-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, J3cxhhWmnUGPWD/1f5XhHgOSzPdbXcRd6k8tJLi9gyXjLYnE7MheV40p9Egw1MzZ 3LQGbvtBAV3GQ/6fhA+ZRQ== 0000916641-97-001050.txt : 19971110 0000916641-97-001050.hdr.sgml : 19971110 ACCESSION NUMBER: 0000916641-97-001050 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19970930 FILED AS OF DATE: 19971107 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: SIGNET BANKING CORP CENTRAL INDEX KEY: 0000009659 STANDARD INDUSTRIAL CLASSIFICATION: NATIONAL COMMERCIAL BANKS [6021] IRS NUMBER: 546037910 STATE OF INCORPORATION: VA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-06505 FILM NUMBER: 97709930 BUSINESS ADDRESS: STREET 1: 7 N EIGHTH ST STREET 2: PO BOX 25970 CITY: RICHMOND STATE: VA ZIP: 23260 BUSINESS PHONE: 8047472000 MAIL ADDRESS: STREET 1: 7 N EIGHTH ST STREET 2: PO BOX 25970 CITY: RICHMOND STATE: VA ZIP: 23260 FORMER COMPANY: FORMER CONFORMED NAME: BANK OF VIRGINIA CO DATE OF NAME CHANGE: 19860717 FORMER COMPANY: FORMER CONFORMED NAME: VIRGINIA COMMONWEALTH BANKSHARES INC DATE OF NAME CHANGE: 19721020 FORMER COMPANY: FORMER CONFORMED NAME: VIRGINIA COMMONWEALTH CORP DATE OF NAME CHANGE: 19701113 10-Q 1 3RD QUARTER 10-Q 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 ------------------------------------------------------ (Exact name of registrant as specified in its charter) Virginia 54-6037910 - ------------------------------- -------------------------------------- (State or other jurisdiction of (I. R. S. Employer Identification No.) incorporation or organization) 7 North Eighth Street, Richmond, Virginia 23219 - ----------------------------------------- ---------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code 804 747-2000 ------------ Not Applicable - -------------------------------------------------------------------------------- Former name, former address and former fiscal year, if changed since last report Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ------- ------- Common Shares outstanding as of October 31, 1997 - 61,040,633 ---------- Index SIGNET BANKING CORPORATION AND SUBSIDIARIES September 30, 1997
Page ---- PART I. FINANCIAL INFORMATION Item 1. Financial Statements (unaudited) Consolidated Balance Sheet 3 Statement of Consolidated Income 4 Statement of Changes in Consolidated Stockholders' Equity 5 Statement of Consolidated Cash Flows 6 Supplemental Notes to Quarterly Financial Statements 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 12 PART II. OTHER INFORMATION Item 1. Legal Proceedings 27 Item 6. Exhibits and Reports on Form 8-K 27 SIGNATURES 27 PART 1. FINANCIAL INFORMATION Item 1. Financial Statements Signet Banking Corporation and Subsidiaries Consolidated Balance Sheet - ---------------------------------------------------------------------------------------------------------------------------------- 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 - ---------------------------------------------------------------------------------------------------------------------------------- Total assets $ 11,271,165 $ 11,492,559 $ 11,720,418 - ---------------------------------------------------------------------------------------------------------------------------------- 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 - ---------------------------------------------------------------------------------------------------------------------------------- Total interest bearing deposits 5,941,566 6,059,178 6,136,104 - ---------------------------------------------------------------------------------------------------------------------------------- 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 - ---------------------------------------------------------------------------------------------------------------------------------- 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 - ---------------------------------------------------------------------------------------------------------------------------------- Total stockholders' equity 989,532 889,474 924,115 - ---------------------------------------------------------------------------------------------------------------------------------- Total liabilities and stockholders' equity $ 11,271,165 $ 11,492,559 $ 11,720,418 - ---------------------------------------------------------------------------------------------------------------------------------- See notes to consolidated financial statements. Signet Banking Corporation and Subsidiaries Statement of Consolidated Income - ---------------------------------------------------------------------------------------------------------------------------------- Three Months Ended Nine Months Ended September 30 September 30 (in thousands--except per share) (unaudited) 1997 1996 1997 1996 - ---------------------------------------------------------------------------------------------------------------------------------- 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 - ---------------------------------------------------------------------------------------------------------------------------------- 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 - ---------------------------------------------------------------------------------------------------------------------------------- Total interest expense 91,863 92,609 273,461 266,810 - ---------------------------------------------------------------------------------------------------------------------------------- Net interest income 120,283 118,434 357,482 352,041 Provision for loan losses 20,250 19,000 50,000 44,051 - ---------------------------------------------------------------------------------------------------------------------------------- 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 - ---------------------------------------------------------------------------------------------------------------------------------- Non-interest operating income 71,295 68,758 195,442 189,889 Securities available for sale gains (losses) 6,909 (629) 7,022 127 - ---------------------------------------------------------------------------------------------------------------------------------- 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 - ---------------------------------------------------------------------------------------------------------------------------------- Total non-interest expense 113,679 122,855 400,689 359,981 - ---------------------------------------------------------------------------------------------------------------------------------- Income before income taxes 64,558 44,708 109,257 138,025 Applicable income taxes 22,393 15,102 36,016 46,743 - ---------------------------------------------------------------------------------------------------------------------------------- Net income $ 42,165 $ 29,606 $ 73,241 $ 91,282 - ---------------------------------------------------------------------------------------------------------------------------------- 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. 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 ======================== 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 - -------------------------------------------------------------------------------------------------------------------------- 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) - -------------------------------------------------------------------------------------------------------------------------- Net cash (used) provided by financing activities (292,259) 613,334 - -------------------------------------------------------------------------------------------------------------------------- Increase in cash and cash equivalents 4,641 121,649 Cash and cash equivalents at beginning of period 1,347,719 1,062,459 - -------------------------------------------------------------------------------------------------------------------------- Cash and cash equivalents at end of period $1,352,360 $1,184,108 - -------------------------------------------------------------------------------------------------------------------------- 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.
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:
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 ========== ========== ========== ========== ========== ==========
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 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:
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 ----------------------------------------------------------------- ----------- -------------- ------------
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 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:
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 ============== =================== ===============
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. 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. 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. 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. 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 $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. 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 $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. 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. 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. Analysis of Change in Net Yield Margin
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% - --------------------------------------------------------------------------------------------------- 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. 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 - ----------------------------------------------------------------------------------------------------------------------------------- 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. 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% - ------------------------------------------------------------------------------------------------------------- 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 - ----------------------------------------------------------------------------------------------------------------------------------- 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 ================================================================================== 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
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) EX-11 2 COMPUTATION OF EARNINGS PER SHARE SIGNET BANKING CORPORATION AND SUBSIDIARIES FORM 10-Q COMPUTATION OF EARNINGS PER SHARE (dollars in thousands - except per share)
Three Months Nine Months Ended September 30 Ended September 30 --------------------------------------- -------------------------------------- 1997 1996 1997 1996 ------------------- ------------------ ------------------ ------------------ 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.
EX-27 3 EXHIBIT 27
9 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. 1,000 9-MOS DEC-31-1997 SEP-30-1997 461,793 3,776 886,791 277,007 2,233,520 0 0 6,737,537 126,022 11,271,165 7,712,255 1,922,355 297,019 350,004 0 0 304,718 684,814 11,271,165 432,006 0 198,937 630,943 183,294 273,461 357,482 50,000 7,022 400,689 109,257 36,016 0 0 73,241 1.19 1.19 4.76 24,458 77,167 0 0 136,707 51,931 8,256 126,022 112,749 0 13,273
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