SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
[ X ] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 (Fee Required). For the fiscal year ended December 31, 1995
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 (No Fee Required).
For the transition period from ____________ to ____________.
Commission File No. 1-6505
SIGNET BANKING CORPORATION
(Exact name of registrant as specified in its charter)
Virginia 54-6037910
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) Number)
7 North Eighth Street 23219
Richmond, Virginia (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code: (804) 747-2000
Securities registered pursuant to Section 12(b) of the Act:
Common Stock, $5 Par Value New York Stock Exchange
Rights to Purchase Series A
Junior Participating Preferred
Stock, $20 par value New York Stock Exchange
(Title of each class) (Name of each exchange on which
registered)
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days.
Yes X No
<PAGE>
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the voting stock held by nonaffiliates of the
registrant as of February 29, 1996: *
Common Stock, $5 Par Value - $1,458,457,780
The number of shares outstanding of each of the registrant's classes of common
stock as of February 29, 1996:
Common Stock, $5 Par Value - 59,364,665
* In determining this figure, the Registrant has assumed that the executive
officers of the Registrant, the Registrant's directors, and persons known to
the Registrant to be the beneficial owners of more than five percent of the
Registrant's Common Stock, that directly or indirectly control the
Registrant, are affiliates. Such assumption shall not be deemed to be
conclusive for any other purpose.
DOCUMENTS INCORPORATED BY REFERENCE
1. Portions of the annual report to shareholders for the year ended December 31,
1995 are incorporated by reference into Parts I, II and IV.
2. Portions of the proxy statement for the annual shareholders' meeting to be
held on May 28, 1996 are incorporated by reference into Part III.
<PAGE>
PART I
ITEM 1. BUSINESS.
GENERAL
The Registrant is a registered bank holding company, incorporated in
Virginia in 1962, and had consolidated assets of $11.0 billion as of December
31, 1995. On the basis of total assets and deposits at December 31, 1995, the
Registrant is the second largest banking organization headquartered in Virginia
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 Washington, D.C. The Company is in the process of merging
Signet Bank N. A. into Signet Bank and expects to complete the merger of the two
banks during 1996.
On November 22, 1994, Signet transferred certain designated assets and
liabilities of Signet Bank's credit card division 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
Financial Corporation ("Capital One"), a wholly-owned subsidiary of Signet (the
"Separation"). As part of the Separation, Signet Bank retained a small portfolio
of in-market credit card loans. At the same time 7,125,000 shares of common
stock of Capital One were sold in an initial public offering. Signet distributed
all of the remaining 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 that time. The spin-off
created two independent financial institutions, each possessing separate
long-term business strategies.
The Registrant is engaged in general commercial and consumer banking
businesses through its principal bank subsidiaries, which are members of the
Federal Reserve System. Signet Bank and Signet Bank N.A. provide financial
services through banking offices located throughout Virginia, Maryland and
Washington, D.C and a 24-hour full-service Telephone Banking Center. Signet Bank
owns a commercial bank operating in the Bahamas. International banking
operations are conducted through a foreign branch of Signet Bank. Service
subsidiaries are engaged in writing insurance in connection with the lending
activities of the banks and bank-related subsidiaries and owning real estate for
banking premises. Other subsidiaries are engaged in trust operations, various
kinds of lending and leasing activities, insurance agency activities, mortgage
lending and broker and dealer activities relating to certain phases of the
domestic securities business.
As of December 31, 1995, the Registrant and its subsidiaries employed
3,974 full-time and 1,021 part-time employees.
DOMESTIC BANKING OPERATIONS
Signet Bank, incorporated under the laws of Virginia, had assets of
$10.6 billion at December 31, 1995. Signet Bank N.A., incorporated under the
laws of the United States, had assets of $655 million at December 31, 1995.
Signet Bank and Signet Bank N.A. provide all customary banking services to
businesses and individuals.
DOMESTIC TRUST OPERATIONS
Trust operations are administered by Signet Trust Company, a subsidiary
of the Registrant which presently operates four offices in Virginia, one office
in Maryland and one office in Washington, D.C.
INTERNATIONAL BANKING OPERATIONS
International banking operations are conducted through Signet Bank's
international division and through Signet Bank (Bahamas), Ltd., a subsidiary of
Signet Bank. Signet Bank also conducts international banking operations through
a foreign branch located in the Bahamas.
International banking is subject to special risks such as exchange
controls and other regulatory or political policies of governments, both foreign
and domestic. Currency devaluation is an additional risk of international
banking; however, substantially all of the Registrant's international assets are
repayable in U.S.
dollars.
DOMESTIC BANK-RELATED ACTIVITIES
Signet Commercial Credit Corporation, a wholly-owned subsidiary of the
Registrant, is engaged in bank-related activities in the United States. It makes
loans that are often secured by inventory, accounts receivable or like security
and are generally structured on a revolving basis.
Signet Insurance Services, Inc. and Signet Insurance Services,
Inc./Maryland, wholly-owned subsidiaries of the Registrant, provide, as
agents, a full line of life and property/casualty insurance coverage for
both individuals and business enterprises.
Signet Mortgage Corporation, a wholly-owned subsidiary of Signet Bank,
engages in the business of originating, servicing, and selling mortgage loans.
Signet Leasing and Financial Corporation, a wholly-owned subsidiary of
Signet Bank, engages in diversified equipment lease financing activities
(excluding passenger automobiles) for commercial customers on a national basis.
Signet Business Leasing Corporation, a wholly-owned subsidiary of
Signet Bank, engages in small ticket lease financing, primarily targeting small
businesses on a national basis.
Signet Financial Services, Inc., a wholly-owned subsidiary of the
Registrant, acts as a broker and dealer in certain phases of the domestic
securities business.
Virtus Capital Management, Inc. a wholly-owned subsidiary of
the Registrant, acts as investment manager of various registered
open-end management investment companies, mutual funds, etc.
COMPETITION
The Registrant is subject to substantial competition in all phases of
its business. Its banks compete not only with other commercial banks but with
other financial institutions, including brokerage firms, credit card banks,
savings and loan associations and savings banks, credit unions, consumer loan
companies, finance companies, insurance companies and certain governmental
agencies, many of which are substantially larger than the Registrant. The
Registrant's non-banking subsidiaries also operate in highly competitive fields
and compete with organizations substantially larger than themselves.
See "Regulation" below for a discussion of legislation which has
increased competition in the markets served by the Registrant.
Government Policy
The earnings of the Registrant are affected not only by general
economic conditions but also by the policies of various governmental regulatory
authorities. In particular, the Federal Reserve System regulates money and
credit conditions in order to influence general economic conditions, primarily
through open market transactions in U.S. Government securities, varying the
discount rate on member bank borrowings and setting reserve requirements against
member bank deposits. These policies have a significant influence on overall
growth and distribution of bank loans, investments and deposits, and affect
interest rates charged on loans or paid for time and savings deposits. Federal
Reserve monetary policies have had a significant effect on the operating results
of commercial banks in the past and are expected to continue to do so in the
future. The Registrant cannot accurately predict the effect such policies may
have in the future on its business and earnings.
<PAGE>
CAPITAL GUIDELINES
The Board of Governors of the Federal Reserve System (the "Federal
Reserve Board") has adopted risk-based capital guidelines for bank holding
companies. The minimum guidelines for the ratio of capital to risk-weighted
assets (including certain off-balance-sheet activities, such as standby letters
of credit) is 8 percent. At least half of the total capital must be composed of
common equity, retained earnings and qualifying perpetual preferred stock less
disallowed intangibles, including goodwill ("Tier I capital"). The remainder may
consist of qualifying subordinated debt, other preferred stock and a limited
amount of the loan loss allowance. At December 31, 1995, the Registrant's Tier I
and total capital ratios were 9.82 percent and 12.56 percent, respectively.
In addition, the Federal Reserve Board has established minimum leverage
ratio guidelines for bank holding companies. These guidelines provide for a
minimum leverage ratio of Tier I capital to adjusted average quarterly assets
equal to 3 percent for bank holding companies that meet certain specified
criteria, including that they have the highest regulatory rating. All other bank
holding companies are generally required to maintain a leverage ratio of 3
percent plus an additional cushion of at least 100 to 200 basis points. The
Registrant's leverage ratio at December 31, 1995 was 6.93 percent. The
guidelines also provide that bank holding companies experiencing internal growth
or making acquisitions will be expected to maintain strong capital positions
substantially above the minimum supervisory levels without significant reliance
on intangible assets. Furthermore, the Federal Reserve Board has indicated that
it will continue to consider a "tangible Tier I leverage ratio" (deducting all
intangibles) in evaluating proposals for expansion or new activities.
Each of the Registrant's subsidiary banks is subject to similar capital
requirements adopted by the appropriate federal bank regulator. Following are
the capital ratios for the Company's two principal bank subsidiaries at December
31, 1995:
Ratio Signet Bank Signet Bank N.A.
- ----------------------------------------------------------
Tier I 8.35% 32.80%
Total Capital 10.97 34.06
Leverage 5.88 10.90
Failure to meet capital guidelines could subject a national or state
member bank to a variety of enforcement remedies, including the termination of
deposit insurance by the FDIC and a prohibition on the taking of brokered
deposits.
Bank regulators continue to indicate their desire to raise capital
requirements applicable to banking organizations beyond current levels. However,
management is unable to predict whether and when higher capital requirements
would be imposed and, if so, at what levels and on what schedule. For further
discussion, refer to the portions of Signet's 1995 Annual Report to Shareholders
incorporated by reference herein (Exhibit 13.1).
SUPERVISION
Signet Bank is regularly examined by the Federal Reserve Board
and by the Bureau of Financial Institutions of the Virginia State
Corporation Commission and the Maryland Bank Commissioner. Signet Bank
N.A. is subject to regulation, supervision and examination by the Office
of the Comptroller of the Currency. Both banking subsidiaries are
subject to regulation and examination by the Federal Deposit Insurance
Corporation. The Registrant is also subject to examination by the
Federal Reserve Board.
The Registrant's non-banking subsidiaries are supervised by the
Federal Reserve Board. In addition, Signet Insurance Services, Inc. and
Signet Insurance Services, Inc./Maryland are subject to insurance laws
and regulations of Virginia and Maryland, respectively, and the
activities of Signet Financial Services, Inc. and Virtus Capital
Management, Inc. are regulated by the Securities and Exchange
Commission, the National Association of Securities Dealers, Inc. and
state securities laws.
<PAGE>
REGULATION
The Registrant is registered under the Bank Holding Company Act of
1956, as amended (the "BHC Act"). The BHC Act restricts the activities of the
Registrant and requires prior approval of the Federal Reserve Board of any
acquisition by the Registrant of more than 5% of the voting shares of any bank
or bank holding company, any acquisition of all or substantially all of the
assets of a bank and any merger or consolidation with another bank holding
company. Under the BHC Act, as amended by the Riegle Neal Interstate Banking and
Branching Efficiency Act, the Registrant may acquire other banks located outside
of Virginia and may merge subsidiary banks with out of state banks where such
mergers are specifically authorized by statute in the state where the bank is
located. (See the discussion of interstate banking legislation below.) The BHC
Act also prohibits the Registrant from engaging in any business in the United
States other than that of managing or controlling banks or businesses closely
related to banking, or of furnishing services to or performing services for
subsidiaries and, with certain limited exceptions, from acquiring more than 5%
of the voting shares of any company. The Federal Reserve Board generally follows
a restrictive policy in permitting the entry of bank holding companies and other
bank affiliates into domestic and foreign bank-related activities. Further,
under Section 106 of the 1970 Amendments to the BHC Act and the Federal Reserve
Board's regulations, a bank holding company and its subsidiaries are prohibited
from engaging in certain tie-in arrangements in connection with any extension of
credit or provision of any property or service. Federal law imposes limitations
on the ability of the Registrant and its subsidiaries to engage in certain
phases of the domestic securities business.
The Registrant is a bank holding company and is a legal entity separate
and distinct from its banking and other subsidiaries. The principal sources of
the Registrant's revenues are interest income derived from loans to and deposits
in subsidiaries and dividends the Registrant receives from its subsidiaries. The
right of the Registrant to participate as a shareholder in any distribution of
assets of any subsidiary upon its liquidation or reorganization or otherwise is
subject to the prior claims of creditors of any such subsidiary. Signet Bank and
Signet Bank N.A. are subject to claims by creditors for long-term and short-term
debt obligations, including substantial obligations for federal funds purchased
and securities sold under repurchase agreements, as well as deposit liabilities.
There is also a number of federal and state legal limitations to the extent to
which Signet Bank and Signet N.A. may pay dividends or otherwise supply funds to
the Registrant or its affiliates. The prior approval of the appropriate federal
bank regulator is required if the total of all dividends declared by a national
bank or state member bank in any calendar year will exceed the sum of such
bank's net profits, as defined by the regulators, for the year plus the
preceding two calendar years. In addition, a dividend may not be paid in excess
of a bank's undivided profits then on hand, after deducting losses and bad debts
in excess of the allowance for loan and lease losses. The payment of dividends
by the Registrant and its banking subsidiaries may also be affected or limited
by other factors, such as the requirement to maintain adequate capital above
regulatory minimums. In addition, the appropriate federal regulatory authority
is authorized to determine under certain circumstances relating to the financial
condition of a national bank, a state member bank or a bank holding company that
the payment of dividends would be an unsafe or unsound practice and to prohibit
payment thereof. The payment of dividends that deplete a bank's capital base
could be deemed to constitute such an unsafe or unsound practice. The Federal
Reserve Board and the Office of the Comptroller of the Currency have each
indicated that banking organizations should generally pay dividends only out of
current operating earnings. Under applicable regulatory restrictions, both of
the Registrant's banking subsidiaries were able to pay dividends as of January
1, 1995.
Under federal law, Signet Bank and Signet Bank N.A. may not, subject to
certain limited exceptions, make loans or extensions of credit to, or
investments in the securities of, the Registrant or any non-bank subsidiary, or
take their securities as collateral for loans to any borrower. In addition,
federal law requires that certain transactions between Signet Bank, Signet Bank
N.A. and their affiliates, including sales of assets and furnishing of services,
must be on terms that are at least as favorable to the banks as those prevailing
in transactions with independent third parties.
Signet Bank and Signet Bank N.A. are subject to various statutes and
regulations relating to required reserves, investments, loans, acquisitions of
fixed assets, interest rates payable on deposits, requirements for meeting
community credit needs, transactions among affiliates and the Registrant,
mergers and consolidations, and other aspects of their operations.
On July 1, 1994, legislation became effective which permits
out-of-state bank holding companies, that do not already have a Virginia bank
subsidiary, to acquire Virginia banking institutions if the laws of the
out-of-state bank holding company's home state permit acquisitions of banking
institutions in that state by Virginia bank holding companies under the same
conditions.
On September 29, 1994, the federal Riegle-Neal Interstate Banking and
Branching Efficiency Act (the "Riegle Act") became law. Under the Riegle Act,
effective September 30, 1995, the Federal Reserve may approve bank holding
company acquisition of banks in other states, subject to certain aging and
deposit concentration limits. Commencing June 1, 1997 (or earlier if a
particular state chooses), banks in one state may merge with banks in another
state, unless the other state has chosen not to implement this section of the
Riegle Act. These mergers are also subject to similar aging and deposit
concentration limits.
On February 23, 1995, the Virginia General Assembly passed legislation,
effective July 1, 1995, which permits Virginia banks to merge with out-of-state
banks, and out-of-state banks resulting from such an interstate merger
transaction to maintain and operate branches in Virginia of a merged Virginia
bank, if the laws of the home state of such out-of-state bank permit interstate
merger transactions. In addition, effective July 1, 1995, Virginia banks are
permitted to establish de novo branches in other states, and out-of-state banks
are permitted to establish de novo branches in Virginia, if the laws of the home
state of such out-of-state bank permit Virginia banks to establish de novo
branches in that state.
Effective September 29, 1995, out of state banks may enter Maryland by
acquiring single branches or other parts of Maryland banks, by de novo branching
and through mergers with or acquisitions of other banks. An out of state bank
may not acquire an existing branch before June 1, 1997, unless the laws of that
bank's home state would permit a Maryland bank to establish a branch in that
state under similar conditions.
Maryland law allows statewide branching, subject to regulatory
approval. Virginia law provides that a bank may establish new branches, subject
to regulatory approval, anywhere in the state and, effective July 1, 1995, in
other states with branching reciprocity. District of Columbia law allows
branching by District of Columbia banks within the District, subject to
regulatory approval.
The Financial Institutions Reform, Recovery, and Enforcement Act of
1989 ("FIRREA"), contains a number of provisions which directly or indirectly
affect the activities of federally insured national and state-chartered
commercial banks.
FIRREA made a number of important changes in the deposit insurance
system. FIRREA established separate insurance funds for banks (the Bank
Insurance Fund ("BIF")) and savings associations (the Savings Association
Insurance Fund) to be managed by the Federal Deposit Insurance Corporation (the
"FDIC"). All national and state-chartered commercial banks that were insured by
the FDIC at the time of the enactment of FIRREA were automatically insured by
BIF.
FIRREA allows the FDIC to recover from a depository institution for any
loss or anticipated loss to the FDIC that results from the default of a commonly
controlled insured depository institution or from assistance provided to such an
institution. Signet Bank and Signet Bank N.A. are commonly controlled by the
Registrant, for purposes of this provision. The FDIC's claim for loss
reimbursement under the "cross-guaranty" provisions is superior to any claims of
shareholders of the liable institution or any claims of affiliates of such
institution (other than claims on secured debt that existed as of May 1, 1989).
The FDIC's claim is subordinate to the claims of depositors, third party secured
creditors, senior and general creditors and holders of subordinated debt other
than affiliates.
FIRREA gives the Federal Reserve Board specific authority to permit the
acquisition of healthy, as well as failing, savings associations by a bank
holding company under the BHC Act.
FIRREA enhances the enforcement powers of the federal banking
regulators, increases the penalties for violations of law and substantially
revises and codifies the powers of receivers and conservators of depository
institutions. The receivership and conservatorship provisions of FIRREA include
a statutory claims procedure and provisions which confirm the powers of the FDIC
to obtain a stay of pending litigation and to repudiate certain contracts or
leases. The Crime Control Act of 1990, also contains a number of provisions
which enhance the enforcement powers of the federal banking regulators and
increase the penalties for violations of law.
Under the National Bank Act, if the capital stock of a national bank,
such as Signet Bank N.A., is impaired by losses or otherwise, the Office of the
Comptroller of the Currency is authorized to require payment of the deficiency
by assessment upon the bank's shareholders, prorata, and to the extent
necessary, if any such assessment is not paid by any shareholder after three
months notice, to sell the stock of such shareholder to make good the
deficiency. Under Federal Reserve Board policy, the Registrant is expected to
act as a source of financial strength to each of its subsidiary banks and to
commit resources to support each of such subsidiaries. This support may be
required at times when, absent such Federal Reserve Board policy, the Registrant
may not find itself able to provide it.
The Registrant's subsidiary banks are subject to FDIC deposit insurance
assessments. FIRREA requires that the FDIC reach an insurance fund reserve for
the BIF of $1.25 for every $100 of insured deposits. If the reserve ratio of the
BIF is less than the designated reserve ratio, the FDIC is required to set
assessment rates sufficient to increase the ratio to the required ratio, and is
authorized to impose special additional assessments. A significant increase in
the assessment could have an adverse impact on the Registrant's results of
operations. See discussion below under Federal Deposit Insurance Corporation
Improvement Act of 1991 ("FDICIA"), for further information on the risk-based
insurance assessment system adopted by the FDIC.
In December 1991, FDICIA was enacted. FDICIA substantially revises the
bank regulatory and funding provisions of the Federal Deposit Insurance Act and
makes revisions to several other federal banking statutes.
FDICIA requires the federal banking agencies to take "prompt corrective
action" with depository institutions that do not meet minimum capital
requirements. FDICIA establishes five capital tiers: "well capitalized",
"adequately capitalized", "undercapitalized", "significantly undercapitalized"
and "critically undercapitalized". A depository institution's capital tier
depends upon where its capital levels are in relation to various relevant
capital measures, which include a risk-based capital measure and a leverage
ratio capital measure, and certain other factors. As of December 31, 1995, both
of the Registrant's banks met the "well capitalized" criteria.
A depository institution is well capitalized if it significantly
exceeds the minimum level required by regulation for each relevant capital
measure, adequately capitalized if it meets each such measure, undercapitalized
if it fails to meet any such measure, significantly undercapitalized if it is
significantly below any such measure and critically undercapitalized if it fails
to meet any critical capital level set forth in the regulations. The critical
capital level must be a level of tangible equity equal to not less than two
percent of total assets and not more than 65 percent of the minimum leverage
ratio to be prescribed by regulation (except to the extent that two percent
would be higher than such 65 percent level). An institution may be deemed to be
in a capitalization category that is lower than is indicated by its actual
capital position if, among other things, it receives an unsatisfactory
examination rating.
FDICIA generally prohibits a depository institution from making any
capital distribution (including payment of a dividend) or paying any management
fee to its holding company if the depository institution would thereafter be
undercapitalized. Undercapitalized depository institutions are subject to
restrictions on borrowing from the Federal Reserve System. In addition,
undercapitalized depository institutions are subject to growth limitations and
are required to submit a capital restoration plan. The federal banking agencies
may not accept a capital plan without determining, among other things, that the
plan is based on realistic assumptions and is likely to succeed in restoring the
depository institution's capital. For a capital restoration plan to be
acceptable, the depository institution's parent holding company must guarantee
that the institution will comply with such capital restoration plan. The
aggregate liability of the parent holding company is limited to the lesser of
(i) an amount equal to 5 percent of the depository institution's total assets at
the time it became undercapitalized and (ii) the amount which is necessary (or
would have been necessary) to bring the institution into compliance with all
capital standards applicable with respect to such institution as of the time it
fails to comply with the plan. If a depository institution fails to submit an
acceptable plan, it is treated as if it is significantly undercapitalized.
Significantly undercapitalized depository institutions may be subject
to a number of requirements and restrictions, including orders to sell
sufficient voting stock to become adequately capitalized, requirements to reduce
total assets, and cessation of receipt of deposits from correspondent banks.
Critically undercapitalized institutions are subject to the appointment of a
receiver or conservator.
Under FDICIA, an institution that is not well capitalized is generally
prohibited from accepting brokered deposits and offering interest rates on
deposits higher than the prevailing rate in its market. In addition, "pass
through" insurance coverage may not be available for certain employee benefit
accounts.
FDICIA restated Section 22(h) of the Federal Reserve Act, a statutory
provision which, among other things, restricts the amounts and terms of
extensions of credit which may be made by a bank to its executive officers,
directors, principal shareholders (collectively, "insiders"), and to their
related interests. In addition to limitations previously in place, FDICIA
requires a bank, when lending to insiders, to follow credit underwriting
procedures that are not less stringent than those applicable to comparable
transactions by the bank with persons outside the bank. Directors and their
related interests are now subject to the same aggregate lending limits
previously applicable to executive officers and their principal shareholders and
their related interests; further, the amount a bank can lend in the aggregate to
insiders, and to their related interests, is limited to an amount equal to the
bank's unimpaired capital and surplus. Insiders are also prohibited from
knowingly receiving, or knowingly permitting their related interests to receive,
any extension of credit not authorized by Section 22(h) of the Federal Reserve
Act.
Under FDICIA, each insured depository institution will be required to
submit annual financial statements to the FDIC, its primary federal regulatory,
and any appropriate state banking supervisor and a report signed by the chief
executive officer and chief accounting or financial officer which contains (i) a
statement of management's responsibilities for preparing financial reports,
establishing and maintaining an adequate internal control structure, and
complying with laws and regulations relating to safety and soundness, and (ii)
an assessment of the effectiveness of such structures and compliance effort. The
institution's independent public accountant will then be required to attest to
and report separately on the assertions of the institution's management.
Under FDICIA, the appropriate federal banking agencies have issued
regulations requiring insured depository institutions to have annual independent
audits (which can be performed only by accounting firms which have, among other
things, agreed to provide related working papers, policies and procedures to the
FDIC, and the appropriate federal and state banking authorities, if so
requested). In the case of institutions that are subsidiaries of holding
companies, the audit requirement can be met by an audit of the holding company.
The accountants must issue reports in compliance with generally accepted
accounting principles and FDICIA. The scope of the audit must include a review
of whether the financial statements of the institution are presented fairly in
accordance with generally accepted accounting principles and whether they comply
with such other disclosure requirements as the federal banking agencies may
prescribe. Also, the accountants must apply procedures agreed upon by the FDIC
to determine objectively if an institution is in compliance with laws and
regulations. Institutions are required to provide their accountants copies of
reports of condition, examination reports and information concerning any agency
enforcement actions. Copies of the accounting firm reports are to be provided to
the FDIC and the appropriate primary federal banking agency.
Each insured depository institution will be required to have an
independent audit committee made up entirely of outside directors who are
independent of management of the institution and who satisfy any specific
requirements the FDIC may establish. Their duties are to include review of the
various new reports required under FDICIA. In the case of any insured depository
institution which the FDIC determines to be a "large institution", the audit
committee must include members with banking or related financial expertise.
Also, in the case of such large institutions, the committee must have access to
its own outside counsel, and may not include any large customers of the
institution. There are certain exemptions for institutions that are part of a
holding company structure, but the institution must have total assets of less
than $9 billion, and an examination rating of 1 or 2.
FDICIA amended the Federal Deposit Insurance Act by inserting a new
provision concerning accounting objectives, standards, and requirements. Among
other matters, the federal banking agencies are required to: (i) review the
accounting principles used by depository institutions in preparing financial
reports required to be filed with a federal banking agency and related matters
with respect to such reports; (ii) modify or eliminate any accounting principles
or reporting requirements which are inconsistent with FDICIA's objectives of
effective supervision, prompt corrective action, and increased accuracy of
financial statements; (iii) prescribe regulations which require that all assets
and liabilities, including contingent assets and liabilities, of insured
depository institutions be reported in, or otherwise taken into account of, in
the preparation of any balance sheet, financial statement, report of condition,
or other report required to be filed with the federal banking agency; and (iv)
develop jointly with the other appropriate federal banking agencies, a method
for insured depository institutions to provide supplemental disclosure of the
estimated fair market value of assets and liabilities, to the extent feasible
and practical, in any such reports. All financial reports and statements are to
be prepared in accordance with generally accepted accounting principles, except
that each federal banking agency has the power to implement more stringent
procedures in certain instances.
FDICIA also imposes certain operational and managerial standards on
financial institutions relating to internal controls, loan documentation, credit
underwriting, interest rate exposure, asset growth, and compensation, fees and
benefits. FDICIA also imposes new restrictions on activities and investments of
insured state banks, and prescribes limitations on risks posed by exposure of
insured banks to other depository institutions, including adoption of policies
to limit overnight credit exposures to correspondent banks.
FDICIA requires the federal banking regulators to adopt rules
prescribing certain safety and soundness standards for insured depository
institutions and their holding companies. Proposed regulations implementing
these standards to cover operations and management, asset quality and earnings,
and employee compensation are pending adoption. The standards are intended to
enable the regulatory agencies to address problems at depository institutions
and holding companies before the problems cause significant deterioration in the
financial condition of the institution. The proposal would establish the
objectives of proper operations and management, but would leave specific methods
for achieving those objectives to each institution.
FDICIA sets forth a new Truth in Savings Act. The Federal Reserve Board
has adopted regulations implementing the Truth in Savings Act. A variety of
significant new disclosure requirements are imposed concerning interest rates
and terms of deposit accounts. A requirement is also imposed that interest paid
on interest-bearing accounts must be calculated on the full amount of principal,
as opposed to on only non-reservable balances.
Under FDICIA, the federal banking agencies adopted regulations
providing standards for extensions of credit that are secured by liens on
interests in real estate or made for the purpose of financing the construction
of buildings or other improvements of real estate. In prescribing standards, the
agencies are to consider the risk posed to the deposit insurance fund, the need
for safe and sound operation of depository institutions, and the availability of
credit.
Under FDICIA, the FDIC adopted a risk-based insurance assessment system
for implementation January 1, 1994 that evaluates an institution's potential for
causing a loss to the insurance fund and to base deposit insurance premiums upon
individual bank profiles. Under the risk-based assessment system, each
institution pays FDIC insurance premiums within a range from 4 cents to 31 cents
per $100 of deposits, depending on the institution's capital adequacy and a
supervisory judgment of overall risk. As of December 31, 1995, Signet N.A. paid
the lowest FDIC insurance premium, 4 cents per $100 of deposits. Signet Bank
paid 4 cents per $100 of deposits except for deposits obtained in the
acquisition of Pioneer Financial Corporation ("Pioneer"). The premium on these
deposits remained 23 cents. The FDIC lowered the 1996 assessment for Signet Bank
and Signet N.A. to the minimum semiannual assessment of $1 thousand except for
the assessment on deposits acquired from Pioneer, which remained unchanged at 23
cents.
From time to time, various legislative proposals are submitted to and
considered by Congress concerning the banking industry. Recent legislative
initiatives have included, among other things, proposals to reform deposit
insurance, limit the investments that a depository institution may make with
insured funds, eliminate restrictions on interstate banking, expand the powers
of banking organizations to enter into new financial service industries and
revise the structure of the bank regulatory system. The Registrant cannot
determine the ultimate effect that FDICIA and the implementing regulations
adopted, or any potential legislation, if enacted, would have upon its financial
condition or operations.
<PAGE>
EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth information with respect to the
Registrant's executive officers:
<TABLE>
<CAPTION>
Names, Positions and Offices
With Registrant During Last An Officer of the
Five Years Age Registrant Since
<S> <C> <C>
Robert M. Freeman 54 1978
Chairman and Chief Executive Officer.
(Principal Executive Officer)
Malcolm S. McDonald 57 1982
President and Chief Operating Officer.
David L. Brantley 46 1988
Executive Vice President and Treasurer.
Prior to February, 1995, he was Senior
Vice President and Treasurer.
Robert L. Bryant 45 1990
Senior Executive Vice President. Prior to July,
1994, he was Executive Vice President.
Resigned effective March 1, 1996.
W.H. Catlett, Jr. 47 1994
Executive Vice President and Controller
(Principal Accounting Officer).
Prior to August, 1994, he was a Senior
Vice President.
Philip H. Davidson 51 1977
Executive Vice President.
T. Gaylon Layfield, III 44 1988
Senior Executive Vice President.
Wallace B. Millner, III 56 1971
Senior Executive Vice President and
Chief Financial Officer (Principal
Financial Officer).
Kenneth H. Trout 47 1990
Senior Executive Vice President.
Prior to May, 1991, he was an Executive Vice President.
Sara R. Wilson 45 1980
Executive Vice President, General Counsel and
Corporate Secretary. Prior to January, 1995,
she was Executive Vice President and
General Counsel. Prior to January, 1994, she
was Senior Vice President and Senior
Corporate Counsel.
</TABLE>
There are no family relationships (as defined in the applicable regulations)
among the above listed officers.
The executive officers of the Registrant are elected to serve until the
next organizational meeting of the board of directors of the Registrant
following the next annual meeting of the stockholders of the Registrant and
until their successors are elected.
Statistical Information
The statistical information required by Item 1 is in the Registrant's
Annual Report to its shareholders for the year ended December 31, 1995, and is
incorporated herein by reference, as follows:
<TABLE>
<CAPTION>
Page in the Registrant's Annual
Report to its shareholders for
Guide 3 Disclosure the year ended December 31, 1995
<S> <C> <C>
I. Distribution of Assets, Liabilities and
Stockholders' Equity, Interest Rates and
Interest Differential
A. Average Balance Sheet 54
B. Net Interest Earnings Analysis 54
C. Rate/Volume Analysis 52
II. Investment Portfolio
A. Book Value of Investment Securities 64
B. Maturities of Investment Securities Not Applicable
C. Investment Securities Concentrations Not Applicable
III. Loan Portfolio
A. Types of Loans 55
B. Maturities and Sensitivities of
Loans to Changes in Interest Rates 34
C. Risk Elements
1. Nonaccrual, Past Due and Restructured Loans 36, 37&38
2. Potential Problem Loans 37&38
3. Foreign Outstandings Not Applicable
4. Loan Concentrations 55
D. Other Interest Bearing Assets Not Applicable
IV. Summary of Loan Loss Experience
A. Analysis of Allowance for Loan Losses 53
B. Allocation of the Allowance for Loan Losses 53
V. Deposits
A. Average Balances 54
B. Maturities of Large Denomination Certificates 38
C. Foreign Deposit Liability Disclosure 38
VI. Return on Equity and Assets
A. Return on Assets 51
B. Return on Equity 51
C. Dividend Payout Ratio 39
D. Equity to Assets Ratio 51
VII. Short-Term Borrowings 66
</TABLE>
<PAGE>
ITEM 2. PROPERTIES.
The executive offices of the Registrant and Signet Bank are located at
7 N. Eighth Street, Richmond, Virginia, in a building owned by a subsidiary of
the Registrant. The Registrant's main operations center is located in Henrico
County, Virginia, in a newly constructed building completed in the first quarter
of 1996. The principal offices of Signet Bank N.A. were moved in February 1996,
from 1130 Connecticut Avenue N.W., Washington, D.C. to their new location at
7799 Leesburg Pike, Falls Church, Virginia. The principal offices of Signet Bank
and Signet Bank N.A. are leased.
Of the Registrant's 244 domestic branch banking locations, 121 are
owned by subsidiaries of the Registrant, of which one is subject to mortgage
indebtedness of approximately $9 thousand. The remaining 123 branch banking
locations and offices of other subsidiaries are leased for various terms at an
aggregate annual rent of approximately $23,456,000.
ITEM 3. LEGAL PROCEEDINGS.
The Registrant and its subsidiaries are parties, plaintiff or defendant
in suits arising out of the collection of loans and the enforcement or defense
of the priority of its security interests. Management believes that the pending
actions against the Registrant or its subsidiaries, both individually and in the
aggregate, will not have a material adverse effect on the financial condition or
future operations of the Registrant.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED
STOCKHOLDER MATTERS.
The information required by Item 5 is included in the Registrant's
Annual Report to its shareholders for the year ended December 31, 1995 on page
46 under the heading "Selected Quarterly Financial Information" and on page 71
in Note K, and is incorporated herein by reference.
ITEM 6. SELECTED FINANCIAL DATA.
The information required by Item 6 is included in the Registrant's
Annual Report to its shareholders for the year ended December 31, 1995 on pages
39 and 51 under the headings "Risk-Based and Other Capital Data" and "Selected
Financial Data", respectively, and is incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
The information required by Item 7 is included in the Registrant's
Annual Report to its shareholders for the year ended December 31, 1995 on pages
23-55 under the heading "Management's Discussion and Analysis of Financial
Condition and Results of Operations", and is incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The information required by Item 8 is included in the Registrant's
Annual Report to its shareholders for the year ended December 31, 1995 on pages
56-83 under the heading "Signet Banking Corporation Consolidated Financial
Statements" and on page 46 under the heading "Selected Quarterly Financial
Information", and is incorporated herein by reference.
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information required by Item 10 as to the directors of the
Registrant is included in the Registrant's 1996 Proxy Statement on pages 2-5
under the headings "Election of Directors" and "Other Directorships", and is
incorporated herein by reference.
The information required by Item 10 as to the executive officers of the
Registrant is included in Item 1 under the heading "Executive Officers of the
Registrant".
ITEM 11. EXECUTIVE COMPENSATION.
The information required by Item 11 is included in the Registrant's
1996 Proxy Statement on pages 8-13 under the headings "Compensation of the
Board" and "Executive Compensation", and is incorporated herein by reference.
Information under the headings "Organization and Compensation Committee Report
on Executive Compensation" and "Performance Graph" in the Registrant's 1996
Proxy Statement is not incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.
The information required by Item 12 is included in the Registrant's
1996 Proxy Statement on pages 1, 6 and 7 under the headings "Proxy Statement"
and "Stock Ownership", and is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required by Item 13 is included in the Registrant's
1996 Proxy Statement on page 7 under the heading "Transactions", and is
incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS SCHEDULES, AND REPORTS ON
FORM 8-K.
(a) (1) The following consolidated financial statements of Signet
Banking Corporation and Subsidiaries, included in the
Registrant's Annual Report to its shareholders for the year
ended December 31, 1995, are incorporated herein by
reference in Item 8:
Consolidated Balance Sheet - December 31, 1995 and 1994
Statement of Consolidated Income - Years ended December
31, 1995, 1994 and 1993
Statement of Consolidated Cash Flows - Years ended
December 31, 1995, 1994 and 1993
Statement of Changes in Consolidated Stockholders' Equity
- Years ended December 31, 1995, 1994 and 1993
Notes to Consolidated Financial Statements
Report of Ernst & Young LLP, Independent Auditors
(2) All schedules are omitted since the required information
is either not applicable, not deemed material, or is shown
in the respective financial statements or in notes
thereto.
(3) Exhibits:
2.1 Separation, Distribution and Indemnity Agreement
dated as of February 22, 1994 among the Registrant,
Signet Bank and Capital One Financial Corporation
(Incorporated by reference to Exhibit 2.1 to Annual
Report on Form 10-K for the fiscal year ended
December 31, 1994).
2.2 Retained Portfolio, Origination, Servicing and
Management Agreement dated as of February 22, 1994
between Signet Bank and Capital One Financial
Corporation (Incorporated by reference to Exhibit
2.1 to Annual Report on Form 10-K for the fiscal
year ended December 31, 1994).
3.1 Articles of Incorporation (Incorporated by
reference to Exhibit 3.1 to Annual Report on Form
10-K for the fiscal year ended December 31, 1992).
3.2 Bylaws (Filed herewith).
4.1 Indenture dated as of May 1, 1972 Providing for
Issuance of Unlimited Senior Debt Securities
(Incorporated by reference to Exhibit 4-3 to
Registration Statement No. 2-43731).
4.2 Indenture dated as of September 1, 1970 Providing
for Issuance of Unlimited Capital Notes
(Incorporated by reference to Exhibit 4-2 to
Registration Statement No. 2-37919).
4.3 Indenture dated as of May 1, 1985 relating to
$50,000,000 Floating Rate Subordinated Notes due
1997 (Incorporated by reference to Exhibit 4(a) to
Registration Statement No. 2-97720).
4.4 Indenture dated as of April 1, 1986 Providing for
Issuance of Unlimited Subordinated Debt Securities
(Incorporated by reference to Exhibit 4(a) to
Registration Statement No. 33-4491).
4.5 Officer's Certificate dated as of April 4, 1986
setting forth the form and terms of $100,000,000 of
unsecured floating rate Subordinated Notes due in
1998 (Incorporated by reference to Exhibit 4.11 to
Annual Report on Form 10-K for the fiscal year
ended December 31, 1989).
4.6 Officers' Certificate dated as of May 23, 1989
setting forth the form and terms of $100,000,000
of unsecured 9 5/8% Subordinated Notes due in 1999
(Incorporated by reference to Exhibit 4.12 to
Annual Report on Form 10-K for the fiscal year
ended December 31, 1989).
4.7 Articles of Amendment, Rights Agreement, Series A
Junior Participating Preferred Stock (Incorporated
by reference to Exhibit 1 to Current Report on Form
8-K dated May 23, 1989).
10.1 Executive Employee Supplemental Retirement Plan
(Incorporated by reference to Exhibit 10.4 to
Annual Report on Form 10-K for the fiscal year
ended December 31, 1988).
10.2 Form of Executive Employment Agreement between the
Registrant and David L. Brantley, Robert L. Bryant,
W.H. Catlett, Jr., Philip H. Davidson, Robert M.
Freeman, T. Gaylon Layfield, III, Malcolm S.
McDonald, Robert J. Merrick, Wallace B. Millner,
III, Keith A. Reynolds, H. Nathaniel Taylor,
Kenneth H. Trout, Sara R. Wilson and Randolph W.
Wyckoff (Incorporated by reference to Exhibit 10.8
on Form 10-K for the fiscal year ended December 31,
1989).
10.3 1983 Stock Option Plan (Incorporated by reference
to Exhibit A to Proxy Statement for 1983 Annual
Meeting of Shareholders).
10.4 1985 Union Trust Bancorp Key Employee Stock Option
Plan (Incorporated by reference to Exhibit 10.13 to
Annual Report on Form 10-K for the fiscal year
ended December 31, 1985).
10.5 1992 Stock Option Plan (as amended and restated
January 24, 1995) (Incorporated by reference to
Exhibit I to Proxy Statement for 1995 Annual
Meeting of Shareholders).
10.6 Executive Employee Excess Savings Plan
(Incorporated by reference to Exhibit 10.14 to
Annual Report on Form 10-K for the fiscal year
ended December 31, 1987).
10.7 Split Dollar Life Insurance Plan and Agreement
(Incorporated by reference to Exhibit 10.13 to
Annual Report on Form 10-K for the fiscal year
ended December 31, 1989).
10.8 Executive Employee Deferred Compensation Plan
(Incorporated by reference to Exhibit 10.15 to
Annual Report on Form 10-K for the fiscal year
ended December 31, 1988).
10.9 1988 Deferred Compensation Plan (Incorporated by
reference to Exhibit 10.16 to Annual Report on Form
10-K for the fiscal year ended December 31, 1988).
10.10 Excess Benefit Retirement Plan (Incorporated by
reference to Exhibit 10.17 to Annual Report on Form
10-K for the fiscal year ended December 31, 1988).
10.11 Annual Executive Incentive Compensation Plan
(Incorporated by reference to Exhibit I to Proxy
Statement for 1994 Annual Meeting of Shareholders).
10.12 Executive Long-Term Incentive Plan (Incorporated by
reference to Exhibit II to Proxy Statement for 1994
Annual Meeting of Shareholders).
10.13 1994 Stock Incentive Plan (Incorporated by
reference to Exhibit III to Proxy Statement for
1994 Annual Meeting of Shareholders).
11.1 Computation of Earnings Per Share (Filed herewith).
13.1 1995 Annual Report to Shareholders (Filed
herewith).
21.1 Subsidiaries of the Registrant (Filed herewith).
23.1 Consent of Ernst & Young LLP (Filed herewith).
27.1 Financial Data Schedule (Filed herewith).
(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.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed
on its behalf by the undersigned, thereunto duly authorized.
SIGNET BANKING CORPORATION
DATE: MARCH 26, 1996 BY /s/ W. H. CATLETT, JR.
W. H. Catlett, Jr.
Executive Vice President and Controller
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed below by the following persons on behalf of the
Registrant and in the capacities indicated on the 26th day of March, 1996.
<TABLE>
<CAPTION>
SIGNATURES TITLE
<S> <C>
/s/ ROBERT M. FREEMAN Director, Chairman and Chief Executive
Robert M. Freeman Officer
(Principal Executive Officer)
/s/ MALCOLM S. MCDONALD Director, President and Chief Operating
Malcolm S. McDonald Officer
/s/ WALLACE B. MILLNER, III Senior Executive Vice President and
Wallace B. Millner, III Chief Financial Officer
(Principal Financial Officer)
/s/ W. H. CATLETT, JR. Executive Vice President and Controller
W. H. Catlett, Jr. (Principal Accounting Officer)
/s/ J. HENRY BUTTA Director
J. Henry Butta
/s/ NORWOOD H. DAVIS, JR. Director
Norwood H. Davis, Jr.
</TABLE>
<PAGE>
SIGNATURES TITLE
/s/ WILLIAM C. DERUSHA Director
William C. DeRusha
/s/ C. STEPHENSON GILLISPIE, JR. Director
C. Stephenson Gillispie, Jr.
/s/ BRUCE C. GOTTWALD, JR. Director
Bruce C. Gottwald, Jr.
/s/ WILLIAM R. HARVEY Director
William R. Harvey, Ph.D.
/s/ ELIZABETH G. HELM Director
Elizabeth G. Helm
/s/ ROBERT M. HEYSSEL, M.D. Director
Robert M. Heyssel, M.D.
/s/ HENRY A. ROSENBERG, JR. Director
Henry A. Rosenberg, Jr.
/s/ LOUIS B. THALHEIMER Director
Louis B. Thalheimer
<PAGE>
EXHIBITS TO SIGNET BANKING CORPORATION
ANNUAL REPORT ON FORM 10-K
DATED DECEMBER 31, 1995
COMMISSION FILE NO. 1-6505
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Page Number or
Exhibit Incorporation by
Number Description Reference to
<S> <C> <C>
2.1 Separation, Distribution and Indemnity Exhibit 3.1 to Annual Report on Form 10-K for
Agreement the fiscal year ended December 31, 1994
2.2 Retained Portfolio, Origination, Servicing Exhibit 3.1 to Annual Report on Form 10-K for
and Management Agreement the fiscal year ended December 31, 1994
3.1 Articles of Incorporation Exhibit 3.1 to Annual Report on Form 10-K for
the fiscal year ended December 31, 1992
3.2 Bylaws Page 22
4.1 Instruments defining the rights of Exhibit 4-1, Registration No. 2-43731;
security holders, including Indentures Exhibit 4-2, Registration No. 2-37919;
Exhibit 4-3, Registration No. 2-97720;
Exhibit 4-6, Registration No. 2-45986;
Exhibit 4(a), Registration No. 2-97720;
Exhibit 4(a), Registration Statement No. 33-4491;
Exhibit 1 to Current
Report on Form 8-K dated
May 23, 1989; Exhibit
4.11 to Annual Report on
Form 10-K for the fiscal
year ended December
31, 1989
10.1 Executive Employee Supplemental Exhibit 10.4 to Annual Report on Form 10-K for
Retirement Plan the fiscal year ended December 31, 1988
10.2 Form of Executive Employment Exhibit 10.8 to Annual Report on Form 10-K for
Agreement between the Registrant the fiscal year ended December 31, 1989
and David L. Brantley, Robert L. Bryant,
W.H. Catlett, Jr., Philip H.
Davidson, Robert M. Freeman,
T. Gaylon Layfield, III, Malcolm S.
McDonald, Robert J. Merrick,
Wallace B. Millner, III, Keith A.
Reynolds, H. Nathaniel Taylor,
Kenneth H. Trout, Sara R. Wilson and
Randolph W. Wyckoff
10.3 1983 Stock Option Plan Exhibit A to Proxy Statement for 1983 Annual
Meeting of Shareholders
10.4 1985 Union Trust Bancorp Key Exhibit 10.13 to Annual Report on Form 10-K for
Employee Stock Option Plan the fiscal year ended December 31, 1985
10.5 1992 Stock Option Plan (as amended Exhibit I to Proxy Statement for 1995 Annual
January 24, 1995) Meeting of Shareholders
10.6 Executive Employee Excess Exhibit 10.14 to Annual Report on Form 10-K for
Savings Plan the fiscal year ended December 31, 1987
10.7 Split Dollar Life Insurance Plan Exhibit 10.13 to Annual Report on Form 10-K for
and Agreement the fiscal year ended December 31, 1989
10.8 Executive Employee Deferred Exhibit 10.15 to Annual Report on Form 10-K for
Compensation Plan the fiscal year ended December 31, 1988
10.9 1988 Deferred Compensation Plan Exhibit 10.16 to Annual Report on Form 10-K for
the fiscal year ended December 31, 1988
10.10 Excess Benefit Retirement Plan Exhibit 10.17 to Annual Report on Form 10-K for
the fiscal year ended December 31, 1988
10.11 Annual Executive Incentive Exhibit I to Proxy Statement for 1994 Annual
Compensation Plan Meeting of Shareholders
10.12 Executive Long-Term Incentive Plan Exhibit II to Proxy Statement for 1994 Annual
Meeting of Shareholders
10.13 1994 Stock Incentive Plan Exhibit III to Proxy Statement for 1994 Annual
Meeting of Shareholders
11.1 Computation of Earnings per Share Page 30
13.1 1995 Annual Report to Shareholders Page 31
21.1 Subsidiaries of the Registrant Page 95
23.1 Consent of Independent Auditors,
Ernst & Young LLP Page 97
27.1 Financial Data Schedule Page 98
</TABLE>
Exhibit 3.2
As adopted December 21, 1966 by the Board of
Directors and amended and restated by the Board
of Directors through December 19, 1995
BYLAWS
OF
SIGNET BANKING CORPORATION
ARTICLE I
CORPORATE SEAL
The seal of the Corporation shall consist of a circular impression
stamped upon paper, with or without a wafer, with the name of the Corporation
and the word "Virginia" inscribed along its circumference and the word "seal"
inscribed in its center, in the design and form now here impressed upon the
margin of this page. It may be affixed and attested by any officer.
ARTICLE II
STOCK CERTIFICATES
Each holder of the shares of stock of the Corporation shall be entitled
to a stock certificate evidencing his ownership of the shares of the
Corporation. Stock certificates shall be in such form as may be required and
approved by the Board of Directors. The signatures of the officers upon any
stock certificate may be facsimiles if such certificate is countersigned by a
transfer agent designated by the Board of Directors, other than the Corporation
itself or an employee of the Corporation, and the signature of the transfer
agent may be by facsimile if the certificate is registered by the manual
signature of a registrar designated by the Board of Directors other than the
Corporation itself or an employee of the Corporation.
ARTICLE III
MEETINGS OF STOCKHOLDERS
Section 1. Place of Meetings. All meetings of the stockholders of the
Corporation shall be held in the City of Richmond, Virginia, at the registered
office of the Corporation or at such other place within or without the
Commonwealth of Virginia as may be fixed in the notice of the meeting or in the
waiver thereof.
Section 2. Annual Meeting. The annual meeting of the stockholders of
the Corporation shall be held on such date and at such place and time as may
be fixed by resolution of the Board of Directors.
Section 3. Special Meetings. Special meetings of the stockholders
may be called by the Chairman of the Board, the President or the Board of
Directors.
Section 4. Notice of Meetings. Written or printed notice, stating the
place, date and hour of the meeting and the purpose or purposes for which the
meeting is called, shall be delivered by the Corporation not less than ten days
nor more than sixty days before the date of the meeting, either personally or by
mail, to each stockholder of record entitled to vote at such meeting. If mailed,
such notice shall be deemed to be delivered when deposited in the United States
mail with postage thereon prepaid, addressed to the stockholder at his address
as it appears on the stock transfer books of the Corporation. Such further
notice shall be given as may be required by law. Only business within the
purpose or purposes described in the notice of the meeting delivered by the
Corporation may be conducted at a special meeting of stockholders. Any
previously scheduled meeting of the stockholders may be postponed, and any
special meeting of the stockholders may be cancelled, by resolution of the Board
of Directors upon public notice given prior to the time previously scheduled for
such meeting of stockholders.
Section 5. Quorum and Voting. A majority of the shares entitled to
vote, represented in person or by proxy, shall constitute a quorum at all
meetings of the stockholders, annual or special. If a quorum is present, the
affirmative vote of the majority of the shares represented at the meeting and
entitled to vote on the subject matter shall be the act of the stockholders,
unless the vote of a greater number or voting by class is required by law, and
except that in elections of directors those receiving the greatest number of
votes shall be deemed elected even though not receiving a majority. Each
stockholder shall be entitled to one vote in person or by proxy for each share
of stock entitled to vote standing in his name on the books of the Corporation.
The vote on all questions shall be taken in such a manner as the Chairman
prescribes, provided, however, that all votes taken at any meeting of
stockholders shall be by ballot.
Section 6. Procedure. Stockholders' meetings shall be presided over by
the Chairman of the Board, or, in his absence, the President, or, in his
absence, any Vice Chairman of the Board, or, in the absence of all of them, a
Chairman to be elected at the meeting. The Secretary of the Corporation or, in
his absence, an Assistant Secretary or a secretary elected at the meeting for
the purpose, shall act as secretary of each meeting and record the minutes. At
each meeting of the stockholders, a committee may be appointed by the Chairman
of the meeting, and shall be appointed by the Chairman on the demand of the
holders of not less than one-tenth of the stock represented at the meeting and
entitled to vote, to determine the number of shares represented at the meeting
by stockholders in person or by proxy. Any meeting may be adjourned from day to
day, or from time to time, and such adjournment may be directed without a
quorum, but no business except adjournment shall be transacted in the absence of
a quorum. The Chairman of the meeting or a majority of the shares so represented
may adjourn the meeting from time to time, whether or not there is such a
quorum. No notice of the time and place of adjourned meetings need be given
except as required by law.
Section 7. Inspectors of Elections; Opening and Closing the Polls.
The Board of Directors by resolution shall appoint one or more
inspectors, which inspector or inspectors may include individuals who serve the
Corporation in other capacities, including, without limitation, as officers,
employees, agents or representatives, to act at the meetings of stockholders and
make a written report thereof. One or more persons may be designated as
alternate inspectors to replace any inspector who fails to act. If no inspector
or alternate has been appointed to act or is able to act at a meeting of
stockholders, the Chairman of the meeting shall appoint one or more inspectors
to act at the meeting. Each inspector, before discharging his or her duties,
shall take and sign an oath faithfully to execute the duties of inspector with
strict impartiality and according to the best of his or her ability. The
inspectors shall have the duties prescribed by law.
The Chairman of the meeting shall fix and announce at the meeting the
date and time of the opening and the closing of the polls for each matter upon
which the stockholders will vote at the meeting.
Section 8. Notice of Stockholder Business and Nominations.
(A) Annual Meetings. (1) Nominations of persons for election to the
Board of Directors and the proposal of business to be considered by the
stockholders may be made at an annual meeting of stockholders (a)
pursuant to the Corporation's notice of meeting, (b) by or at the
direction of the Board of Directors or (c) by any stockholder of the
Corporation who was a stockholder of record at the time of giving of
notice provided for in this Bylaw, who is entitled to vote at the
meeting and who complies with the notice procedures set forth in this
Bylaw.
(2) For nominations or other business to be properly brought before an
annual meeting by a stockholder pursuant to clause (c) of paragraph
(A)(1) of this Bylaw, the stockholder must have given timely notice
thereof in writing to the Secretary of the Corporation and such other
business must otherwise be a proper matter for stockholder action. To
be timely, a stockholder's notice shall be delivered to the Secretary
of the Corporation at the principal executive offices of the
Corporation not later than the close of business on the sixtieth day
nor earlier than the close of business on the ninetieth day prior to
the first anniversary of the preceding year's annual meeting; provided,
however, that in the event that the date of the annual meeting is more
than thirty days before or more than sixty days after such anniversary
date, notice by the stockholder to be timely must be so delivered not
earlier than the close of business on the ninetieth day prior to such
annual meeting and not later than the close of business on the later of
the sixtieth day prior to such annual meeting or the tenth day
following the date on which public announcement of the date of such
meeting is first made by the Corporation. In no event shall the public
announcement of an adjournment of an annual meeting commence a new time
period for the giving of a stockholder's notice as described above.
Such stockholder's notice shall set forth (a) as to each person whom
the stockholder proposes to nominate for election or re-election as a
director all information relating to such person that is required to be
disclosed in solicitations of proxies for election of directors in an
election contest, or is otherwise required, in each case pursuant to
Regulation 14A under the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), and Rule 14a-11 thereunder (including such
person's written consent to being named in the proxy statement as a
nominee and to serving as a director if elected); (b) as to any other
business that the stockholder proposes to bring before the meeting, a
brief description of the business desired to be brought before the
meeting, the reasons for conducting such business at the meeting and
any material interest in such business of such stockholder and the
beneficial owner, if any, on whose behalf the proposal is made; and (c)
as to the stockholder giving the notice and the beneficiary owner, if
any, on whose behalf the nomination or proposal is made (i) the name
and address of such stockholder, as they appear on the books of the
Corporation, and of such beneficial owner and (ii) the class and number
of shares of the Corporation which are owned beneficially and of record
by such stockholder and such beneficial owner.
(3) Notwithstanding anything in the second sentence of paragraph (A)(2)
of this Bylaw to the contrary, in the event that the number of
directors to be elected to the Board of the Corporation is increased
and there is no public announcement by the Corporation naming all of
the nominees for director or specifying the size of the increased Board
of Directors at least seventy days prior to the first anniversary of
the preceding year's annual meeting, a stockholder's notice required by
this Bylaw shall also be considered timely, but only with respect to
nominees for any new positions created by such increase, if it shall be
delivered to the Secretary of the Corporation at the principal
executive offices of the Corporation not later than the close of
business on the tenth day following the date on which such public
announcement is first made by the Corporation.
(B) Special Meetings. Only business within the purpose or purposes
described in the notice of the meeting delivered by the Corporation
shall be conducted at a special meeting of stockholders. Nominations of
persons for election to the Board of Directors may be made at a special
meeting of stockholders at which directors are to be elected pursuant
to the Corporation's notice of meeting (a) by or at the direction of
the Board of Directors or (b) provided that the Board of Directors has
determined that directors shall be elected at such meeting, by any
stockholder of the Corporation who is a stockholder of record at the
time of giving of notice provided for in this Bylaw, who shall be
entitled to vote at the meeting and who complies with the notice
procedures set forth in this Bylaw. In the event the Corporation calls
a special meeting of stockholders for the purpose of electing one or
more directors to the Board of Directors, any such stockholder may
nominate a person or persons (as the case may be), for election to such
position(s) as specified in the Corporation's notice of meeting, if the
stockholder's notice required by paragraph (A)(2) of this Bylaw shall
be delivered to the Secretary of the Corporation at the principal
executive offices of the Corporation not earlier than the close of
business on the ninetieth day prior to such special meeting and not
later than the close of business on the later of the sixtieth day prior
to such special meeting or the tenth day following the day on which
public announcement is first made of the date of the special meeting
and of the nominees proposed by the Board of Directors to be elected at
such meeting. In no event shall the public announcement of an
adjournment of a special meeting commence a new time period for the
giving of a stockholder's notice as described above.
(C) General. (1) Only such persons who are nominated in accordance with
the procedures set forth in this Bylaw shall be eligible to serve as
directors and only such business shall be conducted at a meeting of
stockholders as shall have been brought before the meeting in
accordance with the procedures set forth in this Bylaw. Except as
otherwise provided by law, the Chairman of the meeting shall have the
power and duty to determine whether a nomination or any business
proposed to be brought before the meeting was made or proposed, as the
case may be, in accordance with the procedures set forth in this Bylaw
and, if any proposed nomination or business is not in compliance with
this Bylaw, to declare that such defective proposal or nomination shall
be disregarded.
(2) For purposes of this Bylaw, "public announcement" shall mean
disclosure in a press release reported by the Dow Jones News Service,
Associated Press or comparable national news service or in a document
publicly filed by the Corporation with the Securities and Exchange
Commission pursuant to Section 13, 14 or 15(d) of the Exchange Act.
(3) Notwithstanding the foregoing provisions of this Bylaw, a
stockholder shall also comply with all applicable requirements of the
Exchange Act and the rules and regulations thereunder with respect to
the matters set forth in this Bylaw. Nothing in this Bylaw shall be
deemed to affect any rights (i) of stockholders to request inclusion of
proposals in the Corporation's proxy statement pursuant to Rule 14a-8
under the Exchange Act or (ii) of the holders of any series of
Preferred Stock to elect directors under specified circumstances.
<PAGE>
ARTICLE IV
DIRECTORS AND THEIR MEETINGS
Section 1. Number, Election and Qualifying Shares. The general
management of the property, business and affairs of the Corporation shall be
vested in a Board of Directors which should not exceed twenty members nor be
less than ten members, including the Chairman of the Board and President.
However, the number of Directors may exceed the desirable size from time to time
due to mergers, acquisition or other special circumstances. The Directors shall
be elected at the annual meeting of the stockholders or as soon thereafter as
practicable, and shall hold office until the next annual meeting of the
stockholders and until their successors shall have been elected. Vacancies in
the Board of Directors shall be filled as provided by law. Each Director of the
Corporation shall be the owner in his own name and have in his possession or
control shares of the common stock of the Corporation having an aggregate par
value of not less than one thousand dollars ($1,000.00). Such stock must be
unpledged and unencumbered at the time such Director becomes a Director and
during the whole of his term as such.
Section 2. Meetings. Regular meetings of the Board of Directors shall
be held on the fourth Tuesday in each month except the month of August or as
provided below for the transaction of such business as may properly come before
such meeting. The meeting held during the month of the annual meeting of the
stockholders shall be held after the stockholders meeting, shall be the annual
organizational meeting and shall be held for the purpose of the election of
officers and the designation of committees for the ensuing year and for the
transaction of such other business as may properly come before the meeting. No
notice of the annual organizational meeting of the Board of Directors shall be
necessary. Special meetings of the Board of Directors shall be held on call of
the Chairman of the Board or the President. Unless waived in the manner
prescribed by law, notice of any special meeting of Directors shall be given to
each Director at his business or residence in writing by hand delivery,
first-class or overnight mail or courier service, telegram or facsimile
transmission, or orally by telephone. If mailed by first-class mail, such notice
shall be deemed adequately delivered when deposited in the United States mail so
addressed, with postage thereon prepaid, at least five days before such meeting.
If by telegram, overnight mail or courier service, such notice shall be deemed
adequately delivered when the telegram is delivered to the telegraph company or
the notice is delivered to the overnight mail or courier service company at
least twenty-four hours before such meeting. If by facsimile transmission, such
notice shall be deemed adequately delivered when the notice is transmitted at
least twelve hours before such meeting. If by telephone or by hand delivery, the
notice shall be given at least twelve hours prior to the time set for the
meeting. Neither the business to be transacted at nor the purpose of any special
meeting need be specified in the notice of the meeting. Meetings of the Board of
Directors may be held at any time without notice if all the Directors are
present, or if those not present waive notice thereof either before or after the
meeting.
Meetings of the Board of Directors may be conducted by means of conference
telephones or similar communications equipment and a written record shall be
made of the action taken at such meetings.
Section 3. Quorum. A majority of the Directors shall constitute a
quorum at any meeting, regular or special, and a majority of the Directors
present at any meeting at which a quorum is present shall be sufficient for the
transaction of any and all business for which a different quorum or vote is not
otherwise specifically and expressly required by law or these Bylaws.
Section 4. Executive Committee. The Board of Directors may, by a
resolution adopted by a majority of the whole Board of Directors, designate as
an Executive Committee five or more Directors, one of whom shall be the Chairman
of the Board, who may be the Chairman of the Executive Committee if so
designated by the Board of Directors, and one of whom shall be the President.
The Executive Committee, during the interim between meetings of the Board of
Directors, shall have, and may exercise all of the authority of the Board of
Directors, unless otherwise specifically and expressly prohibited by law. The
Executive Committee shall meet at such time and place as established by a
resolution of the Executive Committee, and in the alternative, on the call of
the Chairman of the Board or the President. In the event that any outside
Director designated as a member of the Executive Committee shall be unable to
attend a meeting of the Executive Committee, any outside Director not so
designated may be requested to attend by the Chairman of the Board or the
President as a substitute for the absent member, and, when so in attendance,
shall be deemed for all purposes a duly elected member of the Executive
Committee.
Section 5. Audit Committee. The Audit Committee shall be composed of
outside Directors who are independent of the management of the Corporation and
are free from any relationship that, in the opinion of the Board of Directors,
would interfere with their exercise of independent judgment as an Audit
Committee member. The Audit Committee shall include at least two Directors with
banking or related financial management expertise and shall not include any
large customers of the Corporation.
The Audit Committee shall assist the Board of Directors discharge its
responsibilities relating to the accounting practices, internal controls and
financial reporting of the Corporation. The Audit Committee may serve as the
audit committee of each of the Corporation's bank subsidiaries. The Audit
Committee shall also perform such other duties as may be specified from time to
time by the Board of Directors. The Audit Committee shall meet periodically as
deemed necessary or appropriate to carry out its responsibilities and after its
meetings shall submit a report of its deliberations and actions to the Board of
Directors.
Section 6. Organization and Compensation Committee. The Organization
and Compensation Committee shall be charged with the review and/or approval of
the Corporation's officer title, salary, bonus, incentive and other employee
benefit programs for the employees of the Corporation and its subsidiaries. It
shall also be charged with at least annually reviewing senior management's plans
and recommendations with regard to management succession.
Section 7. Finance Committee. The Finance Committee shall be composed
of outside Directors and shall be charged with the responsibility of reviewing
the financial condition and plans of the Corporation. The Finance Committee
shall analyze and make recommendations to the Board of Directors with respect to
dividends, investments and financings proposed by management.
Section 8. Nominating Governance and Corporate Responsibility
Committee. The Nominating, Governance and Corporate Responsibility Committee
shall be composed of outside Directors and shall be charged with the
responsibility of reviewing and making recommendations with respect to new
Directors of the Corporation and its affiliates and the retirement policy of the
Board of Directors. In that connection the Committee shall review the
qualifications of the current Directors as well as of prospects for continuing
or potential membership on the Board of Directors, this review to include
business and other relationships, if any, with the Corporation as related to a
possible conflict of interest or the appearance thereof. The Committee shall
recommend qualifications for and election to the position of Director Emeritus.
Section 9. Other Committees. The Board of Directors by resolution
adopted by a majority of the Directors present at a meeting at which a quorum is
present, may designate other committees to consist of Directors, officers or
employees of the Corporation, or others. Such other committees shall have the
duties specified in the resolution of appointment.
Section 10. Notice of Committee Meetings; Quorum Rules. Notice of
meetings of a Committee of the Board of Directors shall be given in the same
manner as notices are permitted or required to be given for special meetings of
the Board of Directors. A majority of a Committee shall be necessary for a
quorum. A Committee shall have authority to elect a secretary (unless otherwise
herein provided), and, subject to the first sentence of this Bylaw, to fix its
own rules as to notice and procedure. Meetings of a Committee may be conducted
by means of conference telephones or similar communications equipment, and a
written record shall be made of the action taken at such meetings.
Section 11. Chairman Emeritus. The Board of Directors may designate a
Chairman Emeritus who may serve as the Chairman of the Executive Committee if so
designated. The Chairman Emeritus, if any, shall not be deemed an officer of the
Corporation by virtue of such designation or service.
ARTICLE V
OFFICERS AND THEIR DUTIES
Section 1. Officers, Election and Removal. The officers of the
Corporation shall be a Chairman of the Board, a President, a Secretary, a
Treasurer and such additional officers as the Board of Directors may from time
to time prescribe, all of whom shall be elected annually at the annual
organizational meeting of the Board of Directors following the annual meeting of
the stockholders, to serve until the next such meeting of the Board of Directors
and until their successors are elected, unless sooner removed, but may be
removed at any time at the pleasure of the Board of Directors, and vacancies may
be filled at any meeting of the Board. Any two or more offices may be held by
the same person, except the offices of President and Secretary.
Section 2. Chairman of the Board. The Chairman of the Board shall have
general authority to conduct the business of the Corporation and shall preside
at all meetings of the stockholders and the Board of Directors. He may be the
Chief Executive Officer of the Corporation if so designated. Also, the Chairman
of the Board shall have the authority to appoint officers of the Corporation up
to but not including the titles of members of the Management Committee and to
delegate that authority up to and including the position of Senior Vice
President.
Section 3. President. The President shall perform the duties of the
Chairman of the Board in the absence or upon the disability of the Chairman of
the Board. He may be the Chief Executive Officer or the Chief Operating Officer
of the Corporation if so designated. In the absence of the Chairman of the
Board, the President shall preside at meetings of the stockholders, the Board of
Directors, and the Executive Committee. Also, the President shall have the
authority to appoint officers of the Corporation up to but not including the
titles of members of the Management Committee and to delegate that authority up
to and including the position of Senior Vice President.
Section 4. Secretary. The Secretary shall perform the usual duties of
the office of Secretary and shall have such special authority as may from time
to time be conferred upon him by these Bylaws or the Board of Directors.
Section 5. Treasurer. The Treasurer shall perform the usual duties
of the office of Treasurer.
Section 6. Duties. In addition to the duties herein assigned to certain
officers, they and other officers prescribed by the Board of Directors shall
perform such duties and have such special authority as may from time to time be
conferred upon them by the Board of Directors, the Executive Committee, or
officers senior in rank to them.
<PAGE>
ARTICLE VI
VOTING OF STOCK OWNED
Unless otherwise provided by a vote of the Board of Directors, the
Chairman of the Board, the President, any Vice Chairman of the Board, any Senior
Executive Vice President, the Secretary or the Treasurer may appoint attorneys
to vote any stock in any other corporation owned by the Corporation or may
attend any meeting of the stockholders of such corporation and vote such shares
in person.
ARTICLE VII
Bylaws for the Corporation may be made, altered, amended or repealed by
the Board of Directors, but Bylaws made by the Board of Directors may be
repealed or changed, and new Bylaws made, by the stockholders.
I, Sara Redding Wilson, hereby certify that I am the Corporate Secretary of
Signet Banking Corporation (the Corporation), and that the above Bylaws
consisting of pages 1 through 8, are the Bylaws of the Corporation and are in
effect through December 19, 1995.
WITNESS my hand and the seal of the Corporation this 19th day of December, 1995.
/s/ SARA REDDING WILSON
Corporate Secretary
EXHIBIT 11.1
SIGNET BANKING CORPORATION AND SUBSIDIARIES
FORM 10-K
COMPUTATION OF EARNINGS PER SHARE
(dollars in thousands - except per share)
<TABLE>
<CAPTION>
1995 1994 1993
-----------------------------------------------------
<S> <C> <C> <C>
Common and common equivalent:
Average shares outstanding 58,843,986 57,355,021 56,291,808
Dilutive stock options - based on the
treasury stock method using average
market price 953,732 500,034 574,866
-----------------------------------------------------
Shares used 59,797,718 57,855,055 56,866,674
=====================================================
Net income applicable to
Common Stock $ 111,080 $ 149,834 $ 174,414
=====================================================
Per share amount $ 1.86 $ 2.59 $ 3.07
=====================================================
Assuming full dilution:
Average shares outstanding 58,843,986 57,355,021 56,291,808
Dilutive stock options - based on the
treasury stock method using the
period end market price, if higher
than average market price 982,435 507,906 628,282
-----------------------------------------------------
Shares used 59,826,421 57,862,927 56,920,090
=====================================================
Net income applicable to
Common Stock $ 111,080 $ 149,834 $ 174,414
=====================================================
Per share amount $ 1.86 $ 2.59 $ 3.06
=====================================================
</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.
Signet Banking Corporation and Subsidiaries
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS--1995 COMPARED TO 1994
INTRODUCTION
Signet Banking Corporation ("Signet" or "the Company"), with headquarters in
Richmond, Virginia, is a registered multi-bank, multi-state holding company
whose stock is listed on the New York Stock Exchange under the symbol SBK. At
December 31, 1995, Signet had assets of approximately $11.0 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 Washington, D.C. 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, 253 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 November 22, 1994, Signet transferred certain designated assets and
liabilities of Signet Bank's credit card division 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
Financial Corporation ("Capital One"), a wholly-owned subsidiary of Signet (the
"Separation"). As part of the Separation, Signet Bank retained a small portfolio
of in-market credit card loans. At the same time 7,125,000 shares of common
stock of Capital One were sold in an initial public offering. Signet distributed
all of the remaining 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
enhanced shareholder value by creating two independent financial institutions,
each possessing substantial financial and managerial strength and each pursuing
separate and attractive long-term business strategies.
In 1994, Signet also announced a comprehensive program to improve the
performance of its core banking businesses through initiatives to reduce costs
and enhance revenues. In connection with the spin-off and the cost reduction
measures, Signet recorded special pre-tax charges of $92.2 million for
restructuring ($43.2 million) and for terminating certain data processing
contracts ($49.0 million).
During the third quarter of 1994, the Company acquired Pioneer Financial
Corporation ("Pioneer"), the parent company of Pioneer Federal Savings Bank, a
$400 million financial institution located in Chester, Virginia. The transaction
involved a tax-free exchange of stock and was accounted for as a purchase
acquisition. Pioneer's shareholders received .6232 shares of Signet common stock
for each Pioneer share held. This resulted in Signet issuing approximately 1.5
million shares of common stock. The transaction had an immaterial dilutive
effect on Signet's earnings per share.
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.
In the second quarter of 1995, Signet acquired the assets of Sheffield
Management Company and Sheffield Investments, Inc., managers and distributors of
the Blanchard family of mutual funds. These funds are marketed nationally
through direct mail.
In the third quarter of 1995, Signet adopted Statement of Financial
Accounting Standards ("SFAS") No. 122, "Accounting For Mortgage Servicing
Rights." SFAS No. 122 requires that a mortgage banking enterprise recognize
internally originated rights to service mortgage loans sold to others as
separate assets. Upon adoption, Signet recognized pre-tax income of
approximately $3.7 million. The impact of adoption on 1995 pre-tax income was
$7.2 million.
On October 20, 1995, reflecting its confidence in the Company's growth
plans and improving profitability, Signet's Board of Directors raised the
quarterly dividend by 3 cents to $0.20 per common share. Also in the fourth
quarter of 1995, Signet recognized a $9.6 million gain on securitizing home
equity loans.
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. Based on information currently available, 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 management believes is likely to be
recovered based on current facts and circumstances. The amount of the
recovery is 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 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 believes
the $35 million charge to
<PAGE>
<TABLE>
<CAPTION>
Table 1
SELECTED FINANCIAL DATA (excluding Capital One)
- ---------------------------------------------------------------------------------------------------------------------------
1995 1994 1993
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
SUMMARY OF OPERATIONS
(dollars in thousands-except per share)
Net interest income-taxable equivalent $ 478,670 $ 358,740 $ 353,230
Less: taxable equivalent adjustment 10,603 13,706 15,753
- ---------------------------------------------------------------------------------------------------------------------------
Net interest income 468,067 345,034 337,477
Provision for loan losses 34,786 (16,229) 13,256
- ---------------------------------------------------------------------------------------------------------------------------
Net interest income after provision for loan losses 433,281 361,263 324,221
Non-interest operating income 193,780 195,205 193,817
Securities available for sale gains 532 3,413 3,913
Investment securities gains 1,257 46 405
- ---------------------------------------------------------------------------------------------------------------------------
Total non-interest income 195,569 198,664 198,135
Non-interest expense (1) 484,520 488,309 444,036
- ---------------------------------------------------------------------------------------------------------------------------
Income before income taxes 144,330 71,618 78,320
Applicable income taxes (2) 48,769 15,775 14,391
- ---------------------------------------------------------------------------------------------------------------------------
Net income $ 95,561 $ 55,843 $ 63,929
- ---------------------------------------------------------------------------------------------------------------------------
Per common share:
Net income $ 1.60 $ 0.97 $ 1.12
Cash dividends declared 0.79 1.00 0.80
Book value at year-end 14.59 12.69 14.06
Average common shares outstanding 59,826,421 57,862,927 56,920,090
- ----------------------------------------------------------------------------------------------------------------------------
SELECTED AVERAGE BALANCES
(dollars in millions)
Assets $ 10,607 $ 8,839 $ 9,328
Earning assets 9,447 7,802 8,339
Loans (net of unearned income) 5,765 4,554 4,387
Deposits 7,282 7,436 7,733
Interest bearing liabilities 8,055 6,282 6,973
Common stockholders' equity 808 818 775
Managed consumer loan portfolio 2,532 1,785 1,472
- ----------------------------------------------------------------------------------------------------------------------------
SELECTED YEAR-END BALANCES
(dollars in millions)
Assets $ 10,978 $ 9,859 $ 9,858
Earning assets 9,443 8,825 8,882
Loans (net of unearned income) 5,416 5,696 4,448
Deposits 7,593 7,343 7,821
Interest bearing liabilities 8,024 7,331 7,376
Common stockholders' equity 864 744 796
Managed consumer loan portfolio 2,807 2,295 1,563
- ----------------------------------------------------------------------------------------------------------------------------
RATIOS
Net income to:
Average common stockholders' equity (3) 11.83% 6.83% 9.10%
Average assets (3) 0.90 0.63 0.69
Efficiency ratio excluding foreclosed property expense (3) 72.02 88.28 78.69
Stockholders' equity to assets at year-end 7.87 7.54 8.07
Loans to deposits (average) 79.17 61.24 56.73
Net loan losses to average loans 0.87 0.55 0.75
Net interest spread (4) 4.44 3.96 3.75
Net yield margin (4) 5.07 4.59 4.24
At year-end:
Allowance for loan losses to loans 2.39 2.67 4.27
Allowance for loan losses to non-performing loans 337.05 583.37 256.71
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) 1993 included a provision of $7.4 million to the reserve for foreclosed
properties, which had a December 31, 1993 balance of $5.7 million. 1994
included $43.2 million of restructuring charges. 1995 included the fraud
loss of $35.0 million.
(2) Income taxes applicable to net securities available for sale gains and
investment securities gains were as follows: 1995 -- $0.7 million, 1994 --
$1.2 million; and 1993 -- $1.5 million.
(3) The 1995 ROE and ROA excluding the fraud loss were 14.65% and 1.12%,
respectively. The 1995 efficiency ratio excluding the fraud loss and
foreclosed property expense was 66.88%. The 1994 ROE and ROA excluding
restructuring charges were 10.26% and 0.95%, respectively. The 1994
efficiency ratio excluding restructuring/spin-off charges and foreclosed
property expense was 80.30%.
(4) Net interest spread and net yield margin were calculated on a
taxable equivalent basis, using the federal income tax rate and state
tax rates, as applicable, reduced by the nondeductible portion of interest
expense.
<PAGE>
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.
A detailed discussion of the 1995 operating results and financial condition
at December 31, 1995 follows and is intended to help readers analyze the
accompanying Consolidated Financial Statements and related Notes. Certain
consolidated financial information is located in Tables 27 through 33. In
addition to the discussion of consolidated information, pro forma data is
provided where it is 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.
SUMMARY OF PERFORMANCE
Signet reported consolidated net income for 1995 of $111.1 million, or $1.86 per
share, compared with $149.8 million, or $2.59 per share, in 1994. Consolidated
earnings for the year ended December 31, 1995 included the results of Capital
One for the two months prior to the spin-off on February 28, 1995 and the $35.0
million fraud loss. The 1994 consolidated net income reflected a full year of
Capital One's operations as well as special pre-tax charges of $92.2 million for
restructuring and for terminating certain data processing contracts. Included in
the restructuring charges were costs related to an early retirement plan,
employee severance and facilities consolidation. On a pro forma basis, 1995 net
income increased 71% from $55.8 million to $95.6 million. Pro forma earnings per
share rose 65% from $0.97 in 1994 to $1.60. The pro forma 1995 performance
reflected a substantial increase in net interest income, primarily resulting
from strong growth in the Company's consumer and commercial loan portfolios. The
return on assets ("ROA") and the return on common stockholders' equity ("ROE")
for the year ended December 31, 1995 were 1.00% and 12.79%, respectively,
compared with 1.31% and 14.33% for the same respective ratios in 1994. The pro
forma profitability measures reflected the rise in earnings in 1995, resulting
in an ROA of 0.90% and an ROE of 11.83%. These ratios compare favorably with the
0.63% ROA and 6.83% ROE achieved in 1994, on a pro forma basis.
Taxable equivalent net interest income totaled $503.8 million for 1995, a
4% decline from the $523.7 million recorded in 1994. Pro forma taxable
equivalent net interest income of $478.7 million was a principal component of
earnings and reflected a rise of $119.9 million from the 1994 level. The pro
forma net yield margin for 1995 was 5.07%, a 48 basis point increase from the
4.59% for the prior year. This increase in the net yield margin was primarily
due to an improvement in the net interest spread. The provision for loan losses
of $38.7 million represented a significant rise from the 1994 level of $14.5
million as growth in the consumer loan portfolio warranted this action.
Non-interest operating income totaled $277.5 million for 1995, a 51% decline
from the $564.6 million for the prior year. The drop resulted from a sharp
decline in credit card servicing and service charge income due to the spin-off.
On a pro forma basis, non-interest operating income was lower in 1995 than in
1994, also due to a decline in credit card servicing and service charge income
as the retained credit card portfolio was off-balance sheet for the majority of
1994. During 1995, Signet recognized net securities gains of $1.8 million, down
from $3.5 million in 1994. Non-interest expense decreased $282.4 million from
the previous year due in large part to the restructuring and data processing
contract termination charges of $92.2 million and the spin-off. On a pro forma
basis, non-interest expense also fell, primarily due to the restructuring
charges in 1994, offset in part by the fraud loss in 1995. Declines in
staff-related expenses were more than offset by increases in costs associated
with expanded marketing and testing initiatives throughout the Company. Table 1
shows selected financial data for the past three years, primarily on a pro forma
basis.
INCOME STATEMENT ANALYSIS
NET INTEREST INCOME
Taxable equivalent net interest income, a primary contributor to earnings, was
$503.8 million for 1995, a decline of $19.9 million, or 4%, from the $523.7
million for 1994 as shown in Table 28. The decline in net interest income
reflected the impact of the spin-off. On a pro forma basis, taxable equivalent
net interest income rose $119.9 million in 1995 to $478.7 million primarily due
to an improved mix and a higher level of on-balance sheet average earning
assets. The discussion of net interest income should be read in conjunction with
Table 2--Net Interest Income Analysis and Table 8--Average Balance Sheet, both
of which were prepared on a pro forma basis.
Average earning assets totaled $9.9 billion for 1995, down 2% from the
previous year. On a pro forma basis, average earning assets amounted to $9.4
billion compared with $7.8 billion for 1994, a 21% increase. Loan
securitizations reduced earning assets by transferring assets off the balance
sheet. Adding average securitized loans to both years' pro forma 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 15% increase in
managed earning assets year-over-year. The consumer, commercial, and real estate
mortgage-residential loan categories experienced increases in average balances
in 1995. Decreases occurred in the real estate-construction and real
estate-commercial mortgage categories of the loan portfolio, reflecting the
continued successful efforts of the Company to reduce its commercial real estate
exposure. Investment securities rose $62.1 million on average over 1994
reflecting the purchase of U. S. Government and agency obligations in the fourth
quarter of 1994. In December, 1995, as allowed by implementation guidance for
SFAS No. 115, "Accounting for Certain Investments in Debt and Equity
Securities," the Company reclassified all of its investment securities to
securities available for sale. See a more detailed discussion of Earning Assets
elsewhere in this Report.
<PAGE>
<TABLE>
<CAPTION>
Table 2
NET INTEREST INCOME ANALYSIS (excluding Capital One)
taxable equivalent basis(1)
- -----------------------------------------------------------------------------------------------------------------------------
Year Ended 1995 vs 1994 Year Ended 1994 vs 1993
December 31 Increase Change due to (3) December 31 Increase Change due to (3)
(in thousands) 1995 1994 (Decrease) Volume Rates 1993 (Decrease) Volume Rates
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INTEREST INCOME:
Loans, including fees(2) $541,780 $373,602 $168,178 $108,650 $ 59,528 $332,854 $ 40,748 $ 13,032 $27,716
Securities available for sale 125,492 72,826 52,666 23,716 28,950 17,007 55,819 56,527 (708)
Investment securities 28,669 28,200 469 5,929 (5,460) 126,172 (97,972) (101,511) 3,539
Other earning assets 124,228 88,217 36,011 (1,159) 37,170 83,588 4,629 (11,393) 16,022
- ------------------------------------------------------------------------------------------------------------------------------
Total interest income 820,169 562,845 257,324 130,975 126,349 559,621 3,224 (37,164) 40,388
INTEREST EXPENSE:
Interest bearing deposits 216,014 179,311 36,703 (4,439) 41,142 168,197 11,114 (11,771) 22,885
Federal funds and
repurchase agreements 105,290 3,213 102,077 101,668 409 3,213 3,213
Other short-term borrowings 3,174 4,896 (1,722) (1,115) (607) 21,513 (16,617) (19,574) 2,957
Long-term borrowings 17,021 16,685 336 (104) 440 16,681 4 (1,977) 1,981
- -----------------------------------------------------------------------------------------------------------------------------
Total interest expense 341,499 204,105 137,394 66,073 71,321 206,391 (2,286) (21,394) 19,108
- -----------------------------------------------------------------------------------------------------------------------------
NET INTEREST INCOME $478,670 $358,740 $119,930 $ 80,209 $ 39,721 $353,230 $ 5,510 $ (23,153) $28,663
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Total income from earning assets includes the effects of taxable equivalent
adjustments using the federal income tax rate and state tax rates,
as applicable, reduced by the nondeductible portion of interest expense.
(2) Includes fees on loans of approximately $19,322, $14,019 and $14,655 for
1995, 1994 and 1993, respectively.
(3) The change in interest due to both volume and rates has been allocated in
proportion to the relationship of the absolute dollar amounts of the
change in each. The changes in income and expense are calculated
independently for each line in the schedule. The totals for the volume and
rate columns are not the sum of the individual lines.
Average interest bearing liabilities rose 28% to $8.1 billion for 1995, on
a pro forma basis. Declines in savings certificates, money market savings, large
denomination certificates, other short-term borrowings and long-term borrowings
were more than offset by growth in savings accounts, money market and
interest-checking, and foreign deposit categories and federal funds and
repurchase agreements. Included in savings accounts were deposits held on
behalf of Capital One. Approximately $500 million of these deposits are
expected to transfer to Capital One in the first quarter of 1996. In 1995,
average core deposits of $7.1 billion declined less than 2% from the prior
year and represented 75% of average earning assets and 123% of average
loans. The mix in core deposits changed as depositors responded to volatile
interest rates by shortening maturities and transferring from savings
certificates into money market and demand products. Pro forma non-interest
bearing demand deposits declined less than 1%, on average, during 1995. See a
more comprehensive discussion of Funding elsewhere in this Report.
The pro forma net interest spread of 4.44% for 1995 rose significantly from
the 3.96% reported for the previous year. The increase resulted from funding
rates rising less than the increase in yields on earning assets. The overall
yield on earning assets for 1995 was 8.68%, up 147 basis points from 1994, while
the rate paid for interest bearing liabilities amounted to 4.24%, up 99 basis
points from the previous year.
The pro forma net yield margin rose by 48 basis points in 1995 to 5.07%
from 4.59% for 1994. The increase in the net yield margin was the net result of
several factors, as analyzed in Table 3. An approximate basis point impact was
calculated for each item noted. Higher yields and growth in commercial and
consumer loans more than offset the rise in funding rates to raise the net yield
margin.
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)/increased interest on
earning assets by ($14.0) million, $13.4 million and $14.3 million and decreased
borrowing costs by $20.3 million, $39.0 million and $82.4 million for 1995, 1994
and 1993, respectively. The overall increase in the net yield margin as a result
of these instruments amounted to 5, 52 and 92 basis points for 1995, 1994 and
1993, respectively. For a more detailed description and discussion of derivative
income and expense impact on net income, refer to the Derivatives and Other
Off-Balance Sheet Risk section elsewhere in this Report.
Table 3
ANALYSIS OF CHANGE IN NET YIELD MARGIN --
1995 VERSUS 1994 (excluding Capital One)
- -------------------------------------------------------------------
Net yield margin for the year ended December 31, 1994 4.59%
Higher funding costs (excluding decrease in
derivative income) (0.63)
Higher average and yield on total on balance sheet
consumer loans (excluding decrease in derivative income) 0.61
Decrease in derivative income (0.50)
Decline in average/higher yield on Federal funds and
resale agreements -- net 0.29
Higher average and yield on securities available for sale
(excluding decrease in derivative income) 0.18
Higher average and yield on commercial loans
(excluding decrease in derivative income) 0.18
Improved yield and mix on the other earning assets
and other factors 0.35
- -------------------------------------------------------------------
Net yield margin for the year ended December 31, 1995 5.07%
- -------------------------------------------------------------------
<PAGE>
Loan securitizations also have an effect on net interest income and the net
yield margin. For a detailed analysis of this effect, see the discussion of
Consumer Loan Growth and Table 12 elsewhere in this Report.
PROVISION AND ALLOWANCE FOR LOAN LOSSES
(ON A PRO FORMA BASIS)
The provision for loan losses is the periodic expense of maintaining an adequate
allowance to absorb anticipated future losses, net of recoveries, in the
existing loan portfolio. In evaluating the adequacy of the provision and the
allowance for loan losses, management takes into consideration several factors
including national and local economic trends and conditions; weighted average
historical losses; trends in delinquencies, bankruptcies and non-performing
loans; trends in watch list growth/reduction; off-balance sheet credit risk;
known deterioration and concentrations of credit; effects of any changes in
lending policies and procedures; credit evaluations; and the experience and
ability of lending management and staff. Commercial and real estate loan
charge-offs are recorded when any loan or portions of loans are determined to be
uncollectible. Credit card loans typically are charged off when they are six
months past due and a minimum payment has not been received for 60 days, while
other consumer loans are typically charged off when they are six months past
due. Credit card and other consumer loans are also charged off when the customer
declares bankruptcy. Once a loan has been charged off, Signet continues to
pursue the collection of principal and interest. Table 4 provides a three-year
comparison of activity in the pro forma allowance for loan losses along with
details by loan category of the charge-offs and recoveries.
The provision for loan losses totaled $34.8 million for 1995 compared with
provision reversals of $16.2 million
<TABLE>
<CAPTION>
Table 4
CHANGES IN ALLOWANCE FOR LOAN LOSSES (excluding Capital One)
- -----------------------------------------------------------------------------------------------------------------------------
Year Ended December 31
- -----------------------------------------------------------------------------------------------------------------------------
(dollars in thousands) 1995 1994 1993
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at beginning of year $152,003 $189,797 $209,543
Provision for loan losses 34,786 (16,229) 13,256
Transfer to loans held for securitization/sale(1) (7,132)
Addition arising from acquisition 3,327
Loans charged-off:
Consumer(2) 32,386 2,652 1,850
Commercial 5,740 9,827 17,832
Real estate-construction 1,143 9,746 26,890
Real estate-mortgage(3) 18,627 20,360 5,720
- -----------------------------------------------------------------------------------------------------------------------------
Total loans charged-off 57,896 42,585 52,292
Recoveries of loans previously charged-off:
Consumer(2) 1,509 1,101 1,338
Commercial 4,570 5,997 13,138
Real estate-construction 1,496 6,037 4,259
Real estate-mortgage(3) 366 4,558 555
- ------------------------------------------------------------------------------------------------------------------------------
Total recoveries 7,941 17,693 19,290
- ------------------------------------------------------------------------------------------------------------------------------
Net loans charged-off 49,955 24,892 33,002
- ------------------------------------------------------------------------------------------------------------------------------
Balance at end of year $129,702 $152,003 $189,797
- ------------------------------------------------------------------------------------------------------------------------------
Net charge-offs to average loans:
Consumer 1.39% 0.10% 0.04%
Commercial 0.04 0.18 0.22
Real estate 1.95 2.15 2.45
- ------------------------------------------------------------------------------------------------------------------------------
Total 0.87% 0.55% 0.75%
- ------------------------------------------------------------------------------------------------------------------------------
Allowance for loans losses to net loans at year-end 2.39% 2.67% 4.27%
- ------------------------------------------------------------------------------------------------------------------------------
(1) The amount transferred to loans held for sale related to Capital
One assets was $5,272 for 1995.
(2) Consumer includes loan-by-check net charge-offs as noted below:
Loan-by-check risk tests $ 16,763 $ 8
Other loan-by-check 3,575 222
- ------------------------------------------------------------------------------------------------------------------------------
Total loan-by-check net charge-offs $ 20,338 $ 230
- ------------------------------------------------------------------------------------------------------------------------------
Average loan-by-check:
Loan-by-check risk tests $ 211,192 $ 25,795
Other loan-by-check 218,401 33,749
- ------------------------------------------------------------------------------------------------------------------------------
Total loan-by-check $ 429,593 $ 59,544
- ------------------------------------------------------------------------------------------------------------------------------
Net loan losses (annualized) as a percentage of average loan-by-check:
Loan-by-check risk tests 7.94% 0.03%
Other loan-by-check 1.64 0.66
- ------------------------------------------------------------------------------------------------------------------------------
Total loan-by-check 4.73% 0.39%
- ------------------------------------------------------------------------------------------------------------------------------
</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.
<PAGE>
<TABLE>
<CAPTION>
Table 5
ALLOWANCE FOR LOAN LOSSES ALLOCATION (excluding Capital One)
- --------------------------------------------------------------------------------------------------------------------------------
December 31, 1995 December 31, 1994 December 31, 1993
- --------------------------------------------------------------------------------------------------------------------------------
Percentage of Percentage of Percentage of
Loans in Each Loans in Each Loans in Each
Allowance Category to Allowance Category to Allowance Category to
(dollars in thousands) Amount Total Loans Amount Total Loans Amount Total Loans
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Consumer $ 49,825 31.45% $ 25,577 41.22% $ 3,514 27.59%
Commercial 26,367 55.52 34,041 42.74 33,618 51.05
Real estate* 40,123 13.03 60,532 16.04 83,315 21.36
Unallocated 13,387 31,853 69,350
- -------------------------------------------------------------------------------------------------------------------------------
Total $129,702 100.00% $152,003 100.00% $189,797 100.00%
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Real estate loans include real estate-construction, real estate-commercial
mortgage and real estate-residential mortgage loans. Real estate-residential
has an insignificant amount of allowance allocated to it because of the
minimal credit risk associated with that type of loan.
in 1994. The increase resulted primarily from growth and increased losses in
the consumer loan portfolio.
Net charge-offs doubled to $50.0 million for 1995, compared with $24.9
million for the prior year. In 1995, $13.9 million of the charge-offs
resulted from the bulk sale of commercial real estate related loans for which
there was sufficient allowance. Of the $30.1 million in real estate gross
charge-offs in 1994, approximately $21.0 million were the result of the sale
of $102 million of commercial real estate related loans. These sales were part
of Signet's strategy to reduce its overall commercial real estate exposure.
Commercial loan net charge-offs declined when comparing 1995 with 1994 due to
improved credit quality and the generally favorable economic climate. Commercial
net charge-offs for the Company totaled $1.2 million, a $2.6 million decrease
from the previous year. The 1995 commercial loan charge-offs included $1.3
million related to the loan sale in the second quarter. One large commercial
credit, for which there was sufficient allowance, was sold early in 1994 and
accounted for approximately $3.3 million of the 1994 commercial loan
charge-offs. Consumer loan net charge-offs rose in 1995 as Signet experienced
higher charge-offs related to certain risk tests conducted for its
"loan-by-check" product. These 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. Information
gathered from these risk tests was used to improve the credit quality of loans
generated by subsequent 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 these solicitations have seasoned.
The allowance for loan losses at December 31, 1995 was $129.7 million, or
2.39% of year-end loans, compared with the pro forma 1994 year-end allowance of
$152.0 million, or 2.67% of loans. The 1995 year-end allowance for loan losses
equated to 3.4 times year-end non-performing loans and 2.4 times year-end
non-performing assets, down from December 31, 1994 when the pro forma allowance
for loan losses amounted to 5.8 times non-performing loans and 3.1 times
non-performing assets. The decline in the level of the allowance primarily
reflected the higher consumer loan charge-offs and charge-offs taken on real
estate related loans, the majority of which resulted from the second quarter
1995 real estate loan sale mentioned previously.
Signet's allocated allowance for loan losses for all loan categories is
detailed in Table 5. 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 ratings
applied to these loans which assist in the related 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. The overall allocation is not a
prediction of future charge-off trends. Furthermore, the portion allocated to
each loan category is not the total amount available for future losses that
might occur since the total allowance is a general allowance applicable to the
entire loan portfolio. 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.
Beginning in 1995, Signet adopted SFAS No. 114, "Accounting by Creditors
for Impairment of a Loan," and SFAS No. 118, "Accounting by Creditors
for Impairment of a Loan-Income Recognition and Disclosures." In accordance
with SFAS No. 114, impaired loans are measured and reported based on the
present value of expected future cash flows discounted at the loan's effective
interest rate, or at the fair value of the loan's collateral if the loan
is collateral dependent. Impaired loans are specifically reviewed loans for
which it is probable that the creditor will be unable to collect all
amounts due according to the terms of the loan agreement and represent a
subset of the classified loans noted above. A valuation allowance is required
to the extent that the measure of impaired loans is less than the recorded
investment.
<PAGE>
SFAS No. 114 does not apply to large groups of homogeneous loans such as
consumer installment and credit card loans, which are collectively evaluated for
impairment. Smaller balance commercial loans are also excluded from the
application of SFAS No. 114. At December 31, 1995, Signet's loans that were
considered to be impaired under SFAS No. 114 were comprised of $32.6 million of
non-accrual loans for which the related allowance for loan losses was $10.6
million. The average recorded investment in impaired loans during the year ended
December 31, 1995 was approximately $28.8 million. Collateral dependent loans,
which were measured at the fair value of the loan's collateral made up the
majority of impaired loans at December 31, 1995.
SFAS No. 118 allows a creditor to use existing methods for recognizing
interest income on impaired loans. Interest receipts on impaired loans are
applied in a manner consistent with Signet's policy for non-accrual loans. For
the year ended December 31, 1995, no interest income was recorded on loans once
placed on non-accrual status. All interest receipts on impaired loans were
applied to the principal.
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, service charges, trust and
investment management fees and other income. Signet's business strategies
continued to emphasize non-interest operating income sources.
Table 6 details the various components of non-interest income for the past
three years on a pro forma basis. Non-interest income for 1995 was $195.6
million, down 2% from $198.7 million for 1994 and included $0.5 million ($0.3
million after-tax) and $3.4 million ($2.2 million after-tax), for 1995 and 1994,
respectively, of securities available for sale gains. Signet recognized nominal
gains on investment securities during 1995 and 1994, as certain securities were
called for redemption.
Pro forma non-interest operating income amounted to $193.8 million for
1995, a decline of $1.4 million, or less than 1%, versus 1994. Two primary
reasons for this drop were: 1) prior to the Separation the entire credit card
portfolio retained by Signet was securitized causing the pro forma consumer loan
servicing and service charge income to be $13.7 million higher in 1994; and 2)
intercompany reimbursements from Capital One for various fixed non-interest
expenses prior to the Separation totaled $26.4 million.
Service charges on deposit accounts rose $2.1 million, or 3%, over 1994 to
$68.2 million. Trust and investment management income, which totaled $23.5
million, was up 21% from last year primarily due to fees for managing the
recently acquired Blanchard funds, growth in the number of customers
served by Signet and revised trust fee schedules. Consumer loan servicing
income and service charge income fell 51% from 1994 primarily related to the
fact that prior to the Separation, the entire credit card portfolio
retained by Signet was securitized. Signet recognized a $9.6 million gain on the
securitization of home equity loans during the fourth quarter of 1995. Mortgage
servicing and origination income totaled $22.4 million for 1995 compared with
$18.7 million in 1994, an increase of 20%, as a result of the rise in mortgage
loan servicing income more than compensating for a decline in the volume of
mortgage loans originated. During 1995, residential mortgage production totaled
$751 million, which was 13% lower than the 1994 level. However, towards the end
of 1995, Signet experienced an increase in volume as mortgage rates declined.
The Company's mortgage servicing portfolio grew to $6.6 billion at year-end
1995, up from $4.8 billion at December 31, 1994. Other service charges and fees,
which consisted primarily of discount brokerage ($5.1 million), fees related to
commercial and standby letters of credit ($3.9 million) and checkbooks ($3.4
million) totaled $15.1 million, level with 1994. Trading profits derived from
services performed as a dealer bank for customers and from profits and losses
earned on securities trading and arbitrage positions improved to $12.0 million
for 1995 compared with trading losses of $268 thousand in 1994. Results from
sales of mortgage loans also experienced a turnaround from losses
<TABLE>
<CAPTION>
Table 6
NON-INTEREST INCOME (excluding Capital One)
- -------------------------------------------------------------------------------------------------------------------------------
Percent Change
Year Ended Increase Year Ended
(dollars in thousands) December 31 (Decrease) December 31
- -------------------------------------------------------------------------------------------------------------------------------
1995 1994 1995/1994 1993
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Service charges on deposit accounts $ 68,231 $ 66,141 3% $ 64,471
Trust and investment management income 23,531 19,442 21 17,599
Consumer loan servicing income and service charge income 13,163 26,834 (51) 30,656
Gain on securitization of loans 9,562 N/M
Mortgage servicing and origination 22,429 18,661 20 24,210
Other service charges and fees 15,069 14,962 1 16,017
Trading profits (losses) 11,969 (268) N/M (1,396)
Gains (losses) on sale of mortgage loans 7,178 (3,276) N/M (3,987)
Gain on sale of mortgage servicing 977 6,000 (84)
Intercompany reimbursements from Capital One 26,378 N/M 27,524
Other 21,671 20,331 7 18,723
- ------------------------------------------------------------------------------------------------------------------------------
Non-interest operating income 193,780 195,205 (1) 193,817
Securities available for sale gains 532 3,413 (84) 3,913
Investment securities gains 1,257 46 N/M 405
- ------------------------------------------------------------------------------------------------------------------------------
Total non-interest income $195,569 $198,664 (2)% $198,135
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
of $3.3 million in 1994 to gains of $7.2 million in 1995. The adoption of SFAS
No. 122 mentioned earlier and the sale of approximately $179 million
adjustable rate mortgage loans in December 1995 were major factors in the
improvement. Gains on sales of mortgage servicing rights amounted to $977
thousand in 1995, which was down from $6.0 million in 1994. The remaining
portion of non-interest operating income, which included safe deposit box
rentals, income from various insurance products, venture capital income and
miscellaneous income from other sources, amounted to $21.7 million for 1995, an
increase of $1.3 million, or 7%, over the prior year.
NON-INTEREST EXPENSE (ON A PRO FORMA BASIS)
Pro forma non-interest expense for 1995 totaled $484.5 million, a decline of
$3.8 million, or 1%, from 1994. Excluding the 1995 fraud loss and the 1994
restructuring charges, non-interest expenses were up $4.4 million, or just 1%,
from the prior year as lower staff expenses were more than offset by higher
expenses related to the growth of the consumer loan portfolio. Table 7 details
the various categories of non-interest expense for the past three years on a pro
forma basis.
Signet's pro forma efficiency ratio (the ratio of non-interest expense to
taxable equivalent operating income) was 72.05% for 1995, compared with
88.15% for 1994. Excluding the fraud loss, the restructuring charges, other
one-time spin-off related expenses and foreclosed property expense from
non-interest expense changes the ratio to 66.88% and 80.30% for the two
respective years.
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. Based on information currently available, 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 management
believes is likely to be recovered based on current facts and circumstances. The
amount of the recovery is 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 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 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.
In the third quarter of 1994, Signet's Board of Directors approved a
comprehensive core bank improvement plan to reduce the efficiency ratio through
cost reductions and revenue initiatives. In conjunction with the plan, Signet
recorded a restructuring charge of $43.2 million ($28.1 million after-tax, or
$0.48 per share). The charge included approximately $15.6 million for increased
retiree medical and pension benefits related to an early retirement program in
which 225 employees participated; about $13.0 million of accelerated retiree
medical and pension obligations and anticipated severance benefits for
approximately 750 employees; and about $14.6 million related to the writedown of
bank-owned properties and lease terminations due to the expected facilities
abandonment related to the reduction in employees. As of December 31, 1995, 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
<TABLE>
<CAPTION>
Table 7
NON-INTEREST EXPENSE (excluding Capital One)
- --------------------------------------------------------------------------------------------------------------------------------
Percent Change
Year Ended Increase Year Ended
(dollars in thousands) December 31 (Decrease) December 31
- --------------------------------------------------------------------------------------------------------------------------------
1995 1994 1995/1994 1993
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Salaries $181,030 $186,216 (3)% $173,710
Employee benefits 44,014 50,039 (12) 55,492
- --------------------------------------------------------------------------------------------------------------------------------
Total staff expense 225,044 236,255 (5) 229,202
Occupancy 38,484 41,869 (8) 39,094
Supplies and equipment 36,170 34,045 6 32,587
External data processing services 27,115 27,660 (2) 27,344
Travel and communications 24,544 22,758 8 17,800
Commercial fraud loss 35,000 N/M
Restructuring charge 43,212 N/M
Professional services 16,176 16,905 (4) 14,096
Public relations, sales and advertising 15,941 13,469 18 14,912
FDIC assessment 8,806 16,754 (47) 18,253
Credit and collection 2,044 2,368 (14) 4,321
Foreclosed property (220) (699) 69 13,575
Other 55,416 33,713 64 32,852
- --------------------------------------------------------------------------------------------------------------------------------
Total non-interest expense $484,520 $488,309 (1)% $444,036
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
made under the early retirement program and approximately $7.0 for lease
termination and other facilities related costs. All cash outflows related to the
restructuring charge were funded by cash provided by operations. In addition,
$19.5 million was transferred from the restructuring liability to Signet's
pension benefit liability and postretirement liability and $0.4 million was
reallocated within the restructuring liability from accrued facilities
related costs to accrued benefits as a result of a change in the estimated
costs. The remaining liability of $7.2 million is primarily comprised of
accrued facilities related costs. As a result of implementing the cost
reduction measures, the number of full-time equivalent employees excluding
Capital One fell 7% from December 31, 1993. The plan, as it relates to the early
retirement and severance programs, was fully implemented by the end of 1995. All
other components of the plan should be completed by the end of 1996. Savings of
approximately $40 million per year, primarily related to reduced salary and
benefits expense, should be realized once the plan is fully implemented. As
noted earlier, the decline in staff related costs in 1995 has been more than
offset by an increase in expenses associated with expanded marketing and testing
initiatives throughout the Company.
Staff expense (salaries and employee benefits), the largest component of
non-interest expense, totaled $225.0 million, a 5% decline from 1994. Salaries
dropped 3% and benefits expense fell 12% year-over-year primarily due to the
decline in the number of employees mentioned above and favorable experience in
benefits expense during 1995.
Certain of the non-interest expense categories reflected the costs
associated with increased business volume. Travel and communications expense
rose $1.8 million, or 8%, year-over-year, primarily due to higher postage and
telephone charges related to managing a larger consumer loan portfolio. The $2.1
million increase in supplies and equipment expense was attributable to servicing
the expanded consumer loan base. Public relations, sales and advertising
expense rose $2.5 million, or 18%, to $15.9 million as Signet expanded its
consumer loan solicitation program. This strategy was implemented to increase
account growth and outstandings and has required significant out-of-pocket
expenses to launch large scale but carefully planned national solicitations. The
Company's solicitation strategy, which uses extensive testing, is designed to
improve the efficiency of the solicitation process, thereby improving
opportunities to create value by controlling credit exposure and creating higher
probabilities for successful growth. The success of this strategy is witnessed
by the growth in the total managed consumer loan portfolio from $1.6 billion at
December 31, 1993 to $2.8 billion at December 31, 1995.
Occupancy expense decreased $3.4 million, or 8%, from year-to-year, due to
the restructuring mentioned earlier. External data processing services totaled
$27.1 million, a slight improvement from 1994. Professional services also
experienced a moderate decline year-to-year. The $8.0 million, or 47%, drop in
deposit insurance assessment from the Federal Deposit Insurance Corporation
("FDIC") reflects the decline in the rates charged by the FDIC effective June 1,
1995. The two Signet banks are "well capitalized" under FDIC regulations and, as
a result, pay the lowest FDIC insurance premium rate.
Other non-interest expense rose 64% from 1994 to 1995 primarily due to
various servicing agreements with Capital One. These agreements cover servicing
for Signet's credit card portfolio, solicitation expense paid by Capital One on
Signet's behalf and payment of the difference between the secured card deposits'
stated and agreed upon rates.
INCOME TAXES (ON A PRO FORMA BASIS)
Pro forma income tax expense for 1995 was $48.8 million as compared with $15.8
million for 1994. This represented an effective tax rate of 33.8% for 1995 and
22.0% for 1994. The significant increase in the effective tax rate was
attributable to a decline in the ratio of tax exempt income as a percentage of
pre-tax income. Pre-tax income grew dramatically and total tax exempt income
dropped from year-to-year as a majority of the municipal bonds have been called.
Note L to the Consolidated Financial Statements reconciles reported income tax
expense to the amount computed by applying the federal statutory rate to income
before income taxes.
BALANCE SHEET REVIEW (ON A PRO FORMA BASIS)
EARNING ASSETS
Pro forma average earning assets totaled $9.4 billion for 1995, (as shown in
Table 8--Average Balance Sheet), an increase of 21% from the 1994 level. The
portfolios experiencing the largest declines were federal funds sold and
securities purchased under agreements to resell ($333 million) and interest
bearing deposits with other banks ($218 million), while the securities
available for sale and the loan portfolios increased by $378 million and $1.2
billion, respectively. A more detailed discussion of the various earning asset
categories follows.
LOANS
Pro forma loans (net of unearned income) for 1995, averaged $5.8 billion, an
increase of $1.2 billion, or 27%, from the 1994 level. Average balances
increased in the consumer, commercial and real estate-residential mortgage loan
categories, while the real estate-construction and real estate-commercial
mortgage loan average balances declined. The composition of the loan portfolio
has been significantly altered over the past three years by strong growth in
commercial and consumer loans reflecting positive response to Signet's
innovative product offerings. In addition, Signet reduced its overall average
commercial real estate loan exposure by $133 million during 1995. At year-end,
Signet had no commercial loans outstanding to borrowers in the same or related
industries which, in total, exceeded ten percent of total loans. Approximately
half of the loan portfolio is secured, including all real estate related loans,
leases, and a portion of the consumer and commercial loan portfolios. The
unsecured portion includes mostly student, loan-by-check and credit card loans.
Signet reviews each prospective credit in order to determine an adequate level
of security or collateral
<PAGE>
<TABLE>
<CAPTION>
Table 8
AVERAGE BALANCE SHEET (excluding Capital One)
- ---------------------------------------------------------------------------------------------------------------------------------
1995 1994 1993
- ---------------------------------------------------------------------------------------------------------------------------------
Average Income\ Yield\ Average Income\ Yield\ Average Income\ Yield\
(dollars in thousands) Balance Expense Rate Balance Expense Rate Balance Expense Rate
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Earning assets (tax equivalent
basis): (1)
Interest bearing deposits
with other banks $ 31,649 $ 1,903 6.01% $ 249,866 $ 11,441 4.58% $ 262,910 $ 12,031 4.58%
Federal funds and resale agreements 587,333 35,452 6.04 920,591 42,279 4.59 752,510 23,196 3.08
Trading account securities 476,361 30,800 6.47 287,192 21,487 7.48 484,384 31,297 6.46
Loans held for securitization 303,123 32,316 10.66
Loans held for sale 253,758 23,757 9.36 200,712 13,010 6.48 249,797 17,064 6.83
Securities available for sale 1,705,966 125,492 7.36 1,327,896 72,826 5.48 299,023 17,007 5.69
Investment securities-taxable 208,711 15,055 7.21 65,350 4,305 6.59 1,628,855 93,806 5.76
Investment securities-nontaxable 115,221 13,614 11.82 197,231 23,895 12.12 274,967 32,366 11.77
Loans (net of unearned income): (2)
Consumer 2,213,646 244,485 11.04 1,497,056 128,570 8.59 1,152,057 87,286 7.58
Commercial 2,633,370 209,765 7.97 2,148,726 165,372 7.70 2,101,423 158,587 7.55
Real estate-construction 224,597 23,263 10.36 249,353 21,007 8.42 448,859 31,590 7.04
Real estate-commercial mortgage 452,392 44,275 9.79 560,542 50,254 8.97 607,573 47,757 7.86
Real estate-residential mortgage 241,038 19,992 8.29 97,855 8,399 8.58 76,962 7,634 9.92
- -----------------------------------------------------------------------------------------------------------------------------------
Total loans 5,765,043 541,780 9.40 4,553,532 373,602 8.20 4,386,874 332,854 7.59
- -----------------------------------------------------------------------------------------------------------------------------------
Total earning assets 9,447,165 $820,169 8.68% 7,802,370 $562,845 7.21% 8,339,320 $559,621 6.71%
- -----------------------------------------------------------------------------------------------------------------------------------
Non-rate related assets:
Cash and due from banks 522,774 493,490 460,799
Allowance for loan losses (138,655) (175,199) (203,839)
Premises and equipment (net) 172,119 189,894 173,730
Other assets 603,964 528,153 558,398
- -----------------------------------------------------------------------------------------------------------------------------------
Total assets $10,607,367 $8,838,708 $9,328,408
- -----------------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest bearing liabilities:
Deposits:
Money market and interest
checking $ 1,033,501 $ 26,390 2.55% $1,020,838 $ 23,123 2.27% $ 960,342 $ 22,544 2.35%
Money market savings 1,361,516 47,696 3.50 1,618,550 44,571 2.75 1,738,336 45,463 2.62
Savings accounts 1,283,696 48,738 3.80 1,019,068 33,461 3.28 772,194 24,079 3.12
Savings certificates 1,852,542 81,345 4.39 1,981,823 66,352 3.35 2,364,320 58,514 2.47
Large denomination certificates 105,390 5,498 5.22 159,027 7,382 4.64 272,693 10,970 4.02
Foreign 106,029 6,347 5.99 86,657 4,422 5.10 200,440 6,627 3.31
- ----------------------------------------------------------------------------------------------------------------------------------
Total interest bearing
deposits 5,742,674 216,014 3.76 5,885,963 179,311 3.05 6,308,325 168,197 2.67
Federal funds and repurchase
agreements 2,003,775 105,290 5.25 68,041 3,213 4.72
Other short-term borrowings 55,654 3,174 5.70 74,286 4,896 6.59 377,457 21,513 5.70
Long-term borrowings 253,319 17,021 6.72 254,917 16,685 6.55 286,809 16,681 5.82
- -----------------------------------------------------------------------------------------------------------------------------------
Total interest bearing liabilities 8,055,422 341,499 4.24% 6,283,207 204,105 3.25% 6,972,591 206,391 2.96%
- -----------------------------------------------------------------------------------------------------------------------------------
Non-interest bearing liabilities:
Demand deposits 1,538,928 1,549,629 1,424,260
Other liabilities 205,342 187,995 156,211
Common stockholders' equity 807,675 817,877 775,346
- -----------------------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders'
equity $10,607,367 $8,838,708 $9,328,408
- ------------------------------------------------------------------------------------------------------------------------------------
Net interest income/spread $478,670 4.44% $358,740 3.96% $353,230 3.75%
- ------------------------------------------------------------------------------------------------------------------------------------
Interest income to average earning assets 8.68% 7.21% 6.71%
Interest expense to average earning assets 3.61 2.62 2.47
- ------------------------------------------------------------------------------------------------------------------------------------
Net yield margin 5.07% 4.59% 4.24%
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Includes the effects of taxable equivalent adjustments, using the federal
income tax rate and state tax rates, as applicable, reduced by the
nondeductible portion of interest expense.
(2) For the purpose of these computations, nonaccrual loans are included in the
daily average loan amounts. Also, interest income includes fees on loans of
approximately $19,322, $14,019 and $14,655 for 1995, 1994 and 1993,
respectively.
<PAGE>
Table 9
SUMMARY OF TOTAL LOANS (excluding Capital One)
- ------------------------------------------------------------------------------
December 31
- ------------------------------------------------------------------------------
(in thousands) 1995 1994 1993
- ------------------------------------------------------------------------------
Loans:
Consumer $1,751,274 $2,384,178 $1,243,080
Commercial 3,090,904 2,472,620 2,299,973
Real estate-construction 236,103 209,183 309,842
Real estate-commercial mortgage 366,698 526,956 581,529
Real estate-residential mortgage 122,584 191,508 71,411
- ------------------------------------------------------------------------------
Total $5,567,563 $5,784,445 $4,505,835
- ------------------------------------------------------------------------------
prior to making the loan. The type of collateral will vary and range from liquid
assets to real estate.
Consumer loans averaged $2.2 billion for 1995, a 48% increase from 1994,
and represented 38% of the total loan portfolio. This category consists of
student, home equity, installment, credit card and other consumer loan types.
The increase in consumer loans was concentrated in student loans and installment
loans generated by Signet's information-based strategy. The growth was
achieved through a variety of attractive products offered to carefully
targeted customer segments. Table 13 illustrates the effectiveness of Signet's
ability to implement growth strategies in the consumer and student loan markets
in 1995. Risks faced by the Company include the possibility of (i) future
economic downturns causing an increase in credit losses and (ii) an
increasing number of consumers defaulting on payments or seeking protection
under bankruptcy laws, resulting in accounts being charged off as uncollectible.
Commercial loans, which represented 46% of the total average loan
portfolio, averaged $2.6 billion for 1995, an increase of 23% from last year.
Signet's commercial loan portfolio is strongly oriented toward a diverse group
of middle market borrowers. These loans are predominately in the manufacturing,
wholesaling, services and real estate industries. Signet also markets to certain
specialized industries, such as media and health care. The specialized
industries are targeted based on certain in-house expertise along with projected
prospects for profitability. The credit risk associated with middle market and
specialized industry borrowers is principally influenced by general economic
conditions and the resulting impact on the borrower's operations. In addition,
the Company faces the risk of diminishing collateral values. Collateralization
for commercial loans primarily consists of liquid assets, trading assets and
capital assets, and is determined on a case-by-case basis.
Real estate-construction loans averaged $225 million, a decrease of 10%, or
$25 million, from the 1994 average. This category represented less than 4% of
the average loan portfolio for 1995. During 1995 and 1994, the Company sold
portfolios of real estate related loans totaling $55 million and $102 million,
respectively, at a discount for which there was sufficient allowance. The sale
of these loans accounted for approximately $13.9 million and $21.0 million of
the 1995 and 1994, respectively, net charge-offs. The real estate loan sale
impacted the real estate-construction loan ($6 million-1995 and $73
million-1994) and real estate-commercial mortgage loan ($49 million-1995 and $29
million-1994) categories. The credit risk associated with real estate lending is
principally influenced by real property markets and the resulting impact on the
borrower's operations. A primary risk associated with the real estate business
involves the possibility of future economic downturns in the real property
market causing an increase in credit losses. Signet maintains loan-to-value
maximums of 80% for construction and commercial mortgage loans. The maximum
loan-to-value collateral limits have been established to meet the Company's
goals in targeting percentages based on diversification strategy, market
conditions and economic conditions.
Real estate-commercial mortgage loans represented less than 8% of the
average loan portfolio in 1995. This category averaged $452 million, a 19%
decrease from 1994. The portfolio consisted of $254 million of commercial
mortgage loans and $198 million of mini-permanent (interim) mortgage loans
compared with $276 million and $285 million for the respective loan types in
1994. Construction loans typically are converted to mini-permanent mortgage
loans when the related project is generating sufficient cash to cover debt
service, and permanent financing, for various reasons, is not desired or
obtainable at the present time. Real estate-commercial mortgage loans decreased
partially as a result of the sale of approximately $49 million in 1995 and $29
million in 1994 of these loans for which there was sufficient allowance.
Real estate-residential mortgage loans increased $143 million, or 146%,
from 1994 to average $241 million as a the result of growth in mortgages
originated by Signet and loans acquired in the Pioneer acquisition. This
category consisted of conventional home mortgages which experienced a decline in
refinancings during 1994. Refinancing activity rose substantially toward the end
of 1995 as interest rates fell. In December, 1995, Signet sold approximately
$179 million of adjustable rate mortgage loans at a $3.1 million gain as
management anticipated a rise in prepayments on this portfolio as rates
declined. It is the Company's policy to maintain average loan-to-value maximums
of 85% for real estate-residential mortgages. Loans above 80% have mortgage
insurance.
The various on-balance sheet loan categories for the past three year-ends
are detailed in Table 9. Table 10 shows the maturities of selected loan
categories at year-end 1995. Loans, as a result of maturities, monthly payments,
sales and securitizations provide an important source of liquidity. See
discussion on Liquidity elsewhere in this Report. Unused
<PAGE>
<TABLE>
<CAPTION>
Table 10
MATURITIES OF SELECTED LOANS
December 31, 1995
- -----------------------------------------------------------------------------------------------------------------------------
Maturing
- -----------------------------------------------------------------------------------------------------------------------------
Within After One Year After
(in thousands) One Year But Within Five Years Five Years Total
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Commercial $1,566,075 $1,158,200 $366,629 $3,090,904
Real estate-construction 106,872 121,812 7,419 236,103
Real estate-commercial mortgage 129,673 168,179 68,846 366,698
- -----------------------------------------------------------------------------------------------------------------------------
Total $1,802,620 $1,448,191 $442,894 $3,693,705
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
For interest sensitivity purposes, $412,207 of the amounts due after one year
are fixed rate loans and $1,478,878 are variable rate loans.
loan commitments related primarily to commercial loans and excluding
credit card loans were approximately $2.7 billion at year-end 1995 down from
$2.9 billion at year-end 1994.
SECURITIES
The securities portfolio consists of trading account securities, securities
available for sale and investment securities. If the Company has the positive
intent and ability to hold securities until maturity, they are classified as
investment securities and carried at amortized historical cost. Otherwise,
securities are classified either as available for sale, which are carried at
market with unrealized gains and losses recorded through adjustments to
stockholders' equity, or as trading account securities and carried at market
with unrealized gains and losses recorded through earnings, depending on
management's asset/liability strategy, liquidity needs or objectives. The
accounting policy for investment securities is described in Note A to
Consolidated Financial Statements. As noted earlier, Signet implemented SFAS No.
115 in 1994. In December, 1995, Signet reclassified the entire investment
securities portfolio to the available for sale category. Investment securities
for 1995 averaged $324 million, a $61 million increase over the 1994 level.
At December 31, 1995, trading account securities consisted of $403 million
of government securities, $73 million of asset-backed securities and $3 million
of other securities. Trading account securities averaged $476 million in 1995,
up 66% from the $287 million level in 1994.
Securities available for sale are used as part of management's
asset/liability strategy and may be sold in response to changes in interest
rates, resultant prepayment risk and other factors dictated by the strategy.
These securities consist principally of U.S. Treasury and mortgage-backed
securities. All mortgage-backed securities are subject to prepayment risk since
the mortgages related to these securities can prepay at any time without
penalty. This risk occurs when interest rates decline, causing the securities to
lose value since the term and, therefore, the interest stream of the securities
has shortened due to prepayments. The fixed rate mortgage-backed and treasury
securities are subject to interest rate risk. Therefore, when interest rates
fall, these fixed rate securities gain value. At December 31, 1995, the net
unrealized gains, net of tax, related to securities available for sale, totaled
$45.2 million primarily from an increase in the value of mortgage-backed
securities and U.S. Treasury obligations due to declining interest rates.
Pro forma securities available for sale for 1995 averaged $1.7 billion, an
increase of $378 million over the 1994 level. Approximately $233 million of
securities were reclassified from investment securities to securities available
for sale in December, 1995, as noted above. The U.S. Treasury securities
portfolio totaled $574 million at year-end 1995, up from $408 million at the end
of 1994. At December 31, 1995, the securities available for sale portfolio
(excluding securities having no maturity) had a remaining average maturity of
approximately four years and unrealized gains of $78.8 million and unrealized
losses of $12.3 million. Table 11 shows the maturities of the securities
available for sale portfolio and the weighted average yields to maturity of such
securities.
At December 31, 1995, all CMOs and mortgage-backed pass-through securities
held by Signet were issued or backed by federal agencies. At the end of the past
two years, Signet
<TABLE>
<CAPTION>
Table 11
SECURITIES AVAILABLE FOR SALE
December 31, 1995
- -----------------------------------------------------------------------------------------------------------------------------------
Maturities
- -----------------------------------------------------------------------------------------------------------------------------------
Within 1 Year 1-5 Years 6-10 Years After 10 Years Total
(dollars in thousands) Fair Value Yield Fair Value Yield Fair Value Yield Fair Value Yield Fair Value Yield
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Government and agency
obligations --
Mortgage-backed securities $1,102,553 8.22% $428,265 7.01% $1,530,818 7.88%
Other $11,890 5.55% 414,526 6.73 156,859 6.40 583,275 6.61
States and political
subdivisions 20,704 10.56 22,839 10.51 6,940 10.45 $ 4,213 10.54% 54,696 10.52
Other 1,019 7.17 69,270 7.06 94,893 6.88 165,182 6.49
- -----------------------------------------------------------------------------------------------------------------------------------
Total $33,613 8.69% $1,609,188 7.82% $592,064 6.89% $99,106 7.04% $2,333,971 7.53%
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The yields shown are actual weighted average interest rates at year-end on a
taxable equivalent basis using the federal income tax rate and state tax rates,
as applicable, reduced by the nondeductible portion of interest expense.
<PAGE>
did not have any investments with a single issuer (except for U.S. Government
and agency obligations which are separately disclosed in this Report) which
aggregated greater than ten percent of stockholders' equity.
OTHER EARNING ASSETS
Other earning assets are comprised of interest bearing deposits with other
banks, federal funds sold and securities purchased under agreements to
resell, loans held for securitization and loans held for sale. Included in
the loans held for sale category are loans held by Signet on behalf of Capital
One under previously agreed upon terms of the spin-off. Pro forma other
earning assets averaged $1.2 billion in 1995, down $195 million, or 14%, from
$1.4 billion in 1994. These earning assets reflect the normal process of
balancing the subsidiary banks' reserve position; dealer activities, in which
money market instruments are bought and then sold to customers; and, for a short
period of time, holding loans and/or securities to be sold in the secondary
market. These investments are generally short-term, high quality and very liquid
(see Liquidity discussion) and consequently, have yields generally lower than
loans or investment securities. The level of these investments can vary from
year-to-year as they are used to manage interest rate risk, to take advantage of
short-term interest rate opportunities and provide liquidity.
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
December 31, 1994 to December 31, 1995, the student loan portfolio (including
$300 million in student loans held for securitization) increased $161 million;
the installment loan portfolio
<TABLE>
<CAPTION>
Table 12
IMPACT OF CONSUMER LOAN SECURITIZATIONS (excluding Capital One)
- ---------------------------------------------------------------------------------
Year Ended December 31
- -----------------------------------------------------------------------------------
(dollars in thousands) 1995 1994 1993
- -----------------------------------------------------------------------------------
<S> <C> <C> <C>
STATEMENT OF INCOME
Net interest income $ 468,067 $ 345,034 $ 337,477
Provision for loan losses 34,786 (16,229) 13,256
Non-interest income 195,569 198,664 198,135
Non-interest expense 484,520 488,309 444,036
- -----------------------------------------------------------------------------------
Income before income taxes $ 144,330 $ 71,618 $ 78,320
- -----------------------------------------------------------------------------------
ADJUSTMENTS FOR SECURITIZATIONS
Net interest income $ 31,734 $ 42,722 $ 45,789
Provision for loan losses 11,709 15,106 17,642
Non-interest income (29,587) (27,616) (28,147)
Non-interest expense
- ------------------------------------------------------------------------------------
Increase (decrease) to income
before income taxes $ (9,562) $ 0 $ 0
- ------------------------------------------------------------------------------------
ADJUSTMENTS FOR LOANS THAT MAY BE
SOLD TO CAPITAL ONE
Net interest income $ (9,559) $ (2,638) $ 0
Provision for loan losses (18,522) (1,043) 0
Non-interest income (8,963) 1,595 0
Non-interest expense
- ------------------------------------------------------------------------------------
Increase (decrease) to income
before income taxes $ 0 $ 0 $ 0
- ------------------------------------------------------------------------------------
MANAGED STATEMENT OF INCOME (ADJUSTED)
Net interest income $ 490,242 $ 385,118 $ 383,266
Provision for loan losses 27,973 (2,166) 30,898
Non-interest income 157,019 172,643 169,988
Non-interest expense 484,520 488,309 444,036
- ------------------------------------------------------------------------------------
Income before income taxes $ 134,768 $ 71,618 $ 78,320
- ------------------------------------------------------------------------------------
As reported (excluding Capital One):
Average earning assets $9,447,165 $7,802,370 $ 8,339,320
Return on assets 0.90% 0.63% 0.69%
Net yield margin 5.07 4.59 4.24
On a managed basis:
Average earning assets $9,338,467 $8,089,158 $ 8,659,320
Return on assets 0.85% 0.61% 0.66%
Net yield margin 5.40 4.93 4.61
Yield on managed consumer loan portfolio 10.90% 10.03% 10.15%
- ------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Table 13
MANAGED CONSUMER LOAN PORTFOLIO (excluding Capital One)
- ----------------------------------------------------------------------------------------
December 31
- ----------------------------------------------------------------------------------------
(in thousands) 1995 1994 1993
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
AVERAGE BALANCES:
Student loans $ 784,423 $ 649,520 $ 409,371
Installment loans 697,660 268,928 221,699
Home equity loans 411,364 462,315 452,789
Credit card 234,706 30,822
Other loans 85,493 85,471 68,198
- --------------------------------------------------------------------------------------------
Sub-total average consumer loan portfolio 2,213,646 1,497,056 1,152,057
- --------------------------------------------------------------------------------------------
Consumer loans held for sale 124,056
Credit card loans held for securitization 68,465
Home equity loans held for securitization 82,603
Student loans held for securitization 152,055
- --------------------------------------------------------------------------------------------
Total average on-balance sheet portfolio 2,640,825 1,497,056 1,152,057
Securitized consumer loans 301,358 335,007 320,000
Less loans that may be sold to Capital One (410,056) (48,219)
- --------------------------------------------------------------------------------------------
Total average managed consumer loan portfolio $2,532,127 $1,783,844 $1,472,057
- --------------------------------------------------------------------------------------------
PERIOD-END BALANCES:
Student loans $ 709,583 $ 848,099 $ 526,730
Installment loans 810,999 577,105 225,766
Home equity loans 87,348 511,947 434,101
Credit card 81,532 339,270
Other loans 61,812 107,757 56,483
- --------------------------------------------------------------------------------------------
Sub-total period-end consumer loan portfolio 1,751,274 2,384,178 1,243,080
- --------------------------------------------------------------------------------------------
Consumer loans held for sale 240,902
Credit card loans held for securitization 89,700
Student loans held for securitization 300,000
- --------------------------------------------------------------------------------------------
Total period-end on-balance sheet portfolio 2,381,876 2,384,178 1,243,080
Securitized consumer loans 665,702 428,333 320,000
Less loans that may be sold to Capital One (240,902) (517,295)
- --------------------------------------------------------------------------------------------
Total period-end managed consumer loan portfolio $2,806,676 $2,295,216 $1,563,080
- --------------------------------------------------------------------------------------------
</TABLE>
(excluding loans that may be sold to Capital One) grew $290 million; and the
home equity loan portfolio (including $481 million of securitized loans) was up
$56 million.
In order to facilitate the growth in the consumer loan portfolio, the
Company has securitized portions of the portfolio. Securitization is an
off-balance sheet funding technique which transforms a pool of loans into
marketable securities. The loans are generally transferred to a trust and
interests in the trust are sold to public or private investors for cash. In a
securitization, the gain on the sale of the loans is limited to the loans
existing at the date of sale and should not include amounts related to future
loans to be sold according to the terms of the securitization agreements. For
loans with a relatively short life (such as credit card receivables), no gain is
recorded at the time of sale. Rather, the net of interest income, fee income,
charge-offs and the investors' coupon payments becomes servicing income for
Signet and is recorded monthly as earned. Therefore, amounts that would
previously have been reported as interest income, loan service charges and
provision for loan losses are instead reported in non-interest income as
consumer loan servicing income. The change in the method of income recognition
has a minimal impact on the Company's earnings. Because loan losses are absorbed
against these cash flows, the Company's consumer loan servicing income over the
term of the transaction may vary depending upon the credit performance of the
securitized loans. However, the Company's exposure is generally contractually
limited to these cash flows. For loans with a longer average life (such as
equity lines of credit), a gain is recorded at the time of sale equal to the
present value of the anticipated future net cash flows. Table 12 indicates the
impact of securitizations on income, average assets, return on assets and net
yield margin for the past three years.
The managed consumer loan portfolio is comprised 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. Signet's managed consumer loan portfolio increased by $511
million, or 22%, from December 31, 1994 to December 31, 1995 as indicated in
Table 13.
RISK ELEMENTS (ON A PRO FORMA BASIS)
NON-PERFORMING ASSETS
Non-performing assets include non-accrual loans, restructured loans and
foreclosed properties. Non-accrual loans are loans on which interest accruals
have been suspended. Signet discontinues interest accruals on commercial and
real estate loans when they become contractually past due 90 days as to
principal or interest payments or when other internal or external factors
indicate that collection of principal
<PAGE>
<TABLE>
<CAPTION>
Table 14
NON-PERFORMING ASSETS (excluding Capital One)
- -----------------------------------------------------------------------------------------------------------------------------
December 31
----------------------------------
(dollars in thousands) 1995 1994 1993
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Non-accrual loans:
Commercial $ 9,033 $10,548 $ 42,303
Consumer 1,572 1,708 2,191
Real estate-construction 2,988 5,490 17,837
Real estate-mortgage * 24,888 7,310 6,523
- -----------------------------------------------------------------------------------------------------------------------------
Total non-accrual loans 38,481 25,056 68,854
Restructured loans:
Commercial 1,609
Real estate-construction 1,000 3,470
- -----------------------------------------------------------------------------------------------------------------------------
Total restructured loans 1,000 5,079
- -----------------------------------------------------------------------------------------------------------------------------
Total non-performing loans 38,481 26,056 73,933
Foreclosed properties 15,822 22,480 48,295
Less foreclosed property reserve (5,742)
- -----------------------------------------------------------------------------------------------------------------------------
Total foreclosed properties 15,822 22,480 42,553
- -----------------------------------------------------------------------------------------------------------------------------
Total non-performing assets $54,303 $48,536 $116,486
- -----------------------------------------------------------------------------------------------------------------------------
Percentage to loans (net of unearned) and foreclosed properties 1.00% 0.85% 2.59%
- -----------------------------------------------------------------------------------------------------------------------------
Allowance for loan losses to:
Non-performing loans 337.05% 583.37% 256.71%
Non-performing assets 238.85 313.18 162.94
- -----------------------------------------------------------------------------------------------------------------------------
</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.
or interest is doubtful. Occasionally, exceptions are made to this policy if
supporting collateral is adequate and the loan is in the process of
collection. Credit card loans typically are charged off when they are six
months past due and a minimum payment has not been received for 60 days,
while other consumer loans typically are charged off when the loan is six months
past due; therefore, these loans are not usually placed in non-accruing
status. Restructured loans are loans on which a concession (such as a reduction
in interest rate below the current market rate for new debt with similar
risks) is granted to a borrower. Foreclosed properties are generated when
Signet physically takes possession of the collateral.
Non-performing assets at year-end 1995 totaled $54.3 million, or 1.00% of
loans and foreclosed properties. This compares with $48.5 million, or 0.85%,
respectively, at the end of 1994. Overall non-performing real estate assets
increased $8.4 million although foreclosed properties dropped $6.7 million.
Table 14 provides details on the various components of non-performing assets for
the last three year-ends.
Foreclosed properties totaled $15.8 million at the end of 1995, and were
equal to 29% of total non-performing assets and 36% of non-performing real
estate assets. Signet sold $9.2 million of foreclosed properties during 1995.
The reserve for foreclosed properties was eliminated at December 31, 1994 since
management deemed foreclosed properties to be fairly valued on the balance
sheet.
Accruing loans past due 90 days or more as to principal or interest
payments totaled $66.4 million and $40.6 million at the end of 1995 and 1994,
respectively. The details of these past due loans are displayed in Table 15. The
past due commercial and real estate loans were in the process of collection and
were adequately collateralized. Also, of the 1995 past due student loans, $30.7
million, or 95%, were indirectly government guaranteed and do not represent
material loss exposure to Signet.
<TABLE>
<CAPTION>
Table 15
ACCRUING LOANS PAST DUE 90 DAYS OR MORE (excluding Capital One)
- ---------------------------------------------------------------------------------------------------------------------------
December 31
- ---------------------------------------------------------------------------------------------------------------------------
(dollars in thousands) 1995 1994 1993
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Commercial $ 6,326 $ 5,433 $ 2,641
Consumer:
Student loans 32,308 22,654 19,694
Credit card 5,118 3,289
Loan-by-check-risk tests 8,812
Loan-by-check other 2,424 177
Other consumer 2,068 1,192 1,179
- ---------------------------------------------------------------------------------------------------------------------------
Total consumer 50,730 27,312 20,873
Mortgage 9,200 5,464 5,989
Construction 115 2,363 11,133
- ---------------------------------------------------------------------------------------------------------------------------
Total $66,371 $40,572 $40,636
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
At year-end 1995, management was monitoring $17.1 million of loans for
which the ability of the borrower to comply with present repayment terms was
uncertain. These loans were not included in the Table 15 disclosure. They are
followed closely, and management at present believes that the allowance for loan
losses is adequate to cover anticipated losses that may be attributable to these
loans.
Interest recorded as income on year-end non-accrual and restructured loans
was $0.9 million, $0.5 million and $2.5 million for 1995, 1994 and 1993,
respectively, compared with interest income of $4.1 million, $3.4 million and
$7.5 million for the same respective periods which would have been recorded
had these loans performed in accordance with their original terms. The pre-tax
costs of carrying (funding) an average of $15.0 million of foreclosed
properties in 1995, $34.1 million in 1994 and $61.6 million in 1993 were
approximately $0.6 million, $1.1 million and $1.8 million, respectively, when
calculated by applying an average annual cost of funds to the outstanding
balance. These amounts have been calculated using historical rates, and may not
necessarily reflect improved earnings on a prospective basis, as these funds may
be reemployed at different rates.
Funding (on a pro forma basis)
DEPOSITS
Signet offers a diverse range of products including interest bearing and
non-interest bearing demand, savings and certificates of deposits, both domestic
and foreign. The Company competes for deposits with other commercial banks,
savings banks, savings and loan associations, the bond and stock market and
other providers of non-bank financial services, including money market funds,
credit unions, mutual funds and other deposit gathering institutions. Average
deposits totaled $7.3 billion for 1995, down 2% from 1994. Core deposits
averaged $7.1 billion for 1995, virtually unchanged from 1994. These deposits
represent Signet's largest and most important funding source due to their
relatively low cost and reasonably stable nature. This source of funding also
enhances the Company's overall liquidity position. The core deposit categories
which experienced the greatest decline were money market savings and savings
certificates which fell $257 million and $129 million, respectively, from 1994.
The increase in savings accounts was due to growth in the Capital One deposits
held by Signet under previously agreed upon terms of the spin-off. Approximately
$500 million of these deposits will transfer to Capital One in the first quarter
of 1996. The competition among financial institutions for these deposits and
increased consumer awareness have effectively increased the relative cost of and
reduced the overall benefits received from these deposits.
Purchased deposits (large denomination certificates and foreign deposits)
averaged $211 million for 1995, a decline of $34 million, or 14%, from the prior
year. Large denomination certificates are principally sold to existing corporate
customers. The demand for such funds depends upon the Company's varying
financing needs. As a result, the interest rates are based on market competition
for these funds. Table 16 shows the maturity composition of large denomination
certificates at year-end 1995.
Table 16
MATURITIES OF DOMESTIC LARGE DENOMINATION CERTIFICATES ($100,000 OR MORE)
December 31, 1995
- -----------------------------------------------------------------
(in thousands) Balance Percent
- -----------------------------------------------------------------
3 months or less $ 78,460 60%
Over 3 through 6 months 15,199 12
Over 6 through 12 months 6,202 5
Over 12 months 29,850 23
- -----------------------------------------------------------------
Total $129,711 100%
- -----------------------------------------------------------------
The majority of foreign deposits are in denominations of $100,000 or more.
SHORT-TERM AND LONG-TERM BORROWINGS
Short-term borrowings consist of federal funds purchased, securities sold under
repurchase agreements, commercial paper, Treasury tax and loan deposits, Federal
Reserve borrowings and short-term borrowings from other banks. This category of
borrowings is an accessible source of generally moderately priced funds and has
become an important financing vehicle for Signet's balance sheet management.
Signet supplements its funding sources in the short-term money market and
through securitizations. Short-term borrowings have an original maturity of less
than one year. This category rose $1.9 billion from 1994 to average $2.1 billion
in order to fund the growth in loans. See Note G to Consolidated Financial
Statements for further details on this source of funds.
Long-term borrowings represent a very stable, although relatively
expensive, source of funds and have been used to provide Tier II capital to
Signet's subsidiaries, for acquisitions and for general corporate purposes. This
category averaged $253 million for 1995, a decline of only $1.6 million from
1994. Note H to Consolidated Financial Statements provides a detailed analysis
of long-term borrowings at December 31, 1995 and 1994.
STOCKHOLDERS' EQUITY
Stockholders' equity provides a source of permanent funding, allows for future
growth and assists the Company in withstanding unforeseen adverse developments.
At December 31, 1995, stockholders' equity totaled $864 million, an increase of
$120 million, or 16%, from the previous year-end pro forma level of $744
million. The increase reflects net retained income for 1995 of $49 million, net
unrealized gains on securities available for sale of $67 million and the
issuance of common stock through investor, employee stock purchase and stock
option plans, which, in total, added an additional $13 million in net proceeds
to equity.
At the time of the spin-off, Signet's stockholders' equity was reduced by
$383 million, the amount of Capital One's stockholders' equity less minority
interest (see Note T to the Consolidated Financial Statements). This generally
reduced Signet's capital ratios; however, the ratios remained strong and both of
Signet's banks are within "well-capitalized" regulatory guidelines (see
discussion on Capital Analysis).
<PAGE>
Effective January 1, 1994, Signet adopted SFAS No. 115, which requires that
securities classified as available for sale be reported at fair value with
unrealized gains and losses reported as a component of retained earnings, net of
tax. At December 31, 1995, the net unrealized gains, net of tax, related to
securities available for sale, totaled $45.2 million, primarily from a rise in
the value of mortgage-backed securities and U.S. Treasury obligations. Signet
has no plans at present to sell these securities.
The dividends declared during 1995 of $46.5 million represented an annual
rate of $0.79 per share. On October 20, 1995, reflecting its confidence in the
Company's growth plans and improving profitability, Signet's Board of Directors
raised the quarterly dividend by 3 cents to $0.20 per common share. The
principal sources of dividends to be paid to shareholders are dividends and
interest from the subsidiary banks. Various state and federal laws and policies
limit the ability to pay dividends to shareholders and the ability of Signet's
subsidiary banks to pay dividends to the Company. Under applicable regulatory
restrictions, each of the Company's banking subsidiaries was able to pay
dividends to the Company in 1995.
CAPITAL ANALYSIS
A primary management objective is to sustain its strong capital position to
merit the confidence of customers, the investing public, banking regulators and
stockholders. A strong capital position has helped the Company withstand
unforeseen adverse developments and take advantage of profitable
investment opportunities. Table 17 details certain risk-based and other
capital data.
Capital adequacy is defined as the amount of capital needed to maintain
future asset growth and to absorb losses. Regulators consider a range of factors
when determining capital adequacy, such as the organization's size, quality and
stability of earnings, risk diversification, management expertise, asset
quality, liquidity and internal controls. Management reviews the various capital
measures monthly and takes appropriate action to ensure they are within
established internal and external guidelines. Management believes Signet's
current capital and liquidity positions are strong and its capital position is
adequate to support its business areas.
The Federal Reserve Board has issued capital guidelines which are sensitive
to credit risk factors (including off-balance sheet exposure). Emphasis is
placed on common stockholders' equity in relationship to total assets adjusted
for risk. The focus is principally on credit risk, but does include certain
interest rate and market risks when assigning risk categories. The risk-based
capital guidelines define capital as either core capital (Tier I) or
supplementary capital (Tier II). These guidelines require banking organizations
to meet a minimum total capital ratio of 8%, with at least 4% Tier I Capital.
The Federal Deposit Insurance Corporation Improvement Act of 1991
("FDICIA") requires federal banking agencies to take prompt corrective action in
respect to depository institutions that do not meet minimum capital
requirements. FDICIA established five capital tiers: well-capitalized,
adequately capitalized, undercapitalized, significantly undercapitalized and
critically undercapitalized. A depository institution's capital tier
depends upon the relationship of its capital levels to various relevant
capital measures, which include a risk-based capital measure and a leverage
ratio capital measure, and certain other factors. As of December 31, 1995,
both of Signet's banking subsidiaries met the well-capitalized criteria.
<TABLE>
<CAPTION>
Table 17
RISK-BASED AND OTHER CAPITAL DATA
- ---------------------------------------------------------------------------------------------------------------------------
December 31
- ---------------------------------------------------------------------------------------------------------------------------
1995 1994
- ---------------------------------------------------------------------------------------------------------------------------
(dollars in thousands-except per share) Balance Percent Balance Percent
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Qualifying common stockholders' equity $ 815,342 $1,237,453
Less goodwill and other disallowed intangibles (58,881) (44,581)
- ---------------------------------------------------------------------------------------------------------------------------
Total Tier I capital 756,461 9.82% 1,192,872 12.58%
Qualifying debt 114,534 165,800
Qualifying allowance for loan losses 96,751 119,812
- ---------------------------------------------------------------------------------------------------------------------------
Total Tier II capital 211,285 2.74 285,612 3.01
- ---------------------------------------------------------------------------------------------------------------------------
Total risked-based capital $ 967,746 12.56 $1,478,484 15.59
- ---------------------------------------------------------------------------------------------------------------------------
Total risk-adjusted assets $7,707,111 $9,484,219
- ---------------------------------------------------------------------------------------------------------------------------
Leverage ratio 6.93 9.90
- ---------------------------------------------------------------------------------------------------------------------------
Tangible Tier I leverage ratio 6.36 9.57
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
December 31
- ---------------------------------------------------------------------------------------------------------------------------
1995 1994 1993
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Other Ratios:
Common equity to assets (excluding Capital One) 7.87% 7.54% 8.07%
Internal equity capital generation rate 5.90 8.79 13.21
Common dividend payout ratio 42.55 38.61 26.14
Book value per share $14.59 $18.96 $17.04
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
Table 18
INTANGIBLE ASSETS (excluding Capital One)
- -----------------------------------------------------------
December 31
- -----------------------------------------------------------
(in thousands) 1995 1994 1993
- -----------------------------------------------------------
Goodwill $ 53,125 $37,247 $22,833
Core deposit premiums 12,685 16,019 11,730
Mortgage servicing rights 58,668 29,431 12,847
- -----------------------------------------------------------
Total intangible assets $124,478 $82,697 $47,410
- -----------------------------------------------------------
The amortization of intangibles is expected to be approximately
$9,089 annually over the next five years.
As detailed in Table 17, the Company's consolidated risk-based capital
ratios at December 31, 1995 were 12.56% and 9.82% for Total Capital and Tier I
Capital, respectively. The Federal Reserve Board also requires a minimum
leverage ratio of 3%. For most corporations, including Signet, the minimum
leverage ratio is 3% plus an additional cushion of at least 100 to 200 basis
points depending upon risk profiles and other factors. The leverage ratio is
calculated by dividing Tier I Capital by the current quarter's total average
assets less goodwill and other disallowed intangibles. Signet's leverage ratio
at December 31, 1995 was 6.93%. The decline in these capital ratios from
December 31, 1994 reflects the impact of the spin-off. However, on a pro forma
basis, the Company's total stockholders' equity to assets ratio improved from
7.54% at December 31, 1994 to 7.87% at year-end 1995. For informational
purposes, Table 18 details the components of Signet's intangible assets for the
past three years and the estimated amortization for the next five years. The
increase in goodwill during 1995 was due to the acquisition of Sheffield
Management Company and Sheffield Investments, Inc.
DERIVATIVES AND OTHER OFF-BALANCE SHEET RISK
Signet has used financial instruments with off-balance sheet risk in the normal
course of business to meet the financing needs of its customers, to reduce its
own exposure to fluctuations in interest rates and to participate in trading
activities. These financial instruments include commitments to extend credit,
standby and commercial letters of credit, mortgages sold with recourse and
interest rate contracts, including forwards, futures, options and interest rate
swaps, caps and floors. These instruments involve, to varying degrees, elements
of credit or interest rate risk in excess of the amount recognized in the
balance sheet. Signet uses the same credit policies for off-balance sheet items
as it does for on-balance sheet instruments.
Interest rate swaps, where the Company generally makes variable rate
payments and receives fixed rate payments, were entered into to manage the
interest rate risk in the existing balance sheet mix. During 1995, the Company's
interest rate swaps decreased income on earning assets by $14.0 million and
reduced borrowing costs by $20.3 million for a net pre-tax impact of $6.3
million. Of the existing interest rate swaps, the majority will mature by 1998.
Interest rate floors, with average strike prices of approximately 5% tied to the
three-month LIBOR decreased income on earning assets by $1.9 million in 1995.
Interest rate floors were purchased to hedge variable rate assets against
decreases in interest rates. Maturity dates on the interest rate floors range
from 1997-2003. Interest rate caps, with average strike prices of approximately
7.5% tied to the three-month LIBOR, increased borrowing costs by $0.5 million in
1995. Interest rate caps were purchased to hedge variable rate liabilities
against increases in interest rates. All interest rate caps mature by the end of
1996. Futures contracts were purchased to hedge interest rate changes on
securities available for sale and savings certificates. During 1995, gains and
losses on closed contracts had an immaterial impact on income on securities
available for sale and expense on savings certificates. As the derivative
contracts mature, management will determine the necessity to enter into
additional contracts at that time. Refer to Table 19 for a roll forward schedule
of interest rate swap activity. The impact of derivative activity on liquidity
is discussed in the Liquidity discussion. Refer to Note O and Note U to
Consolidated Financial Statements for further details of off-balance sheet risk.
Discussion of the impact of derivative income on operations is included in Note
A to Consolidated Financial Statements and the Interest Rate Sensitivity
discussion.
Table 19
INTEREST RATE SWAPS
- --------------------------------------------------------------
Synthetic Trading/
(notional in millions) Alteration (a) Dealer(b) Total
- --------------------------------------------------------------
Balance at December 31, 1993 $2,558 $328 $2,886
Additions (c) 953 30 983
Expirations 187 81 268
- --------------------------------------------------------------
Balance at December 31, 1994 3,324 277 3,601
ADDITIONS 6,670 196 6,866
EXPIRATIONS 1,005 203 1,208
TRANSFERRED TO CAPITAL ONE 6,165 - 6,165
- --------------------------------------------------------------
BALANCE AT DECEMBER 31, 1995 $2,824 $270 $3,094
- --------------------------------------------------------------
(a) Impacts interest rate sensitivity. Synthetic alteration is a risk-management
tool used to change the nature of an interest earning asset or interest
bearing liability from fixed rate to variable rate or vice versa.
(b) Impacts trading income.
(c) In 1994, the Company purchased $539 million of interest rate swaps that
hedge credit card securitizations. Income from these swaps is recorded in
non-interest income. These swaps are not included in this roll forward
schedule.
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, the core banking businesses will experience wider
spreads as consumer deposit costs lag increases in market interest rates.
Improved spreads due to the lag in pricing on consumer deposits will be
partially offset to the extent that the funding cost on the investment portfolio
increases. ALCO routinely uses derivatives such as interest rate swaps to
insulate the Company against the possibility of sudden changes in interest
rates.
ALCO, in managing interest rate sensitivity, also uses simulations to
better measure the impact that market changes and alternative strategies might
have on net interest income. Current period maturity, repricing information and
<PAGE>
Table 20
INTEREST RATE SENSITIVITY
December 31, 1995
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
1-30 31-60 61-90 91-180 Within 180 Days- >1 Year- Over
(dollars in millions) Days Days Days Days 180 Days 1 Year 5 Years 5 Years
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Earning assets:
Securities available for sale $ 126 $ 31 $ 10 $ 78 $ 245 $ 72 $ 385 $1,632
Loans 3,265 28 108 337 3,738 311 681 686
Other earnings assets 1,353 40 10 1 1,404 241 48
- ---------------------------------------------------------------------------------------------------------------------------------
Total earning assets 4,744 99 128 416 5,387 624 1,114 2,318
Interest bearing liabilities:
Deposits:
Savings (1) 2,002 2,002 1,632 203
Other time 218 110 122 302 752 358 883 37
Short-term borrowings 1,837 52 9 1,898 6
Long-term borrowings 100 150 250 3
- ---------------------------------------------------------------------------------------------------------------------------------
Total interest bearing liabilities 4,057 162 231 452 4,902 364 2,515 243
Non-rate related assets and liabilities, net 948 471
- ---------------------------------------------------------------------------------------------------------------------------------
INTEREST SENSITIVITY GAP 687 (63) (103) (36) 485 260 (2,349) 1,604
Impact of interest rate swaps, futures,
floors and caps (899) (875) (1,100) 400 (2,474) 425 2,034 15
Impact of securitizations and repricing (2) (185) 87 (98) 98
- ---------------------------------------------------------------------------------------------------------------------------------
Interest sensitivity gap adjusted for impact
of securitization, interest rate swaps,
futures, floors and caps (2) (397) (938) (1,203) 451 (2,087) 685 (217) $1,619
- ---------------------------------------------------------------------------------------------------------------------------------
Adjusted interest sensitivity gap as a
percentage of total assets (3.62)% (8.54)% (10.96)% 4.11% (19.01)% 6.24% (1.98)% 14.75%
CUMULATIVE ADJUSTED INTEREST SENSITIVITY
GAP $ (397) $(1,335) $(2,538) $(2,087) $(2,087) $(1,402) $(1,619)
- ---------------------------------------------------------------------------------------------------------------------------------
Adjusted cumulative interest sensitivity
gap as a percentage of total assets (3.62)% (12.16)% (23.12)% (19.01)% (19.01)% (12.77)% (14.75)%
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Historical rate sensitivity analysis shows that interest checking and
statement savings, while technically subject to immediate withdrawal,
actually have shown repricings and run-off characteristics that generally
fall within 1-5 years. A similar analysis has been done with money market
savings and money market checking and these products have been adjusted
accordingly.
(2) Some of the coupons on securitizations are tied to commercial paper and
LIBOR rates and, therefore, are shown in the earliest period for repricing.
While the income from securitizations is booked in non-interest income, it
is shown in this chart as it is impacted by rate movements.
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 latter half of 1995, as well as at year-end, Signet positioned
itself for a declining rate environment. While Table 20 shows a basic 180-day
net asset position of $485 million at December 31, 1995, the Company has taken
steps to limit its exposure to declining interest rates through the use of
derivative products. Execution of these off-balance sheet interest rate and
hedging instruments resulted in a 180-day net liability position of $2.1
billion, or 19% of total assets.
At December 31, 1995, the notional values of 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.
LIQUIDITY (ON A PRO FORMA BASIS)
Liquidity is the ability to meet present and future financial obligations either
through the sale or maturity of existing assets or by the acquisition of
additional funds through liability management. Both the coordination of asset
and liability maturities and effective liability management are important to the
maintenance of liquidity. Stable core deposits and other interest bearing funds,
accessibility to local, regional and national funding sources and readily
marketable assets are all important determinants of liquidity. Table 21 reflects
certain liquidity ratios for the past three year-ends, on a pro forma basis.
Table 21
LIQUIDITY RATIOS (excluding Capital One)
- -------------------------------------------------------------
December 31
----------------------------------
1995 1994 1993
- -------------------------------------------------------------
Ratio of liquid assets to:
Purchased funds 198.0% 194.0% 252.8%
Loans 85.4 58.0 94.3
Assets 42.1 33.5 42.6
- -------------------------------------------------------------
<PAGE>
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 1995 maintained the Company's strong liquidity
position. Signet's 1995 pro forma average loan balances were entirely funded
with core deposits. However, as noted previously, approximately $500 million of
core deposits will transfer to Capital One in the first quarter of 1996.
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. The parent company does not have any significant long-term debt issues
maturing until 1997; however, on February 1, 1994, Signet called for redemption
at par the remaining $11.9 million of 7 3/4% Senior Debentures due in 1997.
For 1995, cash and cash equivalents declined $961 million primarily due to
a sharp decline in interest bearing deposits with other banks and federal funds
sold and securities purchased under resale agreements. Cash used by operations
was $70 million for this time period resulting mainly from purchases and
originations exceeding proceeds from sales of loans held for sale and purchases
exceeding proceeds from sales of trading account securities. Cash used by
investing activities amounted to $2.3 billion principally due to purchases of
securities available for sale and an increase in loans. Cash provided by
financing activities amounted to $1.4 billion due primarily to financing Capital
One prior to the spin-off.
The Company's future liquidity may be affected by derivative activities.
Potential losses are limited to counterparty risk in situations where Signet is
owed money; that is, when Signet holds contracts with positive fair values. The
Company's net unrealized gain as of December 31, 1995 was $58.0 million. The
Company does not expect any losses from counterparties failing to meet their
obligations. Also, at December 31, 1995, the Company had unrealized losses on
derivative transactions totaling $21.8 million, which if terminated would
require a cash outlay. Signet presently has no intention to terminate these
contracts. There are no credit concerns related to the Company's obligations and
it expects to meet those obligations without default.
INFLATION
Since interest rates and inflation rates do not always move in concert, the
effect of inflation on banks may not necessarily be the same as on other
businesses. A bank's asset and liability structure differs significantly from
that of manufacturing and other concerns in that virtually all assets and
liabilities are of a monetary nature. Inflation affects a bank's lending
activities. Since inflation tends to drive the costs of goods and services
higher, the level of customers' financing needs usually rises to keep pace. As
loan demand increases, competition for variable funds may raise the base rate
charged for these funds. Banks then are faced with increased credit risk as
borrowers experience greater exposure to financial risk from the higher rates.
In such cases, banks place more emphasis on the adequacy of the allowance for
loan losses. As a result, continued inflation increases the overall cost of
doing business, both directly and indirectly.
FAIR VALUE
The requirements of SFAS No. 107, "Disclosures About Fair Value of Financial
Instruments," are included in Note R to Consolidated Financial Statements. Since
interest rates, credit risks and other dimensions of fair value of the Company's
assets, liabilities and off-balance sheet instruments change rapidly and, since
this disclosure excludes some aspects of the Company's overall fair value, Note
R should not be viewed as an indication of the Company's overall market value.
Furthermore, certain valuation techniques used in developing Note R require
assumptions and forecasts of cash flows. While Note R complies with SFAS No.
107, these assumptions and other subjective determinations should be considered
when interpreting the data.
RECENT ACCOUNTING PRONOUNCEMENTS
SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of," was issued in March 1995. The statement
requires that long-lived assets and certain identifiable intangibles be reviewed
for impairment whenever events or changes in circumstances indicate that the
carrying amount of the assets may not be recoverable. Signet will adopt the
statement beginning January 1, 1996. The effect of adopting SFAS No. 121 is not
expected to have a material impact on the financial statements of the Company.
Signet Banking Corporation and Subsidiaries
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS--1994 COMPARED TO 1993
On February 28, 1995, Signet completed the spin-off of substantially all of its
credit card business. For a more detailed discussion of this transaction, please
refer to Management's Discussion and Analysis of Financial Condition and Results
of Operations -- 1995 Compared To 1994. In addition to the discussion of
consolidated information, pro forma data is provided where it was meaningful to
discuss the Company's results excluding Capital One.
INCOME STATEMENT ANALYSIS
Signet reported consolidated net income of $149.8 million, or $2.59 per share,
for 1994 compared with $174.4 million, or $3.06 per share, in 1993. The 1994 net
income reflected special pre-tax charges of $92.2 million for restructuring and
for terminating certain data processing contracts. Included in the restructuring
charges were costs related to an early retirement plan, employee severance and
consolidation of
<PAGE>
facilities. On a pro forma basis, net income was $55.8 million in 1994, a
decrease of $8.1 million, or 12.6%, from $63.9 million in 1993. The 1994 pro
forma net income reflected special pre-tax charges of $43.2 million for
restructuring. On a pro forma basis and excluding special one-time charges, 1994
net income amounted to $83.9 million resulting in an ROA of 0.95% and an ROE of
10.26%. These ratios compared favorably with the 0.69% ROA and 9.10% ROE
achieved in 1993, on a pro forma basis.
Taxable equivalent net interest income of $523.7 million was a principal
component of earnings and reflected a decline of $21.4 million, or 3.9%, from
the 1993 level. The net yield margin for 1994 was 5.16%, a one basis point
decline from the prior year. This decrease in the net yield margin was primarily
due to higher funding costs associated with interim funding for Capital One. On
a pro forma basis, taxable equivalent net interest income increased slightly to
$345.0 million. The pro forma net yield margin increased 35 basis points to
4.59% from 4.24% in the previous year. On a pro forma basis, the net interest
spread was 3.96%, a 6% increase from the 1993 level of 3.75%. The overall yield
on earning assets was 7.21%, up 50 basis points from 1993, while the increase in
rates paid for interest bearing liabilities amounted to 3.25%, up 29 basis
points from the previous year.
Pro forma non-interest operating income totaled $195.2 million for 1994,
relatively level with the prior year. Most of the change from the previous year
resulted from increases in service charges on deposit accounts ($1.7 million)
and trust income ($1.8 million) that were offset by a decline in credit card
servicing and service charge income ($3.8 million).
Pro forma non-interest expense totaled $488.3 million for 1994, an increase
of $44.3 million, or 10%. The increase from the previous year is due to the
restructuring charge of $43.2 million which included costs related to an early
retirement plan, employee severance and consolidation of facilities. Staff
expense (salaries and employee benefits), the largest component of non-interest
expense, totaled $236.3 million, a $7.1 million, or 3%, increase over 1993.
Salaries rose $12.5 million or 7% year-over-year and benefits expense for 1994
decreased $5.5 million, or 10%, because the $6 million cost of implementing SFAS
No. 112, "Employers' Accounting for Postemployment Benefits," was recorded in
1993. Travel and communications expense rose $5.0 million, or 28%,
year-over-year, primarily due to higher postage and telephone charges related to
managing a larger consumer loan portfolio. The $14.3 million decline in
foreclosed property expense was primarily due to the elimination in 1994 of
provisions recorded to maintain the reserve for foreclosed properties and lower
costs to maintain and operate these properties. During 1993, foreclosed property
reserve provisions of $7.4 million were recorded. The reserve was eliminated at
year-end 1994 as management deemed foreclosed property to be fairly valued on
the balance sheet. The deposit insurance assessment from the FDIC totaled $16.8
million, a $1.5 million decline from 1993.
Signet's pro forma efficiency ratio (the ratio of non-interest expense to
taxable equivalent operating income) was 88.2% for 1994, compared with 81.2%
for 1993. Excluding the restructuring charges and foreclosed property expense
from non-interest expense lowered the ratio to 80.3% and 78.7% for the same
respective years. With the anticipated Capital One spin-off, Signet began a
major refocus on its core banking businesses. In the third quarter of 1994,
Signet's Board of Directors approved a comprehensive core bank improvement plan
aimed at reducing Signet's efficiency ratio through cost reductions and
revenue initiatives in order to enhance its competitive position. In conjunction
with the plan, Signet recorded a restructuring charge of $43.2 million ($28.1
million after-tax, or $0.48 per share). Included in the charge was approximately
$15.6 million primarily for increased retiree medical and pension benefits
related to an early retirement program in which 225 employees participated,
approximately $13.0 million of accelerated retiree medical and pension
obligations and anticipated severance benefits for approximately 750 employees
and approximately $14.6 million related to the writedown of bank-owned
properties and lease termination costs due to the expected abandonment of
facilities resulting from the reduction in employees. As of December 31, 1994,
Signet had reduced the restructuring liability by approximately $2.4 million for
severance and early retirement benefits and approximately $5.9 million for lease
termination and other facilities related costs. As a result of implementing the
cost reduction measures, the number of full-time equivalent employees excluding
Capital One fell 13% during the year ended December 31, 1994.
The provision for loan losses of $14.5 million represented a significant
decrease from the 1993 level of $47.3 million as credit quality continued to
improve. On a pro forma basis, Signet had net provision reversals of $16.2
million in 1994 due to improved credit quality in the commercial portfolio and
improved confidence in the real estate portfolio from successful completion of
the Accelerated Real Estate Assets Reduction Program compared with provision
expense of $13.3 million in 1993. Net charge-offs decreased 25% to $24.9 million
for 1994, compared with $33.0 million for the prior year. Decreases were noted
in all loan categories except real estate-mortgage. Of the $30.1 million in real
estate charge-offs, approximately $21 million were the result of the sale of
$102 million of real estate related loans in the third quarter of 1994.
Commercial loan net charge-offs experienced an improvement when comparing 1994
with 1993 due to improved credit quality. Consumer net charge-offs increased to
$1.6 million from $0.5 in 1993 partially the result of charge-offs on the
loan-by-check product. The allowance for loan losses on a pro forma basis at
December 31, 1994 was $152.0 million, or 2.67% of year-end loans, compared with
the 1993 year-end allowance of $189.8 million, or 4.27% of loans.
Pro forma income tax expense for 1994 was $15.8 million as compared with
$14.4 million for 1993. This represented an effective tax rate of 22.0% for 1994
and 18.4% for 1993. An increase in the federal tax rate from 34% to 35% in 1993
had minimal impact on the income tax expense. Adoption of SFAS No. 109,
"Accounting for Income Taxes" in
<PAGE>
1993 did not have a material impact on the Company's financial position or
results of operations.
BALANCE SHEET REVIEW
Pro forma average earning assets totaled $7.8 billion for 1994, down $537
million from 1993. The portfolios experiencing the largest declines were
investment securities ($1.6 billion) and trading account securities ($203
million), while the securities available for sale and the loan portfolios
increased by $1.0 billion and $167 million, respectively. Loans (net of unearned
income) for 1994, averaged $4.6 billion, a 4% increase from the 1993 level. Pro
forma consumer loans averaged $1.5 billion for 1994, a 30% increase from 1993,
and represented 33% of the total loan portfolio. The increase in pro forma
consumer loans was concentrated in student loans and loans generated by
implementing Signet's information-based strategy. Real estate-construction loans
totaled $249 million, a decrease of 44%, or $200 million, from the 1993 average.
During 1994, the Company sold a $102 million portfolio of real estate related
loans at a discount for which there was sufficient allowance. The real estate
loan sale impacted the real estate-construction ($73 million) and real
estate-commercial mortgage loan ($29 million) categories. At December 31, 1994,
trading account securities consisted of $212 million of government securities,
$139 million of asset-backed securities and $2 million of other securities.
Trading account securities averaged $287 million in 1994, down 41% from the $484
million level in 1993. Securities available for sale for 1994 averaged $1.3
billion, an increase of $1.0 billion over the 1993 level, when SFAS No. 115 was
adopted. At December 31, 1994, the securities available for sale portfolio
(excluding securities having no maturity) had a remaining average maturity of
less than four years and unrealized gains of $1.6 million and unrealized losses
of $39.2 million. Signet's investment securities portfolio totaled $399 million
at December 31, 1994. Investment securities for 1994 averaged $264 million, a
decrease of $1.6 billion over the 1993 level, as approximately $1.5 billion were
reclassified from investment securities to securities available for sale when
SFAS No. 115 was adopted. At year-end 1994, the investment securities portfolio
had a remaining average maturity of less than four years and unrealized gains of
$5.9 million and unrealized losses of $5.0 million. Investment securities
portfolio yields increased to 10.71% from the 1993 level of 6.63% as the
majority of securities reclassified to available for sale were lower yielding
securities.
RISK ELEMENTS
Non-performing assets at year-end 1994 totaled $48.5 million. This compared
favorably with $116.5 million (net of the $5.7 million foreclosed property
reserve) at the end of 1993. Non-performing real estate assets declined $34.1
million, or 48%, including a $20.1 million drop in foreclosed properties (net of
reserves). One large commercial credit ($24.7 million) was placed on non-accrual
status at the end of 1993. In early 1994, the Company sold this loan, for which
there was sufficient allowance. Signet sold $27.5 million of foreclosed
properties during 1994. Signet provided financing on only $388 thousand of the
foreclosed properties sold in 1994. The reserve for foreclosed properties was
eliminated at December 31, 1994, since management deemed foreclosed properties
to be fairly valued on the balance sheet.
Pro forma accruing loans past due 90 days or more as to principal or
interest payments totaled $40.6 million at the end of 1994 and 1993. Of the 1994
past due student loans, $20.3 million, or 90%, were indirectly government
guaranteed and do not represent material loss exposure to Signet. At year-end
1994, management was monitoring $43.2 million of loans for which the ability of
the borrower to comply with present repayment terms was uncertain. These loans
were not included in the above disclosure.
By the end of 1993, Signet had successfully completed its Accelerated Real
Estate Asset Reduction Program. As a result of the success, Signet terminated
the Program effective January 1, 1994, and all remaining assets were assigned to
work-out units.
FUNDING AND CAPITAL
Pro forma average deposits totaled $7.4 billion for 1994, a 4% decrease from
1993. Short-term borrowings declined $235 million, or 62%, from 1993 to
average $142 million. Long-term borrowings averaged $255 million for 1994, a
decline of 11%, or $32 million, from 1993. This decline resulted primarily
from regularly scheduled amortization of principal and on February 1, 1994,
Signet called for redemption at par the remaining $11.9 million of 7 3/4% Senior
Debentures due in 1997. During the third quarter of 1994, Signet
completed the acquisition of Pioneer, a $400 million financial institution
located in Chester, Virginia. The transaction was structured as a tax-free
exchange of stock and was accounted for as a purchase. Pioneer's shareholders
received .6232 shares of Signet common stock for each Pioneer share held. This
resulted in Signet issuing approximately 1.5 million shares of common stock. The
transaction had little dilutive effect on Signet's earnings per share. Effective
January 1, 1994, Signet adopted SFAS No. 115, which requires that securities
classified as available for sale be reported at fair value with unrealized gains
and losses reported as a component of retained earnings, net of tax. At December
31, 1994, the net unrealized losses, net of tax, related to securities available
for sale, totaled $21.8 million primarily from a reduction in the value of
mortgage backed securities and U.S. Treasury obligations. The risk-based capital
ratios for the Company at December 31, 1994 were 15.59% and 12.58% for Total
Capital and Tier I Capital, respectively. The leverage ratio at December 31,
1994 was 9.90%.
<PAGE>
Signet Banking Corporation and Subsidiaries
1995 FOURTH QUARTER ANALYSIS
Tables 22 through 25, on the following pages, contain selected quarterly
financial data for the years ended December 31, 1995 and 1994. In addition
to the discussion of consolidated information, 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 the
second, third and fourth quarters of 1995.
Consolidated net income for the fourth quarter of 1995 was $9.0 million, or
$.15 per share, and included the $35.0 million fraud loss, as noted previously,
and a $9.6 million gain related to the securitization of $481 million of equity
line loans. This compared with $42.9 million, or $.73 per share, for the fourth
quarter of 1994 which included special pre-tax charges of $9.6 million related
to restructuring. The fourth quarter 1995 results represent a 49% decrease in
net income from the 1994 fourth quarter net income of $17.6 million, or $.31 per
share, on a pro forma basis.
The fourth quarter 1995 ROA of 0.33% and ROE of 4.18% were down from the
fourth quarter 1994 ROA of 0.74% and ROE of 8.61% on a pro forma basis. The
equity-to-asset ratio was 7.90% as of December 31, 1995, up from 7.54% at the
end of 1994, on a pro forma basis.
Total revenues (net interest income and non-interest income) for the
quarter were $183.7 million, up 12% from the previous quarter. On a pro forma
basis, total revenues were up 34% from the 1994 fourth quarter. Signet's net
interest margin was 4.78%, a slight increase from the 4.73% margin on a pro
forma basis in the fourth quarter of 1994, but down from the third quarter
1995 net interest margin of 4.96%. Approximately half of the decline in the
net interest margin from the third quarter resulted from securitizing
consumer loans.
Taxable equivalent net interest income declined $14.2 million, or 11%, from
the fourth quarter of 1994. On a pro forma basis, net interest income was up
$18.4 million, or 19%. Interest income on consumer loans and loans held for
securitization increased $20.0 million, or 43%, as a result of a $535 million,
or 28%, increase in outstandings and higher yields on the portfolio. Taxable
equivalent commercial loan income increased $13.9 million, or 32%, compared with
the fourth quarter of 1994 due to a $668 million, or 30%, increase in average
commercial loans outstanding. The increase in interest income was partially
offset by a $26.5 million increase in interest expense resulting from $1.5
billion in additional interest bearing liabilities required to fund the loan
growth. A 58 basis point increase in the rate paid on interest bearing
liabilities also contributed to the increase in interest expense.
Non-interest income increased $26.4 million, or 63%, from $41.7 million in
the fourth quarter of 1994, on a pro forma basis. Trust and investment
management income increased $2.0 million, or 39%, as a result of the increase in
mutual fund assets under management due to the July acquisition of the assets of
Sheffield Management Company and Sheffield Investments, Inc., managers and
distributors of the Blanchard family of funds. Mortgage servicing and
origination income increased $2.5 million, or 59%, related to an increase in the
volume of loans processed due to lower interest rates along with an increase in
the mortgage loans serviced by Signet. Trading profits were $4.0 million
compared to $106 thousand in the fourth quarter of 1994. Gains were realized in
the fourth quarter of 1995 related to the home equity line securitization ($9.6
million) and the sale of approximately $179 million of adjustable rate mortgage
loans ($3.1 million). Nominal investment securities gains resulted from
securities being called for redemption.
On a pro forma basis, non-interest expense increased over the fourth
quarter of 1994 due to the fraud loss. Categories experiencing increases
included salaries and employee benefits of $3.9 million, or 7%, travel and
communications of $1.3 million, or 21%, and a decrease in income related to
foreclosed properties of $1.6 million that is recorded net of foreclosed
property expense. The FDIC assessment fell $3.5 million from the same quarter in
1994 reflecting the decline in rates charged by the FDIC effective June 1, 1995.
A restructuring charge of $9.6 million related to the writedown of bank-owned
properties and lease termination costs due to the abandonment of facilities was
recorded in the fourth quarter of 1994. The efficiency ratio of 63%, excluding
the fraud loss, improved 3 points from the 1995 third quarter and 14 points from
the 1994 fourth quarter, excluding restructuring charges, primarily as a result
of re-engineering programs initiated in the second half of 1994.
Growth in installment and student loans fueled a 5% increase in the managed
consumer loan portfolio, which was up $142 million from the previous quarter.
The Company securitized $481 million of home equity loans and sold $179 million
of adjustable rate residential mortgages. Signet continued to de-emphasize
commercial real estate lending and reduced that portfolio 6% to $603 million at
year-end from $643 million on September 30, 1995.
Non-performing assets at December 31, 1995, totaled $54.3 million, or 1.00%
of loans and foreclosed properties. Net charge-offs for the quarter were $15.6
million, or 1.12%, of average loans. The Company provided $18.6 million for the
allowance for loan losses in the fourth quarter which was significantly higher
than previous quarters due to higher loss estimates on the loan-by-check risk
tests. At December 31, 1995, the loan loss allowance of $129.7 million equaled
238.85% of non-performing assets and 2.39% of loans outstanding.
<PAGE>
Table 22
SELECTED QUARTERLY FINANCIAL INFORMATION
(dollars in thousands -- except per share)
Signet Banking Corporation ("Signet") completed the spin-off of its subsidiary,
Capital One Financial Corporation ("Capital One") on February 28, 1995. Due to
the significance of the spin-off, certain pro forma financial information is
provided below to illustrate Signet's financial results and other data assuming
the spin-off occurred prior to the periods presented.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
1995 1994
- ------------------------------------------------------------------------------------------------------------------------------
Fourth Third Second First Fourth Third Second First
Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED
EARNINGS
Interest income $ 206,989 $ 206,743 $ 202,735 $ 249,532 $ 222,931 $ 198,222 $ 196,225 $ 189,635
Interest expense 91,394 89,799 85,289 106,283 94,768 68,500 71,315 62,419
- ------------------------------------------------------------------------------------------------------------------------------
Net interest income 115,595 116,944 117,446 143,249 128,163 129,722 124,910 127,216
Provision for loan losses 18,604 8,681 4,250 7,180 3,000 3,000 2,999 5,499
- ------------------------------------------------------------------------------------------------------------------------------
Net interest income after
provision for loan losses 96,991 108,263 113,196 136,069 125,163 126,722 121,911 121,717
Non-interest operating income (1) 67,666 46,363 42,692 120,758 148,166 151,658 136,157 128,643
Securities gains (losses) 454 731 247 357 267 162 3,310 (280)
Non-interest expense (2) 152,191 109,507 111,444 190,926 210,875 276,814 186,625 172,109
- ------------------------------------------------------------------------------------------------------------------------------
Income before income taxes (benefit) 12,920 45,850 44,691 66,258 62,721 1,728 74,753 77,971
Applicable income taxes (benefit) 3,894 15,707 15,005 24,033 19,847 (1,734) 24,368 24,858
- ------------------------------------------------------------------------------------------------------------------------------
Net income 9,026 30,143 29,686 42,225 42,874 3,462 50,385 53,113
Net income excluding the fraud
loss and restructuring/
termination charges (2) 31,776 30,143 29,686 42,225 49,110 57,164 50,385 53,113
PER COMMON SHARE
Net income $ 0.15 $ 0.50 $ 0.50 $ 0.71 $ 0.73 $ 0.05 $ 0.88 $ 0.93
Net income excluding the
fraud loss and
restructuring/termination
charges (2) 0.53 0.50 0.50 0.71 0.84 0.98 0.88 0.93
- ------------------------------------------------------------------------------------------------------------------------------
PRO FORMA (excluding Capital One)
EARNINGS
Net interest income
(taxable equivalent) $ 117,443 $ 119,482 $ 120,401 $ 121,344 $ 99,009 $ 92,621 $ 79,600 $ 87,510
Net interest income 115,595 116,944 117,446 118,082 95,561 89,166 76,231 84,076
Net income 9,026 30,143 29,686 26,706 17,621 4,456 15,784 17,982
Net income excluding the fraud
loss and restructuring
charges (3) 31,776 30,143 29,686 26,706 23,857 26,308 15,784 17,982
PER COMMON SHARE
Net income $ 0.15 $ 0.50 $ 0.50 $ 0.45 $ 0.31 $ 0.07 $ 0.28 $ 0.31
Net income excluding the fraud
loss and restructuring
charges (3) 0.53 0.50 0.50 0.45 0.42 0.45 0.28 0.31
Book value 14.59 14.27 13.90 13.15 12.69 14.41 14.31 14.47
AT PERIOD-END
Earning assets $9,443,028 $9,911,356 $9,514,318 $9,337,761 $8,824,793 $7,774,290 $7,461,630 $7,645,907
Loans (net of unearned income) 5,416,028 5,509,437 5,684,427 5,647,599 5,695,722 4,720,418 4,379,022 4,325,734
Core deposits 7,413,414 7,173,040 7,106,437 7,113,166 7,164,587 7,239,642 7,083,856 7,321,176
Number of common stockholders 15,166 15,134 15,259 15,374 15,503 15,462 14,716 14,756
Full-time employees 3,974 3,900 3,743 3,759 3,723 4,154 4,462 4,402
Part-time employees 1,021 1,049 1,133 1,029 987 967 1,218 1,103
RATIOS
Return on average assets 0.33% 1.11% 1.14% 1.06% 0.74% 0.21% 0.74% 0.82%
Return on average common
stockholders' equity 4.18 14.51 15.00 14.34 8.61 2.13 7.87 8.85
Efficiency ratio (4) 63.47 65.99 68.67 69.95 77.46 75.89 87.04 81.55
Net interest spread 4.16 4.32 4.50 4.83 4.07 4.26 3.60 3.93
Net yield margin 4.78 4.96 5.14 5.42 4.73 4.90 4.24 4.50
Total stockholders' equity to
assets 7.87 7.59 7.70 7.36 7.54 9.58 9.60 9.43
AVERAGE SHARES OUTSTANDING
(in thousands) 60,230 60,146 59,669 59,142 58,927 57,898 57,358 57,247
CREDIT QUALITY DATA
Non-performing assets $ 54,303 $ 51,504 $ 57,447 $ 41,597 $ 48,536 $ 65,857 $ 77,655 $ 88,370
Accruing loans past due 90 days
or more 66,371 66,232 54,538 42,919 40,572 45,080 39,835 38,380
Net charge-offs (5) 15,622 12,965 18,593 2,775 1,707 21,570 1,262 353
Allowance for loan losses to:
Non-performing loans 337.05% 339.92% 297.24% 574.88% 583.37% 410.51% 452.45% 389.42%
Non-performing assets 238.85 251.77 237.60 364.76 313.18 238.16 232.11 211.57
Net loans 2.39 2.35 2.40 2.69 2.67 3.32 4.12 4.32
Non-performing assets to loans
and foreclosed properties 1.00 0.93 1.01 0.74 0.85 1.39 1.76 2.02
Net loan losses to average loans 1.12 0.89 1.27 0.19 0.14 1.92 0.12 0.03
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The third quarter of 1994 included a $6.0 million gain on sale of mortgage
servicing rights. The fourth quarter of 1995 included a $9.6 million
gain on securitization of loans.
(2) 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. First, second, third and
fourth quarters of 1994 included credit card solicitation expenses of $21.4
million, $24.2 million, $24.2 million and $31.1 million, respectively. The
first quarter of 1995 included $29.1 million of credit card solicitation
charges. The fourth quarter of 1995 included the $35.0 million fraud loss.
(3) The third and fourth quarters of 1994 included $33.6 million and $9.6
million of restructuring charges, respectively. The fourth quarter of 1995
included the $35.0 million fraud loss.
(4) The efficiency ratio has been adjusted to exclude the fraud loss,
restructuring charges, foreclosed property expense and one-time
spin-off expenses.
(5) The second quarter of 1995 and the third quarter of 1994 included
approximately $13.9 million and $20.6 million, respectively, of
charge-offs related to the sale of approximately $55.0 million and $101.5
million, respectively, of real estate related loans for which there was
sufficient allowance.
The "Consolidated" section of the above schedule is a tabulation of the
Company's unaudited quarterly results of operations for the years ended
December 31, 1995 and 1994.
The Company's common shares are traded on the New York Stock Exchange under
the symbol SBK. In addition, shares may be traded in the over-the-counter
stock market.
<PAGE>
Table 23
QUARTER-END BALANCE SHEET TREND (excluding Capital One)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
(in thousands) 12/31/95 9/30/95 6/30/95 3/31/95 12/31/94 9/30/94 6/30/94 3/31/94
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Cash and due from banks $ 599,113 $ 498,193 $ 529,205 $ 541,946 $ 437,867 $ 451,079 $ 537,330 $ 501,678
Interest bearing deposits
with other banks 3,129 1,712 14,610 33,523 342,795 239,274 227,198 217,430
Federal funds sold and
resale agreements 460,217 425,305 638,641 772,865 835,821 1,090,348 1,078,429 728,735
Trading account securities 478,723 464,950 439,737 490,266 353,040 279,245 258,547 262,944
Loans held for securitization 389,700 750,000 450,300 150,000
Loans held for sale 361,260 267,535 259,372 159,224 69,506 128,613 145,299 241,312
Securities available for sale 2,333,971 2,195,180 1,651,554 1,692,387 1,142,626 1,113,371 1,152,477 1,637,359
Investment securities 297,237 375,677 391,897 385,283 203,021 220,658 232,393
Loans:
Consumer 1,751,274 1,776,434 2,116,882 2,229,957 2,384,178 1,618,995 1,377,554 1,286,806
Commercial 3,090,904 2,982,401 2,820,339 2,577,674 2,472,620 2,282,334 2,173,695 2,163,035
Real estate-construction 236,103 237,271 227,531 211,097 209,183 218,500 244,354 278,554
Real estate mortgage-
commercial 366,698 406,102 433,701 505,717 526,956 532,391 566,211 578,906
Real estate mortgage-
residential 122,584 248,145 224,433 225,477 191,508 133,084 73,815 71,927
- ------------------------------------------------------------------------------------------------------------------------------
Gross loans 5,567,563 5,650,353 5,822,886 5,749,922 5,784,445 4,785,304 4,435,629 4,379,228
Less: Unearned income (151,535) (140,916) (138,459) (102,323) (88,723) (64,886) (56,607) (53,494)
Allowance for loan
losses (129,702) (129,672) (136,497) (151,729) (152,003) (156,843) (180,248) (186,961)
- ------------------------------------------------------------------------------------------------------------------------------
Net loans 5,286,326 5,379,765 5,547,930 5,495,870 5,543,719 4,563,575 4,198,774 4,138,773
Premises and equipment (net) 192,431 180,549 166,731 160,672 159,031 202,714 202,697 196,036
Interest receivable 104,437 98,000 90,190 75,082 83,942 70,484 65,990 82,602
Other assets 768,558 534,689 458,370 513,994 505,053 457,403 389,500 469,901
- ------------------------------------------------------------------------------------------------------------------------------
Total assets $10,977,865 $11,093,115 $10,622,317 $10,477,726 $9,858,683 $8,799,127 $8,476,899 $8,709,163
- ------------------------------------------------------------------------------------------------------------------------------
LIABILITIES
Non-interest bearing
deposits $ 1,726,378 $ 1,603,922 $ 1,647,309 $ 1,533,797 $1,537,702 $1,592,825 $1,543,001 $1,631,185
Interest bearing deposits:
Money market and
interest checking 1,102,140 1,064,412 1,038,959 1,023,532 1,050,176 1,011,484 996,276 1,032,734
Money market savings 1,338,985 1,337,665 1,319,829 1,382,105 1,453,629 1,500,611 1,620,924 1,686,754
Savings accounts 1,395,514 1,338,824 1,291,289 1,224,393 1,170,990 1,095,370 1,000,049 951,792
Savings certificates 1,850,397 1,828,217 1,809,051 1,949,339 1,952,090 2,039,352 1,923,606 2,018,711
Large denomination
certificates 129,711 99,890 99,020 100,987 168,853 216,428 201,739 138,304
Foreign 49,846 80,318 96,084 183,337 9,225 85,242
- ------------------------------------------------------------------------------------------------------------------------------
Total interest bearing
deposits 5,866,593 5,749,326 5,654,232 5,863,693 5,804,963 5,948,487 5,742,594 5,828,295
- ------------------------------------------------------------------------------------------------------------------------------
Total deposits 7,592,971 7,353,248 7,301,541 7,397,490 7,342,665 7,541,312 7,285,595 7,459,480
Securities sold under
repurchase agreements 1,124,105 1,153,479 1,229,433 1,202,629 875,458
Federal funds purchased 780,193 1,285,918 816,946 521,295 195,005
Other short-term borrowings 105,408 201,619
Long-term borrowings 253,033 253,129 253,222 253,550 253,641 253,729 253,818 254,124
Interest payable 19,460 23,455 18,030 26,047 21,814 28,036 24,874 35,490
Other liabilities 344,154 181,514 185,140 199,831 224,659 133,159 99,023 139,208
- ------------------------------------------------------------------------------------------------------------------------------
Total liabilities 10,113,916 10,250,743 9,804,312 9,706,250 9,114,861 7,956,236 7,663,310 7,888,302
STOCKHOLDERS' EQUITY
Common stock 296,044 295,244 294,175 293,298 293,184 292,389 284,333 283,594
Capital surplus 200,093 197,911 195,899 193,986 198,869 195,704 141,446 137,942
Retained earnings 367,812 349,217 327,931 284,192 251,769 354,798 387,810 399,325
- ------------------------------------------------------------------------------------------------------------------------------
Total stockholders'
equity 863,949 842,372 818,005 771,476 743,822 842,891 813,589 820,861
- ------------------------------------------------------------------------------------------------------------------------------
Total liabilities and
stockholders'
equity $10,977,865 $11,093,115 $10,622,317 $10,477,726 $9,858,683 $8,799,127 $8,476,899 $8,709,163
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
Table 24
QUARTERLY AVERAGE BALANCE SHEET TREND (excluding Capital One)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
Three Months Ended
- ------------------------------------------------------------------------------------------------------------------------------
(in thousands) 12/31/95 9/30/95 6/30/95 3/31/95 12/31/94 9/30/94 6/30/94 3/31/94
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Earning assets
Interest bearing deposits
with other banks $ 7,077 $ 8,136 $ 22,799 $ 89,749 $ 247,233 $ 243,888 $ 247,936 $ 260,623
Federal funds sold and
resale agreements 538,752 469,512 532,922 812,447 1,230,529 1,003,048 856,757 607,287
Trading account securities 469,665 464,254 553,080 418,011 309,084 257,789 272,872 286,083
Loans held for securitization 623,801 425,543 153,300 1,667
Loans held for sale 369,802 312,734 234,107 94,718 110,040 127,541 212,379 356,399
Securities available for sale 1,932,161 1,712,148 1,679,836 1,494,844 1,037,842 1,157,308 1,351,368 1,775,042
Investment securities-taxable 154,857 230,852 235,514 214,027 191,270 20,984 20,942 26,886
Investment securities-
nontaxable 50,812 106,860 146,867 157,609 177,261 187,469 205,078 219,689
Loans (net of unearned
income):
Consumer 1,824,487 2,182,724 2,349,345 2,505,854 1,913,217 1,464,321 1,335,810 1,268,147
Commercial 2,863,087 2,747,241 2,553,554 2,362,850 2,194,675 2,149,870 2,108,076 2,141,690
Real estate-construction 242,094 230,364 217,685 207,805 212,661 229,590 262,844 293,423
Real estate mortgage-
commercial 387,273 423,622 480,112 520,340 524,541 564,423 573,203 580,572
Real estate mortgage-
residential 281,250 241,066 236,107 204,888 154,567 89,412 74,312 72,317
- ------------------------------------------------------------------------------------------------------------------------------
Total loans 5,598,191 5,825,017 5,836,803 5,801,737 4,999,661 4,497,616 4,354,245 4,356,149
- ------------------------------------------------------------------------------------------------------------------------------
Total earning assets 9,745,118 9,555,056 9,395,228 9,084,809 8,302,920 7,495,643 7,521,577 7,888,158
Non-rate related assets:
Cash and due from banks 543,776 533,901 509,633 503,217 485,718 500,352 499,276 488,570
Allowance for loan losses (125,658) (133,144) (144,407) (151,757) (156,150) (170,879) (185,330) (188,844)
Premises and equipment (net) 188,689 174,691 164,536 160,217 184,648 186,738 200,858 187,395
Other assets 630,085 625,258 561,476 598,458 587,877 502,227 483,960 538,285
- ------------------------------------------------------------------------------------------------------------------------------
Total assets $10,982,010 $10,755,762 $10,486,466 $10,194,944 $9,405,013 $8,514,081 $8,520,341 $8,913,564
- ------------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS'
EQUITY
Interest bearing liabilities:
Deposits:
Money market and
interest checking $ 1,050,321 $ 1,037,342 $ 1,031,701 $ 1,014,201 $1,027,081 $1,012,616 $1,022,071 $1,021,613
Money market savings 1,356,002 1,341,762 1,346,920 1,402,102 1,489,537 1,618,108 1,669,819 1,699,044
Savings accounts 1,372,400 1,315,832 1,255,593 1,188,584 1,138,532 1,042,726 981,676 910,572
Savings certificates 1,800,643 1,791,296 1,876,689 1,943,788 1,981,963 1,937,671 1,972,308 2,036,432
Large denomination
certificates 104,933 100,367 92,660 123,864 126,316 100,199 83,526 328,939
Foreign 77,306 116,204 146,829 83,737 263,810 81,771
- ------------------------------------------------------------------------------------------------------------------------------
Total interest bearing
deposits 5,761,605 5,702,803 5,750,392 5,756,276 6,027,239 5,711,320 5,729,400 6,078,371
Federal funds and
repurchase agreements 2,338,713 2,201,617 1,950,959 1,512,558 269,945
Other short-term borrowings 30,098 195,275 294,721
Long-term borrowings 253,085 253,174 253,427 253,596 253,685 253,773 254,007 258,266
- ------------------------------------------------------------------------------------------------------------------------------
Total interest bearing
liabilities 8,353,403 8,157,594 7,984,876 7,717,705 6,845,590 5,965,093 5,983,407 6,336,637
Non-interest bearing
liabilities:
Demand deposits 1,584,375 1,557,185 1,497,770 1,515,423 1,536,099 1,543,375 1,563,117 1,556,213
Other liabilities 188,036 216,792 210,092 206,520 211,256 174,840 169,646 196,223
Common stockholders' equity 856,196 824,191 793,728 755,296 812,068 830,773 804,171 824,491
- ------------------------------------------------------------------------------------------------------------------------------
Total liabilities and
stockholders' equity $10,982,010 $10,755,762 $10,486,466 $10,194,944 $9,405,013 $8,514,081 $8,520,341 $8,913,564
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
Table 25
QUARTERLY INCOME TREND (excluding Capital One)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
Three Months Ended
- ------------------------------------------------------------------------------------------------------------------------------
(in thousands) 12/31/95 9/30/95 6/30/95 3/31/95 12/31/94 9/30/94 6/30/94 3/31/94
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest income:
Loans, including fees:
Consumer $ 52,026 $ 60,296 $ 62,068 $ 70,095 $ 46,254 $ 34,054 $ 24,909 $ 23,353
Commercial 56,128 53,703 50,358 46,365 42,337 40,539 39,664 40,655
Real estate-construction 6,402 6,080 5,628 5,152 5,203 5,298 5,241 5,235
Real estate-commercial mortgage 8,856 9,358 11,276 12,131 12,651 12,707 11,754 10,408
Real estate-residential mortgage 5,628 5,011 5,074 4,279 3,152 1,917 1,514 1,816
- ------------------------------------------------------------------------------------------------------------------------------
Total loans, including fees 129,040 134,448 134,404 138,022 109,597 94,515 83,082 81,467
Interest bearing deposits with other banks 102 127 358 1,316 3,067 2,851 2,952 2,571
Federal funds sold and resale agreements 8,025 7,166 8,232 12,029 17,053 11,602 8,674 4,950
Trading account securities 7,736 7,410 8,936 6,718 6,038 5,062 4,747 5,640
Loans held for securitization 14,262 11,561 6,420 73
Loans held for sale 8,635 7,785 5,858 1,479 1,864 2,270 3,115 5,761
Securities available for sale 35,442 31,963 31,342 26,512 15,928 15,949 16,343 23,893
Investment securities-taxable 2,797 4,190 4,257 3,811 3,302 311 307 385
Investment securities-nontaxable 950 2,093 2,928 3,139 3,560 3,756 4,131 4,396
- ------------------------------------------------------------------------------------------------------------------------------
Total interest income 206,989 206,743 202,735 193,099 160,409 136,316 123,351 129,063
Interest expense:
Money market and interest checking 6,516 6,794 6,939 6,141 6,124 5,842 5,605 5,552
Money market savings 12,161 11,873 11,704 11,958 10,954 10,918 11,381 11,318
Savings accounts 13,426 12,785 11,800 10,727 10,106 8,656 7,751 6,948
Savings certificates 21,381 22,070 20,747 17,147 19,514 16,468 17,320 13,050
Large denomination certificates 1,451 1,332 1,186 1,529 2,143 1,135 880 3,224
Foreign 1,138 1,721 2,235 1,253 3,393 1,029
- ------------------------------------------------------------------------------------------------------------------------------
Total interest on deposits 56,073 56,575 54,611 48,755 52,234 43,019 42,937 41,121
Securities sold under repurchase agreements 16,343 14,689 13,880 11,732
Federal funds purchased 14,874 14,211 12,266 7,295 3,213
Other short-term borrowings 413 2,761 4,896
Long-term borrowings 4,104 4,324 4,119 4,474 4,505 4,131 4,183 3,866
- ------------------------------------------------------------------------------------------------------------------------------
Total interest expense 91,394 89,799 85,289 75,017 64,848 47,150 47,120 44,987
- ------------------------------------------------------------------------------------------------------------------------------
Net interest income 115,595 116,944 117,446 118,082 95,561 89,166 76,231 84,076
Provision for loan losses 18,604 8,681 4,250 3,251 (3,133) (5,162) (5,451) (2,483)
- ------------------------------------------------------------------------------------------------------------------------------
Net interest income after provision for loan
losses 96,991 108,263 113,196 114,831 98,694 94,328 81,682 86,559
Non-interest income:
Service charges on deposit accounts 16,816 17,732 17,212 16,471 16,104 16,234 18,106 15,697
Trust and investment management income 6,997 6,430 5,212 4,892 5,025 4,747 4,869 4,801
Consumer loan servicing and service charge
income 6,468 2,511 1,633 2,551 6,832 7,379 6,062 6,561
Gain on securitization of loans 9,562
Other 27,823 19,690 18,635 13,145 13,509 26,670 22,041 20,568
- ------------------------------------------------------------------------------------------------------------------------------
Non-interest operating income 67,666 46,363 42,692 37,059 41,470 55,030 51,078 47,627
Securities available for sale gains 20 166 244 102 220 140 3,265 (212)
Investment securities gains 434 565 3 255 47 22 45 (68)
- ------------------------------------------------------------------------------------------------------------------------------
Total non-interest income 68,120 47,094 42,939 37,416 41,737 55,192 54,388 47,347
Non-interest expense:
Salaries 48,932 45,792 43,668 42,638 43,962 48,078 48,123 46,053
Employee benefits 7,723 10,517 12,076 13,698 8,770 12,360 14,189 14,720
Occupancy 9,572 9,635 9,434 9,843 10,668 11,248 9,965 9,988
Supplies and equipment 9,513 9,384 8,715 8,558 9,108 8,019 8,518 8,400
External data processing services 7,289 6,868 6,748 6,210 7,024 8,236 6,503 5,897
Travel and communications 7,208 6,138 5,604 5,594 5,952 5,638 5,458 5,710
Commercial fraud loss 35,000
Restructuring charges 9,593 33,619
Foreclosed property-net (301) 64 (556) 572 (1,888) 595 810 (216)
Other 27,255 21,109 25,755 24,265 24,325 18,470 20,984 19,430
- ------------------------------------------------------------------------------------------------------------------------------
Total non-interest expense 152,191 109,507 111,444 111,378 117,514 146,263 114,550 109,982
- ------------------------------------------------------------------------------------------------------------------------------
Income before income taxes (benefit) 12,920 45,850 44,691 40,869 22,917 3,257 21,520 23,924
Applicable income taxes (benefit) 3,894 15,707 15,005 14,163 5,296 (1,199) 5,736 5,942
- ------------------------------------------------------------------------------------------------------------------------------
Net income $ 9,026 $ 30,143 $ 29,686 $ 26,706 $ 17,621 $ 4,456 $ 15,784 $ 17,982
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
Table 26
STATEMENT OF CONSOLIDATED INCOME (excluding Capital One)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
Year Ended December 31
- -----------------------------------------------------------------------------------------------
(in thousands) (unaudited) 1995 1994 1993
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest income:
Loans, including fees:
Consumer $244,485 $128,570 $ 87,286
Commercial 206,554 163,195 157,157
Real estate-construction 23,262 20,977 31,570
Real estate-commercial mortgage 41,621 47,520 44,830
Real estate-residential mortgage 19,992 8,399 7,634
- -----------------------------------------------------------------------------------------------
Total loans, including fees 535,914 368,661 328,477
Interest bearing deposits with other banks 1,903 11,441 12,031
Federal funds sold and resale agreements 35,452 42,279 23,196
Trading account securities 30,800 21,487 31,297
Loans held for securitization 32,316
Loans held for sale 23,757 13,010 16,875
Securities available for sale 125,259 72,113 17,064
Investment securities-taxable 15,055 4,305 93,538
Investment securities-nontaxable 9,110 15,843 21,390
- -----------------------------------------------------------------------------------------------
Total interest income 809,566 549,139 543,868
Interest expense:
Money market and interest checking 26,390 23,123 22,544
Money market savings 47,696 44,571 45,463
Savings accounts 48,738 33,461 24,079
Savings certificates 81,345 66,352 58,514
Large denomination certificates 5,498 7,382 10,970
Foreign 6,347 4,422 6,627
- -----------------------------------------------------------------------------------------------
Total interest on deposits 216,014 179,311 168,197
Securities sold under repurchase agreements 56,644
Federal funds purchased 48,646 3,213
Other short-term borrowings 3,174 4,896 21,513
Long-term borrowings 17,021 16,685 16,681
- -----------------------------------------------------------------------------------------------
Total interest expense 341,499 204,105 206,391
- -----------------------------------------------------------------------------------------------
Net interest income 468,067 345,034 337,477
Provision for loan losses 34,786 (16,229) 13,256
- -----------------------------------------------------------------------------------------------
Net interest income after provision for loan losses 433,281 361,263 324,221
Non-interest income:
Service charges on deposit accounts 68,231 66,141 64,471
Trust and investment management income 23,531 19,442 17,599
Consumer loan servicing and service charge income 13,163 26,834 30,656
Gain on securitization of loans 9,562
Other 79,293 82,788 81,091
- -----------------------------------------------------------------------------------------------
Non-interest operating income 193,780 195,205 193,817
Securities available for sale gains 532 3,413 3,913
Investment securities gains 1,257 46 405
- -----------------------------------------------------------------------------------------------
Total non-interest income 195,569 198,664 198,135
Non-interest expense:
Salaries 181,030 186,216 173,710
Employee benefits 44,014 50,039 55,492
Occupancy 38,484 41,869 39,094
Supplies and equipment 36,170 34,045 32,587
External data processing services 27,115 27,660 27,344
Travel and communications 24,544 22,758 17,800
Commercial fraud loss 35,000
Restructuring charges 43,212
Other 98,163 82,510 98,009
- -----------------------------------------------------------------------------------------------
Total non-interest expense 484,520 488,309 444,036
- -----------------------------------------------------------------------------------------------
Income before income taxes 144,330 71,618 78,320
Applicable income taxes 48,769 15,775 14,391
- -----------------------------------------------------------------------------------------------
Net income $ 95,561 $ 55,843 $ 63,929
- -----------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
Table 27
SELECTED FINANCIAL DATA (1)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
1995 1994 1993 1992 1991 1990
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
SUMMARY OF OPERATIONS
(dollars in thousands-except per share)
Net interest income-taxable equivalent $ 503,837 $ 523,717 $ 545,093 $ 454,912 $ 420,026 $ 469,807
Less: taxable equivalent adjustment 10,603 13,706 15,753 19,302 22,056 25,879
- ----------------------------------------------------------------------------------------------------------------------------
Net interest income 493,234 510,011 529,340 435,610 397,970 443,928
Provision for loan losses (2) 38,715 14,498 47,286 67,794 287,484 182,724
- ----------------------------------------------------------------------------------------------------------------------------
Net interest income after provision for
loan losses 454,519 495,513 482,054 367,816 110,486 261,204
Non-interest operating income (3) 277,479 564,624 361,118 280,988 248,537 188,571
Securities available for sale gains 532 3,413 3,913 10,504 94,666
Investment securities gains (losses) 1,257 46 405 (17,951) (1,445) 12,971
- ----------------------------------------------------------------------------------------------------------------------------
Total non-interest income 279,268 568,083 365,436 273,541 341,758 201,542
Non-interest expense (4) 564,068 846,423 598,316 499,239 508,925 414,535
- ----------------------------------------------------------------------------------------------------------------------------
Income (loss) before income taxes (benefit) 169,719 217,173 249,174 142,118 (56,681) 48,211
Applicable income taxes (benefit) (5) 58,639 67,339 74,760 32,918 (30,934) 6,833
- ----------------------------------------------------------------------------------------------------------------------------
Net income (loss) $ 111,080 $ 149,834 $ 174,414 $ 109,200 $ (25,747) $ 41,378
- ----------------------------------------------------------------------------------------------------------------------------
Per common share:
Net income (loss) $ 1.86 $ 2.59 $ 3.06 $ 1.96 $ (0.48) $ 0.78
Cash dividends declared (6) 0.79 1.00 0.80 0.45 0.30 0.78
Book value at year-end 14.59 18.96 17.04 14.77 13.17 13.83
Average common shares outstanding 59,826,421 57,862,927 56,920,090 55,727,358 53,994,340 53,026,764
- ----------------------------------------------------------------------------------------------------------------------------
SELECTED AVERAGE BALANCES
(dollars in millions)
Assets $ 11,134 $ 11,469 $ 11,617 $ 11,168 $ 11,534 $ 12,349
Earning assets 9,919 10,152 10,553 10,181 10,538 11,374
Loans (net of unearned income) 6,120 6,408 6,206 5,618 6,071 7,218
Deposits 7,367 7,747 7,733 7,886 8,362 7,900
Long-term borrowings 233 255 287 298 318 353
Interest bearing liabilities 8,501 8,606 9,121 9,000 9,506 10,291
Common stockholders' equity 868 1,046 889 768 750 755
- ----------------------------------------------------------------------------------------------------------------------------
SELECTED YEAR-END BALANCES
(dollars in millions)
Assets $ 10,978 $ 12,931 $ 11,849 $ 12,093 $ 11,239 $ 11,405
Earning assets 9,443 11,479 10,745 11,010 9,443 10,291
Loans (net of unearned income) 5,416 7,924 6,310 5,809 5,884 6,445
Deposits 7,593 7,822 7,821 7,823 8,481 8,344
Long-term borrowings 253 254 266 298 299 350
Interest bearing liabilities 8,024 9,846 9,167 9,684 9,031 9,272
Common stockholders' equity 864 1,111 965 827 712 736
- ----------------------------------------------------------------------------------------------------------------------------
OPERATING RATIOS
Net income to:
Average common stockholders' equity 12.79% 14.33% 19.62% 14.22% N/M 5.48%
Average assets 1.00 1.31 1.50 0.98 N/M 0.34
Stockholders' equity to assets (average) 7.80 9.12 7.65 6.88 6.50% 6.11
Loans to deposits (average) 83.07 82.72 80.26 71.24 72.60 91.36
Net loan losses to average loans 0.87 0.71 0.91 2.34 2.03 1.51
Net interest spread (7) 4.45 4.63 4.76 4.05 3.40 3.41
Net yield margin (7) 5.08 5.16 5.17 4.47 3.98 4.13
At year-end:
Allowance for loan losses to loans 2.39 2.78 4.01 4.57 5.60 2.54
Allowance for loan losses to
non-performing loans 337.05 846.32 342.63 228.25 156.84 117.15
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Signet spun off Capital One on February 28, 1995. The amounts of pre-tax
income related to Capital One were as follows: 1995--$27.4 million; 1994--
$146.8 million; 1993--$170.9 million; 1992--$48.9 million; 1991--$53.5
million; and 1990--$52.1 million.
(2) 1991 included a special provision of $146.6 million to accelerate the
reduction of real estate assets.
(3) 1995 included a $9.6 million gain on securitization of home equity loans and
$7.2 million related to the implementation of SFAS No. 122.
(4) 1993, 1992 and 1991 included provisions of $7.4 million, $15.5 million and
$71.9 million, respectively, to the reserve for foreclosed properties, which
had December 31, 1993, 1992 and 1991 balances of $5.7 million, $10.6 million
and $41.6 million, respectively. 1995, 1994, 1993, 1992, 1991, and 1990
included $29.1 million, $100.9 million, $55.8 million, $23.1 million, $14.6
million and $21.4 million, respectively, of credit card solicitation
expenses. 1994 included a $49.0 million contract termination fee and $43.2
million of restructuring charges. 1995 included the $35.0 million fraud
loss.
(5) Income taxes (benefit) applicable to net securities available for sale gains
and investment securities gains (losses) were as follows: 1995--$0.7
million; 1994--$1.2 million; 1993--$1.5 million; 1992--($2.5) million;
1991--$32.9 million; and 1990--$4.6 million. Additionally, 1992 included
$6.3 million of recaptured alternative minimum tax and 1990 included
$6.3 million of alternative minimum tax.
(6) In March 1991, Signet announced that, thereafter, its dividend declaration
would be made in the month following the end of each quarter instead of in
the last month of each quarter. As a result, 1991 included only three
dividend declarations; however, four dividend payments were made.
(7) Net interest spread and net yield margin were calculated on a taxable
equivalent basis, using the federal income tax rate and state tax rates,
as applicable, reduced by the nondeductible portion of interest expense.
<PAGE>
Table 28
NET INTEREST INCOME ANALYSIS
taxable equivalent basis (1)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
1995 vs 1994 1994 vs 1993
Year Ended ---------------------------- Year Ended ---------------------------
December 31 Increase Change due to (3) December 31 Increase Change due to (3)
(in thousands) 1995 1994 (Decrease) Volume Rates 1993 (Decrease) Volume Rates
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INTEREST INCOME:
Loans, including fees: (2)
Consumer $292,024 $342,670 $(50,646) $(86,336) $35,690 $310,880 $ 31,790 $ 33,160 $ (1,370)
Commercial 209,765 165,372 44,393 38,501 5,892 158,587 6,785 3,570 3,215
Real estate-construction 23,263 21,007 2,256 (2,252) 4,508 31,590 (10,583) (14,041) 3,458
Real estate-commercial mortgage 44,275 50,254 (5,979) (10,281) 4,302 47,757 2,497 (3,697) 6,194
Real estate-residential mortgage 19,992 8,399 11,593 11,882 (289) 7,634 765 2,072 (1,307)
- ----------------------------------------------------------------------------------------------------------------------------------
Total loans 589,319 587,702 1,617 (27,043) 28,660 556,448 31,254 18,041 13,213
Interest bearing deposits with
other banks 2,025 11,512 (9,487) (12,269) 2,782 12,031 (519) (533) 14
Federal funds and resale agreements 38,732 44,294 (5,562) (17,472) 11,910 23,196 21,098 6,713 14,385
Trading account securities 30,800 21,487 9,313 12,555 (3,242) 31,297 (9,810) (12,741) 2,931
Credit card loans held for
securitization 36,448 41,015 (4,567) (9,625) 5,058 36,263 4,752 3,568 1,184
Loans held for sale 23,757 13,010 10,747 3,972 6,775 17,007 (3,997) (3,342) (655)
Securities available for sale 126,717 73,409 53,308 24,415 28,893 17,064 56,345 59,316 (2,971)
Investment securities-taxable 15,190 4,395 10,795 10,341 454 93,806 (89,411) (89,957) 546
Investment securities-nontaxable 13,614 23,895 (10,281) (9,695) (586) 32,366 (8,471) (9,150) 679
- ----------------------------------------------------------------------------------------------------------------------------------
Total interest income 876,602 820,719 55,883 (19,254) 75,137 819,478 1,241 (31,101) 32,342
INTEREST EXPENSE:
Money market and interest checking 26,390 23,123 3,267 295 2,972 22,544 579 1,420 (841)
Money market savings 47,696 44,571 3,125 (7,808) 10,933 45,463 (892) (3,133) 2,241
Savings accounts 48,738 33,461 15,277 9,513 5,764 24,079 9,382 7,698 1,684
Savings certificates 81,345 61,377 19,968 (4,169) 24,137 58,514 2,863 (9,466) 12,329
Large denomination certificates 11,669 14,527 (2,858) (6,516) 3,658 10,970 3,557 1,849 1,708
Foreign 6,347 10,071 (3,724) (6,893) 3,169 6,627 3,444 1,201 2,243
- ----------------------------------------------------------------------------------------------------------------------------------
Total interest on deposits 222,185 187,130 35,055 (11,395) 46,450 168,197 18,933 (3,003) 21,936
Federal funds and repurchase
agreements 109,961 65,894 44,067 17,530 26,537 63,986 1,908 (11,441) 13,349
Other short-term borrowings 15,302 27,293 (11,991) (16,091) 4,100 25,521 1,772 (264) 2,036
Long-term borrowings 25,317 16,685 8,632 7,566 1,066 16,681 4 (1,855) 1,859
- ----------------------------------------------------------------------------------------------------------------------------------
Total interest expense 372,765 297,002 75,763 (3,673) 79,436 274,385 22,617 (15,488) 38,105
- ----------------------------------------------------------------------------------------------------------------------------------
NET INTEREST INCOME $503,837 $523,717 $(19,880) $(11,861) $(8,019) $545,093 $(21,376) $ 43,516 $(64,892)
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Total income from earning assets includes the effects of taxable equivalent
adjustments using the federal income tax rate and state tax rates,
as applicable, reduced by the nondeductible portion of interest expense.
(2) Includes fees on loans of approximately $25,938, $30,497, and $24,440 for
1995, 1994, and 1993, respectively.
(3) The change in interest due to both volume and rates has been allocated in
proportion to the relationship of the absolute dollar amounts of the
change in each. The changes in income and expense are calculated
independently for each line in the schedule. The totals for the volume and
rate columns are not the sum of the individual lines.
<PAGE>
Table 29
CHANGES IN ALLOWANCE FOR LOAN LOSSES
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
Year Ended December 31
- -----------------------------------------------------------------------------------------------------------------------------
(dollars in thousands) 1995 1994 1993 1992 1991
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at beginning of year $220,519 $253,313 $265,536 $329,371 $163,669
Provision for loan losses (1) 38,715 14,498 47,286 67,794 287,484
Transfer (to) from loans held for securitization/sale (7,871) (4,869) (2,902) 1,503
Addition arising from acquisition 3,327
Transfer to Capital One Financial Corporation (68,516)
Loans charged-off:
Consumer 37,483 34,600 41,475 48,185 49,264
Commercial 5,740 9,827 17,832 33,238 55,312
Real estate-construction 1,143 9,746 26,890 58,406 32,514
Real estate-mortgage (2) 18,627 20,360 5,720 15,140 2,990
- -----------------------------------------------------------------------------------------------------------------------------
Total loans charged-off 62,993 74,533 91,917 154,969 140,080
Recoveries of loans previously charged-off:
Consumer 3,416 12,191 17,358 15,488 12,053
Commercial 4,570 5,997 13,138 6,992 3,263
Real estate-construction 1,496 6,037 4,259 523 1,479
Real estate-mortgage (2) 366 4,558 555 337
- -----------------------------------------------------------------------------------------------------------------------------
Total recoveries 9,848 28,783 35,310 23,340 16,795
- -----------------------------------------------------------------------------------------------------------------------------
Net loans charged-off 53,145 45,750 56,607 131,629 123,285
- -----------------------------------------------------------------------------------------------------------------------------
Balance at end of year $129,702 $220,519 $253,313 $265,536 $329,371
- -----------------------------------------------------------------------------------------------------------------------------
Net charge-offs to average loans:
Consumer 1.33% 0.67% 0.81% 1.71% 1.94%
Commercial 0.04 0.18 0.22 1.17 2.22
Real estate 1.95 2.15 2.45 4.93 1.88
- -----------------------------------------------------------------------------------------------------------------------------
Total 0.87% 0.71% 0.91% 2.34% 2.03%
- -----------------------------------------------------------------------------------------------------------------------------
Allowance for loans losses to net loans at year-end 2.39% 2.78% 4.01% 4.57% 5.60%
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Included $146,600 special provision to accelerate the reduction of real
estate loans in 1991.
(2) Real estate-mortgage includes real estate-commercial mortgage and real
estate-residential mortgage. Real estate-residential mortgage charge-offs
and recoveries were not significant for the periods presented.
Table 30
ALLOWANCE FOR LOAN LOSSES ALLOCATION
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
DECEMBER 31, 1995 December 31, 1994 December 31, 1993 December 31, 1992 December 31, 1991
- ----------------------------------------------------------------------------------------------------------------------------------
PERCENTAGE Percentage Percentage Percentage Percentage
OF LOANS of Loans of Loans of Loans of Loans
IN EACH in Each in Each in Each in Each
CATEGORY Category Category Category Category
ALLOWANCE TO TOTAL Allowance to Total Allowance to Total Allowance to Total Allowance to Total
(dollars in thousands) AMOUNT LOANS Amount Loans Amount Loans Amount Loans Amount Loans
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Consumer (1) $ 49,825 31.45% $ 94,093 57.56% $ 67,030 48.77% $ 59,501 41.32% $ 36,367 32.56%
Commercial 26,367 55.52 34,041 30.86 33,618 35.87 33,930 36.87 50,795 39.08
Commercial-
special (2) 0.24 1,064 0.34 6,376 0.52
Real estate (3) 40,123 13.03 60,532 11.58 25,684 11.31 19,056 14.30 20,466 16.40
Real estate-
special (2) 57,631 3.81 98,924 7.17 173,162 11.44
Unallocated 13,387 31,853 69,350 53,061 42,205
- ----------------------------------------------------------------------------------------------------------------------------------
Total $129,702 100.00% $220,519 100.00% $253,313 100.00% $265,536 100.00% $329,371 100.00%
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) On February 28, 1995, Signet transferred $68,516 of allowance for loan
losses to Capital One in conjunction with the spin-off.
(2) Allowance allocated to an accelerated real estate asset reduction program
which was established in 1991 and successfully terminated at the beginning
of 1994.
(3) Real estate loans include real estate-construction, real
estate-commercial mortgage and real estate-residential mortgage loans.
Real estate-residential has an insignificant amount of allowance allocated
to it because of the minimal credit risk associated with that type of loan.
<PAGE>
Table 31
AVERAGE BALANCE SHEET
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
1995 1994 1993
- ----------------------------------------------------------------------------------------------------------------------------------
AVERAGE INCOME\ YIELD\ Average Income\ Yield\ Average Income\ Yield\
(dollars in thousands) BALANCE EXPENSE RATE Balance Expense Rate Balance Expense Rate
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Earning assets (tax equivalent basis): (1)
Interest bearing deposits
with other banks $ 33,750 $ 2,025 6.00% $ 251,266 $ 11,512 4.58% $ 262,910 $ 12,031 4.58%
Federal funds and resale agreements 643,386 38,732 6.02 970,300 44,294 4.56 752,510 23,196 3.08
Trading account securities 476,361 30,800 6.47 287,192 21,487 7.48 484,384 31,297 6.46
Loans held for securitization 338,877 36,448 10.76 432,581 41,015 9.48 393,835 36,263 9.21
Loans held for sale 253,758 23,757 9.36 200,712 13,010 6.48 249,797 17,007 6.81
Securities available for sale 1,726,886 126,717 7.34 1,338,449 73,409 5.48 299,023 17,064 5.71
Investment securities-taxable 210,893 15,190 7.20 66,829 4,395 6.58 1,628,855 93,806 5.76
Investment securities-nontaxable 115,221 13,614 11.82 197,231 23,895 12.12 274,967 32,366 11.77
Loans (net of unearned income): (2)
Consumer 2,568,796 292,024 11.37 3,351,159 342,670 10.23 2,971,600 310,880 10.46
Commercial 2,633,370 209,765 7.97 2,148,726 165,372 7.70 2,101,423 158,587 7.55
Real estate-construction 224,597 23,263 10.36 249,353 21,007 8.42 448,859 31,590 7.04
Real estate-commercial mortgage 452,392 44,275 9.79 560,542 50,254 8.97 607,573 47,757 7.86
Real estate-residential mortgage 241,038 19,992 8.29 97,855 8,399 8.58 76,962 7,634 9.92
- ----------------------------------------------------------------------------------------------------------------------------------
Total loans 6,120,193 589,319 9.63 6,407,635 587,702 9.17 6,206,417 556,448 8.97
- ----------------------------------------------------------------------------------------------------------------------------------
Total earning assets 9,919,325 $876,602 8.84 10,152,195 $820,719 8.08 10,552,698 819,478 7.77
- ----------------------------------------------------------------------------------------------------------------------------------
Non-rate related assets:
Cash and due from banks 523,224 501,821 461,249
Allowance for loan losses (149,681) (241,633) (263,593)
Premises and equipment (net) 188,974 242,933 201,792
Other assets 652,515 813,312 665,305
- ----------------------------------------------------------------------------------------------------------------------------------
Total assets $11,134,357 $11,468,628 $11,617,451
- ----------------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest bearing liabilities:
Deposits:
Money market and
interest checking $ 1,033,501 $ 26,390 2.55% $ 1,020,838 $ 23,123 2.27% $ 960,342 $ 22,544 2.35%
Money market savings 1,361,516 47,696 3.50 1,618,550 44,571 2.75 1,738,336 45,463 2.62
Savings accounts 1,283,695 48,738 3.80 1,019,068 33,461 3.28 772,194 24,079 3.12
Savings certificates 1,854,091 81,345 4.39 1,981,823 61,377 3.10 2,364,320 58,514 2.47
Large denomination certificates 196,798 11,669 5.93 318,659 14,527 4.56 272,693 10,970 4.02
Foreign 106,029 6,347 5.99 236,765 10,071 4.25 200,440 6,627 3.31
- ----------------------------------------------------------------------------------------------------------------------------------
Total interest bearing deposits 5,835,630 222,185 3.81 6,195,703 187,130 3.02 6,308,325 168,197 2.67
Federal funds and
repurchase agreements 2,071,944 109,961 5.31 1,677,884 65,894 3.93 2,043,207 63,986 3.13
Other short-term borrowings 228,572 15,302 6.69 477,424 27,293 5.72 482,405 25,521 5.29
Long-term borrowings 364,713 25,317 6.94 254,917 16,685 6.55 286,809 16,681 5.82
- ----------------------------------------------------------------------------------------------------------------------------------
Total interest bearing liabilities 8,500,859 372,765 4.39 8,605,928 297,002 3.45 9,120,746 274,385 3.01
- ----------------------------------------------------------------------------------------------------------------------------------
Non-interest bearing liabilities:
Demand deposits 1,531,553 1,550,902 1,424,260
Other liabilities 233,495 265,899 183,284
Common stockholders' equity 868,450 1,045,899 889,161
- ----------------------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders'
equity $11,134,357 $11,468,628 $11,617,451
- ----------------------------------------------------------------------------------------------------------------------------------
Net interest income/spread $503,837 4.45% $523,717 4.63% $545,093 4.76%
- ----------------------------------------------------------------------------------------------------------------------------------
Interest income to average earning assets 8.84% 8.08% 7.77%
Interest expense to average earning assets 3.76 2.92 2.60
- ----------------------------------------------------------------------------------------------------------------------------------
Net yield margin 5.08% 5.16% 5.17%
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Includes the effects of taxable equivalent adjustments using the federal
income tax rate and state tax rates, as applicable, reduced by the
nondeductible portion of interest expense.
(2) For the purpose of these computations, nonaccrual loans are included in the
daily average loan amounts. Also, interest income includes fees on loans of
approximately $25,938, $30,497 and $24,440 for the years 1995, 1994 and
1993, respectively.
<PAGE>
Table 32
NON-PERFORMING ASSETS AND PAST DUE LOANS
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
December 31
- --------------------------------------------------------------------------------------------------------------------------
(dollars in thousands) 1995 1994 1993 1992 1991
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Non-accrual loans:
Commercial $ 9,033 $10,548 $ 42,303 $ 25,470 $ 57,824
Consumer 1,572 1,708 2,191 808 989
Real estate-construction 2,988 5,490 17,837 52,051 107,778
Real estate-mortgage * 24,888 7,310 6,523 7,341 40,494
- --------------------------------------------------------------------------------------------------------------------------
Total non-accrual loans 38,481 25,056 68,854 85,670 207,085
Restructured loans:
Commercial 1,609 8,099 2,923
Real estate-construction 1,000 3,470 22,568
- --------------------------------------------------------------------------------------------------------------------------
Total restructured loans 1,000 5,079 30,667 2,923
- --------------------------------------------------------------------------------------------------------------------------
Total non-performing loans 38,481 26,056 73,933 116,337 210,008
Foreclosed properties 15,822 22,480 48,295 75,403 164,014
Less foreclosed property reserve (5,742) (10,625) (41,632)
- --------------------------------------------------------------------------------------------------------------------------
Total foreclosed properties 15,822 22,480 42,553 64,778 122,382
- --------------------------------------------------------------------------------------------------------------------------
Total non-performing assets $54,303 $48,536 $116,486 $181,115 $332,390
- --------------------------------------------------------------------------------------------------------------------------
Percentage to loans (net of unearned) and foreclosed properties 1.00% 0.61% 1.83% 3.08% 5.53%
- --------------------------------------------------------------------------------------------------------------------------
Allowance for loan losses to:
Non-performing loans 337.05% 846.32% 342.63% 228.25% 156.84%
Non-performing assets 238.85 454.34 217.46 146.61 99.09
- --------------------------------------------------------------------------------------------------------------------------
Accruing loans past due 90 days or more $66,371 $65,333 $ 58,891 $ 64,835 $ 91,971
- --------------------------------------------------------------------------------------------------------------------------
</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.
Table 33
SUMMARY OF TOTAL LOANS
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
December 31
- ---------------------------------------------------------------------------------------------------------
(in thousands) 1995 1994 1993 1992 1991
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Loans:
Consumer $1,751,274 $4,612,633 $3,105,824 $2,423,176 $1,933,798
Commercial 3,090,904 2,472,620 2,299,973 2,181,218 2,351,990
Real estate-construction 236,103 209,183 309,842 549,001 952,687
Real estate-commercial mortgage 366,698 526,956 581,529 632,072 587,644
Real estate-residential mortgage 122,584 191,508 71,411 77,844 113,466
- ---------------------------------------------------------------------------------------------------------
Total $5,567,563 $8,012,900 $6,368,579 $5,863,311 $5,939,585
- ---------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
Signet Banking Corporation and Subsidiaries
consolidated balance sheet
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
December 31
- ----------------------------------------------------------------------------------------------------
(dollars in thousands-- except per share) 1995 1994
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and due from banks 599,113 $ 531,747
Interest bearing deposits with other banks 3,129 355,795
Federal funds sold and securities purchased under resale agreements 460,217 1,135,821
Trading account securities 478,723 353,040
Loans held for securitization 389,700
Loans held for sale 361,260 69,506
Securities available for sale 2,333,971 1,241,696
Investment securities (market value: 1994 - $399,666) 398,783
Loans:
Consumer 1,751,274 4,612,633
Commercial 3,090,904 2,472,620
Real estate-construction 236,103 209,183
Real estate-commercial mortgage 366,698 526,956
Real estate-residential mortgage 122,584 191,508
- ----------------------------------------------------------------------------------------------------
Gross loans 5,567,563 8,012,900
Less: Unearned income (151,535) (88,723)
Allowance for loan losses (129,702) (220,519)
- ----------------------------------------------------------------------------------------------------
Net loans 5,286,326 7,703,658
- ----------------------------------------------------------------------------------------------------
Premises and equipment (net) 192,431 258,715
Interest receivable 104,437 98,557
Other assets 768,558 783,911
- ----------------------------------------------------------------------------------------------------
Total assets (Capital One Financial Corporation amounted
to $0, and $3,072,546, respectively) $10,977,865 $12,931,229
- ----------------------------------------------------------------------------------------------------
LIABILITIES
Non-interest bearing deposits $ 1,726,378 $ 1,542,349
Interest bearing deposits:
Money market and interest checking 1,102,140 1,050,176
Money market savings 1,338,985 1,453,629
Savings accounts 1,395,514 1,170,990
Savings certificates 1,850,397 1,952,090
Large denomination certificates 129,711 643,054
Foreign 49,846 9,225
- ----------------------------------------------------------------------------------------------------
Total interest bearing deposits 5,866,593 6,279,164
- ----------------------------------------------------------------------------------------------------
Total deposits 7,592,971 7,821,513
Securities sold under repurchase agreements 1,124,105 875,458
Federal funds purchased 780,193 881,693
Commercial paper 108,664
Bridge financing facility 1,300,000
Other short-term borrowings 146,955
Long-term borrowings 253,033 253,641
Interest payable 19,460 31,078
Minority interest in Capital One Financial Corporation 106,900
Other liabilities 344,154 293,848
- ----------------------------------------------------------------------------------------------------
Total liabilities 10,113,916 11,819,750
- ----------------------------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY
Common Stock, par value $5 per share; Authorized 100,000,000 shares,
issued and outstanding 59,208,745 (1995), and 58,636,759 (1994) 296,044 293,184
Capital surplus 200,093 198,869
Retained earnings 367,812 619,426
- ----------------------------------------------------------------------------------------------------
Total stockholders' equity 863,949 1,111,479
- ----------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $10,977,865 $12,931,229
- ----------------------------------------------------------------------------------------------------
</TABLE>
See notes to consolidated financial statements.
<PAGE>
Signet Banking Corporation and Subsidiaries
statement of consolidated income
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
Year Ended December 31
- -------------------------------------------------------------------------------------------------------
(in thousands-- except per share) 1995 1994 1993
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest income:
Loans, including fees:
Consumer $292,024 $342,670 $310,880
Commercial 206,554 163,195 157,157
Real estate-construction 23,262 20,977 31,570
Real estate-commercial mortgage 41,621 47,520 44,830
Real estate-residential mortgage 19,992 8,399 7,634
- -------------------------------------------------------------------------------------------------------
Total loans, including fees 583,453 582,761 552,071
Interest bearing deposits with other banks 2,025 11,512 12,031
Federal funds sold and resale agreements 38,732 44,294 23,196
Trading account securities 30,800 21,487 31,297
Loans held for securitization 36,448 41,015 36,263
Loans held for sale 23,757 13,010 16,875
Securities available for sale 126,484 72,696 17,064
Investment securities-taxable 15,190 4,395 93,538
Investment securities-nontaxable 9,110 15,843 21,390
- -------------------------------------------------------------------------------------------------------
Total interest income 865,999 807,013 803,725
Interest expense:
Money market and interest checking 26,390 23,123 22,544
Money market savings 47,696 44,571 45,463
Savings accounts 48,738 33,461 24,079
Savings certificates 81,345 61,377 58,514
Large denomination certificates 11,669 14,527 10,970
Foreign 6,347 10,071 6,627
- -------------------------------------------------------------------------------------------------------
Total interest on deposits 222,185 187,130 168,197
Securities sold under repurchase agreements 56,739 37,712 42,193
Federal funds purchased 53,222 28,182 21,793
Other short-term borrowings 15,302 27,293 25,521
Long-term borrowings 25,317 16,685 16,681
- -------------------------------------------------------------------------------------------------------
Total interest expense 372,765 297,002 274,385
- -------------------------------------------------------------------------------------------------------
Net interest income 493,234 510,011 529,340
Provision for loan losses 38,715 14,498 47,286
- -------------------------------------------------------------------------------------------------------
Net interest income after provision for loan losses 454,519 495,513 482,054
Non-interest income:
Consumer loan servicing and service charge income 94,389 410,605 216,240
Service charges on deposit accounts 68,231 66,141 64,471
Trust and investment management income 23,531 19,442 17,599
Gain on securitization of loans 9,562
Other 81,766 68,436 62,808
- -------------------------------------------------------------------------------------------------------
Non-interest operating income 277,479 564,624 361,118
Securities available for sale gains 532 3,413 3,913
Investment securities gains 1,257 46 405
- -------------------------------------------------------------------------------------------------------
Total non-interest income 279,268 568,083 365,436
Non-interest expense:
Salaries 196,093 257,297 212,665
Employee benefits 48,657 66,188 65,249
Supplies and equipment 42,138 54,862 40,550
Occupancy 40,595 47,059 40,192
Travel and communications 32,103 57,543 35,416
External data processing services 29,951 50,026 36,578
Credit card solicitation 29,050 100,886 55,815
Commercial fraud loss 35,000
Contract termination 49,000
Restructuring charges 43,212
Other 110,481 120,350 111,851
- -------------------------------------------------------------------------------------------------------
Total non-interest expense 564,068 846,423 598,316
- -------------------------------------------------------------------------------------------------------
Income before income taxes (Capital One Financial Corporation
amounted to $27,407, $146,827 and $170,854, respectively) 169,719 217,173 249,174
Applicable income taxes 58,639 67,339 74,760
- -------------------------------------------------------------------------------------------------------
Net income $111,080 $149,834 $174,414
- -------------------------------------------------------------------------------------------------------
Earnings per common share $ 1.86 $ 2.59 $ 3.06
Cash dividends declared per share 0.79 1.00 0.80
Average common shares outstanding 59,826 57,863 56,920
- -------------------------------------------------------------------------------------------------------
</TABLE>
See notes to consolidated financial statements.
<PAGE>
Signet Banking Corporation and Subsidiaries
statement of consolidated cash flows
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
Year Ended December 31
- ------------------------------------------------------------------------------------------------------------------------------
(in thousands) 1995 1994 1993
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 111,080 $ 149,834 $ 174,414
Adjustments to reconcile net income to net cash (used)
provided by operating activities:
Provision for loan losses 38,715 14,498 47,286
Provision and writedowns on foreclosed property 1,924 1,536 7,852
Depreciation and amortization 35,366 44,055 37,073
Investment securities gains (1,257) (46) (405)
Securities available for sale gains (532) (3,413) (3,913)
Increase (decrease) in interest receivable (5,880) (14,439) 16,734
Increase in other assets (570,773) (180,121) (52,749)
Increase in interest payable 9,799 2,873 595
Increase in other liabilities 64,851 268,010 23,075
Proceeds from securitization of consumer loans 663,694 2,393,936 2,283,329
Proceeds from sales of loans held for sale 36,734,493 24,555,822 11,518,162
Purchases and originations of loans held for sale (37,026,247) (26,597,903) (14,007,768)
Proceeds from sales of trading account securities 16,340,675 15,691,014 13,184,093
Purchases of trading account securities (16,466,358) (15,654,476) (12,895,420)
- ------------------------------------------------------------------------------------------------------------------------------
Net cash (used) provided by operating activities (70,450) 671,180 332,358
INVESTING ACTIVITIES
Proceeds from maturities of investment securities 180,725 64,542 519,509
Purchases of investment securities (25,510) (213,057) (218,197)
Proceeds from sales of securities available for sale 1,033,081 1,380,809 62,354
Proceeds from maturities of securities available for sale 621,509 2,289,363 46,239
Purchases of securities available for sale (2,760,830) (3,188,560) (6,000)
Net increase in loans (1,223,179) (1,689,940) (596,509)
Recoveries of loans previously charged-off 9,848 28,783 35,310
Purchases of premises and equipment (70,639) (75,210) (44,526)
Purchases of mortgage servicing rights (31,590) (18,784) (10,914)
Acquisition of Sheffield Management Company and Sheffield Investments, Inc. (20,996)
- ------------------------------------------------------------------------------------------------------------------------------
Net cash used by investing activities (2,287,581) (1,422,054) (212,734)
FINANCING ACTIVITIES
Net increase (decrease) in deposits 394,356 900 (2,701)
Net increase (decrease) in short-term borrowings (342,369) 687,644 (370,714)
Increase in Capital One Financial Corporation long-term debt
prior to spin-off 1,388,153
Net decrease in other long-term debt (608) (12,511) (31,810)
Net issuance of common stock 4,084 75,972 9,203
Payment of cash dividends (46,489) (57,192) (45,058)
- ------------------------------------------------------------------------------------------------------------------------------
Net cash provided (used) by financing activities 1,397,127 694,813 (441,080)
- ------------------------------------------------------------------------------------------------------------------------------
Decrease in cash and cash equivalents (960,904) (56,061) (321,456)
Cash and cash equivalents at beginning of period 2,023,363 2,079,424 2,400,880
- ------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 1,062,459 $ 2,023,363 $ 2,079,424
- ------------------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURES
Interest paid $ 384,383 $ 294,130 $ 273,790
Income taxes paid 21,455 47,091 48,520
Transfer of loans to foreclosed property 5,790 10,112 26,238
Transfer of loans to loans held for securitization 989,700 2,000,000 1,750,000
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See notes to consolidated financial statements
<PAGE>
Signet Banking Corporation and Subsidiaries
statement of changes in consolidated stockholders' equity
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
Common Stock Capital Retained
(dollars in thousands -- except per share) Shares Amount Surplus Earnings
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance December 31, 1992 27,980,824 $139,904 $126,282 $ 560,446
Net income 174,414
Issuance of Common Stock 489,283 2,447 6,756
Cash dividends -- Common Stock -- $.80 a share (45,058)
Change in valuation allowance -- marketable equity securities (529)
Two-for-one common stock split 28,138,471 140,692 (140,692)
- -----------------------------------------------------------------------------------------------------------------------------
Balance December 31, 1993 56,608,578 283,043 133,038 548,581
Adjustment to beginning balance for change in accounting
method for net unrealized gain on securities available
for sale, net of tax $16,147 29,987
Net income 149,834
Issuance of Common Stock
Related to acquisition 1,514,286 7,571 51,708
Other 513,895 2,570 14,123
Cash dividends -- Common Stock -- $1.00 a share (57,192)
Change in net unrealized losses on securities available for sale,
net of tax benefit of $27,880 (51,784)
- -----------------------------------------------------------------------------------------------------------------------------
Balance December 31, 1994 58,636,759 293,184 198,869 619,426
NET INCOME 111,080
ISSUANCE OF COMMON STOCK 830,463 4,152 8,431
PURCHASE OF COMMON STOCK (258,477) (1,292) (7,207)
CASH DIVIDENDS-- COMMON STOCK-- $.79 A SHARE (46,489)
SPIN-OFF OF CAPITAL ONE FINANCIAL CORPORATION (383,200)
CHANGE IN NET UNREALIZED GAINS ON SECURITIES AVAILABLE FOR SALE,
NET OF TAX OF $36,074 66,995
- -----------------------------------------------------------------------------------------------------------------------------
BALANCE DECEMBER 31, 1995 59,208,745 $296,044 $200,093 $ 367,812
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
See notes to consolidated financial statements.
<PAGE>
Signet Banking Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands -- except per share)
NOTE A-SIGNIFICANT ACCOUNTING POLICIES
Signet Banking Corporation ("Signet" or "the Company") engages in general
commercial and consumer banking and provides a full range of financial services
to individuals, businesses and organizations. 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. The Company markets several of its products
nationally.
The consolidated financial statements of Signet and subsidiaries are
prepared in conformity with generally accepted accounting principles and
prevailing practices of the banking industry. The preparation of financial
statements in conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the amounts reported in
the financial statements and accompanying notes. Actual results could differ
from those estimates. The following is a summary of the significant accounting
and reporting policies used in preparing the financial statements.
CONSOLIDATION AND RECLASSIFICATIONS: The consolidated financial statements
include the accounts of Signet, including Signet Bank (formerly Signet
Bank/Virginia and Signet Bank/Maryland) and Signet Bank N.A., its principal
banking subsidiaries. Capital One Financial Corporation is included in the
financial statements through February 28, 1995, at which time the spin-off to
shareholders was completed. All significant intercompany balances and
transactions have been eliminated. Certain prior years' amounts have been
reclassified to conform to the 1995 presentation.
STATEMENT OF CONSOLIDATED CASH FLOWS: Cash and cash equivalents, as
presented in the statement of cash flows, includes cash and due from banks,
interest bearing deposits with other banks, and federal funds sold and
securities purchased under resale agreements.
TRADING INSTRUMENTS: Financial instruments (including trading account
securities and derivatives) used for trading purposes are recorded in the
consolidated balance sheet at fair value at the reporting date. Realized and
unrealized changes in fair values are recognized in other non-interest income
(trading profits (losses)) in the period in which the changes occur. Trading
instruments included in the consolidated balance sheet are comprised primarily
of government securities and asset-backed securities. Interest revenue arising
from these trading instruments is included in the statement of consolidated
operations as part of total interest income. In 1995, the net gain on all
trading activities recorded in trading profits was $11,969; in 1994, the net
loss was $268. The increase (decrease) in net unrealized income on all trading
activities during 1995 and 1994 was $1,875 and ($4,998), respectively.
SECURITIES AVAILABLE FOR SALE: Securities available for sale represent
those securities not classified as either investment securities or trading
account securities. Securities available for sale includes securities for which
the primary objective is to realize a holding gain, and/or securities held for
indefinite periods of time and not intended to be held until maturity.
Securities held for indefinite periods of time include securities that may be
sold in response to changes in interest rates and/or significant prepayment
risks. Securities available for sale are carried at market value, with
unrealized gains and losses recorded in retained earnings. When securities are
sold, the adjusted costs of the specific securities sold are used to compute
gains or losses on the sales.
The Company adopted Statement of Financial Accounting Standards ("SFAS")
No. 115, "Accounting for Certain Investments in Debt and Equity Securities," in
1994. At adoption, securities totaling $1,509,328 were reclassified from
investment securities to securities available for sale. An after-tax gain of
$29,987 was carried as a component of retained earnings, representing the
unrealized gain in securities available for sale at adoption. During 1994, the
fair value of these securities declined, resulting in an after-tax unrealized
loss of $51,784. In December 1995, the Company reclassified all of its
investment securities, with a carrying value of $232,864 and a fair value of
$238,918, to securities available for sale as allowed by SFAS No. 115
implementation guidance. The reclassification resulted in an unrealized gain of
$6,054 which was recorded in equity, net of tax. During 1995, the fair value of
securities available for sale increased by $66,995, net of tax. The net
after-tax unrealized gain recorded as a component of retained earnings since the
adoption of SFAS No. 115 is $45,198.
LOANS HELD FOR SALE AND SECURITIZATION: Loans held for sale and
securitization are carried at the lower of aggregate cost or market value.
<PAGE>
NOTE A-SIGNIFICANT ACCOUNTING POLICIES CONTINUED
INVESTMENT SECURITIES: When securities are purchased and at each balance
sheet date, they are classified as investment securities if it is management's
positive intent and ability to hold them until maturity. These securities are
carried at cost and adjusted for amortization of premiums and accretion of
discounts, both computed using the effective yield method. During December,
1995, the Company reclassified all of its investment securities to securities
available for sale, as discussed in the above Securities Available for Sale
section.
LOANS: Interest on loans is computed by methods which generally result in
level rates of return on principal amounts outstanding. It is management's
practice to cease accruing interest on commercial and real estate loans when
payments are 90 days delinquent. However, management may elect to continue the
accrual of interest when the estimated net realizable value of collateral is
sufficient to cover the principal balance and accrued interest, and the loan is
in the process of collection. Credit card loans typically are charged off when
the loan is six months past due and a minimum payment has not been received for
60 days, while other consumer loans typically are charged off when the loan is
six months past due. Credit card and other consumer loans are also charged off
when the customer declares bankruptcy. Loan origination and commitment fees and
certain direct loan origination costs are deferred and generally amortized as
adjustments of the related loans' yields over their contractual lives except for
certain loans (e.g., home equity lines), which consider anticipated prepayments
in establishing an economic life. Credit card loan annual membership fees and
direct origination costs are deferred and amortized over one year on a
straight-line basis. Deferred fees (net of deferred costs) on credit card loans
were $1,194 and $33,690 at December 31, 1995 and 1994, respectively.
ALLOWANCE FOR LOAN LOSSES: The allowance for loan losses is maintained to
absorb anticipated future losses, net of recoveries, in the existing loan
portfolio. The provision for loan losses is the periodic cost of maintaining an
adequate allowance. In evaluating the adequacy of the allowance for loan losses,
management takes into consideration the following factors: the condition of
industries and geographic areas experiencing or expected to experience
particular economic adversities; historical charge-off and recovery activity
(noting any particular trend changes over recent periods); trends in
delinquencies, bankruptcies and non-performing loans; trends in loan volume and
size of credit risks; any irrevocable commitments to extend funds; the degree of
risk in the composition of the loan portfolio; current and anticipated economic
conditions; credit evaluations; and underwriting policies.
In 1995, Signet adopted SFAS No. 114, "Accounting by Creditors for
Impairment of a Loan," and SFAS No. 118, "Accounting by Creditors for Impairment
of a Loan - Income Recognition and Disclosures." In accordance with SFAS No.
114, impaired loans are measured and reported based on the present value of
expected cash flows discounted at the loan's effective interest rate, or at the
fair value of the loan's collateral if the loan is collateral dependent.
Impaired loans are specifically reviewed loans for which it is probable that the
creditor will be unable to collect all amounts due according to the terms of the
loan agreement. A valuation allowance is required to the extent that the measure
of impaired loans is less than the recorded investment.
SFAS No. 114 does not apply to large groups of homogeneous loans such as
consumer installment and bank card loans, which are collectively evaluated for
impairment. Smaller balance commercial loans are also excluded from the
application of the statement. At December 31, 1995, Signet's loans that were
considered to be impaired under SFAS No. 114 were comprised of $32,617 of
non-accrual loans for which the related allowance for credit losses was $10,598.
The average recorded investment in impaired loans during the year ended December
31, 1995 was approximately $28,830. Collateral dependent loans, which were
measured at the fair value of the loan's collateral, made up the majority of
impaired loans at December 31, 1995.
SFAS No. 118 allows a creditor to use existing methods for recognizing
interest income on impaired loans. Interest receipts on impaired loans are
applied in a manner consistent with Signet's policy for non-accrual loans. For
the year ended December 31, 1995, no interest income was recorded on loans once
placed on non-accrual status. All interest receipts on impaired loans were
applied to the principal.
PREMISES AND EQUIPMENT: Premises and equipment are stated at cost, less
allowances for depreciation and amortization of $173,336 and $208,476 at
December 31, 1995 and 1994, respectively. Depreciation and amortization expense
are generally computed using the straight-line method. Interest costs relating
to the construction of major operating facilities are capitalized using a
weighted average rate.
FORECLOSED PROPERTY: Real estate acquired in satisfaction of a loan is
included in other assets and stated at the lower of (1) fair value minus
estimated costs to sell; or (2) cost, defined as the fair value of the asset on
the date of foreclosure.
INTANGIBLE ASSETS: Goodwill, representing the excess of purchase price over
the fair value of net assets acquired, is amortized on a straight-line basis
over periods not exceeding fifteen years. Other acquired intangible assets such
as deposit base intangibles are amortized on a straight-line basis over the
expected periods of benefit.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(dollars in thousands -- except per share)
NOTE A-SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PREFERRED STOCK: The Company is authorized to issue, in series, up to
5,000,000 shares of Preferred Stock with a par value of $20 per share.
RISK MANAGEMENT INSTRUMENTS: The Company enters into a variety of interest
rate contracts, primarily interest rate swaps, to manage its interest rate
exposure through the use of synthetic alteration. Synthetic alteration changes
the nature of an interest-earning asset or interest-bearing liability from fixed
rate to variable rate or vice versa. These instruments are not marked to market.
Related income or expense, including amortization of purchase premiums or
settlement gains or losses is recorded as an adjustment to the yield of the
related interest-earning asset or interest-bearing liability over the periods
covered by the contracts. If an existing asset or liability designated for such
accounting treatment matures, is sold, extinguished, or terminated, the risk
management instrument is either redesignated to another existing or anticipated
asset or liability or terminated. If a risk management instrument designated for
such accounting treatment is related to an anticipated transaction that is no
longer likely to occur, the instrument is either redesignated to another
existing or anticipated asset or liability or terminated. If an instrument is
terminated because the related assets or liabilities no longer exist or an
anticipated transaction will not occur, any gain or loss is recognized into
income; otherwise, any gain or loss is deferred and amortized as an adjustment
to the yield of the designated asset or liability over the remaining periods
originally covered by the contract.
The Company also uses interest rate swaps to manage the interest rate risk
associated with securitizations. Income or expense from these swaps is recorded
on an accrual basis along with securitization income in non-interest income.
SALES AND SERVICING OF LOANS: Signet periodically securitizes and sells
loans, primarily consumer loans such as credit card receivables, home equity
lines, and residential mortgage loans. Signet's consumer loans are recorded as
sales in accordance with SFAS No. 77, "Reporting by Transferors for Transfers of
Receivables with Recourse." Gains on the sale of securitized loans are limited
to the amounts related to loans existing at the time of sale and do not include
amounts related to future loans expected to be sold during the reinvestment
period. Due to the relatively short average life of credit card loans, no gain
or loss is recorded at the time of sale. Rather, loan servicing fees, which
represent credit card interest and fees in excess of interest paid to
certificate holders, credit losses, and other trust expenses, are recorded over
the life of the transaction as earned. Transaction expenses are deferred and
amortized over the reinvestment period of the transaction as a reduction of loan
servicing fees. For home equity line securitizations, which have a substantially
longer average life, a gain or loss is recorded at the time of the sale equal to
the present value of the anticipated future net cash flows, net of transaction
expenses and any unamortized deferred loan origination costs.
The majority of Signet's mortgage loan sales are in the secondary market
with servicing retained. During the third quarter of 1995, the Company elected
to adopt SFAS No. 122, "Accounting for Mortgage Servicing Rights." In accordance
with SFAS No. 122, the cost of mortgage loans purchased or originated with a
definitive plan to sell the loans and retain the mortgage servicing rights is
allocated between the loans and the servicing rights based on their estimated
fair values at the purchase or origination date. The estimated fair value of
mortgage servicing rights is determined based upon quoted market prices for
similar assets, if available, or the results of valuation techniques such as the
present value of future cash flows using an appropriate discount rate. In
determining the estimated fair value of the mortgage servicing rights, Signet
utilizes a discounted cash flow model which incorporates assumptions such as
prepayment speeds of the underlying loans, default rates, servicing income,
servicing costs, and inflation factors. Once capitalized, mortgage servicing
rights are amortized in proportion to and over the period of estimated net
servicing income.
For the purpose of evaluating and measuring impairment of capitalized
mortgage servicing rights, SFAS No. 122 requires that such rights be stratified
based on one or more of the predominant risk characteristics of the underlying
loans. For Signet, these characteristics include loan type and interest rate.
The amount of impairment recognized is the amount by which the capitalized
mortgage servicing rights in each stratum exceed their fair values and is
recorded through a valuation allowance. Subsequent to the initial measurement of
impairment, the valuation allowance should be adjusted to reflect changes in the
measurement of impairment. Fair value in excess of the amount capitalized net of
amortization is, however, not recognized. The adoption of these impairment
provisions did not require Signet to record a valuation allowance at December
31, 1995 for any of its capitalized mortgage servicing rights, including
servicing rights that had been purchased prior to the adoption of the statement.
The effect of adopting SFAS No. 122 on the Company's consolidated financial
statements was an increase in pre-tax income of approximately $7.2 million (net
of amortization) with a corresponding increase in mortgage servicing rights. The
additional income resulted from a lower adjusted cost basis of originated
mortgage loans sold with servicing retained. In addition to the servicing rights
capitalized on originated mortgage servicing rights, Signet capitalized $31.6
million of purchased mortgage servicing rights in 1995. Amortization expense
related to mortgage servicing rights was $5.6, $2.2 and $1.5 million for 1995,
1994 and 1993, respectively. At December 31, 1995, Signet's portfolio of
capitalized mortgage servicing rights totaled $58.7 million and had a market
value of $66.0 million.
<PAGE>
NOTE A-SIGNIFICANT ACCOUNTING POLICIES CONTINUED
INCOME TAXES: Prepaid and deferred income taxes are provided for timing
differences between income and expense for financial reporting purposes and for
income tax purposes.
EARNINGS PER SHARE: Earnings per share were based on the average number of
shares outstanding and applicable equivalents (stock options).
RECENT ACCOUNTING PRONOUNCEMENTS: SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of,"
was issued in March, 1995. The statement requires that long-lived assets and
certain identifiable intangibles be reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of the assets may not
be recoverable. Signet will adopt the statement beginning January 1, 1996. The
effect of adopting SFAS No. 121 is not expected to have a material impact on the
financial statements of the Company.
NOTE B-CASH AND DUE FROM BANKS
The domestic bank subsidiaries are required to maintain average reserve
balances with the Federal Reserve Bank. The average amounts of those reserve
balances were approximately $87,477 and $103,141 for the years ended December
31, 1995 and 1994, respectively.
NOTE C-SECURITIES AVAILABLE FOR SALE
Securities available for sale are summarized as follows:
<TABLE>
<CAPTION>
Gross Gross
Unrealized Unrealized Fair
Cost Gains Losses Value
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
DECEMBER 31, 1995
U.S. Government and agency obligations--
Mortgage-backed securities $1,478,517 $52,301 $1,530,818
Other 562,815 20,468 $ (8) 583,275
Obligations of states and political subdivisions 53,031 1,671 (6) 54,696
Other 173,137 4,343 (12,298) 165,182
- -----------------------------------------------------------------------------------------------------------------------
$2,267,500 $78,783 $(12,312) $2,333,971
- -----------------------------------------------------------------------------------------------------------------------
December 31, 1994
U.S. Government and agency obligations--
Mortgage-backed securities $ 633,338 $(26,335) $ 607,003
Other 461,140 $ 11 (3,274) 457,877
Obligations of states and political subdivisions 110 6 116
Other 184,703 1,603 (9,606) 176,700
- -----------------------------------------------------------------------------------------------------------------------
$1,279,291 $ 1,620 $(39,215) $1,241,696
- -----------------------------------------------------------------------------------------------------------------------
December 31, 1993
U.S. Government and agency obligations--
Mortgage-backed securities $ 47,672 $ 3,123 $ 50,795
Other 199,641 1,484 201,125
Other 850 850
- -----------------------------------------------------------------------------------------------------------------------
$ 248,163 $ 4,607 $ 252,770
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(dollars in thousands -- except per share)
NOTE C-SECURITIES AVAILABLE FOR SALE CONTINUED
The cost and fair values of securities available for sale by contractual
maturity, except mortgage-backed securities for which an average life is used,
at December 31, 1995 are shown below:
Fair
Cost Value
- ---------------------------------------------------------------------------
Due in one year or less $ 33,315 $ 33,613
Due after one year through five years 1,546,203 1,609,188
Due after five years through ten years 579,409 592,064
Due after ten years 108,573 99,106
- ---------------------------------------------------------------------------
$2,267,500 $2,333,971
- ---------------------------------------------------------------------------
Securities available for sale with aggregate book values of approximately
$1,476,767, $623,743, and $198,619 at December 31, 1995, 1994 and 1993,
respectively, were pledged to secure public deposits, repurchase agreements and
other banking transactions. Proceeds from sales of securities available for sale
during 1995, 1994 and 1993 were $1,033,081, $1,380,809, and $62,354,
respectively. Gross gains of $2,610, $6,152 and $3,913, and gross losses of
$2,078, $2,739 and $-0- were realized on those sales for 1995, 1994 and 1993,
respectively.
NOTE D-INVESTMENT SECURITIES
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".
Investment securities for December 31, 1994 and 1993 are summarized as
follows:
<TABLE>
<CAPTION>
Gross Gross
Unrealized Unrealized Fair
Cost Gains Losses Value
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
December 31, 1994
U.S. Government and agency obligations--
Mortgage-backed securities $ 75,174 $(1,867) $ 73,307
Other 74,550 (1,894) 72,656
Obligations of states and political subdivisions 173,571 $ 5,920 (24) 179,467
Other 75,488 (1,252) 74,236
- ---------------------------------------------------------------------------------------------------------------------
$ 398,783 $ 5,920 $(5,037) $ 399,666
December 31, 1993
U.S. Government and agency obligations--
Mortgage-backed securities $ 461,345 $ 4,843 $ (37) $ 466,151
Other 925,225 39,263 (6) 964,482
Obligations of states and political subdivisions 258,815 18,690 (49) 277,456
Other 124,230 1,797 (4,885) 121,142
- ---------------------------------------------------------------------------------------------------------------------
$1,769,615 $ 64,593 $(4,977) $ 1,829,231
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
Investment securities with aggregate book values of approximately $-0-,
$264,775 and $1,460,790 at December 31, 1995, 1994 and 1993, respectively, were
pledged to secure public deposits, repurchase agreements and other banking
transactions. There were no proceeds from sales of investment securities during
1995, 1994 and 1993. Gross gains of $1,257, $113 and $534 and gross losses of
$-0-, $67 and $129 were realized on called securities for 1995, 1994 and 1993,
respectively.
<PAGE>
NOTE E-ALLOWANCE FOR LOAN LOSSES AND RESERVE FOR FORECLOSED PROPERTY
The following is a summary of changes in the allowance for loan losses:
Year Ended December 31
1995 1994 1993
- -------------------------------------------------------------------------------
Balance at beginning of year $220,519 $253,313 $265,536
Provision for loan losses 38,715 14,498 47,286
Net deduction arising in purchase/
sale transactions (7,871) (1,542) (2,902)
Transfer to Capital One Financial Corporation (68,516)
Losses 62,993 74,533 91,917
Recoveries 9,848 28,783 35,310
- -------------------------------------------------------------------------------
Net loan losses 53,145 45,750 56,607
- -------------------------------------------------------------------------------
Balance at end of year $129,702 $220,519 $253,313
- -------------------------------------------------------------------------------
Following is a summary of changes in the reserve for foreclosed property:
Year Ended December 31
1994 1993
- ---------------------------------------------------------------------------
Balance at beginning of year $5,742 $ 10,625
Additions (reductions) to reserve
charged (credited) to expense (1,764) 7,405
Writedowns of foreclosed property (3,978) (12,288)
- ---------------------------------------------------------------------------
Balance at end of year $ 0 $ 5,742
- ---------------------------------------------------------------------------
NOTE F-NON-PERFORMING ASSETS
Following is a summary of non-performing assets at December 31, 1995 and
1994 along with the interest recorded as income in 1995 and 1994 on the year-end
non-accrual and restructured loans, as well as the interest income for the same
respective periods which would have been recorded had the loans performed in
accordance with their original terms:
Non-Accrual Restructured Foreclosed
Loans Loans Properties Total
- -------------------------------------------------------------------------------
1995
Aggregate recorded investment $38,481 $15,822 $54,303
Interest at contracted rates 4,092 4,092
Interest recorded as income 920 920
- -------------------------------------------------------------------------------
1994
Aggregate recorded investment $25,056 $1,000 $22,480 $48,536
Interest at contracted rates 3,301 82 3,383
Interest recorded as income 424 82 506
- -------------------------------------------------------------------------------
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(dollars in thousands -- except per share)
NOTE G-SECURITIES SOLD UNDER REPURCHASE AGREEMENTS AND OTHER SHORT-TERM
BORROWINGS
Following is a summary of short-term borrowings for the years ended
December 31, 1995, 1994, and 1993:
<TABLE>
<CAPTION>
Maximum Average
Outstanding Weighted Interest
at Any Outstanding Average Average Rate at
Month End at Year End Outstanding Interest Rate Year End
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1995
REPURCHASE AGREEMENTS $1,494,736 $1,124,105 $1,172,410 4.8% 4.8%
FEDERAL FUNDS 1,285,918 780,193 899,534 5.9 5.3
COMMERCIAL PAPER 88,626 -- 13,579 5.1 --
BRIDGE FINANCING FACILITY 1,000,000 -- 170,136 7.1 --
OTHER SHORT-TERM BORROWINGS 167,034 -- 44,855 5.5 --
- --------------------------------------------------------------------------------------------------------------------
TOTAL $1,904,298 $2,300,514 5.4% 5.0%
- --------------------------------------------------------------------------------------------------------------------
1994
Repurchase agreements $1,218,035 $ 875,458 $1,015,595 3.7% 4.5%
Federal funds 1,273,862 881,693 662,289 4.3 4.6
Commercial paper 147,372 108,664 126,903 3.6 5.3
Bridge financing facility 1,700,000 1,300,000 175,342 7.1 6.6
Other short-term borrowings 372,054 146,955 175,178 5.8 5.4
- --------------------------------------------------------------------------------------------------------------------
Total $3,312,770 $2,155,307 4.3% 5.8%
- --------------------------------------------------------------------------------------------------------------------
1993
Repurchase agreements $1,674,044 $1,281,645 $1,337,553 3.2% 2.5%
Federal funds 1,043,546 942,969 705,654 3.1 3.1
Commercial paper 174,552 168,488 144,129 2.5 3.0
Other short-term borrowings 459,346 232,024 338,276 6.5 6.2
- --------------------------------------------------------------------------------------------------------------------
Total $2,625,126 $2,525,612 3.5% 3.2%
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
The weighted average interest rate is calculated by dividing annual
interest expense by the daily average outstanding principal balance.
In connection with the Separation (described in Note T), Capital One Bank
obtained a syndicated bank loan facility (the "Bridge Financing Facility") to
meet its interim funding and liquidity needs. The initial amount of borrowing
under the Bridge Financing Facility was approximately $1.7 billion at 60 basis
points over LIBOR before financing costs. In December 1994, Capital One reduced
the Bridge Financing Facility by $400 million through new funding sources,
primarily large denomination certificates. In early 1995, the Bridge Financing
Facility was further reduced by bank notes with longer maturities. In
conjunction with the spin-off on February 28, 1995, the Bridge Financing
Facility was transferred to Capital One and was no longer a source of funding
for Signet.
<PAGE>
NOTE H-LONG-TERM BORROWINGS
Long-term borrowings consisted of the following:
December 31
1995 1994
- ---------------------------------------------------------------------
Notes and mortgages (5-11 3/5%) $ 3,033 $ 3,641
Subordinated notes:
9 5/8% due 1999 100,000 100,000
Floating Rate due 1998 100,000 100,000
Floating Rate due 1997 50,000 50,000
- ---------------------------------------------------------------------
250,000 250,000
- ---------------------------------------------------------------------
$253,033 $253,641
- ---------------------------------------------------------------------
The Company has $100,000 principal amount of unsecured 9 5/8% Subordinated
Notes due in 1999. Interest on the Notes is payable semiannually on June 1 and
December 1. The Notes are not redeemable prior to their maturity on June 1,
1999.
The Company has $100,000 principal amount of Floating Rate Subordinated
Notes due in 1998. The Notes are redeemable at the option of the Company at
their principal amount plus accrued interest. The interest rate is determined
quarterly based on the London interbank offered quotations for three-month U.S.
dollar deposits.
The Company has $50,000 principal amount of Floating Rate Subordinated
Notes due in 1997. The Notes are redeemable at the option of the Company at
their principal amount plus accrued interest. The interest rate is determined
quarterly based on the London interbank offered quotations for three-month U.S.
dollar deposits. Premises stated at approximately $4,463 at December 31, 1995
are subject to liens relating to notes and mortgages.
Maturities of long-term borrowings in the aggregate for the next five years
are as follows:
1996 $ 281 1998 $100,297 2000 $322
1997 50,290 1999 100,313
NOTE I-COMMON STOCK
At December 31, 1995, the Company had reserved 5,456,045 shares of its
Common Stock for issuance in connection with stock option, employee and investor
stock purchase plans.
The following is a summary of the number of shares of Common Stock issued:
Year Ended December 31
1995 1994 1993
- --------------------------------------------------------------------------------
Investor stock purchase plan 327,539 263,180 166,224
Employee stock purchase plan 143,821 114,057 76,344
Stock option plan 359,103 136,658 246,715
Acquisition of Pioneer Financial Corporation 1,514,286
Two-for-one stock split 28,138,471
- --------------------------------------------------------------------------------
Total 830,463 2,028,181 28,627,754
- --------------------------------------------------------------------------------
Under the Investor Stock Purchase Plan, 608,384 shares of Common Stock were
reserved at December 31, 1995. The plan provides that the price of the Common
Stock will be 95% of market value at the time of purchase through dividend
reinvestment and 100% of market value at the time of purchase through optional
cash contributions.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(dollars in thousands -- except per share)
NOTE I-COMMON STOCK CONTINUED
Each outstanding share of the Company's Common Stock contains one Preferred
Share Purchase Right. Each right will entitle stockholders to buy one
two-hundredth of a share of a new Series of Preferred Stock at an exercise price
of $70. Each two-hundredth of a share of the new Preferred Stock has terms
designed to approximate the economic equivalent of one share of Common Stock.
The rights will be exercisable only if a person or group acquires 20% or more of
the Company's Common Stock or announces a tender offer, the consummation of
which would result in ownership by a person or group of 20% or more of the
Common Stock. The rights, which do not have voting privileges, expire in 1999,
but may be redeemed by the Company prior to that time under certain
circumstances, for $0.01 per right. These rights should not interfere with a
business combination approved by the Company's Board of Directors; however, they
could cause substantial dilution to a person or group attempting to acquire the
Company without conditioning the offer on redemption of the rights or acquiring
a substantial number of the rights. Until the rights become exercisable, they
have no dilutive effect on earnings per share.
On December 19, 1995, the Company's Board of Directors approved the 1996
Non-Employee Director Stock Option Plan under which up to 300,000 shares of the
Company's Common Stock will be reserved. Under the plan, each eligible director
will receive an option to purchase 1,000 shares of the Company's Common Stock
each year. The options will become exercisable on the six-month anniversary of
the date of grant. No option will be exercisable until the plan is approved by
the shareholders of the Company and the requirements of all federal and state
securities laws have been met.
NOTE J-EMPLOYEE BENEFIT PLANS
The Company and its subsidiaries have a defined benefit pension plan
covering substantially all of its employees. The benefits are based on years of
service and the employee's career average earnings. The Company's funding policy
is to contribute amounts to the plan sufficient to meet the minimum funding
requirements set forth in the Employee Retirement Income Security Act of 1974,
plus such additional amounts as the Company may determine to be appropriate from
time to time. Approximately 98% of the plan assets at December 31, 1995 were
invested in listed stocks and bonds. Another 1% is invested in a money market
fund sponsored by Signet Trust Company (a subsidiary of the Parent Company). Net
periodic pension cost included the following components:
1995 1994 1993
- -------------------------------------------------------------------------------
Service cost-benefits earned during the period $ 4,870 $ 7,379 $ 6,505
Interest cost on projected benefit obligation 7,912 6,737 6,482
Actual return on plan assets (18,683) 5,548 (3,532)
Net amortization and deferral 8,047 (14,256) (5,435)
- -------------------------------------------------------------------------------
Net periodic pension cost $ 2,146 $ 5,408 $ 4,020
- -------------------------------------------------------------------------------
The following sets forth the plan's funded status and amounts recognized in
the Company's consolidated balance sheet:
December 31
1995 1994
- -----------------------------------------------------------------------------
Actuarial present value of benefit obligations:
Vested benefit obligation $(88,366) $ (95,548)
- -----------------------------------------------------------------------------
Accumulated benefit obligation $(96,228) $(103,370)
- -----------------------------------------------------------------------------
Projected benefit obligation $(96,228) $(103,370)
Plan assets, at fair value 98,352 104,707
- -----------------------------------------------------------------------------
Plan assets in excess of projected benefit obligation 2,124 1,337
Unrecognized net asset (4,731) (5,966)
Unrecognized prior service cost 2,092 2,293
Unrecognized net loss 21,502 25,406
- -----------------------------------------------------------------------------
Net pension asset $ 20,987 $ 23,070
- -----------------------------------------------------------------------------
<PAGE>
NOTE J-EMPLOYEE BENEFIT PLANS CONTINUED
Assumptions used were as follows:
1995 1994 1993
- -------------------------------------------------------------------------------
Discount rates 7.00% 8.50% 7.25%
Rates of increase in compensation levels of employees 5.00 5.00 5.00
Expected long-term rate of return on plan assets 9.50 8.75 8.75
- -------------------------------------------------------------------------------
The excess of contribution over service cost, the spin-off of Capital One
and a reduction in the workforce due to restructuring resulted in a $1.9
million, $1.3 million and $0.4 million decline, respectively, in net periodic
pension cost from 1994 to 1995. The impact of the change in assumptions for the
same periods was immaterial.
The Company sponsors a contributory savings plan and a profit sharing plan.
The savings plan allows substantially all full time employees to participate
while the profit sharing plan allows participation after satisfaction of service
requirements. The Company matches a portion of the contribution made by
employees, which is based upon a percent of defined compensation, to the savings
plan. The profit sharing contribution is based upon the income of the Company.
The Company's expense was $15,908, $23,729, and $22,235 in 1995, 1994 and 1993
under these plans, respectively.
At December 31, 1995, employees of the Company held options to purchase
2,387,643 common shares at an average option price of $13.84 per share. These
options expire on various dates beginning February 25, 1996 and ending March 1,
2005. At the time options are exercised, proceeds from the shares issued are
credited to capital and no charges or credits to income are made with respect to
any of the options. As of the date of the Capital One spin-off, on February 28,
1995, the number of options outstanding and the related price per share were
adjusted, so that the value of options would not change. No compensation expense
was reflected in the income statement as a result of this transaction.
Under the 1992 Stock Option Plan, options for the purchase of up to
4,000,000 shares of Common Stock may be granted to key personnel at prices not
less than the market price per share on the date of grant, and are exercisable
not more than ten years from the date of grant. At December 31, 1995 and 1994,
options to purchase 2,576,873 and 1,179,371 shares, respectively, of Common
Stock were available for future grants.
Under the 1992 Stock Option Plan, a feature was established by the Company,
whereby an employee is automatically granted a reload option when shares of
Common Stock owned by the employee are delivered for cancellation to the Company
in order to exercise options. The option price of the reload options is the fair
market value of common stock on the date that the employee delivers shares to
the Company. The reload options are not exercisable within the first six months
after grant unless the employee dies or becomes disabled during the six month
period.
On February 22, 1994, the Company adopted the 1994 Stock Incentive Plan.
Under the plan, employees holding management positions with the Company can be
awarded Restricted Stock or Incentive Stock at the discretion of a committee of
three Directors of the Company when performance goals are achieved. The 1994
Plan authorizes the reservation of 300,000 shares of Common Stock, however, no
stock had been reserved or issued at December 31, 1995.
A summary of changes, under several plans, in shares of Common Stock under
option for the years 1995, 1994 and 1993 is as follows:
Option Price
Shares Per Share
- -----------------------------------------------------------------------------
Outstanding December 31, 1992 1,215,368 $ 3.72-22.84
Granted 306,666 23.72-31.25
Exercised (446,032) 3.72-23.72
Cancelled (42,494) 12.72-23.72
- -----------------------------------------------------------------------------
Outstanding December 31, 1993 1,033,508 3.72-31.25
Granted 219,027 33.75 -42.50
Exercised (191,304) 3.72-36.56
Cancelled (900) 36.56
- -----------------------------------------------------------------------------
Outstanding December 31, 1994 1,060,331 3.72-42.50
Granted 740,290 15.74-26.06
Exercised (456,368) 1.90-27.75
Adjustment for Capital One spin-off 1,075,669 1.90-20.91
Cancelled (32,279) 15.74-37.06
- -----------------------------------------------------------------------------
Outstanding December 31, 1995 2,387,643 $ 1.90-26.06
- -----------------------------------------------------------------------------
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(dollars in thousands -- except per share)
NOTE J-EMPLOYEE BENEFIT PLANS CONTINUED
The Company has an employee stock purchase plan whereby employees of the
Company and its subsidiaries are eligible to participate through monthly salary
deduction of a maximum of 15% and a minimum of 2% of monthly base pay. The
amounts deducted are applied to the purchase of unissued Common Stock of the
Company at 85% of the current market price. No charges or credits to income are
made with respect to this plan.
The Company sponsors postretirement defined benefit plans that provide
medical and life insurance benefits to retirees. Employees who retire after age
55 with 10 years of service are eligible to participate. The postretirement
health care plan is contributory for participants who retire after June 1, 1991
with retiree contributions adjusted annually and contains other cost sharing
features such as deductibles and coinsurance. The life insurance is
noncontributory. The accounting for the health care plan anticipates future
cost-sharing changes to the written plan that are consistent with the Company's
expressed intent to increase retiree contributions annually in accordance with
increases in health care costs. The Company's policy is to fund the cost of
medical benefits in amounts determined at the discretion of management.
The following table sets forth the plans' combined funded status reconciled
with the amount shown in the Company's consolidated balance sheet:
December 31
1995 1994
- -----------------------------------------------------------------------------
Accumulated postretirement benefit obligation:
Retirees $(35,326) $(33,918)
Fully eligible active plan participants (869) (2,146)
Other active plan participants (2,807) (11,016)
- -----------------------------------------------------------------------------
(39,002) (47,080)
Plan assets at fair value, primarily listed stocks
and bonds 5,767 4,957
- -----------------------------------------------------------------------------
Accumulated postretirement benefit obligation in
excess of plan assets (33,235) (42,123)
Unrecognized transition obligation 24,162 32,390
Unrecognized net loss (13,492) (10,644)
- -----------------------------------------------------------------------------
Accrued postretirement benefit cost $(22,565) $(20,377)
- -----------------------------------------------------------------------------
Net periodic postretirement benefit cost includes the following components:
Year Ended December 31
1995 1994 1993
- -------------------------------------------------------------------------------
Service cost $ 807 $1,457 $1,230
Interest cost 3,470 3,758 3,800
Actual return on plan assets (960) (74) (133)
Amortization of transition obligation over 20 years 1,652 2,010 2,080
Net amortization and deferral (8) (385) (366)
- -------------------------------------------------------------------------------
Net periodic postretirement benefit cost $4,961 $6,766 $6,611
- -------------------------------------------------------------------------------
For measurement purposes, a 9.50% and 7.60% annual rate of increase in the
per capita cost of covered health care benefits was assumed for 1995 for
participants under 65 years of age and 65 years and over, respectively; the rate
was assumed to decrease gradually to 5% in 2005 and remain at that level
thereafter. For 1994, an 11% and 9% annual rate of increase in the per capita
cost of covered health care benefits was assumed for participants under 65 years
of age and 65 years and over, respectively; the rate was assumed to decrease
gradually to 6.50% in 2005 and remain at that level thereafter. For 1993, a 13%
and 10% annual rate of increase in the per capita cost of covered health care
benefits was assumed for participants under 65 years of age and 65 years and
over, respectively; the rate was assumed to decrease gradually to 5.25% in 2007
and remain at that level thereafter. The health care cost trend rate assumption
has a significant effect on the amounts. For example, increasing the assumed
health care cost trend rates by one percentage point in each year would increase
the accumulated postretirement benefit obligation for the medical plans as of
December 31, 1995 and 1994 by $4.3 million and $6.9 million, respectively, and
the aggregate of the service and interest cost components of net periodic
postretirement benefit cost for 1995 by $0.5 million and 1994 and 1993 by $0.6
million.
<PAGE>
NOTE J-EMPLOYEE BENEFIT PLANS CONTINUED
The weighted-average discount rate used in determining the accumulated
postretirement benefit obligation was 7.00%, 8.50% and 7.25% for 1995, 1994 and
1993, respectively. The expected long-term rate of return on plan assets, after
estimated income taxes, was 9.50% for 1995 and 8.75% for 1994 and 1993.
The Company adopted SFAS No. 112, "Employers' Accounting for Postemployment
Benefits" in 1993. In 1995, a $2.4 million reduction in expense resulted from a
change in medicare to primary/secondary status for those employees eligible for
medicare and a decrease in the long-term disability population. No related
expense was reported in 1994. The related expense reflected on the 1993 income
statement was approximately $6.0 million.
In 1995, SFAS No. 123, "Accounting for Stock-Based Compensation" was issued
establishing financial accounting and reporting standards for stock-based
employee compensation plans which becomes effective in 1996. Those plans include
all arrangements by which employees receive shares of stock or other equity
instruments of the employer or the employer incurs liabilities to employees in
amounts based on the price of the employer's stock. SFAS No. 123 defines a fair
value based method of accounting for compensation cost of equity instruments and
encourages all entities to adopt that method of accounting. However, it also
allows an entity to continue to measure compensation cost for equity instruments
using the method of accounting prescribed by Accounting Principles Board Opinion
No. 25 ("APB No. 25") with pro forma disclosures. These pro forma disclosures
reflect the difference between compensation cost, if any, included in net income
in accordance with APB No. 25 and the related cost measured by the fair value
based method, as well as additional tax effects, if any, that would have been
recognized in the income statement if the fair value based method had been used.
Signet has elected to continue to account for compensation cost under the method
of accounting prescribed by APB No. 25, and will include the required pro forma
disclosures in the 1996 financial statements.
The Company has a Flexible Benefits Plan for its employees. The plan allows
employees to select their benefit options, including medical coverage,
disability insurance and paid leave. The plan enables the Company to better
manage its rising health care costs, as well as provide employees more choice in
the selection of their benefits package.
As described in Note M, in 1994 Signet announced plans to implement a
comprehensive core bank improvement plan. As a result of restructuring the
Company, charges of $9.0 million and $10.5 million relating to the Pension Plan
and Postretirement Benefits other than Pensions, respectively, were reported on
the income statement under restructuring charges in 1994.
NOTE K-DIVIDENDS AND OTHER RESTRICTIONS
Certain regulatory restrictions exist regarding the ability of the
subsidiaries to transfer funds to the Parent Company in the form of cash
dividends, loans or advances. At December 31, 1995, approximately $137,229,
$16,025 and $4,381 of the retained earnings of Signet Bank, Signet Bank N.A.
and Signet Trust Company, respectively, and approximately $8,665 of the retained
earnings of the nonbank subsidiaries were available for payment of dividends to
the Parent Company, without prior approval by regulatory authorities. The
regulatory authorities may also consider factors such as the level of current
and expected earnings stream, maintenance of an adequate loan loss reserve and
an adequate capital base when determining amounts available for the payment of
dividends. The restricted net assets of the domestic bank subsidiaries amounted
to $625,768 at December 31, 1995.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINED)
(dollars in thousands -- except per share)
NOTE L-INCOME TAXES
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax assets and liabilities are as follows:
December 31
1995 1994
- ----------------------------------------------------------------
Deferred tax assets:
Allowance for loan losses $ 46,646 $ 79,788
Foreclosed property 4,305 6,224
Unrealized losses on securities 11,733
Commercial fraud loss 12,250
Other 32,779 38,593
- ----------------------------------------------------------------
Total deferred tax assets 95,980 136,338
Deferred tax liabilities:
Leasing 94,995 81,838
Unrealized gains on securities 24,341
Other 28,646 33,761
- ----------------------------------------------------------------
Total deferred tax liabilities 147,982 115,599
- ----------------------------------------------------------------
Net deferred tax assets (liabilities) $(52,002) $ 20,739
- ----------------------------------------------------------------
Differences between applicable income taxes (benefit) and the amount
computed by applying statutory income tax rates are summarized as follows:
Year Ended December 31
1995 1994 1993
- --------------------------------------------------------------------------------
Amounts at statutory rates $59,402 $76,011 $87,211
Effect of:
Tax exempt income (6,774) (8,582) (9,913)
State taxes net of federal benefit 5,246 2,248 2,066
Other 765 (2,338) (4,604)
- --------------------------------------------------------------------------------
Applicable income taxes $58,639 $67,339 $74,760
- --------------------------------------------------------------------------------
Taxes currently payable $35,180 $33,156 $58,201
Deferred income taxes 23,459 34,183 16,559
- --------------------------------------------------------------------------------
Applicable income taxes $58,639 $67,339 $74,760
- --------------------------------------------------------------------------------
Applicable income taxes include $677 in 1995, $1,243 in 1994 and $1,513 in
1993 relating to securities available for sale gains and investment securities
gains.
The components of income tax expense are as follows:
Year Ended December 31
1995 1994 1993
- --------------------------------------------------------------------------------
CURRENT DEFERRED Current Deferred Current Deferred
- --------------------------------------------------------------------------------
Federal $32,468 $18,101 $34,396 $29,484 $57,960 $13,621
State 2,712 5,358 (1,240) 4,699 241 2,938
- --------------------------------------------------------------------------------
$35,180 $23,459 $33,156 $34,183 $58,201 $16,559
- --------------------------------------------------------------------------------
<PAGE>
NOTE M-RESTRUCTURING AND CONTRACT TERMINATION CHARGES
In the third quarter of 1994, Signet's Board of Directors approved a
comprehensive core bank improvement plan aimed at reducing Signet's efficiency
ratio through cost reductions and revenue initiatives in order to enhance its
competitive position. This impacted employees and operations throughout the
organization. The consolidated statement of income for 1994 includes a pre-tax
charge of $43.2 million related to the plan. The charge included approximately
$15.6 million primarily for increased retiree medical and pension benefits
related to an early retirement program in which 225 employees participated,
approximately $13.0 million of accelerated retiree medical and pension expense
and anticipated severance benefits for approximately 750 employees, and
approximately $14.6 million related to the writedown of bank-owned properties
and lease termination costs due to the expected abandonment of facilities
resulting from the reduction in employees. As of December 31, 1995, Signet had
reduced the restructuring liability by 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 (See Note J) 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.
Also, in conjunction with the anticipated Capital One spin-off, Signet
recorded a special pre-tax charge of $49.0 million for terminating data
processing contracts related to the credit card business in 1994. This charge
was included in Capital One's financial results. As the contract termination
charge was paid in 1994, no related liability remains.
NOTE N-OTHER NON-INTEREST INCOME AND EXPENSE
The following schedule represents the items comprising other non-interest
income and expense:
Year Ended December 31
1995 1994 1993
- -------------------------------------------------------------------------------
Other non-interest income:
Mortgage servicing and origination $ 22,429 $ 18,661 $ 24,210
Other service charges and fees 15,069 15,112 16,260
Trading profits (losses) 11,969 (268) (1,396)
Gains (losses) on sales of mortgage loans 7,178 (3,276) (3,987)
Gain on sale of mortgage servicing 977 6,000
Other 24,144 32,207 27,721
- -------------------------------------------------------------------------------
Total $ 81,766 $ 68,436 $ 62,808
- -------------------------------------------------------------------------------
Other non-interest expense:
Professional services $ 19,920 $ 26,108 $ 16,159
Public relations, sales and advertising 18,054 16,662 17,213
FDIC assessment 8,981 16,754 18,253
Taxes and licenses other than payroll
and income 3,896 3,448 2,962
Credit and collection 3,790 11,646 10,619
Insurance 1,614 1,783 2,030
Other 54,226 43,949 44,615
- -------------------------------------------------------------------------------
Total $110,481 $120,350 $111,851
- -------------------------------------------------------------------------------
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(dollars in thousands -- except per share)
Note O - Derivative Financial Instruments
The Company is party to derivative financial instruments with off-balance
sheet risk in the normal course of business to reduce its own exposure to
fluctuations in interest rates, to participate in trading activities and to meet
the financing needs of customers. These instruments include forward and futures
contracts; options; and interest rate swaps, caps and floors. In general terms,
derivative financial instruments are contracts or agreements whose value can be
linked to interest rates, exchange rates, security prices or financial indices.
These instruments involve, to varying degrees, elements of credit or interest
rate risk in excess of the amount recognized in the balance sheet. The Company
attempts to limit its credit risk by dealing with creditworthy counterparties,
obtaining collateral where appropriate and utilizing master netting arrangements
in accordance with FASB Interpretation No. 39, "Offsetting of Amounts Related to
Certain Contracts." The Company's credit exposure that results from entering
into derivative financial instruments is limited to the current fair value of
contracts with a positive fair value expected to be received from
counterparties. The Company does not expect any losses from counterparties
failing to meet their obligations. The market risk of derivative financial
derivatives arises from the potential for changes in value due to fluctuations
in interest and foreign exchange rates.
<TABLE>
<CAPTION>
December 31
- ---------------------------------------------------------------------------------------------------------------------------------
1995 1994
- ---------------------------------------------------------------------------------------------------------------------------------
Average Average
(in millions) Carrying Fair Fair (in millions) Carrying Fair Fair
Notional(a) Value(b) Value(c) Value Notional(a) Value(b) Value(c) Value
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Derivative Financial Instruments:
Held for trading:
Forward and futures contracts $1,300 $ (7) $ (7) 944 $2,806 $ 576 $ 576 $(1,603)
Interest rate swap agreements 270 803 803 698 277 (1,468) (1,468) (836)
Interest rate caps and floors
and options(d) 478 (50) (50) 4,064 969 3,077 3,077 7,367
Held for purposes other than trading:
Forward and futures contracts 111 (1,476) (1,476) 330 153
Interest rate swap agreements 2,824 33,549 3,863 (133,575)
Interest rate caps and floors(e) 950 10,179 14,680 750 10,554 2,194
</TABLE>
(a) The contract or notional amounts of the financial derivative instruments
shown in the table represent the extent of involvement the Company has in
particular classes of instruments and may exceed the actual amount of credit
risk involved at December 31, 1995 and 1994, respectively.
(b) Carrying values in the table are included in the statement of financial
position under the following captions: forward and futures contracts are
included in interest bearing deposits with other banks, trading account
securities, loans held for sale and other assets; interest rate swaps are
included in interest receivable and other assets; interest rate caps and
floors are included in other assets; purchased options are included in loans
held for sale and other assets; and sold options are included in other
liabilities.
(c) Fair values for forward and futures contracts and interest rate caps and
floors and options are based on quoted market prices. The fair value of
interest rate swaps is the estimated amount that the Company would receive
or pay to terminate the swap agreements at the reporting date, taking into
account current interest rates and the current creditworthiness of the swap
counterparties.
(d) Includes (notional) purchased interest rate caps and floors and purchased
options which have no credit risk of $213 and $925 at December 31, 1995 and
1994, respectively.
(e) Includes (notional) purchased interest rate caps and floors which have no
credit risk of $950 and $750 at December 31, 1995 and 1994, respectively.
Futures contracts are legal agreements to buy or sell a standardized
quantity of a commodity or standardized financial instrument at a specified
future date and price. Futures contracts are traded on organized exchanges.
Forward contracts are legal contracts between two parties to purchase and sell a
specific quantity of a financial instrument or commodity at a price specified
now, with delivery and settlement at a specified future date. Exchange traded
futures do not have any credit risk; however, risks related to futures and
forwards traded over-the-counter arise from the possible inability of
counterparties to meet the terms of their contracts and from movements in
securities values and interest rates. While in theory futures and forwards
represent obligations to make or take delivery, in fact most are closed out by
taking an exact but opposite position in the same contract. Cash requirements of
futures and forwards include receipt/payment of cash for the sale or purchase of
the contracts.
<PAGE>
NOTE O-DERIVATIVE FINANCIAL INSTRUMENTS CONTINUED
Interest rate swap transactions generally involve the exchange of fixed and
floating rate interest payment obligations without the exchange of the
underlying principal amounts. Entering into interest rate swap agreements
involves not only the risk of dealing with counterparties and their ability to
meet the terms of the contracts but also the interest rate risk associated with
unmatched positions.
Interest rate caps are tools used to manage exposure to interest rate risk
by modifying the rate sensitivity of selected liabilities by setting an upper
limit on a certain interest rate index. The Company typically pays a fee for the
cap and receives the amount by which the actual rate exceeds the contractual
rate, if any. Interest rate floors are tools to manage exposure to interest rate
risk by modifying the rate sensitivity of selected assets by setting a lower
limit on a certain interest rate index. The Company typically pays a fee for the
floor and receives the amount by which the contractual rate exceeds the actual
rate, if any. Cash flows from swaps, caps and floors are received or paid on the
established contract dates. Options are contracts that give the holder the right
to buy (call) or sell (put) a specified quantity of an asset from/to the issuer
of such a contract at a fixed price within a specified period of time. As a
writer of options, the Company receives a premium at the outset and then bears
the risk of an unfavorable change in the price of the financial instrument
underlying the option.
The Company maintains active trading positions in derivative financial
instruments. All trading derivative types and on-balance sheet instruments are
managed in the aggregate. Trading positions in derivative financial instruments
are carried at fair value and changes in fair values are reflected in trading
income as they occur. Net trading losses in earnings on derivative financial
instruments totaled $32,590, $22,168 and $1,000 in the years ended December 31,
1995, 1994 and 1993, respectively. See Note A for total trading income. The
Company manages the potential credit exposure through careful evaluation of
counterparty credit standing, collateral agreements, and other contract
provisions. The potential credit exposure from future market movements is
evaluated by using models that take into consideration possible changes over
time in interest rates and other relevant factors.
The Company's principal objective in holding or issuing derivatives for
purposes other than trading is asset-liability management. The operations of the
Company are subject to a risk of interest-rate fluctuations to the extent there
is a difference between the amount of the Company's interest-earning assets and
the amount of interest-bearing liabilities that mature or reprice in specified
periods. The main objective of the Company's asset-liability management
activities is to provide maximum levels of net interest income while maintaining
acceptable levels of interest-rate and liquidity risk and facilitating the
funding needs of the Company. To achieve that objective, the Company uses a
combination of derivative financial instruments. The majority of the
asset-liability management activities involve the use of interest rate swaps
whereby fixed rate assets are converted to variable rate assets or fixed rate
liabilities are converted to variable rate liabilities. Derivatives held or
issued for purposes other than trading are not marked to market. Related income
or expense including amortization of purchase premiums or settlement gains or
losses are recorded as an adjustment to the yield of the related interest
earning asset or interest bearing liability over the periods covered by the
contracts. If an instrument is terminated, any gain or loss is deferred and
amortized as an adjustment to the yield of the designated assets or liabilities
over the remaining periods originally covered by the contract. During 1995, the
Company had no terminations.
The Company also acts as an intermediary in arranging interest rate swaps,
caps and floors. As an intermediary, the Company becomes a principal in the
exchange of interest payments between the parties and, therefore, is exposed to
loss should one of the parties default. The Company minimizes the risk by
performing normal credit reviews on its customers. As a writer of interest rate
caps and floors, the Company receives a fee at the outset and then bears the
risk of an unfavorable change in interest rates. The Company minimizes its
exposure to interest rate risk by entering into offsetting positions that
essentially counterbalance each other. These activities are immaterial to
operations.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(dollars in thousands -- except per share)
NOTE P-SECURITIZATIONS
The Company securitized $185,000 of credit card receivables in 1995,
$2,398,801 in 1994 and $2,289,656 in 1993. 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 1995 and 1994 totaled
$184,900 and $2,393,936, respectively. Receivables outstanding under credit card
securitizations were $185,000 and $5,116,791 at December 31, 1995 and 1994,
respectively. 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 is set aside to absorb credit losses. The
amount available to absorb credit losses is included in other assets and was
zero at December 31, 1995 and $146,910 at December 31, 1994.
In conjunction with the spin-off of Capital One, Signet's rights and
obligations under substantially all 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 $185,000 at December 31, 1995.
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 $480,702 at December 31, 1995. 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 will be set aside to absorb credit losses. The amount available
to absorb credit losses at December 31, 1995 was zero.
NOTE Q-CONCENTRATIONS OF RISK
During 1995 and 1994, the Company maintained a concentration of business
activities with customers located within Virginia, Maryland, California and the
District of Columbia. As of December 31, 1995 and 1994, the Company held
approximately $2.4 billion and $1.3 billion, respectively, in U.S. Government
sponsored and U.S. Government agency financial instruments, which have little,
if any, credit risk. In addition, as of December 31, 1995, the Company had $1.2
billion and $1.4 billion, respectively, of credit exposure in the manufacturing
and servicing industries. The Company's current commercial lending policies are
strongly oriented toward diversified middle market borrowers. The amount of
collateral obtained, if deemed necessary by the Company upon extension of
credit, is based on management's credit evaluation of the counterparty.
Collateral held varies but may include accounts receivable, marketable
securities, deposit accounts, inventory, property, plant and equipment, real
estate and income-producing commercial properties.
Signet has a contract with Electronic Data Systems ("EDS") under which EDS
manages Signet's information services, including the data center,
telecommunications, systems and programming. EDS is the primary provider of
computer services for Signet. The contract terminates in 2001.
<PAGE>
NOTE R-DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
SFAS No. 107, "Disclosures About Fair Value of Financial Instruments,"
requires disclosure of fair value information about financial instruments,
whether or not recognized in the balance sheet, for which it is practicable to
estimate that value. In cases where quoted market prices are not available, fair
values are based on estimates using present value or other valuation techniques.
Those techniques are significantly affected by the assumptions used, including
the discount rate and estimates of future cash flows. The derived fair value
estimates cannot be substantiated by comparison to independent markets and, in
many cases, could not be realized in immediate settlement of the instrument.
SFAS No. 107 excludes certain financial instruments and all nonfinancial
instruments from its disclosure requirements. Accordingly, the aggregate fair
value amounts presented do not represent the underlying value of the Company.
See Note O - Derivative Financial Instruments for fair value information on
Signet's derivatives.
<TABLE>
<CAPTION>
December 31
- ---------------------------------------------------------------------------------------------------------------------------
1995 1994
- ---------------------------------------------------------------------------------------------------------------------------
Carrying Fair Carrying Fair
Value Value Value Value
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
The estimated fair values of the Company's
financial instruments required to be
disclosed under SFAS No. 107:
Assets:
Cash and due from banks(a) $ 599,113 $ 599,113 $ 531,747 $ 531,747
Interest bearing deposits with other banks(a)(e) 3,129 3,129 355,503 355,503
Federal funds sold and securities purchased
under resale agreements(a) 460,217 460,217 1,135,821 1,135,821
Trading account securities(b)(e) 478,705 478,705 352,719 352,719
Loans held for securitization(a) 389,700 389,700
Loans held for sale(a)(b)(e) 362,736 362,736 69,585 69,585
Securities available for sale(b) 2,333,971 2,333,971 1,241,696 1,241,696
Investment securities(b) 398,783 399,666
Loans(c)(f) 4,920,793 4,960,403 7,440,679 7,588,917
Interest receivable(a)(e) 104,259 104,259 98,557 98,557
Other assets(a)(e)(g) 126,894 126,894 319,866 319,866
Liabilities:
Non-interest bearing deposits(a) 1,726,378 1,726,378 1,542,349 1,542,349
Interest bearing deposits(d) 5,866,593 5,865,813 6,279,164 6,192,484
Securities sold under repurchase agreements(a) 1,124,105 1,124,105 875,458 875,458
Federal funds purchased(a) 780,193 780,193 881,693 881,693
Commercial paper(a) 108,664 108,664
Bridge financing facility(a) 1,300,000 1,300,000
Other short-term borrowings(a) 146,955 146,955
Long-term borrowings(b)(d) 253,033 262,920 253,641 257,325
Interest payable(a) 19,460 19,460 31,078 31,078
Other liabilities(a)(e)(g) 127,149 127,149 114,801 114,801
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) The carrying amount approximates fair value.
(b) Fair values are based on published market prices or dealer quotes.
(c) For credit card and equity line receivables with short-term and/or variable
characteristics, the total receivables outstanding approximates fair value.
This amount excludes any value related to account relationship. The fair
value of other types of loans is estimated by discounting the future cash
flows using the comparable risk-free rate and adjusting for credit risk and
operating costs.
(d) The fair value of demand deposits, savings accounts and money market
deposits with no defined maturity, by SFAS No. 107 definition, is the amount
payable on demand at the reporting date. The fair value of certificates of
deposit and some long term debt is estimated by discounting the future cash
flows using the current rates at which similar liabilities would be
incurred.
(e) Carrying values in the table are included in the statement of financial
position under the indicated captions, except for certain derivative amounts
(see Note O).
(f) As required by SFAS No. 107, lease receivables (net of unearned income) with
a carrying value totaling $365,533 and $262,979 at December 31, 1995 and
1994, respectively, are excluded. The carrying values are net of the
allowance for loan losses and related unearned income.
(g) Only financial instruments as defined by SFAS No. 107 are included in this
category.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(dollars in thousands -- except per share)
NOTE S-SIGNET BANKING CORPORATION (PARENT COMPANY ONLY) CONDENSED FINANCIAL
INFORMATION
December 31
BALANCE SHEET 1995 1994
- -------------------------------------------------------------------------------
Assets
Interest bearing deposits with other banks $ 110,000
Securities available for sale $ 10,646 17,795
Commercial loans 777 4,131
Advances to bank subsidiaries 215,929 204,878
Investments in:
Bank subsidiaries 812,110 692,516
Non-bank subsidiaries 39,026 382,864
Other assets 39,503 65,582
- -------------------------------------------------------------------------------
$1,117,991 $1,477,766
- -------------------------------------------------------------------------------
Liabilities
Commercial paper $ 108,664
Long-term borrowings - subordinated notes $ 250,000 250,000
Other liabilities 4,042 7,623
- -------------------------------------------------------------------------------
Total liabilities 254,042 366,287
Common Stockholders' Equity 863,949 1,111,479
- -------------------------------------------------------------------------------
$1,117,991 $1,477,766
- -------------------------------------------------------------------------------
Year Ended December 31
STATEMENT OF INCOME 1995 1994 1993
- -------------------------------------------------------------------------------
Income:
Dividends from bank subsidiaries $ 57,651 $ 75,531 $ 50,328
Interest from:
Bank subsidiaries 14,240 10,545 8,716
Non-bank subsidiaries 50 286 127
Others 414 4,528 2,674
Other income-- net 2,538 5,562 2,738
- -------------------------------------------------------------------------------
74,893 96,452 64,583
Expense:
Interest 17,486 20,983 18,002
Non-interest 2,594 4,489 3,795
- -------------------------------------------------------------------------------
20,080 25,472 21,797
- -------------------------------------------------------------------------------
Income before income taxes benefit and equity
in undistributed net income of subsidiaries 54,813 70,980 42,786
Applicable income taxes benefit (806) (1,204) (2,122)
- -------------------------------------------------------------------------------
55,619 72,184 44,908
Equity in undistributed net income:
Bank subsidiaries 39,380 66,101 129,455
Non-bank subsidiaries 16,081 11,549 51
- -------------------------------------------------------------------------------
Net income $111,080 $149,834 $174,414
- -------------------------------------------------------------------------------
<PAGE>
NOTE S-SIGNET BANKING CORPORATION (PARENT COMPANY ONLY) CONDENSED FINANCIAL
INFORMATION CONTINUED
<TABLE>
<CAPTION>
Year Ended December 31
STATEMENT OF CASH FLOWS 1995 1994 1993
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net Income $ 111,080 $149,834 $ 174,414
Adjustments to reconcile net income to net
cash provided by operating activities:
Equity in undistributed income of subsidiaries (55,461) (77,650) (129,506)
Realized securities available for sale losses (gains) 418 (459) 12
Realized investment security gains (107)
Proceeds from sales of trading account securities 10,000
Decrease (increase) in other assets 26,389 (8,160) (12,472)
(Decrease) increase in other liabilities (4,239) 454 769
- ----------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 78,187 64,019 43,110
INVESTING ACTIVITIES
Decrease (increase) in interest bearing deposits with other banks 110,000 (55,000)
Proceeds from sales of securities available for sale 47,552 3,662
Purchases of securities available for sale (39,469) (107)
Proceeds from sales of investment securities 9,000
Purchases of investment securities (9,659)
(Increase) decrease in advances to subsidiaries (11,052) 100,683 (47,121)
Increase in investment in subsidiaries (37,721) (56,535) (1,413)
Net decrease (increase) in loans 3,354 (4,131)
- ----------------------------------------------------------------------------------------------------------------
Net cash provided (used) by investing activities 72,664 (11,321) (49,300)
FINANCING ACTIVITIES
(Decrease) increase in commercial paper (108,664) (59,824) 43,362
Decrease in long-term borrowings (11,943) (848)
Proceeds from issuance of common stock 4,084 75,972 9,203
Payment of cash dividends (46,489) (57,192) (45,058)
- ----------------------------------------------------------------------------------------------------------------
Net cash (used) provided by financing activities (151,069) (52,987) 6,659
- ----------------------------------------------------------------------------------------------------------------
(Decrease) increase in cash and cash equivalents (218) (289) 469
Cash and cash equivalents at beginning of year 219 508 39
- ----------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 1 $ 219 $ 508
- ----------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURES
Interest paid $ 18,327 $ 20,692 $ 18,029
Income taxes (received) paid (27,453) 5,288 9,238
Distribution of common stock of Capital One Financial Corporation 383,200
</TABLE>
Maturities of long-term borrowings for the next five years are as follows:
1996--$0, 1997--$50,000, 1998--$100,000, 1999--$100,000, 2000--$0.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(dollars in thousands -- except per share)
NOTE T-SPIN-OFF OF CAPITAL ONE FINANCIAL CORPORATION ("CAPITAL ONE")
On July 27, 1994, 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 and 1994 non-interest expense is $2,018 and $1,272,
respectively, 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. On February 28, 1995, $6.2 billion (notional) of
interest rate swaps were transferred to Capital One.
Prior to November 22, 1994, the date of the Separation, Capital One
operated as a division of Signet Bank, a wholly-owned subsidiary of Signet.
Subsequent to the Separation, Capital One operated as an independently funded
and stand-alone company. 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
Signet Bank. 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
Signet. (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, Signet Bank 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
Signet Bank a normal servicing fee for servicing this retained portfolio for all
periods presented. Included in Capital One's 1994 non-interest expense is a
special pre-tax charge of $49.0 million for terminating data processing
contracts related to the credit card business.
Various agreements continue to exist between Signet and Capital One. These
include basic servicing agreements, an agreement to hold deposits on behalf of
Capital One, $500,000 of which will transfer to Capital One in the first quarter
of 1996, and an agreement to hold non-card consumer loans, which management
anticipates will eventually be sold to Capital One. The net amount Signet paid
to Capital One related to these agreements since the spin-off was $18,487.
Capital One summary financial data follows:
February 28 December 31
1995 1994
- -----------------------------------------------------------------------------
Federal funds sold $ 304,500 $ 300,000
Loans held for securitization 450,000
Securities available for sale 351,425 99,070
Net loans 2,088,554 2,159,939
Other assets 444,809 513,537
- -----------------------------------------------------------------------------
Total assets $3,639,288 $3,072,546
- -----------------------------------------------------------------------------
Deposits $622,898 $ 452,201
Short-term borrowings 1,066,103 2,040,688
Bank notes 1,388,158 22,000
Other liabilities 69,257 83,100
- -----------------------------------------------------------------------------
Total liabilities 3,146,416 2,597,989
Stockholders' equity (includes minority interest
of $109,672 [1995] and $106,900 [1994]) 492,872 474,557
- -----------------------------------------------------------------------------
Total liabilities and stockholders' equity $3,639,288 $3,072,546
- -----------------------------------------------------------------------------
<PAGE>
NOTE T-SPIN-OFF OF CAPITAL ONE FINANCIAL CORPORATION ("CAPITAL ONE") CONTINUED
<TABLE>
<CAPTION>
Year Ended
Two Months Ended December 31
February 28, 1995 1994 1993
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net interest income $25,167 $164,977 $191,863
Provision for loan losses 3,929 30,727 34,030
- ---------------------------------------------------------------------------------------------
Net interest income after provision for loan losses 21,238 134,250 157,833
Non-interest income 87,679 396,902 194,825
Non-interest expense (1994 includes a $49,000
contract termination fee) 81,510 384,325 181,804
- ---------------------------------------------------------------------------------------------
Income before income taxes 27,407 146,827 170,854
Applicable income taxes 9,870 51,564 60,369
- ---------------------------------------------------------------------------------------------
Net income $17,537 $ 95,263 $110,485
- ---------------------------------------------------------------------------------------------
</TABLE>
NOTE U-COMMITMENTS AND CONTINGENT LIABILITIES
The Company is party to financial instruments with off-balance sheet risk
in the normal course of business to meet the financing needs of customers. These
instruments include commitments to extend credit, standby and commercial letters
of credit and recourse obligations. These instruments involve, to varying
degrees, elements of credit risk in excess of the amount recognized in the
balance sheet. The Company attempts to limit its credit risk by dealing with
creditworthy counterparties and obtaining collateral where appropriate.
Off-Balance Sheet Items December 31
(in millions) 1995 1994
- ----------------------------------------------------------------------------
Financial instruments whose contract amounts
represent credit risk:
Commitments to extend credit (unused) - net $3,505 $11,723
Standby and commercial letters of credit 318 289
Mortgage loans sold with recourse 15 19
- ----------------------------------------------------------------------------
The fair value of commercial lending related letters of credit and
commitments reflects the amount Signet would have to pay a counterparty to
assume these obligations and was $10,209 and $8,994 at December 31, 1995 and
1994, respectively. These amounts were estimated as the amount of fees currently
charged to enter into similar agreements, taking into account the present
creditworthiness of the counterparties.
Commitments to extend credit include the unused portions of commitments
that obligate a bank to extend credit in the form of loans, participations in
loans or similar transactions. Commitments to extend credit would also include
loan proceeds that a bank is obligated to advance, such as loan draws,
construction progress payments, rotating or revolving credit arrangements (other
than credit cards and related plans), or similar transactions. Commitments
generally have fixed expiration dates or other termination clauses and may
require payment of a fee by the counterparty. Since many of the commitments are
expected to expire without being drawn upon, the total commitment amounts do not
necessarily represent future cash requirements.
Standby and commercial letters of credit are conditional commitments issued
by the Company, and unless discussed otherwise, have the same characteristics as
discussed for commitments. Standby letters of credit are instruments issued by
the Company which represent an obligation to guarantee payments on certain
transactions. If a customer defaulted on loan payments, the issuer of the letter
would be called upon to make payments. Standby letters of credit represent
contingent liabilities; therefore, they are not included on the Company's
balance sheet. Commercial letters of credit are conditional commitments on the
part of a bank to provide payment on drafts drawn in accordance with the terms
of a document. A commercial letter of credit is issued to specifically
facilitate trade or commerce. Under the terms of a commercial letter of credit,
as a general rule, drafts will be drawn when the underlying transaction is
consummated as intended. The Company evaluates each customer's creditworthiness
on a case-by-case basis. The amount of collateral deemed necessary by the
Company upon extension of credit is based on management's credit evaluation of
the counterparty and the particular transaction. Collateral held varies but may
include accounts receivable, marketable securities, deposit accounts, inventory
and property, plant and equipment. Credit risk (the possibility that a loss may
occur from the failure of another party to perform according to the terms of a
contract) exists to the extent of the contract amount in the case of commitments
and letters of credit. No significant losses are anticipated as a result of
these transactions.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(dollars in thousands -- except per share)
NOTE U-COMMITMENTS AND CONTINGENT LIABILITIES CONTINUED
The Company sells residential mortgage loans with recourse to the Federal
National Mortgage Association (FNMA) and the Federal Home Loan Mortgage Company
(FHLMC). Mortgages are collateralized by 1-4 family residential homes. The
Company's policy is for an average 85% loan-to-value ratio upon inception of the
loan. Loans above 80% have mortgage insurance. It is not practicable to
separately estimate the value of mortgage loans sold with recourse due to the
excessive cost involved. These values are included in the loans held for sale
valuation (see Note R for further discussion).
Certain premises and equipment are leased under agreements which expire at
various dates through 2051, without taking into consideration renewal options
available to the lessee. Many of these leases require the lessee to pay property
taxes, insurance premiums, cost of maintenance and other costs. In some cases,
rentals are subject to increase in relation to a cost of living index. Total
rental expense amounted to approximately $22,827 in 1995, $21,947 in 1994 and
$18,541 in 1993.
Future minimum rental commitments as of December 31, 1995 for all
non-cancelable operating leases with initial or remaining terms of one year or
more amounted to $121,640 and rental commitments for the next five years are as
follows:
1996 $22,066 1998 $17,258 2000 $9,846
1997 19,439 1999 12,944
The Company has entered into several agreements under which certain data
processing services, including management of the Company's data center and
installation of various new application systems, will be provided by outside
parties. The cost of these services is determined by volume considerations, in
addition to an agreed base rate, for remaining terms up to six years.
NOTE V-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. Based on information currently available, 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 management
believes is likely to be recovered based on current facts and circumstances. The
amount of the recovery is 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 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 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.
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Stockholders and Board of Directors
Signet Banking Corporation
We have audited the accompanying consolidated balance sheet of Signet
Banking Corporation and subsidiaries as of December 31, 1995 and 1994, and the
related consolidated statements of income, changes in stockholders' equity and
cash flows for each of the three years in the period ended December 31, 1995.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Signet Banking
Corporation and subsidiaries at December 31, 1995 and 1994, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1995, in conformity with generally accepted
accounting principles.
/s/ ERNST & YOUNG LLP
Richmond, Virginia
April 8, 1996
<PAGE>
Signet Banking Corporation and Subsidiaries
CONSOLIDATING BALANCE SHEET
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
December 31, 1995
- ----------------------------------------------------------------------------------------------------------------------------------
Capital One
Signet Banking Signet Financial Signet Banking
Corporation Bank Signet Bank Corporation Other Corporation
(in thousands) (unaudited) (Parent Company) Consolidated N.A. Consolidated(a) Subsidiaries Eliminations Consolidated
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Cash and due from banks $ 1 $ 579,070 $ 35,904 $ 7,903 $ (23,765) $ 599,113
Interest bearing deposits
with other banks 1,800 1,329 3,129
Fed funds sold and
resale agreements 460,217 460,217
Trading account securities 478,723 478,723
Loans held for securitization 389,700 389,700
Loans held for sale 360,831 429 361,260
Securities available for sale 10,646 2,173,605 492,792 4,983 (348,055) 2,333,971
Loans 808 5,470,442 103,213 (6,900) 5,567,563
Less: Unearned Income (31) (151,504) (151,535)
Allowance for loan
losses (125,371) (4,331) (129,702)
- ----------------------------------------------------------------------------------------------------------------------------------
Net loans 777 5,193,567 98,882 (6,900) 5,286,326
Premises and equipment 184,425 3,889 4,117 192,431
Other assets 1,106,567 790,252 23,039 36,224 (1,083,087) 872,995
- ----------------------------------------------------------------------------------------------------------------------------------
$1,117,991 $10,612,190 $654,506 $54,985 $(1,461,807) $10,977,865
- ----------------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS'
EQUITY
Non-interest bearing deposits $ 1,607,615 $142,528 $ (23,765) $ 1,726,378
Interest bearing deposits 5,584,057 282,536 5,866,593
- ----------------------------------------------------------------------------------------------------------------------------------
Total deposits 7,191,672 425,064 (23,765) 7,592,971
Other short-term borrowings 2,355,289 118,173 (569,164) 1,904,298
Long-term borrowings $ 250,000 3,033 253,033
Other liabilities 4,042 350,695 21,387 $ 5,232 (17,742) 363,614
Stockholders' equity 863,949 711,501 89,882 49,753 (851,136) 863,949
- ----------------------------------------------------------------------------------------------------------------------------------
$1,117,991 $10,612,190 $654,506 $54,985 $(1,461,807) $10,977,865
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
STATEMENT OF CONSOLIDATING INCOME
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
(in thousands) (unaudited) Year Ended December 31, 1995
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Interest income $ 14,704 $ 804,937 $ 40,501 $ 57,682 $ 546 $ (52,371) $ 865,999
Interest expense 17,486 359,195 15,322 32,515 515 (52,268) 372,765
- ---------------------------------------------------------------------------------------------------------------------------------
Net interest income
(expense) (2,782) 445,742 25,179 25,167 31 (103) 493,234
Provision for loan losses 35,786 (1,000) 3,929 38,715
- ---------------------------------------------------------------------------------------------------------------------------------
Net interest income (expense)
after provision for loan
losses (2,782) 409,956 26,179 21,238 31 (103) 454,519
Non-interest operating income 2,956 148,675 7,442 87,679 35,296 (4,569) 277,479
Securities gains (losses) (418) 2,088 23 96 1,789
Non-interest expense 2,594 432,256 18,786 81,510 31,534 (2,612) 564,068
- ---------------------------------------------------------------------------------------------------------------------------------
Income (loss) before
income taxes (benefit) (2,838) 128,463 14,858 27,407 3,889 (2,060) 169,719
Applicable income taxes
(benefit) (806) 41,153 6,950 9,870 1,514 (42) 58,639
- ---------------------------------------------------------------------------------------------------------------------------------
Net income (loss) $ (2,032) $ 87,310 $ 7,908 $ 17,537 $ 2,375 $ (2,018)(b)$ 111,080
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) The Capital One Financial Corporation balance sheet is not included in the
Signet Banking Corporation Consolidated balance sheet as of December 31,
1995 due to the spin-off that was effective February 28, 1995. The income
statement for Capital One Financial Corporation reflects the activity for
1995 until the spin-off.
(b) The $2,018 represents the minority interest in Capital One Financial
Corporation's net income which is recorded in other non-interest expense in
the eliminations column.
<PAGE>
Signet Bank
CONSOLIDATING BALANCE SHEET
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
December 31, 1995
- ------------------------------------------------------------------------------------------------------
Signet Bank
Excluding Signet
Signet Mortgage Mortgage Signet Bank
(in thousands) (unaudited) Corporation Corporation Eliminations Consolidated
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ASSETS
Cash and due from banks $ 579,070 $ 2,484 $ (2,484) $ 579,070
Interest bearing deposits with other banks 1,800 1,800
Fed funds sold and resale agreements 460,217 460,217
Trading account securities 478,723 478,723
Loans held for securitization 389,700 389,700
Loans held for sale 264,902 95,929 360,831
Securities available for sale 2,173,319 286 2,173,605
Loans 5,469,597 845 5,470,442
Less: Unearned Income (151,504) (151,504)
Allowance for loan losses (125,371) (125,371)
- ------------------------------------------------------------------------------------------------------
Net loans 5,192,722 845 5,193,567
Investment in subsidiary 16,645 (16,645)
Premises and equipment 180,076 4,349 184,425
Interest receivable 97,115 509 97,624
Other assets 761,477 59,012 (127,861) 692,628
- ------------------------------------------------------------------------------------------------------
$10,595,766 $163,414 $(146,990) $10,612,190
- ------------------------------------------------------------------------------------------------------
LIABILITIES
Non-interest bearing deposits $ 1,610,039 $ 60 $ (2,484) $ 1,607,615
Interest bearing deposits 5,584,057 5,584,057
- ------------------------------------------------------------------------------------------------------
Total deposits 7,194,096 60 (2,484) 7,191,672
Advances (to) from affiliates-net (7,129) 134,990 (127,861)
Other short-term borrowings 2,355,289 2,355,289
Long-term borrowings 3,033 3,033
Other liabilities 338,976 11,719 350,695
- ------------------------------------------------------------------------------------------------------
Total liabilities 9,884,265 146,769 (130,345) 9,900,689
STOCKHOLDERS' EQUITY
Common stock 68,242 750 (750) 68,242
Capital surplus 330,895 500 (500) 330,895
Retained earnings 312,364 15,395 (15,395) 312,364
- ------------------------------------------------------------------------------------------------------
Total stockholders' equity 711,501 16,645 (16,645) 711,501
- ------------------------------------------------------------------------------------------------------
$10,595,766 $163,414 $(146,990) $10,612,190
- ------------------------------------------------------------------------------------------------------
</TABLE>
STATEMENT OF CONSOLIDATING INCOME
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
(in thousands) (unaudited) Year Ended December 31, 1995
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest income $800,277 $ 4,660 $804,937
Interest expense 354,428 4,767 359,195
- --------------------------------------------------------------------------------------------------
Net interest income (expense) 445,849 (107) 445,742
Provision for loan losses 35,786 35,786
- --------------------------------------------------------------------------------------------------
Net interest income (expense) after
provision for loan losses 410,063 (107) 409,956
Non-interest operating income 121,457 27,218 148,675
Securities gains 2,088 2,088
Non-interest expense 402,200 30,056 432,256
- --------------------------------------------------------------------------------------------------
Income (loss) before income taxes (benefit) 131,408 (2,945) 128,463
Applicable income taxes (benefit) 42,184 (1,031) 41,153
- --------------------------------------------------------------------------------------------------
Net income (loss) $ 89,224 $(1,914) $ 87,310
- --------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
SIGNET STOCK INFORMATION
The Common Stock of SIGNET BANKING CORPORATION is traded on the New York Stock
Exchange under the symbol "SBK."
ISSUES AND CONVERSIONS
<TABLE>
<S> <C>
March 29, 1965 2:1 stock split distributed to shareholders of record on March 17.
November 20, 1969 3:2 stock split distributed to shareholders of record on October 20.
July 20, 1984 2:1 stock split distributed to shareholders of record on June 29.
July 14, 1986 Union Trust Bancorp (UTB) of Baltimore acquired at an exchange rate of
2.05 Signet shares for each UTB share.
July 27, 1993 2:1 stock split distributed to shareholders of record on July 6.
September 1, 1994 Pioneer Financial Corporation (PION) of Chester, Virginia, acquired at an
exchange rate of .6232 Signet shares for each PION share.
November 22, 1994 Capital One Financial Corporation (COF) established and 7,125,000 COF shares
sold through an Initial Public Offering.
February 28, 1995 Signet's interest in Capital One Financial Corporation spun off in a tax-free
distribution. Signet shareholders of record on February 10 received the
Capital One distribution. The cost basis of their investment was adjusted
so that 50.69% was attributed to Signet shares and 49.31% was attributed
to the Capital One shares.
March 1, 1995 Signet share price adjusted to reflect the spin-off of Capital One.
</TABLE>
QUARTERLY PER SHARE INFORMATION
Data through February 28, 1995 include Signet's ownership of Capital One
Financial Corporation
<TABLE>
<CAPTION>
1994 FIRST QUARTER SECOND QUARTER THIRD QUARTER FOURTH QUARTER
<S> <C> <C> <C> <C>
Price Range 34 1/2-40 3/8 38-43 7/8 34 1/8-41 27 1/4-35 1/2
Book Value $17.95 $18.23 $18.52 $18.96
E.P.S. .93 .88 .05 .73
Dividends Declared .25 .25 .25 .25
Average Common Shares
and Equivalents (000s) 57,247 57,358 57,898 58,927
</TABLE>
<TABLE>
<CAPTION>
1995 FIRST QUARTER SECOND QUARTER THIRD QUARTER FOURTH QUARTER
<S> <C> <C> <C> <C>
Price Range 17 5/8-36 5/8 20 1/8-23 1/4 21 1/2-28 22-27 1/2
Book Value $13.15 $13.90 $14.27 $14.59
E.P.S. .71 .50 .50 .15
Dividends Declared .25 .17 .17 .20
Average Common Shares
and Equivalents (000s) 59,142 59,669 60,146 60,230
</TABLE>
TOTAL RETURN TO SHAREHOLDERS IN 1995
Value of 1 Signet share on December 31, 1994 $28.63
- --------------------------------------------------------------------------------
Cash dividends paid by Signet in 1995 .79
Cash dividends paid by Capital One in 1995 .24
Value of 1 Capital One share on December 31, 1995 23.75
Value of 1 Signet share on December 31, 1995 23.88
- --------------------------------------------------------------------------------
$48.66
Total Return to Shareholders in 1995 70.0%
Annual Return of S&P 500 in 1995 34.1%
Total Return of Keefe, Bruyette & Woods 50 Bank Index in 1995 60.2%
[recycled logo] The contents of this
Annual Report are
printed on recycled paper.
EXHIBIT 21.1
SUBSIDIARIES OF SIGNET BANKING CORPORATION
December 31, 1995
Subsidiary Place of Incorporation
Signet Bank Virginia
800 Building Corporation Virginia
Signet Mortgage Corporation Virginia
Signet Second Mortgage Corporation Virginia
Signet Bank (Bahamas), Ltd. Bahamas
Second Eleutheran Investment Co., Ltd. Bahamas
Signet Trust Company Virginia
Signet Insurance Services, Inc. Virginia
Signet Financial Services, Inc. Virginia
Signet Commercial Credit Corporation Virginia
Signet Strategic Capital Corporation Virginia
General Finance Service Corporation Pennsylvania
Elgin Corporation Virginia
Signet Investment Banking Company Virginia
St. Paul Realty, Inc. Maryland
Signet Equipment Company Maryland
Wharton & Bennett, Inc. Maryland
UTC Prop. No. 2, Inc. Maryland
UTC Prop. No. 3, Inc. Maryland
UTC Prop. No. 4, Inc. Maryland
UTC Prop. No. 5, Inc. Maryland
UTC Prop. No. 6, Inc. Maryland
Landexco, Inc. Maryland
Signet Leasing and Financial Corporation Maryland
Signet Insurance Services Inc./Maryland Maryland
Signet Realty, Inc. Maryland
Signet Bank N.A. Washington, D.C.
Signet Municipal LeaseCorp., Inc. Virginia
The Budget Plan Company of Virginia Virginia
Signet Lending Services, Inc. Tennessee
DOPWO, Inc. Virginia
NP Corporation Maryland
NP No. 3 Corporation Maryland
NP No. 4 Corporation Maryland
NP No. 5 Corporation Maryland
NP No. 7 Corporation Maryland
NP No. 8 Corporation Maryland
NP No. 9 Corporation Maryland
NP No. 10 Corporation Maryland
VMD Servicing Corporation Maryland
MWG VII, Inc. Maryland
Signet Residential Finance Corporation Virginia
FH Crossings, Ltd. Virginia
FH Properties, No. 4, Inc. Virginia
FH Properties, No. 6, Inc. Virginia
FH Properties, No. 7, Inc. Virginia
FH Properties, No. 9, Inc. Virginia
FH Properties, No. 10, Inc. Virginia
FH Properties, No. 13, Inc. Virginia
Signet Business Leasing Corporation Virginia
Signet Loan Company Pennsylvania
<PAGE>
EXHIBIT 21.1
SUBSIDIARIES OF SIGNET BANKING CORPORATION
December 31, 1995
Subsidiary Place of Incorporation
RE IV, Inc. Maryland
RE VIII, Inc. Maryland
RE IX, Inc. Maryland
EEI Holding's Corporation, Inc. Maryland
RE XI, Inc. Maryland
RE XV, Inc. Maryland
SM II, Inc. Maryland
SM III, Inc. Maryland
SM IV, Inc. Maryland
SM V, Inc. Maryland
SM VI, Inc. Maryland
SM VII, Inc. Maryland
SM VIII, Inc. Maryland
SM IX, Inc. Maryland
SM X, Inc. Maryland
SM XI, Inc. Maryland
SM XII, Inc. Maryland
SM XIII, Inc. Maryland
SM XIV, Inc. Maryland
SM XV, Inc. Maryland
SM XVI, Inc. Maryland
Signet Asset Management, Inc./Delaware Delaware
Signet Banking Corporation/Delaware Delaware
Signet Commercial Credit Corporation/Delaware Delaware
Signet Credit Corporation/Delaware Delaware
Signet Equipment Company/Delaware Delaware
Signet Financial Corporation/Delaware Delaware
Signet Insurance Services, Inc./Delaware Delaware
Signet Investment Banking Corporation/Delaware Delaware
Signet Investment Corporation/Delaware Delaware
Signet Leasing & Financial Corporation/Delaware Delaware
Signet Properties Company/Delaware Delaware
Signet Services Corporation/Delaware Delaware
Signet Venture Capital Corporation/Delaware Delaware
Virtus Capital Management, Inc. Maryland
Pioneer Properties, Inc. Virginia
Pioneer Asset Management Virginia
Pioneer Mortgage Corporation Virginia
Pioneer Development Corporation Virginia
PFR Corporation Virginia
Pioneer Properties I, Inc. Virginia
Pioneer Properties II, Inc. Virginia
Pioneer Properties III, Inc. Virginia
Pioneer Capital I, Inc. Virginia
Exhibit 23.1
CONSENT OF ERNST & YOUNG LLP
INDEPENDENT AUDITORS
We consent to the incorporation by reference in this Annual Report (Form 10-K)
of Signet Banking Corporation of our report dated April 8, 1996, included in the
1995 Annual Report to Shareholders of Signet Banking Corporation.
We also consent to the incorporation by reference in the following Registration
Statements, or most recent post-effective amendments thereto, filed prior to
April 10, 1996 of our report dated April 8, 1996, with respect to the
consolidated financial statements incorporated herein by reference:
- Form S-8 (2-82600) - Form S-3 (33-4491)
- Form S-8 (33-2498) - Form S-3 (33-21963)
- Form S-8 (33-43190) - Form S-3 (33-28089)
- Form S-8 (33-10637) - Form S-3 (2-92081)
- Form S-8 (33-47591) - Form S-3 (33-54803)
- Form S-8 (33-47590)
- Form S-8 (33-57455)
- Form S-8 (33-022996)
ERNST & YOUNG LLP
Richmond, Virginia
April 10, 1996
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<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 599,113
<INT-BEARING-DEPOSITS> 3,129
<FED-FUNDS-SOLD> 460,217
<TRADING-ASSETS> 478,723
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<COMMON> 296,044
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<INTEREST-TOTAL> 865,999
<INTEREST-DEPOSIT> 222,185
<INTEREST-EXPENSE> 372,765
<INTEREST-INCOME-NET> 493,234
<LOAN-LOSSES> 38,715
<SECURITIES-GAINS> 1,789
<EXPENSE-OTHER> 564,068
<INCOME-PRETAX> 169,719
<INCOME-PRE-EXTRAORDINARY> 169,719
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 111,080
<EPS-PRIMARY> 1.86
<EPS-DILUTED> 1.86
<YIELD-ACTUAL> 5.08
<LOANS-NON> 38,481
<LOANS-PAST> 66,371
<LOANS-TROUBLED> 0
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<ALLOWANCE-OPEN> 220,519
<CHARGE-OFFS> 62,993
<RECOVERIES> 9,848
<ALLOWANCE-CLOSE> 129,702
<ALLOWANCE-DOMESTIC> 116,315
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 13,387
</TABLE>
