SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[ X ] Quarterly report pursuant to section 13 or 15(d) of the
Securities Act of 1934 for the quarterly period ended March 31, 1995 or
[ ] Transition report pursuant to section 13 or 15(d) of the
Securities Exchange Act for the transition period from _______ to
_______.
Commission file number 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 No.)
incorporation or organization)
7 North Eighth Street, Richmond, Virginia 23219
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 804 747-2000
Not Applicable
Former name, former address and former fiscal year, if changed since
last report
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes X No
Common Shares outstanding as of April 30, 1995 - 58,681,325
<PAGE>
Index
SIGNET BANKING CORPORATION AND SUBSIDIARIES
March 31, 1995
Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
Consolidated Balance Sheet 3
Statement of Consolidated Income 4
Statement of Changes in Consolidated
Stockholders' Equity 5
Statement of Consolidated Cash Flows 6
Supplemental Notes to Quarterly Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 21
Item 6. Exhibits and Reports on Form 8-K 21
SIGNATURES 22
<PAGE>
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEET
(dollars in thousands-except per share) (unaudited)
<TABLE>
March 31 December 31
1995 1994 1994
<S> <C> <C> <C>
ASSETS
Cash and due from banks $ 541,946 $ 502,040 $ 531,747
Interest bearing deposits with other banks 33,523 217,430 355,795
Federal funds sold and securities purchased under resale
agreements 772,865 728,735 1,135,821
Trading account securities 490,266 262,944 353,040
Credit card loans held for securitization 150,000 1,000,000
Loans held for sale 159,224 241,312 69,506
Securities available for sale 1,692,387 1,637,359 1,241,696
Investment securities 391,897 232,393 398,783
Loans:
Consumer 2,229,957 2,935,810 4,612,633
Commercial 2,577,674 2,163,035 2,472,620
Real estate - construction 211,097 278,554 209,183
Real estate - commercial mortgage 505,717 578,906 526,956
Real estate - residential mortgage 225,477 71,927 191,508
Gross loans 5,749,922 6,028,232 8,012,900
Less: Unearned income (102,323) (53,494) (88,723)
Allowance for loan losses (151,729) (250,477) (220,519)
Net loans 5,495,870 5,724,261 7,703,658
Premises and equipment (net) 160,672 232,267 258,715
Interest receivable 75,082 92,951 98,557
Other assets 513,994 657,883 783,911
Total assets (Capital One Financial Corporation
amounted to -0-, $2,820,413 and $3,072,546,
respectively) $10,477,726 $11,529,575 $12,931,229
LIABILITIES
Non-interest bearing deposits $ 1,533,797 $ 1,631,185 $ 1,542,349
Interest bearing deposits:
Money market and interest checking 1,023,532 1,032,734 1,050,176
Money market savings 1,382,105 1,686,754 1,453,629
Savings accounts 1,224,393 951,792 1,170,990
Savings certificates 1,949,339 2,018,711 1,952,090
Large denomination certificates 100,987 333,452 643,054
Foreign 183,337 280,056 9,225
Total interest bearing deposits 5,863,693 6,303,499 6,279,164
Total deposits 7,397,490 7,934,684 7,821,513
Securities sold under repurchase agreements 1,202,629 1,188,883 875,458
Federal funds purchased 521,295 694,093 881,693
Commercial paper 131,469 108,664
Other short-term borrowings 105,408 87,496 1,446,955
Long-term borrowings 253,550 254,124 253,641
Interest payable 26,047 35,490 31,078
Other liabilities 199,831 185,403 400,748
Total liabilities 9,706,250 10,511,642 11,819,750
STOCKHOLDERS' EQUITY
Common Stock, $5 par value; Authorized 100,000,000 shares,
issued and outstanding 58,659,679, 56,718,841 and
58,636,759 shares, respectively 293,298 283,594 293,184
Capital Surplus 193,986 137,942 198,869
Retained Earnings 284,192 596,397 619,426
Total stockholders' equity 771,476 1,017,933 1,111,479
Total liabilities and stockholders' equity $10,477,726 $11,529,575 $12,931,229
</TABLE>
<PAGE>
STATEMENT OF CONSOLIDATED INCOME
(in thousands-except per share) (unaudited)
<TABLE>
Three Months Ended
March 31
1995 1994
<S> <C> <C>
Interest income:
Loans, including fees:
Consumer $117,634 $ 76,050
Commercial 46,365 40,655
Real estate - construction 5,152 5,235
Real estate - commercial mortgage 12,131 10,408
Real estate - residential mortgage 4,279 1,816
Total loans, including fees 185,561 134,164
Interest bearing deposits with other banks 1,438 2,571
Federal funds sold and resale agreements 15,309 4,950
Trading account securities 6,718 5,640
Credit card loans held for securitization 4,205 7,875
Loans held for sale 1,479 5,761
Securities available for sale 27,737 23,893
Investment securities - taxable 3,946 385
Investment securities - nontaxable 3,139 4,396
Total interest income 249,532 189,635
Interest expense:
Money market and interest checking 6,141 5,552
Money market savings 11,958 11,318
Savings accounts 10,727 6,948
Savings certificates 17,147 13,050
Large denomination certificates 7,700 3,224
Foreign 1,253 2,181
Total interest on deposits 54,926 42,273
Securities sold under repurchase agreements 11,827 8,203
Federal funds purchased 11,871 5,024
Other short-term borrowings 14,889 3,053
Long-term borrowings 12,770 3,866
Total interest expense 106,283 62,419
Net interest income 143,249 127,216
Provision for loan losses 7,180 5,499
Net interest income after provision for loan losses 136,069 121,717
Non-interest income:
Credit card servicing income 65,036 76,537
Credit card service charges 18,741 15,448
Service charges on deposit accounts 16,471 15,697
Trust income 4,892 4,801
Other 15,618 16,160
Non-interest operating income 120,758 128,643
Securities available for sale gains (losses) 102 (212)
Investment securities gains (losses) 255 (68)
Total non-interest income 121,115 128,363
Non-interest expense:
Salaries 57,701 59,941
Employee benefits 18,341 18,062
Credit card solicitation 29,050 21,387
Supplies and equipment 14,526 11,999
Travel and communications 13,153 13,317
Occupancy 11,954 10,711
External data processing services 9,046 11,279
Other 37,155 25,413
Total non-interest expense 190,926 172,109
Income before income taxes (Capital One Financial
Corporation
amounted to $27,407 and $54,047, respectively) 66,258 77,971
Applicable income taxes 24,033 24,858
Net income $ 42,225 $ 53,113
Earnings per common share $ 0.71 $ 0.93
Cash dividends declared per share 0.25 0.25
Average common shares outstanding 59,142 57,247
</TABLE>
Note: Other non-interest expense for the three months ended March 31,
1995 included $2,018 (net of income taxes) of minority interest in
Capital One Financial Corporation.
<PAGE>
STATEMENT OF CHANGES IN CONSOLIDATED STOCKHOLDERS' EQUITY
(in thousands) (unaudited)
<TABLE>
Common Capital Retained
Stock Surplus Earnings
<S> <C> <C> <C>
Three Months Ended March 31, 1995
Balance at beginning of period $293,184 $ 198,869 $ 619,426
Net income 42,225
Issuance of Common Stock 1,406 2,324
Purchase of Common Stock (1,292) (7,207)
Cash dividends (14,645)
Spin-off of Capital One Financial Corporation (383,200)
Change in net unrealized gains on securities
available for sale, net of tax of $10,977 20,386
Balance at end of period $293,298 $ 193,986 $ 284,192
Three Months Ended March 31, 1994
Balance at beginning of period $283,043 $ 133,038 $ 548,581
Adjustment to beginning balance for change in accounting
method for net unrealized gain on securities
available for sale, net of tax of $16,147. 29,987
Net income 53,113
Issuance of Common Stock 551 4,904
Cash dividends (14,162)
Change in net unrealized gains on securities
available for sale, net of tax benefit of $11,374 (21,122)
Balance at end of period $283,594 $ 137,942 $ 596,397
</TABLE>
<PAGE>
STATEMENT OF CONSOLIDATED CASH FLOWS
(in thousands) (unaudited)
<TABLE>
Three Months Ended March 31
1995 1994
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 42,225 $ 53,113
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 7,180 5,499
Provision and writedowns on foreclosed property 1,856 89
Depreciation and amortization 11,031 10,499
Investment securities (gains) losses (255) 68
Securities available for sale (gains) losses (102) 212
Decrease (increase) in interest receivable 23,475 (8,833)
Increase in other assets (358,691) (67,152)
Increase in interest payable 16,386 7,285
(Decrease) increase in other liabilities (23,014) 40,940
Proceeds from sales of loans held for sale 6,879,125 6,978,723
Purchases and originations of loans held for
sale (6,968,843) (6,798,674)
Proceeds from sales of trading account
securities 3,420,653 3,619,068
Purchases of trading account securities (3,557,879) (3,492,434)
Net cash (used) provided by operating
activities (506,853) 348,403
INVESTING ACTIVITIES
Proceeds from maturities of investment securities 18,870 17,258
Purchases of investment securities (25,060)
Proceeds from sales of securities available for sale 14,468 175,574
Proceeds from maturities of securities available for
sale 320,527 109,965
Purchases of securities available for sale (1,137,009) (156,754)
Net increase in loans (492,441) (681,266)
Recoveries of loans previously charged-off 4,495 8,505
Purchases of premises and equipment (22,214) (23,054)
Net cash used by investing activities (1,318,364) (549,772)
FINANCING ACTIVITIES
Net increase in deposits 198,875 114,071
Net decrease in short-term borrowings (417,335) (523,186)
Net increase (decrease) of long-term debt 1,388,062 (12,028)
Net (purchase) issuance of common stock (4,769) 5,455
Payment of cash dividends (14,645) (14,162)
Net cash provided (used) by financing
activities 1,150,188 (429,850)
Decrease in cash and cash equivalents (675,029) (631,219)
Cash and cash equivalents at beginning of period 2,023,363 2,079,424
Cash and cash equivalents at end of period $ 1,348,334 $ 1,448,205
SUPPLEMENTAL DISCLOSURES
Interest paid $ 111,314 $ 55,134
Income taxes paid 57 42
Transfer of loans to foreclosed property 210 635
Transfer of loans to loans held for securitization 150,000 1,000,000
</TABLE>
<PAGE>
SUPPLEMENTAL NOTES TO QUARTERLY FINANCIAL STATEMENTS
(dollars in thousands) (unaudited)
GENERAL
The accompanying financial statements (unaudited) reflect all
adjustments which are, in the opinion of management, necessary for a
fair presentation. All such adjustments are of a normal recurring
nature. The financial statements have been prepared based on the
accounting policies as described in the 1994 annual report and as noted
below, except certain amounts which have been reclassified for prior
periods to conform to the 1995 presentation format.
STATEMENT OF CONSOLIDATED CASH FLOWS
Cash and cash equivalents, as presented in this statement, includes
cash and due from banks, interest bearing deposits with other banks and
federal funds sold and securities purchased under resale agreements. A
significant noncash transaction in 1995 included a transfer of
$3,639,288 of assets (primarily $2,538,554 of loans), $3,256,088 of
liabilities (primarily $1,388,153 related to long-term borrowings) and a
decrease in retained earnings of $383,200 related to the spin-off of
Capital One.
SECURITIES AVAILABLE FOR SALE
Securities available for sale are summarized as follows:
<TABLE>
MARCH 31, 1995 MARCH 31, 1994 DECEMBER 31, 1994
FAIR FAIR FAIR
COST VALUE COST VALUE COST VALUE
<S> <C> <C> <C> <C> <C> <C>
U.S. Government and
agency obligations -
Mortgage-backed securities $1,143,993 $1,149,091 $ 388,608 $ 389,130 $ 633,338 $ 607,003
Other 433,641 433,216 1,123,830 1,138,381 461,140 457,877
State and political subdivisions 110 118 14,635 15,166 110 116
Other 119,805 109,962 96,648 94,681 184,703 176,700
Total $1,697,549 $1,692,387 $1,623,721 $1,637,358 $1,279,291 $1,241,696
</TABLE>
INVESTMENT SECURITIES
Investment securities are summarized as follows:
<TABLE>
MARCH 31, 1995 MARCH 31, 1994 DECEMBER 31, 1994
FAIR FAIR FAIR
COST VALUE COST VALUE COST VALUE
<S> <C> <C> <C> <C> <C> <C>
U.S. Government and
agency obligations -
Mortgage-backed securities $ 74,527 $ 74,712 $ 75,174 $ 73,307
Other 99,653 99,596 74,550 72,656
State and political subdivisions 156,097 160,761 $211,234 $223,457 173,571 179,467
Other 61,620 61,729 21,159 21,159 75,488 74,236
Total $391,897 $396,798 $232,393 $244,616 $398,783 $399,666
</TABLE>
INCOME TAXES
Differences between the effective rate of income taxes and the statutory
rate arise principally from non-taxable interest on investments and loans.
SECURITIZATIONS
Signet securitized $2,398,801 of credit card receivables in 1994.
These transactions were recorded as sales in accordance with Statement
of Financial Accounting Standards ("SFAS") No. 77, "Reporting by
Transferors for Transfers of Receivables with Recourse." In conjunction
with the spin-off of Capital One, Signet Bank/Virginia's rights and
obligations under the majority of its securitization agreements as well
as any related assets and liabilities were transferred to Capital One
Bank on November 22, 1994. Receivables outstanding under Signet's
remaining securitizations amounted to $320,833 at March 31, 1995.
Proceeds from the sales in 1994 totaled $2,393,936. 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 Signet. 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 $17,500 at March 31, 1995.
<PAGE>
RECENT ACCOUNTING STATEMENTS
The Company adopted SFAS No. 114, "Accounting by Creditors for
Impairment of a Loan," on January 1, 1995. In determining the loan loss
allowance, SFAS No. 114 requires that impaired loans be measured at the
present value of expected future cash flows discounted at the loan's
effective interest rate or at the loan's market value or the fair market
value of the collateral if the loan is collateral dependent. Also, in
accordance with SFAS No. 114, a loan is classified as foreclosed
property when possession has been taken of the collateral, regardless of
whether formal foreclosure proceedings take place. Adoption of SFAS No.
114 did not have a material impact on the Company's financial position
or results of operations.
CAPITAL ONE FINANCIAL CORPORATION ("CAPITAL ONE")
On July 27, 1994, Signet Banking Corporation ("Signet") announced
plans to spin-off substantially all of its credit card business. Under
such plans, designated assets and liabilities of Signet Bank/Virginia's
credit card division were transferred to Capital One Bank, a newly
chartered limited purpose credit card bank. Capital One Bank became, in
conjunction with the transfer, a wholly- owned subsidiary of Capital
One, a wholly-owned subsidiary of Signet ("the Separation"). Accounts
representing approximately $335 million, or 5%, of the managed credit
card portfolio were retained by Signet. The Separation occurred November
22, 1994, at which time 7,125,000 shares of common stock of Capital One
were sold in an initial public offering. On February 28, 1995, Signet
distributed all of the common stock it held in Capital One to Signet
stockholders in a tax free distribution. Included in Signet's 1995
non-interest expense is $2,018 of minority interest in Capital One's
earnings.
Subsequent to February 28, 1995, Capital One's results of operations
and financial position are excluded from Signet's. The accompanying
financial summary data covers the time periods prior and subsequent to
the Separation. The basis of preparation of the accompanying financial
summary data for the periods prior to the Separation is as follows: (1)
The data includes interest expense paid on borrowings from SBV. For
purposes of constructing the accompanying financial summary data, three
funding pools (short-term, medium-term and long- term pools) were
assumed, each with costs based on the average relevant historical rates
paid by the Bank. (2) The accompanying financial summary data also
includes an allocation of expenses for data processing, accounting,
audit, human resources, corporate secretary, treasury, legal and other
administrative support provided by Signet. Such expenses were allocated
based on actual usage or using other allocation methods which, in the
opinion of management, approximate actual usage. Management believes the
allocation methods were reasonable. Certain services currently provided
by affiliates are expected to continue on a transitional basis. (3)
Additionally, SBV retained a credit card portfolio of approximately $335
million for all periods presented that is associated with its deposit
customer base. The financial summary data assumes Capital One assessed
SBV a normal servicing fee for servicing this retained portfolio for all
periods presented. Capital One will continue to service and manage these
accounts according to a servicing agreement which provides for arm's
length fees and which can continue through September 1996.
Capital One summary financial data follows:
<TABLE>
FEBRUARY 28 MARCH 31 DECEMBER 31
1995 1994 1994
<S> <C> <C> <C>
Total assets $3,639,288 $2,820,413 $3,072,546
Total stockholders'/division equity 492,872 197,072 474,557
</TABLE>
<TABLE>
TWO MONTHS ENDED Three Months Ended
FEBRUARY 28, 1995 MARCH 31, 1994
<S> <C> <C>
Net interest income $25,167 $43,139
Provision for loan losses 3,929 7,982
Net interest income after provision
for loan losses 21,238 35,157
Non-interest income 87,679 87,664
Non-interest expense 81,510 68,774
Income before income taxes 27,407 54,047
Applicable income taxes 9,870 18,917
Net income $17,537 $35,130
</TABLE>
<PAGE>
Signet Banking Corporation
FINANCIAL HIGHLIGHTS
(dollars in thousands-except per share)
<TABLE>
Three Months Ended
March 31 Percent
1995 1994 Change
<S> <C> <C> <C>
EARNINGS
Net interest income (taxable equivalent) $ 146,511 $ 130,650 12.1%
Net interest income 143,249 127,216 12.6
Net income 42,225 53,113 (20.5)
PER COMMON SHARE
Net income $ 0.71 $ 0.93 (23.7)
Cash dividends declared 0.25 0.25 -
Book value 13.15 17.95 N/M
Period-end price 20 3/8 39 1/2 N/M
AVERAGE BALANCE
Assets $12,332,189 $11,310,310 9.0
Earning assets 10,999,684 10,111,663 8.8
Loans (net of unearned income) 7,242,068 6,235,210 16.1
Deposits 7,618,783 7,815,385 (2.5)
Core deposits 7,040,471 7,223,874 (2.5)
Common stockholders' equity 1,001,772 1,007,162 (0.5)
Common shares outstanding 59,142,042 57,247,462 3.3
RATIOS
Return on assets 1.39% 1.90% (26.8)
Return on common stockholders' equity 17.09 21.39 (20.1)
Net yield margin 5.40 5.24 3.1
Allowance for loan losses to:
Non-performing loans 574.88 521.72 10.2
Non-performing assets 364.76 283.44 28.7
Net loans 2.69 4.19 (35.8)
Non-performing assets to loans and foreclosed
properties 0.74 1.47 (49.7)
Common stockholders' equity to assets 7.36 8.83 (16.6)
AT PERIOD-END
Assets $10,477,726 $11,529,575 (9.1)
Earning assets 9,337,761 10,294,911 (9.3)
Loans (net of unearned income) 5,647,599 5,974,738 (5.5)
Deposits 7,397,490 7,934,684 (6.8)
Core deposits 7,113,166 7,321,176 (2.8)
Common stockholders' equity 771,476 1,017,933 (24.2)
Non-performing assets 41,597 88,370 (52.9)
Number of common stockholders 15,374 14,756 4.2
Full-time employees 3,759 6,072 (38.1)
Part-time employees 1,029 1,391 (26.0)
</TABLE>
Note: The 1995 numbers reflect the spin-off of Capital One Financial
Corporation on February 28, 1995. The common stock of Signet Banking
Corporation is traded on the New York Stock Exchange under the symbol
"SBK."
<PAGE>
Table 1
SELECTED QUARTERLY FINANCIAL INFORMATION
<TABLE>
1ST QTR 4th Qtr 3rd Qtr 2nd Qtr 1st Qtr
1995(1) 1994 1994 1994 1994
<S> <C> <C> <C> <C> <C>
SUMMARY OF OPERATIONS
(dollars in thousands - except per share)
Net interest income (taxable equivalent) $ 146,511 $ 131,611 $ 133,177 $ 128,279 $ 130,650
Less: taxable equivalent adjustment 3,262 3,448 3,455 3,369 3,434
Net interest income 143,249 128,163 129,722 124,910 127,216
Provision for loan losses 7,180 3,000 3,000 2,999 5,499
Net interest income after
provision for loan losses 136,069 125,163 126,722 121,911 121,717
Non-interest income 121,115 148,433 151,820 139,467 128,363
Non-interest expense (2) 190,926 210,875 276,814 186,625 172,109
Income before income taxes (benefit) 66,258 62,721 1,728 74,753 77,971
Applicable income taxes (benefit) 24,033 19,847 (1,734) 24,368 24,858
Net income $ 42,225 $ 42,874 $ 3,462 $ 50,385 $ 53,113
Per common share:
Net income $ 0.71 $ 0.73 $ 0.05 $ 0.88 $ 0.93
Cash dividends declared 0.25 0.25 0.25 0.25 0.25
Average common shares outstanding 59,142,042 58,927,134 57,898,078 57,357,940 57,247,462
SELECTED AVERAGE BALANCES
(dollars in millions)
Assets $ 12,332 $ 12,088 $ 10,971 $ 11,501 $ 11,310
Earning assets 11,000 10,598 9,633 10,267 10,112
Loans (net of unearned income) 7,242 6,966 6,080 6,344 6,235
Deposits 7,619 7,768 7,635 7,769 7,815
Core deposits 7,040 7,178 7,154 7,209 7,224
Interest bearing liabilities 9,524 9,091 8,121 8,699 8,511
Stockholders' equity 1,002 1,094 1,064 1,017 1,007
RATIOS
Return on average assets 1.39% 1.41% 0.13% 1.76% 1.90%
Return on average common stockholders' equity 17.09 15.55 1.29 19.87 21.39
Net loan losses to average loans 0.33 0.44 1.74 0.38 0.36
Net interest spread 4.79 4.34 4.96 4.51 4.77
Net yield margin 5.40 4.93 5.49 5.01 5.24
At period-end:
Allowance for loan losses to:
Non-performing loans 574.88 846.32 589.84 616.91 521.72
Non-performing assets 364.76 454.34 342.19 316.48 283.44
Net loans 2.69 2.78 3.46 4.29 4.19
Non-performing assets to loans and
foreclosed properties 0.74 0.61 1.01 1.35 1.47
Total stockholders' equity to assets 7.36 8.60 9.81 9.58 8.83
</TABLE>
(1) The first quarter of 1995 reflects the spin-off of Capital One
Financial Corporation ("COF") on February 28, 1995.
(2) The first, second, third and fourth quarters of 1994 included $21.4,
$24.2, $24.2, and $31.1 million of credit card solicitation expense,
respectively.
The first quarter of 1995 included $29.0 million of credit card
solicitation expense which represents two months' worth since COF
spun off on February 28, 1995.
The third quarter of 1994 included a $49.0 million contract
termination fee and $33.6 million of restructuring charges.
The fourth quarter of 1994 included $9.6 million of restructuring
charges.
<PAGE>
Table 2
NET INTEREST INCOME ANALYSIS
Taxable Equivalent Basis (in thousands)
<TABLE>
First Quarter 1995 Compared First Quarter 1995 Compared
with First Quarter 1994 with Fourth Quarter 1994
Increase Change due to* Increase Change due to*
(Decrease) Rate Volume (Decrease) Rate Volume
<S> <C> <C> <C> <C> <C> <C>
INTEREST INCOME:
Loans, including fees $52,033 $28,300 $23,733 $18,345 $12,752 $ 5,593
Securities available for sale 3,708 6,577 (2,869) 11,222 2,989 8,233
Investment securities 1,632 25 1,607 (82) 252 (334)
Other earning assets 2,352 6,340 (3,988) (3,070) 1,491 (4,561)
Total interest income 59,725 41,734 17,991 26,415 19,136 7,279
INTEREST EXPENSE:
Interest bearing deposits 12,653 13,519 (866) 282 1,406 (1,124)
Fed funds and repurchase agreements 10,471 9,911 560 4,423 2,514 1,909
Other short-term borrowings 11,836 2,132 9,704 (1,455) 366 (1,821)
Long-term borrowings 8,904 961 7,943 8,265 191 8,074
Total interest expense 43,864 35,717 8,147 11,515 7,649 3,866
Net interest income $15,861 $ 4,128 $11,733 $14,900 $10,689 $ 4,211
</TABLE>
* The change in interest due to both volume and rates has been allocated
in proportion to the relationship of the absolute dollar amount of the
changes 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.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
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 March 31, 1995, Signet had assets of $10.5 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., headquartered in Washington, D.C.
Signet engages in general commercial and consumer banking businesses
and provides a full range of financial services to individuals,
businesses and organizations through 248 banking offices, 253 automated
teller machines and a 24-hour a day full-service Telephone Banking
Center. Signet offers investment services including municipal bond,
government, federal agency and money market sales and trading, foreign
exchange trading and discount brokerage. In addition, specialized
services for trust, leasing, asset based lending, cash management, real
estate, insurance, consumer financing and an international operation
concentrating on trade finance are offered. Signet's primary market area
extends from Baltimore to Washington, south to Richmond, and on to
Hampton Roads/Tidewater Virginia.
On October 25, 1994, Signet filed an amended registration statement
with the Securities and Exchange Commission ("SEC") which described
plans to spin off Capital One Financial Corporation ("Capital One").
Under such plans, designated assets and liabilities of Signet
Bank/Virginia's credit card division, including all credit card
servicing functions, a credit card securitization master trust and
substantially all credit card accounts, were transferred to Capital One
Bank, a newly chartered limited purpose credit card bank. Capital One
Bank became, in conjunction with the transfer, a wholly-owned subsidiary
of Capital One, a wholly-owned subsidiary of Signet (the "Separation").
Accounts representing approximately $335 million, or 5%, of the managed
credit card portfolio were retained by Signet. The Separation occurred
November 22, 1994 at which time 7,125,000 shares of common stock of
Capital One were sold in an initial public offering. Signet distributed
all of the remaining common stock it held in Capital One to Signet
stockholders in a tax-free distribution on February 28, 1995 ("the
Spin-Off") at which time Signet and Capital One became independent
companies. Capital One is listed on the New York Stock Exchange under
the symbol COF.
On February 15, 1995, Signet announced it had reached a definitive
agreement to acquire the assets of Sheffield Management Company and
Sheffield Investments, Inc., managers and distributors of the Blanchard
group of mutual funds. These funds are marketed nationally through
direct mail and comprise eleven fixed income and equity funds totaling
approximately $1 billion. This transaction is expected to close in the
second quarter of 1995.
<PAGE>
In 1995, Signet began construction on a new operations center
located near Richmond, Virginia. Estimated total cost of this project is
$45 million.
A detailed discussion of the operating results for the first quarter
of 1995 and financial condition at March 31, 1995 follows. It is
intended to help readers analyze the accompanying financial statements,
notes and other supplemental information contained in this report.
EARNINGS ANALYSIS
Net income for the first quarter of 1995 totaled $42.2 million, or
$.71 per share, compared with $53.1 million, or $.93 per share, in the
same quarter last year, a decline of 20% primarily due to the Spin-Off.
Net income for the first quarter of 1995 fell slightly from the fourth
quarter 1994 income of $42.9 or $.73 per share. Earnings for the 1995
first quarter reflect the spin-off of Capital One on February 28, 1995
and the growth in the consumer loan portfolio. Due to the timing of the
Spin-Off, only the first two months of the 1995 results of operations
related to Capital One are included in Signet's statement of
consolidated income for the first quarter of 1995. However, Capital
One's results of operations for all three months of the first quarter of
1994 are included in Signet's first quarter 1994 results.
The return on assets (ROA) was 1.39% for the first quarter of 1995,
while the return on common stockholders' equity (ROE) was 17.09%. This
compares to the first quarter 1994 ROA of 1.90% and ROE of 21.39%.
NET INTEREST INCOME
Taxable equivalent net interest income, a principal component of
earnings, totaled $146.5 million for the first quarter of 1995, an
increase of $15.8 million, or 12%, from $130.7 million in the same
period last year.
Table 3
ANALYSIS OF CHANGE IN NET YIELD MARGIN
Fourth Quarter 1994 versus First Quarter 1995
Net Yield Margin for Fourth Quarter 1994 4.93%
Higher average and yield on total
on-balance sheet Consumer Loans 0.45
Lower average and higher yield on Federal
Funds and Resale Agreements - net 0.21
Higher average and rate on Capital One funding (0.19)
Higher funding costs on Signet excluding
Capital One (0.14)
Other (net) 0.14
Net Yield Margin for First Quarter 1995 5.40%
This was also an increase of $14.9 million, or 11%, from $131.6
million earned in the fourth quarter last year. The net yield margin for
the first quarter of 1995 was 5.40%, a 16 basis point increase over the
net yield margin of 5.24% in the same period last year and a 47 basis
point increase over the fourth quarter 1994 net yield margin of 4.93%.
The increase in the net yield margin from the 1994 periods is primarily
due to higher yields and growth in consumer loans. Table 3 analyzes the
change in the net yield margin from fourth quarter 1994 to first quarter
1995. An approximate basis point impact was calculated for each item
noted. The increase in net interest spread and net interest margin from
the fourth quarter of 1994 was primarily due to an increase in the
outstanding balance and yield on consumer loans which includes a higher
yield on the total on-balance sheet portfolio of credit card loans. The
on- balance sheet yield on credit card loans improved from 11.90% for
the fourth quarter of 1994 to 14.12% for the first quarter of 1995. The
higher yield of the credit card portfolio was attributable to Signet's
retention of the higher yielding credit card loans in the Spin-Off and
to repricing a portion of the portfolio as their introductory rate
period expired.
Signet uses various off-balance sheet interest rate derivatives 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
has entered into derivative transactions. At March 31, 1995, the
notional values of the Company's derivative products for the purpose of
hedging interest rate risk were $2.9 billion of interest rate swaps,
down from $3.9 billion at December 31,1994 due to a $500 million swap
being called and the transfer of a $539 million swap to Capital One in
connection with the Spin-Off; $650 million of interest rate floors and
$100 million of interest rate caps. The Company entered into an interest
rate swap for a variable notional amount ranging from $0.6 billion to
$4.8 billion whereby the Company pays a fixed rate of 5.875% and
receives one month LIBOR ("London Inter Bank Offering Rate") from
January 3, 1995 through April 13, 1995. This interest rate swap was
transferred to Capital One in connection with the Spin- Off. As a result
of this transaction, the Company mitigated the interest rate risk
associated with funding credit card assets. Interest rate derivative
products related to asset and liability management contributed 20 basis
points to the first quarter 1995 margin compared with 76 basis points in
the first quarter of 1994. The total income from these contracts fell
from $19.0 million in the first quarter of 1994 to $5.5 million in the
1995 first quarter.
<PAGE>
PROVISION AND ALLOWANCE FOR LOAN LOSSES
Reflecting the growth in the consumer loan portfolio, the provision
for loan losses was $7.2 million for the first quarter of 1995 up from
$5.5 million for the same period last year and $3.0 million in the
fourth quarter of last year. For the first quarter of 1995, net
charge-offs totaled $6.0 million, relatively level with the $5.6 million
in the same quarter of 1994 and down from the $7.7 million in the 1994
fourth quarter. As a percentage of average loans, first quarter net loan
losses declined 3 basis points from the comparable period in 1994 and
fell 11 basis points from the 1994 fourth quarter. The percentage of net
credit card losses to average credit card loans on-balance sheet
increased to 1.40% for the first quarter of 1995 from 1.10% the same
period in 1994 and from 1.36% in the 1994 fourth quarter. This increase
reflects the transfer of newer credit card accounts to Capital One and
the retention of older, more seasoned credit card accounts by the
Company in the Spin-Off.
The allowance for loan losses at March 31, 1995 was $151.7 million,
or 2.69% of net loans, compared with $250.5 million, or 4.19% of net
loans, at March 31, 1994 and $220.5 million, or 2.78% of net loans, at
December 31, 1994. The decrease from March 31, 1994 primarily reflected
the Spin-Off at which time $68.5 million of the allowance was
transferred to Capital One. The remaining decrease resulted from
charge-offs taken on real estate related loans during the past year, the
majority of which were related to a real estate loan sale in the third
quarter of 1994.
To determine the appropriate level of allowance for loan losses,
management identifies and examines on a monthly basis the commercial,
real estate and large consumer loans warranting attention and reviews
the credit worthiness of the borrower,
Table 4
STATEMENT OF CHANGES IN ALLOWANCE FOR LOAN LOSSES
(dollars in thousands)
<TABLE>
Three Months Ended
March 31 December 31
1995 1994 1994
<S> <C> <C> <C>
Balance at beginning of period $220,519 $253,313 $225,359
Additions to allowance charged to expense 7,180 5,499 3,000
Transfer to credit card loans held for securitization (1,489) (2,750) (150)
Transfer to Capital One Banking Corporation (68,516)
Loans charged off:
Consumer (1) 9,120 8,928 10,070
Commercial 428 4,750 1,141
Real estate-construction 8 915
Real estate-mortgage (2) 904 412 151
Total loans charged off 10,460 14,090 12,277
Recoveries of loans previously charged off:
Consumer (1) 2,246 3,495 2,521
Commercial 1,986 3,128 642
Real estate-construction 237 225 1,291
Real estate-mortgage (2) 26 1,657 133
Total recoveries 4,495 8,505 4,587
Net loans charged off 5,965 5,585 7,690
Balance at end of period $151,729 $250,477 $220,519
Net loan losses (annualized) as a percentage of average
loans:
Consumer (1) 0.70% 1.65% 0.78%
Commercial (0.26) 0.30 0.09
Real estate 0.28 (0.62) (0.16)
Total 0.33% 0.36% 0.44%
Allowance for loan losses to net loans at end of period 2.69% 4.19% 2.78%
</TABLE>
(1) The majority of the consumer loan charge offs and recoveries were
related to credit card loans for the periods presented.
(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.
<PAGE>
Table 5
ALLOWANCE FOR LOAN LOSSES ALLOCATION
(dollars in thousands)
March 31, 1995
Percentage of
Allowance Allowance to Loans
Amount in Each Category
Consumer $ 26,072 1.17%
Commercial 36,485 1.47
Real Estate 59,384 6.30
Unallocated 29,788
Total $151,729 2.69%
the adequacy of underlying collateral and the impact of business and
economic conditions upon the borrower. Based on this information and
action plans provided by the lending units, Signet's Credit Risk
Management Division determines the aggregate level of the allowance.
Beginning in 1995, Signet adopted Financial Accounting Standards Board
Statement No. 114, "Accounting by Creditors for Impairment of a Loan."
Under the new standard, the 1995 allowance for loan losses related to
loans that are identified for evaluation in accordance with Statement
No. 114 is based on discounted cash flows using the loan's initial
effective interest rate or the fair value of the collateral for certain
collateral dependent loans. The loans that are considered impaired under
Statement No. 114 are comprised of $22.1 million of nonaccrual loans for
which the related allowance for credit losses is $8.6 million. The
average recorded investment in impaired loans during the quarter ended
March 31, 1995 was approximately $20.8 million.
The consumer portfolio receives an overall allocation based on such
factors as current and anticipated economic conditions, historical
charge-off and recovery rates and trends in delinquencies, projected
charge-offs by loan solicitation tranche, bankruptcies and loan volume.
The remaining loan portfolio (unclassified commercial and real estate
loans) receives a general allocation deemed to be reasonably necessary
to provide for losses based on the factors listed above and on migration
analysis which traces loan risk ratings and related losses over time.
The allocation shown in Table 5 is a general allowance applicable to the
entire loan portfolio and 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
Total non-interest income was $121.1 million in the first quarter
of 1995, a decrease of 6% from the same period in 1994 and an 18%
decline from the fourth quarter of 1994. The primary source of the
decline was a reduction in credit card servicing income due to the
Spin-Off. The 1995 credit card servicing income includes only two months
of income whereas 1994 includes a full quarter, reflecting the timing of
the Spin-Off. Credit card servicing, which houses the income from
servicing the securitized credit card receivables, decreased $11.5
million, or 15%, from the 1994 first quarter to $65.0 million and
decreased $26.4 million, or 29%, from the 1994 fourth quarter due to the
reduction in serviced receivables from the Spin-Off. Income from credit
card service charges rose $3.3 million, or 21%, for the first quarter of
1995 compared with the same time period in 1994. This increase is
attributable to a rise in over limit fees. Mortgage servicing and
origination fee income declined 26% and 3% from the same quarter last
year and the fourth quarter of 1994, respectively, to $4.2 million as a
result of a significant decrease in mortgage loan volume resulting from
rising rates. For the first quarter of 1995, Signet realized trading
gains of $2.4 million, an improvement from $.5 million of trading losses
in the 1994 first quarter. In the first quarter of 1995, $102 thousand
of net gains were recognized on transactions in the securities available
for sale portfolio compared to $212 thousand of net losses recognized in
the first quarter of 1994. Nominal net gains were recognized in the
first quarter of 1995 and nominal losses were recognized in the same
period of 1994 on investment securities that were called.
NON-INTEREST EXPENSE
Total non-interest expense was $190.9 million in the first quarter
of 1995, an increase of 11% from the same period in 1994, primarily the
result of higher credit card solicitation costs. When comparing the
first quarter of 1995 to the same period in 1994, decreases occurred in
all the major categories except credit card solicitation, occupancy,
supplies and equipment and professional services. These categories rose
principally due to higher costs associated with Capital One even though
1995 included only two months of such expenses. The number of full-time
equivalent employees fell 37% from the first quarter of 1994 as a result
of the spin-off of Capital One and the displacement of approximately 750
employees during the latter half of 1994 and an early retirement program
in which 225 employees participated in connection with Signet's
restructuring program. Total salary and employee benefits declined $2.0
million in the
<PAGE>
Table 6
NON-INTEREST INCOME AND EXPENSE
(in thousands)
<TABLE>
Three Months Ended
MARCH 31 DECEMBER 31
1995 1994 1994
<S> <C> <C> <C>
NON-INTEREST INCOME:
Credit card servicing income $ 65,036 $ 76,537 $ 91,395
Credit card service charges 18,741 15,448 22,505
Service charges on deposit accounts 16,471 15,697 16,104
Trust income 4,892 4,801 5,025
Mortgage servicing and origination 4,162 5,645 4,298
Other service charges and fees 3,713 3,728 3,694
Trading profits (losses) 2,379 (462) 635
Other 5,364 7,249 4,510
Non-interest operating income 120,758 128,643 148,166
Securities available for sale gains (losses) 102 (212) 220
Investment securities gains (losses) 255 (68) 47
Total non-interest income $121,115 $128,363 $148,433
NON-INTEREST EXPENSE:
Salaries $ 57,701 $ 59,941 $ 64,983
Employee benefits 18,341 18,062 12,783
Total staff expense 76,042 78,003 77,766
Credit card solicitation 29,050 21,387 31,049
Supplies and equipment 14,526 11,999 16,266
Travel and communications 13,153 13,317 16,181
Occupancy 11,954 10,711 12,455
External data processing services 9,046 11,279 13,570
Restructuring charges 9,593
Professional services 7,130 4,280 9,335
Public relations, sales and advertising 5,368 4,268 3,465
FDIC assessment 4,313 3,891 4,373
Credit and collection 1,818 2,653 2,582
Foreclosed property - net 572 (216) (1,888)
Other 17,954 10,537 16,128
Total non-interest expense $190,926 $172,109 $210,875
</TABLE>
Note: Other non-interest expense for the three months ended December 31,
1994 and March 31, 1995 included $1,272 and $2,018, respectively,
of minority interest (net of income taxes) in Capital One
Financial Corporation.
same period. For the 1995 first quarter, expenses associated with the
credit card solicitation program were $29.0 million representing an
increase of $7.7 million from the same period last year.
Total non-interest expense fell $19.9 million, or 9%, from the
fourth quarter of 1994 primarily due to the $9.6 million of
restructuring charges in the fourth quarter as well as only two months
of Capital One expenses in 1995 versus three months of expenses in the
fourth quarter. Benefits expense rose $5.6 million from the fourth
quarter primarily as a result of unusually low health benefits expense
in the fourth quarter. The fourth quarter of 1994 benefits expense
reflected accrual adjustments for health care benefits.
Signet's efficiency ratio (the ratio of non-interest expense to
taxable equivalent operating income) for the first quarter of 1995 was
71.44% compared with 66.38% for the same quarter last year and 75.37%
for the fourth quarter of 1994. Since charge-offs on securitized credit
card loans reduce credit card servicing income, operating income, for
the purpose of calculating the efficiency ratio, should exclude the
impact of these charge-offs. Making this adjustment to revenue and
excluding the restructuring charges and foreclosed property expense
reduces the ratio to 66.42% for the first quarter of 1995 compared with
62.57% and 66.89% for the first and fourth quarters of 1994,
respectively.
INCOME TAXES
Signet recorded income tax expense of $24.0 million for the first
quarter of 1995 compared with expense of $24.9 million for the first
quarter of 1994 and expense of $19.8 million for the fourth quarter of
1994. The increase in tax expense in 1995 over the fourth quarter of
1994 was principally due to the significant increase in taxable income
0and the continued decline in the level of tax-exempt income. The
effective tax rate for the first quarter of 1995 was 36% compared with
32% for the first and fourth quarters of 1994. The higher rate for 1995
reflected an increase in state income taxes.
<PAGE>
FINANCIAL CONDITION
Earning assets averaged $11.0 billion for the first quarter of
1995, an increase of 9% from the same period last year. Average
investment securities rose $134 million and average securities available
for sale fell $195 million from the prior year's first quarter. Credit
card loans held for securitization averaged $147 million for the first
quarter of 1995, down from $344 million for the first quarter of last
year. These assets were reclassified from the credit card loan category
in anticipation of credit card loan securitizations. Total loans
averaged $7.2 billion for the quarter, reflecting a 16% increase from
the first quarter of 1994. Average on-balance sheet credit card loans
including loans held for securitization, decreased 10% to $2.0 billion
as a result of the Spin-Off. The $799 million rise in consumer loans
resulted primarily from an increase of $436 million in installment loans
and $337 million in student loans. The loan category experiencing the
largest decline from the first quarter of 1994 was real
estate-construction, down 29% to $208 million. Average real
estate-commercial mortgage loans declined 10% to $520 million and real
estate-residential mortgages were up $133 million as a result of loans
acquired in the 1994 third quarter Pioneer Financial Corporation
acquisition and management's decision to retain rather than sell
mortgages originated by Signet. The decline in construction loans was
principally the result of management's continued desire to reduce the
level of commercial real estate asset exposure. A sale of real estate
loans in the 1994 third quarter reduced the real estate-construction and
real estate-commercial mortgage loan categories. The yield on earning
assets was 9.32% for the first quarter of 1995 compared with 7.74% for
the first quarter of 1994 and 8.48% for the fourth quarter.
Average interest bearing liabilities totaled $9.5 billion in the
first quarter, up 12% from the first quarter of 1994 and up 5% from the
fourth quarter. Savings certificates decreased $86 million, or 4% from
the same quarter last year as depositors responded to lower interest
rates by shortening the maturities of their investments and transferring
their funds into money market and demand products. Additionally, money
market savings declined $297 million, or 17% in the same period. Deposit
categories experiencing increases as a result of the factors noted above
included money market and interest checking and savings accounts. Large
denomination certificates rose $166 million, or 50% due to significant
Table 7
CONSOLIDATED AVERAGE BALANCE SHEET
(dollars in thousands)
<TABLE> Three Months Ended
MARCH 31
1995 1994
AVERAGE INCOME/ YIELD/ AVERAGE INCOME/ YIELD/
BALANCE EXPENSE RATE BALANCE EXPENSE RATE
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Earning assets (tax equivalent basis):*
Interest bearing deposits with other banks $ 98,271 $ 1,438 5.85% $ 260,623 $ 2,571 3.95%
Federal funds and resale agreements 1,039,776 15,309 5.89 607,287 4,950 3.26
Trading account securities 418,011 6,718 6.52 286,083 5,640 8.00
Loans held for securitization 146,667 4,205 11.47 344,445 7,875 9.15
Loans held for sale 94,718 1,479 6.25 356,398 5,761 6.47
Securities available for sale 1,579,687 27,843 7.05 1,775,042 24,135 5.44
Investment securities - taxable 222,877 3,946 7.08 26,886 385 5.71
Investment securities - nontaxable 157,609 4,716 11.97 219,689 6,645 12.10
Loans (net of unearned income):
Consumer 3,946,185 117,634 11.98 3,147,208 76,050 9.69
Commercial 2,362,850 47,134 8.09 2,141,690 40,985 7.76
Real estate - construction 207,805 5,154 9.92 293,423 5,241 7.14
Real estate - commercial mortgage 520,340 12,939 10.08 580,572 11,015 7.69
Real estate - residential mortgage 204,888 4,279 8.35 72,317 1,816 10.04
Total loans 7,242,068 187,140 10.48 6,235,210 135,107 8.79
Total earning assets 10,999,684 $252,794 9.32% 10,111,663 $193,069 7.74%
Non-rate related assets:
Cash and due from banks 505,045 489,161
Allowance for loan losses (196,476) (252,360)
Premises and equipment (net) 228,577 224,308
Other assets 795,359 737,538
Total assets $12,332,189 $11,310,310
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest bearing liabilities:
Deposits:
Money market and interest checking $ 1,014,201 $ 6,141 2.46% $ 1,021,613 $ 5,552 2.20%
Money market savings 1,402,102 11,958 3.46 1,699,044 11,318 2.70
Savings accounts 1,188,584 10,727 3.66 910,572 6,948 3.09
Savings certificates 1,950,069 17,147 3.57 2,036,432 13,050 2.60
Large denomination certificates 494,575 7,700 6.23 328,939 3,224 3.92
Foreign 83,737 1,253 5.99 262,572 2,181 3.32
Total interest bearing deposits 6,133,268 54,926 3.63 6,259,172 42,273 2.74
Federal funds and repurchase agreements 1,789,022 23,698 5.30 1,718,941 13,227 3.08
Other short-term borrowings 896,552 14,889 6.64 275,074 3,053 4.44
Long-term borrowings 705,362 12,770 7.24 258,266 3,866 5.99
Total interest bearing liabilities 9,524,204 $106,283 4.53% 8,511,453 $ 62,419 2.97%
Non-interest bearing liabilities:
Demand deposits 1,485,515 1,556,213
Other liabilities 320,698 235,482
Common stockholders' equity 1,001,772 1,007,162
Total liabilities and stockholders' equity $12,332,189 $11,310,310
Net interest income/spread $146,511 4.79% $130,650 4.77%
Interest income to average earning assets 9.32% 7.74%
Interest expense to average earning assets 3.92 2.50
Net yield margin 5.40% 5.24%
</TABLE>
<TABLE>
Three Months Ended
December 31
1994
AVERAGE INCOME/ YIELD/
BALANCE EXPENSE RATE
<S> <C> <C> <C>
ASSETS
Earning assets (tax equivalent basis):*
Interest bearing deposits with other banks $ 252,786 $ 3,138 4.86%
Federal funds and resale agreements 1,404,983 19,068 5.31
Trading account securities 331,845 6,038 7.22
Loans held for securitization 77,242 2,111 10.93
Loans held for sale 110,041 1,864 6.63
Securities available for sale 1,079,711 16,621 6.02
Investment securities - taxable 197,137 3,392 6.88
Investment securities - nontaxable 177,261 5,352 12.08
Loans (net of unearned income):
Consumer 3,880,052 103,907 10.67
Commercial 2,194,675 43,063 7.78
Real estate - construction 212,661 5,212 9.59
Real estate - commercial mortgage 524,541 13,461 10.18
Real estate - residential mortgage 154,567 3,152 8.16
Total loans 6,966,496 168,795 9.61
Total earning assets 10,597,502 $226,379 8.48%
Non-rate related assets:
Cash and due from banks 516,825
Allowance for loan losses (223,825)
Premises and equipment (net) 259,873
Other assets 937,855
Total assets $12,088,230
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest bearing liabilities:
Deposits:
Money market and interest checking $ 1,027,081 $ 6,124 2.37%
Money market savings 1,489,537 10,954 2.92
Savings accounts 1,138,532 10,106 3.52
Savings certificates 1,981,963 19,514 3.91
Large denomination certificates 326,418 4,553 5.46
Foreign 263,810 3,393 5.03
Total interest bearing deposits 6,227,341 54,644 3.48
Federal funds and repurchase agreements 1,619,587 19,275 4.66
Other short-term borrowings 990,372 16,344 6.46
Long-term borrowings 253,685 4,505 6.95
Total interest bearing liabilities 9,090,985 $ 94,768 4.14%
Non-interest bearing liabilities:
Demand deposits 1,541,152
Other liabilities 362,276
Common stockholders' equity 1,093,817
Total liabilities and stockholders' equity $12,088,230
Net interest income/spread $131,611 4.34%
Interest income to average earning assets 8.48%
Interest expense to average earning assets 3.55
Net yield margin 4.93%
</TABLE>
*Includes the effects of taxable equivalent adjustments using a tax rate of 35%.
<PAGE>
activity on Capital One. Foreign deposits decreased $179 million from
the first quarter of 1994. Average core deposits remained relatively
stable when comparing first quarter of 1995 with the first quarter of
1994. Purchased funds, which include large denomination certificates,
foreign deposits, federal funds and repurchase agreements and other
short-term and long-term borrowings averaged $4.0 billion for the 1995
first quarter, up $1.1 billion from the comparable 1994 period and up
$515 million from the fourth quarter of 1994. The higher level of
purchased funds in the first quarter of 1995 compared with the fourth
quarter resulted from temporarily funding the growth in credit card
receivables prior to securitization. The average rate on interest
bearing liabilities rose 156 basis points when compared with the first
quarter of 1994 primarily the result of a general rise in market rates.
CONSUMER LOAN GROWTH In 1994, Signet expanded its use of
information-based technology to all types of consumer loans which
significantly increased growth. The technology involves generating a
data base of creditworthy customers for particular products and then
following up with direct-mail solicitations. Much of the growth was in a
new loan product, "loan-by-check". Customers who receive a direct-mail
solicitation are invited to apply for installment loans of various
amounts and terms according to their risk profile simply by endorsing
the check and depositing it. Signet is also applying this technology to
home equity, student and small business loans. From the end of the first
quarter of 1994 to March 31, 1995, student loans were up $340 million,
installment loans grew $372 million and home equity loans increased $79
million. Solicitations in these areas are mostly in the preliminary
stages.
Table 8
NON-PERFORMING ASSETS AND PAST DUE LOANS
(dollars in thousands)
<TABLE>
March 31 December 31
<S> 1995 1994 1994
Non-accrual loans: <C> <C> <C>
Commercial $10,998 $17,191 $10,548
Consumer 1,596 2,591 1,708
Real estate - construction 5,161 17,258 5,490
Real estate - mortgage* 8,638 5,895 7,310
Total non-accrual loans 26,393 42,935 25,056
Restructured loans:
Commercial 1,607
Real estate - construction 3,468 1,000
Total restructured loans 5,075 1,000
Total non-performing loans 26,393 48,010 26,056
Foreclosed properties 15,204 46,013 22,480
Less foreclosed property reserve (5,653)
Total foreclosed properties 15,204 40,360 22,480
Total non-performing assets $41,597 $88,370 $48,536
Percentage to loans (net of unearned) and foreclosed
properties 0.74% 1.47% 0.61%
Allowance for loan losses to:
Non-performing loans 574.88 521.72 846.32
Non-performing assets 364.76 283.44 454.34
Accruing loans past due 90 days or more $42,919 $52,702 $65,333
</TABLE>
* 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.
RISK ELEMENTS Non-performing assets include non-accrual loans
(including loans impaired under Statement No. 114), restructured loans
and foreclosed properties. Non-performing assets declined $6.9 million
or 14.3% from December 31, 1994. Non-performing assets represented .74%
of loans and foreclosed properties at March 31, 1995, up from .61% and
down from 1.47% at December 31, 1994 and March 31, 1994, respectively.
The increase in this ratio reflects the Spin-Off at which time
approximately $2.6 billion of loans (including $450 million held for
securitization) left Signet. Non-performing assets are at their lowest
level since December 31, 1986. The allowance for loan losses equaled
575% of non-performing loans at March 31, 1995, down from 846% at
December 31, 1994 and up from 522% at March 31, 1994. The ratio of the
allowance to non-performing assets also improved to 365% at March 31,
1995 from 454% at December 31, 1994 and 283% at March 31, 1994.
Foreclosed properties totaled $15.2 million at the end of the first
quarter of 1995 and were equal to 37% of total non-performing assets and
52% of non- performing real estate assets. Signet sold $6.4 million of
foreclosed properties during the first quarter of 1995.
In accordance with Statement No. 114, a loan is classified as
foreclosed property when possession has been taken of the collateral,
regardless of whether formal foreclosure proceedings take place.
Accruing loans which are contractually past due 90 days or more as
to principal or interest payments totaled $42.9 million at March 31,
1995. This is a 34% decline from the $65.3 million level as of December
31, 1994, and represents a 19% improvement from the $52.7 million
reported at March 31, 1994. The March 31, 1995 total was comprised of
$7.3 million of commercial loans; $5.1 million of credit card loans;
$24.1 million of other consumer loans (of which $17.4 million are
student loan delinquencies which are government guaranteed and do not
represent material loss exposure); $5.5 million of mortgage loans; and
$.9 million of construction loans.
Table 9
SELECTED CAPITAL DATA
(dollars in thousands)
<TABLE>
MARCH 31 March 31 December 31
1995 1994 1994
<S> <C> <C> <C>
Qualifying common stockholders' equity $ 769,995 $1,009,069 $1,237,453
Less goodwill and other disallowed intangibles (41,279) (22,582) (44,581)
Total Tier I capital 728,716 986,487 1,192,872
Qualifying debt 165,200 215,067 165,800
Qualifying allowance for loan losses 88,308 114,113 119,812
Total Tier II capital 253,508 329,180 285,612
Total risked-based capital $ 982,224 $1,315,667 $1,478,484
Total risk-adjusted assets $7,001,209 $8,992,661 $9,484,219
RATIOS:
Tier I capital 10.41% 10.97% 12.58%
Total risk-based capital 14.03 14.63 15.59
Tier I leverage 5.93 8.74 9.90
Tangible Tier I leverage 5.63 8.55 9.57
Total stockholders' equity to assets 7.36 8.83 8.60
Common dividend payout ratio (year-to-date) 35.21 26.88 38.61
Book value per share $ 13.15 $ 17.95 $ 18.96
</TABLE>
STOCKHOLDERS' EQUITY DATA At March 31, 1995, stockholders' equity totaled
$771 million, a decline of 24% from the March 31, 1994 level of $1.0 billion.
This decrease reflects the Spin-Off whereby approximately $383 million of
Signet's stockholders' equity transferred to Capital One.
The Company's equity-to-assets ratio was 7.36% at March 31, 1995,
down from 8.60% at December 31, 1994 and 8.83% at March 31, 1994.
Signet's risk-adjusted capital ratios at March 31, 1995 remained strong
at 10.41% and 14.03% for Tier I and Total Capital, respectively. 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 March 31, 1995 was 5.93%, also
down from 9.90% at December 31, 1994 and 8.74% at March 31, 1994. The
decline in these capital ratios reflects the impact of the Spin-Off. For
most corporations, including Signet, the minimum leverage ratio is 3%
plus an additional cushion of 100 to 200 basis points depending upon
risk profiles and other factors. At March 31, 1995, all three of
Signet's banking subsidiaries met the criteria established by the
Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA")
for "well capitalized" institutions.
INTEREST RATE SENSITIVITY AND LIQUIDITY Signet's interest rate
sensitivity position is managed by the Asset and Liability Committee
("ALCO") and monitored through the use of simulations on rate sensitive
pre-tax income. Interest rate sensitivity is the relationship between
changes in market interest rates and changes in rate sensitive income
due to the repricing characteristics of assets and liabilities. For
example, in periods of rising rates, the core banking businesses will
experience wider spreads as consumer deposit costs lag increases in
market interest rates. Improved spreads due to the lag in pricing on
consumer deposits will be partially offset to the extent that the
funding cost on the investment portfolio increases. 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 measure the impact that market changes and alternative
strategies might have on net interest income. Both current period
maturity and repricing information and projected balance sheet
strategies are used to simulate rate sensitivity. The lag effect of
consumer deposit rates, determined through historical analysis and
forecasting techniques, is also modeled. These simulations show that an
immediate and sustained 100 basis point change in interest rates would
have less than a 2% 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.
Asset liquidity is generally provided by interest bearing deposits
with other banks, Federal funds sold and securities purchased under
resale agreements, trading account securities, credit card loans held
for securitization, loans held for sale and securities available for
sale. This group of interest-earning assets totaled $3.3 billion, or 35%
of earning assets at March 31, 1995. The loan portfolio is a secondary
source of asset liquidity. Liability liquidity is measured by the
Company's ability to obtain funds at favorable rates and in adequate
amounts. Core deposits are the largest and most important funding
source. These deposits totaled 126% of total loans as of March 31, 1995.
Purchased funds consisted primarily of funds from local customers which
are considered to be less volatile than other purchased liabilities and
repurchase agreements. In the first quarter of 1995, cash and cash
equivalents decreased by $675 million primarily as a result of purchases
of securities available for sale and an increase in loans. Cash used by
operations was $507 million for this time period. Cash used by investing
activities amounted to $1.3 billion principally due to purchases of
securities available for sale exceeding proceeds from sales and
maturities. Cash provided by financing activities amounted to $1.2
billion as there was an increase in long-term borrowings to fund Capital
One prior to the Spin-Off.
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The annual meeting of shareholders of the Registrant was held on
April 25, 1995. At the meeting, the following individuals were
elected directors of the Registrant:
<TABLE>
Vote Vote Against
In Favor or Withheld Abstain
Name of Director
<S> <C> <C> <C>
J. Henry Butta 46,873,970 196,618 11,481,556
Norwood H. Davis, Jr. 46,896,972 173,616 11,481,556
William C. DeRusha 46,881,993 188,595 11,481,556
Robert M. Freeman 46,888,195 182,393 11,481,556
Bruce C. Gottwald, Jr. 46,748,181 322,407 11,481,556
William R. Harvey 46,904,955 165,633 11,481,556
Elizabeth G. Helm 46,909,050 161,538 11,481,556
Robert M. Heyssel 46,902,827 167,761 11,481,556
Malcolm S. McDonald 46,879,938 190,650 11,481,556
Henry A. Rosenberg, Jr. 46,910,880 159,708 11,481,556
Louis B. Thalheimer 46,905,541 165,047 11,481,556
</TABLE>
The shareholders also approved: (i) an amendment and restatement of
the Corporation's 1992 Stock Option Plan to increase by 2,000,000 the
number of authorized but unissued shares of the Corporation's common
stock available for issuance under the Plan and to comply with the
provisions of Internal Revenue Code Section 162(m). 44,223,245 shares
voted for, 2,474,701 shares voted against and 11,854,198 abstained from
adoption of the Stock Option Plan amendment, and (ii) ratification of
the selection of Ernst & Young LLP as independent auditors to audit the
financial statements of the Corporation for 1995. 46,771,536 shares
voted for, 152,375 shares voted against and 11,628,233 abstained from
ratification.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
Exhibit 11 - Computation of Earnings Per Share
(b) Reports on Form 8-K
The Registrant filed a Current Report on Form 8-K, dated February
17, 1995, disclosing the distribution of certain materials to its
shareholders in connection with the special dividend related to
Capital One Financial Corporation.
The Registrant filed a current Report on Form 8-K, dated February
28, 1995, announcing the distribution of Capital One Financial
Corporation common stock to the Registrant's stockholders in a
tax-free distribution.
The Registratant filed a Current Report on Form 8-K/A, dated
February 28, 1995, amending the previous Form 8-K filing to
include Exhibit 27.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by
the undersigned there-unto duly authorized.
SIGNET BANKING CORPORATION
(Registrant)
Date: May 9, 1995 /s/ David L. Brantley
David L. Brantley
Executive Vice President and Treasurer
Date: May 9, 1995 /s/ W. H. Catlett, Jr.
W. H. Catlett, Jr.
Executive Vice President and Controller
(Principal Accounting Officer)
SIGNET BANKING CORPORATION AND SUBSIDIARIES
FORM 10-Q
EXHIBIT 11 - COMPUTATION OF EARNINGS PER SHARE
(dollars in thousands - except per share)
<TABLE>
Three Months
Ended March 31
1995 1994
<S> <C> <C>
Common and common equivalent:
Average shares outstanding 58,589,048 56,665,688
Dilutive stock options-based on the treasury stock
method using the average market price 499,379 550,283
Shares used 59,088,427 57,215,971
Net income applicable to Common Stock $ 42,225 $ 53,113
Per share amount $ 0.71 $ 0.93
Assuming full dilution:
Average shares outstanding 58,589,048 56,665,688
Dilutive stock options-based on the treasury stock
method using the period end market price, if
higher
than the average market price 552,994 581,774
Shares used 59,142,042 57,247,462
Net income applicable to Common Stock $ 42,225 $ 53,113
Per share amount $ 0.71 $ 0.93
</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.
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> MAR-31-1995
<CASH> 541,946
<INT-BEARING-DEPOSITS> 33,523
<FED-FUNDS-SOLD> 772,865
<TRADING-ASSETS> 490,266
<INVESTMENTS-HELD-FOR-SALE> 159,224
<INVESTMENTS-CARRYING> 391,897
<INVESTMENTS-MARKET> 396,798
<LOANS> 5,749,922
<ALLOWANCE> 151,729
<TOTAL-ASSETS> 10,477,726
<DEPOSITS> 7,397,490
<SHORT-TERM> 1,829,332
<LIABILITIES-OTHER> 225,878
<LONG-TERM> 252,550
<COMMON> 293298
0
0
<OTHER-SE> 478,178
<TOTAL-LIABILITIES-AND-EQUITY> 10,477,726
<INTEREST-LOAN> 185,561
<INTEREST-INVEST> 7,085
<INTEREST-OTHER> 56,886
<INTEREST-TOTAL> 249,532
<INTEREST-DEPOSIT> 54,926
<INTEREST-EXPENSE> 106,283
<INTEREST-INCOME-NET> 143,249
<LOAN-LOSSES> 7,180
<SECURITIES-GAINS> 357
<EXPENSE-OTHER> 190,926
<INCOME-PRETAX> 66,258
<INCOME-PRE-EXTRAORDINARY> 66,258
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 42,225
<EPS-PRIMARY> 0.71
<EPS-DILUTED> 0.71
<YIELD-ACTUAL> 5.40
<LOANS-NON> 26,393
<LOANS-PAST> 42,919
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 220,519
<CHARGE-OFFS> 10,460
<RECOVERIES> 4,495
<ALLOWANCE-CLOSE> 151,729
<ALLOWANCE-DOMESTIC> 151,729
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 29,788
</TABLE>
