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 June 30, 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 July 31, 1995 - 58,875,230
<PAGE>
Index
SIGNET BANKING CORPORATION AND SUBSIDIARIES
June 30, 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 6. Exhibits and Reports on Form 8-K 21
SIGNATURES 21
<PAGE>
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEET
(dollars in thousands-except per share) (unaudited)
<TABLE>
<CAPTION>
June 30 December 31
1995 1994 1994
<S> <C> <C> <C>
ASSETS
Cash and due from banks $ 529,205 $ 538,079 $ 531,747
Interest bearing deposits with other banks 14,610 227,198 355,795
Federal funds sold and securities purchased under resale
agreements 638,641 1,078,429 1,135,821
Trading account securities 439,737 258,547 353,040
Loans held for securitization 450,300 750,000
Loans held for sale 259,372 145,299 69,506
Securities available for sale 1,651,554 1,152,477 1,241,696
Investment securities 375,677 220,658 398,783
Loans:
Consumer 2,116,882 2,725,811 4,612,633
Commercial 2,820,339 2,173,695 2,472,620
Real estate -- construction 227,531 244,354 209,183
Real estate -- commercial mortgage 433,701 566,211 526,956
Real estate -- residential mortgage 224,433 73,815 191,508
Gross loans 5,822,886 5,783,886 8,012,900
Less: Unearned income (138,459) (56,607) (88,723)
Allowance for loan losses (136,497) (245,764) (220,519)
Net loans 5,547,930 5,481,515 7,703,658
Premises and equipment (net) 166,731 242,372 258,715
Interest receivable 90,190 75,775 98,557
Other assets 458,370 653,414 783,911
Total assets (Capital One Financial Corporation amounted
to $0, $2,346,864 and $3,072,546, respectively) $10,622,317 $10,823,763 $12,931,229
LIABILITIES
Non-interest bearing deposits $ 1,647,309 $ 1,543,001 $ 1,542,349
Interest bearing deposits:
Money market and interest checking 1,038,959 996,276 1,050,176
Money market savings 1,319,829 1,620,924 1,453,629
Savings accounts 1,291,289 1,000,049 1,170,990
Savings certificates 1,809,051 1,923,606 1,952,090
Large denomination certificates 99,020 318,100 643,054
Foreign 96,084 147,102 9,225
Total interest bearing deposits 5,654,232 6,006,057 6,279,164
Total deposits 7,301,541 7,549,058 7,821,513
Securities sold under repurchase agreements 1,229,433 1,135,939 875,458
Federal funds purchased 816,946 350,820 881,693
Commercial paper 118,928 108,664
Other short-term borrowings 204,313 1,446,955
Long-term borrowings 253,222 253,818 253,641
Interest payable 18,030 24,874 31,078
Other liabilities 185,140 149,162 400,748
Total liabilities 9,804,312 9,786,912 11,819,750
STOCKHOLDERS' EQUITY
Common Stock, $5 par value; Authorized 100,000,000 shares,
issued and outstanding 58,835,011, 56,866,696 and
58,636,759 shares, respectively 294,175 284,333 293,184
Capital Surplus 195,899 141,446 198,869
Retained Earnings 327,931 611,072 619,426
Total stockholders' equity 818,005 1,036,851 1,111,479
Total liabilities and stockholders' equity $10,622,317 $10,823,763 $12,931,229
</TABLE>
<PAGE>
STATEMENT OF CONSOLIDATED INCOME
(in thousands-except per share) (unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
1995 1994 1995 1994
<S> <C> <C> <C> <C>
Interest income:
Loans, including fees:
Consumer $ 62,068 $ 79,936 $179,702 $155,986
Commercial 50,358 39,664 96,723 80,319
Real estate -- construction 5,628 5,241 10,780 10,476
Real estate -- commercial mortgage 11,276 11,754 23,407 22,162
Real estate -- residential mortgage 5,074 1,514 9,353 3,330
Total loans, including fees 134,404 138,109 319,965 272,273
Interest bearing deposits with other banks 358 2,952 1,796 5,523
Federal funds sold and resale agreements 8,232 8,674 23,541 13,624
Trading account securities 8,936 4,747 15,654 10,387
Loans held for securitization 6,420 17,848 10,625 25,723
Loans held for sale 5,858 3,115 7,337 8,876
Securities available for sale 31,342 16,343 59,079 40,236
Investment securities-taxable 4,257 307 8,203 692
Investment securities-nontaxable 2,928 4,130 6,067 8,526
Total interest income 202,735 196,225 452,267 385,860
Interest expense:
Money market and interest checking 6,939 5,605 13,080 11,157
Money market savings 11,704 11,381 23,662 22,699
Savings accounts 11,800 7,751 22,527 14,699
Savings certificates 20,747 13,993 37,894 27,043
Large denomination certificates 1,186 3,635 8,886 6,859
Foreign 2,235 2,112 3,488 4,293
Total interest on deposits 54,611 44,477 109,537 86,750
Securities sold under repurchase agreements 13,880 10,072 25,707 18,275
Federal funds purchased 12,266 8,438 24,137 13,462
Other short-term borrowings 413 4,145 15,302 7,198
Long-term borrowings 4,119 4,183 16,889 8,049
Total interest expense 85,289 71,315 191,572 133,734
Net interest income 117,446 124,910 260,695 252,126
Provision for loan losses 4,250 2,999 11,430 8,498
Net interest income after provision for loan losses 113,196 121,911 249,265 243,628
Non-interest income:
Credit card servicing and service charge income 1,633 96,035 85,410 188,020
Service charges on deposit accounts 17,212 18,106 33,683 33,803
Trust income 5,212 4,869 10,104 9,670
Other 18,635 17,147 34,253 33,307
Non-interest operating income 42,692 136,157 163,450 264,800
Securities available for sale gains 244 3,265 346 3,053
Investment securities gains (losses) 3 45 258 (23)
Total non-interest income 42,939 139,467 164,054 267,830
Non-interest expense:
Salaries 43,668 64,345 101,369 124,286
Employee benefits 12,076 17,989 30,417 36,051
Credit card solicitation 24,250 29,050 45,637
Supplies and equipment 8,715 13,095 23,241 25,094
Occupancy 9,434 10,855 21,388 21,566
Travel and communications 5,604 13,546 18,757 26,863
External data processing services 6,748 12,128 15,794 23,407
Other 25,199 30,417 62,354 55,830
Total non-interest expense 111,444 186,625 302,370 358,734
Income before income taxes (Capital One Financial
Corporation amounted to $0, $53,233, $27,407
and $107,280, respectively) 44,691 74,753 110,949 152,724
Applicable income taxes 15,005 24,368 39,038 49,226
Net income $ 29,686 $ 50,385 $ 71,911 $103,498
Earnings per common share $ 0.50 $ 0.88 $ 1.21 $ 1.81
Cash dividends declared per share 0.17 0.25 0.42 0.50
Average common shares outstanding 59,669 57,358 59,406 57,303
</TABLE>
<PAGE>
STATEMENT OF CHANGES IN CONSOLIDATED STOCKHOLDERS' EQUITY
(in thousands) (unaudited)
<TABLE>
<CAPTION>
Common Capital Retained
Stock Surplus Earnings
<S> <C> <C> <C>
SIX MONTHS ENDED JUNE 30, 1995
Balance at beginning of period $ 293,184 $ 198,869 $ 619,426
Net income 71,911
Issuance of Common Stock 2,283 4,237
Purchase of Common Stock (1,292) (7,207)
Cash dividends (24,638)
Spin-off of Capital One Financial Corporation (383,200)
Change in net unrealized gains on securities
available for sale, net of tax of $23,925 44,432
Balance at end of period $ 294,175 $ 195,899 $ 327,931
SIX MONTHS ENDED JUNE 30, 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 103,498
Issuance of Common Stock 1,290 8,408
Cash dividends (28,360)
Change in net unrealized losses on securities
available for sale, net of tax benefit of $22,957 (42,634)
Balance at end of period $ 284,333 $ 141,446 $ 611,072
</TABLE>
<PAGE>
STATEMENT OF CONSOLIDATED CASH FLOWS
(in thousands) (unaudited)
<TABLE>
<CAPTION>
Six Months Ended June 30
1995 1994
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 71,911 $ 103,498
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 11,430 8,498
Provision and writedowns on foreclosed property 1,924 1,585
Depreciation and amortization 17,417 21,031
Investment securities (gains) losses (258) 23
Securities available for sale gains (346) (3,053)
Decrease in interest receivable 8,367 8,343
Increase in other assets (304,084) (66,726)
Increase (decrease) in interest payable 8,369 (3,331)
(Decrease) increase in other liabilities (13,659) 501,830
Proceeds from sales of loans held for sale 17,543,403 12,104,569
Purchases and originations of loans held for
sale (17,733,269) (13,075,639)
Proceeds from sales of trading account
securities 8,348,697 7,691,160
Purchases of trading account securities (8,435,394) (7,570,069)
Net cash used by operating activities (475,492) (278,281)
INVESTING ACTIVITIES
Proceeds from maturities of investment securities 35,748 28,918
Purchases of investment securities (25,511) (102)
Proceeds from sales of securities available for sale 489,794 1,369,996
Proceeds from maturities of securities available for
sale 460,980 1,449,261
Purchases of securities available for sale (1,711,711) (2,213,898)
Net (increase) decrease in loans (851,348) 552,398
Recoveries of loans previously charged-off 6,791 14,588
Purchases of premises and equipment (33,913) (40,921)
Net cash (used) provided by investing
activities (1,629,170) 1,160,240
FINANCING ACTIVITIES
Net increase (decrease) in deposits 102,926 (271,555)
Net decrease in short-term borrowings (200,288) (815,126)
Increase in Capital One Financial Corporation long-
term debt 1,388,153
Net decrease in other long-term debt (419) (12,334)
Net (purchase) issuance of common stock (1,979) 9,698
Payment of cash dividends (24,638) (28,360)
Net cash provided (used) by financing
activities 1,263,755 (1,117,677)
Decrease in cash and cash equivalents (840,907) (235,718)
Cash and cash equivalents at beginning of period 2,023,363 2,079,424
Cash and cash equivalents at end of period $ 1,182,456 $ 1,843,706
SUPPLEMENTAL DISCLOSURES
Interest paid $ 204,620 $ 137,065
Income taxes paid 20,710 39,214
Transfer of loans to foreclosed property 214 7,281
Transfer of loans to loans held for securitization 450,000 1,750,000
</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 the first quarter of 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>
<CAPTION>
JUNE 30, 1995 June 30, 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 $1,085,645 $1,121,329 $ 501,934 $ 490,872 $ 633,338 $ 607,003
Other 413,888 422,333 560,450 560,425 461,140 457,877
States and political subdivisions 111 119 14,638 15,064 110 116
Other 119,794 107,773 94,912 86,116 184,703 176,700
Total $1,619,438 $1,651,554 $1,171,934 $1,152,477 $1,279,291 $1,241,696
</TABLE>
INVESTMENT SECURITIES
Investment securities are summarized as follows:
<TABLE>
<CAPTION>
JUNE 30, 1995 June 30, 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 $ 73,745 $ 75,357 $ 75,174 $ 73,307
Other 99,695 100,795 74,550 72,656
State and political subdivisions 140,496 144,213 $200,051 $210,165 173,571 179,467
Other 61,741 62,812 20,607 20,607 75,488 74,236
Total $375,677 $383,177 $220,658 $230,772 $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 $213,333 at June 30, 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 June 30, 1995.
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, the 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
<PAGE>
SUPPLEMENTAL NOTES TO QUARTERLY FINANCIAL STATEMENTS (continued)
(dollars in thousands) (unaudited)
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.
The Financial Accounting Standards Board issued SFAS No. 122,
"Accounting For Mortgage Servicing Rights," in May 1995. The statement
amends SFAS No. 65, "Accounting for Certain Mortgage Banking
Activities," to require that a mortgage banking enterprise recognize as
separate assets rights to service mortgage loans for others, however
those rights are acquired. The statement also requires that an
enterprise assess its capitalized mortgage servicing rights for
impairment based on the fair value of those rights on a disaggregated
basis and that impairment should be recognized through a valuation
allowance. The statement is effective for fiscal years beginning after
December 15, 1995. Earlier adoption is encouraged. The Company is in the
process of assessing the impact of adopting SFAS No. 122 and has not
decided if it will elect to adopt the statement during 1995.
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
("SBV") 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>
<CAPTION>
FEBRUARY 28 June 30 December 31
1995 1994 1994
<S> <C> <C> <C>
Total assets $3,639,288 $2,346,864 $3,072,546
Total stockholders'/division equity 492,872 223,262 474,557
</TABLE>
<TABLE>
<CAPTION>
TWO MONTHS ENDED Six Months Ended
FEBRUARY 28, 1995 June 30, 1994
<S> <C> <C>
Net interest income $25,167 $91,820
Provision for loan losses 3,929 16,432
Net interest income after provision for loan losses 21,238 75,388
Non-interest income 87,679 180,324
Non-interest expense 81,510 148,432
Income before income taxes 27,407 107,280
Applicable income taxes 9,870 37,548
Net income $17,537 $69,732
</TABLE>
<PAGE>
Signet Banking Corporation
FINANCIAL HIGHLIGHTS
(dollars in thousands-except per share)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30 Percent June 30 Percent
1995 1994 Change 1995 1994 Change
<S> <C> <C> <C> <C> <C> <C>
EARNINGS
Net interest income
(taxable equivalent) $ 120,401 $ 128,279 (6.14)% $ 266,912 $ 258,930 3.08%
Net interest income 117,446 124,910 (5.98) 260,695 252,126 3.40
Net income 29,686 50,385 (41.08) 71,911 103,498 (30.52)
PER COMMON SHARE
Net income $ 0.50 $ 0.88 (43.18) $ 1.21 $ 1.81 (33.15)
Cash dividends declared 0.17 0.25 (32.00) 0.42 0.50 (16.00)
Book value 13.90 18.23 (23.75)
Period-end price 21 7/8 40 3/8 (45.82)
AVERAGE DAILY BALANCE
Assets $10,486,466 $11,501,436 (8.82) $11,404,229 $11,406,401 (0.02)
Earning Assets 9,395,228 10,267,207 (8.49) 10,193,024 10,189,866 0.03
Loans (net of unearned income) 5,836,803 6,344,382 (8.00) 6,535,555 6,290,099 3.90
Deposits 7,248,162 7,768,856 (6.70) 7,432,448 7,791,992 (4.61)
Core deposits 7,008,673 7,208,991 (2.78) 7,024,484 7,216,392 (2.66)
Common stockholders' equity 793,728 1,017,027 (21.96) 897,175 1,012,122 (11.36)
Common shares outstanding 59,668,541 57,357,940 4.03 59,405,710 57,303,052 3.67
RATIOS
Return on average assets 1.14% 1.76% (35.23) 1.27% 1.83% (30.60)
Return on average common
stockholders' equity 15.00 19.87 (24.51) 16.16 20.62 (21.63)
Net yield margin 5.14 5.01 2.59 5.28 5.12 3.13
Allowance for loan losses to:
Non-performing loans 297.24 616.91 (51.82)
Non-performing assets 237.60 316.48 (24.92)
Net loans 2.40 4.29 (44.06)
Non-performing assets to loans
and foreclosed properties 1.01 1.35 (25.19)
Common stockholders' equity to assets 7.70 9.58 (19.62)
AT PERIOD-END
Assets $10,622,317 $10,823,763 (1.86)
Earning assets 9,514,318 9,559,887 (0.48)
Loans (net of unearned income) 5,684,427 5,727,279 (0.75)
Deposits 7,301,541 7,549,058 (3.28)
Core deposits 7,106,437 7,083,856 0.32
Common stockholders' equity 818,005 1,036,851 (21.11)
Non-performing assets 57,447 77,655 (26.02)
Number of common stockholders 15,259 14,716 3.69
Full-time employees 3,743 6,428 (41.77)
Part-time employees 1,133 1,550 (26.90)
</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>
<CAPTION>
2ND QTR 1st Qtr 4th Qtr 3rd Qtr 2nd Qtr
1995 1995 1994 1994 1994
<S> <C> <C> <C> <C> <C>
SUMMARY OF OPERATIONS(1)
(dollars in thousands -- except per share)
Net interest income (taxable equivalent) $120,401 $146,511 $131,611 $133,177 $128,279
Less: taxable equivalent adjustment 2,955 3,262 3,448 3,455 3,369
Net interest income 117,446 143,249 128,163 129,722 124,910
Provision for loan losses 4,250 7,180 3,000 3,000 2,999
Net interest income after provision
for loan losses 113,196 136,069 125,163 126,722 121,911
Non-interest income 42,939 121,115 148,433 151,820 139,467
Non-interest expense(2) 111,444 190,926 210,875 276,814 186,625
Income before income taxes (benefit) 44,691 66,258 62,721 1,728 74,753
Applicable income taxes (benefit) 15,005 24,033 19,847 (1,734) 24,368
Net income $ 29,686 $ 42,225 $ 42,874 $ 3,462 $ 50,385
Per common share:
Net income $ 0.50 $ 0.71 $ 0.73 $ 0.05 $ 0.88
Cash dividends declared 0.17 0.25 0.25 0.25 0.25
Average common shares outstanding 59,668,541 59,142,042 58,927,134 57,898,078 57,357,940
SELECTED AVERAGE BALANCES
(dollars in millions)
Assets $ 10,486 $ 12,332 $ 12,088 $ 10,971 $ 11,501
Earning assets 9,395 11,000 10,598 9,633 10,267
Loans (net of unearned income) 5,837 7,242 6,966 6,080 6,344
Deposits 7,248 7,619 7,768 7,635 7,769
Core deposits 7,009 7,040 7,178 7,154 7,209
Interest bearing liabilities 7,985 9,524 9,091 8,121 8,699
Stockholders' equity 794 1,002 1,094 1,064 1,017
RATIOS
Return on average assets 1.14% 1.39% 1.41% 0.13% 1.76%
Return on average common stockholders' equity 15.00 17.09 15.55 1.29 19.87
Net loan losses to average loans 1.27 0.33 0.44 1.74 0.38
Net interest spread 4.50 4.79 4.34 4.96 4.51
Net yield margin 5.14 5.40 4.93 5.49 5.01
At period-end:
Allowance for loan losses to:
Non-performing loans 297.24 574.88 846.32 589.84 616.91
Non-performing assets 237.60 364.76 454.34 342.19 316.48
Net loans 2.40 2.69 2.78 3.46 4.29
Non-performing assets to loans and
foreclosed properties 1.01 0.74 0.61 1.01 1.35
Total stockholders' equity to assets 7.70 7.36 8.60 9.81 9.58
</TABLE>
(1) The 1995 numbers reflect the spin-off of Capital One Financial
Corporation (COF) on February 28, 1995.
(2) The second, third and fourth quarters of 1994 included $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 represented 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>
<CAPTION>
Second Quarter 1995 Compared Second Quarter 1995 Compared YTD June 1995 Compared
with Second Quarter 1994 with First Quarter 1995 with YTD June 1994
Increase Change due to* Increase Change due to* Increase Change due to*
(Decrease) Rate Volume (Decrease) Rate Volume (Decrease) Rate Volume
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INTEREST INCOME:
Loans, including fees $(3,365) $11,370 $(14,735) $(51,314) $(18,496) $(32,818) $48,667 $30,624 $ 18,043
Securities available
for sale 14,883 12,089 2,794 3,569 1,561 2,008 18,591 15,228 3,363
Investment securities 2,110 (13) 2,123 (14) 81 (95) 3,742 (1) 3,743
Other earning assets (7,532) 14,701 (22,233) 655 4,006 (3,351) (5,180) 12,936 (18,116)
Total interest income 6,096 29,886 (23,790) (47,104) (13,376) (33,728) 65,820 65,575 245
INTEREST EXPENSE:
Interest bearing deposits 10,134 14,964 (4,830) (315) 2,871 (3,186) 22,787 23,960 (1,173)
Fed funds and repurchase
agreements 7,636 7,403 233 2,448 16 2,432 18,107 16,133 1,974
Other short-term
borrowings (3,732) 703 (4,435) (14,476) (2,303) (12,173) 8,104 2,275 5,829
Long-term borrowings (64) (59) (5) (8,651) (1,289) (7,362) 8,840 587 8,253
Total interest expense 13,974 22,601 (8,627) (20,994) (5,210) (15,784) 57,838 53,420 4,418
Net interest income $(7,878) $ 5,258 $(13,136) $(26,110) $ (6,478) $(19,632) $ 7,982 $ 7,826 $ 156
</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 June 30, 1995, Signet had assets of $10.6 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 246 banking offices,
254 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, mutual funds 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. Signet markets
several of its products nationally.
On October 25, 1994, Signet filed an amended registration statement
with the Securities and Exchange Commission 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 of
card holders in Signet's market area 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.
In May 1995, Signet sold $55 million of real estate related loans.
The sale of these loans accounted for approximately $13.9 million of the
second quarter charge-offs for which there was already sufficient
allowance. The sale was made as part of Signet's overall strategy to
reduce its commercial real estate exposure.
On July 12, 1995, Signet completed the acquisition of 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 are comprised of eleven
fixed income and equity funds totaling approximately $1 billion. With
this acquisition, Signet's total mutual fund assets under management now
exceed $2.4 billion.
In the first quarter of 1995, Signet began construction on a new
operations center located near Richmond, Virginia. The estimated total
cost of this project is $45 million. The building is expected to be
occupied in the first quarter of 1996.
The following discussion should be read in conjunction with the
accompanying financial statements, notes and other supplemental
information contained in this document. Results of operations for the
three and six months ended June 30, 1995 are not necessarily indicative
of results to be attained for any other period.
EARNINGS ANALYSIS
Consolidated net income for the second quarter of 1995 was $29.7
million, or $.50 per share, compared with $50.4 million, or $.88 per
share in the same quarter last year. After adjusting the 1994 second
quarter results for the Spin-Off, net income increased 88% from $15.8
million or $.28 per share. Net income for the first six months of 1995
was $71.9 million or $1.21 per share compared to $103.5 million or $1.81
per share in the same period last year. This includes the results of
Capital One for the two months prior to the Spin-Off on February 28,
1995. Excluding Capital One, net income for the first six months of 1995
was $56.4 million, an increase of 61% from the $33.8 million earned in
the first six months of 1994. Also, for the first six months, Signet
recognized nominal net gains on securities available for sale compared
with $3.1 million of net gains during the same period last year.
The return on assets (ROA) for the second quarter and six months
ended June 30, 1995 was 1.14% and 1.27%, respectively. This compares to
1.76% and 1.83% for the comparable periods last year. After adjusting
for the Spin-Off, ROA for the first six months of 1995 increased 41%
from .78% in 1994 to 1.10% and ROA for the second quarter increased 54%
from .74% in the second quarter of 1994.
The return on common stockholders' equity (ROE) for the second
quarter and six months ended June 30, 1995 was 15.00% and 16.16%,
respectively. This compares to 19.87% and 20.62% for the same periods
last year. ROE for the first six months of 1995, adjusted for the
Spin-Off, increased 70% from 8.63% in 1994 to 14.68% this year. ROE for
the second quarter increased 91% from 7.87% in the second quarter of
1994, adjusted for the Spin-Off. In July of 1994, management set interim
targets to bring Signet's ROE up from well below 10 percent to the 15 to
16 percent range by the fourth quarter of 1995. Management is pleased
that Signet met this benchmark by the second quarter, well ahead of
schedule.
NET INTEREST INCOME
Taxable equivalent net interest income, a principal component of
earnings, totaled $120.4 million for the 1995 second quarter and $266.9
million for the six months ended June 30, 1995. This was a 6% decrease
over the same quarter last year resulting from the net effect of a 13
basis point increase in the net yield margin and a $872.0 million
decline in average earning assets, primarily due to the Spin-Off.
Taxable equivalent net interest income increased 3% in the first six
months of 1995 compared to the same period last year as the increase in
the yield on earning assets slightly exceeded the rise in funding rates,
partially as a result of including the Capital One portfolio for the
first two months of 1995.
The net yield margin for the second quarter and six months ended
June 30, 1995 was 5.14% and 5.28%, respectively, an increase of 13 basis
points and 16 basis points from the same respective periods last year.
The increase in the net yield margin from 1994 was primarily due to
yields on earning assets improving more quickly than the rise in funding
costs. Table 3 analyzes the change in the net yield margin from the
first quarter to the second quarter of 1995 for Signet Bank (excluding
Capital One). An approximate basis point impact was calculated for each
item noted. The decrease in net interest spread and net yield margin
from the first quarter of 1995 was primarily due to the expiration of an
interest rate hedge which contributed 21 basis points to the first
quarter 1995 net yield margin.
Table 3
Signet Bank (excluding Capital One)
ANALYSIS OF CHANGE IN NET YIELD MARGIN
First Quarter 1995 versus Second Quarter 1995
Net Yield Margin for First Quarter 1995 5.42%
Higher funding costs (excluding decrease
in derivative income) (0.19)
Decrease in derivative income (0.13)
Change in mix and yield on short-term investments 0.12
Higher average and lower yield
on Commercial Loans (0.05)
Higher average and lower yield on
Consumer Loans (Total On-Balance Sheet) (0.03)
Net Yield Margin for Second Quarter 1995 5.14%
Note: An interest rate hedge which expired in March, 1995, contributed
21 basis points to the first quarter 1995 net yield margin.
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 June 30, 1995, the notional
values of the Company's derivative products for the purpose of hedging
interest rate risk were $2.5 billion of interest rate swaps and $650
million of interest rate floors. Interest rate derivative products
contributed 5 basis points to the second quarter margin compared with 20
basis points in the first quarter of 1995. The total income from these
contracts fell from $5.5 million in the first quarter of 1995 to $1.3
million in the current quarter.
PROVISION AND ALLOWANCE FOR LOAN LOSSES
The provision for loan losses was $4.3 million for the second quarter of
1995 up from $3.0 million for the same period last year and lower than
the $7.2 million in the first quarter of 1995. For the second quarter of
1995, net loan losses totaled $18.6 million, $13.9 million of which
resulted from the sale of real estate related loans for which there was
already sufficient allowance. The remaining loan losses are principally
in the consumer loan portfolio which experienced a 76% increase in its
average balance from the second quarter of last year excluding Capital
One. Another reason for the rise in consumer loan charge-offs in
addition to the increase in the consumer loan volume is that at this
stage in the testing program, the charge-off ratio typically runs high.
Future charge-off ratios on consumer loans are expected to be lower,
although there is no guarantee that this will occur. Excluding Capital
One and the charge-offs related to the sale of real estate related
loans, second quarter net loan losses amounted to 0.32% of average loans
which is a 13 basis points increase from the comparable period in 1994
and a 20 basis points rise from the first quarter of 1995.
Table 4
STATEMENT OF CHANGES IN ALLOWANCE FOR LOAN LOSSES
(dollars in thousands)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30 March 31 June 30
1995 1994 1995 1995 1994
<S> <C> <C> <C> <C> <C>
Balance at beginning of period $151,729 $250,477 $220,519 $220,519 $253,313
Additions to allowance charged to expense 4,250 2,999 7,180 11,430 8,498
Transfer to loans held for securitization/sale (889) (1,619) (1,489) (2,378) (4,369)
Transfer to Capital One Financial Corporation (68,516) (68,516)
Loans charged off:
Consumer 5,744 8,404 9,120 14,864 17,332
Commercial * 1,413 3,310 428 1,841 8,060
Real estate -- construction 389 8 397
Real estate -- mortgage * 13,343 462 904 14,247 874
Total loans charged off 20,889 12,176 10,460 31,349 26,266
Recoveries of loans previously charged off:
Consumer 315 3,617 2,246 2,561 7,112
Commercial 1,056 1,490 1,986 3,042 4,618
Real estate -- construction 833 884 237 1,070 1,109
Real estate -- mortgage * 92 92 26 118 1,749
Total recoveries 2,296 6,083 4,495 6,791 14,588
Net loans charged off 18,593 6,093 5,965 24,558 11,678
Balance at end of period $136,497 $245,764 $151,729 $136,497 $245,764
Net loan losses (annualized) as a percentage of average loans:
Consumer 0.92% 0.58% 0.70% 0.78% 0.63%
Commercial 0.06 0.35 (0.26) (0.10) 0.32
Real estate 5.49 (0.23) 0.28 2.88 (0.43)
Total 1.27% 0.38% 0.33% 0.75% 0.37%
Allowance for loan losses to net loans at end of period 2.69% 2.40% 4.29%
</TABLE>
*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. Charge-offs related to the loan sale in the second quarter of
1995 were $13,897, of which $12,594 were real estate-mortgage and $1,303
were commercial.
The allowance for loan losses at June 30, 1995 was $136.5 million,
or 2.40% of net loans, compared with $245.8 million, or 4.29% of net
loans, at June 30, 1994 and $151.7 million, or 2.69% of net loans, at
March 31, 1995. The decrease from June 30, 1994 primarily reflected the
Spin-Off at which time $68.5 million of the allowance was transferred
from Signet Bank/Virginia to Capital One. The remaining decrease
resulted primarily from charge-offs taken on real estate related loans
during the past year, the majority of which were related to real estate
loan sales in the third quarter of 1994 and the second quarter of 1995.
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, 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 to be impaired under Statement No. 114 are
comprised of $41.4 million of non-accrual loans for which the related
allowance for credit losses is $12.5 million. The average recorded
investment in impaired loans during the six months ended June 30, 1995
was approximately $24.2 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 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.
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 $42.9 million in the second quarter of
1995, a decrease of $96.5 million from the second quarter of 1994 and a
$78.2 million decline from the first quarter of 1995. The decreases were
caused by a sharp decline in credit card servicing and service charge
income in the second quarter of 1995 due to the Spin-Off. The first
quarter of 1995 included two months of credit card servicing income
reflecting the timing of the Spin-Off and the second quarter of 1994
included a full quarter. Credit card servicing and service charge income
decreased $94.4 million from the 1994 second quarter and decreased $82.1
million from the first quarter of 1995. Mortgage servicing and
origination fee income increased 26.7% from the first quarter of this
year to $5.4 million as a result of an increase in mortgage loan volume
due to declining interest rates. An increase in mortgage servicing
income from second quarter 1994 to second quarter 1995 more than offset
a decline in loan origination income. For the second quarter of 1995,
Signet recorded trading gains of $3.8 million, an improvement from $106
thousand of trading gains in the first quarter and $266 thousand of net
losses recognized in the second quarter of 1994. In the first half of
1995, Signet recognized nominal gains on securities available for sale
compared with $3.1 million of net gains during the same period last
year.
NON-INTEREST EXPENSE
Total non-interest expense was $111.4 million in the second quarter of
1995, a significant decrease from $190.9 million in the first quarter
this year and $186.6 million in the second quarter of 1994. Decreases
occurred in all categories as a result of the Spin-Off. The first
quarter of 1995 included two months of Capital One's expenses. Excluding
Capital One, total non-interest expense remained level with the first
quarter of this year at $111.4 million and decreased 2.7% from $114.5
million in the second quarter of 1994 as Signet continued efforts to
reduce non-interest expense. The number of full-time equivalent
employees fell 40% from the second quarter of 1994 as a result of the
Spin-Off, the displacement of approximately 750 employees during the
latter half of 1994 and an early retirement program in which 225
employees participated. Total salary and employee benefits declined $6.6
million in the same period.
Excluding Capital One and foreclosed property expense for all
periods, Signet's efficiency ratio (the ratio of non-interest expense to
taxable equivalent operating income) for the second quarter of 1995
improved to 68.67% compared with 87.04% for the same quarter last year
and 69.95% for the first quarter this year. The improvement in this
ratio is primarily the result of strong revenue growth as a result of
innovative marketing. The second quarter 1995 efficiency ratio is within
the range that management set as a goal to reach by the fourth quarter
of 1995.
Table 5
NON-INTEREST INCOME AND EXPENSE
(in thousands)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30 March 31 June 30
1995 1994 1995 1995 1994
<S> <C> <C> <C> <C> <C>
NON-INTEREST INCOME:
Credit card servicing and service charge income $ 1,633 $ 96,035 $ 83,777 $ 85,410 $188,020
Service charges on deposit accounts 17,212 18,106 16,471 33,683 33,803
Trust income 5,212 4,869 4,892 10,104 9,670
Mortgage servicing and origination 5,445 4,601 4,162 9,607 10,246
Other service charges and fees 3,467 4,064 3,713 7,180 7,792
Trading profits (losses) 3,816 (266) 2,379 6,195 (717)
Other 5,907 8,748 5,364 11,271 15,986
Non-interest operating income 42,692 136,157 120,758 163,450 264,800
Securities available for sale gains 244 3,265 102 346 3,053
Investment securities gains (losses) 3 45 255 258 (23)
Total non-interest income $ 42,939 $139,467 $121,115 $164,054 $267,830
NON-INTEREST EXPENSE:
Salaries $ 43,668 $ 64,345 $ 57,701 $101,369 $124,286
Employee benefits 12,076 17,989 18,341 30,417 36,051
Total staff expense 55,744 82,334 76,042 131,786 160,337
Credit card solicitation 24,250 29,050 29,050 45,637
Supplies and equipment 8,715 13,095 14,526 23,241 25,094
Occupancy 9,434 10,855 11,954 21,388 21,566
Travel and communications 5,604 13,546 13,153 18,757 26,863
External data processing services 6,748 12,128 9,046 15,794 23,407
Professional services 4,069 6,069 7,130 11,199 10,349
Public relations, sales and advertising 4,272 4,824 5,368 9,640 9,092
FDIC assessment 4,139 4,248 4,313 8,452 8,139
Credit and collection 265 3,088 1,818 2,083 5,741
Foreclosed property -- net (556) 810 572 16 594
Other 13,010 11,378 17,954 30,964 21,915
Total non-interest expense $111,444 $186,625 $190,926 $302,370 $358,734
</TABLE>
Note: Other non-interest expense for the three months ended March 31,
1995 included $2,018 of minority interest (net of income taxes) in
Capital One Financial Corporation.
In 1994, Signet recorded a $43.2 million restructuring charge
related to a comprehensive plan for reducing costs and increasing
revenue in order to enhance its competitive position. As of June 30,
1995, the amounts actually paid and charged against the restructuring
liability were approximately $4.4 million for severance payments to
approximately 600 employees, $2.5 million for payments made under the
early retirement program and approximately $6.2 million for lease
termination and other facilities related costs. The remaining liability
of $30.1 million is comprised of $19.5 million for accrued retiree
medical and pension benefits, $2.2 million for accrued severance costs
and $8.4 million for accrued facilities related costs.
INCOME TAXES
Signet recorded income tax expense of $15.0 million for the second
quarter of 1995 compared with $24.4 million for the second quarter of
1994 and $24.0 million for the first quarter of this year. The decrease
in tax expense in the second quarter of 1994 over the previous periods
was principally due to a significant decline in taxable income as a
result of the Spin-Off. The effective tax rate for the second quarter of
1995 was 34% compared with 33% for the second quarter of 1994 and 36%
for the first quarter of this year.
<PAGE>
Table 6
CONSOLIDATED AVERAGE BALANCE SHEET
(dollars in thousands)
<TABLE>
<CAPTION>
Three Months Ended
June 30
1995 1994
AVERAGE INCOME/ YIELD/ Average Income/
BALANCE EXPENSE RATE Balance Expense
<S> <C> <C> <C> <C> <C>
ASSETS
Earning assets (tax equivalent basis):*
Interest bearing deposits with other banks $ 22,799 $ 358 6.21% $ 247,936 $ 2,952
Federal funds and resale agreements 532,922 8,232 6.11 856,757 8,674
Trading account securities 553,080 8,936 6.48 272,872 4,747
Loans held for securitization 153,300 6,420 16.75 755,494 17,848
Loans held for sale 234,107 5,858 9.90 212,378 3,115
Securities available for sale 1,679,836 31,412 7.40 1,351,368 16,529
Investment securities -- taxable 235,514 4,257 7.23 20,942 307
Investment securities-nontaxable 146,867 4,391 11.96 205,078 6,231
Loans (net of unearned income):
Consumer 2,349,345 62,068 10.59 3,325,947 79,936
Commercial 2,553,554 51,058 8.02 2,108,076 40,103
Real estate -- construction 217,685 5,628 10.23 262,844 5,248
Real estate -- commercial mortgage 480,112 11,998 10.02 573,203 12,390
Real estate -- residential mortgage 236,107 5,074 8.60 74,312 1,514
Total loans 5,836,803 135,826 9.33 6,344,382 139,191
Total earning assets 9,395,228 $205,690 8.78% 10,267,207 $199,594
Non-rate related assets:
Cash and due from banks 509,633 499,712
Allowance for loan losses (144,407) (248,846)
Premises and equipment (net) 164,536 238,529
Other assets 561,476 744,834
Total assets $10,486,466 $11,501,436
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest bearing liabilities:
Deposits:
Money market and interest checking $ 1,031,701 $ 6,939 2.70% $ 1,022,071 $ 5,605
Money market savings 1,346,920 11,704 3.49 1,669,819 11,381
Savings accounts 1,255,593 11,800 3.77 981,676 7,751
Savings certificates 1,876,689 20,747 4.43 1,972,308 13,993
Large denomination certificates 92,660 1,186 5.06 344,830 3,635
Foreign 146,829 2,235 6.02 215,035 2,112
Total interest bearing deposits 5,750,392 54,611 3.81 6,205,739 44,477
Federal funds and repurchase agreements 1,950,959 26,146 5.30 1,905,695 18,510
Other short-term borrowings 30,098 413 5.43 333,315 4,145
Long-term borrowings 253,427 4,119 6.43 254,007 4,183
Total interest bearing liabilities 7,984,876 $ 85,289 4.28% 8,698,756 $ 71,315
Non-interest bearing liabilities:
Demand deposits 1,497,770 1,563,117
Other liabilities 210,092 222,536
Common stockholders' equity 793,728 1,017,027
Total liabilities and stockholders' equity $10,486,466 $11,501,436
Net interest income / spread $120,401 4.50% $128,279
Interest income to average earning assets 8.78%
Interest expense to average earning assets 3.64
Net yield margin 5.14%
*Includes the effects of taxable equivalent adjustments
using a tax rate of 35%.
<PAGE>
Six Months Ended
March 31 June 30
1995 1995 1994
Yield/ Average Income/ Yield/ Average Income/ Yield/ Average Income/ Yield/
Rate Balance Expense Rate Balance Expense Rate Balance Expense Rate
<C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
4.71% $ 98,271 $ 1,438 5.85% $ 60,327 $ 1,796 5.92% $ 254,244 $ 5,523 4.32%
4.01 1,039,776 15,309 5.89 784,948 23,541 5.96 732,711 13,624 3.70
6.98 418,011 6,718 6.52 485,918 15,654 6.50 279,441 10,387 7.50
9.45 146,667 4,205 11.47 150,002 10,625 14.17 551,105 25,723 9.34
5.80 94,718 1,479 6.25 164,798 7,337 8.86 283,990 8,876 6.22
4.84 1,579,687 27,843 7.05 1,630,038 59,255 7.23 1,562,035 40,664 5.18
5.86 222,877 3,946 7.08 229,230 8,203 7.16 23,898 692 5.79
12.15 157,609 4,716 11.97 152,208 9,107 11.97 212,343 12,876 12.13
9.61 3,946,185 117,634 11.98 3,143,354 179,702 11.49 3,237,071 155,986 9.65
7.63 2,362,850 47,134 8.09 2,458,729 98,192 8.05 2,124,790 81,089 7.70
7.90 207,805 5,154 9.92 212,773 10,782 10.08 278,049 10,490 7.50
8.67 520,340 12,939 10.08 500,115 24,937 10.06 576,868 23,404 8.18
8.15 204,888 4,279 8.35 220,584 9,353 8.48 73,321 3,330 9.08
8.80 7,242,068 187,140 10.48 6,535,555 322,966 9.97 6,290,099 274,299 8.79
7.80% 10,999,684 $252,794 9.32% 10,193,024 $458,484 9.07% 10,189,866 $392,664 7.77%
505,045 507,352 494,466
(196,476) (170,298) (250,593)
228,577 196,380 231,458
795,359 677,771 741,204
$12,332,189 $11,404,229 $11,406,401
2.20% $ 1,014,201 $ 6,141 2.46% $ 1,022,999 $ 13,080 2.58% $ 1,021,843 $ 11,157 2.20%
2.73 1,402,102 11,958 3.46 1,374,359 23,662 3.47 1,684,351 22,699 2.72
3.17 1,188,584 10,727 3.66 1,222,274 22,527 3.72 946,321 14,699 3.13
2.85 1,950,069 17,147 3.57 1,913,176 37,894 3.99 2,004,193 27,043 2.72
4.17 494,575 7,700 6.23 292,507 8,886 6.04 336,928 6,859 4.05
3.89 83,737 1,253 5.99 115,457 3,488 6.01 238,672 4,293 3.58
2.87 6,133,268 54,926 3.63 5,940,772 109,537 3.72 6,232,308 86,750 2.81
3.84 1,789,022 23,698 5.30 1,870,438 49,844 5.30 1,812,834 31,737 3.48
4.92 896,552 14,889 6.64 460,932 15,302 6.60 304,355 7,198 4.70
6.51 705,362 12,770 7.24 478,146 16,889 7.03 256,125 8,049 6.25
3.29% 9,524,204 $106,283 4.53% 8,750,288 $191,572 4.41% 8,605,622 $133,734 3.13%
1,485,515 1,491,676 1,559,684
320,698 265,090 228,973
1,001,772 897,175 1,012,122
$12,332,189 $11,404,229 $11,406,401
4.51% $146,511 4.79% $266,912 4.66% $258,930 4.64%
7.80% 9.32% 9.07% 7.77%
2.79 3.92 3.79 2.65
5.01% 5.40% 5.28% 5.12%
</TABLE>
<PAGE>
FINANCIAL CONDITION
Earning assets averaged $9.4 billion for the second quarter of 1995, a
decrease of 8% from the same period last year. Average investment
securities rose $134 million and average securities available for sale
fell $198 million from the prior year's second quarter. Loans held for
securitization averaged $153 million for the second quarter of 1995,
down from $755 million for the same quarter of last year as a result of
securitizations by Capital One in 1994. These assets were reclassified
from the loan category in anticipation of securitizations. Total loans
averaged $5.8 billion for the quarter, reflecting an 8% decline from the
second quarter in 1994. Average consumer loans decreased 29% to $2.3
billion as a result of the net effect of the Spin-Off and the growth in
student and installment loans. Excluding Capital One, the total
on-balance sheet consumer loan portfolio average balance nearly doubled
from the second quarter of 1994 amount of $1.3 billion to the current
quarter's average of $2.6 billion. These amounts include the consumer
loan portfolio, loans held for securitization and loans held for sale.
Average real estate-construction loans declined 17% to $218 million and
average real estate-commercial mortgage loans declined 16% to $480
million. Real estate-residential mortgages were up 218% to $236 million
as a result of loans acquired from Pioneer Financial Corporation 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. The sale of real estate related loans in the
third quarter of 1994 and second quarter of 1995 primarily impacted the
real estate-construction and real estate-commercial mortgage loan
categories. The yield on earning assets was 8.78% for the second quarter
of 1995 compared with 7.80% for the second quarter last year, an
increase of 98 basis points due to a rise in market yields as well as an
improvement in the mix of earning assets.
Average interest bearing liabilities totaled $8.0 billion in the
second quarter, down 8% from the second quarter of 1994 and down 16%
from the first quarter of 1995. Money market savings declined $323
million, or 19%, large denomination certificates fell $252 million, or
73%, and savings certificates decreased $96 million, or 5% from the same
quarter last year. Deposit categories experiencing increases included
money market and interest checking up $10 million and savings accounts
up $274 million, or 28%. Foreign deposits decreased $68 million from the
second quarter of 1994. Average core deposits remained relatively stable
when comparing second quarter of 1995 with the same quarter last year.
Purchased funds, which include large denomination certificates, foreign
deposits, federal funds and repurchase agreements and other short-term
and long-term borrowings averaged $2.5 billion for the 1995 second
quarter, down $579 million from the comparable 1994 period and down $1.5
billion from the first quarter of 1995. The higher level of purchased
funds in the first quarter of 1995 and second quarter of 1994 resulted
from temporarily funding the growth in Capital One's credit card
receivables prior to securitization. The average rate on interest
bearing liabilities was 4.28% for the second quarter of 1995 compared
with 3.29% for the second quarter last year, an increase of 99 basis
points which was generally the same as the rise in the yield on earning
assets.
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
offered 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. Solicitations in these areas are mostly in the
preliminary testing stages. These tests are designed to help Signet
develop products that are both appealing to customers and economically
feasible for the Company. The early results have been very satisfying
and loans are growing at a healthy pace. From June 30, 1994 to June 30,
1995, student loans increased $314 million (including $300 million in
student loans held for securitization), installment loans grew $626
million (including $149 million in loans held for sale) and home equity
loans were up $73 million (including $8 million in loans held for sale).
RISK ELEMENTS
Non-performing assets include non-accrual loans (including loans
impaired under Statement No. 114), restructured loans and foreclosed
properties. Non-performing assets increased $15.9 million or 38% in the
second quarter of 1995. The rise in non-accrual loans resulted from
placing two commercial real estate loans totaling $22 million on
non-accrual. In July 1995, one of these loans, which comprised the
majority ($14.6 million) of the $22 million, was brought current by the
borrower. Non-performing assets represented 1.01% of total loans and
foreclosed properties at June 30, 1995, up from .74% and down from 1.35%
at March 31, 1995 and June 30, 1994, respectively. The allowance for
loan losses equaled 297% of non-performing loans at June 30, 1995, down
from 575% at March 31, 1995 and 617% at June 30, 1994. The ratio of the
allowance to non-performing assets decreased to 238% at June 30, 1995
from 365% at March 31, 1995 and 316% at June 30, 1994.
<PAGE>
Table 7
NON-PERFORMING ASSETS AND PAST DUE LOANS
(dollars in thousands)
<TABLE>
<CAPTION>
June 30 March 31 December 31
1995 1994 1995 1994
<S> <C> <C> <C> <C>
Non-accrual loans:
Commercial $10,785 $17,258 $10,998 $10,548
Consumer 1,434 1,634 1,596 1,708
Real estate -- construction 4,116 9,759 5,161 5,490
Real estate -- mortgage * 29,587 7,512 8,638 7,310
Total non-accrual loans 45,922 36,163 26,393 25,056
Restructured loans:
Commercial 2,675
Real estate -- construction 1,000 1,000
Total restructured loans 3,675 1,000
Total non-performing loans 45,922 39,838 26,393 26,056
Foreclosed properties 11,525 40,108 15,204 22,480
Less foreclosed property reserve (2,291)
Total foreclosed properties 11,525 37,817 15,204 22,480
Total non-performing assets $57,447 $77,655 $41,597 $48,536
Percentage to loans (net of unearned) and foreclosed
properties 1.01% 1.35% 0.74% 0.61%
Allowance for loan losses to:
Non-performing loans 297.24 616.91 574.88 846.32
Non-performing assets 237.60 316.48 364.76 454.34
Accruing loans past due 90 days or more $54,538 $53,679 $42,919 $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.
Foreclosed properties totaled $11.5 million at the end of the
second quarter of 1995 and were equal to 20% of total non-performing
assets and 26% of non-performing real estate assets. Signet sold $10.3
million of foreclosed properties during the first six months 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 have taken place.
Accruing loans which are contractually past due 90 days or more as
to principal or interest payments totaled $54.5 million at June 30,
1995. This is a 27% increase from the $42.9 million level as of March
31, 1995, and represents a 2% increase from the $53.7 million reported
at June 30, 1994. The June 30, 1995 total was comprised of $37.2 million
of consumer loans (of which $21.9 million are student loan
delinquencies, which are government guaranteed and do not represent
material loss exposure, and $7.2 million of credit card loans); $10.6
million of mortgage loans; $5.6 million of commercial loans; and $1.1
million of construction loans.
STOCKHOLDERS' EQUITY DATA
At June 30, 1995, stockholders' equity totaled $818 million, a decline
of 21% from the June 30, 1994 level of $1.0 billion. This decrease
reflects the transfer to Capital One of approximately $383 million of
Signet's stockholders' equity in connection with the Spin-Off.
The Company's total stockholders' equity to assets ratio was 7.70%
at June 30, 1995, an increase from 7.36% at March 31, 1995 and down from
9.58% at June 30, 1994. Signet's risk-adjusted capital ratios at June
30, 1995 remained strong at 10.10% and 12.91% 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 June 30,
1995 was 7.20%, up from 5.93% at March 31, 1995 and down from 8.94% at
June 30, 1994. The decline in these capital ratios from June 30, 1994
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 June 30, 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.
<PAGE>
Table 8
SELECTED CAPITAL DATA
(dollars in thousands)
<TABLE>
<CAPTION>
June 30 December 31
1995 1994 1994
<S> <C> <C> <C>
Qualifying common stockholders' equity $ 792,406 $ 1,047,739 $ 1,237,453
Less goodwill and other disallowed intangibles (39,974) (21,292) (44,581)
Total Tier I capital 752,432 1,026,447 1,192,872
Qualifying debt 116,134 167,000 165,800
Qualifying allowance for loan losses 93,672 104,503 119,812
Total Tier II capital 209,806 271,503 285,612
Total risked-based capital $ 962,238 $ 1,297,950 $ 1,478,484
Total risk-adjusted assets $7,450,922 $ 8,218,941 $ 9,484,219
RATIOS:
Tier I capital 10.10% 12.49% 12.58%
Total risk-based capital 12.91 15.79 15.59
Tier I leverage 7.20 8.94 9.90
Tangible Tier I leverage 6.83 8.55 9.57
Total stockholders' equity to assets 7.70 9.58 8.60
Common dividend payout ratio (year-to-date) 34.71 27.62 38.61
Book value per share $ 13.90 $ 18.23 $ 18.96
</TABLE>
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 help
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 1% impact on rate sensitive income over the next twelve
months, reflecting Signet's conservative balance sheet strategy. ALCO
operates under a policy designed 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, loans held for
securitization, loans held for sale and securities available for sale.
This group of interest-earning assets totaled $3.5 billion, or 36% of
earning assets at June 30, 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 125% of total loans as of June 30, 1995.
Purchased funds consisted primarily of funds from local customers which
are considered to be less volatile than other purchased liabilities and
repurchase agreements. For the first six months of 1995, cash and cash
equivalents decreased by $841 million primarily as a result of a sharp
decline in securities available for sale. Cash used by operations was
$475 million for this time period resulting mainly from the increase in
other assets. Cash used by investing activities amounted to $1.6 billion
principally due to the increase in securities available for sale. Cash
provided by financing activities amounted to $1.3 billion principally
related to financing Capital One prior to the Spin-Off.
<PAGE>
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
Exhibit 11-Computation of Earnings Per Share
(b) Reports on Form 8-K
None
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: August 9, 1995 /s/ WALLACE B. MILLNER III
Wallace B. Millner III
Senior Executive Vice President and
Chief Financial Officer
(Principal Financial Officer)
Date: August 9, 1995 /s/ W. H. CATLETT, JR.
W. H. Catlett, Jr.
Executive Vice President and
Controller
(Principal Accounting Officer)
<PAGE>
SIGNET BANKING CORPORATION AND SUBSIDIARIES
FORM 10-Q
EXHIBIT 11 - COMPUTATION OF EARNINGS PER SHARE
(dollars in thousands - except per share)
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30 Ended June 30
1995 1994 1995 1994
<S> <C> <C> <C> <C>
Common and common equivalent:
Average shares outstanding 58,740,522 56,793,041 58,665,203 56,729,716
Dilutive stock options - based on the treasury
stock method using average market price 926,858 564,899 713,119 557,593
Shares used 59,667,380 57,357,940 59,378,322 57,287,309
Net income applicable to Common Stock $ 29,686 $ 50,385 $ 71,911 $ 103,498
Per share amount $ 0.50 $ 0.88 $ 1.21 $ 1.81
Assuming full dilution:
Average shares outstanding 58,740,522 56,793,041 58,665,203 56,729,716
Dilutive stock options - based on the treasury
stock method using the period end market
price, if higher than the average market price 928,019 564,899 740,507 573,336
Shares used 59,668,541 57,357,940 59,405,710 57,303,052
Net income applicable to Common Stock $ 29,686 $ 50,385 $ 71,911 $ 103,498
Per share amount $ 0.50 $ 0.88 $ 1.21 $ 1.81
</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 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>
<PAGE>
<ARTICLE> 9
<MULTIPLIER> 1,000
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> JUN-30-1995
<CASH> 529,205
<INT-BEARING-DEPOSITS> 14,610
<FED-FUNDS-SOLD> 638,641
<TRADING-ASSETS> 439,737
<INVESTMENTS-HELD-FOR-SALE> 259,372
<INVESTMENTS-CARRYING> 375,677
<INVESTMENTS-MARKET> 383,177
<LOANS> 5,822,886
<ALLOWANCE> 136,497
<TOTAL-ASSETS> 10,622,317
<DEPOSITS> 7,301,541
<SHORT-TERM> 2,046,379
<LIABILITIES-OTHER> 203,170
<LONG-TERM> 253,222
<COMMON> 294,175
0
0
<OTHER-SE> 523,830
<TOTAL-LIABILITIES-AND-EQUITY> 10,622,317
<INTEREST-LOAN> 319,965
<INTEREST-INVEST> 14,270
<INTEREST-OTHER> 118,032
<INTEREST-TOTAL> 452,267
<INTEREST-DEPOSIT> 109,537
<INTEREST-EXPENSE> 191,572
<INTEREST-INCOME-NET> 260,695
<LOAN-LOSSES> 11,430
<SECURITIES-GAINS> 604
<EXPENSE-OTHER> 302,370
<INCOME-PRETAX> 110,949
<INCOME-PRE-EXTRAORDINARY> 110,949
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 71,911
<EPS-PRIMARY> 1.21
<EPS-DILUTED> 1.21
<YIELD-ACTUAL> 5.28
<LOANS-NON> 57,447
<LOANS-PAST> 54,538
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 220,519
<CHARGE-OFFS> 31,349
<RECOVERIES> 6,791
<ALLOWANCE-CLOSE> 136,497
<ALLOWANCE-DOMESTIC> 136,497
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 18,378
</TABLE>
