-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, tFSaSR3f93ue7Ikocc9455LOD4bi2pmV90BbkKy4qS+/wx/Q7emaSJt0l7mq39t9 qU9bEYAHxmbVAKwLpmy3GA== 0000950109-94-001539.txt : 19940817 0000950109-94-001539.hdr.sgml : 19940817 ACCESSION NUMBER: 0000950109-94-001539 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19940630 FILED AS OF DATE: 19940815 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CRESTAR FINANCIAL CORP CENTRAL INDEX KEY: 0000101880 STANDARD INDUSTRIAL CLASSIFICATION: 6022 IRS NUMBER: 540722175 STATE OF INCORPORATION: VA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-07083 FILM NUMBER: 94544230 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 FORM 10-Q United States Securities And Exchange Commission Washington, DC 20549 Form 10-Q (Mark One) (X) Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the Quarter Ended June 30, 1994 ( ) Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Commission File Number 1-7083 . ------------------ Crestar Financial Corporation - - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Virginia 54-0722175 - - -------------------------------------------------------------------------------- (State or other jurisdiction (I.R.S. Employer of incorporation or organization) Identification No.) 919 E. Main Street, P.O. Box 26665, Richmond, Virginia 23261-6665 - - -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) (804)782-5000 - - -------------------------------------------------------------------------------- (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes X . No . ---------- ----------- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Class Outstanding at July 31, 1994 - - ----------------------------------- ----------------------------------- Common Stock, $5 par value 37,715,782 1 Crestar Financial Corporation And Subsidiaries Form 10-Q For The Quarter Ended June 30, 1994
Part I. Financial Information Item 1. Financial Statements: Page Consolidated Balance Sheets...........................3 Consolidated Statements Of Income.....................4 Consolidated Statements Of Cash Flows.................5 Consolidated Statements Of Changes In Shareholders' Equity..................................6 Notes To Consolidated Financial Statements.........7-15 Item 2. Management's Discussion And Analysis Of Financial Condition And Results Of Operations: Financial Commentary..............................16-30
Part II. Other Information Item 4. Submission Of Matters To A Vote Of Security Holders..31 Item 6. Exhibits And Reports On Form 8-K: There were no reports on Form 8-K filed during the three months ended June 30, 1994.
2 Consolidated Balance Sheets Crestar Financial Corporation And Subsidiaries
Dollars in thousands June 30, December 31, --------------------------- Assets 1994 1993 1993 Cash and due from banks $ 581,521 $ 741,213 $ 716,652 Securities held to maturity (note 2) 996,038 2,093,331 1,824,617 Securities available for sale (note 3) 1,993,913 1,601,967 1,697,000 Money market investments (note 4) 1,243,975 548,049 650,633 Mortgage loans held for sale 275,527 374,461 591,233 Loans - net of unearned income (note 5): Commercial 2,737,617 2,624,495 2,608,069 Tax-exempt 216,488 261,060 230,852 Instalment 1,720,865 1,468,883 1,532,936 Bank card 1,154,017 692,339 976,200 Real estate 2,527,821 1,924,929 1,713,876 Construction 231,241 251,061 224,460 Foreign 791 12 729 - - ------------------------------------------------------------------------------------------- Loans - net of unearned income of $1,925 and $4,625 at June 30, 1994 and 1993, respectively, and $2,988 at December 31, 1993 8,588,840 7,222,779 7,287,122 Less: Allowance for loan losses (note 6) (226,666) (212,981) (210,958) - - ------------------------------------------------------------------------------------------- Loans - net 8,362,174 7,009,798 7,076,164 - - ------------------------------------------------------------------------------------------- Premises and equipment - net 321,709 298,995 302,704 Customers' liability on acceptances 4,777 14,406 11,578 Intangible assets - net (note 7) 146,612 106,492 96,152 Foreclosed properties - net (notes 5 and 8) 25,000 45,033 16,951 Other assets 373,964 408,407 303,263 - - ------------------------------------------------------------------------------------------- Total Assets $14,325,210 $13,242,152 $13,286,947 =========================================================================================== Liabilities Demand deposits $ 2,268,488 $ 2,061,148 $ 2,234,536 Interest checking deposits 1,866,427 1,624,424 1,791,100 Money market deposit accounts 2,366,184 2,360,089 2,214,537 Regular savings deposits 1,508,459 1,146,626 1,241,592 Money market certificates 708,980 599,428 538,869 Other domestic time deposits 2,612,744 2,211,454 2,097,448 Certificates of deposit $100,000 and over 65,188 44,507 45,914 Deposits in foreign offices - 1,782 1,782 - - ------------------------------------------------------------------------------------------- Total deposits 11,396,470 10,049,458 10,165,778 Short-term borrowings (note 9) 1,326,996 1,589,364 1,616,743 Liability on acceptances 4,777 14,406 11,578 Other liabilities 269,864 261,941 239,215 Long-term debt (note 10) 222,419 260,758 191,156 - - ------------------------------------------------------------------------------------------- Total Liabilities 13,220,526 12,175,927 12,224,470 - - ------------------------------------------------------------------------------------------- Shareholders' Equity Preferred stock. Authorized 2,000,000 shares; issued and outstanding: Adjustable Rate Cumulative Series B, $50 stated value; 900,000 shares at June 30, 1993 - 45,000 - Common stock, $5 par value. Authorized 100,000,000 shares; outstanding 37,717,023 and 37,720,229 at June 30, 1994 and 1993, respectively, and 37,515,671 shares at December 31, 1993 188,585 188,601 187,578 Capital surplus 273,169 242,001 248,896 Retained earnings 663,761 590,623 626,003 Net unrealized loss on securities available for sale (note 15) (20,831) - - - - ------------------------------------------------------------------------------------------- Total Shareholders' Equity 1,104,684 1,066,225 1,062,477 - - ------------------------------------------------------------------------------------------- Total Liabilities And Shareholders' Equity $14,325,210 $13,242,152 $13,286,947 ===========================================================================================
See accompanying notes to consolidated financial statements. 3 Consolidated Statements Of Income Crestar Financial Corporation And Subsidiaries
Dollars In thousands, except per share data Three Months Ended June 30, Six Months Ended June 30, --------------------------- -------------------------- Income From Earning Assets 1994 1993 1994 1993 Interest and fees on loans $169,024 $141,701 $323,988 $280,165 Interest and dividends on taxable securities held to maturity 15,087 29,400 23,987 57,007 Interest on tax-exempt securities held to maturity 1,241 1,735 2,625 3,720 Interest and dividends on securities available for sale 30,869 20,799 71,118 40,508 Income on money market investments 6,698 6,046 10,807 15,339 Interest on mortgage loans held for sale 5,453 5,247 12,877 10,314 - - -------------------------------------------------------------------------------------------------------------- Total income from earning assets 228,372 204,928 445,402 407,053 - - -------------------------------------------------------------------------------------------------------------- Interest Expense Interest checking deposits 10,405 9,533 20,146 18,806 Money market deposit accounts 15,622 14,965 29,371 29,954 Regular savings deposits 9,393 7,794 17,714 14,651 Money market certificates 5,498 4,544 9,795 9,535 Other domestic time deposits 27,907 24,322 52,815 48,716 Certificates of deposit $100,000 and over 573 496 1,047 1,052 Deposits in foreign offices - 18 11 35 - - -------------------------------------------------------------------------------------------------------------- Total interest on deposits 69,398 61,672 130,899 122,749 Short-term borrowings 9,380 9,833 19,993 21,889 Long-term debt 4,665 4,618 8,915 9,008 - - -------------------------------------------------------------------------------------------------------------- Total interest expense 83,443 76,123 159,807 153,646 - - -------------------------------------------------------------------------------------------------------------- Net Interest Income 144,929 128,805 285,595 253,407 Provision for loan losses (note 6) 8,850 3,006 18,882 21,506 - - -------------------------------------------------------------------------------------------------------------- Net Credit Income 136,079 125,799 266,713 231,901 - - -------------------------------------------------------------------------------------------------------------- Noninterest Income Trust and investment advisory income 14,441 14,545 29,444 29,267 Service charges on deposit accounts 21,116 19,882 41,895 39,740 Bank card-related income 9,247 6,560 16,975 12,189 Other income 23,388 20,377 45,051 39,427 Securities gains (losses) (49) 1,511 (1,767) 2,622 - - -------------------------------------------------------------------------------------------------------------- Total noninterest income 68,143 62,875 131,598 123,245 - - -------------------------------------------------------------------------------------------------------------- Net Credit And Noninterest Income 204,222 188,674 398,311 355,146 - - -------------------------------------------------------------------------------------------------------------- Noninterest Expense Personnel costs 75,992 64,223 150,789 127,481 Occupancy expense - net 10,061 9,421 20,855 18,387 Equipment expense 6,069 6,132 11,997 12,196 Other expense 48,611 60,771 91,102 105,567 - - -------------------------------------------------------------------------------------------------------------- Total noninterest expense 140,733 140,547 274,743 263,631 - - -------------------------------------------------------------------------------------------------------------- Income Before Income Taxes 63,489 48,127 123,568 91,515 Income tax expense (note 11) 20,881 14,417 40,478 26,911 - - -------------------------------------------------------------------------------------------------------------- Net Income 42,608 33,710 83,090 64,604 Preferred dividend requirements - 619 - 1,238 - - -------------------------------------------------------------------------------------------------------------- Income Applicable To Common Shares $ 42,608 $ 33,091 $ 83,090 $ 63,366 ============================================================================================================== Earnings Per Share (note 12): Primary $ 1.12 $ 0.88 $ 2.19 $ 1.71 Fully diluted 1.12 0.88 2.19 1.71 ==============================================================================================================
See accompanying notes to consolidated financial statements. 4 Consolidated Statements Of Cash Flows Crestar Financial Corporation And Subsidiaries
In thousands Six Months Ended June 30, ------------------------------ 1994 1993 Operating Net Income $ 83,090 $ 64,604 Activities Adjustments to reconcile net income to net cash provided by operating activities: Provisions for loan losses, foreclosed properties and other losses 18,357 29,086 Depreciation and amortization of premises and equipment 16,113 15,688 Securities losses (gains) 1,767 (2,622) Amortization of intangible assets 9,921 9,034 Deferred income tax expense 2,411 1,230 Loss on foreclosed properties 144 10,907 Gain on sale of mortgage servicing rights (9,332) (2,300) Net decrease in trading account 4,888 22,698 Net decrease (increase) in loans held for sale 330,847 (7,226) Net decrease (increase) in accrued interest receivable, prepaid expenses and other assets 19,186 (90,857) Net increase in accrued interest payable, accrued expenses and other liabilities 30,954 39,605 Other, net 6,775 (2,644) --------------------------------------------------------------------------------------------------- Net cash provided by operating activities 515,121 87,203 - - ------------------------------------------------------------------------------------------------------------------ Investing Proceeds from maturities and calls of securities held to maturity 155,355 325,706 Activities Proceeds from maturities and calls of securities available for sale 220,437 30,330 Proceeds from sales of securities available for sale 1,478,024 368,708 Purchases of securities held to maturity (594,771) (719,242) Purchases of securities available for sale (416,367) (443,242) Net decrease (increase) in money market investments (556,500) 617,535 Principal collected on non-bank subsidiary loans 9,801 11,819 Loans originated by non-bank subsidiaries (118,295) (51,473) Net decrease (increase) in other loans 2,421 (3,020) Purchases of premises and equipment (18,462) (16,531) Proceeds from sales of foreclosed properties 21,415 42,808 Proceeds from sale of mortgage servicing rights 15,268 3,175 Aquisitions of net assets of financial institutions 7,122 26,419 Other, net (5,510) (3,782) --------------------------------------------------------------------------------------------------- Net cash provided by investing activities 199,938 189,210 - - ------------------------------------------------------------------------------------------------------------------ Financing Net increase (decrease) in demand, interest checking, money Activities market and regular savings deposits (62,309) 89,416 Net decrease in short-term borrowings (495,949) (61,152) Net decrease in certificates of deposit (257,837) (301,402) Proceeds from issuance of long-term debt 158 - Principal payments on long-term debt (2,787) (718) Cash dividends paid (27,404) (20,464) Common stock purchased and retired (18,912) (3,079) Proceeds from the issuance of common stock 14,850 7,616 --------------------------------------------------------------------------------------------------- Net cash used by financing activities (850,190) (289,783) - - ------------------------------------------------------------------------------------------------------------------ Cash and Decrease in cash and cash equivalents (135,131) (13,370) Cash Cash and cash equivalents at beginning of year 716,652 754,583 Equivalents --------------------------------------------------------------------------------------------------- Cash and cash equivalents at end of quarter $ 581,521 $ 741,213 ==================================================================================================================
Cash and cash equivalents consist of cash and due from banks. See accompanying notes to consolidated financial statements. 5 Consolidated Statements Of Changes In Shareholders' Equity Crestar Financial Corporation And Subsidiaries
Dollars in thousands Shareholders' Equity Shares of Common Stock --------------------------- --------------------------- 1994 1993 1994 1993 Balance, April 1 $1,082,439 $ 987,517 37,482,661 36,305,742 Net Income 42,608 33,710 - - Cash dividends declared on: Preferred stock, Series B - (619) - - Common stock (15,020) (10,172) - - Change in valuation allowance for marketable equity securities - 1,492 - - Change in net unrealized loss on securities available for sale (note 15) (14,566) - - - Common stock purchased and retired (9,108) (3,079) (200,000) (85,000) Common stock issued: For acquisition of financial institutions 12,588 54,513 264,208 1,411,343 Upon conversion of debentures 108 2 11,670 216 For dividend reinvestment plan 2,901 2,170 63,223 59,482 Upon exercise of stock options (including tax benefit of $577 in 1994 and $190 in 1993) 2,734 691 95,261 28,446 - - --------------------------------------------------------------------------------------------------------- Balance, June 30 $1,104,684 $1,066,225 37,717,023 37,720,229 ========================================================================================================= Balance, January 1 $1,062,477 $ 958,905 37,515,671 36,156,605 Net Income 83,090 64,604 - - Cash dividends declared on: Preferred stock, Series B - (1,238) - - Common stock (27,404) (19,226) - - Change in valuation allowance for marketable equity securities - 4,128 - - Cumulative effect of change in accounting for securities available for sale (note 15) 32,209 - - - Change in net unrealized gain on securities available for sale (note 15) (53,040) - - - Common stock purchased and retired (20,277) (3,079) (469,700) (85,000) Common stock issued: For acquisition of financial institutions 12,588 54,513 264,208 1,411,343 Upon conversion of debentures 113 2 12,210 216 For dividend reinvestment plan 5,417 4,225 123,367 113,819 For directors' stock compensation plan 78 - 1,859 - For thrift and profit sharing plan 4,993 - 115,770 - Upon exercise of stock options (including tax benefit of $868 in 1994 and $742 in 1993) 4,440 3,391 153,638 123,246 - - --------------------------------------------------------------------------------------------------------- Balance, June 30 $1,104,684 $1,066,225 37,717,023 37,720,229 =========================================================================================================
See accompanying notes to consolidated financial statements. 6 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 acquisitions, have been included. All adjustments are of a normal recurring nature. Certain reclassifications have been made to the prior years' consolidated financial statements to conform to the 1994 presentation. The notes included herein should be read in conjunction with the notes to consolidated financial statements included in the Corporation's 1993 Annual Report and Form 10-K and in the Corporation's 1994 First Quarter Form 10-Q. On May 14, 1994, Crestar acquired the deposits of Piedmont Federal Savings Association, a Manassas, Virginia-based thrift institution which has been operating under Resolution Trust Corporation (RTC) conservatorship. In connection with this acquisition, Crestar paid a $10 million premium to the RTC for approximately $150 million in deposits. On June 10, 1994, Crestar completed the acquisition of Annapolis Bancorp, Inc., a holding company for Annapolis Federal Savings Bank of Annapolis, Maryland. Crestar acquired the stock of Annapolis Bancorp, Inc. for a purchase price of approximately $15 million, which included 264,208 shares of Crestar stock and $3 million in cash. The excess of the purchase price over the estimated fair value of the tangible net assets acquired is classified as an intangible asset in the consolidated balance sheet, and was approximately $20 million. Annapolis Bancorp, Inc. had total assets of approximately $300 million, loans of approximately $210 million, and deposits of approximately $275 million as of June 10, 1994. The above acquisitions were accounted for as purchases and, accordingly, the results of their operations are included in the accompanying consolidated financial statements since their respective acquisition dates. Goodwill recorded at the date of acquisition is being amortized over 15 years. The results of operations of the above acquisitions for the periods prior to their respective acquisition dates were not material to the results of operations of Crestar. (2) Securities Held To Maturity The carrying values and approximate market values of securities held to maturity at June 30 follow: ================================================================================
In thousands 1994 1993 Carrying Market Carrying Market Value Value Value Value ----------------------- ----------------------- U.S. Treasury and Federal agencies $ 10,413 $ 10,221 $ 20,156 $ 20,525 Mortgage-backed obligations of Federal agencies 655,497 636,538 1,746,115 1,777,964 Other taxable securities 258,011 252,897 207,216 210,064 States and political subdivisions 72,117 72,383 98,126 100,950 Common and preferred stocks - - 21,718 21,718 - - ------------------------------------------------------------------------------ Total securities held to maturity $ 996,038 $ 972,039 $2,093,331 $2,131,221 ==============================================================================
7 (3) Securities Available For Sale The carrying values and approximate market values of securities available for sale at June 30 follow: ================================================================================
In thousands 1994 1993 ---------------------- ----------------------- Amortized Market Amortized Market Cost Value Cost Value U.S. Treasury and Federal agencies $1,049,084 $1,033,644 $1,361,914 $1,400,706 Mortgage-backed obligations of Federal agencies 730,599 713,696 39,923 39,940 Other mortgage-backed obligations 207,437 207,310 191,238 192,059 Other taxable securities 5,621 5,665 - - Common and preferred stocks 33,738 33,598 8,892 8,892 - - ------------------------------------------------------------------------------ Total securities available for sale $2,026,479 $1,993,913 $1,601,967 $1,641,597 - - ------------------------------------------------------------------------------
At June 30, 1994, gross unrealized gains were $10.5 million and gross unrealized losses were $43.1 million for securities available for sale. The majority of U.S. Treasury and Federal agency securities mature within one to five years. The majority of mortgage-backed obligations have a stated maturity of over ten years. See note 15 for a discussion of accounting changes applicable to these securities. (4) Money Market Investments Money market investments at June 30 included: ================================================================================
In thousands 1994 1993 Trading account securities $ 172 $ 19,513 Federal funds sold 414,690 4,836 Securities purchased under agreements to resell 105,000 88,000 Domestic time deposits 25,138 228 U.S. Treasury and other 698,975 435,472 - - -------------------------------------------------------------------------------- Total money market investments $1,243,975 $ 548,049 ================================================================================
(5) Nonperforming Assets Nonperforming assets at June 30 were: ================================================================================
In thousands 1994 1993 Nonaccrual loans $ 77,400 $117,529 Restructured loans - 238 - - -------------------------------------------------------------------------------- Total nonperforming loans 77,400 117,767 Foreclosed properties - net 25,000 45,033 - - -------------------------------------------------------------------------------- Total nonperforming assets $102,400 $162,800 ================================================================================
Non-cash additions to foreclosed properties were $3.6 million and $11.6 million in the first six months of 1994 and 1993, respectively. 8 (6) Allowance For Loan Losses Transactions in the allowance for loan losses for the three months and six months ended June 30 were: ================================================================================
In thousands Three Months Six Months 1994 1993 1994 1993 --------------------------- --------------------------- Beginning balance $ 226,577 $ 202,979 $ 210,958 $ 205,017 - - --------------------------------------------------------------------------------------------- Charge-offs (15,936) (35,328) (34,689) (60,049) Recoveries 7,096 20,324 15,807 24,507 - - --------------------------------------------------------------------------------------------- Net charge-offs (8,840) (15,004) (18,882) (35,542) Provision for loan losses 8,850 3,006 18,882 21,506 Allowance from acquisitions - net 79 22,000 15,708 22,000 - - --------------------------------------------------------------------------------------------- Net increase 89 10,002 15,708 7,964 - - --------------------------------------------------------------------------------------------- Ending balance $ 226,666 $ 212,981 $ 226,666 $ 212,981 =============================================================================================
Allowance from acquisitions for the three month and six month periods ended June 30, 1994 is net of a $4.2 million reduction in the allowance for loan losses initially recorded upon the purchase of CFS Financial Corporation (CFS) in May 1993. This reduction in the initial valuation of the acquired allowance was based on subsequent and more detailed analysis of the creditworthiness of the CFS loan portfolio as of the date of acquisition. The impact of this reduction on the other values assigned to the assets acquired and liabilities assumed in the CFS purchase was to decrease goodwill by $2.7 million and to increase deferred income taxes payable by $1.5 million. (7) Intangible Assets Intangible assets at June 30 included: ================================================================================
In thousands 1994 1993 Goodwill and deposit base intangibles $124,448 $ 81,767 Mortgage servicing rights 21,543 23,994 Other 621 731 - - ---------------------------------------------------------------------------------------------- Total intangible assets $146,612 $106,492 ==============================================================================================
(8) Allowance For Foreclosed Properties Transactions in the allowance for losses on foreclosed properties for the three months and six months ended June 30 were: ================================================================================
In thousands Three Months Six Months 1994 1993 1994 1993 Beginning balance $5,433 $ 9,564 $ 5,574 $10,264 - - ----------------------------------------------------------------------------------------------- Write-downs (390) (6,564) (645) (7,264) Provision for foreclosed properties - 7,500 (1,302) 7,500 Allowance from acquisitions 4,123 2,046 5,539 2,046 - - ----------------------------------------------------------------------------------------------- Net increase 3,733 2,982 3,592 2,282 - - ----------------------------------------------------------------------------------------------- Ending balance $ 9,166 $ 12,546 $ 9,166 $ 12,546 ===============================================================================================
9 (9) Short-Term Borrowings Borrowings, exclusive of deposits, with maturities of less than one year at June 30 were: ================================================================================
In thousands 1994 1993 Federal funds purchased $ 411,017 $ 405,126 Securities sold under repurchase agreements 785,452 1,027,795 Commercial paper 311 226 Notes payable 128,140 100,377 Term federal funds purchased - 50,000 U.S. Treasury demand notes - 3,029 Other 2,076 2,811 - - ------------------------------------------------------------------- Total short-term borrowings $1,326,996 $1,589,364 ===================================================================
The Corporation paid $149,431,000 and $150,947,000 in interest on deposits and short-term borrowings in the first six months of 1994 and 1993, respectively. (10) Long-Term Debt Long-term debt at June 30 included: ===================================================================
In thousands 1994 1993 81/4% Subordinated notes due 2002 $125,000 $125,000 85/8% Subordinated notes due 1998 49,960 49,950 7-101/2% Mortgage indebtedness maturing through 2009 12,648 13,638 6-14% Capital lease obligations maturing through 2006 2,979 2,378 41/8-61/4% Federal Home Loan Bank obligations payable through 2008 11,115 - 43/4-91/2% Collateralized mortgage obligation bonds maturing through 2019 20,717 - 5% Convertible subordinated debentures due 1994 - 134 52/5% Notes due 1995 - 50,309 73/4% Debentures due 1997 - 19,349 - - ------------------------------------------------------------------- Total long-term debt $222,419 $260,758 ===================================================================
The Corporation made payments of $9,134,000 and $9,009,000 in interest on long-term debt in the first six months of 1994 and 1993, respectively. There were no new capital lease agreements in the second quarter of 1994. At May 1, 1994, all remaining 5% convertible subordinated debentures outstanding were converted into the common stock of Crestar at a conversion price of $9.25 per share. During the second quarter of 1994, $8,414,000 of collateralized mortgage obligation bonds were assumed through the acquisition of Annapolis Bancorp, Inc. 10 (11) Income Taxes The current and deferred components of income tax expense allocated to operations in the accompanying consolidated statements of income for the three months and six months ended June 30 were: ================================================================================
In thousands Three Months Six Months ---------------------- ------------------------ 1994 1993 1994 1993 Current: Federal $20,940 $13,643 $37,185 $26,554 State and local (256) 480 882 (873) - - ------------------------------------------------------------------------------------------ Total current tax expense 20,684 14,123 38,067 25,681 - - ------------------------------------------------------------------------------------------ Deferred: Federal (542) 1,163 2,098 2,144 State and local 739 (869) 313 (914) - - ------------------------------------------------------------------------------------------ Total deferred tax expense 197 294 2,411 1,230 - - ------------------------------------------------------------------------------------------ Total income tax expense $20,881 $14,417 $40,478 $26,911 ==========================================================================================
The differences between the amounts computed by applying the statutory federal income tax rate to income before income taxes and the actual income tax expense allocated to operations for the three months and six months ended June 30 were:
In thousands Three Months Six Months 1994 1993 1994 1993 Income before income taxes $63,489 $48,127 $123,568 $91,515 - - ------------------------------------------------------------------------------------------- Tax expense at statutory rate 22,221 16,363 43,249 31,115 - - ------------------------------------------------------------------------------------------- Increase (decrease) in taxes resulting from: Tax-exempt interest and dividends (1,843) (2,099) (3,558) (4,331) Nondeductible interest expense 107 134 212 283 Amortization of goodwill 219 258 506 485 State income taxes 314 (256) 776 (192) Adoption of new accounting standard - - - (540) Other - net (137) 17 (707) 91 - - ------------------------------------------------------------------------------------------- Total decrease in taxes (1,340) (1,946) (2,771) (4,204) - - ------------------------------------------------------------------------------------------- Total income tax expense $20,881 $14,417 $40,478 $26,911 - - ------------------------------------------------------------------------------------------- Effective tax rate 32.9% 30.0% 32.8% 29.4% ===========================================================================================
The Corporation made income tax payments of $37,572,000 and $28,037,000 during the first six months of 1994 and 1993, respectively. At June 30, 1994, the Corporation had a net deferred tax asset of $80,143,000. There was no valuation allowance relating to the tax asset. Crestar has sufficient taxable income in the available carryback periods and future taxable income from reversing taxable differences to realize substantially all of its deferred tax assets. Management believes, based on the Corporation's history of generating significant earnings and expectations of future earnings, that it is more likely than not that all recorded deferred tax assets will be realized. 11 (12) Earnings Per Share Average common and common equivalent shares used in the determination of earnings per share for the three months and six months ended June 30 were: ================================================================================
In thousands Three Months Six Months --------------------- --------------------- 1994 1993 1994 1993 Primary 37,930 37,440 37,901 37,061 Plus assumed conversion of debentures - 15 - 15 Other 1 24 3 33 - - ------------------------------------------------------------------------------------------------- Fully diluted 37,931 37,479 37,904 37,109
================================================================================ Primary earnings per share are computed by dividing net income applicable to common shares by the weighted average number of common shares outstanding during the period, including average common equivalent shares attributable to dilutive stock options. Fully diluted earnings per common share are computed using average common shares, including the maximum dilutive effect of average common equivalent shares, increased by the number of shares that would result from assuming that the 5% convertible subordinated debentures were converted into common stock at the beginning of the applicable period and using net income increased by interest and amortization of debt issuance expense, net of tax effect, relating to those debentures. Net income for 1993 is further reduced by the dividends applicable to the Series B preferred stock. The following table provides the net adjustment to net income: ================================================================================
In thousands Three Months Six Months --------------------- --------------------- 1994 1993 1994 1993 Interest and amortization of debt issuance expense $ - 1 $ 2 3 Tax effect - - (1) (1) Preferred dividends, Series B - (619) - (1,238) - - ---------------------------------------------------------------------------------------------------------- Net adjustment to net income $ - (618) $ 1 (1,236) ==========================================================================================================
In the first six months of 1994 and 1993, $113,000 and $2,000 of subordinated debentures were converted into 12,210 and 216 shares of common stock, respectively. 12 (13) Condensed Crestar Financial Corporation (Parent) Information The following shows the Parent's Condensed Balance Sheets at June 30: ================================================================================
In thousands 1994 1993 Cash in banks $ 39,231 $ 36,414 Securities held to maturity 11,594 12,263 Securities available for sale 16,587 8,892 Money market investments 4,912 54,765 Securities purchased under agreements to resell 98,908 88,000 Notes receivable from subsidiaries 181,849 176,000 Investments in subsidiaries: Bank subsidiaries 1,099,412 1,017,576 Non-bank subsidiaries 8,336 7,286 Other assets 11,944 19,001 - - -------------------------------------------------------------------------------- Total Assets $1,472,773 $1,420,197 ================================================================================ Commercial paper 311 226 Master notes 123,140 100,377 Securities sold to subsidiary under repurchase agreements 4,348 2,795 Other liabilities 65,309 56,141 Long-term debt 174,981 194,433 Total shareholders' equity 1,104,684 1,066,225 - - -------------------------------------------------------------------------------- Total Liabilities and Shareholders' Equity $1,472,773 $1,420,197 ================================================================================
The Parent's Condensed Statements of Income for the three months and six months ended June 30 were:
In thousands Three Months Six Months 1994 1993 1994 1993 ---------------------- ---------------------- Cash dividends from bank subsidiaries $23,492 $11,151 $37,110 $21,214 Interest from subsidiaries 3,628 3,652 7,279 7,278 Interest on securities held to maturity and available for sale 245 559 442 1,103 Income on money market investments 52 412 271 623 Interest on securities purchased under agreements to resell 1,108 701 1,911 1,727 Other income 124 41 133 41 Securities losses - (1,494) - (1,494) - - ------------------------------------------------------------------------------------------------------------ Total income 28,649 15,022 47,146 30,492 - - ------------------------------------------------------------------------------------------------------------ Interest on short-term borrowings 973 644 1,657 1,331 Interest on long-term debt 3,657 4,034 7,317 8,070 Other expense 1,421 433 1,542 602 - - ------------------------------------------------------------------------------------------------------------ Total expense 6,051 5,111 10,516 10,003 - - ------------------------------------------------------------------------------------------------------------ Income before income taxes and equity in undistributed net income of subsidiaries 22,598 9,911 36,630 20,489 Income tax benefit (451) (691) (366) (1,438) - - ------------------------------------------------------------------------------------------------------------ Income before equity in undistributed net income of subsidiaries 23,049 10,602 36,996 21,927 - - ------------------------------------------------------------------------------------------------------------ Equity in undistributed net income of subsidiaries 19,559 23,108 46,094 42,677 - - ------------------------------------------------------------------------------------------------------------ Net Income $ 42,608 $ 33,710 $ 83,090 $ 64,604 ============================================================================================================
13 (14) Commitments and Contingencies In the normal course of business, there are outstanding commitments and contingent liabilities and other financial instruments that are not reflected in the accompanying consolidated financial statements. These include commitments to extend credit, put options, standby letters of credit, interest rate caps, floors and collars, interest rate swaps, and forward contracts. No material losses are expected to result from these transactions. Commercial lines of credit are established for a potential borrower as an indication of the aggregate amount of outstanding loans that the banks are willing to extend. Sometimes these lines of credit are supported by balances left on deposit, investment securities, real estate or inventory. Loan advances made under such lines usually do not extend beyond the borrower's fiscal year. Such advances are normally given for working capital purposes and require repayment within twelve months. Formal long-term commitments are made under legal and binding agreements for which the borrower pays a commitment fee. These agreements typically contain clauses that permit cancellation of the commitment in the event of credit deterioration of the borrower. Crestar's outstanding standby letters of credit amounted to approximately $411.5 million at June 30, 1994 and $413.3 million at June 30, 1993. At June 30, 1994, approximately $10.3 million of these standby letters of credit were participated to other financial institutions. The Corporation services mortgage loans other than those included in the accompanying consolidated financial statements and, in some cases, accepts a recourse liability on the serviced loans. At June 30, 1994, Crestar serviced a total of $819.8 million of loans for which it had accepted a recourse liability. Of this amount, approximately $489.0 million was insured by agencies of the Federal government or private insurance companies. In addition, at June 30, 1994, Crestar had forward contracts totaling $422.9 million outstanding as hedges of lending commitments. As a financial institution, Crestar entails 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. Changes in the fair value of such derivatives are generally offset by changes in the implied fair value of the underlying hedged asset or liability. As hedges against interest rate risk at June 30, 1994, Crestar was participating in interest rate (fixed receive) swaps having a notional value of $1.57 billion. Of these interest rate swaps, $1.38 billion were used to convert certain variable rate commercial and real estate loans to fixed rates, and $150 million were used to convert variable rate securities to fixed rates, in order to make their interest sensitivity more neutral. An additional $35 million in interest rate swaps were used to convert specifically identified time deposits to variable rates in order to lock in a spread on the variable rate assets which they fund. Notional balances of $876.4 million of the above swaps were indexed amortizing swaps, whose notional value amortizes more slowly as rates rise. Unrealized gains and unrealized losses on interest rate swap contracts utilized as hedges were $4.9 million and $57.3 million, respectively, as of June 30, 1994. Crestar also had a notional amount outstanding of $200 million of interest rate floor agreements on June 30, 1994 to minimize interest rate risk associated with variable rate assets. Unrealized losses on these floor agreements approximated $200,000 as of June 30, 1994. The notional amount of these over-the-counter traded interest rate swaps and floors does not represent Crestar's credit exposure, which the Corporation views as a combination of current replacement cost plus an amount for additional market movement. At June 30, 1994, such estimated credit exposure was $38.4 million. Three counterparties constituted 26%, 13% and 11% of the estimated credit exposure at June 30, 1994; no other counterparties represented more than 10% of the estimated credit exposure at June 30, 1994. The average expected maturity at June 30, 1994 was 1.5 years for interest rate swaps and 0.6 years for interest rate floors used by Crestar as hedge instruments. The average fixed rate for these swaps was 5.93%. The interest rate floors used by Crestar as hedges against interest rate risk are tied to the London Inter-Bank Offered Rate (LIBOR). The average strike rate at June 30, 1994 for these interest rate floors was 5.50%. Crestar serves as a financial intermediary in interest rate cap, interest rate floor and interest rate collar agreements, and at June 30, 1994 had aggregate notional amounts outstanding of $63.1 million in offsetting interest rate cap agreements, $50.0 million in offsetting interest rate floor agreements, and $80.8 million in offsetting interest rate collar agreements. Under the terms of the January 11, 1994 purchase agreement, Crestar may pay the former owners of Mortgage Capital Corporation an additional $2.4 million depending on the future performance of Mortgage Capital Corporation's operations over the next five years. Certain litigation is pending against Crestar. Management, after reviewing this litigation with legal counsel, is of the opinion that these matters, when resolved, will not have a material effect on the accompanying consolidated financial statements. 14 (15) New Accounting Standards Effective January 1, 1994, Crestar adopted Statement of Financial Accounting Standards No. 115 (SFAS 115), "Accounting for Certain Investments in Debt and Equity Securities." In accordance with SFAS 115, securities are classified as either securities held to maturity, securities available for sale or trading account securities. Securities held to maturity are carried at amortized cost, as the Corporation has the ability and positive intent to hold these securities to maturity. Trading account securities are carried at fair value as they are intended to be sold in the near term: trading securities are classified as money market investments on the Corporation's Consolidated Balance Sheets. Securities available for sale are carried at fair value and represent securities not classified as held to maturity or as trading account securities. With the adoption of SFAS 115, unrealized holding gains and losses on securities available for sale are excluded from the Consolidated Statements of Income and reported, net of tax, as a separate component of shareholders' equity. On January 1, 1994, securities having an amortized cost of $2.932 billion, and a fair value of $2.983 billion, were classified as securities available for sale. The initial effect of adoption of SFAS 115 was an increase in shareholders' equity of $32.2 million, which was the amount, net of tax, by which the fair value of securities available for sale exceeded the amortized cost of such securities on January 1, 1994. At June 30, 1994, on an after-tax basis, the amortized cost of securities available for sale exceeded the fair value of such securities by $20.8 million. The net unrealized gain or loss of 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 sales, purchases, maturities and calls of securities classified as available for sale. In accordance with SFAS 115, the Corporation's consolidated financial statements for periods prior to January 1, 1994 have not been retroactively changed to conform to current securities classifications. Prior to January 1, 1994, investment securities which management intended to sell as a part of its asset/liability management strategy, or that may have been sold in response to changes in interest rates, prepayment risk or other similar factors, were classified as securities held for sale, and were stated at the lower of aggregate amortized cost or market value. All other investment securities were accounted for in a manner similar to securities held to maturity or trading account securities. Statement of Financial Accounting Standards No. 112 (SFAS 112), "Employers' Accounting for Postemployment Benefits," was adopted by Crestar on January 1, 1994. Under SFAS 112, benefits provided to inactive or former employees before retirement are accrued during the period of active employment, rather than being expensed as paid. For Crestar, such benefits consist principally of short-term disability benefits. Adoption of SFAS 112 resulted in a pre-tax charge to employee benefit expense of $1.8 million in the first quarter of 1994. Postemployment benefits expense for periods prior to January 1, 1994 has not been restated. 15 Financial Commentary Crestar Financial Corporation And Subsidiaries Overview (Tables 1, 2 and 14) Crestar Financial Corporation (Crestar) reported record earnings of $42.6 million for the quarter ended June 30, 1994, an increase of 26% from the $33.7 million earned in second quarter 1993. For the first six months, earnings were $83.1 million in 1994, an increase of 29% from the $64.6 million in 1993. These increases reflected the continued positive effects of growth in net interest income and noninterest income and continuing improvement in credit quality. Earnings per share were $1.12 for the second quarter of 1994 compared with $.88 in 1993. For the first six months of the year, earnings per share were $2.19 for 1994, an increase of 28% from the $1.71 per share recorded in the first six months of 1993. The predominant items affecting the change in earnings per share are given in Table 2. Each applicable item is net of applicable federal income taxes. Mergers and Acquisitions Two acquisitions were completed during the second quarter of 1994. On June 10, Crestar completed its previously announced acquisition of Annapolis Bancorp, Inc. (Annapolis), the holding company for Annapolis Federal Savings Bank, a $300 million-asset thrift institution based in Annapolis, Maryland. Annapolis shareholders received, in a combination of Crestar stock and cash, a total of $15 million. The Annapolis acquisition included approximately $275 million in deposits, $210 million in loans and nine branch offices. On May 14, Crestar acquired the deposits of Piedmont Federal Savings Association, a Manassas, Virginia-based thrift institution which had been operating under Resolution Trust Corporation (RTC) conservatorship since October, 1992. Crestar paid a $10 million premium to the RTC for Piedmont's $150 million in deposits. The above acquisitions have been accounted for under the purchase method of accounting whereby the purchase price has been allocated to the underlying assets acquired and liabilities assumed based on their respective fair values at the date of acquisition. In the aggregate, acquisitions completed during the first six months of the year are expected to contribute positively to earnings per share for 1994. Financial statement note 1 contains additional information concerning these acquisitions. Profitability Measures and Capital Resources (Table 1) Increased earnings in both the second quarter and the first six months of 1994 resulted in improvements in key profitability measures over 1993. Return on average assets was 1.25% for the second quarter and 1.23% for the first six months of 1994, compared to 1.09% and 1.05%, respectively, for 1993. Return on average equity and return on average common equity were both 15.79% for the second quarter, up from 13.24% and 13.60%, respectively, for the second quarter of 1993. Return on average equity and return on average common equity for the first six months were both 15.31%, up from 13.00% and 13.36%, respectively, for the first six months of 1993. Average equity to assets of 7.90% for second quarter 1994 decreased 32 basis points from 8.22% in second quarter 1993, and average equity to assets of 8.05% for the first six months was down 5 basis points from 8.10% in 1993, reflecting the net impact of acquisitions and Crestar's common stock repurchase program. Period-end equity to assets of 7.71% at June 30, 1994 was 34 basis points below the 8.05% in 1993, also reflecting an increase in period-end assets as a result of the acquisitions completed. Crestar's consolidated Tier 1 risk-adjusted capital ratio was 9.3% and total risk-based capital was 12.0% at June 30, 1994, well above the required minimums of 4.0% and 8.0%, respectively. The Tier 1 leverage ratio of 7.5% at June 30, 1994 also was well above the regulatory minimum of 3%. Crestar's tangible leverage ratio, defined as total equity less all intangibles divided by total assets less all intangibles and utilized by the Federal Reserve Board in evaluating proposals for expansion or acquisitions, was 6.8% at June 30, 1994. Each of Crestar's three subsidiary banks continued to be "well capitalized" as of June 30, 1994, the highest level of capitalization defined by the Federal Deposit Insurance Corporation for purposes of determining deposit insurance rates. Net Interest Margin and Net Interest Income (Tables 3 and 15) Crestar's second quarter 1994 net interest margin of 4.76% improved three basis points from 4.73% in the second quarter of 1993. This increase reflects favorable changes in the composition of balance sheet earning assets, which offset adverse rate movements. Changes in the earning asset mix increased the second quarter 1994 net interest margin by approximately 17 basis points, fueled by growth in loans. Average bank card loans increased $423 million, or 65%, to $1.1 billion in second quarter 1994. Average real estate loans were up 42%, or $734 million, from second quarter 1993 balances. Also, average instalment loans grew 20 percent during this period. As a percentage of total earning assets, loans increased from 61% in second quarter 1993 to 67% for second quarter 1994. On the funding side, the proportion of lower-cost sources increased due to an increase in average net free sources, primarily net demand deposits. Average total deposits for second quarter 1994 increased $1.5 billion to $11.1 billion, a 16% increase over second quarter 1993 balances. Average short-term borrowings were down 25% from second quarter 1993 balances, reflecting the growth in deposits. These positive changes to Crestar's funding mix had a positive impact of four basis points on second quarter 1994 net interest margin when compared to second quarter 1993. 16 Positive changes in balance sheet mix were dampened slightly by narrower interest rate spreads during second quarter 1994. The yield on average loans decreased 20 basis points from second quarter 1993, with declines noted in the instalment, bank card and real estate loan portfolios. The average rate paid on savings and time deposits decreased 12 basis points during this time period, falling from 3.22% in second quarter 1993 to 3.10% in second quarter 1994. In total, narrower interest rate spreads depressed second quarter 1994 net interest margin, versus second quarter 1993, by 10 basis points. Decreased levels of nonperforming assets in the second quarter of 1994 had a favorable impact on the net interest margin of approximately four basis points, which was offset by an 11 basis point decline in the favorable margin benefit arising from off-balance sheet hedges. The extent to which Crestar will be able to maintain the 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. As a result of the increase in the net interest margin and an 11% increase in average earning assets, reported net interest income for second quarter 1994 increased 13% over 1993, and tax-equivalent net interest income increased 12%. For the first six months, tax equivalent net interest income increased 12% over 1993 as a result of a six basis point increase in net interest margin and a 10% increase in average earning assets. Factors contributing to the increased year- to-date margin mirror those previously discussed. Positive changes to both the earning assets and funding mix for the year-to-date period had a favorable impact of 29 basis points, while declining earning asset yields contributed to a 19 basis point negative impact from narrower interest rate spreads. Reduced non- performing assets added a five basis point favorable impact, while declining levels of favorable off-balance sheet hedge transactions had a negative impact of nine basis points. Risk Exposures and Credit Quality (Tables 4 - 10) In addition to other loan categories, Crestar closely manages its portfolio of loans to real estate developers and investors (REDI). The REDI portfolio was the primary source of weaker credit quality for the recessionary period from 1990 into 1993. As detailed in Table 4, REDI outstandings were $1.1 billion or 13% of total loans at June 30, 1994 compared with $1.2 billion or 17% of total loans at June 30, 1993. The relative concentration level of REDI outstandings to total loans continues to decrease as loan growth occurs, despite additions to the REDI loan portfolio arising from acquisitions of financial institutions. At June 30, 1994, nonperforming loans comprised 3.70% of the total REDI loan portfolio; the comparable ratio as of June 30, 1993 was 5.56%. Table 5 shows the property type and geographic diversification of the REDI portfolio. Continued improvement in credit quality was evident in second quarter 1994 levels of provision for loan losses, charge-offs and nonperforming assets. While the provision for loan losses of $8.9 million for second quarter 1994 was up from the $3.0 million provision for second quarter 1993, six month year-to-date provision expense was down 12%, from $21.5 million in 1993 to $18.9 million in 1994. Net charge-offs of $8.8 million for second quarter 1994 declined 41% from 1993. For the first six months, net charge-offs were down 47% to $18.9 million. Crestar's REDI loan portfolio experienced net recoveries of $0.3 million for second quarter 1994, reflecting improvement in the credit quality of the portfolio as well as an increasing rate of charge-off recoveries. Net charge-offs for non-REDI loans were $9.1 million, resulting in total net charge-offs for all loans in the second quarter of $8.8 million. In the second quarter 1993, REDI net charge-offs were $6.8 million, or 2.4% of REDI average loans. Current expectations are that net charge-offs for the full year of 1994 will be less than in 1993. The allowance for loan losses was $227 million at June 30, 1994, representing 2.64% of period-end loans, 221% of nonperforming assets and 293% of nonperforming loans. Based on portfolio characteristics and market conditions, management considers the level of the allowance adequate. Total nonperforming assets of $102 million at June 30, 1994 declined 37% from the $163 million reported in 1993. Nonperforming assets at June 30, 1994 included $9 million which resulted from the June 1994 acquisition of Annapolis Bancorp, Inc. During the first six months of 1994, nonperforming assets of approximately $35 million were acquired through merger activity. Tables 9 and 10 provide details of how nonperforming loans and foreclosed properties have changed on a quarterly basis since second quarter 1993. Barring an unexpected deterioration in the economy and in the Corporation's real estate markets, total nonperforming assets are expected to decrease in 1994, exclusive of additions that may arise from any future acquisitions. Potential problem loans consist of loans that are currently performing in accordance with contractual terms but for which potential operating or financial concerns have caused management to have serious doubts regarding the ability of such obligors to continue to comply with present repayment terms. At June 30, 1994, potential problem loans, not included in Table 8, amounted to approximately $168 million compared with $223 million at June 30, 1993 and $205 million at December 31, 1993. Noninterest Income and Expense (Table 11) Noninterest income totaled $68.1 million in second quarter 1994, a $5.3 million or 8% increase over second quarter 1993. For the first six months of 1994, noninterest income of $131.6 million increased 7% over 1993 results. Excluding securities gains (losses), noninterest income increased 11% in the second quarter of 1994, and also 11% in the first six 17 months of 1994, when compared to prior year results. Both the quarter and year-to-date increases reflect growth in bank card-related fee income, mortgage servicing income and servicing sales, and service charges on deposit accounts, partially offset by declines in trading account activities and mortgage origination volume. Noninterest expense for the second quarter was basically flat when compared to second quarter 1993 results, increasing only $186,000. For the six months ended June 30, noninterest expense for 1994 was up 4% in comparison to 1993. These results stem in part to a dramatic decline in Crestar's foreclosed properties expense in the current year, reflecting an improved credit environment in Crestar's market area. Excluding foreclosed properties expense, noninterest expense increased 15% in second quarter 1994 and 16% in the first six months of 1994, largely due to acquisition expenses and costs incurred in servicing and fee-based businesses such as mortgage, bank card, investment banking and sales, and trust and investment advisory services. Additional expenses arising from the six acquisitions completed in the first half of 1994 were approximately $10.4 million, or approximately 28% of the six months year- to-date 1994 increase, exclusive of foreclosed property expenses, of $37.6 million. Expense increases in the mortgage, bank card, and trust and investment advisory groups amounted to approximately $11.9 million year-to-date, as Crestar continues its emphasis on growing sources of noninterest income. Employee benefits expense increased $4.4 million for the quarter and $7.7 million year- to-date, primarily due to the aforementioned acquisition activity, adoption of Statement on Financial Accounting Standards No. 112 (postemployment benefits), and to employee benefits that are tied to earnings. Foreclosed properties expense for second quarter 1994 and the first six months declined $18.3 million or 95% and $26.5 million or 97%, respectively, from 1993. Foreclosed properties, net of reserves, were $25.0 million at June 30, 1994, versus $45.0 million at June 30, 1993. The effective tax rate for second quarter 1994 and the first six months was 32.9% and 32.8%, respectively, compared to 30.0% and 29.4% for 1993. Both the quarterly and year-to-date increase in the effective tax rate is attributed to an increase in the federal corporate income tax rate from 34% to 35% enacted in third quarter 1993, the adoption of Statement of Financial Accounting Standards Board No. 109, "Accounting for Income Taxes", which resulted in a reduction of income tax expense of $540 thousand in first quarter 1993, and reduced proportions of tax-exempt interest and dividends. Financial statement note 11 contains additional information concerning income taxes. Financial Condition (Table 12) Crestar's assets totaled $14.3 billion at June 30, 1994, up 8% from $13.3 billion at December 31, 1993 primarily due to acquisitions completed in the first six months of 1994. Loans net of unearned income at June 30, 1994 increased $1.3 billion or 18%, reflecting growth from a combination of acquisitions and internally generated lending. Total deposits increased $1.2 billion or 12% over December 31, 1993 balances, reflecting the impact of Crestar's acquisitions during the first six months of 1994. Average loan balances for second quarter 1994 increased $1.5 billion, or 22%, over second quarter 1993 balances. Of this increase, approximately $1.0 billion was attributable to acquisitions completed during 1994. Similarly, average deposits for second quarter 1994 increased $1.5 billion, or 16%, over the same period of 1993. Acquisitions during 1994 contributed approximately $1.1 billion to this average total deposit growth. With respect to the securities held to maturity portfolio, carrying value exceeded the market value at June 30, 1994 by $24.0 million, consisting of $4.1 million in unrealized gains and $28.1 million in unrealized losses. At June 30, 1994, the amortized cost of securities available for sale exceeded the fair value of such securities by $32.6 million, consisting of $10.5 million in unrealized gains and $43.1 million in unrealized losses. On January 1, 1994, Crestar adopted Statement of Financial Accounting Standards Board No. 115, "Accounting for Certain Investments in Debt and Equity Securities" (SFAS 115). Upon adoption of SFAS 115, certain investment securities totaling $1.2 billion were reclassified from investment securities to securities available for sale. Shareholders' equity at June 30, 1994 reflects a $20.8 million reduction for the excess of amortized cost of securities available for sale, net of tax, over the fair value at quarter-end as prescribed by SFAS 115. The net unrealized gain or loss of 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 sales, purchases, maturities and calls of securities classified as available for sale. Crestar purchased and retired 200,000 shares of common stock at an average price of $45.54 per share during second quarter 1994, to meet the needs of employee benefit plans, dividend reinvestment plans, and for shares issued for the acquisition of Annapolis Bancorp, Inc. For the six month period ended June 30, 1994, 469,700 shares of common stock have been purchased and retired, at an average price of $43.17. In connection with the June 1994 acquisition of Annapolis Bancorp, Inc., 264,208 shares of common stock were issued. Effective with the common stock dividend paid on May 20, 1994, Crestar increased the quarterly dividend rate to $.40 per share, from the previous quarterly rate of $.33 per share. Debt ratings are presented in Table 12. In April 1994, Moody's raised its ratings on Crestar's subordinated notes from Baa2 to Baa1. In its announcement, Moody's cited Crestar's rising core profitability trend and decreased credit expenses as reasons for the ratings upgrade. 18 Liquidity and Interest Sensitivity (Table 13) Bank liquidity is a measure of the ability to generate and maintain sufficient cash flows to fund operations and to meet financial obligations to depositors and borrowers promptly and in a cost-effective manner. Interest sensitivity refers to the volatility of net interest income as a result of changes in interest rates and is measured in several ways. Crestar's goal is to limit interest rate exposure to prudent levels as determined by the Asset/Liability Management Committee (ALCO). The primary tool used by ALCO is net interest income simulations. A two-year net interest income forecast based on a "most likely" interest rate forecast is prepared regularly, as are net interest income forecasts based on alternative high and low interest rate scenarios. The expected dynamics of the balance sheet, including shifts in loans and deposits, are included in simulations. The high- and low-rate forecasts are compared to the "most likely" scenarios. A second interest sensitivity tool is the quantification of market value changes for all assets and liabilities given an increase or decrease in interest rates. This approach to interest rate risk provides a longer term view of the risk, capturing all expected future cash flows. Assets and liabilities with option characteristics are valued based on numerous interest rate path valuations. The banking industry, including regulators, is moving toward a market value type of interest sensitivity assessment. Crestar has been developing this tool and will incorporate it as another component of interest rate risk management to supplement the results achieved through simulation. Another interest rate risk tool used by Crestar is the interest rate "gap," or mismatch in repricing between interest-sensitive assets and liabilities, which provides a general indication of interest sensitivity at a specific point in time. A gap schedule is shown in Table 13, and reflects the earlier of the maturity or repricing date for various assets and liabilities at June 30, 1994. Financial statement note 14 contains additional information about certain off- balance sheet arrangements that may affect future net interest income and interest rate sensitivity. On a cumulative six-month basis, Crestar had a liability sensitive "static gap" at June 30, 1994 with $3.2 billion excess of interest-sensitive sources of funds over uses of funds. In addition to the traditional "static gap" presentation, the table also presents interest sensitivity on an adjusted basis. The first of these adjustments is made through the use of beta factors, which are based on a ratio of actual changes in consumer deposit rates to changes in the prime rate during interest rate cycles for the last several years. Essentially, the beta factors recognize that certain consumer deposit rates are less interest-sensitive than market-based rates such as commercial paper. In addition to a beta adjustment, the table also incorporates an adjustment to reflect the sensitivity of much of the Corporation's commercial demand deposit balances to the level of interest rates. On a cumulative six-month basis, Crestar had a liability sensitive "adjusted gap" at June 30, 1994, with $723 million excess of interest-sensitive sources of funds over uses of funds. The static gap and adjusted gap do not include $200 million in interest rate floors which Crestar has added to offset the effect that falling interest rates would have on $200 million of variable rate loans. As a financial institution, 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. The majority of Crestar's notional value of outstanding derivative instruments at June 30, 1994 are utilized to convert certain variable rate assets to fixed rates in order to make their interest sensitivity more neutral. Footnote 14 of the financial statements provides additional information regarding Crestar's outstanding derivative contracts as of June 30, 1994, including notional balances and fair value information. The notional amount of derivative contracts does not represent Crestar's credit exposure, which the Corporation views as a combination of current replacement cost plus an amount for additional market movement. Crestar has established policies governing derivative activities, including the credit quality of counterparties. There were no past due amounts or reserves for possible derivative credit losses at June 30, 1994, nor has Crestar ever experienced any charge-offs related to derivative transactions. No interest rate swaps, floors or caps used as hedges against interest rate risk were sold or terminated prior to maturity during the past 24 months; at June 30, 1994 there were no deferred gains or losses arising from termination of hedged transactions prior to maturity. Other New Accounting Standards Statement of Financial Accounting Standards No. 114, "Accounting by Creditors for Impairment of a Loan," (SFAS 114) will become effective for fiscal years beginning after December 15, 1994. This accounting standard requires that impaired loans within the scope of the statement be measured and reported on the basis of the present value of expected cash flows discounted at the loan's effective interest rate. Crestar currently believes that the future impact on results of operations and financial position of adopting SFAS 114 will be immaterial. Financial statement note 15 contains additional information concerning adoption of new accounting standards. 19 Table 1 Financial Highlights
Dollars in millions, except per share data Three Months Six Months ---------------------------------------- ---------------------------------------- % % For the Period Ended June 30 1994 1993 Change 1994 1993 Change Net Income $ 42.6 $ 33.7 26 $ 83.1 $ 64.6 29 Income Applicable to Common Shares 42.6 33.1 29 83.1 63.4 31 Dividends Declared on Common Stock 15.0 10.2 47 27.4 19.2 43 Primary Earnings Per Share: Net Income $ 1.12 $ 0.88 27 $ 2.19 $ 1.71 28 Average Shares Outstanding (000s) 37,930 37,440 1 37,901 37,061 2 Dividends Declared Per Share: Common Stock $ 0.40 $ 0.28 43 $ 0.73 $ 0.53 38 Preferred Stock, Series B - 0.69 (100) - 1.38 (100) ================================================================================================================================== Key Ratios Return on Average Assets 1.25% 1.09% 1.23% 1.05% Return on Average Total Equity 15.79 13.24 15.31 13.00 Return on Average Common Equity 15.79 13.60 15.31 13.36 Average Equity to Average Assets 7.90 8.22 8.05 8.10 Net Interest Margin 4.76 4.73 4.77 4.71 At June 30 Equity to Assets 7.71% 8.05% Risk Adjusted Capital Ratios: Tier I 9.3 10.5 Total 12.0 13.6 Book Value Per Share $ 29.29 $ 27.04 ===================================================================================================================================
Table 2 Analysis Of Primary Earnings Per Share
2nd Qtr. 1994 2nd Qtr. 1994 vs. vs. 2nd Qtr. 1993 1st Qtr. 1994 ------------- ------------- Earnings Per Share - prior period $ .88 $ 1.07 - - ------------------------------------------------------------------------------------------------------------------------------------ Interest income 0.39 0.19 Interest expense (0.13) (0.12) Provision for loan losses (0.10) 0.02 Securities gains or losses (0.03) 0.03 Other noninterest income 0.12 0.05 Foreclosed properties expense 0.31 (0.01) Other noninterest expense (0.32) (0.10) Income taxes (0.01) (0.01) Preferred dividends 0.02 - Increased shares outstanding (0.01) - - - ------------------------------------------------------------------------------------------------------------------------------------ Net increase 0.24 0.05 - - ------------------------------------------------------------------------------------------------------------------------------------ Earnings Per Share - current period $ 1.12 $ 1.12 ====================================================================================================================================
20 Table 3 Average Balances, Net Interest Income And Rate/Volume Analysis/1/
Dollars in thousands 2nd Qtr. 1st Qtr. - - ------------------------------------ Average Average Balance Increase Balance 1994 1993 (Decrease) 1994 - - ---------- ---------- ---------- ---------- $ $ % $ 2,564,103 2,480,790 3 2,476,846 Commercial loans 217,577 268,852 (19) 224,653 Tax-exempt loans 1,700,077 1,415,055 20 1,625,825 Instalment loans 1,075,560 652,415 65 966,242 Bank card loans 2,464,921 1,730,574 42 2,050,782 Real estate loans 225,441 229,252 (2) 220,881 Construction loans 379 42 200+ 387 Foreign loans - - ---------------------------------------------------------------------------------------------------- 8,248,058 6,776,980 22 7,565,616 Total loans - net of unearned income/2/ - - ---------------------------------------------------------------------------------------------------- 953,249 1,793,327 (47) 528,507 Securities held to maturity - - ---------------------------------------------------------------------------------------------------- 2,129,177 1,527,754 39 2,948,914 Securities available for sale - - ---------------------------------------------------------------------------------------------------- 680,182 693,698 (2) 468,907 Money market investments - - ---------------------------------------------------------------------------------------------------- 308,872 297,276 4 467,598 Mortgage loans held for sale - - ---------------------------------------------------------------------------------------------------- 12,319,538 11,089,035 11 11,979,542 Total earning assets ==================================================================================================== 1,893,459 1,590,811 19 1,817,810 Interest checking deposits 2,409,660 2,288,838 5 2,301,992 Money market deposit accounts 1,446,340 1,064,632 36 1,316,111 Regular savings deposits 690,701 579,141 19 582,295 Money market certificates 2,572,655 2,130,438 21 2,303,715 Other domestic time deposits - - ---------------------------------------------------------------------------------------------------- 9,012,815 7,653,860 18 8,321,923 Total interest-bearing core deposits - - ---------------------------------------------------------------------------------------------------- 1,061,155 1,385,117 (23) 1,474,084 Purchased liabilities 220,094 236,872 (7) 203,376 Long-term debt - - ---------------------------------------------------------------------------------------------------- 10,294,064 9,275,849 11 9,999,383 Total interest-bearing liabilities 2,025,474 1,813,186 12 1,980,159 Other sources - net - - ---------------------------------------------------------------------------------------------------- 12,319,538 11,089,035 11 11,979,542 Total sources of funds - - ---------------------------------------------------------------------------------------------------- Net Interest Income ====================================================================================================
/1/Tax-equivalent basis /2/Nonaccrual loans are included in the average loan balances and income on such loans is recognized on a cash basis /3/Includes tax-equivalent loan fees of $2.1 million and $2.3 million for the second quarter of 1994 and 1993, respectively, and $2.2 million for the first quarter of 1994 21
2nd Qtr. - - ---------------------------------------------- 1994 vs. 1993 2nd Qtr. 1994 vs. 1st Qtr. 1994 --------------------------- 1st Qtr. ------------------------------- Income Expense/3/ Change due to/4/ Income/ Change due to/4/ - - ----------------- Increase ----------------- Expense/3/ Increase ----------------- 1994 1993 (Decrease) Rate/5/ Volume 1994 (Decrease) Rate/5/ Volume - - ------- ------ ---------- ------- ------ -------- ---------- -------- ------ $ $ $ $ $ $ $ $ $ 48,983 46,730 2,253 688 1,565 46,222 2,761 1,138 1,623 Commercial loans 5,084 5,730 (646) 447 (1,093) 4,771 313 463 (150) Tax-exempt loans 34,235 31,409 2,826 (3,480) 6,306 33,892 343 (1,201) 1,544 Instalment loans 32,547 22,668 9,879 (4,452) 14,331 30,569 1,978 (1,454) 3,432 Bank card loans 45,805 33,395 12,410 (1,690) 14,100 37,529 8,276 741 7,535 Real estate loans 4,448 4,015 433 500 (67) 3,956 492 410 82 Construction loans 3 - 3 3 - 1 2 2 - Foreign loans - - ------------------------------------------------------------------------------------------------------------------------------------ 171,105 143,947 27,158 (3,877) 31,035 156,940 14,165 71 14,094 Total loans - net of unearned income2 - - ------------------------------------------------------------------------------------------------------------------------------------ 16,977 32,097 (15,120) (98) (15,022) 10,992 5,985 (2,849) 8,834 Securities held to maturity - - ------------------------------------------------------------------------------------------------------------------------------------ 30,869 20,799 10,070 1,882 8,188 40,249 (9,380) 1,808 (11,188) Securities available for sale - - ------------------------------------------------------------------------------------------------------------------------------------ 6,706 6,060 646 764 (118) 4,126 2,580 721 1,859 Money market investments - - ------------------------------------------------------------------------------------------------------------------------------------ 5,453 5,247 206 1 205 7,424 (1,971) 549 (2,520) Mortgage loans held for sale - - ------------------------------------------------------------------------------------------------------------------------------------ 231,110 208,150 22,960 (26) 22,986 219,731 11,379 5,162 6,217 Total earning assets ==================================================================================================================================== 10,405 9,533 872 (942) 1,814 9,741 664 259 405 Interest checking deposits 15,622 14,965 657 (133) 790 13,749 1,873 1,230 643 Money market deposit accounts 9,393 7,794 1,599 (1,195) 2,794 8,321 1,072 249 823 Regular savings deposits 5,499 4,544 955 80 875 4,297 1,202 402 800 Money market certificates 27,907 24,322 3,585 (1,313) 4,898 24,908 2,999 66 2,933 Other domestic time deposits - - ------------------------------------------------------------------------------------------------------------------------------------ 68,826 61,158 7,668 (3,245) 10,913 61,016 7,810 2,724 5,086 Total interest-bearing core deposits - - ------------------------------------------------------------------------------------------------------------------------------------ 9,952 10,347 (395) 2,046 (2,441) 11,098 (1,146) 1,964 (3,110) Purchased liabilities 4,665 4,618 47 374 (327) 4,250 415 66 349 Long-term debt - - ------------------------------------------------------------------------------------------------------------------------------------ 83,443 76,123 7,320 (1,079) 8,399 76,364 7,079 4,821 2,258 Total interest-bearing liabilities Other sources - net - - ------------------------------------------------------------------------------------------------------------------------------------ 83,443 76,123 7,320 (1,171) 8,491 76,364 7,079 4,905 2,174 Total sources of funds - - ------------------------------------------------------------------------------------------------------------------------------------ 147,667 132,027 15,640 1,145 14,495 143,367 4,300 257 4,043 Net Interest Income ====================================================================================================================================
/4/Variances are computed on a line-by-line basis and are non-additive /5/Variances caused by the change in rate times the change in balance are allocated to rate 22 Table 4 Loans To Real Estate Developers And Investors (REDI)
In millions June 30, --------------------------- March 31, December 31, 1994 1993 1994 1993 Commercial - developer lines $ 87.5 $ 89.7 $ 81.5 $ 101.1 Tax-exempt: Construction 0.2 0.2 0.2 0.2 Income property mortgage 75.7 88.5 77.9 82.0 Real estate mortgage - income property 784.8 821.9 811.2 769.0 Construction 200.6 209.4 194.7 191.0 - - ------------------------------------------------------------------------------------------------------ Total REDI loans $ 1,148.8 $ 1,209.7 $ 1,165.5 $ 1,143.3 ======================================================================================================
Table 5 Loans To Real Estate Developers And Investors- Geographic Distribution And Property Type
June 30, 1994 Region Total Greater In millions Corporation Washington Eastern Western Capital ----------- ----------- ----------- ----------- ----------- Land acquisition and development $ 127.1 $ 74.2 $ 41.4 $ 4.5 $ 7.0 Residential developments 258.6 123.8 85.3 40.1 9.4 Commercial projects: Office buildings 159.0 98.7 30.5 13.4 16.4 Retail stores and malls 200.3 148.8 36.3 7.7 7.5 Hotels and motels 95.9 46.9 34.6 14.4 - Industrial buildings 153.1 107.4 17.3 4.8 23.6 - - ------------------------------------------------------------------------------------------------------ Total commercial projects 608.3 401.8 118.7 40.3 47.5 - - ------------------------------------------------------------------------------------------------------ Special use 62.4 26.3 12.8 21.2 2.1 Other 92.4 71.6 13.1 1.8 5.9 - - ------------------------------------------------------------------------------------------------------ Total REDI loans $ 1,148.8 $ 697.7 $ 271.3 $ 107.9 $ 71.9 ======================================================================================================
Table 6 Real Estate Loans
In millions June 30, --------------------------- March 31, December 31, 1994 1993 1994 1993 ------------ ------------ ------------ ------------ Residential $ 1,743.0 $ 1,103.0 $ 1,643.0 $ 944.9 Income property 784.8 821.9 811.2 769.0 - - ------------------------------------------------------------------------------------------------------ Total real estate loans $ 2,527.8 $ 1,924.9 $ 2,454.2 $ 1,713.9 ======================================================================================================
23 Table 7 Allowance For Loan Losses
Dollars in thousands Second Quarter Six Months Ended June 30, --------------------------------- ---------------------------------- 1994 1993 1994 1993 Beginning balance $226,577 $202,979 $210,958 $205,017 - - -------------------------------------------------------------------------------------------------------------------------- Allowance from acquisitions - net 79 22,000 15,708 22,000 - - --------------------------------------------------------------------------------------------------------------------------- Provision for loan losses 8,850 3,006 18,882 21,506 - - --------------------------------------------------------------------------------------------------------------------------- Net charge-offs (recoveries): Commercial 2,345 6,113 3,222 12,579 Instalment 1,016 935 1,636 2,347 Bank card 5,709 4,202 10,282 8,324 Real estate (282) 1,789 4,536 8,453 Construction 76 1,968 (768) 3,866 Foreign (24) (3) (26) (27) - - --------------------------------------------------------------------------------------------------------------------------- Total net charge-offs 8,840 15,004 18,882 35,542 - - --------------------------------------------------------------------------------------------------------------------------- Balance, June 30 $226,666 $212,981 $226,666 $212,981 =========================================================================================================================== Allowance for loan losses to period-end loans 2.64% 2.95% 2.64% 2.95% Annualized net charge-offs to average loans 0.43 0.89 0.48 1.08 ===========================================================================================================================
Table 8 Nonperforming Assets And Past Due Loans
Dollars in thousands June 30, ---------------------------------------- December 31, Nonaccrual loans: 1994 1993 1993 Commercial $ 34,698 $ 70,573 $ 37,788 Instalment 1,162 1,418 902 Real estate 35,619 32,525 33,548 Construction 5,921 13,013 5,843 - - --------------------------------------------------------------------------------------------------------------------------- Total nonaccrual loans 77,400 117,529 78,081 Restructured loans - 238 1,733 - - --------------------------------------------------------------------------------------------------------------------------- Total nonperforming loans 77,400 117,767 79,814 Foreclosed properties - net 25,000 45,033 16,951 - - --------------------------------------------------------------------------------------------------------------------------- Total nonperforming assets $ 102,400 $ 162,800 $ 96,765 =========================================================================================================================== Past due loans: Commercial $ 4,170 $ 3,795 $ 2,089 Instalment: Student 6,533 8,145 7,879 Other 2,905 1,052 1,049 Bank card 6,850 5,926 6,216 Real estate 12,698 5,040 7,758 Construction 140 61 197 - - --------------------------------------------------------------------------------------------------------------------------- Total past due loans $ 33,296 $ 24,019 $ 25,188 =========================================================================================================================== Nonperforming assets to: Loans and foreclosed properties - net 1.19% 2.24% 1.32% Total assets 0.71 1.23 0.73 Allowance for loan losses to: Nonperforming assets 221 131 218 Nonperforming loans 293 181 264 Allowance for loan losses plus shareholders' equity to nonperforming assets 13.00x 7.86x 13.16x ===========================================================================================================================
24 Table 9 Nonperforming Loans - Quarterly Activity
Three Months Ended ----------------------------------------------- In millions 1994 1993 ----------------- --------------------------- June 30 Mar. 31 Dec. 31 Sep. 30 June 30 ------- ------- ------- ------- ------- Beginning balance $ 89.5 $ 79.8 $ 100.1 $ 117.8 $ 118.9 - - ------------------------------------------------------------------------------------ Acquisition additions 4.0 8.1 - - 9.5 Other additions 19.2 27.4 24.7 11.7 23.4 Payments, sales and reductions (22.1) (15.0) (22.8) (15.8) (10.8) Charge-offs (6.6) (7.1) (7.6) (9.5) (10.3) Reinstatements to accrual status (4.1) (2.7) (10.3) (2.8) (9.4) Transfers to foreclosed properties (2.5) (1.0) (4.3) (1.3) (3.5) - - ------------------------------------------------------------------------------------ Net increase (decrease) (12.1) 9.7 (20.3) (17.7) (1.1) - - ------------------------------------------------------------------------------------ Ending balance $ 77.4 $ 89.5 $ 79.8 $ 100.1 $ 117.8 ====================================================================================
Table 10 Foreclosed Properties - Quarterly Activity
Three Months Ended ----------------------------------------------- In millions 1994 1993 ----------------- --------------------------- June 30 Mar. 31 Dec. 31 Sep. 30 June 30 ------- ------- ------- ------- ------- Beginning balance $ 24.5 $ 17.0 $ 34.7 $ 45.0 $ 75.0 - - ----------------------------------------------------------------------------- Acquisition additions - net 6.1 15.8 - - 8.9 Additions 2.7 3.8 4.3 3.4 7.7 Market write-downs (0.2) - (4.9) (1.5) (2.8) Reductions (8.1) (13.4) (18.2) (12.2) (36.3) Provision for losses - 1.3 1.1 - (7.5) - - ----------------------------------------------------------------------------- Net increase (decrease) 0.5 7.5 (17.7) (10.3) (30.0) - - ----------------------------------------------------------------------------- Ending balance $ 25.0 $ 24.5 $ 17.0 $ 34.7 $ 45.0 =============================================================================
25 Table 11 Summary Of Noninterest Income And Expense
In thousands Six Months Ended Second Quarter First June 30, --------------------------- Quarter --------------------------- Noninterest Income 1994 1993 1994 1994 1993 Trust and investment advisory $ 14,441 $ 14,545 $ 15,003 $ 29,444 $ 29,267 Service charges on deposit accounts 21,116 19,882 20,779 41,895 39,740 Bank card-related 9,247 6,560 7,728 16,975 12,189 Trading account activities 302 1,486 94 395 2,753 Mortgage servicing 5,102 3,838 4,800 9,902 7,616 Mortgage origination - net 1,921 5,304 4,046 5,968 8,289 Gain on sale of mortgage servicing rights 6,230 - 3,102 9,332 2,300 Commissions on letters of credit 1,352 1,139 1,398 2,750 2,452 Miscellaneous 8,481 8,610 8,223 16,704 16,017 Securities gains (losses) (49) 1,511 (1,718) (1,767) 2,622 - - --------------------------------------------------------------------------------------------------------------------------------- Total noninterest income $ 68,143 $ 62,875 $ 63,455 $131,598 $123,245 ================================================================================================================================= Noninterest Expense Salaries $ 60,735 $ 53,363 $ 59,190 $119,925 $104,289 Benefits 15,257 10,860 15,607 30,864 23,192 - - --------------------------------------------------------------------------------------------------------------------------------- Total personnel costs 75,992 64,223 74,797 150,789 127,481 Occupancy - net 10,061 9,421 10,794 20,855 18,387 Equipment 6,069 6,132 5,928 11,997 12,196 Communications 6,086 5,060 6,011 12,097 10,050 Stationery, printing and supplies 2,251 1,829 1,844 4,095 3,429 Professional fees and services 3,318 2,972 2,489 5,807 6,934 Loan expense 2,876 3,268 2,748 5,624 5,778 FDIC premiums 6,402 6,154 5,885 12,287 12,138 Advertising and marketing 4,623 3,534 3,858 8,481 6,732 Transportation 1,451 1,310 1,428 2,879 2,633 Outside data services 4,729 3,373 4,460 9,189 6,609 Amortization of purchased intangibles 5,092 5,810 4,829 9,921 9,034 Miscellaneous 10,899 8,248 8,930 19,829 14,880 - - --------------------------------------------------------------------------------------------------------------------------------- Subtotal 139,849 121,334 134,001 273,850 236,281 Foreclosed properties 884 19,213 9 893 27,350 - - --------------------------------------------------------------------------------------------------------------------------------- Total noninterest expense $140,733 $140,547 $134,010 $274,743 $263,631 =================================================================================================================================
Table 12 Debt Ratings (as of July 25, 1994)
Standard Thomson Security Moody's & Poor's Bankwatch 8 1/4% Subordinated Notes due 2002 Baa1 BBB BBB+ 8 5/8% Subordinated Notes due 1998 Baa1 BBB BBB+ Commercial Paper P-2 Not rated TBW-1 Crestar Bank Deposit Notes: Long-Term A2 A- Not rated Short-Term P-1 A-2 TBW-1 =========================================================================
26 Table 13 Interest Sensitivity Analysis
June 30, 1994 In millions Maturity/Rate Sensitivity -------------------------------------------------------------------------- within 2-3 4-6 7-12 over Uses of Funds one month months months months one year Total Loans: Commercial $ 1,974.2 $ 40.3 $ 58.4 $ 58.7 $ 606.0 $ 2,737.6 Tax-exempt 164.1 0.8 2.9 3.9 44.8 216.5 Instalment 802.1 71.5 99.8 169.6 577.9 1,720.9 Bank card 145.7 29.6 25.5 16.5 936.7 1,154.0 Real estate 570.3 197.1 304.8 416.1 1,039.5 2,527.8 Foreign 0.8 - - - - 0.8 Construction 188.7 3.8 14.5 1.8 22.5 231.3 Securities held to maturity 8.3 35.0 44.1 96.8 811.8 996.0 Securities available for sale 220.0 98.0 153.8 159.2 1,362.9 1,993.9 Money market investments 1,239.0 0.1 4.9 - - 1,244.0 Mortgage loans held for sale 275.5 - - - - 275.5 - - ------------------------------------------------------------------------------------------------------------------------ Total earning assets 5,588.7 476.2 708.7 922.6 5,402.1 13,098.3 Interest sensitivity hedges on assets (448.4) (1,079.1) 21.6 466.5 1,039.4 - - - ------------------------------------------------------------------------------------------------------------------------ Total uses $ 5,140.3 $ (602.9) $ 730.3 $ 1,389.1 $ 6,441.5 $13,098.3 ======================================================================================================================== Sources of funds Interest checking deposits $ 1,866.4 $ - $ - $ - $ - $ 1,866.4 Money market deposit accounts 2,366.2 - - - - 2,366.2 Regular savings deposits 1,508.5 - - - - 1,508.5 Money market certificates and other domestic time deposits 352.5 462.2 573.2 945.4 988.4 3,321.7 Certificates of deposit $100,000 and over 26.4 13.4 12.2 6.2 7.0 65.2 Short-term borrowings 1,326.9 0.1 - - - 1,327.0 Long-term debt 0.1 0.4 0.6 1.2 220.1 222.4 - - ------------------------------------------------------------------------------------------------------------------------ Total interest-bearing liabilities 7,447.0 476.1 586.0 952.8 1,215.5 10,677.4 Other sources - net - - - - 2,420.9 2,420.9 Interest sensitivity hedges on liabilities 25.0 (5.0) (20.0) - - - - - ------------------------------------------------------------------------------------------------------------------------ Total sources $ 7,472.0 $ 471.1 $ 566.0 $ 952.8 $ 3,636.4 $13,098.3 ======================================================================================================================== Cumulative maturity/rate sensitivity gap $(2,331.7) $(3,405.7) $(3,241.4) $(2,805.1) $ - $ - ========================================================================================================================= Adjustments Beta adjustments: Interest checking (beta factor .21) $ 1,474.5 Money market accounts (beta factor .57) 1,017.5 Regular savings (beta factor .13) 1,312.4 Demand deposit sensitivity (1,286.3) Cumulative adjusted maturity/ rate sensitivty gap $ 186.4 $ (887.6) $ (723.3) $ (287.0) $ - $ - =========================================================================================================================
27 Table 14 Selected Quarterly Financial Information
Dollars in thousands, except per share data 2nd Qtr. 1st Qtr. 4th Qtr. 3rd Qtr. 2nd Qtr. Results of operations: 1994 1994 1993 1993 1993 Net interest income/1/ $147,667 $143,367 $140,845 $138,719 $132,027 Provision for loan losses 8,850 10,032 13,500 13,769 3,006 - - ---------------------------------------------------------------------------------------------------- Net credit income 138,817 133,335 127,345 124,950 129,021 Securities gains (losses) (49) (1,718) - (385) 1,511 Other noninterest income 68,192 65,173 63,666 61,739 61,364 - - ---------------------------------------------------------------------------------------------------- Net credit and noninterest income 206,960 196,790 191,011 186,304 191,896 Noninterest expense 140,733 134,010 130,243 129,148 140,547 - - ---------------------------------------------------------------------------------------------------- Income before taxes 66,227 62,780 60,768 57,156 51,349 - - ---------------------------------------------------------------------------------------------------- Tax-equivalent adjustment 2,738 2,701 2,886 3,073 3,222 Book tax expense 20,881 19,597 19,148 16,930 14,417 - - ---------------------------------------------------------------------------------------------------- Income tax expense 23,619 22,298 22,034 20,003 17,639 - - ---------------------------------------------------------------------------------------------------- Net Income 42,608 40,482 38,734 37,153 33,710 Preferred dividend requirements - - 365 618 619 - - ---------------------------------------------------------------------------------------------------- Income applicable to common shares $ 42,608 $ 40,482 $ 38,369 $ 36,535 $ 33,091 ==================================================================================================== Earnings per share: Primary: Net income $ 1.12 $ 1.07 $ 1.01 $ 0.96 $ 0.88 Average shares outstanding (000s) 37,930 37,835 38,063 38,154 37,440 Fully diluted: Net income $ 1.12 $ 1.07 $ 1.00 $ 0.96 $ 0.88 Average shares outstanding (000s) 37,931 37,849 38,088 38,174 37,479 Dividends declared per common share $ 0.40 $ 0.33 $ 0.33 $ 0.28 $ 0.28 ==================================================================================================== Selected ratios and other data: Return on average assets 1.25% 1.22% 1.20% 1.15% 1.09% Return on average total equity 15.79 14.83 14.19 13.84 13.24 Return on average common equity 15.79 14.83 14.60 14.20 13.60 Net interest margin/1/ 4.76 4.78 4.77 4.77 4.73 Net charge-offs as % of average loans 0.43 0.53 0.87 0.78 0.89 Allowance as % of period-end loans 2.64 2.75 2.89 3.02 2.95 Overhead ratio 65.21 64.79 63.69 64.55 72.11 Average total equity to assets 7.90 8.20 8.45 8.34 8.22 Equity leverage 12.66x 12.19x 11.84x 11.99x 12.17x Full-time equivalent employees (period end) 6,868 6,733 6,279 6,179 6,180 ====================================================================================================
/1/Tax-equivalent basis 28 Table 15 Consolidated Average Balances/Net Interest Income/Rates /1/
Three Months Ended June 30, --------------------------------------------------------------------------- 1994 1993 ------------------------------------ ------------------------------------ Dollars in thousands Income/ Yield/ Income/ Yield/ Balance Expense Rate Balance Expense Rate ---------- ---------- ---------- ---------- ---------- ---------- Assets $ $ % $ $ % Securities held to maturity/2/ 953,249 16,977 7.02 1,793,327 32,097 7.15 Securities available for sale/2/ 2,129,177 30,869 5.82 1,527,754 20,799 5.45 Money market investments/2/ 680,182 6,706 3.95 693,698 6,060 3.50 Mortgage loans held for sale/2/ 308,872 5,453 7.06 297,276 5,247 7.06 - - ----------------------------------------------------------------------------------------------------------------- Commercial loans 2,564,103 48,983 7.58 2,480,790 46,730 7.54 Tax-exempt loans 217,577 5,084 9.37 268,852 5,730 8.55 Instalment loans 1,700,077 34,235 8.16 1,415,055 31,409 8.86 Bank card loans 1,075,560 32,547 11.91 652,415 22,668 13.63 Real estate loans 2,464,921 45,805 7.43 1,730,574 33,395 7.70 Construction loans 225,441 4,448 7.90 229,252 4,015 7.02 Foreign loans 379 3 2.96 42 - - - - ----------------------------------------------------------------------------------------------------------------- Total loans-net of unearned/2,3/ 8,248,058 171,105 8.27 6,776,980 143,947 8.47 Allowance for loan losses (230,687) (218,584) - - ----------------------------------------------------------------------------------------------------------------- Loans - net 8,017,371 6,558,396 Cash and due from banks 713,487 692,274 Premises and equipment - net 319,630 290,889 Customers' liability on acceptances 9,651 17,527 Intangible assets - net 147,382 92,668 Foreclosed properties - net 23,480 64,077 Other assets 362,053 367,727 - - ----------------------------------------------------------------------------------------------------------------- Total Assets 13,664,534 12,395,613 ========== ========== Total Earning Assets 12,319,538 231,110 7.48 11,089,035 208,150 7.49 ========== ======= ==== ========== ======= ==== Liabilities And Shareholders' Equity Interest checking deposits 1,893,459 10,405 2.20 1,590,811 9,533 2.40 Money market deposit accounts 2,409,660 15,622 2.60 2,288,838 14,965 2.62 Regular savings deposits 1,446,340 9,393 2.60 1,064,632 7,794 2.94 Money market certificates 690,701 5,498 3.25 579,141 4,544 3.16 Other domestic time deposits 2,572,655 27,908 4.40 2,130,438 24,322 4.62 Certificates of deposit $100,000 and over 52,594 572 4.37 43,635 496 4.56 Deposits in foreign offices - - - 2,697 18 2.78 - - ----------------------------------------------------------------------------------------------------------------- Total savings and time deposit/2/ 9,065,409 69,398 3.10 7,700,192 61,672 3.22 Demand deposits 2,075,899 1,900,146 - - ----------------------------------------------------------------------------------------------------------------- Total deposits 11,141,308 9,600,338 Short-term borrowings/2/ 1,008,561 9,380 3.74 1,338,785 9,833 2.97 Long-term debt/2/ 220,094 4,665 8.48 236,872 4,618 7.80 Liability on acceptances 9,423 17,527 Other liabilities 205,990 183,736 - - ----------------------------------------------------------------------------------------------------------------- Total liabilities 12,585,376 11,377,258 - - ----------------------------------------------------------------------------------------------------------------- Preferred stock - 45,000 Common shareholders' equity 1,079,158 973,355 - - ----------------------------------------------------------------------------------------------------------------- Total shareholders' equity 1,079,158 1,018,355 - - ----------------------------------------------------------------------------------------------------------------- Total Liabilities and Shareholders' Equity 13,664,534 12,395,613 ========== ========== Total interest-bearing liabilities 10,294,064 83,443 3.26 9,275,849 76,123 3.30 Other sources-net 2,025,474 1,813,186 - - ----------------------------------------------------------------------------------------------------------------- Total Sources of Funds 12,319,538 83,443 2.72 11,089,035 76,123 2.76 ========== ====== ==== ========== ====== ==== Net Interest Spread 4.22 4.19 Net Interest Income/Margin 147,667 4.76 132,027 4.73 =================================================================================================================
/1/ Income and yields on a tax-equivalent basis computed using the statutory federal income tax rate exclusive of the alternative minimum tax and nondeductible interest expense. 29
Three Months Ended March 31, Six Months Ended June 30, 1994 1994 ------------------------------------ ------------------------------------ Dollars in thousands Income/ Yield/ Income Yield/ Balance Expense Rate Balance Expense Rate ---------- -------- ------ ---------- -------- ------ Assets $ $ % $ $ % Securities held to maturity/2/ 528,507 10,992 8.32 742,051 27,969 7.49 Securities available for sale/2/ 2,948,914 40,249 5.54 2,536,781 71,118 5.65 Money market investments/2/ 468,907 4,126 3.57 575,128 10,832 3.80 Mortgage loans held for sale/2/ 467,598 7,424 6.35 387,797 12,877 6.64 - - ---------------------------------------------------------------------------------------------------------------------------- Commercial loans 2,476,846 46,222 7.55 2,520,716 95,205 7.58 Tax-exempt loans 224,653 4,771 8.61 221,095 9,854 8.99 Instalment loans 1,625,825 33,892 8.34 1,663,155 68,127 8.23 Bank card loans 966,242 30,569 12.58 1,021,203 63,116 12.27 Real estate loans 2,050,782 37,529 7.33 2,258,996 83,335 7.38 Construction loans 220,881 3,956 7.26 223,174 8,404 7.59 Foreign loans 387 1 0.82 383 4 1.89 - - ---------------------------------------------------------------------------------------------------------------------------- Total loans-net of unearned/2,3/ 7,565,616 156,940 8.32 7,908,722 328,045 8.30 Allowance for loan losses (218,583) (224,668) - - ---------------------------------------------------------------------------------------------------------------------------- Loans - net 7,347,033 7,684,054 Cash and due from banks 718,741 716,099 Premises and equipment - net 308,012 313,853 Customers' liability on acceptances 13,839 11,734 Intangible assets - net 106,165 126,888 Foreclosed properties - net 23,792 23,635 Other assets 377,732 369,849 - - ---------------------------------------------------------------------------------------------------------------------------- Total Assets 13,309,240 13,487,869 ========== ========== Total Earning Assets 11,979,542 219,731 7.37 12,150,479 450,841 7.43 ========== ======= ==== ========== ======= ==== Liabilities And Shareholders' Equity Interest checking deposits 1,817,810 9,741 2.17 1,855,844 20,146 2.19 Money market deposit accounts 2,301,992 13,749 2.42 2,356,124 29,371 2.51 Regular savings deposits 1,316,111 8,321 2.56 1,381,585 17,714 2.59 Money market certificates 582,295 4,297 3.02 636,797 9,794 3.14 Other domestic time deposits 2,303,715 24,908 4.42 2,438,928 52,815 4.41 Certificates of deposit $100,000 and over 46,949 474 4.10 49,787 1,048 4.24 Deposits in foreign offices 1,427 11 3.08 710 11 3.08 - - ---------------------------------------------------------------------------------------------------------------------------- Total savings and time deposit/2/ 8,370,299 61,501 2.99 8,719,775 130,899 3.04 Demand deposits 2,014,697 2,045,467 - - ---------------------------------------------------------------------------------------------------------------------------- Total deposits 10,384,996 10,765,242 Short-term borrowings/2/ 1,425,708 10,613 3.02 1,215,982 19,993 3.32 Long-term debt/2/ 203,376 4,250 8.36 211,781 8,915 8.42 Liability on acceptances 13,839 11,619 Other liabilities 189,609 197,845 - - ---------------------------------------------------------------------------------------------------------------------------- Total liabilities 12,217,528 12,402,469 - - ---------------------------------------------------------------------------------------------------------------------------- Preferred stock - - Common shareholders' equity 1,091,712 1,085,400 - - ---------------------------------------------------------------------------------------------------------------------------- Total shareholders' equity 1,091,712 1,085,400 - - ---------------------------------------------------------------------------------------------------------------------------- Total Liabilities and Shareholders' Equity 13,309,240 13,487,869 ========== ========== Total interest-bearing liabilities 9,999,383 76,364 3.10 10,147,538 159,807 3.18 Other sources-net 1,980,159 2,002,941 - - ---------------------------------------------------------------------------------------------------------------------------- Total Sources of Funds 11,979,542 76,364 2.59 12,150,479 159,807 2.66 ========== ====== ==== ========== ======= ==== Net Interest Spread 4.27 4.25 Net Interest Income/Margin 143,367 4.78 291,034 4.77 ============================================================================================================================ Six Months Ended June 30, ------------------------------------ 1993 ---------------------------------- Dollars in thousands Income/ Yield Balance Expense Rate ---------- ------- ------ Assets $ $ % Securities held to maturity/2/ 1,715,384 62,771 7.32 Securities available for sale/2/ 1,487,112 40,508 5.45 Money market investments/2/ 910,222 15,362 3.40 Mortgage loans held for sale/2/ 283,945 10,314 7.26 - - ---------------------------------------------------------------------------------- Commercial loans 2,488,368 94,744 7.67 Tax-exempt loans 275,235 11,696 8.57 Instalment loans 1,391,872 63,049 9.06 Bank card loans 599,480 42,990 14.25 Real estate loans 1,624,920 64,607 7.96 Construction loans 219,645 7,639 7.01 Foreign loans 35 14 - - - ---------------------------------------------------------------------------------- Total loans-net of unearned/2,3/ 6,599,555 284,739 8.65 Allowance for loan losses (214,173) - - ---------------------------------------------------------------------------------- Loans - net 6,385,382 Cash and due from banks 667,726 Premises and equipment - net 286,133 Customers' liability on acceptances 18,382 Intangible assets - net 87,221 Foreclosed properties - net 70,903 Other assets 353,023 - - ---------------------------------------------------------------------------------- Total Assets 12,265,433 ========== Total Earning Assets 10,996,218 413,694 7.54 ========== ======== ==== Liabilities And Shareholders' Equity Interest checking deposits 1,558,809 18,806 2.43 Money market deposit accounts 2,271,164 29,954 2.66 Regular savings deposits 1,003,563 14,651 2.94 Money market certificates 580,337 9,535 3.32 Other domestic time deposits 2,111,816 48,716 4.68 Certificates of deposit $100,000 and over 45,073 1,052 4.71 Deposits in foreign offices 2,529 35 2.81 - - ---------------------------------------------------------------------------------- Total savings and time deposit/2/ 7,573,291 122,749 3.28 Demand deposits 1,831,269 - - ---------------------------------------------------------------------------------- Total deposits 9,404,560 Short-term borrowings/2/ 1,458,625 21,889 3.03 Long-term debt/2/ 223,654 9,008 8.06 Liability on acceptances 18,382 Other liabilities 166,421 - - ---------------------------------------------------------------------------------- Total liabilities 11,271,642 - - ---------------------------------------------------------------------------------- Preferred stock 45,000 Common shareholders' equity 948,791 - - ---------------------------------------------------------------------------------- Total shareholders' equity 993,791 - - ---------------------------------------------------------------------------------- Total Liabilities and Shareholders' Equity 12,265,433 ========== Total interest-bearing liabilities 9,255,570 153,646 3.35 Other sources-net 1,740,648 - - ---------------------------------------------------------------------------------- Total Sources of Funds 10,996,218 153,646 2.83 ========== ======= ==== Net Interest Spread 4.19 Net Interest Income/Margin 260,048 4.71 ==================================================================================
/2/ Indicates earning asset or interest-bearing liability. /3/ Nonaccrual loans are included in the average loan balances and income on such loans is recognized on the cash basis. 30 Item 4. Submission Of Matters To A Vote Of Security Holders The Annual Meeting of Shareholders of Crestar Financial Corporation was held on April 22, 1994 for the purpose of electing seven members of the Board of Directors and ratifying the appointment of independent auditors for the year. Proxies for the meeting were solicited pursuant to Section 14(a) of the Securities Exchange Act of 1934 and there were no solicitations in opposition to the recommendations of the Board of Directors on the matters voted on. Six Class I directors and one Class II director were elected for three-year and one-year terms as follows:
Shares Voted Shares Voted "For" "Withheld" Director Class I - three-year term: J. Carter Fox 31,658,468 132,185 Patrick D. Giblin 31,644,193 146,460 Gene A. James 31,655,565 135,088 H. Gordon Leggett, Jr. 31,653,749 136,904 Patrick J. Maher 31,657,790 132,863 Gordon F. Rainey, Jr. 31,653,725 136,928 Class II - one-year term: Bonnie Guiton Hill 31,640,887 149,766
The following Class II directors' terms expire in 1995: Frank E. McCarthy William F. Vosbeck G. Gilmer Minor III James M. Wells III Eugene P. Trani The following Class III directors' terms expire in 1996: Richard M. Bagley Richard G. Tilghman Charles R. Longsworth L. Dudley Walker Frank S. Royal Karen Hastie Williams The appointment of KPMG Peat Marwick as the Corporation's independent auditors for 1994 was ratified as follows:
Shares Voted Shares Voted Shares Voted "For" "Against" "Abstain" 31,453,860 124,303 212,490
There were no "broker non-votes" in connection with the annual meeting. All matters voted on were considered "routine" under New York Stock Exchange rules. 31 Signatures Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Crestar Financial Corporation --------------------------------- Registrant Date August 12, 1994 /s/ James D. Barr ---------------------- --------------------------------- James D. Barr Executive Vice President, Controller and Treasurer 32 -----END PRIVACY-ENHANCED MESSAGE-----