-----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, NzhFmVHvaYBootoNqRPB3K8IiOOLKTqctJkqPpd5p8I/4IGf6MsSVcrNI2NQT1MT QJAqEihYgf5PvXj3Kt4Meg== 0000916641-97-000855.txt : 19970820 0000916641-97-000855.hdr.sgml : 19970820 ACCESSION NUMBER: 0000916641-97-000855 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970630 FILED AS OF DATE: 19970819 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: 97666624 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 CORPORATION 10-Q United States Securities And Exchange Commission Washington, DC 20549 Form 10-Q (Mark One) (X) Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the Quarter Ended June 30, 1997 ( ) Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Commission File Number 1-7083 . Crestar Financial Corporation (Exact name of registrant as specified in its charter) Virginia 54-0722175 (State or other jurisdiction (I.R.S. Employer of incorporation or organization) Identification No.) 919 E. Main Street, P.O. Box 26665, Richmond, Virginia 23261-6665 (Address of principal executive offices) (Zip Code) (804)782-5000 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes X . No . ----- ----- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Class Outstanding at July 31, 1997 Common Stock, $5 par value 110,700,011 Crestar Financial Corporation And Subsidiaries Form 10-Q For The Quarter Ended June 30, 1997 Part I. Financial Information Item 1. Financial Statements:
Page Consolidated Balance Sheets........................................................... Consolidated Statements Of Income..................................................... Consolidated Statements Of Cash Flows................................................. Consolidated Statements Of Changes In Shareholders' Equity............................ Notes To Consolidated Financial Statements............................................ Item 2. Management's Discussion And Analysis Of Financial Condition And Results Of Operations: Financial Commentary.................................................................. Part II. Other Information Item 4. Submission Of Matters To A Vote Of Security Holders................................... Item 6. Exhibits And Reports On Form 8-K: There were no reports on Form 8-K filed during the three months ended June 30, 1997.
Consolidated Balance Sheets Crestar Financial Corporation And Subsidiaries
Dollars in thousands, except share data June 30, ------------------------ December 31, Assets 1997 1996 1996 Cash and due from banks $ 974,362 $ 949,496 $ 1,105,036 Securities held to maturity (note 2) 715,516 1,063,843 967,510 Securities available for sale (note 3) 3,518,420 4,028,278 4,318,349 Money market investments (note 4) 1,364,741 905,952 745,672 Mortgage loans held for sale 643,080 997,943 658,838 Loans (note 5): Business Loans: Commercial 4,028,852 3,926,691 4,002,574 Real estate - income property 1,289,423 1,254,398 1,242,097 Real estate - construction 328,459 343,346 314,016 Consumer Loans: Instalment 4,093,346 3,700,770 4,060,174 Bank card 1,210,242 1,533,639 1,422,934 Real estate - mortgage 3,308,393 2,946,439 3,007,910 - ---------------------------------------------------------------------------------------------------------- Total Loans 14,258,715 13,705,283 14,049,705 Less: Allowance for loan losses (note 6) (279,190) (272,896) (268,868) - ---------------------------------------------------------------------------------------------------------- Loans - net 13,979,525 13,432,387 13,780,837 - ---------------------------------------------------------------------------------------------------------- Premises and equipment - net 459,275 412,836 435,316 Customers' liability on acceptances 4,101 13,882 3,186 Intangible assets - net 172,280 188,859 180,420 Foreclosed properties - net (notes 5 and 7) 34,243 34,747 27,515 Other assets 944,260 634,756 639,262 - ---------------------------------------------------------------------------------------------------------- Total Assets $22,809,803 $22,662,979 $22,861,941 ========================================================================================================== Liabilities Demand deposits $ 3,383,317 $ 3,134,570 $ 3,352,921 Interest-bearing demand deposits 5,748,638 5,816,764 5,913,373 Regular savings deposits 1,552,860 1,717,689 1,620,925 Domestic time deposits 4,317,373 5,023,650 4,643,409 Certificates of deposit $100,000 and over 844,271 161,277 140,582 - ---------------------------------------------------------------------------------------------------------- Total deposits 15,846,459 15,853,950 15,671,210 Short-term borrowings (note 8) 3,841,043 3,988,801 4,116,051 Liability on acceptances 4,101 13,882 3,186 Other liabilities 399,060 332,503 432,648 Long-term debt (note 9) 819,071 696,697 859,336 - ---------------------------------------------------------------------------------------------------------- Total Liabilities 20,909,734 20,885,833 21,082,431 - ---------------------------------------------------------------------------------------------------------- Shareholders' Equity Preferred stock. Authorized 2,000,000 shares; none issued - - - Common stock, $5 par value. Authorized 200,000,000 shares at June 30, 1997 and December 31, 1996; 100,000,000 at June 30, 1996; outstanding 110,638,161 and 55,401,632 at June 30, 1997 and 1996, respectively; 109,869,886 at December 31, 1996 553,191 277,008 549,350 Capital surplus 261,789 489,408 227,079 Retained earnings 1,114,028 1,061,638 1,024,365 Net unrealized loss on securities available for sale (28,939) (50,908) (21,284) - ---------------------------------------------------------------------------------------------------------- Total Shareholders' Equity 1,900,069 1,777,146 1,779,510 - ---------------------------------------------------------------------------------------------------------- Total Liabilities And Shareholders' Equity $22,809,803 $22,662,979 $22,861,941 ==========================================================================================================
See accompanying notes to consolidated financial statements. Consolidated Statements Of Income Crestar Financial Corporation And Subsidiaries
In thousands, except per share data Three Months Ended June 30, Six Months Ended June 30, --------------------------- ------------------------- Income From Earning Assets 1997 1996 1997 1996 Interest and fees on loans $301,991 $297,260 $597,537 $593,876 Interest on taxable securities held to maturity 10,182 13,477 22,217 27,665 Interest on tax-exempt securities held to maturity 700 1,328 1,757 2,711 Interest and dividends on securities available for sale 59,875 60,690 123,724 117,195 Income on money market investments 2,248 3,993 6,912 6,833 Interest on mortgage loans held for sale 10,618 16,152 22,258 30,446 - ---------------------------------------------------------------------------------------------------------- Total income from earning assets 385,614 392,900 774,405 778,726 - ---------------------------------------------------------------------------------------------------------- Interest Expense Interest-bearing demand deposits 42,939 42,096 84,753 85,821 Regular savings deposits 9,768 11,050 19,732 22,452 Domestic time deposits 53,450 66,152 108,513 136,563 Certificates of deposit $100,000 and over 11,608 2,150 18,486 3,599 - ---------------------------------------------------------------------------------------------------------- Total interest on deposits 117,765 121,448 231,484 248,435 Short-term borrowings 33,949 40,310 73,746 74,765 Long-term debt 15,591 12,519 31,206 25,250 - ---------------------------------------------------------------------------------------------------------- Total interest expense 167,305 174,277 336,436 348,450 - ---------------------------------------------------------------------------------------------------------- Net Interest Income 218,309 218,623 437,969 430,276 Provision for loan losses (note 6) 36,000 24,430 65,698 46,660 - ---------------------------------------------------------------------------------------------------------- Net Credit Income 182,309 194,193 372,271 383,616 - ---------------------------------------------------------------------------------------------------------- Noninterest Income Service charges on deposit accounts 31,731 28,428 61,894 55,063 Trust and investment advisory income 17,887 15,848 35,340 31,740 Bank card-related income 9,771 13,228 22,419 25,053 Other income 51,718 33,816 90,857 64,642 Securities gains (losses) (91) 270 3,973 2,643 - ---------------------------------------------------------------------------------------------------------- Total noninterest income 111,016 91,590 214,483 179,141 - ---------------------------------------------------------------------------------------------------------- Net Credit And Noninterest Income 293,325 285,783 586,754 562,757 - ---------------------------------------------------------------------------------------------------------- Noninterest Expense Personnel expense 96,547 96,987 195,889 192,762 Occupancy expense - net 13,685 15,276 29,843 31,400 Equipment expense 11,462 9,528 21,281 19,010 Other expense 57,316 58,938 112,002 112,675 - ---------------------------------------------------------------------------------------------------------- Total noninterest expense 179,010 180,729 359,015 355,847 - ---------------------------------------------------------------------------------------------------------- Income Before Income Taxes 114,315 105,054 227,739 206,910 Income tax expense (note 10) 38,525 38,178 80,169 74,923 - ---------------------------------------------------------------------------------------------------------- Net Income $ 75,790 $ 66,876 $147,570 $131,987 ========================================================================================================== Earnings Per Share Primary $ .68 $ .60 $ 1.32 $ 1.18 Fully diluted .68 .60 1.32 1.18 ==========================================================================================================
See accompanying notes to consolidated financial statements. Consolidated Statements Of Cash Flows Crestar Financial Corporation And Subsidiaries
In thousands Six Months Ended June 30, ------------------------- 1997 1996 Operating Net Income $ 147,570 $ 131,987 Activities Adjustments to reconcile net income to net cash used by operating activities: Provisions for loan losses, foreclosed properties and other losses 65,698 44,822 Depreciation and amortization of premises and equipment 23,361 22,848 Securities gains (3,973) (2,643) Amortization of intangible assets 8,433 8,275 Deferred income tax expense (benefit) (6,727) 7,267 Gain on sales of mortgage servicing rights (10,450) (4,750) Gain on sale and disposal of branches and other properties (5,807) (354) Gain on sale of merchant card processing (17,325) - Net decrease (increase) in trading account (4,143) 3,368 Origination and purchase of loans held for sale (1,683,708) (2,086,676) Proceeds from sales of loans held for sale 1,234,527 1,776,934 Net decrease in accrued interest receivable, prepaid expenses and other assets 15,350 135,718 Net increase (decrease) in accrued interest payable, accrued expenses and other liabilities 18,442 (371,359) Other, net 4,902 545 -------------------------------------------------------------------------------------- Net cash used by operating activities (213,850) (334,018) - ---------------------------------------------------------------------------------------------------------- Investing Proceeds from maturities and calls of securities held to maturity 265,758 160,166 Activities Proceeds from maturities and calls of securities available for sale 213,309 472,528 Proceeds from sales of securities available for sale 1,966,411 2,049,371 Purchases of securities held to maturity (11,957) (119,328) Purchases of securities available for sale (1,557,756) (2,828,719) Net increase in money market investments (614,926) (393,052) Principal collected on non-bank subsidiary loans 58,504 26,279 Loans originated by non-bank subsidiaries (60,282) (172,244) Net decrease in other loans 37,752 225,656 Purchases of premises and equipment (60,937) (27,818) Proceeds from the sale of foreclosed properties, mortgage servicing rights and merchant card processing 49,026 21,339 Acquisitions of net assets of financial institutions - 138,628 Other, net (3,018) (25,837) ------------------------------------------------------------------------------------------ Net cash provided (used) by investing activities 281,884 (473,031) - ---------------------------------------------------------------------------------------------------------- Financing Net decrease in demand, interest-bearing demand and Activities regular savings deposits (202,404) (391,016) Net increase (decrease) in certificates of deposit 377,653 (197,559) Net increase (decrease) in short-term borrowings (275,008) 1,170,639 Principal payments on long-term debt (40,314) (27,948) Cash dividends paid (61,974) (50,661) Common stock purchased and retired (29,739) (53,874) Proceeds from the issuance of common stock 33,242 21,742 Other, net (164) (23) ------------------------------------------------------------------------------------------ Net cash provided (used) by financing activities (198,708) 471,300 - ---------------------------------------------------------------------------------------------------------- Cash And Decrease in cash and cash equivalents (130,674) (335,749) Cash Cash and cash equivalents at beginning of year 1,105,036 1,285,245 - ---------------------------------------------------------------------------------------------------------- Equivalents Cash and cash equivalents at end of quarter $ 974,362 $ 949,496 ==========================================================================================================
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 ----------------------- ------------------------ 1997 1996 1997 1996 Balance, April 1 $1,817,347 $1,779,959 110,299,785 55,575,728 Net Income 75,790 66,876 - - Cash dividends declared on common stock (32,309) (26,778) - - Change in net unrealized gain or loss on securities available for sale 28,627 (28,682) - - Common stock purchased and retired - (24,773) - (445,500) Common stock issued: For dividend reinvestment plan 7,589 5,337 212,354 105,736 For thrift and profit sharing plan 105 99 2,929 1,980 For other stock compensation plans 421 847 19,128 17,185 Upon exercise of stock options (including tax benefit of $780 in 1997; $1,248 in 1996) 2,499 4,261 103,965 146,503 - ---------------------------------------------------------------------------------------------------------- Balance, June 30 $1,900,069 $1,777,146 110,638,161 55,401,632 ========================================================================================================== Balance, January 1 $1,779,510 $1,785,588 109,869,886 55,382,341 Net Income 147,570 131,987 - - Cash dividends declared on common stock (32,309) (50,661) - - Change in net unrealized gain or loss on securities available for sale (7,655) (64,136) - - Common stock purchased and retired (29,739) (53,874) (823,566) (955,500) Cash paid in lieu of fractional shares (164) (86) (4,736) (1,484) Common stock issued: For dividend reinvestment plan 13,547 10,148 382,084 198,236 For thrift and profit sharing plan 6,662 6,604 184,848 118,747 For other stock compensation plans 2,267 965 72,807 19,313 Upon exercise of stock options (including tax benefit of $7,347 in 1997; $5,621 in 1996) 20,380 10,611 956,838 639,979 - ---------------------------------------------------------------------------------------------------------- Balance, June 30 $1,900,069 $1,777,146 110,638,161 55,401,632 ==========================================================================================================
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 1997 presentation. The notes included herein should be read in conjunction with the notes to the consolidated financial statements included in the Corporation's 1996 Annual Report and Form 10-K and First Quarter 1997 Financial Supplement and Form 10-Q. On December 31, 1996 Crestar Financial Corporation (Crestar) merged with Citizens Bancorp (Citizens), a Maryland bank holding company, in a transaction accounted for as a pooling of interests. Accordingly, historical financial data for periods before the merger, including the second quarter and first six months of 1996, have been restated to include the combined results of Crestar and Citizens. During the fourth quarter of 1996, Crestar recorded a $50.0 million (pre-tax) charge in connection with the December 31, 1996 merger with Citizens. The charge consisted of $11.3 million in severance and other personnel costs, $18.2 million for facilities consolidations and branch closures, professional fees of approximately $5.4 million, and $15.1 million related to cancellation of contractual obligations and other merger-related expenses. An additional $1.5 million and $3.5 million in merger-related charges were accrued during the second quarter and first six months of 1997, respectively. Total cash payments of merger-related charges totaled $35.9 million through June 30, 1997. The balance of accrued merger-related charges totaled $17.7 million as of June 30, 1997. Intangible assets consisted of goodwill and deposit based intangibles, having a combined balance of $171,880,000 and $188,404,000 at June 30, 1997 and 1996, respectively, and favorable lease rights of $400,000 and $455,000, respectively. Capitalized mortgage servicing rights of $45.9 million and $45.8 million at June 30, 1997 and 1996, respectively, were included in other assets in the consolidated financial statements. Mortgage servicing rights of approximately $11 million were capitalized during the first six months of 1997. At June 30, 1997 and 1996 mortgage servicing rights were net of a related valuation allowance of $538,000. The activity in such valuation allowance was not material to the consolidated financial statements for the three and six months ended June 30, 1997 and 1996. The fair value of capitalized mortgage servicing rights was approximately $79 million at June 30, 1997. Amortization of capitalized mortgage servicing rights was approximately $6 million in the first six months of 1997. During the second quarter and first six months of 1997, Crestar capitalized interest of $701,000 and $1.2 million, respectively, associated with construction in progress. (2) Securities Held To Maturity The amortized cost (carrying values) and estimated market values of securities held to maturity at June 30 follow:
========================================================================================================== In thousands 1997 1996 ----------------------- ----------------------- Amortized Market Amortized Market Cost Value Cost Value U.S. Treasury and Federal agencies $197,788 $196,323 $ 213,866 $ 210,430 Mortgage-backed obligations of Federal agencies 464,173 464,524 756,400 751,053 Other taxable securities 3,034 3,025 13,231 13,277 States and political subdivisions 50,521 51,444 80,346 80,818 - ---------------------------------------------------------------------------------------------------------- Total securities held to maturity $715,516 $715,316 $1,063,843 $1,055,578 ==========================================================================================================
(3) Securities Available For Sale The amortized cost and estimated market values (carrying values) of securities available for sale at June 30 follow:
========================================================================================================== In thousands 1997 1996 ---------------------- ----------------------- Amortized Market Amortized Market Cost Value Cost Value U.S. Treasury and Federal agencies $ 604,863 $ 599,569 $ 561,770 $ 553,142 Mortgage-backed obligations of Federal agencies 2,164,126 2,125,494 2,728,141 2,663,223 Other taxable securities 546,437 544,686 615,488 640,728 Common and preferred stocks 247,983 248,671 202,285 171,185 - ---------------------------------------------------------------------------------------------------------- Total securities available for sale $3,563,409 $3,518,420 $4,107,684 $4,028,278 ==========================================================================================================
At June 30, 1997, 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 the probable market value decline in a rising interest rate environment. The interest rate caps, which have a notional balance of $1.75 billion, have a cost basis of $15.1 million and a market value of $7.0 million at June 30, 1997. The cost basis of the interest rate caps is being amortized as a reduction of interest income on securities available for sale. (4) Money Market Investments Money market investments at June 30 included: =========================================================================== In thousands 1997 1996 Securities purchased under agreements to resell $1,095,300 $610,000 Federal funds sold 163,506 194,279 Time deposits 75,042 75,030 U.S. Treasury securities 8,263 10,838 Trading account securities 11,706 1,555 Other 10,924 14,250 - --------------------------------------------------------------------------- Total money market investments $1,364,741 $905,952 =========================================================================== (5) Nonperforming Assets And Impaired Loans Nonperforming assets at June 30 are shown below. Loans that are both (a) past due 90 days or more and (b) not deemed nonaccrual due to an assessment of collectibility are specifically excluded from the definition of nonperforming assets. Such accruing loans past due 90 days or more not shown below totaled $58.7 million and $58.0 million at June 30, 1997 and 1996, respectively. ============================================================================== In thousands 1997 1996 Nonaccrual loans $57,813 $ 88,156 Foreclosed properties - net 34,243 34,747 - ------------------------------------------------------------------------------ Total nonperforming assets $92,056 $122,903 ============================================================================== Transfers from nonperforming loans to foreclosed properties (non-cash additions) were $7.5 million and $6.0 million in the first six months of 1997 and 1996, respectively. Included in Crestar's non-performing loans above are certain impaired loans. Impaired loans and their allocated valuation allowances at June 30, 1997 and 1996 were $12.1 million with an allowance of $2.2 million and $38.5 million with an allowance of $6.1 million, respectively. All impaired loans had an allocated valuation allowance at June 30, 1997 and 1996. Collateral dependent loans, which were measured at the fair value of the collateral, constituted 100% of impaired loans at June 30, 1997. The average recorded investment in impaired loans for the six months ended June 30, 1997 and 1996 was $22.8 million and $33.4 million, respectively. There was no material interest income recognized on impaired loans in the three and six months ended June 30, 1997 and 1996. (6) Allowance For Loan Losses Transactions in the allowance for loan losses for the three months and six months ended June 30 were:
========================================================================================================== In thousands Three Months Six Months ---------------------- ---------------------- 1997 1996 1997 1996 Beginning balance $268,870 $273,957 $268,868 $274,430 - ---------------------------------------------------------------------------------------------------------- Charge-offs (33,341) (33,159) (70,416) (62,418) Recoveries 7,661 8,168 15,040 15,112 - ---------------------------------------------------------------------------------------------------------- Net charge-offs (25,680) (24,991) (55,376) (47,306) Provision for loan losses 36,000 24,430 65,698 46,660 Allowance from acquisitions and other activity - net - (500) - (888) - ---------------------------------------------------------------------------------------------------------- Net increase (decrease) 10,320 (1,061) 10,322 (1,534) - ---------------------------------------------------------------------------------------------------------- Ending balance $279,190 $272,896 $279,190 $272,896 ==========================================================================================================
(7) Allowance For Foreclosed Properties Transactions in the allowance for losses on foreclosed properties for the three months and six months ended June 30 were:
========================================================================================================== In thousands Three Months Six Months --------------------- --------------------- 1997 1996 1997 1996 Beginning balance $18,076 $13,103 $18,449 $13,574 - ---------------------------------------------------------------------------------------------------------- Provision for foreclosed properties - (450) - (388) Write-downs (91) (140) (464) (202) Allowance from acquisitions - net - - - (471) - ---------------------------------------------------------------------------------------------------------- Net decrease (91) (590) (464) (1,061) - ---------------------------------------------------------------------------------------------------------- Ending balance $17,985 $12,513 $17,985 $12,513 ==========================================================================================================
(8) Short-Term Borrowings Short-term borrowings, exclusive of deposits, with maturities of less than one year at June 30 were: ============================================================================ In thousands 1997 1996 Federal funds purchased $1,463,056 $2,579,501 Securities sold under repurchase agreements 1,053,541 563,707 Federal Home Loan Bank borrowings 575,000 640,000 U.S. Treasury demand notes 499,401 931 Notes payable 247,911 202,558 Other 2,134 2,104 - ---------------------------------------------------------------------------- Total short-term borrowings $3,841,043 $3,988,801 ============================================================================ The Corporation paid $286,096,000 and $318,342,000 in interest on deposits and short-term borrowings in the first six months of 1997 and 1996, respectively. (9) Long-Term Debt Long-term debt at June 30 included:
========================================================================================================== In thousands 1997 1996 4 3/8-7 3/8% Federal Home Loan Bank obligations payable through 2015 $271,601 $345,272 8 3/4% Subordinated notes due 2004 149,712 149,674 8 1/4% Subordinated notes due 2002 125,000 125,000 8 5/8% Subordinated notes due 1998 49,992 49,981 7 7/8-11 1/4% Collateralized mortgage obligation bonds maturing through 2019 13,661 16,734 7-8 1/4% Mortgage indebtedness maturing through 2009 8,162 8,981 8 5/8-14 3/8% Capital lease obligations maturing through 2006 943 1,055 Crestar Capital Trust I preferred stock 200,000 - - ---------------------------------------------------------------------------------------------------------- Total long-term debt $819,071 $696,697 ==========================================================================================================
The Corporation paid $31,202,000 and $25,677,000 in interest on long-term debt in the first six months of 1997 and 1996, respectively. There were no new capital lease agreements in the second quarter of 1997. Crestar Capital Trust I (the Trust) is a wholly-owned special purpose finance subsidiary of the Parent Company, Crestar Financial Corporation (Crestar), operating in the form of a grantor trust. The trust was created solely to issue capital securities and remit the proceeds to Crestar. Crestar is the sole owner of the common stock securities of the Trust. On December 31, 1996, the Trust issued 200,000 shares of Preferred Stock capital securities (Trust Preferred Stock) with a stated value of $1,000 per share, and a fixed dividend yield of 8.16% of the stated value. The stated value of the Trust Preferred Stock is unconditionally guaranteed on a subordinated basis by Crestar. The securities have a mandatory redemption date of December 15, 2026, and are subject to varying call provisions at the option of Crestar beginning in December 2006. Shares of the Trust Preferred Stock are capital securities which are distinct from the common stock or preferred stock of Crestar, and the dividends thereon are tax-deductible. Dividends accrued for payment by the Trust are classified as interest expense on long-term debt in the consolidated income statement of Crestar. (10) Income Taxes The current and deferred components of income tax expense allocated to continuing operations for the three months and six months ended June 30 in the accompanying consolidated statements of income were:
========================================================================================================== In thousands Three Months Six Months --------------------- --------------------- 1997 1996 1997 1996 Current: Federal $41,917 $31,910 $81,499 $64,605 State and local 1,927 1,161 5,397 3,051 - ---------------------------------------------------------------------------------------------------------- Total current tax expense 43,844 33,071 86,896 67,656 - ---------------------------------------------------------------------------------------------------------- Deferred: Federal (5,287) 3,819 (6,419) 5,660 State and local (32) 1,288 (308) 1,607 - ---------------------------------------------------------------------------------------------------------- Total deferred tax expense (benefit) (5,319) 5,107 (6,727) 7,267 - ---------------------------------------------------------------------------------------------------------- Total income tax expense $38,525 $38,178 $80,169 $74,923 ==========================================================================================================
The differences between the amounts computed by applying the statutory federal income tax rate to income before income taxes and the actual income tax expense allocated to operations for the three months and six months ended June 30 were:
=========================================================================================================== In thousands Three Months Six Months 1997 1996 1997 1996 -------------- -------------- -------------- -------------- Amount % Amount % Amount % Amount % Income before income taxes $114,315 $105,054 $227,739 $206,910 - ----------------------------------------------------------------------------------------------------------- Tax expense at statutory rate 40,011 35.0 36,769 35.0 79,709 35.0 72,419 35.0 - ----------------------------------------------------------------------------------------------------------- Increase (decrease) in taxes resulting from: Tax-exempt interest and dividends (2,198) (1.9) (1,782) (1.7) (3,900) (1.7) (3,609) (1.7) Nondeductible interest expense 447 .4 181 .2 876 .4 393 .2 Amortization of goodwill 1,035 .9 1,036 1.0 2,080 .9 2,082 1.0 State income taxes 1,232 1.1 1,592 1.5 3,308 1.5 3,028 1.5 Other - net (2,002) (1.8) 382 .3 (1,904) (.8) 610 .2 - ----------------------------------------------------------------------------------------------------------- Total increase (decrease) in taxes (1,486) (1.3) 1,409 1.3 460 .2 2,504 1.2 - ----------------------------------------------------------------------------------------------------------- Total income tax expense $38,525 33.7 $ 38,178 36.3 $80,169 35.2 $ 74,923 36.2 ===========================================================================================================
The Corporation made income tax payments of $77,199,000 and $72,662,000 during the first six months of 1997 and 1996, respectively. At June 30, 1997, the Corporation had a net deferred income tax asset of $120,086,000. 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. These instruments involve varying degrees of credit and interest rate risk in excess of the amounts recorded in the consolidated balance sheets. Commitments to extend credit are legally binding agreements to lend to a customer which typically contain clauses that permit cancellation of the commitment in the event of credit deterioration of the borrower. Similar to direct lending, these commitments are subject to the Corporation's loan approval and review procedures and policies. Based upon management's review, Crestar may require the customer to provide various types of collateral as security for the agreement, including balances on deposit, securities, real estate and inventory. Crestar receives a commitment fee for entering into such agreements. Legally binding, unfunded commitments to extend credit were $9.7 billion and $7.7 billion at June 30, 1997 and 1996, respectively. Standby letters of credit, which are conditional commitments to extend credit, guarantee the performance of customers to a third party. Crestar's outstanding standby letters of credit were $400 million at June 30, 1997. Recourse obligations on mortgage loans serviced of $1.6 billion at June 30, 1997 included $982 million which was insured by agencies of the Federal government or private insurance companies. Crestar maintained an allowance of $309,000 at June 30, 1997 based on estimates of future losses on this contractual recourse liability. For interest rate risk management purposes at June 30, 1997, Crestar was using interest rate (fixed receive) swaps with notional balances of $900 million and $250 million to convert floating rate commercial and instalment loans, respectively, to fixed rates. Crestar was using purchased interest rate caps with notional balances of $1.75 billion and $200 million to hedge the market value of fixed rate securities available for sale and real estate income property loans, respectively, and $465 million to minimize interest rate risk associated with rising rates on floating rate money market deposits. Crestar was using interest rate floors with notional balances of $1 billion and $250 million to hedge the fair value of fixed rate domestic time deposits and the prepayment risk associated with fixed rate real estate mortgage loans, respectively. The carrying value and net unrealized loss on these swaps, caps and floors were $31.5 million and $18.2 million at June 30, 1997, respectively. Crestar also serves as a financial intermediary in interest rate swap, cap and collar agreements, providing interest rate risk management services to customers. As a financial intermediary, Crestar had $86.8 million in offsetting swap, $53.8 million in offsetting cap and $10 million in offsetting collar agreements at June 30, 1997. 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 of approximately $23.6 million, less collateral held of approximately $9 million, plus an amount for prospective market movement. Four counterparties constituted 15%, 13%, 12% and 10% of the estimated credit and market exposure of $71.7 million at June 30, 1997. Crestar also had forward agreements outstanding at June 30, 1997, 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. The net unrealized loss on such forward agreements, which had a notional balance of $978 million, was $4.9 million at June 30, 1997. As previously reported, in November 1996 a purported class action lawsuit was brought against Crestar Mortgage Corporation (CMC), an affiliated subsidiary of the Corporation, alleging that compensation paid to mortgage brokers in the form of "yield spread premium" violated the Real Estate Settlement Procedures Act (RESPA) prohibition on referral fees. The suit was similar to a number of other suits brought against mortgage lenders nationwide. This suit was recently settled on a basis favorable to Crestar after plaintiffs' motion for class certification was denied. Management, in consultation with legal counsel, is of the opinion that there is no other pending or threatened litigation that could, individually or in the aggregate, have a material impact on the Corporation's financial condition or financial statements beyond liabilities established for this purpose. Financial Commentary Crestar Financial Corporation and Subsidiaries Information contained in the following "Financial Commentary," other than historical information, may contain forward-looking statements that involve risks and uncertainties, including, but not limited to, the Corporation's interest rate risk position, credit and economic trends on both a regional and national basis, technological change, the number and size of competitors in the Corporation's market, and the impact of future legal and regulatory actions, including the establishment of federal deposit insurance rates. Such statements are provided to assist the reader in understanding anticipated future financial operations, and are made pursuant to the safe harbor provisions of the Private Litigation Reform Act of 1995. The Corporation's actual results may differ materially from those projected in forward-looking statements. Overview (Tables 1, 2 and 12) Crestar Financial Corporation (Crestar) reported net income of $75.8 million for the quarter ended June 30, 1997, an increase of $8.9 million or 13% over net income earned in the second quarter of 1996. For the first six months, earnings were $147.6 million in 1997, an increase of 12% from the $132.0 million earned in 1996. These increases reflect the continued positive effects of growth in noninterest income and management of controllable expenses. Earnings per common share were $.68 for the second quarter of 1997, compared to $.60 in 1996. For the first six months of 1997, earnings per common share were $1.32, an increase of 12% from the $1.18 per share recorded in the first six months of 1996. The predominant items affecting the change in earnings per share are given in Table 2. Each item is net of applicable federal income taxes. Net income for the second quarter of 1997 includes a pre-tax gain of $17.3 million from the sale, effective May 1, of Crestar's merchant bank card processing operations to Nova Information Systems, Inc. (Nova). Crestar has formed an exclusive marketing alliance with Nova which will benefit commercial and small business customers through Nova's card acceptance products and technology. The sale will have no material impact on Crestar's ongoing operations. 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 and stable. Crestar's market area is also characterized by active competition in all principal areas where the Corporation provides services. In addition to banks, other firms competing in the market area include savings associations, consumer finance companies, national credit card companies, securities brokerage firms, credit unions and mortgage banking companies. Mergers And Acquisitions On June 23, 1997, Crestar announced that it had reached a definitive agreement to acquire American National Bancorp, Inc. (American National) in a purchase transaction expected to be completed during the fourth quarter of 1997. American National is the holding company for American National Savings Bank, F.S.B., a Baltimore-based thrift institution with approximately $500 million in total assets, $330 million in deposits and 10 branches serving the Baltimore metropolitan area. Upon completion of the merger, American National will become part of Crestar's Baltimore-based Maryland Region, which currently includes 35 Crestar branches. Under terms of the purchase agreement, American National shareholders will receive approximately $20.25 per common share, in Crestar common stock or cash, for each share of American National common stock held. There are approximately 3.6 million shares of American National common stock outstanding. Crestar intends to purchase in the open market any Crestar shares issued in the transaction. The acquisition is subject to approval by bank regulatory authorities and American National shareholders. Profitability Measures And Capital Resources (Table 1) Increased earnings in both the second quarter and the first six months of 1997 resulted in improvements in key profitability measures over 1996. Return on average assets was 1.42% in the second quarter, and 1.37% for the first six months of 1997, compared to 1.23% for both the second quarter and first six months of 1996. Return on average equity was 16.48% for the second quarter of 1997, compared to 15.20% for the second quarter of 1996. For the first six months of 1997, return on average equity was 16.27%, compared to 14.93% for the first six months of the previous year. Average equity to assets of 8.64% for the second quarter of 1997 compared to 8.10% in the second quarter of 1996. Average equity to assets for the first six months of 1997 was 8.45%, compared to 8.22% for the same period of 1996. Period-end equity to assets of 8.33% at June 30, 1997 compared to a June 30, 1996 ratio of 7.84%. Risk-based capital ratios are another measure of capital adequacy. At June 30, 1997, Crestar's consolidated risk-adjusted capital ratios were 10.7% for Tier 1 and 13.5% for total capital, well above the required minimums of 4.0% and 8.0%, respectively. The Tier 1 leverage ratio of 9.3% at June 30, 1997 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 7.63% at June 30, 1997. Under Federal Deposit Insurance Corporation (FDIC) rules, Crestar's sole subsidiary bank (Crestar Bank) was considered "well-capitalized" as of June 30, 1997, the highest category of capitalization defined by regulatory authorities, allowing for the lowest level of FDIC insurance premium payments. Crestar has filed shelf registration statements with the Securities and Exchange Commission pertaining to the possible future issuance of securities. Under currently effective registration statements, Crestar may issue in the future approximately $300 million in subordinated debt securities, preferred stock or common stock, or any combination thereof. Net Interest Margin And Net Interest Income (Tables 3 and 13) Crestar's net interest margin for the second quarter of 1997 was 4.58%, an improvement of 10 basis points from the margin recorded in the second quarter of 1996. The improvement was due to favorable changes in both the composition of and rates paid on funding sources. These factors served to offset the impact of unfavorable changes in the composition of earning assets, yields earned on such assets, and a negative impact from off-balance sheet derivative transactions. Rates paid on total interest-bearing deposits averaged 3.77% during the second quarter of 1997, down 7 basis points from the second quarter of 1996. This decline was primarily driven by a decrease of 29 basis points on average rates paid on domestic time deposits, which decreased from 5.27% in the second quarter of 1996 to 4.98% in the second quarter of 1997. While rates paid on interest-bearing demand deposits and on certificates of deposits of $100,000 and over increased from the second quarter of 1996, the impact of the higher rates paid were more than offset by declining rates on the Corporation's domestic time deposits and on regular savings deposits. Yields on short-term borrowings and long-term debt were up from the levels of second quarter 1996 by 13 and 31 basis points, respectively. The average rate paid on Crestar's total sources of funds in the second quarter of 1997 was 3.47%, reflecting a decline of 7 basis points from the same period of 1996. The yield on average loans decreased 9 basis points from the second quarter of 1996, to 8.65%. Average rates on bank card loans increased from 12.51% in the second quarter of 1996 to 14.39% in the second quarter of 1997, in part due to the expiration of low introductory loan interest rates on selected bank card accounts. Yields on real estate-income property loans also increased from second quarter 1996 results, while all other loan categories displayed lower yields. A lower interest rate environment for most consumer loans in the second quarter of 1997, compared to the second quarter of 1996, resulted in lower yields on instalment and real estate-mortgage loan balances. Yields on money market investments were 5.65% for the second quarter of 1997 versus 5.30% for the second quarter of 1996, in part reflecting a higher average federal funds rate on overnight deposits. Average rates on securities available for sale were 6.32% in second quarter 1997, versus 6.31% in the same period of 1996. Average yields also increased on the smaller securities held to maturity portfolio. In total, interest rate spreads had a positive impact of 16 basis points on Crestar's second quarter 1997 net interest margin, when compared to the second quarter of 1996. Changes in the earning asset mix decreased the second quarter 1997 net interest margin by approximately 10 basis points when compared to the second quarter of 1996. Loans as a percentage of total earning assets increased from an average of 69% during the second quarter of 1996 to 73% for the same period of 1997. Average total loans were $14.1 billion during the second quarter of 1997, compared to $13.8 billion during the second quarter of 1996. However, changes in the composition of average loan balances negatively impacted net interest margins. Average bank card loans, the highest yielding loan category, experienced a decline of $330 million, or 21%, during the second quarter of 1997 when compared to the same period of 1996. Marketing efforts directed to new accounts have been curtailed from previous levels, in light of higher industry-wide delinquency statistics. Account balances have also declined as a result of the expiration of introductory low interest rates on some bank card products. Lower yielding secured consumer loans (instalment and real estate mortgage loans) experienced significant growth during the second quarter of 1997. Average instalment loan balances increased by $410 million or 11% during this period, with average real estate-mortgage loans increasing $204 million, or 7%, from second quarter of 1996. Average business loans for the second quarter were relatively unchanged from prior year balances, experiencing a net 1% increase. Average money market investments decreased, from $303 million in the second quarter of 1996 to $161 million for the same quarter of 1997. Decreases in average balances of mortgage loans held for sale reflect lower origination volume in Crestar's mortgage banking subsidiary, coupled with shorter holding periods for loans held for sale. Average balances in the second quarter of 1997 were $551 million, representing 3% of average total earning assets during this period. Average balances for mortgage loans held for sale during the second quarter of 1996 totaled $864 million. Favorable changes in the composition of Crestar's funding sources resulted in a positive impact to the second quarter 1997 net interest margin of 6 basis points, in comparison to second quarter 1996 results. Total sources of funding needed for earning assets levels declined by 2% from second quarter of 1996 to the second quarter of 1997. Average total deposits for the second quarter of 1997 decreased by $159 million, a 1% decrease over second quarter 1996 average balances. Average balances of domestic time deposits, which include consumer certificates of deposits, declined $746 million or 15% from the levels of the second quarter of 1996. Balances of interest bearing demand deposits and regular savings deposits were also lower in comparison to second quarter 1996 balances, while certificates of deposits of $100,000 and over were higher by approximately $671 million. Growth in average balances of non-interest bearing demand deposits and in shareholders equity were an important reason for overall favorable change in the composition of funding sources. Net non-interest bearing sources of funds represented 18% of total funding sources in the second quarter of 1997, versus 16% during the second quarter of 1996. Interest-bearing deposits represented 65% of total funding sources in both the second quarter of 1997 and 1996. Coupled with the impact of changes to Crestar's earning asset mix, changes in the composition of funding sources resulted in a net 4 basis point decrease in the second quarter 1997 net interest margin, versus the second quarter of 1996, arising from total changes in Crestar's total balance sheet mix. Off-balance sheet hedge transactions resulted in a decrease in net interest income of $1.3 million during the second quarter of 1997, which was composed of a $0.8 million decrease in interest income and a $0.5 million increase in interest expense, based on the underlying asset or liability being hedged. In the second quarter of 1996 the comparable impact of hedging activity was an increase to Crestar's net interest income of $1.1 million, which consisted of a $1.1 million increase in interest income and a negligible decrease in interest expense. In comparison to second quarter 1996, such off-balance sheet transactions had a negative impact of 4 basis points on second quarter 1997's net interest margin. The impact of nonperforming assets and recognition of loan fees on second quarter 1997's net interest margin, in comparison to the same period of 1996, was a positive impact of approximately 2 basis points. 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. A 2% decline in average earning assets, when coupled with the 10 basis point increase in Crestar's net interest margin, resulted in net interest income for the second quarter of 1997 decreasing by $0.3 million, virtually the same as the second quarter of 1996. Similarly, tax-equivalent net interest income was stable during this period. For the first six months, tax equivalent net interest income increased 2% over 1996 as a result of a 10 basis point increase in the net interest margin, which more than offset a slight decrease in average earning assets. Most factors contributing to the increased year-to-date margin mirror those previously discussed. Changes to the earning assets mix for the year-to-date period had a unfavorable impact of 15 basis points, while changes to the funding mix resulted in an 2 basis point positive impact to the year-to-date margin. Favorable interest rate spreads for the comparable six month period increased net interest margin by 24 basis points. Off-balance sheet hedge transactions had a negative impact on the margin, in comparison to year-to-date 1996 results, of approximately 3 basis points. Off-balance sheet hedge transactions resulted in a decrease to net interest income of $2.3 million during the first six months of 1997, which was composed of a $1.4 million decrease in interest income and a $0.9 million increase in interest expense, based on the underlying asset or liability being hedged. In the first six months of 1996 the comparable impact of hedging activity was an increase to Crestar's total interest income of $1.8 million, which consisted of a $1.8 million increase in interest income and a negligible decrease in interest expense. Other positive factors, impacting the margin by a combined 2 basis points, were improved levels of nonperforming assets and increases in the amortization of loan fees recognized as interest income. Risk Exposures And Credit Quality (Tables 4 and 5) The allowance for loan losses was $279 million at June 30, 1997, representing 1.96% of period-end loans, 303% of period-end nonperforming assets, and a 483% 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 $58.7 million at June 30, 1997, with consumer loans representing 93% of this balance. At June 30, 1997, nonperforming assets of $92.1 million were down $30.8 million or 25% from June 30, 1996, and down $16.9 million or 16% from December 31, 1996. The ratio of nonperforming assets to loans and foreclosed properties at June 30, 1997 was 0.64%, compared to 0.77% at December 31, 1996 and 0.89% at June 30, 1996. Future operating results could show increases in the total balance of nonperforming assets due to loan growth, future acquisitions of financial institutions, or adverse changes in credit quality. The provision for loan losses was $36.0 million for the second quarter of 1997, an increase of $11.6 million from the $24.4 million provision expense recorded in the second quarter of 1996. Provision expense in the first quarter of 1997 was $29.7 million. The higher provision expense for the second quarter of 1997 had the effect of increasing the allowance for loan losses, as a percentage of outstanding period-end loans, from 1.89% at March 31, 1997 to 1.96% at June 30, 1997. Net charge-offs totaled $25.7 million in the second quarter of 1997, compared to $25.0 million in the comparable period of 1996. Net charge-offs as a percentage of average loans were 0.73% for the second quarter of 1997, compared to 0.73% in the same period of 1996, and 0.86% for the first quarter of 1997. Business loans experienced net recoveries of $1.0 million in the second quarter of 1997, compared to net recoveries of $0.3 million in the comparable quarter of 1996. Consumer loan net charge-offs totaled $26.7 million in the second quarter of 1997, compared to net charge-offs of $29.7 million in the first quarter of 1997 and $25.3 million in the second quarter of 1996. The largest proportion of net loan charge-offs during the second quarter of 1997, and for the first six months of 1997, occurred in the bank card loan portfolio. Net charge-offs for bank card loans were $22.9 million in the second quarter of 1997, compared to $23.4 million in the first quarter of 1997 and $20.2 million in 1996's second quarter. Net bank card loan charge-offs as a percentage of bank card loans (on an annualized basis) were 7.45% in the second quarter of 1997, 6.98% for the first quarter of 1997, and 5.19% in the second quarter of 1996. This increase in the ratio of bank card net charge-offs to average bank card loans is partially attributable to both a decrease in outstanding bank card loan balances and the current trend of adverse payment performance by consumers, a trend similar to that evidenced by high nationwide delinquency statistics. The increase also reflects the prior growth of Crestar's bank card loan portfolio, especially during 1994 and 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. A bank card portfolio will, therefore, generally produce higher net charge-off levels as the newer loans "season." Crestar is encouraged by the decline in the balance of bank card loan charge-offs in the second quarter of 1997 versus the prior quarter. However, a factor in the increase in the loan provision expense incurred during the second quarter of 1997 is the aforementioned level of industry-wide consumer (including bank card) loan delinquency statistics and the uncertainty surrounding those measures. Net loan charge-offs of instalment loans experienced a decline during the second quarter of 1997, totaling $3.0 million versus $5.5 million in the first quarter of 1997 and $4.8 million in the second quarter of 1996. Net charge-offs for real estate-mortgage loans were $0.8 million for the second quarter of 1997. In addition to other loan categories, Crestar closely manages its portfolio of loans to real estate developers and investors (REDI). The REDI designation is based on borrower type and encompasses non-owner occupied real estate and construction loans as well as other forms of credit extended to real estate developers and investors. REDI outstanding balances have remained fairly constant in 1997 and totaled $1.7 billion at June 30, 1997. This balance represented 12% of the total loan portfolio at that date. At both December 31, 1996 and at March 31, 1997, REDI loan balances also constituted 12% of the total loan portfolio. REDI nonperforming assets were $46.0 million at June 30, 1997, compared to $61.8 million at December 31, 1996 and $53.6 million at March 31, 1997. 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 at June 30, 1997, not included in Table 5, totaled approximately $123 million. 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 approximately $191 million at June 30, 1996 and $153 million at December 31, 1996. 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 totaled $14.3 billion at June 30, 1997. Noninterest Income And Expense (Table 6) Noninterest income totaled $111.0 million in the second quarter of 1997, a $19.4 million or 21% increase over the second quarter period of 1996. Excluding securities gains and losses, noninterest income increased $19.8 million or 22% over second quarter 1996 results. As previously noted, Crestar recorded a gain of $17.3 million (pre-tax) during the second quarter of 1997 from the sale of merchant bank card processing operations. Significant growth was experienced in several noninterest income categories. Deposit account fee income for the three months ended June 30, 1997 was up $3.3 million, or 12%, from the results of the second quarter of 1996. Trust and investment advisory income increased 13% from second quarter 1996 levels, reflecting growth in assets under trust. Other service charges and fees totaled $8.7 million for the second quarter of 1997, representing an increase of 20% over second quarter 1996 results. Bank card-related noninterest income declined to $9.8 million in the second quarter of 1997, down from the $13.2 million recognized in the same period of 1996. The decline is primarily attributable to the sale of Crestar's merchant bank card processing operations, effective May 1, 1997. Reflecting lower overall levels of mortgage originations within the mortgage banking industry, Crestar's mortgage origination income for the second quarter of 1997 totaled $2.4 million, or $2.8 million lower than the results reported in the second quarter of 1996. Mortgage servicing income totaled $3.6 million for the second quarter of 1997, representing a decrease of $0.5 million from second quarter 1996 results. Gains on sale of mortgage servicing rights totaled $4.0 million in the second quarter of 1997, compared to $0.8 million in the second quarter of 1996. Miscellaneous income for the second quarter of 1997 includes a gain of $4.6 million recognized on the sale of selected real estate-mortgage loans. Miscellaneous income for the second quarter of 1996 results include a gain of $2.8 million from the sale of loans. Noninterest expense decreased $1.7 million, or 1%, in the second quarter of 1997 when compared to the same period of 1996. Noninterest expense in the quarter included $4.3 million of costs incurred in an ongoing project to prepare Crestar's data processing systems for "Year 2000" compatibility. The second quarter results also include $1.5 million in non-recurring expenses related to the merger with Citizens Bancorp and related system conversions. Excluding these non-recurring expenses and forecloses properties expense, noninterest expense for the second quarter of 1997 was $8.0 million less than the second quarter of 1996. The reduction in expenses was primarily attributable to achieving cost savings from the Citizens merger, which was accounted for as a pooling-of-interests business combination. Total personnel costs, Crestar's largest expense category, were $96.5 million in the three month period ended June 30, 1997, basically flat in comparison to the same period of 1996. Decreases in FDIC insurance premium rates, effective in the fourth quarter of 1996, led to lower FDIC premium expense compared to second quarter 1996 results. FDIC insurance expense totaled $0.7 million in the second quarter of 1997, versus $3.4 million for the same period of 1996. Foreclosed properties expense for the quarter ended June 30, 1997 was $0.6 million, compared to an expense of $0.1 million in the quarter ended June 30, 1996. For the six month period ended June 30, 1997, foreclosed properties expense was of $1.4 million, compared to a net recovery of $1.2 million for the first six month of 1996. The effective tax rate for second quarter and first six months of 1997 was 33.7% and 35.2%, respectively, compared to 36.3% and 36.2% for the comparable periods of 1996. Crestar's effective tax rate was favorably impacted by the recognition of tax benefits relating to prior years, and lower state income tax expense. Financial statement note 10 contains additional information concerning income taxes. As noted above, second quarter 1997 noninterest expense includes $4.3 million of costs incurred in preparing the Corporation's data processing systems to be "Year 2000" compatible. Crestar is implementing changes to its information systems so that they will be fully operable for date recognition and data processing when the year 2000 begins. The total cost for this conversion and testing process is estimated to be between $22 and $27 million, with the majority of costs expected to be incurred during fiscal 1998. This estimate includes some costs, such as the purchase of computer hardware, that will qualify as depreciable assets for accounting purposes, with the related depreciation expense recognized over the estimated lives of the related assets. However, the majority of costs will be expensed as incurred. Financial Condition (Table 7) Crestar's assets totaled $22.8 billion at June 30, 1997, compared to $22.9 billion in assets at December 31, 1996, and $22.7 billion at June 30, 1996. Loans totaled $14.3 billion at June 30, 1997, compared to $14.0 billion at year-end 1996. Total deposits were $15.8 billion at June 30, 1997 compared to $15.7 billion at December 31, 1996. Total deposits were up slightly from year-end 1996. Increased competition for deposits resulted in declines in some deposit categories, including interest-bearing demand deposits and domestic time deposits. The consolidation of certain branches acquired in the December 31, 1996 merger with Citizens has also resulted in declines in some deposit categories. With respect to the securities held to maturity portfolio, carrying value exceeded the market value at June 30, 1997 by $0.2 million, consisting of approximately $4.4 million in unrealized gains and $4.6 million in unrealized losses. At June 30, 1997, the amortized cost of securities available for sale exceeded the fair value of such securities by $45.0 million, consisting of approximately $6.5 million in unrealized gains and $51.5 million in unrealized losses. Shareholders' equity at June 30, 1997 reflects a $28.9 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 a decrease of $21.3 million at December 31, 1996 arising from net unrealized losses on securities available for sale. At June 30, 1996, Crestar's shareholders' equity reflected a $50.9 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. Approximately 60% (market value) of Crestar's securities available for sale portfolio, and 65% (amortized cost) of the Corporation's securities held to maturity portfolio, was composed of mortgage-backed obligations of Federal agencies as of June 30, 1997. This category includes mortgage-backed securities of Federal agencies, as well as CMO securities guaranteed by Federal agencies such as the Federal Hove Loan Mortgage Corporation. Securities classified as "Other taxable securities" can include non-government CMO securities, corporate debt securities, and corporate obligations securitized by credit card and instalment loans. Other taxable securities classified as available for sale at June 30, 1997 included $540 million (market value) of non-government CMO securities. During the second quarter of 1997, Crestar sold approximately $470 million of securities classified as available for sale, generating securities losses of $91 thousand. Such sales were consummated in conjunction with the overall management of interest rate risk for the Corporation. Securities gains recorded in the second quarter of 1996 totaled $270 thousand. During the second quarter, Crestar announced a common stock dividend increase, effective with the dividend paid on May 21, 1997, to $.29 per share. This represents a 7% increase from the previous quarterly dividend rate of $.27 per share. The second quarter 1997 dividend per share reflects an increase of 12% over the common stock dividend of $.26 declared and paid during the second quarter of 1996. Liquidity And Interest Sensitivity (Tables 8 - 11) 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 57% of total funding sources at June 30, 1997, compared to 59% of total funding sources at December 31, 1996 and 61% at June 30, 1996. As an additional indication of adequate liquidity, securities available for sale represented 17%, and money market investments an additional 7%, of Crestar's total earning assets at June 30, 1997. Interest sensitivity refers to the volatility of earnings and capital 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 and Interest Rate Risk committees. The committees establish limits on the earnings at risk for a 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 to assess the interest rate exposure of capital is the quantification of a fair value of shareholders' equity. Fair value of equity consists of the present value of all future cash flows from assets, liabilities and off-balance sheet items. Potential changes in the fair value of equity are calculated by projecting cash flows and then computing present values under numerous interest rate scenarios. The fair value calculations include the valuation of instruments with option characteristics, using numerous interest rate path valuations and mathematical rate simulation techniques. Crestar has been developing this tool and is incorporating it as its primary component of interest rate risk management. However, the Corporation's measurement and interpretation process for fair value models continues to be in a developmental stage. Another tool used by Crestar in assessing interest rate exposure is net interest income simulations. The ALCO committee establishes limits on net income at risk for a relevant planning period of 9 to 24 months. A net 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 June 30, 1997, Crestar's projected net income under the consensus interest rate scenario for the next nine months would decrease by approximately 6% in a high interest rate scenario, and would increase by approximately 1% in a low interest rate scenario. These projections were 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 third 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 8, and reflects the earlier of the maturity or repricing dates for various assets and liabilities at June 30, 1997. At that point in time, Crestar had a cumulative net liability sensitive twelve-month gap with $5.2 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, interest rate gap. In addition to the traditional gap measurement presentation, Table 8 also presents interest sensitivity on an adjusted basis. These beta adjustments 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 rates paid on short-term commercial notes. In addition to a beta adjustment, the table also incorporates an adjustment to reflect the sensitivity of the Corporation's commercial demand deposit balances to the level of interest rates. This adjustment, based on historical trends and estimated as a percentage of commercial interest bearing demand deposits, reflects a greater sensitivity on the part of commercial demand deposits to fluctuating interest rates than experienced with consumer deposits. On a cumulative twelve-month basis, Crestar had a liability sensitive "adjusted gap" at June 30, 1997, with $0.7 billion excess of interest-sensitive sources of funds over uses of funds. In comparison, the level of total earning assets at June 30, 1997 was $20.5 billion. The static and adjusted gap do not include $1.25 billion (notional amount) of interest rate floors that would potentially offset the effect of falling interest rates on the fair value of fixed rate domestic time deposits and on prepayment risk within the Corporation's fixed rate real estate - mortgage loan portfolio. In addition, the static gap and adjusted gap do not include $2.41 billion (notional amount) of interest rate caps that would potentially offset the effect of rising interest rates on various earning assets and funding sources (see Table 9). 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, or unusual market relationships for financial instruments. Crestar incurs a degree of interest rate risk as a provider of banking services to its customers. This risk can be reduced through derivative interest rate contracts, such as interest rate swaps, caps and floors. Crestar's outstanding interest rate swap instruments at June 30, 1997 are utilized to convert certain variable rate assets to fixed rates in order to lock in a profitable interest spread based on the underlying fixed rate funding sources. The majority of Crestar's outstanding interest rate cap instruments are utilized to mitigate the declines in market value that can be experienced by fixed interest rate securities in a rising interest rate environment. The majority of outstanding interest rate floor instruments hedge the fair value of fixed rate domestic time deposits in a declining interest rate environment. Table 9 provides further details on Crestar's outstanding derivative instruments at June 30, 1997. 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. Crestar's direct credit exposure is generally limited to the estimated replacement cost of those instruments in a gain position. Crestar has established policies governing derivative activities, and the counterparties used by Crestar are considered an acceptable risk. 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 losses at June 30, 1997, nor has Crestar ever experienced any charge-offs related to the credit risk of derivative transactions. Interest rate simulation techniques are used by Crestar to assess and monitor market risk in the Corporation's derivative portfolio. During the second quarter of 1997, Crestar terminated prior to maturity certain interest rate cap agreements with a notional value of $200 million being used as hedges against interest rate risk. Gains upon termination, which were not material, are included in securities gains and losses in the consolidated statement of income. The Corporation had no unamortized deferred gain or loss at June 30, 1997 from terminated derivative instruments. The terminations reflect decisions by ALCO to refine balance sheet management strategies. Additional terminations of derivative instruments prior to maturity may occur in the future in response to modifications of interest rate risk management strategies. The notional amount of Crestar's interest rate swaps, caps and floors (excluding customer positions where Crestar acts as an intermediary) was $4.8 billion at June 30, 1997. Forward contracts with a notional amount of $1.0 billion, utilized to hedge lending commitments of Crestar's mortgage banking subsidiary, were also outstanding at June 30, 1997, bringing the total notional value of derivative financial instruments related to interest rate risk management activities to $5.8 billion at June 30, 1997. Tables 9, 10, and 11 present information regarding fair values, maturity, average rates, and activity as of and for the six month period ending June 30, 1997 for these off-balance sheet derivative instruments. Net unrealized losses on these instruments totaled $23.1 million as of June 30, 1997. Financial statement note 11 contains additional information pertaining to these types of agreements. New Accounting Standard In February 1997, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 128, "Earnings Per Share" (SFAS 128), which is required to be adopted on December 31, 1997. At that time, Crestar will be required to change the method currently being used to compute earnings per share and to restate all prior periods. Under the requirements of SFAS 128, the primary earnings per share calculation will be replaced with a "basic" earnings per share calculation, which will exclude any dilutive effect of outstanding common stock options. Also, the calculation for fully diluted earnings per share will be replaced with "diluted" earnings per share, which will include the effect of dilutive outstanding common stock options. The impact of calculating basic earnings per share is expected to result in a $0.02 per share increase in the primary earnings per share reported for both the year ended December 31, 1996 and for the six months ended June 30, 1997. The impact of SFAS 128 on the calculation of diluted earnings per share is expected to result in a $0.01 per share increase in the fully diluted earnings per share reported for the year ended December 31, 1996, and no change in the fully diluted earnings per share reported for the six months ended June 30, 1997. SEC Staff Finding Affecting Retirement of Common Stock The Securities and Exchange Commission (SEC) staff has informed Crestar that the Corporation's common stock repurchase plan for acquiring stock for subsequent issuance under Crestar's dividend reinvestment plan, thrift and profit sharing plan and applicable employee and director stock compensation plans is not a systematic plan. Crestar has ceased common stock repurchases under the February 1997 authorization approving the purchase of up to 2.0 million shares of common stock. A total of 223,750 common shares had previously been purchased under this authorization. Related to the SEC staff decision, Crestar has rescinded the remaining February 1997 authorization and further will not acquire or authorize the acquisition of any tainted common stock (as defined by Accounting Principles Board Opinion No. 16) until after December 31, 1998. The practical effect of this development is that the Corporation will not buy back any shares for the dividend reinvestment or employee benefit plans or to generally reduce the number of shares outstanding. However, purchases to supply shares for acquisitions accounted for using the purchase method of accounting generally will be permitted. Table 1 Financial Highlights
Dollars in millions, except per share data Three Months Six Months ----------------------------- ----------------------------- % % For the Period Ended June 30 1997 1996 Change 1997 1996 Change Net Income $ 75.8 $ 66.9 13 $ 147.6 $ 132.0 12 Primary Earnings Per Share: Net Income $ .68 $ .60 13 $ 1.32 $ 1.18 12 Average Shares Outstanding (000s) 111,602 111,923 - 111,573 112,160 (1) Fully Diluted Earnings Per Share: Net Income $ .68 $ .60 13 $ 1.32 $ 1.18 12 Average Shares Outstanding (000s) 111,697 111,923 - 111,695 112,160 - Dividends Paid Per Common Share $ .29 $ .26 12 $ .56 $ .485 15 ========================================================================================================== Key Ratios Return on Average Assets 1.42% 1.23% 1.37% 1.23% Return on Average Equity 16.48 15.20 16.27 14.93 Average Equity to Average Assets 8.64 8.10 8.45 8.22 Net Interest Margin 4.58 4.48 4.54 4.44 At June 30 Book Value Per Share $ 17.17 $ 16.04 7 Equity to Assets 8.33% 7.84% Risk Adjusted Capital Ratios: Tier I 10.7 9.2 Total 13.5 12.1 Common Shares Outstanding (000s) 110,638 110,803 ==========================================================================================================
Table 2 Analysis Of Primary Earnings Per Share
2nd Qtr. 1997 2nd Qtr. 1997 vs. vs. 2nd Qtr. 1996 1st Qtr. 1997 Primary Earnings Per Share - prior period $.60 $.64 - ------------------------------------------------------------------------------------- Interest income (.04) (.02) Interest expense .04 .01 Provision for loan losses (.07) (.04) Securities gains or losses - (.02) Other noninterest income .11 .07 Foreclosed properties expense (.01) - Other noninterest expense .02 .01 Change in effective income tax rate .03 .03 - ------------------------------------------------------------------------------------- Net increase .08 .04 - ------------------------------------------------------------------------------------- Primary Earnings Per Share - current period $.68 $.68 =====================================================================================
Table 3 Average Balances, Net Interest Income And Rate/Volume Analysis(1) Dollars in thousands
2nd Qtr. - ----------------------------------------- 1st Qtr. Average Balance Average - -------------------------- Increase Balance 1997 1996 (Decrease) 1997 - ---------- ---------- ---------- ---------- $ $ % $ 3,833,655 3,743,067 2 3,811,305 Commercial 1,270,639 1,260,932 1 1,244,956 Real estate - income property 334,572 371,492 (10) 311,353 Real estate - construction 4,099,809 3,689,582 11 4,105,535 Instalment 1,228,168 1,558,641 (21) 1,338,742 Bank card 3,333,024 3,129,135 7 3,051,743 Real estate - mortgage - ------------------------------------------------------------------------------------------------------------------- 14,099,867 13,752,849 3 13,863,634 Total loans - net of unearned income(2) - ------------------------------------------------------------------------------------------------------------------- 771,671 1,038,101 (26) 908,787 Securities held to maturity 3,778,013 3,846,012 (2) 4,071,188 Securities available for sale 160,914 302,943 (47) 357,462 Money market investments 551,352 863,544 (36) 580,563 Mortgage loans held for sale - ------------------------------------------------------------------------------------------------------------------- 19,361,817 19,803,449 (2) 19,781,634 Total earning assets =================================================================================================================== 5,805,429 5,838,850 (1) 5,796,084 Interest-bearing demand deposits 1,573,048 1,719,167 (8) 1,609,952 Regular savings deposits 4,336,813 5,083,150 (15) 4,501,822 Domestic time deposits - ------------------------------------------------------------------------------------------------------------------- 11,715,290 12,641,167 (7) 11,907,858 Total interest-bearing core deposits - ------------------------------------------------------------------------------------------------------------------- 3,419,958 3,318,619 3 3,627,747 Purchased liabilities 834,761 698,996 19 853,204 Long-term debt - ------------------------------------------------------------------------------------------------------------------- 15,970,009 16,658,782 (4) 16,388,809 Total interest-bearing liabilities 3,391,808 3,144,667 8 3,392,825 Other sources - net - ------------------------------------------------------------------------------------------------------------------- 19,361,817 19,803,449 (2) 19,781,634 Total sources of funds - ------------------------------------------------------------------------------------------------------------------- Net Interest Income ===================================================================================================================
2nd Qtr. - ------------------------------------------------------- 1997 vs. 1996 2nd Qtr. 1997 vs. 1st Qtr. 1997 ---------------------------------- 1st Qtr. --------------------------------- Income/Expense(3) Change due to(4) Income/ Change due to(4) - ------------------- Increase Expense(3) Increase ------------------- 1997 1996 (Decrease) Rate(5) Volume 1997 (Decrease) Rate(5) Volume - ------- ------- ---------- --------- ------- ---------- ---------- --------- ------ $ $ $ $ $ $ $ $ $ 77,406 75,709 1,697 (133) 1,830 75,383 2,023 1,582 441 27,847 27,380 467 257 210 27,283 564 16 548 7,586 8,730 (1,144) (276) (868) 7,072 514 4 510 84,012 78,032 5,980 (2,686) 8,666 81,449 2,563 2,677 (114) 43,145 47,658 (4,513) 5,901 (10,414) 46,939 (3,794) 248 (4,042) 64,068 61,399 2,669 (1,316) 3,985 59,321 4,747 (720) 5,467 - ------------------------------------------------------------------------------------------------------- 304,064 298,908 5,156 (2,412) 7,568 297,447 6,617 1,525 5,092 - ------------------------------------------------------------------------------------------------------- 11,642 15,615 (3,973) 35 (4,008) 13,708 (2,066) 2 (2,068) 59,875 60,691 (816) 257 (1,073) 63,849 (3,974) 624 (4,598) 2,266 3,996 (1,730) 143 (1,873) 4,687 (2,421) 156 (2,577) 10,618 16,151 (5,533) 314 (5,847) 11,640 (1,022) (422) (600) - ------------------------------------------------------------------------------------------------------- 388,465 395,361 (6,896) 1,944 (8,840) 391,331 (2,866) 5,474 (8,340) ======================================================================================================= 42,939 42,096 843 1,012 (169) 41,814 1,125 975 150 9,768 11,051 (1,283) (344) (939) 9,964 (196) 32 (228) 53,450 66,152 (12,702) (2,944) (9,758) 55,063 (1,613) 421 (2,034) - ------------------------------------------------------------------------------------------------------- 106,157 119,299 (13,142) (4,367) (8,775) 106,841 (684) 1,051 (1,735) - ------------------------------------------------------------------------------------------------------- 45,557 42,459 3,098 1,804 1,294 46,675 (1,118) 1,550 (2,668) 15,591 12,519 3,072 641 2,431 15,615 (24) 314 (338) - ------------------------------------------------------------------------------------------------------- 167,305 174,277 (6,972) 251 (7,223) 169,131 (1,826) 2,505 (4,331) - ------------------------------------------------------------------------------------------------------- 167,305 174,277 (6,972) (3,076) (3,896) 169,131 (1,826) 1,771 (3,597) - ------------------------------------------------------------------------------------------------------- 221,160 221,084 76 5,020 (4,944) 222,200 (1,040) 3,703 (4,743) =======================================================================================================
(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 (costs) of $(68,000) and $484,000 for the second quarter of 1997 and 1996, respectively, and $(48,000) for the first quarter of 1997. (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 Allowance For Loan Losses
Dollars in thousands Second Quarter Six Months Ended June 30, ---------------------- ------------------------- 1997 1996 1997 1996 Beginning balance $268,870 $273,957 $268,868 $274,430 - ---------------------------------------------------------------------------------------------------------- Allowance from acquisitions and other activities, net - (500) - (888) - ---------------------------------------------------------------------------------------------------------- Provision for loan losses 36,000 24,430 65,698 46,660 Net charge-offs (recoveries): Commercial (58) 626 468 272 Real estate - income property (433) (725) (895) (1,549) Real estate - construction (515) (232) (611) (310) Instalment 3,038 4,825 8,583 9,636 Bank card 22,865 20,221 46,235 38,201 Real estate - mortgage 783 276 1,596 1,056 - ---------------------------------------------------------------------------------------------------------- Total net charge-offs 25,680 24,991 55,376 47,306 - ---------------------------------------------------------------------------------------------------------- Balance, June 30 $279,190 $272,896 $279,190 $272,896 ========================================================================================================== Allowance for loan losses to period-end loans 1.96% 1.99% 1.96% 1.99% Annualized net charge-offs to average loans .73 .73 .79 .69 ==========================================================================================================
Table 5 Nonperforming Assets(1) And Past Due Loans
Dollars in thousands June 30, December 31, ------------------------- Nonaccrual loans: 1997 1996 1996 Commercial $11,990 $ 25,539 $ 20,348 Real estate - income property 7,303 26,727 22,624 Real estate - construction 10,243 13,351 10,368 Instalment 3,115 2,738 2,895 Real estate - mortgage 25,162 19,801 25,208 - ----------------------------------------------------------------------------------------- Total nonperforming loans(1) 57,813 88,156 81,443 Foreclosed properties - net 34,243 34,747 27,515 - ----------------------------------------------------------------------------------------- Total nonperforming assets(1) $92,056 $122,903 $108,958 ========================================================================================= Nonperforming assets(1) to: Loans and foreclosed properties - net .64% .89% .77% Total assets .40 .54 .48 Allowance for loan losses to: Nonperforming assets(1) 303 222 247 Nonperforming loans(1) 483 310 330 Allowance for loan losses plus shareholders' equity to nonperforming assets(1) 23.67x 16.68x 18.80x ========================================================================================= Accruing loans past due 90 days: Commercial $ 2,014 $ 3,467 $ 9,480 Real estate - income property 1,800 245 503 Real estate - construction 500 158 - Instalment Student 25,168 18,544 21,614 Other 4,953 5,280 7,587 Bank card 19,484 21,822 25,573 Real estate - mortgage 4,794 8,480 7,117 - ----------------------------------------------------------------------------------------- Total accruing loans past due 90 days: $58,713 $ 57,996 $ 71,874 =========================================================================================
(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 6 Noninterest Income And Expense
In thousands Six Months Ended Second Quarter First June 30, -------------------- Quarter -------------------- Noninterest Income 1997 1996 1997 1997 1996 Service charges on deposit accounts $ 31,731 $ 28,428 $ 30,163 $ 61,894 $ 55,063 Trust and investment advisory 17,887 15,848 17,453 35,340 31,740 Bank card-related 9,771 13,228 12,648 22,419 25,053 Other service charges and fees 8,730 7,300 8,443 17,173 14,465 Mortgage servicing - net 3,582 4,103 5,131 8,713 8,620 Mortgage origination - net 2,359 5,170 902 3,261 8,217 Trading account activities 1,162 1,425 947 2,109 1,771 Commissions on letters of credit 1,299 1,068 1,114 2,413 2,538 Gain on sale of mortgage servicing rights 4,000 750 6,450 10,450 4,750 Gain on sale and disposal of branches and other properties - net - - 5,807 5,807 354 Gain on sale of merchant card processing 17,325 - - 17,325 - Miscellaneous 13,261 14,000 10,345 23,606 23,927 Securities gains (losses) (91) 270 4,064 3,973 2,643 - ---------------------------------------------------------------------------------------------------------- Total noninterest income $111,016 $ 91,590 $103,467 $214,483 $179,141 ========================================================================================================== Noninterest Expense Salaries $ 75,914 $ 77,264 $ 78,388 $154,302 $152,612 Benefits 20,633 19,723 20,954 41,587 40,150 - ---------------------------------------------------------------------------------------------------------- Total personnel 96,547 96,987 99,342 195,889 192,762 Occupancy - net 13,685 15,276 16,158 29,843 31,400 Equipment 11,462 9,528 9,819 21,281 19,010 Communications 9,278 9,620 8,845 18,123 18,806 Stationery, printing and supplies 2,615 3,271 2,713 5,328 6,203 Professional fees and services 8,333 5,719 7,035 15,368 10,543 Loan expense 2,783 3,765 2,815 5,598 6,268 FDIC premiums - net 682 3,358 1,107 1,789 6,739 Advertising and marketing 5,345 6,814 4,530 9,875 13,407 Transportation 1,774 1,750 1,725 3,499 3,487 Outside data services 6,837 6,182 6,222 13,059 12,086 Amortization of purchased intangibles 4,206 4,104 4,227 8,433 8,275 Miscellaneous 14,818 14,247 14,752 29,570 28,067 - ---------------------------------------------------------------------------------------------------------- Subtotal 178,365 180,621 179,290 357,655 357,053 Foreclosed properties (net recoveries) 645 108 715 1,360 (1,206) - ---------------------------------------------------------------------------------------------------------- Total noninterest expense $179,010 $180,729 $180,005 $359,015 $355,847 ==========================================================================================================
Table 7 Debt And Other Security Ratings (as of July 31, 1997) Standard Thomson Security Moody's & Poor's BankWatch 83/4% Subordinated Notes due 2004 Baa1 BBB+ A- 81/4% Subordinated Notes due 2002 Baa1 BBB+ A- 85/8% Subordinated Notes due 1998 Baa1 BBB+ A- Commercial Paper P-2 Not rated TBW-1 Crestar Bank Deposits: Long-Term A2 A Not rated Short-Term P-1 A-1 TBW-1 Crestar Capital Trust 1 Preferred Stock Baa1 BBB Not rated ========================================================================= Table 8 Interest Sensitivity Analysis
June 30, 1997 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 $ 2,754.1 $ 54.9 $ 87.9 $ 101.9 $1,030.1 $ 4,028.9 Real estate - income property 516.7 13.7 25.2 42.9 690.9 1,289.4 Real estate - construction 280.9 0.7 2.7 5.4 38.8 328.5 Instalment 1,816.4 82.0 107.3 163.7 1,923.9 4,093.3 Bank card 393.6 70.8 109.7 554.3 81.8 1,210.2 Real estate - mortgage 78.7 322.2 428.2 911.7 1,567.6 3,308.4 Securities held to maturity 37.5 64.7 80.5 116.5 416.3 715.5 Securities available for sale 243.4 41.3 61.1 129.0 3,043.6 3,518.4 Money market investments 1,357.3 - 7.4 - - 1,364.7 Mortgage loans held for sale 643.1 - - - - 643.1 - ---------------------------------------------------------------------------------------------------------- Total earning assets 8,121.7 650.3 910.0 2,025.4 8,793.0 20,500.4 Interest sensitivity hedges on assets (1,150.0) - - 1,000.0 150.0 - - ---------------------------------------------------------------------------------------------------------- Total uses $ 6,971.7 $ 650.3 $ 910.0 $ 3,025.4 $8,943.0 $20,500.4 ========================================================================================================== Sources of Funds Interest-bearing demand deposits $ 5,748.6 $ - $ - $ - $ - $ 5,748.6 Regular savings deposits 1,552.9 - - - - 1,552.9 Domestic time deposits 309.3 525.7 874.4 1,378.6 1,229.4 4,317.4 Certificates of deposit $100,000 and over 344.8 406.0 68.9 20.9 3.7 844.3 Short-term borrowings 3,474.6 46.4 320.0 - - 3,841.0 Long-term debt 2.7 11.6 11.3 33.6 759.9 819.1 - ---------------------------------------------------------------------------------------------------------- Total interest-bearing liabilities 11,432.9 989.7 1,274.6 1,433.1 1,993.0 17,123.3 Other sources - net - - - - 3,377.1 3,377.1 Interest sensitivity hedges on liabilities - (5.0) - - 5.0 - - ---------------------------------------------------------------------------------------------------------- Total sources $11,432.9 $ 984.7 $ 1,274.6 $ 1,433.1 $5,375.1 $20,500.4 ========================================================================================================== Cumulative maturity/rate sensitivity gap $(4,461.2) $(4,795.6) $(5,160.2) $(3,567.9) $ - $ - ========================================================================================================== Adjustments Beta adjustments: Interest-bearing demand deposits (beta factor .30) $ 4,031.6 Regular savings (beta factor .11) 1,383.6 Demand deposit sensitivity (965.5) - ---------------------------------------------------------------------------------------------------------- Cumulative adjusted maturity/rate sensitivty gap $ (11.5) $ (345.9) $ (710.5) $ 881.8 $ - $ - ==========================================================================================================
Table 9 Off-Balance Sheet Derivative Financial Instruments(1)
June 30, 1997 Average Weighted Fixed Estimated Dollars in thousands Notional Average Receive Fair Balance Maturity Rate Value Comments Interest Rate Conversions Generic interest rate swaps $1,150,000 3.1 yrs. 6.09% Notional amounts of $900 Carrying amount(2) $ 674 million and $250 million Commercial loan program convert floating rate commercial Unrealized gains 3,278 and instalment loans, respectively, Unrealized losses (7,361) to fixed rate. Floating rates paid Instalment loan program tied to LIBOR. Unrealized losses (2,357) Estimated fair value ------ (5,766) ------ Interest rate caps 465,000 3.5 yrs. 6.91%(3) Notional amount of $465 million Carrying amount(2) 7,197 hedges the interest rate risk Money market deposit program associated with rising interest Net unrealized loss (784) rates on floating rate money ------ market deposits (strike rate tied Estimated fair value 6,413 to LIBOR). ------ Market Value Hedges Interest rate caps 1,950,000 2.7 yrs. 7.56%(3) Notional amount of $1.75 billion Carrying amount(2) 16,068 hedges the market value of fixed Securities available for sale program(5) rate securities available for sale Unrealized losses (8,016) in a rising rate environment (strike Real estate income property loan program rate for $800 million tied to 5 year Unrealized losses (798) CMT; strike rate for $950 million tied to LIBOR). Notional amount of $200 million hedges the market value of fixed rate real ------ estate income property loans Estimated fair value 7,254 (strike rate tied to LIBOR). ------ Interest rate floors 1,250,000 3.6 yrs. 5.68%(4) Notional amount of $250 million Carrying amount(2) 7,516 hedges the prepayment risk Real estate mortgage loan program associated with fixed rate Unrealized losses (415) mortgage loans in a declining rate Domestic time deposit program environment (strike rate tied to Unrealized losses (1,735) 10 year CMT). Notional amount of $1.0 billion hedges the fair value ------ of fixed rate domestic time deposits Estimated fair value 5,366 (strike rate tied to 5 year CMT). ------ Hedges of Lending Commitments Forward contracts 978,196 .2 yrs. n/a Hedges of residential mortgage Unrealized gains 1,119 lending commitments. Unrealized losses (6,010) ------ Estimated fair value (4,891) Total hedges against ---------- ------ interest rate risk $5,793,196 $ 8,376 =======================================================================================================================
(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 5 year CMT - Yield on 5 year constant maturity U.S. Treasury securities 10 year CMT - Yield on 10 year constant maturity U.S. Treasury securities Table 10 Off-Balance Sheet Derivatives--Expected Maturities(1)
June 30, 1997 Dollars in thousands Within One to Three to Over One Year Three Years Five Years Five Years Total Interest Rate Conversions Generic interest rate swaps: Notional amount $ - $ 550,000 $ 450,000 $150,000 $1,150,000 Average fixed receive rate - 5.91% 5.96% 7.16% 6.09% Carrying amount $ - $ (80) $ 450 $ 304 $ 674 Unrealized gains (losses) - (2,867) (6,851) 3,278 (6,440) Interest rate caps Notional amount $ 10,000 $ 255,000 $ 200,000 $ - $ 465,000 Average strike rate 5.75% 7.47% 6.25 - 6.91% Carrying amount $ 4 $ 1,501 $ 5,692 $ - $ 7,197 Net unrealized gain (loss) 18 (695) (107) - (784) Market Value Hedges Interest rate caps Notional amount $ - $1,950,000 $ - $ - $1,950,000 Average strike rate - 7.56% - - 7.56% Carrying amount $ - $ 16,068 $ - $ - $ 16,068 Unrealized losses - (8,814) - - (8,814) Interest rate floors Notional amount $ - $ 300,000 $ 850,000 $100,000 $1,250,000 Average strike rate - 5.63% 5.69% 5.75% 5.68% Carrying amount $ - $ 821 $ 5,471 $ 1,224 $ 7,516 Unrealized losses - (433) (1,540) (177) (2,150) Hedges of Lending Commitments Forward contracts:(2) Notional amount $978,196 $ - $ - $ - $ 978,196 Net unrealized loss (4,891) - - - (4,891) Total hedges against interest rate risk: Notional amount $988,196 $3,055,000 $1,500,000 $250,000 $5,793,196 Carrying amount 4 18,310 11,613 1,528 31,455 Net unrealized gain (loss) (4,873) (12,809) (8,498) 3,101 (23,079) Estimated fair value $ (4,869) $ 5,501 $ 3,115 $ 4,629 $ 8,376 ==========================================================================================================
(1) Includes only off-balance sheet derivative financial instruments related to interest rate risk management activities. (2) Hedges of residential mortgage lending commitments. Table 11 Off-Balance Sheet Derivatives Activity-Notional Balances(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, April 1, 1997 $1,000,000 $485,000 $1,750,000 $1,250,000 $ 774,380 $5,259,380 Additions 150,000 - 400,000 - 702,187 1,252,187 Terminations - - (200,000) - - (200,000) Maturities - (20,000) - - (498,371) (518,371) - ---------------------------------------------------------------------------------------------------------- Balance, June 30, 1997 $1,150,000 $465,000 $1,950,000 $1,250,000 $ 978,196 $5,793,196 ========================================================================================================== Balance, January 1, 1997 $ 900,000 $ 35,000 $1,750,000 $1,000,000 $ 706,731 $4,391,731 Additions 250,000 450,000 400,000 250,000 2,073,564 3,423,564 Terminations - - (200,000) - - (200,000) Maturities - (20,000) - - (1,802,099) (1,822,099) - ---------------------------------------------------------------------------------------------------------- Balance, June 30, 1997 $1,150,000 $465,000 $1,950,000 $1,250,000 $ 978,196 $5,793,196 ==========================================================================================================
(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 12 Selected Quarterly Financial Information
Dollars in thousands, except per share data 2nd Qtr. 1st Qtr. 4th Qtr.3 3rd Qtr.2 2nd Qtr. Results of operations: 1997 1997 1996 1996 1996 Net interest income(1) $221,160 $222,200 $222,977 $218,046 $221,084 Provision for loan losses 36,000 29,698 24,130 25,100 24,430 - ---------------------------------------------------------------------------------------------------------- Net credit income 185,160 192,502 198,847 192,946 196,654 Securities gains (losses) (91) 4,064 655 96 270 Other noninterest income 111,107 99,403 73,077 80,225 91,318 - ---------------------------------------------------------------------------------------------------------- Net credit and noninterest income 296,176 295,969 272,579 273,267 288,242 Noninterest expense 179,010 180,005 212,465 212,046 180,728 - ---------------------------------------------------------------------------------------------------------- Income before taxes 117,166 115,964 60,114 61,221 107,514 - ---------------------------------------------------------------------------------------------------------- Tax-equivalent adjustment 2,851 2,540 2,510 2,476 2,460 Book tax expense 38,525 41,644 19,438 10,627 38,178 - ---------------------------------------------------------------------------------------------------------- Income tax expense 41,376 44,184 21,948 13,103 40,638 - ---------------------------------------------------------------------------------------------------------- Net Income $ 75,790 $ 71,780 $ 38,166 $ 48,118 $ 66,876 ========================================================================================================== Primary Earnings per share $ .68 $ .64 $ .34 $ .43 $ .60 Average shares outstanding (000s) 111,602 111,579 111,447 111,101 111,923 Fully diluted Earnings per share $ .68 $ .64 $ .33 $ .43 $ .60 Average shares outstanding (000s) 111,697 111,580 111,647 111,141 111,923 Dividends paid per share .29 .27 .26 .26 .26 ========================================================================================================== Selected ratios and other data: Return on average assets 1.42% 1.33% .70% .89% 1.23% Return on average equity 16.48 16.06 8.42 10.94 15.20 Net interest margin(1) 4.58 4.51 4.47 4.44 4.48 Net charge-offs as % of average loans .73 .86 .84 .74 .69 Allowance as % of period-end loans 1.96 1.89 1.91 2.01 1.99 Overhead ratio 53.89 55.27 71.61 71.07 57.80 Average equity to assets 8.64 8.26 8.29 8.18 8.10 Equity leverage 11.57x 12.11x 12.06x 12.23x 12.35x Full-time equivalent employees (period-end) 7,960 7,992 8,720 8,600 8,616 ==========================================================================================================
(1) Tax-equivalent basis. (2) During the third quarter of 1996 Crestar recorded a one-time after-tax charge of $21.5 million, or $.19 per share, associated with congressional legislation regarding the recapitalization of the Savings Association Insurance Fund. Also in the third quarter of 1996, a nonrecurring tax benefit of $10.6 million, or $.09 per share, was recorded in connection with the repeal of thrift bad debt tax legislation. (3) During the fourth quarter of 1996, nonrecurring after-tax merger costs totaling $32.5 million, or $.29 per share, were recorded as part of the pooling-of-interests merger with Citizens Bancorp. Table 13 Consolidated Average Balances/Net Interest Income/Rates(1)
Three Months Ended June 30, -------------------------------------------------------------- 1997 1996 ----------------------------- --------------------------- Dollars in thousands Income/ Yield/ Income/ Yield/ Balance Expense Rate Balance Expense Rate --------- ------- ------ --------- ------- ------ Assets $ $ % $ $ % Securities held to maturity(2) 771,671 11,642 6.04 1,038,101 15,615 6.02 Securities available for sale(2) 3,778,013 59,875 6.32 3,846,012 60,691 6.31 Money market investments(2) 160,914 2,266 5.65 302,943 3,996 5.30 Mortgage loans held for sale(2) 551,352 10,618 7.89 863,544 16,151 7.49 - ---------------------------------------------------------------------------------------------------------- Commercial 3,833,655 77,406 8.06 3,743,067 75,709 8.13 Real estate - income property 1,270,639 27,847 8.77 1,260,932 27,380 8.72 Real estate - construction 334,572 7,586 9.09 371,492 8,730 9.45 Instalment 4,099,809 84,012 8.21 3,689,582 78,032 8.46 Bank card 1,228,168 43,145 14.39 1,558,641 47,658 12.51 Real estate - mortgage 3,333,024 64,068 7.68 3,129,135 61,399 7.83 - ---------------------------------------------------------------------------------------------------------- Total loans(2),(3) 14,099,867 304,064 8.65 13,752,849 298,908 8.74 Allowance for loan losses (269,823) (274,628) - ---------------------------------------------------------------------------------------------------------- Loans - net 13,830,044 13,478,221 Cash and due from banks 876,737 967,814 Premises and equipment - net 452,803 412,745 Customers' liability on acceptances 3,854 16,976 Intangible assets - net 174,283 183,358 Foreclosed properties - net 29,107 37,961 Other assets 665,413 575,682 - ---------------------------------------------------------------------------------------------------------- Total Assets 21,294,191 21,723,357 ========== ========== Total Earning Assets 19,361,817 388,465 8.05 19,803,449 395,361 8.02 ========== ======= ==== ========== ======= ==== Liabilities And Shareholders' Equity Interest-bearing demand deposits 5,805,429 42,939 2.97 5,838,850 42,096 2.90 Regular savings deposits 1,573,048 9,768 2.49 1,719,167 11,051 2.59 Domestic time deposits 4,336,813 53,450 4.98 5,083,150 66,152 5.27 Certificates of deposit $100,000 and over 836,682 11,608 5.57 165,480 2,149 5.23 - ---------------------------------------------------------------------------------------------------------- Total interest-bearing deposits(2) 12,551,972 117,765 3.77 12,806,647 121,448 3.84 Demand deposits 3,124,043 3,027,985 - ---------------------------------------------------------------------------------------------------------- Total deposits 15,676,015 15,834,632 Short-term borrowings(2) 2,583,276 33,949 5.26 3,153,139 40,310 5.13 Long-term debt(2) 834,761 15,591 7.47 698,996 12,519 7.16 Liability on acceptances 3,854 16,976 Other liabilities 356,186 260,163 - ---------------------------------------------------------------------------------------------------------- Total liabilities 19,454,092 19,963,906 - ---------------------------------------------------------------------------------------------------------- Total shareholders' equity 1,840,099 1,759,451 - ---------------------------------------------------------------------------------------------------------- Total Liabilities And Shareholders' Equity 21,294,191 21,723,357 ========== ========== Total interest-bearing liabilities 15,970,009 167,305 4.21 16,658,782 174,277 4.21 Other sources - net 3,391,808 3,144,667 - ---------------------------------------------------------------------------------------------------------- Total Sources Of Funds 19,361,817 167,305 3.47 19,803,449 174,277 3.54 ========== ======= ==== ========== ======= ==== Net Interest Spread 3.84 3.81 Net Interest Income/Margin 221,160 4.58 221,084 4.48 ==========================================================================================================
Table 13 Consolidated Average Balances/Net Interest Income/Rates(1) (continued)
Three Months Ended March 31, Six Months Ended June 30, ------------------------------ ---------------------------------------------------------------- 1997 1997 1996 ------------------------------ ------------------------------ ------------------------------ Income/ Yield/ Income/ Yield/ Income/ Yield/ Balance Expense Rate Balance Expense Rate Balance Expense Rate --------- -------- ------ --------- ------- ------ --------- -------- ------ $ $ % $ $ % $ $ % 908,787 13,708 6.05 839,850 25,350 6.05 1,061,645 31,980 6.03 4,071,188 63,849 6.29 3,923,791 123,724 6.31 3,687,902 117,195 6.36 357,462 4,687 5.32 258,645 6,953 5.42 255,276 6,848 5.40 580,563 11,640 8.16 565,877 22,258 7.98 820,590 30,446 7.43 - ---------------------------------------------------------------------------------------------------------- 3,811,305 75,383 8.01 3,822,540 152,786 8.04 3,687,130 149,651 8.16 1,244,956 27,283 8.71 1,257,868 55,130 8.84 1,259,023 55,146 8.81 311,353 7,072 8.98 323,027 14,658 8.83 380,867 18,254 9.60 4,105,535 81,449 7.99 4,102,657 165,464 8.09 3,681,054 154,967 8.43 1,338,742 46,939 14.47 1,283,150 90,084 14.31 1,598,217 96,235 12.16 3,051,743 59,321 7.77 3,193,160 123,389 7.73 3,161,403 122,966 7.77 - ---------------------------------------------------------------------------------------------------------- 13,863,634 297,447 8.66 13,982,402 601,511 8.65 13,767,694 597,219 8.71 (269,094) (269,460) (275,025) - ---------------------------------------------------------------------------------------------------------- 13,594,540 13,712,942 13,492,669 863,561 870,186 971,334 443,699 448,276 411,963 4,250 4,051 15,620 178,388 176,324 184,254 28,503 28,807 38,480 617,730 641,703 557,711 - ---------------------------------------------------------------------------------------------------------- 21,648,671 21,470,452 21,497,444 ========== ========== ========== 19,781,634 391,331 7.98 19,570,565 779,796 8.01 19,593,107 783,688 8.02 ========== ======= ==== ========== ======= ==== ========== ======= ==== 5,796,084 41,814 2.93 5,800,783 84,752 2.95 5,844,020 85,821 2.95 1,609,952 9,964 2.51 1,591,398 19,732 2.50 1,721,281 22,452 2.62 4,501,822 55,063 4.99 4,418,860 108,513 3.45 5,152,852 136,563 3.63 515,895 6,878 5.41 677,175 18,487 5.51 137,422 3,599 5.27 - ---------------------------------------------------------------------------------------------------------- 12,423,753 113,719 3.72 12,488,216 231,484 3.75 12,855,575 248,435 3.89 3,123,006 3,123,526 2,998,853 - ---------------------------------------------------------------------------------------------------------- 15,546,759 15,611,742 15,854,428 3,111,852 39,797 5.18 2,846,104 73,746 5.22 2,886,575 74,765 5.20 853,204 15,615 7.32 843,932 31,206 7.40 707,591 25,250 7.14 4,250 4,051 15,620 344,434 350,344 265,452 - ---------------------------------------------------------------------------------------------------------- 19,860,499 19,656,173 19,729,666 - ---------------------------------------------------------------------------------------------------------- 1,788,172 1,814,279 1,767,778 - ---------------------------------------------------------------------------------------------------------- 21,648,671 21,470,452 21,497,444 ========== ========== ========== 16,388,809 169,131 4.19 16,178,252 336,436 4.19 16,449,741 348,450 4.26 3,392,825 3,392,313 3,143,366 - ---------------------------------------------------------------------------------------------------------- 19,781,634 169,131 3.47 19,570,565 336,436 3.47 19,593,107 348,450 3.58 ========== ======= ==== ========== ======= ==== ========== ======= ==== 3.79 3.82 3.76 222,200 4.51 443,360 4.54 435,238 4.44 ==========================================================================================================
(1) Income and yields are computed on a tax-equivalent basis using the statutory federal income tax rate exclusive of the alternative minimum tax and nondeductible interest expense. (2) Indicates earning asset or interest-bearing liability. (3) Nonaccrual loans are included in the average loan balances and income on such loans is recognized on a cash basis. Item 4. Submission Of Matters To A Vote Of Security Holders The Annual Meeting of Shareholders of Crestar Financial Corporation was held on April 25, 1997 for the purpose of electing five Class I directors for a term of three years and one Class II director for a term of one year, approving the amended and restated 1993 Stock Incentive Plan, and ratifying the Board of Directors' appointment of independent auditors for the year. Proxies for the meeting were solicited pursuant to Section 14(a) of the Securities Exchange Act of 1934 and there were no solicitations in opposition to the recommendations of the Board of Directors on the matters voted on. Five Class I directors were elected for three-year terms and one Class II director was elected for a one-year term, each having a minimum of 89,332,412 shares voted "for" election, with no more than 2,683,342 shares voted "withheld." The five Class I directors and one Class II director elected were: Class I - three-year term: Class II - one-year term: J. Carter Fox Alfred H. Smith, Jr. Jeffrey R. Springer Patrick J. Maher Robert C. Wilburn Gordon F. Rainey, Jr. The following Class II directors' terms expire in 1998: Bonnie Guiton Hill Jeffrey R. Springer Frank E. McCarthy Eugene P. Trani G. Gilmer Minor III James M. Wells III The following Class III directors' terms expire in 1999: Charles R. Longsworth Richard G. Tilghman Paul D. Miller L. Dudley Walker Frank S. Royal Karen Hastie Williams The amended and restated 1993 Stock Incentive Plan was approved as follows: Shares Voted Shares Voted Shares Voted "For" "Against" "Abstain" 85,263,173 5,435,176 1,317,405 The appointment of KPMG Peat Marwick LLP as the Corporation's independent auditors for 1997 was ratified as follows: Shares Voted Shares Voted Shares Voted "For" "Against" "Abstain" 91,258,329 249,989 507,436 "Broker non-votes" were not included in determining the number of votes cast in the election of directors or on other matters. All matters voted on were considered "routine" under New York Stock Exchange rules. Signatures Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Crestar Financial Corporation ----------------------------- Registrant Date August 19, 1997 /s/ James D. Barr --------------- ----------------------------- James D. Barr Executive Vice President, Controller and Treasurer EX-27 2 EXHIBIT 27
9 6-MOS 6-MOS DEC-31-1997 DEC-31-1996 JUN-30-1997 JUN-30-1996 974,362 949,496 12,463,142 12,719,380 1,258,806 804,279 11,706 1,555 3,518,420 4,028,278 715,516 1,063,843 715,316 1,055,578 14,258,715 13,705,283 279,190 272,896 22,809,803 22,662,979 15,846,459 15,853,950 3,841,043 3,988,801 403,161 346,385 819,071 696,697 0 0 0 0 553,191 277,008 1,346,878 1,500,138 22,809,803 22,662,979 597,537 593,876 147,698 147,751 29,170 37,279 774,405 778,726 231,484 248,435 336,436 348,450 437,969 430,276 65,698 46,660 3,973 2,643 359,015 355,847 227,739 206,910 147,570 131,987 0 0 0 0 147,570 131,987 1 1 1 1 5 4 57,813 88,156 58,713 57,996 0 0 123,000 191,000 268,868 274,430 70,416 62,418 15,040 15,112 279,190 272,896 0 0 0 0 0 0
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