-----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, EyCGBu5S9YT0Xf2ikZnqSjLkc2X8P2OljOmyWjhWGBZd0f5nR2FXkxjD+LzVUZp2 O0UsjcBVDkG6e8mgD5BdFQ== 0000916641-96-000989.txt : 19961118 0000916641-96-000989.hdr.sgml : 19961118 ACCESSION NUMBER: 0000916641-96-000989 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960930 FILED AS OF DATE: 19961114 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: 96666213 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 FINANCIAL CORP. 10-Q United States Securities And Exchange Commission Washington, DC 20549 Form 10-Q (Mark One) (X) Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the Quarter Ended September 30, 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 October 31, 1996 Common Stock, $5 par value 42,352,325 Crestar Financial Corporation And Subsidiaries Form 10-Q For The Quarter Ended September 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: During the third quarter of 1996, Crestar filed a Form 8-K relating to the announcement of the signing of a definitive agreement under which Citizens Bancorp, a $4.2 billion-asset Maryland based bank holding company, will merge with Crestar in a pooling of interests business combination. The Form 8-K also noted the termination of a common stock repurchase plan that had previously been approved by Crestar's Board of Directors on July 11, 1996. Consolidated Balance Sheets Crestar Financial Corporation And Subsidiaries
Dollars in thousands September 30, ------------------------ December 31, Assets 1996 1995 1995 Cash and due from banks $ 810,669 $ 736,261 $ 1,084,047 Securities held to maturity (note 2) 69,849 1,085,231 85,368 Securities available for sale (note 3) 3,520,740 1,843,069 3,231,389 Money market investments (note 4) 742,036 658,262 516,268 Mortgage loans held for sale 909,633 489,282 688,218 Loans (note 5): Business Loans: Commercial 3,177,380 3,081,146 3,102,156 Real estate - income property 889,680 915,229 874,396 Real estate - construction 227,519 261,350 262,340 Consumer Loans: Instalment 2,719,890 2,470,066 2,732,557 Bank card 1,450,299 1,576,302 1,686,765 Real estate - mortgage 2,772,243 3,429,311 3,148,214 - ----------------------------------------------------------------------------------------------------------- Total Loans 11,237,011 11,733,404 11,806,428 Less: Allowance for loan losses (note 6) (235,747) (234,960) (240,285) - ----------------------------------------------------------------------------------------------------------- Loans - net 11,001,264 11,498,444 11,566,143 Premises and equipment - net 365,905 357,898 357,159 Customers' liability on acceptances 3,585 8,430 5,143 Intangible assets - net 183,784 160,000 186,732 Foreclosed properties - net (notes 5 and 7) 17,030 20,100 17,655 Other assets 627,516 448,067 564,563 - ----------------------------------------------------------------------------------------------------------- Total Assets $18,252,011 $17,305,044 $18,302,685 =========================================================================================================== Liabilities Demand deposits $ 2,561,321 $ 2,244,724 $ 2,665,888 Interest-bearing demand deposits 4,833,045 4,729,563 4,975,710 Regular savings deposits 1,232,175 1,351,044 1,310,903 Domestic time deposits 3,813,760 4,045,189 4,184,703 Certificates of deposit $100,000 and over 1,144,273 62,991 116,211 - ----------------------------------------------------------------------------------------------------------- Total deposits 13,584,574 12,433,511 13,253,415 Short-term borrowings (note 8) 2,083,096 2,348,827 2,227,338 Liability on acceptances 3,585 8,430 5,143 Other liabilities 479,330 394,520 694,096 Long-term debt (note 9) 668,458 683,552 671,296 - ----------------------------------------------------------------------------------------------------------- Total Liabilities 16,819,043 15,868,840 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 42,349,513 and 42,906,252 at September 30, 1996 and 1995, respectively; 42,809,761 at December 31, 1995 211,748 214,531 214,049 Capital surplus 397,728 365,880 371,075 Retained earnings 863,907 858,427 855,195 Net unrealized gain (loss) on securities available for sale (40,415) (2,634) 11,078 - ----------------------------------------------------------------------------------------------------------- Total Shareholders' Equity 1,432,968 1,436,204 1,451,397 - ----------------------------------------------------------------------------------------------------------- Total Liabilities And Shareholders' Equity $18,252,011 $17,305,044 $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 Sept. 30, Nine Months Ended Sept. 30, ---------------------------- --------------------------- Income From Earning Assets 1996 1995 1996 1995 Interest and fees on loans $244,752 $254,070 $750,027 $756,320 Interest on taxable securities held to maturity 158 15,501 550 50,091 Interest on tax-exempt securities held to maturity 739 979 2,429 2,969 Interest and dividends on securities available for sale 53,094 26,683 154,890 74,579 Income on money market investments 2,828 4,143 9,545 15,975 Interest on mortgage loans held for sale 18,494 8,799 48,940 18,981 - --------------------------------------------------------------------------------------------------------------- Total income from earning assets 320,065 310,175 966,381 918,915 - --------------------------------------------------------------------------------------------------------------- Interest Expense Interest-bearing demand deposits 35,979 38,808 108,468 115,391 Regular savings deposits 7,977 9,421 24,586 30,230 Domestic time deposits 48,888 54,885 154,854 150,267 Certificates of deposit $100,000 and over 5,655 925 9,254 2,736 - --------------------------------------------------------------------------------------------------------------- Total interest on deposits 98,499 104,039 297,162 298,624 Short-term borrowings 28,588 24,344 87,529 72,417 Long-term debt 12,238 12,515 37,426 37,849 - --------------------------------------------------------------------------------------------------------------- Total interest expense 139,325 140,898 422,117 408,890 - --------------------------------------------------------------------------------------------------------------- Net Interest Income 180,740 169,277 544,264 510,025 Provision for loan losses (note 6) 23,170 14,231 65,970 38,268 - --------------------------------------------------------------------------------------------------------------- Net Credit Income 157,570 155,046 478,294 471,757 - --------------------------------------------------------------------------------------------------------------- Noninterest Income Service charges on deposit accounts 24,107 23,203 68,908 67,236 Trust and investment advisory income 16,462 15,064 47,541 42,802 Bank card-related income 12,926 12,138 36,501 35,192 Other income 21,077 24,639 85,092 72,640 Securities gains (losses) 97 (69) 2,740 (3,529) - --------------------------------------------------------------------------------------------------------------- Total noninterest income 74,669 74,975 240,782 214,341 - --------------------------------------------------------------------------------------------------------------- Net Credit And Noninterest Income 232,239 230,021 719,076 686,098 - --------------------------------------------------------------------------------------------------------------- Noninterest Expense Personnel expense 87,793 82,268 259,272 247,801 Occupancy expense - net 11,985 11,885 36,666 35,845 Equipment expense 7,611 7,748 22,988 23,422 FDIC premiums - net 37,375 2,893 44,063 17,584 Other expense 46,416 43,776 139,438 125,915 - --------------------------------------------------------------------------------------------------------------- Total noninterest expense 191,180 148,570 502,427 450,567 - --------------------------------------------------------------------------------------------------------------- Income Before Income Taxes 41,059 81,451 216,649 235,531 Income tax expense (note 10) 4,252 29,375 67,690 82,031 - --------------------------------------------------------------------------------------------------------------- Net Income $ 36,807 $ 52,076 $148,959 $153,500 =============================================================================================================== Earnings Per Common Share $ .86 $ 1.19 $ 3.44 $ 3.51 ===============================================================================================================
See accompanying notes to consolidated financial statements. Consolidated Statements Of Cash Flows Crestar Financial Corporation And Subsidiaries
In thousands Nine Months Ended Sept. 30, ---------------------------- 1996 1995 Operating Net Income $ 148,959 $ 153,500 Activities Adjustments to reconcile net income to net cash provided by operating activities: Provisions for loan losses, foreclosed properties and other losses 64,070 39,454 Depreciation and amortization of premises and equipment 29,160 29,427 Securities losses (gains) (2,740) 3,529 Amortization of intangible assets 12,247 10,177 Deferred income tax expense (benefit) (2,462) 6,408 Gain on foreclosed properties (168) (2,632) Gain on sales of mortgage servicing rights (4,750) (5,900) Net increase in trading account (701) (3,565) Origination and purchase of loans held for sale (2,897,539) (1,837,133) Proceeds from sales of loans held for sale 2,676,124 1,588,756 Net decrease (increase) in accrued interest receivable, prepaid expenses and other assets (7,706) 3,351 Net increase in accrued interest payable, accrued expenses and other liabilities 27,721 34,100 Other, net 316 6,673 ------------------------------------------------------------------------------------------------ Net cash provided by operating activities 42,531 26,145 - ---------------------------------------------------------------------------------------------------------------- Investing Proceeds from maturities and calls of securities held to maturity 27,649 201,440 Activities Proceeds from maturities and calls of securities available for sale 1,728,868 310,924 Proceeds from sales of securities available for sale 3,569,471 1,355,753 Purchases of securities held to maturity (12,258) (48,083) Purchases of securities available for sale (5,712,115) (1,430,063) Net increase in money market investments (225,067) (206,063) Principal collected on non-bank subsidiary loans 30,357 16,227 Loans originated by non-bank subsidiaries (243,712) (123,110) Net decrease (increase) in other loans 508,043 (8,231) Purchases of premises and equipment (42,714) (44,928) Proceeds from sales of foreclosed properties 14,584 28,694 Proceeds from sales of mortgage servicing rights 9,546 8,305 Acquisitions of net assets of financial institutions 138,628 (12,245) Proceeds from sales of branch deposits and premises (7,837) (80,895) Other, net (24,917) (7,664) ------------------------------------------------------------------------------------------------ Net cash used by investing activities (241,474) (39,939) - ---------------------------------------------------------------------------------------------------------------- Financing Net decrease in demand, interest checking, money market (439,384) (476,454) Activities and regular savings deposits Net increase in certificates of deposit 629,008 26,720 Net increase (decrease) in short-term borrowings (91,042) 434,876 Proceeds from issuance of long-term debt 63 7,950 Principal payments on long-term debt (56,220) (69,430) Cash dividends paid (63,770) (53,250) Common stock purchased and retired (83,924) (68,390) Proceeds from the issuance of common stock 30,920 22,264 Other, net (86) (4,830) ------------------------------------------------------------------------------------------------ Net cash used by financing activities (74,435) (180,544) - ---------------------------------------------------------------------------------------------------------------- Cash And Decrease in cash and cash equivalents (273,378) (194,338) Cash Cash and cash equivalents at beginning of year 1,084,047 930,599 Equivalents ------------------------------------------------------------------------------------------------ Cash and cash equivalents at end of quarter $ 810,669 $ 736,261 ================================================================================================================
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, July 1 $1,431,154 $1,404,742 42,768,051 42,925,185 Net Income 36,807 52,076 - - Cash dividends declared on common stock (21,874) (18,918) - - Change in net unrealized gain or loss on securities available for sale 11,319 657 - - Common stock purchased and retired (30,050) (7,101) (531,500) (135,000) Common stock issued: For acquisition of financial institutions - (72) - - For dividend reinvestment plan 4,695 3,639 83,263 72,184 For other stock compensation plans - 64 - 1,271 Upon exercise of stock options (including tax benefit of $189 in 1996; $198 in 1995) 917 1,117 29,699 42,612 - ----------------------------------------------------------------------------------------------------------- Balance, September 30 $1,432,968 $1,436,204 42,349,513 42,906,252 =========================================================================================================== Balance, January 1 $1,451,397 $1,295,159 42,809,761 42,509,900 Net Income 148,959 153,500 - - Cash dividends declared on common stock (63,770) (53,250) - - Change in net unrealized gain or loss on securities available for sale (51,493) 33,921 - - Common stock purchased and retired (83,924) (68,390) (1,487,000) (1,529,200) Cash paid in lieu of fractional shares (86) - (1,484) - Common stock issued: For acquisition of financial institutions - 52,562 - 1,317,789 For dividend reinvestment plan 13,516 10,030 245,941 227,885 For thrift and profit sharing plan 6,300 8,263 110,526 207,272 For other stock compensation plans 965 437 19,313 9,965 Upon exercise of stock options (including tax benefit of $5,810 in 1996; $957 in 1995) 11,104 3,972 652,456 162,641 - ----------------------------------------------------------------------------------------------------------- Balance, September 30 $1,432,968 $1,436,204 42,349,513 42,906,252 ===========================================================================================================
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 and Second Quarter 1996 Financial Supplement and Form 10-Qs. 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 nine months ended September 30, 1995, have been restated to include the combined results of Crestar and Loyola. Intangible assets consisted of goodwill and deposit based intangibles, having a combined balance of $183,343,000 and $159,495,000 at September 30, 1996 and 1995, respectively, and favorable lease rights of $441,000 and $505,000, respectively. Capitalized mortgage servicing rights of $48,747,000 and $27,012,000 at September 30, 1996 and 1995, respectively, were included in other assets in the consolidated financial statements. Mortgage servicing rights of approximately $32 million were purchased or originated during the first nine months of 1996. At September 30, 1996 and 1995, capitalized mortgage servicing rights were net of a related valuation allowance of $305,000 and $269,000, respectively. The activity in the valuation allowance was not material to the consolidated financial statements for the three months and nine months ended September 30, 1996. The fair value of capitalized mortgage servicing rights was approximately $82 million at September 30, 1996. Amortization expense for capitalized mortgage servicing rights totaled $5.9 million for the first nine months of 1996. Included in net FDIC premiums in the consolidated statement of income for the third quarter of 1996 is a $34.1 million pre-tax charge for a non-recurring assessment on the Corporation's deposits insured through the Savings Association Insurance Fund (SAIF) of the Federal Deposit Insurance Corporation (FDIC). This charge, which arose from congressional legislation enacted on September 30, 1996, had an after-tax impact on net income for the third quarter of 1996 of $21.5 million. During the third quarter of 1996, Crestar announced the signing of a definitive agreement under which Citizens Bancorp, a $4.2 billion-asset Maryland based bank holding company, will merge with Crestar. Pending approval by regulators and shareholders of both institutions, the transaction is expected to be completed no later than March 31, 1997, but with a target date of December 31, 1996. One-time pre-tax merger costs of approximately $42 million are expected to be recorded in connection with the merger. Citizens' shareholders will receive .835 shares of Crestar common stock for each share of Citizens common stock, with approximately 12.6 million shares of Crestar common stock expected to be issued in the merger. The transaction is expected to be accounted for as a pooling-of-interests business combination. (2) Securities Held To Maturity The amortized cost (carrying values) and estimated market values of securities held to maturity at September 30 follow:
=========================================================================================================== In thousands 1996 1995 ----------------------- ------------------------ Amortized Market Amortized Market Cost Value Cost Value U.S. Treasury and Federal agencies $ - $ - $ 104,366 $ 103,322 Mortgage-backed obligations of Federal agencies 17,911 18,571 740,277 733,892 Other taxable securities 2,250 2,250 178,369 176,148 States and political subdivisions 49,688 50,283 62,219 63,161 - ----------------------------------------------------------------------------------------------------------- Total securities held to maturity $69,849 $ 71,104 $1,085,231 $1,076,523 ===========================================================================================================
(3) Securities Available For Sale The amortized cost and estimated market values (carrying values) of securities available for sale at September 30 follow:
=========================================================================================================== In thousands 1996 1995 ----------------------- ------------------------ Amortized Market Amortized Market Cost Value Cost Value U.S. Treasury and Federal agencies $ 291,742 $ 286,098 $ 350,082 $ 348,324 Mortgage-backed obligations of Federal agencies 2,553,823 2,500,852 947,288 945,895 Other taxable securities 575,223 570,994 418,949 417,755 Common and preferred stocks 162,729 162,796 130,878 131,095 - ----------------------------------------------------------------------------------------------------------- Total securities available for sale $3,583,517 $3,520,740 $1,847,197 $1,843,069 ===========================================================================================================
At September 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 $18.3 million and a market value of $17.6 million at September 30, 1996. The cost basis of the interest rate caps is being amortized on a straight-line basis, over the life of the caps, as a reduction of interest income on securities available for sale. (4) Money Market Investments =========================================================================================================== In thousands 1996 1995 Federal funds sold $ 85,260 $515,800 Securities purchased under agreements to resell 633,000 127,000 U.S. Treasury 5,809 5,587 Trading account securities 5,191 7,139 Domestic time deposits and other 12,776 2,736 - ----------------------------------------------------------------------------------------------------------- Total money market investments $742,036 $658,262 ===========================================================================================================
(5) Nonperforming Assets And Impaired Loans Nonperforming assets at September 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 $62.0 million and $41.7 million at September 30, 1996 and 1995, respectively.
=========================================================================================================== In thousands 1996 1995 Nonaccrual loans $66,626 $67,497 Restructured loans - 1,455 - ----------------------------------------------------------------------------------------------------------- Total nonperforming loans 66,626 68,952 Foreclosed properties - net 17,030 20,100 - ----------------------------------------------------------------------------------------------------------- Total nonperforming assets $83,656 $89,052 ===========================================================================================================
Non-cash additions to foreclosed properties were $7.5 million and $7.9 million in the first nine 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 September 30 were:
=========================================================================================================== In thousands 1996 1995 Loan Valuation Loan Valuation Balance Allowance Balance Allowance Impaired with valuation allowance $25,510 $4,480 $29,410 $3,790 Impaired without valuation allowance - - - - - ----------------------------------------------------------------------------------------------------------- Total impaired loans $25,510 $4,480 $29,410 $3,790 ===========================================================================================================
Collateral dependent loans, which were measured solely by the fair value of the collateral, constituted $24.4 million or 96% of impaired loans at September 30, 1996. The remaining impaired loan of $1.1 million was 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 nine months ended September 30 were:
=========================================================================================================== In thousands 1996 1995 Average recorded investment in impaired loans $ 30,960 $ 38,080 Interest income recognized during impairment - - Interest income recognized on a cash basis during impairment - - ===========================================================================================================
(6) Allowance For Loan Losses Transactions in the consolidated allowance for loan losses for the three months and nine months ended September 30 were:
=========================================================================================================== In thousands Three Months Nine Months ---------------------- ----------------------- 1996 1995 1996 1995 Beginning balance $237,020 $237,717 $240,285 $232,922 - ----------------------------------------------------------------------------------------------------------- Charge-offs (32,396) (25,763) (91,825) (64,401) Recoveries 7,953 8,875 22,205 22,815 - ----------------------------------------------------------------------------------------------------------- Net charge-offs (24,443) (16,888) (69,620) (41,586) Provision for loan losses 23,170 14,231 65,970 38,268 Allowance from acquisitions and other activity - net - (100) (888) 5,356 - ----------------------------------------------------------------------------------------------------------- Net increase (decrease) (1,273) (2,757) (4,538) 2,038 - ----------------------------------------------------------------------------------------------------------- Ending balance $235,747 $234,960 $235,747 $234,960 ===========================================================================================================
(7) Allowance For Foreclosed Properties Transactions in the allowance for losses on foreclosed properties for the three months and nine months ended September 30 were:
=========================================================================================================== In thousands Three Months Nine Months -------------------- --------------------- 1996 1995 1996 1995 Beginning balance $6,450 $11,600 $7,512 $16,188 - ----------------------------------------------------------------------------------------------------------- Provision for foreclosed properties - 598 (450) 614 Write-downs (110) (969) (251) (8,267) Allowance from acquisitions - net - - (471) 2,694 - ----------------------------------------------------------------------------------------------------------- Net decrease (110) (371) (1,172) (4,959) - ----------------------------------------------------------------------------------------------------------- Ending balance $6,340 $11,229 $ 6,340 $11,229 ===========================================================================================================
(8) Short-Term Borrowings Short-term borrowings, exclusive of deposits, with maturities of less than one year at September 30 were:
=========================================================================================================== In thousands 1996 1995 Federal funds purchased $1,003,088 $1,318,928 Securities sold under repurchase agreements 368,925 475,754 Federal Home Loan Bank borrowings 525,000 388,200 Notes payable 183,900 164,003 Other 2,183 1,942 - ----------------------------------------------------------------------------------------------------------- Total short-term borrowings $2,083,096 $2,348,827 ===========================================================================================================
The Corporation paid $386,358,000 and $366,865,000 in interest on deposits and short-term borrowings in the first nine months of 1996 and 1995, respectively. (9) Long-Term Debt Long-term debt at September 30 included:
=========================================================================================================== In thousands 1996 1995 4 3/8 - 7 3/8% Federal Home Loan Bank obligations payable through 2015 $318,529 $319,291 8 3/4% Subordinated notes due 2004 149,683 149,644 8 1/4% Subordinated notes due 2002 125,000 125,000 8 5/8% Subordinated notes due 1998 49,984 49,974 7 7/8 - 11 1/4% Collateralized mortgage obligation bonds maturing through 2019 15,458 28,936 7 - 8 1/4% Mortgage indebtedness maturing through 2009 8,782 9,557 8 5/8 - 14 3/8% Capital lease obligations maturing through 2006 1,022 1,150 - ----------------------------------------------------------------------------------------------------------- Total long-term debt $668,458 $683,552 ===========================================================================================================
The Corporation paid $36,134,000 and $36,230,000 in interest on long-term debt in the first nine months of 1996 and 1995, respectively. There were no new capital lease agreements in the third quarter of 1996. (10) Income Taxes The current and deferred components of income tax expense allocated to continuing operations for the three months and nine months ended September 30 in the accompanying consolidated statements of income were:
=========================================================================================================== In thousands Three Months Nine Months --------------------- ---------------------- 1996 1995 1996 1995 Current: Federal $14,263 $28,137 $67,892 $71,622 State and local (158) 1,013 2,260 4,001 - ----------------------------------------------------------------------------------------------------------- Total current tax expense 14,105 29,150 70,152 75,623 - ----------------------------------------------------------------------------------------------------------- Deferred: Federal (8,642) (284) (2,865) 5,836 State and local (1,211) 509 403 572 - ----------------------------------------------------------------------------------------------------------- Total deferred tax expense (benefit) (9,853) 225 (2,462) 6,408 - ----------------------------------------------------------------------------------------------------------- Total income tax expense $4,252 $29,375 $67,690 $82,031 ===========================================================================================================
The differences between the amounts computed by applying the statutory federal income tax rate to income before income taxes and the actual income tax expense allocated to operations for the three months and nine months ended September 30 were:
=========================================================================================================== In thousands Three Months Nine Months --------------------- ----------------------- 1996 1995 1996 1995 Income before income taxes $41,059 $81,451 $216,649 $235,531 Tax expense at statutory rate 14,370 28,508 75,827 82,436 - ----------------------------------------------------------------------------------------------------------- Increase (decrease) in taxes resulting from: Repeal of thrift bad debt recapture (8,694) - (8,694) - Tax-exempt interest and dividends (1,674) (1,752) (4,926) (5,617) Nondeductible interest expense 250 166 594 480 Amortization of goodwill 1,021 929 3,028 2,569 State income taxes (890) 988 1,731 2,972 Other - net (131) 536 130 (809) - ----------------------------------------------------------------------------------------------------------- Total increase (decrease) in taxes (10,118) 867 (8,137) (405) - ----------------------------------------------------------------------------------------------------------- Total income tax expense $ 4,252 $29,375 $67,690 $82,031 - ----------------------------------------------------------------------------------------------------------- Effective tax rate 10.4% 36.1% 31.2% 34.8% ===========================================================================================================
During the third quarter of 1996, Crestar recorded a non-recurring $10.6 million reduction of income tax expense, of which $8.7 million was Federal and $1.9 million was state tax related. This expense reduction arose from the repeal of the tax provision that previously required thrift institutions to recapture into taxable income, under certain circumstances, the pre-1988 loan loss allowance. Crestar had previously recorded such a charge at the time of its merger with Loyola on December 31, 1995. The Corporation made income tax payments of $82,657,000 and $53,424,000 during the first nine months of 1996 and 1995, respectively. At September 30, 1996, the Corporation had a net deferred income tax asset of $110,089,000. 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, floors, swaps and forward contracts. Legally binding, unfunded commitments to extend credit were $7.4 billion at September 30, 1996. Standby letters of credit, which are conditional commitments to extend credit, were $404 million at September 30, 1996. Recourse obligations on mortgage loans serviced of $1.5 billion at September 30, 1996 include $140 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 September 30, 1996 based on estimates of future losses on this contractual recourse liability. The remaining notional balance of recourse obligations of $1.4 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 $936 million of this notional balance was insured by agencies of the Federal government or private insurance companies at September 30, 1996. As hedges against interest rate risk at September 30, 1996, Crestar was participating in interest rate (fixed receive) swaps with a notional balance of $1.4 billion, 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 losses on such swaps were $18.5 million at September 30, 1996. Crestar also had interest rate cap agreements outstanding of $1.79 billion, of which $1.55 billion and $200 million were used to hedge the market value of fixed rate securities available for sale and real estate income property loans, respectively. 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 $1.2 million and $1.9 million, respectively, at September 30, 1996. Crestar also had interest rate floor agreements outstanding of $1.0 billion which were used to hedge the fair value of fixed rate domestic time deposits. Unrealized gross gains and gross losses on such floors were $569,000 and $567,000, respectively, at September 30, 1996. As a financial intermediary, Crestar had $123.8 million in offsetting swap, $73.9 million in offsetting cap and $34 million in offsetting collar agreements at September 30, 1996. The notional amount of these over-the-counter traded interest rate swaps, caps, floors 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 $25.6 million, less collateral held of approximately $2.4 million, plus an amount for prospective market movement. Three counterparties constituted 14%, 11% and 10% of the estimated credit and market exposure of $88 million at September 30, 1996. Crestar had forward agreements of $1.1 billion outstanding at September 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. 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 net income of $36.8 million or $.86 per common share for the quarter ended September 30, 1996, compared to net income of $52.1 million or $1.19 per common share earned in the third quarter of 1995. Crestar recorded a nonrecurring after-tax charge of $21.5 million, or $.50 per share, associated with congressional legislation regarding the recapitalization of the Savings Association Insurance Fund (SAIF) of the Federal Deposit Insurance Corporation (FDIC). Also during the quarter, Crestar recognized an after-tax benefit of $10.6 million as a result of the repeal of tax legislation regarding thrift bad debt recapture rules. For the first nine months, earnings were $149.0 million in 1996, a decrease of 3% from the $153.5 million earned in 1995. The decrease reflects the impact of the above described legislative changes. Exclusive of the nonrecurring items arising in the third quarter, Crestar's results reflect the continued positive effects of growth in earning assets and noninterest income, and management of controllable expenses. For the first nine months of 1996, earnings per common share were $3.44, compared to $3.51 per share recorded in the first nine months of 1995. 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 nine months of 1995, have been restated to include the combined results of both Crestar and Loyola. 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. Crestar Bank FSB, the Corporation's thrift banking subsidiary, was merged into Crestar Bank MD on November 7, 1996. On November 14, Crestar Financial Corporation expects to merge its three banking subsidiaries (Crestar Bank, Crestar Bank N.A., and Crestar Bank MD) into one banking subsidiary, named Crestar Bank, which will carry on the business and operations conducted by the former thrift and banking subsidiaries. Mergers And Acquisitions On September 16, 1996 Crestar announced the signing of a definitive agreement under which Citizens Bancorp, (Citizens) will merge with Crestar. Citizens is a $4.2 billion-asset bank holding company headquartered in Laurel, Maryland. Citizens has 103 banking locations in the Washington-Baltimore metropolitan area, with a significant presence in Prince Georges and Montgomery Counties. At September 30, 1996, Citizens had total deposits of $3.0 billion and loan balances of $2.3 billion. Pending approval by regulatory authorities and the shareholders of both institutions, the merger is expected to be completed no later than March 31, 1997, but with a current target date of December 31, 1996. One-time pre-tax merger costs of approximately $42 million are expected to be recorded in connection with the merger. Under terms of the agreement, Citizens' shareholders will receive .835 shares of Crestar common stock for each share of Citizens common stock, with approximately 12.6 million shares of Crestar common stock expected to be issued in the merger. The merger is expected to be accounted for as a pooling-of-interests business combination. Upon merger, the combined organization will have the largest deposit market share in the Greater Washington metropolitan area and hold the number two position in the state of Maryland. Common stock repurchase plans approved by Crestar's Board of Directors on July 11, 1996 and by Citizens's Board of Directors on August 8, 1996 were terminated at the time of the merger announcement. Profitability Measures And Capital Resources (Table 1) Profitability measures for both the third quarter and the first nine months of 1996, in comparison to the same periods in 1995, reflect the impact of the nonrecurring items recorded in the third quarter of the current year. Return on average assets was 0.85% in the third quarter and 1.14% the first nine months of 1996, compared to 1.25% and 1.24%, respectively, for 1995. Return on average equity was 10.42% for the third quarter of 1996, compared to 14.74% for the third quarter of 1995. For the first nine months of 1996, return on average equity was 13.96%, compared to 14.84% for the first nine months of the previous year. Average equity to assets of 8.14% for the third quarter of 1996 compared to 8.51% in the third quarter of 1995. Average equity to assets for the first nine months of 1996 was 8.51%, compared to 8.36% for the same period of 1995. Period-end equity to assets of 7.85% at September 30, 1996 compared to a September 30, 1995 ratio of 8.30%. Risk-based capital ratios are additional measures of capital adequacy. At September 30, 1996, Crestar's consolidated risk-adjusted capital ratios were 9.0% for Tier 1 and 12.2% for total capital, well above the required minimums of 4.0% and 8.0%, respectively. The Tier 1 leverage ratio of 7.5% at September 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 6.9% at September 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 September 30, 1996, the highest category of capitalization defined by regulatory authorities, allowing for the lowest level of FDIC insurance premium payments. Net Interest Margin And Net Interest Income (Tables 3 and 15) Crestar's net interest margin for the third quarter of 1996 was 4.66%, an improvement of 9 basis points from the margin recorded in the third quarter of 1995. The improvement was due to favorable changes in rates paid on funding sources, yields on loan and security 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 third quarter 1996 margin include favorable changes in the average rates paid on interest bearing deposits and other sources of funds. Average rates paid on interest-bearing demand deposits were 2.92% during the third quarter of 1996, down 30 basis points from the third quarter of 1995. Average rates paid on regular savings deposits also decreased, from 2.72% in the third quarter of 1995 to 2.51% in the third quarter of 1996. Similarly, rates paid on domestic time deposits decreased, from 5.34% in the third quarter of 1995 to 5.08% in the third quarter of 1996. The average rate paid on total savings and time deposits fell from 4.01% to 3.77% during this time period. Rates paid on short-term borrowings also declined from the levels of third quarter 1995, and averaged 5.24% for the third quarter of 1996. Yields on long-term debt were relatively unchanged. The average rate paid on Crestar's total sources of funds in the third quarter of 1996 was 3.51%, reflecting a decline of 21 basis points from the same period of 1995. Despite the lower interest rate environment in the third quarter of 1996, the average yield on loan balances outstanding increased from 8.79% in the third quarter of 1995 to 8.81% in the third quarter of 1996, due primarily to the higher yields in the bank card loan portfolio. Average rates on bank card loans increased from 11.29% in the third quarter of 1995 to 12.47% in the third 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 third quarter 1995 results, while other loan categories displayed lower yields. Lower average yields on securities available for sale, which were 6.32% in third quarter 1996 versus 6.35% in the same period of 1995, negatively impacted Crestar's net interest margin. Average yields increased on the much smaller securities held to maturity portfolio. Yields on money market investments were 5.36% for the third quarter of 1996 versus 6.05% for the third 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 20 basis points on Crestar's third quarter 1996 net interest margin, when compared to the third quarter of 1995. Changes in the earning asset mix decreased the third quarter 1996 net interest margin by approximately 8 basis points when compared to the third quarter of 1995. Loans as a percentage of total earning assets decreased from an average of 77% during the third quarter of 1995 to 71% for the same period of 1996. Average total loans were $11.2 billion during the third quarter of 1996, compared to $11.6 billion during the third quarter of 1995. Average bank card loans experienced a slight decline during the third quarter period. Marketing efforts directed to new accounts have been curtailed from previous levels, in light of higher industry-wide delinquency statistics. Average consumer real estate loans were down $695 million, or 20%, from third quarter 1995, with average instalment loan balances increasing by $312 million or 13% 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 three savings and loan institutions. Average business loans for the third quarter of 1996 reflect an increase of 3% over the same period of 1995, as growth in Crestar's commercial loan portfolio offset declines in real estate - income property and real estate - construction loan balances. Average money market investments decreased, from $271 million in the third quarter of 1995 to $210 million for the same quarter of 1996. Significant increases in average balances of mortgage loans held for sale primarily reflect higher volumes in Crestar's mortgage banking subsidiary. Average balances in the third quarter of 1996 were $957 million, representing 6% of average total earning assets during this period. Average balances during the second quarter of 1995 were $485 million. With regards to funding sources, interest-bearing deposits represented 63% of total funding sources in the third quarter of 1996, versus 68% of funding sources in the same period of 1995. Competitive pricing for deposits among financial institutions, in addition to the impact of selected branch closings during the last twelve months, resulted in decreases in average balances for most deposit categories. Average total deposits experienced a decrease of $198 million, or 2%, from the third quarter of 1995. Average balances of short-term borrowings increased by $457 million during this same time period. When coupled with the impact of changes to Crestar's earning asset mix, this resulted in a net 14 basis point decrease in the third quarter 1996 net interest margin, versus the third quarter of 1995, arising from changes in Crestar's total balance sheet mix. Off-balance sheet hedge transactions made a negative impact on net interest income of $0.2 million during the third quarter of 1996, which was composed of $0.2 million decrease in interest income and a negligible decrease in interest expense, based on the underlying asset or liability being hedged. In the third quarter of 1995 the comparable impact of hedging activity was a decrease to Crestar's net interest income of $2.2 million, which consisted of a $1.9 million decrease in interest income and a $0.3 million increase in interest expense. In comparison to third quarter 1995, such off-balance sheet transactions had a positive impact of 3 basis points on third quarter 1996's net interest margin, partially offsetting the unfavorable impact on Crestar's net interest margin of 14 basis points from changes in balance sheet mix. The impact of nonperforming assets on third 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 9 basis point increase in the net interest margin and a 5% increase in average earning assets, net interest income for the third quarter of 1996 increased by $11.5 million, or 7% over the third quarter of 1995. Tax-equivalent net interest income similarly increased by 6% during this period. For the first nine months, tax equivalent net interest income increased 6% over 1995 as a result of a 3 basis point increase in the net interest margin and a 6% increase in average earning assets. Changes to the earning assets mix for the year-to-date period had a unfavorable impact of 4 basis points, while changes to the funding mix resulted in an 6 basis point negative impact to the year-to-date margin. Unfavorable interest rate spreads for the comparable nine month period decreased net interest margin by 7 basis points. Off-balance sheet hedge transactions had a positive impact on the margin, in comparison to year-to-date 1995 results, of approximately 20 basis points. Off-balance sheet hedge transactions made a positive contribution to net interest income of $1.6 million during the first nine months of 1996, which was composed of $1.6 million increase in interest income and a negligible decrease in interest expense, based on the underlying asset or liability being hedged. In the first nine months of 1995 the comparable impact of hedging activity was a decrease to Crestar's total interest income of $5.4 million, which consisted of a $5.0 million decrease in interest income and a $0.4 million increase in interest expense. Risk Exposures And Credit Quality (Tables 4 - 7) Crestar's financial condition as of the end of the third quarter of 1996 exhibited strong overall credit quality. The allowance for loan losses was $236 million at September 30, 1996, representing 2.10% of period-end loans, 282% of period-end nonperforming assets, and a 354% 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 $62.0 million at September 30, 1996, with consumer loans representing 83% of this balance. At September 30, 1996, nonperforming assets of $83.7 million were down $5.4 million or 6% from September 30, 1995, and down $9.7 million or 10% from December 31, 1995. The ratio of nonperforming assets to loans and foreclosed properties at September 30, 1996 was 0.74%, compared to 0.79% at December 31, 1995 and 0.76% at September 30, 1995. The provision for loan losses was $23.2 million for the third quarter of 1996, an increase of $8.9 million from the $14.2 million provision expense recorded in the third quarter of 1995. Provision expense in the second quarter of 1996 was $22.5 million. Net charge-offs totaled $24.4 million in the third quarter of 1996, compared to $16.9 million in the comparable period of 1995. Net charge-offs as a percentage of average loans were 0.87% for the third quarter of 1996, compared to 0.58% in the same period of 1995, and 0.83% for the second quarter of 1996. Business loans experienced net recoveries of $1.3 million in the third quarter of 1996, compared to net recoveries of $2.7 million in the comparable quarter of 1995. Consumer loan net charge-offs totaled $25.8 million in the third quarter of 1996, compared to net charge-offs of $25.1 million in the second quarter of 1996 and $19.6 million in the third quarter of 1995. The largest proportion of net loan charge-offs during the third quarter of 1996, and for the first nine months of 1996, occurred in the bank card loan portfolio. Net charge-offs for bank card loans were $20.8 million in the third quarter of 1996, compared to $20.2 million in the second quarter of 1996 and $14.1 million in 1995's third quarter. Net bank card loan charge-offs as a percentage of bank card loans (on an annualized basis) were 5.58% in the third quarter of 1996, 5.23% for the second quarter of 1996, and 3.53% in the third quarter of 1995. A primary reason for the increase in net bank card loan charge-offs is consumer bankruptcies relating to the significant growth of Crestar's bank card portfolio experienced during 1993 through 1995. 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." 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 (a) an industry-wide trend of adverse payment performance by credit card holders, (b) increased competition for credit-worthy bank card customers, and (c) Crestar's restrictions on its marketing programs pending a reassessment of marketing strategies. Crestar's recent bank card loan charge-off experience is comparable to current industry-wide averages. Lower net charge-offs were recorded in the consumer instalment loan portfolio in the third quarter of 1996 compared to the third quarter of 1995, while residential real estate net charge-offs increased modestly. 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 $1.1 billion at September 30, 1996. This balance represented 10% of the total loan portfolio at that date. At year-end 1995, REDI loan balances constituted 11% of the total loan portfolio. REDI nonperforming assets were $44.8 million at September 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 $127 million at September 30, 1996. Over 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 $202 million at June 30, 1996 and $190 million at September 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 $11.2 billion at September 30, 1996. Noninterest Income And Expense (Table 8) Noninterest income totaled $74.7 million in the third quarter of 1996, a $0.3 million decrease from the third quarter period of 1995. During the third quarter of 1996, Crestar recorded a charge of $5.0 million to accrue for the cost of closing selected branches as part of the Corporation's strategy of refining its service delivery systems. Of the total charge of $5.0 million, $4.5 million was classified as a loss on disposal of branches, resulting in a reduction of noninterest income. Results for the third quarter of 1995 include a net gain of $4.7 million on branch closings and sales (including sale of related branch deposit accounts). Excluding the impact of these two items from third quarter 1996 and 1995 results, and excluding securities gains and losses, third quarter 1996 noninterest income increased $8.7 million or 12% from third 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 $0.8 million, or 6%, in comparison to the third quarter of 1995. Trust and investment advisory income increased 9% from third quarter 1995 levels, while service charges on deposit accounts increased 4% in comparison to the third quarter of 1995. Mortgage origination income for the third quarter of 1996 totaled $6.0 million, or $2.5 million higher than the results reported in the third quarter of 1995. These results for the third quarter of 1996 reflect a higher level of mortgage originations, and increased gains recorded on the sale of mortgage loans held for sale. Mortgage servicing income increased 4% during the quarter. During the third quarter of 1996, Crestar recorded a gain of $1.9 million arising from the sale of selected residential mortgage loans from the Corporation's consumer loan portfolio. For the nine months ended September 30, 1996, gains on sale of loans amounted to a total of $6.5 million, versus $1.1 million in the comparable period of 1995. These gains are classified as miscellaneous noninterest income in Table 8, as are gains and losses on branch closings and sales. Noninterest expense increased $42.6 million, or 29%, in the third quarter of 1996 when compared to the same period of 1995. Most of this increase is attributable to the $34.1 million pre-tax ($21.5 million after-tax) charge for a non-recurring assessment on the Corporation's SAIF insured deposits. The assessment is included in net FDIC premium expense, in Table 8, for the third quarter of 1996. Excluding the SAIF assessment, noninterest expense increased 7% in the third quarter of 1996, versus the third quarter of 1995. Total personnel costs, Crestar's largest expense category, were $87.8 million in the three month period ended September 30, 1996, an increase of 7% in comparison to the same period of 1995. A significant portion of this increase is to due higher commission levels arising from significant growth in mortgage origination revenue. Management continues to emphasize prudent control of noninterest expenses and assimilation of acquisitions in a cost-effective manner. Foreclosed properties expense for the quarter ended September 30, 1996 was $838 thousand, compared to an expense of $707 thousand in the quarter ended September 30, 1995. For the nine month period ended September 30, 1996, foreclosed properties expense was a net recovery of $203 thousand, compared to a net recovery of $835 thousand for the first nine months 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 third quarter and first nine months of 1996 was 10.4% and 31.2%, respectively, compared to 36.1% and 34.8% for the comparable periods of 1995. During the third quarter of 1996, Crestar recorded a non-recurring $10.6 million reduction of income tax expense. This reduction of expense arose from the repeal of the tax law that previously required, under certain circumstances, thrift institutions to recapture into taxable income the pre-1988 loan loss allowance. Crestar had recorded the charge at the time of the merger with Loyola Capital Corporation on December 31, 1995. Excluding the impact of the repealed tax legislation, the effective income tax rate was 36.1% for the third quarter of 1996, and 36.1% for the first nine months of 1996. Other fluctuations in Crestar's effective tax rates for the nine months ended September 30, 1996, compared to the same period of 1995, were caused by reduced proportions of tax-exempt interest and dividends, increased provisions for state income taxes and higher levels of nondeductible goodwill in 1996 versus the same periods of 1995. Financial statement note 10 contains additional information concerning income taxes. Financial Condition (Table 9) Crestar's assets totaled $18.3 billion at September 30, 1996, compared to $18.3 billion in assets at December 31, 1995, and $17.3 billion at September 30, 1995. The increase from September 30, 1995 is primarily due to an increase in the Corporation's holdings of securities available for sale, and in certificates of deposit of $100,000 and over. Loans totaled $11.2 billion at September 30, 1996, compared to $11.8 billion at year-end 1995. Total deposits were $13.6 billion at September 30, 1996 compared to $13.3 billion at December 31, 1995. Excluding certificates of deposit of $100,000 and over, deposits were down by 5% from year-end 1995. The consolidation of certain branches acquired in the December 31, 1995 merger with Loyola has been a factor 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 September 30, 1996 by $1.3 million, consisting of $1.6 million in unrealized gains and $0.3 million in unrealized losses. At September 30, 1996, the amortized cost of securities available for sale exceeded the fair value of such securities by $62.8 million, consisting of $4.7 million in unrealized gains and $67.5 million in unrealized losses. Shareholders' equity at September 30, 1996 reflects a $40.4 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 September 30, 1995, Crestar's shareholders' equity reflected a $2.6 million reduction for the excess, net of tax, of amortized cost of securities available for sale over fair value. The net unrealized gain or loss on securities available for sale, which is recorded as a component of shareholders' equity, will continue to be subject to change in future periods due to fluctuations in market value, acquisition activities, and purchases, sales, maturities and calls of securities classified as available for sale. Net unrealized losses in the securities available for sale portfolio primarily reflect ongoing interest rate volatility, which is inherent in the securities marketplace. Based on current market conditions, net unrealized losses on securities are not expected to have a significant impact on the future operating results or liquidity of Crestar. All mortgage-backed securities in the securities available for sale and securities held to maturity portfolios are subject to prepayment risk, since the mortgage loans underlying these securities can prepay at any time without penalty. This risk becomes apparent during periods of declining interest rates, when refinancing of existing mortgage loans can accelerate. During these periods, the expected maturity of mortgage-backed securities shortens due to prepayments, reducing the expected stream of future interest payments to be received. The interest rate and prepayment risk associated with mortgage-backed securities is considered by management in assessing the overall asset/liability structure of the Corporation. All investment securities, including mortgage backed pass-through securities, collateralized mortgage obligation (CMO) securities, and securitized credit card receivables, are also managed with respect to their credit risk. Credit risk arises because payments of interest and principal can be dependent on the payment of the underlying mortgage or receivable payment where applicable, in addition to the contractual obligation of the issuer to collect and remit such payments to the individual security owners. The Corporation monitors credit risk by assessing, and monitoring on an ongoing basis, the financial strength and performance of the issuers of such securities. The "Other taxable securities" classification of Crestar's securities available for sale portfolio (see footnote 3 to the consolidated financial statements) at September 30, 1996 is primarily composed of CMO securities with a fair value of approximately $257 million, and pass-through securities backed by credit card receivables of approximately $74 million (fair value). During the third quarter of 1996, Crestar sold approximately $1.5 billion of securities classified as available for sale, generating securities gains of $97 thousand. Such sales were consummated in conjunction with the overall management of interest rate risk for the Corporation. During the third quarter of this year, Crestar purchased and retired 531,500 shares of common stock, and has purchased and retired 1.5 million shares of common stock during the first nine months of 1996. Purchases during the third quarter of 1996 were made at an average price of $56.54 per common share. 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. A total of 492,000 common shares were repurchased under this authorization in the third quarter of 1996, before the recission of the July 1996 repurchase plan by the Board on September 16, 1996. The Board decision to rescind was based upon a coterminous decision to vote to merge with Citizens Bancorp in a transaction to be accounted for as a pooling of interests business combination. Also during the third quarter, 39,500 common shares were repurchased under an April 1996 Board authorization, which approved the repurchase of 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. As of September 30, 1996 Crestar had a remaining authorization to purchase and retire up to 515,000 shares of common stock, which represented the remaining April 1996 Board authorization. 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 September 30, 1996, compared to 64% of total funding sources at September 30, 1995. As an additional indication of adequate liquidity, securities available for sale represented 21%, and money market investments represented 5%, of Crestar's total earning assets at September 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 simulations. The committee establishes limits on net interest income at risk for a relevant planning period of 9 to 24 months. A 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 speeds. 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. Based on the most recent simulations as of September 30, 1996, Crestar's projected net interest income under the consensus interest rate scenario for 1997 would decrease by approximately 5% in a high rate scenario, and would decrease by approximately 1% 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 all expected future cash flows. Assets and liabilities with option characteristics are valued based on numerous interest rate path valuations using mathematical rate simulation techniques. 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 continues to be 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 September 30, 1996. At that point in time, Crestar had a cumulative net liability sensitive twelve-month gap with $3.7 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 September 30, 1996, with $737 million excess of interest-sensitive sources of funds over uses of funds. In comparison, the level of total earning assets at September 30, 1996 was $16.5 billion. The static gap and adjusted gap do not include $1.55 billion (notional amount) of interest rate caps to potentially offset the effect of rising interest rates on the securities available for sale portfolio, and $0.2 billion (notional amount) of interest rate caps to potentially offset the effect of rising interest rates on the value of fixed rate real estate-income property loans. In addition, the static gap and adjusted gap do not include $1.0 billion (notional amount) of interest rate floors to potentially offset the effect of falling interest rates on the fair value of fixed rate domestic time deposits. 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 meaningful representation of the Corporation's interest rate sensitivity, the methodologies do not necessarily take into account all business developments which can have an impact on net interest income, such as changes in credit quality or changes in the amount and composition of earning assets and sources of funds. As noted, Crestar incurs a degree of interest rate risk as a provider of banking services to its customers. This risk can be reduced through derivative interest rate contracts, such as interest rate swaps, caps and floors. Crestar's outstanding interest rate swap instruments at September 30, 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. Interest rate floors are utilized to minimize interest rate risk associated with falling rates on fixed rate domestic time 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 prospective market movement. Crestar has established policies governing derivative activities, and the counterparties used by Crestar are considered high quality credits. In addition, Crestar may demand collateral from a counterparty to further minimize credit risk. There were no past due amounts or reserves for possible derivative credit losses at September 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, caps and floors (excluding customer positions where Crestar acts as an intermediary) was $4.2 billion at September 30, 1996. Forward contracts with a notional amount of $1.1 billion, utilized to hedge lending commitments of Crestar's mortgage banking subsidiary, were also outstanding at September 30, 1996, bringing the total notional value of derivative financial instruments related to interest rate risk management activities to $5.2 billion at September 30, 1996. Tables 11, 12, and 13 present information regarding fair values, maturity, average rates, and activity as of and for the nine month period ending September 30, 1996 for these off-balance sheet derivative instruments. Net unrealized losses on these instruments totaled $28.4 million as of September 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 is assessing the impact of adoption of this new standand. Table 1 Financial Highlights
Dollars in millions, except per share data Three Months Nine Months % % For the Period Ended September 30 1996 1995 Change 1996 1995 Change Net Income $36.8 $52.1 (29) $149.0 $153.5 (3) Dividends Declared on Common Stock 21.9 18.9 16 63.8 53.3 20 Per Common Share: Net Income $ .86 $1.19 (28) $ 3.44 $ 3.51 (2) Dividends Declared .52 .45 16 1.49 1.30 15 Average Shares Outstanding (000s) 42,916 43,686 (2) 43,282 43,702 (1) =========================================================================================================== Key Ratios Return on Average Assets .85% 1.25% 1.14% 1.24% Return on Average Equity 10.42 14.74 13.96 14.84 Average Equity to Average Assets 8.14 8.51 8.15 8.36 Net Interest Margin 4.66 4.57 4.65 4.62 At September 30 Book Value Per Share $33.84 $33.47 1 Equity to Assets 7.85% 8.30% Risk Adjusted Capital Ratios: Tier I 9.0 9.2 Total 12.2 12.6 Common Shares Outstanding (000s) 42,350 42,906 ===========================================================================================================
Table 2 Analysis Of Earnings Per Common Share
3rd Qtr. 1996 3rd Qtr. 1996 vs. vs. 3rd Qtr. 1995 2nd Qtr. 1996 Earnings Per Common Share - prior period $1.19 $1.31 - ----------------------------------------------------------------------------------------------------------- Interest income .14 (.09) Interest expense .03 .03 Provision for loan losses (.13) (.01) Other noninterest income (.01) (.17) Foreclosed properties expense - (.01) SAIF assessment(1) (.50) (.50) Other noninterest expense (.13) .04 Income taxes .25 .25 Decreased shares outstanding .02 .01 - ----------------------------------------------------------------------------------------------------------- Net increase (.33) (.45) - ----------------------------------------------------------------------------------------------------------- Earnings Per Common Share - current period $ .86 $ .86 ===========================================================================================================
(1) During the third quarter of 1996 Crestar recorded a one-time after-tax charge of $21.5 million, or $.50 per share associated with congressional legislation regarding the recapitalization of the Savings Association Insurance Fund (SAIF). Table 3 Average Balances, Net Interest Income And Rate/Volume Analysis(1)
Dollars in thousands 2nd Qtr. 3rd Qtr. Average Average Balance Increase Balance 1996 1995 (Decrease) 1996 $ $ % $ 3,084,870 2,914,375 6 3,111,723 Commercial 898,370 921,335 (2) 898,461 Real estate - income property 230,157 265,137 (13) 245,620 Real estate - construction 2,736,200 2,424,481 13 2,743,503 Instalment 1,492,550 1,590,871 (6) 1,547,704 Bank card 2,773,341 3,467,947 (20) 2,945,326 Real estate - mortgage - ------------------------------------------------------------------------------------------------------------------------------- 11,215,488 11,584,146 (3) 11,492,337 Total loans - net of unearned income(2) - ------------------------------------------------------------------------------------------------------------------------------- 71,162 1,095,763 (94) 79,479 Securities held to maturity 3,367,969 1,597,599 111 3,275,398 Securities available for sale 210,087 271,073 (22) 298,163 Money market investments 957,035 484,852 97 863,544 Mortgage loans held for sale - ------------------------------------------------------------------------------------------------------------------------------- 15,821,741 15,033,433 5 16,008,921 Total earning assets =============================================================================================================================== 4,907,229 4,777,574 3 4,949,910 Interest-bearing demand deposits 1,264,078 1,374,628 (8) 1,291,885 Regular savings deposits 3,853,797 4,070,890 (5) 3,979,103 Domestic time deposits - ------------------------------------------------------------------------------------------------------------------------------- 10,025,104 10,223,092 (2) 10,220,898 Total interest-bearing core deposits - ------------------------------------------------------------------------------------------------------------------------------- 2,584,443 1,778,955 45 2,670,882 Purchased liabilities 676,147 692,134 (2) 698,996 Long-term debt - ------------------------------------------------------------------------------------------------------------------------------- 13,285,694 12,694,181 5 13,590,776 Total interest-bearing liabilities 2,536,047 2,339,252 8 2,418,145 Other sources - net - ------------------------------------------------------------------------------------------------------------------------------- 15,821,741 15,033,433 5 16,008,921 Total sources of funds - ------------------------------------------------------------------------------------------------------------------------------- Net Interest Income ===============================================================================================================================
(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 $1.3 million and $622,000 for the third quarter of 1996 and 1995, respectively, and $1.0 million for the second quarter of 1996.
3rd Qtr. 1996 vs. 1995 2nd Qtr. Income/Expense(3) Increase Change due to(4) Income/Expense(3) 1996 1995 (Decrease) Rate(5) Volume 1996 $ $ $ $ $ $ Commercial 61,932 60,260 1,672 (1,879) 3,551 62,367 Real estate - income property 19,835 19,857 (22) 472 (494) 19,754 Real estate - construction 5,717 6,888 (1,171) (264) (907) 5,913 Instalment 60,073 55,989 4,084 (3,042) 7,126 61,327 Bank card 45,654 44,811 843 3,620 (2,777) 47,308 Real estate - mortgage 53,289 67,805 (14,516) (957) (13,559) 57,309 - --------------------------------------------------------------------------------------------------------------------------------- Total loans - net of unearned income(2) 246,500 255,610 (9,110) (981) (8,129) 253,978 - --------------------------------------------------------------------------------------------------------------------------------- Securities held to maturity 1,620 17,767 (16,147) 1,337 (17,484) 1,795 Securities available for sale 53,094 26,684 26,410 (2,127) 28,537 52,513 Money market investments 2,833 4,136 (1,303) (372) (931) 3,932 Mortgage loans held for sale 18,494 8,799 9,695 1,040 8,655 16,152 - --------------------------------------------------------------------------------------------------------------------------------- Total earning assets 322,541 312,996 9,545 (6,863) 16,408 328,370 ================================================================================================================================= Interest-bearing demand deposits 35,979 38,809 (2,830) (4,327) 1,497 35,440 Regular savings deposits 7,977 9,420 (1,443) (685) (758) 8,145 Domestic time deposits 48,889 54,507 (5,618) (2,719) (2,899) 51,126 - --------------------------------------------------------------------------------------------------------------------------------- Total interest-bearing core deposits 92,845 102,736 (9,891) (7,894) (1,997) 94,711 - --------------------------------------------------------------------------------------------------------------------------------- Purchased liabilities 34,243 25,270 8,973 (2,463) 11,436 34,213 Long-term debt 12,238 12,515 (277) 12 (289) 12,475 - --------------------------------------------------------------------------------------------------------------------------------- Total interest-bearing liabilities 139,326 140,521 (1,195) (7,760) 6,565 141,399 Other sources - net - --------------------------------------------------------------------------------------------------------------------------------- Total sources of funds 139,326 140,521 (1,195) (8,583) 7,388 141,399 - --------------------------------------------------------------------------------------------------------------------------------- Net Interest Income 183,215 172,475 10,740 1,720 9,020 186,971 =================================================================================================================================
3rd Qtr. 1996 vs. 2nd Qtr. 1996 Increase Change due to(4) (Decrease) Rate(5) Volume $ $ $ Commercial (435) 103 (538) Real estate - income property 81 83 (2) Real estate - construction (196) 176 (372) Instalment (1,254) (1,091) (163) Bank card (1,654) 84 (1,738) Real estate - mortgage (4,020) (687) (3,333) - ------------------------------------------------------------------------------------------ Total loans - net of unearned income(2) (7,478) (1,335) (6,143) - ------------------------------------------------------------------------------------------ Securities held to maturity (175) 13 (188) Securities available for sale 581 (903) 1,484 Money market investments (1,099) 63 (1,162) Mortgage loans held for sale 2,342 591 1,751 - ------------------------------------------------------------------------------------------ Total earning assets (5,829) (1,977) (3,852) ========================================================================================== Interest-bearing demand deposits 539 734 (195) Regular savings deposits (168) 7 (175) Domestic time deposits (2,237) (625) (1,612) - ------------------------------------------------------------------------------------------ Total interest-bearing core deposits (1,866) (43) (1,823) - ------------------------------------------------------------------------------------------ Purchased liabilities 30 1,135 (1,105) Long-term debt (237) 171 (408) - ------------------------------------------------------------------------------------------ Total interest-bearing liabilities (2,073) 1,110 (3,183) Other sources - net - ------------------------------------------------------------------------------------------ Total sources of funds (2,073) (415) (1,658) - ------------------------------------------------------------------------------------------ Net Interest Income (3,756) (1,562) (2,194) ==========================================================================================
(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 September 30, June 30, December 31, 1996 1995 1996 1995 Commercial - developer lines $ 101.8 $ 69.1 $ 134.2 $ 105.2 Commercial - other 0.7 57.0 47.4 51.5 Real estate - income property 886.0 917.6 883.6 910.2 Real estate - construction 153.2 212.6 166.1 182.7 - ----------------------------------------------------------------------------------------------------------- Total REDI loans $1,141.7 $1,256.3 $1,231.3 $1,249.6 ===========================================================================================================
Table 5 Loans To Real Estate Developers And Investors-- Geographic Distribution And Property Type September 30, 1996
Region In millions Total Greater Corporation Washington Maryland Eastern Western Capital Land acquisition and development $ 84.2 $ 38.2 $ 16.9 $ 22.5 $ 2.7 $ 3.9 Residential developments 284.3 102.3 71.8 64.5 28.2 17.5 Commercial projects: Office buildings 174.6 75.9 55.2 24.5 6.5 12.5 Retail stores and malls 226.1 136.0 38.8 25.8 10.4 15.1 Hotels and motels 110.0 37.4 12.5 32.7 14.4 13.0 Industrial buildings 115.5 63.0 21.1 12.9 5.4 13.1 - ----------------------------------------------------------------------------------------------------------- Total commercial projects 626.2 312.3 127.6 95.9 36.7 53.7 - ----------------------------------------------------------------------------------------------------------- Special use 61.1 14.4 22.8 17.6 5.3 1.0 Other 85.9 46.3 8.0 12.4 4.3 14.9 - ----------------------------------------------------------------------------------------------------------- Total REDI loans $1,141.7 $513.5 $247.1 $212.9 $77.2 $91.0 - ----------------------------------------------------------------------------------------------------------- Table 6 Allowance For Loan Losses
Dollars in thousands Third Quarter Nine Months Ended Sept. 30, 1996 1995 1996 1995 Beginning balance $237,020 $237,717 $240,285 $232,922 - ----------------------------------------------------------------------------------------------------------- Allowance from acquisitions and other activity - net - (100) (888) 5,356 Provision for loan losses 23,170 14,231 65,970 38,268 - ----------------------------------------------------------------------------------------------------------- Net charge-offs (recoveries): Commercial (1,188) (180) (1,450) 238 Real estate - income property (252) (1,511) (2,563) (1,225) Real estate - construction 128 (990) (582) (1,956) Instalment 4,477 5,430 13,680 7,523 Bank card 20,810 14,052 59,011 36,212 Real estate - mortgage 468 87 1,524 794 - ----------------------------------------------------------------------------------------------------------- Total net charge-offs 24,443 16,888 69,620 41,586 - ----------------------------------------------------------------------------------------------------------- Balance, June 30 $235,747 $234,960 $235,747 $234,960 =========================================================================================================== Allowance for loan losses to period-end loans 2.10% 2.00% 2.10% 2.00% Annualized net charge-offs to average loans .87 .58 .81 .48 ===========================================================================================================
Table 7 Nonperforming Assets(1) And Past Due Loans
Dollars in thousands September 30, December 31, 1996 1995 1995 Nonaccrual loans: Commercial $13,926 $22,540 $21,731 Real estate - income property 15,513 21,050 23,913 Real estate - construction 11,441 5,963 4,712 Instalment 2,153 5,666 5,425 Real estate - mortgage 23,593 12,278 19,925 - ----------------------------------------------------------------------------------------------------------- Total nonaccrual loans 66,626 67,497 75,706 Restructured loans - 1,455 - - ----------------------------------------------------------------------------------------------------------- Total nonperforming loans(1) 66,626 68,952 75,706 Foreclosed properties - net 17,030 20,100 17,655 - ----------------------------------------------------------------------------------------------------------- Total nonperforming assets(1) $83,656 $89,052 $93,361 =========================================================================================================== Nonperforming assets1 to: Loans and foreclosed properties - net .74% .76% .79% Total assets .46 .51 .51 Allowance for loan losses to: Nonperforming assets1 282 264 257 Nonperforming loans1 354 341 317 Allowance for loan losses plus shareholders' equity to nonperforming assets(1) 19.95x 18.77x 18.12x ============================================================================================================ Accruing loans past due 90 days: Commercial $8,981 $1,460 $ 5,992 Real estate - income property 1,710 991 19 Real estate - construction - 306 926 Instalment Student 16,717 8,812 9,101 Other 5,603 2,962 3,448 Bank card 23,695 16,654 20,430 Real estate - mortgage 5,326 10,530 10,304 - ----------------------------------------------------------------------------------------------------------- Total accruing loans past due 90 days $62,032 $41,715 $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 Second Nine Months Ended Third Quarter Quarter September 30, Noninterest Income 1996 1995 1996 1996 1995 Service charges on deposit accounts $ 24,107 $ 23,203 $ 23,191 $ 68,908 $ 67,236 Trust and investment advisory 16,462 15,064 15,517 47,541 42,802 Bank card-related 12,926 12,138 12,561 36,501 35,192 Mortgage origination - net 5,955 3,471 9,958 21,567 6,291 Mortgage servicing - net 3,842 3,709 4,019 12,320 11,792 Commissions on letters of credit 1,301 1,263 1,068 3,839 3,787 Trading account activities 694 416 994 1,740 1,697 Gain on sale of mortgage servicing rights - - 750 4,750 5,900 Gain on pension settlement - - - - 4,340 Miscellaneous 9,285 15,780 17,732 40,876 38,833 Securities gains (losses) 97 (69) 288 2,740 (3,529) - ------------------------------------------------------------------------------------------------------------ Total noninterest income $ 74,669 $ 74,975 $ 86,078 $240,782 $214,341 ============================================================================================================ Noninterest Expense Salaries $ 69,787 66,032 69,944 $206,107 $198,615 Benefits 18,006 16,236 17,304 53,165 49,186 - ------------------------------------------------------------------------------------------------------------ Total personnel 87,793 82,268 87,248 259,272 247,801 Occupancy - net 11,985 11,885 11,927 36,666 35,845 Equipment 7,611 7,748 7,679 22,988 23,422 Communications 8,539 7,476 8,572 25,263 22,694 Professional fees and services 5,597 4,118 5,120 14,941 11,259 Advertising and marketing 4,773 3,972 5,160 15,123 13,294 Outside data services 5,629 5,831 6,003 17,356 17,672 Loan expense 2,810 2,155 3,436 8,514 6,075 FDIC premiums - net 37,375 2,893 3,310 44,063 17,584 Stationery, printing and supplies 2,097 1,936 2,524 6,907 6,681 Transportation 1,609 1,636 1,613 4,791 4,990 Amortization of purchased intangibles 4,185 3,600 4,015 12,247 10,177 Miscellaneous 10,339 12,345 12,131 34,499 33,908 - ------------------------------------------------------------------------------------------------------------ Subtotal 190,342 147,863 158,738 502,630 451,402 Foreclosed properties (net recoveries) 838 707 304 (203) (835) - ------------------------------------------------------------------------------------------------------------ Total noninterest expense $191,180 $148,570 $159,042 $502,427 $450,567 ============================================================================================================
Table 9 Debt Ratings (as of October 29, 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 September 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 $2,216.1 $ 68.5 $ 93.6 $ 80.5 $ 718.7 $ 3,177.4 Real estate - income property 470.8 9.1 14.0 28.8 367.0 889.7 Real estate - construction 192.5 2.7 .6 2.0 29.7 227.5 Instalment 1,150.8 127.6 178.5 264.8 998.2 2,719.9 Bank card 447.7 161.2 247.8 440.4 153.2 1,450.3 Real estate - mortgage 140.5 271.4 371.7 668.9 1,319.7 2,772.2 Securities held to maturity 2.9 1.0 2.3 3.9 59.7 69.8 Securities available for sale 414.0 147.0 67.6 132.2 2,759.9 3,520.7 Money market investments 737.0 4.9 .1 - - 742.0 Mortgage loans held for sale 909.6 - - - - 909.6 - ------------------------------------------------------------------------------------------------------------ Total earning assets 6,681.9 793.4 976.2 1,621.5 6,406.1 16,479.1 Interest sensitivity hedges on assets (450.0) (950.0) - - 1,400.0 - - ------------------------------------------------------------------------------------------------------------ Total uses $6,231.9 $ (156.6) $ 976.2 $1,621.5 $7,806.1 $16,479.1 ============================================================================================================ Sources of Funds Interest-bearing demand deposits $4,833.0 $ - $ - $ - $ - $ 4,833.0 Regular savings deposits 1,232.2 - - - - 1,232.2 Domestic time deposits 281.8 383.0 842.4 1,149.9 1,156.7 3,813.8 Certificates of deposit $100,000 and over 82.0 1,005.5 38.2 15.2 3.4 1,144.3 Short-term borrowings 1,968.4 112.5 2.2 - - 2,083.1 Long-term debt 11.7 18.0 19.4 30.7 588.7 668.5 - ------------------------------------------------------------------------------------------------------------ Total interest-bearing liabilities 8,409.1 1,519.0 902.2 1,195.8 1,748.8 13,774.9 Other sources - net - - - - 2,704.2 2,704.2 Interest sensitivity hedges on liabilities - (40.0) - - 40.0 - - ------------------------------------------------------------------------------------------------------------ Total sources $8,409.1 $1,479.0 $ 902.2 $1,195.8 $4,493.0 $16,479.1 ============================================================================================================ Cumulative maturity/rate sensitivity gap $(2,177.2) $(3,812.8) $(3,738.8) $(3,313.1) $ - $ - ============================================================================================================ Adjustments Beta adjustments: Interest-bearing demand deposits (beta factor .40) $2,907.2 Regular savings (beta factor .13) 1,073.5 Demand deposit sensitivity (979.1) - ------------------------------------------------------------------------------------------------------------ Cumulative adjusted maturity/rate sensitivity gap $ 824.4 $ (811.2) $ (737.2) $ (311.5) $ - $ - ============================================================================================================
Table 11 Off-Balance Sheet Derivative Financial Instruments (1)
September 30, 1996 Average Dollars in thousands Weighted Fixed Estimated Notional Average Receive Fair Balance Maturity Rate Value Comments Interest Rate Conversions Generic interest rate swaps $1,400,000 2.9 yrs. 5.87% Notional amounts of $950 Carrying amount (2) $150 million, $250 million and Commercial loan program $200 million convert floating Unrealized losses (13,495) rate commercial, instalment Instalment loan program and real estate mortgage Unrealized losses (3,568) loans respectively, to fixed rate. Real estate mortgage loan program Floating rates paid tied Unrealized losses (1,404) to LIBOR. - ------------------------------------------------------------------------------------------------------------------- Estimated fair value (18,317) - ------------------------------------------------------------------------------------------------------------------- Interest rate caps 40,000 1.0 yrs. 5.88%(3) Notional amount of $40 million Carrying amount (2) 4 hedges the interest rate risk Money market deposit program associated with rising interest Unrealized gains 148 rates on floating rate money market deposits (strike rate tied - ------------------------------------------------------------------------------------------------------------------- Estimated fair value 152 to LIBOR). - ------------------------------------------------------------------------------------------------------------------- Market Value Hedges Interest rate caps 1,750,000 3.5 yrs. 7.57%(3) Notional amount of $1.55 billion Carrying amount (2) 19,584 hedges the market value of fixed Securities available for sale program (5) rate securities available for sale Unrealized gross gains 1,079 (strike rate for $1 billion tied to Unrealized gross losses (1,822) yield on 5 year constant maturity Real estate income property loan program U.S. Treasury securities; strike Unrealized losses (90) rate for $550 million tied to LIBOR). Notional amount of $200 million hedges the market value of fixed rate real estate income property loans (strike - ------------------------------------------------------------------------------------------------------------------- Estimated fair value 18,751 rate tied to LIBOR). - ------------------------------------------------------------------------------------------------------------------- Interest rate floors 1,000,000 3.9 yrs. 5.63%(4) Notional amount of $1.0 billion Carrying amount (2) 5,670 hedges the fair value of fixed Domestic time deposit program rate domestic time deposits (strike Unrealized gross gains 569 rate tied to yield on 5 year Unrealized gross losses (567) constant maturity U.S. - ------------------------------------------------------------------------------------------------------------------- Estimated fair value 5,672 Treasury securities). - ------------------------------------------------------------------------------------------------------------------- Hedges of Lending Commitments Forward contracts 1,053,254 .1 yrs. n/a Hedges of residential Unrealized gross gains 262 mortgage lending Unrealized gross losses (9,528) commitments. - ------------------------------------------------------------------------------------------------------------------- Estimated fair value (9,266) Total hedges against interest rate risk $5,243,254 $ (3,008) ===================================================================================================================
(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 and floors. (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) Represents average strike rate. For interest rate floors purchased, Crestar will receive interest if a specified market index rate falls below a fixed strike rate during the term of the contract. Any interest received is based on the difference between a lower index interest rate and the contractual floor rate, applied to the underlying notional balance. No interest payments are received if the index rate remains above the floor rate. (5) 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) September 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% Carrying amount $ - $ (97) $ 247 $ 150 Unrealized losses - (5,872) (12,595) (18,467) Interest rate caps Notional amount $ 25,000 $ 15,000 $ - $ 40,000 Average strike rate 5.90% 5.83% - 5.88% Carrying amount $ - $ 4 $ - $ 4 Unrealized gains 13 135 - 148 Market Value Hedges Interest rate caps Notional amount $ - $ 200,000 $1,550,000 $1,750,000 Average strike rate - 7.75% 7.55% 7.57% Carrying amount $ - $ 1,250 $ 18,334 $ 19,584 Net unrealized loss - (90) (743) (833) Interest rate floors Notional amount $ - $ 300,000 $ 700,000 $1,000,000 Average strike rate - 5.63% 5.63% 5.63% Carrying amount $ - $ 1,043 $ 4,627 $ 5,670 Net unrealized gain (loss) - (87) 89 2 Hedges of Lending Commitments Forward contracts: (2) Notional amount $1,053,254 $ - $ - $1,053,254 Net unrealized loss (9,266) - - (9,266) Total hedges against interest rate risk: Notional amount $1,078,254 $1,115,000 $3,050,000 $5,243,254 Carrying amount - 2,200 23,208 25,408 Net unrealized loss (9,253) (5,914) (13,249) (28,416) Estimated fair value $ (9,253) $ (3,714) $ 9,959 $ (3,008) ===========================================================================================================
(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
Interest Rate Conversions Market Value Hedges Hedges of Interest Interest Interest Interest Lending Rate Rate Rate Rate Commit- Swaps Caps Caps Floors ments (2) Total Balance, July 1, 1996 $1,400,000 $40,000 $1,550,000 $ - $1,011,961 $4,001,961 Additions - - 200,000 1,000,000 953,051 2,153,051 Maturities - - - - (911,758) (911,758) - ----------------------------------------------------------------------------------------------------------- Balance, September 30, 1996 $1,400,000 $40,000 $1,750,000 $1,000,000 $1,053,254 $5,243,254 =========================================================================================================== Balance, January 1, 1996 $1,200,000 $40,000 $ - $ - $ 547,790 $1,787,790 Additions 300,000 - 1,750,000 1,000,000 2,810,720 5,860,720 Maturities (100,000) - - - (2,305,256) (2,405,256) - ----------------------------------------------------------------------------------------------------------- Balance, September 30, 1996 $1,400,000 $40,000 $1,750,000 $1,000,000 $1,053,254 $5,243,254 ===========================================================================================================
(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 3rd Qtr.(2) 2nd Qtr. 1st Qtr. 4th Qtr.(3) 3rd Qtr. Results of operations: 1996 1996 1996 1995 1995 Net interest income(1) $183,216 $186,971 $181,514 $175,359 $172,475 Provision for loan losses 23,170 22,500 20,300 21,302 14,231 - ------------------------------------------------------------------------------------------------------------- Net credit income 160,046 164,471 161,214 154,057 158,244 Securities gains (losses) 97 288 2,355 1,316 (69) Other noninterest income 74,572 85,790 77,680 72,885 75,044 - ------------------------------------------------------------------------------------------------------------- Net credit and noninterest income 234,715 250,549 241,249 228,258 233,219 Noninterest expense 191,180 159,042 152,205 168,867 148,570 - ------------------------------------------------------------------------------------------------------------- Income before taxes 43,535 91,507 89,044 59,391 84,649 - ------------------------------------------------------------------------------------------------------------- Tax-equivalent adjustment 2,476 2,460 2,501 2,568 3,198 Book tax expense 4,252 32,317 31,121 30,526 29,375 - ------------------------------------------------------------------------------------------------------------- Income tax expense 6,728 34,777 33,622 33,094 32,573 - ------------------------------------------------------------------------------------------------------------- Net Income $ 36,807 $ 56,730 $ 55,422 $ 26,297 $ 52,076 ============================================================================================================= Per common share: Net income $ .86 $ 1.31 $ 1.27 $ .61 $ 1.19 Dividends declared .52 .52 .45 .45 .45 Average shares outstanding (000s) 42,916 43,330 43,607 43,634 43,686 ============================================================================================================= Selected ratios and other data: Return on average assets .85% 1.28% 1.28% .62% 1.25% Return on average equity 10.42 16.03 15.41 7.28 14.74 Net interest margin(1) 4.66 4.68 4.63 4.55 4.57 Net charge-offs as % of average loans .87 .83 .74 .64 .58 Allowance as % of period-end loans 2.10 2.08 2.07 2.04 2.00 Overhead ratio 74.13 58.25 58.19 67.67 60.04 Average equity to assets 8.14 8.01 8.31 8.46 8.51 Equity leverage 12.29x 12.48x 12.04x 11.82x 11.75x Full-time equivalent employees (period end) 6,891 6,894 6,705 6,712 7,018 =============================================================================================================
(1) Tax-equivalent basis. (2) During the third quarter of 1996 Crestar recorded a one-time after-tax charge of $21.5 million, or $.50 per share associated with congressional legislation regarding the recapitalization of the Savings Association Insurance Fund. (3) During the fourth quarter of 1995 Crestar recorded one-time after-tax merger costs of $29.3 million, or $.67 per share, associated with the December 31, 1995 merger with Loyola Capital Corporation. Table 15 Consolidated Average Balances/Net Interest Income/Rates (1)
Three Months Ended September 30, 1996 1995 Dollars in thousands Income/ Yield/ Income/ Yield/ Balance Expense Rate Balance Expense Rate Assets $ $ % $ $ % Securities held to maturity (2) 71,162 1,620 9.11 1,095,763 17,767 6.83 Securities available for sale (2) 3,367,969 53,094 6.32 1,597,599 26,684 6.35 Money market investments (2) 210,087 2,833 5.36 271,073 4,136 6.05 Mortgage loans held for sale (2) 957,035 18,494 7.75 484,852 8,799 7.31 - ------------------------------------------------------------------------------------------------------------ Commercial 3,084,870 61,932 7.97 2,914,375 60,260 8.25 Real estate - income property 898,370 19,835 8.78 921,335 19,857 8.54 Real estate - construction 230,157 5,717 9.89 265,137 6,888 10.30 Instalment 2,736,200 60,073 8.82 2,424,481 55,989 9.16 Bank card 1,492,550 45,654 12.47 1,590,871 44,811 11.29 Real estate - mortgage 2,773,341 53,289 7.67 3,467,947 67,805 7.81 - ------------------------------------------------------------------------------------------------------------ Total loans (2,3) 11,215,488 246,500 8.81 11,584,146 255,610 8.79 Allowance for loan losses (237,486) (238,442) - ------------------------------------------------------------------------------------------------------------ Loans - net 10,978,002 11,345,704 Cash and due from banks 699,597 790,204 Premises and equipment - net 363,038 358,988 Customers' liability on acceptances 4,675 8,566 Intangible assets - net 185,849 162,127 Foreclosed properties - net 13,936 20,594 Other assets 517,911 465,874 - ------------------------------------------------------------------------------------------------------------ Total Assets 17,369,261 16,601,344 Total Earning Assets 15,821,741 322,541 8.17 15,033,433 312,996 8.29 Liabilities And Shareholders' Equity Interest-bearing demand deposits 4,907,229 35,979 2.92 4,777,574 38,809 3.22 Regular savings deposits 1,264,078 7,977 2.51 1,374,628 9,420 2.72 Domestic time deposits 3,853,797 48,889 5.08 4,070,890 54,507 5.34 Certificates of deposit $100,000 and over 414,452 5,655 5.43 66,433 925 5.52 - ------------------------------------------------------------------------------------------------------------ Total savings and time deposits (2) 10,439,556 98,500 3.77 10,289,525 103,661 4.01 Demand deposits 2,403,966 2,232,142 - ------------------------------------------------------------------------------------------------------------ Total deposits 12,843,522 12,521,667 Short-term borrowings (2) 2,169,991 28,588 5.24 1,712,522 24,345 5.64 Long-term debt (2) 676,147 12,238 7.24 692,134 12,515 7.23 Liability on acceptances 4,675 8,566 Other liabilities 261,469 253,347 - ------------------------------------------------------------------------------------------------------------ Total liabilities 15,955,804 15,188,236 Total shareholders' equity 1,413,457 1,413,108 - ------------------------------------------------------------------------------------------------------------ Total Liabilities And Shareholders' Equity 17,369,261 16,601,344 Total interest-bearing liabilities 13,285,694 139,326 4.18 12,694,181 140,521 4.40 Other sources - net 2,536,047 2,339,252 - ------------------------------------------------------------------------------------------------------------ Total Sources of Funds 15,821,741 139,326 3.51 15,033,433 140,521 3.72 Net Interest Spread 3.99 3.89 Net Interest Income/Margin 183,215 4.66 172,475 4.57 ============================================================================================================
(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. Table 15 Consolidated Average Balances/Net Interest Income/Rates (1)
Three Months Ended June 30, Nine Months Ended September 30, 1996 1996 Income/ Yield/ Income/ Yield/ Balance Expense Rate Balance Expense Rate Assets $ $ % $ $ % Securities held to maturity (2) 79,479 1,795 9.03 77,869 5,305 9.08 Securities available for sale (2) 3,275,398 52,513 6.41 3,228,526 154,890 6.40 Money market investments (2) 298,163 3,932 5.30 237,077 9,565 5.39 Mortgage loans held for sale (2) 863,544 16,152 7.49 866,404 48,940 7.54 - -------------------------------------------------------------------------------------------------------------- Commercial 3,111,723 62,367 8.05 3,065,831 184,659 8.04 Real estate - income property 898,461 19,754 8.83 900,047 59,855 8.88 Real estate - construction 245,620 5,913 9.68 242,733 18,050 9.93 Instalment 2,743,503 61,327 8.94 2,740,437 182,257 8.88 Bank card 1,547,704 47,308 12.51 1,555,388 141,158 12.17 Real estate - mortgage 2,945,326 57,309 7.76 2,922,659 169,139 7.71 - -------------------------------------------------------------------------------------------------------------- Total loans (2,3) 11,492,337 253,978 8.89 11,427,095 755,118 8.82 Allowance for loan losses (238,985) (239,023) - -------------------------------------------------------------------------------------------------------------- Loans - net 11,253,352 11,188,072 Cash and due from banks 799,197 769,744 Premises and equipment - net 357,286 358,685 Customers' liability on acceptances 16,976 11,945 Intangible assets - net 182,465 184,168 Foreclosed properties - net 17,722 16,408 Other assets 521,920 509,827 - -------------------------------------------------------------------------------------------------------------- Total Assets 17,665,502 17,448,725 Total Earning Assets 16,008,921 328,370 8.24 15,836,971 973,818 8.21 Liabilities And Shareholders' Equity Interest-bearing demand deposits 4,949,910 35,440 2.88 4,940,103 108,468 2.93 Regular savings deposits 1,291,885 8,145 2.54 1,284,765 24,586 2.56 Domestic time deposits 3,979,103 51,126 5.20 3,982,012 154,855 5.21 Certificates of deposit $100,000 and over 165,480 2,149 5.23 230,440 9,254 5.37 - -------------------------------------------------------------------------------------------------------------- Total savings and time deposits (2) 10,386,378 96,860 3.76 10,437,320 297,163 3.81 Demand deposits 2,393,145 2,384,441 - -------------------------------------------------------------------------------------------------------------- Total deposits 12,779,523 12,821,761 Short-term borrowings (2) 2,505,402 32,064 5.14 2,239,119 87,529 5.22 Long-term debt (2) 698,996 12,475 7.14 697,018 37,426 7.16 Liability on acceptances 16,976 11,945 Other liabilities 248,954 256,486 - -------------------------------------------------------------------------------------------------------------- Total liabilities 16,249,851 16,026,329 Total shareholders' equity 1,415,651 1,422,396 - -------------------------------------------------------------------------------------------------------------- Total Liabilities And Shareholders' Equity 17,665,502 17,448,725 Total interest-bearing liabilities 13,590,776 141,399 4.19 13,373,457 422,118 4.22 Other sources - net 2,418,145 2,463,514 - -------------------------------------------------------------------------------------------------------------- Total Sources of Funds 16,008,921 141,399 3.56 15,836,971 422,118 3.56 Net Interest Spread 4.05 3.99 Net Interest Income/Margin 186,971 4.68 551,700 4.65 ==============================================================================================================
Nine Months Ended September 30, 1995 Income/ Yield/ Balance Expense Rate Assets $ $ % Securities held to maturity (2) 1,149,121 55,396 6.43 Securities available for sale (2) 1,511,686 74,580 6.57 Money market investments (2) 356,669 15,976 5.99 Mortgage loans held for sale (2) 335,183 18,981 7.56 - --------------------------------------------------------------------------------- Commercial 2,993,905 187,061 8.35 Real estate - income property 917,775 58,536 8.52 Real estate - construction 268,265 20,822 10.37 Instalment 2,341,094 159,610 9.08 Bank card 1,552,637 133,057 11.40 Real estate - mortgage 3,504,768 203,591 7.74 - --------------------------------------------------------------------------------- Total loans (2,3) 11,578,444 762,677 8.78 Allowance for loan losses (237,602) - --------------------------------------------------------------------------------- Loans - net 11,340,842 Cash and due from banks 775,216 Premises and equipment - net 356,135 Customers' liability on acceptances 10,093 Intangible assets - net 154,548 Foreclosed properties - net 26,589 Other assets 473,863 - --------------------------------------------------------------------------------- Total Assets 16,489,945 Total Earning Assets 14,931,103 927,610 8.28 Liabilities And Shareholders' Equity Interest-bearing demand deposits 4,787,905 115,392 3.22 Regular savings deposits 1,445,623 30,229 2.80 Domestic time deposits 4,001,001 150,268 5.03 Certificates of deposit $100,000 and over 68,676 2,736 5.33 - --------------------------------------------------------------------------------- Total savings and time deposits (2) 10,303,205 298,625 3.88 Demand deposits 2,188,408 - --------------------------------------------------------------------------------- Total deposits 12,491,613 Short-term borrowings (2) 1,670,205 72,417 5.79 Long-term debt (2) 703,584 37,849 7.17 Liability on acceptances 10,093 Other liabilities 235,198 - --------------------------------------------------------------------------------- Total liabilities 15,110,693 Total shareholders' equity 1,379,252 - --------------------------------------------------------------------------------- Total Liabilities And Shareholders' Equity 16,489,945 Total interest-bearing liabilities 12,676,994 408,891 4.31 Other sources - net 2,254,109 - --------------------------------------------------------------------------------- Total Sources of Funds 14,931,103 408,891 3.66 Net Interest Spread 3.97 Net Interest Income/Margin 518,719 4.62 =================================================================================
(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. Signatures Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Crestar Financial Corporation Registrant Date November 14, 1996 /s/ JAMES D. BARR --------------------------- James D. Barr Executive Vice President, Controller and Treasurer EX-27 2 EXHIBIT 27
9 1,000 9-MOS 9-MOS DEC-31-1996 DEC-31-1995 SEP-30-1996 SEP-30-1995 810,669 736,261 11,023,253 10,188,787 718,260 642,800 5,191 7,139 3,520,740 1,843,069 69,849 1,085,231 71,104 1,076,523 11,237,011 11,733,404 235,747 234,960 18,252,011 17,305,044 13,584,574 12,433,511 2,083,096 2,348,827 482,915 402,950 668,458 683,552 211,748 214,531 0 0 0 0 1,221,220 1,221,673 18,252,011 17,305,044 750,027 756,320 157,869 127,639 58,485 34,956 966,381 918,915 297,162 298,624 422,117 408,890 544,264 510,025 65,970 38,268 2,740 (3,529) 502,427 450,567 216,649 235,531 148,959 153,500 0 0 0 0 148,959 153,500 3.44 3.51 3.44 3.50 4.65 4.62 66,626 67,497 62,032 41,715 0 0 127,000 190,000 240,285 232,922 91,825 64,401 22,205 22,815 235,747 234,960 0 0 0 0 0 0
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