SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
[ X ] Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 (Fee Required). For the fiscal year ended December 31,
1993
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 (No Fee Required). For the transition period from
____________ to ____________.
Commission File No. 1-6505
SIGNET BANKING CORPORATION
(Exact name of registrant as specified in its charter)
Virginia 54-6037910
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) Number)
7 North Eighth Street 23219
Richmond, Virginia (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code: (804) 747-2000
Securities registered pursuant to Section 12(b) of the Act:
Common Stock, $5 Par Value New York Stock Exchange
Rights to Purchase Series A
Junior Participating Preferred
Stock, $20 par value New York Stock Exchange
(Title of each class) (Name of each exchange on which
registered)
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. ( )
The aggregate market value of the voting stock held by nonaffiliates of the
registrant as of February 28, 1994: *
Common Stock, $5 Par Value - $1,937,584,250
The number of shares outstanding of each of the registrant's classes of
common stock as of February 28, 1994:
Common Stock, $5 Par Value - 56,709,912
* In determining this figure, the Registrant has assumed that the executive
officers of the Registrant, the Registrant's directors, and persons known
to the Registrant to be the beneficial owners of more than five percent
of the Registrant's Common Stock, that directly or indirectly control the
Registrant, are affiliates. Such assumption shall not be deemed to be
conclusive for any other purpose.
DOCUMENTS INCORPORATED BY REFERENCE
1. Portions of the annual report to shareholders for the year ended December
31, 1993 are incorporated by reference into Parts I, II and IV.
2. Portions of the proxy statement for the annual shareholders' meeting to
be held on April 26, 1994 are incorporated by reference into Part III.
<PAGE>
PART I
ITEM 1. BUSINESS.
General
The Registrant is a registered bank holding company, incorporated in
Virginia in 1962, and had consolidated assets of $11.8 billion as of
December 31, 1993. On the basis of total assets and deposits at December
31, 1993, the Registrant is the second largest banking organization
headquartered in Virginia. The Registrant provides interstate financial
services through three principal subsidiaries: Signet Bank/Virginia,
headquartered in Richmond, Virginia; Signet Bank/Maryland, headquartered in
Baltimore, Maryland; and Signet Bank N.A., headquartered in Washington,
D.C.
The Registrant is engaged in the general commercial and consumer banking
business through its three principal bank subsidiaries, which are members of
the Federal Reserve System. The bank subsidiaries provide financial
services through banking offices located throughout Virginia, Maryland and
Washington, D.C. and a 24-hour full-service Telephone Banking Center. Signet
is a major issuer of credit cards nationwide, offering a broad spectrum of
card products designed to meet the unique needs of differing market segments.
Signet Bank/Virginia owns a commercial bank operating in the Bahamas.
International banking operations are conducted through foreign branches of
Signet Bank/Virginia and Signet Bank/Maryland. Service subsidiaries are
engaged in writing insurance in connection with the lending activities of the
banks and bank-related subsidiaries and owning real estate for banking
premises. Other subsidiaries are engaged in trust operations, various kinds
of lending and leasing activities, insurance agency activities, mortgage
lending, certain investment banking activities and broker and dealer
activities relating to certain phases of the domestic securities business.
As of December 31, 1993, the Registrant and its subsidiaries employed
5,753 full-time and 1,386 part-time employees.
Domestic Banking Operations
Signet Bank/Virginia, incorporated under the laws of Virginia, had
assets of $9.0 billion at December 31, 1993. Signet Bank/Maryland,
incorporated under the laws of Maryland, had assets of $3.2 billion at
December 31, 1993. Signet Bank N.A., incorporated under the laws of the
United States, had assets of $624 million at December 31, 1993. The bank
subsidiaries provide all customary banking services to businesses and
individuals.
Domestic Trust Operations
Trust operations are administered by Signet Trust Company, a subsidiary
of the Registrant which presently operates four offices in Virginia, one
office in Maryland and one office in Washington, D.C.
International Banking Operations
International banking operations are conducted through Signet
Bank/Maryland's and Signet Bank/Virginia's international divisions and
through Signet Bank (Bahamas), Ltd., a subsidiary of Signet Bank/Virginia.
Signet Bank/Virginia and Signet Bank/Maryland also conduct international
banking operations through foreign branches located in the Bahamas and Cayman
Islands, respectively.
International banking is subject to special risks such as exchange
controls and other regulatory or political policies of governments, both
foreign and domestic. Currency devaluation is an additional risk of
international banking; however, substantially all of the Registrant's
international assets are repayable in U.S. dollars.
Domestic Bank-Related Activities
Signet Commercial Credit Corporation, a wholly-owned subsidiary of the
Registrant, is engaged in bank-related activities in the United States. It
makes loans that are often secured by inventory, accounts receivable or like
security and are generally structured on a revolving basis.
Signet Insurance Services, Inc. and Signet Insurance Services,
Inc./Maryland, wholly-owned subsidiaries of the Registrant, provide, as
agents, a full line of life and property/casualty insurance coverage for both
individuals and business enterprises.
Signet Mortgage Corporation, a wholly-owned subsidiary of Signet
Bank/Virginia, engages in the business of originating, servicing, and selling
mortgage loans.
Signet Leasing and Financial Corporation, a wholly-owned subsidiary of
Signet Bank/Maryland, engages in diversified equipment lease financing
activities (excluding passenger automobiles) for commercial customers
primarily in Maryland and the Mid-Atlantic region.
Signet Financial Services, Inc., formerly Signet Investment Corporation,
a wholly-owned subsidiary of the Registrant, acts as a broker and dealer in
certain phases of the domestic securities business.
Signet Investment Banking Company, a wholly-owned subsidiary of the
Registrant, is engaged in certain investment banking activities.
Competition
The Registrant is subject to substantial competition in all phases of
its business. Its banks compete not only with other commercial banks but
with other financial institutions, including brokerage firms, savings and
loan associations and savings banks, credit unions, consumer loan companies,
finance companies, insurance companies and certain governmental agencies.
The Registrant's non-banking subsidiaries also operate in highly
competitive fields and compete with organizations substantially larger than
themselves.
See "Regulation" below for a discussion of legislation which has
increased competition in the markets served by the Registrant.
Government Policy
The earnings of the Registrant are affected not only by general economic
conditions but also by the policies of various governmental regulatory
authorities. In particular, the Federal Reserve System regulates money and
credit conditions in order to influence general economic conditions,
primarily through open market transactions in U.S. Government securities,
varying the discount rate on member bank borrowings and setting reserve
requirements against member bank deposits. These policies have a significant
influence on overall growth and distribution of bank loans, investments and
deposits, and affect interest rates charged on loans or paid for time and
savings deposits. Federal Reserve monetary policies have had a significant
effect on the operating results of commercial banks in the past and are
expected to continue to do so in the future. The Registrant cannot
accurately predict the effect such policies may have in the future on its
business and earnings.
Capital Guidelines
The Board of Governors of the Federal Reserve System (the "Federal
Reserve Board") has adopted final risk-based capital guidelines for bank
holding companies. The minimum guidelines for the ratio of capital to risk-
weighted assets (including certain off-balance-sheet activities, such as
standby letters of credit) is 8 percent. At least half of the total capital
must be composed of common equity, retained earnings and qualifying perpetual
preferred stock less disallowed intangibles, including goodwill ("Tier I
capital"). The remainder may consist of qualifying subordinated debt, other
preferred stock and a limited amount of the loan loss allowance. At December
31, 1993, the Registrant's Tier I and total capital ratios were 11.12 percent
and 15.02 percent, respectively.
In addition, the Federal Reserve Board has established minimum leverage
ratio guidelines for bank holding companies. These guidelines provide for a
minimum leverage ratio of Tier I capital to adjusted average quarterly assets
equal to 3 percent for bank holding companies that meet certain specified
criteria, including that they have the highest regulatory rating. All other
bank holding companies are generally required to maintain a leverage ratio of
3 percent plus an additional cushion of at least 100 to 200 basis points.
The Registrant's leverage ratio at December 31, 1993 was 8.13 percent. The
guidelines also provide that bank holding companies experiencing internal
growth or making acquisitions will be expected to maintain strong capital
positions substantially above the minimum supervisory levels without
significant reliance on intangible assets. Furthermore, the Federal Reserve
Board has indicated that it will continue to consider a "tangible Tier I
leverage ratio" (deducting all intangibles) in evaluating proposals for
expansion or new activities.
Each of the Registrant's subsidiary banks is subject to similar capital
requirements adopted by the appropriate federal bank regulator. Following
are the capital ratios for the Company's three principal subsidiaries at
December 31, 1993:
Ratio Signet Bank/Virginia Signet Bank/Maryland Signet Bank N.A.
Tier I 9.26% 10.82% 19.28%
Total Capital 11.74 13.38 20.57
Leverage 6.84 6.75 9.02
Failure to meet capital guidelines could subject a national or state
member bank to a variety of enforcement remedies, including the termination
of deposit insurance by the FDIC and a prohibition on the taking of brokered
deposits.
Bank regulators continue to indicate their desire to raise capital
requirements applicable to banking organizations beyond current levels.
However, management is unable to predict whether and when higher capital
requirements would be imposed and, if so, at what levels and on what
schedule. For further discussion, refer to the portions of the 1993 Annual
Report to Shareholders incorporated by reference herein (Exhibit 13.1).
Supervision
Signet Bank/Virginia and Signet Bank/Maryland are supervised and
regularly examined by the Federal Reserve Board and by the Bureau of
Financial Institutions of the Virginia State Corporation Commission or the
Maryland Bank Commissioner. Signet Bank N.A. is subject to regulation,
supervision and examination by the Office of the Comptroller of the Currency.
Each of such banking subsidiaries is subject to regulation and examination by
the Federal Deposit Insurance Corporation. The Registrant is also subject to
examination by the Federal Reserve Board.
The Registrant's non-banking subsidiaries are supervised by the Federal
Reserve Board. In addition, Signet Insurance Services, Inc. and Signet
Insurance Services, Inc./Maryland are subject to insurance laws and
regulations of Virginia and Maryland, respectively, and the activities of
Signet Financial Services, Inc. are governed by the Securities and Exchange
Commission, the National Association of Securities Dealers, Inc. and state
securities laws.
Regulation
The Registrant is registered under the Bank Holding Company Act of 1956,
as amended (the "BHC Act"). The BHC Act restricts the activities of the
Registrant and requires prior approval of the Federal Reserve Board of any
acquisition by the Registrant of more than 5% of the voting shares of any
bank or bank holding company, any acquisition of all or substantially all of
the assets of a bank and any merger or consolidation with another bank
holding company. Under the BHC Act, the Registrant may not acquire any
domestic bank located outside of Virginia unless such acquisition is
specifically authorized by statute in the state where the bank is located.
(See the discussion of interstate banking legislation below.) The BHC Act
also prohibits the Registrant from engaging in any business in the United
States other than that of managing or controlling banks or businesses closely
related to banking, or of furnishing services to or performing services for
subsidiaries and, with certain limited exceptions, from acquiring more than
5% of the voting shares of any company. The Federal Reserve Board generally
follows a restrictive policy in permitting the entry of bank holding
companies and other bank affiliates into domestic and foreign bank-related
activities. Further, under Section 106 of the 1970 Amendments to the BHC Act
and the Federal Reserve Board's regulations, a bank holding company and its
subsidiaries are prohibited from engaging in certain tie-in arrangements in
connection with any extension of credit or provision of any property or
service. Federal law imposes limitations on the ability of the Registrant
and its subsidiaries to engage in certain phases of the domestic securities
business.
The Registrant is a bank holding company and is a legal entity separate
and distinct from its banking and other subsidiaries. The principal sources
of the Registrant's revenues are interest income derived from loans to and
deposits in subsidiaries and dividends the Registrant receives from its
subsidiaries. The right of the Registrant to participate as a shareholder in
any distribution of assets of any subsidiary upon its liquidation or
reorganization or otherwise is subject to the prior claims of creditors of
any such subsidiary. Signet Bank/Virginia, Signet Bank/Maryland and Signet
Bank N.A. are subject to claims by creditors for long-term and short-term
debt obligations, including substantial obligations for federal funds
purchased and securities sold under repurchase agreements, as well as deposit
liabilities. There are also a number of federal and state legal limitations
on the extent to which Signet Bank/Virginia, Signet Bank/Maryland and Signet
Bank N.A. may pay dividends or otherwise supply funds to the Registrant or
its affiliates. The prior approval of the appropriate federal bank regulator
is required if the total of all dividends declared by a national bank or
state member bank in any calendar year will exceed the sum of such bank's net
profits, as defined by the regulators, for the year and its retained net
profits for the preceding two calendar years. In addition, a dividend may
not be paid in excess of a bank's undivided profits then on hand, after
deducting losses and bad debts in excess of the allowance for loan and lease
losses. The payment of dividends by the Registrant and its banking
subsidiaries may also be affected or limited by other factors, such as the
requirement to maintain adequate capital above regulatory minimums. In
addition, the appropriate federal regulatory authority is authorized to
determine under certain circumstances relating to the financial condition of
a national bank, a state member bank or a bank holding company that the
payment of dividends would be an unsafe or unsound practice and to prohibit
payment thereof. The payment of dividends that deplete a bank's capital base
could be deemed to constitute such an unsafe or unsound practice. The
Federal Reserve Board and the Office of the Comptroller of the Currency have
each indicated that banking organizations should generally pay dividends only
out of current operating earnings. Under applicable regulatory restrictions,
all of the Registrant's banking subsidiaries were able to pay dividends to
the Registrant as of January 1, 1994.
Under federal law, Signet Bank/Virginia, Signet Bank/Maryland and Signet
Bank N.A. may not, subject to certain limited exceptions, make loans or
extensions of credit to, or investments in the securities of, the Registrant
or any non-bank subsidiary or take their securities as collateral for loans
to any borrower. In addition, federal law requires that certain transactions
between Signet Bank/Virginia, Signet Bank/Maryland and Signet Bank N.A. and
their affiliates, including sales of assets and furnishing of services, must
be on terms that are at least as favorable to the banks as those prevailing
in transactions with independent third parties.
Signet Bank/Virginia, Signet Bank/Maryland and Signet Bank N.A. are
subject to various statutes and regulations relating to required reserves,
investments, loans, acquisitions of fixed assets, interest rates payable on
deposits, requirements for meeting community credit needs, transactions among
affiliates and the Registrant, mergers and consolidations, and other aspects
of their operations.
Virginia, Maryland and the District of Columbia have each adopted
interstate banking statutes under which bank holding companies located in
certain other states (primarily Southeastern states) may acquire banks or
bank holding companies located in Virginia, Maryland or the District of
Columbia, as applicable, provided the laws of the state in which the bank
holding company making the acquisition has its principal place of business
permit bank holding companies located in Virginia, Maryland or the District
of Columbia, as applicable, to acquire banks and bank holding companies in
that state. In addition, a number of other states have adopted interstate
banking statutes that permit bank holding companies located in Virginia,
Maryland or the District of Columbia to acquire out-of-state banks or bank
holding companies, either on a reciprocal basis or without regard to
reciprocity. Many of these statutes, and many of the interstate banking
statutes referred to above, contain provisions which could restrict
acquisitions by the Registrant of out-of-state banks or bank holding
companies and, conversely, acquisitions of the Registrant by out-of-state
banks or bank holding companies.
On February 23, 1994, the Virginia General Assembly passed legislation
which amends Virginia's interstate banking statutes to allow Virginia bank
holding companies to acquire banking institutions located in any state with
reciprocal national banking laws and out-of-state bank holding companies to
acquire Virginia banking institutions if the laws of the out-of-state bank
holding company's home state permit acquisitions of banking institutions in
that state by Virginia bank holding companies under the same conditions. The
new legislation has not yet been signed by the Governor of Virginia. If
signed by the Governor, it will become effective July 1, 1994.
Other provisions of Maryland law affect the competitive posture of
Maryland banks. Under Maryland law, an out-of-state bank holding company,
regardless of location, may establish new banks in Maryland that may compete
generally with Maryland banks, provided certain capital investment and
employment requirements are met and, unless otherwise waived, the out-of-
state bank holding company agrees to locate the headquarters of the new
Maryland bank in a designated enterprise zone.
Maryland law allows branching, subject to regulatory approval. Virginia
law provides that a bank may establish new branches, subject to regulatory
approval, anywhere in the state. District of Columbia law allows branching
by District of Columbia banks within the District, subject to regulatory
approval.
The Financial Institutions Reform, Recovery, and Enforcement Act of 1989
("FIRREA"), enacted August 9, 1989, contains a number of provisions which
directly or indirectly affect the activities of federally insured national
and state-chartered commercial banks.
FIRREA made a number of important changes in the deposit insurance
system. FIRREA established separate insurance funds for banks (the Bank
Insurance Fund ("BIF")) and savings associations (the Savings Association
Insurance Fund) to be managed by the Federal Deposit Insurance Corporation
(the "FDIC"). All national and state-chartered commercial banks that were
insured by the FDIC at the time of the enactment of FIRREA were automatically
insured by BIF.
FIRREA allows the FDIC to recover from a depository institution for any
loss or anticipated loss to the FDIC that results from the default of a
commonly controlled insured depository institution or from assistance
provided to such an institution. Signet Bank/Virginia, Signet Bank/Maryland
and Signet Bank N.A. are commonly controlled for purposes of this provision.
The FDIC's claim for loss reimbursement under the "cross-guaranty" provisions
is superior to any claims of shareholders of the liable institution or any
claims of affiliates of such institution (other than claims on secured debt
that existed as of May 1, 1989). The FDIC's claim is subordinate to the
claims of depositors, third party secured creditors, senior and general
creditors and holders of subordinated debt other than affiliates.
FIRREA gives the Federal Reserve Board specific authority to permit the
acquisition of healthy, as well as failing, savings associations by a bank
holding company under the BHC Act.
FIRREA enhances the enforcement powers of the federal banking
regulators, increases the penalties for violations of law and substantially
revises and codifies the powers of receivers and conservators of depository
institutions. The receivership and conservatorship provisions of FIRREA
include a statutory claims procedure and provisions which confirm the powers
of the FDIC to obtain a stay of pending litigation and to repudiate certain
contracts or leases. The Crime Control Act of 1990, enacted November 29,
1990, also contains a number of provisions which enhance the enforcement
powers of the federal banking regulators and increase the penalties for
violations of law.
Under the National Bank Act, if the capital stock of a national bank,
such as Signet Bank N.A., is impaired by losses or otherwise, the Office of
the Comptroller of the Currency is authorized to require payment of the
deficiency by assessment upon the bank's shareholders, prorata, and to the
extent necessary, if any such assessment is not paid by any shareholder after
three months notice, to sell the stock of such shareholder to make good the
deficiency. Under Federal Reserve Board policy, the Registrant is expected
to act as a source of financial strength to each of its subsidiary banks and
to commit resources to support each of such subsidiaries. This support may
be required at times when, absent such Federal Reserve Board policy, the
Registrant may not find itself able to provide it.
The Registrant's subsidiary banks are subject to FDIC deposit insurance
assessments. FIRREA requires that the FDIC reach an insurance fund reserve
for the BIF of $1.25 for every $100 of insured deposits. If the reserve
ratio of the BIF is less than the designated reserve ratio, the FDIC is
required to set assessment rates sufficient to increase the ratio to the
required ratio, and is authorized to impose special additional assessments.
A significant increase in the assessment could have an adverse impact on the
Registrant's results of operations. See discussion below under Federal
Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA"), for further
information on the risk-based insurance assessment system adopted by the
FDIC.
In December 1991, FDICIA was enacted. FDICIA substantially revises the
bank regulatory and funding provisions of the Federal Deposit Insurance Act
and makes revisions to several other federal banking statutes.
FDICIA requires the federal banking agencies to take "prompt corrective
action" with depository institutions that do not meet minimum capital
requirements. FDICIA establishes five capital tiers: "well capitalized",
"adequately capitalized", "undercapitalized", "significantly
undercapitalized" and "critically undercapitalized". A depository
institution's capital tier depends upon where its capital levels are in
relation to various relevant capital measures, which include a risk-based
capital measure and a leverage ratio capital measure, and certain other
factors. As of December 31, 1993, all three of the Registrant's banks met
the "well capitalized" criteria.
A depository institution is well capitalized if it significantly exceeds
the minimum level required by regulation for each relevant capital measure,
adequately capitalized if it meets each such measure, undercapitalized if it
fails to meet any such measure, significantly undercapitalized if it is
significantly below any such measure and critically undercapitalized if it
fails to meet any critical capital level set forth in regulations. The
critical capital level must be a level of tangible equity equal to not less
than two percent of total assets and not more than 65 percent of the minimum
leverage ratio to be prescribed by regulation (except to the extent that two
percent would be higher than such 65 percent level). An institution may be
deemed to be in a capitalization category that is lower than is indicated by
its actual capital position if, among other things, it receives an
unsatisfactory examination rating.
FDICIA generally prohibits a depository institution from making any
capital distribution (including payment of a dividend) or paying any
management fee to its holding company if the depository institution would
thereafter be undercapitalized. Undercapitalized depository institutions are
subject to restrictions on borrowing from the Federal Reserve System. In
addition, undercapitalized depository institutions are subject to growth
limitations and are required to submit a capital restoration plan. The
federal banking agencies may not accept a capital plan without determining,
among other things, that the plan is based on realistic assumptions and is
likely to succeed in restoring the depository institution's capital. For a
capital restoration plan to be acceptable, the depository institution's
parent holding company must guarantee that the institution will comply with
such capital restoration plan. The aggregate liability of the parent holding
company is limited to the lesser of (i) an amount equal to 5 percent of the
depository institution's total assets at the time it became undercapitalized
and (ii) the amount which is necessary (or would have been necessary) to
bring the institution into compliance with all capital standards applicable
with respect to such institution as of the time it fails to comply with the
plan. If a depository institution fails to submit an acceptable plan, it is
treated as if it is significantly undercapitalized.
Significantly undercapitalized depository institutions may be subject to
a number of requirements and restrictions, including orders to sell
sufficient voting stock to become adequately capitalized, requirements to
reduce total assets, and cessation of receipt of deposits from correspondent
banks. Critically undercapitalized institutions are subject to the
appointment of a receiver or conservator.
Under FDICIA, an institution that is not well capitalized is generally
prohibited from accepting brokered deposits and offering interest rates on
deposits higher than the prevailing rate in its market. In addition, "pass
through" insurance coverage may not be available for certain employee benefit
accounts.
FDICIA restated Section 22(h) of the Federal Reserve Act, a statutory
provision which, among other points, restricts the amounts and terms of
extensions of credit which may be made by a bank to its executive officers,
directors, principal shareholders (collectively, "insiders"), and to their
related interest. In addition to limitations previously in place, FDICIA
requires a bank, when lending to insiders, to follow credit underwriting
procedures that are not less stringent than those applicable to comparable
transactions by the bank with persons outside the bank. Directors and their
related interests are now subject to the same aggregate lending limits
previously applicable to executive officers and their principal shareholders
and their related interests; further, the amount a bank can lend in the
aggregate to insiders, and to their related interests, is limited to an
amount equal to the bank's unimpaired capital and surplus. Insiders are also
prohibited from knowingly receiving, or knowingly permitting their related
interests to receive, any extension of credit not authorized by Section 22(h)
of the Federal Reserve Act.
Under FDICIA, each insured depository institution will be required to
submit annual financial statements to the FDIC, its primary federal
regulatory, and any appropriate state banking supervisor and a report signed
by the chief executive officer and chief accounting or financial officer
which contains (i) a statement of management's responsibilities for preparing
financial reports, establishing and maintaining an adequate internal control
structure, and complying with laws and regulations relating to safety and
soundness, and (ii) an assessment of the effectiveness of such structures and
compliance effort. The institution's independent public accountant will then
be required to attest to and report separately on the assertions of the
institution's management.
Under FDICIA, the appropriate federal banking agencies have issued
regulations requiring insured depository institutions to have annual
independent audits (which can be performed only by accounting firms which
have, among other points, agreed to provide related working papers, policies
and procedures to the FDIC, and the appropriate federal and state banking
authorities, if so requested). In the case of institutions that are
subsidiaries of holding companies, the audit requirement can be met by an
audit of the holding company. The accountants must issue reports in
compliance with generally accepted accounting principles and FDICIA. The
scope of the audit shall include a review of whether the financial statements
of the institution are presented fairly in accordance with generally accepted
accounting principles and whether they comply with such other disclosure
requirements as the federal banking agencies may prescribe. Also, the
accountants must apply procedures agreed upon by the FDIC to determine
objectively if an institution is in compliance with laws and regulations.
Institutions are required to provide their accountants copies of reports of
condition, examination reports, and information concerning any agency
enforcement actions. Copies of the accounting firm reports are to be
provided to the FDIC and the appropriate federal banking agency.
Each insured depository institution will be required to have an
independent audit committee made up entirely of outside directors who are
independent of management of the institution and who satisfy any specific
requirements the FDIC may establish. Their duties are to include review of
the various new reports required under FDICIA. In the case of any insured
depository institution which the FDIC determines to be a "large institution",
the audit committee must include members with banking or related financial
expertise. Also, in the case of such large institutions, the committee must
have access to its own outside counsel, and may not include any large
customers of the institution. There are certain exemptions for institutions
that are part of a holding company structure, but the institution must have
total assets of less than $9 billion, and an examination rating of 1 or 2.
FDICIA amends the Federal Deposit Insurance Act by inserting a new
provision concerning accounting objectives, standards, and requirements.
Among other matters, the federal banking agencies are required to: (i)
review the accounting principles used by depository institutions in preparing
financial reports required to be filed with a federal banking agency and
related matters with respect to such reports; (ii) modify or eliminate any
accounting principles or reporting requirements which are inconsistent with
FDICIA's objectives of effective supervision, prompt corrective action, and
increased accuracy of financial statements; (iii) prescribe regulations
which require that all assets and liabilities, including contingent assets
and liabilities, of insured depository institutions be reported in, or
otherwise taken into account of, in the preparation of any balance sheet,
financial statement, report of condition, or other report required to be
filed with the federal banking agency; and (iv) develop jointly with the
other appropriate federal banking agencies, a method for insured depository
institutions to provide supplemental disclosure of the estimated fair market
value of assets and liabilities, to the extent feasible and practical, in any
such reports. All financial reports and statements are to be prepared in
accordance with generally accepted accounting principles, except that each
federal banking agency has the power to implement more stringent procedures
in certain instances.
FDICIA also imposes certain operational and managerial standards on
financial institutions relating to internal controls, loan documentation,
credit underwriting, interest rate exposure, asset growth, and compensation,
fees and benefits. FDICIA also imposes new restrictions on activities and
investments of insured state banks, and prescribes limitations on risks posed
by exposure of insured banks to other depository institutions, including
adoption of policies to limit overnight credit exposures to correspondent
banks.
FDICIA requires the federal banking regulators to adopt rules
prescribing certain safety and soundness standards for insured depository
institutions and their holding companies. Proposed regulations implementing
these standards to cover operations and management, asset quality and
earnings, and employee compensation are pending adoption. The standards are
intended to enable the regulatory agencies to address problems at depository
institutions and holding companies before the problems cause significant
deterioration in the financial condition of the institution. The proposal
would establish the objectives of proper operations and management, but would
leave specific methods for achieving those objectives to each institution.
FDICIA set forth a new Truth in Savings Act. The Federal Reserve Board
has adopted regulations implementing the Truth in Savings Act. A variety of
significant new disclosure requirements are imposed concerning interest rates
and terms of deposit accounts. A requirement is also imposed that interest
paid on interest-bearing accounts must be calculated on the full amount of
principal, as opposed to on only non-reservable balances.
Under FDICIA, the federal banking agencies adopted regulations providing
standards for extensions of credit that are secured by liens on interest in
real estate or made for the purpose of financing the construction of building
or other improvements of real estate. In prescribing standards, the agencies
are to consider the risk posed to the deposit insurance fund, the need for
safe and sound operation of depository institutions, and the availability of
credit.
Under FDICIA, the FDIC adopted a risk-based insurance assessment system
for implementation January 1, 1994 that evaluates an institution's potential
for causing a loss to the insurance fund and to base deposit insurance
premiums upon individual bank profiles. A transitional risk-based assessment
system was in place during 1993. There were no significant changes between
the transitional system and the final regulation. Under the risk-based
assessment system, each institution pays FDIC insurance premiums within a
range from 23 cents to 31 cents per $100 of deposits, depending on the
institution's capital adequacy and a supervisory judgment of overall risk.
As of December 31, 1993, all three of the registrant's banks pay the lowest
FDIC insurance premium, 23 cents per $100 of deposits.
From time to time, various legislative proposals are submitted to and
considered by Congress concerning the banking industry. Recent legislative
initiatives have included, among other things, proposals to reform deposit
insurance, limit the investments that a depository institution may make with
insured funds, eliminate restrictions on interstate banking, expand the
powers of banking organizations to enter into new financial service
industries and revise the structure of the Bank regulatory system. The
Registrant cannot determine the ultimate effect that FDICIA and the
implementing regulations adopted or to be adopted thereunder, or any
potential legislation, if enacted, would have upon its financial condition or
operations.
Executive Officers of the Registrant
The following table sets forth information with respect to the
Registrant's executive officers:
Names, Positions and Offices
With Registrant During Last An Officer of the
Five Years Age Registrant Since
Robert M. Freeman 52 1978
Chairman and Chief Executive Officer.
Prior to April, 1990, he was President and
Chief Executive Officer.
Prior to April, 1989, he was President and
Chief Operating Officer.
Malcolm S. McDonald 55 1982
President and Chief Operating Officer.
Prior to April 1990, he was Vice Chairman.
David L. Brantley 44 1988
Senior Vice President and Treasurer.
Prior to August, 1988, he was Managing
Director of Signet Investment Banking
Company.
Robert L. Bryant 43 1990
Executive Vice President.
Prior to February, 1990, he was Senior
Vice President, Signet Bank/Virginia.
George P. Clancy, Jr. 51 1988
Senior Executive Vice President.
Philip H. Davidson 49 1977
Executive Vice President.
T. Gaylon Layfield, III 42 1988
Senior Executive Vice President.
Robert J. Merrick 48 1984
Executive Vice President and
Chief Credit Officer.
Wallace B. Millner, III 54 1971
Senior Executive Vice President and
Chief Financial Officer (Principal
Financial Officer).
Names, Positions and Offices
With Registrant During Last An Officer of the
Five Years Age Registrant Since
Andrew T. Moore, Jr. 53 1972
Senior Vice President and
Corporate Secretary.
David S. Norris 55 1973
Executive Vice President and Controller
(Principal Accounting Officer).
Anthony Torentinos 45 1993
Executive Vice President and Officer
in charge of Human Resources
Kenneth H. Trout 45 1990
Senior Executive Vice President.
Prior to May, 1991, he was an Executive
Vice President. Prior to July, 1990, he was
Executive Vice President, Signet Bank N.A.
Sara R. Wilson 43 1980
Executive Vice President and
General Counsel. Prior to January, 1994,
she was Senior Vice President and
Senior Corporate Counsel
Randolph W. Wyckoff 46 1989
Executive Vice President.
There are no family relationships (as defined in the applicable regulations)
among the above listed officers.
The executive officers of the Registrant are elected to serve until the
next organizational meeting of the board of directors of the Registrant
following the next annual meeting of the stockholders of the Registrant and
until their successors are elected.
<PAGE>
Statistical Information
The statistical information required by Item 1 is in the Registrant's
Annual Report to its shareholders for the year ended December 31, 1993, and
is incorporated herein by reference, as follows:
Page in the Registrant's Annual
Report to its shareholders for
Guide 3 Disclosure the year ended December 31, 1993
I. Distribution of Assets, Liabilities and
Stockholders' Equity; Interest Rates and
Interest Differential
A. Average Balance Sheet 30 & 31
B. Net Interest Earnings Analysis 30 & 31
C. Rate/Volume Analysis 23
II. Investment Portfolio
A. Book Value of Investment Securities 59
B. Maturities of Investment Securities 32
C. Investment Securities Concentrations 33
III. Loan Portfolio
A. Types of Loans 33
B. Maturities and Sensitivities of
Loans to Changes in Interest Rates 34
C. Risk Elements
1. Nonaccrual, Past Due and Restructured Loans 36, 37 & 38
2. Potential Problem Loans 38
3. Foreign Outstandings Not Applicable
4. Loan Concentrations 33
D. Other Interest Bearing Assets Not Applicable
IV. Summary of Loan Loss Experience
A. Analysis of Allowance for Loan Losses 25
B. Allocation of the Allowance for Loan Losses 26
V. Deposits
A. Average Balances 30 & 31
B. Maturities of Large Denomination Certificates 41
C. Foreign Deposit Liability Disclosure 41
VI. Return on Equity and Assets
A. Return on Assets 22
B. Return on Equity 22
C. Dividend Payout Ratio 42
D. Equity to Assets Ratio 22
VII. Short-Term Borrowings 61 & 62
<PAGE>
ITEM 2. PROPERTIES.
The executive offices of the Registrant and Signet Bank/Virginia are
located at 7 N. Eighth St., Richmond, Virginia, in a building owned by a
subsidiary of the Registrant. The Registrant's main operations center and
its bank card center are located in Henrico County, Virginia, in two office
buildings owned by a subsidiary of Signet Bank/Virginia. The principal
offices of Signet Bank/Maryland are located at 7 St. Paul St., Baltimore,
Maryland. The principal offices of Signet Bank N.A. are located at 1130
Connecticut Ave. N.W., Washington, D.C. The principal offices of Signet
Bank/Maryland and Signet Bank N.A. are leased.
Of the 239 domestic banking locations, 104 are owned by subsidiaries of
the Registrant, of which one is subject to mortgage indebtedness of
approximately $691,000. The remaining 135 banking locations and offices of
other subsidiaries are leased for various terms at an aggregate annual rent
of approximately $19,426,000, of which approximately $4,690,000 is for Signet
Bank/Maryland's principal offices.
ITEM 3. LEGAL PROCEEDINGS.
The Registrant and its subsidiaries are parties plaintiff or defendant
to numerous suits arising out of the collection of loans and the enforcement
or defense of the priority of its security interests. Management believes
that the pending actions against the Registrant or its subsidiaries, both
individually and in the aggregate, will not have a material adverse effect on
the financial condition or future operations of the Registrant.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED
STOCKHOLDER MATTERS.
The information required by Item 5 is included in the Registrant's
Annual Report to its shareholders for the year ended December 31, 1993 on
page 81 under the heading "Selected Quarterly Financial Data" and on page 67
in Note L, and is incorporated herein by reference.
ITEM 6. SELECTED FINANCIAL DATA.
The information required by Item 6 is included in the Registrant's
Annual Report to its shareholders for the year ended December 31, 1993 on
pages 22 and 42 under the headings "Selected Financial Data" and "Risk-Based
and Other Capital Data", respectively, and is incorporated herein by
reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
The information required by Item 7 is included in the Registrant's
Annual Report to its shareholders for the year ended December 31, 1993 on
pages 21_51 under the heading "Management's Discussion and Analysis of
Financial Condition and Results of Operations", and is incorporated herein by
reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The information required by Item 8 is included in the Registrant's
Annual Report to its shareholders for the year ended December 31, 1993 on
pages 52_76 under the heading "Signet Banking Corporation Consolidated
Financial Statements" and on page 81 under the heading "Selected Quarterly
Financial Data", and is incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information required by Item 10 as to the directors of the
Registrant is included in the Registrant's 1994 Proxy Statement on pages 2_5
under the headings "Election of Directors" and "Other Directorships", and is
incorporated herein by reference.
The information required by Item 10 as to the executive officers of the
Registrant is included in Item 1 under the heading "Executive Officers of the
Registrant".
ITEM 11. EXECUTIVE COMPENSATION.
The information required by Item 11 is included in the Registrant's 1994
Proxy Statement on pages 8_13 under the headings "Compensation of the Board"
and "Executive Compensation", and is incorporated herein by reference.
Information under the headings "Organization and Compensation Committee
Report on Executive Compensation" and "Performance Graph" in the Registrant's
1994 Proxy Statement is not incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.
The information required by Item 12 is included in the Registrant's 1994
Proxy Statement on pages 1, 5 and 6 under the headings "Proxy Statement" and
"Stock Ownership", and is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required by Item 13 is included in the Registrant's 1994
Proxy Statement on pages 6 and 7 under the heading "Transactions", and is
incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) (1) The following consolidated financial statements of Signet
Banking Corporation and Subsidiaries, included in the
Registrant's Annual Report to its shareholders for the year
ended December 31, 1993, are incorporated herein by reference
in Item 8:
Consolidated Balance Sheet - December 31, 1993 and 1992
Statement of Consolidated Operations - Years ended December
31, 1993, 1992 and 1991
Statement of Consolidated Cash Flows - Years ended December
31, 1993, 1992 and 1991
Statement of Changes in Consolidated Stockholders' Equity -
Years ended December 31, 1993, 1992 and 1991
Notes to Consolidated Financial Statements
Report of Ernst & Young, Independent Auditors
(2) All schedules are omitted since the required information is
either not applicable, not deemed material, or is shown in
the respective financial statements or in notes thereto.
(3) Exhibits:
3.1 Articles of Incorporation (Incorporated by reference to
Exhibit 3.1 to Annual Report on Form 10_K for the
fiscal year ended December 31, 1992).
3.2 Bylaws (Filed herewith).
4.1 Indenture dated as of May 1, 1972 Providing for
Issuance of Unlimited Senior Debt Securities
(Incorporated by reference to Exhibit 4-3 to
Registration Statement No. 2-43731).
4.2 First Supplemental Indenture dated as of November 1,
1972 relating to 7 3/4% Senior Debentures due November
1, 1997 (Incorporated by reference to Exhibit 4-5 to
Registration Statement No. 2-45986).
4.3 Indenture dated as of September 1, 1970 Providing for
Issuance of Unlimited Capital Notes (Incorporated by
reference to Exhibit 4-2 to Registration Statement No.
2-37919).
4.4 Indenture dated as of May 1, 1985 relating to
$50,000,000 Floating Rate Subordinated Notes due 1997
(Incorporated by reference to Exhibit 4(a) to
Registration Statement No. 2-97720).<PAGE>
4.5 Indenture dated as of April 1, 1986 Providing for
Issuance of Unlimited Subordinated Debt Securities
(Incorporated by reference to Exhibit 4(a) to
Registration Statement No. 33-4491).
4.6 Officer's Certificate dated as of April 4, 1986 setting
forth the form and terms of $100,000,000 of unsecured
floating rate Subordinated Notes due in 1998
(Incorporated by reference to Exhibit 4.11 to Annual
Report on Form 10-K for the fiscal year ended December
31, 1989).
4.7 Officers' certificate dated as of May 23, 1989 setting
forth the form and terms of $100,000,000 of unsecured
9 5/8% Subordinated Notes due in 1999 (Incorporated by
reference to Exhibit 4.12 to Annual Report on Form 10-K
for the fiscal year ended December 31, 1989).
4.8 Articles of Amendment, Rights Agreement, Series A
Junior Participating Preferred Stock (Incorporated by
reference to Exhibit 1 to Current Report on Form 8-K
dated May 23, 1989).
10.0 Management Contracts and Compensatory Plans Required to
be filed as Exhibits
10.1 Executive Incentive Compensation Plans (2)(Incorporated
by reference to Exhibit 10.2 to Annual Report on Form
10-K for the fiscal year ended December 31, 1982).
10.2 Executive Employee Supplemental Retirement Plan
(Incorporated by reference to Exhibit 10.4 to Annual
Report on Form 10-K for the fiscal year ended December
31, 1988).
10.3 Form of Executive Employment Agreement between the
Registrant and David L. Brantley, Robert L. Bryant,
George P. Clancy, Jr., Philip H. Davidson, William C.
Dieter, Jr., Robert M. Freeman, T.Gaylon Layfield, III,
Malcolm S. McDonald, Robert J. Merrick, Wallace B.
Millner, III, Andrew T. Moore, Jr., David S. Norris,
Anthony Torentinos, Kenneth H. Trout, Sara R. Wilson
and Randolph W. Wyckoff (Incorporated by reference to
Exhibit 10.8 on Form 10-K for the fiscal year ended
December 31, 1989).
10.4 1983 Stock Option Plan (Incorporated by reference to
Exhibit A to Proxy Statement for 1983 Annual Meeting of
Shareholders).
10.5 1985 Union Trust Bancorp Key Employee Stock Option Plan
(Incorporated by reference to Exhibit 10.13 to Annual
Report on Form 10-K for the fiscal year ended December
31, 1985).
10.6 Union Trust Bancorp 1985 Restricted Stock Award Plan
(Incorporated by reference to Exhibit 10.12 to Annual
Report on Form 10-K for the fiscal year ended December
31, 1988).
10.7 1992 Stock Option Plan (Incorporated by reference to
Exhibit II to Proxy Statement for 1992 Annual Meeting
of Shareholders).
10.8 Executive Employee Excess Savings Plan (Incorporated by
reference to Exhibit 10.14 to Annual Report on Form 10-K
for the fiscal year ended December 31, 1987).
10.9 Split Dollar Life Insurance Plan and Agreement
(Incorporated by reference to Exhibit 10.13 to Annual
Report on Form 10-K for the fiscal year ended December
31, 1989).
10.10 Executive Employee Deferred Compensation Plan
(Incorporated by reference to Exhibit 10.15 to Annual
Report on Form 10-K for the fiscal year ended December
31, 1988).
10.11 1988 Deferred Compensation Plan (Incorporated by
reference to Exhibit 10.16 to Annual Report on Form 10-
K for the fiscal year ended December 31, 1988).
10.12 Excess Benefit Retirement Plan (Incorporated by
reference to Exhibit 10.17 to Annual Report on Form 10-
K for the fiscal year ended December 31, 1988).
11.1 Computation of Earnings Per Share (Filed herewith).
13.1 1993 Annual Report to Shareholders (Filed herewith).
22.1 Subsidiaries of the Registrant (Filed herewith).
24.1 Consent of Ernst & Young (Filed herewith).
25.1 Power of Attorney (Filed herewith).
(b) Reports on Form 8-K
The Registrant filed a Current Report on Form 8_K, dated
February 22, 1994, reporting the agreement to merge between
Signet Banking Corporation and Pioneer Financial Corporation.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be
signed on its behalf by the undersigned, thereunto duly authorized.
SIGNET BANKING CORPORATION
Date: March 25, 1994 By /s/ D. S. Norris
D. S. Norris, Executive Vice
President and Controller
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities indicated on the 25th day of March, 1994.
SIGNATURES TITLE
Robert M. Freeman* Director, Chairman and Chief Executive
Officer
(Principal Executive Officer)
Malcolm S. McDonald* Director, President and Chief Operating
Officer
/s/ Wallace B. Millner Senior Executive Vice President and
Wallace B. Millner, III Chief Financial Officer
(Principal Financial Officer)
/s/ D.S. Norris Executive Vice President and Controller
D. S. Norris (Principal Accounting Officer)
J. Henry Butta* Director
<PAGE>
SIGNATURES TITLE
William C. DeRusha* Director
William R. Harvey, Ph.D.* Director
Elizabeth G. Helm* Director
Robert M. Heyssel, M.D.* Director
Henry A. Rosenberg, Jr.* Director
Louis B. Thalheimer* Director
Stanley I. Westreich* Director
*By /s/ Andrew T. Moore
Andrew T. Moore, Jr.
Attorney-in-Fact
<PAGE>
EXHIBITS TO SIGNET BANKING CORPORATION
ANNUAL REPORT ON FORM 10-K
DATED DECEMBER 31, 1993
COMMISSION FILE NO. 1-6505
<PAGE>
EXHIBIT INDEX
<TABLE>
Page Number or
Exhibit Incorporation by
Number Description Reference to
<S> <C> <C>
3.1 Articles of Incorporation Exhibit 3.1 to Annual Report on Form
10-K for the fiscal year ended December
31, 1992
3.2 Bylaws Page 25
4.1 Instruments defining the rights of Exhibit 4_3, Registration No. 2_43731;
security holders, including Indentures Exhibit 4_5, Registration No. 2_45986;
Exhibit 4_2, Registration No. 2_37919;
Exhibit 4_6, Registration No. 2_45986;
Exhibit 4(a), Registration No. 2_97720;
Exhibit 4(a), Registration Statement No.
33_4491; Exhibit 1 to Current Report on
Form 8_K dated May 23, 1989; Exhibit
4.11 to Annual Report on Form 10_K for
the fiscal year ended December 31, 1989
10.1 Executive Incentive Compensation Exhibit 10.2 to Annual Report on
Plans (2) Form 10_K for the fiscal year
ended December 31, 1982
10.2 Executive Employee Supplemental Exhibit 10.4 to Annual Report on
Retirement Plan Form 10_K for the fiscal year ended
December 31, 1988
10.3 Form of Executive Employment Exhibit 10.8 to Annual Report on Form
Agreement between the Registrant 10_K for the fiscal year ended December
and David L. Brantley, Robert L. 31, 1989
Bryant, George P. Clancy, Jr.,
Philip H. Davidson, William G.
Dieter, Jr., Robert M. Freeman,
T. Gaylon Layfield, III, Malcolm S.
McDonald, Robert J. Merrick,
Wallace B. Millner, III, Andrew T.
Moore, Jr., David S. Norris,
Anthony Torentinos, Kenneth H.
Trout, Sara R. Wilson and
Randolph W. Wyckoff.
10.4 1983 Stock Option Plan Exhibit A to Proxy Statement for 1983
Annual Meeting of Shareholders
10.5 1985 Union Trust Bancorp Key Exhibit 10.13 to Annual Report on Form
Employee Stock Option Plan 10_K for the fiscal year ended December
31, 1985
10.6 Union Trust Bancorp 1985 Exhibit 10.12 to Annual Report on Form
Restricted Stock Award Plan 10_K for the fiscal year ended December
31, 1988
10.7 1993 Stock Option Plan Exhibit II to Proxy Statement for 1993
Annual Meeting of Shareholders
10.8 Executive Employee Excess Exhibit 10.14 to Annual Report on Form
Savings Plan 10_K for the fiscal year ended December
31, 1987
10.9 Split Dollar Life Insurance Plan Exhibit 10.13 to Annual Report on
and Agreement Form 10_K for the fiscal year ended
December 31, 1989
10.10 Executive Employee Deferred Exhibit 10.15 to Annual Report on Form
Compensation Plan 10_K for the fiscal year ended December
31, 1988
10.11 1988 Deferred Compensation Plan Exhibit 10.16 to Annual Report on
Form 10_K for the fiscal year ended
December 31, 1988
10.12 Excess Benefit Retirement Plan Exhibit 10.17 to Annual Report on
Form 10_K for the fiscal year ended
December 31, 1988
11.1 Computation of Earnings per Share Page 31
13.1 1993 Annual Report to Shareholders Page 32
22.1 Subsidiaries of the Registrant Page 120
24.1 Consent of Ernst & Young Page 124
25.1 Power of Attorney Page 125
</TABLE>
Exhibit 3.2
As adopted December 21, 1966 by
the Board of Directors and
amended through January 25, 1994
BYLAWS
OF
SIGNET BANKING CORPORATION
ARTICLE I
CORPORATE SEAL
The seal of the Corporation shall consist of a circular impression
stamped upon paper, with or without a wafer, with the name of the Corporation
and the word "Virginia" inscribed along its circumference and the word "seal"
inscribed in its center, in the design and form now here impressed upon the
margin of this page. It may be affixed and attested by any officer.
ARTICLE II
STOCK CERTIFICATES
Each holder of the shares of stock of the Corporation shall be entitled
to a stock certificate evidencing his ownership of the shares of the
Corporation. Stock certificates shall be in such form as may be required by
and approved by the Board of Directors. The signatures of the officers upon
any stock certificate may be facsimiles if such certificate is countersigned
by a transfer agent designated by the Board of Directors, other than the
Corporation itself or an employee of the Corporation, and the signature of
the transfer agent may be by facsimile if the certificate is registered by
the manual signature of a registrar designated by the Board of Directors
other than the Corporation itself or an employee of the Corporation.
(Amended November 18, 1970)
ARTICLE III
MEETING OF STOCKHOLDERS
Section 1. Place of Meeting. All meetings of the stockholders of the
Corporation shall be held in the City of Richmond, Virginia, at the
registered office of the Corporation or at such other place within or without
the State of Virginia, as may be fixed in the notice of the meeting or in the
waiver thereof.
(Amended February 16, 1983).
Section 2. Annual Meeting. The annual meeting of the stockholders of
the Corporation shall be held on such date in March, April, May or June as
the Board of Directors may designate.
(Amended February 16, 1983)
Section 3. Special Meetings. Special meetings of the stockholders may
be called by the Chairman of the Board, the President or the Board of
Directors.
(Amended December 18, 1985)
Section 4. Notice of Meetings. Unless waived in the manner prescribed
by law, written notice stating the place, day and hour of the meeting and, in
the case of a special meeting, the purpose or purposes for which the meeting
is called shall be given not less than ten or more than fifty days before the
date of the meeting (except as a different time is specified by law), either
personally or by mail, at the direction of the Chairman of the Board, the
President, the Secretary, or the persons calling the meeting, to each
stockholder of record entitled to vote at such meeting.
Section 5. Quorum and Voting. A majority of the shares entitled to
vote, represented in person or by proxy, shall constitute a quorum at all
meetings of the stockholders, regular or special. If a quorum is present,
the affirmative vote of the majority of the shares represented at the meeting
and entitled to vote on the subject matter shall be the act of the
stockholders, unless the vote of a greater number or voting by class is
required by law, and except that in elections of directors those receiving
the greatest number of votes shall be deemed elected even though not
receiving a majority. Each stockholder shall be entitled to one vote in
person or by proxy for each share of stock entitled to vote standing in his
name on the books of the Corporation. The vote on all questions shall be
taken in such a manner as the Chairman prescribes, provided, however, that on
demand of the holders of not less than one-tenth of the stock represented at
the meeting and entitled to vote any such vote shall be by ballot.
Section 6. Procedure. Stockholders' meetings shall be presided over by
the Chairman of the Board, or, in his absence, the President, or, in his
absence, the Vice Chairman of the Board, if any, or, in the absence of all of
them, a chairman to be elected at the meeting. The Secretary of the
Corporation or, in his absence, an Assistant Secretary or a secretary elected
at the meeting for the purpose, shall act as secretary of each meeting and
record the minutes. At each meeting of the stockholders, a committee may be
appointed by the Chairman, and shall be appointed by the Chairman on the
demand of the stockholders of not less than one-tenth of the stock
represented at the meeting and entitled to vote, to determine the number of
shares represented at the meeting by stockholders in person or by proxy. Any
meeting may be adjourned from day to day, or from time to time, and such
adjournment may be directed without a quorum, but no business except
adjournment shall be transacted in the absence of a quorum.
(Amended November 21, 1973)
ARTICLE IV
DIRECTORS AND THEIR MEETINGS
Section 1. Number, Election and Qualifying Shares. The general
management of the property, business and affairs of the Corporation shall be
vested in a Board of Directors of eleven (11) Directors including the
Chairman of the Board and President. The Directors shall be elected at the
annual meeting of the stockholders or as soon thereafter as practicable, and
shall hold office until the next annual meeting of stockholders and until
their successors shall have been elected. Vacancies in the board shall be
filled as provided by law. On and after July 1, 1963, each Director of the
Corporation shall be the owner in his own name and have in his possession or
control shares of the common stock of the Corporation having an aggregate par
value of not less than one thousand dollars ($1,000.00). Such stock must be
unpledged and unencumbered at the time such Director becomes a Director and
during the whole of his term as such.
(Amended January 25, 1994)
Section 2. Meetings. Regular meetings of the Board of Directors shall
be held on the fourth Tuesday in each month except the month of August or as
provided below for the transaction of such business as may properly come
before such meeting. The meeting held during the month of the stockholders
meeting shall be held after the stockholders meeting, shall be the annual
organizational meeting and shall be held for the purpose of the election of
officers and designation of committees for the ensuing year and for the
transaction of such other business as may properly come before the meeting.
No notice of the regular organizational meeting of the Board shall be
necessary. Special meetings of the Board of Directors shall be held on call
of the Chairman of the Board or the President. Unless waived in the manner
prescribed by law, notice of a special meeting shall be telephoned, mailed or
telegraphed to each Director at least 24 hours prior to the time of the
meeting. Neither the business to be transacted at, nor the purpose of any
special meeting, need be specified in the notice of the meeting. Meetings of
the Board of Directors may be held at any time without notice if all the
Directors are present, or if those not present waive notice either before or
after the meeting.
Meetings of the Board of Directors may be conducted by means of conference
telephones or similar communications equipment and a written record shall be
made of the action taken at such meetings.
(Amended July 16, 1985)
Section 3. Quorum. A majority of the Directors shall constitute a
quorum at any meeting, regular or special, and a majority of the Directors
present at any meeting at which a quorum is present shall be sufficient for
the transaction of any and all business for which a different quorum or vote
is not otherwise specifically and expressly required by law or the bylaws.
(Amended January 17, 1973)
Section 4. Executive Committee. The Board of Directors may, by a
resolution passed by a majority of the whole Board, designate as an Executive
Committee five Directors, one of whom shall be the Chairman of the Board, who
may be the Chairman of the Executive Committee if so designated, and one of
whom shall be the President. The Committee, during the interim between Board
meetings, shall have, and may exercise all of the authority of the Board of
Directors, except to approve an amendment to the Articles of Incorporation or
a Plan of Merger or Consolidation. The Executive Committee shall meet at
such time and place as established by a resolution of the Committee, and, in
the alternative, on the call of the Chairman or the President. Notice of
meetings of the Executive Committee shall be given in the same manner as
notices are required to be given for special meetings of the Board of
Directors. In the event that any outside Director designated as a member of
the Executive Committee shall be unable to attend a meeting of the Committee,
any outside Director not so designated may be requested to attend by the
Chairman of the Board or the President as a substitute for the absent member,
and, when so in attendance, shall be deemed for all purposes a duly elected
member of the Executive Committee.
Meetings of the Executive Committee may be conducted by means of conference
telephones or similar communications equipment and a written record shall be
made of the action taken at such meetings.
(Amended February 27, 1990)
Section 5. Audit Committee. The Audit Committee shall be composed of
outside Directors. It shall meet at least quarterly in order to perform the
following functions and duties and to recommend to the Board of Directors
such action as is appropriate to the performance thereof.
1. Review the engagement of the independent accountants, including the
scope and general extent of their review, the audit procedures which
will be utilized, and the compensation to be paid; and,
2. Review with the independent accountants, and with the Corporation's
chief financial officer (as well as with other appropriate personnel),
the general policies and procedures utilized by the Corporation with
respect to internal auditing, accounting, and financial controls. The
members of the Committee shall have at least a general familiarity with
the accounting and reporting principles and practices applied by the
Corporation in preparing its financial statements; and,
3. Review with the independent accountants, upon completion of their audit
(a) any report or opinion proposed to be rendered in connection
herewith; (b) the independent accountants' perceptions of the
Corporation's financial and accounting personnel; (c) the cooperation
which the independent accountants received during the course of their
review; (d) the extent to which the resources of the Corporation were
and should be utilized to minimize the time spent by the outside
auditors; (e) any significant transactions which are not a normal part
of the Corporation's business; (f) improper payments; (g) any change in
accounting principles; (h) all significant adjustments proposed by the
auditor; (i) any recommendations which the independent accountants may
have with respect to improving internal financial controls; choice of
accounting principles or management reporting systems; and
4. Inquire of the appropriate personnel and the independent auditors as to
any instances of deviations from established codes of conduct of the
Corporation and periodically review such policies; and
5. Meet with the Corporation's financial staff at least twice a year to
review and discuss with them the scope of internal accounting and
auditing procedures then in effect; and the extent to which
recommendations made by the internal staff or by the independent
accountants have been implemented; and,
6. Meet with the Corporation's independent accountants in the absence of
management to discuss the general operations of the Corporation.
7. Prepare and present to the Board of Directors a report summarizing its
recommendation with respect to the retention (or discharge) of the
independent accountants for the ensuing year; and
8. Direct and supervise an investigation into any matter brought to its
attention within the scope of its duties (including the power to retain
outside counsel or independent public accountants in connection with any
such investigation).
9. The Committee shall review all significant difficulties encountered or
important discoveries made by the independent accountants or the
internal auditors for report to the Board; and
10. Review in advance the employment of the independent accountants to
perform any function other than auditing the accounts of the Corporation
and the review of its income tax return.
11. The Committee shall keep under review the question of Director conflict
of interest or the appearance thereof and report such to the Board as
appropriate; and,
12. The Committee and/or its Chairman shall from time to time, with the
Secretary of the Committee, meet with the Chief Executive Officer of the
Corporation in order to communicate to management, significant concerns
of the Committee developed in the performance of its responsibilities as
set forth herein.
(Amended December 20, 1978)
Section 6. Organization and Compensation Committee. The Organization
and Compensation Committee shall be charged with the review and/or approval
of the Corporation's officer title, salary, bonus, incentive and other
employee benefit programs for the employees of the Corporation and its
subsidiaries. It shall also be charged with at least annually, reviewing
senior management's plans and recommendations with regard to management
succession.
Section 7. Other Committees. The Board of Directors by resolution
adopted by a majority of the Directors present at a meeting at which a quorum
is present, may designate other committees to consist of Directors, officers,
or employees of the Corporation, or others, who shall advise with the
officers on matters relating to the specific fields for which they are
appointed and shall otherwise have the duties specified in the resolution of
appointment.
Section 8. Quorum Rules. A majority of a Committee shall be necessary
for a quorum. A Committee shall have authority to elect a secretary (unless
otherwise herein provided), and to fix its own rules as to notice and
procedure; in the absence of such rules, the provisions as to notice of
special meeting of the Board of Directors shall govern as to notice of a
Committee meeting.
ARTICLE V
OFFICERS AND THEIR DUTIES
Section 1. Officers, Election and Removal. The officers of the
Corporation shall be a Chairman of the Board, a President, a Secretary, a
Treasurer and such additional officers as the Board of Directors may from
time to time prescribe, all of whom shall be elected annually at the meeting
of the Board of Directors following the annual meeting of the stockholders,
to serve until the next such meeting of the Board and until their successors
are elected, unless sooner removed, but may be removed at any time at the
pleasure of the Board, and vacancies may be filled at any meeting of the
Board. Any two or more offices may be held by the same person, except the
offices of President and Secretary.
Section 2. Chairman of the Board. The Chairman of the Board shall have
general authority to conduct the business of the Corporation and shall
preside at all meetings of the stockholders and the Board of Directors. He
may be the Chief Executive Officer of the Corporation if so designated.
Also, the Chairman of the Board shall have the authority to appoint officers
of the Corporation up to but not including the titles of members of the
Management Committee and to delegate that authority up to and including the
position of Senior Vice President.
(Amended February 27, 1990)
Section 2A. Chairman Emeritus. The Chairman Emeritus, if there be one,
shall preside as Chairman of the Executive Committee unless another Chairman
of the Executive Committee is designated by the Board of Directors.
(Amended February 27, 1990)
Section 3. President. The President shall perform the duties of the
Chairman of the Board in the absence or upon the disability of the Chairman
of the Board. He may be the Chief Executive Officer or the Chief Operating
Officer of the Corporation if so designated. In the absence of the Chairman
of the Board, the President shall preside at meetings of the stockholders,
Board of Directors, and the Executive Committee. Also, the President shall
have the authority to appoint officers of the Corporation up to but not
including the titles of members of the Management Committee and to delegate
that authority up to and including the position of Senior Vice President.
(Amended April 27, 1989)
Section 4. Vice Chairman of the Board. The Vice Chairman of the Board,
if any, shall perform such duties as may be assigned from time to time to him
or the President, and may be the chief administrative officer of the
Corporation if so designated. In the absence or disability of the President,
he shall exercise his duties and exercise his authority and, if the Chairman
of the Board and the President are one and the same person, then, in his
absence, the Vice Chairman of the Board shall preside at meetings of the
stockholders, Board of Directors and the Executive Committee. In the absence
or disability of the Chairman of the Board and the President he shall act as
Chief Executive Officer.
(Amended November 17, 1976)
Section 5. Executive Vice President. The Executive Vice President, if
any, shall assist the President in the performance of his duties and shall
perform such other duties as may be assigned to him from time to time by the
Board of Directors, the Executive Committee, the Chairman of the Board, the
President or the Vice Chairman of the Board.
(Amended November 21, 1973)
Section 6. Secretary. The Secretary shall perform the usual duties of
the office of Secretary and shall have such special authority as may from
time to time be conferred upon him by the bylaws or the Board of Directors.
(Amended November 21, 1973)
Section 7. Treasurer. The Treasurer shall perform the usual duties of
the office of Treasurer.
Section 8. Duties. In addition to the duties herein assigned to
certain officers, they and other officers prescribed by the Board of
Directors shall perform such duties and have such special authority as may
from time to time be conferred upon them by the Board of Directors, the
Executive Committee, or officers senior in rank to them.
ARTICLE VI
VOTING OF STOCK OWNED
Unless otherwise provided by a vote of the Board of Directors, the
Chairman of the Board, the President, the Vice Chairman of the Board, any
Vice President, the Secretary or the Treasurer may appoint attorneys to vote
any stock in any other corporation owned by the Corporation or may attend any
meeting of the holders of stock of such corporation and vote such shares in
person.
(Amended November 21, 1973)
ARTICLE VII
Bylaws for the Corporation may be made, altered, amended or repealed by
the Board of Directors, but bylaws made by the Board of Directors may be
repealed or changed, and new bylaws made, by the stockholders.
EXHIBIT 11.1
SIGNET BANKING CORPORATION AND SUBSIDIARIES
COMPUTATION OF EARNINGS (LOSS) PER SHARE
(dollars except per share in thousands)
<TABLE>
1993 1992 1991
<S> <C> <C> <C>
Common and common equivalent:
Average shares outstanding 56,291,808 55,147,928 53,702,538
Dilutive stock options - based on the
treasury stock method using average
market price 574,866 507,222 251,590
Shares used 56,866,674 55,655,150 53,954,128
Net income (loss) applicable to
Common Stock $174,414 $109,200 $(25,747)
Per share amount $ 3.07 $ 1.96 $ (.48)
Assuming full dilution:
Average shares outstanding 56,291,808 55,147,928 53,702,538
Dilutive stock options - based on the
treasury stock method using the
period end market price, if higher
than average market price 628,282 575,582 287,186
Assuming conversion of Subordinated
Convertible Debentures 3,848 4,616
Shares used 56,920,090 55,727,358 53,994,340
Net income (loss) $174,414 $109,200 $(25,747)
Add: Interest on Subordinated
Convertible Debentures, net of
income tax effect 2 2
Net income (loss) applicable to
Common Stock assuming conversion $174,414 $109,202 $(25,745)
Per share amount $ 3.06 $ 1.96 $ (.48)
</TABLE>
The calculations of common and common equivalent earnings per share and fully
diluted earnings per share are submitted in accordance with Securities Exchange
Act of 1934 Release No. 9083 although both calculations are not required by
footnote 2 to paragraph 14 of APB Opinion No. 15 because there is dilution of
less than 3%. The Registrant has elected to show fully diluted earnings per
share in its financial statements.
The per common share and common shares outstanding data above reflect a two-for-
one common stock split in the form of a dividend which was declared on June 23,
1993 to shareholders of record July 6, 1993 and distributed July 27, 1993.
Signet Banking Corporation and Subsidiaries
Management's Discussion and Analysis of Financial Condition
and Results of Operations-1993 Compared to 1992
Introduction
Signet Banking Corporation ("Signet" or "the Company"), with
headquarters in Richmond, Virginia, is a registered multi-bank,
multi-state holding company listed on the New York Stock Exchange
under the symbol SBK. At December 31, 1993, Signet had assets of
$11.8 billion and provided financial services through three
principal subsidiaries: Signet Bank/Virginia, headquartered in
Richmond, Virginia; Signet Bank/Maryland, headquartered in
Baltimore, Maryland; and Signet Bank N.A., head-
quartered in Washington, D.C.
Signet is engaged in the general commercial and consumer banking
businesses and provides a full range of financial services to
individuals, businesses and organizations through 239 banking
offices, 243 automated teller machines and a 24-hour full-service
Telephone Banking Center. Signet is a major issuer of credit
cards, offering a broad spectrum of card products designed to
meet the unique needs of differing market segments. Signet also
offers investment services including municipal bond, government,
federal agency and money market sales and trading, foreign
exchange trading and discount brokerage. In addition, an
international operation concentrating on trade finance,
specialized services for trust, leasing, asset based lending,
cash management, real estate, insurance, consumer financing and
investment banking are offered. Signet's primary market area
extends from Baltimore to Washington, south to Richmond, and on
to Hampton Roads/Tidewater Virginia. Signet's credit card
business operates nationally.
Signet's recent financial performance has been affected by
several notable events. In 1993, Signet reported record earnings
resulting from a combination of higher net interest income and
increased non-interest revenue driven primarily by the
outstanding success of its credit card business. Additionally,
improved credit quality and lower charge-offs resulted in reduced
levels of loan loss provisions. During 1993, Signet's managed
credit card portfolio increased 127%, or $2.9 billion, from year-
end 1992 and totaled $5.1 billion at December 31, 1993. Signet
securitized $2.3 billion of this growth during 1993. On June 23, 1993,
the Company declared a two-for-one split of its common stock in the form
of a 100% stock dividend. One additional share of stock was issued on
July 27, 1993, for each share held by stockholders of record at the close
of business on July 6, 1993. All per share data in this Report
have been adjusted to reflect this stock split. In recognition of
the Company's excellent earnings, improved asset quality and
capital strength, the Board of Directors increased the common
stock dividend twice during 1993 by a total of 67%, from an
annual rate of $.60 per share at the end of 1992 to $1.00 per
share by year-end 1993. During 1992, Signet completed the
successful conversion of existing automated applications (except credit card
and commercial loans) to an integrated system. The Company also
increased the common stock dividend by 50% in 1992, from an annual rate of
$.40 to $.60 per share.
A detailed discussion of the 1993 operating results and financial
condition at December 31, 1993 follows and is intended to help
readers analyze the accompanying Consolidated Financial
Statements and related Notes. A Glossary of Financial Terms has also been
included in this Report.
Summary of Performance
Signet reported record consolidated net income for 1993 of $174.4
million, or $3.06 per share, compared with $109.2 million, or
$1.96 per share, in 1992. The 1993 performance reflected improved
net interest margins and substantial growth in non-interest
sources of revenues, primarily resulting from the strong growth
in the Company's credit card business and significant improvement
in asset quality, which was due primarily to the success of the
Accelerated Real Estate Asset Reduction Program ("the Program").
The Program was established at the end of 1991 to enable the
Company to reduce problem real estate assets and minimize their
impact
<TABLE>
Table 1
Selected Financial Data
Five Year
Compound
1993 1992 1991 1990 1989 1988 Growth Rate
<S> <C> <C> <C> <C> <C> <C> <C>
Summary of Operations
(dollars in thousands-except per share)
Net interest income-taxable equivalent $545,093 $454,912 $420,026 $469,807 $462,185 $439,909 4.38%
Less: taxable equivalent adjustment 15,753 19,302 22,056 25,879 27,325 28,353 (11.09)
Net interest income 529,340 435,610 397,970 443,928 434,860 411,556 5.16
Provision for loan losses(1) 47,286 67,794 287,484 182,724 58,530 54,637 (2.85)
Net interest income after provision for
loan losses 482,054 367,816 110,486 261,204 376,330 356,919 6.20
Non-interest operating income(2) 361,118 280,988 248,537 188,571 175,810 200,037 12.54
Securities available for sale gains 3,913 10,504 94,666 N/M
Investment securities gains (losses) 405 (17,951) (1,445) 12,971 9,438 14,063 N/M
Total non-interest income 365,436 273,541 341,758 201,542 185,248 214,100 11.29
Non-interest expense(3) 598,316 499,239 508,925 414,535 395,061 375,197 9.78
Income (loss) before income taxes (benefit) 249,174 142,118 (56,681) 48,211 166,517 195,822 4.94
Applicable income taxes (benefit)(4) 74,760 32,918 (30,934) 6,833 43,197 43,354 11.51
Net income (loss) $174,414 $109,200 $(25,747) $ 41,378 $123,320 $152,468 2.73
Per common share(5):
Net income (loss) $ 3.06 $ 1.96 $ (.48) $ .78 $ 2.27 $ 2.85 1.43
Cash dividends declared(6) .80 .45 .30 .78 .76 .69 3.00
Book value at year-end 17.04 14.77 13.17 13.83 14.07 12.54 6.32
Average common shares outstanding(5) 56,920,090 55,727,358 53,994,340 53,026,764 53,372,898 52,097,036 1.79
Selected Average Balances
(dollars in millions)
Assets $ 11,617 $11,168 $ 11,534 $ 12,349 $ 11,467 $ 11,012 1.08
Earning assets 10,553 10,181 10,538 11,374 10,518 10,145 .79
Temporary investments 2,443 2,447 3,592 989 725 601 32.38
Investment securities 1,904 2,115 875 3,168 2,877 2,810 (7.49)
Loans (net of unearned income) 6,206 5,618 6,071 7,218 6,916 6,734 (1.62)
Deposits 7,733 7,886 8,362 7,900 7,341 7,552 .47
Long-term borrowings 287 298 318 353 320 275 .86
Interest bearing liabilities 9,121 9,000 9,506 10,291 9,344 9,030 .20
Common stockholders' equity 889 768 750 755 709 592 8.47
Managed credit card portfolio(7) 3,530 1,709 1,606 1,474 1,241 1,091 26.50
Selected Year-End Balances
(dollars in millions)
Assets $ 11,849 $12,093 $ 11,239 $ 11,405 $ 12,476 $ 11,002
Earning assets 10,745 11,010 9,443 10,291 11,417 10,026
Temporary investments 2,665 3,128 1,659 3,241 810 544
Investment securities 1,770 2,073 1,900 605 3,392 2,575
Loans (net of unearned income) 6,310 5,809 5,884 6,445 7,215 6,907
Deposits 7,821 7,823 8,481 8,344 7,595 7,546
Long-term borrowings 266 298 299 350 361 273
Interest bearing liabilities 9,167 9,684 9,031 9,272 10,145 8,785
Common stockholders' equity 965 827 712 736 751 663
Managed credit card portfolio(7) 5,098 2,244 1,700 1,580 1,418 1,200
Operating Ratios
Net income to:
Average common stockholders' equity 19.62% 14.22% N/M 5.48% 17.12% 25.13%
Average total stockholders' equity 19.62 14.22 N/M 5.48 16.81 23.39
Average assets 1.50 .98 N/M .34 1.08 1.38
Total stockholders' equity to assets
(average) 7.65 6.88 6.50% 6.11 6.40 5.92
Loans to deposits (average) 80.26 71.24 72.92 91.36 94.20 89.16
Net loan losses to average loans .91 2.34 2.03 1.51 .74 1.42
Net interest spread(8) 4.76 4.05 3.40 3.41 3.49 3.53
Net yield margin(8) 5.17 4.47 3.98 4.13 4.39 4.33
At year-end:
Allowance for loan losses to loans 4.01 4.57 5.60 2.54 1.30 1.25
Allowance for loan losses to
non-performing loans 342.63 228.25 156.84 117.15 116.53 162.23
(1) 1991 included a special provision of $146.6 million to
accelerate the reduction of real estate assets.
(2) 1989 included a $16.3 million gain on the sale of credit
card accounts and 1988 included a $47.0 million gain on the sale
of a subsidiary.
(3) 1993, 1992 and 1991 included provisions of $ 7.4 million,
$15.5 million and $71.9 million, respectively, to the reserve for
foreclosed properties, which had December 31, 1993, 1992 and 1991
balances of $ 5.7 million, $10.6 million and $41.6 million,
respectively. 1993, 1992, 1991, 1990 and 1989 included $55.8
million, $23.1 million, $14.6 million, $21.4 million and $14.5
million, respectively, of credit card solicitation expenses.
(4) Income taxes (benefit) applicable to net securities
available for sale gains and investment securities gains (losses)
were as follows: 1993-$1.5 million; 1992-($2.5) million; 1991-
$32.9 million; 1990-$4.6 million; 1989-$3.3 million; and 1988-
$5.2 million. Additionally, 1992 included $6.3 million of
recaptured alternative minimum tax, 1990 included
$6.3 million of alternative minimum tax and 1988 included $12.0
million of tax benefits related to the 1987 less developed
countries loan loss provisions.
(5) The per common share and common shares outstanding data
reflect a two-for-one common stock split in the form of a
dividend which was declared on June 23, 1993 to shareholders of
record July 6, 1993 and distributed July 27, 1993.
(6) In March, 1991, Signet announced that, thereafter, its
dividend declaration would be made in the month following the end
of each quarter instead of in the last month of each quarter.
As a result, 1991 included only three dividend declarations;
however, four dividend payments were made.
(7) Managed credit card portfolio includes credit card loans,
credit card loans held for sale and securitized credit card
loans.
(8) Net interest spread and net yield margin were calculated on
a taxable equivalent basis, using a tax rate of 35% for 1993 and
34% for 1992, 1991, 1990, 1989 and 1988.
</TABLE>
on future earnings. Since the commencement of the Program, the
Company has reduced the assets in the Program by 65%, within the
discounts originally provided, thereby accomplishing the
Program's objective. As a result, the Company terminated the
Program effective January 1, 1994. The remaining assets will be
assigned to work out units. During 1993, the Company reduced its
overall risk real estate exposure (construction loans, commercial
mortgage loans and foreclosed properties) by $311.9 million and
non-performing assets declined by $64.6 million to total $116.5
million at December 31, 1993. Profitability measures reflected
the record level of earnings in 1993 as return on assets ("ROA")
was 1.50% and return on common stockholders' equity ("ROE") was
19.62%. These impressive ratios are indicative of Signet's
improved performance and compare very favorably with the .98% ROA
and 14.22% ROE achieved in 1992.
Taxable equivalent net interest income of
$545.1 million was the principal component of earnings and
reflected an increase of $90.2 million from the 1992 level. This
increase was due primarily to the significant growth in the
credit card portfolio and wider net interest spreads during the
year. The net yield margin for 1993 was 5.17%, a 70 basis point
increase from 1992. The provision for loan losses of $47.3
million represented a significant decrease from the 1992 level of
$67.8 million as credit quality improved. Non-interest operating
income totaled $361.1 million for 1993, a 29% increase over the
prior year. The growth resulted from increases in nearly all
sources of non-interest income, with the largest dollar increase
being in the credit card servicing income category. During 1993,
Signet recognized net securities gains of $4.3 million compared
with net losses of $7.4 million in 1992. Non-interest expense
increased $99.1 million from the previous year due in large part
to an increase of $32.7 million in expenses related to the credit
<TABLE>
Table 2
Net Interest Income Analysis
taxable equivalent basis(1)
Year Ended 1993 vs 1992 Year Ended 1992 vs. 1991
December 31 Increase Change due to(3) December 31 Increase Change due to(3)
(in thousands) 1993 1992 (Decrease) Volume Rates 1991 (Decrease) Volume Rates
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest income:
Loans, including fees:(2)
Commercial $158,587 $181,600 $(23,013) $(10,529) $(12,484) $220,910 $ (39,310) $ (9,522) $(29,788)
Credit card 215,607 110,864 104,743 133,532 (28,789) 104,204 6,660 12,855 (6,195)
Other consumer 95,273 103,948 (8,675) 656 (9,331) 131,417 (27,469) (8,851) (18,618)
Real estate-construction 31,590 53,812 (22,222) (23,056) 834 94,942 (41,130) (23,462) (17,668)
Real estate-commercial
mortgage 47,757 50,147 (2,390) 305 (2,695) 57,769 (7,622) (250) (7,372)
Real estate-residential
mortgage 7,634 9,801 (2,167) (1,678) (489) 13,030 (3,229) (3,071) (158)
Total loans 556,448 510,172 46,276 52,791 (6,515) 622,272 (112,100) (44,377) (67,723)
Interest bearing deposits
with other banks 12,031 24,103 (12,072) (14,273) 2,201 42,154 (18,051) (5,198) (12,853)
Federal funds and resale
agreements 23,196 29,984 (6,788) (2,775) (4,013) 39,397 (9,413) 7,870 (17,283)
Other temporary investments 101,631 74,412 27,219 28,034 (815) 204,443 (130,031) (93,510) (36,521)
Investment securities-
taxable 93,806 112,087 (18,281) (10,704) (7,577) 40,642 71,445 78,450 (7,005)
Investment securities-
nontaxable 32,366 35,806 (3,440) (3,630) 190 36,734 (928) (1,397) 469
Total interest income 819,478 786,564 32,914 28,826 4,088 985,642 (199,078) (32,469) (166,609)
Interest expense:
Money market and interest
checking 22,544 27,638 (5,094) 2,485 (7,579) 33,473 (5,835) 6,766 (12,601)
Money market savings 45,463 64,500 (19,037) (5,504) (13,533) 92,383 (27,883) 10,815 (38,698)
Savings accounts 24,079 21,189 2,890 6,914 (4,024) 21,115 74 5,472 (5,398)
Savings certificates 58,514 102,519 (44,005) (18,376) (25,629) 227,644 (125,125) (34,874) (90,251)
Large denomination
certificates 10,970 13,936 (2,966) 207 (3,173) 46,022 (32,086) (24,866) (7,220)
Foreign 6,627 994 5,633 5,750 (117) 2,573 (1,579) (621) (958)
Total interest on
deposits 168,197 230,776 (62,579) (10,309) (52,270) 423,210 (192,434) (32,048) (160,386)
Federal funds and
repurchase agreements 63,986 65,561 (1,575) 8,553 (10,128) 104,067 (38,506) 2,265 (40,771)
Other short-term borrowings 25,521 15,899 9,622 10,081 (459) 14,289 1,610 3,305 (1,695)
Long-term borrowings 16,681 19,416 (2,735) (728) (2,007) 24,050 (4,634) (1,387) (3,247)
Total interest expense 274,385 331,652 (57,267) 4,382 (61,649) 565,616 (233,964) (28,765) (205,199)
Net Interest Income $545,093 $454,912 $90,181 $ 16,860 $ 73,321 $420,026 $ 34,886 $(14,731) $ 49,617
(1) Total income from earning assets includes the effects of
taxable equivalent adjustments, using a tax rate of 35% for 1993
and 34% for 1992 and 1991 in adjusting interest on the
tax-exempt loans and securities to taxable equivalent basis.
(2) Includes fees on loans of approximately $24,440, $19,305 and
$18,916 for 1993, 1992, and 1991, respectively.
(3) The change in interest due to both volume and rates has been
allocated in proportion to the relationship of the absolute
dollar amounts of the change in each. The changes
in income and expense are calculated independently for each line
in the schedule. The totals for the volume and rate columns are
not the sum of the individual lines.
</TABLE>
card account solicitation program. Sizable increases in staff-related
expenses arose mainly from increasing the number of employees to
support the growth in the managed credit card portfolio, higher
accruals for profit-based compensation which stemmed from record
1993 earnings and the expense related to the adoption of
Statement of Financial Accounting Standards ("SFAS") No. 112,
"Employers' Accounting for Postemployment Benefits." Table 1
shows selected financial data for the past six years and five-
year compound growth rates.
Income Statement Analysis
Net Interest Income
Taxable equivalent net interest income, Signet's primary
contributor to earnings, was $545.1 million for 1993, an increase
of $90.2 million, or 20%, over 1992. The overall improvement in
net interest income reflected the impact of strong growth in the
credit card portfolio and significantly lower cost of funds,
offset in part by lower yields on all earning assets
categories resulting from declining market interest rates.
The discussion of net interest income should be read in
conjunction with Table 2-Net Interest Income Analysis and Table
7-Average Balance Sheet.
Average earning assets totaled $10.6 billion for 1993,
an increase of 4% from the previous year. The credit card
securitizations reduced the earning assets growth. Adding average
securitized credit card loans to both years' average earning
assets would result in a 7% increase from year-to-year. The
credit card, real estate mortgage-commercial and other consumer
loan categories experienced increases in average balances in
1993. Decreases occurred in the commercial, real estate-
construction and real estate-residential mortgage categories of
the loan portfolio, generally reflecting the sluggish economy,
commercial and consumer customers' desire to reduce debt and the
successful efforts of the Program to reduce real estate loans.
Investment securities declined by $212 million on average over
1992 as securities were called or matured. Temporary invest
ments, other than credit card loans held for sale
(securitization), declined
$399 million from 1992 as Signet redeployed these assets into
higher yielding credit card loans. Credit card loans held for
sale (securitization), which are included in other temporary
investments, averaged $394 million for 1993. There were no credit
card loans classified as held for sale for 1992. See a more
detailed discussion of Earning Assets elsewhere in
this Report.
Average interest bearing liabilities rose 1% to $9.1 billion for
1993. Declines in savings certificates, money market savings and
long-term borrowings were offset by growth in savings accounts,
money market and interest-checking, and purchased funds
categories (other than long-term borrowings). In 1993, average
core deposits of $7.3 billion declined 4% from the prior year and
represented 69% of average earning assets and 117% of average
loans. The mix in core deposits changed as depositors responded
to lower interest rates by shortening the maturities of and
transferring from savings certificates into money market and
demand products. Non-interest bearing demand deposits increased
12%, on average, during 1993. See a more comprehensive discussion
of Funding elsewhere in this Report.
The net interest spread of 4.76% for 1993 was an increase from
the 4.05% of the previous year. The net increase was due to a
better mix of earning assets and interest bearing liabilities and
lower levels of non-performing loans. The primary change in the
mix of earning assets
resulted from the significant growth in relatively high yielding
credit card loans, partially offset by a decline in lower
yielding temporary investments. The overall yield on earning
assets was 7.77%, up 4 basis points from 1992, while the
drop in rates paid for interest bearing liabilities contributed
67 basis points to the increased net interest spread.
The net yield margin rose in 1993 to 5.17% from 4.47% for 1992,
an increase of 70 basis points. The increase in the net yield
margin was primarily the net result of several factors: a change
in the mix of earning assets due to the impact of growth in the
<TABLE>
Table 3
Summary of Allowance for Loan Losses
Year Ended December 31
(dollars in thousands) 1993 1992 1991 1990 1989
<S> <C> <C> <C> <C> <C>
Balance at beginning of year $265,536 $329,371 $163,669 $ 93,572 $86,226
Provision for loan losses(1) 47,286 67,794 287,484 182,724 58,530
Net addition (deduction) arising
in purchase/sale transactions (2,902) 1,503 (3,926)
Loans charged-off:
Commercial 17,832 33,238 55,312 29,365 12,506
Credit card 38,582 43,309 44,902 58,910 45,962
Other consumer 2,893 4,876 4,362 5,297 6,408
Real estate-construction 26,890 58,406 32,514 24,396 1,700
Real estate-mortgage(2) 5,720 15,140 2,990 3,858 47
Total loans charged-off 91,917 154,969 140,080 121,826 66,623
Recoveries of loans
previously charged-off:
Commercial 13,138 6,992 3,263 2,395 5,255
Credit card 15,937 14,043 10,691 8,909 8,340
Other consumer 1,421 1,445 1,362 1,648 1,620
Real estate-construction 4,259 523 1,479 2 99
Real estate-mortgage(2) 555 337 171 125
Total recoveries 35,310 23,340 16,795 13,125 15,439
Net loans charged-off 56,607 131,629 123,285 108,701 51,184
Balance at end of year(3) $253,313 $265,536 $329,371 $163,669 $93,572
Net charge-offs to average loans:
Commercial .22% 1.17% 2.22% 1.06% .30%
Other consumer .12 .29 .23 .27 .34
Real estate 2.45 4.93 1.88 1.40 .08
Sub-total .76 2.09 1.64 1.00 .24
Credit card 1.28 4.13 5.44 3.76 3.03
Total .91 2.34 2.03 1.51 .74
Allowance for loan losses to net
loans at year-end 4.01% 4.57% 5.60% 2.54% 1.30%
(1) Included $146,600 special provision to accelerate the
reduction of real estate loans in 1991.
(2) Real estate-mortgage includes real estate-commercial
mortgage and real estate-residential mortgage. Real estate-
residential mortgage charge-offs and recoveries were
not significant for the periods presented.
(3) Included $57,631, $99,988 and $179,538 allocated to the
Program for December 31, 1993, 1992 and 1991, respectively.
</TABLE>
credit card portfolio (23 basis points); a decrease in average
temporary investments, other than credit card loans held for sale
(securitization) (12 basis points); a favorable change in the mix
of funding sources and, due to the lower rate environment, lower
costs associated with these funding sources (60 basis points);
lower levels and related effects of non-performing loans (2 basis
points); and higher levels of demand deposits (5 basis points).
These favorable factors were partially offset by lower yields on
and changes in the mix of earning assets, excluding temporary
investments, due to the lower rate environment experienced during
1993 (32 basis points).
Signet uses various off-balance sheet interest rate derivatives
to participate in trading activities and as an integral part of
its asset and liability management. For Signet's core business,
variable rate assets generally exceed variable rate liabilities.
To hedge against the resulting interest rate risk, Signet enters
into derivative transactions. Derivative contracts, used for
hedging purposes, increased interest on earning assets by $14.3
million and $13.6 million and decreased borrowing costs by $82.4
million and $103.8 million for 1993 and 1992, respectively. The
overall increase in the net yield margin as a result of these
instruments amounted to 92 basis points and 115 basis points for
1993 and 1992, respectively. For a more detailed description and
discussion of derivative income and expense impact on net income,
refer to the Interest Rate Sensitivity section elsewhere in this
Report.
Credit card securitizations also have an effect on net interest
income and the net yield margin. For a detailed analysis of this
effect, see discussion of the Credit Card Business elsewhere in
this Report.
Provision and Allowance for Loan Losses
<TABLE>
Table 4
Allowance for Loan Losses Allocation
December 31, 1993 December 31, 1992 December 31, 1991 December 31, 1990 December 31, 1989
Percentage Percentage Percentage Percentage Percentage
of Loans of Loans of Loans of Loans of Loans
in Each in Each in Each in Each in Each
Allow- Category Allow- Category Allow- Category Allow- Category Allow- Category
(dollars ance to Total ance to Total ance to Total ance to Total ance to Total
in thousands) Amount Loans Amount Loans Amount Loans Amount Loans Amount Loans
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial $33,618 35.87% $33,930 36.87% $50,795 39.08% $57,792 39.21% $16,775 35.59%
Commercial-
special(1) .24 1,064 .34 6,376 .52
Credit card 63,500 28.40 55,974 21.21 31,522 11.79(3) 20,400 10.46(3) 39,100 19.52
Other consumer 3,530 20.37 3,527 20.11 4,845 20.77 4,275 20.30 5,550 19.26
Real estate(2) 25,684 11.31 19,056 14.30 20,466 16.40 54,725 30.03 9,635 25.63
Real estate-
special(1) 57,631 3.81 98,924 7.17 173,162 11.44
Unallocated 69,350 53,061 42,205 26,477 22,512
Total $253,313 100.00% $265,536 100.00% $329,371 100.00% $163,669 100.00% $93,572 100.00%
(1) Allowance allocated to the Program.
(2) Real estate loans include real estate-construction, real
estate-commercial mortgage and real estate-residential mortgage
loans. Real estate-residential has an insignificant amount of
allowance allocated to it because of the minimal credit risk
associated with that type of loan.
(3) The decline in the percentage of credit card loans to total
loans was due to credit card securitizations.
</TABLE>
The provision for loan losses is the periodic expense of
maintaining an adequate allowance to absorb possible future
losses, net of recoveries, inherent in the existing loan
portfolio. In evaluating the adequacy of the provision and the
allowance for loan losses, management takes into consideration
several factors including national and local economic trends and
conditions; weighted average historical losses; trends in
delinquencies, bankruptcies and non-performing loans; trends in
watch list growth/reduction; off-balance sheet credit risk; known
deterioration and concentrations of credit; effects of any
changes in lending policies and procedures; credit evaluations;
experience and ability of lending management and staff; and the
liquidity and volatility of the markets in which Signet does
business. Particular emphasis is placed on adversely rated loans.
Signet's charge-off policy is closely integrated with the loan
review process. Commercial and real estate loan charge-offs are
recorded when any loan or portions of loans are determined to be
uncollectible. Credit card loans typically are charged off when
they are six months past due and no payments have been received
for 60 days, while other consumer loans are typically charged off
when they are six months past due. Once a loan has been charged
off, it is Signet's policy to continue to pursue the collection
of principal and interest. Table 3 provides a five-year
comparison of the activity in the allowance for loan losses along
with the details of the charge-offs and recoveries by
loan category.
The provision for loan losses totaled $47.3 million for 1993, a
decrease of $20.5 million from the 1992 total of $67.8 million.
This decrease was the result of lower charge-offs due to Signet's
improved credit quality. Credit card securitizations have an
effect on the level of charge-offs and provisioning. For a
detailed analysis of this effect, see discussion of the Credit
Card Business elsewhere in this Report.
Net charge-offs decreased 57% to $56.6 million for 1993, compared
with $131.6 million for the prior year. Decreases were noted in
all loan categories. Commercial
loan net charge-offs experienced a sharp improvement when
comparing 1993 with 1992 due to lower gross charge-offs and to a
strong increase in commercial loan recoveries.
Real estate-construction and real estate-mortgage loans also
experienced significant declines in net losses for 1993 due to a
higher level of Program charge-offs in 1992.
Of the $27.8 million in real estate net charge-offs, $26.5
million were in Program loans. The primary objective of the
Program was to accelerate the reduction of real estate exposure,
which in turn resulted in higher levels of charge-offs of Program
assets. In spite of $9.1 million of Program commercial net
charge-offs in 1993, commercial net charge-offs
for the Company, as a whole, totaled only $4.7 million, a
decrease of $21.6 million from the previous year. This resulted
<TABLE>
Table 5
Non-Interest Income
Percent Change
Year Ended Increase Year Ended
(dollars in thousands) December 31 (Decrease) December 31
1993 1992 1993/1992 1991 1990 1989
<S> <C> <C> <C> <C> <C> <C>
Credit card servicing income $153,018 $101,185 51% $62,664 $12,435 $ 138
Service charges on deposit
accounts 64,471 66,971 (4) 62,924 57,799 52,328
Credit card service charges 63,222 31,553 100 42,276 59,574 55,109
Trust income 17,599 15,949 10 16,019 15,006 13,215
Gain on sale of credit card
accounts 16,335
Gain on sale of bank card
merchant business 8,946
Mortgage servicing and
origination 24,210 16,529 46 8,726 6,463 4,516
Other service charges and fees 16,260 17,540 (7) 12,815 12,120 11,192
Trading profits (losses) (1,396) 11,193 N/M 14,867 6,981 346
Other 23,734 20,068 18 19,300 18,193 22,631
Non-Interest Operating Income 361,118 280,988 29 248,537 188,571 175,810
Securities available for sale
gains 3,913 10,504 (63) 94,666
Investment securities gains
(losses) 405 (17,951) N/M (1,445) 12,971 9,438
Total Non-Interest Income $365,436 $273,541 34% $341,758 $201,542 $185,248
</TABLE>
from a significant increase in commercial loan recoveries. Many of the
commercial charge-offs for the last several years were real
estate-related in that the secondary collateral for many
commercial loans is real estate, and unsecured working
capital/operating lines to real estate developers are classified
as commercial loans. Other consumer net charge-offs declined to
$1.5 million, or .12% of average other consumer loans. Credit
card net charge-offs amounted to $22.6 million in 1993, or 1.28%
of average credit card loans. Improvement in the credit quality
and substantial growth of the credit card portfolio caused the
percentage of net credit card losses to average credit card loans
on the balance sheet to decline from 1992 to 1993. Net losses for
1993 on the total managed credit card portfolio, which included
securitized receivables, were 2.34% of total average managed
credit card loans, compared with 5.31% reported for 1992. The low
level of credit card losses in 1993, during the time of record
growth in the managed portfolio, is a reflection of management's
attention to the diversification of the portfolio as well as the
quality of Signet's credit card underwriting standards and
collection efforts. The low credit card charge-off ratios are
also influenced by the high growth in new accounts, some of which
have not aged sufficiently to experience any significant charge-offs.
The allowance for loan losses at December 31, 1993 was $253.3
million, or 4.01% of year-end loans, compared with the 1992 year-
end allowance of $265.5 million, or 4.57% of loans, and included
$57.6 million designated for the Program. The 1992 year-end
allowance included $100.0 million designated for the Program. The
1993 allowance for loan losses was 343% of year-end non-
performing loans and 217% of year-end non-performing assets
indicating significantly improved coverage over 1992 when the
December 31, 1992 allowance for loan losses was 228% of non-
performing loans and 147% of non-performing assets. The decline
in the level of the allowance was the result of improved credit
quality and the successful completion of the Program's objective
(reduction of real estate assets with minimal impact on
future earnings).
Signet's allocated allowance for loan losses for all loan
categories is detailed in Table 4. On a monthly basis, loans
warranting management's attention are identified and examined,
and factors such as the credit position of the borrower, the
adequacy of underlying collateral and the impact of business and
economic conditions upon the borrower are evaluated. Based on
this information and action plans provided by the lending
<TABLE>
Table 6
Non-Interest Expense
Percent Change
Year Ended Increase Year Ended
(dollars in thousands) December 31 (Decrease) December 31
1993 1992 1993/1992 1991 1990 1989
<S> <C> <C> <C> <C> <C> <C>
Salaries $212,665 $186,600 14% $177,626 $174,517 $169,480
Employee benefits 65,249 49,388 32 31,366 33,615 45,280
Total staff expense 277,914 235,988 18 208,992 208,132 214,760
Credit card solicitation 55,815 23,133 141 14,648 21,382 14,527
Supplies and equipment 40,550 32,536 25 36,660 45,061 43,394
Occupancy 40,192 38,899 3 39,231 37,388 33,310
External data processing services 36,578 31,138 17 18,846 902 470
Travel and communications 35,416 25,662 38 24,688 23,027 22,508
Foreclosed property 13,575 26,741 (49) 78,085 4,069 2,522
FDIC assessment 18,253 18,769 (3) 17,476 8,894 6,053
Public relations, sales
and advertising 17,213 7,868 119 9,204 12,661 12,037
Professional services 16,159 14,278 13 11,793 11,778 11,159
Credit and collection 10,619 9,231 15 7,969 5,584 4,833
Other 36,032 34,996 3 41,333 35,657 29,488
Total Non-Interest Expense $598,316 $499,239 20% $508,925 $414,535 $395,061
</TABLE>
units, Signet's Credit Risk Management Division determines the
aggregate level of the allowance according to the distribution of
the loan risk classifications. The credit card portfolio receives
an overall allocation based on such factors as current and
anticipated economic conditions, historical charge-off and
recovery activity and trends in delinquencies, projected charge-
offs by loan solicitation tranche, bankruptcies and loan volume.
The remaining loan portfolio (unclassified commercial, real
estate and consumer loans) receives a general allocation deemed
to be reasonably necessary to provide for losses within the
categories of loans set forth in the table and based on risk
ratings and the factors previously listed. The $57.6 million of
the 1993 year-end allowance designated for the Program was
determined and maintained separately from the above allocation
process and is discussed in the Risk Elements section. While this
allocation was developed after an analysis of individual assets,
it represented a general allocation applicable to all loans
included in the Program. The overall allocation should not be
interpreted as a prediction of future charge-off trends.
Furthermore, the portion allocated to each loan category is not
the total amount available for future losses that might occur
within such categories since the total allowance is a general
allowance applicable to the entire loan portfolio. Management
believes that the allowance for loan losses is adequate to cover
anticipated losses in the loan portfolio under current economic conditions.
Non-Interest Income
A significant portion of Signet's revenue is derived from
non-interest related sources including servicing income,
service charges, trust fees and other income. The 1993 results
reflected Signet's continued emphasis on non-interest operating
income.
Table 5 details the various components of non-interest income for
the past five years. Non-interest income for 1993 was $365.4
million, up from $273.5 million for 1992 and included $4.3
million ($2.8 million after-tax) of net investment securities and
securities available for sale gains. The 1992 amount included
$7.4 million ($4.9 million after-tax) in net losses on investment
securities and securities available for sale transactions.
Non-interest operating income amounted to $361.1 million for
1993, an increase of $80.1 million, or 29% over 1992. The primary
sources of growth were increases in credit card servicing income,
credit card service charges and mortgage servicing and
origination fees. These increases were partially offset by a
sharp decline in trading profits. Credit card servicing income
totaled $153.0 million for 1993, an increase of $51.8 million
over last year. This category primarily houses the income
received for servicing the $3.3 billion of securitized credit
card receivables ($500 million in September, 1990, $500 million in March,
1991, $1.2 billion in September, 1993, and $1.1 billion in December,
1993). The increase in credit card servicing income is offset by
a corresponding reduction of credit card service charges and net
interest income because securitization has the effect of
transferring revenue from net interest income and credit card
service charges to credit card servicing income. Improvement in
charge-off experience and declining interest rates continued to
have a favorable impact on credit card servicing income because
the March, 1991 and portions of the September and December, 1993
securitizations pay a coupon based on a variable rate and the
declining rates have created an increase in the spread earned by
the Company. Service charges on deposit accounts declined $2.5
million, or 4%, over 1992 to $64.5 million. This reduction was
caused by certain retail promotions in late 1992 and early 1993
whereby customers were offered one year of waived maintenance
fees. Credit card service charges, which include membership fees
and other credit card processing fees, totaled $63.2 million for
1993, an increase of $31.7 million from 1992 due to an increase
in volume resulting from the success of the solicitation program.
For further discussion of the impact of credit card
securitizations on the income statement, see the Credit Card
Business section elsewhere in this Report.
Trust income, which totaled $17.6 million, was up 10% from last
year primarily due to revised personal trust fee schedules.
Mortgage servicing and origination income totaled $24.2 million
for 1993 compared to $16.5 million in 1992, an increase of 46%,
as a result of a significant increase in the
volume of mortgage refinancings. During 1993, mortgage production
totaled $1.7 billion, which was 57% higher than the 1992 level.
Since the majority of these loans are sold in the secondary
market with servicing retained by Signet, the Company's servicing
portfolio grew to $3.2 billion at December 31, 1993. Other
service charges and fees, which consisted primarily of fees
related to: commercial and standby letters of credit ($4.4
million); discount brokerage
($4.0 million); and checkbooks ($3.5 million); totaled $16.3
million, a reduction of 7%. The decline in this category was
attributable to lower brokerage fees as Signet converted its
proprietary mutual funds to a no-load basis. Trading losses,
which totaled $1.4 million in 1993, a sharp contrast to trading
profits of $11.2 million in 1992, were derived from services
performed as a dealer bank for customers and from profits and
losses earned on securities trading and arbitrage positions. The
remaining recurring categories of non-interest operating income,
which included increases in Company-owned life insurance cash
surrender value, credit card application fees, gains and losses
on sales of mortgage loans, safe deposit box rentals, income from
various insurance products and miscellaneous income from other
sources, amounted to $23.7 million for 1993, an increase of $3.7
million, or 18% over the prior year.
During 1993, Signet recognized gains of $3.9 million on
transactions in the securities available for sale portfolio and
nominal gains on investment securities as certain securities were
called. In 1992, Signet recognized net losses of $7.4 million on
investment securities and securities available for sale
transactions primarily the result of $17.0 million of writedowns
on collateralized mortgage obligation residuals and excess
mortgage servicing held in the investment securities portfolio.
No such writedowns were necessary in 1993. These securities, of
which only $3.8 million remain, are sensitive to the increases in
mortgage prepayments caused by the lower interest rates and high
volume of refinancings. During 1992, gains of $10.5 million were
recognized on transactions in the securities available for sale
portfolio, primarily on sales of 30-year mortgage-backed
securities.
Non-Interest Expense
Non-interest expense for 1993 totaled $598.3 million, an increase
of $99.1 million, or 20% from 1992. Excluding credit card
solicitation and foreclosed property expenses for both years,
non-interest operating expense
<TABLE>
Table 7
Average Balance Sheet
1993 1992 1991
Average Income/ Yield/ Average Income/ Yield/ Average Income/ Yield/
Balance Expense Rate Balance Expense Rate Balance Expense Rate
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Assets
Earning assets
(taxable equivalent basis):(1)
Interest bearing deposits with
other banks $ 262,910 $12,031 4.58% $578,464 24,103 4.17% $671,110 $42,154 6.28%
Federal funds and resale agreements 752,510 23,196 3.08 835,398 29,984 3.59 678,826 39,397 5.80
Other temporary investments 1,427,039 101,631 7.12 1,033,518 74,412 7.20 2,241,808 204,443 9.12
Investment securities-taxable 1,628,855 93,806 5.76 1,809,648 112,087 6.19 557,092 40,642 7.30
Investment securities-nontaxable 274,967 32,366 11.77 305,814 35,806 11.71 317,781 36,734 11.56
Loans (net of unearned income):(2)
Commercial 2,101,423 158,587 7.55 2,235,382 181,600 8.12 2,339,531 220,910 9.44
Credit card 1,764,277 215,607 12.22 709,266 110,864 15.63 628,531 104,204 16.58
Other consumer 1,207,323 95,273 7.89 1,199,711 103,948 8.66 1,291,047 131,417 10.18
Real estate-construction 448,859 31,590 7.04 776,447 53,812 6.93 1,082,342 94,942 8.77
Real estate-commercial mortgage 607,573 47,757 7.86 603,934 50,147 8.30 606,610 57,769 9.52
Real estate-residential mortgage 76,962 7,634 9.92 93,672 9,801 10.46 123,006 13,030 10.59
Total loans 6,206,417 556,448 8.97 5,618,412 510,172 9.08 6,071,067 622,272 10.25
Total earning assets 10,552,698 $819,478 7.77 10,181,254 $786,564 7.73 10,537,684 $985,642 9.35
Non-rate related assets:
Cash and due from banks 461,249 446,084 429,020
Allowance for loan losses (263,593) (307,558) (191,856)
Premises and equipment (net) 201,792 207,186 217,386
Other assets 665,305 640,920 541,489
Total assets $11,617,451 $11,167,886 $11,533,723
Liabilities and Stockholders'
Equity
Interest bearing liabilities:
Deposits:
Money market and interest checking $ 960,342 $22,544 2.35% $875,654 $27,638 3.16% $ 709,136 33,473 4.72%
Money market savings 1,738,336 45,463 2.62 1,912,875 64,500 3.37 1,692,870 92,383 5.46
Savings accounts 772,194 24,079 3.12 563,932 21,189 3.76 434,484 21,115 4.86
Savings certificates 2,364,320 58,514 2.47 2,967,714 102,519 3.45 3,597,228 227,644 6.33
Large denomination certificates 272,693 10,970 4.02 268,713 13,936 5.19 727,160 46,022 6.33
Foreign 200,440 6,627 3.31 26,919 994 3.69 38,271 2,573 6.72
Total interest bearing deposits 6,308,325 168,197 2.67 6,615,807 230,776 3.49 7,199,149 423,210 5.88
Federal funds and repurchase
agreements 2,043,207 63,986 3.13 1,793,836 65,561 3.65 1,755,343 104,067 5.93
Other short-term borrowings 482,405 25,521 5.29 292,210 15,899 5.44 233,945 14,289 6.11
Long-term borrowings 286,809 16,681 5.82 298,475 19,416 6.51 317,799 24,050 7.57
Total interest bearing liabilities 9,120,746 $274,385 3.01 9,000,328 $331,652 3.68 9,506,236 $565,616 5.95
Non-interest bearing liabilities:
Demand deposits 1,424,260 1,270,364 1,162,973
Other liabilities 183,284 129,231 114,607
Preferred stock
Common stockholders' equity 889,161 767,963 749,907
Total liabilities and stockholders'
equity $11,617,451 $11,167,886 $11,533,723
Net interest spread 4.76% 4.05% 3.40%
Interest income to average earning assets 7.77% 7.73% 9.35%
Interest expense to average earning assets 2.60 3.26 5.37
Net yield margin 5.17% 4.47% 3.98%
(1) Includes the effects of taxable equivalent adjustments,
using a tax rate of 35% for 1993 and 34% for 1992, 1991, 1990,
1989 and 1988.
(2) For the purpose of these computations, nonaccrual loans are
included in the daily average loan amounts. Also, interest
income includes fees on loans of approximately $24,440, $19,305, $18,916,
$21,803, $21,057 and $21,389 for the years 1993 through 1988, respectively.
</TABLE>
<TABLE>
Growth Rate
1990 1989 1988 Average Balances
Average Income/ Yield/ Average Income/ Yield/ Average Income/ Yield/ One-Year Five-Year
Balance Expense Rate Balance Expense Rate Balance Expense Rate 1993-1992 Compounded
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 235,430 $ 19,650 8.35% $ 136,869 $ 12,705 9.28% $ 85,675 $ 5,788 6.76% (54.55)% 25.14%
529,737 43,706 8.25 361,551 34,354 9.50 397,487 31,212 7.85 (9.92) 13.62
223,536 19,488 8.72 227,061 19,940 8.78 118,051 8,595 7.28 38.08 64.62
2,801,688 265,697 9.48 2,497,587 238,938 9.57 2,419,571 233,328 9.64 (9.99) (7.61)
366,148 41,607 11.36 379,038 42,956 11.33 390,881 44,422 11.36 (10.09) (6.79)
2,535,436 271,820 10.72 2,455,966 287,447 11.70 2,423,881 250,350 10.33 (5.99) (2.81)
1,331,523 221,127 16.61 1,241,347 195,915 15.78 1,091,189 168,387 15.43 148.75 10.09
1,340,139 150,220 11.21 1,402,238 161,905 11.55 1,514,627 171,716 11.34 .63 (4.43)
1,245,071 137,009 11.00 1,135,575 142,655 12.56 1,160,552 130,435 11.24 (42.19) (17.30)
593,976 67,319 11.33 554,111 65,499 11.82 436,175 44,742 10.26 .60 6.85
171,502 17,848 10.41 126,320 11,931 9.45 107,141 11,116 10.38 (17.84) (6.40)
7,217,647 865,343 11.99 6,915,557 865,352 12.51 6,733,565 776,746 11.54 10.47 (1.62)
11,374,186 $1,255,491 11.04 10,517,663 $1,214,245 11.54 10,145,230 $1,100,091 10.84 3.65 .79
454,276 464,933 452,501
(118,240) (88,211) (98,930)
210,462 198,383 202,797
428,395 374,247 310,314
$12,349,079 $11,467,015 $11,011,912
$ 613,871 $ 30,236 4.93% $ 571,538 $ 29,812 5.22% $ 562,018 $ 27,615 4.91% 9.67% 11.31%
1,524,107 100,965 6.62 1,487,758 102,493 6.89 1,460,587 89,374 6.12 (9.12) 3.54
417,276 20,326 4.87 433,559 21,203 4.89 490,277 25,329 5.17 36.93 9.51
2,909,487 240,991 8.28 2,482,965 210,076 8.46 2,322,641 184,691 7.95 (20.33) .36
1,125,161 92,288 8.20 967,397 86,689 8.96 1,398,713 112,169 8.02 1.48 (27.89)
179,058 14,946 8.35 191,961 17,755 9.25 106,942 8,470 7.92 644.60 13.39
6,768,960 499,752 7.38 6,135,178 468,028 7.63 6,341,178 447,648 7.06 (4.65) (.10)
2,764,929 223,455 8.08 2,332,701 204,114 8.75 1,972,539 155,800 7.90 13.90 .71
404,033 31,590 7.82 555,905 50,337 9.05 441,689 33,633 7.61 65.09 1.78
353,452 30,887 8.74 320,302 29,581 9.24 275,091 23,101 8.40 (3.91) .84
10,291,374 $785,684 7.63 9,344,086 $752,060 8.05 9,030,497 $660,182 7.31 1.34 .20
1,131,186 1,206,302 1,210,946
171,749 182,855 118,674
24,657 60,000
754,770 709,115 591,795
$12,349,079 $11,467,015 $11,011,912
3.41% 3.49% 3.53%
11.04% 11.54% 10.84%
6.91 7.15 6.51
4.13% 4.39% 4.33%
</TABLE>
Table 8
Temporary Investments Maturity Analysis
December 31, 1993
(in thousands) Balance Percent
Overnight $671,326 25%
1-90 days 761,286 29
Over 90 days 1,232,618 46
Total $2,665,228 100%
rose 18% from the prior year. Table 6 details the various
categories of non-interest expense for the past five years.
Signet's efficiency ratio (the ratio of non-interest expense to
taxable equivalent operating income) was 66.02% for 1993, an
improvement from 67.84% for 1992. Reducing non-interest expense
by the amount of foreclosed property expense drops the ratio to
64.53% and 64.21% for the respective years. Considering that
charge-offs on securitized credit card loans reduce credit card
servicing income, one could argue that operating income, for the
purpose of calculating the efficiency ratio, should exclude the
negative impact of these charge-offs. Making this adjustment to
revenue further reduces the ratio to 60.67% for 1993 and 59.10%
for 1992. Management is continuing to strive to improve Signet's
efficiency ratio. Staff expense (salaries and employee benefits), the largest
component of non-interest expense, totaled $277.9 million, an 18%
increase over 1992. Salaries rose 14% year-over-year primarily
due to the increased staffing to support the significant growth
in the credit card business. The number of full-time equivalent
employees rose 22% from year-end 1992. The incentive compensation
amounts increased as a direct result of the record earnings
performance of the Company. For 1993, profit sharing awards of $18.8 million
were recorded in the employee benefits category due to higher
corporate earnings. This compares with $13.0 million of profit
sharing expense in 1992. The cost of implementing SFAS No. 112,
which totaled $6.0 million, and the rising cost of medical
insurance and other benefits also contributed to the overall
increase in employee benefits.
Both 1993 and 1992 included expenses related to the credit card
account solicitation program initiated during early 1989. These
costs totaled $55.8 million ($36.3 million after-tax, or $.64 per
share) for 1993 and $23.1 million ($15.3 million after-tax, or
$.27 per share) for 1992. These programs were implemented to
increase the growth of accounts and outstandings and have
required significant out-of-pocket expenses to launch large scale
but carefully planned solicitations to a national marketplace.
Signet's solicitation strategy, which uses extensive testing, is
designed to improve the efficiency of the solicitation process,
thereby improving opportunities to create value by controlling
credit exposure and creating higher probabilities for success.
The success of this strategy has been outstanding as the total
managed credit card portfolio grew from $2.2 billion at December
31, 1992 to $5.1 billion at December 31, 1993. Management expects
to incur additional solicitation expense in the future as Signet
continues to invest in its credit card business.
The other non-interest expense categories reflected the costs
associated with increased business volume. Approximately half of
the $8.0 million increase in supplies
<TABLE>
Table 9
Investment Securities
December 31, 1993
Maturities
Within 1 Year 1-5 Years 6-10 Years After 10 Years Total
(dollars in thousands) Book Yield Book Yield Book Yield Book Yield Book Yield
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Government and agency
obligations -
Mortgage-backed securities $74,415 5.79% $207,291 6.52% $153,905 3.83% $25,734 3.83% $ 461,345 5.36%
Other 69,494 4.15 855,731 6.07 925,225 5.74
States and political
subdivisions 26,452 11.73 144,414 11.69 59,715 11.97 28,234 9.60 258,815 11.53
Other 1,645 5.49 26,939 8.08 16,451 6.00 79,195 5.03 124,230 5.83
Total $172,006 6.04% $1,234,375 6.85% $230,071 6.10% $133,163 5.77% $1,769,615 6.59%
The yields shown are actual weighted average interest rates at
year-end on a taxable equivalent basis using a tax rate of 35%.
</TABLE>
and equipment expense is attributable to servicing the expanded
credit card base. Travel and communications expense rose $9.8
million, or 38%, from year-to-year, also due primarily to the
credit card growth. Public relations, sales and advertising
expense during 1993 rose $9.3 million from the 1992 level due to
bank-wide retail promotional campaigns. The deposit insurance
assessment from the Federal Deposit Insurance Corporation
("FDIC") totaled $18.3 million, a slight decline from 1992.
Management anticipates that FDIC insurance premiums will continue
to fall in 1994 as the deposit base has fallen and the three
Signet banks are "well capitalized" and, as a result, will pay
the lowest FDIC insurance premium rate.
The decrease of $13.2 million in foreclosed property expense was
primarily due to a decline in provisions
recorded to maintain the reserve for foreclosed properties.
During 1993, provisions of $7.4 million were expensed compared to
$15.5 million during 1992. This reserve balance was $5.7 million
at year-end 1993. See Table 16 in the Risk Elements section for
an analysis of this reserve. The majority ($36.4 million, or 86%)
of Signet's net foreclosed properties at year-end were included
in the Program. On a property by property basis, provisions are
made to the reserve when required or deemed necessary by
management. Subsequent to foreclosure, gains and losses on the
sale of and losses on the periodic revaluation of real estate
(not included in the Program) are credited or charged to expense.
Costs of maintaining and operating foreclosed properties are
expensed as incurred. Expenditures to complete or improve
foreclosed properties are capitalized only if expected to be
recovered; otherwise they are expensed.
In 1991, Signet entered into a ten-year contract with Electronic
Data Systems ("EDS") under which EDS will manage Signet's
information services, including the data
center, telecommunications and systems and programming. During
1992, EDS and Signet converted most existing application systems
to an integrated system, with a broader range of capabilities to
support product delivery and services throughout the Company.
Expense categories favorably affected by the outsourcing decision
were primarily staff expense and supplies and equipment, offset,
in part, by external data processing services (includes expenses for
services of several outsourcing vendors with EDS being the principal one).
In December, 1990, the Financial Accounting Standards Board
("FASB") issued SFAS No. 106, "Employers' Accounting for
Postretirement Benefits Other than Pensions", which was effective
for annual financial statements for years beginning after
December 15, 1992. SFAS No. 106 required that future costs
related to postretirement benefits other than pensions, i.e.
medical care and life insurance, be estimated and recognized over
the service period of the employees. Prior to 1993, the Company
recognized these costs on a cash basis rather than on the accrual
basis. Costs related to postretirement benefits during 1992 were
not significant. According to SFAS No. 106, the Company must
report an accumulated postretirement benefit liability on the
balance sheet, and recognize the future costs from the employees'
hire date to the date they become fully eligible to receive
<TABLE>
Table 10
Summary of Total Loans
December 31
(in thousands) 1993 1992 1991 1990 1989
<S> <C> <C> <C> <C> <C>
Loans:
Commercial $2,299,973 $2,181,218 $2,351,990 $2,549,462 $2,586,273
Credit card 1,808,515 1,243,873 700,488 679,854 1,418,415
Other consumer 1,297,309 1,179,303 1,233,310 1,319,432 1,399,772
Real estate
- -construction 309,842 549,001 952,687 1,199,599 1,199,085
Real estate
- -commercial mortgage 581,529 632,072 587,644 617,621 531,498
Real estate
- -residential mortgage 71,411 77,844 113,466 135,227 132,072
Total loans $6,368,579 $5,863,311 $5,939,585 $6,501,195 $7,267,115
</TABLE>
<TABLE>
Table 11
Maturities of Selected Loans
December 31, 1993
Maturing
Within After One Year After
(in thousands) One Year But Within Five Years Five Years Total
<S> <C> <C> <C> <C>
Commercial $243,049 $ 1,801,461 $ 255,463 $2,299,973
Real estate
- -construction 101,079 197,24 11,519 309,842
Real estate
- -commercial
mortgage 18,445 427,379 135,705 581,529
Total $362,573 $2,426,084 $402,687 $3,191,344
For interest sensitivity purposes, $470,665 of the amounts due
after one year are fixed rate loans and $2,358,106 are variable
rate loans.
</TABLE>
benefits under the plan. The Company had a choice to elect to
record the cumulative effect of the accounting change as a charge
against income in the year the rule was adopted, or
alternatively, on a prospective basis as part of the future
annual benefit cost, where the cumulative impact may be adopted through
a 20-year transition period. The Company applied the new rule
starting in the first quarter of 1993 on a prospective basis. The
charge against income was $6.6 million for 1993. Postretirement
benefit cost for prior years, which was recorded on a cash basis,
has not been restated. The Company made an investment from which
the income offset this 1993 expense.
In November 1992, SFAS No. 112, "Employers' Accounting for
Postemployment Benefits" was issued establishing accounting
standards for employers who provide
benefits to former or inactive employees after employment but
before retirement. Postemployment benefits are all types of
benefits including salary continuation, supplemental
unemployment benefits, severance benefits, disability-related
benefits and continuation of benefits such as health care
benefits and life insurance coverage. Employers are required to
recognize the obligation to provide such benefits for fiscal
years beginning after December 15, 1993. Signet's decision to
adopt SFAS No. 112 in 1993 increased benefits expense by
approximately $6.0 million ($3.9 million after-tax, or $.07
per share). The related expense for 1994 is not expected to be
significant.
Income Taxes
Income tax expense reported for 1993 was $74.8 million as
compared with $32.9 million for 1992. This represented an
effective tax rate of 30.0% for 1993 and 23.2% for 1992. The 1992
income tax expense included an alternative minimum tax credit of
$6.3 million resulting in lower effective tax rates. The 1993
effective tax rate was influenced by a lower relative proportion
of tax-exempt income to total taxable income when compared with
1992. Note M to Consolidated Financial Statements reconciles
reported income tax expense to the amount computed by applying
the Federal statutory rate to income before income taxes. An
increase in the Federal tax rate from 34% to 35% in 1993 had
minimal impact on income tax expense. Adoption of SFAS No. 109,
"Accounting for Income Taxes" in 1993 did not have a
material impact on the Company's financial position or results of
operations.
Balance Sheet Review
Earning Assets
Average earning assets totaled $10.6 billion for 1993, as shown
in Table 7 (Average Balance Sheet), an increase of 3.6% from the
1992 level. Decreases occurred in the temporary investment ($5
million) and investment securities ($212 million) portfolios, while the
loan portfolio increased by $588 million. A detailed discussion of each
earning asset category follows.
Temporary Investments
Temporary investments, which consist of interest-bearing deposits
with other banks, federal funds sold and securities purchased
under agreements to resell, securities avail-
<TABLE>
Table 12
Delinquencies of the Credit Card Portfolio*
December 31
(dollars in thousands) 1993 1992 1991 1990
Number of Days Delinquent Delinquent Delinquent Delinquent
Delinquent Amount Percent Amount Percent Amount Percent Amount Percent
<S> <C> <C> <C> <C> <C> <C> <C> <C>
30-59 days $52,099 1.01% $46,500 2.05% $53,106 3.04% N/A N/A
60-89 days 28,236 0.55 25,443 1.12 29,955 1.72 $19,905 1.29%
90+ days 50,359 0.98 49,579 2.18 57,070 3.27 30,400 1.97
Total $130,694 2.54% $121,522 5.35% $140,131 8.03% $50,305 3.26%
*The portfolio for this schedule includes the managed credit card
portfolio as well as an immaterial amount of credit line loans
serviced on the bank card system.
</TABLE>
able for sale, trading account securities and loans held for sale
(including credit card loans held for securitization) averaged
$2.4 billion, a slight decline from 1992. This category of
earning assets arises from: the normal process of balancing the
subsidiary banks' reserve position; arbitrage activities where
positions, either maturity matched or unmatched, are established
for short periods of time; dealer activities, in which money
market instruments are bought and then sold to customers; and,
for a short period of time, holding loans and/or securities to be
sold in the secondary market.
Temporary investments are generally short-term
(as shown in Table 8), high quality and very liquid
(see Liquidity discussion), and consequently, have yields
generally lower than loans or investment securities. The level of
these investments can vary from year to year as they are used to
manage interest rate risk, to take advantage of short-term
interest rate opportunities and provide liquidity. This category
of earning assets, excluding credit card loans held for sale
(securitization), decreased sig
<TABLE>
Table 13
Managed Credit Card Portfolio
December 31
(dollars in thousands) 1993 1992 1991 1990 1989
<S> <C> <C> <C> <C> <C>
Year-end balances:
On balance sheet
temporary investments $ 400,000
On balance sheet
loans $1,808,515 $1,243,873 $ 700,488 679,854 $1,418,415
Off balance sheet loans 3,289,656 1,000,000 1,000,000 500,000
Total managed
portfolio (year-end $5,098,171 $2,243,873 $1,700,488 $ 1,579,854 $1,418,415
Average balances:
On balance sheet
temporary investments $ 393,835 $ 92,055 $ 1,096
On balance sheet loans 1,764,277 $ 709,266 628,531 1,331,523 $1,241,347
Off balance sheet loans 1,372,187 1,000,000 884,931 141,097
Total managed
portfolio (average) $3,530,299 $1,709,266 $1,605,517 $1,473,716 $1,241,347
</TABLE>
nificantly from last year in recognition of Signet's liquidity
position, the lower level of deposits, the sluggish economy and
the redeployment of these assets into higher yielding credit card
loans. In addition, $57.8 million of mortgage-backed securities
available for sale were sold during 1993 resulting in net gains
of $3.9 million. This was done in reaction to the rapid
repayments being experienced on the underlying mortgage loans as
consumers continued to refinance mortgage loans at extremely high
levels during 1993. The portfolio (excluding credit card loans
held for sale) yield of 4.91% declined from the 1992 level of
5.25% due to the significantly lower market rates experienced
during 1993. Credit card loans held for sale (securitization),
included in other temporary investments averaged $394 million
with a yield of 9.21% for 1993. There were no credit card loans
held for sale (securitization) in 1992.
Securities available for sale, which are carried at the lower of
aggregate cost or market, are used as part of
management's asset/liability strategy and may be sold in response
to changes in interest rates, resultant prepayment risk and other factors
dictated by its strategy. The Company will adopt SFAS No. 115, "Accounting
for Certain Investments in Debt and Equity Securities" in 1994.
Securities available for sale will then represent those
securities not classified as either investment securities or trading account
securities and will be carried at fair value with unrealized
gains and losses reported as a separate component of
stockholders' equity. At adoption, securities totaling $1.5
billion will be reclassified from investment securities to
securities available for sale and an unrealized after-tax gain of
$30.0 million will be carried separately in stockholders' equity.
Investment Securities
Signet's investment securities portfolio of $1.8 billion at
December 31, 1993 consisted of obligations of the U.S. Treasury
and government sponsored agencies, obligations of states,
municipalities and other political subdivisions, as well as
stocks, bonds and notes of corporations. Investment securities
are primarily fixed rate instruments with maturities ranging from
less than one year to fifteen or more years, or in some cases,
such as investments in equity securities, have no maturity. These
assets are used as security for public and trust deposits, as
collateral for repurchase transactions and
to provide interest income.
If the Company has the intent to hold securities until maturity,
they are classified as investment securities and
carried at amortized historical cost.
<TABLE>
Table 14
Impact of the Credit Card Securitizations
Year Ended December 31
(dollars in thousands) 1993 1992 1991 1990
<S> <C> <C> <C> <C>
Statement of Consolidated
Operations
(as reported)
Net interest income $ 529,340 $ 435,610 $ 397,970 $ 443,928
Provision for loan losses 47,286 67,794 287,484 182,724
Non-interest income 365,436 273,541 341,758 201,542
Non-interest expense 598,316 499,239 508,925 414,535
Income (loss) before
income taxes (benefit) $ 249,174 $ 142,118 $ (56,681) $ 48,211
Adjustments for
Securitizations
Net interest income $ 167,662 $ 131,424 $ 85,958 $ 15,107
Provision for loan losses 57,633 63,599 51,026 6,626
Non-interest income (110,029) (67,825) (34,932) (8,481)
Non-interest expense - - - -
Income before income taxes $ - $ - $ - $ -
Managed Statement of
Operations (adjusted)
Net interest income $ 697,002 $ 567,034 $ 483,928 $ 459,035
Provision for loan losses 104,919 131,393 338,510 189,350
Non-interest income 255,407 205,716 306,826 193,061
Non-interest expense 598,316 499,239 508,925 414,535
Income (loss) before
income taxes (benefit $ 249,174 $ 142,118 $ (56,681) $ 48,211
As reported:
Average earning assets $ 10,552,698 $ 10,181,254 $ 10,537,684 $ 11,374,186
Return on assets 1.50% .98% N/M .34%
Net yield margin 5.17 4.47 3.98% 4.13
Including securitized
credit cards:
Average earning assets $ 11,924,885 $ 11,181,254 $ 11,422,615 $ 11,515,283
Return on assets 1.34% .90% N/M .33%
Net yield margin 5.97 5.24 4.43% 4.21
Yield on managed
credit card portfolio 13.76% 17.51% 16.39% 16.41%
</TABLE>
Otherwise, securities are classified either as available for sale
(temporary investments) and carried at the lower of aggregate
cost or market or as trading account securities (temporary
investments) and carried at market, depending on management's asset/liability
strategy, liquidity needs or objectives. The accounting policy for investment
securities is included in Note A to Consolidated Financial
Statements. As noted earlier, the Company will implement SFAS No.
115, "Accounting for Certain Debt and Equity Securities" in 1994.
At adoption,
<TABLE>
Table 15
Non-Performing Assets and Past Due Loans
December 31
(dollars in thousands) 1993 1992 1991 1990 1989
<S> <C> <C> <C> <C> <C>
Non-accrual loans:
Commercial $ 42,303 $ 25,470 $ 57,824 $ 67,945 $ 29,283
Consumer 2,191 808 989 658 2,048
Real estate-construction 17,837 52,051 107,778 66,557 30,829
Real estate-mortgage(1) 6,523 7,341 40,494 1,159 14,310
Total non-accrual loans 68,854 85,670 207,085 136,319 76,470
Restructured loans:
Commercial 1,609 8,099 2,923 3,392 3,828
Real estate-construction 3,470 22,568
Total restructured loans 5,079 30,667 2,923 3,392 3,828
Total non-performing loans 73,933 116,337 210,008 139,711 80,298
Legally foreclosed
properties 37,938 64,279 124,006 67,945 21,308
In substance foreclosed
properties 10,357 11,124 40,008 63,248
Less foreclosed
property reserve (5,742) (10,625) (41,632)
Total foreclosed
properties 42,553 64,778 122,382 131,193 21,308
Total non-performing
assets(2) $116,486 $181,115 $332,390 $270,904 $101,606
Percentage to loans
(net of unearned)
and foreclosed
properties 1.83% 3.08% 5.53% 4.12% 1.40%
Allowance for loan
losses to:
Non-performing loans 342.63% 228.25% 156.84% 117.15% 16.53%
Non-performing assets 217.46 146.61 99.09 60.42 92.09
Accruing loans
past due 90 days or more $ 58,891 $64,835 $ 91,971 $ 93,676 $ 43,331
(1)Real estate-mortgage includes real estate-commercial
mortgage and real estate-residential mortgage.
Real estate-residential mortgage non-accrual loans were not
significant for the periods presented.
(2)$55,238, $136,154 and $248,842 of this total was included in
the Program at December 31, 1993, 1992 and 1991, respectively.
</TABLE>
securities totaling $1.5 billion will be reclassified from
investment securities to securities available for sale.
Investment securities for 1993 averaged $1.9 billion, a decrease
of $212 million over the 1992 level as securities were called or
matured. The Company increased its holdings of U.S. Treasury
securities during late 1991 and 1992 in response to reduced loan
demand and to generate sustainable sources of interest income.
Additionally in 1992, increased prepayments on the assets
underlying the Company's portfolio of collateralized mortgage
obligation residuals and excess mortgage servicing resulted in
$17 million of writedowns. No such writedowns were necessary in
1993. This portfolio totaled $3.8 million at year-end 1993 down
from $8.8 million at the prior year-end. At year-end 1993, the
investment securities portfolio (excluding securities having no
maturity) had a remaining average maturity of 5 years and
unrealized gains of $64.6 million and unrealized losses
of $5.0 million.
Investment securities portfolio yields declined to 6.63% from the
1992 level of 6.99% as higher yielding securities were
called or matured. Table 9 shows the maturities of the investment
securities portfolio and the weighted average yields to maturity
of such securities (non-taxable securities are on a taxable
equivalent basis). At the end of the past two years, Signet did
not have any aggregate investments with a single issuer (except
for U.S. Government and agency obligations which are separately
disclosed in this Report) which were greater than ten percent of
stockholders' equity.
Loans
Loans (net of unearned income) for 1993, averaged $6.2 billion,
an increase of $588 million, or 10%, from the 1992 level. Average
balances increased in the credit card, other
Table 16
Reserve for Foreclosed Properties Analysis
Year Ended December 31
(in thousands) 1993 1992 1991
Balance at beginning
of year $10,625 $41,632 $ -
Additions to reserve
charged to expense
(includes special
provision of $18,400
for 1991) 7,405 15,503 71,878
Writedowns (12,288) (46,510) (30,246)
Balance at end of year $ 5,742 $10,625 $41,632
<TABLE>
Table 17
Non-Performing Real Estate Assets Composition
December 31, 1993
(dollars in millions) Geographical Concentration
Metro- Out of Percent
Type of Project Baltimore, MD Washington Area Richmond, VA Tidewater, VA Market Area Total of Total
<S> <C> <C> <C> <C> <C> <C> <C>
Office Building $1.3 $1.2 $.8 $4.7 $8.0 10.5%
Industrial / Warehouse 2.1 .3 .8 3.2 4.2
Apartments .9 1.5 $.9 3.3 4.3
Shopping / Retail 5.2 5.8 .8 11.8 15.5
Residential 1.3 10.1 .3 .8 .1 12.6 16.6
Land A & D Residential 2.0 12.1 .1 3.0 .4 17.6 23.1
Land A & D Commercial 5.3 8.8 3.4 2.1 19.6 25.8
Total Outstanding $17.2 $39.2 $7.7 $6.8 $5.2 $76.1 100.0%
Percent of Total 22.6% 51.5% 10.1% 9.0% 6.8% 100.0%
</TABLE>
consumer and real estate-commercial mortgage loan categories,
while the commercial, real estate-construction and real estate-
residential mortgage loan average balances declined. The
composition of the loan portfolio has been significantly altered
over the past two years by the credit card national solicitations
and securitizations and weak commercial loan demand caused by a
sluggish economy. In addition, Signet reduced its overall risk
real estate exposure by $312 million during 1993. At year-end
1993, Signet had no commercial loans outstanding, not otherwise
disclosed, to borrowers in the same or related industries which,
in total, exceeded ten percent of total loans. Borrowers were
concentrated in a market area which extended from the Baltimore-
Washington corridor through Richmond east to the Hampton Roads
area of Virginia. The various loan categories for the past five
year-ends are detailed in Table 10.
Commercial loans, which represented 34% of the total average loan
portfolio, averaged $2.1 billion for 1993, a slight decline from
last year. Signet's commercial loan portfolio is strongly
oriented toward diversified middle market borrowers. These loans
are predominately in the manufacturing, wholesaling, services and
real estate industries. The credit risk associated with middle market
borrowers is principally influenced by general economic
conditions and the resulting impact on the borrower's operations.
The Company has been selectively participating in the financing
of highly leveraged transactions ("HLTs") for several years.
Since borrowers in these financings generally have a high ratio
of debt compared to equity, the risks can be considerable;
however, Signet believes it has minimized the risks involved in
HLTs since Signet is not an active participant in large
syndicated HLTs that rely on the breakup value of the borrower as
the source of repayment and instead relies on its expertise in
lending to middle market or specialized industry companies in its
own market areas, especially those with which it has worked
closely for many years. HLTs represented less than 1% of total
loans at December 31, 1993.
Credit card receivables on the balance sheet averaged $1.8
billion for 1993, an increase of 145% from 1992, and
represented 28% of the total average loan portfolio. Credit card
outstandings increased significantly in spite of $2.3 billion of
securitizations ($1.2 billion in September, 1993 and $1.1 billion
in December, 1993). The primary purpose of securitization is to
fund the growth in credit card receivables. As noted earlier, net
income is not significantly affected by the securitizations. The
solicitation program added approximately 1,400,000 and 400,000
new accounts for 1993 and 1992, respectively. At year-end, on-
balance sheet credit card loans totaled $1.8 billion, an increase
of 45% over 1992, as Signet's solicitation program yielded
substantial results. The growth was achieved through a variety
Table 18
Accruing Loans Past Due 90 Days or More
December 31
(in thousands) 1993 1992
Commercial $ 2,641 $ 3,237
Credit card 16,491 20,210
Other consumer 22,637 18,926
Real estate-construction 11,133 9,083
Real estate-commercial mortgage 4,333 10,209
Real estate-residential mortgage 1,656 3,170
$58,891 $64,835
<TABLE>
Table 19
Risk Real Estate Loan Portfolio Stratification
December 31, 1993
(dollars in millions) Residential Commercial Totals
Category # Commitment Outstanding # Commitment Outstanding # Commitment Outstanding
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Over $25
million 1 $ 30.5 $ 28.0 1 $ 30.5 $ 28.0
$20 - $25
million 1 $ 21.5 $ 5.6 1 21.5 5.6
$15 - $20
million 5 85.6 85.6 5 85.6 85.6
$10 - $15
million 6 69.2 68.0 6 69.2 68.0
$5 - $10
million 7 53.5 37.4 18 121.1 121.1 25 174.6 158.5
$1 - $5
million 51 78.3 36.5 137 316.9 310.1 188 395.2 346.6
Less than
$1 million 71 49.8 27.8 867 172.5 171.2 938 222.3 199.0
Totals 130 $ 203.1 $ 107.3 1,034 $ 795.8 $ 784.0 1,164 $998.9 $ 891.3
Construction 130 $ 203.1 $ 107.3 63 $ 208.9 $ 202.5 193 $412.0 $ 309.8
Mortgage 971 586.9 581.5 971 586.9 581.5
Totals 130 $ 203.1 $ 107.3 1,034 $ 795.8 $ 784.0 1,164 $998.9 $ 891.3
</TABLE>
of attractive products offered to carefully targeted customer
segments with a low risk profile. The total managed credit card
portfolio which grew $2.9 billion during the year, totaled $5.1
billion at December 31, 1993. The managed portfolio includes both
loans on the balance sheet and securitized assets. See the Credit
Card Business section for a more detailed discussion.
Other consumer loans averaged $1.2 billion for 1993, a slight
increase from 1992, and represented 19% of the total loan
portfolio. This category consisted of home equity loans ($453
million-1993, $491 million-1992), student loans
($409 million-1993, $293 million-1992), second mortgage loans
($67 million-1993, $98 million-1992), direct and
indirect automobile installment loans ($57 million-1993,
$73 million-1992) and other consumer-type loans ($221 million-
1993, $244 million-1992). The slight increase in overall other
consumer loans was concentrated in student loans.
Consumer real estate loans declined due to the high volumes of
mortgage loan refinancings in 1993. Signet continues to emphasize
credit judgments that focus on a customer's debt obligations,
ability and willingness to repay and economic trends in general.
Signet expects to implement growth
strategies in the consumer real estate and student loan
markets in 1994.
Real estate-construction loans totaled $449 million, a decrease
of 42%, or $328 million, from the 1992 average. This category
represented 7% of the average loan portfolio for 1993, down from
14% in 1992. During 1991 and 1990, problem real estate assets
significantly affected Signet's profitability due to the need for
increased loan loss provisions associated with the high level of
non-performing assets and expenses related to foreclosed
properties. The Program was established in December, 1991, to help
resolve these real estate problems and return Signet to
<TABLE>
Table 20
The Program Portfolio Composition By Project Type and Location
December 31, 1993
(dollars in millions) Geographical Concentration
Metro- Out of Percent
Type of Project Baltimore, MD Washington Area Richmond, VA Tidewater, VA Market Area Total of Total
<S> <C> <C> <C> <C> <C> <C> <C>
Office Building $ .5 $ 48.0 $ 1.2 $ .3 $ 4.4 $ 54.4 19.1%
Industrial
/ Warehouse 4.4 5.9 4.5 .4 15.2 5.3
Apartments .9 .6 4.8 1.3 7.6 2.7
Hotel / Motel 17.3 8.3 25.6 9.0
Shopping
/ Retail 19.1 29.9 12.4 2.2 63.6 22.3
Residential .5 11.5 24.9 36.9 12.9
Land A & D
Residential 1.6 28.5 1.5 1.6 33.2 11.7
Land A & D
Commercial 7.4 15.6 3.8 4.7 31.5 11.1
Other .5 13.0 3.2 16.7 5.9
Total Outstanding $34.0 $170.6 $27.2 $38.9 $ 14.0 $284.7* 100.0%
Percent of Total 11.9% 59.9% 9.6% 13.7% 4.9% 100.0%
* Does not include $15.2 in lines of credit to developers
(classified as commercial loans) resulting in a total exposure of
$299.9.
</TABLE>
<TABLE>
Table 21
The Program Portfolio Composition
December 31 Percent Change
(dollars in thousands) 1993 1992 1991 1993-1992 1993-1991(1)
<S> <C> <C> <C> <C> <C>
Performing loans:
Commercial $ 9,612 $ 18,946 $ 26,062 (49)% (63)%
Real estate
-construction 117,043 234,856 468,296 (50) (75)
Real estate
-mortgage 112,256 110,892 82,146 1 37
Total performing
loans 238,911 364,694 576,504 (34) (59)
Non-accrual loans:
Commercial 4,008 1,013 4,887 296 (18)
Real estate
-construction 9,687 51,048 105,624 (81) (91)
Real estate
-mortgage 50 3,477 23,576 (99) (99)
Total non-accrual
loans 13,745 55,538 134,087 (75) (90)
Restructured loans:
Commercial 1,609 N/M N/M
Real estate
-construction 3,470 20,265 (83) N/M
Total restructured
loans 5,079 20,265 (75) N/M
Total non
-performing loans 18,824 75,803 134,087 (75) (86)
Total loans 257,735 440,497 710,591 (41) (64)
Foreclosed Properties:
Legal 35,126 60,861 116,745 (42) (70)
In substance 7,030 10,115 39,628 (30) (82)
Total foreclosed
properties 42,156 70,976 156,373 (41) (73)
Total 299,891 511,473 866,964 (41) (65)
Less: Allowance
for loan losses(2) (57,631) (99,988) (179,538) (42) (68)
Reserve for
foreclosed properties (5,742) (10,625) (41,632) (46) (86)
Total (63,373) (110,613) (221,170) (43) (71)
Total assets (3) $236,518 $400,860 $645,794 (41)% (63)%
(1) This covers the time period since the inception of the
Program.
(2) Amount of overall allowance allocated to the Program.
(3) Included in total assets at December 31, 1993 were $35,152 of
performing loans that were the result of financing the sale of
foreclosed properties in the Program.
</TABLE>
higher levels of
performance. This step allowed Signet to significantly
reduce its real estate exposure during the last two years.
Further details about the Program and the composition of this
loan category, are covered in the Risk Elements section of this
Report.
Real estate-commercial mortgage loans represented 10% of the
average loan portfolio. This category averaged $608 million, an
increase of less than 1%, from 1992. The portfolio consisted of
$319 million of commercial mortgage loans and $289 million of
mini-permanent (interim) mortgage loans compared with $412
million and $192 million for the respective loan types in 1992.
Real estate-commercial mortgage loans grew as a result of the
conversion of construction loans to mini-permanent mortgage
loans. Construction loans typically are converted to mini-
permanent mortgage loans when the related project is cash flowing
to cover debt service, and permanent financing, for various
reasons, is not desired or obtainable at the
<TABLE>
Table 22
Changes in the Program Assets
Year Ended Two Years Ended
(in thousands) December 31, 1993 December 31, 1993*
<S> <C> <C>
Beginning balance $511,473 $866,964
Advances, payments, sales
and reductions (net) (159,872) (362,125)
Transfers out of Program (34,240)
Loans charged-off (gross) (39,422) (111,910)
Foreclosed properties written down (12,288) (58,798)
Net decrease (211,582) (567,073)
Ending balance $299,891 $299,891
*This covers the time period since inception of the Program.
</TABLE>
present time.
Real estate-residential mortgage loans declined $17 million, or
18%, from 1992 to average $77 million. This category consisted of
conventional home mortgages which experienced record levels of
refinancing during 1993.
Table 11 shows the maturities of selected loan categories at
year-end 1993. Loans, as a result of maturities, monthly
payments, sales and securitizations provide an important source
of liquidity. See discussion on Liquidity elsewhere in this
Report. Unused
<TABLE>
Table 23
Discounts on Assets Designated for the Program
December 31, 1993
Current
Prior Allowance/
Charge-offs Reserve Total
Category Writedowns Discount Discount
<S> <C> <C> <C>
Performing loans 0% 23% 23%
Non-performing loans 49 9 58
Foreclosed properties 49 7 56
Total 16% 18% 34%
Percentages were calculated based on loan balances prior to any
charge-offs and writedowns.
</TABLE>
loan commitments related primarily to commercial loans and
excluding credit card were approximately $2.7 billion at year-end
1993 and 1992.
Credit Card Business
The credit card industry is highly competitive and operates in a
legal and regulatory environment increasingly focused
on the cost of services charged to consumers. There is an
increasing use of advertising, target marketing, pricing
competition and incentive programs. The Company has responded to
competition by targeting the origination of
new accounts through the creation of products for multiple
customer segments using various marketing channels. For example,
Signet offers credit cards nationwide with different finance
charge and fee combinations or other special features such as a
balance transfer option. The Company approves prospective account
holders through preapproval in conjunction with full application
underwriting procedures. Using information derived from
proprietary statistical models, Signet matches prospective
account holders who meet the various applicable underwriting
criteria with an appropriate credit card product.
The Company has invested heavily over the past five years in a
sophisticated information-based strategy for originating and
managing credit card accounts. Signet uses this strategy to
develop improved credit risk models which increase the credit
quality of new solicitations. Signet's credit card business
benefited significantly from its information-based strategy in
1993. The managed credit card portfolio (which includes
securitized receivables) increased by $2.9 billion,
Table 24
Maturities of Domestic Large Denomination
Certificates $100,000 or more
December 31, 1993
(in thousands) Balance Percent
3 months or less $197,699 57%
Over 3 through 6 months 32,723 9
Over 6 through 12 months 29,968 9
Over 12 months 87,430 25
$347,820 100%
The majority of foreign deposits are in denominations of $100,000
or more.
or 127%, from December 31, 1992. In spite of this increase,
absolute dollars of net loan losses, on a managed portfolio
basis, declined from $94.2 million in 1992 to $83.9 million for
1993 as the more seasoned accounts in the portfolio continued to
show improved credit quality. The high quality of the credit card
portfolio is also reflected in loan delinquency data. The total
managed credit card loans sixty days or more past due ratio
dropped to 1.53% of related loans at year-end 1993 from 3.30% for
year-end 1992, while the dollar amount remained relatively stable
at approximately $79 million compared with $75 million at the
same respective dates. Refer to Table 12 for a summary of
delinquency data related to credit card loans. New account
solicitations represent a diversity of product offerings, largely
targeted at lower risk consumers. Management is committed to
continually increasing sophistication in all areas of risk
management. It is management's expectation that growth in
outstandings and accounts will continue for the near term.
Signet's managed credit card portfolio is
comprised of credit card loans, credit card loans held for sale
(securitization) and securitized credit card receivables. Credit
card loans are included in gross loans, credit card loans held
for sale (in the process of being securitized) are considered
temporary investments and securitized credit card receivables are
not assets of the Company and, therefore, are not shown on the
balance sheet. See Table 13 for a five year summary of Signet's
managed credit card portfolio.
Securitization is the transformation of a pool of credit card
receivables into marketable securities. Credit card receivables
are transferred to a trust and interests in
the trust are sold to investors for cash. The securitization of
credit card receivables is an effective balance sheet management
tool for facilitating the credit card growth. Such
securitizations reduce the net yield margin and provision for
loan losses and increase non-interest income, but the net effect
on Signet's earnings is minimal, while increasing the return on
assets. Signet's Credit Card Division services the related credit
card accounts after the receivables are securitized. Because
securitization changes Signet's involvement from that of a lender
to that of a loan servicer, there is a change
in how the revenue is reported in the income statement.
For securitized receivables, amounts that would previously have
been reported as interest income, credit card service charges and
provision for loan losses are instead reported in non-interest
income as credit card servicing income. Because credit losses are
absorbed against these cash flows, Signet's credit card servicing
income over the terms of these transactions may vary depending
upon the credit performance of the securitized receivables.
However, Signet's exposure to credit losses on the securitized
receivables is contractually limited to these cash flows.
In certain marketing programs, Signet makes use of introductory
periodic finance charge rates which are predominantly fixed for
some initial period and at the conclusion of this period rise to
a higher, variable rate finance charge. If accountholders choose
to utilize competing sources of credit, the rate at which new
receivables are generated may be reduced and certain purchase and
payment patterns with respect to the receivables may be affected.
Signet has securitized a total of $3.3 billion of credit card
receivables as of December 31, 1993 ($500 million in September,
1990, $500 million in March, 1991, $1.2 billion
in September, 1993 and $1.1 billion in December, 1993). Table 14
indicates the impact of the securitizations on the statement of
consolidated operations, average assets, return on assets and net
yield margin for the past four years. It is management's
intention to securitize additional credit card receivables in the
near future and to continue to solicit new credit card accounts.
Signet has successfully implemented its information-based
strategy to originate and manage credit card accounts. While
Signet
<TABLE>
Table 25
Risk-Based and Other Capital Data
December 31
1993 1992
(dollars in thousands
- -except per share) Balance Percent Balance Percent
<S> <C> <C> <C> <C>
Common stockholders'
equity $ 964,662 $ 826,632
Less goodwill and
other disallowed
intangibles (23,404) (26,067)
Total Tier I capital 941,258 11.12% 800,565 9.56%
Qualifying debt 222,607 253,692
Qualifying allowance
for loan losses 107,646 106,656
Total Tier II capital 330,253 3.90 360,348 4.30
Total risk-based
capital $1,271,511 15.02% $ 1,160,913 13.86%
Total risk-adjusted assets $8,466,048 $ 8,373,605
Leverage ratio 8.13% 7.24%
December 31
1993 1992 1991 1990 1989
Ratios:
Common equity to assets 8.14% 6.84% 6.33% 6.46% 6.02%
Tangible common equity
to assets 7.88 7.02 5.82 6.07 5.73
Total stockholders'
equity + allowance
to loans 19.30 18.80 17.69 13.96 11.70
Internal equity
capital generation rate 13.21 10.99 (5.58) .01 11.42
Common dividend
payout ratio 26.14 22.96 N/M 100.00 33.41
Book value per share* $17.04 $14.77 $13.17 $13.83 $14.07
* Adjusted for the two-for-one stock split declared on June 23,
1993 and distributed on July 27, 1993.
</TABLE>
plans to continue to increase its investment in the credit card
business and expects continued growth and further successes, the
growth rate experienced during 1993
is not sustainable indefinitely. Signet plans to or has already
started to implement this information-based strategy in other
areas of the Company, such as educational lending, equity line
and mortgage banking. It is too early to determine
how successful this strategy will be in the other areas
of the Company.
Risk Elements
Non-Performing Assets
Non-performing assets include non-accrual loans, restructured
loans and foreclosed properties. Non-accrual loans are loans on
which interest accruals have been suspended. It is Signet's
policy to discontinue interest accruals on commercial and real
estate loans when they become contractually past
due 90 days as to principal or interest payments or when other
internal or external factors indicate that collection of
principal or interest is doubtful. Occasionally, exceptions are
made to this policy if supporting collateral is adequate and the
loan is in the process of collection. Credit card loans typically
are charged off when the loan is six months past due and no
payments have been received for 60 days, while other consumer
loans typically are charged off when the loan is six months past
due; therefore, these loans are not usually placed in non-
accruing status. Restructured loans are loans on which a
concession, such as a reduction in interest rate below the
current market rate for new debt with similar risks, is granted
to a borrower. Foreclosed properties are classified as either in
substance foreclosures or legal foreclosures. In substance
foreclosures occur when the borrower has little equity in the
project based on the fair market value of the collateral, the
repayment of the loan
<TABLE>
Table 26
Intangible Assets
December 31
(in thousands) 1993 1992 1991 1990 1989
<S> <C> <C> <C> <C> <C>
Goodwill $22,883 $26,067 $29,250 $32,433 $35,616
Credit card premium 7,271 8,094 8,917 9,740
Core deposit premiums 11,730 14,130 16,523
Mortgage servicing
rights 12,847 3,473 2,946 1,523 379
Total intangible assets $54,731 $51,764 $57,636 $43,696 $35,995
The amortization of intangibles is expected to be approximately
$6,406 annually over the next five years.
</TABLE>
can be made only through operations or the sale of the
collateral, and the debtor has abandoned control of the
collateral or has retained control but it is doubtful that in the
foreseeable future the debtor will be able to rebuild sufficient
equity or repay the loan. Legal foreclosures occur when Signet
legally takes title to the collateral.
Non-performing assets at year-end 1993 totaled $116.5 million
(net of the $5.7 million foreclosed property reserve), or 1.83%
of loans and foreclosed properties, compared with $181.1 million,
or 3.08%, respectively, at the end of 1992. The decline in non-
performing assets can be attributed to the Program. Overall non-
performing real estate assets declined $76.4 million, or 52%,
including $22.2 million of foreclosed properties (net of
reserves). One large commercial credit ($24.7
million) was placed on non-accrual status at the end of 1993. In
early 1994, the Company sold this loan well within the loan's
allocated allowance at year-end. Table 15 provides details on the
various components of non-performing assets and past due loans for the last
five years.
Foreclosed properties totaled $42.6 million (net of reserve) at
the end of 1993, and were equal to 37% of total non-performing
assets and 60% of non-performing real estate assets. The reserve
for foreclosed properties is analyzed in Table 16 and amounted to
12% of the foreclosed property balance before the reserve. The
gross foreclosed properties balance reflected an aggregate
discount of 48% from prior charge-offs and writedowns. There were
$7.4 million of additions to the reserve
<TABLE>
Table 27
Interest Rate Sensitivity
December 31, 1993
1-30 31-60 61-90 91-180 Within 180 Days- >1 Year- Over
(dollars in millions) Days Days Days Days 180 Days 1 Year 5 Years 5 Years
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Earning assets (taxable
equivalent basis):
Temporary investments $2,427 $ 95 $ 6 $ 38 $2,566 $ 61 $ 23 $15
Investment securities 330 39 12 74 455 113 1,155 47
Loans 2,985 39 538 65 3,627 102 2,217 364
Total earning assets 5,742 173 556 177 6,648 276 3,395 426
Interest bearing liabilities:
Deposits:
Savings(1) 316 1,357 47 1,720 524 158 1,262
Other time 319 158 207 435 1,119 418 1,059 16
Short-term borrowings 2,479 51 57 34 2,621 3 1
Long-term borrowings 150 50 200 62 4
Total interest
bearing liabilities 3,264 209 1,671 516 5,660 945 1,280 1,282
Non-rate related assets and
liabilities, net 1,218 360
Interest sensitivity gap 2,478 (36) (1,115) (339) 988 (669) 897 (1,216)
Impact of interest rate
swaps, financial futures,
floors and caps(2) (306) (512) (1,200) (263) (2,281) (260) 2,041 500
Impact of credit card
securitizations and
repricing(3) (1,799) 422 670 598 (109) 418 (309)
Interest sensitivity gap
adjusted for impact of
securitization interest rate
swaps, financial futures,
floors and caps(2) $373 $(126) $(1,645) $ (4) $(1,402) $(511) $2,629 $(716)
Adjusted interest sensitivity
gap as a percentage of
total assets 3.17% (1.07%) (13.89%) 0% (11.82%) (4.31)% 22.17% (6.04%)
Cumulative interest
sensitivity gap $373 $247 $(1,398) $(1,402) $(1,402) $(1,913) $ 716
Adjusted cumulative interest
sensitivity gap as a
percentage of total assets 3.17% 2.10% (11.78%) (11.82%) (11.82%) (16.13%) 6.04%
(1) Historical rate sensitivity analysis shows that interest
checking and statement savings, while technically subject to
immediate withdrawal, actually have shown repricings and run-off
characteristics that generally fall within 1-5 years. A similar
analysis has been done with the liquid savings and liquid
checking products and these products have been adjusted
accordingly.
(2) $400 million of caps on three-month LIBOR limits Signet's
exposure to rising rates but would allow the Company to take
advantage of declining rates.
(3) Some of the coupons on securitizations are tied to
commercial paper and LIBOR rates and therefore are shown in the
earliest period for repricing. While the income from
securitization is booked in non-interest income, it is shown in
this chart as it is impacted by rate movements.
</TABLE>
charged to expense during 1993. These additions principally
represented transfers from the allowance allocated to Program
loans as these loans migrated to foreclosed properties.
Signet sold $39.8 million of foreclosed properties during 1993.
The average discount from the loan balance prior to any charge-
offs and writedowns was approximately 40%. This percentage was
comprised of 18% taken as charge-offs prior to foreclosure and
22% taken in writedowns and other expenses at sale. Signet did
not provide financing on any of the foreclosed properties sold in
1993.
Table 17 details Signet's non-performing real estate assets
(construction loans, mortgage loans and foreclosed properties) at
December 31, 1993 by location and types of projects. This table
shows that the largest geographic exposure, 52%, was in the
Metro-Washington area, and residential development projects made
up 40% of the total.
Accruing loans past due 90 days or more as to principal or
interest payments totaled $58.9 million and $64.8 million at the
end of 1993 and 1992, respectively. The details of these past due
loans are displayed in Table
18. The past due commercial and real estate loans were in the
process of collection and were adequately collateralized. Also,
of the 1993 past due other consumer loans, 75% or $17.0 million,
were student loan delinquencies, which are indirectly government
guaranteed and do not represent material loss exposure to Signet.
As noted earlier, credit card loans typically are charged off
when the loan is six months past due and no payments have been
received for 60 days, while other consumer loans typically are
charged off when the loan is six months past due; therefore,
these loans are not usually placed in non-accruing status.
Although credit card outstandings have risen sharply during 1993,
there has not been a similar increase in credit card loans past
due 90 days or more.
At year-end 1993, management was monitoring $113.2 million of
loans for which the ability of the borrower to comply with
present repayment terms was uncertain. These loans were not
included in the above disclosure. They are followed closely, and
management, at present, believes that the allowance for loan
losses is adequate to
cover anticipated losses that may be attributable to these loans.
Interest recorded as income on year-end non-accrual and
restructured loans was $2.5 million, $5.4 million and $6.6
million for 1993, 1992 and 1991, respectively, compared with
interest income of $7.5 million, $13.4 million and $22.9 million
for the same respective periods which would have been recorded
had these loans performed in accordance with their original
terms. The pre-tax costs of carrying (funding) an average of
$61.6 million of foreclosed properties in 1993, $114.7 million in
1992 and $135.7 million in 1991 were approximately $1.9 million,
$4.2 million and $8.1 million, respectively, when calculated by
applying an average annual cost of funds to the outstanding
balance. These amounts have been calculated using historical
rates; and may not necessarily reflect improved earnings on a
prospective basis, as these funds may be reemployed at different
rates.
The FASB recently issued SFAS No. 114, "Accounting by Creditors
for Impairment of a Loan." The new statement, which is effective
for financial statements issued for fiscal years beginning after
December 15, 1994, requires impaired loans be measured at the
present value of expected future cash flows by discounting those
cash flows generally at the loan's effective interest rate. The new
statement also requires troubled debt restructurings involving a
modification of terms be remeasured on a discounted basis. The
Company is currently evaluating the impact that SFAS 114 will
have on the Company; however, management does not expect that
this statement will have a materially adverse impact on future
results of operations or financial position.
Table 28
Liquidity Ratios
December 31
1993 1992 1991 1990 1989
Ratio of liquid assets to:
Purchased funds 121.6% 130.5% 134.3% 121.0% 80.8%
Loans 66.5 82.0 54.1 58.8 57.0
Assets 35.4 39.4 28.3 33.2 33.0
Real Estate Lending
This section of the Report discusses and details Signet's entire
real estate loan exposure, while the next section, entitled
Accelerated Real Estate Asset Reduction Program, discusses the
successful steps management has taken to reduce Signet's overall
risk real estate exposure.
Signet's real estate-construction loan exposure at December 31,
1993, totaled $310 million, a decline of 44%, or $239 million,
from the 1992 year-end level. Approximately 61% of these loans
was located in the Metro-Washington area, while only 3% was
located outside Signet's market area. The largest type of
construction financing was residential, followed closely by
office buildings. Of the construction loan portfolio, $17.8
million were on non-accruing status and $3.5 million were
classified as restructured troubled debt at year-end (see
discussion on Non-Performing Assets). Also, virtually all of
Signet's $42.6 million (net of reserve) of foreclosed properties
resulted from construction lending. The remaining unfunded
commitments on Signet's construction loans at year-end 1993
totaled approximately $102 million.
The other category of real estate lending is mortgage loans,
which includes two categories-commercial mortgage and residential
mortgage. Commercial mortgage loans totaled $582 million at
December 31, 1993 and included $290 million of mini-permanent
(interim) mortgage loans. Construction loans typically are
converted to mini-permanent mortgage loans when the related
project is cash flowing to cover debt service and permanent
financing, for various reasons, is not desired or obtainable at
the present time. Residential mortgages consist of conventional
home mortgage loans and have experienced very few losses. This
loan category totaled $71 million at year-end 1993.
Table 19 stratifies Signet's year-end 1993 total risk real estate
loan portfolio, which excludes residential mortgages. The table
shows that approximately 12% of the portfolio
was in residential development projects, which management
believes generally represent less risk than commercial projects.
Additionally, 94% of the $102 million unfunded construction loan
commitments are residential, which are usually not fully funded.
Accelerated Real Estate Asset
Reduction Program ("the Program")
As previously noted, the Company initiated a program in December,
1991, to accelerate the reduction of real estate assets. The
Program's objective was to significantly reduce the Company's
overall exposure to risk real estate assets through the use of
discounts without adversely impacting future earnings. The
Program has been very successful and has substantially
accomplished its objective as evidenced in the following
discussion. As a result of the success, Signet terminated the
Program as a separate reporting unit effective January 1, 1994.
The remaining assets will be assigned to work out units or in
some cases, will be allowed to mature in accordance with their
terms. Table 20 shows the composition of the portfolio by project
type and location.
Since inception of the Program, its assets (before reserves) have
been reduced by 65%, or $567.1 million. As shown in Table 21, the
Program started with $645.8 million of assets (net of the
allowance for loan losses of $179.5 million and the reserve for
foreclosed properties of $41.6 million) and ended 1993 with
$236.5 million of assets (net of the allowance for loan losses of
$57.6 million and the reserve for foreclosed properties of $5.7
million).
During the two years of the Program's operation, the largest
reductions of assets were in real estate-construction performing
loans ($351.3 million), real estate-construction non-accrual
loans ($95.9 million) and legal foreclosed
properties ($81.6 million). Total loans declined by 64%, or
$452.9 million, and foreclosed properties declined by 73%,
or $114.2 million. Of the remaining assets in the Program at
December 31, 1993, $238.9 million, or 80%, were performing loans
and $70.1 million, or 23%, were residential development projects.
Table 22 details the activity that occurred in the Program for
1993 and since inception. Transfers out of the Program noted in
Table 22 currently meet Signet's underwriting standards and
acceptable risk profiles.
In 1992 and 1993, Signet sold $145.2 million of Program
foreclosed properties at a 23% discount from the December 31,
1991 balance, which was approximately equal to the 21% discount
established on these properties. Loans removed from the Program
on financings, payoffs, etc. were
$350.5 million. Discounts taken on these loans were 22% compared
to the 26% discount originally established. Since the
commencement of the Program, the total discounts taken for all
asset sales or removals were 23% compared to the 24% discount
established.
The remaining discounts in the Program at year-end 1993 of $63.4
million represented 21% of the assets in the Program as compared
to 26% at the inception of the Program. The lower level of
remaining overall discount is a reflection of reducing certain
assets during 1992 and 1993 with high discounts and aggressively
writing down certain properties to anticipated sale prices. Table
23 indicates that previous writedowns and charge-offs, coupled
with the current allowance/reserve provides coverage of 23% on
performing loans, 58% on non-performing loans, 56% on foreclosed
properties and 34% in the aggregate. Management believes that the
remaining discount of $63.4 million is adequate to resolve the
remaining Program assets.
There were $15 million of unfunded commitments at December 31,
1993 compared to $47 million and $118 million at December 31,
1992 and 1991, respectively. At December 31, 1993, remaining
balances on assets which Signet financed totaled $47 million
(which were retained in the Program) under normal business terms
and with normal underwriting standards, except for $5 million of
which were considered restructured troubled debt and were
included in the Program's non-performing assets.
Funding
Deposits
The Company offers a diverse range of products to its customers,
including interest bearing and non-interest bearing demand,
savings and certificates of deposits, both domestic and foreign.
Signet competes for deposits with other commercial banks, with
savings banks, savings and loan associations, the bond and stock
market and other providers of non-bank financial services,
including money market funds, credit unions and other deposit
gathering institutions.
Average deposits totaled $7.7 billion for 1993, a decrease of 2%,
or $154 million, from 1992. The overall decrease and the change
in the mix of deposits was principally the result of declining
rates and the consumers' decision to shorten maturities, increase
liquidity and to move funds into non-financial institution
products. Signet's own mutual fund family, the Signet Select
Series, attracted $199 million in 1993, a portion of which was
generated from deposit customers of the Company. In addition,
Signet's sales of non-proprietary mutual fund and annuity
products totaled $86 million in 1993. These products provide fee
income for the Company which raises the return on assets.
Core deposits averaged $7.3 billion for 1993, a decrease of 4%
from 1992. These deposits represent Signet's largest and most
important funding source due to their relatively low cost and
reasonably stable nature. The category of core deposits which
experienced the greatest decline was savings certificates which
fell $603 million, or 20%, from 1992 as depositors responded to
lower interest rates by shortening the maturities of their
investments and transferring their funds into money market and
demand products. This source of funding also enhances the overall
liquidity position of the Company. Signet has maintained its
deposit and customer base during the year through new products,
innovative marketing techniques and quality customer service;
however, the competition among the various financial institutions
for these deposits and increased awareness on the part of
consumers and desire for a higher return on their funds has
effectively increased the relative cost of and reduced the
overall benefits received from these deposits.
Purchased deposits (large denomination certificates and foreign
deposits), averaged $473 million for 1993, an increase of $178
million, or 60%, from the prior year. The majority of the large
denomination certificates are sold to existing corporate
customers. The demand for such funds depends upon the Company's
varying financing needs and also reflects the previously
mentioned customers' shifting of deposits to shorter more liquid
products. As a result, the interest rates are based upon market
competition for these funds. Table 24 shows the maturity
composition of large denomination certificates at year-end 1993.
Short-Term and Long-Term Borrowings
Short-term borrowings consist of federal funds purchased,
securities sold under repurchase agreements, commercial paper,
Treasury tax and loan deposits, Federal Reserve borrowings and
short-term borrowings from other banks. This category of
borrowings is an accessible source of moderately priced funds and
has become an important financing vehicle for Signet's balance
sheet management. Signet supplements its funding sources in the
short-term money market and through securitizations. These
instruments have an original maturity of less than one year. This
category increased
$440 million, or 21%, over 1992 to average $2.5 billion.
The increase in purchased funds was to temporarily fund
the growth in credit card receivables prior to securitization.
See Note G to Consolidated Financial Statements for further
details on this source of funds.
Long-term borrowings represent a very stable, although relatively
expensive, source of funds and have been used to provide Tier II
capital to Signet's subsidiaries, for acquisitions and for
general corporate purposes. This category averaged $287 million
for 1993, a decline of 4%, or $12 million, from 1992. This
decline resulted partly from regularly scheduled amortization of
principal and maturities and from a prepayment of a high rate
mortgage. No long-term debt was issued during the year. On
February 1, 1994, Signet called for redemption at par the
remaining $11.9 million of 7 3/4% Senior Debentures due in 1997.
Note H to Consolidated Financial Statements provides a detailed
analysis of long-term borrowings at December 31, 1993 and 1992.
Stockholders' Equity
Stockholders' equity provides a source of permanent funding,
allows for future growth and assists the Company to withstand
unforeseen adverse developments. At December 31, 1993,
stockholders' equity totaled $965 million, an increase of $138
million, or 17%, from the previous year-end level of $827
million. The increase reflects net retained income for 1993 of
$129.4 million and the issuance of common stock through investor
and employee stock purchase plans, as well as the stock option
plan, which, in total, added an additional $9.2 million in net
proceeds to equity.
As an indication of Signet's improved financial health, the Board
of Directors approved a 25% quarterly dividend increase from $.20
to $.25 per share effective with the dividend payable November
24, 1993. This latest increase
followed a 33% increase declared on April 28, 1993. The result of
the two dividend increases in 1993 was to increase the annual
rate to $1.00 from $.60 per share, or a 67% increase.
The principal source of dividends to be paid by the Company to
its shareholders is normally dividends and interest from the
Company's subsidiary banks. Various state and federal laws and
policies limit the ability of the Company to pay dividends to
shareholders and the ability of Signet's subsidiary banks to pay
dividends to the Company. Under applicable regulatory
restrictions, all of the Company's
banking subsidiaries will be able to pay dividends to the Company
in 1994.
Capital Analysis
A primary objective of management is and has been to sustain its
strong capital position to merit the confidence of customers, the
investing public, banking regulators and stockholders. A strong
capital position has helped the Company withstand unforeseen
adverse developments and take advantage of profitable investment
opportunities. It also allowed Signet to implement the Program
during 1991 and increase its quarterly dividend by 67% during
1993.
Capital adequacy is defined as the amount of capital needed to
maintain future asset growth and to absorb losses. Regulators
consider a range of factors when determining capital adequacy,
such as the organization's size, quality and stability of
earnings, risk diversification, management expertise, asset
quality, liquidity and internal controls. Management reviews the
various capital measures monthly and
takes appropriate action to ensure that they are within
established internal and external guidelines. Management believes
that Signet's current capital and liquidity positions are strong
and that its capital position is adequate to support its various
lines of business.
Effective in 1989, the Federal Reserve Board issued capital
guidelines which are sensitive to credit risk factors (including
off-balance sheet exposure). Emphasis is placed on common
stockholders' equity in relationship to total assets adjusted for
risk. The focus is principally on credit risk, but does include
certain interest rate and market risks when assigning risk
categories. The risk-based capital guidelines define capital as
either core capital (Tier I) or supplementary capital (Tier II).
These guidelines required banking organizations to meet a minimum
total capital ratio of 8%, with at least 4% Tier I Capital, by
year-end 1992. Under the Federal Deposit Insurance Corporation
Improvement Act of 1991 ("FDICIA"), the risk-based capital
standards will be revised in 1994 to incorporate interest rate
risk.
FDICIA also requires the federal banking agencies to take prompt
corrective action in respect to depository institutions that do
not meet minimum capital requirements. FDICIA established five
capital tiers: well-capitalized,
adequately capitalized, undercapitalized, significantly
undercapitalized and critically undercapitalized. A depository
institution's capital tier depends upon where its capital levels
are in relation to various relevant capital measures, which
include a risk-based capital measure and a leverage ratio capital
measure, and certain other factors. As of December 31, 1993, all
three of Signet's banking subsidiaries met the well-capitalized
criteria.
As detailed in Table 25, the Company's consolidated risk-based
capital ratios at December 31, 1993 were 15.02% and 11.12% for
Total Capital and Tier I Capital, respectively. The Federal
Reserve Board also requires a minimum leverage ratio of 3%. For
most corporations, including Signet, the minimum leverage ratio
is 3% plus an additional cushion of at least 100 to 200 basis
points depending upon risk profiles and other factors. The
leverage ratio is calculated by dividing Tier I Capital by the
current quarter's total average assets less goodwill and other
disallowed intangibles. Signet's leverage ratio at December 31,
1993 was 8.13%. For informational purposes, Table 26 details the
components of Signet's intangible assets for the past five years
and the estimated amortization for the next five years.
Off-Balance Sheet Risk
Signet has been party to financial instruments with off-balance
sheet risk in the normal course of business to meet the financing
needs of its customers, to reduce its own exposure to
fluctuations in interest rates and to participate in trading
activities. These financial instruments include commitments to
extend credit, standby and commercial letters of credit, forward
and futures contracts, interest rate swaps, interest rate caps
and floors written, options written and mortgages sold with
recourse. These instruments involve, to varying degrees, elements
of credit or interest rate risk in excess of the amount
recognized on the balance sheet. Signet used the same credit
policies for off-balance sheet items as it does for on-balance
sheet instruments. See the Interest Rate Sensitivity discussion
and Note O to Consolidated Financial Statements for further
details of off-balance sheet risk.
Interest Rate Sensitivity
Signet's interest rate sensitivity position is managed by the
Asset and Liability Committee ("ALCO"). ALCO's purpose is to
optimize rate sensitive income by managing balance sheet mix and
interest rate sensitivity in order to create an acceptable
balance among soundness, profitability and liquidity. Legislative
changes, monetary control efforts and the effects of deregulation
have significantly affected the task of managing interest rate
sensitivity positions in recent years. Interest rate sensitivity
is the relationship between changes in market interest rates and
changes in net interest income due to the repricing
characteristics of assets and liabilities. When interest rates
are rising, a net asset position is desirable as more assets will
be repriced at higher rates than liabilities, resulting in a
favorable impact on net interest income. Similarly, when interest
rates are declining, a net liability
position is preferred. ALCO routinely uses derivatives such as
interest rate swaps to insulate the Company against the
possibility of sudden changes in interest rates. ALCO, in
managing interest rate sensitivity, also uses simulations to
better identify the impact that market changes and alternative
strategies might have on net interest income. Current simulations
indicate that an immediate and sustained 100 basis point change
in interest rates would have less than a 4% impact on rate
sensitive income over the next twelve months, reflecting Signet's
conservative balance sheet strategy. ALCO operates under a policy
to limit the impact of a sudden 100 basis point change in
interest rates to no more than a 5% change in net income over a
twelve month period.
During 1993, as well as at year-end, Signet positioned itself for
a declining rate environment. While Table 27
shows a basic 180-day net asset position of $988 million at
December 31, 1993, the Company had taken steps to limit its
exposure to rising rates through the purchase of derivative
products. Execution of these off-balance sheet interest rate and
hedging instruments resulted in an 180-day net liability position
of $1.4 billion, or 12% of total assets. At December 31, 1993,
the notional values of the Company's derivative products for the
purpose of hedging interest rate risk are $2.4 billion of
interest rate swaps, $700 million of interest rate floors, $400
million of interest rate caps and $200 million of futures
contracts.
Interest rate swaps, where the Company makes variable rate
payments and receives fixed rate payments, were entered into to
hedge the interest rate sensitivity in the Company's existing
balance sheet mix. During 1993, the Company's interest rate swaps
increased income on earning assets by $2.7 million and reduced
borrowing costs by $90.3 million. The majority of the existing
interest rate swaps have either a 3- or 5- year life and will
have matured by 1999. Interest rate floors, with average strike
prices of approximately 5% tied to the three-month London Inter-
Bank Offering Rate ("LIBOR"), increased income on earning assets
by $11.4 million in 1993. Interest rate floors were
purchased to hedge variable rate assets against decreases in
interest rates. Maturity dates on the interest rate floors range
from 1997-2003. Interest rate caps, with average strike prices of
approximately 5.5% tied to the three-month LIBOR, increased
borrowing costs by $7.9 million in 1993. Interest rate caps were
purchased to hedge variable rate
liabilities against increases in interest rates. All existing
interest rate caps will mature by mid-1995. Futures contracts
were purchased to hedge interest rate changes in temporary
investments. During 1993, gains of $200 thousand on closed
contracts increased income on temporary investments. As the
derivative contracts mature, management will determine the
necessity to enter into additional contracts at that time.
Liquidity
Liquidity is the ability to meet present and future financial
obligations either through the sale or maturity of existing
assets or by the acquisition of additional funds through
liability management. Therefore, both the coordination of asset
and liability maturities and effective liability management are
important to the maintenance of liquidity. Stable core deposits
and other interest-bearing funds, accessibility to local,
regional and national funding sources and readily
marketable assets are all important determinants of liquidity.
Table 28 reflects certain liquidity ratios for the past five
year-ends. The 1993 ratios remained very strong.
Asset liquidity is generally provided by temporary investments.
Table 8 shows 54% of this portfolio maturing within 90 days. As
indicated in Table 9, $172 million of investment securities
mature within one year. Liability liquidity is measured by the
Company's ability to obtain deposits and purchase funds at
favorable rates and in adequate amounts and by the length of
maturities. Since core deposits are the most stable source of
liquidity a bank can have because they are government insured,
the high level of average core deposits during 1993 maintained
the Company's strong liquidity position. Signet's 1993 year-end
and average loan balances were entirely funded with core
deposits. Signet's equity base, as noted earlier, also provides a
stable source of funding. The parent company does not rely on the
capital markets for funding on a regular basis. The parent
company issues a modest amount of commercial paper in its local
market, which is reinvested in repurchase agreements with its
subsidiary banks (included in Advances to Bank Subsidiaries on
the parent company's balance sheet). Additionally, the parent
company does not have any significant long-term debt issues
maturing until 1997; however, as noted earlier, on February 1,
1994, Signet called for redemption at par the remaining $11.9
million of 7 3/4% Senior Debentures due in 1997.
For 1993, cash and cash equivalents declined by $321 million as
Federal funds sold overnight dropped sharply. Cash provided by
operations was $424 million for this time period resulting mainly
from proceeds from securitization of credit card loans. Cash used
by investing activities amounted to $304 million principally due
to an increase in loans. Cash used by financing activities
amounted to $441 million due primarily to the decrease in short-
term borrowings.
Inflation
Since interest rates and inflation rates do not always move in
concert, the effect of inflation on banks, may not necessarily be
the same as on other businesses. A bank's asset and liability
structure differs significantly from that of manufacturing and
other concerns in that virtually all assets and liabilities are
of a monetary nature. Inflation affects a bank's lending
activities. Since inflation tends to drive the costs of goods and
services higher, the level of customers' financing needs usually
rise to keep pace. As loan demand increases, competition for
variable funds may raise the base rate charged for these funds.
Banks are then faced with increased credit risk as borrowers
experience greater exposure to financial risk from the higher
rates. In such cases, banks place more emphasis on the adequacy
of the allowance for loan losses. As a result, continued
inflation increases the overall cost of doing business, both
directly and indirectly.
Fair Value
The FASB has issued SFAS No. 107, "Disclosures About Fair Value
of Financial Instruments" and Note R to Consolidated Financial
Statements includes the requirements of this statement. Since
interest rates, credit risks and other dimensions of fair value
of the Company's assets, liabilities and off-balance sheet
instruments change rapidly and, additionally, since this
disclosure excludes some aspects of the Company's overall fair
value, Note R should not be viewed as an indication of the
Company's overall market value. Furthermore, certain valuation
techniques used in developing Note R require assumptions and
forecasts of cash flows. While Note R
complies with Statement No. 107, these assumptions and other
subjective determinations should be considered when interpreting
the data.
Signet Banking Corporation and Subsidiaries
Management's Discussion and Analysis of Financial Condition
and Results of Operations-1992 Compared to 1991
Summary of Performance
On June 23, 1993, the Company declared a two-for-one split of its
common stock in the form of a 100% stock dividend. One additional
share of stock was issued on July 27, 1993, for each share held
by stockholders of record at the close of business on July 6,
1993. All per share data in this Report have been adjusted to
reflect this stock split.
Signet's financial performance for 1992 and 1991 was affected by
several events. During 1992, Signet completed the successful
conversion of existing automated applications (except credit card
and commercial loans) to an integrated system and increased the
common stock dividend by 50%, from an annual rate of $.40 to $.60
per share. In 1991, Signet made a special provision of $165.0
million ($146.6 million to the allowance for loan losses and
$18.4 million to the reserve for foreclosed properties) to
accelerate the reduction of real estate assets. In addition, 1991
included the assumption of approximately $450 million of deposits
from the failed Madison National Banks in Washington, D.C. and
Virginia ("the failed Madison Banks"), the March 1991
securitization of $500 million of credit card receivables and the
fourth quarter sale of the merchant credit card processing
business.
Signet reported consolidated net income of $109.2 million for
1992, or $1.96 per share, compared with a consolidated net loss
of $25.7 million, or $.48 per share, in 1991. The 1992
performance reflected improved net interest margins, substantial
growth in non-interest sources of revenues, expense control and
significant improvement in asset quality, which was due primarily
to the success of the Accelerated Real Estate Asset Reduction
Program ("the Program"). The Program was established at the end
of 1991 to enable the Company to reduce problem real estate
assets and minimize their impact on future earnings. The Company
reduced its overall risk real estate exposure (construc
tion loans, commercial mortgage loans and foreclosed properties)
by $417 million and non-performing assets declined by $151
million to total $181 million at December 31, 1992. Profitability
measures reflected the improved level of earnings in 1992 as
return on assets ("ROA") was .98% and return on common
stockholders' equity ("ROE") was 14.22%.
Comparative 1991 results included net securities gains of $93.2
million, an $8.9 million gain on the sale of the merchant credit
card processing business, $14.6 million of credit card
solicitation expenses, as well as the $165.0 million
special loan loss and foreclosed property provisions to
establish the Program mentioned above.
Income Statement Analysis
Net Interest Income
Taxable equivalent net interest income was $454.9 million
for 1992, an increase of $34.9 million, or 8%, over 1991. The
overall improvement in net interest income resulted from the mix
and volume of earning assets and interest bearing liabilities,
and their relative sensitivity to interest rate movements.
The net yield margin rose in 1992 to 4.47% from 3.98% for 1991,
an increase of 49 basis points. The increase in the net yield
margin was the net result of several factors: a change in the mix
of earning assets due primarily to the impact of the 1991 credit
card securitization (9 basis points); and lower yields on and
changes in the mix of earning assets, including temporary
investments, due to the lower rate environment experienced during
1992 (168 basis points) offset,
in part, by a favorable change in the mix of funding sources and,
due to the lower rate environment, lower costs associated with
these funding sources (202 basis points); lower levels and
related effects of non-performing loans (10 basis points); and
higher levels of credit card outstandings and
demand deposits (14 basis points).
Provision and Allowance for Loan Losses
The provision for loan losses totaled $67.8 million for 1992,
a decrease of $219.7 million from the 1991 total of $287.5
million. As noted earlier, in December, 1991, Signet made a
special provision of $146.6 million to the allowance for loan
losses as part of the Program.
Net charge-offs amounted to $131.6 million for 1992, compared
with $123.3 million in 1991. Increases were noted in both real
estate categories. Real estate-construction net charge-offs for
1992 totaled $57.9 million, up from the $31.0 million level
reported for 1991, while real estate-mortgage net charge-offs
(primarily commercial mortgages) totaled $14.8 million, compared
to $3.0 million for last year.
Of the $72.7 million in real estate net charge-offs, $63.8
million were in Program loans. Commercial net charge-offs totaled
$26.2 million for 1992, a decrease of $25.8 million from 1991.
This included $6.8 million of commercial net charge-offs in the
Program. Other consumer net charge-offs increased to $3.4
million, or .29% of average other consumer loans. Credit card net
charge-offs amounted to $29.3 million in 1992, or 4.13% of
average credit card loans. The 1992 net charge-offs ratio for the
credit card loans both on balance sheet and securitized was
5.31%. This is slightly lower than the 1991 level of 5.46% and
reflects a downward trend in charge-offs and delinquencies. The
two credit card securitizations reduced the dollar level and
ratios of credit card net charge-offs for 1992 in comparison with
1991.
The allowance for loan losses at December 31, 1992 was $265.5
million, or 4.57% of year-end loans, compared with the 1991 year-
end allowance of $329.4 million, or 5.60% of loans, and included
$100.0 million designated for the Program. The 1991 year-end
allowance included $179.5 million designated for the Program. The
1992 allowance for loan losses was 228% of year-end non-performing loans and
147% of year-end non-performing assets indicating significantly
improved coverage over 1991 when the December 31, 1991 allowance
for loan losses was 157% of non-performing loans and 99% of non-
performing assets.
Non-Interest Income
Non-interest operating income amounted to $281.0 million for
1992, an increase of $32.5 million, or 13% over 1991. Credit card
servicing income totaled $101.2 million for 1992, an increase of
$38.5 million over last year. This category primarily houses the
income received for servicing the $1.0 billion of credit card
receivables securitized ($500 million in September, 1990 and $500
million in March, 1991). Service charges on deposit accounts
continued its steady growth with an increase of $4.0 million, or
6%, over 1991 to $67.0 million. This growth was the result of a
full year of service charges on the deposits assumed from the
failed Madison Banks, increased volume of business activity and
fee repricing due to rising costs of servicing deposit accounts
and to an emphasis on profitability in target pricing for certain
services. Credit card service charges, which include membership
fees and other credit card processing fees, totaled $31.6 million
for 1992, a decline of $10.7 million from 1991 due to the
securitizations and the 1991 fourth quarter sale of the merchant
credit card processing business. Trust income, which totaled
$15.9 million, was slightly below last year, due to revised fee
schedules and a change in the mix of business activity in the
trust services area. Mortgage origination and servicing income
totaled $16.5 million for 1992 compared to $8.7 million in 1991,
an increase of 89%, as a result of a significant increase in the
volume of mortgage refinancings. During 1992, mortgage production
totaled $1.1 billion, which was more than double the 1991 level.
Since the majority of these loans are sold in the secondary
market with servicing retained by
Signet, the Company's servicing portfolio grew to $2.1 billion at
December 31, 1992. Trading profits totaled $11.2 million, a
decrease of $3.7 million from 1991. Other service charges and
fees, which consist primarily of fees related to: discount
brokerage ($6.7 million); commercial and standby letters of
credit ($4.7 million); and checkbooks ($2.8 million) totaled
$17.5 million, an increase of 37% from 1991. The remaining
recurring categories of non-interest operating income, which
included safe deposit box rentals, income from various insurance
products and miscellaneous income from other sources, amounted to
$20.1 million for 1992, an increase of $.8 million, or 4% over
1991.
In 1992, Signet recognized net losses of $7.4 million on
investment securities and securities available for sale
transactions primarily the result of $17.0 million of writedowns
on collateralized mortgage obligation residuals and excess
mortgage servicing held in the investment securities portfolio.
These securities are sensitive to the increases in mortgage
prepayments caused by the lower interest rates and high
volume of refinancings experienced during 1992. Gains of $10.5
million were recognized on transactions in the securities
available for sale portfolio, primarily on sales of 30-year
mortgage-backed securities. The net losses of $7.4 million
in 1992 compares with $93.2 million of net gains in 1991,
primarily on transactions in the Company's available for
sale portfolio.
Non-Interest Expense
Non-interest expense for 1992 totaled $499.2 million, a decrease
of $9.7 million, or 2% from 1991. Excluding foreclosed property
expense from both years, non-interest operating expense increased
10% as a result of increases in incentive compensation, employee
benefits and credit card solicitation costs.
Staff expense (salaries and employee benefits), the largest
component of non-interest expense, totaled $236.0 million, a 13%
increase over 1991. Salaries (excluding incentives of $20.8
million for 1992 and $10.1
million for 1991) declined year-over-year due to the reduction in
staff, which was offset partially by promotional and merit
increases. The incentive compensation amounts increased as a direct result
of the overall performance of the Company. For 1992, profit
sharing awards of $13.0 million were recorded in the employee
benefits category due to higher corporate earnings. In 1991, no
profit sharing expense was incurred. The rising cost of medical
insurance and other benefits also contributed to the overall
increase in employee benefits. Part of the decline (approximately
270) in the number of employees during 1991 was related to
contracting out data processing services to a third party vendor.
Both 1992 and 1991 included expenses related to the credit card
solicitation program initiated during early 1989. These costs
totaled $23.1 million ($15.3 million after-tax, or $.27 per
share) for 1992 and $14.6 million ($9.7 million after-tax, or
$.18 per share) for 1991.
Supplies and equipment expense declined $4.1 million or 11% year-
to-year primarily due to Signet's decision to outsource its
information services. Public relations, sales and advertising
expense during 1992 declined $1.3 million from the 1991 level due
to reductions in promotional campaigns. Two non-interest expense
categories (professional services and credit and collection)
reflected the costs associated with increased business volume and
expense related to the economic downturn net of several cost
reduction initiatives instituted during 1991 and 1992. Other non-
interest expense declined $6.3 million, or 15%, from 1991. This
decrease was due primarily to a lower and more normal level of
operational losses during 1992.
The decrease of $51.3 million in foreclosed property expense was
primarily due to the provisions recorded during 1991 to establish
a reserve for foreclosed properties. During 1992, provisions of
$15.5 million were expensed compared to $71.9 million during
1991. This reserve had a balance of $10.6 million at year-end
1992. The majority ($60.4 million, or 93%) of Signet's net
foreclosed properties at the end of 1992 were included in the Program.
During 1991, Signet assumed the deposit liabilities of the
failed Madison Banks and incurred some transition and branch
operating costs associated with this assumption. Most of the
expense categories were affected to some extent by these costs,
which totaled approximately $7 million in 1991.
Income Taxes
Income tax expense reported for 1992 was $32.9 million as
compared with income tax benefit of $30.9 million for 1991. This
represented an effective tax rate of 23.2% for 1992 and an
effective tax benefit rate of 54.6% for 1991. The Company's
income taxes (benefit) were significantly affected by the
alternative minimum tax credit in 1992 and by the relative
proportion of taxable and tax-exempt income due to the increased
provision for loan losses in 1991. The 1992 income tax expense
included an alternative minimum tax credit of $6.3 million.
Balance Sheet Review
Earning Assets
Average earning assets totaled $10.2 billion for 1992, a decline
of 3% from the 1991 level. Decreases occurred in the temporary
investments ($1.1 billion) and loan ($453 million) portfolios,
while the investments securities portfolio increased by $1.2
billion. A detailed discussion of each
earning asset category follows.
Temporary investments averaged $2.4 billion, a decrease of 32%,
from 1991. This category of earning assets decreased
significantly from 1991 to 1992 in recognition of Signet's
liquidity position, the lower level of deposits and the sluggish
economy. In addition, $262.9 million of mortgage-backed
securities available for sale were sold during 1992 resulting in
net gains of $10.5 million. The overall portfolio yield of 5.25%
declined from the 1991 level of 7.96% due to the significantly
lower market rates experienced during 1992.
Investment securities for 1992 averaged $2.1 billion, an increase
of $1.2 billion over the 1991 level. The Company increased its
holdings of U.S. Treasury securities during late 1991 and 1992 in
response to reduced loan demand and to generate sustainable
sources of interest income. In addition, $17 million of
writedowns were recorded in the Company's portfolio of
collateralized mortgage obligation residuals and excess mortgage
servicing caused by the previously noted increase in prepayments
on the mortgages underlying these types of securities. This
portfolio totaled $8.8 million at year-end 1992. At year-end
1992, the investment securities portfolio (excluding securities
having no maturity) had a remaining average maturity of 5 years
and unrealized gains of $51.1 million and unrealized losses of
$15.8 million. Investment securities portfolio yields declined to
6.99% in 1992 from the 1991 level of 8.84% as a result of the
change in the mix of the portfolio caused by the more recently
purchased U.S. Treasuries.
Loans (net of unearned income) for 1992, averaged $5.6 billion, a
decrease of $453 million, or 7%, from the 1991 level. Decreases
occurred in all loan categories, on average, except for a 13%
increase in credit card loans. The loan portfolio was
significantly affected in 1991 and 1992 by the two credit card
securitizations and weak loan demand caused by the sluggish
economy and customers lowering their debt levels. Commercial
loans, which represented 40% of the total average loan portfolio,
averaged $2.2 billion for 1992, a slight decline from 1991.
Signet's commercial loan portfolio is strongly oriented toward
diversified middle market borrowers. Credit card receivables
averaged $709 million for 1992, an increase of 13% from 1991, and
represented 13% of the total average loan portfolio. The credit
card outstandings were significantly reduced by the $1.0 billion
of securitizations ($500 million in September, 1990 and $500
million in March, 1991). The credit card solicitation program
added approximately 400,000 new
accounts for 1992. Other consumer loans averaged $1.2 billion for
1992, a 7% decline from 1991, and represented 21% of the total
loan portfolio. This category consisted of home equity loans
($491 million-1992, $512 million-1991), student loans ($293
million-1992, $276 million-1991), second mortgage loans ($98
million-1992, $127 million-1991), direct and indirect automobile
installment loans ($73 million-1992, $117 million-1991), and
other consumer-type loans ($244 million-1992, $259 million-1991).
Real estate-construction loans totaled $776 million, a decrease
of 28%, or $306 million, from the 1991 average. It represented
14% of the average loan portfolio for 1992 down from 18% in 1991.
Real estate-commercial mortgage loans represented 11% of the
average loan portfolio. This category averaged $604 million, a
decrease of less than 1%, from 1991. The portfolio consisted of
$412 million of commercial mortgage loans and $192 million of
mini-permanent (interim) mortgage loans. Real estate-residential
mortgage loans declined $29 million, or 24%, from 1991 to average $94 million.
Risk Elements
Non-Performing Assets
Non-performing assets at year-end 1992 totaled $181.1 million
(net of the $10.6 million foreclosed property reserve),
or 3.08% of loans and foreclosed properties, compared with $332.4
million, or 5.53%, respectively, at the end of 1991.
The overall decline in non-performing assets can be directly
attributed to the Program. Overall non-performing real estate
assets declined $154.9 million, or 50%, including $57.6 million
of foreclosed properties (net of reserves). Foreclosed properties
totaled $64.8 million (net of reserve) at the end of 1992, and
represented 36% of total non-performing assets and 44% of non-
performing real estate assets. The reserve for foreclosed
properties at the end of 1992 represented 14% of the foreclosed
property balance before the reserve which already reflected a 51%
discount from prior charge-offs and writedowns. There were $15.5
million of additions to the reserve charged to expense during
1992. Signet sold $116.0 million of foreclosed properties during
1992. The average discount from the loan balance prior to any charge-offs and
writedowns was approximately 37%. This percentage was comprised
of 13% taken as charge-offs prior to foreclosure and 24% taken in
writedowns and other expenses at sale. Of the $116.0 million of
foreclosed properties sold during 1992, Signet provided
financing, under normal business terms and underwriting
standards, of $25.6 million.
Accruing loans past due 90 days or more as to principal or
interest payments totaled $64.8 million and $92.0 million at the
end of 1992 and 1991, respectively. At year-end 1992, management
was monitoring $128.9 million of loans for which there was
uncertainty as to the ability of the borrower to comply with
present repayment terms and which were not included in the above
disclosure.
Real Estate Lending
Signet's real estate-construction loan exposure at December 31,
1992, totaled $549 million, a decline of 42%, or $404 million,
from the 1991 year-end level. Approximately 62% of these loans
was located in the Metro-Washington area, while only 5% was
located outside Signet's market area. The largest type of
construction financing was office buildings, followed closely by
residential.
The other category of real estate lending is mortgage loans,
which consist of two categories-commercial mortgage and
residential mortgage. Commercial mortgage loans totaled $632
million at December 31, 1992 and included $281 million of mini-
permanent (interim) mortgage loans. Residential mortgages totaled
$78 million at the 1992 year-end.
Accelerated Real Estate Asset
Reduction Program ("the Program")
The Company initiated a program in December, 1991, to accelerate
the reduction of real estate assets. The Program's objective was
to significantly reduce the Company's overall exposure to risk
real estate assets through the use of discounts without adversely
impacting future earnings.
During 1992, Program assets (before reserves) were reduced by
41%, or $355.5 million. The Program started the year with $645.8
million of assets (net of the allowance for loan losses of $179.5
million and the reserve for foreclosed properties of $41.6
million) and ended 1992 with $400.9
million of assets (net of the allowance for loan losses of $100.0
million and the reserve for foreclosed properties
of $10.6 million).
During 1992, Signet sold $110.3 million of Program foreclosed
properties at a 20% discount from the previous year-end balance.
This was approximately equal to the discounts established on
these properties. Loans removed from the Program on refinancings,
payoffs, etc. were $161.1 million. Discounts taken on these loans
were 15% compared to the 21% discount originally established. In
total, the discounts taken for all asset sales or removals were
18% compared to the 21% discount established.
The remaining discounts in the Program at year-end 1992 of $110.6
million represented 21.6% of the assets in the Program as
compared to 25.5% at the inception of the Program. The previous
writedowns and charge-offs, coupled with the current
allowance/reserve provides coverage of 25% on performing loans,
32% on non-performing loans, 50% on foreclosed properties and 31% in
the aggregate.
Funding
Deposits
Average deposits totaled $7.9 billion for 1992, a decrease of 6%,
or $476 million, from 1991. This decline was due primarily to
decreases of $630 million in savings certificates and $458
million in large denomination certificates. Core deposits
averaged $7.6 billion for 1992, a decrease of less than 1% from
1991. Purchased deposits, primarily large denomination
certificates, averaged $296 million for 1992, a decrease of $470
million, or 61%, from 1991. Signet's own mutual fund family, the
Signet Select Series, attracted $102 million in 1992. In
addition, Signet's sales of non-proprietary mutual fund and
annuity products totaled $135 million in 1992.
Short-Term and Long-Term Borrowings
Short-term borrowings increased $97 million, or 5%, over 1991 to
average $2.1 billion. Long-term borrowings averaged $298 million
for 1992, a decline of 6%, or $19 million, from 1991.
Capital
At December 31, 1992, stockholders' equity totaled $827 million,
an increase of $115 million, or 16% from the previous year-end
level of $712 million. The increase reflected net retained income
for 1992 of $84.4 million and the issuance of 626,372 shares of
new common stock in a public offering in May, 1992, which
provided approximately $19.7 million in new equity. Issuance of
common stock through investor and employee stock purchase plans,
as well as the stock option plan, added an additional $6.9
million in net proceeds
to equity.
In November, 1992, Signet increased its quarterly dividend from
$.10 to $.15 per share, which brought the new annual rate to $.60
from $.40 per share. The valuation allowance for marketable
equity securities declined by $4.0 million during 1992 due
principally to the improvement in the market value of certain of
these securities. At year-end 1992, the book value of these
securities was approximately market value. The Company's
consolidated risk-based capital ratios at December 31, 1992 were
13.86% and 9.56% for Total Capital and Tier I Capital,
respectively. Signet's leverage ratio at December 31, 1992 was
7.24%.
Interest Rate Sensitivity, Liquidity and Inflation
At December 31, 1992, the Company had a basic 180-day net asset
position of $2.0 billion. Execution of off-balance sheet interest
rate and hedging instruments resulted in a 180-day net liability
position of $224 million, or 1.85% of total assets.
The high level of average core deposits during 1992 maintained
the Company's strong liquidity position. Signet's 1992 year-end
and average loan balances were entirely funded with core
deposits.
A bank's asset and liability structure differs significantly from
that of manufacturing and other concerns in that virtually all
assets and liabilities are of a monetary nature. Continued
inflation has increased the overall cost of doing business, both
directly and indirectly.
Signet Banking Corporation and Subsidiaries
Glossary of Financial Terms
Basis Point-A unit of measure for interest yields and rates
equivalent to one one-hundredth of one percent. One hundred basis
points equals one percent.
Book Value Per Common Share-The value of a share of common stock
determined by dividing total common stockholders' equity at the
end of a period by the total number of common shares outstanding
at the end of the same period.
Core Deposits-The total of all deposit sources of funds except
large denomination certificates and foreign deposits.
Credit Card Securitization-An off-balance sheet funding technique
which transforms credit card receivables into marketable
securities. The receivables are transferred to a trust and
interests in the trust are sold to investors for cash. In this
transaction, the net of interest income, fee income, charge-offs,
and the investors' coupon payment becomes servicing fees.
Earning Assets-Assets that generate interest income and yield-
related fee income, such as temporary investments, investment
securities and loans.
Interest Bearing Liabilities-Liabilities upon which interest is
paid for the use of funds and consist of all deposit accounts
(except demand deposits), short-term borrowings and long-term
borrowings.
Interest Sensitivity Gap-The amount by which interest-rate
sensitive assets exceed interest-rate sensitive liabilities for a
designated time period is referred to as a net asset position. An
excess of liabilities would represent a net
liability position.
Interest-Rate Sensitive Assets/Liabilities-Assets and liabilities
whose yields or rates can change within a designated time period,
due either to their maturity during this period or to the
contractual ability of the institution to change the yield/rate
during this period.
Leverage Ratio-Tier I capital divided by total assets
less goodwill.
Managed Credit Card Portfolio-The total of credit card loans,
credit card loans held for sale and securitized credit card
loans.
Net Charge-Offs-The amount of loans written off as uncollectible
net of any recoveries on loans previously written off as
uncollectible.
Net Interest Income-The difference between total interest income
and total interest expense.
Net Interest Spread-The difference between the yield on interest-
earning assets (taxable equivalent basis) and the rate paid on
interest bearing liabilities.
Net Yield Margin-A measurement of how effectively
an institution utilizes its earning assets in relationship to
the interest cost of funding them. It is computed by dividing net
interest income (taxable-equivalent basis) by average interest-
earning assets.
Non-Accrual Loans-Loans on which interest accruals have been
discontinued due to the borrower's financial
difficulties.
Non-Performing Assets-The total of non-performing
loans and foreclosed properties.
Non-Performing Loans-The total of non-accrual and restructured
loans.
Purchased Deposits-The total of large denomination
certificates and foreign deposits.
Restructured Loans-A loan is considered restructured when an
institution for economic or legal reasons related to the debtor's
financial difficulties grants a concession to the debtor that it
would not otherwise consider.
Return on Assets (ROA)-A measure of profitability that indicates
how effectively an institution utilized its assets. It is
calculated by dividing net income by total average assets.
Return on Common Stockholders' Equity (ROE)-
A measure of profitability that indicates what an institution
earned on its stockholders' investment. It is calculated by
dividing net income attributable to common shares by total
average common stockholders' equity.
Risk Real Estate Assets-The total of construction loans,
commercial mortgage loans and foreclosed properties.
Supplementary Capital-Tier II, or supplementary capital, may
consist of an institution's subordinated debt instruments,
redeemable preferred stock and a limited amount of the allowance
for loan losses.
Taxable Equivalent Income-Tax exempt interest income which, for
comparative purposes, has been increased by an amount equivalent
to the federal income taxes which would have been paid if this
income were fully taxable at the federal statutory rate.
Tier I Capital-Core capital, or Tier I capital, may consist of an
institution's common stockholders' equity, qualifying perpetual
preferred stock less goodwill.
Total Capital-The total of Tier I capital and supplementary
capital (Tier II).
Signet Banking Corporation and Subsidiaries
Consolidated Balance Sheet
December 31
(dollars in thousands-except per share) 1993 1992
Assets
Cash and due from banks $ 463,358 $ 502,998
Temporary investments:
Interest bearing deposits with other banks 540,312 418,821
Federal funds sold and securities
purchased under resale agreements 1,075,754 1,479,061
Securities available for sale 248,163 346,843
Loans held for sale 421,361 215,084
Trading account securities 379,638 668,311
Total temporary investments 2,665,228 3,128,120
Investment securities (market value
1993-$1,829,231, 1992-$2,108,775) 1,769,615 2,073,462
Loans:
Commercial 2,299,973 2,181,218
Credit card 1,808,515 1,243,873
Other consumer 1,297,309 1,179,303
Real estate-construction 309,842 549,001
Real estate-commercial mortgage 581,529 632,072
Real estate-residential mortgage 71,411 77,844
Gross loans 6,368,579 5,863,311
Less: Unearned income (58,267) (54,689)
Allowance for loan losses (253,313) (265,536)
Net loans 6,056,999 5,543,086
Premises and equipment (net) 216,524 199,153
Interest receivable 84,118 100,852
Other assets 593,380 545,076
$11,849,222 $12,092,747
Liabilities
Non-interest bearing deposits $1,544,852 $1,432,977
Interest bearing deposits:
Money market and interest checking 1,039,215 973,319
Money market savings 1,745,066 1,855,374
Savings accounts 880,072 674,860
Savings certificates 2,051,300 2,530,227
Large denomination certificates 347,820 257,225
Foreign 212,288 99,332
Total interest bearing deposits 6,275,761 6,390,337
Total deposits 7,820,613 7,823,314
Securities sold under repurchase agreements 1,281,645 2,236,469
Federal funds purchased 942,969 465,972
Commercial paper 168,488 125,126
Other short-term borrowings 232,024 168,273
Long-term borrowings 266,152 297,962
Interest payable 28,205 27,610
Other liabilities 144,464 121,389
Total liabilities 10,884,560 11,266,115
Stockholders' Equity
Common Stock, par value $5 per share;
Authorized 100,000,000 shares,
issued and outstanding 56,608,578
(1993) and 27,980,824 (1992) 283,043 139,904
Capital surplus 133,038 126,282
Retained earnings 548,581 560,446
Total stockholders' equity 964,662 826,632
$11,849,222 $12,092,747
See notes to consolidated financial statements.
Signet Banking Corporation and Subsidiaries
Statement of Consolidated Operations
Year Ended December 31
(in thousands-except per share) 1993 1992 1991
Interest income:
Loans, including fees:
Commercial $157,157 $178,465 $216,909
Credit card 215,607 110,864 104,204
Other consumer 95,273 103,948 131,417
Real estate-construction 31,570 53,754 94,876
Real estate-commercial mortgage 44,830 46,570 53,165
Real estate-residential mortgage 7,634 9,801 13,030
Total loans, including fees 552,071 503,402 613,601
Temporary investments 136,726 128,228 285,654
Investment securities-taxable 93,538 111,550 39,335
Investment securities-nontaxable 21,390 24,082 24,996
Total interest income 803,725 767,262 963,586
Interest expense:
Money market and interest checking 22,544 27,638 33,473
Money market savings 45,463 64,500 92,383
Savings accounts 24,079 21,189 21,115
Savings certificates 58,514 102,519 227,644
Large denomination certificates 10,970 13,936 46,022
Foreign 6,627 994 2,573
Total interest on deposits 168,197 230,776 423,210
Securities sold under repurchase
agreements 42,193 53,586 78,368
Federal funds purchased 21,793 11,975 25,699
Other short-term borrowings 25,521 15,899 14,289
Long-term borrowings 16,681 19,416 24,050
Total interest expense 274,385 331,652 565,616
Net interest income 529,340 435,610 397,970
Provision for loan losses 47,286 67,794 287,484
Net interest income after provision
for loan losses 482,054 367,816 110,486
Non-interest income:
Credit card servicing income 153,018 101,185 62,664
Service charges on deposit accounts 64,471 66,971 62,924
Credit card service charges 63,222 31,553 42,276
Trust income 17,599 15,949 16,019
Other 62,808 65,330 64,654
Non-interest operating income 361,118 280,988 248,537
Securities available for sale gains 3,913 10,504 94,666
Investment securities gains (losses) 405 (17,951) (1,445)
Total non-interest income 365,436 273,541 341,758
Non-interest expense:
Salaries 212,665 186,600 177,626
Employee benefits 65,249 49,388 31,366
Credit card solicitation 55,815 23,133 14,648
Supplies and equipment 40,550 32,536 36,660
Occupancy 40,192 38,899 39,231
External data processing services 36,578 31,138 18,846
Travel and communications 35,416 25,662 24,688
Foreclosed property 13,575 26,741 78,085
Other 98,276 85,142 87,775
Total non-interest expense 598,316 499,239 508,925
Income (loss) before income taxes
(benefit) 249,174 142,118 (56,681)
Applicable income taxes (benefit) 74,760 32,918 (30,934)
Net income (loss) $174,414 $109,200 $(25,747)
Earnings (loss) per common share $ 3.06 $ 1.96 $ (0.48)
Cash dividends declared per share .80 .45 .30
Average common shares outstanding 56,920 55,727 53,994
See notes to consolidated financial statements.
Signet Banking Corporation and Subsidiaries
Statement of Consolidated Cash Flows
Year Ended December 31
(in thousands) 1993 1992 1991
Operating Activities
Net Income (loss) $ 174,414 $109,200 $ (25,747)
Adjustments to reconcile net income
to net cash provided by operating
activities:
Provision for loan losses 47,286 67,794 287,484
Provision and writedowns on foreclosed
property 7,852 17,170 71,878
Depreciation and amortization 37,073 35,178 43,155
Investment securities (gains) losses (405) 17,951 1,445
Securities available for sale gains (3,913) (10,504) (94,666)
Decrease (increase) in interest
receivable 16,734 (4,355) 14,758
Increase in other assets (63,663) (58,226) (153,114)
Increase (decrease) in interest payable 595 (12,597) (13,019)
Increase in other liabilities 23,075 6,363 39,609
Proceeds from sales and maturities
of securities available for sale 108,593 660,064 2,103,013
Purchases of securities available
for sale (6,000) (400,330) (711,499)
Proceeds from securitization
of credit card loans 2,283,329 498,850
Proceeds from sales of loans held
for sale 11,518,162 21,628,906 33,283,838
Purchases and originations of loans
held for sale (14,007,768) (21,709,180) (33,290,799)
Proceeds from sales of trading
account securities 13,184,093 10,706,397 12,029,998
Purchases of trading account
securities (12,895,420) (11,186,538) (12,150,565)
Decrease (increase) in receivable
from security sales 773,595 (773,595)
Other (8,946)
Net cash provided by operating
activities 424,037 640,888 1,152,078
Investing Activities
Proceeds from sales of investment
securities 13,225 534,637
Proceeds from maturities of investment
securities 519,509 380,335 27,382
Purchases of investment securities (218,197) (591,832) (1,757,550)
Net (increase) decrease in loans (596,509) (79,929) 312,614
Recoveries of loans previously
charged-off 35,310 23,340 16,795
Proceeds from sale of bank card
merchant business 8,946
Purchases of premises and equipment (44,526) (8,234) (23,842)
Net cash received from acquisition 383,590
Net cash used by investing activities (304,413) (263,095) (497,428)
Financing Activities
Net decrease in deposits (2,701) (657,224) (312,302)
Net (decrease) increase in short-term
borrowings (370,714) 1,403,383 (310,358)
Repayment of long-term debt (31,810) (1,059) (51,271)
Proceeds from issuance of common stock 9,203 26,625 4,852
Payment of cash dividends (45,058) (24,768) (26,501)
Net cash (used) provided by
financing activities (441,080) 746,957 (695,580)
(Decrease) increase in cash and
cash equivalents (321,456) 1,124,750 (40,930)
Cash and cash equivalents at
beginning of year 2,400,880 1,276,130 1,317,060
Cash and cash equivalents at end
of year $2,079,424 $2,400,880 $1,276,130
See notes to consolidated financial statements.
<TABLE>
Signet Banking Corporation and Subsidiaries
Statement of Changes in Consolidated Stockholders' Equity
Common Stock Capital Retained
(dollars in thousands-except per share) Shares Amount Surplus Earnings
<S> <C> <C> <C> <C>
Balance December 31, 1990 26,614,593 $133,073 $101,636 $501,646
Net loss (25,747)
Issuance of Common Stock 402,957 2,015 2,837
Cash dividends - Common Stock-
$.30 a share (16,121)
Change in valuation allowance-marketable
equity securities 12,212
Balance December 31, 1991 27,017,550 135,088 104,473 471,990
Net income 109,200
Issuance of Common Stock 963,274 4,816 21,809
Cash dividends - Common Stock-
$.45 a share (24,768)
Change in valuation allowance-marketable
equity securities 4,024
Balance December 31, 1992 27,980,824 139,904 126,282 560,446
Net income 174,414
Issuance of Common Stock 489,283 2,447 6,756
Cash dividends - Common Stock-
$.80 a share (45,058)
Change in valuation allowance-marketable
equity securities (529)
Two-for-one common stock split 28,138,471 140,692 (140,692)
Balance December 31, 1993 56,608,578 $283,043 $133,038 $548,581
See notes to consolidated financial statements.
</TABLE>
Signet Banking Corporation and Subsidiaries
Notes to Consolidated Financial Statements
(dollars in thousands-except per share)
Note A-Significant Accounting Policies
The consolidated financial statements of Signet Banking
Corporation ("Signet" or the "Company") and subsidiaries are
prepared in conformity with generally accepted accounting
principles and prevailing practices of the banking industry. The
following is a summary of the significant accounting and
reporting policies used in preparing the financial statements.
Consolidation and Reclassifications: The consolidated financial
statements include the accounts of Signet, including Signet
Bank/Virginia, Signet Bank/Maryland and Signet Bank N.A., its
principal banking subsidiaries. All significant intercompany
balances and transactions have been eliminated. Certain prior
years' amounts have been reclassified to conform to the 1993
presentation.
Statement of Consolidated Cash Flows: Cash and cash equivalents,
as presented in the statement of cash flows, includes cash and
due from banks, interest bearing deposits with other banks and
federal funds sold and securities purchased under resale
agreements. Cash paid during the years ended December 31, 1993,
1992 and 1991 for interest was $273,790, $344,249 and $578,097,
respectively. Cash paid for income taxes for the same periods was
$48,520, $29,857 and $37,641, respectively. During 1993 and 1992,
$26,238 and $86,024 respectively, was transferred from loans to
foreclosed property. During 1993, no loans were originated to
facilitate the sale of foreclosed properties. During 1992,
$25,645 of loans were originated to facilitate the sale of
foreclosed properties.
Temporary Investments: Temporary investments are carried at the
lower of aggregate cost or market, except that trading account
securities are carried at market.
Securities Available For Sale: Securities available for sale
includes securities for which the primary objective is to realize
a holding gain and/or securities held for indefinite periods of
time and not intended to be held until maturity. Securities held
for indefinite periods of time include securities that may be
sold in response to changes in interest rates and/or significant
prepayment risk. Securities available for sale are carried at the
lower of aggregate cost or market value. When securities are
sold, the adjusted cost of the specific certificate sold is used
to compute gains or losses on the sale.
The Company will adopt Statement of Financial Accounting
Standards ("SFAS") No. 115, "Accounting for Certain Investments
in Debt and Equity Securities" in 1994. Securities available for
sale will then represent those securities not classified as
either investment securities or trading account securities and
will be carried at fair value with unrealized gains and losses
reported as a separate component
of stockholders' equity. At adoption, securities totaling
$1,509,328 will be reclassified from investment securities to
securities available for sale. An after-tax gain of $29,987 will
be carried as a separate component of stockholders' equity,
representing the unrealized gain in securities available for
sale.
Loans Held For Sale: Loans held for sale are carried at the lower
of aggregate cost or market value.
Investment Securities: When securities are purchased and at each
balance sheet date, they are classified as investment securities
if it is management's intent to hold them until maturity. These
securities (other than marketable equity securities) are carried
at cost, adjusted for amortization of premiums and accretion of
discounts, both computed by the effective yield method. When
securities are sold, the adjusted cost of the specific
certificate sold is used to compute gains or losses on the sale.
Marketable equity securities are stated at the lower of cost or
market. A valuation allowance representing the excess of cost
over market is established by charges to stockholders' equity.
During 1992 and 1991, the Company realized $46 and $4,710,
respectively, in losses on marketable equity securities. During 1993,
the Company realized no such losses. At December 31, 1993, there were gross
unrealized gains of approximately $581 on the marketable equity
securities compared with gross unrealized losses of approximately
$370 at December 31, 1992. At the time of sale, the cost of
marketable equity securities is determined by the specific
identification method. The Company will adopt SFAS No. 115 in
1994 as noted in the Securities Available For Sale discussion
above.
Loans: Interest on loans is computed by methods which generally
result in level rates of return on principal amounts outstanding.
It is management's practice to cease accruing interest on
commercial and real estate loans when payments are 90 days
delinquent. However, management may elect to continue the accrual
of interest when the estimated net realizable value of collateral
is sufficient to cover the principal balance and accrued
interest, and the loan is in the process of collection. Credit
card loans typically are charged off when the loan is six months
past due and no payments have been received for 60 days, while
other consumer loans typically are charged off when the loan is
six months past due. Loan origination and commitment fees and
certain direct loan origination costs are deferred and generally
amortized as an adjustment of the related loans' yield over the
contractual life of the related loans except for certain loans
(e.g., home equity line) which consider anticipated prepayments
in establishing an economic life. Credit card loan origination
costs are deferred and amortized over one year.
Allowance for Loan Losses: The allowance for loan losses is
maintained to absorb possible future losses, net of recoveries,
inherent in the existing loan portfolio. The provision for loan
losses is the periodic cost of maintaining an adequate allowance.
In evaluating the adequacy of the allowance for loan losses,
management, on a monthly basis, takes into consideration the
following factors: the condition of industries and geographic
areas experiencing or expected to experience particular economic
adversities; historical charge-off and recovery activity (noting
any particular trend changes over recent periods); trends in
delinquencies, bankruptcies and non-performing loans; trends in
loan volume and size of credit risks; any irrevocable commitments
to extend funds; the degree of risk inherent in the composition
of the loan portfolio; current and anticipated economic
conditions; credit evaluations; underwriting policies; and the
liquidity and volatility of the markets in which Signet does
business.
The Company will adopt SFAS No. 114, "Accounting by Creditors
for Impairment of a Loan" in 1995. This statement sets forth the
appropriate method of computing the allowance for loan losses for
impaired loans, but does not give guidance on the overall
allowance adequacy. Impaired loans will be measured at the
present value of their expected future cash flows by discounting
those cash flows at the loan's effective interest rate. The
difference between this discounted amount and the loan balance is
recorded as an allowance for loan losses. The new statement also
requires that troubled debt restructurings involving a
modification of terms be remeasured on a discounted basis. The
Company is currently evaluating the impact that SFAS No. 114 will
have on the Company's future results of operations and financial
position. However, management does not expect that this statement
will have a materially adverse impact on these results.
Premises and Equipment: Premises and equipment are stated at cost
less allowances for depreciation and amortization ($188,845 at
December 31, 1993; $170,241 at December 31, 1992). Depreciation
and amortization expense is computed generally by the straight-
line method. Interest costs relating to the construction of major
operating facilities are capitalized using
a weighted average rate.
Foreclosed Property: Real estate acquired in satisfaction of a
loan and in-substance foreclosures are included in other assets,
and stated at the lower of (1) fair value minus estimated costs
to sell; or (2) cost, defined as the fair value of the asset on
the date of foreclosure or classification into in substance
foreclosure. A foreclosed property reserve is maintained for
subsequent valuation adjustments on a specific property basis. In
substance foreclosures are properties in which the borrower has
little or no equity in the collateral, where repayment of the
loan is expected only from the operation or sale of the
collateral, and the borrower either effectively abandons control
of the property or the borrower has retained control of the
property but the ability to rebuild equity based on current
financial conditions is considered doubtful.
Interest Rate Futures, Options, Caps, Floors and Swaps: Interest
rate futures, options, caps and floors are utilized to reduce
interest rate risks and to assist in the asset/liability
management function. Gains and losses on futures and options
contracts used in securities trading operations are recognized
currently by the mark-to-market method of accounting and included
in trading profits (losses). Gains and losses on hedging
contracts and costs associated with interest rate caps and floors
used in asset/liability management are deferred and amortized
over the lives of the hedged assets or liabilities as an
adjustment to interest income or expense. Interest rate swaps are
utilized to manage interest rate exposure and as a source of fee
income. In general, income or expense associated with interest
rate swap transactions is recorded in the same category as the
item being hedged and accrued over the life of the agreements.
As an intermediary, the Company maintains a portfolio of
generally matched offsetting swap agreements. At inception of the
swap agreements, the portion of the compensation related to
credit risk and ongoing servicing is deferred and taken into
income over the term of the swap agreements. The portion of the
compensation related to arrangement fees is recognized currently.
Income Taxes: Prepaid and deferred income taxes are provided for
timing differences between income and expense for financial
reporting purposes and for income tax purposes.
Adoption of SFAS No. 109, "Accounting for Income Taxes" did not
have a material impact on the Company's financial position or
results of operations. As permitted by SFAS No. 109, the Company
elected not to restate the financial statements of any prior
years.
Earnings Per Share: Earnings per share were based on the average
number of shares outstanding, applicable equivalents (stock
options) and additional contingently issuable shares (related to
conversion of debentures).
Note B-Cash and Due From Banks
The domestic bank subsidiaries are required to maintain average
reserve balances with the Federal Reserve Bank. The average
amount of those reserve balances were approximately $99,318 and
$83,403 for the years ended December 31, 1993 and 1992,
respectively.
Note C-Securities Available For Sale
Securities available for sale are summarized as follows:
Gross Gross
Book Unrealized Unrealized Market
December 31, 1993 Value Gains Losses Value
U.S. Government and agency
obligations-
Mortgage-backed securities $47,672 $3,123 $50,795
Other 199,641 1,484 201,125
Other 850 850
$248,163 $4,607 $252,770
December 31, 1992
U.S. Government and agency
obligations-
Mortgage-backed securities $146,880 $8,889 $155,769
Other 199,208 292 199,500
Other 755 755
$346,843 $9,181 $356,024
December 31, 1991
U.S. Government and agency
obligations-
Mortgage-backed securities $399,323 $23,533 $ (451) $422,405
Other 190,713 (13) 190,700
Other 1,078 1,078
$591,114 $23,533 $ (464) $614,183
The book and market values of securities available for sale by
contractual maturity, except mortgage-backed securities for which
an average life is used, at December 31, 1993 are shown below:
Book Market
Value Value
Due in one year or less $199,641 $201,125
Due after one year through five years 47,672 50,795
Due after ten years 850 850
$248,163 $252,770
Securities available for sale with aggregate book values of
approximately $198,619, $341,050, and $340,689 at December 31,
1993, 1992 and 1991, respectively, were pledged to secure public
deposits, repurchase agreements and other banking transactions.
Proceeds from sales of securities available for sale during 1993,
1992 and 1991 were $62,354, $262,949, and $1,953,975,
respectively. Gross gains of $3,913, $10,984 and $94,962, and
gross losses of $-0-, $480 and $296 were realized on those sales
for 1993, 1992 and 1991, respectively.
Note D-Investment Securities:
Investment securities are summarized as follows:
Gross Gross
Book Unrealized Unrealized Market
December 31, 1993 Value Gains Losses Value
U.S. Government and agency
obligations-
Mortgage-backed securities $461,345 $4,843 $(37) $466,151
Other 925,225 39,263 (6) 964,482
Obligations of states and
political subdivisions 258,815 18,690 (49) 277,456
Other 124,230 1,797 (4,885) 121,142
$1,769,615 $64,593 $(4,977) $1,829,231
December 31, 1992
U.S. Government and
agency obligations-
Mortgage-backed securities $ 755,506 $ 9,673 $ (31) $ 765,148
Other 868,272 14,666 (5) 882,933
Obligations of states and
political subdivisions 291,727 24,553 (435) 315,845
Other 157,957 2,205 (15,313) 144,849
$2,073,462 $51,097 $(15,784) $2,108,775
December 31, 1991
U.S. Government and agency
obligations-
Mortgage-backed securities $ 669,941 $15,981 $685,922
Other 698,744 8,701 707,445
Obligations of states and
political subdivisions 313,897 26,292 $(951) 339,238
Other 217,584 4,106 (25,239) 196,451
$1,900,166 $55,080 $(26,190) $1,929,056
The book and market values of investment securities by
contractual maturity, except mortgage-backed securities for which
an average life is used, at December 31, 1993 are shown below:
Book Market
Value Value
Due in one year or less $172,006 $173,046
Due after one year through five years 1,234,375 1,288,425
Due after five years through ten years 230,071 235,865
Due after ten years 133,163 131,895
$1,769,615 $1,829,231
Investment securities with aggregate book values of
approximately $1,460,790, $1,529,001 and $1,448,838 at December
31, 1993, 1992 and 1991, respectively, were pledged to secure
public deposits, repurchase agreements and other banking
transactions. Proceeds from sales of investment securities during
1993, 1992 and 1991 were $-0-, $13,225 and $311,655,
respectively. Gross gains of $534, $3,132 and $3,262 and gross
losses of $129, $4,083 and $4,707 were realized on those sales
and called securities for 1993, 1992 and 1991, respectively.
Note E-Allowance for Loan Losses and Reserve for Foreclosed
Property
The following is a summary of changes in the allowance for loan
losses:
Year Ended December 31
1993 1992 1991
Balance at beginning of year $265,536 $329,371 $163,669
Provision for loan losses 47,286 67,794 287,484
Net addition (deduction) arising
in purchase/sale transactions (2,902) 1,503
Losses 91,917 154,969 140,080
Recoveries 35,310 23,340 16,795
Net loan losses 56,607 131,629 123,285
Balance at end of year $253,313 $265,536 $329,371
Following is a summary of changes in the reserve for foreclosed
property:
Year Ended December 31
1993 1992 1991
Balance at beginning of year $ 10,625 $ 41,632 $ -
Provision for foreclosed property 7,405 15,503 71,878
Writedowns of foreclosed property (12,288) (46,510) (30,246)
Balance at end of year $ 5,742 $ 10,625 $41,632
During December 1991, the Company made special provisions of
$146,600 and $18,400 to the allowance for loan losses and reserve
for foreclosed property, respectively, to accelerate the
reduction of certain performing and non-performing real estate
assets.
Note F-Non-Performing Assets
Following is a summary of non-performing assets at December 31,
1993 and 1992 along with the interest recorded as income in 1993
and 1992 on the year-end non-accrual and restructured loans, as
well as the interest income for the same respective periods which
would have been recorded had the loans performed in accordance
with their original terms:
Non- Restructured Foreclosed
Accrual Loans Properties Total
Loans
1993
Aggregate recorded investment $68,854 $ 5,079 $42,553 $116,486
Interest at contracted rates 5,761 1,738 - 7,499
Interest recorded as income 2,152 352 - 2,504
1992
Aggregate recorded investment $85,670 $30,667 $64,778 $181,115
Interest at contracted rates 9,836 3,596 - 13,432
Interest recorded as income 3,769 1,622 - 5,391
Foreclosed properties were net of a $5,742 and $10,625 reserve
at December 31, 1993 and 1992, respectively, and include $10,357
and $11,124 of in substance foreclosed property at December 31,
1993 and 1992, respectively.
Note G-Securities Sold Under Repurchase Agreements and Other
Short-Term Borrowings
Information related to the Company's securities sold under
repurchase agreements at December 31, 1993 is segregated below by
type of securities sold by due date. The amounts below exclude
repurchase agreements that are collateralized by securities that
are marked to market on a monthly basis and those secured by
"reversed in collateral"/reverse repurchase agreements.
<TABLE>
Less After
Than 30-90 90
Overnight 30 Days Days Days Demand Total
<S> <C> <C> <C> <C> <C> <C>
U.S. Treasury:
Carrying value $618,343 $78,881 $19,367 $ 5,808 $156,633 $ 879,032
Market value 627,050 79,688 19,250 5,790 157,075 888,853
Repurchase
agreements 618,343 78,881 19,367 5,808 156,633 879,032
Interest rate 2.36% 3.18% 3.07% 3.31% 2.73% 2.52%
U.S. Government
agencies:
Carrying value $264,017 $49,349 $17,913 $ 6,656 $ 64,678 $ 402,613
Market value 268,572 50,198 18,239 6,789 65,769 409,567
Repurchase
agreements 264,017 49,349 17,913 6,656 64,678 402,613
Interest rate 1.99% 3.08% 2.90% 3.32% 2.73% 2.31%
Total:
Carrying value $882,360 $128,230 $37,280 $12,464 $221,311 $1,281,645
Market value 895,622 129,886 37,489 12,579 222,844 1,298,420
Repurchase
agreements 882,360 128,230 37,280 12,464 221,311 1,281,645
Interest rate 2.25% 3.14% 2.99% 3.32% 2.73% 2.45%
</TABLE>
Following is a summary of short-term borrowings for the years ended
December 31, 1993, 1992 and 1991:
<TABLE>
Maximum Average
Outstanding Weighted Interest
at Any Outstanding Average Average Rate at
Month End at Year End Outstanding Interest Rate Year End
<S> <C> <C> <C> <C> <C>
1993
Repurchase
agreements $1,674,044 $1,281,645 $1,337,553 3.2% 2.5%
Federal funds 1,043,546 942,969 705,654 3.1 3.1
Commercial paper 174,552 168,488 144,129 2.5 3.0
Other short-term
borrowings 459,346 232,024 338,276 6.5 6.2
Total $2,625,126 $2,525,612 3.5% 3.2%
1992
Repurchase
agreements $2,236,469 $2,236,469 $1,450,036 3.7% 2.9%
Federal Funds 465,972 465,972 343,799 3.5 2.6
Commercial paper 140,681 125,126 128,134 2.9 2.3
Other short-term
borrowings 343,088 168,273 163,904 7.5 7.2
Total $2,995,840 $2,085,873 3.9% 3.4%
1991
Repurchase
agreements $1,544,384 $ 954,385 $1,307,251 6.0% 3.8%
Federal funds 494,483 411,895 448,092 5.7 4.1
Commercial paper 202,318 145,317 159,037 5.1 3.7
Other short-term
borrowings 171,019 80,860 74,908 8.3 7.2
Total $1,592,457 $1,989,288 5.9 % 4.0%
</TABLE>
The weighted average interest rate is calculated by dividing
annual interest expense by the daily average outstanding
principal balance.
Below is data concerning reverse repurchase
agreements under which the amount at risk with the listed
counterparties exceeds 10% of the Company's stockholders' equity
at December 31, 1993:
Weighted
Name of Counterparty Amount at Risk Average Maturity
Kidder Peabody & Company, Inc. $ 156,675 January 7, 1994
Donaldson, Lufkin, Jenrette
Securities Corporation 125,000 January 13, l994
Nikko Securities Company 125,000 January 14, l994
Goldman Sachs & Company 110,350 January 3, 1994
Note H-Long-Term Borrowings
Long-term borrowings consisted of the following:
December 31
1993 1992
7 3/4% Senior Debentures due 1997 $ 11,900 $ 12,698
Notes and mortgages:
11% Mortgage 17,000
9 3/8% Mortgage 13,432
Other (5-11 3/5%) 4,252 4,832
4,252 35,264
Subordinated notes:
9 5/8% due 1999 100,000 100,000
Floating Rate due 1998 100,000 100,000
Floating Rate due 1997 50,000 50,000
250,000 250,000
$266,152 $297,962
The Senior Debentures may be redeemed at the option of the
Company, at par. On February 1, 1994, Signet called for
redemption the remaining $11,900 of senior debentures.
In 1989, the Company issued $100,000 principal amount of
unsecured 9 5/8% Subordinated Notes due in 1999. Interest on the
Notes is payable semiannually on June 1 and December 1 of each
year. The Notes will mature on June 1, 1999. The Notes are not
redeemable prior to maturity.
In 1986, the Company issued $100,000 principal amount of Floating
Rate Subordinated Notes due in 1998. The Notes are redeemable at
the option of the Company at their principal amount plus accrued
interest. The interest rate is determined quarterly based on the
London interbank offered quotations for three-month U.S. dollar
deposits.
In 1985, the Company issued $50,000 principal amount of Floating
Rate Subordinated Notes due in 1997. The Notes are redeemable at
the option of the Company at their principal amount plus accrued
interest. The interest rate is determined quarterly based on the
London interbank offered quotations for three-month U.S. dollar
deposits.
Premises stated at approximately $4,740 at December 31, 1993 are
subject to liens relating to notes and mortgages.
Maturities of long-term borrowings in the aggregate for the next
five years are as follows:
1994 $12,511 1996 $273 1998 $100,297
1995 616 1997 50,290
Note I-Preferred Stock
The Company is authorized to issue, in series, up to 5,000,000
shares of Preferred Stock with a par value of $20 per share.
Note J-Common Stock
At December 31, 1993, the Company had reserved 3,683,808 shares
of its Common Stock for issuance in connection with stock option,
employee and investor stock purchase plans.
The following is a summary of the number of shares of common
stock issued:
Year Ended December 31
1993 1992 1991
Two-for-one Stock Split 28,138,471
Stock issuance 626,372
Investor stock purchase plan 166,224 123,508 216,787
Employee stock purchase plan 76,344 63,760 163,550
Stock option plan 246,715 147,433 22,620
Other 2,201
Total 28,627,754 963,274 402,957
In June, 1993, the Company declared a two-for-one split of its
Common Stock in the form of a 100% stock dividend. One additional
share of stock was issued on July 27, 1993 for each share held by
stockholders of record at the close of business on July 6, 1993.
All information in the accompanying consolidated financial
statements pertaining to per share data has been retroactively
adjusted to reflect the stock split.
Under the Investor Stock Purchase Plan, 199,103 shares of Common
Stock were reserved at December 31, 1993. The plan provides that
the price of the Common Stock will be 95% of market value at the
time of purchase through dividend reinvestment and 100% of market
value at the time of purchase through optional cash
contributions.
In March 1991, the Company announced that, thereafter, its
dividend declaration would be made in the month following the end
of each quarter instead of in the last month of each quarter. As
a result, 1991 included only three dividend declarations;
however, four dividend payments were made.
In May 1989, the Company's Board of Directors declared a dividend
of one Preferred Share Purchase Right for each outstanding share
of the Company's Common Stock. Each right will entitle
stockholders to buy one two-hundredth of a share of a new Series
of Preferred Stock at an exercise price of $70. Each two-
hundredth of a share of the new Preferred Stock has terms
designed to approximate the economic equivalent of one share of
Common Stock. The rights will be exercisable only if a person or
group acquires 20% or more of the Company's Common Stock or
announces a tender offer, the consummation of which would result
in ownership by a person or group of 20% or more of the Common
Stock. The rights, which do not have voting privileges, expire in
1999, but may be redeemed by the Company prior to that time under
certain circumstances, for $0.01 per right. These rights should
not interfere with a business combination approved by the
Company's Board of Directors; however, they could cause
substantial dilution to a person or group attempting to acquire
the Company without conditioning the offer on redemption of the
rights or acquiring a substantial number of the rights. Until the
rights become exercisable, they have no dilutive effect on
earnings per share.
Note K-Employee Benefit Plans
The Company and its subsidiaries have a defined benefit pension
plan covering substantially all of its employees. The benefits
are based on years of service and the employee's career average
earnings. The Company's funding policy is to contribute amounts
to the plan sufficient to meet the minimum funding requirements
set forth in the Employee Retirement Income Security Act of 1974
plus such additional amounts as the Company may determine to be
appropriate from time to time. Approximately 94% of the plan
assets at December 31, 1993 were invested in listed stocks and
bonds. Another 5% is invested in a money market fund sponsored by
Signet Trust Company (a subsidiary of the Parent Company). Net
periodic pension cost included the following components:
1993 1992 1991
Service cost-benefits earned
during the period $6,505 $5,737 $5,372
Interest cost on projected
benefit obligation 6,482 5,873 5,341
Actual return on plan assets (3,532) (4,477) (21,131)
Net amortization and deferral (5,435) (4,097) 12,492
Net periodic pension cost $4,020 $3,036 $2,074
The following sets forth the plan's funded status and amounts
recognized in the Company's consolidated balance sheet:
December 31
1993 1992
Actuarial present value of benefit
obligations:
Vested benefit obligation $(87,063) $(72,123)
Accumulated benefit obligation $(93,249) $(78,395)
Projected benefit obligation $(93,249) $(78,395)
Plan assets, at fair value 89,979 95,363
Plan assets in excess of (less than)
projected benefit obligation (3,270) 16,968
Unrecognized net asset (6,962) (7,956)
Unrecognized prior service cost 2,844 (1,024)
Unrecognized net loss 13,965 2,609
Additional minimum liability (9,847)
Net pension asset (3,270) $10,597
Assumptions used were as follows:
1993 1992 1991
Discount rates 7.25% 8.25% 8.25%
Rates of increase in
compensation levels of employees 5.00 5.75 6.25
Expected long-term rate
of return on plan assets 8.75 8.75 9.25
Effective January 1, 1993, the Company adopted a cash balance
pension plan. The plan will enable the Company to better project
its future pension costs.
The Company sponsors a contributory savings plan and a profit
sharing plan. The savings plan allows substantially all full time
employees to participate while the profit sharing plan allows
participation after satisfaction of service requirements. The
Company matches a portion of the contribution made by employees,
which is based upon a percent of defined compensation, to the
savings plan. The profit sharing contribution is based upon the
income of the Company. The Company's expense was $22,235,
$15,881 and $2,754 in 1993, 1992 and 1991 under these plans,
respectively. There was no profit sharing contribution for 1991.
At December 31, 1993, employees of the Company held options to
purchase 1,033,508 common shares at an average option price of
$16.81 per share. These options expire on various dates beginning
February 1, 1994 and ending August 19, 2003. At the time options
are exercised, proceeds from the shares issued are credited to
capital and no charges or credits to income are made with respect
to any of the options.
Under the 1992 Stock Option Plan, options for the purchase of up
to 2,000,000 shares of Common Stock may be granted to key
personnel at prices not less than the market price per share on
the date of grant, and are exercisable not more than ten years
from the date of grant. At December 31, 1993 and 1992, options to
purchase 1,397,498 and 1,693,164 shares, respectively, of Common
Stock were available for future grants.
Under the 1992 Stock Option Plan, a feature was established by
the Company, whereby an employee is automatically granted a
reload option when shares of common stock owned by the employee
are delivered for cancellation to the Company in order to
exercise options. The option price of the reload options is the
fair market value of common stock on the date that the employee
delivers shares to the Company. The reload options are not
exercisable within the first six months after grant unless the
employee dies or becomes disabled during the six month period.
A summary of changes, under several plans, in shares of Common
Stock under option for the years 1993, 1992 and 1991 is as
follows:
Option Price
Shares Per Share
Outstanding December 31, 1990 1,083,176 $6.50-18.63
Granted 498,400 3.72
Exercised (48,040) 3.72-6.50
Cancelled (96,396) 6.50-17.06
Outstanding December 31, 1991 1,437,140 3.72-18.63
Granted 330,872 13.53-22.84
Exercised (503,330) 3.72-17.06
Cancelled (49,314) 6.50-17.06
Outstanding December 31, 1992 1,215,368 3.72-22.84
Granted 306,666 23.72-31.25
Exercised (446,032) 3.72-23.72
Cancelled (42,494) 12.72-23.72
Outstanding December 31, 1993 1,033,508 $ 3.72-31.25
The Company has an employee stock purchase plan whereby
employees of the Company and its subsidiaries are eligible to
participate through monthly salary deduction of a maximum of 15%
and a minimum of 2% of monthly base pay. The amounts deducted are
applied to the purchase of unissued Common Stock of the Company
at 85% of the current market price. No charges or credits to
income are made with respect to this plan.
The Company sponsors postretirement defined benefit plans that
provide medical and life insurance benefits to retirees.
Employees who retire after age 55 with 10 years of service are
eligible to participate. The postretirement health care plan is
contributory for participants who retire after June 1, 1991 with
retiree contributions adjusted annually and contains other cost
sharing features such as deductibles and coinsurance. The life
insurance is noncontributory. The accounting for the health care
plan anticipates future cost-sharing changes to the written plan
that are consistent with the Company's expressed intent to
increase retiree contributions annually in accordance with
increases in health care costs. The Company's policy is to fund
the cost of medical benefits in amounts determined at the
discretion of management.
In 1993, the Company adopted SFAS No. 106 "Employers' Accounting
for Postretirement Benefits Other than Pensions". The effect of
adopting the new rules increased 1993 net periodic postretirement
benefit cost by $4,571. Postretirement benefit cost for 1992, which
was recorded on a cash basis, has not been restated.
The following table sets forth the plans' combined funded status
reconciled with the amount shown in the Company's consolidated
balance sheet:
<TABLE>
December 31
1993 1992
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees $(35,105) $(33,383)
Fully eligible active plan participants (2,220) (2,019)
Other active plan participants (14,475) (11,907)
(51,800) (47,309)
Plan assets at fair value, primarily listed
stocks and bonds 5,245 5,704
Accumulated postretirement benefit
obligation in excess of plan assets (46,555) (41,605)
Unrecognized transition obligation 39,525 41,605
Unrecognized net loss 1,919
Accrued postretirement benefit cost $(5,111) $ -
</TABLE>
Net periodic postretirement benefit cost for the year ended December
31, 1993 included the following components:
Service cost $1,230
Interest cost 3,800
Actual return on plan assets (133)
Amortization of transition
obligation over 20 years 2,080
Net amortization and deferral (366)
Net periodic postreitrement benefit cost $6,611
For measurement purposes, a 13% and 10% annual rate of increase
in the per capita cost of covered health care benefits was
assumed for 1994 for participants under 65 years of age and 65
years and over, respectively; the rate was assumed to decrease
gradually to 5.25% for 2007 and remain at that level thereafter.
The health care cost trend rate assumption has a significant
effect on the amounts. For example, increasing the assumed health
care cost trend rates by one percentage point in each year would
increase the accumulated postretirement benefit obligation for
the medical plans as of December 31, 1993 by $6.1 million, and
the aggregate of the service and interest cost components of net
periodic postretirement benefit cost for 1993 by $.6 million. The
weighted-average discount rate used in determining the
accumulated postretirement benefit obligation was 7.25%. The
expected long-term rate of return on plan assets, after estimated
income taxes, was 8.75%.
In November 1992, SFAS No. 112, "Employers' Accounting for
Postemployment Benefits" was issued establishing accounting
standards for employers who provide benefits to former or
inactive employees after employment but before retirement.
Postemployment benefits are all types of benefits including
salary continuation, supplemental unemployment benefits,
severance benefits, disability-related benefits and continuation
of benefits such as health care benefits and life insurance
coverage. Employers are required to recognize the obligation to
provide such benefits on an accrual basis for fiscal years
beginning after December 15, 1993, instead of recognizing an
expense for these benefits when paid. The Company elected to
adopt this accounting standard in 1993. The related expense
reflected on the 1993 income statement was approximately $6.0
million.
Effective April 1, 1993, the Company adopted a Flexible Benefits
Plan for its employees. The plan allows employees to select their
benefit options, including medical coverage, disability insurance
and paid leave. The plan enables the Company to better manage its
rising health care costs, as well as provide employees more
choice in the selection of their benefits package.
Note L-Dividends and Other Restrictions
Certain regulatory restrictions exist regarding the ability of
the subsidiaries to transfer funds to the Parent Company in the
form of cash dividends, loans or advances. At December 31, 1993,
approximately $119,886, $3,861 and $3,165 of the retained
earnings of Signet Bank/Virginia, Signet Bank N.A. and Signet
Trust Company, respectively, and approximately $4,922 of the
retained earnings of the non-bank subsidiaries were available for
payment of dividends to the Parent Company, without prior
approval by regulatory authorities. The regulatory authorities
may also consider factors such as the level of current and
expected earnings stream, maintenance of an adequate loan loss
reserve and an adequate capital base when determining amounts
available for the payment of dividends. The restricted net assets
of the domestic bank subsidiaries amounted to $754,504 at
December 31, 1993.
Note M-Income Taxes
Effective January 1, 1993, the Company adopted FASB Statement No.
109, "Accounting for Income Taxes." Under Statement 109, the
liability method is used in accounting for income taxes. Under
this method, deferred tax assets and liabilities are determined
based on differences between financial reporting and tax bases of
assets and liabilities and are measured using the enacted tax
rates and laws that will be in effect when the differences are
expected to reverse. Prior to the adoption of Statement 109,
income tax expense was determined using the deferred method.
Deferred tax expense was based on items of income and expense
that were reported in different years in the financial statements
and tax returns and were measured at the tax rate in effect in
the year the difference originated. As permitted by Statement
109, the Company has elected not to restate the financial
statements of any prior years. The effect of the change on pretax
income from continuing operations for the year ended December 31,
1993, and the cumulative effect of the change as of January 1,
1993, were not material.
Deferred income taxes reflect the net tax effects of
temporary differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts used
for income tax purposes. Significant components of the Company's
deferred tax assets and liabilities as of December 31, 1993, are
as follows:
Deferred tax assets:
Allowance for loan losses $92,268
Foreclosed property 9,589
Other 23,159
Total deferred tax assets 125,016
Deferred tax liabilities:
Leasing 63,671
Other 21,162
Total deferred tax liabilities 84,833
Net deferred tax assets $40,183
Differences between applicable income taxes (benefit) and the
amount computed by applying statutory income tax rates are
summarized as follows:
Year Ended December 31
1993 1992 1991
Liability Method Deferred Method
Amounts at statutory rates
(35% in 1993, 34% in 1992
and 1991) $87,211 $48,320 $(19,272)
Effect of:
Tax exempt income (9,913) (11,403) (12,988)
Alternative minimum tax (6,303)
State taxes net of federal
benefit 2,066 1,101 (591)
Other (4,604) 1,203 1,917
Applicable income taxes $74,760 $32,918 $(30,934)
Taxes currently payable $58,201 $15,989 $ 42,384
Deferred income taxes 16,559 16,929 (73,318)
Applicable income taxes $74,760 $32,918 $(30,934)
Applicable income taxes include $1,513 in 1993, ($2,532) in 1992
and $32,903 in 1991 relating to securities available for sale
gains and investment securities gains (losses).
The components of the deferred tax expense resulting from timing
differences are as follows:
Year Ended December 31
1992 1991
Allowance for loan losses $ 20,681 $(55,858)
Foreclosed property 2,784 (21,584)
Alternative minimum tax (12,374)
Leasing 8,790 8,703
Depreciation (521) (482)
Other (2,431) (4,097)
$16,929 $(73,318)
The components of income tax expense are as follows:
Year Ended December 31
1993 1992 1991
Liability Method Deferred Method
Current Deferred Current Deferred Current Deferred
Federal $57,960 $13,621 $15,694 $15,555 $43,420 $(73,459)
State 241 2,938 295 1,374 (1,036) 141
$58,201 $16,559 $15,989 $16,929 $42,384 $(73,318)
Note N-Other Non-Interest Operating Income and Expense
The following schedule represents the items comprising other non-
interest operating income and expense:
Year Ended December 31
1993 1992 1991
Other non-interest operating income:
Mortgage servicing and origination $24,210 $16,529 $8,726
Other service charges and fees 16,260 17,540 12,815
Trading profits (losses) (1,396) 11,193 14,867
Gain on sale of bank card
merchant business 8,946
Other 23,734 20,068 19,300
Total $62,808 $65,330 $64,654
Other non-interest operating expense:
FDIC assessment $18,253 $18,769 $17,476
Public relations, sales and
advertising 17,213 7,868 9,204
Professional services 16,159 14,278 11,793
Credit and collection 10,619 9,231 7,969
Insurance 2,030 2,069 2,462
Taxes and licenses other than
payroll and income 2,962 1,966 2,687
Other 31,040 30,961 36,184
Total $98,276 $85,142 $87,775
Note O-Off-Balance Sheet Items and Contingent Liabilities
The Company is party to financial instruments with off-balance
sheet risk in the normal course of business to meet the financing
needs of customers, to reduce its own exposure to fluctuations in
interest rates and to participate in trading activities. These
financial instruments include commitments to extend credit,
standby and commercial letters of credit, forward and futures
contracts, interest rate swaps, interest rate caps and floors
written, options written and mortgages
sold with recourse. These instruments involve, to varying
degrees, elements of credit or interest rate risk in excess of
the amount recognized in the balance sheet. The contract or
notional amounts of these instruments shown in the Table
represent the extent of involvement the Company has in particular
classes of financial instruments at December 31, 1993 and 1992.
Commitments to extend credit include the unused portions of
commitments that obligate a bank to extend credit in the form of
loans, participations in loans or similar transactions.
Commitments to extend credit would also include loan proceeds
that a bank is obligated to advance, such as loan draws,
construction progress payments, rotating or revolving
credit arrangements (other than credit cards and related plans)
or similar transactions. Commitments generally have fixed
expiration dates or other termination clauses and may require
payment of a fee by the counterparty. Since many of the
commitments are expected to expire without being drawn upon, the
total commitment amounts do not necessarily represent future cash
requirements. Standby and commercial letters of credit are conditional
commitments issued by the Company, and unless discussed otherwise,
have the same characteristics as discussed for commitments.
Standby letters of credit are instruments issued by
an institution which represents an obligation to guarantee
payments on certain transactions. If a customer defaulted on loan
payments, the issuer of the letter would be called upon to make
payments. Standby letters of credit represent contingent
liabilities and therefore they are not included on an
institution's balance sheet. Commercial letters of credit are
conditional commitments on the part of a bank to provide payment
on drafts drawn in accordance with the terms of a document. A
commercial letter of credit is issued to specifically facilitate
trade or commerce. Under the terms of a commercial letter of
credit, as a general rule, drafts will be drawn when the
underlying transaction is consummated as intended. The Company
evaluates each customer's creditworthiness on a case-by-case
basis. The amount of collateral deemed necessary by the Company
upon extension of credit is based on management's credit
evaluation of the counterparty and the particular transaction.
Collateral held varies but may include accounts receivable,
marketable securities, deposit accounts, inventory and property,
plant and equipment. Credit risk (the possibility that a loss
may occur from the failure of another party to perform according
to the terms of a contract) exists to the extent of the contract
amount in the case of commitments and letters of credit. No
significant losses are anticipated as a result of these
transactions.
Futures contracts are legal agreements to buy or sell a
standardized quantity of a commodity or standardized financial
instrument at a specified future date and price. Futures
contracts are traded in organized exchanges. Forward contracts
are legal contracts between two parties to purchase and sell a
specific quantity of a financial instrument or commodity at a
price specified now, with delivery and settlement at a specified
future date. Exchange traded futures do not have any credit risk;
however, risks related to futures and forwards traded over-the-
counter arise from the possible inability of counterparties to
meet the terms of their contracts and from movements in
securities values and interest rates. Failure of a counterparty
would result in purchasing the underlying security in the market,
but would not cause an accounting loss. While in theory futures
and forwards represent obligations to make or take delivery, in
fact most are closed out by taking an exact but opposite position
in the same contract. Cash requirements of futures and forwards
include receipt/payment of cash for the sale or purchase of the
contracts.
The Company enters into a variety of interest rate contracts-
including interest rate swaps and corridors, interest rate caps
and floors written, and options written in its trading activities
and managing its interest rate exposure. Notional principal
amounts often are used to express the volume of these
transactions, but the amounts potentially subject to credit risk
are much smaller. Interest rate swap transactions generally
involve the exchange of fixed and floating rate interest payment
obligations without the exchange of the underlying principal
amounts. Entering into interest rate swap agreements involves not
only the risk of dealing with counterparties and their ability to
meet the terms of the contracts but also the interest rate risk
associated with unmatched positions. Interest rate corridors are
tools to manage exposure to interest rate risk by maintaining a
minimum spread within a specified range of rates. Interest rate
caps are tools used to manage exposure to interest rate risk by
modifying the rate sensitivity of selected liabilities by setting
an upper limit on a certain interest rate index. The institution
typically pays a fee for the cap and receives the amount by which
the actual rate exceeds the contractual rate, if any. Interest
rate floors are tools to manage exposure to interest rate risk by
modifying the rate sensitivity of selected assets by setting a
lower limit on a certain interest rate index. The institution
typically pays a fee for the floor and receives the amount by
which the contractual rate exceeds the actual rate, if any. Cash
flows from swaps, caps and floors are received or paid on the
established contract dates. Options are contracts that gives the
holder the right to buy (call) or sell (put) a specified quantity
of an asset from/to the issuer of such a contract at a fixed
price within a specified period of time. As a writer of options,
the Company receives a premium at the outset and then bears the
risk of an unfavorable change in the price of the financial
instrument underlying the option.
The Company also acts as an intermediary in arranging interest
rate swaps, caps and floors. As an intermediary, the Company
becomes a principal in the exchange of interest payments between
the parties and, therefore, is exposed to loss should one of the
parties default. The Company minimizes the risk by performing
normal credit reviews on its customers. As a writer of interest
rate caps and floors, the Company receives a fee at the outset
and then bears the risk of an unfavorable change in interest
rates. The Company minimizes its exposure to interest rate risk
by entering into offsetting positions that essentially
counterbalance each other.
The Company sells residential mortgage loans with recourse to
the Federal National Mortgage Association (FNMA) and the Federal
Home Loan Mortgage Company (FHLMC). Credit risk exists to the
extent of recourse, which totaled $25,976 and $55,938 at December
31, 1993 and 1992, respectively. Mortgages are collateralized by
1-4 family residential homes. The Company's policy is for an
average 85% loan-to-value ratio upon inception of the loan. Loans
above 80% have mortgage insurance.
Off-Balance Sheet Items December 31
(in millions) 1993 1992
Financial instruments whose contract
amounts represent credit risk:
Commitments to extend credit (unused) - net $7,461 $5,522
Standby and commercial letters of credit 337 383
Financial instruments whose contract amounts exceed
the amount of credit risk:
Forward and futures contracts 4,717 1,634
Interest rate swap agreements 2,886 2,818
Interest rate caps and floors written and options written 2,100 3,178
Mortgages sold with recourse 26 56
Certain premises and equipment are leased under agreements which
expire at various dates through 2051, without taking into
consideration renewal options available to the lessee. Many of
these leases provide for payment by the lessee of property taxes,
insurance premiums, cost of maintenance and other costs. In some
cases, rentals are subject to increase in relation to a cost of
living index. Total rental expense amounted to approximately
$18,541 in 1993, $17,715 in 1992 and $20,129 in 1991.
Future minimum rental commitments as of December 31, 1993 for
all non-cancellable operating leases with initial or remaining
terms of one year or more amounted to $138,535 and rental
commitments for the next five years are as follows:
1994 $18,651 1996 $16,779 1998 $11,900
1995 18,397 1997 14,077
The Company has entered into several agreements under which
certain data processing services, including management of the
Company's data center and installation of various new application
systems, will be provided by outside parties. The cost of these
services is determined by volume considerations, in addition to
an agreed base rate, for remaining terms up to eight years.
Note P-Securitizations
The Company securitized $2,289,656 of credit card receivables in
1993 as well as $500,000 in 1991 and 1990. These transactions
were recorded as sales in accordance with SFAS No. 77, "Reporting
by Transferors for Transfers of Receivables with Recourse." At
December 31, 1993, $3,289,656 of receivables were outstanding
under the securitizations. Proceeds from the sales in 1993 and
1991 totaled $2,283,329 and $498,850, respectively. Recourse
obligations related to these transactions are not material.
Excess servicing fees related to the securitizations are recorded
over the life of each sale transaction. The excess servicing fee
is based upon the difference between finance charges received
from the cardholders less the yield paid to investors, credit
losses and a normal servicing fee, which is also retained by the
Company. In accordance with the sale agreements, a fixed amount
of excess servicing fees are set aside to absorb credit losses.
The amount available to absorb credit losses is included in other
assets and was $68,421 at December 31, 1993 and $50,000 at
December 31, 1992.
Note Q-Significant Group Concentrations of Credit Risk
During 1993 and 1992, the Company maintained a concentration of
business activities with customers located within Maryland, the
District of Columbia and Virginia. As of December 31, 1993 and
1992, the Company held approximately $1.8 billion and $2.3
billion, respectively, in U.S. Government sponsored and U.S.
Government agency financial instruments, which have little, if
any, credit risk. The Company's current commercial
lending policies are strongly oriented toward diversified middle
market borrowers. The amount of collateral obtained, if deemed
necessary by the Company upon extension of credit, is based on
management's credit evaluation of the counterparty. Collateral
held varies but may include accounts receivable, marketable
securities, deposit accounts, inventory, property, plant and
equipment, real estate and income-producing commercial
properties.
Note R-Disclosures About Fair Value of Financial Instruments
SFAS No. 107, "Disclosures about Fair Value of Financial
Instruments", requires disclosure of fair value information about
financial instruments, whether or not recognized in the balance
sheet, for which it is practicable to estimate that value. In
cases where quoted market prices are not available, fair values
are based on estimates using present value or other valuation
techniques. Those techniques are significantly affected by the
assumptions used, including the discount rate and estimates of
future cash flows. In that regard, the derived fair value
estimates cannot be substantiated by comparison to independent
markets and, in many cases, could not be realized in immediate
settlement of the instrument. SFAS No. 107 excludes certain
financial instruments and all nonfinancial instruments from its
disclosure requirements though the Company has decided to include
certain of the non-required items. Accordingly, the aggregate
fair value amounts presented do not represent the underlying
value of the Company.
The following methods and assumptions were used by the Company in
estimating the fair value for its financial instruments and other
non-required items as defined by SFAS No. 107:
Cash and Due From Banks: The carrying amount approximates fair
value.
Temporary Investments: For interest bearing deposits with other
banks and federal funds sold and securities purchased under
resale agreements, the carrying amount approximates fair value.
For securities available for sale, loans held for sale and
trading account securities, fair values are based on published
market prices or dealer quotes.
Investment Securities: Fair values are based on published market
prices or dealer quotes.
Loans: For credit card and equity line receivables with short-
term and/or variable characteristics, the total receivables
outstanding approximates fair value. This amount excludes any
value related to account relationship. The fair value of other
types of loans is estimated by discounting the future cash flows
using the comparable risk-free rate and adjusting for credit risk
and operating costs.
Interest Receivable and Interest Payable: The carrying amount
approximates fair value.
Other Assets and Other Liabilities: For financial instruments
included in these categories, the carrying amount approximates
fair value.
Non-Interest Bearing Deposits: The fair value of these
instruments, by the SFAS No. 107 definition, is the amount
payable on demand at the reporting date.
Interest Bearing Deposits: The fair value of demand deposits,
savings accounts and money market deposits with no defined
maturity, by SFAS No. 107 definition, is the amount payable on
demand at the reporting date. The fair value of certificates of
deposit is estimated by discounting the future cash flows using
the current rates at which similar deposits would be made.
Securities Sold Under Repurchase Agreements, Federal Funds
Purchased, Commercial Paper and Other Short-Term Borrowings: For
these short-term instruments, the carrying amount approximates
fair value.
Long-Term Borrowings: For these instruments, fair value is based
on dealer quotes, where available, and on estimates made by
discounting the future cash flows using the current rates at
which similar borrowings would be made.
Commitments To Extend Credit and Standby and Commercial Letters
of Credit: The fair value of commercial lending related letters
of credit and commitments is estimated as the amount of fees
currently charged to enter into similar agreements, taking into
account the present creditworthiness of the counterparties. This
amount is included with the fair value of the related loans. The
Company has commitments of $265,586 related to the mortgage loan
portfolio. It is not practicable to separately estimate the value
of these commitments due to the excessive cost involved. These
values are included in the loans held for sale valuation which is
part of temporary investments. The fair value of credit card and
equity line commitments is included in Account Relationships
discussed below.
Interest Rate Caps and Floors:
The fair value of these instruments is based on quoted market
prices.
Interest Rate Swap Agreements: The fair value of these
instruments is the estimated amount that the Company would
receive or pay to terminate the swap agreements at the reporting
date, taking into account current interest rates and the current
creditworthiness of the swap counterparties.
Account Relationships: The estimated value ascribed to equity
line account relationships is derived from dealer quotes based on
portfolio characteristics. The estimated value ascribed to credit
card account relationships is derived from the portfolio's
anticipated net operating cash flows discounted using an
appropriate weighted average cost of capital.
Core Deposit Intangible: The estimated value ascribed to core
deposits is computed by discounting the estimated cost savings
from these deposits over their estimated life, using an
incremental cost of funds rate.
Servicing Portfolio for Mortgage Loans: The fair value of these
instruments is estimated by using an internal valuation model.
December 31
1993 1992
Carrying Fair Carrying Fair
Value Value Value Value
The estimated fair values of
the Company's financial
instruments required to be
disclosed under SFAS No. 107:
Assets:
Cash and due from banks $463,358 $463,358 $502,998 $502,998
Temporary investments 2,665,228 2,669,835 3,128,120 3,138,618
Investment securities 1,769,615 1,829,232 2,073,462 2,108,775
Loans (a) 5,851,263 6,094,574 5,373,339 5,561,387
Interest receivable 84,118 84,118 100,852 100,852
Other assets (b) 16,716 16,716 23,107 23,107
Liabilities:
Non-interest bearing
deposits 1,544,852 1,544,852 1,432,977 1,432,977
Interest bearing deposits 6,275,761 6,304,724 6,390,337 6,447,687
Securities sold under
repurchase agreements 1,281,645 1,281,645 2,236,469 2,236,469
Federal funds purchased 942,969 942,969 465,972 465,972
Commercial paper 168,488 168,488 125,126 125,126
Other short-term borrowings 232,024 232,024 168,273 168,273
Long-term borrowings 266,152 282,269 297,962 308,013
Interest payable 28,205 28,205 27,610 27,610
Other liabilities (b) 7,743 7,743 12,744 12,744
Off-Balance Sheet Instruments:
Interest rate swap agreements 105,245 128,136
Interest rate caps and floors 11,310 1,512
The estimated fair value of
items not required to be
disclosed under SFAS No. 107:
Account relationships 1,004,918 469,944
Core deposit intangible 366,043 500,035
Servicing portfolio for mortgage loans 44,235 20,303
(a) As required by SFAS No. 107, lease receivables (net of
unearned income) with a carrying value totaling
$205,736 and $169,747 at December 31,
1993 and 1992, respectively, are excluded. The carrying values
are net of the allowance for loan losses and related unearned
income.
(b) Only financial instruments as defined by SFAS No. 107 are
included in this category.
Note S-Signet Banking Corporation (Parent Company Only) Condensed
Financial Information
December 31
Balance Sheet 1993 1992
Assets
Temporary investments $55,850 $65,755
Investment securities 16,675 15,538
Advances to:
Bank subsidiaries 304,360 244,972
Non-bank subsidiaries 1,201 13,468
Investments in:
Bank subsidiaries 954,656 825,322
Non-bank subsidiaries 9,769 8,184
Other assets 58,980 46,939
$1,401,491 $1,220,178
Liabilities
Commercial paper $ 168,488 $ 125,126
Long-term borrowings:
Senior debentures 11,900 12,698
Subordinated notes 250,000 250,000
Other 43 93
Other liabilities 6,398 5,629
Total liabilities 436,829 393,546
Common Stockholders' Equity 964,662 826,632
$1,401,491 $1,220,178
Statement of Operations
Year Ended December 31
1993 1992 1991
Income:
Dividends from bank subsidiaries $50,328 $19,923 $64,140
Interest from:
Bank subsidiaries 8,716 9,006 15,893
Non-bank subsidiaries 127 816 1,195
Others 2,674 3,037 4,851
Other income (loss)-net 2,738 1,251 (1,071)
64,583 34,033 85,008
Expense:
Interest 18,002 19,631 27,435
Non-interest 3,795 1,029 3,664
21,797 20,660 31,099
Income before income taxes
benefit and equity in
undistributed net income
of subsidiaries 42,786 13,373 53,909
Applicable income taxes benefit (2,122) (3,119) (4,618)
44,908 16,492 58,527
Equity in undistributed net
income (loss):
Bank subsidiaries 129,455 91,464 (79,865)
Non-bank subsidiaries 51 1,244 (4,409)
Net income (loss) $174,414 $109,200 $(25,747)
Statement of Cash Flows
Year Ended December 31
1993 1992 1991
OPERATING ACTIVITIES
Net Income (loss) $174,414 $109,200 $(25,747)
Adjustments to reconcile net
income (loss) to net cash
provided by operating
activities:
Equity in undistributed
(income) loss of subsidiaries (129,506) (92,708) 84,274
Realized investment security
(gains) losses (95) 74 4,687
Decrease (increase) in other
assets (12,472) 4,227 (11,553)
Increase (decrease) in other
liabilities 769 (485) (1,629)
Net cash provided by operating
activities 33,110 20,308 50,032
INVESTING ACTIVITIES
Decrease (increase) in temporary
investments 9,905 (60,755) 55,000
Net (purchases) sales of
investment securities (671) 15,481 16,176
Decrease (increase) in advances
to subsidiaries (47,121) 60,839 10,591
Decrease (increase) in investment
in subsidiaries (1,413) (17,500) (46,067)
Net cash provided (used) by
investing activities (39,300) (1,935) 35,700
FINANCING ACTIVITIES
Increase (decrease) in commercial
paper 43,362 (20,191) (63,982)
Decrease in long-term borrowings (848) (95) (50)
Proceeds from issuance of common
stock 9,203 26,625 4,852
Payment of cash dividends (45,058) (24,768) (26,501)
Net cash provided (used) by
financing activities 6,659 (18,429) (85,681)
Increase (decrease) in cash and
cash equivalents 469 (56) 51
Cash and cash equivalents at
beginning of year 39 95 44
Cash and cash equivalents at
end of year $508 $39 $95
Maturities of long-term borrowings
for the next five years are as
follows: 1994-$11,943,
1995-$0, 1996-$0, 1997-$50,000,
1998-$100,000.
Cash paid during the years ended December 31, 1993, 1992 and
1991 for interest was $18,029, $19,893 and $28,935, respectively.
Net cash paid (received) for income taxes for the same time
periods was $9,238, $(4,543) and $(4,306), respectively.
Report of Ernst & Young, Independent Auditors
Stockholders and Board of Directors
Signet Banking Corporation
We have audited the accompanying consolidated balance sheet of
Signet Banking Corporation and subsidiaries as of December 31,
1993 and 1992, and the related consolidated statements of
operations, changes in stockholders' equity and cash flows for
each of the three years in the period ended December 31, 1993.
These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion
on these 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 disclosures 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 financial statements referred to above
present fairly, in all material respects, the consolidated
financial position of Signet Banking Corporation and subsidiaries
at December 31, 1993 and 1992, and the consolidated results of
their operations and their cash flows for each of the three years
in the period ended December 31, 1993, in conformity with
generally accepted accounting principles.
Richmond, Virginia
January 21, 1994
<TABLE>
Signet Banking Corporation and Subsidiaries
Selected Financial Data
(dollars in thousands) 1993 1992 1991 1990 1989 1988
<S> <C> <C> <C> <C> <C> <C>
Year-End Balances
Cash and due from banks $ 463,358 $ 502,998 $530,557 $ 534,859 $ 522,763 $ 518,554
Temporary investments 2,665,228 3,128,120 1,659,667 3,240,822 810,146 544,137
Investment securities-taxable 1,510,800 1,781,735 1,586,269 284,391 3,015,958 2,190,841
Investment securities-
nontaxable 258,815 291,727 313,897 321,091 376,230 384,059
Loans:
Commercial 2,299,973 2,181,218 2,351,990 2,549,462 2,586,273 2,666,708
Credit card 1,808,515 1,243,873 700,488 679,854 1,418,415 1,199,800
Other consumer 1,297,309 1,179,303 1,233,310 1,319,432 1,399,772 1,394,947
Real estate-construction 309,842 549,001 952,687 1,199,599 1,199,085 1,093,971
Real estate-commercial
mortgage 581,529 632,072 587,644 617,621 531,498 454,899
Real estate-residential
mortgage 71,411 77,844 113,466 135,227 132,072 127,620
Gross loans 6,368,579 5,863,311 5,939,585 6,501,195 7,267,115 6,937,945
Less: Unearned income (58,267) (54,689) (55,923) (56,205) (52,220) (30,893)
Allowance for loan losses (253,313) (265,536) (329,371) (163,669) (93,572) (86,226)
Net loans 6,056,999 5,543,086 5,554,291 6,281,321 7,121,323 6,820,826
Premises and equipment (net) 216,524 199,153 216,378 218,985 205,100 203,111
Other assets 677,498 645,928 1,377,741 523,855 424,572 340,070
Total assets $11,849,222 $12,092,747 $11,238,800 $11,405,324 $12,476,092 $11,001,598
Deposits:
Non-interest bearing $1,544,852 $1,432,977 $1,341,490 $1,258,902 $1,383,285 $1,352,626
Money market and interest
checking 1,039,215 973,319 808,045 655,786 597,025 588,500
Money market savings 1,745,066 1,855,374 1,901,670 1,601,282 1,472,702 1,519,618
Savings accounts 880,072 674,860 449,366 406,001 417,909 455,378
Savings certificates 2,051,300 2,530,227 3,502,677 3,478,090 2,561,531 2,340,552
Large denomination
certificates 347,820 257,225 455,507 897,693 952,754 1,207,048
Foreign 212,288 99,332 21,783 46,376 209,854 82,211
Total deposits 7,820,613 7,823,314 8,480,538 8,344,130 7,595,060 7,545,933
Federal funds and repurchase
agreements 2,224,614 2,702,441 1,366,280 1,626,763 3,074,898 1,927,149
Other short-term borrowings 400,512 293,399 226,177 209,299 497,270 391,483
Long-term borrowings 266,152 297,962 299,021 350,292 361,186 273,462
Other liabilities 172,669 148,999 155,233 138,485 196,934 141,056
Preferred stock 60,000
Common stockholders' equity 964,662 826,632 711,551 736,355 750,744 662,515
Total liabilities and
stockholders' equity $11,849,222 $12,092,747 $11,238,800 $11,405,324 $12,476,092 $11,001,598
Supplemental Data
Number of employees
at year-end:
Full-time 5,753 4,702 4,697 5,330 5,677 5,797
Part-time 1,386 1,126 1,035 946 915 928
Number of common stockholders
at year-end 14,606 14,823 16,822 17,466 16,417 16,576
</TABLE>
<TABLE>
Signet Banking Corporation and Subsidiaries
Selected Financial Data
(dollars in thousands
- -except per share) 1993 1992 1991 1990 1989 1988
<S> <C> <C> <C> <C> <C> <C>
Average Balances
Cash and due from banks $ 461,249 $ 446,084 $ 429,020 $ 454,276 $ 464,933 $ 452,501
Temporary investments 2,442,459 2,447,380 3,591,744 988,703 725,481 601,213
Investment securities
- -taxable 1,628,855 1,809,648 557,092 2,801,688 2,497,587 2,419,571
Investment securities
- -nontaxable 274,967 305,814 317,781 366,148 379,038 390,881
Loans (net of
unearned income):
Commercial 2,101,423 2,235,382 2,339,531 2,535,436 2,455,966 2,423,881
Credit card 1,764,277 709,266 628,531 1,331,523 1,241,347 1,091,189
Other consumer 1,207,323 1,199,711 1,291,047 1,340,139 1,402,238 1,514,627
Real estate
-construction 448,859 776,447 1,082,342 1,245,071 1,135,575 1,160,552
Real estate
-commercial mortgage 607,573 603,934 606,610 593,976 554,111 436,175
Real estate
-residential mortgage 76,962 93,672 123,006 171,502 126,320 107,141
Total loans 6,206,417 5,618,412 6,071,067 7,217,647 6,915,557 6,733,565
Less:
Allowance for
loan losses (263,593) (307,558) (191,856) (118,240) (88,211) (98,930)
Net loans 5,942,824 5,310,854 5,879,211 7,099,407 6,827,346 6,634,635
Premises and
equipment (net) 201,792 207,186 217,386 210,462 198,383 202,797
Other assets 665,305 640,920 541,489 428,395 374,247 310,314
Total assets $11,617,451 $11,167,886 $11,533,723 $12,349,079 $11,467,015 $11,011,912
Deposits:
Non-interest
bearing $ 1,424,260 $ 1,270,364 $ 1,162,973 $ 1,131,186 $ 1,206,302 $ 1,210,946
Money market and
interest checking 960,342 875,654 709,136 613,871 571,538 562,018
Money market
savings 1,738,336 1,912,875 1,692,870 1,524,107 1,487,758 1,460,587
Savings accounts 772,194 563,932 434,484 417,276 433,559 490,277
Savings
certificates 2,364,320 2,967,714 3,597,228 2,909,487 2,482,965 2,322,641
Large denomination
certificates 272,693 268,713 727,160 1,125,161 967,397 1,398,713
Foreign 200,440 26,919 38,271 179,058 191,961 106,942
Total deposits 7,732,585 7,886,171 8,362,122 7,900,146 7,341,480 7,552,124
Federal funds and
repurchase agreements 2,043,207 1,793,836 1,755,343 2,764,929 2,332,701 1,972,539
Other short
- -term borrowings 482,405 292,210 233,945 404,033 555,905 441,689
Long-term
borrowings 286,809 298,475 317,799 353,452 320,302 275,091
Other liabilities 183,284 129,231 114,607 171,749 182,855 118,674
Preferred stock 24,657 60,000
Common stockholders'
equity 889,161 767,963 749,907 754,770 709,115 591,795
Total liabilities
and stockholders'
equity $11,617,451 $11,167,886 $11,533,723 $12,349,079 $11,467,015 $11,011,912
Average Yields
(taxable equivalent
basis):
Temporary investments 5.60% 5.25% 7.96% 8.38% 9.24% 7.58%
Investment
securities
- -taxable 5.76 6.19 7.30 9.48 9.57 9.64
Investment securities
- -nontaxable 11.77 11.71 11.56 11.36 11.33 11.36
Loans 8.97 9.08 10.25 11.99 12.51 11.54
Interest income to
average earning assets 7.77 7.73 9.35 11.04 11.54 10.84
Average Rates:
Total interest
bearing deposits 2.67 3.49 5.88 7.38 7.63 7.06
Federal funds and
repurchase agreements 3.13 3.65 5.93 8.08 8.75 7.90
Other short-term
borrowings 5.29 5.44 6.11 7.82 9.05 7.61
Long-term borrowings 5.82 6.51 7.57 8.74 9.24 8.40
Total borrowed funds 3.01 3.68 5.95 7.63 8.05 7.31
Interest expense to
average earning assets 2.60 3.26 5.37 6.91 7.15 6.51
Net yield margin 5.17 4.47 3.98 4.13 4.39 4.33
</TABLE>
<TABLE>
Signet Banking Corporation and Subsidiaries
Selected Financial Data
(dollars in thousands
- -except per share)
1993 1992 1991 1990 1989 1988
<S> <C> <C> <C> <C> <C> <C>
Summary of Operations
Interest income:
Loans, including fees $ 552,071 $ 503,402 $ 613,601 $ 855,644 $ 854,890 $ 764,455
Temporary investments 136,726 128,228 285,654 81,226 64,684 44,343
Investment securities
-taxable 93,538 111,550 39,335 264,176 237,802 232,368
Investment securities
- -nontaxable 21,390 24,082 24,996 28,566 29,544 30,572
Total interest
income 803,725 767,262 963,586 1,229,612 1,186,920 1,071,738
Interest expense:
Deposits 168,197 230,776 423,210 499,752 468,028 447,648
Other borrowings 106,188 100,876 142,406 285,932 284,032 212,534
Total interest expense 274,385 331,652 565,616 785,684 752,060 660,182
Net interest income 529,340 435,610 397,970 443,928 434,860 411,556
Provision for
loan losses 47,286 67,794 287,484 182,724 58,530 54,637
Net interest income
after provision
for loan losses 482,054 367,816 110,486 261,204 376,330 356,919
Non-interest income:
Credit card
servicing income 153,018 101,185 62,664 12,435 138
Service charges
on deposit
accounts 64,471 66,971 62,924 57,799 52,328 45,410
Credit card
service charges 63,222 31,553 42,276 59,574 55,109 48,077
Trust income 17,599 15,949 16,019 15,006 13,215 11,846
Gain on sale
of subsidiary 47,026
Gain on sale
of credit card
accounts 16,335
Other 62,808 65,330 64,654 43,757 38,685 47,678
Non-interest
operating income 361,118 280,988 248,537 188,571 175,810 200,037
Securities
gains (losses) 4,318 (7,447) 93,221 12,971 9,438 14,063
Total non
-interest income 365,436 273,541 341,758 201,542 185,248 214,100
Non-interest expense:
Salaries 212,665 186,600 177,626 174,517 169,480 167,425
Employee benefits 65,249 49,388 31,366 33,615 45,280 39,627
Credit card
solicitation 55,815 23,133 14,648 21,382 14,527
Supplies and
equipment 40,550 32,536 36,660 45,061 43,394 37,931
Occupancy 40,192 38,899 39,231 37,388 33,310 32,333
Travel and
communications 35,416 25,662 24,688 23,027 22,508 21,826
Other 148,429 143,021 184,706 79,545 66,562 76,055
Non-interest
expense 598,316 499,239 508,925 414,535 395,061 375,197
Income (loss)
before income
taxes (benefit) 249,174 142,118 (56,681) 48,211 166,517 195,822
Applicable
income taxes
(benefit) 74,760 32,918 (30,934) 6,833 43,197 43,354
Net income (loss) $ 174,414 $ 109,200 $ (25,747) $ 41,378 $ 123,320 $ 152,468
Operating Ratios
Net income to:
Average total
stockholders'
equity 19.62% 14.22% N/M 5.48% 16.81% 23.39%
Average common
stockholders'
equity 19.62 14.22 N/M 5.48 17.12 25.13
Average assets 1.50 .98 N/M .34 1.08 1.38
Net yield margin 5.17 4.47 3.98% 4.13 4.39 4.33
Net loan losses
to average loans .91 2.34 2.03 1.51 .74 1.42
At year-end:
Allowance for
loan losses
to loans 4.01 4.57 5.60 2.54 1.30 1.25
Allowance for
loan losses to
non-performing
loans 342.63 228.25 156.84 117.15 116.53 162.23
Common equity
to assets 8.14 6.84 6.33 6.46 6.02 6.02
Common Shares
Outstanding at
year-end 56,608,578 27,980,824 27,017,550 26,614,593 26,672,896 26,425,525
Average
(includes common
stock equivalents)* 56,920,090 55,727,358 53,994,340 53,026,764 53,372,898 52,097,036
Per Common Share*
Book value
at year-end $ 17.04 $ 14.77 $ 13.17 $ 13.83 $ 14.07 $ 12.54
Market price
range 36 7/8- 23 3/8- 12 5/16- 16 11/16- 21 5/8- 16 15/16-
21 1/2 10 7/8 3 5/8 4 1/16 14 3/8 11 5/8
Earnings (loss) 3.06 1.96 (.48) .78 2.27 2.85
Cash dividends
declared .80 .45 .30 .78 .76 .69
* The per common share and average common shares outstanding data
above reflect a two-for-one common stock split in the form of
dividend which was declared on June 23, 1993 to shareholders of
record
July 6, 1993 and distributed July 27, 1993.
</TABLE>
<TABLE>
Signet Banking Corporation and Subsidiaries
Consolidating Balance Sheet
December 31, 1993
Signet
Signet Banking Signet Bank/ Signet Bank/ Banking
Corporation Virginia Maryland Signet Bank Other Corporation
(Parent Company) Consolidated Consolidated N.A. Subsidiaries Eliminations Consolidated
<S> <C> <C> <C> <C> <C> <C> <C>
Assets
Cash and
due from
banks $ 508 $ 329,607 $ 228,922 $ 36,819 $ 6,385 $ (138,883) $ 463,358
Temporary
investments 255,778 2,611,115 629,285 317,249 5,117 (1,153,316) 2,665,228
Investment
securities 16,675 1,363,163 305,482 82,768 45 1,482 1,769,615
Loans 104,980 4,175,363 2,078,462 161,584 (151,810) 6,368,579
Less:
Unearned
income (8) (57,785) (474) (58,267)
Allowance
for loan
losses (172,818) (70,131) (10,364) (253,313)
Net loans 104,980 4,002,537 1,950,546 150,746 (151,810) 6,056,999
Premises
and
equipment 167,024 41,703 4,384 3,413 216,524
Other assets 1,023,550 534,405 72,783 32,459 10,220 (995,919) 677,498
$ 1,401,491 $9,007,851 $ 3,228,721 $ 624,425 $ 25,180 $ (2,438,446) $11,849,222
Liabilities and Stockholders' Equity
Non-interest
bearing
deposits $827,157 $ 699,043 $ 157,535 $ (138,883) $ 1,544,852
Interest
bearing
deposits 4,233,914 1,767,146 274,701 6,275,761
Total
deposits 5,061,071 2,466,189 432,236 (138,883) 7,820,613
Other
short
- -term
borrowings $ 168,488 3,153,680 505,821 99,752 $ 2,510 (1,305,125) 2,625,126
Long-term
borrowings 261,943 4,160 49 266,152
Other
liabilities 6,398 135,392 45,045 12,927 2,920 (30,013) 172,669
Stockholders'
equity 964,662 653,548 211,617 79,510 19,750 (964,425) 964,662
$1,401,491 $ 9,007,851 $ 3,228,721 $ 624,425 $ 25,180 $ (2,438,446) $11,849,222
</TABLE>
<TABLE>
STATEMENT OF CONSOLIDATING OPERATIONS
Year ended December 31, 1993
(in thousands) (unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
Interest
income $ 12,102 $ 623,265 $ 193,468 $ 31,812 $ 554 $ (57,476) $ 803,725
Interest
expense 18,587 233,191 67,744 11,273 379 (56,789) 274,385
Net interest
income
(expense) (6,485) 390,074 125,724 20,539 175 (687) 529,340
Provision
for loan
losses 44,534 3,965 675 (1,888) 47,286
Net interest
income
(expense)
after
provision
for loan
losses (6,485) 345,540 121,759 19,864 2,063 (687) 482,054
Non-interest
operating
income 2,643 289,315 35,779 7,367 26,066 (52) 361,118
Securities
gains
(losses) 95 4,356 36 (169) 4,318
Non-interest
expense 3,795 421,708 127,122 21,786 24,517 (612) 598,316
Income (loss)
before
income taxes
(benefit) (7,542) 217,503 30,452 5,445 3,612 (296) 249,174
Applicable
income taxes
(benefit) (2,122) 65,576 7,998 2,179 1,425 (296) 74,760
Net income
(loss) $ (5,420) $ 151,927 $ 22,454 $ 3,266 $2,187 $ 0 $ 174,414
</TABLE>
<TABLE>
Signet Banking Corporation and Subsidiaries
Selected Quarterly Financial Data
1993 1992
Fourth Third Second First Fourth Third Second First
Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter
(unaudited)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Summary of Operations
(in thousands)
Interest income $195,853 $212,536 $201,466 $193,870 $184,337 $182,468 $196,949 $203,508
Interest expense 66,097 72,614 71,684 63,990 66,332 77,244 90,843 97,233
Net interest income 129,756 139,922 129,782 129,880 118,005 105,224 $106,106 106,275
Provision for
loan losses 10,276 12,501 9,011 15,498 14,316 14,060 14,458 24,960
Net interest
income (expense)
after provision
for loan losses 119,480 127,421 120,771 114,382 103,689 91,164 91,648 81,315
Non-interest
operating income 119,654 85,515 81,183 74,766 74,885 72,458 74,711 58,934
Securities available
for sale gains 2,248 1,665 1,316 6,546 1,244 1,398
Investment securities
gains (losses) 254 2 46 103 (2,973) (7,349) (6,175) (1,454)
Non-interest
expense (1) 169,934 147,516 146,809 134,057 135,230 126,560 127,340 110,109
Income before
income taxes 71,702 65,422 55,191 56,859 41,687 36,259 34,088 30,084
Applicable
income tax 21,758 19,659 14,751 18,592 9,857 7,656 7,378 8,027
Net income $49,944 $45,763 $40,440 $38,267 $31,830 $28,603 $26,710 $ 22,057
Average Balance Sheet Data
(in millions)
Loans
(net of unearned income) $ 6,074 $ 6,210 $ 6,512 $ 6,029 $ 5,601 $ 5,400 $ 5,615 $ 5,861
Investment securities 1,790 1,840 1,953 2,037 2,100 2,154 2,163 2,043
Temporary investments 2,583 2,920 2,179 2,076 2,346 2,348 2,560 2,538
Total earning assets 10,447 10,970 10,644 10,142 10,047 9,902 10,338 10,442
Cash and due from banks 500 460 454 431 463 412 443 466
Other non-rate
related assets 654 605 584 570 575 592 528 467
Total average assets $11,601 $12,035 $11,682 $11,143 $ 11,085 $10,906 $ 11,309 $11,375
Interest bearing
deposits $ 6,273 $ 6,388 $ 6,366 $ 6,205 $ 6,313 $ 6,455 $ 6,713 $ 6,987
Short-term
borrowings 2,405 2,842 2,573 2,278 2,160 1,982 2,141 2,060
Long-term
borrowings 266 286 297 298 298 298 299 299
Non-interest
bearing liabilities 1,718 1,612 1,578 1,521 1,502 1,384 1,404 1,308
Common stockholders'
equity 939 907 868 841 812 787 752 721
Total average
liabilities and
stockholders' equity $11,601 $12,035 $11,682 $11,143 $11,085 $10,906 $11,309 $11,375
Per Common Share (2)
Net income $ .87 $ .80 $ .71 $ .68 $ .57 $ .51 $ .48 $ .40
Cash dividends
declared .25 .20 .20 .15 .15 .10 .10 .10
Market prices:
High 36 7/8 35 30 5/8 28 13/16 23 3/8 20 9/16 19 3/4 15 7/8
Low 30 5/8 26 3/4 24 3/4 21 1/2 18 11/16 17 12 13/16 10 7/8
Average Common Shares and
Common Stock Equivalents (2)
(in thousands) 57,087 57,010 56,871 56,705 56,454 56,255 55,648 54,537
(1) First, second, third and fourth quarters of 1992 included
credit card solicitation expenses of $.7, $4.3, $7.8, and $10.3
million, respectively. First, second, third, and fourth quarters
of 1993
included credit card solicitation expenses of $9.3 million, $17.2
million, $13.7 million, and $15.6 million, respectively.
(2) The per common share and common shares outstanding data
above reflect a two-for-one common stock split in the form of a
dividend which was declared on June 23, 1993 to shareholders
of record July 6, 1993 and distributed July 27, 1993.
The above schedule is a tabulation of the Company's unaudited
quarterly results of operations for the years ended December 31,
1993 and 1992.
The Company's common shares are traded on the New York Stock
Exchange under the symbol SBK. In addition, shares may be traded
in the over-the-counter stock market. There were
14,606 common stockholders of record at December 31, 1993.
</TABLE>
EXHIBIT 22.1
SUBSIDIARIES OF SIGNET BANKING CORPORATION
December 31, 1993
Subsidiary Place of Incorporation
Signet Bank/ Virginia Virginia
800 Building Corporation Virginia
Signet Mortgage Corporation Virginia
Signet Second Mortgage Corporation Virginia
Signet Bank (Bahamas), Ltd. Bahamas
Second Eleutheran Investment Co., Ltd. Bahamas
Signet Trust Company Virginia
Signet Properties Company Virginia
Signet Insurance Services, Inc. Virginia
Signet Financial Services, Inc. Virginia
Signet Commercial Credit Corporation Virginia
Signet Strategic Capital Corporation Virginia
General Finance Service Corporation Pennsylvania
Elgin Corporation Virginia
Signet Investment Banking Company Virginia
Signet Bank/Maryland Maryland
St. Paul Realty, Inc. Maryland
Signet Equipment Company Maryland
Wharton & Bennett, Inc. Maryland
Sect. 12-A Corp. Maryland
Sect. 12-B Corp. Maryland
Sect. 13 Corp. Maryland
Sect. 14 Corp. Maryland
UTC Prop. No. 1, Inc. Maryland
UTC Prop. No. 2, Inc. Maryland
UTC Prop. No. 3, Inc. Maryland
UTC Prop. No. 4, Inc. Maryland
UTC Prop. No. 5, Inc. Maryland
UTC Prop. No. 6, Inc. Maryland
Landexco, Inc. Maryland
Signet Leasing and Financial Corporation Maryland
Signet Insurance Services Inc./ Maryland Maryland
Signet Realty, Inc. Maryland
Signet Bank N. A. Washington, D. C.
Signet Municipal LeaseCorp Virginia
NSM Corporation Virginia
The Budget Plan Company of Virginia Virginia
Signet Lending Services, Inc. Tennessee
DOPWO, Inc. Virginia
NP Corporation Maryland
NP No. 2 Corporation Maryland
NP No. 3 Corporation Maryland
NP No. 4 Corporation Maryland
NP No. 5 Corporation Maryland
NP No. 6 Corporation Maryland
NP No. 7 Corporation Maryland
NP No. 8 Corporation Maryland
NP No. 9 Corporation Maryland
NP No. 10 Corporation Maryland
VMD Servicing Corporation Maryland
MWG I, Inc. Maryland
MWG II, Inc. Maryland
MWG III, Inc. Maryland
MWG IV, Inc. Maryland
MWG V, Inc. Maryland
MWG VI, Inc. Maryland
MWG VII, Inc. Maryland
F H Properties, Inc. Virginia
F H Properties, No. 2, Inc. Virginia
F H Properties, No. 3, Inc. Virginia
F H Properties, No. 4, Inc. Virginia
F H Properties, No. 5, Inc. Virginia
F H Properties, No, 6, Inc. Virginia
F H Properties, No. 7, Inc. Virginia
F H Properties, No. 8, Inc. Virginia
F H Properties, No. 9, Inc. Virginia
F H Properties, No. 10, Inc. Virginia
F H Properties, No. 11, Inc. Virginia
F H Properties, No. 12, Inc. Virginia
F H Properties, No. 13, Inc. Virginia
F H Properties, No. 14, Inc. Virginia
F H Properties, No. 15, Inc. Virginia
RE I, Inc. Maryland
RE II, Inc. Maryland
RE III, Inc. Maryland
RE IV, Inc. Maryland
RE V, Inc. Maryland
RE VI, Inc. Maryland
RE VII, Inc. Maryland
RE VIII, Inc. Maryland
RE IX, Inc. Maryland
RE X, Inc. Maryland
RE XI, Inc. Maryland
RE XII, Inc. Maryland
RE XIII, Inc. Maryland
RE XIV, Inc. Maryland
RE XV, Inc. Maryland
SM II, Inc. Maryland
SM III, Inc. Maryland
SM IV, Inc. Maryland
SM V, Inc. Maryland
SM VI, Inc. Maryland
SM VII, Inc. Maryland
SM VIII, Inc. Maryland
SM IX, Inc. Maryland
SM X, Inc. Maryland
SM XI, Inc. Maryland
SM XII, Inc. Maryland
SM XIII, Inc. Maryland
SM XIV, Inc. Maryland
SM XV, Inc. Maryland
SM XVI, Inc. Maryland
Signet Asset Management, Inc./Delaware Delaware
Signet Banking Corporation/Delaware Delaware
Signet Commercial Credit Corporation/Delaware Delaware
Signet Credit Corporation/Delaware Delaware
Signet Equipment Company/Delaware Delaware
Signet Financial Corporation/Delaware Delaware
Signet Insurance Services, Inc./Delaware Delaware
Signet Investment Banking Corporation/Delaware Delaware
Signet Investment Corporation/Delaware Delaware
Signet Leasing & Financial Corporation/Delaware Delaware
Signet Properties Company/Delaware Delaware
Signet Services Corporation/Delaware Delaware
Signet Venture Capital Corporation/Delaware Delaware
Exhibit 24.1
CONSENT OF ERNST & YOUNG
INDEPENDENT AUDITORS
We consent to the incorporation by reference in this Annual Report (Form
10-K) of Signet Banking Corporation of our report dated January 21, 1994,
included in the 1993 Annual Report to Shareholders of Signet Banking
Corporation.
We also consent to the incorporation by reference in the following
Registration Statements, or most recent post-effective amendments thereto,
filed prior to March 23, 1994 of our report dated January 21, 1994, with
respect to the consolidated financial statements incorporated herein by
reference:
- Form S-8 (2-82600) - Form S-3 (33-4491)
- Form S-8 (33-2498) - Form S-3 (33-21963)
- Form S-8 (33-43190) - Form S-3 (33-28089)
- Form S-8 (33-10637) - Form S-3 (2-92081)
- Form S-8 (33-47591)
- Form S-8 (33-47590)
/s/ Ernst & Young
ERNST & YOUNG
Richmond, Virginia
March 23, 1994
Exhibit 25.1
POWER OF ATTORNEY
Each of the undersigned hereby appoints Andrew T. Moore, Jr. and David
S. Norris, and each of them (with full power in either of them to act alone),
as his or her true and lawful attorneys-in-fact, and grants unto said
attorneys the authorities in his or her name and on his or her behalf to
execute (individually and in the capacity stated below) and to file an Annual
Report on Form 10-K for Signet Banking Corporation for the fiscal year ended
December 31, 1993, together with any and all amendments or supplements
thereto and any and all exhibits and other documents required to be filed in
connection therewith. Each of the undersigned further grants unto said
attorneys the authority in his or her name and on his or her behalf to
perform each and every act necessary to accomplish the foregoing filing.
IN WITNESS WHEREOF, Each of the undersigned has signed this Power of
Attorney this 22nd day of February, 1994.
SIGNATURE TITLE
/s/ Robert M. Freeman Director, Chairman of the Board and
Robert M. Freeman Chief Executive Officer
(Principal Executive Officer)
/s/ Malcolm S. McDonald Director, President and
Malcolm S. McDonald Chief Operating Officer
/s/ J. Henry Butta Director
J. Henry Butta
/s/ William C. DeRusha Director
William C. DeRusha
/s/ William R. Harvey Director
William R. Harvey, Ph.D.
/s/ Elizabeth G. Helm Director
Elizabeth G. Helm
/s/ Robert M. Heyssel Director
Robert M. Heyssel, M.D.
/s/ Henry A. Rosenberg, Jr. Director
Henry A. Rosenberg, Jr.
/s/ Louis B. Thalheimer Director
Louis B. Thalheimer
/s/ Stanley I. Westreich Director
Stanley I. Westreich
