-----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, Na6ZTNvDaqG4PkbpcP5XXqqLt5LHML5xwqbimvlZims2oOVp4G1yP9qhOTCbvP5h uYAF3bE/IxWoxfeQWV/xAA== 0000916641-98-001218.txt : 19981116 0000916641-98-001218.hdr.sgml : 19981116 ACCESSION NUMBER: 0000916641-98-001218 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980930 FILED AS OF DATE: 19981113 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: SEC FILE NUMBER: 001-07083 FILM NUMBER: 98747116 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 10Q United States Securities And Exchange Commission Washington, DC 20549 Form 10-Q (Mark One) (X) Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the Quarter Ended September 30, 1998 ( ) Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Commission File Number 1-7083 . Crestar Financial Corporation (Exact name of registrant as specified in its charter) Virginia 54-0722175 (State or other jurisdiction (I.R.S. Employer of incorporation or organization) Identification No.) 919 E. Main Street, P.O. Box 26665, Richmond, Virginia 23261-6665 (Address of principal executive offices) (Zip Code) (804)782-5000 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes X No Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Class Outstanding at October 31, 1998 Common Stock, $5 par value 112,734,205 Crestar Financial Corporation And Subsidiaries Form 10-Q For The Quarter Ended September 30, 1998 Part I. Financial Information Item 1. Financial Statements: Page Consolidated Balance Sheets.....................................3 Consolidated Statements Of Income...............................4 Consolidated Statements Of Changes In Shareholders' Equity....5-6 Consolidated Statements Of Cash Flows...........................7 Notes To Consolidated Financial Statements...................8-13 Item 2. Management's Discussion And Analysis Of Financial Condition And Results Of Operations: Financial Commentary........................................14-34 Part II. Other Information Item 6. Exhibits And Reports On Form 8-K: There were two reports on Form 8-K filed during the three months ended September 30, 1998. On July 14, 1998, Crestar Financial Corporation (Crestar) filed a Form 8-K relating to the sale of a portion of Crestar's bank card loan portfolio. Under terms of the sales agreement, Crestar recognized a pre-tax gain, net of transaction costs, of $54 million. On July 22, 1998, Crestar filed a Form 8-K reporting that Crestar had agreed to merge with SunTrust Banks, Inc., a major Southeastern bank holding company based in Atlanta, Georgia. The filing included the Agreement and Plan of Merger between Crestar and SunTrust Banks, Inc., dated July 20, 1998. Consolidated Balance Sheets Crestar Financial Corporation And Subsidiaries
Dollars in thousands, except share data September 30, --------------------- December 31, Assets 1998 1997 1997 Cash and due from banks $ 887,047 $ 885,956 $ 1,175,314 Securities held to maturity (note 2) 499,253 662,517 626,716 Securities available for sale (note 3) 4,008,852 3,333,777 3,839,006 Money market investments (note 4) 631,471 1,167,335 1,431,790 Loans held for sale 1,717,821 851,660 964,697 Loans (note 5): Business Loans: Commercial 5,246,862 4,083,035 4,666,505 Real estate - income property 1,106,735 1,254,381 1,254,079 Real estate - construction 409,293 341,239 381,413 Consumer Loans: Instalment 5,547,607 4,763,817 4,846,857 Bank card 506,953 1,148,260 1,153,937 Real estate - mortgage 3,851,224 3,087,841 3,374,199 ------------ ------------ ------------ Total Loans 16,668,674 14,678,573 15,676,990 Less: Allowance for loan losses (note 6) (245,992) (278,331) (281,394) ------------ ------------ ------------ Loans - net 16,422,682 14,400,242 15,395,596 ------------ ------------ ------------ Premises and equipment - net 474,747 469,676 486,111 Intangible assets - net 193,886 168,020 197,420 Foreclosed properties - net (notes 5 and 7) 16,628 26,757 25,731 Other assets 920,024 1,222,497 786,135 ------------ ------------ ------------ Total Assets $ 25,772,411 $ 23,188,437 $ 24,928,516 ============ ============ ============ Liabilities Demand deposits $ 3,520,486 $ 3,319,797 $ 3,540,340 Interest-bearing demand deposits 7,028,252 5,800,597 6,257,114 Regular savings deposits 1,334,844 1,464,576 1,448,589 Domestic time deposits 3,907,418 4,092,631 4,191,151 Certificates of deposit $100,000 and over 1,252,075 1,432,079 932,058 ------------ ------------ ------------ Total deposits 17,043,075 16,109,680 16,369,252 Short-term borrowings (note 8) 4,592,535 3,755,235 4,789,045 Other liabilities 698,733 584,570 879,073 Long-term debt (note 9) 1,127,262 799,375 831,383 ------------ ------------ ------------ Total Liabilities 23,461,605 21,248,860 22,868,753 ------------ ------------ ------------ Shareholders' Equity Preferred stock. Authorized 2,000,000 shares; none issued -- -- -- Common stock, $5 par value. Authorized 200,000,000 shares; outstanding 112,643,319 and 110,188,084 at September 30, 1998 and 1997, respectively; 111,420,187 at December 31, 1997 563,217 550,940 557,101 Capital surplus 404,001 271,868 340,623 Retained earnings 1,307,713 1,128,608 1,162,767 Accumulated other comprehensive income (note 3) 35,875 (11,839) (728) ------------ ------------ ------------ Total Shareholders' Equity 2,310,806 1,939,577 2,059,763 Commitments and contingencies (note 11) ------------ ------------ ------------ Total Liabilities And Shareholders' Equity $ 25,772,411 $ 23,188,437 $ 24,928,516 ============ ============ ============
See accompanying notes to consolidated financial statements. Consolidated Statements Of Income Crestar Financial Corporation And Subsidiaries
In thousands, except per share data Three Months Ended Sept. 30, Nine Months Ended Sept. 30, ---------------------------- --------------------------- Income From Earning Assets 1998 1997 1998 1997 Interest and fees on loans $ 321,328 $ 308,385 $ 982,720 $ 905,922 Interest on securities held to maturity 7,855 9,841 25,210 33,815 Interest and dividends on securities available for sale 66,822 52,958 198,024 176,682 Income on money market investments 2,768 6,955 14,980 13,867 Interest on mortgage loans held for sale 31,018 13,598 80,131 35,856 ---------- ---------- ---------- ---------- Total income from earning assets 429,791 391,737 1,301,065 1,166,142 ---------- ---------- ---------- ---------- Interest Expense Interest-bearing demand deposits 58,563 44,592 164,041 129,345 Regular savings deposits 7,986 9,337 24,280 29,069 Domestic time deposits 49,738 52,424 149,721 160,937 Certificates of deposit $100,000 and over 18,817 14,722 55,853 33,208 ---------- ---------- ---------- ---------- Total interest on deposits 135,104 121,075 393,895 352,559 Short-term borrowings 57,933 38,231 176,299 111,977 Long-term debt 17,755 15,293 51,478 46,499 ---------- ---------- ---------- ---------- Total interest expense 210,792 174,599 621,672 511,035 ---------- ---------- ---------- ---------- Net Interest Income 218,999 217,138 679,393 655,107 Provision for loan losses (note 6) 9,080 19,099 53,987 84,797 ---------- ---------- ---------- ---------- Net Credit Income 209,919 198,039 625,406 570,310 ---------- ---------- ---------- ---------- Noninterest Income Service charges on deposit accounts 35,257 30,893 103,184 92,787 Trust and investment advisory income 20,468 19,308 61,537 54,648 Bank card-related income 6,895 9,236 25,065 31,655 Other income 95,390 36,548 188,242 127,405 Gains from sale of securities 948 124 6,103 4,097 ---------- ---------- ---------- ---------- Total noninterest income 158,958 96,109 384,131 310,592 ---------- ---------- ---------- ---------- Net Credit And Noninterest Income 368,877 294,148 1,009,537 880,902 ---------- ---------- ---------- ---------- Noninterest Expense Personnel expense 122,380 95,134 325,358 291,023 Occupancy expense - net 15,612 14,957 42,659 44,800 Equipment expense 12,312 9,970 34,076 31,251 Other expense 79,971 53,170 200,848 165,172 ---------- ---------- ---------- ---------- Total noninterest expense 230,275 173,231 602,941 532,246 ---------- ---------- ---------- ---------- Income Before Income Taxes 138,602 120,917 406,596 348,656 Income tax expense (note 10) 49,725 41,374 145,418 121,543 ---------- ---------- ---------- ---------- Net Income $ 88,877 $ 79,543 $ 261,178 $ 227,113 ========== ========== ========== ========== Earnings Per Share Basic $ .79 $ .71 $ 2.33 $ 2.05 Diluted .78 .71 2.30 2.03 ========== ========== ========== ==========
See accompanying notes to consolidated financial statements. Consolidated Statements Of Changes In Shareholders' Equity Crestar Financial Corporation And Subsidiaries For the three months ended September 30, 1998 and 1997
In thousands Capital Accumulated Shares of Surplus and Other Common Common Retained Comprehensive Stock Stock Earnings Income Total Balance, July 1, 1998 112,220 $ 561,099 $ 1,638,071 $ 6,430 $ 2,205,600 Comprehensive Income: Net Income -- -- 88,877 -- 88,877 Net unrealized gain on securities available for sale, net of reclassification adjustment (note 3) -- -- -- 29,445 29,445 ----------- ----------- ----------- ----------- ----------- Comprehensive Income -- -- 88,877 29,445 118,322 Cash dividends declared on common stock -- -- (37,055) -- (37,055) Common stock issued: For dividend reinvestment plan 171 855 8,696 -- 9,551 For thrift and profit sharing plan 58 290 3,460 -- 3,750 For other stock compensation plans 111 555 7,508 -- 8,063 Upon exercise of stock options (including tax benefit of $421) 83 418 2,157 -- 2,575 ----------- ----------- ----------- ----------- ----------- Balance, September 30, 1998 112,643 $ 563,217 $ 1,711,714 $ 35,875 $ 2,310,806 =========== =========== =========== =========== =========== Balance, July 1, 1997 110,638 $ 553,191 $ 1,375,817 $ (28,939) $ 1,900,069 Comprehensive Income: Net Income -- -- 79,543 -- 79,543 Net unrealized gain on securities available for sale, net of -- reclassification adjustment (note 3) -- -- -- 17,100 17,100 ----------- ----------- ----------- ----------- ----------- Comprehensive Income -- -- 79,543 17,100 96,643 Cash dividends declared on common stock -- -- (32,033) -- (32,033) Common stock purchased and retired (780) (3,900) (32,906) -- (36,806) Common stock issued: For dividend reinvestment plan 181 905 6,830 -- 7,735 For thrift and profit sharing plan 34 170 1,338 -- 1,508 For other stock compensation plans -- -- 4 -- 4 Upon exercise of stock options (including tax benefit of $630) 115 574 1,883 -- 2,457 ----------- ----------- ----------- ----------- ----------- Balance, September 30, 1997 110,188 $ 550,940 $ 1,400,476 $ (11,839) $ 1,939,577 =========== =========== =========== =========== ===========
See accompanying notes to consolidated financial statements. Consolidated Statements Of Changes In Shareholders' Equity Crestar Financial Corporation And Subsidiaries For the nine months ended September 30, 1998 and 1997
In thousands Capital Accumulated Shares of Surplus and Other Common Common Retained Comprehensive Stock Stock Earnings Income Total Balance, January 1, 1998 111,420 $ 557,101 $ 1,503,390 $ (728) $ 2,059,763 Comprehensive Income: Net Income -- -- 261,178 -- 261,178 Net unrealized gain on securities available for sale, net of reclassification adjustment (note 3) -- -- -- 36,603 36,603 ----------- ----------- ----------- ----------- ----------- Comprehensive Income -- -- 261,178 36,603 297,781 Cash dividends declared on common stock -- -- (106,344) -- (106,344) Common stock purchased and retired (195) (975) (9,888) -- (10,863) Common stock issued: For acquisition of financial institution 124 621 8,322 -- 8,943 For dividend reinvestment plan 469 2,345 23,463 -- 25,808 For thrift and profit sharing plan 295 1,475 15,232 -- 16,707 For other stock compensation plans 114 569 7,595 -- 8,164 Upon exercise of stock options (including tax benefit of $3,231 416 2,081 8,766 -- 10,847 ----------- ----------- ----------- ----------- ----------- Balance, September 30, 1998 112,643 $ 563,217 $ 1,711,714 $ 35,875 $ 2,310,806 =========== =========== =========== =========== =========== Balance, January 1, 1997 109,870 $ 549,350 $ 1,251,444 $ (21,284) $ 1,779,510 Comprehensive Income: Net Income -- -- 227,113 -- 227,113 Net unrealized loss on securities available for sale, net of reclassification adjustment (note 3) -- -- -- 9,445 9,445 ----------- ----------- ----------- ----------- ----------- Comprehensive Income -- -- 227,113 9,445 236,558 Cash dividends declared on common stock -- -- (64,342) -- (64,342) Common stock purchased and retired (1,604) (8,020) (58,525) -- (66,545) Cash paid in lieu of fractional shares (5) (25) (139) -- (164) Common stock issued: For dividend reinvestment plan 564 2,820 18,462 -- 21,282 For thrift and profit sharing plan 218 1,090 7,080 -- 8,170 For other stock compensation plans 73 365 1,906 -- 2,271 Upon exercise of stock options (including tax benefit of $7,977) 1,072 5,360 17,477 -- 22,837 ----------- ----------- ----------- ----------- ----------- Balance, September 30, 1997 110,188 $ 550,940 $ 1,400,476 $ (11,839) $ 1,939,577 =========== =========== =========== =========== ===========
See accompanying notes to consolidated financial statements. Consolidated Statements Of Cash Flows Crestar Financial Corporation And Subsidiaries
In thousands Nine Months Ended Sept. 30, --------------------------- 1998 1997 Operating Net Income $ 261,178 $ 227,113 Activities Adjustments to reconcile net income to net cash provided (used) by operating activities: Provisions for loan losses, foreclosed properties and other losses 52,887 84,797 Depreciation and amortization of premises and equipment 39,563 35,776 Amortization of intangible assets 14,994 12,713 Deferred income tax expense (benefit) 34,345 (3,271) Net gain on sales of securities, loans and other assets (64,505) (31,042) Gain on sale of merchant card processing - (17,325) Origination and purchase of loans held for sale (7,763,240) (2,359,449) Proceeds from sales of loans held for sale 7,578,116 2,166,627 Net decrease in accrued interest receivable, prepaid expenses and other assets (132,591) (118,582) Net increase in accrued interest payable, accrued expenses and other liabilities 242,924 76,782 Other, net 94,559 17,681 --------- --------- Net cash provided (used) by operating activities 358,230 91,820 ---------- --------- Investing Proceeds from maturities and calls of securities held to maturity 151,760 319,211 Activities Proceeds from maturities and calls of securities available for sale 637,614 341,432 Proceeds from sales of securities available for sale 3,397,940 2,894,281 Purchases of securities held to maturity (24,885) (12,587) Purchases of securities available for sale (4,587,771) (2,276,921) Net decrease (increase) in money market investments 806,831 (424,317) Principal collected on non-bank subsidiary loans 109,298 21,355 Loans originated by non-bank subsidiaries (196,410) (29,928) Proceeds from sales of loans 148,857 151,845 Net increase in other loans (1,148,569) 95,534 Purchases of premises and equipment (41,458) (73,128) Proceeds from sales of foreclosed properties and mortgage servicing rights 61,354 66,231 Purchases of loans and loan portfolios (560,021) (1,269,119) Purchases of net assets of financial institutions 1,437 - Proceeds from sales of branch deposits and premises - 9,003 Other, net (108,951) (25,008) ---------- --------- Net cash used by investing activities (1,352,974) (212,116) ---------- --------- Financing Net increase (decrease) in demand, interest-bearing demand Activities and regular savings deposits 637,539 (302,249) Net increase in certificates of deposit 36,284 740,719 Net increase (decrease) in short-term borrowings (196,510) (360,816) Proceeds from issuance of long-term debt 402,695 - Principal payments on long-term debt (106,727) (60,283) Cash dividends paid (106,344) (94,007) Common stock purchased and retired (10,863) (66,545) Proceeds from the issuance of common stock 50,552 44,312 Other, net (149) 85 ---------- --------- Net cash provided (used) by financing activities 706,477 (98,784) ---------- --------- Cash And Decrease in cash and cash equivalents (288,267) (219,080) Cash Cash and cash equivalents at beginning of year 1,175,314 1,105,036 Equivalents ---------- --------- Cash and cash equivalents at end of quarter $ 887,047 $ 885,956 ========== =========
Cash and cash equivalents consist of cash and due from banks; 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. Certain reclassifications have been made to the prior years' consolidated financial statements to conform to the 1998 presentation. The notes included herein should be read in conjunction with the notes to the consolidated financial statements included in the Corporation's 1997 Annual Report and Form 10-K and first quarter 1998 and second quarter 1998 Form 10-Qs. On July 20, 1998 Crestar and Suntrust Banks, Inc. (SunTrust) announced the signing of a definitive agreement to merge. The terms of the merger call for a tax-free exchange of 0.96 shares of SunTrust common stock for each outstanding share of Crestar common stock. The pooling-of-interests combination is expected to be completed during the fourth quarter of 1998, and is subject to the approval of regulatory authorities, in addition to shareholders of both companies. Upon completion of the merger, Crestar will become a wholly-owned subsidiary of SunTrust, and will operate under its current name and management as one of SunTrust's four locally-focused bank holding companies. SunTrust expects to incur pre-tax merger charges of approximately $250 million in the fourth quarter of 1998. Intangible assets consisted of goodwill and deposit based intangibles, having a combined balance of $193.6 million and $167.6 million at September 30, 1998 and 1997, respectively, and favorable lease rights of $330,000 and $385,000, respectively. Capitalized mortgage servicing rights of $133.8 million and $50.8 million at September 30, 1998 and 1997, respectively, were included in other assets in the consolidated financial statements. Mortgage servicing rights of approximately $124 million and $25 million were capitalized during the first nine months of 1998 and 1997, respectively. The fair value of capitalized mortgage servicing rights was approximately $151 million at September 30, 1998. Amortization of capitalized mortgage servicing rights was approximately $19 million and $9 million in the first nine months of 1998 and 1997, respectively. During the first nine months of 1998 and 1997, Crestar capitalized interest of $1.6 million and $2.1 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 September 30 follow:
In thousands 1998 1997 ------------------ ------------------- Amortized Market Amortized Market Cost Value Cost Value U.S. Treasury and Federal agencies $132,324 $134,344 $197,402 $197,143 Mortgage-backed obligations of Federal agencies 318,548 324,068 413,007 415,957 Other taxable securities 2,735 2,739 2,986 2,982 States and political subdivisions 45,646 46,689 49,122 50,257 -------- -------- -------- -------- Total securities held to maturity $499,253 $507,840 $662,517 $666,339 ======== ======== ======== ========
(3) Securities Available For Sale The amortized cost and estimated market values (carrying values) of securities available for sale at September 30 follow:
In thousands 1998 1997 ----------------------- ---------------------- Amortized Market Amortized Market Cost Value Cost Value U.S. Treasury and Federal agencies $ 187,830 $ 190,682 $ 238,580 $ 226,467 Mortgage-backed obligations of Federal agencies 2,628,228 2,663,823 2,226,465 2,216,823 Other taxable securities 911,862 927,775 675,727 677,684 Common and preferred stocks 225,911 226,572 211,680 212,803 ----------- --------- --------- ---------- Total securities available for sale $3,953,831 $4,008,852 $3,352,452 $3,333,777 =========== ========= ========= ==========
The period-end net unrealized gain or loss on securities available for sale, net of tax, is reflected in the Consolidated Balance Sheet and the Consolidated Statement of Changes in Shareholders' Equity as "Accumulated other comprehensive income." For the three months and nine months ended September 30, 1998 and 1997, the net unrealized gain or loss on securities available for sale reflected in the Statement of Changes in Shareholders' Equity is net of reclassification adjustments for gains from sale of securities, net of tax, as included in net income. Gains from the sale of securities during the three months and nine months ended September 30, 1998 totaled $0.9 million and $6.1 million, respectively. Net of income tax expense of approximately $0.3 million, and $2.1 million for the three months and nine months ended September 30, 1998, the gains resulted in reclassification adjustments of $0.6 million and $4.0 million, respectively. Gains from sale of securities during the three months and nine months ended September 30, 1997 totaled $124 thousand and $4.1 million, respectively. Net of income tax expense of approximately $43 thousand and $1.4 million for the three months and nine months ended, September 30, 1997, the gains resulted in reclassification adjustments of $81 thousand and $2.7 million, respectively. At September 30, 1998, 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 $8.3 million and a market value of $44 thousand at September 30, 1998. The cost basis of the interest rate caps is being amortized as a reduction of interest income on securities available for sale. Amortization of the cost basis of the interest rate caps totaled $1.4 million and $4.0 million for the three month and nine month periods ended September 30, 1998, respectively. (4) Money Market Investments Money market investments at September 30 included: In thousands 1998 1997 Federal funds sold $251,487 $ 489,023 Securities purchased under agreements to resell 300,000 650,000 Time deposits 50,042 - U.S. Treasury securities 8,625 8,361 Trading account securities 7,226 4,909 Other 14,091 15,042 --------- --------- Total money market investments $631,471 $1,167,335 ========= ========== (5) Nonperforming Assets And Impaired Loans Nonperforming assets at September 30 are shown below. Loans that are past due 90 days or more and continue to accrue interest, due to an assessment of collectibility, are excluded from the definition of nonperforming assets. Such loans totaled $51.1 million and $63.0 million at September 30, 1998 and 1997, respectively. In thousands 1998 1997 Nonaccrual loans $56,954 $61,407 Foreclosed properties - net 16,628 26,757 ------- ------- Total nonperforming assets $73,582 $88,164 ======= ======= Transfers from nonperforming loans to foreclosed properties (non-cash additions) were $4.2 million and $7.6 million in the first nine months of 1998 and 1997, respectively. Included in Crestar's non-performing loans above are certain impaired loans. Impaired loans and their allocated valuation allowances at September 30, 1998 and 1997 were $12.0 million with an allowance of $1.9 million and $17.5 million with an allowance of $2.7 million, respectively. All impaired loans had an allocated valuation allowance at September 30, 1998 and 1997. Collateral dependent loans, which were measured at the fair value of the collateral, constituted 100% of impaired loans at September 30, 1998. The average recorded investment in impaired loans for the nine months ended September 30, 1998 and 1997 was $14.0 million and $20.1 million, respectively. There was no material interest income recognized on impaired loans in the three months and nine months ended September 30, 1998 and 1997. (6) Allowance For Loan Losses Transactions in the allowance for loan losses for the three months and nine months ended September 30 were:
In thousands Three Months Nine Months ----------------- ----------------- 1998 1997 1998 1997 Beginning balance $246,017 $279,190 $281,394 $268,868 -------- -------- -------- -------- Charge-offs (14,694) (27,911) (73,460) (98,327) Recoveries 5,616 7,953 17,541 22,993 -------- -------- -------- -------- Net charge-offs (9,078) (19,958) (55,919) (75,334) Provision for loan losses 9,080 19,099 53,987 84,797 Allowance related to bankcard loans held for sale - - (35,000) - Allowance from acquisitions and other activity - net (27) - 1,530 - -------- -------- -------- -------- Net increase (decrease) (25) (859) (35,402) 9,463 Ending balance $245,992 $278,331 $245,992 $278,331 ======== ======== ======== ========
(7) Allowance For Foreclosed Properties Transactions in the allowance for losses on foreclosed properties for the three months and nine months ended September 30 were:
In thousands Three Months Nine Months ----------------- ---------------- 1998 1997 1998 1997 Beginning balance $2,403 $17,985 $13,191 $18,449 Provision for foreclosed properties - - (1,100) - Write-downs and other adjustments, net 331 (1,525) (9,357) (1,989) -------- -------- -------- ------- Ending balance $2,734 $16,460 $ 2,734 $16,460 ======== ======== ======== =======
(8) Short-Term Borrowings Short-term borrowings, exclusive of deposits, with maturities of less than one year at September 30 were: In thousands 1998 1997 Federal funds and term Federal funds purchased $2,748,466 $1,905,679 Securities sold under repurchase agreements 922,104 739,899 Federal Home Loan Bank borrowings 200,000 385,000 U.S. Treasury demand notes 408,182 478,196 Notes payable 311,623 244,343 Other 2,160 2,118 ---------- ---------- Total short-term borrowings $4,592,535 $3,755,235 ========== ========== The Corporation paid $565.6 million and $438.9 million in interest on deposits and short-term borrowings in the first nine months of 1998 and 1997, respectively. (9) Long-Term Debt Long-term debt at September 30 included:
In thousands 1998 1997 4 - 8% Federal Home Loan Bank obligations payable through 2017 $ 480,634 $252,691 6 1/2% Subordinated notes due 2018 152,558 - 8 3/4% Subordinated notes due 2004 149,761 149,722 8 1/4% Subordinated notes due 2002 125,000 125,000 8 5/8% Subordinated notes due 1998 - 49,994 7 7/8 - 111/4% Collateralized mortgage obligation bonds maturing through 2019 10,136 13,085 8 1/4% Mortgage indebtedness maturing through 2009 7,567 7,974 8 1/8-14 3/8 Capital lease obligations maturing through 2006 1,606 909 Crestar Capital Trust I preferred stock 200,000 200,000 ---------- --------- Total long-term debt $1,127,262 $799,375 ========== =========
The Corporation paid $45.2 million and $40.4 million in interest on long-term debt in the first nine months of 1998 and 1997, respectively. (10) Income Taxes The current and deferred components of income tax expense allocated to continuing operations for the three months and nine months ended September 30 in the accompanying consolidated statements of income were: In thousands Three Months Nine Months ----------------- ------------------ 1998 1997 1998 1997 Current: Federal $36,309 $36,573 $108,668 $118,072 State and local 1,561 1,345 2,405 6,742 ------- ------- -------- -------- Total current tax expense 37,870 37,918 111,073 124,814 ======== ======= ======== ======== Deferred: Federal 12,141 3,150 32,551 (3,269) State and local (286) 306 1,794 (2) -------- ------- -------- -------- Total deferred tax expense (benefit) 11,855 3,456 34,345 (3,271) Total income tax expense $49,725 $41,374 $145,418 $121,543 ======== ======= ======== ======== The differences between the amounts computed by applying the statutory federal income tax rate to income before income taxes and the actual income tax expense allocated to operations for the three months and nine months ended September 30 were:
In thousands Three Months Nine Months ----------------------- --------------------- 1998 1997 1998 1997 ----------- ---------- ---------- --------- Amount % Amount % Amount % Amount % Income before income taxes $138,602 $120,917 $406,596 $348,656 Tax expense at statutory rate 48,511 35.0 42,321 35.0 142,309 35.0 122,030 35.0 - ---------------------------------------------------------------------------------------------------- Increase (decrease) in taxes resulting from: Tax-exempt interest and dividends (2,364)(1.7) (2,012)(1.7) (6,710)(1.7) (5,912)(1.7) Nondeductible interest expense 869 .6 466 .4 2,271 .6 1,342 .4 Amortization of goodwill 1,275 .9 1,034 .8 3,771 .9 3,114 .9 State income taxes 828 .6 1,073 .9 2,729 .7 4,381 1.3 Other - net 606 .5 (1,508)(1.2) 1,048 .3 (3,412)(1.0) - ---------------------------------------------------------------------------------------------------- Total increase (decrease) in taxes 1,214 .9 (947) (.8) 3,109 .8 (487) (.1) Total income tax expense $ 49,725 35.9 $ 41,374 34.2 $145,418 35.8 $121,543 34.9 ====================================================================================================
The Corporation made income tax payments of $83.3 million and $115.0 million during the first nine months of 1998 and 1997, respectively. At September 30, 1998, the Corporation had a net deferred income tax asset of $67.8 million. 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 Legally binding, unfunded commitments to extend credit were $11.1 billion and $9.9 billion at September 30, 1998 and 1997, respectively. Standby letters of credit, which are conditional commitments that guarantee the performance of customers to a third party, were $432 million at September 30, 1998. Recourse obligations on mortgage loans serviced of $1.9 billion at September 30, 1998 included $1.2 billion which was insured by agencies of the Federal government or private insurance companies. Recourse obligations also included $85 million of contractual recourse liability accepted by Crestar on mortgage loan sales to Federal agencies and $135 million on certain mortgage loan sales to private investors. For interest rate risk management purposes at September 30, 1998, Crestar was using interest rate (fixed receive) swaps with notional balances of $1.675 billion to convert floating rate commercial and instalment loans to fixed rates. Crestar was using purchased interest rate caps with notional balances of $1.95 billion to hedge the market value of fixed rate securities available for sale and real estate income property loans, and $1.855 billion to minimize interest rate risk associated with rising rates on floating rate money market deposits. Crestar was using purchased interest rate floors with notional balances of $100 million and $150 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 gain on these swaps, caps and floors were $23.4 million and $47.6 million, respectively, at September 30, 1998. As a financial intermediary for customers, Crestar had $270.4 million in offsetting swaps, $3.7 million in offsetting caps and $8.0 million in offsetting collar agreements at September 30, 1998. The notional amount of these over-the-counter traded interest rate swaps, caps and collars does not fully represent Crestar's credit and market exposure, which the Corporation believes is a combination of current replacement cost of approximately $71.4 million, less collateral held of approximately $50.1 million, plus an amount for prospective market movement. Two counterparties constituted 15% and 11% of the estimated credit and market exposure of $126.6 million at September 30, 1998. Crestar also had forward agreements outstanding at September 30, 1998, 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 was $24.1 million at September 30, 1998. Certain litigation is pending or threatened against Crestar. Management, in consultation with legal counsel, is of the opinion that there is no 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 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, compliance with year 2000 data processing standards, the Corporation's proposed merger with SunTrust Banks, Inc., and the impact of future legal and regulatory actions, including the establishment of federal deposit insurance rates. These statements are made pursuant to the safe harbor provisions of the Private Litigation Reform Act of 1995, and are provided to assist the reader in understanding anticipated future financial operations. Although the Corporation believes that the assumptions underlying the forward-looking statements contained herein are reasonable, any of the assumptions could ultimately prove to be inaccurate. The Corporation's actual results may differ materially from those projected in forward-looking statements. Overview (Tables 1, 2 and 11) Crestar Financial Corporation (Crestar) reported record net income of $88.9 million or $.78 per diluted common share for the quarter ended September 30, 1998, compared to net income of $79.5 million or $.71 per common share earned in the third quarter of 1997. For the first nine months, earnings were $261.2 million in 1998, compared to $227.1 million earned in the first nine months of 1997. Earnings per diluted share for the first nine months of 1998 were $2.30, compared to $2.03 for the same period of 1997. Through the first nine months of 1998, return on assets of was 1.41% and return on equity was 16.20%. Exclusive of the unusual items arising in the third quarter, Crestar's results reflect the continued positive effects of growth in noninterest income and average earning assets. Items affecting the change in earnings per share are given in Table 2. Each item is net of applicable federal income taxes. 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 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. Merger With SunTrust On July 20, 1998 Crestar and Suntrust Banks, Inc. (SunTrust) announced the signing of a definitive agreement to merge. The terms of the merger call for a tax-free exchange of 0.96 shares of SunTrust common stock for each outstanding share of Crestar common stock. The pooling-of-interests combination is expected to be completed during December 1998, and is subject to the approval of regulatory authorities, in addition to shareholders of both companies. Upon completion of the merger, Crestar will become a wholly-owned subsidiary of SunTrust, and will operate under its current name and management as one of SunTrust's four locally-focused bank holding companies. The merger will create the tenth largest bank holding company in the United States, based on total assets of approximately $87 billion, and will provide a full line of consumer and commercial banking services to customers in Florida, Georgia, Tennessee, Alabama, Virginia, Maryland and the District of Columbia. SunTrust expects to incur pre-tax merger charges of $250 million in the fourth quarter of 1998. Sale Of Selected Bank Card Loans In July 1998, Crestar completed the sale of $576 million of outstanding bank card loans to Fleet Financial Group. The accounts and balances represent performing bank card loans to borrowers located outside of Crestar's primary market. The sale of the bank card loans is consistent with Crestar's strategy of focusing on providing financial services to customers in the Virginia, Maryland and Washington, D.C. market. Under terms of the transaction, Crestar recognized a pre-tax gain of $54 million, recorded as noninterest income in the accompanying consolidated statements of income. Also in the third quarter of this year, Crestar's noninterest expense was significantly higher, in comparison to prior quarters, due to implementation of certain business initiatives. These charges are discussed below under "Noninterest Income and Expense". Profitability Measures And Capital Resources (Table 1) Return on average assets was 1.42% in the third quarter and 1.41% for the first nine months of 1998, compared to 1.47% and 1.41%, respectively, for 1997. Return on average equity was 15.77% for the third quarter of 1998, compared to 16.60% for the third quarter of 1997. For the first nine months of 1998, return on average equity was 16.20%, compared to 16.38% for the first nine months of the previous year. Average equity to assets of 9.00% for the third quarter of 1998 compared to 8.87% in the third quarter of 1997. Average equity to assets for the first nine months of 1998 was 8.68%, compared to 8.59% for the same period of 1997. Period-end equity to assets was 8.97% at September 30, 1998, compared to a September 30, 1997 ratio of 8.36%. Risk-based capital ratios are additional measures of capital adequacy. At September 30, 1998, Crestar's consolidated risk-adjusted capital ratios were 10.4% for Tier 1 and 13.4% for total capital, well above the required minimums of 4.0% and 8.0%, respectively. The Tier 1 leverage ratio of 9.1% at September 30, 1998 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 8.28% at September 30, 1998. Under Federal Deposit Insurance Corporation (FDIC) rules, Crestar's sole subsidiary bank (Crestar Bank) was considered "well-capitalized" as of September 30, 1998, 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 (SEC) pertaining to the possible future issuance of securities. Under currently effective registration statements, Crestar may issue in the future approximately $175 million in subordinated debt securities, preferred stock or common stock, or any combination thereof. Net Interest Margin And Net Interest Income (Tables 3 and 12) Net interest income, on a tax-equivalent basis, was $222.4 million for the quarter ended September 30, 1998, compared to $220.0 million in the same period of 1997. The increase reflects strong growth in average earning assets from levels of the prior year. Crestar's net interest margin for the third quarter of 1998 was 3.90%, a decrease of 57 basis points from the margin recorded in the third quarter of 1997. The decrease was primarily due to unfavorable changes in both the composition of earning assets and funding sources, and in the interest yields impacting the Corporation's earning assets. These factors served to offset the impact of favorable changes in the rates paid on funding sources, in comparison to market movements in short-term funding sources, on the Corporation's net interest margin. Crestar's yield on average loans decreased 53 basis points from the third quarter of 1997, to 8.06% for the third quarter of 1998. Reflecting a lower long-term interest rate environment, almost all categories of loans experienced a decline in average rates earned, in comparison to third quarter 1997 results. Average rates on bank card loans decreased from 14.51% in the third quarter of 1997 to 13.68% in the third quarter of 1998. Lower interest rates and a competitive marketing environment for most consumer loans in the third quarter of 1998, compared to the third quarter of 1997, also resulted in lower yields on instalment and real estate-mortgage loan balances. Average yields on most business loans also demonstrated declines in the third quarter of 1998, with yields on commercial and real estate-income property loans decreasing 15 basis points and 14 basis points, respectively, from third quarter 1997 results. Yields on real estate-construction loans displayed an increase of 11 basis points during the same time period, and yielded 8.83% for the third quarter of 1998. Loans held for sale yielded an average of 7.06% for the third quarter of 1998, which was down 47 basis points from average yields for the same period of 1997. Yields on money market investments were 5.43% for the third quarter of 1998 versus 5.65% for the third quarter of 1997, in part reflecting lower average federal funds rates on overnight deposits. Average rates on securities available for sale were 6.18% in third quarter 1998, versus 6.30% in the same period of 1997. Average yields increased on the smaller securities held to maturity portfolio, which earned an average rate of 6.28% in the third quarter of 1998, reflecting the maturity of lower-yielding securities. In total, interest rate spreads for earning assets had a negative impact of approximately 34 basis points on Crestar's third quarter 1998 net interest margin, when compared to the third quarter of 1997. Reflecting a competitive environment for consumer deposits, and growth in new consumer deposit products with rates tied to national money market yields, the average rate paid on total interest-bearing liabilities increased by 16 basis points from the third quarter of 1997 to the third quarter of 1998. Rates paid on interest-bearing deposits averaged 3.95% during the third quarter of 1998, an increase of 11 basis points from the third quarter of 1997. This increase was primarily driven by an increase of 27 basis points on average rates paid on interest-bearing demand deposits, which increased from 3.04% in the third quarter of 1997 to 3.31% in the third quarter of 1998. Interest rates paid on regular savings deposits and certificates of deposit of $100,000 and over decreased from the third quarter of 1997 by 14 and 3 basis points, respectively. For the third quarter of 1998, however, average rates paid on domestic time deposits, which compose a larger segment of Crestar's total deposits, increased by 9 basis points when compared to the third quarter of 1997. Rates paid on average short-term borrowings rose from 5.32% in the third quarter of 1997 to 5.44% in the third quarter of 1998. Rates paid on long-term debt, in part reflecting the impact of a new issuance of $150 million in subordinated notes during January 1998, decreased from 7.59% in the third quarter of 1997 to 7.00% for the third quarter of 1998. The average rate paid on Crestar's total sources of funds in the third quarter of 1998 was 3.66%, reflecting an increase of 13 basis points from the same period of 1997. Average rates paid on funding sources, however, increased at a lower level than short-term market interest rates, contributing to a favorable impact of 9 basis points for the Corporation's third quarter 1998 net interest margin, in comparison to the same quarter of 1997. Excluding the impact of derivative instruments utilized as hedges, the change in the Corporation's interest rate spreads (encompassing both the spread on earning assets and on all funding sources) had a negative impact of 25 basis points on Crestar's third quarter 1998 net interest margin, compared to the third quarter of 1997. Changes in the earning asset mix decreased the third quarter 1998 net interest margin by approximately 21 basis points when compared to the third quarter of 1997. Average total loans were $16.0 billion during the third quarter of 1998, compared to $14.4 billion during the third quarter of 1997. However, loans as a percentage of total earning assets decreased from an average of 73% during the third quarter of 1997 to 70% for the same period of 1998. Average bank card loans, the highest yielding loan category, experienced a decline of $662 million, or 57%, during the third quarter of 1998 when compared to the same period of 1997. Crestar's transfer of $603 million in bank card loans to the loans held for sale classification, as of June 30, 1998, had a negative impact on average bank card loans balances for the third quarter of 1998. Also, marketing efforts directed to new accounts have been curtailed from previous levels. 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 growth during the third quarter of 1998. Average instalment loan balances increased by $1.1 billion or 25% during this period, with average real estate-mortgage loans increasing $79 million, or 2%, from the third quarter of 1997. The average balance of commercial loans increased by $1.2 billion, from $3.9 billion for the third quarter of 1997 to $5.1 billion for the third quarter of 1998, in part reflecting a strong business environment within the Corporation's market area. Average money market investments decreased, from $490 million in the third quarter of 1997 to $203 million for the same quarter of 1998. Significant increases in average balances of loans held for sale reflect record levels of origination volume by Crestar's mortgage banking subsidiary. Average balances in the third quarter of 1998 were $1.8 billion, representing 8% of average total earning assets during this period. Average balances for loans held for sale during the third quarter of 1997 were $725 million, or 4% of average total earning assets. Changes in the composition of Crestar's funding sources resulted in a negative impact to the third quarter 1998 net interest margin of 11 basis points, in comparison to third quarter 1997 results. Total sources of funding needed to support earning assets levels increased by $3.2 billion, or 16%, from the third quarter of 1997 to the third quarter of 1998, in part reflecting Crestar's growth in average loan balances during this period. Average total deposits for the third quarter of 1998 grew by $1.4 billion, a 9% increase over third quarter 1997 average balances. Interest-bearing demand deposits averaged $7.0 billion during the third quarter of 1998, an increase of $1.2 billion or 21% over the third quarter of 1997. Average balances of domestic time deposits, which include consumer certificates of deposits, declined $285 million or 7% from the levels of the third quarter of 1997. Balances of regular savings deposits were also lower in comparison to third quarter 1997 balances, while average balances for certificates of deposits of $100,000 and over were higher by $294 million. The Corporation experienced growth in average balances of non-interest bearing demand deposits and in shareholders equity occurred during the third quarter of 1998. Growth in total non-interest bearing sources of funds was comparable to growth in total earning assets, as net non-interest bearing sources of funds represented 18% of total funding sources in the third quarter of 1998. Such sources also represented 18% of total funding sources during the third quarter of 1997. Average balances of short-term borrowings increased by $1.4 billion during the third quarter of 1998, in comparison to the third quarter of 1997, and totaled $4.2 billion for the most recent quarter. Average balances of long-term debt totaled $1.0 billion for the third quarter of 1998. Short-term borrowings and long-term debt represented 18% and 4%, respectively, of total funding sources for the third quarter of 1998. Off-balance sheet hedge transactions made a negative impact on net interest income of approximately $0.7 million during the third quarter of 1998, which was composed of $0.1 million increase in interest income and an approximately $0.8 million increase in interest expense, based on the underlying asset or liability being hedged. In the third quarter of 1997 the comparable impact of hedging activity was a decrease to Crestar's net interest income of $0.8 million, which consisted of a $0.6 million decrease in interest income and a $0.2 increase in interest expense. In comparison to the third quarter of 1997, off-balance sheet hedge transactions did not have a material impact on third quarter 1998's net interest margin. The extent to which Crestar will be able to maintain its current 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. Competition among financial institutions, in addition to acquisition strategies, may lead to further pressures on the Corporation's net interest margin in future periods. For the first nine months of 1998, tax equivalent net interest income increased 4% over 1997 as a result of a $3.1 billion or 16% increase in average earning assets, which more than offset a 47 basis point decline in the net interest margin. The net interest margin for the first nine months of 1998 was 4.04%, versus 4.51% for the same period of 1997. Most factors contributing to the decrease in the 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 12 basis points, while changes to the funding mix resulted in a 14 basis point negative impact to the year-to-date margin. Unfavorable changes in interest rate spreads for the comparable nine month period, exclusive of off-balance sheet derivative transactions, decreased the net interest margin by 24 basis points, in part reflecting a 35 basis point decline in average yields on the Corporation's loan portfolio. Off-balance sheet hedge transactions had a positive impact on the margin, in comparison to year-to-date 1997 results, of approximately 3 basis points. Off-balance sheet hedge transactions resulted in a decrease to net interest income of approximately $0.2 million during the first nine months of 1998, which was composed of an approximately $1.3 million increase in interest income and a $1.5 million increase in interest expense, based on the underlying asset or liability being hedged. In the first nine months of 1997 the comparable impact of hedging activity was an decrease to Crestar's total interest income of approximately $3.1 million, which consisted of a $2.0 million decrease in interest income and a $1.1 increase in interest expense. Risk Exposures And Credit Quality (Tables 4 - 5) Crestar's allowance for loan losses was $246 million at September 30, 1998, representing 1.48% of period-end loans, 334% of period-end nonperforming assets, and a 432% 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 $51.1 million at September 30, 1998. Of this balance, $31.0 million represented student loan balances under Federal government loan programs, which can carry a substantial guarantee (in excess of 98%) as to principal loan balance. At September 30, 1998, nonperforming assets of $73.6 million were down $14.6 million or 17% from September 30, 1997, and down $12.6 million or 15% from December 31, 1997. The ratio of nonperforming assets to loans and foreclosed properties at September 30, 1998 was 0.44%, compared to 0.55% at December 31, 1997 and 0.60% at September 30, 1997. 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 $9.1 million for the third quarter of 1998, a decrease of $10.0 million from the $19.1 million provision expense recorded in the third quarter of 1997. Provision expense in the second quarter of 1998 was $21.8 million. Net charge-offs totaled $9.1 million in the third quarter of 1998, compared to $20.0 million in the comparable period of 1997. Net charge-offs as a percentage of average loans were 0.23% for the third quarter of 1998, compared to 0.55% in the same period of 1997, and 0.54% for the second quarter of 1998. Business loans experienced net charge-offs of $1.1 million in the third quarter of 1998, compared to net recoveries of $1.1 million in the comparable quarter of 1997. Consumer loan net charge-offs totaled $7.9 million in the third quarter of 1998, compared to net charge-offs of $22.2 million in the second quarter of 1998 and $21.1 million in the third quarter of 1997. Net charge-offs for bank card loans were $3.8 million in the third quarter of 1998, compared to $18.6 million in the second quarter of 1998 and $16.9 million in the third quarter of 1997. Net bank card loan charge-offs as a percentage of bank card loans (on an annualized basis) were 2.98% in the third quarter of 1998, 6.78% for the second quarter of 1998, and 5.81% in the third quarter of 1997. In July 1998, Crestar sold $576 million in bank card loans, recognizing a pre-tax gain of $54 million. Crestar had previously transferred $603 million in bank card loans to the loans held for sale classification as of June 30, 1998, from which the sold portfolio originated. The transferred loans were composed of bank card loans to borrowers outside of Crestar's primarily market of Virginia, Maryland and Washington, D.C., and represented approximately 54% of Crestar's total bank card loans at time of transfer. The improvement in the annualized charge-off ratio for the bank card loan portfolio is primarily due to the overall stronger credit quality of the remaining "in-market" bank card loan portfolio. Net charge-offs of instalment loans totaled $3.8 million during the third quarter of 1998, versus $3.3 million in the second quarter of 1998 and $3.6 million in the third quarter of 1997. Net charge-offs for real estate-mortgage loans were $0.4 million for the third quarter of 1998, compared to $0.6 million for the third 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 stable in 1998 and totaled $1.7 billion at September 30, 1998. This balance represented 10% of the total loan portfolio at that date. At December 31, 1997, REDI loan balances constituted approximately 11% of the total loan portfolio. REDI nonperforming assets were $28.3 million at September 30, 1998, compared to $40.3 million at December 31, 1997 and $43.9 million at September 30, 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 September 30, 1998, not included in Table 5, totaled approximately $69 million. Over 95% 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 $103 million at September 30, 1997 and $77 million at December 31, 1997. Fluctuations in potential problem loan balances from quarter to quarter should be viewed in the context of the size of Crestar's loan portfolio, which totaled $16.7 billion at September 30, 1998. Noninterest Income And Expense (Table 6) Noninterest income totaled $159.0 million in the third quarter of 1998, compared to $96.1 million in the third quarter of 1997. As previously mentioned, in the third quarter of 1998 Crestar recognized a pre-tax gain of $54.0 million arising from the sale of selected bank card loans. Excluding the impact of this gain from third quarter 1998 results, and excluding securities gains and losses, third quarter 1998 noninterest income increased $8.0 million or 8% from the third quarter 1997. This increase reflects growth in several noninterest income categories, including strong increases in service charges on deposit accounts and mortgage origination income. Service charges on deposit accounts totaled $35.3 million, for an increase of 14% in comparison to the third quarter of 1997. The increase reflects growth in Crestar's transaction-based consumer deposit accounts. Mortgage origination income, net of direct expenses, for the third quarter of 1998 totaled $15.1 million, or $7.9 million higher than the results reported in the third quarter of 1997. Origination income in the third quarter of 1998 reflects record levels of mortgage originations by Crestar's mortgage banking subsidiary, Crestar Mortgage Corporation, in an environment of declining interest rates. Mortgage servicing income decreased by $0.3 million during the quarter, primarily due to higher amortization charges for capitalized servicing rights. Trust and investment advisory income increased 6% from third quarter 1997 levels, reflecting growth in assets under management. Other service charges and fees increased $0.6 million, or 6%, to $10.2 million for the third quarter of 1998, in comparison to the third quarter of 1997, reflecting growth in automated teller machine (ATM) revenues. Bank card-related noninterest income was $2.9 million for the third quarter of 1998, down $2.3 million or 25% from the third quarter of 1997. The decrease reflects the sale of a $576 million portfolio of bank card loans in July 1998, and the resulting decline in membership fees and other bank card fee income. Noninterest expense increased $57.0 million, or 33%, in the third quarter of 1998 when compared to the same period of 1997. In comparison to the second quarter of 1998, total noninterest expenses were up $38.6 million, or 20%. First, costs were incurred during the third quarter which were directly related to the Corporation's agreement to merge with SunTrust Banks, Inc., as announced on July 20, 1998. Secondly, the increase in part reflects several initiatives undertaken during the third quarter of 1998, which will modify certain aspects of Crestar's retail and consumer delivery channels to better reflect its goals and to recognize the strategic changes related to the sale of certain bank card receivables. Included in the results for the third quarter of 1998 are costs related to realignment and reconfiguration of customer delivery systems in consumer lending and retail operations. Total personnel costs, Crestar's largest expense category, were $122.4 million in the three month period ended September 30, 1998, an increase of $27.2 million or 29% in comparison to the same period of 1997. The signing of a definitive agreement to merge with a larger financial institution, coupled with a resulting increase in the market value of Crestar's common stock, necessitated the recognition of additional compensation related costs during the third quarter of approximately $18.9 million. The realignment of both the retail branch structure and portions of the Corporation's consumer finance operations resulted in additional noninterest expenses of $13.1 million in the third quarter of 1998. Within retail operations, Crestar will close eight bank branches and one mortgage origination office, which were not meeting profitability targets. Crestar is also streamlining selected indirect lending operations, primarily impacting automobile lending through automobile dealer relationships. Of related costs incurred in the third quarter of 1998, $2.0 million were personnel costs, primarily for severance costs related to individual positions affected by the realignment of operations. Other noninterest expenses of $7.5 million were related to the write-off of specific assets due to impairment and the accrual of the net present value of lease obligations for facilities to be closed, in view of the realignment and reconfiguration of operations. Additionally, professional fees and other miscellaneous expenses incurred were approximately $3.6 million. Other unusual items incurred during the third quarter of 1998, not included above, totaled approximately $3.4 million. Of this amount, $1.8 million were professional fees incurred during the period, in part due to an acceleration of projects in view of the announced merger with SunTrust Banks, Inc. Also impacting personnel costs in the third quarter of 1998, in comparison to the same period of 1997, are higher commission expenses. These expenses, related to strong growth in fee-based business lines, were significantly higher during the third quarter of 1998, reflecting the high levels of mortgage loan originations at Crestar Mortgage Corporation. Strong growth in other fee-based business lines, such as mutual fund and insurance annuity sales, also resulted in higher commission-related personnel costs. Noninterest expense in the quarter included $3.8 million of costs incurred in the ongoing project to prepare Crestar's data processing systems for "Year 2000" compatibility; comparable expenses in the third quarter of 1997 were not material. 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 (see "Year 2000 Issue" for further discussion). The estimated total cost for this conversion and testing process, as revised during the third quarter of this year, is expected to be between $32 and $37 million. 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. Through September 30, 1998, Crestar had incurred approximately $14.6 million in noninterest expense associated with the Year 2000 conversion process, of which $9.5 million was incurred during the first nine months of 1998. The effective tax rate for third quarter and first nine months of 1997 was 35.9% and 35.8%, respectively, compared to 34.2% and 34.9% for the comparable periods of 1997. Crestar's effective tax rates during 1997 were favorably impacted by the recognition of tax benefits upon the resolution of certain federal tax filing positions taken in prior years. Financial statement note 10 contains additional information concerning income taxes. Financial Condition (Table 7) Crestar's assets totaled $25.8 billion at September 30, 1998, compared to $24.9 billion in assets at December 31, 1997, and $23.2 billion at September 30, 1997. Loans totaled $16.7 billion at September 30, 1998, compared to $15.7 billion at year-end 1997. Total deposits were $17.0 billion at September 30, 1998 compared to $16.4 billion at December 31, 1997. Excluding certificates of deposit of $100,000 and over, deposits increased 2% from year-end 1997. With respect to the securities held to maturity portfolio, market value exceeded the carrying value, or amortized cost, at September 30, 1998 by $8.6 million, consisting of $8.7 million in unrealized gains and $0.1 million in unrealized losses. At September 30, 1998, the market value of securities available for sale exceeded the amortized cost of such securities by $55.0 million, consisting of $66.1 million in unrealized gains and approximately $11.1 million in unrealized losses. Shareholders' equity at September 30, 1998 reflects a $35.9 million addition for the excess, net of tax, of fair value of securities available for sale over the amortized cost at quarter-end, compared to decrease of $0.7 million at December 31, 1997 arising from net unrealized losses on securities available for sale. At September 30, 1997, Crestar's shareholders' equity reflected a $11.8 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 66% (market value) of Crestar's securities available for sale portfolio, and 64% (amortized cost) of the Corporation's securities held to maturity portfolio, was composed of mortgage-backed obligations of Federal agencies as of September 30, 1998. This category includes mortgage-backed securities of Federal agencies, as well as CMO securities guaranteed by Federal agencies such as the Federal Home Loan Mortgage Corporation. Securities classified as "Other taxable securities" can include non-government CMO securities, corporate debt obligations, and corporate obligations securitized by credit card and instalment loans. Other taxable securities classified as available for sale at September 30, 1998 included $878 million (market value) of non-government CMO obligations. During the third quarter of 1998, Crestar sold approximately $1.14 billion of securities classified as available for sale, generating net securities gains of $948 thousand. Such sales were consummated in conjunction with the overall management of interest rate risk for the Corporation. Securities gains recorded in the third quarter of 1997 totaled $124 thousand. Liquidity And Interest Sensitivity (Tables 8 - 10) 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 52% of total funding sources at September 30, 1998, compared to 53% of total funding sources at December 31, 1997 and 55% at September 30, 1997. As an additional indication of adequate liquidity, securities available for sale represented 17%, and money market investments an additional 3%, of Crestar's total earning assets at September 30, 1998. Market risk is the risk of loss arising from adverse changes in the fair value of financial instruments due to changes in interest rates, exchange rates or equity prices. Like many financial institutions, Crestar's principal market risk is interest rate risk. Interest rate risk can be measured by looking at the volatility of projected net income as a result of possible changes in interest rates over a given period of time. Crestar's goal is to limit interest rate exposure to prudent levels as determined by the Corporation's ALCO committees. The committee establishes limits on the earnings at risk for a current planning period, usually defined as either the current calendar year or the remainder of the current year plus the next calendar year. Established limits are subject to change, but have typically been 10% or less of projected net income for the planning period. Actions that can be taken to manage interest rate risk include changing the mix of floating rate versus fixed rate earning assets and funding sources, changes in average maturities within the securities available for sale portfolio through sales and purchases, the use of derivative instruments for interest rate conversions or to hedge interest risk, and marketing and product development efforts to attract new loans and deposits. The level of interest rate risk taken is based on management's assessment of the market environment, and will vary from period to period. A significant tool used by Crestar in assessing interest rate exposure is net interest income simulations. A net income forecast is prepared regularly based on a current interest rate forecast, in addition to numerous high and low interest rate scenarios involving changes in interest rates of up to and including 300 basis points from current interest rates. 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 prepayment levels. Prepayment assumptions are based on the expertise of management along with input from external financial market sources. 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. While the simulation process is a powerful tool in analyzing interest sensitivity, many of the assumptions used in the simulation process are both highly qualitative and subjective, and subject to the risk that past historical activity may not generate accurate predictions of future results. The high rate and low rate estimates generated by this simulation process are compared to the estimate generated under the consensus interest rate scenario. Based on the most recent simulations as of September 30, 1998, Crestar's projected after-tax net income under the consensus interest rate scenario for the 12 month period ending September 30, 1999 would decrease by approximately $15 million in a high interest rate scenario, and would remain relatively unchanged in a low interest rate scenario, if nothing else changed and no management actions were taken. These projections were based on interest rate increases of approximately 300 basis points under an 12 month high interest rate scenario, and interest rate decreases of approximately 100 basis points under an 12 month low interest rate scenario, from market interest rates in effect at September 30, 1998. Changes in interest rates under these simulations were projected at 25 basis points per month. The results of 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 current interest rate scenarios. Another management tool for assessing interest rate risk is the quantification of the economic fair value of shareholders' equity. Economic 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 economic value of equity are calculated by projecting cash flows and then computing present values under a series of different interest rate scenarios. The economic value calculations include the valuation of instruments with option characteristics, using numerous interest rate path valuations and mathematical rate simulation techniques. Crestar has incorporated this tool as a significant component of its management of interest rate risk. Economic value measurement results at September 30, 1998 were within Crestar's internal guidelines. Each of the above tools used to assess interest rate risk have strengths and weaknesses. While Crestar believes that its 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. Assumptions can be inherently uncertain: actual results will differ from projected results due to changes in market conditions, management strategies and the timing and magnitude of interest rate changes. As noted, Crestar incurs a degree of interest rate risk as a provider of banking services to its customers. This risk can be reduced through derivative interest rate contracts, such as interest rate swaps, caps and floors. Crestar's outstanding interest rate swap instruments at September 30, 1998 are utilized to convert certain variable rate assets to fixed rates as part of the Corporation's interest risk management strategy. Interest rate caps are utilized to minimize interest rate risk associated with rising rates on floating rate money market deposits, fixed rate available for sale securities and fixed rate real estate-income property loans. Interest rate floors are utilized to hedge the fair value of fixed rate domestic time deposits and the prepayment risk associated with fixed rate real estate mortgage loans. Because financial derivatives typically do not have actual principal dollars transferred between parties, notional principal amounts are used to express the volume of such transactions. However, the notional amount of derivative contracts does not represent direct credit exposure, which the Corporation believes is a combination of current replacement cost of those instruments with a positive market value plus an amount for prospective market movement. Crestar has established policies governing derivative activities, and the counterparties used by Crestar are considered high quality credits. In addition, Crestar may demand collateral from a counterparty to further minimize credit risk. There were no past due amounts or reserves for possible derivative losses at September 30, 1998, 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. At September 30, 1998 Crestar had a deferred gain of approximately $3.3 million included in other assets, arising from the termination prior to maturity of interest rate floors during 1997. The deferred gain is being amortized over the remaining original contractual life of the underlying derivative instruments, which range from approximately two to six years. 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 $5.7 billion at September 30, 1998. Forward contracts with a notional amount of $2.8 billion, utilized to hedge lending commitments of Crestar's mortgage banking subsidiary, were also outstanding at September 30, 1998, bringing the total notional value of derivative financial instruments related to interest rate risk management activities to $8.5 billion at September 30, 1998. Tables 8, 9, and 10 present information regarding fair values, maturity, average rates, and activity as of and for the nine month period ending September 30, 1998 for these off-balance sheet derivative instruments. Net unrealized gains on these instruments totaled $23.4 million as of September 30, 1998. Financial statement note 11 contains additional information pertaining to these types of agreements. Year 2000 Issue Crestar is implementing changes to its information systems so that they will be fully operable for date recognition and data processing before the year 2000 begins. The Corporation's "Year 2000" plans are subject to guidelines promulgated by the Federal Financial Institutions Examination Council (FFIEC). The Federal Reserve Bank of Richmond periodically measures the status of Crestar's plans and progress, as outlined in the FFIEC guidelines. Accordingly, a dedicated team of Crestar employees completed a thorough inventory and assessment of each of the Corporation's computer systems in 1997, which constituted the initial phases of Crestar's Year 2000 compliance efforts. Other continuing phases of work towards Year 2000 compliance include remediation efforts, testing of revised or new computer code, and redeployment into an operating environment. The Corporation expects to have substantially completed necessary changes to its computer systems by the end of the current year (the remediation phase), and to further test its computer systems during 1999 to confirm compliance with Year 2000 data processing standards. Crestar's Year 2000 project includes the assessment, and possible repair or replacement, of non-information technology systems which include or rely on embedded technology, such as equipment utilizing microcontrollers. The Corporation considers its current approach in addressing the Year 2000 issue to be adequate, and fully expects to meet its timetable regarding Year 2000 compliance. The total cost for this conversion and testing process is currently estimated to be between $32 and $37 million, which represents an increase over Crestar's previous estimate. Crestar is experiencing escalating demand and costs for skilled resources, requiring greater recruiting and retention efforts and increased costs for outside contract resources. Estimated time and costs related to testing to be performed in 1999 have also been revised upward. Some costs, such as the purchase of computer hardware, will qualify as depreciable assets for accounting purposes, and the depreciation expense will be recognized over the estimated lives of the related assets. However, the majority of costs will be expensed as incurred. Through September 30, 1998, Crestar had incurred approximately $15 million in noninterest expense associated with the Year 2000 conversion process. As part of its planning process, the Corporation continues to develop contingency plans based on alternative scenarios and their likelihood of occurrence. Crestar's contingency plans address operational issues, including communication links with other entities, utility and transportation services and the availability of alternative services among key vendor relationships. The Corporation also continues to engage in the exchange of information with major borrowers and external vendors regarding each entity's progress with respect to Year 2000 compliance efforts. Crestar expects to complete its contingency plans in accordance with FFIEC requirements. At this time, Crestar believes the most likely worst case Year 2000 scenario would not have a material effect on the Corporation's results of operations, liquidity, and financial condition for the year ending December 31, 2000. The Corporation does not foresee a material loss of revenue due to the Year 2000 issue. As noted, however, Crestar's contingency plans are based on assessments of alternative scenarios; the Corporation believes that no entity can address the virtually unlimited number of all possible circumstances relating to Year 2000 issues, including risks outside Crestar's current primary marketplace of Virginia, Maryland and the District of Columbia. Crestar's ability to determine the readiness of third parties, including third parties operating within the Corporation's primary market area, is limited by (a) the Corporation's limited legal right to demand information and assurances regarding Year 2000 compliance efforts, (b) the willingness and ability of such third parties to provide information, and (c) the reliability of any information provided. While unlikely, it is acknowledged that failure by the Corporation to be successful in implementing its Year 2000 plans, its modifications and conversions, or to adequately assess the likelihood of various events relating to the Year 2000 issue, could have a material impact on Crestar's operations. Therefore, this could potentially result in a material adverse effect on the Corporation's results of operations and financial condition. The projections of total costs of Crestar's Year 2000 project and the expected completion dates are based on Crestar's best estimates, which are necessarily based in part on assumptions of future events including the continued availability of adequate resources and completion of third party modification plans. There can be no guarantee that these estimates will be achieved; actual results could differ materially from the Corporation's current estimates. Specific risk factors that might cause material differences include, but are not limited to, the future availability and cost of personnel with adequate programming skills and the ability to locate and correct all relevant computer codes. The inability to control the actions and plans of vendors, customers, government entities and other third parties. Table 1 Financial Highlights Dollars in millions, except per share data
Three Months Nine Months ------------ ----------- % % For the Period Ended September 30 1998 1997 Change 1998 1997 Change Net Income $88.9 $79.5 12 $261.2 $227.1 15 Basic Earnings Per Share: Net Income $.79 $ .71 11 $2.33 $2.05 14 Average Shares Outstanding (000s) 112,487 110,760 2 112,117 110,518 1 Diluted Earnings Per Share: Net Income $.78 $.71 10 $2.30 $2.03 13 Average Shares Outstanding (000s) 113,928 112,069 2 113,542 111,754 2 Dividends Paid Per Common Share $ .33 $ .29 14 $ .95 $ .85 12 ============================================================================================ Key Ratios Return on Average Assets 1.42% 1.47% 1.41% 1.41% Return on Average Equity 15.77 16.60 16.20 16.38 Average Equity to Average Assets 9.00 8.87 8.68 8.59 Net Interest Margin 3.90 4.47 4.04 4.51 At September 30 Book Value Per Share $20.51 $17.60 17 Equity to Assets 8.97% 8.36% Risk Adjusted Capital Ratios: Tier I 10.4 10.4 Total 13.4 13.0 Common Shares Outstanding (000s) 112,643 110,188 ============================================================================================
Table 2 Changes In Diluted Earnings Per Share 3rd Qtr. 1998 3rd Qtr. 1998 vs. vs. 3rd Qtr. 1997 2nd Qtr. 1998 Diluted Earnings Per Share - prior period $ .71 $ .77 - --------------------------------------------------------------------------- Interest income .23 (.09) Interest expense (.21) .01 Provision for loan losses .06 .07 Securities gains or losses - (.01) Other noninterest income .36 .25 Noninterest expense (.33) (.22) Change in effective income tax rate (.03) - Increase in shares outstanding (.01) - - ------------------------------------------------------------------------- Net increase .07 .01 - ------------------------------------------------------------------------- Diluted Earnings Per Share - current period $ .78 $ .78 =========================================================================== Table 3 Average Balances, Net Interest Income And Rate/Volume Analysis1 Dollars in thousands
3rd Qtr. - ------------------------------ Average Balance 2nd Qtr. - ------------------------------ Average Increase Balance 1998 1997 (Decrease) 1998 ---- ---- ---------- ---- $ $ % $ 5,135,851 3,943,788 30 4,917,937 Commercial 1,146,856 1,268,940 (10) 1,171,884 Real estate - income property 398,798 334,002 19 386,861 Real estate - construction 5,437,768 4,349,511 25 5,273,448 Instalment 502,888 1,165,156 (57) 1,094,608 Bank card 3,415,639 3,336,618 2 3,398,345 Real estate - mortgage - ------------------------------------------------------------------------------------------ 16,037,800 14,398,015 11 16,243,083 Total loans - net of unearned income2 - ------------------------------------------------------------------------------------------ 543,868 687,292 (21) 594,342 Securities held to maturity 4,326,279 3,361,761 29 4,415,174 Securities available for sale 202,908 489,870 (59) 238,260 Money market investments 1,767,622 725,458 144 1,676,327 Loans held for sale - ------------------------------------------------------------------------------------------ 22,878,477 19,662,396 16 23,167,186 Total earning assets ========================================================================================== 7,019,892 5,812,468 21 6,829,500 Interest-bearing demand deposits 1,373,154 1,514,018 (9) 1,418,043 Regular savings deposits 3,903,639 4,188,632 (7) 3,942,134 Domestic time deposits - ------------------------------------------------------------------------------------------ 12,296,685 11,515,118 7 12,189,677 Total interest-bearing core deposits - ------------------------------------------------------------------------------------------ 5,543,665 3,879,491 43 6,071,099 Purchased liabilities 1,014,831 806,319 26 922,961 Long-term debt - ------------------------------------------------------------------------------------------ 18,855,181 16,200,928 16 19,183,737 Total interest-bearing liabilities 4,023,296 3,461,468 16 3,983,449 Other sources - net - ------------------------------------------------------------------------------------------ 22,878,477 19,662,396 16 23,167,186 Total sources of funds - ------------------------------------------------------------------------------------------ Net Interest Income ==========================================================================================
1Tax-equivalent basis. 2Nonaccrual loans are included in the average loan balances and income on such loans is recognized on a cash basis. 3Includes tax-equivalent net loan fees (costs) of $(431,000) and $167,000 for the third quarter of 1998 and 1997, respectively, and $(172,000) for the second quarter of 1998.
3rd Qtr. ----------------------------------- 1998 vs. 1997 3rd Qtr. 1998 vs. 2nd Qtr. 1998 ------------------------ --------------------------------- 2nd Qtr. Inome/Expense3 Change due to4 Income/ Change due to4 -------------- Increase -------------- Expense3 Increase --------------- 1998 1997 (Decrease) Rate5 Volume 1998 (Decrease) Rate5 Volume ---- ---- ---------------- ------ ---- ---------------- ------ $ $ $ $ $ $ $ $ $ Commercial 101,967 79,886 22,081 (1,972) 24,053 96,593 5,374 1,102 4,272 Real estate - income property 26,958 28,416 (1,458) 1,222 (2,680) 26,091 867 1,401 (534) Real estate - construction 8,871 7,335 1,536 113 1,423 8,840 31 (233) 264 Instalment 106,387 89,268 17,119 (5,332) 22,451 106,078 309 (2,977) 3,286 Bank card 16,857 41,156 (24,299) (68)(24,231) 36,786 (19,929) 634 (20,563) Real estate - mortgage 62,930 64,452 (1,522) (3,017) 1,495 65,110 (2,180) (2,511) 331 -------------------------------------------------------------------------- Total loans - net of unearned income2 323,970 310,513 13,457 (21,879) 35,336 339,498 (15,528)(11,250) (4,278) -------------------------------------------------------------------------- Securities held to maturity 8,561 10,599 (2,038) 174 (2,212) 9,202 (641) 141 (782) Securities available for sale 66,822 52,958 13,864 (1,330) 15,194 68,791 (1,969) (584) (1,385) Money market investments 2,778 6,972 (4,194) (110) (4,084) 3,192 (414) 60 (474) Loans held for sale 31,018 13,598 17,420 (2,225) 19,645 28,542 2,476 914 1,562 -------------------------------------------------------------------------- Total earning assets 433,149 394,640 38,509 (26,012) 64,521 449,225 (16,076)(10,489) (5,587) ========================================================================== Interest-bearing demand deposits 58,563 44,592 13,971 2,608 11,363 55,182 3,382 1,198 2,184 Regular savings deposits 7,986 9,337 (1,351) (482) (869) 8,168 (182) 77 (259) Domestic time deposits 49,738 52,424 (2,686) 910 (3,596) 49,482 256 746 (490) -------------------------------------------------------------------------- Total interest-bearing core deposits 116,287 106,353 9,934 2,680 7,254 112,832 3,456 2,461 995 -------------------------------------------------------------------------- Purchased liabilities 76,750 52,953 23,797 1,091 22,706 83,100 (6,350) 870 (7,220) Long-term debt 17,755 15,293 2,462 (1,493) 3,955 16,600 1,155 (497) 1,652 -------------------------------------------------------------------------- Total interest-bearing liabilities 210,792 174,599 36,193 7,507 28,686 212,532 (1,739) 1,911 (3,650) Other sources - net -------------------------------------------------------------------------- Total sources of funds 210,792 174,599 36,193 7,554 28,639 212,532 (1,739) 917 (2,656) -------------------------------------------------------------------------- Net Interest Income 222,357 220,041 2,316 (33,566) 35,882 236,693 (14,337)(11,406) (2,931) ==========================================================================
4Variances are computed on a line-by-line basis and are non-additive. 5Variances caused by the change in rate times the change in balances are allocated to rate. Table 4 Allowance For Loan Losses Dollars in thousands Third Quarter Nine Months Ended Sept. 30, ------------- -------------------------- 1998 1997 1998 1997 Beginning balance $246,017 $279,190 $281,394 $268,868 - ------------------------------------------------------------------------- Allowance from acquisitions and other activities, net (27) - 1,530 - Allowance related to bankcard loans held for sale - - (35,000) - Provision for loan losses 9,080 19,099 53,987 84,797 - ------------------------------------------------------------------------- Net charge-offs (recoveries): Commercial (470) (1,115) (1,285) (647) Real estate - income property 624 (502) 437 (1,397) Real estate - construction 981 512 1,342 (99) Instalment 3,822 3,555 11,619 12,138 Bank card 3,750 16,922 42,823 63,157 Real estate - mortgage 371 586 983 2,182 - ------------------------------------------------------------------------- Total net charge-offs 9,078 19,958 55,919 75,334 - ------------------------------------------------------------------------- Balance, September 30 $245,992 $278,331 $245,992 $278,331 ========================================================================= Allowance for loan losses to period-end loans 1.48% 1.90% 1.48% 1.90% Annualized net charge-offs to average loans .23 .55 .47 .71 ========================================================================= Table 5 Nonperforming Assets1 And Past Due Loans Dollars in thousands September 30, December 31, -------------------- Nonaccrual loans: 1998 1997 1997 Commercial $ 9,001 $10,462 $11,247 Real estate - income property 4,312 6,026 6,412 Real estate - construction 11,961 16,976 14,239 Instalment 6,929 2,895 3,292 Real estate - mortgage 24,751 25,048 25,310 - --------------------------------------------------------------------------- Total nonperforming loans1 56,954 61,407 60,500 Foreclosed properties - net 16,628 26,757 25,731 - --------------------------------------------------------------------------- Total nonperforming assets1 $73,582 $88,164 $86,231 =========================================================================== Nonperforming assets1 to: Loans and foreclosed properties - net .44% .60% .55% Total assets .29 .38 .35 Allowance for loan losses to: Nonperforming assets1 334 316 326 Nonperforming loans1 432 453 465 Allowance for loan losses plus shareholders' equity to nonperforming assets1 34.78x 25.16x 27.15x =========================================================================== Accruing loans past due 90 days: Commercial $ 3,864 $ 3,915 $ 3,524 Real estate - income property 1,330 2,471 1,750 Real estate - construction 3 16 216 Instalment Student 31,016 23,766 25,742 Other 5,676 6,388 6,886 Bank card 5,319 21,315 24,126 Real estate - mortgage 3,934 5,089 6,023 - --------------------------------------------------------------------------- Total accruing loans past due 90 days $51,143 $62,960 $68,267 =========================================================================== 1Loans 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 Nine Months Ended Third Quarter Second September 30, -------------- Quarter ------------------ Noninterest Income 1998 1997 1998 1998 1997 Service charges on deposit accounts $ 35,257 $30,893 $34,860 $103,184 $92,787 Trust and investment advisory 20,468 19,308 20,950 61,537 54,648 Bank card-related 6,895 9,236 9,360 25,065 31,655 Other service charges and fees 10,223 9,656 11,592 31,468 26,829 Mortgage origination - net 15,123 7,254 18,488 48,713 10,515 Mortgage servicing - net 2,949 3,288 458 5,759 12,001 Trading account activities 1,432 1,444 1,570 4,347 3,553 Commissions on letters of credit 1,379 1,207 1,161 3,896 3,620 Gain on sale of mortgage servicing rights - - - - 10,450 Gain (loss) on sale of premises and equipment (1,748) 717 - (1,748) 6,524 Gain on sale of merchant card processing - - - - 17,325 Gain on sale of bank card loans 54,000 - - 54,000 - Miscellaneous 12,032 12,982 15,529 41,807 36,588 Securities gains (losses) 948 124 2,542 6,103 4,097 - --------------------------------------------------------------------------- Total noninterest income $158,958 $96,109 $116,510 $384,131 $310,592 =========================================================================== Noninterest Expense Salaries $ 96,369 $74,426 $ 81,932 $259,397 $228,728 Benefits 26,011 20,708 20,191 65,961 62,295 - --------------------------------------------------------------------------- Total personnel 122,380 95,134 102,123 325,358 291,023 Occupancy - net 15,612 14,957 13,893 42,659 44,800 Equipment 12,312 9,970 10,962 34,076 31,251 Professional fees and services 12,148 5,610 6,840 25,315 20,978 Communications 9,439 9,194 10,433 29,842 27,317 Outside data services 6,774 6,451 7,693 21,429 19,510 Advertising and marketing 5,567 6,146 5,773 17,049 16,021 Amortization of purchased intangibles 5,225 4,280 4,976 14,994 12,713 Stationery, printing and supplies 3,226 2,362 3,220 10,054 7,690 Loan expense 4,286 3,116 4,826 11,995 8,714 Transportation 2,045 1,782 1,894 5,794 5,281 FDIC premiums - net 706 235 747 1,883 2,024 Foreclosed properties (net recoveries) 467 684 914 864 2,044 Miscellaneous 30,088 13,310 17,386 61,629 42,880 - --------------------------------------------------------------------------- Total noninterest expense $230,275 $173,231 $191,680 $602,941 $532,246 =========================================================================== Table 7 Debt And Other Security Ratings (as of October 31, 1998) Standard Thomson Security Moody's & Poor's BankWatch 61/2% Subordinated Notes due 2018 Baa1 BBB+ A- 83/4% Subordinated Notes due 2004 Baa1 BBB+ A- 81/4% Subordinated Notes due 2002 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 Off-Balance Sheet Derivative Financial Instruments1
September 30, 1998 Average Weighted Fixed Estimated Dollars in thousands Notional Average Receive Fair Balance Maturity Rate Value Comments Interest Rate Conversions Generic interest rate swaps $1,675,000 3.0 yrs. 6.19% Notional amounts of $1.33 Carrying amount2 $ 2,244 billion and $350 million Commercial loan program convert floating rate commercial Unrealized gains 46,805 and instalment loans, respectively, Instalment loan program to fixed rate. Floating rates paid Unrealized gains 10,837 tied to LIBOR. -------- Estimated fair value 59,886 -------- Interest rate caps 1,855,000 2.7 yrs. 6.46%3 Notional amount of $1.86 billion Carrying amount2 10,910 hedges the interest rate risk Money market deposit program associated with rising interest Unrealized losses (7,959) rates on floating rate money market deposits (strike rate tied ------ to LIBOR). Estimated fair value 2,951 ------ Market Value Hedges Interest rate caps 1,950,000 1.5 yrs. 7.56%3 Notional amount of $1.75 billion Carrying amount2 8,757 hedges the market value of fixed Securities available for sale program5 rate securities available for sale Unrealized losses (8,275) in a rising rate environment (strike Real estate income property loan program rate for $800 million tied to 5 year Unrealized losses (438) 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 44 (strike rate tied to LIBOR). ------ Interest rate floors 250,000 3.5 yrs. 5.26%4 Notional amount of $150 million Carrying amount2 1,510 hedges the prepayment risk Real estate mortgage loan program associated with fixed rate Unrealized gains 4,045 mortgage loans in a declining rate Domestic time deposit program environment (strike rate tied to Unrealized gains 2,547 5 year CMT). Notional amount of $100 million hedges the fair value of fixed rate domestic time deposits ------- (strike rate tied to 3 year CMT). Estimated fair value 8,102 ------- Hedges of Lending Commitments Forward contracts 2,757,937 .2 yrs. n/a Hedges of residential mortgage Unrealized gains 875 lending commitments associated Unrealized losses (24,992) with mortgage loan originations --------- Estimated fair value (24,117) Total derivatives $8,487,937 $ 46,866 ============================================================================================
1Includes only off-balance sheet derivative financial instruments related to interest rate risk management activities. 2Includes any accrued interest receivable and or payable balances, and unamortized premiums paid for interest rate caps and floors. 3Represents 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. 4Represents 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. 5The 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 3 year CMT - Yield on 3 year constant maturity U.S. Treasury securities 5 year CMT - Yield on 5 year constant maturity U.S. Treasury securities Table 9 Off-Balance Sheet Derivatives--Expected Maturities1 September 30, 1998 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 $ 250,000 $ 415,000 $ 760,000 $250,000 $1,675,000 Average fixed receive rate 6.15% 5.83% 6.21% 6.74% 6.19% Carrying amount $ 34 $ 119 $ 1,088 $ 1,003 $ 2,244 Net unrealized gain 2,524 7,468 28,925 18,725 57,642 Interest rate caps Notional amount $ 5,000 $1,150,000 $ 700,000 $ - $1,855,000 Average strike rate 6.00% 6.52% 6.36% - 6.46% Carrying amount $ - 4,207 $ 6,703 $ - $ 10,910 Unrealized loss - (2,938) (5,021) - (7,959) Market Value Hedges Interest rate caps Notional amount $ 200,000 $1,750,000 $ - $ - $1,950,000 Average strike rate 7.75% 7.54% - - 7.56% Carrying amount $ 438 $ 8,319 $ - $ - $ 8,757 Unrealized loss (438) (8,275) - - (8,713) Interest rate floors Notional amount $ - $ - $ 250,000 $ - $ 250,000 Average strike rate - - 5.26% - 5.26% Carrying amount $ - $ - $ 1,510 $ - $ 1,510 Unrealized gain - - 6,592 - 6,592 Hedges of Lending Commitments Forward contracts:2 Notional amount $2,757,937 $ - $ - $ - $2,757,937 Net unrealized loss (24,117) - - - (24,117) Total derivatives: Notional amount $3,212,937 $3,315,000 $1,710,000 $250,000 $8,487,937 Carrying amount $ 472 $ 12,645 $ 9,301 $ 1,003 $ 23,421 Net unrealized gain (loss) (22,031) (3,745) 30,496 18,725 23,445 --------- --------- --------- -------- ---------- Estimated fair value $(21,559) $ 8,900 $ 39,797 $ 19,728 $ 46,866 =============================================================================== 1Includes only off-balance sheet derivative financial instruments related to interest rate risk management activities. 2Hedges of residential mortgage lending commitments. Table 10 Off-Balance Sheet Derivatives Activity1
In thousands Interest Rate Conversions Market Value Hedges --------------------------- ----------------------- Hedges of Interest Interest Interest Interest Lending Rate Rate Rate Rate Commit- Swaps Caps Caps Floors ments2 Total Balance, July 1, 1998 $1,675,000 $1,055,000 $1,950,000 $250,000 $ 2,813,321 $ 7,743,321 Additions - 800,000 - - 3,089,249 3,889,249 Terminations - - - - - - Maturities - - - - (3,144,633) (3,144,633) - -------------------------------------------------------------------------------------------- Balance, September 30, 1998 $1,675,000 $1,855,000 $1,950,000 $250,000 $ 2,757,937 $ 8,487,937 ============================================================================================ Balance, January 1, 1998 $1,675,000 $ 460,000 $1,950,000 $ - $ 1,459,888 $ 5,544,888 Additions 300,000 1,400,000 - 250,000 9,057,112 11,007,112 Terminations (300,000) - - - - (300,000) Maturities - (5,000) - - (7,759,063) (7,764,063) - -------------------------------------------------------------------------------------------- Balance, September 30, 1998 $1,675,000 $1,855,000 $1,950,000 $250,000 $ 2,757,937 $ 8,487,937 ============================================================================================
1Includes only off-balance sheet derivative financial instruments related to interest rate risk management activities. 2Forward contracts hedging residential mortgage lending commitments; maturities represent contracts delivered. Table 11 Selected Quarterly Financial Information
Dollars in thousands, except per share data 3rd Qtr. 2nd Qtr. 1st Qtr. 4th Qtr. 3rd Qtr. Results of operations: 1998 1998 1998 1997 1997 Net interest income1 $222,357 $236,693 $229,924 $224,051 $220,041 Provision for loan losses 9,080 21,811 23,096 23,300 19,099 - -------------------------------------------------------------------------------------- Net credit income 213,277 214,882 206,828 200,751 200,942 Securities gains (losses) 948 2,542 2,613 1,231 124 Other noninterest income 158,010 113,968 106,050 109,616 95,985 - -------------------------------------------------------------------------------------- Net credit and noninterest income 372,235 331,392 315,491 311,598 297,051 Noninterest expense 230,275 191,680 180,986 182,011 173,231 - -------------------------------------------------------------------------------------- Income before taxes 141,960 139,712 134,505 129,587 123,820 Tax-equivalent adjustment 3,358 3,259 2,964 2,860 2,903 Book tax expense 49,725 49,025 46,668 44,032 41,374 - -------------------------------------------------------------------------------------- Income tax expense 53,083 52,284 49,632 46,892 44,277 - -------------------------------------------------------------------------------------- Net Income $ 88,877 $ 87,428 $ 84,873 $ 82,695 $ 79,543 ====================================================================================== Basic Earnings per share $ .79 $ .78 $ .76 $ .75 $ .71 Average shares outstanding (000s) 112,487 112,150 111,704 110,916 110,760 Diluted Earnings per share $ .78 $ .77 $ .75 $ .74 $ .71 Average shares outstanding (000s) 113,928 113,547 113,222 112,423 112,069 Dividends paid .33 .33 .29 .29 .29 ====================================================================================== Selected ratios and other data: Return on average assets 1.42% 1.39% 1.41% 1.46% 1.47% Return on average equity 15.77 16.46 16.41 16.70 16.60 Net interest margin1 3.90 4.06 4.18 4.35 4.47 Net charge-offs as % of average loans .23 .54 .64 .64 .55 Allowance as % of period-end loans1 1.48 1.54 1.74 1.79 1.90 Overhead ratio 60.39 54.27 53.45 54.35 54.79 Average equity to assets 9.00 8.42 8.61 8.74 8.87 Average equity leverage 11.11x 11.88x 11.61x 11.45x 11.28x Full-time equivalent employees (period-end) 8,209 8,125 8,170 8,215 7,934 ====================================================================================== 1Tax-equivalent basis.
Table 12 Consolidated Average Balances/Net Interest Income/Rates1
Three Months Ended September 30, -------------------------------------------------------------- 1998 1997 ------------------------------ ----------------------------- Dollars in thousands Income/ Yield/ Income/ Yield/ Balance Expense Rate Balance Expense Rate Assets $ $ % $ $ % Securities held to maturity2 543,868 8,561 6.28 687,292 10,599 6.16 Securities available for sale2 4,326,279 66,822 6.18 3,361,761 52,958 6.30 Money market investments2 202,908 2,778 5.43 489,870 6,972 5.65 Loans held for sale2 1,767,622 31,018 7.06 725,458 13,598 7.53 - -------------------------------------------------------------------------------------------- Commercial 5,135,851 101,967 7.86 3,943,788 79,886 8.01 Real estate - income property 1,146,856 26,958 8.61 1,268,940 28,416 8.75 Real estate - construction 398,798 8,871 8.83 334,002 7,335 8.72 Instalment 5,437,768 106,387 8.01 4,349,511 89,268 8.23 Bank card 502,888 16,857 13.68 1,165,156 41,156 14.51 Real estate - mortgage 3,415,639 62,930 7.37 3,336,618 64,452 7.61 - -------------------------------------------------------------------------------------------- Total loans2,3 16,037,800 323,970 8.06 14,398,015 310,513 8.59 Allowance for loan losses (247,603) (280,792) - -------------------------------------------------------------------------------------------- Loans - net 15,790,197 14,117,223 Cash and due from banks 826,235 861,622 Premises and equipment - net 479,897 464,710 Intangible assets - net 196,545 170,084 Foreclosed properties - net 16,795 33,469 Other assets 887,535 705,765 - -------------------------------------------------------------------------------------------- Total Assets 25,037,881 21,617,254 ========== ========== Total Earning Assets 22,878,477 433,149 7.56 19,662,396 394,640 8.00 ========== ======= ==== ========== ======= ==== Liabilities And Shareholders' Equity Interest-bearing demand deposits 7,019,892 58,563 3.31 5,812,468 44,592 3.04 Regular savings deposits 1,373,154 7,986 2.31 1,514,018 9,337 2.45 Domestic time deposits 3,903,639 49,738 5.09 4,188,632 52,424 5.00 Certificates of deposit $100,000 and over 1,322,451 18,817 5.65 1,028,382 14,722 5.68 - -------------------------------------------------------------------------------------------- Total savings and time deposits2 13,619,136 135,104 3.95 12,543,500 121,075 3.84 Demand deposits 3,437,764 3,131,322 - -------------------------------------------------------------------------------------------- Total deposits 17,056,900 15,674,822 Short-term borrowings2 4,221,214 57,933 5.44 2,851,109 38,231 5.32 Long-term debt2 1,014,831 17,755 7.00 806,319 15,293 7.59 Other liabilities 491,101 368,618 - -------------------------------------------------------------------------------------------- Total liabilities 22,784,046 19,700,868 - -------------------------------------------------------------------------------------------- Total shareholders' equity 2,253,835 1,916,386 - -------------------------------------------------------------------------------------------- Total Liabilities And Shareholders' Equity 25,037,881 21,617,254 ========== ========== Total interest-bearing liabilities 18,855,181 210,792 4.45 16,200,928 174,599 4.29 Other sources - net 4,023,296 3,461,468 - -------------------------------------------------------------------------------------------- Total Sources Of Funds 22,878,477 210,792 3.66 19,662,396 174,599 3.53 ========== ======= ==== ========== ======= ==== Net Interest Spread 3.11 3.71 Net Interest Income/Margin 222,357 3.90 220,041 4.47 ============================================================================================
1Income 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. 3Nonaccrual loans are included in the average loan balances and income on such loans is recognized on a cash basis.
Three Months Ended June 30, Nine Months Ended September 30, --------------------------------- ------------------------------------------------------------- 1998 1998 1997 -------------------------------- ----------------------------- ----------------------------- Dollars in thousands Income/ Yield/ Income/ Yield/ Income/ Yield/ Balance Expense Rate Balance Expense Rate Balance Expense Rate ------- ------- ---- ------- ------- ---- ------- ------- ---- Assets $ $ % $ $ % $ $ % Securities held to maturity2 594,342 9,202 6.20 584,511 27,296 6.23 788,439 35,949 6.08 Securities available for sale 4,415,174 68,791 6.23 4,241,233 198,024 6.23 3,734,389 176,682 6.31 Money market investments2 238,260 3,192 5.37 361,386 15,019 5.56 336,567 13,925 5.53 Loans held for sale2 1,676,327 28,542 6.84 1,533,625 80,131 6.98 619,655 35,856 7.75 --------------------------------------------------------------------------------------------------- Commercial 4,917,937 96,593 7.87 4,866,818 289,422 7.95 3,863,402 232,672 8.04 Real estate - income property 1,171,884 26,091 8.65 1,180,274 79,442 9.00 1,261,599 83,546 8.85 Real estate - construction 386,861 8,840 8.94 389,183 26,142 8.60 326,725 21,993 8.84 Instalment 5,273,448 106,078 8.01 5,175,887 307,773 7.95 4,185,846 254,732 8.13 Bank card 1,094,608 36,786 13.79 907,029 91,760 13.61 1,243,386 131,240 14.20 Real estate - mortgage 3,398,345 65,110 7.66 3,442,836 195,637 7.58 3,241,506 187,841 7.71 --------------------------------------------------------------------------------------------------- Total loans2,3 16,243,083 339,498 8.35 15,962,027 990,176 8.28 14,122,464 912,024 8.63 Allowance for loan losses (283,650) (270,563) (273,279) --------------------------------------------------------------------------------------------------- Loans - net 15,959,433 15,691,464 13,849,185 Cash and due from banks 847,408 851,979 867,300 Premises and equipment - net 494,425 489,569 453,814 Intangible assets - net 195,933 195,283 174,221 Foreclosed properties - net 19,447 18,736 30,378 Other assets 792,090 801,537 665,977 --------------------------------------------------------------------------------------------------- Total Assets 25,232,839 24,769,323 21,519,925 ========== ========== ========== Total Earning Assets 23,167,186 449,225 7.75 22,682,782 1,310,646 7.71 19,601,514 1,174,436 8.00 ========== ======= ==== ========== ======== ===== ========== ======== ==== Liabilities And Shareholders' Equity Interest-bearing demand deposits 6,829,500 55,181 3.24 6,761,790 164,041 3.24 5,804,721 129,345 2.98 Regular savings deposits 1,418,043 8,168 2.31 1,407,637 24,280 2.31 1,565,321 29,069 2.48 Domestic time deposits 3,942,134 49,482 5.08 3,978,282 149,721 5.04 4,341,275 160,937 4.97 Certificates of deposit $100,000 and over 1,422,465 20,062 5.66 1,316,693 55,853 5.67 795,530 33,208 5.58 --------------------------------------------------------------------------------------------------- Total savings and time deposits 13,612,142 132,893 3.93 13,464,402 393,895 3.92 12,506,847 352,559 3.77 Demand deposits 3,499,735 3,409,592 3,126,154 --------------------------------------------------------------------------------------------------- Total deposits 17,111,877 16,873,994 15,633,001 Short-term borrowings2 4,648,634 63,038 5.44 4,347,669 176,299 5.42 2,847,790 111,977 5.25 Long-term debt2 922,961 16,600 7.19 955,312 51,478 7.18 831,256 46,499 7.46 Other liabilities 425,086 442,484 359,189 --------------------------------------------------------------------------------------------------- Total liabilities 23,108,558 22,619,459 19,671,236 --------------------------------------------------------------------------------------------------- Total shareholders' equity 2,124,281 2,149,864 1,848,689 --------------------------------------------------------------------------------------------------- Total Liabilities And Shareholders' Equity 25,232,839 24,769,323 21,519,925 ========== ========== ========== Total interest-bearing liabilities 19,183,737 212,531 4.45 18,767,383 621,672 4.43 16,185,893 511,035 4.22 Other sources - net 3,983,449 3,915,399 3,415,621 --------------------------------------------------------------------------------------------------- Total Sources Of Funds 23,167,186 212,531 3.69 22,682,782 621,672 3.67 19,601,514 511,035 3.49 ========== ======= ==== ========== ======== ===== ========== ======== ==== Net Interest Spread 3.30 3.28 3.78 Net Interest Income/Margin 236,694 4.06 688,974 4.04 663,401 4.51 ===================================================================================================
2Indicates earning asset or interest-bearing liability. Signatures Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Crestar Financial Corporation -------------------------------- Registrant Date November 13, 1998 /s/ James D. Barr -------------------------------- James D. Barr Executive Vice President, Controller and Treasurer EX-27 2 FINANCIAL DATA SCHEDULE
9 1,000 9-MOS DEC-31-1998 SEP-30-1998 887,047 13,522,589 251,487 7,226 4,008,852 499,253 507,840 16,668,674 (245,992) 25,772,411 17,043,075 4,592,535 698,733 1,127,262 0 0 563,217 1,747,589 25,772,411 982,720 223,234 95,111 1,301,065 393,895 621,672 679,393 53,987 6,103 602,941 406,596 261,178 0 0 261,178 2.33 2.30 4.04 56,954 51,143 0 68,500 281,394 73,460 17,541 245,992 0 0 0 Basic EPS per Statement of Financial Accounting Standards No. 128 Diluted EPS per Statement of Financial Accounting Standards No. 128
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