annuitization of certain pension obligations. This gain is included in "Other income" on the consolidated statement of income. Miscellaneous noninterest income increased by $4.7 million over the second quarter of 1995. Gains recorded on the sale of selected consumer real estate mortgage loans totaled $2.8 million in the second quarter of 1996, versus $1.1 million in the second quarter of 1995. Miscellaneous noninterest income categories experiencing increases in comparison to the second quarter of 1995 include mutual fund income and brokerage fees. Noninterest expense increased $7.0 million, or 5%, in the second quarter of 1996 when compared to the same period of 1995. Excluding foreclosed properties expense, noninterest expense increased 4% in the second quarter of 1996, versus the second quarter of 1995. Total personnel costs, Crestar's largest expense category, were $87.2 million in the three month period ended June 30, 1996, an increase of 5% in comparison to the same period of 1995. A significant portion of this increase is due to higher commission levels arising from growth in mortgage origination revenue. Management continues to emphasize prudent control of noninterest expenses and assimilation of acquisitions in a cost-effective manner. Decreases in FDIC insurance premium rates, instituted in the third quarter of 1995 for most bank depository accounts, resulted in lower FDIC premium expense compared to second quarter 1995 results. Foreclosed properties expense for the quarter ended June 30, 1996 was $0.3 million, compared to a net recovery of $81 thousand in the quarter ended June 30, 1995. For the six month period ended June 30, 1996, foreclosed properties expense was a net recovery of $1.0 million, compared to a net recovery of $1.5 million for the first six month of 1995. The net recoveries are primarily a result of gains recorded from sales of properties exceeding foreclosed property operating expenses during the periods presented. The effective tax rate for second quarter and first six months of 1996 was 36.3% and 36.1%, respectively, compared to 33.7% and 34.2% for the comparable periods of 1995. Reduced proportions of tax-exempt interest and dividends, increased provisions for state income taxes and higher levels of nondeductible goodwill contributed to the higher effective tax rates for 1996. Financial statement note 10 contains additional information concerning income taxes. Financial Condition (Table 9) Crestar's assets totaled $18.5 billion at June 30, 1996, compared to $18.3 billion in assets at December 31, 1995, and $17.2 billion at June 30, 1995. The increase from June 30, 1995 is primarily due to an increase in the Corporation's holdings of securities available for sale, and in short-term borrowings. Loans net of unearned income totaled $11.4 billion at June 30, 1996, compared to $11.8 billion at year-end 1995. Total deposits were $12.8 billion at June 30, 1996 compared to $13.3 billion at December 31, 1995. Total deposits were down slightly from year-end 1995, as increased competition for deposits resulted in declines in some deposit categories, including interest bearing demand deposits. The consolidation of certain branches acquired in the December 31, 1995 merger with Loyola has also resulted in declines in some deposit balances. In the fourth quarter of 1995, Crestar transferred selected securities from the held to maturity portfolio to the available for sale securities portfolio. At the time of transfer, the securities reclassified had a fair market value of approximately $963 million. The transfer further strengthened the liquidity position of Crestar by increasing the balance of securities available for sale. With respect to the securities held to maturity portfolio, market value exceeded the carrying value at June 30, 1996 by $1.3 million, consisting of $1.9 million in unrealized gains and $0.6 million in unrealized losses. At June 30, 1996, the amortized cost of securities available for sale exceeded the fair value of such securities by $80.6 million, consisting of approximately $4.1 million in unrealized gains and approximately $84.7 million in unrealized losses. Shareholders' equity at June 30, 1996 reflects a $51.7 million reduction for the excess, net of tax, of amortized cost of securities available for sale over the fair value at quarter-end, compared to an increase of $11.1 million at December 31, 1995 arising from net unrealized gains on securities available for sale. At June 30, 1995, Crestar's shareholders' equity reflected a $3.3 million reduction for the excess, net of tax, of amortized cost of securities available for sale over fair value. The net unrealized gain or loss on securities available for sale, which is recorded as a component of shareholders' equity, will continue to be subject to change in future periods due to fluctuations in market value, acquisition activities, and purchases, sales, maturities and calls of securities classified as available for sale. Net unrealized losses in the securities available for sale portfolio primarily reflect ongoing interest rate volatility, which is inherent in the securities marketplace. Based on current market conditions, net unrealized losses on securities are not expected to have a significant impact on the future operating results or liquidity of Crestar. However, no assurance can be given as to the future direction or volatility of interest rates. All mortgage-backed securities in the securities available for sale and securities held to maturity portfolios are subject to prepayment risk, since the mortgage loans underlying these securities can prepay at any time without penalty. This risk becomes apparent during periods of declining interest rates, when refinancing of existing mortgage loans can accelerate. During these periods, the expected maturity of mortgage-backed securities shortens due to prepayments, reducing the expected stream of future interest payments to be received. The interest rate and prepayment risk associated with mortgage-backed securities is considered by management in assessing the overall asset/liability structure of the Corporation. All investment securities, including mortgage backed pass-through securities, collateralized mortgage obligation (CMO) securities, and securitized credit card receivables, are also managed with respect to their credit risk. Credit risk arises because payments of interest and principal can be dependent on the payment of the underlying mortgage or receivable payment where applicable, in addition to the contractual obligation of the issuer to collect and remit such payments to the individual security owners. The Corporation monitors credit risk by assessing, and monitoring on an ongoing basis, the financial strength and performance of the issuers of such securities. The "Other taxable securities" classification of Crestar's securities available for sale portfolio (see footnote 3 to the consolidated financial statements) at June 30, 1996 is primarily composed of CMO securities with a fair value of approximately $309 million, and pass-through securities backed by credit card receivables of approximately $74 million (fair value). During the second quarter of 1996, Crestar sold approximately $536 million of securities classified as available for sale, generating securities gains of $288 thousand. Such sales were consummated in conjunction with the overall management of interest rate risk for the Corporation. On July 11, 1996 Crestar's Board of Directors approved the purchase on the open market of up to 3.4 million shares of the Corporation's outstanding common stock over the course of the following 18 months. The authorization to purchase up to 3.4 million shares, which is approximately 8 percent of current outstanding shares, is in addition to the authorization approved by the Board in April of this year to purchase up to 1.0 million common shares to meet the recurring needs of Crestar's dividend reinvestment plan, thrift and profit sharing plan and other employee benefit plans. During the second quarter of this year, Crestar purchased and retired 445,500 shares of common stock, and has purchased and retired 955,500 shares of common stock during the first six months of 1996. Purchases during the second quarter of 1996 were made at an average price of $55.61 per common share. As a result of the July 11, 1996 resolution, Crestar had a remaining authorization to purchase and retire up to 4.0 million shares of common stock, which was composed of the July authorization for 3.4 million shares coupled with a remaining authorization of 0.6 million shares from the Board's April authorization. During the second quarter, Crestar announced a common stock dividend increase to $.52 per share, effective with the dividend disbursed on May 21, 1996. This represented a 15.6% increase over the previous quarterly rate of $.45 per share. Liquidity And Interest Sensitivity (Tables 10 - 13) Bank liquidity is a measure of the ability to generate and maintain sufficient cash flows to fund operations and to meet financial obligations to depositors and borrowers promptly and in a cost-effective manner. Liquidity is provided through securities available for sale, money market investments, maturing loans and securities, and the ability to generate new deposits or borrowings as needed. Crestar's liquidity position is actively managed on a daily basis, and monitored regularly by the Asset/Liability Management Committee (ALCO). ALCO's overall objective is to optimize net interest income after giving consideration to capital adequacy, liquidity needs, interest rate risk, the economic outlook, market opportunities and customer needs. General strategies to accomplish these objectives include maintaining a strong balance sheet, maintaining adequate core deposit levels, taking an acceptable level of interest rate risk, adhering to conservative financial management principles and practicing prudent dividend policies. Core deposits provide a typically stable source of liquidity. Crestar's interest-bearing core deposits represented 60% of total funding sources at June 30, 1996, compared to 67% of total funding sources at June 30, 1995. As an additional indication of adequate liquidity, securities available for sale represented 20%, and money market investments represented 5%, of Crestar's total earning assets at June 30, 1996. Interest sensitivity refers to the volatility of net interest income as a result of changes in interest rates. Crestar's goal is to limit interest rate exposure to prudent levels as determined by the Corporation's ALCO committee. The committee establishes limits on the net interest income at risk for the current planning period, generally either the current calendar year or the remainder of the current year plus the next calendar year. The level of exposure taken is based on an assessment of the market environment, and will vary from period to period. The primary tool used by ALCO in assessing interest rate exposure is net interest income and net income simulations. The committee establishes limits on net interest income at risk for a twenty-four month period. A 9 to 24 month net interest income forecast is prepared regularly based on a consensus interest rate forecast, in addition to numerous high and low interest rate scenarios of up to and including 300 basis points from current interest rates. The time period evaluated is linked to the current planning horizon. The various interest rate scenarios represent a reasonable range of interest rates. By its nature the simulation process includes numerous assumptions, including assumptions on changes in average balances and yields, changes in deposit and loan mix, and forecasts of interest rate movements and spreads. The expected dynamics of the balance sheet, including shifts in loans and deposits, are included in the simulations. Also taken into account are the assumed effects of interest rate caps and floors, and variances in the level of prepayment rates on loans and securities as a function of interest rates. Prepayment assumptions are based on the expertise of management along with input from external financial market sources. While the simulation process is a powerful tool in analyzing interest sensitivity, many of the assumptions used in the simulation process are both highly qualitative and subjective, and subject to the risk that past historical activity may not generate accurate predictions of future results. The high rate and low rate estimates generated by this simulation process are compared to the estimate generated under the consensus interest rate scenario. At June 30, 1996, Crestar's projected after-tax net income under the consensus interest rate scenario for the remainder of 1996 would decrease by 5.0% in a high rate scenario and by 1.9% in a low interest rate scenario. These projections were well within Crestar's tolerance for interest rate risk, and indicate a sufficient liquidity position and acceptable operating environment, under the high, low and consensus interest rate scenarios. A second interest sensitivity tool is the quantification of market value changes for all assets and liabilities given an increase or decrease in interest rates. This approach provides a longer term view of interest rate risk, capturing predominantly all expected future cash flows. Assets and liabilities with option characteristics are valued based on numerous interest rate path valuations using statistical rate simulation techniques. The banking industry and its regulatory authorities are considering a market value method of interest sensitivity assessment. Crestar has been developing this tool and is incorporating it as another component of interest rate risk management to supplement the results achieved through net interest income simulation. The Corporation's measurement and interpretation process for market valuation models is in a developmental stage. Another interest rate risk tool used by Crestar is the interest rate "gap", or mismatch in repricing between interest-sensitive assets and liabilities, which provides a general indication of interest sensitivity at a specific point in time. A gap schedule is shown in Table 10, and reflects the earlier of the maturity or repricing dates for various assets and liabilities at June 30, 1996. At that point in time, Crestar had a cumulative net liability sensitive twelve-month gap with $3.6 billion excess of interest-sensitive sources of funds over uses of funds. This generally indicates that earnings should improve in a declining interest rate environment as liabilities reprice more quickly than assets. The opposite would be true of a positive, or asset-sensitive, gap. In addition to the traditional gap measurement presentation, Table 10 also presents interest sensitivity on an adjusted basis. The first of these adjustments is made through the use of beta factors, which are based on a ratio of actual changes in consumer deposit rates to changes in the prime rate during interest rate cycles for the last several years. Essentially, the beta factors recognize that certain consumer deposit rates are less interest-sensitive than market-based rates such as commercial paper. In addition to a beta adjustment, the table also incorporates an adjustment to reflect the sensitivity of the Corporation's commercial demand deposit balances to the level of interest rates. This adjustment, based on historical trends and estimated as a percentage of commercial interest bearing demand deposits, reflects a greater sensitivity on the part of commercial demand deposits to fluctuating interest rates, than experienced with consumer deposits. On a cumulative twelve-month basis, Crestar had a liability sensitive "adjusted gap" at June 30, 1996, with $331 million excess of interest-sensitive sources of funds over uses of funds. In comparison, the level of total earning assets at June 30, 1996 was $16.7 billion. The static gap and adjusted gap do not include $1.550 billion (notional amount) of interest rate caps to potentially offset the effect of rising interest rates on the securities available for sale portfolio. Each of the above three tools used to assess interest rate risk have strengths and weaknesses. While Crestar believes that the above methodologies provide a faithful representation of the Corporation's interest rate sensitivity, the methodologies do not necessarily take into account all business developments which can have an impact on net interest income, such as changes in credit quality or changes in the amount and composition of earning assets and sources of funds. As noted, Crestar incurs a degree of interest rate risk as a provider of banking services to its customers. This risk can be reduced through derivative interest rate contracts, such as interest rate swaps, caps and floors. Crestar's outstanding interest rate swap instruments at June 30, 1996 are utilized to convert certain variable rate assets to fixed rates as part of the Corporation's interest risk management strategy. Interest rate caps are utilized to minimize interest rate risk associated with rising rates on both fixed rate securities and floating rate money market deposits. Because financial derivatives typically do not have actual principal dollars transferred between parties, notional principal amounts are used to express the volume of such transactions. However, the notional amount of derivative contracts does not represent direct credit exposure, which the Corporation believes is a combination of current replacement cost of those instruments with a positive market value plus an amount for additional market movement. Crestar has established policies governing derivative activities, and the counterparties used by Crestar are considered high quality credits. In addition, Crestar may demand collateral from a counterparty to further minimize credit risk. There were no past due amounts or reserves for possible derivative credit losses at June 30, 1996, nor has Crestar ever experienced any charge-offs related to the credit risk of derivative transactions. The notional amount of Crestar's interest rate swaps and caps (excluding customer positions where Crestar acts as an intermediary) was $3.0 billion at June 30, 1996. Forward contracts with a notional amount of $1.0 billion, utilized to hedge lending commitments of Crestar's mortgage banking subsidiary, were also outstanding at June 30, 1996, bringing the total notional value of derivative financial instruments related to interest rate risk management activities to $4.0 billion at June 30, 1996. Tables 11, 12, and 13 present information regarding fair values, maturity, average rates, and activity as of and for the six month period ending June 30, 1996 for these off-balance sheet derivative instruments. Net unrealized losses on these instruments totaled $20.2 million as of June 30, 1996. Financial statement note 11 contains additional information pertaining to these types of agreements. New Accounting Standards During the second quarter the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 125, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities" (SFAS 125). SFAS 125 is effective for transfers and servicing of financial assets and extinguishments of liabilities occurring after December 31, 1996, and is to be applied prospectively. The statement provides accounting and reporting standards for transfers and servicing of financial assets and extinguishments of liabilities. The standards are based on consistent application of a financial-components approach that focuses on control. After a transfer of financial assets, an entity recognizes the financial and servicing assets it controls and the liabilities it has incurred, derecognizes financial assets when control has been surrendered, and derecognizes liabilities when extinguished. The statement provides consistent standards for distinguishing transfers of financial assets that are sales from transfers that are secured borrowings. At present, Crestar has not assessed the impact of adoption of this new standard. Deposit Insurance Recapitalization Proposal Legislative efforts to resolve the undercapitalization of the Savings Association Insurance Fund (SAIF) of the Federal Deposit Insurance Corporation (FDIC), and the disparity between deposit insurance premiums for SAIF-insured deposits and deposits insured under the Bank Insurance Fund (BIF), may result in a one-time special assessment on SAIF-insured deposits. Future earnings may be impacted by a legislatively proposed one-time assessment of approximately 75 basis points (0.75%) on SAIF-insured deposits. Any one-time assessment on SAIF-insured deposits would impact each of Crestar's three bank subsidiaries and its savings bank subsidiary. Approximately 45% of Crestar's current deposit base is SAIF-insured. A 75 basis point assessment, on an after-tax basis, would result in a one-time charge to Crestar of approximately $24 million. As a consequence of any one-time assessment, future earnings would be expected to be augmented by a reduction in ongoing SAIF deposit insurance assessment rates. The estimated $24 million charge for Crestar reflects a possible 20% reduction in the assessments on certain SAIF-insured deposits (known as Oakar deposits) acquired by banks in certain thrift acquisitions. Crestar would accrue such a liability if and when such legislation is enacted into law. Table 1 Financial Highlights
Dollars in millions, except per share data Three Months Six Months % % For the Period Ended June 30 1996 1995 Change 1996 1995 Change Net Income $56.7 $51.8 10 $112.2 $101.4 11 Dividends Declared on Common Stock 22.4 18.1 24 41.9 34.3 22 Per Common Share: Net Income $1.31 $1.18 11 $ 2.58 $ 2.32 11 Dividends Declared .52 .45 16 .97 .85 14 Average Shares Outstanding (000s) 43,330 43,782 (1) 43,467 43,711 (1) =================================================================================================== Key Ratios Return on Average Assets 1.28% 1.25% 1.28% 1.23% Return on Average Equity 16.03 14.98 15.72 14.89 Average Equity to Average Assets 8.01 8.36 8.16 8.29 Net Interest Margin 4.68 4.61 4.66 4.62 At June 30 Book Value Per Share $33.46 $32.73 2 Equity to Assets 7.74% 8.16% Risk Adjusted Capital Ratios: Tier I 8.8 9.0 Total 12.0 12.3 Common Shares Outstanding (000s) 42,768 42,925 ===================================================================================================
Table 2 Analysis Of Earnings Per Common Share 2nd Qtr. 1996 2nd Qtr. 1996 vs. vs. 2nd Qtr. 1995 1st Qtr. 1996 Earnings Per Common Share - prior period $1.18 $1.27 - ------------------------------------------------------------------------------ Interest income .25 .08 Interest expense (.05) - Provision for loan losses (.13) (.03) Securities gains or losses .02 (.03) Other noninterest income .18 .12 Foreclosed properties expense - (.02) Other noninterest expense (.10) (.08) Income taxes (.05) (.01) Increased shares outstanding .01 .01 - ------------------------------------------------------------------------------ Net increase .13 .04 - ------------------------------------------------------------------------------ Earnings Per Common Share - current period $1.31 $1.31 ============================================================================== Table 3 Average Balances, Net Interest Income And Rate/Volume Analysis(1) Dollars in thousands
2nd Qtr. 1st Qtr. Average Balance Average Increase Balance 1996 1995 (Decrease) 1996 $ $ % $ 3,111,723 3,044,026 2 3,000,689 Commercial 898,461 936,114 (4) 903,330 Real estate - income property 245,620 270,174 (9) 252,562 Real estate - construction 2,743,503 2,342,905 17 2,741,657 Instalment 1,547,704 1,573,073 (2) 1,626,601 Bank card 2,945,326 3,566,192 (17) 3,050,951 Real estate - mortgage - ------------------------------------------------------------------------------------------- 11,492,337 11,732,484 (2) 11,575,790 Total loans - net of unearned income(2) - ------------------------------------------------------------------------------------------- 79,479 1,138,457 (93) 83,039 Securities held to maturity 3,275,398 1,447,991 126 3,040,679 Securities available for sale 298,163 321,366 (7) 203,278 Money market investments 863,544 293,793 194 777,637 Mortgage loans held for sale - ------------------------------------------------------------------------------------------- 16,008,921 14,934,091 7 15,680,423 Total earning assets =========================================================================================== 4,949,910 4,802,112 3 4,963,535 Interest-bearing demand deposits 1,291,885 1,447,967 (11) 1,298,559 Regular savings deposits 3,979,103 4,070,051 (2) 4,114,545 Domestic time deposits - ------------------------------------------------------------------------------------------- 10,220,898 10,320,130 (1) 10,376,639 Total interest-bearing core deposits - ------------------------------------------------------------------------------------------- 2,670,882 1,662,247 61 2,152,087 Purchased liabilities 698,996 713,063 (2) 716,142 Long-term debt - ------------------------------------------------------------------------------------------- 13,590,776 12,695,440 0 13,244,868 Total interest-bearing liabilities 2,418,145 2,238,651 8 2,435,555 Other sources - net - ------------------------------------------------------------------------------------------- 16,008,921 14,934,091 7 15,680,423 Total sources of funds - ------------------------------------------------------------------------------------------- Net Interest Income ===========================================================================================
Table 3 Average Balances, Net Interest Income And Rate/Volume Analysis(1) Dollars in thousands
2nd Qtr. 1996 vs. 1995 2nd Qtr. 1996 vs. 1st Qtr. 1996 1st Qtr. Income/Expense(3) Change due to(4) Income/ Change due to(4) Increase Expense(3) Increase 1996 1995 (Decrease) Rate(5) Volume 1996 (Decrease) Rate(5) Volume $ $ $ $ $ $ $ $ $ Commercial 62,367 64,317 (1,950) (3,381) 1,431 60,360 2,007 (225) 2,232 Real estate - income property 19,754 19,818 (64) 731 (795) 20,266 (512) (403) (109) Real estate - construction 5,913 6,964 (1,051) (420) (631) 6,420 (507) (331) (176) Instalment 61,327 53,535 7,792 (1,264) 9,056 60,857 470 429 41 Bank card 47,308 45,169 2,139 2,857 (718) 48,196 (888) 1,473 (2,361) Real estate - mortgage 57,309 69,197 (11,888) 154 (12,042) 58,541 (1,232) 792 (2,024) - --------------------------------------------------------------------------------------------------------------------------------- Total loans - net of unearned income(2) 253,978 259,000 (5,022) 253 (5,275) 254,640 (662) 1,178 (1,840) - --------------------------------------------------------------------------------------------------------------------------------- Securities held to maturity 1,795 18,176 (16,381) 1,392 (17,773) 1,890 (95) (14) (81) Securities available for sale 52,513 23,598 28,915 308 28,607 49,283 3,230 (574) 3,804 Money market investments 3,932 4,918 (986) (631) (355) 2,800 1,132 (175) 1,307 Mortgage loans held for sale 16,152 5,807 10,345 (917) 11,262 14,294 1,858 273 1,585 - --------------------------------------------------------------------------------------------------------------------------------- Total earning assets 328,370 311,499 16,871 (5,456) 22,327 322,907 5,463 (1,315) 6,778 ================================================================================================================================= Interest-bearing demand deposits 35,440 39,018 (3,578) (5,280) 1,702 37,049 (1,609) (1,658) 49 Regular savings deposits 8,145 10,232 (2,087) (984) (1,103) 8,464 (319) (275) (44) Domestic time deposits 51,126 51,557 (431) 720 (1,151) 54,841 (3,715) (1,902) (1,813) - --------------------------------------------------------------------------------------------------------------------------------- Total interest-bearing core deposits 94,711 100,807 (6,096) (7,071) 975 100,354 (5,643) (4,131) (1,512) - --------------------------------------------------------------------------------------------------------------------------------- Purchased liabilities 34,213 24,109 10,104 (4,492) 14,596 28,326 5,887 (926) 6,813 Long-term debt 12,475 12,839 (364) (111) (253) 12,713 (238) 66 (304) - --------------------------------------------------------------------------------------------------------------------------------- Total interest-bearing liabilities 141,399 137,755 3,644 (6,108) 9,752 141,393 6 (3,695) 3,701 Other sources - net - --------------------------------------------------------------------------------------------------------------------------------- Total sources of funds 141,399 137,755 3,644 (6,308) 9,952 141,393 6 (2,963) 2,969 - --------------------------------------------------------------------------------------------------------------------------------- Net Interest Income 186,971 173,744 13,227 852 12,375 181,514 5,457 1,648 3,809 =================================================================================================================================
(1) Tax-equivalent basis. (2) Nonaccrual loans are included in the average loan balances and income on such loans is recognized on a cash basis. (3) Includes tax-equivalent net loan fees of $1.0 million and $727,000 for the second quarter of 1996 and 1995, respectively, and $641,000 for the first quarter of 1996. (4) Variances are computed on a line-by-line basis and are non-additive. (5) Variances caused by the change in rate times the change in balances are allocated to rate. Table 4 Loans To Real Estate Developers And Investors (REDI) In millions June 30, March 31, December 31, 1996 1995 1996 1995 Commercial - developer lines $ 134.2 $ 77.0 $ 118.1 $ 105.2 Commercial - other 47.4 64.8 52.0 51.5 Real estate - income property 883.6 931.2 905.1 910.2 Real estate - construction 166.1 223.7 176.8 182.7 - ------------------------------------------------------------------------------- Total REDI loans $1,231.3 $1,296.7 $1,252.0 $1,249.6 =============================================================================== Table 5 Loans To Real Estate Developers And Investors-- Geographic Distribution And Property Type June 30, 1996 In millions
Region Total Greater Corporation Washington Maryland Eastern Western Capital Land acquisition and development $ 84.8 $ 37.5 $ 19.2 $ 21.2 $ 3.1 $ 3.8 Residential developments 308.6 104.4 74.9 67.3 40.3 21.7 Commercial projects: Office buildings 182.0 76.6 51.1 30.7 11.8 11.8 Retail stores and malls 212.5 125.0 39.0 25.8 10.8 11.9 Hotels and motels 121.8 41.4 12.6 39.9 14.8 13.1 Industrial buildings 120.5 67.1 22.0 11.9 5.9 13.6 - ------------------------------------------------------------------------------------------ Total commercial projects 636.8 310.1 124.7 108.3 43.3 50.4 - ------------------------------------------------------------------------------------------ Special use 65.9 19.2 22.0 16.5 7.6 .6 Other 135.2 87.1 9.0 17.8 4.2 17.1 - ------------------------------------------------------------------------------------------ Total REDI loans $1,231.3 $558.3 $249.8 $231.1 $98.5 $93.6 ==========================================================================================
Table 6 Allowance For Loan Losses
Dollars in thousands Second Quarter Six Months Ended June 30, 1996 1995 1996 1995 Beginning balance $238,847 $236,498 $240,285 $232,922 - -------------------------------------------------------------------------------------------------- Allowance from acquisitions and other activity - net (500) (175) (888) 5,456 - -------------------------------------------------------------------------------------------------- Provision for loan losses 22,500 13,736 42,800 24,037 - -------------------------------------------------------------------------------------------------- Net charge-offs (recoveries): Commercial 378 (280) (262) 419 Real estate - income property (1,056) (22) (2,311) 286 Real estate - construction (632) (403) (710) (966) Instalment 4,640 418 9,203 2,092 Bank card 20,221 12,211 38,201 22,160 Real estate - mortgage 276 418 1,056 707 - -------------------------------------------------------------------------------------------------- Total net charge-offs 23,827 12,342 45,177 24,698 - -------------------------------------------------------------------------------------------------- Balance, June 30 $237,020 $237,717 $237,020 $237,717 ================================================================================================== Allowance for loan losses to period-end loans 2.08% 2.01% 2.08% 2.01% Annualized net charge-offs to average loans .83 .42 .78 .43 ==================================================================================================
Table 7 Nonperforming Assets(1) And Past Due Loans
Dollars in thousands June 30, December 31, Nonaccrual loans: 1996 1995 1995 Commercial $16,958 $26,792 $21,731 Real estate - income property 22,551 25,921 23,913 Real estate - construction 12,348 6,030 4,712 Instalment 2,705 4,640 5,425 Real estate - mortgage 19,801 12,552 19,925 - ---------------------------------------------------------------------------------------------- Total nonaccrual loans 74,363 75,935 75,706 Restructured loans - 1,455 - - ---------------------------------------------------------------------------------------------- Total nonperforming loans1 74,363 77,390 75,706 Foreclosed properties - net 14,390 20,318 17,655 - ---------------------------------------------------------------------------------------------- Total nonperforming assets1 $88,753 $97,708 $93,361 ============================================================================================== Nonperforming assets1 to: Loans and foreclosed properties - net .78% .82% .79% Total assets .48 .57 .51 Allowance for loan losses to: Nonperforming assets1 267 243 257 Nonperforming loans1 319 307 317 Allowance for loan losses plus shareholders' equity to nonperforming assets1 18.80x 16.81x 18.12x ============================================================================================== Accruing loans past due 90 days: Commercial $ 3,451 $ 3,425 $ 5,992 Real estate - income property 245 1,041 19 Real estate - construction 158 1,083 926 Instalment Student 18,544 8,932 9,101 Other 5,057 2,589 3,448 Bank card 21,732 12,914 20,430 Real estate - mortgage 7,355 8,857 10,304 - ---------------------------------------------------------------------------------------------- Total accruing loans past due 90 days $56,542 $38,841 $50,220 ==============================================================================================
(1) Loans which are both past due 90 days or more and not deemed nonaccrual due to an assessment of collectibility are specifically excluded from the definition of nonperforming. Table 8 Summary Of Noninterest Income And Expense
In thousands Six Months Ended Second Quarter First June 30, Quarter Noninterest Income 1996 1995 1996 1996 1995 Service charges on deposit accounts $ 23,191 $ 22,125 $ 21,610 $ 44,801 $ 44,033 Trust and investment advisory 15,517 14,614 15,562 31,079 27,738 Bank card-related 12,561 11,957 11,014 23,575 23,054 Mortgage origination - net 9,958 2,099 5,654 15,612 2,820 Mortgage servicing - net 4,019 3,847 4,459 8,478 8,083 Commissions on letters of credit 1,068 1,157 1,470 2,538 2,524 Trading account activities 994 657 52 1,046 1,281 Gain on sale of mortgage servicing rights 750 - 4,000 4,750 5,900 Gain on pension settlement - 4,340 - - 4,340 Miscellaneous 17,732 13,075 13,859 31,591 23,053 Securities gains (losses) 288 (1,050) 2,355 2,643 (3,460) - ---------------------------------------------------------------------------------------- Total noninterest income $ 86,078 $ 72,821 $ 80,035 $166,113 $139,366 ======================================================================================== Noninterest Expense Salaries $ 69,944 66,391 66,376 $136,320 $132,583 Benefits 17,304 16,475 17,855 35,159 32,950 - ---------------------------------------------------------------------------------------- Total personnel 87,248 82,866 84,231 171,479 165,533 Occupancy - net 11,927 11,759 12,754 24,681 23,960 Equipment 7,679 7,773 7,698 15,377 15,674 Communications 8,572 7,533 8,152 16,724 15,218 Professional fees and services 5,120 3,179 4,224 9,344 7,141 Advertising and marketing 5,160 4,384 5,190 10,350 9,322 Outside data services 6,003 5,874 5,724 11,727 11,841 Loan expense 3,436 2,020 2,268 5,704 3,920 FDIC premiums - net 3,310 7,484 3,378 6,688 14,691 Stationery, printing and supplies 2,524 2,283 2,286 4,810 4,745 Transportation 1,613 1,680 1,569 3,182 3,354 Amortization of purchased intangibles 4,015 3,603 4,047 8,062 6,577 Miscellaneous 12,131 11,730 12,029 24,160 21,563 - ---------------------------------------------------------------------------------------- Subtotal 158,738 152,168 153,550 312,288 303,539 Foreclosed properties (net recoveries) 304 (81) (1,345) (1,041) (1,542) - ---------------------------------------------------------------------------------------- Total noninterest expense $159,042 $152,087 $152,205 $311,247 $301,997 ========================================================================================
Table 9 Debt Ratings (as of July 31, 1996) Standard Thomson Security Moody's & Poor's BankWatch 8 3/4% Subordinated Notes due 2004 Baa1 BBB+ A- 8 1/4% Subordinated Notes due 2002 Baa1 BBB+ A- 8 5/8% Subordinated Notes due 1998 Baa1 BBB+ A- Commercial Paper P-2 Not rated TBW-1 Crestar Bank Deposit Notes: Long-Term A2 A Not rated Short-Term P-1 A-1 TBW-1 =============================================================================== Table 10 Interest Sensitivity Analysis June 30, 1996
In millions Maturity/Rate Sensitivity 0-3 3-6 6-12 One to Over Uses Of Funds months months months five years five years Total Loans: Commercial $2,307.2 $ 51.3 $ 86.5 $ 83.1 $ 717.3 $ 3,245.4 Real estate - income property 505.3 7.7 11.7 24.2 338.4 887.3 Real estate - construction 206.4 2.7 2.9 1.4 23.3 236.7 Instalment 1,175.6 125.8 171.3 286.6 988.6 2,747.9 Bank card 574.5 136.8 211.1 444.8 155.3 1,522.5 Real estate - mortgage 132.0 261.9 410.5 617.5 1,325.9 2,747.8 Securities held to maturity .2 1.5 1.0 2.7 70.2 75.6 Securities available for sale 405.7 136.0 59.5 117.6 2,712.0 3,430.8 Money market investments 901.0 .1 4.9 - - 906.0 Mortgage loans held for sale 997.9 - - - - 997.9 - --------------------------------------------------------------------------------------------------------------- Total earning assets 7,205.8 723.8 959.4 1,577.9 6,331.0 16,797.9 Interest sensitivity hedges on assets (450.0) (950.0) - - 1,400.0 - - --------------------------------------------------------------------------------------------------------------- Total uses $ 6,755.8 $ (226.2) $ 959.4 $ 1,577.9 $7,731.0 $16,797.9 =============================================================================================================== Sources of Funds Interest-bearing demand deposits $ 4,926.4 $ - $ - $ - $ - $ 4,926.4 Regular savings deposits 1,289.6 - - - - 1,289.6 Domestic time deposits 266.3 433.7 784.2 1,250.5 1,190.0 3,924.7 Certificates of deposit $100,000 and over 36.6 43.1 58.8 18.9 3.9 161.3 Short-term borrowings 3,231.8 5.0 8.5 - - 3,245.3 Long-term debt 7.7 11.8 11.5 31.1 634.6 696.7 - --------------------------------------------------------------------------------------------------------------- Total interest-bearing liabilities 9,758.4 493.6 863.0 1,300.5 1,828.5 14,244.0 Other sources - net - - - - 2,553.9 2,553.9 Interest sensitivity hedges on liabilities - (40.0) - - 40.0 - - --------------------------------------------------------------------------------------------------------------- Total sources $ 9,758.4 $ 453.6 $ 863.0 $ 1,300.5 $4,422.4 $16,797.9 =============================================================================================================== Cumulative maturity/rate sensitivity gap $(3,002.6) $(3,682.4) $(3,586.0) $(3,308.6) $ - $ - =============================================================================================================== Adjustments Beta adjustments: Interest-bearing demand deposits (beta factor .40) $ 2,967.2 Regular savings (beta factor .13) 1,123.4 Demand deposit sensitivity (835.5) - --------------------------------------------------------------------------------------------------------------- Cumulative adjusted maturity/rate sensitivty gap $ 252.5 $ (427.3) $ (330.9) $ (53.5) $ - $ - ===============================================================================================================
Table 11 Off-Balance Sheet Derivative Financial Instruments(1)
June 30, 1996 Weighted Average Average Fixed Estimated Dollars in thousands Notional Expected Receive Fair Balance Maturity Rate Value Comments Interest Rate Conversions Generic interest rate swaps $1,400,000 3.1 yrs. 5.87% Notional amounts of Carrying amount(2) $ 480 $950 million, $250 Commercial loan program million and $200 million Unrealized gross losses (16,237) convert floating rate Instalment loan program commercial, instalment Unrealized gross losses (4,163) and real estate mortgage Real estate mortgage loan loans, respectively, to program fixed rate. Floating rates Unrealized gross losses (1,900) paid tied to LIBOR. Estimated fair value (21,820) Interest rate caps 1,590,000 3.7 yrs. 7.51%(3) Notional balance of Carrying amount(2) 19,478 $1.55 billion hedges Securities available for sale program(4) the market value of Unrealized gross gains 1,963 fixed rate securities Unrealized gross losses (1,273) available for sale (strike Money market deposit program rate tied to yield on 5 Unrealized gross gains 205 year constant maturity Estimated fair value 20,373 U.S. Treasury securities). Notional balance of $40 million hedges the interest rate risk associated with rising interest rates on floating rate money market deposits (strike rate tied to LIBOR). Hedges of Lending Commitments Forward contracts 1,011,961 .1 yrs. n/a Hedges of residential Unrealized gross gains 2,107 mortgage lending Unrealized gross losses (908) commitments. Estimated fair value 1,199 Total hedges against interest rate risk $4,001,961 $ (248) ===================================================================================================================
(1) Includes only off-balance sheet derivative financial instruments related to interest rate risk management activities. (2) Includes any accrued interest receivable and or payable balances, and unamortized premiums paid for interest rate caps. (3) Represents average strike rate. For interest rate caps purchased, Crestar will receive interest if a specified market index rate rises above a fixed strike rate during the term of the contract. Any interest received is based on the difference between a higher index interest rate and the contractual cap rate, applied to the underlying notional balance. No interest payments are received if the index rate remains below the cap rate. (4) The fair value of derivative interest rate caps hedging securities classified as available for sale is included in the total fair value of the securities available for sale portfolio. The unamortized premiums paid for such interest rate caps are included in the amortized cost basis of securities available for sale, with any unrealized gain or loss (net of tax) pertaining to these interest rate caps included in shareholders' equity as "Net unrealized gain (loss) on securities available for sale." n/a - Not applicable LIBOR - London Interbank Offered Rates Table 12 Off-Balance Sheet Derivatives--Expected Maturities(1) June 30, 1996
Dollars in thousands Within One to Three to One Year Three Years Five Years Total Interest Rate Conversions Generic interest rate swaps: Notional amount $ - $ 600,000 $ 800,000 $1,400,000 Average fixed receive rate - 5.69% 6.00% 5.87% Estimated fair value $ - $ (7,487) $ (14,333) $ (21,820) Interest rate caps Notional amount $ 25,000 $ 15,000 $1,550,000 $1,590,000 Average strike rate 5.90% 5.83% 7.55% 7.51% Estimated fair value $ 34 $ 175 $ 20,164 $ 20,373 Hedges of Lending Commitments Forward contracts:(2) Notional amount $1,011,961 $ - $ - $1,011,961 Estimated fair value 1,199 - - 1,199 Total hedges against interest rate risk: Notional amount $1,036,961 $ 615,000 $2,350,000 $4,001,961 Estimated fair value 1,233 (7,312) 5,831 (248) ==============================================================================================
(1) Includes only off-balance sheet derivative financial instruments related to interest rate risk management activities. (2) Hedges of residential mortgage lending commitments. Table 13 Off-Balance Sheet Derivatives Activity(1)
In thousands Designated to Designated to Assets Liabilities Hedges of Interest Interest Interest Lending Rate Rate Rate Commit- Swaps Caps Caps ments(2) Total Balance, April 1, 1996 $1,300,000 $1,000,000 $ 40,000 $ 979,010 $ 3,319,010 Additions 100,000 550,000 - 860,437 1,510,437 Maturities - - - (827,486) (827,486) - ------------------------------------------------------------------------------------------------------- Balance, June 30, 1996 $1,400,000 $1,550,000 $ 40,000 $ 1,011,961 $ 4,001,961 ======================================================================================================= Balance, January 1, 1996 $1,200,000 $ - $ 40,000 $ 547,790 $ 1,787,790 Additions 300,000 1,550,000 - 1,857,669 3,707,669 Maturities (100,000) - - (1,393,498) (1,493,498) - ------------------------------------------------------------------------------------------------------- Balance, June 30, 1996 $1,400,000 $1,550,000 $ 40,000 $ 1,011,961 $ 4,001,961 =======================================================================================================
(1) Includes only off-balance sheet derivative financial instruments related to interest rate risk management activities. (2) Forward contracts hedging residential mortgage lending commitments; maturities represent contracts delivered. Table 14 Selected Quarterly Financial Information
Dollars in thousands, except per share data 2nd Qtr. 1st Qtr. 4th Qtr. 3rd Qtr. 2nd Qtr. Results of operations: 1996 1996 1995 1995 1995 Net interest income(1) $186,971 $181,514 $175,359 $172,475 $173,744 Provision for loan losses 22,500 20,300 21,302 14,231 13,736 - ------------------------------------------------------------------------------------------------- Net credit income 164,471 161,214 154,057 158,244 160,008 Securities gains (losses) 288 2,355 1,316 (69) (1,050) Other noninterest income 85,790 77,680 72,885 75,044 73,871 - ------------------------------------------------------------------------------------------------- Net credit and noninterest income 250,549 241,249 228,258 233,219 232,829 Noninterest expense 159,042 152,205 168,867 148,570 152,087 - ------------------------------------------------------------------------------------------------- Income before taxes 91,507 89,044 59,391 84,649 80,742 - ------------------------------------------------------------------------------------------------- Tax-equivalent adjustment 2,460 2,501 2,568 3,198 2,719 Book tax expense 32,317 31,121 30,526 29,375 26,258 - ------------------------------------------------------------------------------------------------- Income tax expense 34,777 33,622 33,094 32,573 28,977 - ------------------------------------------------------------------------------------------------- Net Income $ 56,730 $ 55,422 $ 26,297 $ 52,076 $ 51,765 ================================================================================================= Per common share: Net income $ 1.31 $ 1.27 $ .61 $ 1.19 $ 1.18 Dividends declared .52 .45 .45 .45 .45 Average shares outstanding (000s) 43,330 43,607 43,634 43,686 43,782 ================================================================================================= Selected ratios and other data: Return on average assets 1.28% 1.28% .62% 1.25% 1.25% Return on average equity 16.03 15.41 7.28 14.74 14.98 Net interest margin(1) 4.68 4.63 4.55 4.57 4.61 Net charge-offs as % of average loans .83 .74 .64 .58 .42 Allowance as % of period-end loans 2.08 2.07 2.04 2.00 2.01 Overhead ratio 58.25 58.19 67.67 60.04 61.68 Average equity to assets 8.01 8.31 8.46 8.51 8.36 Equity leverage 12.48x 12.04x 11.82x 11.75x 11.96x Full-time equivalent employees (period end) 6,894 6,705 6,712 7,018 7,172 =================================================================================================
(1)Tax-equivalent basis. Table 15 Consolidated Average Balances/Net Interest Income/Rates(1)
Three Months Ended June 30, 1996 1995 Dollars in thousands Income/ Yield/ Income/ Yield/ Balance Expense Rate Balance Expense Rate Assets $ $ % $ $ % Securities held to maturity(2) 79,479 1,795 9.03 1,138,457 18,176 6.71 Securities available for sale(2) 3,275,398 52,513 6.41 1,447,991 23,598 6.27 Money market investments(2) 298,163 3,932 5.30 321,366 4,918 6.14 Mortgage loans held for sale(2) 863,544 16,152 7.49 293,793 5,807 7.91 - ---------------------------------------------------------------------------------------------------------- Commercial 3,111,723 62,367 8.05 3,044,026 64,317 8.48 Real estate - income property 898,461 19,754 8.83 936,114 19,818 8.48 Real estate - construction 245,620 5,913 9.68 270,174 6,964 10.32 Instalment 2,743,503 61,327 8.94 2,342,905 53,535 9.07 Bank card 1,547,704 47,308 12.51 1,573,073 45,169 11.36 Real estate - mortgage 2,945,326 57,309 7.76 3,566,192 69,197 7.76 - ---------------------------------------------------------------------------------------------------------- Total loans(2)(3) 11,492,337 253,978 8.89 11,732,484 259,000 8.81 Allowance for loan losses (238,985) (237,651) - ---------------------------------------------------------------------------------------------------------- Loans - net 11,253,352 11,494,833 Cash and due from banks 799,197 780,974 Premises and equipment - net 357,286 359,334 Customers' liability on acceptances 16,976 12,555 Intangible assets - net 182,465 166,045 Foreclosed properties - net 17,722 26,294 Other assets 521,920 487,982 - ---------------------------------------------------------------------------------------------------------- Total Assets 17,665,502 16,529,624 Total Earning Assets 16,008,921 328,370 8.24 14,934,091 311,499 8.33 Liabilities And Shareholders' Equity Interest-bearing demand deposits 4,949,910 35,440 2.88 4,802,112 39,018 3.26 Regular savings deposits 1,291,885 8,145 2.54 1,447,967 10,232 2.83 Domestic time deposits 3,979,103 51,126 5.20 4,070,051 51,557 5.12 Certificates of deposit $100,000 and over 165,480 2,149 5.23 71,068 954 5.38 - ---------------------------------------------------------------------------------------------------------- Total savings and time deposits(2) 10,386,378 96,860 3.76 10,391,198 101,761 3.94 Demand deposits 2,393,145 2,208,816 - ---------------------------------------------------------------------------------------------------------- Total deposits 12,779,523 12,600,014 Short-term borrowings(2) 2,505,402 32,064 5.14 1,591,179 23,155 5.83 Long-term debt(2) 698,996 12,475 7.14 713,063 12,839 7.20 Liability on acceptances 16,976 12,555 Other liabilities 248,954 230,295 - ---------------------------------------------------------------------------------------------------------- Total liabilities 16,249,851 15,147,106 - ---------------------------------------------------------------------------------------------------------- Total shareholders' equity 1,415,651 1,382,518 - ---------------------------------------------------------------------------------------------------------- Total Liabilities And Shareholders' Equity 17,665,502 16,529,624 Total interest-bearing liabilities 13,590,776 141,399 4.19 12,695,440 137,755 4.36 Other sources - net 2,418,145 2,238,651 - ---------------------------------------------------------------------------------------------------------- Total Sources Of Funds 16,008,921 141,399 3.56 14,934,091 137,755 3.72 Net Interest Spread 4.05 3.97 Net Interest Income/Margin 186,971 4.68 173,744 4.61 ==========================================================================================================
Three Months Ended March 31, Six Months Ended June 30, 1996 1996 1995 Dollars in thousands Income/ Yield/ Income/ Yield/ Income/ Yield/ Balance Expense Rate Balance Expense Rate Balance Expense Rate Assets $ $ % $ $ % $ $ % Securities held to maturity(2) 83,039 1,890 9.11 81,259 3,685 9.07 1,176,243 37,629 6.40 Securities available for sale(2) 3,040,679 49,283 6.48 3,158,038 101,796 6.45 1,468,019 47,896 6.54 Money market investments(2) 203,278 2,800 5.54 250,721 6,732 5.40 400,176 11,840 5.97 Mortgage loans held for sale(2) 777,637 14,294 7.37 820,590 30,446 7.43 259,109 10,182 7.86 - --------------------------------------------------------------------------------------------------------------------------------- Commercial 3,000,689 60,360 8.09 3,056,207 122,728 8.07 3,034,329 126,422 8.39 Real estate - income property 903,330 20,266 9.00 900,895 40,020 8.92 915,966 38,679 8.49 Real estate - construction 252,562 6,420 10.21 249,091 12,333 9.95 269,855 13,934 10.39 Instalment 2,741,657 60,857 8.92 2,742,579 122,184 8.93 2,298,708 103,621 9.00 Bank card 1,626,601 48,196 11.94 1,587,153 95,504 12.16 1,533,203 88,246 11.44 Real estate - mortgage 3,050,951 58,541 7.67 2,998,138 115,849 7.72 3,523,483 135,786 7.70 - --------------------------------------------------------------------------------------------------------------------------------- Total loans(2)(3) 11,575,790 254,640 8.83 11,534,063 508,618 8.85 11,575,544 506,688 8.76 Allowance for loan losses (240,615) (239,800) (237,175) - --------------------------------------------------------------------------------------------------------------------------------- Loans - net 11,335,175 11,294,263 11,338,369 Cash and due from banks 811,209 805,203 767,598 Premises and equipment - net 355,684 356,485 354,686 Customers' liability on acceptances 14,264 15,620 10,869 Intangible assets - net 184,172 183,318 150,696 Foreclosed properties - net 17,592 17,657 29,636 Other assets 489,561 505,741 472,423 - --------------------------------------------------------------------------------------------------------------------------------- Total Assets 17,312,290 17,488,895 16,427,824 Total Earning Assets 15,680,423 322,907 8.26 15,844,671 651,277 8.25 14,879,091 614,235 8.26 Liabilities And Shareholders' Equity Interest-bearing demand deposits 4,963,535 37,049 2.99 4,956,723 72,489 2.94 4,793,158 76,583 3.22 Regular savings deposits 1,298,559 8,464 2.62 1,295,222 16,609 2.58 1,481,709 20,809 2.83 Domestic time deposits 4,114,545 54,841 5.37 4,046,824 105,966 5.29 3,965,478 95,382 4.88 Certificates of deposit $100,000 and over 109,364 1,449 5.33 137,422 3,599 5.27 69,815 1,811 5.23 - --------------------------------------------------------------------------------------------------------------------------------- Total savings and time deposits(2) 10,486,003 101,803 3.90 10,436,191 198,663 3.84 10,310,160 194,585 3.82 Demand deposits 2,355,997 2,374,571 2,166,178 - --------------------------------------------------------------------------------------------------------------------------------- Total deposits 12,842,000 12,810,762 12,476,338 Short-term borrowings(2) 2,042,723 26,877 5.28 2,274,063 58,941 5.21 1,648,696 48,073 5.87 Long-term debt(2) 716,142 12,713 7.10 707,569 25,188 7.12 709,403 25,334 7.14 Liability on acceptances 14,264 15,620 10,869 Other liabilities 258,982 253,966 220,475 - --------------------------------------------------------------------------------------------------------------------------------- Total liabilities 15,874,111 16,061,980 15,065,781 - --------------------------------------------------------------------------------------------------------------------------------- Total shareholders' equity 1,438,179 1,426,915 1,362,043 - --------------------------------------------------------------------------------------------------------------------------------- Total Liabilities And Shareholders' Equity 17,312,290 17,488,895 16,427,824 Total interest-bearing liabilities 13,244,868 141,393 4.30 13,417,823 282,792 4.24 12,668,259 267,992 4.28 Other sources - net 2,435,555 2,426,848 2,210,832 - --------------------------------------------------------------------------------------------------------------------------------- Total Sources Of Funds 15,680,423 141,393 3.63 15,844,671 282,792 3.59 14,879,091 267,992 3.64 Net Interest Spread 3.96 4.01 3.98 Net Interest Income/Margin 181,514 4.63 368,485 4.66 346,243 4.62 =================================================================================================================================
(1) Income and yields are computed on a tax-equivalent basis using the statutory federal income tax rate exclusive of the alternative minimum tax and nondeductible interest expense. (2) Indicates earning asset or interest-bearing liability. (3) Nonaccrual loans are included in the average loan balances and income on such loans is recognized on a cash basis. Item 4. Submission Of Matters To A Vote Of Security Holders The Annual Meeting of Shareholders of Crestar Financial Corporation was held on April 26, 1996 for the purpose of electing six Class III directors for a term of three years, approving the Directors' Equity Program and ratifying the Board of Directors' appointment of independent auditors for the year. Proxies for the meeting were solicited pursuant to Section 14(a) of the Securities Exchange Act of 1934 and there were no solicitations in opposition to the recommendations of the Board of Directors on the matters voted on. Six Class III directors were elected for three-year terms, each having a minimum of 34,647,412 shares votes "for" election, with no more than 284,197 shares voted "withheld." The six Class III directors elected were: Charles R. Longsworth Richard G. Tilghman Paul D. Miller L. Dudley Walker Frank S. Royal Karen Hastie Williams The following Class I directors' The following Class II directors' terms expire in 1997: terms expire in 1998: J. Carter Fox Patrick J. Maher Bonnie Guiton Hill Eugene P. Trani Gene A. James Gordon F. Rainey, Jr. Frank E. McCarthy James M. Wells III H. Gordon Leggett, Jr. G. Gilmer Minor III The Directors' Equity Program was approved as follows: Shares Voted Shares Voted Shares Voted "For" "Against" "Abstain" 31,426,779 2,841,590 663,240 The appointment of KPMG Peat Marwick LLP as the Corporation's independent auditors for 1996 was ratified as follows: Shares Voted Shares Voted Shares Voted "For" "Against" "Abstain" 34,654,353 141,727 135,529 "Broker non-votes" were not included in determining the number of votes cast in the election of directors or on other matters. All matters voted on were considered "routine" under New York Stock Exchange rules. Signatures Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Crestar Financial Corporation Registrant Date August 14, 1996 /s/ JAMES D. BARR James D. Barr Executive Vice President, Controller and Treasurer EX-27 2 EXHIBIT 27
9 1,000 6-MOS 6-MOS DEC-31-1996 DEC-31-1995 JUN-30-1996 JUN-30-1995 765,724 816,089 10,301,967 10,415,037 804,279 561,500 1,555 4,195 3,430,814 1,519,130 75,597 1,093,943 76,912 1,082,653 11,387,514 11,852,996 237,020 237,717 18,488,317 17,211,551 12,777,839 12,693,168 3,245,350 1,896,065 337,277 511,881 696,697 705,695 0 0 0 0 213,840 214,626 1,217,314 1,190,116 18,488,317 17,211,551 505,275 502,250 103,878 84,476 37,163 22,014 646,316 608,740 198,663 194,585 282,792 267,992 363,524 340,748 42,800 24,037 2,643 (3,460) 311,247 301,997 175,590 154,080 112,152 101,424 0 0 0 0 112,152 101,424 2.58 2.32 2.58 2.32 4.66 4.62 74,363 75,935 56,542 38,841 0 1,455 148,000 202,000 240,285 232,922 59,429 38,638 14,252 13,940 237,020 237,717 0 0 0 0 0 0
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