-----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, EIRkEhs/UDe0usBDhuqK3MbPbfIGz2ad6Nh/ikCe9Uv894op/iY0xwvkNC28vATd BFATfahBQMGZ2/GLQf4gwA== 0000950118-94-000042.txt : 19940311 0000950118-94-000042.hdr.sgml : 19940311 ACCESSION NUMBER: 0000950118-94-000042 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19931231 ITEM INFORMATION: 5 FILED AS OF DATE: 19940310 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: 8-K SEC ACT: 34 SEC FILE NUMBER: 001-07083 FILM NUMBER: 94515410 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 8-K 1 CRESTAR 8-K SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 8-K CURRENT REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES EXCHANGE ACT OF 1934 Date of Report (Date of earliest event reported) March 10, 1994 CRESTAR FINANCIAL CORPORATION (Exact name of registrant as specified in its charter) Virginia 1-7083 54-0722175 (State or other jurisdiction of (Commission (I.R.S. Employer incorporation of organization) File Number) Identification No.) 919 East Main Street, P.O. Box 26665, Richmond, Virginia 23261-6665 (Address of principal executive offices) Registrant's telephone number, including area code (804) 782-5000 ITEM 5. Other Events This Current Report on Form 8-K is being filed in order to file consolidated financial information for Crestar Financial Corporation for the year ended December 31, 1993. Such financial information and management's discussion and analysis thereof follow. 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 hereunto duly authorized. CRESTAR FINANCIAL CORPORATION Date: March 10, 1994 /s/ John C. Clark, III John C. Clark,III Corporate Senior Vice President, General Counsel and Secretary EXHIBIT INDEX Exhibit 24.1 Consent of KPMG Peat Marwick EX-13 2 EXHIBIT 13 Consolidated Balance Sheets Crestar Financial Corporation And Subsidiaries Dollars in thousands December 31, 1993 1992 Assets Cash and due from banks (note 16) $ 716,652 $ 754,583 Investment securities, market value $1,845,714 in 1993 and $1,707,728 in 1992 (notes 3 and 22) 1,824,617 1,684,900 Securities held for sale (note 4) 1,697,000 1,544,049 Money market investments (note 5) 650,633 1,181,032 Mortgage loans held for sale 591,233 367,235 Loans - net of unearned income (notes 6, 16 and 22): Commercial 2,608,069 2,634,522 Tax-exempt 230,852 289,200 Instalment 1,532,936 1,359,783 Bank card 976,200 563,752 Real estate 1,713,876 1,519,914 Construction 224,460 214,497 Foreign 729 53 Loans - net of unearned income of $2,988 and $7,847 at December 31, 1993 and 1992, respectively 7,287,122 6,581,721 Less: Allowance for loan losses (note 7) (210,958) (205,017) Loans - net 7,076,164 6,376,704 Premises and equipment - net (notes 8 and 12) 302,704 280,508 Customers' liability on acceptances 11,578 20,056 Intangible assets - net (note 9) 96,152 82,227 Foreclosed properties - net (notes 6 and 10) 16,951 78,584 Other assets 303,263 304,839 Total Assets (note 23) $13,286,947 $12,674,717 Liabilities Demand deposits $ 2,234,536 $ 1,997,194 Interest checking deposits 1,791,100 1,590,873 Money market deposit accounts 2,214,537 2,255,741 Regular savings deposits 1,241,592 916,252 Money market certificates 538,869 601,992 Other domestic time deposits 2,097,448 2,148,976 Certificates of deposit $100,000 and over 45,914 66,693 Deposits in foreign offices 1,782 3,782 Total deposits 10,165,778 9,581,503 Short-term borrowings (note 11) 1,616,743 1,608,016 Liability on acceptances 11,578 20,056 Other liabilities 239,215 295,807 Long-term debt (note 12) 191,156 210,430 Total Liabilities (note 23) 12,224,470 11,715,812 Shareholders' Preferred stock. Authorized Equity 2,000,000 shares; issued and outstanding: Adjustable Rate Cumulative Series B, $50 stated value; 900,000 shares in 1992 - 45,000 Common stock, $5 par value. Authorized 100,000,000 shares in 1993 and 60,000,000 shares in 1992; outstanding 37,515,671 in 1993 and 36,156,605 in 1992 187,578 180,783 Capital surplus 248,896 188,114 Retained earnings 626,003 545,008 Total Shareholders' Equity (notes 12, 14, 16 and 18) 1,062,477 958,905 Commitments and contingencies (notes 8 and 22) Total Liabilities And Shareholders' Equity $13,286,947 $12,674,717 See accompanying notes to consolidated financial statements.
Consolidated Statements Of Income Crestar Financial Corporation And Subsidiaries In thousands, except per share data Years Ended December 31, 1993 1992 1991 Income Interest and fees on loans $575,085 $617,686 $735,128 From Interest on taxable investment Earning securities 115,118 164,058 153,793 Assets Interest on tax-exempt investment securities 6,820 9,346 11,751 Dividends on common and preferred stocks 1,558 2,264 2,423 Interest on securities held for sale 85,331 4,234 18,987 Income on money market investments 23,526 37,567 42,621 Interest on mortgage loans held for sale 25,191 28,522 14,443 Total income from earning assets 832,629 863,677 979,146 Interest Interest checking deposits 38,001 44,278 47,164 Expense Money market deposit accounts 58,496 75,936 90,174 Regular savings deposits 31,091 26,749 19,823 Money market certificates 17,861 35,137 62,692 Other domestic time deposits 96,849 136,344 185,207 Certificates of deposit $100,000 and over 1,975 7,651 33,927 Deposits in foreign offices 68 145 1,209 Total interest on deposits 244,341 326,240 440,196 Short-term borrowings 43,787 38,096 101,614 Long-term debt 17,489 17,197 16,201 Total interest expense 305,617 381,533 558,011 Net Credit Net interest income 527,012 482,144 421,135 Income Provision for loan losses (note 7) 48,775 99,242 209,522 Net credit income 478,237 382,902 211,613 Noninterest Trust and investment advisory income 57,440 51,007 48,322 Income Service charges on deposit accounts 79,419 73,944 57,953 Bank card-related income 27,500 23,141 22,694 Gain on pension settlement (note 17) - - 2,236 Other income (note 15) 81,669 66,736 54,459 Securities gains (notes 3 and 4) 2,237 3,563 48,165 Total noninterest income 248,265 218,391 233,829 Net Credit And Noninterest Income 726,502 601,293 445,442 Noninterest Personnel expense (notes 17 and 18) 262,626 233,838 209,021 Expense Occupancy expense - net 38,359 35,654 32,683 Equipment expense 24,122 24,011 22,916 Other expense (note 19) 197,915 208,300 141,001 Total noninterest expense 523,022 501,803 405,621 Net Income Income before income taxes 203,480 99,490 39,821 Income tax expense (note 13) 62,989 19,689 6,060 Net Income 140,491 79,801 33,761 Preferred dividend requirements (note 14) 2,221 2,475 2,576 Net income applicable to common shares $138,270 $ 77,326 $ 31,185 Earnings Per Share (note 14): Primary $ 3.68 $ 2.32 $ .98 Fully diluted 3.67 2.32 .98 See accompanying notes to consolidated financial statements.
Consolidated Statements Of Cash Flows Crestar Financial Corporation And Subsidiaries In thousands Years Ended December 31, 1993 1992 1991 Operating Net Income $ 140,491 $ 79,801 $33,761 Activities Adjustments to reconcile net income to net cash provided by operating activities: Provisions for loan losses, foreclosed properties and other losses 57,995 116,781 209,522 Depreciation and amortization of premises and equipment 31,460 28,910 27,864 Securities gains (2,237) (3,563) (48,165) Amortization of unearned income (4,424) (20,117) (50,516) Amortization of intangible assets 21,926 13,630 12,338 Deferred income tax expense (benefit) 9,291 (19,654) (16,482) Loss on foreclosed properties 11,026 28,825 6,874 Gain on sale of mortgage servicing rights (3,600) (1,761) - Net decrease (increase) in trading account 14,834 159,277 (172,647) Net proceeds from (purchases of) securities held for sale (115,141) 237,961 1,814,680 Net decrease (increase) in loans held for sale (223,998) 76,103 22,154 Net decrease (increase) in accrued interest receivable, prepaid expenses and other assets (4,183) 51,274 (36,570) Net increase (decrease) in accrued interest payable, accrued expenses and other liabilities (106,713) (31,302) 63,497 Other, net 3,224 10,308 (2,583) Net cash provided (used) by operating activities (170,049) 726,473 1,863,727 Investing Proceeds from maturities and calls of Activities investment securities 792,455 609,485 374,383 Proceeds from sales of investment securities - 6,473 2,812 Purchases of investment securities (813,753) (1,865,861) (1,741,741) Net decrease (increase) in money market investments 522,815 (276,056) (510,376) Principal collected on non-bank subsidiary loans 26,189 45,731 46,485 Loans originated by non-bank subsidiaries (91,945) (355,384) (170,753) Net decrease (increase) in other loans (67,536) 630,973 594,632 Purchases of premises and equipment (37,048) (28,694) (35,439) Proceeds from sales of foreclosed properties 75,983 86,302 35,511 Proceeds from sale of mortgage servicing rights 7,625 2,687 - Net cash received from acquisitions 26,419 1,996,067 523,150 Other, net (12,031) (7,697) 2,626 Net cash provided (used) by investing activities 429,173 844,026 (878,710) Financing Net increase in demand, interest checking, Activities money market and regular savings deposits 378,894 655,594 499,621 Net decrease in short-term borrowings (33,773) (91,615) (594,034) Net decrease in certificates of deposit (474,560) (2,390,537) (790,161) Proceeds from issuance of long-term debt 972 124,529 - Principal payments on long-term debt (71,072) (76,721) (6,608) Redemption of preferred stock (46,350) - - Cash dividends paid (45,091) (29,121) (40,437) Common stock purchased and retired (21,054) - - Proceeds from the issuance of common stock 14,979 108,918 13,979 Net cash used by financing activities (297,055) (1,698,953) (917,640) Cash And Increase (decrease) in cash and cash Cash equivalents (37,931) (128,454) 67,377 Equivalents Cash and cash equivalents at beginning of year 754,583 883,037 815,660 Cash and cash equivalents at end of year $ 716,652 $ 754,583 $883,037 Cash and cash equivalents consist of cash and due from banks. See accompanying notes to consolidated financial statements.
Consolidated Statements Of Changes In Shareholders' Equity Crestar Financial Corporation And Subsidiaries Shares of Common Preferred Preferred Capital Capital Retained In thousands Stock Stock Stock Stock Surplus Earnings Total Balance, December 31, 1990 31,310 900 $ 45,000 $156,549 $ 87,821 $481,936 $ 771,306 Net Income - - - - - 33,761 33,761 Cash dividends declared on: Preferred stock, Series B ($2.86 per share) - - - - - (2,576) (2,576) Common stock ($.86 per share) - - - - - (27,438) (27,438) Change in valuation allowance for marketable equity securities - - - - - 4,277 4,277 Common stock issued: For acquisition of financial institution 120 - - 598 1,000 - 1,598 Upon conversion of debentures (notes 12 and 14) 2 - - 8 7 - 15 For dividend reinvestment plan 479 - - 2,396 6,169 - 8,565 Upon exercise of stock options (net of tax benefit of $8) 7 - - 36 59 - 95 For thrift and profit-sharing plan 310 - - 1,555 3,764 - 5,319 Balance, December 31, 1991 32,228 900 $ 45,000 $161,142 $ 98,820 $489,960 $ 794,922 Net Income - - - - - 79,801 79,801 Cash dividends declared on: Preferred stock, Series B ($2.75 per share) - - - - - (2,475) (2,475) Common stock ($.80 per share) - - - - - (26,647) (26,647) Change in valuation allowance for marketable equity securities - - - - - 4,369 4,369 Common stock issued: Upon conversion of debentures (notes 12 and 14) 2 - - 9 8 - 17 For dividend reinvestment plan 284 - - 1,420 6,208 - 7,628 Upon exercise of stock options (net of tax benefit of $444) 142 - - 708 2,318 - 3,026 For thrift and profit-sharing plan 51 - - 254 886 - 1,140 In public offering (note 14) 3,450 - - 17,250 79,874 - 97,124 Balance, December 31, 1992 36,157 900 $ 45,000 $180,783 $188,114 $545,008 $ 958,905 Net Income - - - - - 140,491 140,491 Cash dividends declared on: Preferred stock, Series B ($2.46 per share) - - - - - (2,221) (2,221) Common stock ($1.14 per share) - - - - - (42,252) (42,252) Change in valuation allowance for marketable equity securities - - - - - 4,769 4,769 Common stock purchased and retired (note 14) (522) - - (2,612) - (18,442) (21,054) Redemption of preferred stock - (900) (45,000) - - (1,350) (46,350) Common stock issued: For acquisition of financial institution 1,411 - - 7,057 48,151 - 55,208 Upon conversion of debentures (notes 12 and 14) - - - 1 1 - 2 For dividend reinvestment plan 235 - - 1,173 7,720 - 8,893 Upon exercise of stock options (net of tax benefit of $1,198) 235 - - 1,176 4,910 - 6,086 Balance, December 31, 1993 37,516 - $ - $187,578 $248,896 $626,003 $1,062,477 See accompanying notes to consolidated financial statements.
Notes To Consolidated Financial Statements Crestar Financial Corporation And Subsidiaries (1) Accounting Policies The accounting and reporting policies of Crestar Financial Corporation and Subsidiaries conform to generally accepted accounting principles and to general practice within the banking industry. Certain reclassifications have been made to the prior years' consolidated financial statements to conform to the 1993 presentation. The following is a summary of the more significant policies: (a) Principles Of Consolidation The consolidated financial statements of Crestar Financial Corporation and Subsidiaries (Crestar) include the accounts of all wholly-owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation. In the condensed financial statements of Crestar Financial Corporation (Parent), the investments in subsidiaries are stated at equity in the net assets of such subsidiaries (note 21). Business combinations accounted for as purchases are included from their respective dates of acquisition. The excess of cost over the estimated fair value of the tangible assets and liabilities acquired is amortized over the periods estimated to be benefited. Assets held in an agency or fiduciary capacity are not assets of Crestar and are not included in the accompanying consolidated balance sheets. (b) Investment Securities Securities which the Corporation has both the ability and intent to hold to maturity or on a long-term basis are classified as investment securities (determined at purchase), and except for marketable equity securities, are carried at cost adjusted for amortization of premiums and accretion of discounts using the level yield method over the period to maturity, or earlier call date if appropriate, of the related securities. Marketable equity securities are carried at the lower of aggregate cost or market value, and unrealized losses are reflected as a reduction of shareholders' equity. Realized gains or losses on investment securities are recognized at the time of sale using the specific identification method and are classified as securities gains or losses in the accompanying statements of income. (c) Money Market Investments Money market investments are stated at cost, which approximates market value, except for trading account securities, which are carried at market value. Securities held for trading purposes are classified as trading account securities. Adjustments to market and trading account gains and losses are classified as other income in the accompanying consolidated statements of income. Trading account interest and dividend income is included in income on money market investments. (d) Securities Held For Sale Securities held for sale represent securities to be held for indefinite periods of time but not necessarily until maturity (determined at purchase date). Securities held for sale are carried at the lower of aggregate cost or market value. Adjustments to market value and realized gains or losses are classified as securities gains or losses in the accompanying consolidated statements of income. (e) Mortgage Loans Held For Sale Mortgage loans held for sale are carried at the lower of aggregate cost or market value. Adjustments to market and realized gains and losses are classified as other income in the accompanying consolidated statements of income. (f) Loans Loans are stated at the principal amount outstanding net of unearned income. Interest on some instalment loans and some second mortgage loans is accrued using the sum-of-the-months-digits method (78ths method), which does not produce results materially different from the level yield method. Interest on other loans is accrued by multiplying the applicable rates by the principal amounts outstanding. Most equipment leases, included in the commercial loan category, are accounted for using the direct financing method for financial reporting purposes. Interest is recognized on the cash basis for all loans carried in nonaccrual status. Loans generally are placed in nonaccrual status when the collection of principal or interest is 90 days or more past due, or earlier if collection is uncertain based upon an evaluation of the net realizable value of the collateral and the financial strength of the borrower. Instalment loans are placed in nonaccrual status when past due 120 days and are charged off when past due 180 days. Generally, bank card loans are not placed in nonaccrual status, but are charged off at the earlier of when past due 180 days or notification of bankruptcy. Loan origination and commitment fees and certain direct loan origination costs are deferred and the net amount is amortized as an adjustment of the related loan's yield. Crestar amortizes these amounts over the contractual life of the related loans or over the commitment period. (g) Allowance For Loan Losses The determination of the balance of the allowance for loan losses is based upon a review and analysis of the loan portfolio. The allowance reflects an amount that, in management's judgment, is adequate to provide for losses inherent in the portfolio. Management's review includes monthly analyses of past due, problem and nonaccrual loans and a detailed periodic classification report. Estimates of future losses involve the exercise of judgment and the use of assumptions. The principal factors considered in determining the adequacy of the allowance are the composition of the loan portfolio, historical loss experience, anticipated losses, economic conditions, the value and adequacy of collateral, and the current level of the allowance. Accrued interest receivable is generally charged against the allowance for loan losses when deemed uncollectible. (h) Premises And Equipment Premises and equipment are stated at cost less accumulated depreciation and amortization. Depreciation and amortization charges are computed under the straight-line method. Premises and equipment are depreciated over the estimated useful lives of the assets, except for leasehold improvements which are amortized over the terms of the respective leases or the estimated useful lives of the improvements, whichever is shorter. Certain noncancelable leases have been capitalized and are classified as premises and equipment in the accompanying consolidated balance sheets. Related amounts representing capital lease obligations are classified as long-term debt in the accompanying consolidated balance sheets and are amortized using the interest method to allocate payments between principal and interest. The initial carrying amounts represent the present value of the future rental payments, discounted at the incremental borrowing rate of the lessee. Most of these capital lease assets are amortized over the lease term. Estimated lives of the principal items of premises and equipment are: buildings and improvements-3-to 50 years; and furniture, fixtures and equipment-3 to 12 years. The costs of major renovations are capitalized, while the costs of ordinary maintenance and repairs are expensed as incurred. (i) Intangible Assets Deposit base intangible assets are amortized over periods ranging from 4 to 15 years, primarily on a straight-line basis. Goodwill is amortized on a straight- line basis over 15 years. Mortgage servicing rights are amortized in proportion to, and over the period of, estimated net servicing income to be derived from the servicing activities. The period of amortization ranges from 7 to 20 years, depending on the expected life of the mortgages being serviced. Other intangible assets are amortized on a straight-line basis over periods ranging from 10 to 20 years. (j) Foreclosed Properties Property acquired through legal foreclosure proceedings, abandonment of the property, acceptance of deed in lieu of foreclosure or transfer in exchange for an outstanding loan is classified as foreclosed properties, and carried at estimated fair value less estimated selling costs. At the time of foreclosure, any excess of cost over the estimated fair value is charged to the allowance for loan losses, and estimated selling costs are expensed as foreclosed properties expense. After foreclosure, the estimated fair value is reviewed periodically by management. Write-downs are charged against current earnings or any applicable foreclosed property valuation allowance. (k) Income Taxes During 1993, the Corporation changed its method of accounting for income taxes (see financial statement note 13) and, accordingly, records a provision for income taxes based on the amounts of current and deferred taxes payable (or refundable) for the year. The deferred tax expense or benefit represents the change in the net deferred tax asset or liability during the period. Deferred tax assets and liabilities are recognized for the tax effects of differing carrying values of assets and liabilities for tax and financial statement reporting purposes that will reverse in future periods. In 1992 and prior years, a provision for deferred income taxes was made for revenue and expenses in the consolidated financial statements that were reported in different periods for tax purposes than for financial reporting purposes. The Parent and its subsidiaries file a consolidated federal income tax return. The provision for income taxes for each company is recorded on the basis of filing separate income tax returns, after adjustments relating to consolidated income tax regulations and signed tax sharing agreements. Income taxes currently payable or receivable by each subsidiary are paid to or received from the Parent. (l) Earnings Per Share Primary earnings per share are computed by dividing net income, less the dividend requirements on preferred stock, by the weighted average number of common shares outstanding during the year, including average common equivalent shares attributable to dilutive stock options. Fully diluted earnings per 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 all of the 5% convertible subordinated debentures were converted into common stock on January 1 of the applicable year and using net income increased by interest and amortization of debt issuance expense, net of tax effect, relating to those debentures and reduced by the dividends applicable to the Series B preferred stock. (m) Interest Rate Swaps And Other Agreements Crestar enters into interest rate swaps and other agreements (caps, collars and floors) to manage its interest rate exposure and to serve as a financial intermediary for matched transactions. Transactions designated as hedges of assets or liabilities are recorded using the accrual method and settlements are classified as interest income or expense in the consolidated statements of income according to the type of earning asset or interest bearing liability that the agreement hedges. Fee income from matched arrangements for which Crestar serves as a financial intermediary is recognized over the lives of the related agreements and is classified as other income in the consolidated statements of income. (n) Pension Plans Substantially all employees are covered by a pension plan. The net periodic pension expense includes a service cost component, reflecting the actual return on plan assets, and the effect of deferring and amortizing certain actuarial gains and losses and the unrecognized net transition asset over 15 years. (2) Mergers And Acquisitions On May 14, 1993, Crestar purchased CFS Financial Corporation (CFS), a 19-branch Fairfax, Virginia institution, through the payment of $6.5 million in cash and the issuance of 1.4 million shares of Crestar common stock for all of the 3.0 million shares of CFS common stock outstanding. The acquisition was accounted for as a purchase and, accordingly, the results of operations of CFS are included in the accompanying consolidated financial statements since May 14, 1993. 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 consists of goodwill and deposit base intangibles. Goodwill of approximately $9.4 million is being amortized over 15 years. Deposit base intangibles of approximately $17.7 million are being amortized over the estimated lives of the related deposit relationships, ranging from 4 to 8 years. CFS had total assets of approximately $832 million as of May 14, 1993. The results of operations of CFS for the year ended December 31, 1992 and for the period from January 1, 1993 through May 13, 1993 were not material to the results of operations of Crestar. On June 25, 1993, Crestar acquired from the Federal Deposit Insurance Corporation, deposits and selected assets of City National Bank of Washington, a one-branch institution closed by the Office of the Comptroller of the Currency. Total deposits of approximately $21 million were acquired, and the related deposit base intangible asset of $613 thousand is being amortized over the estimated life of the deposit relationships. Five acquisitions were announced in the fourth quarter of 1993 and are summarized below. Dollars in millions Number of At December 31, 1993 Name Location Branches Assets Deposits Virginia Federal Savings Bank Richmond, VA 13 $716 $508 Providence Savings and Loan Association Vienna, VA 12 420 324 NVR Federal Savings Bank McLean, VA 4 488 387 Annapolis Bancorp, Inc. Annapolis, MD 10 329 292 Mortgage Capital Corporation St. Paul, MN - 13 -
Two of the above acquisitions were consummated in January 1994. On January 11, Crestar acquired Mortgage Capital Corporation, a wholesale mortgage loan production company, with an initial purchase payment of $5.2 million. Under terms of the purchase agreement, an additional $2.4 million may be paid to the former owners, depending on the future performance of Mortgage Capital's operations over the next five years. On January 28, 1994, Crestar completed the acquisition of Virginia Federal Savings Bank for $52 million in a transaction also accounted for as a purchase. Crestar's financial statements for 1993 do not include these two acquisitions. The acquisitions of Providence Savings and Loan Association, NVR Federal Savings Bank and Annapolis Bancorp, Inc. are subject to regulatory approvals and are expected to be completed in the first six months of 1994. Each transaction will be recorded under the purchase method of accounting. Crestar will pay Annapolis shareholders, in a combination of Crestar stock and cash, a total of $12.75 per Annapolis share in a transaction valued at approximately $15 million. Approval of the acquisition is required from Annapolis shareholders. Providence Savings and Loan Association and NVR Federal Savings Bank will be acquired for cash in transactions valued at $27 million and $48 million, respectively. Crestar expects each of the five acquisitions to have a positive contribution to earnings in the first twelve months following completion. (3) Investment Securities The carrying values and approximate market values of investment securities at December 31 are shown in the following table: Carrying Market Unrealized Unrealized In thousands Value Value Gains Losses 1993: U.S. Treasury $ 36,895 $ 36,900 $ 130 $ 125 Federal agencies 8,962 8,977 36 21 Mortgage-backed obligations of Federal agencies 1,437,519 1,454,973 18,906 1,452 Other taxable securities 231,509 232,250 1,106 365 States and political subdivisions 84,121 87,003 2,935 53 Common and preferred stocks 25,611 25,611 - - Total investment securities $1,824,617 $1,845,714 $23,113 $2,016 1992: U.S. Treasury $ 11,442 $ 11,737 $ 295 $ - Federal agencies 14,219 14,445 226 - Mortgage-backed obligations of Federal agencies 1,276,548 1,296,226 23,433 3,755 Other taxable securities 229,480 231,476 2,758 762 States and political subdivisions 121,365 121,968 2,703 2,100 Common and preferred stocks 31,846 31,876 30 - Total investment securities $1,684,900 $1,707,728 $29,445 $6,617
The stated maturities of investment securities at December 31, 1993 are shown in the following table: Within One to Five to After In thousands One Year Five Years Ten Years Ten Years Total U.S. Treasury $ 2,998 $26,701 $ 7,196 $ - $ 36,895 Federal agencies 3,200 - 5,666 96 8,962 Mortgage-backed obligations of Federal agencies - 14,981 169,254 1,253,284 1,437,519 Other taxable securities 1,295 6,398 113,680 110,136 231,509 States and political subdivisions 3,414 21,208 12,459 47,040 84,121 Total 10,907 69,288 308,255 1,410,556 1,799,006 Common and preferred stocks 25,611 Total investment securities $10,907 $69,288 $308,255 $1,410,556 $1,824,617
The carrying values of investment securities pledged to secure deposits and for other purposes amounted to $635,298,000 and $759,842,000 at December 31, 1993 and 1992, respectively. Net realized losses from the sale of investment securities during 1992 were $1.2 million and were composed of gross gains of $1.0 million and gross losses of $2.2 million. Excluding securities issued by the U.S. government or by U.S. government agencies or corporations, no securities of any issuer exceeded 10 percent of consolidated shareholders' equity at December 31, 1993 or 1992. Common and preferred stocks are shown net of the valuation allowance for marketable equity securities of $4,769,000 at December 31, 1992. The valuation allowance is reflected in shareholders' equity as a reduction of retained earnings. There was no valuation allowance at December 31, 1993. (4) Securities Held For Sale The carrying values and approximate market values of securities held for sale at December 31 are shown in the following table: Carrying Market Unrealized Unrealized In thousands Value Value Gains Losses 1993: U.S. Treasury $1,482,370 $1,513,565 $32,273 $1,078 Federal agencies 30,226 30,504 281 3 Mortgage-backed obligations of Federal agencies 17,312 17,331 24 5 Other taxable securities 167,092 168,396 1,304 - Total securities held for sale $1,697,000 $1,729,796 $33,882 $1,086 1992: U.S. Treasury $1,247,909 $1,270,002 $23,499 $1,406 Federal agencies 30,311 30,382 75 4 Mortgage-backed obligations of Federal agencies 43,760 43,760 - - Other taxable securities 222,069 222,486 527 110 Total securities held for sale $1,544,049 $1,566,630 $24,101 $1,520
The carrying value of securities held for sale pledged to secure deposits and for other purposes amounted to $573,787,000 and $749,436,000 at December 31, 1993 and 1992, respectively. Net realized gains from securities held for sale during 1993 were $2.2 million and were composed of gross gains of $4.1 million and gross losses of $1.9 million. In 1992, net realized gains were $4.8 million and were composed of gross gains of $4.9 million and gross losses of $141 thousand. In 1991, net realized gains were $48.2 million and were composed of gross gains of $50.5 million and gross losses of $2.3 million. Proceeds from sales of securities held for sale were $376.5 million in 1993, $238.0 million in 1992 and $1.8 billion in 1991. The stated maturities of securities held for sale at December 31, 1993 are shown in the following table: Within One to Five to After In thousands One Year Five Years Ten Years Ten Years Total U.S. Treasury $178,079 $1,304,291 $ - $ - $1,482,370 Federal agencies - 30,000 - 226 30,226 Mortgage-backed obligations of Federal agencies - - - 17,312 17,312 Other taxable securities - 49,976 4,394 112,722 167,092 Total securities held for sale $178,079 $1,384,267 $4,394 $130,260 $1,697,000
Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities" (SFAS 115), will be adopted prospectively by Crestar on January 1, 1994. In future reporting periods, securities classified as available for sale will be reported at fair value, with unrealized gains or losses (net of tax effect) excluded from earnings and reported as a component of shareholders' equity. Upon implementation of SFAS 115 in the first quarter of 1994, Crestar expects to classify a total of approximately $2.9 billion of securities with an unrealized gain of $46 million (as of January 1, 1994) as securities available for sale. The total unrealized gain on securities available for sale, net of deferred taxes, will be recorded as an increase to shareholders' equity upon adoption of SFAS 115. The unrealized net gain (or loss) on securities available for sale recorded as a component of shareholders' equity will be subject to change in future periods due to fluctuations in market values, acquisition activities, and sales, purchases, maturities and calls of securities classified as available for sale. (5) Money Market Investments Money market investments at December 31 included: In thousands 1993 1992 Trading account securities $ 5,060 $ 19,894 Federal funds sold 3,815 174,772 Securities purchased under agreements to resell 609,805 419,600 Domestic time deposits 25,128 175,326 U.S. Treasury 6,825 391,440 Total money market investments $650,633 $1,181,032 (6) Nonperforming Assets Nonperforming assets include nonperforming loans and foreclosed properties. Nonperforming loans consist of loans on which income is recognized on the cash basis (nonaccrual loans) and loans which meet the accounting definition of a troubled debt restructuring (restructured loans). Nonperforming loans are classified as loans in the accompanying consolidated balance sheets. There were no material commitments to lend additional funds to customers whose loans were classified as nonperforming at December 31, 1993. At December 31, 1993 and 1992, credits accounted for as troubled debt restructurings that were included in nonaccrual loans totaled $21.9 million and $35.6 million, respectively. In addition to the loans classified as nonaccrual at December 31, 1993 and 1992, there were $23.4 million and $26.0 million, respectively, that were past due 90 days or more, the majority of which were collateralized or in the process of collection. Instalment and bank card past due loans are subject to established charge-off procedures as discussed in note 1(f). Non-cash additions to foreclosed properties were $17.2 million, $114.1 million and $92.6 million in 1993, 1992 and 1991, respectively. The amounts of nonperforming assets at December 31 are as follows: In thousands 1993 1992 Nonaccrual loans $ 78,081 $141,979 Restructured loans 1,733 249 Total nonperforming loans 79,814 142,228 Foreclosed properties - net 16,951 78,584 Total nonperforming assets $ 96,765 $220,812 Average nonperforming loans for the year $116,613 $207,002 Average nonperforming assets for the year $170,869 $308,564 The aggregate recorded investment in nonperforming loans outstanding at December 31, 1993, 1992 and 1991, the pro forma interest income that would have been earned in 1993, 1992 and 1991 if such loans had not been classified as nonperforming, and the amount of interest income actually included in net interest income for those years are as follows: In thousands Nonperforming Loan Category 1993: Commercial Construction Real Estate All Other Total Recorded investment $ 39,487 $ 5,843 $33,582 $ 902 $ 79,814 Pro forma interest 4,990 948 1,706 78 7,722 Interest earned 421 - - - 421 1992: Recorded investment $ 87,120 $ 8,506 $45,671 $ 931 $142,228 Pro forma interest 7,790 3,362 1,872 103 13,127 Interest earned 377 - 2 - 379 1991: Recorded investment $145,518 $48,745 $74,564 $1,440 $270,267 Pro forma interest 11,123 6,041 5,358 163 22,685 Interest earned 98 - 105 - 203
(7) Allowance For Loan Losses The following is a summary of transactions in the consolidated allowance for loan losses for the years ended December 31: In thousands 1993 1992 1991 Beginning balance $205,017 $ 210,004 $ 149,375 Charge-offs (89,333) (130,662) (166,181) Recoveries 24,499 16,733 15,438 Net charge-offs (64,834) (113,929) (150,743) Provision for loan losses 48,775 99,242 209,522 Allowance from acquisitions 22,000 9,700 1,850 Net increase (decrease) 5,941 (4,987) 60,629 Ending balance $210,958 $ 205,017 $ 210,004 In 1993, 1992 and 1991, there were no loans charged off representing allocated transfer risk reserves. Foreign activities represented less than 1 percent of total assets, total revenues, income before income taxes and net income for all years presented. (8) Premises And Equipment Included in the accompanying consolidated balance sheets are the following components of premises and equipment as of December 31: In thousands 1993 1992 Land $ 53,611 $ 46,590 Buildings and improvements 262,992 237,071 Furniture, fixtures and equipment 224,978 207,237 Capital leases: Land and buildings 4,072 3,970 Equipment 518 499 546,171 495,367 Less: Accumulated deprecia- tion and amortization (261,449) (232,712) 284,722 262,655 Construction in progress 17,982 17,853 Total premises and equipment - net $ 302,704 $ 280,508 At December 31, 1993, future minimum lease payments under noncancelable capital and operating leases that have an initial term in excess of one year are as follows: Operating Capital In thousands Leases Leases 1994 $14,682 $ 674 1995 13,734 549 1996 10,812 408 1997 7,981 306 1998 5,714 246 Later years 25,131 1,209 Total minimum lease payments $78,054 $ 3,392 Imputed interest (rates ranging from 8-14%) (1,427) Present value of net minimum lease payments (included in long-term debt) $ 1,965 Total minimum lease payments for operating leases included in the preceding table have not been reduced by future minimum sublease rentals of $1.4 million. Including capital lease obligations assumed in the purchase of CFS Financial Corporation, there were $586,000 in new capital lease obligations in 1993. There were no new capital lease obligations incurred in 1992 or 1991. The executive offices of the Corporation are located in the 24-story Corporate Headquarters building at 919 East Main Street in Richmond, Virginia. Crestar and its subsidiaries are the principal tenants of this building. Crestar owns the corporate headquarters building, an operations center in Richmond, and regional office buildings in Roanoke and Norfolk, Virginia and Washington, DC. At December 31, 1993, Crestar had 302 banking locations, the majority of which were bank buildings. Management considers these properties to be suitable and adequate for current operations. Lease expense relating to both cancelable and noncancelable operating lease agreements (including month-to-month rental agreements) is shown below. Customarily, these leases provide that the lessee pay taxes, maintenance, insurance and certain other operating expenses applicable to the leased property. In thousands 1993 1992 1991 Buildings $16,598 $17,309 $15,672 Equipment 1,639 1,559 1,273 Total lease expense $18,237 $18,868 $16,945 (9) Intangible Assets Intangible assets at December 31 included: In thousands 1993 1992 Deposit base intangibles $42,654 $31,836 Goodwill 31,450 25,132 Mortgage servicing rights 21,378 24,463 Other 670 796 Total intangible assets - net $96,152 $82,227 Goodwill is shown net of accumulated amortization of $17,320,000 and $15,035,000 for 1993 and 1992, respectively. (10) Allowance For Foreclosed Properties Transactions in the allowance for losses on foreclosed properties for the years ended December 31 were: In thousands 1993 1992 Beginning balance $ 10,264 $ - Write-downs (13,136) (1,736) Provision for losses on foreclosed properties 6,400 12,000 Allowance from acquisition 2,046 - Net increase (decrease) (4,690) 10,264 Ending balance $ 5,574 $10,264 (11) Short-Term Borrowings And Time Deposits The following is a summary of short-term borrowings outstanding as of December 31 and their related weighted average interest rates: In thousands 1993 1992 1991 Amount Rate Amount Rate Amount Rate Federal funds purchased $ 670,407 3.23% $ 443,467 3.28% $ 448,165 4.36% Securities sold under repurchase agreements 819,132 2.76 1,006,219 3.18 906,748 4.17 Commercial paper 319 2.63 7,435 2.99 8,521 3.62 Notes payable 110,792 2.64 119,019 2.70 244,877 4.00 U.S. Treasury demand notes 13,487 2.64 17,886 2.45 83,295 3.90 Other 2,606 2.75 13,990 3.73 8,025 6.23 Total short-term borrowings $1,616,743 $1,608,016 $1,699,631
Federal funds purchased generally mature daily. Securities sold under repurchase agreements generally mature within 1 to 365 days or are due upon demand. Commercial paper matures within 270 days, and master notes, the principal component of notes payable, are due upon demand. The Corporation paid $296,483,000, $383,986,000 and $550,196,000 in interest on short-term borrowings and deposits in 1993, 1992 and 1991, respectively. (12) Long-Term Debt Long-term debt at December 31 included: In thousands 1993 1992 Parent: 5% Convertible subordinated debentures due 1994 $ 134 $ 136 73/4% Debentures due 1997 ($251 held in treasury in 1992) - 19,349 81/4% Subordinated notes due 2002 125,000 125,000 85/8% Subordinated notes due 1998 49,955 49,945 Total Parent 175,089 194,430 7% Mortgage note payable through 1997 1,545 1,900 71/4% Mortgage note payable through 1994 33 131 71/2% Federal Home Loan Bank advance payable through 2008 972 - 81/4% Mortgage note payable through 2009 9,235 9,511 101/2% Mortgage note payable through 2000 2,317 2,582 8-14% Capital lease obligations maturing through 2004 (note 8) 1,965 1,876 Total consolidated long-term debt $191,156 $210,430 The Parent's 5% subordinated debentures are convertible, at the option of their holders, into the Parent's common stock on or before May 1, 1994, at a conversion price of $9.25 per share. From date of issuance to December 31, 1993, $29,866,000 of the principal amount had been converted into 3,228,364 shares of common stock. These debentures plus any accrued interest are redeemable, at the Parent's option, in whole or in part, at 100 percent. The 73/4% debentures due 1997 were redeemed at par value in September 1993. The 81/4% subordinated notes, issued in July 1992, are not redeemable prior to maturity. The 81/4% notes qualify as Tier 2 capital for federal bank regulatory purposes. The 85/8% subordinated notes may not be exchanged or redeemed prior to maturity, except upon the occurrence of certain events relating to the federal income tax treatment of the notes to the Corporation. The 85/8% notes qualify as Tier 2 capital for federal bank regulatory purposes. Outstanding debt agreements at December 31, 1993 place restrictions upon the disposal of subsidiaries' common stock, the payment of dividends and the acquisition by the Parent or its subsidiaries of the Parent's capital stock. Under these restrictions, all retained earnings were available for dividends as of December 31, 1993. Expenses relating to the issuance of the 81/4% and 85/8% notes and the 5% debentures are being amortized to maturity on a straight-line basis. Upon conversion to common stock, the unamortized expense attributable to the 5% debentures is charged to capital surplus. Mortgage indebtedness consists of the debt relating to four pledged facilities owned by Crestar Bank which have an aggregate carrying value of $33,979,000 at December 31, 1993. Payments in 1993, including interest, were $2,157,000. Mortgage payments in 1994 are expected to approximate the 1993 amount. The Corporation made payments of $17,928,000, $13,534,000 and $16,134,000 in interest on long-term debt in 1993, 1992 and 1991, respectively. On September 24, 1993, Crestar filed a shelf registration with the Securities and Exchange Commission. Under this registration statement, the Company may issue up to $300,000,000 in unsecured subordinated debt securities, preferred stock or common stock, or any combination thereof. Securities may be issued separately or as units, at prices and on terms to be determined at the time of sale. The combined maturities of all long-term debt for the years 1994 through 1998 are as follows: In thousands 1994 1995 1996 1997 1998 Parent $ 134 $ - $ - $ - $49,955 Consolidated 1,822 1,617 1,569 1,421 51,073 (13) Income Taxes Effective January 1, 1993, Crestar adopted Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS 109). There was no material effect on the results of operations from the adoption of this accounting method. The current and deferred components of income tax expense allocated to operations in the accompanying consolidated statements of income are as follows: In thousands Current: 1993 1992 1991 Federal $54,060 $ 37,996 $ 20,491 State and local (362) 1,347 2,051 Total current tax expense (benefit) 53,698 39,343 22,542 Deferred: Federal 9,975 (17,886) (15,667) State and local (684) (1,768) (815) Total deferred tax expense (benefit) 9,291 (19,654) (16,482) Total income tax expense $62,989 $ 19,689 $ 6,060 In addition to the state and local income tax expenses above, which pertain to the non-bank affiliates and to the non-Virginia banks, Crestar Bank incurred Virginia bank franchise taxes of $2,810,000 in 1993, $2,845,000 in 1992 and $3,330,000 in 1991. This tax is imposed upon banks in Virginia in lieu of income and personal property taxes. Crestar Bank remits 80 percent of the tax to the Virginia municipalities in which it does business and the remaining 20 percent to the State of Virginia. 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 are as follows: In thousands 1993 1992 1991 Income before income taxes $203,480 $ 99,490 $ 39,821 Tax expense at statutory rate 71,218 33,826 13,539 Increase (decrease) in taxes resulting from: Tax-exempt interest and dividends (8,355) (10,573) (14,454) Nondeductible interest expense 531 790 1,353 Alternative minimum tax (carryforward used) - (6,457) 5,049 Amortization of goodwill 1,075 872 849 Amortization of deposit base intangibles - 1,073 1,025 State income taxes 292 (278) 816 Adoption of SFAS 109 (540) - - Deferred tax effect of 1993 tax rate change (1,593) - - Reversal of previously accrued taxes - - (2,122) Other - net 361 436 5 Total decrease in taxes (8,229) (14,137) (7,479) Total income tax expense $ 62,989 $ 19,689 $ 6,060 Effective tax rate 31.0% 19.8% 15.2%
The Corporation made income tax payments of $52,234,000, $37,371,000 and $20,853,000 during 1993, 1992 and 1991, respectively. At December 31, 1993, the net deferred tax asset of $48,717,000 consisted of the following: Deferred Deferred Tax Tax In thousands Assets Liabilities Allowance for loan losses $71,113 $ - Unrealized losses on foreclosed properties 4,743 - Compensation and employee benefits 12,646 - Premises and equipment - 15,838 Deposit base intangibles - 11,979 Investment securities - 3,109 Unamortized deferred loan fees and costs - 2,442 Loans - 2,690 Lease receivables - 2,591 Loan acquisition discount - 2,636 Other 5,240 3,740 Total deferred taxes $93,742 $45,025 Net deferred tax asset $48,717 The net deferred tax asset at January 1, 1993, included a valuation allowance of $1.1 million (zero at December 31, 1993) representing a capital loss carryforward expiring in 1998. This allowance was reduced to zero as a result of a decrease in the corresponding temporary difference during 1993. Crestar has sufficient taxable income in the available carryback periods and future taxable income from reversing taxable temporary 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. The primary timing differences and the resulting deferred income tax benefits for the years ended December 31, 1992 and 1991 are as follows: In thousands 1992 1991 Deduction for loan losses on tax returns greater (less) than the provision charged to operating expense $ 4,840 $(19,664) Financial statement AMT greater (less) than tax return AMT (6,457) 5,049 Reversal of previously accrued taxes - (2,122) Depreciation (1,420) (1,120) Amortization of acquired intangible assets 1,351 1,252 Accretion of discount on securities (1,801) (708) Deferral and amortization of loan fees and costs (449) 798 Leasing 9 1,607 Unrealized losses on other real estate owned (12,782) (899) Other - net (2,945) (675) Total deferred income tax benefit $(19,654) $(16,482)
Net deferred income taxes in the accompanying consolidated balance sheets are included in other assets or other liabilities, as appropriate. The tax returns through 1987 have either been examined or are no longer subject to examination by the Internal Revenue Service (IRS). During 1993, the IRS continued an examination of the tax returns for 1988 through 1990. Management believes that any deficiency that may be determined will not have a material effect on consolidated earnings. (14) Shareholders' Equity And Earnings Per Share During 1993 the Corporation purchased and retired 522,300 shares of common stock at an average cost of $40.31 per share. There were no shares of common stock purchased and retired in 1992 or 1991. During 1993, $2,000 of subordinated debentures were converted to 216 shares of common stock. During 1992 and 1991, $17,000 and $15,000, respectively, of subordinated debentures were converted to 1,837 and 1,621 shares of common stock, respectively. In October 1992, Crestar completed the public offering and sale of 3,450,000 shares of common stock at $29.25 per share, providing a net addition of $97.1 million to shareholders' equity. At December 31, 1993, common stock was reserved for issuance to directors, officers or employees with respect to stock options granted from 1987 through 1993 as explained in note 18. There were 500,000 shares reserved for the Performance Equity Plan, which provides awards to key executives based upon attainment of specific long-term corporate goals. No shares were beneficially owned by a subsidiary. There were 14,876 shares of common stock reserved for the conversion of the 5% convertible subordinated debentures at December 31, 1993. In December 1993, all 900,000 shares of the Adjustable Rate Cumulative Preferred Stock Series B were redeemed at 103% of the stock's stated value, or a price per share of $51.50, plus accrued and unpaid dividends. Average common and common equivalent shares used in the determination of earnings per share were: In thousands 1993 1992 1991 Primary 37,587 32,286 31,921 Plus assumed conversion of debentures 15 15 17 Other 63 68 8 Fully diluted 37,665 32,369 31,946 Fully diluted earnings per common share are calculated using net income increased by interest and amortization of debt issuance expense, net of tax effect, relating to the outstanding 5% convertible subordinated debentures and reduced by the preferred dividends applicable to the Series B preferred stock as follows: In thousands 1993 1992 1991 Interest and amortization of debt issuance expense $ 7 $ 7 $ 8 Tax effect (2) (2) (3) Preferred dividends, Series B (2,221) (2,475) (2,576) Net adjustment to net income $(2,216) $(2,470) $(2,571) (15) Other Income Other income in the consolidated statements of income includes the following components: In thousands 1993 1992 1991 Mortgage servicing $15,371 $13,637 $13,363 Mortgage origination - net 20,631 16,631 9,504 Automated teller machine fees 9,355 7,925 5,463 Trading account activities 4,415 6,880 8,295 Commissions on letters of credit 7,272 5,081 5,899 Safe deposit box rental 2,239 3,282 3,033 Gain on sale of mortgage servicing rights 3,600 1,761 - Miscellaneous 18,786 11,539 8,902 Total other income $81,669 $66,736 $54,459 (16) Regulatory Requirements And Restrictions Crestar Bank, Crestar Bank N.A. and Crestar Bank MD (Banks) are subject to certain requirements imposed by state and federal banking statutes and regulations. These requirements, among other things, establish minimum levels for capital and restrict the amount of dividends that may be distributed and the amount of loans that may be made by the Banks to the Parent and require that the Banks maintain a minimum reserve balance with the Federal Reserve Bank. Under the current supervisory practices of the Banks' regulatory agencies, prior approval from those agencies is required if cash dividends declared in any given year exceed net income for that year plus retained earnings of the two preceding years. The amount of dividends available to the Parent from the Banks at January 1, 1994, without prior approval, was approximately $106.0 million. Cash dividends paid by the Banks to the Parent in 1993, 1992 and 1991 were $93.8 million, $30.1 million and $28.1 million, respectively. Section 23A of the Federal Reserve Act places limitations on the amount of credit that may be extended to the Parent by the Banks. Generally, up to 10% of the Banks' regulatory capital, surplus, undivided profits, allowance for loan losses and contingency reserves may be loaned by the Banks to the Parent. As of December 31, 1993, $116.3 million of credit was available to the Parent under this limitation, although no extensions of credit were outstanding. For the reserve maintenance period in effect at December 31, 1993 and 1992, the Banks were required to maintain average daily balances totaling approximately $339.6 million and $291.6 million, respectively, with the Federal Reserve Bank. The average amount of reserve balances for the year ended December 31, 1993 totaled approximately $294.2 million. As of January 1, 1993, aggregate loans to directors and executive officers and their associates were $13,874,000. Additions and repayments totaled $946,000 and $3,966,000 respectively, during 1993 and the balance was $10,854,000 at year end. These loans were made in the ordinary course of business and were arms- length in terms of credit risk, interest rates and collateral requirements prevailing at the time for comparable transactions. These loans do not represent more than a normal credit risk. None of these loans were nonaccrual, past due or restructured at December 31, 1993. (17) Pension Plans As of December 31, 1993, the Corporation had various non-contributory defined benefit pension plans. Benefits under the plans are based on length of service and a percentage of qualifying compensation during the final years of employment. The Corporation's funding policy is to contribute annually the maximum amount that can be contributed for federal income tax purposes. Contributions are intended to provide not only for benefits attributed to service to date but also for those expected to be earned in the future. During 1991 Crestar purchased annuities to settle certain pension obligations for selected retirees of the Corporation. As a result, the projected benefit obligation was reduced by $10,255,000 and a pre-tax gain of $2,236,000 was recognized. Net periodic pension expense in 1993, 1992 and 1991 includes the following components: In thousands 1993 1992 1991 Service cost - benefits earned during the year $ 4,949 $ 4,906 $ 5,351 Interest expense on projected benefit obligation 6,784 6,244 6,362 Actual return on plan assets (18,906) (9,859) (17,908) Net amortization and deferral 9,167 1,175 9,921 Net periodic pension expense $ 1,994 $ 2,466 $ 3,726
The following table sets forth the Plans' funded status and amounts recognized in the Corporation's consolidated balance sheets at December 31, 1993 and 1992, based on a measurement date of September 30 for each respective year: In thousands 1993 1992 Accumulated benefit obligation, including vested benefits of $81,540 in 1993 and $55,667 in 1992 $ (82,621) $(56,943) Projected benefit obligation for service rendered to date (121,416) (85,422) Plan assets at fair value, primarily listed stocks and U.S. Treasury bonds 123,480 105,586 Plan assets in excess of projected benefit obligation 2,064 20,164 Unrecognized net gain from past experience different from that assumed and effects of changes in assumptions (324) (16,161) Unrecognized net asset at October 1, 1985, being recognized over 15 years (2,614) (3,031) Prepaid (accrued) pension expense $ (874) $ 972 The weighted average discount rate and the rate of increase in future compensation levels used in determining the actuarial present value of the projected benefit obligation were 7.25% and 5.0%, respectively, in 1993 and 8.0% and 5.0%, respectively, in 1992. The expected long-term rate of return on assets was 8.5% for both 1993 and 1992. (18) Other Employee Benefit Plans The Corporation maintains a stock incentive plan which allows for the granting of incentive and non-qualified stock options to all employees on a discretionary basis. The Corporation also maintains a stock option plan under which no future options will be granted, but under which previously granted options were outstanding at December 31, 1993. Stock options are granted at prices equal to the fair market value of the stock on the date of grant. Options are exercisable starting one year from the date of grant, or upon retirement, disability or death, and expire seven years from the date of grant for options granted prior to 1989 and ten years from the date of grant for options granted in 1989 and thereafter. Effective in January 1992, all stock appreciation rights (SARs), which had previously been granted in tandem with options, were canceled. No new grants of SARs have been made since that time. The following summarizes activity relating to options and SARs: 1993 1992 1991 Options SARs Options SARs Options SARs Outstanding, January 1 1,120,800 - 931,000 481,521 663,882 338,244 Granted 207,730 - 363,550 - 317,500 165,545 Canceled or retired (4,350) - (7,400) (481,521) (25,800) (22,268) Exercised ($14.75 to $29.00 per share) (270,879) - (166,350) - (24,582) - Outstanding, December 31 ($14.75 per share to $43.69 per share) 1,053,301 - 1,120,800 - 931,000 481,521 Exercisable, December 31 885,151 - 762,750 - 604,202 318,312
On January 1, 1993, Crestar adopted Statement of Financial Accounting Standards No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions." Under this accounting rule, costs of retiree benefits other than pensions are accrued in a manner similar to pension costs. Prior to 1993, these other retiree benefit costs were expensed when paid, and totaled $1.7 million in 1992 and $1.2 million in 1991. The effect of adopting this statement was to increase employee benefits expense for 1993 by approximately $2.1 million. Postretirement benefits expense for periods prior to January 1, 1993 has not been restated. The following table presents the projected status of Crestar's postretirement life and contributory health insurance benefit plans for eligible retirees as of December 31, 1993: In thousands Accumulated postretirement benefit obligations (other than pensions): Retirees $(27,821) Eligible active plan participants (5,599) Ineligible active participants (7,740) Total (41,160) Unrecognized net loss 5,512 Unrecognized transition obligation to be recognized over 20 years 32,490 Accrued postretirement benefit expense $ (3,158) Postretirement benefit expense for the year ended December 31, 1993 included these components: In thousands Service cost $ 573 Interest cost 2,131 Amortization of transition obligation 1,710 Net postretirement benefit expense $4,414 The weighted average annual assumed rate of increase in the per capita cost of covered benefits for health insurance is 13% for 1994 and is assumed to decrease gradually to 6% in 2000 and remain at that level thereafter. Increasing the assumed health care trend rates by one percentage point in each year would increase the accumulated postretirement benefit obligation for the medical plan by approximately $2.5 million, and would increase the aggregate of the service and interest components of net postretirement benefit expense by approximately $250 thousand for 1993. The weighted average discount rate used in projecting the accumulated plan benefit obligation was 7.25%, and the average rate of annual compensation increase ranged from 5.0% to 7.8%, depending upon the age of the participant. The Corporation maintains a grantor trust to pay certain employee benefits as they become due. Assets of the trust are restricted to use for applicable employee benefit plans, including deferred compensation and medical benefit plans. These trust assets of approximately $63 million at December 31, 1993 are included in the Corporation's total assets. The Corporation has a thrift plan and a profit-sharing plan covering substantially all full-time employees beginning January 1 after date of hire. The Corporation makes matching contributions of 50 cents for every $1 of employee contributions to the thrift plan, up to 6 percent of base pay. Employer profit-sharing contributions are determined by applying a formula based on return on equity to covered compensation. Thrift and profit-sharing plan expenses totaled $11.0 million, $8.3 million and $3.4 million in 1993, 1992 and 1991, respectively. Statement of Financial Accounting Standards No. 112 (SFAS 112), "Employers' Accounting for Postemployment Benefits," establishes accounting standards for benefits provided to inactive or former employees after employment, but before retirement. For Crestar, such benefits consist principally of short-term disability benefits. Under the new standard, which becomes effective on January 1, 1994, estimated costs of postemployment benefits are accrued during the period of active employment rather than expensed when paid. Crestar expects to incur a pre-tax charge of approximately $2.0 million in the first quarter of 1994 upon adoption of this accounting standard. (19) Other Expense Other expense in the consolidated statements of income includes the following components: In thousands 1993 1992 1991 Communications $ 21,136 $ 19,334 $ 18,149 Stationery, printing and supplies 7,133 6,451 6,086 Professional fees and services 13,487 15,898 13,244 Loan expense 9,034 8,409 5,797 FDIC premiums 22,847 21,003 17,806 Advertising and marketing 13,709 8,137 7,866 Transportation 5,388 5,357 5,610 Outside data services 14,879 11,769 11,923 Amortization of purchased intangibles 21,926 13,630 12,338 Foreclosed properties 33,055 60,188 11,833 Miscellaneous 35,321 38,124 30,349 Total other expense $197,915 $208,300 $141,001 (20) Condensed Bank Information The following shows Condensed Consolidated Balance Sheets for Crestar Bank, Crestar Bank N.A. and Crestar Bank MD at December 31, 1993: In thousands Crestar Bank Crestar Bank N.A. Crestar Bank MD Cash and due from banks $ 643,057 $ 145,435 $ 76,056 Investment securities 1,385,401 276,753 130,245 Securities held for sale 1,043,879 467,494 185,627 Money market investments 548,332 250,030 235,000 Mortgage loans held for sale 591,233 - - Loans - net of unearned income 6,736,384 305,989 244,749 Less: Allowance for loan losses (188,317) (16,584) (6,057) Loans - net 6,548,067 289,405 238,692 Premises and equipment - net 242,164 47,539 11,695 Customers' liability on acceptances 11,578 - - Intangible assets - net 63,523 24,146 8,483 Other assets 289,318 31,930 7,611 Total Assets $11,366,552 $1,532,732 $893,409 Deposits $ 8,395,223 $1,249,523 $749,063 Short-term borrowings 1,830,365 98,276 61,224 Notes payable to Parent 163,000 10,000 - Liability on acceptances 11,578 - - Other liabilities 146,373 23,557 17,501 Long-term debt 15,086 972 9 Total liabilities 10,561,625 1,382,328 827,797 Common stock 210,000 5,258 12,210 Capital surplus 135,723 93,423 43,187 Retained earnings 459,204 51,723 10,215 Total shareholder's equity 804,927 150,404 65,612 Total Liabilities And Shareholder's Equity $11,366,552 $1,532,732 $893,409
Condensed Consolidated Statements of Income for Crestar Bank, Crestar Bank N.A. and Crestar Bank MD for the year ended December 31, 1993 are shown in the following table: In thousands Crestar Bank Crestar Bank N.A. Crestar Bank MD Income from earning assets $715,308 $72,622 $46,167 Interest expense 266,717 27,374 17,707 Net interest income 448,591 45,248 28,460 Provision for loan losses 46,230 - 2,545 Net credit income 402,361 45,248 25,915 Noninterest income 202,921 25,919 18,744 Securities gains - 87 51 Net credit and noninterest income 605,282 71,254 44,710 Noninterest expense 436,492 52,262 33,641 Income before income taxes 168,790 18,992 11,069 Applicable income tax expense 52,960 4,792 5,126 Net income $115,830 $14,200 $ 5,943
(21) Condensed Parent Information The following shows the Parent's Condensed Balance Sheets: December 31, In thousands 1993 1992 Cash in banks $ 31,276 $ 29,536 Investment securities 12,967 31,591 Securities purchased under agreements to resell 109,000 209,000 Securities purchased from subsidiaries under agreements to resell - 5,441 Other money market investments 31,940 - Notes receivable from subsidiaries 173,000 173,000 Investments in subsidiaries: Bank subsidiaries 1,020,943 915,360 Non-bank subsidiaries 8,038 3,391 Other assets 11,735 8,708 Total Assets $1,398,899 $1,376,027 Commercial paper $ 320 $ 7,435 Master notes 110,792 119,019 Securities sold to subsidiary under repurchase agreements 2,706 - Payable to Crestar Bank - 45,000 Other liabilities 47,515 51,238 Long-term debt 175,089 194,430 Total shareholders' equity 1,062,477 958,905 Total Liabilities And Shareholders' Equity $1,398,899 $1,376,027 The Parent's retained earnings as of December 31, 1993 and 1992 were $626,003,000 and $545,008,000, respectively, and were comprised primarily of the undistributed earnings of its subsidiaries. The Parent's Condensed Statements of Income for each of the last three fiscal years are shown in the following table: Years Ended December 31, In thousands 1993 1992 1991 Cash dividends from subsidiaries: Bank subsidiaries $ 93,834 $30,100 $28,054 Non-bank subsidiaries - - 2,574 Interest from subsidiaries 14,844 11,418 12,777 Interest on investment securities 1,634 2,536 6,200 Interest on securities purchased under agreements to resell 3,014 6,184 7,553 Income on other money market investments 1,762 - - Other income 36 28 26 Securities losses (1,859) (979) (21) Total income 113,265 49,287 57,163 Interest on short-term borrowings 3,021 4,046 9,582 Interest on note payable to subsidiary - 99 - Interest on long-term debt 15,754 15,628 14,039 Other expense 1,099 1,269 515 Total expense 19,874 21,042 24,136 Income before income taxes and equity in undistributed net income of subsidiaries 93,391 28,245 33,027 Income tax benefit (1,451) (1,529) (2) Income before equity in undistributed net income of subsidiaries 94,842 29,774 33,029 Equity in undistributed net income of subsidiaries 45,649 50,027 732 Net Income $140,491 $79,801 $33,761 The following shows the Parent's Condensed Statements of Cash Flows for each of the last three fiscal years. Cash and cash equivalents consist of cash in banks. In thousands Years Ended December 31, 1993 1992 1991 Operating Activities Net Income $ 140,491 $ 79,801 $ 33,761 Adjustments to reconcile net income to net cash provided by operating activities: Equity in undistributed net income of subsidiaries (45,649) (50,027) (732) Depreciation and amortization of premises and equipment 52 51 52 Securities losses 1,859 979 21 Amortization and accretion, net 248 314 334 Net proceeds from securities held for sale 22,191 - 183,721 Net decrease (increase) in accrued interest receivable, prepaid expenses and other assets (3,780) 1,104 12,515 Net increase (decrease) in accrued interest payable, accrued expenses and other liabilities (3,899) 12,266 30,913 Net cash provided by operating activities 111,513 44,488 260,585 Investing Activities Proceeds from maturities of investment securities - 1,015 6,774 Proceeds from sales of investment securities - 6,175 - Purchases of investment securities (749) - - Net decrease (increase) in securities purchased under agreements to resell 105,441 (69,441) (145,000) Net increase in other money market investments (31,940) - - Net increase in notes receivable from subsidiaries - (65,000) - Decrease in payable to subsidiary (45,000) - - Increase in investments in subsidiaries (2,500) (15,750) - Net cash paid for acquisitions (5,524) - (839) Net cash provided (used) by investing activities 19,728 (143,001) (139,065) Financing Activities Net decrease in short-term borrowings (12,636) (31,058) (70,072) Principal payments on long-term debt (19,349) (70,000) (259) Proceeds from issuance of long-term debt - 124,529 - Redemption of preferred stock (46,350) - - Cash dividends paid (45,091) (29,121) (40,437) Common stock purchased and retired (21,054) - - Proceeds from the issuance of common stock 14,979 108,918 13,979 Net cash provided (used) by financing activities (129,501) 103,268 (96,789) Increase in cash and cash equivalents 1,740 4,755 24,731 Cash and cash equivalents at beginning of year 29,536 24,781 50 Cash and cash equivalents at end of year $ 31,276 $ 29,536 $ 24,781
(22) Commitments, Contingencies And Other Financial Instruments In the normal course of business, Crestar is a party to commitments, contingent liabilities and other financial instruments that are not reflected in the accompanying consolidated financial statements. Commitments to extend credit, put options, standby letters of credit, interest rate caps, interest rate floors and collars, interest rate swaps, and forward contracts are some of the vehicles used by Crestar in meeting the financing needs of its customers and managing its own exposure to fluctuations in interest rates. These items involve, to varying degrees, elements of credit and interest rate risk in excess of the amounts recognized in the consolidated balance sheets. Any losses which may result from these transactions are not expected to have a material effect on the accompanying consolidated financial statements. Notional principal amounts often are used to express the volume of the transaction, but the amounts potentially subject to credit risk are much smaller. The following table presents the contract or notional amount of each class of instrument and the estimated unrealized gain (loss) of such instruments at December 31, 1993 and 1992: In thousands Unrealized Net Gain (Loss) Notional Amount 1993 1992 1993 1992 Financial instruments whose notional or contract amounts equaled maximum credit risk (assumes counter-party defaults and collateral proves to be worthless): Legally binding unfunded commitments to extend credit $(12,900) $ - $4,521,484 $4,624,797 Standby letters of credit - - 394,156 434,887 Commercial and similar letters of credit - - 75,913 92,560 Recourse obligations - - 710,415 773,943 Other - - 12,890 23,795 Total $(12,900) $ - $5,714,858 $5,949,982 Financial instruments whose notional or contract amounts exceeded the amount of credit risk: Caps, floors, collars and swaps: As hedges against interest rate risk $ 21,171 $33,117 $2,121,089 $2,454,777 As a financial intermediary 764 875 385,267 440,504 Forward contracts to hedge lending commitments 3,400 (5,247) 943,330 556,246 Total $ 25,335 $28,745 $3,449,686 $3,451,527
Unless noted otherwise, the Corporation does not require collateral to support off-balance sheet financial instruments with credit risk. Commitments to extend credit are legally binding agreements to lend to a customer which typically contain clauses that permit cancellation of the commitment in the event of credit deterioration of the borrower. Standby letters of credit are conditional commitments issued by Crestar to guarantee the performance of customers to a third party. Crestar receives a commitment fee for entering into such agreements. The credit risk associated with commitments to extend credit and standby letters of credit is similar to direct lending; therefore, all of these items are subject to the Corporation's loan approval and review procedures and policies. Based upon management's credit evaluation of the customer, Crestar may require the customer to provide various types of collateral as security for the agreement, including balances on deposit, investment securities, real estate and inventory. The total contract amounts do not necessarily represent future cash requirements, since many of these items are expected to expire without being drawn upon. At December 31, 1993, approximately $6.5 million of the standby letters of credit and $20.9 million of commercial and similar letters of credit were participated to other financial institutions. A geographic concentration exists within Crestar's loan portfolio since most of Crestar's business activity is with customers located in Virginia, Maryland or Washington, DC. Based upon Standard Industrial Classification codes used for regulatory purposes, the Corporation had no aggregate loan concentrations of 10% or more of total loans in any particular industry at December 31, 1993. However, under a broader view of the portfolio, Crestar had $1.1 billion in loans outstanding to real estate developers and investors at year-end 1993. These loans are diversified by geographic region within Crestar's market and by project type and are made in accordance with the Corporation's normal credit and underwriting guidelines and risk management policies. 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 December 31, 1993, approximately $376.8 million of the balance of these loans serviced with recourse is insured by governmental agencies or private insurance companies. Crestar has agreed to repurchase at the holder's option certain housing authority bonds at par value under the terms of various tender option agreements. Approximately $5.2 million of the $12.9 million in total repurchase risk associated with this put bond program has been participated to another financial institution. The Corporation enters into a variety of interest rate cap, floor, collar, and swap agreements as hedges (to manage its interest rate exposure) and as an intermediary (to enable customers to transfer, modify or reduce their interest rate risk). At December 31, 1993, the total notional amount of these instruments that hedge the Corporation's interest rate risk was $2.1 billion, which included $1.5 billion in swaps to convert certain variable-rate assets to fixed rates in order to manage Crestar's interest sensitivity position: $55 million in swaps utilized to convert specifically identified time deposits and short-term borrowings to variable interest rates in order to lock in a spread on the variable-rate assets that they fund; $4 million in swaps to hedge the interest rate risk associated with the aforementioned tender option agreement; $400 million in caps to minimize interest rate risk associated with certain variable- rate deposits and overnight securities; and $200 million of interest rate floor agreements to minimize interest rate risk associated with variable rate assets. The Corporation believes that such off-balance sheet transactions have been successful in attaining interest rate sensitivity goals. The following chart provides additional details on the interest rate swaps, floors and caps utilized by Crestar at December 31, 1993 as hedges against interest rate risk. Notional Expected Average Unrealized Unrealized Dollars in thousands Balance Maturity Fixed Rate Gains Losses Interest rate swaps: Receive fixed rate $1,517,089 1.87 yrs. 6.05% $20,319 $ (730) Pay fixed rate 4,000 1.15 12.73 - (394) Interest rate floors 200,000 1.08 NA* 2,208 - Interest rate caps 400,000 .18 NA* - (232) Total financial instruments used as hedges against interest rate risk $2,121,089 $22,527 $(1,356) *Not applicable
Interest rate floors and caps included in the above schedule are tied to the London Inter-Bank Offered Rate (LIBOR). The average fixed strike rate at December 31, 1993 for interest rate floors was 5.50%, and for interest rate caps was 8.25%. Credit risk associated with interest rate swaps, floors and caps is generally limited to the estimated replacement cost of those instruments in a gain position. No interest rate swaps, floors or caps used as hedges against interest rate risk were sold by Crestar during 1993 or 1992. At December 31, 1993, Crestar had entered into $385.3 million of interest rate cap, floor, collar and swap agreements as a financial intermediary for customers. As an intermediary, Crestar typically becomes a principal in the exchange of interest payments between parties and, therefore, is exposed to loss should one of the parties default. The Corporation performs normal credit reviews on each counterparty and minimizes its exposure to the interest rate risk inherent in these items by entering into offsetting positions or by using hedging techniques to minimize risk. Notional principal amounts are used to express the volume of the transaction, but the amounts potentially subject to credit risk are much smaller and are limited to the value of the contractual cash flows. The Corporation entered into $943.3 million (contract amount) of forward agreements to reduce the interest rate risk arising from changes in market rates from the time various lending commitments are made until those commitments are funded. The fair values of off-balance sheet financial instruments were estimated based on the fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and creditworthiness of counterparties. Unfunded loan commitments are generally priced at market at the time of funding and are subject to certain credit standards. The carrying value of interest rate caps, floors, collars and swaps used as hedges and other off- balance sheet financial instruments was not material at year-end 1993 or 1992. A large portion of Crestar's investment securities and securities held for sale portfolios is comprised of mortgage-backed obligations issued by various Federal agencies. At December 31, 1993 the total amount invested in these securities was $1.5 billion or 41% of the combined investment securities and securities held for sale portfolios. 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. (23) Fair Value Of Financial Instruments The majority of Crestar's assets and liabilities are financial instruments; however, most of these financial instruments lack an available trading market. Significant estimates, assumptions and present value calculations were therefore used for purposes of the following disclosure, resulting in a great degree of subjectivity inherent in the indicated fair value amounts. Comparability among financial institutions may be difficult due to the wide range of permitted valuation techniques and the numerous estimates and assumptions which must be made. The Corporation's remaining assets and liabilities which are not considered financial instruments have not been valued differently than has been customary with historical cost accounting, nor have lines of business such as trust or mortgage banking services been separately valued. Valuation methods, estimated fair values and carrying values at December 31, 1993 and 1992 are as follows: In thousands Estimated Fair Value Carrying Value 1993 1992 1993 1992 Cash and due from banks $ 716,652 $ 754,583 $ 716,652 $ 754,583 Investment securities 1,845,714 1,707,728 1,824,617 1,684,900 Securities held for sale 1,729,796 1,566,630 1,697,000 1,544,049 Money market investments 650,633 1,181,032 650,633 1,181,032
The fair values of cash and due from bank balances and of money market investments are equal to the carrying values. Financial instrument assets actively traded in a secondary market were valued using available quoted market prices. In thousands Estimated Fair Value Carrying Value 1993 1992 1993 1992 Net loans, including loans held for sale $7,878,000 $6,872,000 $7,667,397 $6,743,939 Other financial instrument assets 180,111 191,928 179,086 192,041
The Company's loan portfolio was valued at discounted values of projected cash flows. The applicable discount rates were based on rates paid on U.S. Treasury securities with various maturity dates, adjusted for noninterest operating costs, anticipated credit losses and prepayment risk. This valuation excludes the additional value of customer relationships connected with Crestar's bank card, home equity line or similar revolving line of credit arrangements. Other financial instrument assets consist largely of customers' liability on acceptances and accrued interest receivable, for which fair value approximates carrying value. The fair value of other instruments was estimated based on discounted values of projected cash flows. In thousands Estimated Fair Value Carrying Value 1993 1992 1993 1992 Deposits with no stated maturities $7,481,765 $6,760,060 $7,481,765 $6,760,060
Deposit liabilities payable on demand, consisting of demand deposits, interest checking deposits, money market deposit accounts and regular savings deposits, by definition have an estimated fair value equal to carrying value. Recent purchase transactions of bank deposits have reflected premiums of approximately one to four percent of the recorded book value of total deposits. The premium percent attributable to deposits with no stated maturities would be higher than that range due to the low-cost nature of such deposits over their projected life and their value as a low-cost source of funds. In thousands Estimated Fair Value Carrying Value 1993 1992 1993 1992 Deposits with stated maturities $2,707,000 $2,852,000 $2,684,013 $2,821,443 Short-term borrowings 1,616,743 1,608,016 1,616,743 1,608,016 Long-term debt 211,401 217,324 191,156 210,430 Other financial instrument liabilities 200,230 284,795 200,276 284,886
Deposits with stated maturities were valued using discounted cash flows incorporating rates paid on U.S. Treasury securities, adjusted for factors such as operating expenses and prepayment risk. Short-term borrowings have a fair value that approximates carrying value. Long-term debt was valued based on interest rates currently available to Crestar for debt with similar terms and remaining maturities. Other financial instrument liabilities consist largely of liability on acceptances, interest payable on deposits, and balances due upon settlement of securities purchases, for which estimated fair value approximately carrying value. The fair value of other liability instruments was estimated based on discounted net cash flows expected to be incurred. Information on estimated fair values of off-balance sheet transactions is provided in financial statement note 22. (24) Quarterly Financial Results (Unaudited) The following summarizes the consolidated quarterly results of operations for the years ended December 31, 1993 and 1992: Dollars in thousands, except per share data First Second Third Fourth 1993 Quarter Quarter Quarter Quarter Income from earning assets $202,125 $204,928 $213,119 $212,457 Net interest income 124,602 128,805 135,646 137,959 Provision for loan losses 18,500 3,006 13,769 13,500 Securities gains (losses) 1,111 1,511 (385) - Other noninterest income 59,259 61,364 61,739 63,666 Net credit and noninterest income 166,472 188,674 183,231 188,125 Noninterest expense 123,084 140,547 129,148 130,243 Net Income 30,894 33,710 37,153 38,734 Earnings Per Share Primary: Net Income $ .83 $ .88 $ .96 $ 1.01 Average shares outstanding (000s) 36,678 37,440 38,154 38,063 Fully diluted: Net Income $ .83 $ .88 $ .96 $ 1.00 Average shares outstanding (000s) 36,710 37,479 38,174 38,088 Dividends declared on common stock .25 .28 .28 .33 1992 Income from earning assets $223,276 $219,264 $209,974 $211,163 Net interest income 107,711 121,694 123,125 129,614 Provision for loan losses 30,098 34,400 16,000 18,744 Securities gains (losses) 4,674 (1,224) 102 11 Other noninterest income 51,320 52,949 55,923 54,636 Net credit and noninterest income 133,607 139,019 163,150 165,517 Noninterest expense 116,035 118,826 136,409 130,533 Net Income 13,675 16,765 21,490 27,871 Earnings Per Share Primary: Net Income $ .40 $ .50 $ .64 $ .78 Average shares outstanding (000s) 32,501 32,601 32,754 35,371 Fully diluted: Net Income $ .40 $ .50 $ .64 $ .78 Average shares outstanding (000s) 32,519 32,675 32,815 35,487 Dividends declared on common stock .20 .20 .20 .20
The Board Of Directors And Shareholders We have audited the accompanying consolidated balance sheets of Crestar Financial Corporation and Subsidiaries as of December 31, 1993 and 1992 and the related consolidated statements of income, cash flows and changes in shareholders' equity for each of the years in the three-year period ended December 31, 1993. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosure in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Crestar Financial Corporation and Subsidiaries as of December 31, 1993 and 1992, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1993, in conformity with generally accepted accounting principles. Effective January 1, 1993, the Company changed its methods of accounting to adopt the provisions of the Financial Accounting Standards Board's Statement of Financial Accounting Standards No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions" and Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes." /s/ KPMG Peat Marwick KPMG Peat Marwick Richmond, Virginia January 13, 1994 Statement On Corporate Responsibility The financial statements on pages 32 to 56 have been prepared by management in accordance with generally accepted accounting principles and include some amounts that are necessarily based on our best estimates and judgments. We are responsible for the accuracy, integrity, objectivity, consistency and fair presentation of the financial statements and all other financial information contained in this Annual Report. One way we fulfill these responsibilities is by relying on a system of internal controls, which has been designed to ensure that transactions are properly authorized and recorded in our financial records. Included in the system is an internal auditing function that independently assesses the effectiveness of internal controls and recommends possible improvements thereto. Because of inherent limitations in any system of controls, there can be no absolute assurance that errors or irregularities will not occur. Nevertheless, we believe that our system of internal controls provides reasonable assurance as to the integrity and reliability of our financial records. Some of the financial information in this Annual Report is presented on a tax- equivalent basis to improve comparative analysis. However, in all other respects, it is consistent with the audited financial statements. Through its Audit committee, which is composed of directors who are not officers or employees of the Corporation, the Board of Directors fulfills its oversight responsibility for determining that the accounting policies employed by management in preparing the Corporation's financial statements are appropriate and that our system of internal controls is adequately reviewed and maintained. The Committee periodically reviews, with management and the internal auditors, accounting policies, control procedures, and audit and regulatory examination reports of the Corporation and its subsidiaries. In addition, our independent auditors meet regularly with and have full and free access to the Committee, privately and with management present, to discuss the results of their audits and other auditing, accounting and financial reporting matters. The Committee reports to the full Board after each of its meetings. KPMG Peat Marwick have audited the accompanying consolidated financial statements. Their report, located above, represents their judgment as to whether our consolidated financial statements present fairly our financial position and results of operations and cash flows in conformity with generally accepted accounting principles. We are committed to ensure that corporate affairs are conducted in accordance with consistently applied standards of conduct applicable to all officers and associates. In essence, everyone is expected to manage their responsibilities with integrity. Our standards provide guidance on general business conduct, political activities, community involvement, outside employment and business activities, conflict of interests, personal finances, and the use and safeguard of confidential information. Crestar Financial Corporation Management's Discussion And Analysis Of Operations And Financial Condition Crestar Financial Corporation And Subsidiaries This commentary provides an overview of Crestar Financial Corporation's (Crestar or the Corporation) financial condition, changes in financial condition and results of operations for the years 1991 through 1993. The following discussion should assist readers in their analysis of the accompanying consolidated financial statements and supplemental financial information. Earnings Overview Crestar Financial Corporation reported net income of $140.5 million in 1993, a 76% increase over the $79.8 million earned in 1992. Net income for 1992 of $79.8 million was 136% higher than 1991. These increases reflected the continued positive effects of lower credit costs, growth in noninterest income and management of controllable expenses. The key profitability measures of return on average assets and return on average total shareholders' equity improved in 1993 over 1992 as a result of significantly increased earnings. These ratios, along with other selected earnings and balance sheet information for each of the years in the five-year period ended December 31, 1993, are shown in Table 1. Primary earnings per share of $3.68 in 1993 increased 59% over 1992 following an increase of 137% in 1992. Significant items affecting the change in primary earnings per share for 1993 and 1992 are summarized in Table 2. Each applicable item is net of federal income taxes computed using a 35% rate for 1993 and a 34% rate for 1992 and 1991. Mergers And Acquisitions During 1993, Crestar continued to enhance its presence in current markets through the completion of two acquisitions and the announcement of five additional acquisitions, two of which have been consummated in January 1994. In May 1993, Crestar acquired CFS Financial Corporation (CFS), located in northern Virginia. Initially, over $650 million in deposits and 19 branches were added to Crestar's existing network. For the year ended December 31, 1993, the CFS acquisition contributed approximately $.05 per share to consolidated earnings. In June 1993, Crestar acquired from the Federal Deposit Insurance Corporation deposits and selected assets of City National Bank of Washington, a one-branch institution closed by the Office of the Comptroller of the Currency. Total deposits of approximately $21 million were acquired. In January 1994, Crestar Mortgage Corporation acquired Mortgage Capital Corporation, a privately held wholesale mortgage production company based in St. Paul, Minnesota. Mortgage Capital Corporation originated approximately $500 million in residential mortgages in 1993. Also in January 1994, Crestar Financial Corporation acquired Virginia Federal Savings Bank, headquartered in Richmond, Virginia. Total deposits of approximately $500 million were added at the time of acquisition. Financial results for 1993 do not include these two 1994 purchase method acquisitions. In the fourth quarter of 1993, Crestar announced that it had signed definitive agreements to purchase Providence Savings and Loan Association of Vienna, NVR Savings Bank of McLean and Annapolis Bancorp, Inc. of Maryland. Deposits totaling over $1.0 billion are expected to be added in 1994 as a result of these three transactions. Financial statement note 2 contains additional information concerning mergers and acquisitions. Common Stock And Dividends On December 31, 1993, Crestar's common stock price was $417/8, up 7% from the December 31, 1992 closing price of $39. This growth compares favorably with the performance of the Keefe Index, which increased 3%. The Keefe Index is a composite of bank stocks tracked by Keefe, Bruyette and Woods, Inc., a widely known banking industry analyst and investment banking company. During the third quarter of 1993, Crestar's common stock began trading on the New York Stock Exchange under the symbol "CF." Previously, Crestar common stock was traded on the over-the-counter market and quoted on the National Market System of NASDAQ (National Association of Securities Dealers Automated Quotations). Book value per common share was $28.32 at December 31, 1993. The year-end common stock price of $417/8 was 1.48x book value. Total market capitalization at December 31, 1993 was $1.6 billion. On the basis of 1993 fully diluted earnings per share of $3.67 and the year-end market price of $417/8, the December 31, 1993 price/earnings ratio was 11.4x. Dividends declared in 1993 were $1.14 per common share, compared with $.80 per share in 1992 ($.20 per quarter). Reflecting improved earnings, the common dividend was increased three times during 1993. The current quarterly dividend of $.33 per share, or $1.32 on an annualized basis, represents a level equivalent to Crestar's pre-recession dividends declared. The Corporation's objective is to pay dividends of approximately 30% to 40% of earnings to common shareholders. Common dividends declared in 1993 were 31% of net income available to common shareholders compared with 34% in 1992. In 1991, a year during which economic conditions depressed earnings performance and asset growth, common dividends declared represented 88% of net income available to common shareholders. Capital Resources And Adequacy Crestar's capital position continued to strengthen as evidenced by significant equity growth and strong capital ratios. Average shareholders' equity grew 24%, 6% and 2% in 1993, 1992 and 1991, respectively. The 1993 increase was primarily attributable to higher earnings, the issuance of 1.4 million shares of common stock in connection with the May 1993 CFS acquisition, and the October 1992 public issuance of 3.5 million shares which was not fully reflected in average shareholders' equity until 1993. Two treasury stock programs, totaling 950,000 shares, were authorized in 1993. During the year, the Corporation purchased and retired 522,300 shares of common stock at an average price of $40.31 per share, primarily to meet the needs of the dividend reinvestment plan and in anticipation of common stock to be issued in the 1994 purchase of Annapolis Bancorp, Inc. In December 1993 all 900,000 shares of Crestar's Adjustable Rate Preferred Stock Series B were redeemed with low-cost funds at 103% of the stock's stated value, or $51.50 per share, plus accrued and unpaid dividends. The Consolidated Statements of Changes in Shareholders' Equity provide details of these and other equity transactions. Because 1993 growth in average equity of 24% outpaced the 6% growth in average assets, the average equity to assets ratio increased more than 120 basis points over 1992 and the year-end equity leverage ratio (defined as average total assets divided by average total shareholders' equity) decreased from 14.20x in 1992 to 12.12x in 1993. Significant equity growth also affected other ratios, as shown in Table 3. A key measure of equity's ability to absorb losses is the ratio of average equity to average loans. This measure increased 271 basis points to 15.19% for 1993. The equity formation rate (calculated as net income less dividends declared divided by average total equity) increased to 9.24% in 1993 from 6.04% in 1992. Risk-based capital ratios are another measure of capital adequacy. At December 31, 1993, Crestar's consolidated risk-adjusted capital ratios were 10.5% for Tier 1 and 13.5% for total capital, well above the required minimums of 4.0% and 8.0%, respectively. These ratios are calculated using regulatory capital (either Tier 1 or total capital) as the numerator and both on- and off-balance sheet assets as the denominator. Tier 1 capital consists primarily of common equity less goodwill and certain other intangible assets. Total capital adds certain debt instruments and a portion of the allowance for loan losses to Tier 1 capital. One of four risk weights, primarily based on credit risk, is applied to both on- and off-balance sheet assets to determine the asset denominator. Under Federal Deposit Insurance Corporation (FDIC) rules, each of Crestar's three subsidiary banks was considered "well-capitalized," the highest category of capitalization defined by the regulators allowing for the lowest level of FDIC insurance premium payments, as of December 31, 1993. Additional regulatory capital measures include the Tier 1 leverage ratio and the tangible leverage ratio. The Tier 1 leverage ratio is defined as Tier 1 capital divided by average total assets less goodwill and certain other intangibles and has a regulatory minimum of 3.0%, with most institutions required to maintain a ratio of at least 4.0% to 5.0% depending primarily upon risk profiles. At December 31, 1993, Crestar's Tier 1 leverage ratio was 7.9%. The tangible leverage ratio is calculated by excluding intangibles from both assets and capital and is utilized by the Federal Reserve Board in evaluating proposals for expansion or acquisitions. At December 31, 1993, Crestar's tangible leverage ratio was 7.3%, well within accepted Federal Reserve Board ranges. A double leverage ratio of over 100% measures the extent to which the equity capital of subsidiaries is supported by Parent Company debt rather than equity. Calculated as the investment in its subsidiaries divided by its own equity accounts, Crestar Financial Corporation's double leverage was 97% at December 31, 1993, basically unchanged from 96% at December 31, 1992 and down from 100% at December 31, 1991. Financial statement note 21 contains Parent Company financial statements. In September 1993, Crestar filed a shelf registration statement with the Securities and Exchange Commission. Under this registration statement, the Corporation may issue in the future up to $300 million in subordinated debt securities, preferred stock or common stock, or any combination thereof. Also in September 1993, the 73/4% debentures due 1997 were redeemed at par value. Net Interest Income And Net Interest Margin The fundamental source of Crestar's earnings, net interest income, is defined as the difference between income on earning assets and the cost of funds supporting those assets. Significant categories of earning assets are loans and securities while deposits and short-term borrowings represent the major portion of interest-bearing liabilities. The level of net interest income is impacted primarily by variations in the volume and mix of these assets and liabilities, as well as changes in the levels of interest rates. Net interest income in Table 4 is presented on a tax-equivalent basis to enhance the comparability of assets with different tax attributes. This comparability is achieved through increasing interest income on tax-exempt assets by an amount equal to the Federal income taxes which would have been paid had the income been fully taxable. This tax-equivalent adjustment is based on the applicable statutory federal corporate income tax rate of 35% in 1993 and 34% in 1992 and 1991, and resulted in an increase to pre-tax income from earning assets in 1993, 1992 and 1991 of $12.6 million, $16.0 million and $22.1 million, respectively. On a tax-equivalent basis, net interest income increased $41.5 million or 8% in 1993 following a $54.9 million or 12% rise in 1992. These increases reflect an increase in average earning assets of 6% in 1993 and 3% in 1992 as well as an improved rate environment in both years. The net interest margin is calculated as tax-equivalent net interest income divided by average earning assets and represents the Corporation's net yield on its earning assets. In 1993, the net interest margin of 4.78% improved 11 basis points from 4.67% in 1992. From 1991 to 1992, the net interest margin improved 38 basis points, reflecting the benefit of substantial growth in core deposits. Significant items affecting the change in the net interest margin from 1992 to 1993 are summarized in Table 5. Positive influences on the 1993 margin resulted from a change in balance sheet mix and lower levels of nonperforming assets. Changes in balance sheet mix increased the 1993 net interest margin by approximately 29 basis points. On the funding side, reduced higher-cost term deposits coupled with growth in noninterest-bearing sources of funds (primarily shareholders' equity and net demand deposits) provided a 17 basis point benefit to the 1993 net interest margin. On the asset side, reduced levels of lower-yielding money market investments and a shift in loan mix from commercial loans to higher-yielding consumer loans aided the 1993 margin by approximately 12 basis points. As nonperforming assets continued to decline, a corresponding decrease occurred in their negative impact on the net interest margin. The lower levels of nonperforming assets in 1993 had a favorable impact on the net interest margin of approximately 8 basis points. Additional income of approximately $9.3 million for 1993 and $22.7 million for 1992 would have been realized had all nonperforming assets performed as originally expected. The benefits from off-balance sheet hedging activities (primarily interest rate swaps) declined in 1993 compared with 1992 as the notional principal on swaps was reduced significantly in 1993 due to maturities. Off-balance sheet hedging activities contributed $34.3 million to net interest income in 1993, compared with $58.4 million in 1992. The reduction equated to a 23 basis point negative impact on the 1993 net interest margin. The May 1993 CFS acquisition added approximately $18.2 million to Crestar's 1993 net interest income. The impact on Crestar's 1993 net interest margin from CFS was insignificant. Provision And Allowance For Loan Losses Both the amount of the provision and the level of the allowance for loan losses are impacted by many factors, including general economic conditions, actual and prospective credit losses, loan performance measures, historical trends, and other circumstances, both internal and external. The amount of the provision for loan losses is established based on evaluations of the adequacy of the allowance for loan losses. Individual loan-by-loan reviews are performed on large commercial and real estate exposures in lower quality regulatory risk ratings. Smaller commercial and real estate credits are analyzed utilizing a formula- based approach that encompasses the risk factors discussed above. Loan loss allowances for the various consumer credit portfolios are based on historical and anticipated losses and on current and projected characteristics of the various portfolios. Management's evaluation and resulting provision and allowance decisions are reviewed by the Board of Directors on a quarterly basis. Crestar's credit quality continued to reflect significant improvement in 1993. Total credit costs, defined as the provision for loan losses and foreclosed properties expense, were $81.8 million in 1993, a reduction of $77.6 million or 49% from $159.4 million in 1992. Crestar made provisions for loan losses of $48.8 million in 1993, down $50.5 million or 51% from 1992. This paralleled a 53% decrease in the provision for loan losses in 1992. Poor economic conditions and the accompanying deterioration in the quality of the commercial and real estate loan portfolios resulted in a provision for loan losses of $209.5 million in 1991. As a result of the continued improved credit quality noted above, 1993 net charge-offs of $64.8 million were down $49.1 million or 43% from 1992. In both 1993 and 1992, charge-offs related to real estate developers and investors (REDI) contributed disproportionately to total net charge-offs, comprising 49% of total net charge-offs in 1993 and 55% in 1992. The REDI designation is based on borrower type and encompasses non-owner occupied real estate and construction loans as well as other forms of credit extended to real estate developers or investors. Total REDI charge-offs for 1993 were $31.8 million, down $31.1 million or 49% from 1992. As a percent of average REDI loans, net charge-offs were 2.8% in 1993 and 5.0% in 1992. Current expectations are that the 1994 ratio of total net charge-offs to average loans will improve from 1993, although growth in consumer loan categories, which tend to have higher loss ratios than commercial loans, may mitigate some of the improvement from real estate-related losses. This expectation is based upon assumptions regarding the general economic climate in Crestar's principal markets and the performance characteristics of the loan portfolio, including Crestar's continued success in resolving remaining nonperforming loans. Changes in these conditions may produce different results. The allowance for loan losses at December 31, 1993 was $211 million, representing 2.89% of year-end loans, and covering 218% of total nonperforming assets and 264% of total nonperforming loans. Comparative measures at the end of 1992 were $205 million or 3.11% of loans, 93% coverage of total nonperforming assets and 144% coverage of total nonperforming loans. Improvement in the two coverage ratios was due to the significant reduction in nonperforming assets. Detail of the activity in the allowance for loan losses for the past five years is shown in Table 6. Based on current expectations relative to portfolio characteristics and performance measures including loss projections, management considers the level of the allowance adequate. Although the allowance for loan losses is a general allowance applicable to all loan categories, the allocation provided in Table 6 is made to provide an indication of the relative risk assessment of the components of the loan portfolio. Noninterest Income Noninterest income increased 14% in 1993 following a 7% decrease in 1992. Excluding securities gains, noninterest income increased $31.2 million or 15% over 1992, compared with a 1992 increase of $29.2 million or 16% over 1991. The 1993 increase in noninterest income reflected growth in the core noninterest income categories of trust and investment advisory income, service charges on deposit accounts and bank card-related fee income, as well as higher mortgage servicing and origination income. Trust and investment advisory income increased $6.4 million or 13% over 1992 due primarily to a higher level of assets under management. In 1993, trust assets held by Crestar's Trust and Investment Management Group topped $30 billion, and assets under management totaled $8.4 billion at year-end 1993. Service charges on deposit accounts grew $5.5 million or 7% over 1992. In 1992, increased income from service charges on deposit accounts was the most significant contributing factor to higher noninterest income excluding securities gains. These improvements for both years reflected a higher transaction deposit base as well as price increases and higher transaction volume. Bank card-related income rose $4.4 million or 19% in 1993 over 1992, aided by promotional activities that provided a 73% increase in loan balances from year-end 1992 to 1993. Mortgage origination and servicing- related income grew $7.6 million or 24% in 1993 following a $9.2 million or 40% increase in 1992. In both years, higher origination volume generated during the low interest rate environment and the related refinancing activity, as well as gains from the sale of mortgage servicing rights, contributed to the increases. In 1993, mortgage originations totaled over $3.0 billion, compared with $2.5 billion in 1992. As a consequence, Crestar's loan servicing portfolio grew to $6.7 billion at December 31, 1993 from $4.8 billion at year-end 1992. Noninterest Expense Noninterest expense increased $21.2 million or 4% in 1993 following an increase of $96.2 million or 24% in 1992. Excluding foreclosed properties expense, noninterest expense increased 11% in 1993 and 12% in 1992. The 1993 increase reflected acquisition-related costs as well as expenses incurred in growing noninterest revenue-generating businesses such as mortgage, investment banking and bank card. Additional expenses arising from the CFS acquisition were approximately $11.6 million for 1993. Expense increases in the mortgage and investment banking and sales groups amounted to approximately $17.2 million over 1992, driven largely by refinance-related amortization of purchased mortgage servicing rights and volume-based commission expense incentives. Expense increases in the bank card group were approximately $5.8 million in 1993 reflecting direct promotional expenses and volume-driven staffing increases. Excluding these direct expenses and the impact of foreclosed properties expense, noninterest expense increased 4% in 1993. Foreclosed properties expense of $33.1 million was down $27.1 million or 45% from 1992. Market write-downs on foreclosed properties in 1993 were $4.5 million versus $24.0 million in 1992. Net losses on the sale of foreclosed properties were $4.9 million in 1993 compared with $1.6 million in 1992. A $6.4 million provision for losses on foreclosed properties was recorded in 1993 compared with a $12.0 million provision recorded in 1992. Crestar adopted Statement of Financial Accounting Standards No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions" (SFAS 106) in the first quarter of 1993. The effect of adopting this statement was to increase 1993 employee benefit expense by approximately $2.1 million. Financial statement note 18 contains additional information regarding SFAS 106. Statement of Financial Accounting Standards No. 112, "Employers' Accounting for Postemployment Benefits" was issued in the fourth quarter of 1992. This Statement, effective in 1994, relates to accounting for benefits provided to former or inactive employees after employment but before retirement and requires employers to recognize a liability for such benefits when certain conditions are met. Crestar expects to incur a pre-tax charge of approximately $2.0 million in the first quarter of 1994 upon adoption of this accounting standard. Total capital expenditures for 1993, 1992 and 1991 were approximately $54.6 million, $45.9 million and $45.5 million, respectively. The 1993 figure included expenditures for branch and office refurbishments, and new branch computer technology. Expenditures in 1994 are anticipated to approximate $65.0 million and will include amounts for the construction of a new headquarters building for Crestar Mortgage Corporation. Income Taxes In 1993, income tax expense was $63.0 million, up from $19.7 million in 1992 and $6.1 million in 1991. The 1993 increase was attributable to higher earnings. The effective tax rates for 1993, 1992 and 1991 were 31.0%, 19.8% and 15.2%, respectively. Effective January 1, 1993, Crestar adopted the asset and liability method of accounting for income taxes as required by Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes." As shown in financial statement note 13, the effect of adoption was a reduction of first quarter income tax expense of $540 thousand. Under this method, deferred tax assets and liabilities are based on the differences between financial statement and tax basis of assets and liabilities. The tax effects of these differences are measured using enacted tax rates that will be effective for the period during which the differences are expected to reverse. A valuation allowance is provided against deferred tax assets if, and to the extent, it is more likely than not that the deferred tax assets will not be fully realized. In management's judgment, no valuation allowance was necessary at December 31, 1993. Deferred tax expense is measured by the change in the net deferred tax assets or liabilities for the period. The Omnibus Budget Reconciliation Act of 1993, enacted in August 1993, changed the federal corporate income tax rate from 34% to 35% retroactive to January 1, 1993. The increase in the statutory tax rate did not have a material impact on Crestar's 1993 income tax expense because the $1.8 million impact of the tax rate increase was partially offset by a $1.6 million favorable deferred tax adjustment resulting from revaluing the net deferred tax assets at the new statutory rate. Corporations are required to pay the greater of the regular corporate income tax or the alternative minimum tax (AMT). The excess of the AMT over regular tax is, generally, a credit available to reduce future income tax expense. In 1992, income tax expense was reduced by $6.5 million by the utilization of 1991 and 1990 AMT credit carryforwards. Liquidity And Interest Sensitivity Bank liquidity is the ability to meet potential cash outflows promptly and in a cost-effective manner. Liquidity is provided through the ability to generate new deposits or borrowings as needed, longer-term investment securities that can serve as collateral for borrowings, marketable short-term investments, and maturing loans and investments. Core deposits provide a typically stable source of liquidity. Interest-bearing core deposits represented 65% of total funding sources at December 31, 1993 compared with 66% at December 31, 1992. Core deposits are supplemented by additional sources of liquidity in the form of short-term borrowings and large CDs, normally available from both national and local markets. While Crestar's short-term borrowings consist largely of local funds, national sources are also utilized to acquire term funds. Crestar's liquidity position is actively managed on a daily basis, monitored regularly by the Asset/Liability Management Committee (ALCO) and reviewed periodically with the Board of Directors. ALCO's overall objective is to optimize net interest income within the constraints of prudent capital adequacy, liquidity needs, the interest rate and economic outlook, market opportunities, and customer requirements. General strategies to accomplish this objective include maintaining a strong balance sheet, achieving solid core deposit growth, accepting manageable interest rate risk, adhering to conservative financial management practices and following prudent dividend policies. 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 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" scenario. ALCO evaluates and limits the amount of net interest income at risk in the high and low 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. The final 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. Although crude by today's standards, it remains the most commonly available interest rate risk measurement technique. Table 9 reflects the earlier of the maturity or repricing dates for various assets and liabilities at December 31, 1993. At that point in time, Crestar had a cumulative negative six-month gap with $3.6 billion excess of interest-sensitive sources of funds over uses of funds. This generally indicates that earnings should improve in a declining interest rate environment as liabilities reprice more quickly than assets. The opposite would be true of a positive, or asset-sensitive, gap. In addition to the traditional gap measurement presentation, Table 9 also presents interest sensitivity on an adjusted basis. The first of the adjustments reflects the tendency for movements in consumer deposit rates to lag movements in open market rates. This adjustment is made through the use of beta factors, which recognize that certain consumer deposit rates are less interest-sensitive than open market rates. These beta factors are based on a historic ratio of actual changes in consumer deposit rates to changes in market rates. 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 at December 31, 1993, Crestar had a negative adjusted gap of $1.0 billion excess of interest- sensitive sources of funds over uses of funds. The Corporation, in managing its interest rate risk, enters into a variety of interest rate caps, floors and swaps. The Corporation performs normal credit reviews on each counterparty when undertaking these transactions. Because financial derivatives typically do not have actual principal dollars transferred between parties, notional principal amounts are used to express the volume of such transactions; however, amounts potentially subject to credit risk are much smaller than the notional amounts. At December 31, 1993, the notional amount of interest rate caps, floors and swaps (excluding customer positions where Crestar acts simply as an intermediary) was $2.1 billion. Net unrealized gains on these instruments totaled $21.2 million as of year-end 1993. Financial statement note 22 contains additional information pertaining to these types of agreements. Estimated fair values of financial instruments held at December 31, 1993 and 1992 are presented in financial statement note 23. Management is concerned about the comparability of fair value estimates between financial institutions due to the wide range of valuation techniques utilized and the numerous estimates and assumptions that must be made, given the absence of active secondary markets for many financial instruments. This is particularly true for estimated fair values computed for loan portfolios and deposit liabilities. Lack of uniform valuation methodologies introduces a great degree of subjectivity to such fair value estimates. A brief description of the methodologies used in computing fair value estimates, and the resulting estimated fair values, are provided in financial statement note 23. Crestar's loan portfolio, which constitutes the Corporation's largest financial instrument asset category, had an estimated fair value significantly in excess of recorded book value at December 31, 1993. An environment of decreasing interest rates, coupled with improving credit quality trends, were major factors in the determination of the estimated fair value for net loans. Deposit liabilities payable on short notice or demand, which constituted over 74% of Crestar's total deposits at December 31, 1993, were assigned an estimated fair value equal to the balance payable on demand, in accordance with mandatory accounting standards; however, recent purchase transactions of bank deposits have generally reflected premiums of approximately 1% to 4% of recorded book value, reflecting the relationship value of such deposits over their projected life and their value as a low cost source of funds. With respect to the investment securities portfolio, market value exceeded book value at December 31, 1993 by $21.1 million, consisting of $23.1 million in unrealized gain positions and $2.0 million in unrealized loss positions. Securities held for sale were in a similar position, with market value exceeding book value at December 31, 1993 by $32.8 million, consisting of $33.9 million in unrealized gain positions and $1.1 million in unrealized loss positions. Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities" (SFAS 115), will be adopted by Crestar in the first quarter of 1994. In future reporting periods, securities classified as available for sale will be reported at fair value, with unrealized gains or losses (net of tax effect) excluded from earnings and reported as a component of shareholders' equity. Upon implementation of SFAS 115 in the first quarter of 1994, Crestar expects to classify approximately $2.9 billion of securities with an unrealized gain of $46 million (as of January 1, 1994) as securities available for sale. The total unrealized gain on securities available for sale, net of deferred taxes, will be recorded as an increase to shareholders' equity upon adoption of SFAS 115. The unrealized net gain (or loss) on securities available for sale recorded as a component of shareholders' equity will be subject to change in future periods due to fluctuations in market values, acquisition activities, and sales, purchases, maturities and calls of securities classified as available for sale. Debt ratings are presented in Table 10. In the third quarter of 1993, Standard & Poor's raised its ratings on Crestar's subordinated notes from BBB- to BBB. In its announcement, Standard & Poor's cited Crestar's strong financial condition, a continuing trend of improving profitability and conservative risk management practices as reasons for the rating upgrade. Sources Of Funds Crestar's largest and most important funding source is core deposits, which increased $607 million or 6% over December 31, 1992 compared with growth of 10% in 1992. Total core deposits attributable to the May 1993 CFS acquisition were approximately $560 million at December 31, 1993. The largest increase over 1992 was in savings accounts, which increased $325 million or 36%. Transaction accounts, which include demand, interest checking and money market deposit accounts, grew $396 million or 7% over 1992. These increases reflect successful promotional campaigns for the Crestar Key Account, an integrated account linking checking, savings and money market accounts together on one statement, allowing combined balances to reduce service charges. The increased savings and transaction accounts were partially offset by declines in money market certificates, which fell $63 million or 10%, and other domestic time deposits, which decreased 2% from 1992. These declines reflect the low interest rate environment and consumer preferences for short-term investments in such times. Crestar's acquisitions of various financial institutions, as discussed in financial statement note 2, are expected to add approximately $1.5 billion in deposits in 1994. Purchased liabilities are composed of certificates of deposit of $100,000 and over (large CDs), deposits in foreign offices, and short-term borrowings. Total purchased liabilities decreased $14 million or 1% from December 31, 1992. The mix of purchased liabilities continued to shift away from large CDs into short- term borrowings, coinciding with liquidity needs and balance sheet management strategies in a low interest rate environment. At December 31, 1993, approximately 51% of Crestar's purchased funds consisted of funds invested by local customers and, as such, are less volatile than other categories of purchased funds. National sources accounted for 49% of purchased liabilities. At December 31, 1993, Crestar had $2.4 billion market value of unpledged marketable securities. Uses Of Funds Total earning assets at December 31, 1993 increased $692 million or 6% from year-end 1992 compared with an 11% increase in 1992. The 1993 increase reflected approximately $600 million related to the CFS acquisition. In 1992, higher levels of securities held for sale, money market investments and mortgage loans held for sale were partially offset by a decline in loans. Total securities (both investment and held for sale) increased $293 million or 9% over December 31, 1992 partly due to acquired CFS securities. This followed a $1.2 billion or 58% increase in 1992, primarily due to the purchase of U.S. Treasury securities classified in the held for sale category. The composition of long-term investment securities along with related yield and maturity information as of December 31, 1993 is presented in Table 11. Both average expected maturity and actual stated maturity are shown in Table 11. The average expected maturity considers prepayments and amortization, resulting in a more realistic measure of maturities than actual stated maturity. The "Other interest-earning" category consists largely of collateralized mortgage obligations and certificates of automobile collateralized receivables. Crestar's holdings of tax-exempt securities have declined over the past five years and management expects that trend to continue as maturities occur within the portfolio. Table 12 presents the distribution of tax-exempt securities by investment grade as determined by Moody's Investors Service. All of the $5.0 million of securities shown as not rated by Moody's at year end are rated A or better by Standard & Poor's. None of Crestar's securities holdings by individual issuer (excluding U.S. Treasury and Federal agencies) exceeded 10% of total shareholders' equity at December 31, 1993. During 1993, over $350 million in U.S. Treasury securities and almost $15 million in adjustable rate preferred stock were sold from the held for sale category for net gains of $2.2 million. In 1992, sales of government agency mortgage-backed securities from the held for sale category resulted in gains of $3.6 million. Money market investments decreased a total of $530 million or 45% from December 31, 1992, reflecting an appropriate level of money market investments given liquidity needs and balance sheet management strategies. In 1992, money market investments increased $202 million or 21% over December 31, 1991 primarily in the area of short-term U.S. Treasury securities, reflecting liquidity enhancement measures as well as the investment of funds received from the October 1992 stock issuance. Increased activity at Crestar Mortgage Corporation contributed to a higher level of mortgage loans held for sale, which increased $224 million over December 31, 1992. Year-end total loans net of unearned income increased $705 million or 11% in 1993 after decreasing 7% in 1992. Period-end loans attributable to the CFS acquisition were approximately $480 million. In 1992, loans decreased largely due to the effects of a sluggish economy and weak loan demand. The largest category of loans, commercial loans, remained relatively flat in 1993 following a 13% decrease in 1992. The balance of tax-exempt loans continued to decline, decreasing 20% in 1993. Instalment loans increased 13% in 1993, reflecting both the CFS acquisition and internally generated growth in indirect loans. In 1992, instalment loans decreased 1%. Bank card loans increased $412 million or 73% in 1993 as a result of the aforementioned promotional activity. In 1992, bank card loans decreased 1%. Real estate mortgage loans increased $194 million or 13% over 1992, and real estate construction loans increased $10 million or 5% over last year, primarily due to the CFS acquisition. Based upon Standard Industrial Classification codes used for bank regulatory reporting purposes, the Corporation had no aggregate loan concentrations of 10% or more of total loans in any particular industry at year-end 1993. However, under a broader view of the portfolio, Crestar had $1.1 billion in REDI loans outstanding at year-end 1993 and 1992. This represented 16% and 17% of total loans at December 31, 1993 and 1992, respectively. Although the balance of REDI loans at December 31, 1993 increased slightly from December 31, 1992, excluding $148 million acquired in connection with CFS, REDI balances declined $144 million or 13% from 1992. Generally, REDI balances have shown a downward trend over the past several years due to migration into foreclosed properties, sales of projects, paydowns and pay-outs of construction and income property projects, and charge-offs and write-downs. Diversification of the portfolio by geographic region and by project type is detailed in Table 15. Crestar's Greater Washington region comprises the largest portion of this portfolio, with the primary exposure in this region being commercial in nature. The second largest portion of Crestar's real estate portfolio is in its Eastern region, with exposure in this region primarily in the residential sector. Risk Elements Nonperforming assets consist of nonaccrual loans, formally restructured loans and foreclosed properties. Generally, loans are placed in nonaccrual status when principal or interest is 90 days or more past due, or earlier if it is known or expected that interest will not be paid or collection of all principal and interest is unlikely. Loans may be restructured as to rate, maturity or other terms as determined on an individual credit basis. Properties are considered foreclosed if acquired through traditional legal procedures or in settlement of loans, or when the customer has abandoned the property to Crestar. Past due loans are loans which are delinquent 90 days or more but which are currently not in nonaccrual status based on various accounting and collectibility criteria. Table 16 presents the level of these assets for the past five years and Tables 17 and 18 summarize quarterly activity in nonperforming loans and foreclosed properties for 1993 and 1992. At December 31, 1993, nonperforming assets of $96.8 million were down 56% from December 31, 1992, despite $18.4 million of acquisition-related additions in 1993, $6.5 million of which was remaining at December 31, 1993. REDI nonperforming assets totaled $62.3 million and comprised 64% of total nonperforming assets and 5% of total REDI loans at December 31, 1993. REDI nonperforming assets decreased 57% from December 31, 1992. Apart from the REDI portfolio, commercial nonperforming assets declined steadily during the year and consumer nonperforming assets were negligible throughout 1993. Foreclosed properties at December 31, 1993 declined 78% from December 31, 1992. Included at December 31, 1993 was a $5.6 million valuation allowance to address exposure to prevailing market and economic conditions and the potential impact of such conditions on the marketability of the portfolio. Total nonperforming assets at December 31, 1994 are expected to drop slightly from December 31, 1993 barring an unexpected deterioration in the economy; however, interim periods in 1994 could show increases in total nonperforming balances due to announced acquisitions. Potential problem loans consist of loans that are currently performing in accordance with contractual terms but for which potential operating or financial concerns of the obligors have caused management to have serious doubts regarding the ability of such obligors to continue to comply with present repayment terms. At December 31, 1993, such potential problem loans that are not included in Table 16 as nonperforming or past due loans amounted to approximately $205 million. In addition, $14 million of standby letters of credit in various industries were being monitored at December 31, 1993. Depending on changes in the economy and other future events, these loans and others not presently identified could be classified as nonperforming assets in the future. There are no loans classified for regulatory purposes as loss, doubtful, substandard, or special mention that have not been disclosed above, that either (i) represent or result from trends or uncertainties that management reasonably expects will materially impact future operating results, liquidity or capital resources or (ii) represent material credits about which management is aware of any information that causes management to have serious doubts as to the ability of such borrowers to comply with loan repayment terms. In May 1993, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 114, "Accounting by Creditors for Impairment of a Loan" (SFAS 114). Effective January 1, 1995, SFAS 114 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 the impact on results of operations of adopting SFAS 114 will be immaterial. Inflation The effect of changing prices on financial institutions is typically different than on non-banking companies since virtually all of a bank's assets and liabilities are monetary in nature. In particular, interest rates are significantly affected by inflation, but neither the timing nor magnitude of the changes are directly related to price level indices; therefore, the Corporation can best counter inflation over the long term by managing net interest income and controlling net increases in noninterest income and expenses. Table 1 Selected Financial Information Dollars in thousands, except per share data Results Of Operations (for the year): 1993 1992 1991 1990 1989 Income from earning assets $ 832,629 $ 863,677 $ 979,146 $ 1,097,824 $ 1,030,233 Net interest income 527,012 482,144 421,135 414,179 380,190 Provision for loan losses 48,775 99,242 209,522 131,055 44,846 Net Income 140,491 79,801 33,761 61,145 103,848 Preferred dividend requirements 2,221 2,475 2,576 2,661 2,888 Income applicable to common shares 138,270 77,326 31,185 58,484 100,960 Earnings Per Share Primary: Net Income $ 3.68 $ 2.32 $ .98 $ 1.87 $ 3.28 Average shares outstanding (000s) 37,587 33,286 31,921 31,218 30,739 Fully diluted: Net Income $ 3.67 $ 2.32 $ .98 $ 1.87 $ 3.25 Average shares outstanding (000s) 37,665 33,369 31,946 31,238 31,110 Dividends declared per common share $ 1.14 $ .80 $ .86 $ 1.32 $ 1.20 Financial Condition (at December 31): Total assets $13,286,947 $12,674,717 $11,828,261 $11,881,150 $11,360,817 Long-term debt 191,156 210,430 161,865 168,424 170,146 Total equity 1,062,477 958,905 794,922 771,306 750,340 Selected Ratios (for the year): Return on average assets 1.12% .67% .30% .52% .97% Equity leverage 12.12x 14.20x 14.50x 15.03x 14.81x Return on average total equity 13.53% 9.50% 4.28% 7.87% 14.43% Return on average common equity 13.90 9.73 4.19 7.99 15.06 Net interest margin 4.78 4.67 4.29 4.22 4.36 Dividend payout ratio: On common stock 30.56 34.46 87.98 70.46 36.19 On common and preferred stock 31.66 36.49 88.90 71.75 37.96 Equity formation rate 9.24 6.04 .47 2.22 8.95 Based on averages: Total equity to total assets 8.25 7.04 6.90 6.65 6.75 Net loans to total equity 6.57x 8.01x 9.22x 10.00x 10.67x
Table 2 Analysis Of Primary Earnings Per Share 1993 1992 vs. vs. 1992 1991 Earnings Per Share - prior period $2.32 $ .98 Interest income (.60) (2.40) Interest expense 1.31 3.50 Provision for loan losses .87 2.18 Securities gains or losses (.02) (.88) Other noninterest income .54 .58 Foreclosed properties expense .47 (.96) Other noninterest expense (.83) (.95) Income taxes (.11) .31 Increased shares outstanding (.27) (.04) Net increase 1.36 1.34 Earnings Per Share - current period $3.68 $ 2.32 Table 3 Capital Adequacy Dollars in thousands Risk-Adjusted Capital at December 31 1993 1992 Tier 1 Capital: Shareholders' equity $ 1,062,477 $ 958,905 Goodwill and other adjustments (48,260) (26,263) Total Tier 1 capital 1,014,217 932,642 Tier 2 Capital: Allowable long-term debt 164,964 190,448 Allowable allowance for loan losses net of other adjustments 120,691 112,572 Total Tier 2 capital 285,655 303,020 Total risk-adjusted capital 1,299,872 1,235,662 Risk-adjusted assets, net of allowance 9,623,545 9,004,928 Fourth quarter average assets, net of adjustments 12,874,009 12,141,063 Risk-adjusted capital ratios: Tier 1 10.5% 10.4% Total 13.5 13.7 Tier 1 leverage ratio 7.9 7.7 Other Capital Ratios Average equity to: Average total assets 8.25 7.04 Average loans, net of unearned income 15.19 12.48 Equity leverage 12.12x 14.20x Equity formation rate 9.24% 6.04% Period-end equity to assets 8.00 7.57 Tangible leverage ratio 7.3 7.0 Table 4 Average Balances, Net Interest Income And Rate/Volume Analysis1 Dollars in millions Average Balance Yield/Rate 1993 1992 1991 1993 1992 1991 $ $ $ % % % 2,459 2,716 3,169 7.62 8.16 9.49 Commercial loans 263 309 372 8.53 8.86 10.55 Tax-exempt loans 1,450 1,373 1,400 8.78 10.73 11.33 Instalment loans 701 538 526 13.67 15.12 15.62 Bank card loans 1,734 1,442 1,186 7.77 8.87 10.00 Real estate loans 229 346 620 7.06 6.54 8.21 Construction loans - 1 2 10.72 5.25 6.79 Foreign loans 6,836 6,725 7,275 8.54 9.34 10.31 Total loans - net of unearned income2 1,684 2,351 1,755 6.83 6.98 8.76 Taxable investment securities 100 132 159 10.28 10.66 11.09 Tax-exempt investment securities 29 33 30 6.17 8.61 10.74 Common and preferred stocks 1,813 2,516 1,944 7.01 7.19 8.98 Total investment securities 1,591 65 207 5.36 6.49 9.17 Securities held for sale 676 989 738 3.49 3.81 5.79 Money market investments 368 368 157 6.85 7.75 9.22 Mortgage loans held for sale 11,284 10,663 10,321 7.49 8.25 9.70 Total earning assets 1,630 1,444 1,025 2.33 3.07 4.60 Interest checking deposits 2,280 2,316 1,683 2.57 3.28 5.36 Money market deposit accounts 1,103 781 405 2.82 3.42 4.90 Regular savings deposits 571 754 943 3.13 4.66 6.65 Money market certificates 2,127 2,439 2,557 4.55 5.59 7.24 Other domestic time deposits 7,711 7,734 6,613 3.14 4.12 6.12 Total interest-bearing core deposits 44 116 463 4.46 6.59 7.33 Certificates of deposit $100,000 and over 2 4 18 2.88 3.28 6.63 Deposits in foreign offices 1,456 1,132 1,779 3.01 3.37 5.71 Short-term borrowings 1,502 1,252 2,260 3.05 3.66 6.05 Purchased liabilities 215 186 163 8.12 9.25 9.95 Long-term debt 9,428 9,172 9,036 3.24 4.16 6.18 Total interest-bearing liabilities 1,856 1,491 1,285 Other sources - net 11,284 10,663 10,321 2.71 3.58 5.41 Total sources of funds 4.78 4.67 4.29 Net Interest Margin/Income In thousands 1993 vs. 1992 1992 vs. 1991 Income/Expense3 Increase Change due to4 Increase Change due to4 1993 1992 1991 (Decrease) Rate5 Volume (Decrease) Rate5 Volume $ $ $ $ $ $ $ $ $ 187,449 221,658 300,681 (34,209) (13,307) (20,902) (79,023) (36,904) (42,119) 22,418 27,414 39,245 (4,996) (879) (4,117) (11,831) (5,228) (6,603) 127,332 147,307 158,596 (19,975) (28,229) 8,254 (11,289) (8,337) (2,952) 95,923 81,409 82,223 14,514 (10,046) 24,560 (814) (2,636) 1,822 134,666 127,868 118,679 6,798 (18,984) 25,782 9,189 (15,622) 24,811 16,171 22,591 50,875 (6,420) 1,173 (7,593) (28,284) (6,124) (22,160) 14 74 100 (60) 5 (65) (26) (22) (4) 583,973 628,321 750,399 (44,348) (54,692) 10,344 (122,078) (66,543) (55,535) 115,118 164,058 153,793 (48,940) (2,554) (46,386) 10,265 (42,016) 52,281 10,233 14,047 17,680 (3,814) (378) (3,436) (3,633) (564) (3,069) 1,803 2,863 3,168 (1,060) (716) (344) (305) (707) 402 127,154 180,968 174,641 (53,814) (3,391) (50,423) 6,327 (45,147) 51,474 85,331 4,234 18,987 81,097 (17,929) 99,026 (14,753) (1,751) (13,002) 23,580 37,630 42,755 (14,050) (2,144) (11,906) (5,125) (19,608) 14,483 25,191 28,522 14,443 (3,331) (3,311) (20) 14,079 (5,400) 19,479 845,229 879,675 1,001,225 (34,446) (85,445) 50,999 (121,550) (154,223) 32,673 38,001 44,278 47,164 (6,277) (11,959) 5,682 (2,886) (22,178) 19,292 58,496 75,936 90,174 (17,440) (16,275) (1,165) (14,238) (48,117) 33,879 31,091 26,749 19,823 4,342 (6,661) 11,003 6,926 (11,503) 18,429 17,861 35,137 62,692 (17,276) (17,369) 93 (27,555) (14,925) (12,630) 96,849 136,344 185,207 (39,495) (39,717) 222 (48,863) (40,454) (8,409) 242,298 318,444 405,060 (76,146) (75,216) (930) (86,616) (155,495) 68,879 1,975 7,651 33,927 (5,676) (944) (4,732) (26,276) (851) (25,425) 68 145 1,209 (77) (9) (68) (1,064) (148) (916) 43,787 38,096 101,614 5,691 (5,190) 10,881 (63,518) (26,484) (37,034) 45,830 45,892 136,750 (62) (9,210) 9,148 (90,858) (29,783) (61,075) 17,489 17,197 16,201 292 (2,435) 2,727 996 (1,298) 2,294 305,617 381,533 558,011 (75,916) (86,644) 10,728 (176,478) (184,907) 8,429 305,617 381,533 558,011 (75,916) (98,224) 22,308 (176,478) (195,039) 18,561 539,612 498,142 443,214 41,470 12,779 28,691 54,928 40,816 14,112 1Income and yields are computed on a tax-equivalent basis using the statutory federal income tax rate, exclusive of the alternative minimum tax and nondeductible interest expense, and the tax-equivalent adjustment to interest income was $12.6 million, $16.0 million and $22.1 million for 1993, 1992 and 1991, respectively 2Nonaccrual loans are included in the average loan balances and income on such loans is recognized on a cash basis 3Includes tax-equivalent net loan fees of $8.6 million, $10.0 million and $9.0 million for 1993, 1992 and 1991, respectively 4Variances are computed on a line-by-line basis and are non-additive 5Variances caused by the change in rate times the change in balances are allocated to rate
Table 5 Analysis Of Net Interest Margin Percent of Average Margin Change Earning Assets 1993 vs. 1992 1993 1992 Earning Asset Mix: 12 bp Loans - net of unearned income 60.5% 63.1% Investment securities and securities held for sale 30.2 24.2 Money market investments 6.0 9.3 Mortgage loans held for sale 3.3 3.4 Funding Mix: 17 Interest-bearing core deposits 68.3 72.5 Purchased liabilities 13.3 11.8 Other sources - net 16.5 14.0 Long-term debt 1.9 1.7 Decreased nonperforming assets 8 Off-balance sheet hedges (23) Interest rate changes (1) Other (2) Net Interest Margin 11 bp 4.78% 4.67% Table 6 Allowance For Loan Losses Dollars in thousands 1993 1992 1991 1990 1989 Beginning balance $ 205,017 $ 210,004 $ 149,375 $ 93,160 $ 90,595 Allowance from acquisitions 22,000 9,700 1,850 2,012 - Provision for loan losses 48,775 99,242 209,522 131,055 44,846 Loans charged off: Commercial 28,491 44,224 68,512 31,007 19,134 Instalment 9,289 11,031 14,307 13,505 14,994 Bank card 21,064 24,458 26,078 18,465 16,977 Real estate 25,182 21,285 24,549 9,753 4,303 Construction 5,307 29,664 32,735 16,095 597 Foreign - - - - - Total loans charged off 89,333 130,662 166,181 88,825 56,005 Recoveries: Commercial 9,752 5,320 4,438 3,235 3,634 Instalment 4,851 5,330 5,909 5,463 7,358 Bank card 4,882 4,707 3,612 2,624 2,349 Real estate 847 328 1,029 400 239 Construction 4,092 1,020 32 5 131 Foreign 75 28 418 246 13 Total recoveries 24,499 16,733 15,438 11,973 13,724 Net charge-offs 64,834 113,929 150,743 76,852 42,281 Allowance, December 31: Commercial 63,000 86,000 97,000 65,000 45,000 Instalment 14,000 13,000 9,000 7,500 7,500 Bank card 20,000 12,000 11,500 10,000 10,000 Real estate 50,000 48,000 41,000 27,500 6,000 Construction 16,000 16,000 34,000 25,500 6,000 Foreign 8 17 500 3,000 4,688 Unallocated 47,950 30,000 17,004 10,875 13,972 Balance, December 31 $ 210,958 $ 205,017 $ 210,004 $ 149,375 $ 93,160 Loans: Total at year end $7,287,122 $6,581,721 $7,065,786 $7,680,210 $7,769,288 Average during year 6,836,478 6,725,311 7,275,301 7,767,200 7,682,132 Net charge-offs to: Average total loans .95% 1.69% 2.07% .99% .55% Provision for loan losses 132.92 114.80 71.95 58.64 94.28 Allowance for loan losses to: Year-end loans 2.89 3.11 2.97 1.94 1.20 Net charge-offs 3.25x 1.80x 1.39x 1.94x 2.20x Net charge-offs earnings coverage 3.89 1.74 1.65 2.63 3.92
Table 7 Noninterest Income In thousands 1993 1992 1991 1990 1989 Service charges on deposit accounts $ 79,419 $ 73,944 $ 57,953 $ 45,946 $ 37,146 Trust and investment advisory 57,440 51,007 48,322 45,169 42,043 Bank card-related 27,500 23,141 22,694 22,072 21,971 Mortgage servicing 15,371 13,637 13,363 12,918 9,514 Mortgage origination - net 20,631 16,631 9,504 6,331 5,758 Automated teller machine fees 9,355 7,925 5,463 4,073 3,185 Trading account activities 4,415 6,880 8,295 4,222 5,292 Commissions on letters of credit 7,272 5,081 5,899 5,651 5,559 Safe deposit box rental 2,239 3,282 3,033 2,318 2,260 Annuities 4,347 1,816 869 703 373 Mutual funds 3,379 1,104 224 173 123 Insurance 2,234 2,190 2,236 2,205 1,884 Gain on sale of mortgage servicing rights 3,600 1,761 - 281 1,603 Gain on pension settlement - - 2,236 - 1,072 Miscellaneous 8,826 6,429 5,573 2,530 9,516 Securities gains 2,237 3,563 48,165 12,216 1,052 Total noninterest income $248,265 $218,391 $233,829 $166,808 $148,351
Table 8 Noninterest Expense In thousands 1993 1992 1991 1990 1989 Salaries $216,248 $195,089 $176,113 $167,028 $160,193 Benefits 46,378 38,749 32,908 31,131 33,491 Total personnel 262,626 233,838 209,021 198,159 193,684 Occupancy - net 38,359 35,654 32,683 31,293 28,767 Equipment 24,122 24,011 22,916 23,797 23,749 Communications 21,136 19,334 18,149 17,798 17,921 Stationery, printing and supplies 7,133 6,451 6,086 7,885 8,542 Professional fees and services 13,487 15,898 13,244 9,769 8,085 Loan expense 9,034 8,409 5,797 6,105 5,954 FDIC premiums 22,847 21,003 17,806 10,057 6,958 Advertising and marketing 13,709 8,137 7,866 11,608 12,773 Transportation 5,388 5,357 5,610 5,866 5,692 Outside data services 14,879 11,769 11,923 10,533 8,366 Bank franchise tax 2,810 2,845 3,330 3,201 2,889 Amortization of purchased intangibles 21,926 13,630 12,338 10,154 9,063 Miscellaneous 32,511 35,279 27,019 29,508 27,914 Subtotal 489,967 441,615 393,788 375,733 360,357 Foreclosed properties 33,055 60,188 11,833 3,106 2,437 Total noninterest expense $523,022 $501,803 $405,621 $378,839 $362,794
Table 9 Interest Sensitivity Analysis December 31, 1993 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 $ 2,014.0 $ 37.6 $ 49.1 $ 50.6 $ 456.8 $ 2,608.1 Tax-exempt 173.0 1.5 2.4 4.5 49.5 230.9 Instalment 669.6 64.9 90.9 225.8 481.7 1,532.9 Bank card 40.2 55.1 32.8 49.3 798.8 976.2 Real estate 485.7 126.4 193.6 187.4 720.8 1,713.9 Construction 187.8 .3 .5 16.7 19.2 224.5 Foreign .7 - - - - .7 Investment securities 167.4 84.7 67.3 217.4 1,287.8 1,824.6 Securities held for sale 155.7 78.8 62.6 202.3 1,197.6 1,697.0 Money market investments 645.7 - 4.9 - - 650.6 Mortgage loans held for sale 591.2 - - - - 591.2 Total earning assets 5,131.0 449.3 504.1 954.0 5,012.2 12,050.6 Interest sensitivity hedges on assets (81.8) (731.2) (614.0) 20.0 1,407.0 - Total uses $ 5,049.2 $ (281.9) $(109.9) $ 974.0 $6,419.2 $12,050.6 Sources of Funds Interest checking deposits $ 1,791.1 $ - $ - $ - $ - $ 1,791.1 Money market deposit accounts 2,214.5 - - - - 2,214.5 Regular savings deposits 1,241.6 - - - - 1,241.6 Money market certificates and other domestic time deposits 322.7 416.4 587.0 640.9 669.1 2,636.1 Certificates of deposit $100,000 and over 23.9 6.3 2.0 7.3 6.4 45.9 Deposits in foreign offices 1.8 - - - - 1.8 Short-term borrowings 1,616.4 .3 - - - 1,616.7 Long-term debt .1 .3 .3 .6 189.9 191.2 Total interest-bearing liabilities 7,212.1 423.3 589.3 648.8 865.4 9,738.9 Other sources - net - - - - 2,311.7 2,311.7 Interest sensitivity hedges on liabilities 25.0 10.0 - (35.0) - - Total sources $ 7,237.1 $ 433.3 $ 589.3 $ 613.8 $3,177.1 $12,050.6 Cumulative maturity/rate sensitivity gap $(2,187.9) $(2,903.1) $(3,602.3) $(3,242.1) $ - $ - Adjustments Beta adjustments: Interest checking (beta factor .20) $ 1,432.9 Money market accounts (beta factor .56) 974.4 Regular savings (beta factor .11) 1,105.0 Demand deposit sensitivity (911.7) Cumulative adjusted maturity/rate sensitivity gap $ 412.7 $ (302.5) $(1,001.7) $ (641.5) $ - $ -
Table 10 Debt Ratings (as of January 31, 1994) Standard Thomson Security Moody's & Poor's BankWatch 81/4% Subordinated Notes due 2002 Baa2 BBB BBB+ 85/8% Subordinated Notes due 1998 Baa2 BBB BBB+ Commercial Paper P-2 NR* TBW-1 Crestar Bank Deposit Notes: Long-Term A2 A- NR* Short-Term P-1 A-2 TBW-1 *Not rated Table 11 Analysis Of Investment Securities Portfolio1 Average Average December 31, 1993 Expected Stated Par Carrying Market Average Maturity Maturity Dollars in thousands Value Value Value Yield2 (Yrs/Mos) (Yrs/Mos) U.S. Treasury: Within one year $ 3,000 $ 2,998 $ 3,016 7.20% One to five years 27,000 26,701 26,610 5.00 Five to ten years 7,000 7,196 7,274 5.80 Total U.S. Treasury 37,000 36,895 36,900 5.30 04/07 04/07 Federal agencies: Within one year 3,200 3,200 3,233 7.30 Five to ten years 5,341 5,666 5,643 5.60 After ten years 96 96 101 8.00 Total Federal agencies 8,637 8,962 8,977 6.30 05/01 05/04 Mortgage-backed obligations of Federal agencies: One to five years 14,495 14,981 15,002 4.90 Five to ten years 168,016 169,254 170,894 5.00 After ten years 1,236,503 1,253,284 1,269,077 6.40 Total mortgage-backed obligations of Federal agencies 1,419,014 1,437,519 1,454,973 6.20 09/04 13/10 States and political subdivisions: Within one year 3,412 3,414 3,460 9.40 One to five years 21,105 21,208 22,497 10.10 Five to ten years 12,465 12,459 12,847 8.00 After ten years 47,630 47,040 48,199 10.10 Total states and political subdivisions 84,612 84,121 87,003 9.80 10/01 10/07 Other interest-earning: Within one year 1,295 1,295 1,290 5.40 One to five years 6,385 6,398 6,413 5.30 Five to ten years 113,809 113,680 113,639 5.60 After ten years 79,679 110,136 110,908 4.75 Total other interest-earning 201,168 231,509 232,250 5.23 03/07 12/05 Total interest-earning investments 1,750,431 1,799,006 1,820,103 6.20 08/03 13/04 Common and preferred stocks 22,919 25,611 25,611 4.20 Total portfolio $1,773,350 $1,824,617 $1,845,714 6.20% 1Maturity line classifications are based on stated maturity 2Tax-equivalent basis at December 31, 1993
Table 12 Securities Of States And Political Subdivisions By Quality Rating December 31, 1993 Carrying Percent Dollars in thousands Value of Total Moody's Ratings: Aaa $50,874 60.5% Aa 24,306 28.9 A 3,571 4.2 Baa 356 .4 Not rated by Moody's 5,014 6.0 Total $84,121 100.0% Table 13 Loan Portfolio Analysis December 31, Dollars in millions 1993 1992 1991 1990 1989 $ % $ % $ % $ % $ % Commercial 2,608 36 2,635 40 3,045 43 3,442 45 3,570 46 Tax-exempt 231 3 289 4 343 5 399 5 462 6 Instalment 1,533 21 1,360 21 1,367 19 1,415 18 1,396 18 Bank card 976 13 564 9 567 8 546 7 492 6 Real estate: Residential 945 13 776 12 594 8 553 7 579 8 Income property 769 11 744 11 674 10 645 9 540 7 Total real estate 1,714 24 1,520 23 1,268 18 1,198 16 1,119 15 Construction 224 3 214 3 473 7 680 9 724 9 Foreign governments and official institutions 1 - - - 3 - - - 6 - Total loans - net of unearned income 7,287 100 6,582 100 7,066 100 7,680 100 7,769 100
Table 14 Loans To Real Estate Developers And Investors (REDI) December 31, In millions 1993 1992 Commercial - Developer lines $ 101.1 $ 103.0 Tax-exempt: Construction .2 .5 Income property mortgage 82.0 93.5 Real estate mortgage - Income property 769.0 743.6 Construction 191.0 199.1 Total REDI loans $1,143.3 $1,139.7 Table 15 Loans To Real Estate Developers And Investors- Geographic Distribution And Property Type December 31, 1993 Region Total Greater In millions Corporation Washington Eastern Western Capital Land acquisition and development $ 121.8 $ 65.6 $ 42.4 $ 5.5 $ 8.3 Residential developments 217.6 85.5 87.4 41.0 3.7 Commercial projects: Office buildings 181.3 119.8 31.5 16.5 13.5 Retail stores and malls 207.6 147.4 42.1 9.7 8.4 Hotels and motels 79.7 40.9 29.2 9.6 - Industrial buildings 150.3 103.1 19.1 5.0 23.1 Total commercial projects 618.9 411.2 121.9 40.8 45.0 Special use 84.2 35.0 22.4 20.3 6.5 Other 100.8 51.1 18.3 1.2 30.2 Total REDI loans $1,143.3 $648.4 $292.4 $108.8 $93.7
Table 16 Nonperforming Assets And Past Due Loans December 31, Dollars in thousands Nonaccrual loans: 1993 1992 1991 1990 1989 Commercial $37,788 $ 87,121 $144,830 $ 81,876 $45,280 Instalment 902 930 1,440 2,230 4,171 Real estate 33,548 45,422 48,247 69,724 16,605 Construction 5,843 8,506 48,745 48,614 886 Total nonaccrual loans 78,081 141,979 243,262 202,444 66,942 Restructured loans 1,733 249 27,005 18,244 1,187 Total nonperforming loans 79,814 142,228 270,267 220,688 68,129 Foreclosed properties - net 16,951 78,584 79,692 16,516 7,011 Total nonperforming assets $96,765 $220,812 $349,959 $237,204 $75,140 Past due loans: Commercial $ 2,089 $ 3,252 $ 3,364 $ 8,046 $ 5,256 Instalment: Student 7,879 9,057 11,456 33,860 9,307 Other 1,049 2,562 1,701 1,354 1,917 Bank card 6,216 7,266 7,935 7,805 6,102 Real estate 7,758 3,779 4,587 4,237 3,321 Construction 197 46 3,760 528 553 Total past due loans $25,188 $ 25,962 $ 32,803 $ 55,830 $26,456 Nonperforming assets to: Loans and foreclosed properties - net 1.32% 3.32% 4.90% 3.08% .97% Total assets .73 1.74 2.96 2.00 .66 Allowance for loan losses to: Nonperforming assets 218 93 60 63 124 Nonperforming loans 264 144 78 68 137 Allowance for loan losses plus shareholders' equity to nonperforming assets 13.16x 5.27x 2.87x 3.88x 11.23x
Table 17 Nonperforming Loans-Quarterly Activity In millions Three Months Ended 1993 1992 Dec. 31 Sept. 30 June 30 Mar. 31 Dec. 31 Sept. 30 June 30 Mar. 31 Beginning balance $100.1 $117.8 $118.9 $142.2 $143.4 $195.8 $233.8 $270.3 Acquisition additions - - 9.5 - - - - - Other additions 24.7 11.7 23.4 20.8 41.4 14.1 92.7 44.7 Payments, sales and reductions (22.8) (15.8) (10.8) (10.1) (9.6) (17.7) (25.4) (11.5) Charge-offs (7.6) (9.5) (10.3) (15.4) (19.3) (16.4) (27.9) (22.0) Reinstatements to accrual status (10.3) (2.8) (9.4) (10.5) (7.3) (1.4) (19.7) (28.7) Transfers to foreclosed properties (4.3) (1.3) (3.5) (8.1) (6.4) (31.0) (57.7) (19.0) Net decrease (20.3) (17.7) (1.1) (23.3) (1.2) (52.4) (38.0) (36.5) Ending balance $ 79.8 $100.1 $117.8 $118.9 $142.2 $143.4 $195.8 $233.8
Table 18 Foreclosed Properties-Quarterly Activity In millions Three Months Ended 1993 1992 Dec. 31 Sept. 30 June 30 Mar. 31 Dec. 31 Sept. 30 June 30 Mar. 31 Beginning balance $ 34.7 $ 45.0 $ 75.0 $ 78.6 $122.7 $119.9 $ 85.2 $79.7 Acquisition additions - net - - 8.9 - - - - - Additions 4.3 3.4 7.7 11.0 11.6 33.6 59.1 21.6 Market write-downs (4.9) (1.5) (2.8) (2.9) (7.4) (5.6) (7.9) (6.2) Reductions (18.2) (12.2) (36.3) (11.7) (48.3) (13.2) (16.5) (9.9) Provision for losses 1.1 - (7.5) - - (12.0) - - Net increase (decrease) (17.7) (10.3) (30.0) (3.6) (44.1) 2.8 34.7 5.5 Ending balance $ 17.0 $ 34.7 $ 45.0 $ 75.0 $ 78.6 $122.7 $119.9 $85.2
Table 19 Nonaccrual Loans As A Percent Of Loan Category December 31, 1993 1992 1991 1990 1989 Commercial 1.3% 3.0% 4.3% 2.1% 1.1% Instalment .1 .1 .1 .1 .2 Real estate 2.0 3.0 3.8 5.8 1.5 Construction 2.6 4.0 10.3 7.2 .1 Total 1.1% 2.2% 3.4% 2.6% .9% Supplemental Financial Information Crestar Financial Corporation And Subsidiaries Maturity And Rate Sensitivity Of Selected Loans December 31, 1993 In millions Maturity within 1 year 1-5 years over 5 years Total Commercial $1,659.1 $738.5 $210.5 $2,608.1 Tax-exempt 14.3 39.9 176.7 230.9 Construction 170.0 51.3 3.2 224.5 1,843.4 829.7 390.4 3,063.5 Less: Loans with predetermined rates 382.6 356.7 153.5 892.8 Loans with adjustable rates $1,460.8 $473.0 $236.9 $2,170.7 Time Deposits $100,000 And Over December 31, 1993 In millions Maturity within 3 mos. 3-6 mos. 6-12 mos. over 1yr. Total Certificates of deposit $100,000 and over $30.2 $ 2.0 $ 7.3 $ 6.4 $ 45.9 Other domestic time deposits 21.5 17.1 11.8 29.3 79.7 Money market certificates 17.3 13.6 5.0 - 35.9 Deposits in foreign offices 1.8 - - - 1.8 Total $70.8 $32.7 $24.1 $35.7 $163.3 Maximum Short-Term Borrowings In thousands Maximum Outstanding At Any Month End 1993 1992 1991 Federal funds purchased $ 699,202 $ 495,139 $ 647,205 Securities sold under repurchase agreements 1,144,303 1,006,219 1,131,635 Commercial paper 677 7,435 30,435 Notes payable 112,365 244,883 292,412 Term federal funds purchased 50,000 - 238,750 U.S. Treasury demand notes 24,147 27,765 113,637 Other 14,494 15,074 102,960 Short-Term Borrowings-Average Balances And Rates 1993 1992 1991 Dollars in thousands Amount Rate Amount Rate Amount Rate Federal funds purchased $ 525,956 3.28% $ 456,383 3.76% $ 509,057 5.82% Securities sold under repurchase agreements 803,558 2.90 439,980 3.02 851,235 5.61 Commercial paper 503 2.75 1,861 3.32 21,517 5.74 Notes payable 108,200 2.48 209,757 3.26 273,159 5.23 Term federal funds purchased 4,658 3.21 - - 58,927 8.13 U.S. Treasury demand notes 7,781 2.76 15,934 3.72 51,187 5.75 Other 4,999 4.11 7,972 2.02 13,254 7.00 Total $1,455,655 3.01% $1,131,887 3.37% $1,778,336 5.71%
Consolidated Statements Of Income (Six Years) And Supplementary Data Crestar Financial Corporation And Subsidiaries 5-Year Compound In thousands, except per share data Years Ended December 31, Growth Rate1 Income from earning assets 1993 1992 1991 1990 1989 1988 Interest and fees on loans $575,085 $617,686 $735,128 $ 850,467 $ 871,317 $786,221 (7.5)% Interest on taxable investment securities 115,118 164,058 153,793 191,935 120,772 85,016 6.5 Interest on tax-exempt investment securities 6,820 9,346 11,751 13,564 17,803 24,351 (21.4) Dividends on common and preferred stocks 1,558 2,264 2,423 2,551 2,321 2,372 (6.2) Interest on securities held for sale 85,331 4,234 18,987 9,239 - - - Income on money market investments 23,526 37,567 42,621 17,609 8,455 9,213 33.2 Interest on mortgage and other loans held for sale 25,191 28,522 14,443 12,459 9,565 7,955 30.0 Total income from earning assets 832,629 863,677 979,146 1,097,824 1,030,233 915,128 (3.1) Interest expense Interest checking deposits 38,001 44,278 47,164 45,102 44,226 43,627 (1.8) Money market deposit accounts 58,496 75,936 90,174 87,253 81,995 66,646 (2.4) Regular savings deposits 31,091 26,749 19,823 19,375 21,724 26,005 4.5 Money market certificates 17,861 35,137 62,692 61,714 68,291 63,868 (21.2) Other domestic time deposits 96,849 136,344 185,207 181,900 149,328 114,647 (3.1) Certificates of deposit $100,000 and over 1,975 7,651 33,927 90,907 135,833 115,795 (57.5) Deposits in foreign offices 68 145 1,209 539 741 1,366 (42.0) Total interest on deposits 244,341 326,240 440,196 486,790 502,138 431,954 (11.4) Short-term borrowings 43,787 38,096 101,614 179,883 130,616 110,959 (22.5) Long-term debt 17,489 17,197 16,201 16,972 17,289 16,019 1.1 Total interest expense 305,617 381,533 558,011 683,645 650,043 558,932 (12.9) Net interest income 527,012 482,144 421,135 414,179 380,190 356,196 8.0 Provision for loan losses 48,775 99,242 209,522 131,055 44,846 53,135 7.2 Net credit income 478,237 382,902 211,613 283,124 335,344 303,061 7.1 Noninterest income Trust and investment advisory income 57,440 51,007 48,322 45,169 42,043 39,372 7.5 Service charges on deposit accounts 79,419 73,944 57,953 45,946 37,146 32,974 21.1 Bank card-related income 27,500 23,141 22,694 22,072 21,971 22,102 3.7 Gain on pension settlement - - 2,236 - 1,072 3,827 - Other income 81,669 66,736 54,459 41,405 45,067 44,154 13.8 Securities gains (losses) 2,237 3,563 48,165 12,216 1,052 (1,598) - Total noninterest income 248,265 218,391 233,829 166,808 148,351 140,831 13.2 Net credit and noninterest income 726,502 601,293 445,442 449,932 483,695 443,892 9.3 Noninterest expense Personnel expense 262,626 233,838 209,021 198,159 193,684 177,565 7.6 Occupancy expense - net 38,359 35,654 32,683 31,293 28,767 26,046 7.8 Equipment expense 24,122 24,011 22,916 23,797 23,749 23,354 .4 Other expense 197,915 208,300 141,001 125,590 116,594 113,150 14.2 Total noninterest expense 523,022 501,803 405,621 378,839 362,794 340,115 9.6 Income before income taxes 203,480 99,490 39,821 71,093 120,901 103,777 6.5 Income tax expense 62,989 19,689 6,060 9,948 17,053 15,279 22.2 Net Income $140,491 $ 79,801 $ 33,761 $ 61,145 $ 103,848 $88,498 2.7% Earnings per share Primary $ 3.68 $ 2.32 $ .98 $ 1.87 $ 3.28 $ 2.85 (1.2)% Fully diluted 3.67 2.32 .98 1.87 3.25 2.81 (.9) Supplementary data Average shares outstanding (000s): Primary 37,587 33,286 31,921 31,218 30,739 29,710 4.2 Fully diluted 37,665 33,369 31,946 31,238 31,110 30,466 3.8 1Based on exponential line fit (1989-1993)
Consolidated Average Balances/Net Interest Income/Rates1 Crestar Financial Corporation And Subsidiaries 1993 1992 1991 Interest Interest Interest Income4/ Yield/ Income4/ Yield/ Income4/ Yield/ Dollars in thousands Balance Expense Rate Balance Expense Rate Balance Expense Rate Assets $ $ % $ $ % $ $ % Taxable securities 1,684,418 115,118 6.83 2,351,260 164,058 6.98 1,754,747 153,793 8.76 Tax-exempt securities 99,548 10,233 10.28 131,789 14,047 10.66 159,466 17,680 11.09 Common and preferred stocks 29,247 1,803 6.17 33,241 2,863 8.61 29,500 3,168 10.74 Total investment securities2 1,813,213 127,154 7.01 2,516,290 180,968 7.19 1,943,713 174,641 8.98 Securities held for sale2 1,591,366 85,331 5.36 65,258 4,234 6.49 207,042 18,987 9.17 Money market investments2 675,801 23,580 3.49 988,604 37,630 3.81 738,457 42,755 5.79 Mortgage loans held for sale2 367,564 25,191 6.85 367,827 28,522 7.75 156,608 14,443 9.22 Commercial loans 2,458,766 187,449 7.62 2,715,977 221,658 8.16 3,169,434 300,681 9.49 Tax-exempt loans 262,838 22,418 8.53 309,366 27,414 8.86 372,095 39,245 10.55 Instalment loans 1,450,394 127,332 8.78 1,373,268 147,307 10.73 1,399,952 158,596 11.33 Bank card loans 701,669 95,923 13.67 538,324 81,409 15.12 526,442 82,223 15.62 Real estate loans 1,733,753 134,666 7.77 1,441,535 127,868 8.87 1,186,230 118,679 10.00 Construction loans 228,931 16,171 7.06 345,431 22,591 6.54 619,676 50,875 8.21 Foreign loans 127 14 10.72 1,410 74 5.25 1,472 100 6.79 Total loans - net of unearned2,3 6,836,478 583,973 8.54 6,725,311 628,321 9.34 7,275,301 750,399 10.31 Allowance for loan losses (215,974) (224,143) (198,805) Loans - net 6,620,504 6,501,168 7,076,496 Cash and due from banks 689,968 652,023 622,989 Premises and equipment - net 293,796 276,930 275,561 Customers' liability on acceptances 16,260 20,991 26,416 Intangible assets - net 94,860 84,831 92,405 Foreclosed properties - net 54,149 101,562 39,582 Other assets 367,933 344,927 261,435 Total Assets 12,585,414 11,920,411 11,440,704 Total Earning Assets 11,284,422 845,229 7.49 10,663,290 879,675 8.25 10,321,121 1,001,225 9.70 Liabilities and Shareholders' Equity Interest checking deposits 1,629,692 38,001 2.33 1,444,359 44,278 3.07 1,025,073 47,164 4.60 Money market deposit accounts 2,280,096 58,496 2.57 2,315,630 75,936 3.28 1,683,227 90,174 5.36 Regular savings deposits 1,102,510 31,091 2.82 781,185 26,749 3.42 404,831 19,823 4.90 Money market certificates 571,215 17,861 3.13 753,500 35,137 4.66 942,716 62,692 6.65 Other domestic time deposits 2,127,471 96,849 4.55 2,438,795 136,344 5.59 2,557,439 185,207 7.24 Certificates of deposit $100,000 and over 44,302 1,975 4.46 116,065 7,651 6.59 463,007 33,927 7.33 Deposits in foreign offices 2,348 68 2.88 4,417 145 3.28 18,222 1,209 6.63 Total savings and time deposits2 7,757,634 244,341 3.14 7,853,951 326,240 4.15 7,094,515 440,196 6.20 Demand deposits 1,925,211 1,686,673 1,502,404 Total deposits 9,682,845 9,540,624 8,596,919 Short-term borrowings2 1,455,655 43,787 3.01 1,131,887 38,096 3.37 1,778,336 101,614 5.71 Long-term debt2 215,375 17,489 8.12 185,894 17,197 9.25 162,838 16,201 9.95 Liability on acceptances 16,260 20,991 26,416 Other liabilities 176,582 201,394 87,108 Total liabilities 11,546,717 11,080,790 10,651,617 Preferred stock 43,890 45,000 45,000 Common shareholders' equity 994,807 794,621 744,087 Total shareholders' equity 1,038,697 839,621 789,087 Total Liabilities and Shareholders' Equity 12,585,414 11,920,411 11,440,704 Total interest-bearing liabilities 9,428,664 305,617 3.24 9,171,732 381,533 4.16 9,035,689 558,011 6.18 Other sources - net 1,855,758 1,491,558 1,285,432 Total Sources of Funds 11,284,422 305,617 2.71 10,663,290 381,533 3.58 10,321,121 558,011 5.41 Net Interest Spread 4.25 4.09 3.52 Net Interest Income/Margin 539,612 4.78 498,142 4.67 443,214 4.29 5-Year Compound 1990 1989 1988 Growth Rate Interest Interest Interest Interest Income4/ Yield/ Income4/ Yield/ Income4/ Yield/ Income/ Balance Expense Rate Balance Expense Rate Balance Expense Rate Balance Expense $ $ % $ $ % $ $ % % % 2,056,062 191,935 9.34 1,334,945 120,772 9.05 1,072,283 85,016 7.93 11.5 6.2 182,601 20,412 11.18 242,112 26,808 11.07 346,686 36,963 10.66 (20.9) (21.6) 29,976 3,346 11.16 29,150 3,040 10.43 31,741 3,106 9.79 (.1) (8.1) 2,268,639 215,693 9.51 1,606,207 150,620 9.38 1,450,710 125,085 8.62 6.8 1.2 93,115 9,238 9.92 - - - - - - - - 218,532 17,795 8.14 96,371 8,658 8.98 120,786 9,337 7.73 61.7 32.8 120,861 12,459 10.31 94,020 9,565 10.17 85,080 7,955 9.35 39.6 30.0 3,505,189 370,411 10.57 3,371,400 372,361 11.04 3,113,191 312,927 10.05 (5.4) (11.6) 428,430 52,960 12.36 503,573 65,927 13.09 609,328 72,899 11.96 (15.3) (22.3) 1,393,160 155,938 11.19 1,398,379 153,498 10.98 1,502,204 148,792 9.90 (.6) (2.5) 488,666 79,694 16.31 464,440 76,896 16.56 482,343 78,242 16.22 7.1 3.6 1,208,042 128,542 10.64 1,180,336 132,022 11.19 1,055,700 114,241 10.82 9.1 1.9 737,941 82,486 11.18 755,806 92,996 12.30 767,980 82,843 10.79 (21.7) (30.8) 5,772 570 9.88 8,198 965 11.77 15,055 1,814 12.05 (58.2) (61.9) 7,767,200 870,601 11.21 7,682,132 894,665 11.65 7,545,801 811,758 10.76 (2.7) (7.8) (114,580) (92,264) (92,330) 23.8 7,652,620 7,589,868 7,453,471 (3.2) 667,243 664,186 697,729 (.5) 271,421 267,868 270,124 1.5 24,451 25,931 25,846 (7.9) 93,204 89,846 88,648 .5 11,362 6,465 5,228 83.3 252,256 218,598 209,922 12.8 11,673,704 10,659,360 10,407,544 3.7 10,468,347 1,125,786 10.75 9,478,730 1,063,508 11.22 9,202,377 954,135 10.37 4.0 (3.6) 919,726 45,102 4.90 870,860 44,226 5.08 859,753 43,627 5.07 14.8 (1.8) 1,364,589 87,253 6.39 1,189,857 81,995 6.89 1,130,778 66,646 5.89 17.7 (2.4) 394,349 19,375 4.91 443,595 21,724 4.90 525,417 26,005 4.95 16.8 4.5 782,073 61,714 7.89 845,467 68,291 8.08 932,004 63,868 6.85 (7.2) (21.2) 2,242,642 181,900 8.11 1,792,679 149,328 8.33 1,386,798 114,647 8.27 9.6 (3.1) 1,080,842 90,907 8.41 1,466,998 135,833 9.26 1,460,869 115,795 7.93 (52.3) (57.5) 6,792 539 7.94 8,185 741 9.05 18,025 1,366 7.58 (27.1) (42.0) 6,791,013 486,790 7.17 6,617,641 502,138 7.59 6,313,644 431,954 6.84 4.6 (11.4) 1,505,796 1,525,986 1,598,823 3.6 8,296,809 8,143,627 7,912,467 4.4 2,284,596 179,883 7.87 1,457,820 130,616 8.96 1,514,477 110,959 7.33 (3.4) (22.5) 170,106 16,972 9.98 175,052 17,289 9.88 177,486 16,019 9.03 3.2 1.1 24,451 25,931 25,846 (7.9) 121,074 137,239 126,921 7.3 10,897,036 9,939,669 9,757,197 3.3 45,000 49,227 54,297 (3.7) 731,668 670,464 596,050 9.2 776,668 719,691 650,347 8.4 11,673,704 10,659,360 10,407,544 3.7 9,245,715 683,645 7.39 8,250,513 650,043 7.88 8,005,607 558,932 6.98 3.2 (12.9) 1,222,632 1,228,217 1,196,770 8.4 10,468,347 683,645 6.53 9,478,730 650,043 6.86 9,202,377 558,932 6.08 4.0 (12.9) 3.36 3.34 3.39 442,141 4.22 413,465 4.36 395,203 4.29 6.2 1Income and yields are computed on a tax-equivalent basis using the statutory federal income tax rate, exclusive of the alternative minimum tax and nondeductible interest expense 2Indicates earning asset or interest-bearing liability 3Nonaccrual loans are included in the average loan balances and income on such loans is recognized on a cash basis 4The tax-equivalent adjustment to net interest income was $12.6 million in 1993, $16.0 million in 1992, $22.1 million in 1991, $28.0 million in 1990, $33.3 million in 1989 and $39.0 million in 1988 5Based on exponential line fit (1989-1993)
Selected Ratios And Other Data Crestar Financial Corporation And Subsidiaries Ratios 1993 1992 1991 1990 1989 1988 Net interest margin1 4.78% 4.67% 4.29% 4.22% 4.36% 4.29% Noninterest expense to: Net interest income1 and noninterest income 66.38 70.03 59.91 62.21 64.58 63.45 Average assets 4.16 4.21 3.55 3.25 3.40 3.27 Net Income to net interest and noninterest income 18.12 11.39 5.15 10.52 19.65 17.81 Average earning assets to average total assets 89.66 89.45 90.21 89.67 88.92 88.42 Net Income to: Average earning assets 1.24 .75 .33 .58 1.10 .96 Average assets 1.12 .67 .30 .52 .97 .85 Average total equity 13.53 9.50 4.28 7.87 14.43 13.61 Income applicable to common shares to average common equity 13.90 9.73 4.19 7.99 15.06 14.21 Average total equity to: Average loans 15.19 12.48 10.85 10.00 9.37 8.62 Average assets 8.25 7.04 6.90 6.65 6.75 6.25 Dividend payout ratio: On common stock 30.56 34.46 87.98 70.46 36.19 37.13 On common and preferred stock 31.66 36.49 88.90 71.75 37.96 39.81 Equity formation rate 9.24 6.04 .47 2.22 8.95 8.19 Long-term debt at year end to: Total equity at year end 17.99 21.94 20.36 21.84 22.68 26.14 Total equity and long-term debt at year end 15.25 18.00 16.92 17.92 18.48 20.72 Net charge-offs to: Average total loans .95 1.69 2.07 .99 .55 .97 Provision for loan losses 132.92 114.80 71.95 58.64 94.28 137.61 Allowance for loan losses to year-end loans 2.89 3.11 2.97 1.94 1.20 1.17 Nonperforming assets to year-end loans and foreclosed properties - net 1.32 3.32 4.90 3.08 .97 .70 Net charge-offs earnings coverage 3.89x 1.74x 1.65x 2.63x 3.92x 2.15x Equity leverage 12.12 14.20 14.50 15.03 14.81 16.00 Other data Cash dividends declared per common share $ 1.14 $ .80 $ .86 $ 1.32 $ 1.20 $ 1.12 Number of average primary shares (000s) 37,587 32,286 31,921 31,218 30,739 29,710 Market price of common stock: High $461/2 $393/4 $ 25 $295/8 $341/8 $261/2 Low 351/8 171/4 111/4 121/8 231/2 207/8 Last 417/8 39 173/4 133/4 283/4 24 At year end: Book value per common share 28.32 25.24 23.23 23.15 22.73 20.85 Fully diluted price/earnings multiple 11.41x 16.81x 18.11x 7.35x 8.85x 8.54x Dividend yield on common stock 2.72% 2.05% 4.85% 9.60% 4.17% 4.67% Number of common shareholders of record 12,769 12,139 12,637 12,545 12,536 11,218 Number of banking offices 302 289 266 263 252 256 Number of employees 6,576 6,122 5,771 6,175 6,180 6,325 Full-time equivalent employees 6,279 5,891 5,581 6,029 6,029 6,150 1Tax-equivalent basis
General Information Crestar Financial Corporation And Subsidiaries Corporate Headquarters Crestar Center 919 East Main Street, P.O. Box 26665 Richmond, Virginia 23261-6665 (804)782-5000 TELEX: 827420 Annual Meeting The 1994 Annual Meeting of Shareholders will be held at 10:00 a.m. on Friday, April 22, 1994 in our Corporate Headquarters auditorium. Common Stock Crestar's common stock is traded on the New York Stock Exchange where our symbol is CF. Dividends are customarily paid on the 21st of February, May, August and November. Quarterly Common Stock Prices And Dividends The high, low and last price of Crestar's common stock for each quarter of 1993 and 1992 and the dividends declared per share are shown below. Quarter Market Price Dividends Ended High Low Last Declared 1993 March 31 $461/2 $353/4 $425/8 $.25 June 30 461/2 351/8 413/4 .28 September 30 45 397/8 423/4 .28 December 31 461/8 371/4 417/8 .33 1992 March 31 $261/4 $171/4 $221/2 $.20 June 30 301/4 22 30 .20 September 30 33 253/4 311/8 .20 December 31 393/4 29 39 .20 In January 1994, a quarterly dividend on common stock of $.33 per share was declared. Financial Information To obtain financial information on Crestar, contact Eugene S. Putnam, Jr., Vice President-Investor Relations and Corporate Finance, at the Corporate Headquarters, (804)782-5619. Corporate Publications Crestar's Annual Report and Form 10-K, Quarterly Reports and other corporate publications are available on request by writing or calling our Investor Relations Department at the Corporate Headquarters, (804)782-7152. Shareholder Information In you have questions about a specific stock ownership account, write or call our Investor Relations Department at the Corporate Headquarters, (804)782-7933. Dividend Reinvestment And Stock Purchase Plan Common shareholders receive a 5% discount from market price when they reinvest their Crestar dividends in additional shares. Shareholders participating in the Plan can also make optional cash purchases of common stock at market price and pay no brokerage commissions. To obtain our Plan prospectus and enrollment card, write or call our Investor Relations Department at the Corporate Headquarters, (804)782-7933. Cash Dividend Direct Deposit Shareholders may elect to have their Crestar dividends directly deposited to a checking, savings or money market account. This service provides a convenient and safe method of receiving dividends and is offered at no cost to shareholders. To obtain additional information and an enrollment form, write or call our Investor Relations Department at the Corporate Headquarters, (804)782-7933. EX-24 3 EXHIBIT 24.1 CONSENT OF INDEPENDENT AUDITORS The Board of Directors Crestar Financial Corporation We consent to incorporation by reference in Registration Statement No. 33-57710 on Form S-3, in Registration Statement No. 33-50387 on Form S-3, in Registration Statement No. 33-52269 on Form S-4, in Registration Statement No. 33-50921 on Form S-8 and in Registration Statement No. 33-63606 on Form S-8 of Crestar Financial Corporation of our report dated January 13, 1994, relating to the consolidated balance sheets of Crestar Financial Corporation and Subsidiaries as of December 31, 1993 and 1992, and the related consolidated statements of income, cash flows and changes in shareholders' equity for each of the years in the three-year period ended December 31, 1993, which report appears in the current report on Form 8-K dated March 10, 1994 of Crestar Financial Corporation. Our report refers to changes in accounting for postretirement benefits other than pensions and accounting for income taxes. /s/ KPMG Peat Marwick KPMG Peat Marwick Richmond, Virginia March 10, 1994 -----END PRIVACY-ENHANCED MESSAGE-----