SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
[ X ] Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the quarterly period ended September 30, 1997 or
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the transition period from _______ to _______.
Commission file number 1-6505
SIGNET BANKING CORPORATION
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(Exact name of registrant as specified in its charter)
Virginia 54-6037910
- ------------------------------- --------------------------------------
(State or other jurisdiction of (I. R. S. Employer Identification No.)
incorporation or organization)
7 North Eighth Street, Richmond, Virginia 23219
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 804 747-2000
------------
Not Applicable
- --------------------------------------------------------------------------------
Former name, former address and former fiscal year, if changed since last report
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
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Common Shares outstanding as of October 31, 1997 - 61,040,633
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<PAGE>
<TABLE>
Index
SIGNET BANKING CORPORATION AND SUBSIDIARIES
September 30, 1997
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<S> <C>
Page
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
Consolidated Balance Sheet 3
Statement of Consolidated Income 4
Statement of Changes in Consolidated Stockholders' Equity 5
Statement of Consolidated Cash Flows 6
Supplemental Notes to Quarterly Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 12
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 27
Item 6. Exhibits and Reports on Form 8-K 27
SIGNATURES 27
<PAGE>
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements
Signet Banking Corporation and Subsidiaries
Consolidated Balance Sheet
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September 30 December 31
(in thousands--except per share) (unaudited) 1997 1996 1996
- ----------------------------------------------------------------------------------------------------------------------------------
Assets
Cash and due from banks $ 461,793 $ 592,307 $ 566,520
Interest bearing deposits with other banks 3,776 2,211 3,200
Federal funds sold and securities purchased under resale agreements 886,791 589,590 777,999
Trading account securities 277,007 478,631 546,372
Loans held for securitization 300,000
Loans held for sale 26,381 110,005 102,826
Securities available for sale 2,233,520 2,520,136 2,623,280
Loans:
Consumer 2,683,122 2,221,244 2,300,558
Commercial 3,405,589 3,325,278 3,451,230
Real estate-construction 227,000 250,140 244,653
Real estate-commercial mortgage 181,408 275,995 254,060
Real estate-residential mortgage 240,418 311,169 329,466
- ----------------------------------------------------------------------------------------------------------------------------------
Gross loans 6,737,537 6,383,826 6,579,967
Less: Unearned income (215,144) (211,759) (225,081)
Allowance for loan losses (126,022) (128,459) (136,707)
- ----------------------------------------------------------------------------------------------------------------------------------
Net loans 6,396,371 6,043,608 6,218,179
Premises and equipment (net) 171,715 191,402 184,413
Interest receivable 104,223 101,958 107,504
Due from broker 138,621
Other assets 570,967 562,711 590,125
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Total assets $ 11,271,165 $ 11,492,559 $ 11,720,418
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Liabilities
Non-interest bearing deposits $ 1,770,689 $ 1,774,901 $ 1,751,238
Interest bearing deposits:
Interest bearing demand 3,025,041 2,739,923 2,955,576
Savings accounts 596,080 669,062 651,544
Savings certificates 2,167,091 2,285,807 2,256,838
Large denomination certificates 131,413 204,940 228,879
Foreign 21,941 159,446 43,267
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Total interest bearing deposits 5,941,566 6,059,178 6,136,104
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Total deposits 7,712,255 7,834,079 7,887,342
Securities sold under repurchase agreements 1,399,406 1,356,190 1,467,565
Federal funds purchased 450,630 799,376 495,171
Other short-term borrowings 72,319
Long-term borrowings 350,004 400,018 400,014
Interest payable 31,722 31,134 30,507
Due to broker 300,000
Other liabilities 265,297 182,288 215,704
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Total liabilities 10,281,633 10,603,085 10,796,303
Stockholders' Equity
Common stock, $5 par value; authorized 100,000,000 shares, issued and
outstanding 60,943,669, 59,724,436 and 60,077,489 shares, respectively 304,718 298,622 300,387
Capital surplus, net 216,258 207,180 209,327
Retained earnings 434,466 378,204 399,268
Unrealized gains on securities available for sale, net of deferred taxes 34,090 5,468 15,133
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Total stockholders' equity 989,532 889,474 924,115
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Total liabilities and stockholders' equity $ 11,271,165 $ 11,492,559 $ 11,720,418
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See notes to consolidated financial statements.
<PAGE>
Signet Banking Corporation and Subsidiaries
Statement of Consolidated Income
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Three Months Ended Nine Months Ended
September 30 September 30
(in thousands--except per share) (unaudited) 1997 1996 1997 1996
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Interest income:
Loans, including fees:
Consumer $ 71,240 $ 55,516 $ 200,298 $ 163,303
Commercial 61,824 59,691 184,173 171,611
Real estate-construction 6,061 6,085 17,417 18,211
Real estate-commercial mortgage 4,222 6,036 15,530 21,896
Real estate-residential mortgage 4,715 5,701 14,588 13,081
- ----------------------------------------------------------------------------------------------------------------------------------
Total loans, including fees 148,062 133,029 432,006 388,102
Interest bearing deposits with other banks 2,944 106 5,475 303
Federal funds sold and resale agreements 10,677 8,793 34,719 26,524
Trading account securities 5,647 8,383 20,025 24,370
Loans held for securitization 6,005 19,416
Loans held for sale 950 8,441 3,548 28,106
Securities available for sale 43,866 46,286 135,170 132,030
- ----------------------------------------------------------------------------------------------------------------------------------
Total interest income 212,146 211,043 630,943 618,851
Interest expense:
Interest bearing demand 27,356 21,230 81,352 57,519
Savings accounts 4,041 4,607 12,470 23,632
Savings certificates 27,502 27,227 79,639 75,157
Large denomination certificates 2,001 2,566 7,474 5,822
Foreign 510 2,583 2,359 6,277
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Total interest on deposits 61,410 58,213 183,294 168,407
Securities sold under repurchase agreements 18,200 19,329 52,539 50,924
Federal funds purchased 6,107 10,939 19,675 35,441
Other short-term borrowings 202 202
Long-term borrowings 5,944 4,128 17,751 12,038
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Total interest expense 91,863 92,609 273,461 266,810
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Net interest income 120,283 118,434 357,482 352,041
Provision for loan losses 20,250 19,000 50,000 44,051
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Net interest income after provision for loan losses 100,033 99,434 307,482 307,990
Non-interest income:
Service charges on deposit accounts 17,000 17,180 51,430 50,511
Consumer loan servicing and service charge income 12,177 11,439 36,218 38,871
Trust and other financial services income 10,824 10,308 31,377 30,021
Other 31,294 29,831 76,417 70,486
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Non-interest operating income 71,295 68,758 195,442 189,889
Securities available for sale gains (losses) 6,909 (629) 7,022 127
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Total non-interest income 78,204 68,129 202,464 190,016
Non-interest expense:
Salaries 47,767 54,605 142,791 155,607
Employee benefits 14,546 8,811 36,888 31,678
Supplies and equipment 9,812 10,036 31,320 29,626
Occupancy 8,494 9,045 26,590 28,759
External data processing services 8,802 7,992 26,696 23,471
Travel and communications 5,180 6,231 15,955 18,857
Restructuring charge 58,712
Other 19,078 26,135 61,737 71,983
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Total non-interest expense 113,679 122,855 400,689 359,981
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Income before income taxes 64,558 44,708 109,257 138,025
Applicable income taxes 22,393 15,102 36,016 46,743
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Net income $ 42,165 $ 29,606 $ 73,241 $ 91,282
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Earnings per common share $ 0.68 $ 0.49 $ 1.19 $ 1.51
Cash dividends declared per share 0.21 0.20 0.63 0.60
Average common shares outstanding 62,196 60,738 61,682 60,533
See notes to consolidated financial statements.
<PAGE>
Signet Banking Corporation and Subsidiaries
Statement of Changes in Consolidated Stockholders' Equity
Unrealized
Common Stock Capital Deferred Gains/(Losses)
(in thousands) (unaudited) Shares Amount Surplus Compensation on Securities
- ---------------------------------------------------------------------------------------------------------------------------
Nine Months Ended September 30, 1997
Balance at beginning of period 60,077,489 $300,387 $212,416 ($3,089) $15,133
Net income
Issuance of Common Stock 860,088 4,301 6,325
Restricted stock awards 6,092 30 182 (212)
Amortization of deferred compensation 636
Cash dividends
Change in net unrealized gains on securities
available for sale, net of tax of $10,208 18,957
---------------------------------------------------------------------
Balance at end of period 60,943,669 $304,718 $218,923 ($2,665) $34,090
=====================================================================
Nine Months Ended September 30, 1996
Balance at beginning of period 59,208,745 $296,044 $200,093 $45,198
Net income
Issuance of Common Stock 515,691 2,578 7,087
Cash dividends
Change in net unrealized gains (losses) on securities
available for sale, net of tax benefit of $24,553 (39,730)
---------------------------------------------------------------------
Balance at end of period 59,724,436 $298,622 $207,180 $5,468
=====================================================================
Total
Retained Stockholders'
(in thousands) (unaudited) Earnings Equity
- -------------------------------------------------------------------------------
Nine Months Ended September 30, 1997
Balance at beginning of period $399,268 $924,115
Net income 73,241 73,241
Issuance of Common Stock 10,626
Restricted stock awards
Amortization of deferred compensation 636
Cash dividends (38,043) (38,043)
Change in net unrealized gains on securities
available for sale, net of tax of $10,208 18,957
------------------------
Balance at end of period $434,466 $989,532
========================
Nine Months Ended September 30, 1996
Balance at beginning of period $322,614 $863,949
Net income 91,282 91,282
Issuance of Common Stock 9,665
Cash dividends (35,692) (35,692)
Change in net unrealized gains (losses) on securities
available for sale, net of tax benefit of $24,553 (39,730)
------------------------
Balance at end of period $378,204 $889,474
========================
<PAGE>
Signet Banking Corporation and Subsidiaries
Statement of Consolidated Cash Flows
(in thousands) (unaudited)
- --------------------------------------------------------------------------------------------------------------------------
Nine Months Ended September 30
1997 1996
--------------------------------
Operating Activities
Net income $73,241 $91,282
Adjustments to reconcile net income to net cash (used)
provided by operating activities:
Provision for loan losses 50,000 44,051
Provision and writedowns on foreclosed property 241 128
Depreciation and amortization 45,162 30,630
Securities available for sale gains (7,022) (127)
Other gains, net (35,697) (23,969)
Decrease in interest receivable 3,281 2,479
(Increase) decrease in other assets (105,189) 230,833
Increase in interest payable 1,215 11,674
Decrease in other liabilities (260,558) (166,110)
Proceeds from securitization of credit card loans 90,000
Proceeds from sales of loans held for sale 18,430,830 24,824,449
Purchases and originations of loans held for sale (18,291,493) (24,560,869)
Proceeds from sales of trading account securities 16,304,394 13,128,429
Purchases of trading account securities (16,012,892) (13,116,693)
- --------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 195,513 586,187
Investing Activities
Proceeds from sales of securities available for sale 123,750 1,275,292
Proceeds from maturities of securities available for sale 306,381 284,411
Purchases of securities available for sale (1,044) (1,781,933)
Net increase in loans (302,347) (811,448)
Recoveries of loans previously charged-off 8,256 3,539
Purchases of premises and equipment (11,411) (18,859)
Purchases of mortgage servicing rights (32,158) (28,874)
Proceeds from sale of Corporate Trust business 9,960
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Net cash provided (used) by investing activities 101,387 (1,077,872)
Financing Activities
Net (decrease) increase in deposits (175,087) 241,108
Net (decrease) increase in short-term borrowings (40,381) 251,268
Proceeds from issuance of long-term debt 150,000
Payments on long-term debt (50,010) (3,015)
Net issuance of common stock 11,262 9,665
Payment of cash dividends (38,043) (35,692)
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Net cash (used) provided by financing activities (292,259) 613,334
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Increase in cash and cash equivalents 4,641 121,649
Cash and cash equivalents at beginning of period 1,347,719 1,062,459
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Cash and cash equivalents at end of period $1,352,360 $1,184,108
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Supplemental disclosures
Interest paid $272,247 $255,137
Income taxes paid 11,372 16,327
Transfer of loans to foreclosed property 6,607 6,276
- --------------------------------------------------------------------------------------------------------------------------
See notes to consolidated financial statements.
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<PAGE>
Supplemental Notes to Quarterly Financial Statements
(dollars in thousands) (unaudited)
General
The accompanying financial statements (unaudited) reflect all adjustments which
are, in the opinion of management, necessary for a fair presentation. All such
adjustments are of a normal recurring nature. The financial statements have been
prepared based on the accounting policies as described in the 1996 annual report
and as noted below, except certain amounts which have been reclassified for
prior periods to conform to the 1997 presentation format.
Statement of Consolidated Cash Flows
Cash and cash equivalents, as presented in this statement, includes cash and due
from banks, interest bearing deposits with other banks and federal funds sold
and securities purchased under resale agreements.
Securities Available for Sale
Securities available for sale are summarized as follows:
<TABLE>
<CAPTION>
<S> <C>
September 30, 1997 September 30, 1996 December 31, 1996
Fair Fair Fair
Cost Value Cost Value Cost Value
---- ----- ---- ----- ---- -----
U.S. Government and
agency obligations -
Mortgage-backed securities $1,896,855 $1,938,809 $2,022,469 $2,024,226 $2,124,019 $2,135,422
Other 123,556 127,047 298,058 301,875 298,175 302,320
States and political subdivisions 9,538 9,699 26,169 26,853 22,244 22,784
Other 153,969 157,965 170,289 167,182 160,347 162,754
---------- ---------- ---------- ---------- ---------- ----------
Total $2,183,918 $2,233,520 $2,516,985 $2,520,136 $2,604,785 $2,623,280
========== ========== ========== ========== ========== ==========
</TABLE>
Income Taxes
Differences between the effective rate of income taxes and the statutory rate
arise principally from non-taxable interest on investments and loans.
Recent Accounting Statements
Signet adopted Statement of Financial Accounting Standards ("SFAS") No. 125,
"Accounting for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities," on January 1, 1997. SFAS No. 125 provides accounting and
reporting standards for transfers and servicing of financial assets, including
securitizations, and extinguishments of liabilities. The adoption of SFAS No.
125 did not have a material impact on the Company's financial position or
results of operations.
Subsequent to the issuance of SFAS No. 125, SFAS No. 127, "Deferral of the
Effective Date of Certain Provisions of FASB Statement No. 125," was issued.
SFAS No. 127 defers the effective date of accounting for secured borrowings and
collateral, repurchase agreements, dollar-roll, securities lending, and similar
transactions until January 1, 1998. The effect of adopting the deferred
requirements of SFAS No. 125 for existing transactions is not expected to have a
material impact on the Company's financial position or results of operations.
In February 1997, SFAS No. 128, "Earnings per Share," was issued, which is
required to be adopted on December 31, 1997. At that time, the Company will be
required to change the method currently being
<PAGE>
Supplemental Notes to Quarterly Financial Statements (continued)
(dollars in thousands) (unaudited)
used to compute earnings per share and to restate all prior periods. Under the
new requirements, primary earnings per share will be replaced with "basic"
earnings per share which excludes the dilutive effect of stock options. The
impact of calculating basic earnings per share is expected to result in a $0.01
per share increase in the primary earnings per share reported for the quarters
ended September 30, 1997 and September 30, 1996. The impact of calculating basic
earnings per share is expected to result in a $0.02 and a $0.03 per share
increase in the primary earnings per share reported for the nine months ended
September 30, 1997 and September 30, 1996, respectively. The impact of SFAS No.
128 on the calculation of fully diluted earnings per share for these periods is
not expected to be material.
Securitizations
Signet periodically securitizes loans, primarily consumer loans such as credit
card receivables, home equity lines and student loans. In accordance with these
agreements, a fixed amount of cash or excess servicing fees may be required to
be set aside to cover credit losses and is included in other assets. Recourse
obligations related to these transactions are not material.
Amounts related to these securitizations are as follows:
<TABLE>
<CAPTION>
<S> <C>
Home
Credit Equity Student
Card Lines Loans
----------------------------------------------------------------- ----------- -------------- ------------
Nine Months Ended September 30, 1997:
Initial Amount Securitized
Initial Gain Recorded
Gain on Sales of Receivables Under Revolving Structures $ 1,701
At September 30, 1997:
Receivables Outstanding $252,778 362,380 $385,872
Amount Set Aside to Absorb Credit Losses 5,288 5,752
----------------------------------------------------------------- ----------- -------------- ------------
Nine Months Ended September 30, 1996:
Initial Amount Securitized $ 90,000
Initial Gain Recorded
Gain on Sales of Receivables Under Revolving Structures $ 5,741
At September 30, 1996:
Receivables Outstanding 275,000 420,447
Amount Set Aside to Absorb Credit Losses 5,288
At December 31, 1996:
Receivables Outstanding 263,889 406,896 $428,435
Amount Set Aside to Absorb Credit Losses 5,288 6,317
----------------------------------------------------------------- ----------- -------------- ------------
</TABLE>
Commercial Fraud Loss
On March 19, 1996, Signet's management discovered that 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 there had been substantial recoveries of
assets related to these transactions. Management recorded a $35 million
commercial fraud loss in non-interest expense at December 31, 1995 and recorded
the estimated probable recovery amount of $46 million in other assets as a
receivable. The receivable represented an amount management believed was likely
to be recovered based on facts and circumstances at the time. The amount of the
recovery was based on the Company's share of known claims to the total amount
held by federal authorities, less associated costs. The recovery amount was
subject to change as additional assets were recovered and/or additional claims
were asserted.
In June 1997, Federal authorities distributed funds to the various banks
victimized by the fraud. Signet's share represented principal and interest
earned on the funds while held by the authorities. A portion of the funds
received by Signet remain in dispute with the other financial institutions
involved. Signet's share, net
<PAGE>
Supplemental Notes to Quarterly Financial Statements (continued)
(dollars in thousands) (unaudited)
of the disputed amount, was applied against the receivable with the resulting
excess amount of $3.6 million applied to non-interest income and as a reduction
to non-interest expense. The Company will vigorously pursue all other sources of
recovery, but currently is unable to determine the probability or amount of
additional recoveries.
Restructuring Charge
In the second quarter of 1997, Signet recorded a restructuring charge of
$58,712, $37,022 after-tax or $0.60 per share as a result of a comprehensive
redesign program which commenced in June 1997 and is expected to continue into
1999. The objectives of the program were to align Signet's infrastructure with
its business strategies to better serve customers, enhance revenues, and improve
efficiency. The components of the restructuring charge were as follows:
<TABLE>
<CAPTION>
<S> <C>
Requiring Cash 1997 Cash
Total Outflow Outflow
-------------- ------------------- ---------------
Severance and other personnel related costs $24,723 $24,723 $6,249
Facilities related charges 10,079 9,076 395
Technology write-offs and other charges 15,410 12,389 11,976
Goodwill write-off 8,500 - -
-------------- ------------------- ---------------
Totals $58,712 $46,188 $18,620
============== =================== ===============
</TABLE>
As of September 30, 1997, the remaining accrual for restructuring related
charges was $26,593.
Merger with First Union Corporation
On July 21, 1997, subsequent to the release of Signet's second quarter 1997
earnings, First Union Corporation ("First Union") announced that Signet and
First Union signed a definitive merger agreement which would create the leading
banking company in Virginia, based on combined deposits on June 30, 1997, of
approximately $20 billion. As of September 30, 1997, Signet had assets of $11
billion and First Union had assets of $144 billion. First Union agreed to
exchange 1.10 shares of its common stock for each share of Signet common stock.
The merger, which would be accounted for as a pooling of interests, is expected
to be consummated by December 31, 1997, pending Signet shareholder approval,
regulatory approval and other customary conditions of closing.
Branch Sales
On September 25, 1997, Signet entered into an agreement to sell 7 branches
located in Virginia and Maryland to First Virginia Banks, Inc.. Subsequent to
September 30, 1997, Signet entered into agreements with Union Bankshares and
First-Citizens Bank and Trust Company to sell 22 branches located in Virginia.
These sales, which may result in substantial gains, are scheduled to close in
the first quarter of 1998. Deposits at these 29 branches totaled approximately
$525 million at September 30, 1997.
<PAGE>
<TABLE>
<S> <C>
Signet Banking Corporation and Subsidiaries .
Financial Summary
--------------------------------------------------------------------------------------------------------------------------------
Three Months Ended Nine Months Ended
September 30 September 30
-------------------------- Percent ---------------------------- Percent
(dollars in thousands--except per share) 1997 1996 Change 1997 1996 Change
--------------------------------------------------------------------------------------------------------------------------------
Earnings
Net interest income (taxable equivalent) $ 122,104 $ 120,492 1.3% $ 363,042 $ 357,992 1.4%
Net interest income 120,283 118,434 1.6 357,482 352,041 1.5
Net income 42,165 29,606 42.4 73,241 91,282 (19.8)
- ------------------------------------------------------------------------------------------------------------------------------------
Per Common Share
Net income $ 0.68 $ 0.49 38.8 $ 1.19 $ 1.51 (21.2)
Cash dividends declared $ 0.21 0.20 5.0 0.63 0.60 5.0
Book value 16.24 14.89 9.1
Period-end price 54.25 26.75 102.8
--------------------------------------------------------------------------------------------------------------------------------
Average Daily Balance
Assets $ 11,267,425 $11,429,415 (1.4) $ 11,366,104 $ 11,281,783 0.7
Earning assets 10,138,809 10,203,525 (0.6) 10,200,389 9,995,768 2.0
Loans (net of unearned income) 6,384,226 5,928,045 7.7 6,304,451 5,770,232 9.3
Managed loan portfolio 7,371,188 6,932,773 6.3 7,327,197 6,795,270 7.8
Deposits 7,613,275 7,568,833 0.6 7,717,255 7,548,594 2.2
Core deposits 7,440,091 7,200,579 3.3 7,486,265 7,255,271 3.2
Common stockholders' equity 961,064 863,801 11.3 942,013 856,758 10.0
Common shares outstanding 62,195,863 60,738,071 2.4 61,682,288 60,532,872 1.9
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios
Return on average assets 1.48% 1.03% 43.7 0.86% 1.08% (20.4)
Return on average common stockholders'
equity 17.41 13.63 27.7 10.40 14.23 (26.9)
Net yield margin 4.78 4.70 1.7 4.76 4.78 (0.4)
Allowance for loan losses to:
Non-performing loans 515.27 441.17 16.8
Non-performing assets 379.04 292.95 29.4
Net loans 1.93 2.08 (7.2)
Non-performing assets to loans and
foreclosed properties 0.51 0.71 (28.2)
Stockholders' equity to assets 8.78 7.74 13.4
-------------------------------------------------------------------------------------
At Period-end
Assets $ 11,271,165 $11,492,559 (1.9)
Earning assets 9,949,868 10,172,640 (2.2)
Loans (net of unearned income) 6,522,393 6,172,067 5.7
Managed loan portfolio 7,494,739 7,167,513 4.6
Deposits 7,712,255 7,834,079 (1.6)
Core deposits 7,558,901 7,469,693 1.2
Common stockholders' equity 989,532 889,474 11.2
Non-performing assets 33,248 43,851 (24.2)
Number of common stockholders 13,545 15,164 (10.7)
Full-time employees 3,392 4,201 (19.3)
Part-time employees 702 955 (26.5)
--------------------------------------------------------------------------------------------------------------------------------
The common stock of Signet Banking Corporation is traded on the New York Stock Exchange under the symbol "SBK".
* The second quarter of 1997 included a $58.7 million pre-tax and $37.0 million after-tax restructuring charge.
See management's discussion for further details.
<PAGE>
Table 1
Selected Quarterly Financial Information
- ---------------------------------------------------------------------------------------------------------------------------------
3rd Qtr 2nd Qtr 1st Qtr 4th Qtr 3rd Qtr
1997 1997 1997 1996 1996
- ---------------------------------------------------------------------------------------------------------------------------------
Summary of Operations
(dollars in thousands--except per share)
Net interest income (taxable equivalent) $ 122,104 $ 121,942 $ 118,996 $ 118,992 $ 120,492
Less: taxable equivalent adjustment 1,821 1,899 1,840 2,273 2,058
- ---------------------------------------------------------------------------------------------------------------------------------
Net interest income 120,283 120,043 117,156 116,719 118,434
Provision for loan losses 20,250 13,350 16,400 29,800 19,000
- ---------------------------------------------------------------------------------------------------------------------------------
Net interest income after provision for loan losses 100,033 106,693 100,756 86,919 99,434
Non-interest income 78,204 60,145 64,115 89,561 68,129
Non-interest expense * 113,679 172,180 114,830 125,337 122,855
- ---------------------------------------------------------------------------------------------------------------------------------
Income (loss) before income taxes (benefit) 64,558 (5,342) 50,041 51,143 44,708
Applicable income taxes (benefit) 22,393 (3,368) 16,991 17,498 15,102
- ---------------------------------------------------------------------------------------------------------------------------------
Net income (loss) $ 42,165 $ (1,974) $ 33,050 $ 33,645 $ 29,606
- ---------------------------------------------------------------------------------------------------------------------------------
Per common share:
Net income (loss) $0.68 ($0.03) $0.54 $0.55 $0.49
Cash dividends declared 0.21 0.21 0.21 0.21 0.20
Book value 16.24 15.50 15.37 15.38 14.89
Average shares outstanding (in thousands) 62,196 61,566 61,281 61,089 60,738
Selected Average Balances (in millions)
Assets $ 11,267 $ 11,442 $ 11,391 $ 11,610 $ 11,429
Earning assets 10,139 10,245 10,218 10,391 10,204
Loans (net of unearned income) 6,384 6,238 6,290 6,320 5,928
Managed loan portfolio 7,371 7,264 7,346 7,309 6,933
Deposits 7,613 7,806 7,734 7,709 7,569
Core deposits 7,440 7,568 7,451 7,337 7,201
Interest bearing liabilities 8,454 8,646 8,667 8,867 8,781
Stockholders' equity 961 936 928 911 864
Ratios
Return on average assets 1.48% N/M% 1.18% 1.15% 1.03%
Return on average common stockholders' equity 17.41 N/M 14.44 14.69 13.63
Efficiency ratio (excluding restructuring charge
and foreclosed property expense) 58.72 62.72 62.27 62.31 64.92
Net interest spread 4.06 4.11 4.08 3.93 4.11
Net yield margin 4.78 4.77 4.72 4.56 4.70
Stockholders' equity to assets 8.78 7.90 7.91 7.88 7.74
Credit Quality Data (dollars in thousands)
Non-performing assets $ 33,248 $ 33,313 $ 40,669 $ 38,800 $ 43,851
Accruing loans past due 90 days or more 77,167 68,924 59,604 71,484 78,033
Net charge-offs 13,968 14,842 14,865 21,552 16,983
Allowance for loan losses to:
Non-performing loans 515.27% 508.47% 449.83% 483.02% 441.17%
Non-performing assets 379.04 359.44 298.09 352.34 292.95
Net loans 1.93 1.89 1.95 2.15 2.08
Non-performing assets to loans and foreclosed properties 0.51 0.52 0.65 0.61 0.71
Net loan losses to average loans 0.88 0.95 0.95 1.36 1.15
* The second quarter of 1997 included a $58.7 million pre-tax and $37.0 million after-tax restructuring charge.
See management's discussion for further details.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Introduction
Signet Banking Corporation ("Signet" or "the Company"), with headquarters in
Richmond, Virginia, is a registered multi-state bank holding company whose stock
is listed on the New York Stock Exchange under the symbol SBK. Signet provides
interstate financial services through its principal subsidiary, Signet Bank, a
Virginia banking corporation headquartered in Richmond. Signet Bank has banking
offices in Virginia, Maryland and the District of Columbia.
Signet engages in general commercial and consumer banking businesses and
provides a full range of financial services to individuals, businesses and
organizations through 230 banking offices, 249 automated teller machines,
on-line INTERNET access 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, it provides specialized services for
trust, leasing, asset based lending, cash management, real estate and insurance.
Signet's primary market area for its traditional banking business extends from
Baltimore to Washington, south to Richmond, and on to Hampton Roads/Tidewater,
Virginia. The Company markets several of its products nationally.
On July 21, 1997, First Union Corporation ("First Union") announced that
Signet and First Union had signed a definitive merger agreement which would
create the leading banking company in Virginia, based on combined deposits on
June 30, 1997, of approximately $20 billion. As of September 30, 1997, Signet
had assets of $11 billion and First Union had assets of $144 billion. First
Union agreed to exchange 1.10 shares of its common stock for each share of
Signet common stock. The merger, which would be accounted for as a pooling of
interests, is expected to be consummated by December 31, 1997, pending Signet
shareholder approval, regulatory approval and other customary conditions of
closing. The merger has received approval from the Federal Reserve Board.
On June 3, 1997, Signet announced the results of a comprehensive redesign
program, named ADVANCE, that would enable it to achieve its strategic goal of
becoming a leading national, customer-focused, information-based financial
services company with a strong Mid-Atlantic presence. Signet began ADVANCE in
October 1996. The objective was to align Signet's infrastructure with its
business strategies to better serve customers, enhance revenues, improve
efficiency and create superior value for shareholders. Implementation of ADVANCE
was expected to add $10 million to revenues and to reduce expenses by $58
million for an annual total benefit of $68 million pre-tax by year-end 1998.
These benefits are net of implementation costs and significant investments in
technology. The per share improvement was expected to be $.72 after tax by
December 1998, excluding the effect of the branch sales described below.
However, the announced merger with First Union will have a significant impact on
the implementation of ADVANCE initiatives, the effect of which cannot be
determined at this time. In connection with ADVANCE, Signet recorded a $58.7
million pre-tax restructuring charge in the second quarter of 1997.
During the second quarter, Signet signed a definitive agreement to sell
its Corporate Trust business. The transaction closed in the third quarter,
resulting in a $10 million pre-tax gain. During September and October 1997,
Signet entered into three separate agreements to sell a total of 29 branches.
These transactions are expected to close in the first quarter of 1998.
Regulatory authorities require divestiture of 4 of these branches in connection
with the pending merger with First Union.
The following discussion of the operating results and financial condition
at September 30, 1997 is intended to help readers analyze the accompanying
financial statements, notes and other supplemental information contained in this
document. Results of operations for the nine months ended September 30, 1997 are
not necessarily indicative of results to be attained for any other period.
Forward-Looking Statements
When used in this quarterly report, in Form 10-K or other filings by the Company
with the Securities and Exchange Commission, in the Company's press releases or
other public or shareholder communications, or in oral statements made with the
approval of an authorized Company executive officer, the words or phases "would
be," "will allow," "intends to," "will likely result," "are expected to,"
"expects to," "will continue," "is anticipated," "estimate," "project" or
similar expressions are intended to identify "forward-looking statements" within
the meaning of the Private Securities Litigation Reform Act of 1995.
<PAGE>
While forward-looking statements are provided to assist in the
understanding of the Company's anticipated future financial performance, the
Company cautions readers not to place undue reliance on any forward-looking
statements, which speak only as of the date made. Forward-looking statements are
subject to significant risks and uncertainties, many of which are beyond the
Company's control. Although the Company believes that the assumptions underlying
its forward-looking statements are reasonable, any of the assumptions could
prove to be inaccurate. Actual results may differ materially from those
contained in or implied by such forward-looking statements for a variety of
reasons. Factors that might cause such a difference include, but are not limited
to: sharp and/or rapid changes in interest rates that could, among other things,
impact the Company's interest margins; significant changes in the economic
scenario from the currently anticipated scenario which could materially change
anticipated credit quality, charge-off and delinquency trends and the ability to
generate new loans; significantly increased competition in the banking and
financial services industries; significant delays in or inability to grow
revenues and/or control expenses to improve the Company's efficiency ratio;
changes in the capital markets that could affect the ability of the Company to
fund itself in a cost-effective manner; and significant changes in accounting,
tax, or governmental and regulatory practices or requirements. Further
information about factors affecting the Company's business and operations are
included in the Company's most recent Form 10-K.
In addition, any forward-looking statements relating to ADVANCE involve
significant risks and uncertainties. Actual results derived from ADVANCE may
differ significantly from the results discussed in such forward-looking
statements. Factors that could cause such a difference include, but are not
limited to: expected cost savings from ADVANCE cannot be fully realized or
realized within the expected time frame; income or revenues from ADVANCE are
lower than expected or operating costs are higher; competitive pressures in the
banking and financial services industries increase significantly, particularly
in connection with nationwide product delivery; business disruption related to
implementation of certain ADVANCE programs or methodologies; general economic
conditions either nationally or in states in which the Company seeks to expand
its business opportunities are weaker than expected; or other unanticipated
occurrences which could delay the implementation of all or part of ADVANCE,
increase the costs associated with the project or decrease the financial
benefits of the project. The announced merger with First Union will have a
significant impact on the implementation of ADVANCE initiatives, the effect of
which cannot be determined at this time.
The Company does not undertake, and specifically disclaims any obligation,
to update any forward-looking statements to reflect occurrences or unanticipated
events or circumstances after the date of such statements.
Earnings Analysis
Signet reported consolidated net income for the third quarter of 1997 of $42.2
million, or $.68 per share. This compared with $29.6 million, or $.49 per share,
of net income in the third quarter of 1996. Net income for the first nine months
of 1997 was $73.2 million, or $1.19 per share, compared with $91.3 million, or
$1.51 per share, for the same period last year. Excluding the restructuring
charge taken in the second quarter, earnings for the nine months would have been
$110.3 million, or $1.79 per share. The return on assets ("ROA") and return on
common stockholders' equity ("ROE") for the nine months ended September 30, 1997
were 0.86% and 10.40%, respectively. Signet's ROA and ROE for the nine months
ended September 30, 1997, adjusting for the restructuring charge, were 1.30% and
15.41%, respectively. This compares with 1.08% and 14.23% for same ratios in
1996. Signet's ROA and ROE for the quarter ended September 30, 1997 were 1.48%
and 17.41%, respectively, compared with 1.03% and 13.63% for the comparable
ratios for the third quarter last year.
Net Interest Income
Taxable equivalent net interest income, a primary contributor to earnings,
totaled $122.1 million for the quarter and $363.0 million for the nine months
ended September 30, 1997, up modestly from the same periods of 1996. The net
yield margin for the third quarter of 1997 remained firm at 4.78%, a 1 basis
point rise from the second quarter of 1997. Table 3 analyzes the change in the
net yield margin from the second to the third quarter of 1997.
The net interest spread of 4.06% for the third quarter of 1997 declined 5
basis points from the previous quarter and from the third quarter of 1996 level
of 4.11%. The decline resulted from funding rates rising more rapidly than
yields on earning assets. One reason funding rates rose is that Signet was using
its direct mail expertise to grow core deposits, some of which offer a
relatively high initial interest rate. The overall yield on earning assets for
the third quarter of 1997 was 8.37%, up 1 basis point from the 1997 second
quarter, while the rate paid for interest bearing liabilities amounted to 4.31%,
up 6 basis points from the previous quarter.
Signet uses various off-balance sheet interest rate derivatives as an
integral part of its asset and liability management and trading activities. For
Signet, variable rate assets generally exceed variable rate liabilities. To
manage the resulting interest rate risk, Signet enters into derivative
transactions. Derivative contracts, used for interest rate risk management
purposes, decreased interest on earning assets by $2.0 million, $1.5 million and
<PAGE>
$1.8 million and decreased borrowing costs by $3.0 million, $4.2 million and
$3.7 million for the third quarter of 1997, the second quarter of 1997 and the
third quarter of 1996, respectively. The overall increase in the net yield
margin as a result of these instruments amounted to 4, 10 and 7 basis points for
the respective periods. Loan securitizations also have an effect on net interest
income and the net yield margin. For a detailed analysis of this effect, refer
to the discussion of Consumer Loan Growth elsewhere in this report.
Provision and Allowance for Loan Losses
The provision for loan losses totaled $20.3 million for the third quarter of
1997, up slightly from $19.0 million in the third quarter of 1996. Table 4
provides a summary of activity in the allowance for loan losses along with
details of the charge-offs and recoveries by loan category.
Net charge-offs amounted to $14.0 million in the third quarter of 1997, an
improvement from $17.0 million for the same quarter in the prior year. For the
first nine months of 1997, net charge-offs totaled $43.7 million, down from
$45.3 million in 1996. Higher consumer loan net charge-offs were partially
offset by net recoveries of commercial loans. In addition, there were no real
estate-construction charge offs in the current quarter, compared with $3.7
million charged off in the third quarter of 1996. The loan loss provision
increased $5.9 million year-to-date resulting primarily from growth and
increased losses in the loan-by-check portfolio. The loan-by-check risk test
loans mentioned in footnote 1 to Table 4 were generated from direct mail
solicitations in late 1994 as Signet ran controlled tests to determine the
criteria to be used in future loan-by-check solicitations. Signet sold the
remaining loan-by-check risk test portfolio for a modest gain in March, 1997.
Refer to footnote 1 to Table 4 for more detailed information on the
loan-by-check charge-offs.
The allowance for loan losses at September 30, 1997 was $126.0 million, or
1.93% of period-end loans, compared with the September 30, 1996 allowance of
$128.5 million, or 2.08% of loans. The decline in the level of the allowance
reflected the second quarter 1997 sale of the Company's loan-by-check risk test
portfolio, in anticipation of which, $17.0 million of the allowance for loan
losses was transferred to loans held for sale. The September 30, 1997 allowance
for loan losses equated to 5.2 times quarter-end non-performing loans and 3.8
times quarter-end non-performing assets, up from September 30, 1996 when the
allowance for loan losses amounted to 4.4 times non-performing loans and 2.9
times non-performing assets.
Non-Interest Income
A significant portion of Signet's revenue is derived from non-interest related
sources including service charges on deposit accounts, consumer loan servicing
and service charge income, trust and other financial services income and other
income. Signet's business strategies continued to emphasize non-interest
operating income sources. Table 5 details the various components of non-interest
income for the third quarter and first nine months of 1997 compared with the
same periods in 1996 as well as the second quarter of 1997.
Non-interest income for the third quarter of 1997 totaled $78.2 million,
up 15% from the third quarter of 1996. Several factors contributed to the
increase. Service charges on deposit accounts declined slightly. Consumer loan
servicing and service charge income, and trust and other financial services
income were up 6% and 5%, respectively. Mortgage servicing and origination
income totaled $4.1 million for the third quarter of 1997 down from $8.3 million
in the third quarter of 1996. The 50% decline was a result of a decrease in the
volume of mortgage loans originated due to the sale of Signet's residential
mortgage loan production offices in December, 1996. The Company retained its
mortgage servicing activities. The Company's mortgage servicing portfolio grew
to $8.8 billion at September 30, 1997, up from $7.1 billion at September 30,
1996. Other service charges and fees totaled $5.1 million, up 32% versus the
third quarter of 1996 primarily from increased ATM fees. Trading profits
improved to $8.4 million for the third quarter of 1997, up from $7.9 million in
the same period of 1996. In the 1997 third quarter, Signet recognized a $10.0
million gain from the sale of its Corporate Trust business. Signet also reported
$6.9 million of gains from sales of securities. The remaining portion of
non-interest operating income, which included venture capital income, earnings
on money recovered from the 1995 fraud loss (see notes to consolidated financial
statements) and miscellaneous income from other sources, amounted to $3.8
million for the third quarter of 1997, down $6.0 million from the same period of
the prior year.
Non-interest income increased $18.1 million, or 30%, in the third quarter
of 1997 compared with the second quarter of 1997. The increase was caused
primarily by two factors. During the third quarter, Signet recorded a gain from
the sale of its Corporate Trust business and gains from sales of securities, as
mentioned above.
<PAGE>
Non-Interest Expense
Non-interest expense for the third quarter of 1997 totaled $113.7 million, down
$9.2 million, or 7.5%, from the third quarter of 1996, and down $58.5 million
from the second quarter of 1997. The decrease from the second quarter was due
primarily to the $58.7 million restructuring charge taken in that quarter. The
restructuring charge consisted of $24.7 million for severance and other
personnel related charges, $10.1 million for facilities, $8.5 million for
writing off goodwill and $15.4 million for technology and other expenses. As of
September 30, 1997, the remaining liability for restructuring related charges
was approximately $26.6 million.
Staff expense (salaries and employee benefits), the largest component of
non-interest expense, totaled $62.3 million in the third quarter of 1997, a 2%
decline from the third quarter of 1996. From September 30, 1996 to September 30,
1997, the number of full-time employees declined over 19% as a result of Signet
selling its mortgage production offices in December 1996 along with the hiring
freeze and elimination of positions implemented with ADVANCE. For the same
period, the number of part-time employees declined 26%. Staff expense did not
decline as much as the drop in the number of employees due to higher profit
sharing and other recurring incentive accruals as Signet achieved certain
performance targets.
Certain of the non-interest expense categories reflected reduced costs
related to the pending merger with First Union and Signet selling its mortgage
production offices in December 1996. The $.8 million increase in external data
processing expense was attributable to servicing an expanded consumer loan base
as well as costs associated with computer system changes required to accommodate
the Year 2000 processing. Public relations, sales and advertising expense
declined $3.4 million as Signet decreased its consumer loan solicitation
programs as a result of the pending merger with First Union. Travel and
communications expense declined $1.1 million, or 17% from the third quarter last
year. The decrease resulted largely from selling the mortgage origination
business in December 1996. The FDIC assessment was high in the third quarter of
1996 due to a one-time $1.6 million charge for the Savings Association Insurance
Fund recapitalization. Lower operating losses along with the costs related to
moving into a new operations building in the third quarter of 1996, accounted
for an improvement in other non-interest expense.
Excluding the restructuring charge, total non-interest expense was
basically unchanged from the second quarter of 1997. Higher staff expense due to
an increase in performance-based compensation was offset by declines in other
categories, principally public relations, sales and advertising expense due to
the pending merger with First Union.
Signet's efficiency ratio (the ratio of non-interest expense to taxable
equivalent operating income) excluding the restructuring charge and foreclosed
property expense improved to 59% for the third quarter of 1997, down from 65%
for the third quarter of 1996 and down from 63% from the second quarter.
Income Taxes
Signet recorded a $22.4 million income tax charge for the quarter and income tax
expense of $36.0 million for the nine months ended September 30, 1997, compared
with expense of $15.1 million and $46.8 million for the same periods of 1996.
Excluding the second quarter restructuring charge, the Company's effective tax
rate was approximately 34% for these periods.
Financial Condition
Average earning assets totaled $10.1 billion for the third quarter of 1997, as
shown in Table 6--Average Balance Sheet, a slight decrease from the 1996 level
for the same quarter. The portfolios experiencing the largest declines were
loans held for securitization ($300 million), loans held for sale ($255
million), and trading account securities ($186 million) while loans, interest
bearing deposits with other banks and federal funds sold increased by $456
million, $199 million, and $113 million, respectively. The securitization of
student loans in December, 1996, reduced the 1997 average and therefore distorts
the comparison of on-balance sheet loan balances. Including securitized assets
and loans held for securitization, average managed loans grew $438 million, or
6%, from the third quarter of 1996 to the same quarter of 1997. During the 1997
first quarter, the Company sold $165 million of adjustable rate residential
mortgage loans and the $76 million portfolio of loan-by-check risk test
receivables. Average balances increased from the 1996 third quarter in the
consumer and commercial loan categories, while all three of the real estate loan
categories -construction, commercial mortgage and residential mortgage average
balances declined. Consumer loans averaged $2.6 billion for the third quarter of
1997, a 25% increase from the third quarter of 1996. Refer to the Consumer Loan
Growth section for a detailed discussion of this topic.
Commercial loans averaged $3.2 billion for the third quarter of 1997, a 4%
increase from last year, as Signet successfully grew its leasing portfolio and
targeted certain specialized industries. Real estate-commercial mortgage loans
averaged $190 million, down 35% from the 1996 third quarter. Real
estate-commercial mortgage loans decreased partially as a result of the sale of
approximately $43 million of these loans in July, 1996. Real estate-residential
mortgage loans fell $59 million, or 20%, from the third quarter 1996 to average
<PAGE>
$233 million as Signet sold approximately $27 million of adjustable rate
residential mortgage loans in December 1996 and an additional $165 million in
the first quarter of 1997. Trading account securities averaged $348 million for
the third quarter of 1997, down 35% from the $534 million level for the same
period last year. Securities available for sale for the third quarter of 1997
averaged $2.4 billion, a decrease of $91 million over the third quarter of 1996
level.
Interest bearing liabilities averaged $8.5 billion in the third quarter of
1997, down $326 million from the third quarter of 1996. Average deposits totaled
$7.6 billion for the third quarter of 1997, up slightly from the third quarter
of 1996. Core deposits averaged $7.4 billion for the 1997 third quarter, up 3%
from the 1996 third quarter. Savings accounts, which fell $75 million, and
savings certificates, down $101 million, were the only core deposit categories
which experienced a decline. Interest bearing demand deposits increased $409
million, and non-interest bearing demand deposits rose $6 million. Signet used
its direct mail expertise to grow interest bearing demand deposits. At September
30, 1997, a total of approximately $854 million of interest bearing demand
deposits had been obtained in that manner. 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.
Consumer Loan Growth
Consumer loans averaged $2.6 billion for the third quarter of 1997, a 25%
increase from the third quarter of 1996. The growth was achieved through a
variety of products offered to carefully targeted customer segments. In 1994,
Signet expanded its use of information-based strategies which significantly
increased growth in the consumer loan portfolio. This technique involved
generating a data base of potentially creditworthy customers for particular
products and then following up with direct mail solicitations. As a result of
these solicitations, from September 30, 1996 to September 30, 1997, the
closed-end second mortgage loan portfolio was up $313 million, the student loan
portfolio (including securitized loans) increased $99 million and the
installment loan portfolio grew $33 million. The managed consumer loan portfolio
is comprised of consumer loans, consumer loans held for securitization and
securitized consumer loans. 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 $439 million, or 14%, from September 30,
1996 to September 30, 1997 as indicated in Table 7.
Risk Elements
Non-performing assets at September 30, 1997 totaled $33.2 million, or .51% of
loans and foreclosed properties. This compares favorably with $43.9 million, or
.71%, respectively, at September 30, 1996. Overall non-performing real estate
assets declined $10.6 million from September 30, 1996 to September 30, 1997,
including a $5.9 million decline in foreclosed properties. Foreclosed properties
totaled $8.8 million at the end of the third quarter of 1997, and were equal to
26% of total non-performing assets and 66% of non-performing real estate assets.
Signet sold $1.4 million of foreclosed properties during the third quarter of
1997.
Accruing loans past due 90 days or more as to principal or interest
payments totaled $77.2 million, $68.9 million and $78.0 million as of September
30, 1997, June 30, 1997 and September 30, 1996, respectively. The details of
these past due loans are displayed in Table 9. The past due commercial and real
estate loans were in the process of collection and were adequately
collateralized. Past due student loans accounted for $28.2 million, or 37%, of
all the past due loans. Of the past due student loans, 95% were indirectly
government guaranteed and do not represent material loss exposure to Signet.
Stockholders' Equity
Stockholders' equity provides a source of permanent funding, allows for future
growth and assists the Company in withstanding unforeseen adverse developments.
At September 30, 1997, stockholders' equity totaled $990 million, an increase of
11% from the September 30, 1996 level of $889 million. Since December 31, 1996,
stockholders' equity increased $65 million as net income, the issuance of common
stock and net unrealized gains on securities available for sale exceeded
dividends declared. During the first nine months of 1997, the change in net
unrealized gains and losses on securities available for sale, net of tax,
increased equity by $19 million. At September 30, 1997, the net unrealized
gains, net of tax, related to securities available for sale, totaled $34
million. Dividends declared during the third quarter of 1997 were $12.7 million
or $0.21 per common share. At September 30, 1997, Signet's banking subsidiary,
Signet Bank, met the criteria established by the Federal Deposit Insurance
Corporation Improvement Act of 1991 ("FDICIA") for "well capitalized"
institutions.
As detailed in Table 10, the Company's consolidated risk-based capital
ratios at September 30, 1997 were 14.52% and 11.19% for Total Capital and Tier I
Capital, respectively. Signet's leverage ratio at September 30, 1997 was 8.19%.
The Company's total stockholders' equity to assets ratio improved to 8.78% at
September 30, 1997 up from 7.74% at September 30, 1996.
<PAGE>
Interest Rate Sensitivity
Signet's interest rate sensitivity position is managed by the Enterprise Risk
Management Committee ("ERMC") and monitored through the use of simulations on
rate sensitive pre-tax income. Interest rate sensitivity is the relationship
between changes in market interest rates and changes in rate sensitive income
due to the repricing characteristics of assets and liabilities. For example, in
periods of rising rates, banking businesses will experience wider spreads as
consumer deposit costs lag increases in market interest rates. Improved spreads
due to the lag in pricing on consumer deposits will be partially offset to the
extent that the funding cost on the investment portfolio increases. ERMC
routinely uses derivatives such as interest rate swaps to manage the Company's
interest rate risk. At September 30, 1997, the notional value of the Company's
derivative products for the purpose of managing interest rate risk were $683
million of interest rate swaps and $600 million of interest rate floors.
ERMC, in managing interest rate sensitivity, also uses simulations to
measure the impact that market changes and alternative strategies might have on
net interest income and other income exposed to changing rates. Current period
maturity, repricing information and projected balance sheet strategies are used
to simulate rate sensitivity. The lag effect of consumer deposit rates,
determined through historical analysis and forecasting techniques, is also
modeled. These simulations show that an immediate and sustained 100 basis point
change in interest rates would have less than a 1.2% impact on rate sensitive
income over the next twelve months, reflecting Signet's conservative balance
sheet strategy. ERMC 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.
Liquidity
Asset liquidity is generally provided by interest bearing deposits with other
banks, federal funds sold and securities purchased under agreements to resell,
securities available for sale, loans held for sale and trading account
securities. Liability liquidity is measured by the Company's ability to obtain
deposits and purchased funds at favorable rates and in adequate amounts and by
the length of maturities. Since core deposits are the most stable source of
liquidity a bank can have because they are government insured, the high level of
average core deposits during the second half of 1997 maintained the Company's
strong liquidity position. During the first nine months of 1997, Signet's
average loan balances were entirely funded with core deposits. Signet's equity
base, as noted earlier, also provides a stable source of funding. The parent
company has not recently relied on the capital markets for funding. During the
third quarter of 1996, Signet Bank established a $2.5 billion Senior and
Subordinated Bank Note facility due from 30 days to 30 years from date of issue.
A total of $150 million of subordinated bank notes had been issued under the
facility at September 30, 1997.
For the first nine months of 1997, cash and cash equivalents increased $5
million primarily due to a rise in federal funds sold and securities purchased
under resale agreements as well as an increase in interest bearing deposits with
other banks which more than offset a decline in cash and due from banks. Cash
provided by operations was $196 million for this time period. Cash provided by
investing activities amounted to $101 million principally due to sales and
maturities of securities available for sale which more than offset an increase
in loans. Cash used by financing activities amounted to $292 million primarily
due to an decline in short-term borrowings and deposits as well as payments on
long-term debt and dividends.
<PAGE>
Table 2
Net Interest Income Analysis
- -------------------------------------------------------------------------------------------------------------------------------
Third Quarter 1997 Compared Third Quarter 1997 Compared
with Third Quarter 1996 with Second Quarter 1997
------------------------------------- -----------------------------------
Increase Change due to * Increase Change due to *
Taxable Equivalent Basis (in thousands) (Decrease) Rate Volume (Decrease) Rate Volume
- -------------------------------------------------------------------------------------------------------------------------------
Interest income:
Loans, including fees $ 14,931 $ 3,999 $ 10,932 $ 4,702 $ (409) $ 5,111
Securities available for sale (2,555) (848) (1,707) (1,362) (716) (646)
Other earning assets (11,510) (5,192) (6,318) (2,980) 117 (3,097)
---------------------------------------------------------------------------------------
Total interest income 866 1,932 (1,066) 360 496 (136)
Interest expense:
Interest bearing deposits 3,197 2,797 400 57 1,198 (1,141)
Fed funds and repurchase agreements (5,961) (566) (5,395) (1) 64 (65)
Other short-term borrowings 202 202 202 202
Long-term borrowings 1,816 573 1,243 (60) 303 (363)
---------------------------------------------------------------------------------------
Total interest expense (746) 2,539 (3,285) 198 1,645 (1,447)
---------------------------------------------------------------------------------------
Net interest income $ 1,612 $ 2,283 $ (671) $ 162 $ 456 $ (294)
---------------------------------------------------------------------------------------
-------------------------------------------------
YTD September 30, 1997 Compared
Taxable Equivalent Basis (in thousands) with YTD September 30, 1996
- --------------------------------------------------------------------------------------------
Increase Change due to *
(Decrease) Rate Volume
-------------------------------------------------
Interest income:
Loans, including fees $ 44,157 $ 2,821 $ 41,336
Securities available for sale 2,496 (82) 2,578
Other earning assets (34,952) (8,431) (26,521)
-------------------------------------------------
Total interest income 11,701 (193) 11,894
Interest expense:
Interest bearing deposits 14,887 5,231 9,656
Fed funds and repurchase agreements (14,151) (825) (13,326)
Other short-term borrowings 202 202
Long-term borrowings 5,713 104 5,609
-------------------------------------------------
Total interest expense 6,651 6,399 252
-------------------------------------------------
Net interest income $ 5,050 $ (618) $ 5,668
-------------------------------------------------
* The change in interest due to both volume and rates has been allocated in proportion to the
relationship of the absolute dollar amount of the changes in each. The changes in income
and expense are calculated independently for each line in the schedule. The totals for the
volume and rate columns are not the sum of the individual lines.
<PAGE>
Analysis of Change in Net Yield Margin
<CAPTION>
Second Quarter 1997 Versus Third Quarter 1997
- ---------------------------------------------------------------------------------------------------
Net Yield Margin for Second Quarter 1997 4.77%
Lower average short-term investments 0.08
Impact of returning loans to accrual status in second quarter (0.06)
Decline in derivative income (0.06)
Higher average and yield on consumer loans 0.04
Other (net) 0.01
- ---------------------------------------------------------------------------------------------------
Net Yield Margin for Third Quarter 1997 4.78%
- ---------------------------------------------------------------------------------------------------
<PAGE>
Table 4
Changes in Allowance for Loan Losses
Three Months Ended Nine Months Ended
-------------------------------------------- ---------------------
September 30 June 30 September 30
------------------------------ ------------ ---------------------
(dollars in thousands) 1997 1996 1997 1997 1996
- ----------------------------------------------------------------------------------------------------------------------------------
Balance at beginning of period $119,740 $126,442 $121,232 $136,707 $129,702
Additions to allowance charged to expense 20,250 19,000 13,350 50,000 44,051
Transfer to loans held for sale (17,010)
Loans charged off:
Consumer (1) 16,418 14,069 15,509 46,950 38,006
Commercial 198 478 1,773 2,138 3,414
Real estate-construction 3,654 45 959 4,493
Real estate-mortgage (2) 51 131 96 1,884 2,920
------------------------------------------------------------------------------
Total loans charged off 16,667 18,332 17,423 51,931 48,833
Recoveries of loans previously charged off:
Consumer (1) 1,140 454 1,202 3,303 1,248
Commercial 1,366 725 428 3,704 1,556
Real estate-construction 191 99 188 450 279
Real estate-mortgage (2) 2 71 763 799 456
------------------------------------------------------------------------------
Total recoveries 2,699 1,349 2,581 8,256 3,539
------------------------------------------------------------------------------
Net loans charged off 13,968 16,983 14,842 43,675 45,294
------------------------------------------------------------------------------
Balance at end of period $126,022 $128,459 $119,740 126,022 $128,459
==============================================================================
Net loan losses (annualized) as a percentage of average loans:
Consumer 2.37% 2.64% 2.38% 2.38% 2.44%
Commercial (0.15) (0.03) 0.17 (0.07) 0.08
Real estate (0.09) 1.73 (0.49) 0.31 1.10
==============================================================================
Total 0.88% 1.15% 0.95% 0.92% 1.05%
==============================================================================
Allowance for loan losses to net loans at end of period 1.89% 1.93% 2.08%
- ----------------------------------------------------------------------------------------------------------------------------------
(1) Consumer includes loan-by-check as noted below:
Net charge-offs:
Loan-by-check risk tests ($331) $5,546 ($83) $2,318 $19,283
Other loan-by-check 14,284 7,191 13,096 37,641 14,489
------------------------------------------------------------------------------
Total loan-by-check net charge-offs $13,953 $12,737 $13,013 $39,959 $33,772
==============================================================================
Average loan-by-check:
Loan-by-check risk tests $115,877 $18,258 $136,922
Other loan-by-check $969,515 670,594 $943,641 942,062 621,156
------------------------------------------------------------------------------
Total loan-by-check $969,515 $786,471 $943,641 $960,320 $758,078
==============================================================================
Net loan losses (annualized) as a percentage
of average loan-by-check:
Loan-by-check risk tests N/M 19.14% N/M 16.93% 18.78%
Other loan-by-check 5.89% 4.29 5.55 5.33 3.11
------------------------------------------------------------------------------
Total loan-by-check 5.76% 6.48% 5.52% 5.55% 5.94%
==============================================================================
(2) Real estate-mortgage includes real estate-commercial mortgage and real estate-residential mortgage.
Real estate-residential mortgage charge-offs and recoveries were not significant for the periods presented.
<PAGE>
Table 5
Non-Interest Income and Expense
- -----------------------------------------------------------------------------------------------------------------------------------
Three Months Ended Nine Months Ended
September 30 June 30 September 30
(in thousands) 1997 1996 1997 1997 1996
- -----------------------------------------------------------------------------------------------------------------------------------
Non-interest income:
Service charges on deposit accounts $ 17,000 $ 17,180 $ 17,250 $ 51,430 $ 50,511
Consumer loan servicing and service charge income 12,177 11,439 11,756 36,218 38,871
Trust and other financial services income 10,824 10,308 9,758 31,377 30,021
Trading profits 8,350 7,877 7,060 22,137 11,644
Mortgage servicing and origination 4,133 8,336 4,283 13,214 24,801
Other service charges and fees 5,098 3,874 4,749 14,633 11,672
Gain (loss) on sale of mortgage loans (30) 1,644 204 1,851 5,826
Gain on sale of mortgage servicing 6,499
Gain on sale of Corporate Trust business 9,960 9,960
Other 3,783 8,100 5,075 14,622 10,044
- -----------------------------------------------------------------------------------------------------------------------------------
Non-interest operating income 71,295 68,758 60,135 195,442 189,889
Securities available for sale gains (losses) 6,909 (629) 10 7,022 127
- -----------------------------------------------------------------------------------------------------------------------------------
Total non-interest income $ 78,204 $ 68,129 $ 60,145 $ 202,464 $ 190,016
- -----------------------------------------------------------------------------------------------------------------------------------
Non-interest expense:
Salaries $ 47,767 $ 54,605 $ 47,668 $ 142,791 $ 155,607
Employee benefits 14,546 8,811 10,121 36,888 31,678
- -----------------------------------------------------------------------------------------------------------------------------------
Total staff expense 62,313 63,416 57,789 179,679 187,285
Supplies and equipment 9,812 10,036 10,790 31,320 29,626
Occupancy 8,494 9,045 9,104 26,590 28,759
External data processing services 8,802 7,992 9,090 26,696 23,471
Travel and communications 5,180 6,231 5,107 15,955 18,857
Restructuring charge 58,712 58,712
Public relations, sales and advertising 2,896 6,304 6,680 14,238 15,752
Professional services 5,109 2,954 5,551 14,506 10,064
Credit and collection 543 1,475 869 2,305 4,129
FDIC assessment 278 1,725 280 747 2,075
Foreclosed property - net 111 (725) 260 (268)
Other 10,141 13,677 8,933 29,681 40,231
- -----------------------------------------------------------------------------------------------------------------------------------
Total non-interest expense $ 113,679 $ 122,855 $ 172,180 $ 400,689 $ 359,981
- -----------------------------------------------------------------------------------------------------------------------------------
<PAGE>
Table 6
Average Balance Sheet
- ----------------------------------------------------------------------------------------------------------------------------
Three Months Ended
September 30
1997
- ----------------------------------------------------------------------------------------------------------------------------
Average Income\ Yield\
(dollars in thousands) Balance Expense Rate
- ----------------------------------------------------------------------------------------------------------------------------
Assets
Earning assets (tax equivalent basis):*
Interest bearing deposits with other banks $ 207,395 $ 2,944 5.55%
Federal funds and resale agreements 745,152 10,677 5.61
Trading account securities 348,279 5,647 6.43
Loans held for securitization
Loans held for sale 67,191 950 5.53
Securities available for sale 2,386,566 43,986 7.37
Loans (net of unearned income):
Consumer 2,579,952 71,240 10.96
Commercial 3,155,167 63,254 7.95
Real estate-construction 226,175 6,068 10.50
Real estate-commercial mortgage 189,724 4,486 9.38
Real estate-residential mortgage 233,208 4,715 8.09
- ----------------------------------------------------------------------------------------------------------------------------
Total loans 6,384,226 149,763 9.31
- ----------------------------------------------------------------------------------------------------------------------------
Total earning assets 10,138,809 $ 213,967 8.37%
- ----------------------------------------------------------------------------------------------------------------------------
Non-rate related assets:
Cash and due from banks 406,133
Allowance for loan losses (119,868)
Premises and equipment (net) 175,304
Other assets 667,047
- ----------------------------------------------------------------------------------------------------------------------------
Total assets $ 11,267,425
- ----------------------------------------------------------------------------------------------------------------------------
Liabilities and Stockholders' Equity
Interest bearing liabilities:
Deposits:
Interest bearing demand $ 3,063,602 $ 27,356 3.54%
Savings accounts 612,751 4,041 2.62
Savings certificates 2,187,538 27,502 4.99
Large denomination certificates 137,148 2,001 5.71
Foreign 36,036 510 5.54
- ----------------------------------------------------------------------------------------------------------------------------
Total interest bearing deposits 6,037,075 61,410 4.04
Federal funds and repurchase agreements 2,054,524 24,307 4.63
Other short-term borrowings 12,576 202 6.29
Long-term borrowings 350,005 5,944 6.65
- ----------------------------------------------------------------------------------------------------------------------------
Total interest bearing liabilities 8,454,180 $ 91,863 4.31%
- ----------------------------------------------------------------------------------------------------------------------------
Non-interest bearing liabilities:
Demand deposits 1,576,200
Other liabilities 275,981
Common stockholders' equity 961,064
- ----------------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $ 11,267,425
- ----------------------------------------------------------------------------------------------------------------------------
Net interest income/spread $ 122,104 4.06%
- ----------------------------------------------------------------------------------------------------------------------------
Interest income to average earning assets 8.37%
Interest expense to average earning assets 3.59
- ----------------------------------------------------------------------------------------------------------------------------
Net yield margin 4.78%
- ----------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
Three Months Ended
September 30
1996
- ---------------------------------------------------------------------------------------------------------
Average Income\ Yield\
(dollars in thousands) Balance Expense Rate
- ---------------------------------------------------------------------------------------------------------
Assets
Earning assets (tax equivalent basis):*
Interest bearing deposits with other banks $ 8,322 $ 106 4.98%
Federal funds and resale agreements 632,373 8,793 5.44
Trading account securities 534,483 8,383 6.24
Loans held for securitization 300,000 6,005 7.96
Loans held for sale 322,318 8,441 10.25
Securities available for sale 2,477,984 46,541 7.51
Loans (net of unearned income):
Consumer 2,061,732 55,516 10.71
Commercial 3,031,863 61,080 8.01
Real estate-construction 250,921 6,085 9.49
Real estate-commercial mortgage 291,124 6,450 8.81
Real estate-residential mortgage 292,405 5,701 7.80
- ---------------------------------------------------------------------------------------------------------
Total loans 5,928,045 134,832 9.05
- ---------------------------------------------------------------------------------------------------------
Total earning assets 10,203,525 $ 213,101 8.31%
- ---------------------------------------------------------------------------------------------------------
Non-rate related assets:
Cash and due from banks 473,638
Allowance for loan losses (126,539)
Premises and equipment (net) 194,211
Other assets 684,580
- ---------------------------------------------------------------------------------------------------------
Total assets $ 11,429,415
- ---------------------------------------------------------------------------------------------------------
Liabilities and Stockholders' Equity
Interest bearing liabilities:
Deposits:
Interest bearing demand $ 2,654,412 $ 21,230 3.18%
Savings accounts 687,441 4,607 2.67
Savings certificates 2,288,185 27,227 4.73
Large denomination certificates 180,640 2,566 5.56
Foreign 187,614 2,583 5.39
- ---------------------------------------------------------------------------------------------------------
Total interest bearing deposits 5,998,292 58,213 3.86
Federal funds and repurchase agreements 2,507,844 30,268 4.72
Other short-term borrowings
Long-term borrowings 274,419 4,128 5.89
- ---------------------------------------------------------------------------------------------------------
Total interest bearing liabilities 8,780,555 $ 92,609 4.20%
- ---------------------------------------------------------------------------------------------------------
Non-interest bearing liabilities:
Demand deposits 1,570,541
Other liabilities 214,518
Common stockholders' equity 863,801
- ---------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $ 11,429,415
- ---------------------------------------------------------------------------------------------------------
Net interest income/spread $ 120,492 4.11%
- ---------------------------------------------------------------------------------------------------------
Interest income to average earning assets 8.31%
Interest expense to average earning assets 3.61
- ---------------------------------------------------------------------------------------------------------
Net yield margin 4.70%
- ---------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------
Three Months Ended
June 30
1997
- --------------------------------------------------------------------------------------------------------
Average Income\ Yield\
(dollars in thousands) Balance Expense Rate
- --------------------------------------------------------------------------------------------------------
Assets
Earning assets (tax equivalent basis):*
Interest bearing deposits with other banks $ 128,540 $ 1,800 5.54%
Federal funds and resale agreements 924,454 13,089 5.60
Trading account securities 463,529 7,298 6.32
Loans held for securitization
Loans held for sale 68,813 1,011 5.81
Securities available for sale 2,421,327 45,348 7.49
Loans (net of unearned income):
Consumer 2,406,937 65,333 10.89
Commercial 3,173,195 62,709 7.93
Real estate-construction 237,996 5,796 9.63
Real estate-commercial mortgage 205,993 6,940 13.51
Real estate-residential mortgage 214,310 4,283 7.99
- --------------------------------------------------------------------------------------------------------
Total loans 6,238,431 145,061 9.33
- --------------------------------------------------------------------------------------------------------
Total earning assets 10,245,094 $ 213,607 8.36%
- --------------------------------------------------------------------------------------------------------
Non-rate related assets:
Cash and due from banks 406,387
Allowance for loan losses (120,768)
Premises and equipment (net) 180,649
Other assets 730,153
- --------------------------------------------------------------------------------------------------------
Total assets $ 11,441,515
- --------------------------------------------------------------------------------------------------------
Liabilities and Stockholders' Equity
Interest bearing liabilities:
Deposits: $ 3,110,727 $ 27,427 3.54%
Interest bearing demand 644,260 4,214 2.62
Savings accounts 2,198,855 26,316 4.80
Savings certificates 182,302 2,622 5.69
Large denomination certificates 55,502 774 5.52
Foreign
- --------------------------------------------------------------------------------------------------------
Total interest bearing deposits 6,191,646 61,353 3.97
Federal funds and repurchase agreements 2,080,252 24,308 4.62
Other short-term borrowings
Long-term borrowings 374,185 6,004 6.35
- --------------------------------------------------------------------------------------------------------
Total interest bearing liabilities 8,646,083 $ 91,665 4.25%
- --------------------------------------------------------------------------------------------------------
Non-interest bearing liabilities:
Demand deposits 1,614,313
Other liabilities 244,886
Common stockholders' equity 936,233
- --------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $ 11,441,515
- --------------------------------------------------------------------------------------------------------
Net interest income/spread $ 121,942 4.11%
- --------------------------------------------------------------------------------------------------------
Interest income to average earning assets 8.36%
Interest expense to average earning assets 3.59
- --------------------------------------------------------------------------------------------------------
Net yield margin 4.77%
- --------------------------------------------------------------------------------------------------------
* 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.
<PAGE>
Table 6
Average Balance Sheet
- -----------------------------------------------------------------------------------------------------------------------------------
Nine Months Ended
September 30
1997
- -----------------------------------------------------------------------------------------------------------------------------------
Average Income\ Yield\
(dollars in thousands) Balance Expense Rate
- -----------------------------------------------------------------------------------------------------------------------------------
Assets
Earning assets (tax equivalent basis):*
Interest bearing deposits with other banks $ 131,067 $ 5,475 5.51%
Federal funds and resale agreements 827,220 34,719 5.53
Trading account securities 420,371 20,025 6.37
Loans held for securitization
Loans held for sale 79,852 3,548 5.86
Securities available for sale 2,437,428 135,585 7.42
Loans (net of unearned income):
Consumer 2,447,868 200,298 10.94
Commercial 3,166,881 188,293 7.95
Real estate-construction 233,365 17,429 9.85
Real estate-commercial mortgage 210,755 16,543 10.49
Real estate-residential mortgage 245,582 14,588 7.92
- -----------------------------------------------------------------------------------------------------------------------------------
Total loans 6,304,451 437,151 9.27
- -----------------------------------------------------------------------------------------------------------------------------------
Total earning assets 10,200,389 $ 636,503 8.34%
- -----------------------------------------------------------------------------------------------------------------------------------
Non-rate related assets:
Cash and due from banks 405,452
Allowance for loan losses (124,730)
Premises and equipment (net) 179,996
Other assets 704,997
- -----------------------------------------------------------------------------------------------------------------------------------
Total assets $ 11,366,104
- -----------------------------------------------------------------------------------------------------------------------------------
Liabilities and Stockholders' Equity
Interest bearing liabilities:
Deposits:
Interest bearing demand $ 3,064,989 $ 81,352 3.55%
Savings accounts 635,701 12,470 2.62
Savings certificates 2,207,499 79,639 4.82
Large denomination certificates 173,722 7,474 5.67
Foreign 57,268 2,359 5.43
- -----------------------------------------------------------------------------------------------------------------------------------
Total interest bearing deposits 6,139,179 183,294 3.99
Federal funds and repurchase agreements 2,070,307 72,214 4.60
Other short-term borrowings 4,238 202 6.29
Long-term borrowings 374,551 17,751 6.25
- -----------------------------------------------------------------------------------------------------------------------------------
Total interest bearing liabilities 8,588,275 $ 273,461 4.26%
- -----------------------------------------------------------------------------------------------------------------------------------
Non-interest bearing liabilities:
Demand deposits 1,578,076
Other liabilities 257,740
Common stockholders' equity 942,013
- -----------------------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $ 11,366,104
- -----------------------------------------------------------------------------------------------------------------------------------
Net interest income/spread $ 363,042 4.08%
- -----------------------------------------------------------------------------------------------------------------------------------
Interest income to average earning assets 8.34%
Interest expense to average earning assets 3.58
- -----------------------------------------------------------------------------------------------------------------------------------
Net yield margin 4.76%
- -----------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
Nine Months Ended
September 30
1996
- -------------------------------------------------------------------------------------------------------------
Average Income\ Yield\
(dollars in thousands) Balance Expense Rate
- -------------------------------------------------------------------------------------------------------------
Assets
Earning assets (tax equivalent basis):*
Interest bearing deposits with other banks $ 7,940 $ 303 5.01%
Federal funds and resale agreements 642,363 26,524 5.43
Trading account securities 511,562 24,370 6.36
Loans held for securitization 310,149 19,416 8.36
Loans held for sale 364,319 28,106 10.14
Securities available for sale 2,389,203 133,089 7.43
Loans (net of unearned income):
Consumer 2,008,202 163,303 10.86
Commercial 2,949,564 175,071 7.93
Real estate-construction 249,571 18,211 9.59
Real estate-commercial mortgage 332,293 23,328 9.38
Real estate-residential mortgage 230,602 13,081 7.56
- -------------------------------------------------------------------------------------------------------------
Total loans 5,770,232 392,994 9.10
- -------------------------------------------------------------------------------------------------------------
Total earning assets 9,995,768 $ 624,802 8.35%
- -------------------------------------------------------------------------------------------------------------
Non-rate related assets:
Cash and due from banks 505,617
Allowance for loan losses (127,201)
Premises and equipment (net) 195,992
Other assets 711,607
- -------------------------------------------------------------------------------------------------------------
Total assets $ 11,281,783
- -------------------------------------------------------------------------------------------------------------
Liabilities and Stockholders' Equity
Interest bearing liabilities:
Deposits:
Interest bearing demand $ 2,555,917 $ 57,519 3.01%
Savings accounts 960,679 23,632 3.29
Savings certificates 2,132,445 75,157 4.71
Large denomination certificates 139,607 5,822 5.48
Foreign 153,716 6,277 5.37
- -------------------------------------------------------------------------------------------------------------
Total interest bearing deposits 5,942,364 168,407 3.79
Federal funds and repurchase agreements 2,402,182 86,365 4.72
Other short-term borrowings
Long-term borrowings 259,394 12,038 6.10
- -------------------------------------------------------------------------------------------------------------
Total interest bearing liabilities 8,603,940 $ 266,810 4.14%
- -------------------------------------------------------------------------------------------------------------
Non-interest bearing liabilities:
Demand deposits 1,606,230
Other liabilities 214,855
Common stockholders' equity 856,758
- -------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $ 11,281,783
- -------------------------------------------------------------------------------------------------------------
Net interest income/spread $ 357,992 4.21%
- -------------------------------------------------------------------------------------------------------------
Interest income to average earning assets 8.35%
Interest expense to average earning assets 3.57
- -------------------------------------------------------------------------------------------------------------
Net yield margin 4.78%
- -------------------------------------------------------------------------------------------------------------
<PAGE>
Table 7
Managed Consumer Loan Portfolio
- -----------------------------------------------------------------------------------------------------------------------------------
Three Months Ended
----------------------------------------------------------------------------------
September 30 June 30 March 31 December 31 September 30
(in thousands) 1997 1997 1997 1996 1996
- -----------------------------------------------------------------------------------------------------------------------------------
Average balances:
Installment loans $ 1,184,299 $ 1,166,105 $ 1,191,192 $ 1,172,210 $ 1,015,639
Student loans 829,342 806,282 801,276 829,001 788,904
Home equity loans 208,438 203,075 184,960 171,865 147,376
Credit card 72,081 64,089 65,754 55,954 48,845
Other loans 285,793 167,386 111,052 69,445 60,968
- -----------------------------------------------------------------------------------------------------------------------------------
Sub-total average consumer loan portfolio 2,579,953 2,406,937 2,354,234 2,298,475 2,061,732
- -----------------------------------------------------------------------------------------------------------------------------------
Consumer loans held for sale 2,035 161,860
Student loans held for securitization 283,696 300,000
- -----------------------------------------------------------------------------------------------------------------------------------
Total average on-balance sheet portfolio 2,579,953 2,406,937 2,356,269 2,582,171 2,523,592
Securitized home equity loans 370,807 386,830 400,729 414,176 429,728
Securitized student loans 363,378 377,175 389,321 21,412
Securitized credit card loans 252,777 262,057 263,889 269,324 275,000
- -----------------------------------------------------------------------------------------------------------------------------------
Total securitized consumer loans 986,962 1,026,062 1,053,939 704,912 704,728
Less loans to be sold to Capital One (161,860)
- -----------------------------------------------------------------------------------------------------------------------------------
Total average managed consumer loan portfolio $ 3,566,915 $ 3,432,999 $ 3,410,208 $ 3,287,083 $ 3,066,460
- -----------------------------------------------------------------------------------------------------------------------------------
Period-end balances:
Installment loans $ 1,161,569 $ 1,164,452 $ 1,165,886 $ 1,212,492 $ 1,128,607
Student loans 862,023 813,227 808,222 756,340 820,319
Home equity loans 214,270 209,259 193,155 181,879 164,805
Credit card 74,891 75,670 65,949 69,287 47,524
Other loans 370,369 208,701 141,116 80,560 59,989
- -----------------------------------------------------------------------------------------------------------------------------------
Sub-total period-end consumer loan portfolio 2,683,122 2,471,309 2,374,328 2,300,558 2,221,244
- -----------------------------------------------------------------------------------------------------------------------------------
Student loans held for securitization 300,000
- -----------------------------------------------------------------------------------------------------------------------------------
Total period-end on-balance sheet portfolio 2,683,122 2,471,309 2,374,328 2,300,558 2,521,244
Securitized home equity loans 362,351 377,494 393,141 406,776 420,446
Securitized student loans 357,218 370,705 384,002 394,691
Securitized credit card loans 252,777 252,777 263,889 263,889 275,000
- -----------------------------------------------------------------------------------------------------------------------------------
Total securitized consumer loans 972,346 1,000,976 1,041,032 1,065,356 695,446
- -----------------------------------------------------------------------------------------------------------------------------------
Total period-end managed consumer loan portfolio $ 3,655,468 $ 3,472,285 $ 3,415,360 $ 3,365,914 $ 3,216,690
- -----------------------------------------------------------------------------------------------------------------------------------
<PAGE>
Table 8
Non-Performing Assets
September 30 June 30 March 31 December 31 September 30
(dollars in thousands) 1997 1997 1997 1996 1996
- --------------------------------------------------------------------------------------------------------------------------------
Non-accrual loans:
Commercial $17,406 $17,245 $10,230 $8,850 $10,672
Consumer 2,555 2,836 2,729 2,404 2,374
Real estate - construction 754 916 2,577 2,842 1,206
Real estate - mortgage * 3,743 2,552 11,415 14,207 14,866
----------------------------------------------------------------------------------
Total non-accrual loans 24,458 23,549 26,951 28,303 29,118
Foreclosed properties 8,790 9,764 13,718 10,497 14,733
==================================================================================
Total non-performing assets $33,248 $33,313 $40,669 $38,800 $43,851
==================================================================================
Percentage to loans (net of unearned)
and foreclosed properties 0.51% 0.52% 0.65% 0.61% 0.71%
Allowance for loan losses to:
Non-performing loans 515.27 508.47 449.83 483.02 441.17
Non-performing assets 379.04 359.44 298.09 352.34 292.95
* 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 9
Accruing Loans Past Due 90 Days or More
September 30 June 30 March 31 December 31 September 30
(dollars in thousands) 1997 1997 1997 1996 1996
- --------------------------------------------------------------------------------------------------------------------------------
Commercial $21,164 $18,152 $10,164 $6,334 $6,969
Consumer:
Student loans 28,244 28,580 28,705 35,763 45,159
Credit card 2,246 1,693 1,917 2,180 1,950
Loan-by-check-risk tests 5,890 6,865
Loan-by-check-other 13,372 12,235 10,803 9,272 8,321
Other consumer 2,282 1,352 2,397 2,356 2,320
----------------------------------------------------------------------------------
Total consumer 46,144 43,860 43,822 55,461 64,615
Mortgage 9,843 6,743 5,547 7,508 6,083
Construction 16 169 71 2,181 366
==================================================================================
Total $77,167 $68,924 $59,604 $71,484 $78,033
==================================================================================
<PAGE>
Table 10
Selected Capital Data
- ----------------------------------------------------------------------------------------------------------------------------------
September 30 December 31
(dollars in thousands) 1997 1996 1996
- ----------------------------------------------------------------------------------------------------------------------------------
Qualifying common stockholders' equity $ 955,442 $ 882,040 $ 908,982
Less goodwill and other disallowed intangibles (38,789) (53,844) (52,163)
------------------------------------------------------------------
Total Tier I capital 916,653 828,196 856,819
Qualifying debt 170,000 212,667 211,667
Qualifying allowance for loan losses 102,649 97,208 99,793
------------------------------------------------------------------
Total Tier II capital 272,649 309,875 311,460
------------------------------------------------------------------
Total risked-based capital $1,189,302 $1,138,071 $1,168,279
==================================================================
Total risk-adjusted assets $8,188,576 $7,745,427 $7,946,546
==================================================================
Ratios:
Tier I capital 11.19% 10.69% 10.78%
Total risk-based capital 14.52 14.69 14.70
Tier I leverage 8.19 7.33 7.43
Tangible Tier I leverage 7.34 6.68 6.72
Common equity to assets 8.78 7.74 7.88
Common dividend payout ratio (year-to-date) 52.94 39.74 39.32
Book value per share $16.24 $14.89 $15.38
</TABLE>
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings (Incorporated by reference to Part II., Item 1 of
the Form 10-Q for the quarter ended June 30, 1997).
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits:
Exhibit 11 - Computation of Earnings Per Share
Exhibit 27 - Financial Data Schedule (filed electronically)
(b) Reports on Form 8-K:
none
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SIGNET BANKING CORPORATION
(Registrant)
Date: November 7, 1997 /s/ Wallace B. Millner III
----------------- --------------------------
Wallace B. Millner III
Vice Chairman and Chief Financial Officer
(Principal Financial Officer)
Date: November 7, 1997 /s/ W. H. Catlett, Jr.
----------------- ----------------------
W. H. Catlett, Jr.
Executive Vice President and Controller
(Principal Accounting Officer)
<TABLE>
SIGNET BANKING CORPORATION AND SUBSIDIARIES
FORM 10-Q
COMPUTATION OF EARNINGS PER SHARE
(dollars in thousands - except per share)
<CAPTION>
Three Months Nine Months
Ended September 30 Ended September 30
--------------------------------------- --------------------------------------
1997 1996 1997 1996
------------------- ------------------ ------------------ ------------------
<S> <C>
Common and common equivalent:
Average shares outstanding 60,519,260 59,631,865 60,326,679 59,466,680
Dilutive stock options--based on the
treasury stock method using average
market price 1,574,890 924,506 1,269,568 1,002,308
=================== ================== ================== ==================
Shares used 62,094,150 60,556,371 61,596,247 60,468,988
=================== ================== ================== ==================
Net income applicable to Common Stock $ 42,165 $ 29,606 $ 73,241 $ 91,282
=================== ================== ================== ==================
Per share amount $ 0.68 $ 0.49 $ 1.19 $ 1.51
=================== ================== ================== ==================
Assuming full dilution:
Average shares outstanding 60,519,260 59,631,865 60,326,679 59,466,680
Dilutive stock options--based on the
treasury stock method using the
period end market price, if higher
than the average market price 1,676,603 1,106,206 1,355,609 1,066,192
=================== ================== ================== ==================
Shares used 62,195,863 60,738,071 61,682,288 60,532,872
=================== ================== ================== ==================
Net income applicable to Common Stock $ 42,165 $ 29,606 $ 73,241 $ 91,282
=================== ================== ================== ==================
Per share amount $ 0.68 $ 0.49 $ 1.19 $ 1.51
=================== ================== ================== ==================
The calculations of common and common equivalent earnings per share and fully diluted earnings per share
are submitted in accordance with Securities Exchange Act of 1934 Release No. 9083 although both are
not required by footnote 2 to paragraph 14 of APB Opinion No. 15 because there is dilution of less than 3%.
The Registrant has elected to show fully diluted earnings per share in its financial statements.
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM SIGNET
BANKING CORPORATION'S QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED
SEPTEMBER 30, 1997, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 461,793
<INT-BEARING-DEPOSITS> 3,776
<FED-FUNDS-SOLD> 886,791
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<TOTAL-ASSETS> 11,271,165
<DEPOSITS> 7,712,255
<SHORT-TERM> 1,922,355
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<LONG-TERM> 350,004
0
0
<COMMON> 304,718
<OTHER-SE> 684,814
<TOTAL-LIABILITIES-AND-EQUITY> 11,271,165
<INTEREST-LOAN> 432,006
<INTEREST-INVEST> 0
<INTEREST-OTHER> 198,937
<INTEREST-TOTAL> 630,943
<INTEREST-DEPOSIT> 183,294
<INTEREST-EXPENSE> 273,461
<INTEREST-INCOME-NET> 357,482
<LOAN-LOSSES> 50,000
<SECURITIES-GAINS> 7,022
<EXPENSE-OTHER> 400,689
<INCOME-PRETAX> 109,257
<INCOME-PRE-EXTRAORDINARY> 36,016
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 73,241
<EPS-PRIMARY> 1.19
<EPS-DILUTED> 1.19
<YIELD-ACTUAL> 4.76
<LOANS-NON> 24,458
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<LOANS-TROUBLED> 0
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<ALLOWANCE-CLOSE> 126,022
<ALLOWANCE-DOMESTIC> 112,749
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 13,273
</TABLE>
