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, 1996 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, 1996 - 59,417,073
Page 1 of 28
1
<PAGE>
Index
SIGNET BANKING CORPORATION AND SUBSIDIARIES
March 31, 1996
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 27
SIGNATURES 27
2
<PAGE>
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SIGNET BANKING CORPORATION
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS-EXCEPT PER SHARE) (UNAUDITED)
<TABLE>
<CAPTION>
March 31 December 31
1996 1995 1995
<S> <C> <C> <C>
ASSETS
Cash and due from banks $ 477,370 $ 541,946 $ 599,113
Interest bearing deposits with other banks 2,479 33,523 3,129
Federal funds sold and securities purchased under
resale agreements 1,048,139 772,865 460,217
Trading account securities 487,206 490,266 478,723
Loans held for securitization 300,000 150,000 389,700
Loans held for sale 297,147 159,224 361,260
Securities available for sale 2,443,956 1,692,387 2,333,971
Investment securities 391,897
Loans:
Consumer 2,086,519 2,229,957 1,751,274
Commercial 3,011,812 2,577,674 3,090,904
Real estate-construction 250,046 211,097 236,103
Real estate-commercial mortgage 359,445 505,717 366,698
Real estate-residential mortgage 232,322 225,477 122,584
Gross loans 5,940,144 5,749,922 5,567,563
Less: Unearned income (146,093) (102,323) (151,535)
Allowance for loan losses (126,433) (151,729) (129,702)
Net loans 5,667,618 5,495,870 5,286,326
Premises and equipment (net) 201,690 160,672 192,431
Interest receivable 106,094 75,082 104,437
Due from broker 299,645
Other assets 562,325 513,994 768,558
Total assets $11,893,669 $10,477,726 $10,977,865
LIABILITIES
Non-interest bearing deposits $ 1,713,563 $ 1,533,797 $ 1,726,378
Interest bearing deposits:
Money market and interest checking 179,609 1,023,532 1,102,140
Money market savings 2,405,436 1,382,105 1,338,985
Savings accounts 961,171 1,224,393 1,395,514
Savings certificates 2,065,355 1,949,339 1,850,397
Large denomination certificates 126,077 100,987 129,711
Foreign 291,382 183,337 49,846
Total interest bearing deposits 6,029,030 5,863,693 5,866,593
Total deposits 7,742,593 7,397,490 7,592,971
Securities sold under repurchase agreements 1,228,482 1,202,629 1,124,105
Federal funds purchased 1,002,344 521,295 780,193
Other short-term borrowings 105,408
Long-term borrowings 252,974 253,550 253,033
Interest payable 24,873 26,047 19,460
Due to broker 600,812
Other liabilities 186,938 199,831 344,154
Total liabilities 11,039,016 9,706,250 10,113,916
STOCKHOLDERS' EQUITY
Common stock, $5 par value; authorized 100,000,000 shares,
issued and outstanding 59,387,304, 58,659,679 and
59,208,745 shares, respectively 296,936 293,298 296,044
Capital surplus 202,513 193,986 200,093
Retained earnings 355,204 284,192 367,812
Total stockholders' equity 854,653 771,476 863,949
Total liabilities and stockholders' equity $11,893,669 $10,477,726 $10,977,865
</TABLE>
3
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SIGNET BANKING CORPORATION
STATEMENT OF CONSOLIDATED INCOME
(IN THOUSANDS-EXCEPT PER SHARE) (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended March 31
1996 1995
<S> <C> <C>
Interest income:
Loans, including fees:
Consumer $ 53,062 $117,634
Commercial 55,352 46,365
Real estate-construction 6,062 5,152
Real estate-commercial mortgage 8,150 12,131
Real estate-residential mortgage 3,204 4,279
Total loans, including fees 125,830 185,561
Interest bearing deposits with other banks 154 1,438
Federal funds sold and resale agreements 8,188 15,309
Trading account securities 8,122 6,718
Loans held for securitization 7,419 4,205
Loans held for sale 10,086 1,479
Securities available for sale 41,783 27,737
Investment securities-taxable 3,946
Investment securities-nontaxable 3,139
Total interest income 201,582 249,532
Interest expense:
Money market and interest checking 4,451 6,141
Money market savings 13,629 11,958
Savings accounts 11,495 10,727
Savings certificates 22,535 17,147
Large denomination certificates 1,525 7,700
Foreign 1,279 1,253
Total interest on deposits 54,914 54,926
Securities sold under repurchase agreements 14,511 11,827
Federal funds purchased 11,809 11,871
Other short-term borrowings 14,889
Long-term borrowings 4,114 12,770
Total interest expense 85,348 106,283
Net interest income 116,234 143,249
Provision for loan losses 11,257 7,180
Net interest income after provision for loan losses 104,977 136,069
Non-interest income:
Service charges on deposit accounts 16,231 16,471
Consumer loan servicing and service charge income 12,156 83,777
Trust and other financial services income 9,605 7,341
Other 19,432 13,169
Non-interest operating income 57,424 120,758
Securities available for sale gains 592 102
Investment securities gains 255
Total non-interest income 58,016 121,115
Non-interest expense:
Salaries 48,700 57,701
Employee benefits 12,401 18,341
Occupancy 10,194 11,954
Supplies and equipment 9,605 14,526
External data processing services 7,146 9,046
Travel and communications 5,920 13,153
Credit card solicitation 29,050
Other 21,649 37,155
Total non-interest expense 115,615 190,926
Income before income taxes (Capital One Financial
Corporation amounted to $0 and $27,407, respectively) 47,378 66,258
Applicable income taxes 16,183 24,033
Net income $ 31,195 $ 42,225
Earnings per common share $ 0.52 $ 0.71
Cash dividends declared per share 0.20 0.25
Average common shares outstanding 60,357 59,163
</TABLE>
4
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SIGNET BANKING CORPORATION
STATEMENT OF CHANGES IN CONSOLIDATED STOCKHOLDERS' EQUITY
(IN THOUSANDS) (UNAUDITED)
<TABLE>
<CAPTION>
Common Capital Retained
Stock Surplus Earnings
<S> <C> <C> <C>
THREE MONTHS ENDED MARCH 31, 1996
Balance at beginning of period $296,044 $200,093 $ 367,812
Net income 31,195
Issuance of Common Stock 892 2,420
Cash dividends (11,863)
Change in net unrealized gains on securities
available for sale, net of tax benefit of $17,198 (31,940)
Balance at end of period $296,936 $202,513 $ 355,204
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
</TABLE>
5
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SIGNET BANKING CORPORATION
STATEMENT OF CONSOLIDATED CASH FLOWS
(IN THOUSANDS) (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended March 31
1996 1995
<S> <C> <C>
OPERATING ACTIVITIES
Net Income $ 31,195 $ 42,225
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 11,257 7,180
Provision and writedowns on foreclosed property 10 1,856
Depreciation and amortization 7,226 11,031
Investment securities losses (255)
Securities available for sale gains (592) (102)
(Increase) decrease in interest receivable (1,657) 23,475
Increase in due from broker (299,645)
Decrease (increase) in other assets 201,418 (358,691)
Increase in interest payable 5,413 16,386
Increase in due to broker 600,812
Decrease in other liabilities (203,382) (23,014)
Proceeds from securitization of consumer loans 90,000
Proceeds from sales of loans held for sale 8,118,514 6,879,125
Purchases and originations of loans held for
sale (8,054,701) (6,968,843)
Proceeds from sales of trading account
securities 4,274,954 3,420,653
Purchases of trading account securities (4,283,437) (3,557,879)
Net cash provided (used) by operating
activities 497,385 (506,853)
INVESTING ACTIVITIES
Proceeds from maturities of investment securities 18,870
Purchases of investment securities (25,060)
Proceeds from sales of securities available for sale 595,337 14,468
Proceeds from maturities of securities available for
sale 169,214 320,527
Purchases of securities available for sale (856,045) (1,137,009)
Net increase in loans (393,627) (492,441)
Recoveries of loans previously charged-off 1,078 4,495
Purchases of premises and equipment (15,353) (22,214)
Net cash used by investing activities (499,396) (1,318,364)
FINANCING ACTIVITIES
Net increase in deposits 149,622 198,875
Net increase (decrease) in short-term borrowings 326,528 (417,335)
Net increase in Capital One Financial Corporation
long-term debt prior to spin-off 1,388,153
Net decrease in other long-term debt (59) (91)
Net issuance (purchase) of common stock 3,312 (4,769)
Payment of cash dividends (11,863) (14,645)
Net cash provided by financing activities 467,540 1,150,188
Increase (decrease) in cash and cash equivalents 465,529 (675,029)
Cash and cash equivalents at beginning of period 1,062,459 2,023,363
Cash and cash equivalents at end of period $ 1,527,988 $ 1,348,334
SUPPLEMENTAL DISCLOSURES
Interest paid $ 79,935 $ 111,314
Income taxes paid 573 57
Transfer of loans to foreclosed property 304 210
Transfer of loans to loans held for securitization 150,000
</TABLE>
6
<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 1995 annual
report and as noted below, except certain amounts which have been reclassified
for prior periods to conform to the 1996 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>
MARCH 31, 1996 March 31, 1995 December 31, 1995
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 $1,752,036 $1,765,446 $1,143,993 $1,149,091 $1,478,517 $1,530,818
Other 462,011 470,541 433,641 433,216 562,815 583,275
States and political subdivisions 42,689 44,151 110 118 53,031 54,696
Other 169,903 163,818 119,805 109,962 173,137 165,182
Total $2,426,639 $2,443,956 $1,697,549 $1,692,387 $2,267,500 $2,333,971
</TABLE>
INVESTMENT SECURITIES
The Company reclassified all of its investment securities to available for
sale in December 1995 as allowed by implementation guidance for Statement of
Financial Accounting Standards ("SFAS") No. 115, "Accounting for Certain
Investments in Debt and Equity Securities."
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
The Company securitized $90,000 of credit card receivables in the first
three months of 1996 and $185,000 in 1995. These transactions were recorded as
sales in accordance with SFAS No. 77, "Reporting by Transferors for Transfers of
Receivables with Recourse." Proceeds from the sales in the first three months of
1996 and 1995 totaled $90,000 and $184,900, respectively. Receivables
outstanding under credit card securitizations were $275,000 at March 31, 1996.
Recourse obligations related to these transactions are not material. Excess
servicing fees related to the credit card securitizations are recorded over the
life of each sale transaction. The excess servicing fee is based upon the
difference between finance charges received from the cardholders less the yield
paid to investors, credit losses, and a normal servicing fee, which is also
retained by the Company. In accordance with the sale agreements, a fixed amount
of excess servicing fees may be set aside to absorb credit losses.The amount
available to absorb credit losses was zero at March 31, 1996.
In conjunction with the spin-off of Capital One, Signet's rights and
obligations under the majority of its credit card securitization agreements
entered into prior to February 28, 1995, as well as any related assets and
liabilities were transferred to Capital One Bank. Receivables outstanding under
Signet's remaining securitizations totaled $275,000 at March 31, 1996.
In 1995, the Company also securitized $480,702 of home equity lines of
credit. This transaction was also recorded as a sale in accordance with SFAS No.
77. Proceeds from the sale totaled $478,794. Receivables outstanding under this
securitization were $459,949 at March 31, 1996. Recourse obligations related to
this transaction are not material. A gain, equal to the present value of
anticipated future net cash flows, net of transaction expenses and any
unamortized deferred loan origination costs, of $9,562 was recorded as a result
of the sale. In accordance with the sale agreement, a fixed amount of excess
servicing fees is set aside to absorb credit losses. The amount available to
absorb credit losses at March 31, 1996 was $5,288.
7
<PAGE>
SUPPLEMENTAL NOTES TO QUARTERLY FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS) (UNAUDITED)
RECENT ACCOUNTING STATEMENT
The Company adopted SFAS No. 121, "Accounting for the Impairment of Long-
Lived Assets and for Long-Lived Assets to be Disposed Of," on January 1, 1996.
SFAS No. 121 requires that long-lived assets and certain identifiable
intangibles to be held and used be reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. In determining the recoverability of an asset, the enterprise
should estimate the future cash flows expected to result from the use of the
asset and its eventual disposition. If the sum of the undiscounted cash flows is
less than the carrying amount of the asset, an impairment loss would be
recognized.
SFAS No. 121 also requires that long-lived assets and certain identifiable
intangibles to be disposed of be reported at the lower of carrying amount or
fair value less selling costs. Adoption of SFAS No. 121 did not have a material
impact on the Company's financial position or results of operations.
COMMERCIAL FRAUD LOSS
On March 19, 1996, subsequent to the announcement of 1995 earnings,
management discovered the Company was one of several major financial
institutions that were victims of fraudulent commercial loan transactions which
occurred prior to 1996. The Company had loan outstandings related to these
transactions of approximately $81 million. Federal authorities informed the
Company that they believe there will be substantial recoveries of assets related
to these transactions. Management recorded a $35 million commercial fraud loss
in non-interest expense at December 31, 1995 and recorded the estimated probable
recovery amount of $46 million in other assets as a receivable. The receivable
represents an amount that management believes is likely to be recovered based on
current facts and circumstances. The amount of the recovery was based on the
Company's pro-rata share of known claims to the total amount currently
restrained and held by federal authorities, less associated costs. The
restrained assets have been turned over to a trustee. The recovery amount is
subject to change, even in the near term, as additional assets are recovered,
additional claims are asserted or the market value of the restrained assets
fluctuates. Management still believes the $35 million charge to 1995 earnings is
adequate to cover estimated losses related to these fraudulent transactions
based on currently available information, but is unable to predict the timing of
the recovery. The Company will vigorously pursue other sources of recovery, but
currently is unable to determine the probability or amount of additional
recoveries.
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'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. Capital One's
results of operations and financial position are excluded from those of the
Company for periods subsequent to February 28, 1995.
Capital One summary financial data follows:
February 28
1995
Total assets $ 3,639,288
Total stockholders' equity 492,872
Two Months Ended
February 28, 1995
Net interest income $ 25,167
Provision for loan losses 3,929
Net interest income after provision for loan losses 21,238
Non-interest income 87,697
Non-interest expense 81,510
Income before income taxes 27,407
Applicable income taxes 9,879
Net income $ 17,537
8
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SIGNET BANKING CORPORATION AND SUBSIDIARIES
FINANCIAL HIGHLIGHTS
(DOLLARS IN THOUSANDS-EXCEPT PER SHARE)
Signet Banking Corporation ("Signet") completed the spin-off of its
subsidiary, Capital One Financial Corporation on February 28, 1995. Due to the
significance of the spin-off, PRO FORMA financial information for the first
quarter of 1995 is provided below to illustrate Signet's financial results and
other data assuming the spin-off had occurred prior to January 1, 1995.
<TABLE>
<CAPTION>
CONSOLIDATED
CONSOLIDATED PRO FORMA Three Months
Three Months Ended March 31 Percent Ended March 31
1996 1995 Change 1995
<S> <C> <C> <C> <C>
EARNINGS
Net interest income (taxable equivalent) $ 118,378 $ 121,344 (2.4)% $ 146,511
Net interest income 116,234 118,082 (1.6) 143,249
Net income 31,195 26,706 16.8 42,225
PER COMMON SHARE
Net income $ 0.52 $ 0.45 15.6 $ 0.71
Cash dividends declared 0.20 - - 0.25
Book value 14.39 13.15 9.4 13.15
Period-end price 24.88 20.38 22.1 20.38
AVERAGE DAILY BALANCE
Assets $11,067,630 $10,194,944 8.6 $12,332,189
Earning assets 9,705,995 9,084,809 6.8 10,999,684
Loans (net of unearned income) 5,566,470 5,801,737 (4.1) 7,242,068
Managed consumer loan portfolio 2,951,259 2,345,509 25.8 -
Deposits 7,551,264 7,271,699 3.8 7,618,783
Core deposits 7,346,635 7,064,098 4.0 7,040,471
Common stockholders' equity 859,388 755,296 13.8 1,001,772
Common shares outstanding 60,356,655 59,162,565 2.0 59,162,565
RATIOS
Return on average assets 1.13% 1.06% 6.6 1.39%
Return on average common stockholders' equity 14.60 14.34 1.8 17.09
Net yield margin 4.91 5.42 (9.4) 5.40
Allowance for loan losses to:
Non-performing loans 395.64 574.88 (31.2) 574.88
Non-performing assets 267.85 364.76 (26.6) 364.76
Net loans 2.18 2.69 (19.0) 2.69
Non-performing assets to loans and foreclosed properties 0.81 0.74 9.5 0.74
Stockholders' equity to assets 7.19 7.36 (2.3) 7.36
AT PERIOD-END
Assets $11,893,669 $10,477,726 13.5 $10,477,726
Earning assets 10,372,978 9,337,761 11.1 9,337,761
Loans (net of unearned income) 5,794,051 5,647,599 2.6 5,647,599
Managed consumer loan portfolio 3,121,468 2,376,659 31.3 2,376,659
Deposits 7,742,593 7,397,490 4.7 7,397,490
Core deposits 7,325,134 7,113,166 3.0 7,113,166
Common stockholders' equity 854,653 771,476 10.8 771,476
Non-performing assets 47,203 41,597 13.5 41,597
Number of common stockholders 15,176 15,374 (1.3) 15,374
Full-time employees 4,119 3,759 9.6 3,759
Part-time employees 954 1,029 (0.1) 1,029
</TABLE>
Note: The common stock of Signet Banking Corporation is traded on the New York
Stock Exchange under the symbol "SBK."
9
<PAGE>
Table 1
SIGNET BANKING CORPORATION
SELECTED QUARTERLY FINANCIAL INFORMATION
<TABLE>
<CAPTION>
1ST QTR 4th Qtr 3rd Qtr 2nd Qtr 1st Qtr
1996 1995 1995 1995 1995
<S> <C> <C> <C> <C> <C>
SUMMARY OF OPERATIONS (1)
(DOLLARS IN THOUSANDS-EXCEPT PER SHARE)
Net interest income (taxable equivalent) $ 118,378 $ 117,443 $ 119,482 $ 120,401 $ 146,511
Less: taxable equivalent adjustment 2,144 1,848 2,538 2,955 3,262
Net interest income 116,234 115,595 116,944 117,446 143,249
Provision for loan losses 11,257 18,604 8,681 4,250 7,180
Net interest income after provision
for loan losses 104,977 96,991 108,263 113,196 136,069
Non-interest income 58,016 68,120 47,094 42,939 121,115
Non-interest expense (2) 115,615 152,191 109,507 111,444 190,926
Income before income taxes (benefit) 47,378 12,920 45,850 44,691 66,258
Applicable income taxes (benefit) 16,183 3,894 15,707 15,005 24,033
Net income $ 31,195 $ 9,026 $ 30,143 $ 29,686 $ 42,225
Net income excluding commercial fraud loss $ 31,195 $ 31,776 $ 30,143 $ 29,686 $ 42,225
Per common share:
Net income (2) $ 0.52 $ 0.15 $ 0.50 $ 0.50 $ 0.71
Net income excluding commercial fraud loss 0.52 0.53 0.50 0.50 0.71
Cash dividends declared 0.20 0.20 0.17 0.17 0.25
Average common shares outstanding 60,356,655 60,230,489 60,145,919 59,668,541 59,162,565
SELECTED AVERAGE BALANCES
(DOLLARS IN MILLIONS)
Assets $ 11,068 $ 10,982 $ 10,756 $ 10,486 $ 12,332
Earning assets 9,706 9,745 9,555 9,395 11,000
Loans (net of unearned income) 5,566 5,598 5,825 5,837 7,242
Deposits 7,551 7,346 7,260 7,248 7,619
Core deposits 7,347 7,164 7,043 7,009 7,040
Interest bearing liabilities 8,336 8,353 8,158 7,985 9,524
Stockholders' equity 859 856 824 794 1,002
RATIOS
Return on average assets (3) 1.13% 0.33% 1.11% 1.14% 1.39%
Return on average common stockholders' equity (3) 14.60 4.18 14.51 15.00 17.09
Net loan losses to average loans 1.04 1.12 0.89 1.27 0.33
Net interest spread 4.32 4.16 4.32 4.50 4.79
Net yield margin 4.91 4.78 4.96 5.14 5.40
At period-end:
Allowance for loan losses to:
Non-performing loans 395.64 337.05 339.92 297.24 574.88
Non-performing assets 267.85 238.85 251.77 237.60 364.76
Net loans 2.18 2.39 2.35 2.40 2.69
Non-performing assets to loans and
foreclosed properties 0.81 1.00 0.93 1.01 0.74
Stockholders' equity to assets 7.19 7.87 7.59 7.70 7.36
</TABLE>
(1) The 1995 numbers reflect the spin-off of Capital One on February 28, 1995.
(2) The fourth quarter of 1995 included the $35.0 million commercial fraud loss.
The first quarter of 1995 included $29.0 million of credit card solicitation
expense associated with Capital One.
(3) The fourth quarter 1995 return on average assets and return on average
stockholders equity excluding the $35.0 million commercial fraud loss were
1.15% and 14.72%, respectively.
10
<PAGE>
Table 2
SIGNET BANKING CORPORATION
NET INTEREST INCOME ANALYSIS
Taxable Equivalent Basis (IN THOUSANDS)
<TABLE>
<CAPTION>
First Quarter 1996 Compared First Quarter 1996 Compared
with First Quarter 1995 with Fourth Quarter 1995
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 ($59,616) ($36,503) ($23,113) ($2,873) ($943) ($1,930)
Securities available for sale 14,390 1,084 13,306 6,717 539 6,178
Investment securities (8,662) 0 (8,662) (4,164) 0 (4,164)
Other earning assets 4,820 (809) 5,629 (4,791) 352 (5,143)
Total interest income (49,068) (34,733) (14,335) (5,111) (3,201) (1,910)
INTEREST EXPENSE:
Interest bearing deposits (12) 3,290 (3,302) (1,159) (1,925) 766
Fed funds and repurchase agreements 2,622 (4,945) 7,567 (4,897) (3,059) (1,838)
Other short-term borrowings (14,889) 0 (14,889) 0 0 0
Long-term borrowings (8,656) (2,987) (5,669) 10 13 (3)
Total interest expense (20,935) (14,407) (6,528) (6,046) (5,803) (243)
NET INTEREST INCOME ($28,133) ($19,693) ($8,440) $ 935 $ 1,633 ($698)
</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-state bank holding company whose stock
is listed on the New York Stock Exchange under the symbol SBK. At March 31,
1996, Signet had assets of approximately $11.9 billion and provided interstate
financial services through two principal subsidiaries: Signet Bank (which
resulted from the merger of Signet Bank/Virginia and Signet Bank/Maryland in
1995) headquartered in Richmond, Virginia and Signet Bank N.A., headquartered in
Falls Church, Virginia. The Company is in the process of merging Signet Bank N.
A. into Signet Bank and expects to complete the combination of the two banks
during 1996.
Signet engages in general commercial and consumer banking businesses and
provides a full range of financial services to individuals, businesses and
organizations through 244 banking offices, 252 automated teller machines and a
24-hour 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 trade finance are
offered. Signet's primary market area extends from Baltimore to Washington,
south to Richmond, and on to Hampton Roads/Tidewater, Virginia. The Company also
markets several of its products nationally.
On March 19, 1996, subsequent to the announcement of 1995 earnings,
management discovered the Company was one of several major financial
institutions that were victims of fraudulent commercial loan transactions which
occurred prior to 1996. The Company had loan outstandings related to these
transactions of approximately $81 million. Federal authorities informed the
Company that they believe there will be substantial recoveries of assets related
to these transactions. Management recorded a $35 million commercial fraud loss
in non-interest expense at December 31, 1995 ("the fraud loss") and recorded the
estimated probable recovery amount of $46 million in other assets as a
receivable. The receivable represents an amount that management believes is
likely to be recovered based on current facts and circumstances. The amount of
the recovery was based on the Company's pro-rata share of known claims to the
total amount currently restrained and held by federal authorities, less
associated costs. The restrained assets have been turned over to a trustee. The
recovery amount is subject to change, even in the near term, as additional
assets are recovered, additional claims
11
<PAGE>
are asserted or the market value of the restrained assets fluctuates. Management
still believes the $35 million charge to 1995 earnings is adequate to cover
estimated losses related to these fraudulent transactions based on currently
available information, but is unable to predict the timing of the recovery. The
Company will vigorously pursue other sources of recovery, but currently is
unable to determine the probability or amount of additional recoveries.
Signet distributed all of the remaining Capital One Financial Corporation
("Capital One") common stock it held to Signet stockholders in a tax-free
distribution on February 28, 1995 (the "spin-off"). Related assets of $3.6
billion and equity of $0.4 billion were spun off at this time. The spin-off
created two independent financial institutions, each possessing substantial
financial and managerial strength and each pursuing separate long-term business
strategies.
In 1995, Signet began construction on a new operations center located close
to Richmond, Virginia which will be completed in 1996 at a total cost of
approximately $55 million, the majority of which has already been incurred.
Occupancy commenced during 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 months ended March 31, 1996 are
not necessarily indicative of results to be attained for any other period. In
addition to the discussion of consolidated information, Signet Banking
Corporation excluding Capital One ("PRO FORMA") data is provided for the same
periods where it was meaningful to discuss the Company's results excluding
Capital One. Consolidated and PRO FORMA results are the same for time periods
subsequent to February 28, 1995, the date of the spin-off. PRO FORMA financial
information is provided as supplementary financial data on pages 21 through 26.
EARNINGS ANALYSIS
Signet reported consolidated net income for the first quarter of 1996 of
$31.2 million, or $.52 per share, compared with $42.2 million, or $.71 per
share, in the first quarter of 1995. Consolidated earnings for the first quarter
of 1995 included the results of Capital One for the two months prior to the
spin-off on February 28, 1995. On a PRO FORMA basis, the first quarter 1996 net
income increased 17% from $26.7 million, or $.45 per share, in the first quarter
of 1995. The 1996 performance reflected a 12% increase in total revenues (net
interest income and non-interest income) for the quarter compared with PRO FORMA
results for the 1995 first quarter. The return on assets ("ROA") and the return
on common stockholders' equity ("ROE") improved from the first quarter of 1995,
on a PRO FORMA basis. For the first quarter of 1996, ROA was 1.13% and ROE was
14.60% compared with the first quarter 1995 PRO FORMA profitability ratios of
1.06% and 14.34%, respectively. These ratios are indicative of Signet's improved
performance.
NET INTEREST INCOME
Taxable equivalent net interest income, a primary contributor to earnings,
totaled $118.4 million for the first quarter of 1996, a slight increase from the
fourth quarter 1995 level of $117.4 million. The net interest income in the
first quarter of 1996 declined 19%, from $146.5 million, in the first quarter of
1995. On a PRO FORMA basis, taxable equivalent net interest income was $121.3
million in the first quarter of 1995. The net yield margin for the first quarter
of 1996 was 4.91%, a 13 basis point increase over the fourth quarter of 1995
primarily the result of lower funding rates partially offset by a change in the
yield and mix on earning assets. Table 3 analyzes the change in the net yield
margin from the fourth quarter of 1995 to the first quarter of 1996. The net
yield margin decreased 51 basis points in the first quarter of 1996 from the net
yield margin of 5.42% in the first quarter of 1995, on a PRO FORMA basis. The
decrease in the net yield margin was principally the result of lower yields on
earning assets and higher funding rates. The net interest spread of 4.32% for
the first quarter of 1996 increased 16 basis points from the fourth quarter of
1995 and declined 51 basis points from the first quarter 1995 PRO FORMA level of
4.83%.
Signet uses various off-balance sheet interest rate derivatives as an
integral part of its asset and liability management and trading activities. For
Signet's core business, variable rate assets generally exceed variable rate
liabilities. To manage the resulting interest rate risk, Signet enters into
derivative transactions. On a consolidated basis, derivative contracts, used for
interest rate risk management purposes, decreased interest on earning assets by
$1.8 million, $3.2 million and $3.3 million and decreased borrowing costs by
$3.8 million, $3.3 million and $7.6 million for the first quarter of 1996,
fourth quarter of 1995 and first quarter of 1995 on a PRO FORMA basis,
respectively. The overall increase in the net yield margin as a result of these
instruments amounted to 8, 0 and 19 basis points for the respective periods.
Table 3
SIGNET BANKING CORPORATION
ANALYSIS OF CHANGE IN NET YIELD MARGIN
Fourth Quarter 1995 versus First Quarter 1996
Net yield margin for Fourth Quarter 1995 4.78%
Lower funding costs (excluding increase in
derivative income) 0.17
Change in yield and mix on earning assets (0.12)
Increase in derivative income 0.08
Net yield margin for First Quarter 1996 4.91%
12
<PAGE>
Table 4
SIGNET BANKING CORPORATION
STATEMENT OF CHANGES IN ALLOWANCE FOR LOAN LOSSES
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Three Months Ended
Consolidated PRO FORMA
March 31 December 31 March 31
1996 1995 1995 1995
<S> <C> <C> <C> <C>
Balance at beginning of period $129,702 $220,519 $129,672 $152,003
Additions to allowance charged to expense 11,257 7,180 18,604 3,251
Transfer to loans held for securitization/sale (1) (1,489) (2,951) (750)
Transfer to Capital One Financial Corporation (68,516)
Loans charged off:
Consumer (2) 11,281 9,120 13,266 4,022
Commercial (3) 2,881 428 3,822 428
Real estate-construction (3) 839 8 63 8
Real estate-mortgage (3) 603 904 55 904
Total loans charged off 15,604 10,460 17,206 5,362
Recoveries of loans previously charged off:
Consumer (2) 354 2,246 454 338
Commercial 391 1,986 770 1,986
Real estate-construction 48 237 295 237
Real estate-mortgage (3) 285 26 64 26
Total recoveries 1,078 4,495 1,583 2,587
Net loans charged off 14,526 5,965 15,623 2,775
Balance at end of period $126,433 $151,729 $129,702 $151,729
Net loan losses (annualized) as a percentage
of average loans:
Consumer 2.29% 0.70% 2.81% 0.59%
Commercial 0.34 (0.26) 0.43 (0.26)
Real estate 0.58 0.28 (0.11) 0.28
Total 1.04% 0.33% 1.12% 0.19%
Allowance for loan losses to net loans at
end of period 2.18% 2.69% 2.39% 2.69%
(1)The amounts transferred to loans held for sale related to Capital One
assets were $0, $0 and $2,651 for the first quarter of 1996 and the first
and fourth quarters of 1995, respectively.
(2)Consumer includes loan-by-check net charge-offs as noted below:
Loan-by-check risk tests $ 7,233 $ 23 $ 8,835 $ 23
Other loan-by-check 2,672 217 1,706 217
Total loan-by-check net charge-offs $ 9,905 $ 240 $ 10,541 $ 240
Average loan-by-check:
Loan-by-check risk tests $158,523 $233,474 $181,357 $233,474
Other loan-by-check 515,743 78,423 335,685 78,423
Total loan-by-check $674,266 $311,897 $517,042 $311,897
Net loan losses (annualized) as a percentage of average loan-by-check:
Loan-by-check risk tests 18.25% 0.04% 19.49% 0.04%
Other loan-by-check 2.07 1.11 2.03 1.11
Total loan-by-check 5.88% 0.31% 8.15% 0.31%
</TABLE>
(3)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.
13
<PAGE>
PROVISION AND ALLOWANCE FOR LOAN LOSSES
(ON A PRO FORMA BASIS)
The $11.3 million provision for loan losses in the first quarter of 1996
represented an $8.0 million increase from the 1995 first quarter level of $3.3
million. The increase in the provision resulted primarily from growth and
increased losses in the consumer loan portfolio. The Company provided $18.6
million for the allowance for loan losses in the 1995 fourth quarter which was
significantly higher than previous quarters due to higher loss estimates on the
loan-by-check risk tests. See the following paragraph and the Consumer Loan
Growth section for further discussion concerning the loan-by-check product.
Net charge-offs were $14.5 million in the first quarter of 1996, a $1.1
million decrease from the fourth quarter 1995 level of $15.6 million. Net
charge-offs were $2.8 million in the first quarter of 1995. The $11.7 million
increase in net charge-offs from the prior year first quarter was primarily
caused by loan-by-check risk test charge-offs ($7.2 million) and an increase in
other loan-by-check charge-offs ($2.5 million). The loan-by-check risk test
charge-offs were on loans generated from direct mail solicitations in late 1994
as Signet ran controlled tests to determine the criteria to be used when Signet
expands loan-by-check solicitations. See footnote 2 to Table 4 for more detailed
information on the loan-by-check charge-offs. Management expects the consumer
loan charge-off ratio to decline to more moderate levels once the loans from the
risk test solicitations have seasoned. Commercial net charge-offs accounted for
$2.5 million of the increase in net charge-offs from the first quarter of last
year for which there was sufficient specific allowance.
The allowance for loan losses at March 31, 1996 was $126.4 million, or 2.18%
of period-end loans, compared with $151.7 million, or 2.69% of loans at March
31, 1995 and the December 31, 1995 allowance of $129.7 million, or 2.39% of
loans. The March 31, 1996 allowance for loan losses equated to 4.0 times
non-performing loans and 2.7 times non-performing assets, down from March 31,
1995 when the allowance for loan losses amounted to 5.8 times non-performing
loans and 3.6 times non-performing assets. The decline in the level of the
allowance from March 31, 1995 resulted partially from $13.9 million of
charge-offs related to a bulk sale of commercial real estate related loans in
the second quarter of 1995 for which sufficient allowance had already been
provided.
To determine the appropriate level of allowance for loan losses, management
allocates a specific amount to classified commercial and real estate loans which
are individually reviewed. Classified loans represent those loans in which
normal repayment of principal and interest is questionable. The credit
worthiness of the borrower, the adequacy of the underlying collateral and the
impact of business and economic conditions upon the borrower are all evaluated
monthly. These factors lead to the risk allowance allocation.
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. The remaining loan portfolios
(unclassified commercial and real estate loans) are attributed allowance by
applying historical loss information to the loan portfolios and taking into
consideration other factors listed above. Management continuously refines this
process and believes that the allowance for loan losses is adequate to cover
anticipated losses in the loan portfolio under current economic conditions.
At March 31, 1996, Signet's loans that were considered to be impaired under
Statement of Financial Accounting Standards ("SFAS") No. 114 were comprised of
$26.7 million of non-accrual loans for which the related allowance was $5.4
million. The average recorded investment in impaired loans during the period
ended March 31, 1996 was approximately $29.6 million. Collateral dependent
loans, which were measured at the fair value of the loan's collateral made up
the majority of impaired loans at March 31, 1996.
The Company adopted SFAS No. 121, "Accounting for the Impairment of Long-
Lived Assets and for Long-Lived Assets to be Disposed Of," on January 1, 1996.
SFAS No. 121 requires that long-lived assets and certain identifiable
intangibles to be held and used be reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. In determining the recoverability of an asset, the enterprise
should estimate the future cash flows expected to result from the use of the
asset and its eventual disposition. If the sum of the undiscounted cash flows is
less than the carrying amount of the asset, an impairment loss would be
recognized.
SFAS No. 121 also requires that long-lived assets and certain identifiable
intangibles to be disposed of be reported at the lower of carrying amount or
fair value less selling costs. Adoption of SFAS No. 121 did not have a material
impact on the Company's financial position or results of operations.
NON-INTEREST INCOME (ON A PRO FORMA BASIS)
A significant portion of Signet's revenue is derived from non-interest
related sources including consumer loan servicing income, deposit account
service charges, trust and investment management fees and other income. Signet's
business strategies continued to emphasize non-interest operating income
sources. Table 5 details the various components of non-interest income for the
first quarter of 1996 compared with the first and fourth quarters of 1995.
Non-interest income for the first quarter of 1996 was $58.0 million, a 55%, or
$20.6 million increase over the first quarter of 1995 on a PRO FORMA basis.
Non-interest income declined $10.1 million, or 15%, in the first quarter of 1996
compared with the fourth quarter of 1995.
Several factors contributed to the increase in non-interest income in the
first quarter of 1996 compared to the first quarter of 1995. Trust and other
financial services income increased $2.5 million, or 35%, from additional fee
income related to the Blanchard funds acquisition in the second quarter of 1995.
Consumer loan servicing and service charge income increased $9.6 million, or
377%, due to the securitization of approximately $756 million of consumer loans
since the end of the first quarter of 1995. A $3.5 million increase in mortgage
servicing and origination resulted from a rise in mortgage loan volume due to a
decline in interest rates. Signet recorded a $3.4 million gain on the sale of
mortgage servicing rights in the first quarter of 1996.
14
<PAGE>
Table 5
SIGNET BANKING CORPORATION (EXCLUDING CAPITAL ONE)
NON-INTEREST INCOME AND EXPENSE
(IN THOUSANDS)
<TABLE>
<CAPTION>
Three Months Ended
March 31 December 31
1996 1995 1995
<S> <C> <C> <C>
NON-INTEREST INCOME:
Service charges on deposit accounts $ 16,231 $ 16,471 $ 16,816
Consumer loan servicing and service charge income 12,156 2,551 6,468
Gain on securitization of loans 9,562
Trust and other financial services income 9,605 7,096 9,460
Mortgage servicing and origination 7,668 4,162 6,837
Other service charges and fees 3,882 3,468 3,889
Gain on sale of mortgage servicing 3,426
Gains (losses) on sale of mortgage loans 1,576 (192) 5,301
Trading profits 767 2,393 3,954
Other 2,113 1,110 5,379
Non-interest operating income 57,424 37,059 67,666
Securities available for sale gains 592 102 20
Investment securities gains 255 434
Total non-interest income $ 58,016 $ 37,416 $ 68,120
NON-INTEREST EXPENSE:
Salaries $ 48,700 $ 42,638 $ 48,932
Employee benefits 12,401 13,698 7,723
Total staff expense 61,101 56,336 56,655
Occupancy 10,194 9,843 9,572
Supplies and equipment 9,605 8,558 9,513
External data processing services 7,146 6,210 7,289
Travel and communications 5,920 5,594 7,208
Commercial fraud loss 35,000
Professional services 3,313 3,386 4,938
Public relations, sales and advertising 4,889 3,255 5,054
Credit and collection 1,347 72 947
FDIC assessment 170 4,138 841
Foreclosed property - net (820) 572 (300)
Other 12,750 13,414 15,474
Total non-interest expense $115,615 $111,378 $152,191
</TABLE>
The $10.1 million decline in non-interest income from the fourth quarter of
1995 to the first quarter of 1996 resulted primarily from a $9.6 million gain on
the home equity line securitization that took place in the fourth quarter.
Consumer loan servicing and service charge income increased $5.7 million, or
88%, in the first quarter of 1996 also due to the $481 million home equity line
securitization in December, 1995. This increase was offset by a $3.2 million
decrease in trading profits and a $3.7 million reduction in gains on the sale of
mortgage loans. Signet recorded a $3.1 million gain on the sale of approximately
$179 million of adjustable rate residential mortgages in December, 1995.
NON-INTEREST EXPENSE (ON A PRO FORMA BASIS)
Non-interest expense for the first quarter of 1996 totaled $115.6 million,
an increase of $4.2 million, or 4%, from the first quarter of 1995. The largest
increase was $4.8 million in staff expense resulting primarily from a 9.6%
increase in the number of full-time employees. Public relations, sales and
marketing expense increased $1.6 million as solicitation volume increased on
various consumer products. Credit and collection expenses increased $1.3 million
due to increased costs associated with the growth in Signet's consumer loan
portfolio. The FDIC assessment
15
<PAGE>
declined $4.0 million due to lower rates that became effective January 1, 1996.
The $1.0 million increase in supplies and equipment expense was attributable to
servicing the expanded consumer loan base.
Non-interest expense declined $36.6 million, or 24%, in the first quarter of
1996 compared to the fourth quarter of 1995 level of $152.2 million. The $35
million fraud loss recorded in the fourth quarter accounted for most of the
decrease.
Signet's efficiency ratio (the ratio of non-interest expense, excluding
foreclosed property expense, to taxable equivalent operating income) improved
nearly 4 percentage points to 66.01% for the first quarter of 1996, compared
with the PRO FORMA efficiency ratio of 69.95% for the first quarter of 1995.
However, this ratio was up from 63.47% for the fourth quarter of 1995, excluding
the fraud loss.
In the third quarter of 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 March 31, 1996, the amounts
actually paid and charged against the restructuring liability were approximately
$7.0 million for severance payments to approximately 700 employees, $2.5 million
for payments made under the early retirement program and approximately $7.0
million for lease termination and other facilities related costs. In addition,
$19.5 million was transferred from the restructuring liability to Signet's
pension benefit liability and postretirement benefit liability and $.4 million
was reallocated within the restructuring liability from accrued facilities
related costs to accrued severance benefits as a result of a change in estimated
costs. The remaining liability of $7.2 million is primarily comprised of accrued
facilities related costs. The restructuring plan as it relates to severance, the
early retirement program and lease terminations was fully implemented as of
December 31, 1995. The remainder of the plan, which relates to the disposition
of bank-owned properties is expected to be implemented by the end of 1996.
INCOME TAXES (ON A PRO FORMA BASIS)
Income tax expense for the first quarter of 1996 was $16.2 million compared with
the first quarter 1995 expense of $14.2 million, on a PRO FORMA basis, and
fourth quarter 1995 expense of $3.9 million. This represented an effective tax
rate of 34.16% for the first quarter of 1996, 34.65% for the first quarter of
1995 and 30.14% for the fourth quarter of 1995. The unusually low effective tax
rate for the fourth quarter of 1995 resulted primarily from the amount of
tax-exempt income being unusually high in proportion to the level of pre-tax
income due to the $35.0 million fraud loss.
Table 6
SIGNET BANKING CORPORATION
AVERAGE BALANCE SHEET
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Three Months Ended
March 31 December 31
1996 1995 1995
AVERAGE INCOME/ YIELD/ Average Income/ Yield/ Average Income/ Yield/
ASSETS BALANCE EXPENSE RATE Balance Expense Rate Balance Expense Rate
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Earning assets
(tax equivalent basis):*
Interest bearing deposits
with other banks $ 12,633 $ 154 4.82% $ 98,271 $ 1,438 5.85% $ 7,077 $ 102 5.64%
Federal funds and
resale agreements 591,396 8,188 5.48 1,039,776 15,309 5.89 538,752 8,025 5.83
Trading account
securities 506,040 8,122 6.46 418,011 6,718 6.52 469,665 7,736 6.53
Loans held for
securitization 330,557 7,419 9.03 146,667 4,205 11.47 623,801 14,262 9.07
Loans held for sale 389,569 10,086 10.24 94,718 1,479 6.25 369,802 8,635 9.14
Securities available
for sale 2,309,330 42,233 7.32 1,579,687 27,843 7.05 1,932,161 35,516 7.19
Investment securities-
taxable 222,877 3,946 7.08 154,857 2,797 7.22
Investment securities-
nontaxable 157,609 4,716 11.97 50,812 1,367 10.76
Loans (net of
unearned income):
Consumer 1,906,768 53,062 11.19 3,946,185 117,634 11.98 1,824,487 52,026 11.33
Commercial 2,892,389 56,506 7.86 2,362,850 47,134 8.09 2,863,087 56,975 7.90
Real estate-
construction 245,237 6,062 9.78 207,805 5,154 9.92 242,094 6,401 10.35
Real estate-
commercial
mortgage 357,989 8,690 9.76 520,340 12,939 10.08 387,273 9,367 9.60
Real estate-
residential
mortgage 164,087 3,204 7.81 204,888 4,279 8.35 281,250 5,628 8.00
Total loans 5,566,470 127,524 9.21 7,242,068 187,140 10.48 5,598,191 130,397 9.24
Total earning assets 9,705,995 $203,726 8.44% 10,999,684 $252,794 9.32% 9,745,118 $208,837 8.50%
Non-rate related assets:
Cash and due from banks 529,040 505,045 543,776
Allowance for loan losses (128,503) (196,476) (125,658)
Premises and equipment
(net) 196,314 228,577 188,689
Other assets 764,784 795,359 630,085
Totl Assets $11,067,630 $12,332,189 $10,982,010
LIABILITIES AND
STOCKHOLDERS' EQUITY
Interest bearing
liabilities:
Deposits:
Money market and
interest checking $ 723,470 $ 4,451 2.47% $ 1,014,201 $ 6,141 2.46% $ 1,050,321 $ 6,516 2.46%
Money market savings 1,751,103 13,629 3.13 1,402,102 11,958 3.46 1,356,002 12,161 3.56
Savings accounts 1,248,406 11,495 3.70 1,188,584 10,727 3.66 1,372,400 13,426 3.88
Savings certificates 1,949,398 22,535 4.65 1,950,069 17,147 3.57 1,800,643 21,381 4.71
Large denomination
certificates 111,194 1,525 5.43 494,575 7,700 6.23 104,933 1,451 5.41
Foreign 93,435 1,279 5.42 83,737 1,253 5.99 77,306 1,138 5.76
Total interest
bearing
deposits 5,877,006 54,914 3.76 6,133,268 54,926 3.63 5,761,605 56,073 3.86
Federal funds and
repurchase
agreements 2,205,733 26,320 4.72 1,789,022 23,698 5.30 2,338,713 31,217 5.22
Other short-term
borrowings 896,552 14,889 6.64
Long-term borrowings 252,991 4,114 6.43 705,362 12,770 7.24 253,085 4,104 6.35
Total interest bearing
liabilities 8,335,730 $ 85,348 4.12% 9,524,204 $106,283 4.53% 8,353,403 $ 91,394 4.34%
Non-interest bearing
liabilities:
Demand deposits 1,674,258 1,485,515 1,584,375
Other liabilities 198,254 320,698 188,036
Common stockholders' equity 859,388 1,001,772 856,196
Total liabilities and
stockholders' equity $11,067,630 $12,332,189 $10,982,010
Net interest income/spread $118,378 4.32% $146,511 4.79% $117,443 4.16%
Interest income to average
earning assets 8.44% 9.32% 8.50%
Interest expense to average
earning assets 3.54 3.92 3.72
Net yield margin 4.91% 5.40% 4.78%
</TABLE>
* Includes the effects of taxable equivalent adjustments using a tax rate of
35%.
16,17
<PAGE>
FINANCIAL CONDITION (ON A PRO FORMA BASIS)
Average earning assets totaled $9.7 billion for the first quarter of 1996, up
7%, or $621 million, from the first quarter 1995 on a PRO FORMA basis and
relatively unchanged from the fourth quarter of 1995. Loan securitizations
reduced consumer loans by transferring assets off the balance sheet. Adding back
average securitized loans to both years' average earning assets and adjusting
for loans that may be sold to Capital One, in accordance with previously agreed
upon terms of the spin-off, results in a 14% increase in managed earning assets
from the first quarter of 1995, on a PRO FORMA basis, compared with the first
quarter of 1996. Loans (net of unearned income) for the first quarter of 1996
averaged $5.6 billion, a 4% decline from the first quarter of 1995 PRO FORMA
level of $5.8 billion and relatively level with fourth quarter of 1995. The
decline from the first quarter of 1995 was primarily due to a $599 million
reduction in the consumer loan portfolio as loans were reclassified to loans
held for securitization, which increased $329 million over the same time
periods, and then were securitized. Including securitized assets, managed loans
grew $352 million during the quarter and totaled approximately $7 billion at
March 31, 1996. Commercial loans increased $530 million when comparing the first
quarter of 1996 to the same period in 1995, as Signet successfully targeted
certain specialized industries, such as media and health care, as well as a
diverse group of middle market borrowers. The drop in average real
estate-residential mortgage outstandings resulted from the sale of approximately
$179 million of adjustable rate mortgages in December, 1995.
Investment securities declined from $372 million on average in the first
quarter of 1995 to zero in the first quarter of 1996 reflecting the fact that
the Company reclassified all of its investment securities to securities
available for sale in December, 1995, as allowed by implementation guidance for
SFAS No. 115, "Accounting for Certain Investments in Debt and Equity
Securities".
Average securities available for sale increased $814 million, or 54%, in the
first quarter of 1996 compared to the average for the first quarter of 1995, on
a PRO FORMA basis. A portion of this increase resulted from the reclassification
of investment securities to securities available for sale in December, 1995, as
noted above.
Interest bearing liabilities averaged $8.3 billion in the first quarter of
1996, an increase of $618 million, or 8%, from the first quarter of 1995, on a
PRO FORMA basis. A $291 million decline in money market and interest checking
was more than offset by a $349 million increase in money market savings. The
$195 million drop in other short-term borrowings was more than offset by a $693
million increase in federal funds and repurchase agreements. Average
non-interest bearing demand deposits increased 10%, or $159 million, from the
first quarter of 1995, on a PRO FORMA basis, to the first quarter of 1996.
Table 7
SIGNET BANKING CORPORATION
NON-PERFORMING ASSETS
(DOLLARS IN THOUSANDS)
March 31 December 31
1996 1995 1995
Non-accrual loans:
Commercial $ 5,873 $10,998 $ 9,033
Consumer 1,684 1,596 1,572
Real estate - construction 1,820 5,161 2,988
Real estate - mortgage * 22,580 8,638 24,888
Total non-accrual loans 31,957 26,393 38,481
Foreclosed properties 15,246 15,204 15,822
Total non-performing assets $47,203 $41,597 $54,303
Percentage to loans (net of unearned) and
foreclosed properties 0.81% 0.74% 1.00%
Allowance for loan losses to:
Non-performing loans 395.64 574.88 337.05
Non-performing assets 267.85 364.76 238.85
* 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 at March 31, 1996 totaled $47.2 million, or 0.81% of
loans and foreclosed properties. This compares with $41.6 million, or 0.74% and
$54.3 million, or 1.00% at March 31, 1995 and December 31, 1995, respectively.
Overall non-performing commercial loans declined $5.1 million from March 31,
1995 to March 31, 1996. Over the same period, real estate-construction decreased
$3.3 million and real estate-mortgage increased $13.9 million. Foreclosed
properties remained level at $15.2 million and were equal to 32% of total
non-performing assets and 38% of non-performing real estate assets as of March
31, 1996. In accordance with SFAS No. 114, a loan is classified as foreclosed
property where possession has been taken of the collateral, regardless of
whether formal foreclosure proceedings have taken place. Table 7 provides
details on the various components of non-performing assets at March 31, 1996,
March 31, 1995 and December 31, 1995.
18
<PAGE>
Table 8
SIGNET BANKING CORPORATION
ACCRUING LOANS PAST DUE 90 DAYS OR MORE
(DOLLARS IN THOUSANDS)
March 31 December 31
1996 1995 1995
Commercial $ 5,679 $ 7,279 $ 6,326
Consumer:
Student loans 35,056 19,710 32,308
Credit card 3,171 5,054 5,118
Loan-by-check-risk tests 7,969 791 8,812
Loan-by-check other 3,617 619 2,424
Other consumer 2,366 3,010 2,068
Total consumer 52,179 29,184 50,730
Mortgage 6,953 5,509 9,200
Construction 388 947 115
Total $65,199 $42,919 $66,371
Accruing loans past due 90 days or more as to principal or interest payments
totaled $65.2 million, $42.9 million and $66.4 million as of March 31, 1996,
March 31, 1995 and December 31, 1995, respectively. The details of these past
due loans are displayed in Table 8. The past due commercial and real estate
loans were in the process of collection and were adequately collateralized. Past
due student loans accounted for $35.1 million, or 54%, of all past due loans. Of
the past due student loan balances, 95% were indirectly government guaranteed
and do not represent material loss exposure to Signet.
STOCKHOLDERS' EQUITY DATA
Stockholders' equity provides a source of permanent funding, allows for
future growth and assists the Company in withstanding unforeseen adverse
developments. At March 31, 1996, stockholders' equity totaled $855 million, an
increase of $84 million, or 11%, from the March 31, 1995 level of $771 million.
However, since December 31, 1995, stockholders' equity fell $9 million as the
unrealized gains and losses, net of tax, on securities available for sale
reduced equity by nearly $32 million in the first quarter of 1996. At March 31,
1996, the net unrealized gains, net of tax, related to securities available for
sale, totaled $13.3 million. The dividends declared during the first quarter of
1996 were $11.9 million or $0.20 per common share.
Table 9
SELECTED CAPITAL DATA
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
March 31 December 31
1996 1995 1995
<S> <C> <C> <C>
Qualifying common stockholders' equity $ 839,856 $ 769,995 $ 815,342
Less goodwill and other disallowed intangibles (57,208) (41,279) (58,881)
Total Tier I capital 782,648 728,716 756,461
Qualifying debt 113,734 165,200 114,534
Qaulifying allowance for loan losses 101,844 88,308 96,751
Total Tier II capital 215,578 253,508 211,285
Total risked-based capital $ 998,226 $ 982,244 $ 967,746
Total risk-adjusted assets $8,122,928 $7,001,209 $7,707,111
RATIOS:
Tier I capital 9.64% 10.41% 9.82%
Total risk-based capital 12.29 14.03 12.56
Tier I leverage 7.14 5.93 6.93
Tangible Tier I leverage 6.50 5.63 6.36
Common equity to assets 7.19 7.36 7.87
Common dividend payout ratio (year-to-date) 38.46 35.21 42.47
Book value per share $ 14.39 $ 13.15 $ 14.59
</TABLE>
19
<PAGE>
The Company's risk-based capital ratios at March 31, 1996 were 12.29% and
9.64% for Total Capital and Tier I Capital, respectively. Signet's leverage
ratio at March 31, 1996 was 7.14%. The decline in these capital ratios from
December 31, 1995 reflected the impact of higher asset levels at March 31, 1996
than at the prior year-end along with a decline in equity. The high asset level
at March 31, 1996 is temporary since it was primarily due to certain large
amounts due to and due from brokers related to purchases and sales of securities
available for sale.
CONSUMER LOAN GROWTH
In 1994, Signet expanded its use of information-based strategies to all
types of consumer loans, which significantly increased growth in this portfolio.
This technique involved generating a data base of potentially 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,"
whereby customers received a direct-mail solicitation and were offered
installment loans in the form of a check. To activate the loan, the customer
endorsed and deposited the check. Signet is also applying information-based
strategies 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. As a result of these solicitations,
loans grew at a strong pace. From March 31, 1995, to March 31, 1996, the
installment loan portfolio grew $496 million; the student loan portfolio
(including $300 million in student loans held for securitization) increased $170
million; and the home equity loan portfolio (including $460 million of
securitized loans) was up $59 million. In total, the managed consumer loan
portfolio increased $745 million, or 31%. The managed consumer loan portfolio is
composed of consumer loans, consumer loans held for sale, consumer loans held
for securitization and securitized consumer loans, less loans that may be sold
to Capital One in accordance with previously agreed upon terms of the spin-off.
Securitized consumer loans are not assets of the Company and, therefore, are not
shown on the balance sheet.
INTEREST RATE SENSITIVITY
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, 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 manage the Company's
interest rate risk.
ALCO, in managing interest rate sensitivity, also uses simulations to
measure the impact that market changes and alternative strategies might have on
net interest income. Current period maturity, 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 designed to limit the impact of a sudden 100 basis point change in
interest rates to no more than a 5% change in rate sensitive income over a
twelve month period.
During the first quarter of 1996, Signet's balance sheet was in a moderately
liability sensitive position. The Company has taken steps to limit its exposure
to rising interest rates through the use of derivative products. At March 31,
1996, the notional values of the Company's derivative products for the purpose
of managing interest rate risk were $2.8 billion of interest rate swaps, $650
million of interest rate floors and $300 million of interest rate caps.
Asset liquidity is generally provided by interest bearing deposits with
other banks, federal funds sold and securities purchased under agreements to
resell, securities available for sale, loans held for sale and trading account
securities. Liability liquidity is measured by the Company's ability to obtain
deposits and purchased funds at favorable rates and in adequate amounts and by
the length of maturities. Since core deposits are the most stable source of
liquidity a bank can have because they are government insured, the high level of
average core deposits during the first quarter of 1996 maintained the Company's
strong liquidity position. Signet's first quarter 1996 average loan balances
were entirely funded with core deposits. However approximately $462 million of
core deposits transferred to another financial institution in the first quarter
of 1996. These deposits were held on behalf of Capital One under terms of the
separation agreement. Signet's equity base, as noted earlier, also provides a
stable source of funding. The parent company has not recently relied on the
capital markets for funding.
For the first quarter of 1996, cash and cash equivalents increased $466
million. Cash provided by operating activities increased $497 million resulting
mainly from an increase in other liabilities. Cash used by investing activities
amounted to $499 million principally due to net purchases of securities
available for sale and an increase in loans. Cash provided by financing
activities amounted to $468 million due primarily to an increase in short-term
borrowings.
20
<PAGE>
SUPPLEMENTAL FINANCIAL DATA
SIGNET BANKING CORPORATION (EXCLUDING CAPITAL ONE)
On February 28, 1995, Signet Banking Corporation ("Signet") spun off Capital
One Financial Corporation. The supplemental financial data that follows portrays
Signet's financial position and results of operations on a PRO FORMA basis for
the first quarter of 1995 as if the spin-off had occurred prior to January 1,
1995.
SIGNET BANKING CORPORATION (EXCLUDING CAPITAL ONE)
SELECTED QUARTERLY FINANCIAL INFORMATION
(DOLLARS IN THOUSANDS-EXCEPT PER SHARE)
<TABLE>
<CAPTION>
1ST QTR 4th Qtr 3rd Qtr 2nd Qtr 1st Qtr
1996 1995 1995 1995 1995
<S> <C> <C> <C> <C> <C>
EARNINGS
Net interest income (taxable equivalent) $ 118,378 $ 117,443 $ 119,482 $ 120,401 $ 121,344
Net interest income 116,234 115,595 116,944 117,446 118,082
Net income 31,195 9,026 30,143 29,686 26,706
Net income excluding commercial fraud loss (1) 31,195 31,776 30,143 29,686 26,706
PER COMMON SHARE
Net income $ 0.52 $ 0.15 $ 0.50 $ 0.50 $ 0.45
Net income excluding commercial fraud loss (1) 0.52 0.53 0.50 0.50 0.45
Book value 14.39 14.59 14.27 13.90 13.15
AT PERIOD-END
Earning assets $10,372,978 $ 9,443,028 $ 9,911,356 $ 9,514,318 $ 9,337,761
Loans (net of unearned income) 5,794,051 5,416,028 5,509,437 5,684,427 5,647,599
Managed consumer loan portfolio 3,121,468 2,806,676 2,664,312 2,539,795 2,376,659
Core deposits 7,325,134 7,413,414 7,173,040 7,106,437 7,113,166
Number of common stockholders 15,176 15,166 15,134 15,259 15,374
Full-time employees 4,119 3,974 3,900 3,743 3,759
Part-time employees 954 1,021 1,049 1,133 1,029
RATIOS
Return on average assets (2) 1.13% 1.15% 1.11% 1.14% 1.06%
Return on average common stockholders' equity (2) 14.60 14.72 14.51 15.00 14.34
Efficiency ratio (excluding foreclosed prop. exp.) (2) 66.01 63.47 65.99 68.67 69.95
Net interest spread 4.32 4.16 4.32 4.50 4.83
Net yield margin 4.91 4.78 4.96 5.14 5.42
Stockholders' equity to assets 7.19 7.87 7.59 7.70 7.36
AVERAGE SHARES OUTSTANDING 60,356,655 60,230,489 60,145,919 59,668,541 59,162,565
CREDIT QUALITY DATA
Non-performing assets $ 47,203 $ 54,303 $ 51,504 $ 57,447 $ 41,597
Net charge-offs (3) 14,526 15,623 12,964 18,593 2,775
Allowance for loan losses to:
Non-performing loans 395.64% 337.05% 339.92% 297.24% 574.88%
Non-performing assets 267.85 238.85 251.77 237.60 364.76
Net loans 2.18 2.39 2.35 2.40 2.69
Non-performing assets to loans and
foreclosed properties 0.81 1.00 0.93 1.01 0.74
Net loan losses to average loans 1.04 1.12 0.89 1.27 0.19
</TABLE>
(1) The fourth quarter of 1995 included the $35.0 million commercial fraud loss.
(2) The fourth quarter 1995 return on average assets, return on average
stockholders' equity and efficiency ratio have been adjusted to exclude the
$35.0 million commercial fraud loss.
(3) The second quarter of 1995 included approximately $13.9 million of
charge-offs related to the sale of approximately $55.0 million of real
estate related loans for which there was sufficient allowance.
21
<PAGE>
QUARTER-END BALANCE SHEET TREND
(IN THOUSANDS)
<TABLE>
<CAPTION>
3/31/96 12/31/95 9/30/95 6/30/95 3/31/95
<S> <C> <C> <C> <C> <C>
ASSETS
Cash and due from banks $ 477,370 $ 599,113 $ 498,193 $ 529,205 $ 541,946
Interest bearing deposits with other banks 2,479 3,129 1,712 14,610 33,523
Federal funds sold and resale agreements 1,048,139 460,217 425,305 638,641 772,865
Trading account securities 487,206 478,723 464,950 439,737 490,266
Loans held for securitization 300,000 389,700 750,000 450,300 150,000
Loans held for sale 297,147 361,260 267,535 259,372 159,224
Securities available for sale 2,443,956 2,333,971 2,195,180 1,651,554 1,692,387
Investment securities 297,237 375,677 391,897
Loans
Consumer 2,086,519 1,751,274 1,776,434 2,116,882 2,229,957
Commercial 3,011,812 3,090,904 2,982,401 2,820,339 2,577,674
Real estate-construction 250,046 236,103 237,271 227,531 211,097
Real estate mortgage-commercial 359,445 366,698 406,102 433,701 505,717
Real estate mortgage-residential 232,322 122,584 248,145 224,433 225,477
Gross loans 5,940,144 5,567,563 5,650,353 5,822,886 5,749,922
Less: Unearned income (146,093) (151,535) (140,916) (138,459) (102,323)
Allowance for loan losses (126,433) (129,702) (129,672) (136,497) (151,729)
Net loans 5,667,618 5,286,326 5,379,765 5,547,930 5,495,870
Premises and equipment (net) 201,690 192,431 180,549 166,731 160,672
Interest receivable 106,094 104,437 98,000 90,190 75,082
Due from broker 299,645
Other assets 562,325 768,558 534,689 458,370 513,994
Total assets $11,893,669 $10,977,865 $11,093,115 $10,622,317 $10,477,726
LIABILITIES
Non-interest bearing deposits $ 1,713,563 $ 1,726,378 $ 1,603,922 $ 1,647,309 $ 1,533,797
Interest bearing deposits:
Money market and interest checking 179,609 1,102,140 1,064,412 1,038,959 1,023,532
Money market savings 2,405,436 1,338,985 1,337,665 1,319,829 1,382,105
Savings accounts 961,171 1,395,514 1,338,824 1,291,289 1,224,393
Savings certificates 2,065,355 1,850,397 1,828,217 1,809,051 1,949,339
Large denomination certificates 126,077 129,711 99,890 99,020 100,987
Foreign 291,382 49,846 80,318 96,084 183,337
Total interest bearing deposits 6,029,030 5,866,593 5,749,326 5,654,232 5,863,693
Total deposits 7,742,593 7,592,971 7,353,248 7,301,541 7,397,490
Securities sold under repurchase agreements 1,228,482 1,124,105 1,153,479 1,229,433 1,202,629
Federal funds purchased 1,002,344 780,193 1,285,918 816,946 521,295
Other short-term borrowings 105,408
Long-term borrowings 252,974 253,033 253,129 253,222 253,550
Interest payable 24,873 19,460 23,455 18,030 26,047
Due to broker 600,812
Other liabilities 186,938 344,154 181,514 185,140 199,831
Total liabilities 11,039,016 10,113,916 10,250,743 9,804,312 9,706,250
STOCKHOLDERS' EQUITY
Common stock 296,936 296,044 295,244 294,175 293,298
Capital surplus 202,513 200,093 197,911 195,899 193,986
Retained earnings 355,204 367,812 349,217 327,931 284,192
Total stockholders' equity 854,653 863,949 842,372 818,005 771,476
Total liabilities and
stockholders' equity $11,893,669 $10,977,865 $11,093,115 $10,622,317 $10,477,726
</TABLE>
22
<PAGE>
QUARTERLY INCOME TREND (EXCLUDING CAPITAL ONE)
(IN THOUSANDS)
<TABLE>
<CAPTION>
Three Months Ended
3/31/96 12/31/95 9/30/95 6/30/95 3/31/95
<S> <C> <C> <C> <C> <C>
Interest income:
Loans, including fees:
Consumer $ 53,062 $ 52,026 $ 60,296 $ 62,068 $ 70,095
Commercial 55,352 56,128 53,703 50,358 46,365
Real estate-construction 6,062 6,402 6,080 5,628 5,152
Real estate-commercial mortgage 8,150 8,856 9,358 11,276 12,131
Real estate-residential mortgage 3,204 5,628 5,011 5,074 4,279
Total loans, including fees 125,830 129,040 134,448 134,404 138,022
Interest bearing deposits with other banks 154 102 127 358 1,316
Federal funds sold and resale agreements 8,188 8,025 7,166 8,232 12,029
Trading account securities 8,122 7,736 7,410 8,936 6,718
Loans held for securitization 7,419 14,262 11,561 6,420 73
Loans held for sale 10,086 8,635 7,785 5,858 1,479
Securities available for sale 41,783 35,442 31,963 31,342 26,512
Investment securities-taxable 2,797 4,190 4,257 3,811
Investment securities-nontaxable 950 2,093 2,928 3,139
Total interest income 201,582 206,989 206,743 202,735 193,099
Interest expense:
Money market and interest checking 4,451 6,516 6,794 6,939 6,141
Money market savings 13,629 12,161 11,873 11,704 11,958
Savings accounts 11,495 13,426 12,785 11,800 10,727
Savings certificates 22,535 21,381 22,070 20,747 17,147
Large denomination certificates 1,525 1,451 1,332 1,186 1,529
Foreign 1,279 1,138 1,721 2,235 1,253
Total interest on deposits 54,914 56,073 56,575 54,611 48,755
Securities sold under repurchase agreements 14,511 16,343 14,689 13,880 11,732
Federal funds purchased 11,809 14,874 14,211 12,266 7,295
Other short-term borrowings 413 2,761
Long-term borrowings 4,114 4,104 4,324 4,119 4,474
Total interest expense 85,348 91,394 89,799 85,289 75,017
Net interest income 116,234 115,595 116,944 117,446 118,082
Provision for loan losses 11,257 18,604 8,681 4,250 3,251
Net interest income after provision for loan losses 104,977 96,991 108,263 113,196 114,831
Non-interest income:
Service charges on deposit accounts 16,231 16,816 17,732 17,212 16,471
Consumer loan servicing and service charge income 12,156 6,468 2,511 1,633 2,551
Trust and other financial services income 9,605 9,460 8,679 7,104 7,096
Gain on securitization of loans 9,562
Other 19,432 25,360 17,441 16,743 10,941
Non-interest operating income 57,424 67,666 46,363 42,692 37,059
Securities available for sale gains 592 20 166 244 102
Investment securities gains 434 565 3 255
Total non-interest income 58,016 68,120 47,094 42,939 37,416
Non-interest expense:
Salaries 48,700 48,932 45,792 43,668 42,638
Employee benefits 12,401 7,723 10,517 12,076 13,698
Occupancy 10,194 9,572 9,635 9,434 9,843
Supplies and equipment 9,605 9,513 9,384 8,715 8,558
External data processing services 7,146 7,289 6,868 6,748 6,210
Travel and communications 5,920 7,208 6,138 5,604 5,594
Commercial fraud loss 35,000
Other 21,649 26,954 21,173 25,199 24,837
Total non-interest expense 115,615 152,191 109,507 111,444 111,378
Income before income taxes 47,378 12,920 45,850 44,691 40,869
Applicable income taxes 16,183 3,894 15,707 15,005 14,163
Net income $ 31,195 $ 9,026 $ 30,143 $ 29,686 $ 26,706
</TABLE>
23
<PAGE>
QUARTERLY AVERAGE BALANCE SHEET TREND (EXCLUDING CAPITAL ONE)
(IN THOUSANDS)
<TABLE>
<CAPTION>
Three Months Ended
3/31/96 12/31/95 9/30/95 6/30/95 3/31/95
<S> <C> <C> <C> <C> <C>
ASSETS
Earning assets
Interest bearing deposits with other banks $ 12,633 $ 7,077 $ 8,136 $ 22,799 $ 89,749
Federal funds sold and resale agreements 591,396 538,752 469,512 532,922 812,447
Trading account securities 506,040 469,665 464,254 553,080 418,011
Loans held for securitization 330,557 623,801 425,543 153,300 1,667
Loans held for sale 389,569 369,802 312,734 234,107 94,718
Securities available for sale 2,309,330 1,932,161 1,712,148 1,679,836 1,494,844
Investment securities-taxable 154,857 230,852 235,514 214,027
Investment securities-nontaxable 50,812 106,860 146,867 157,609
Loans (net of unearned income)
Consumer 1,906,768 1,824,487 2,182,724 2,349,345 2,505,854
Commercial 2,892,389 2,863,087 2,747,241 2,553,554 2,362,850
Real estate-construction 245,237 242,094 230,364 217,685 207,805
Real estate mortgage-commercial 357,989 387,273 423,622 480,112 520,340
Real estate mortgage-residential 164,087 281,250 241,066 236,107 204,888
Total loans 5,566,470 5,598,191 5,825,017 5,836,803 5,801,737
Total earning assets 9,705,995 9,745,118 9,555,056 9,395,228 9,084,809
Non-rate related assets:
Cash and due from banks 529,040 543,776 533,901 509,633 503,217
Allowance for loan losses (128,503) (125,658) (133,144) (144,407) (151,757)
Premises and equipment (net) 196,314 188,689 174,691 164,536 160,217
Other assets 764,784 630,085 625,258 561,476 598,458
Total assets $11,067,630 $10,982,010 $10,755,762 $10,486,466 $10,194,944
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest bearing liabilities
Deposits:
Money market and interest checking $ 723,470 $ 1,050,321 $ 1,037,342 $ 1,031,701 $ 1,014,201
Money market savings 1,751,103 1,356,002 1,341,762 1,346,920 1,402,102
Savings accounts 1,248,406 1,372,400 1,315,832 1,255,593 1,188,584
Savings certificates 1,949,398 1,800,643 1,791,296 1,876,689 1,943,788
Large denomination certificates 111,194 104,933 100,367 92,660 123,864
Foreign 93,435 77,306 116,204 146,829 83,737
Total interest bearing deposits 5,877,006 5,761,605 5,702,803 5,750,392 5,756,276
Federal funds and repurchase agreements 2,205,733 2,338,713 2,201,617 1,950,959 1,512,558
Other short-term borrowings 30,098 195,275
Long-term borrowings 252,991 253,085 253,174 253,427 253,596
Total interest bearing liabilities 8,335,730 8,353,403 8,157,594 7,984,876 7,717,705
Non-interest bearing liabilities
Demand deposits 1,674,258 1,584,375 1,557,185 1,497,770 1,515,423
Other liabilities 198,254 188,036 216,792 210,092 206,520
Common stockholders' equity 859,388 856,196 824,191 793,728 755,296
Total liabilities and stockholders' equity $11,067,630 $10,982,010 $10,755,762 $10,486,466 $10,194,944
</TABLE>
24
<PAGE>
IMPACT OF CONSUMER LOAN SECURITIZATIONS (EXCLUDING CAPITAL ONE)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1ST QTR 4th Qtr 3rd Qtr 2nd Qtr 1st Qtr
1996 1995 1995 1995 1995
<S> <C> <C> <C> <C> <C>
STATEMENT OF INCOME
Net interest income $ 116,234 $ 115,595 $ 116,944 $ 117,446 $ 118,082
Provision for loan losses 11,257 18,604 8,681 4,250 3,251
Non-interest income 58,016 68,120 47,094 42,939 37,416
Non-interest expense 115,615 152,191 109,507 111,444 111,378
Income before income taxes $ 47,378 $ 12,920 $ 45,850 $ 44,691 $ 40,869
ADJUSTMENTS FOR SECURITIZATIONS
Net interest income $ 11,072 $ 7,071 $ 5,889 $ 7,857 $ 10,917
Provision for loan losses 2,011 1,876 2,314 3,205 4,314
Non-interest income (9,061) (14,757) (3,575) (4,652) (6,603)
Non-interest expense
Increase (decrease) to income before
income taxes $ 0 $ (9,562) $ 0 $ 0 $ 0
ADJUSTMENTS FOR LOANS THAT MAY BE SOLD
TO CAPITAL ONE
Net interest income $ (2,724) $ (2,951) $ (2,632) $ (2,218) $ (1,758)
Provision for loan losses 0 (3,957) (4,352) (4,618) (5,595)
Non-interest income 2,724 (1,006) (1,720) (2,400) (3,837)
Non-interest expense
Increase (decrease) to income before
income taxes $ 0 $ 0 $ 0 $ 0 $ 0
MANAGED STATEMENT OF INCOME (ADJUSTED)
Net interest income $ 124,582 $ 119,715 $ 120,201 $ 123,085 $ 127,241
Provision for loan losses 13,268 16,523 6,643 2,837 1,970
Non-interest income 51,679 52,357 41,799 35,887 26,976
Non-interest expense 115,615 152,191 109,507 111,444 111,378
Income before income taxes $ 47,378 $ 3,358 $ 45,850 $ 44,691 $ 40,869
As reported (EXCLUDING CAPITAL ONE):
Average earning assets $ 9,705,995 $9,745,118 $9,555,056 $9,395,228 $9,084,809
Return on assets 1.13% 0.33% 1.11% 1.14% 1.06%
Net yield margin 4.91 4.78 4.96 5.14 5.42
On a managed basis:
Average earning assets $10,187,961 $9,809,244 $9,375,586 $9,237,284 $8,921,666
Return on assets 1.09% 0.10% 1.13% 1.15% 1.08%
Net yield margin 5.00 4.92 5.19 5.47 5.93
Yield on managed consumer loan portfolio 11.21% 10.85% 10.86% 10.88% 11.04%
</TABLE>
25
<PAGE>
MANAGED CONSUMER LOAN PORTFOLIO (EXCLUDING CAPITAL ONE)
(IN THOUSANDS)
<TABLE>
<CAPTION>
Three Months Ended
MARCH 31 December 31 September 30 June 30 March 31
1996 1995 1995 1995 1995
<S> <C> <C> <C> <C> <C>
AVERAGE BALANCES:
Student loans $ 746,038 $ 683,704 $ 645,145 $ 922,956 $ 889,679
Installment loans 921,869 773,134 730,186 651,052 634,387
Home equity loans 101,404 87,915 525,232 519,498 516,265
Credit card 73,166 218,933 195,115 160,381 366,453
Other loans 64,291 60,801 87,046 95,458 99,070
Sub-total average consumer loan portfolio 1,906,768 1,824,487 2,182,724 2,349,345 2,505,854
Consumer loans held for sale 231,968 196,296 163,082 133,163 1,131
Credit card loans held for securitization 30,557 975 120,652 150,003 1,667
Home equity loans held for securitization 322,826 4,891
Student loans held for securitization 300,000 300,000 300,000 3,297
Total average on-balance sheet portfolio 2,469,293 2,644,584 2,771,349 2,635,808 2,508,652
Securitized consumer loans 713,934 370,180 195,390 266,493 374,583
Less loans that may be sold to Capital One (231,968) (306,054) (374,960) (424,437) (537,726)
Total average managed consumer loan portfolio $2,951,259 $2,708,710 $2,591,779 $2,477,864 $2,345,509
PERIOD-END BALANCES:
Student loans $ 776,663 $ 709,583 $ 675,348 $ 636,925 $ 906,271
Installment loans 1,072,831 810,999 753,631 693,517 577,330
Home equity loans 111,579 87,348 89,843 524,625 512,175
Credit card 64,261 81,532 197,419 167,792 136,782
Other loans 61,185 61,812 60,193 94,023 97,399
Sub-total period-end consumer loan portfolio 2,086,519 1,751,274 1,776,434 2,116,882 2,229,957
Consumer loans held for sale 215,961 240,902 165,205 157,289 101,857
Credit card loans held for securitization 89,700 150,300 150,000
Home equity loans held for securitization 450,000
Student loans held for securitization 300,000 300,000 300,000 300,000
Total period-end on-balance sheet portfolio 2,602,480 2,381,876 2,691,639 2,724,471 2,481,814
Securitized consumer loans 734,949 665,702 290,833 213,331 320,833
Less loans that may be sold to Capital One (215,961) (240,902) (318,160) (398,007) (425,988)
Total period-end managed consumer loan portfolio $3,121,468 $2,806,676 $2,664,312 $2,539,795 $2,376,659
</TABLE>
Note: On March 31, 1995, Signet transferred $110 million of credit card loans to
Capital One in accordance with previously agreed upon terms of the
spin-off. Signet securitized $185 million of credit card loans and $481
million of home equity loans in September and December of 1995,
respectively. In February, 1996, Signet securitized an additional $90
million of credit card loans.
26
<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:
The Registrant filed a Current Report on Form 8-K, dated March 19, 1996,
reporting that it was the victim of fraudulent commercial loan transactions
amounting to approximately $81 million.
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 thereunto duly authorized.
SIGNET BANKING CORPORATION
(Registrant)
Date: May 8, 1996 /s/ David L. Brantley
David L. Brantley
Executive Vice President and Treasurer
Date: May 8, 1996 /s/ W. H. Catlett, Jr.
W. H. Catlett, Jr.
Executive Vice President and Controller
(Principal Accounting Officer)
27
EXHIBIT 11 - COMPUTATION OF EARNINGS PER SHARE
(DOLLARS IN THOUSANDS-EXCEPT PER SHARE)
<TABLE>
<CAPTION>
Three Months Ended March 31
<S> <C> <C>
Common and common equivalent:
Average shares outstanding 59,295,073 58,589,048
Dilutive stock options-based on the treasury stock
method using average market price 1,051,629 511,009
Shares used 60,346,702 59,100,057
Net income applicable to Common Stock $ 31,195 $ 42,225
Per share amount $ 0.52 $ 0.71
Assuming full dilution:
Average shares outstanding 59,295,073 58,589,048
Dilutive stock options-based on the treasury stock
method using the period end market price, if higher
than the average market price 1,061,582 573,517
Shares used 60,356,655 59,162,565
Net income applicable to Common Stock $ 31,195 $ 42,225
Per share amount $ 0.52 $ 0.71
</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.
28
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 477,370
<INT-BEARING-DEPOSITS> 2,479
<FED-FUNDS-SOLD> 1,048,139
<TRADING-ASSETS> 487,206
<INVESTMENTS-HELD-FOR-SALE> 297,147
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 5,940,144
<ALLOWANCE> (126,433)
<TOTAL-ASSETS> 11,893,669
<DEPOSITS> 7,742,593
<SHORT-TERM> 2,230,826
<LIABILITIES-OTHER> 812,623
<LONG-TERM> 252,974
0
0
<COMMON> 296,936
<OTHER-SE> 557,717
<TOTAL-LIABILITIES-AND-EQUITY> 11,893,669
<INTEREST-LOAN> 125,830
<INTEREST-INVEST> 0
<INTEREST-OTHER> 75,752
<INTEREST-TOTAL> 201,582
<INTEREST-DEPOSIT> 54,914
<INTEREST-EXPENSE> 85,348
<INTEREST-INCOME-NET> 116,234
<LOAN-LOSSES> 11,257
<SECURITIES-GAINS> 592
<EXPENSE-OTHER> 115,615
<INCOME-PRETAX> 47,378
<INCOME-PRE-EXTRAORDINARY> 47,378
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 31,195
<EPS-PRIMARY> 0.52
<EPS-DILUTED> 0.52
<YIELD-ACTUAL> 4.91
<LOANS-NON> 47,203
<LOANS-PAST> 65,199
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 129,702
<CHARGE-OFFS> 15,604
<RECOVERIES> 1,078
<ALLOWANCE-CLOSE> 126,433
<ALLOWANCE-DOMESTIC> 126,433
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 2,161
</TABLE>
