Consolidated Balance Sheets
Crestar Financial Corporation And Subsidiaries
Dollars in thousands, except share data June 30,
--------------------- December 31,
Assets 1998 1997 1997
Cash and due from banks $ 939,382 $ 974,362 $1,175,314
Securities held to maturity (note 2) 578,813 715,516 626,716
Securities available for sale (note 3) 4,210,810 3,518,420 3,839,006
Money market investments (note 4) 887,979 1,364,741 1,431,790
Loans held for sale 2,176,670 643,080 964,697
Loans (note 5):
Business Loans:
Commercial 5,136,230 4,028,852 4,666,505
Real estate - income property 1,176,314 1,289,423 1,254,079
Real estate - construction 402,670 328,459 381,413
Consumer Loans:
Instalment 5,385,873 4,093,346 4,846,857
Bank card 507,245 1,210,242 1,153,937
Real estate - mortgage 3,342,579 3,308,393 3,374,199
- -------------------------------------------------------------------------------
Total Loans 15,950,911 14,258,715 15,676,990
Less: Allowance for loan losses
(note 6) (246,017) (279,190) (281,394)
- -------------------------------------------------------------------------------
Loans - net 15,704,894 13,979,525 15,395,596
- -------------------------------------------------------------------------------
Premises and equipment - net 479,759 459,275 486,111
Intangible assets - net 199,447 172,280 197,420
Foreclosed properties - net (notes 5 and 7) 16,652 34,243 25,731
Other assets 966,767 948,361 786,135
- -------------------------------------------------------------------------------
Total Assets $26,161,173 $22,809,803 $24,928,516
===============================================================================
Liabilities
Demand deposits $ 3,766,030 $ 3,383,317 $ 3,540,340
Interest-bearing demand deposits 6,918,653 5,748,638 6,257,114
Regular savings deposits 1,397,567 1,552,860 1,448,589
Domestic time deposits 3,919,809 4,317,373 4,191,151
Certificates of deposit $100,000 and over 1,868,122 844,271 932,058
- -------------------------------------------------------------------------------
Total deposits 17,870,181 15,846,459 16,369,252
Short-term borrowings (note 8) 4,639,407 3,841,043 4,789,045
Other liabilities 498,281 403,161 879,073
Long-term debt (note 9) 947,704 819,071 831,383
- -------------------------------------------------------------------------------
Total Liabilities 23,955,573 20,909,734 22,868,753
- -------------------------------------------------------------------------------
Shareholders' Equity
Preferred stock. Authorized
2,000,000 shares; none issued - - -
Common stock, $5 par value.
Authorized 200,000,000 shares;
outstanding 112,219,738
and 110,638,161 at June 30, 1998
and 1997, respectively; 111,420,187
at December 31, 1997 561,099 553,191 557,101
Capital surplus 382,180 261,789 340,623
Retained earnings 1,255,891 1,114,028 1,162,767
Accumulated other comprehensive
income (note 3) 6,430 (28,939) (728)
- -------------------------------------------------------------------------------
Total Shareholders' Equity 2,205,600 1,900,069 2,059,763
Commitments and contingencies (note 11)
- -------------------------------------------------------------------------------
Total Liabilities And
Shareholders' Equity $26,161,173 $22,809,803 $24,928,516
===============================================================================
See accompanying notes to consolidated financial statements.
Consolidated Statements Of Income
Crestar Financial Corporation And Subsidiaries
In thousands, except per share data
Three Months Ended June 30, Six Months Ended June 30,
--------------------------- ------------------------
Income From Earning Assets 1998 1997 1998 1997
Interest and fees on loans $ 337,053 $ 301,991 $661,392 $597,537
Interest on securities held
to maturity 8,400 10,882 17,355 23,974
Interest and dividends on securities
available for sale 68,791 59,875 131,202 123,724
Income on money market investments 3,180 2,248 12,212 6,912
Interest on mortgage loans held for sale 28,542 10,618 49,113 22,258
- -------------------------------------------------------------------------------------------------------
Total income from earning assets 445,966 385,614 871,274 774,405
- -------------------------------------------------------------------------------------------------------
Interest Expense
Interest-bearing demand deposits 55,182 42,939 105,478 84,753
Regular savings deposits 8,168 9,768 16,294 19,732
Domestic time deposits 49,482 53,450 99,983 108,513
Certificates of deposit
$100,000 and over 20,062 11,608 37,036 18,486
- -------------------------------------------------------------------------------------------------------
Total interest on deposits 132,894 117,765 258,791 231,484
Short-term borrowings 63,038 33,949 118,366 73,746
Long-term debt 16,600 15,591 33,723 31,206
- -------------------------------------------------------------------------------------------------------
Total interest expense 212,532 167,305 410,880 336,436
- -------------------------------------------------------------------------------------------------------
Net Interest Income 233,434 218,309 460,394 437,969
Provision for loan losses (note 6) 21,811 36,000 44,907 65,698
- -------------------------------------------------------------------------------------------------------
Net Credit Income 211,623 182,309 415,487 372,271
- -------------------------------------------------------------------------------------------------------
Noninterest Income
Service charges on deposit accounts 34,860 31,731 67,927 61,894
Trust and investment advisory income 20,950 17,887 41,069 35,340
Bank card-related income 9,360 9,771 18,170 22,419
Other income 48,798 51,718 92,852 90,857
Gains (losses) from sale of
securities 2,542 (91) 5,155 3,973
- -------------------------------------------------------------------------------------------------------
Total noninterest income 116,510 111,016 225,173 214,483
- -------------------------------------------------------------------------------------------------------
Net Credit And Noninterest Income 328,133 293,325 640,660 586,754
- -------------------------------------------------------------------------------------------------------
Noninterest Expense
Personnel expense 102,123 96,547 202,978 195,889
Occupancy expense - net 13,893 13,685 27,047 29,843
Equipment expense 10,962 11,462 21,764 21,281
Other expense 64,702 57,316 120,877 112,002
- -------------------------------------------------------------------------------------------------------
Total noninterest expense 191,680 179,010 372,666 359,015
- -------------------------------------------------------------------------------------------------------
Income Before Income Taxes 136,453 114,315 267,994 227,739
Income tax expense (note 10) 49,025 38,525 95,693 80,169
- --------------------------------------------------------------------------------------------------------
Net Income $ 87,428 $ 75,790 $172,301 $147,570
========================================================================================================
Earnings Per Share
Basic $ .78 $ .69 $ 1.54 $ 1.34
Diluted .77 .68 1.52 1.32
========================================================================================================
See accompanying notes to consolidated financial statements.
Consolidated Statements Of Changes In Shareholders' Equity
Crestar Financial Corporation And Subsidiaries
For the three months ended June 30, 1998 and 1997
In thousands Capital Accumulated
Shares of Surplus and Other
Common Common Retained Comprehensive
Stock Stock Earnings Income Total
Balance, April 1, 1998 111,938 $559,690 $1,573,286 $(2,793) $2,130,183
Comprehensive Income:
Net Income - - 87,428 - 87,428
Net unrealized gain on
securities available for
sale, net of
reclassification
adjustment (note 3) - - - 9,223 9,223
- ------------------------------------------------------------------------------------------------------
Comprehensive Income - - 87,428 9,223 96,651
Cash dividends declared on
common stock - - (36,977) - (36,977)
Common stock purchased and
retired (95) (475) (4,976) - (5,451)
Common stock issued:
For acquisition of
financial institution 124 621 8,322 - 8,943
For dividend
reinvestment plan 146 727 7,468 - 8,195
For thrift and profit
sharing plan 28 141 1,493 - 1,634
Upon exercise of
stock options
(including tax
benefit of $811) 79 395 2,027 - 2,422
- ------------------------------------------------------------------------------------------------------
Balance, June 30, 1998 112,220 $ 561,099 $ 1,638,071 $ 6,430 $ 2,205,600
======================================================================================================
Balance, April 1, 1997 110,300 $ 551,499 $ 1,323,415 $ (57,567) $ 1,817,347
Comprehensive Income:
Net Income - - 75,790 - 75,790
Net unrealized gain on
securities available
for sale, net of
reclassification
adjustment (note 3) - - - 28,628 28,628
-----------------------------------------------------------------------------------------------------
Comprehensive Income - - 75,790 28,628 104,418
Cash dividends declared on
common stock - - (32,309) - (32,309)
Common stock issued:
For dividend
reinvestment plan 212 1,062 6,526 - 7,588
For thrift and profit
sharing plan 3 14 91 - 105
For other stock
compensation plans 19 96 325 - 421
Upon exercise of
stock options (including
tax benefit of $780) 104 520 1,979 - 2,499
- ------------------------------------------------------------------------------------------------------
Balance, June 30, 1997 110,638 $ 553,191 $ 1,375,817 $ (28,939) $ 1,900,069
======================================================================================================
See accompanying notes to consolidated financial statements.
Consolidated Statements Of Changes In Shareholders' Equity
Crestar Financial Corporation And Subsidiaries
For the six months ended June 30, 1998 and 1997
In thousands Capital Accumulated
Shares of Surplus and Other
Common Common Retained Comprehensive
Stock Stock Earnings Income Total
Balance, January 1, 1998 111,420 $ 557,101 $ 1,503,390 $ (728) $ 2,059,763
Comprehensive Income:
Net Income - - 172,301 - 172,301
Net unrealized gain on securities
available for sale, net of
reclassification adjustment (note 3)- - - 7,158 7,158
- -------------------------------------------------------------------------------------------------------------------
Comprehensive Income - - 172,301 7,158 179,459
Cash dividends declared on
common stock - - (69,289) - (69,289)
Common stock purchased and retired (195) (975) (9,888) - (10,863)
Common stock issued:
For acquisition of financial
institution 124 621 8,322 - 8,943
For dividend reinvestment plan 299 1,493 14,764 - 16,257
For thrift and profit sharing plan 236 1,181 11,776 - 12,957
For other stock compensation plans 3 13 88 - 101
Upon exercise of stock options
(including tax benefit of $2,810) 333 1,665 6,607 - 8,272
- -------------------------------------------------------------------------------------------------------------------
Balance, June 30, 1998 112,220 $ 561,099 $ 1,638,071 $ 6,430 $2,205,600
===================================================================================================================
Balance, January 1, 1997 109,870 $ 549,350 $1,251,444 $(21,284) $ 1,779,510
Comprehensive Income:
Net Income - - 147,570 - 147,570
Net unrealized loss on securities
available for sale, net of
reclassification adjustment (note 3)- - - (7,655) (7,655)
- -------------------------------------------------------------------------------------------------------------------
Comprehensive Income - - 147,570 (7,655) 139,915
Cash dividends declared on
common stock - - (32,309) - (32,309)
Common stock purchased and retired (824) (4,118) (25,621) - (29,739)
Cash paid in lieu of fractional shares (5) (24) (140) - (164)
Common stock issued:
For dividend reinvestment plan 382 1,911 11,636 - 13,547
For thrift and profit sharing plan 185 924 5,738 - 6,662
For other stock compensation plans 73 364 1,903 - 2,267
Upon exercise of stock options
(including tax benefit of $7,347) 957 4,784 15,596 - 20,380
- -------------------------------------------------------------------------------------------------------------------
Balance, June 30, 1997 110,638 $ 553,191 $ 1,375,817 $ (28,939) $ 1,900,069
===================================================================================================================
See accompanying notes to consolidated financial statements
Consolidated Statements Of Cash Flows
Crestar Financial Corporation And Subsidiaries
In thousands Six Months Ended June 30,
-------------------------
1998 1997
Operating Net Income $ 172,301 $ 147,570
Activities Adjustments to reconcile net income to net cash provided
(used) by operating activities:
Provisions for loan losses, foreclosed properties and
other losses 43,806 65,698
Depreciation and amortization of premises and
equipment 25,319 23,361
Amortization of intangible assets 9,769 8,433
Deferred income tax expense (benefit) 22,490 (6,727)
Net gain on sales of securities, loans and other assets (10,824) (20,230)
Gain on sale of merchant card processing - (17,325)
Origination and purchase of loans held for sale (4,765,519) (1,218,769)
Proceeds from sales of loans held for sale 4,121,546 1,234,527
Net decrease (increase) in accrued interest receivable,
prepaid expenses and other assets (57,805) 15,350
Net increase in accrued interest payable, accrued
expenses and other liabilities 42,472 18,442
Other, net 19,519 759
--------------------------------------------------------------------------------------------
Net cash provided (used) by operating activities (376,926) 251,089
--------------------------------------------------------------------------------------------
Investing Proceeds from maturities and calls of securities held to
maturity 63,786 265,758
Activities Proceeds from maturities and calls of securities
available for sale 399,360 213,309
Proceeds from sales of securities available for sale 2,254,547 1,939,142
Purchases of securities held to maturity (16,343) (11,957)
Purchases of securities available for sale (3,451,693) (1,557,756)
Net decrease (increase) in money market investments 550,323 (614,926)
Principal collected on non-bank subsidiary loans 57,037 58,504
Loans originated by non-bank subsidiaries (96,227) (60,282)
Proceeds from sales of loans 149,018 27,269
Net increase in other loans (572,838) (7,124)
Purchases of premises and equipment (28,681) (60,937)
Proceeds from the sales of foreclosed properties, mortgage
servicing rights and merchant card processing 32,355 49,026
Purchases of net assets of financial institutions 1,437 -
Purchases of loans and loan portfolios (560,021) (420,063)
Proceeds from sales of premises - 7,945
Other, net (63,083) (10,963)
----------------------------------------------------------------------------------------
Net cash used by investing activities (1,281,023) (183,055)
----------------------------------------------------------------------------------------
Financing Net increase (decrease) in demand,
Activities interest-bearing demand and regular savings deposits 836,207 (202,404)
Net increase in certificates of deposit 664,722 377,653
Net decrease in short-term borrowings (149,638) (275,008)
Proceeds from issuance of long-term debt 202,695 -
Principal payments on long-term debt (86,344) (40,314)
Cash dividends paid (69,289) (61,974)
Common stock purchased and retired (10,863) (29,739)
Proceeds from the issuance of common stock 34,676 33,242
Other, net (149) (164)
- ----------------------------------------------------------------------------------------------------------------------
Net cash provided (used) by financing activities 1,422,017 (198,708)
- ----------------------------------------------------------------------------------------------------------------------
Cash And Decrease in cash and cash equivalents (235,932) (130,674)
Cash Cash and cash equivalents at beginning of year 1,175,314 1,105,036
- ----------------------------------------------------------------------------------------------------------------------
Equivalents Cash and cash equivalents at end of quarter $ 939,382 $ 974,362
======================================================================================================================
Cash and cash equivalents consist of cash and due from banks; see accompanying
notes to consolidated financial statements.
Notes To Consolidated Financial Statements
Crestar Financial Corporation And Subsidiaries
(1) General
The consolidated financial statements conform to generally accepted accounting
principles and to general practices within the banking industry. The
accompanying interim statements are unaudited; however, in the opinion of
management, all adjustments necessary for a fair presentation of the
consolidated financial statements, including adjustments related to completed
business combinations, have been included. All adjustments are of a normal
nature. Certain reclassifications have been made to the prior years'
consolidated financial statements to conform to the 1998 presentation. The notes
included herein should be read in conjunction with the notes to the consolidated
financial statements included in the Corporation's 1997 Annual Report and Form
10-K and first quarter 1998 Form 10-Q.
On April 15, 1998, Crestar acquired Executive Auto Leasing, Inc. (Executive),
a privately-held auto leasing company based in Maryland with total assets of
approximately $21 million at date of acquisition. The acquisition of Executive
has been accounted for under the purchase method of accounting, whereby the
purchase price has been allocated to the underlying assets acquired and
liabilities assumed based on their respective fair values at date of
acquisition. Crestar's second quarter 1998 financial statements include the
results of operations of the assets purchased and liabilities assumed from
Executive from the date of purchase. Results of operations of Executive did not
have a material impact on Crestar's consolidated operating results for the
second quarter of 1998.
Intangible assets consisted of goodwill and deposit based intangibles, having
a combined balance of $199.1 million and $171.9 million at June 30, 1998 and
1997, respectively, and favorable lease rights of $344,000 and $400,000,
respectively.
Capitalized mortgage servicing rights of $105.2 million and $45.9 at June 30,
1998 and 1997, respectively, were included in other assets in the consolidated
financial statements. Mortgage servicing rights of approximately $73 million and
$11 million were capitalized during the first six months of 1998 and 1997,
respectively. The fair value of capitalized mortgage servicing rights was
approximately $126 million at June 30, 1998. Amortization of capitalized
mortgage servicing rights was approximately $12 million and $6 million in the
first six months of 1998 and 1997, respectively.
During the first six months of 1998 and 1997, Crestar capitalized interest of
$1.6 million and $1.2 million, respectively, associated with construction in
progress.
(2) Securities Held To Maturity
The amortized cost (carrying values) and estimated market values of securities
held to maturity at June 30 follow:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
In thousands 1998 1997
Amortized Market Amortized Market
Cost Value Cost Value
U.S. Treasury and Federal agencies $190,708 $191,560 $197,788 $196,323
Mortgage-backed obligations of
Federal agencies 339,638 343,668 464,173 464,524
Other taxable securities 2,792 2,791 3,034 3,025
States and political subdivisions 45,675 46,641 50,521 51,444
- --------------------------------------------------------------------------------
Total securities held to
maturity $578,813 $584,660 $715,516 $715,316
================================================================================
================================================================================
(3) Securities Available For Sale
The amortized cost and estimated market values (carrying values) of securities
available for sale at June 30 follow:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
In thousands 1998 1997
Amortized Market Amortized Market
Cost Value Cost Value
U.S. Treasury and Federal
agencies $ 239,872 $ 239,820 $ 604,863 $ 599,569
Mortgage-backed obligations
of Federal agencies 2,882,361 2,885,909 2,164,126 2,125,494
Other taxable securities 878,137 883,351 546,437 544,686
Common and preferred stocks 201,018 201,730 247,983 248,671
- --------------------------------------------------------------------------------
Total securities available
for sale $4,201,388 $4,210,810 $3,563,409 $3,518,420
================================================================================
The period-end net unrealized gain or loss on securities available for sale, net
of tax, is reflected in the Consolidated Balance Sheet and the Consolidated
Statement of Changes in Shareholders' Equity as "Accumulated other comprehensive
income." For the three months and six months ended June 30, 1998 and 1997, the
net unrealized gain or loss on securities available for sale reflected in the
Statement of Changes in Shareholders' Equity is net of reclassification
adjustments for gains from sale of securities, net of tax, as included in net
income. Gains from the sale of securities during the three months and six months
ended June 30, 1998 totaled $2.5 million and $5.2 million, respectively. Net of
income tax expense of approximately $0.9 million, and $1.8 million for the three
months and six months ended June 30, 1998, the gains resulted in
reclassification adjustments of $1.6 million and $3.4 million, respectively.
Gains (losses) from sale of securities during the three months and six months
ended June 30, 1997 totaled $(0.1) million and $4.0 million, respectively. Net
of income tax expense (benefit) of approximately $(40) thousand and $1.4 million
for the three months and six months ended, June 30, 1997, the gains (losses)
resulted in reclassification adjustments of $(60) thousand and $2.6 million,
respectively.
At June 30, 1998, the amortized cost and market value of Mortgage-backed
obligations of Federal agencies includes the amortized cost and market value,
respectively, of interest rate caps purchased to hedge the probable market value
decline in a rising interest rate environment. The interest rate caps, which
have a notional balance of $1.75 billion, have a cost basis of $9.7 million and
a market value of $297,000 at June 30, 1998. The cost basis of the interest rate
caps is being amortized as a reduction of interest income on securities
available for sale. Amortization of the cost basis of the interest rate caps
totaled $1.3 million and $2.7 million for the three month and six month periods
ended March 31, 1998, respectively
(4) Money Market Investments
Money market investments at June 30 included:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
In thousands 1998 1997
Federal funds sold $752,700 $ 163,506
Securities purchased under agreements to resell - 1,095,300
Time deposits 100,042 75,042
U.S. Treasury 8,624 8,263
Trading account securities 13,351 11,706
Other 13,262 10,924
- --------------------------------------------------------------------------------
Total money market investments $887,979 $1,364,74
================================================================================
(5) Nonperforming Assets And Impaired Loans
Nonperforming assets at June 30 are shown below. Loans that are past due 90 days
or more and continue to accrue interest, due to an assessment of collectibility,
are excluded from the definition of nonperforming assets. Such loans totaled
$51.8 million and $58.7 million at June 30, 1998 and 1997, respectively.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
In thousands 1998 1997
Nonaccrual loans $59,329 $57,813
Foreclosed properties - net 16,652 34,243
- -------------------------------------------------------------------------------
Total nonperforming assets $75,981 $92,056
===============================================================================
Transfers from nonperforming loans to foreclosed properties (non-cash additions)
were $2.3 million and $7.5 million in the first six months of 1998 and 1997,
respectively. Included in Crestar's non-performing loans above are certain
impaired loans. Impaired loans and their allocated valuation allowances at June
30, 1998 and 1997 were $15.8 million with an allowance of $2.8 million and $12.1
million with an allowance of $2.2 million, respectively. All impaired loans had
an allocated valuation allowance at June 30, 1998 and 1997. Collateral dependent
loans, which were measured at the fair value of the collateral, constituted 100%
of impaired loans at June 30, 1998. The average recorded investment in impaired
loans for the six months ended June 30, 1998 and 1997 was $14.3 million and
$22.8 million, respectively. There was no material interest income recognized on
impaired loans in the three months and six months ended June 30, 1998 and 1997.
(6) Allowance For Loan Losses
Transactions in the allowance for loan losses for the three months and six
months ended June 30 were:
- -------------------------------------------------------------------------------
In thousands Three Months Six Months
1998 1997 1998 1997
Beginning balance $280,969 $268,870 $281,394 $268,868
- -------------------------------------------------------------------------------
Charge-offs (27,518) (33,341) (58,766) (70,416)
Recoveries 5,729 7,661 11,925 15,040
- -------------------------------------------------------------------------------
Net charge-offs (21,789) (25,680) (46,841) (55,376)
Provision for loan losses 21,811 36,000 44,907 65,698
Allowance of loans transferred
to loans held for sale (35,000) - (35,000) -
Allowance from acquisitions
and other activity - net 26 - 1,557 -
- -------------------------------------------------------------------------------
Net increase (decrease) (34,952) 10,320 (35,377) 10,322
- -------------------------------------------------------------------------------
Ending balance $246,017 $279,190 $246,017 $279,190
===============================================================================
(7) Allowance For Foreclosed Properties
Transactions in the allowance for losses on foreclosed properties for the three
months and six months ended June 30 were:
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
In thousands Three Months Six Months
1998 1997 1998 1997
Beginning balance $4,349 $18,076 $13,191 $18,449
Provision for foreclosed properties - - (1,100) -
Write-downs (1,946) (91) (9,688) (464)
- -------------------------------------------------------------------------------
Ending balance $2,403 $17,985 $ 2,403 $17,985
===============================================================================
===============================================================================
(8) Short-Term Borrowings
Short-term borrowings, exclusive of deposits, with maturities of less than one
year at June 30 were:
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
In thousands 1998 1997
Federal funds and term Federal funds purchased $2,278,547 $1,463,056
Securities sold under repurchase agreements 979,052 1,053,541
Federal Home Loan Bank borrowings 366,500 575,000
U.S. Treasury demand notes 749,538 499,401
Notes payable 263,643 247,911
Other 2,127 2,134
- -------------------------------------------------------------------------------
Total short-term borrowings $4,639,407 $3,841,043
===============================================================================
The Corporation paid $366.3 million and $286.1 million in interest on deposits
and short-term borrowings in the first six months of 1998 and 1997,
respectively.
(9) Long-Term Debt
Long-term debt at June 30 included:
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
In thousands 1998 1997
4-8% Federal Home Loan Bank obligations
payable through 2017 $299,960 $271,601
61/2% Subordinated notes due 2018 152,626 -
83/4% Subordinated notes due 2004 149,751 149,712
81/4% Subordinated notes due 2002 125,000 125,000
85/8% Subordinated notes due 1998 - 49,992
77/8-111/4% Collateralized mortgage obligation
bonds maturing through 2019 11,088 13,661
81/4% Mortgage indebtedness maturing through 2009 7,672 8,162
81/8-143/8% Capital lease obligations maturing
through 2006 1,607 943
Crestar Capital Trust I preferred stock 200,000 200,000
- -------------------------------------------------------------------------------
Total long-term debt $947,704 $819,071
===============================================================================
The Corporation paid $30.1 million and $31.2 million in interest on long-term
debt in the first six months of 1998 and 1997, respectively.
(10) Income Taxes
The current and deferred components of income tax expense allocated to
continuing operations for the three months and six months ended June 30 in the
accompanying consolidated statements of income were:
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
In thousands Three Months Six Months
1998 1997 1998 1997
Current:
Federal $38,852 $41,917 $72,359 $81,499
State and local 312 1,927 844 5,397
- -------------------------------------------------------------------------------
Total current tax expense 39,164 43,844 73,203 86,896
===============================================================================
Deferred:
Federal 8,578 (5,287) 20,410 (6,419)
State and local 1,283 (32) 2,080 (308)
- -------------------------------------------------------------------------------
Total deferred tax
expense (benefit) 9,861 (5,319) 22,490 (6,727)
- -------------------------------------------------------------------------------
Total income tax expense $49,025 $38,525 $95,693 $80,169
===============================================================================
The differences between the amounts computed by applying the statutory federal
income tax rate to income before income taxes and the actual income tax expense
allocated to operations for the three months and six months ended June 30 were:
- --------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------
In thousands Three Months Six Months
1998 1997 1998 1997
Amount % Amount % Amount % Amount %
Income before income
taxes $136,453 $114,315 $267,994 $227,739
- --------------------------------------------------------------------------------------------
Tax expense at
statutory rate 47,759 35.0 40,011 35.0 93,798 35.0 79,709 35.0
- --------------------------------------------------------------------------------------------
Increase (decrease) in
taxes resulting from:
Tax-exempt interest
and dividends (2,201) (1.7) (2,198) (1.9) (4,346) (1.6) (3,900) (1.8)
Nondeductible
interest expense 766 .6 447 .4 1,402 .5 876 .4
Amortization of
goodwill 1,262 .9 1,035 .9 2,496 .9 2,080 .9
State income taxes 1,037 .8 1,232 1.1 1,901 .7 3,308 1.5
Other - net 402 .3 (2,002) (1.8) 442 .2 (1,904) (.8)
- --------------------------------------------------------------------------------------------
Total increase
(decrease)
in taxes 1,266 .9 (1,486) (1.3) 1,895 .7 460 .2
- --------------------------------------------------------------------------------------------
Total income tax
expense $ 49,025 35.9 $ 38,525 33.7 $ 95,693 35.7 $ 80,169 35.2
============================================================================================
The Corporation made income tax payments of $71.2 million and $77.2 million
during the first six months of 1998 and 1997, respectively. At June 30, 1998,
the Corporation had a net deferred income tax asset of $95.2 million. There was
no valuation allowance relating to the net deferred income tax asset. Crestar
has sufficient taxable income in the available carryback period to realize all
of its deferred income tax assets.
(11) Commitments And Contingencies
Legally binding, unfunded commitments to extend credit were $12.1 billion and
$9.7 billion at June 30, 1998 and 1997, respectively. Standby letters of credit,
which are conditional commitments that guarantee the performance of customers to
a third party, were $431 million at June 30, 1998.
Recourse obligations on mortgage loans serviced of $1.8 billion at June 30,
1998 included $1.1 billion which was insured by agencies of the Federal
government or private insurance companies. Recourse obligations also included
$94 million of contractual recourse liability accepted by Crestar on mortgage
loan sales to Federal agencies and $141 million on certain mortgage loan sales
to private investors.
For interest rate risk management purposes at June 30, 1998, Crestar was using
interest rate (fixed receive) swaps with notional balances of $1.575 billion to
convert floating rate commercial and instalment loans to fixed rates. Crestar
was using purchased interest rate caps with notional balances of $1.95 billion
to hedge the market value of fixed rate securities available for sale and real
estate income property loans and $1.055 billion to minimize interest rate risk
associated with rising rates on floating rate money market deposits. Crestar was
using purchased interest rate floors with notional balances of $100 million and
$150 million to hedge the fair value of fixed rate domestic time deposits and
the prepayment risk associated with fixed rate real estate mortgage loans,
respectively. The carrying value and net unrealized gain on these swaps, caps
and floors were $22.2 million and $5.4 million, respectively, at June 30, 1998.
As a financial intermediary for customers, Crestar had $236.6 million in
offsetting swap, $23.7 million in offsetting cap and $8 million in offsetting
collar agreements at June 30, 1998.
The notional amount of these over-the-counter traded interest rate swaps, caps
and collars does not fully represent Crestar's credit and market exposure, which
the Corporation believes is a combination of current replacement cost of
approximately $29.5 million, less collateral held of approximately $17.1
million, plus an amount for prospective market movement. Two counterparties
constituted 17% and 10% of the estimated credit and market exposure of $61.4
million at June 30, 1998.
Crestar also had forward agreements outstanding at June 30, 1998, which are
primarily used to reduce the interest rate risk arising from changes in market
rates from the time residential mortgage lending commitments are made until
those commitments are funded. The net unrealized loss on such forward agreements
was $3.5 million at June 30, 1998.
Certain litigation is pending or threatened against Crestar. Management, in
consultation with legal counsel, is of the opinion that there is no pending or
threatened litigation that could, individually or in the aggregate, have a
material impact on the Corporation's financial condition or financial statements
beyond liabilities established for this purpose.
(12) Subsequent Events
On July 20, 1998 Crestar and Suntrust Banks, Inc. (SunTrust) announced the
signing of a definitive agreement to merge. The terms of the merger call for a
tax-free exchange of 0.96 shares of SunTrust common stock for each outstanding
share of Crestar common stock. The pooling-of-interests combination is expected
to be completed during the fourth quarter of 1998, and is subject to the
approval of regulatory authorities, in addition to shareholders of both
companies. Upon completion of the merger, Crestar will become a wholly-owned
subsidiary of SunTrust, and will operate under its current name and management
as one of SunTrust's four locally-focused bank holding companies. SunTrust
expects to incur pre-tax merger charges of approximately $250 million in the
fourth quarter of 1998.
In July 1998, Crestar announced that Fleet Financial Group had agreed to
purchase approximately $576 million of Crestar's outstanding bank card loans.
The accounts and balances represent performing bank card loans to borrowers
located outside of Crestar's primary market. Under terms of the transaction,
Crestar anticipates recognizing a pre-tax gain, during the third quarter of
1998, of approximately $54 million. Crestar's noninterest expenses are also
expected to be higher in the third quarter of 1998, in comparison to prior
quarters, in recognition of certain incremental expenses. The consolidated
balance sheet as of June 30, 1998 reflects the transfer of $603 million in bank
card loans from the loan portfolio to loans held for sale. In addition to the
principal balance of the bank card loans, $35 million in allowance for loan
losses specifically related to the bank card loans held for sale was
transferred.