-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, Yt3tyS5fSdahOoAO/xJHljd+OD1HIBRQI6OFL8N5hFek7mbNszegtg59AvUKwptL qiRmy5jUvVZVkHN3qEAb4w== 0000916641-95-000250.txt : 19950814 0000916641-95-000250.hdr.sgml : 19950814 ACCESSION NUMBER: 0000916641-95-000250 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19950630 FILED AS OF DATE: 19950811 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: SIGNET BANKING CORP CENTRAL INDEX KEY: 0000009659 STANDARD INDUSTRIAL CLASSIFICATION: STATE COMMERCIAL BANKS [6022] IRS NUMBER: 546037910 STATE OF INCORPORATION: VA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-06505 FILM NUMBER: 95561020 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 SIGNET 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 Act of 1934 for the quarterly period ended June 30, 1995 or [ ] Transition report pursuant to section 13 or 15(d) of the Securities Exchange Act for the transition period from _______ to _______. Commission file number 1-6505 SIGNET BANKING CORPORATION (Exact name of registrant as specified in its charter) Virginia 54-6037910 (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 7 North Eighth Street, Richmond, Virginia 23219 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code 804 747-2000 Not Applicable Former name, former address and former fiscal year, if changed since last report Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No Common Shares outstanding as of July 31, 1995 - 58,875,230 Index SIGNET BANKING CORPORATION AND SUBSIDIARIES June 30, 1995 Page PART I. FINANCIAL INFORMATION Item 1. Financial Statements (unaudited) Consolidated Balance Sheet 3 Statement of Consolidated Income 4 Statement of Changes in Consolidated Stockholders' Equity 5 Statement of Consolidated Cash Flows 6 Supplemental Notes to Quarterly Financial Statements 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 11 PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K 21 SIGNATURES 21 PART 1. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS CONSOLIDATED BALANCE SHEET (dollars in thousands-except per share) (unaudited)
June 30 December 31 1995 1994 1994 ASSETS Cash and due from banks $ 529,205 $ 538,079 $ 531,747 Interest bearing deposits with other banks 14,610 227,198 355,795 Federal funds sold and securities purchased under resale agreements 638,641 1,078,429 1,135,821 Trading account securities 439,737 258,547 353,040 Loans held for securitization 450,300 750,000 Loans held for sale 259,372 145,299 69,506 Securities available for sale 1,651,554 1,152,477 1,241,696 Investment securities 375,677 220,658 398,783 Loans: Consumer 2,116,882 2,725,811 4,612,633 Commercial 2,820,339 2,173,695 2,472,620 Real estate -- construction 227,531 244,354 209,183 Real estate -- commercial mortgage 433,701 566,211 526,956 Real estate -- residential mortgage 224,433 73,815 191,508 Gross loans 5,822,886 5,783,886 8,012,900 Less: Unearned income (138,459) (56,607) (88,723) Allowance for loan losses (136,497) (245,764) (220,519) Net loans 5,547,930 5,481,515 7,703,658 Premises and equipment (net) 166,731 242,372 258,715 Interest receivable 90,190 75,775 98,557 Other assets 458,370 653,414 783,911 Total assets (Capital One Financial Corporation amounted to $0, $2,346,864 and $3,072,546, respectively) $10,622,317 $10,823,763 $12,931,229 LIABILITIES Non-interest bearing deposits $ 1,647,309 $ 1,543,001 $ 1,542,349 Interest bearing deposits: Money market and interest checking 1,038,959 996,276 1,050,176 Money market savings 1,319,829 1,620,924 1,453,629 Savings accounts 1,291,289 1,000,049 1,170,990 Savings certificates 1,809,051 1,923,606 1,952,090 Large denomination certificates 99,020 318,100 643,054 Foreign 96,084 147,102 9,225 Total interest bearing deposits 5,654,232 6,006,057 6,279,164 Total deposits 7,301,541 7,549,058 7,821,513 Securities sold under repurchase agreements 1,229,433 1,135,939 875,458 Federal funds purchased 816,946 350,820 881,693 Commercial paper 118,928 108,664 Other short-term borrowings 204,313 1,446,955 Long-term borrowings 253,222 253,818 253,641 Interest payable 18,030 24,874 31,078 Other liabilities 185,140 149,162 400,748 Total liabilities 9,804,312 9,786,912 11,819,750 STOCKHOLDERS' EQUITY Common Stock, $5 par value; Authorized 100,000,000 shares, issued and outstanding 58,835,011, 56,866,696 and 58,636,759 shares, respectively 294,175 284,333 293,184 Capital Surplus 195,899 141,446 198,869 Retained Earnings 327,931 611,072 619,426 Total stockholders' equity 818,005 1,036,851 1,111,479 Total liabilities and stockholders' equity $10,622,317 $10,823,763 $12,931,229
STATEMENT OF CONSOLIDATED INCOME (in thousands-except per share) (unaudited)
Three Months Ended Six Months Ended June 30 June 30 1995 1994 1995 1994 Interest income: Loans, including fees: Consumer $ 62,068 $ 79,936 $179,702 $155,986 Commercial 50,358 39,664 96,723 80,319 Real estate -- construction 5,628 5,241 10,780 10,476 Real estate -- commercial mortgage 11,276 11,754 23,407 22,162 Real estate -- residential mortgage 5,074 1,514 9,353 3,330 Total loans, including fees 134,404 138,109 319,965 272,273 Interest bearing deposits with other banks 358 2,952 1,796 5,523 Federal funds sold and resale agreements 8,232 8,674 23,541 13,624 Trading account securities 8,936 4,747 15,654 10,387 Loans held for securitization 6,420 17,848 10,625 25,723 Loans held for sale 5,858 3,115 7,337 8,876 Securities available for sale 31,342 16,343 59,079 40,236 Investment securities-taxable 4,257 307 8,203 692 Investment securities-nontaxable 2,928 4,130 6,067 8,526 Total interest income 202,735 196,225 452,267 385,860 Interest expense: Money market and interest checking 6,939 5,605 13,080 11,157 Money market savings 11,704 11,381 23,662 22,699 Savings accounts 11,800 7,751 22,527 14,699 Savings certificates 20,747 13,993 37,894 27,043 Large denomination certificates 1,186 3,635 8,886 6,859 Foreign 2,235 2,112 3,488 4,293 Total interest on deposits 54,611 44,477 109,537 86,750 Securities sold under repurchase agreements 13,880 10,072 25,707 18,275 Federal funds purchased 12,266 8,438 24,137 13,462 Other short-term borrowings 413 4,145 15,302 7,198 Long-term borrowings 4,119 4,183 16,889 8,049 Total interest expense 85,289 71,315 191,572 133,734 Net interest income 117,446 124,910 260,695 252,126 Provision for loan losses 4,250 2,999 11,430 8,498 Net interest income after provision for loan losses 113,196 121,911 249,265 243,628 Non-interest income: Credit card servicing and service charge income 1,633 96,035 85,410 188,020 Service charges on deposit accounts 17,212 18,106 33,683 33,803 Trust income 5,212 4,869 10,104 9,670 Other 18,635 17,147 34,253 33,307 Non-interest operating income 42,692 136,157 163,450 264,800 Securities available for sale gains 244 3,265 346 3,053 Investment securities gains (losses) 3 45 258 (23) Total non-interest income 42,939 139,467 164,054 267,830 Non-interest expense: Salaries 43,668 64,345 101,369 124,286 Employee benefits 12,076 17,989 30,417 36,051 Credit card solicitation 24,250 29,050 45,637 Supplies and equipment 8,715 13,095 23,241 25,094 Occupancy 9,434 10,855 21,388 21,566 Travel and communications 5,604 13,546 18,757 26,863 External data processing services 6,748 12,128 15,794 23,407 Other 25,199 30,417 62,354 55,830 Total non-interest expense 111,444 186,625 302,370 358,734 Income before income taxes (Capital One Financial Corporation amounted to $0, $53,233, $27,407 and $107,280, respectively) 44,691 74,753 110,949 152,724 Applicable income taxes 15,005 24,368 39,038 49,226 Net income $ 29,686 $ 50,385 $ 71,911 $103,498 Earnings per common share $ 0.50 $ 0.88 $ 1.21 $ 1.81 Cash dividends declared per share 0.17 0.25 0.42 0.50 Average common shares outstanding 59,669 57,358 59,406 57,303
STATEMENT OF CHANGES IN CONSOLIDATED STOCKHOLDERS' EQUITY (in thousands) (unaudited)
Common Capital Retained Stock Surplus Earnings SIX MONTHS ENDED JUNE 30, 1995 Balance at beginning of period $ 293,184 $ 198,869 $ 619,426 Net income 71,911 Issuance of Common Stock 2,283 4,237 Purchase of Common Stock (1,292) (7,207) Cash dividends (24,638) Spin-off of Capital One Financial Corporation (383,200) Change in net unrealized gains on securities available for sale, net of tax of $23,925 44,432 Balance at end of period $ 294,175 $ 195,899 $ 327,931 SIX MONTHS ENDED JUNE 30, 1994 Balance at beginning of period $ 283,043 $ 133,038 $ 548,581 Adjustment to beginning balance for change in accounting method for net unrealized gain on securities available for sale, net of tax of $16,147 29,987 Net income 103,498 Issuance of Common Stock 1,290 8,408 Cash dividends (28,360) Change in net unrealized losses on securities available for sale, net of tax benefit of $22,957 (42,634) Balance at end of period $ 284,333 $ 141,446 $ 611,072
STATEMENT OF CONSOLIDATED CASH FLOWS (in thousands) (unaudited)
Six Months Ended June 30 1995 1994 OPERATING ACTIVITIES Net income $ 71,911 $ 103,498 Adjustments to reconcile net income to net cash provided by operating activities: Provision for loan losses 11,430 8,498 Provision and writedowns on foreclosed property 1,924 1,585 Depreciation and amortization 17,417 21,031 Investment securities (gains) losses (258) 23 Securities available for sale gains (346) (3,053) Decrease in interest receivable 8,367 8,343 Increase in other assets (304,084) (66,726) Increase (decrease) in interest payable 8,369 (3,331) (Decrease) increase in other liabilities (13,659) 501,830 Proceeds from sales of loans held for sale 17,543,403 12,104,569 Purchases and originations of loans held for sale (17,733,269) (13,075,639) Proceeds from sales of trading account securities 8,348,697 7,691,160 Purchases of trading account securities (8,435,394) (7,570,069) Net cash used by operating activities (475,492) (278,281) INVESTING ACTIVITIES Proceeds from maturities of investment securities 35,748 28,918 Purchases of investment securities (25,511) (102) Proceeds from sales of securities available for sale 489,794 1,369,996 Proceeds from maturities of securities available for sale 460,980 1,449,261 Purchases of securities available for sale (1,711,711) (2,213,898) Net (increase) decrease in loans (851,348) 552,398 Recoveries of loans previously charged-off 6,791 14,588 Purchases of premises and equipment (33,913) (40,921) Net cash (used) provided by investing activities (1,629,170) 1,160,240 FINANCING ACTIVITIES Net increase (decrease) in deposits 102,926 (271,555) Net decrease in short-term borrowings (200,288) (815,126) Increase in Capital One Financial Corporation long- term debt 1,388,153 Net decrease in other long-term debt (419) (12,334) Net (purchase) issuance of common stock (1,979) 9,698 Payment of cash dividends (24,638) (28,360) Net cash provided (used) by financing activities 1,263,755 (1,117,677) Decrease in cash and cash equivalents (840,907) (235,718) Cash and cash equivalents at beginning of period 2,023,363 2,079,424 Cash and cash equivalents at end of period $ 1,182,456 $ 1,843,706 SUPPLEMENTAL DISCLOSURES Interest paid $ 204,620 $ 137,065 Income taxes paid 20,710 39,214 Transfer of loans to foreclosed property 214 7,281 Transfer of loans to loans held for securitization 450,000 1,750,000
SUPPLEMENTAL NOTES TO QUARTERLY FINANCIAL STATEMENTS (dollars in thousands) (unaudited) GENERAL The accompanying financial statements (unaudited) reflect all adjustments which are, in the opinion of management, necessary for a fair presentation. All such adjustments are of a normal recurring nature. The financial statements have been prepared based on the accounting policies as described in the 1994 annual report and as noted below, except certain amounts which have been reclassified for prior periods to conform to the 1995 presentation format. STATEMENT OF CONSOLIDATED CASH FLOWS Cash and cash equivalents, as presented in this statement, includes cash and due from banks, interest bearing deposits with other banks and federal funds sold and securities purchased under resale agreements. A significant noncash transaction in the first quarter of 1995 included a transfer of $3,639,288 of assets (primarily $2,538,554 of loans), $3,256,088 of liabilities (primarily $1,388,153 related to long-term borrowings) and a decrease in retained earnings of $383,200 related to the spin-off of Capital One. SECURITIES AVAILABLE FOR SALE Securities available for sale are summarized as follows:
JUNE 30, 1995 June 30, 1994 December 31, 1994 FAIR Fair Fair COST VALUE Cost Value Cost Value U.S. Government and agency obligations -- Mortgage-backed securities $1,085,645 $1,121,329 $ 501,934 $ 490,872 $ 633,338 $ 607,003 Other 413,888 422,333 560,450 560,425 461,140 457,877 States and political subdivisions 111 119 14,638 15,064 110 116 Other 119,794 107,773 94,912 86,116 184,703 176,700 Total $1,619,438 $1,651,554 $1,171,934 $1,152,477 $1,279,291 $1,241,696
INVESTMENT SECURITIES Investment securities are summarized as follows:
JUNE 30, 1995 June 30, 1994 December 31, 1994 FAIR Fair Fair COST VALUE Cost Value Cost Value U.S. Government and agency obligations -- Mortgage-backed securities $ 73,745 $ 75,357 $ 75,174 $ 73,307 Other 99,695 100,795 74,550 72,656 State and political subdivisions 140,496 144,213 $200,051 $210,165 173,571 179,467 Other 61,741 62,812 20,607 20,607 75,488 74,236 Total $375,677 $383,177 $220,658 $230,772 $398,783 $399,666
INCOME TAXES Differences between the effective rate of income taxes and the statutory rate arise principally from non-taxable interest on investments and loans. SECURITIZATIONS Signet securitized $2,398,801 of credit card receivables in 1994. These transactions were recorded as sales in accordance with Statement of Financial Accounting Standards ("SFAS") No. 77, "Reporting by Transferors for Transfers of Receivables with Recourse." In conjunction with the spin-off of Capital One, Signet Bank/Virginia's rights and obligations under the majority of its securitization agreements as well as any related assets and liabilities were transferred to Capital One Bank on November 22, 1994. Receivables outstanding under Signet's remaining securitizations amounted to $213,333 at June 30, 1995. Proceeds from the sales in 1994 totaled $2,393,936. Recourse obligations related to these transactions are not material. Excess servicing fees related to the securitizations are recorded over the life of each sale transaction. The excess servicing fee is based upon the difference between finance charges received from the cardholders less the yield paid to investors, credit losses and a normal servicing fee, which is also retained by Signet. In accordance with the sale agreements, a fixed amount of excess servicing fees are set aside to absorb credit losses. The amount available to absorb credit losses is included in other assets and was $17,500 at June 30, 1995. RECENT ACCOUNTING STATEMENTS The Company adopted SFAS No. 114, "Accounting by Creditors for Impairment of a Loan", on January 1, 1995. In determining the loan loss allowance, the SFAS No. 114 requires that impaired loans be measured at the present value of expected future cash flows discounted at the loan's effective interest rate or at the loan's market value or SUPPLEMENTAL NOTES TO QUARTERLY FINANCIAL STATEMENTS (continued) (dollars in thousands) (unaudited) the fair market value of the collateral if the loan is collateral dependent. Also in accordance with SFAS No. 114, a loan is classified as foreclosed property when possession has been taken of the collateral, regardless of whether formal foreclosure proceedings take place. Adoption of SFAS No. 114 did not have a material impact on the Company's financial position or results of operations. The Financial Accounting Standards Board issued SFAS No. 122, "Accounting For Mortgage Servicing Rights," in May 1995. The statement amends SFAS No. 65, "Accounting for Certain Mortgage Banking Activities," to require that a mortgage banking enterprise recognize as separate assets rights to service mortgage loans for others, however those rights are acquired. The statement also requires that an enterprise assess its capitalized mortgage servicing rights for impairment based on the fair value of those rights on a disaggregated basis and that impairment should be recognized through a valuation allowance. The statement is effective for fiscal years beginning after December 15, 1995. Earlier adoption is encouraged. The Company is in the process of assessing the impact of adopting SFAS No. 122 and has not decided if it will elect to adopt the statement during 1995. CAPITAL ONE FINANCIAL CORPORATION ("CAPITAL ONE") On July 27, 1994, Signet Banking Corporation ("Signet") announced plans to spin-off substantially all of its credit card business. Under such plans, designated assets and liabilities of Signet Bank/Virginia's ("SBV") credit card division were transferred to Capital One Bank, a newly chartered limited purpose credit card bank. Capital One Bank became, in conjunction with the transfer, a wholly-owned subsidiary of Capital One, a wholly-owned subsidiary of Signet (the "Separation"). Accounts representing approximately $335 million, or 5%, of the managed credit card portfolio were retained by Signet. The Separation occurred November 22, 1994, at which time 7,125,000 shares of common stock of Capital One were sold in an initial public offering. On February 28, 1995, Signet distributed all of the common stock it held in Capital One to Signet stockholders in a tax free distribution. Included in Signet's 1995 non-interest expense is $2,018 of minority interest in Capital One's earnings. Subsequent to February 28, 1995, Capital One's results of operations and financial position are excluded from Signet's. The accompanying financial summary data covers the time periods prior and subsequent to the Separation. The basis of preparation of the accompanying financial summary data for the periods prior to the Separation is as follows: (1) The data includes interest expense paid on borrowings from SBV. For purposes of constructing the accompanying financial summary data, three funding pools (short-term, medium-term and long-term pools) were assumed, each with costs based on the average relevant historical rates paid by the Bank. (2) The accompanying financial summary data also includes an allocation of expenses for data processing, accounting, audit, human resources, corporate secretary, treasury, legal and other administrative support provided by Signet. Such expenses were allocated based on actual usage or using other allocation methods which, in the opinion of management, approximate actual usage. Management believes the allocation methods were reasonable. Certain services currently provided by affiliates are expected to continue on a transitional basis. (3) Additionally, SBV retained a credit card portfolio of approximately $335 million for all periods presented that is associated with its deposit customer base. The financial summary data assumes Capital One assessed SBV a normal servicing fee for servicing this retained portfolio for all periods presented. Capital One will continue to service and manage these accounts according to a servicing agreement which provides for arm's length fees and which can continue through September 1996. Capital One summary financial data follows:
FEBRUARY 28 June 30 December 31 1995 1994 1994 Total assets $3,639,288 $2,346,864 $3,072,546 Total stockholders'/division equity 492,872 223,262 474,557
TWO MONTHS ENDED Six Months Ended FEBRUARY 28, 1995 June 30, 1994 Net interest income $25,167 $91,820 Provision for loan losses 3,929 16,432 Net interest income after provision for loan losses 21,238 75,388 Non-interest income 87,679 180,324 Non-interest expense 81,510 148,432 Income before income taxes 27,407 107,280 Applicable income taxes 9,870 37,548 Net income $17,537 $69,732
Signet Banking Corporation FINANCIAL HIGHLIGHTS (dollars in thousands-except per share)
Three Months Ended Six Months Ended June 30 Percent June 30 Percent 1995 1994 Change 1995 1994 Change EARNINGS Net interest income (taxable equivalent) $ 120,401 $ 128,279 (6.14)% $ 266,912 $ 258,930 3.08% Net interest income 117,446 124,910 (5.98) 260,695 252,126 3.40 Net income 29,686 50,385 (41.08) 71,911 103,498 (30.52) PER COMMON SHARE Net income $ 0.50 $ 0.88 (43.18) $ 1.21 $ 1.81 (33.15) Cash dividends declared 0.17 0.25 (32.00) 0.42 0.50 (16.00) Book value 13.90 18.23 (23.75) Period-end price 21 7/8 40 3/8 (45.82) AVERAGE DAILY BALANCE Assets $10,486,466 $11,501,436 (8.82) $11,404,229 $11,406,401 (0.02) Earning Assets 9,395,228 10,267,207 (8.49) 10,193,024 10,189,866 0.03 Loans (net of unearned income) 5,836,803 6,344,382 (8.00) 6,535,555 6,290,099 3.90 Deposits 7,248,162 7,768,856 (6.70) 7,432,448 7,791,992 (4.61) Core deposits 7,008,673 7,208,991 (2.78) 7,024,484 7,216,392 (2.66) Common stockholders' equity 793,728 1,017,027 (21.96) 897,175 1,012,122 (11.36) Common shares outstanding 59,668,541 57,357,940 4.03 59,405,710 57,303,052 3.67 RATIOS Return on average assets 1.14% 1.76% (35.23) 1.27% 1.83% (30.60) Return on average common stockholders' equity 15.00 19.87 (24.51) 16.16 20.62 (21.63) Net yield margin 5.14 5.01 2.59 5.28 5.12 3.13 Allowance for loan losses to: Non-performing loans 297.24 616.91 (51.82) Non-performing assets 237.60 316.48 (24.92) Net loans 2.40 4.29 (44.06) Non-performing assets to loans and foreclosed properties 1.01 1.35 (25.19) Common stockholders' equity to assets 7.70 9.58 (19.62) AT PERIOD-END Assets $10,622,317 $10,823,763 (1.86) Earning assets 9,514,318 9,559,887 (0.48) Loans (net of unearned income) 5,684,427 5,727,279 (0.75) Deposits 7,301,541 7,549,058 (3.28) Core deposits 7,106,437 7,083,856 0.32 Common stockholders' equity 818,005 1,036,851 (21.11) Non-performing assets 57,447 77,655 (26.02) Number of common stockholders 15,259 14,716 3.69 Full-time employees 3,743 6,428 (41.77) Part-time employees 1,133 1,550 (26.90)
Note: The 1995 numbers reflect the spin-off of Capital One Financial Corporation on February 28, 1995. The common stock of Signet Banking Corporation is traded on the New York Stock Exchange under the symbol "SBK." Table 1 SELECTED QUARTERLY FINANCIAL INFORMATION
2ND QTR 1st Qtr 4th Qtr 3rd Qtr 2nd Qtr 1995 1995 1994 1994 1994 SUMMARY OF OPERATIONS(1) (dollars in thousands -- except per share) Net interest income (taxable equivalent) $120,401 $146,511 $131,611 $133,177 $128,279 Less: taxable equivalent adjustment 2,955 3,262 3,448 3,455 3,369 Net interest income 117,446 143,249 128,163 129,722 124,910 Provision for loan losses 4,250 7,180 3,000 3,000 2,999 Net interest income after provision for loan losses 113,196 136,069 125,163 126,722 121,911 Non-interest income 42,939 121,115 148,433 151,820 139,467 Non-interest expense(2) 111,444 190,926 210,875 276,814 186,625 Income before income taxes (benefit) 44,691 66,258 62,721 1,728 74,753 Applicable income taxes (benefit) 15,005 24,033 19,847 (1,734) 24,368 Net income $ 29,686 $ 42,225 $ 42,874 $ 3,462 $ 50,385 Per common share: Net income $ 0.50 $ 0.71 $ 0.73 $ 0.05 $ 0.88 Cash dividends declared 0.17 0.25 0.25 0.25 0.25 Average common shares outstanding 59,668,541 59,142,042 58,927,134 57,898,078 57,357,940 SELECTED AVERAGE BALANCES (dollars in millions) Assets $ 10,486 $ 12,332 $ 12,088 $ 10,971 $ 11,501 Earning assets 9,395 11,000 10,598 9,633 10,267 Loans (net of unearned income) 5,837 7,242 6,966 6,080 6,344 Deposits 7,248 7,619 7,768 7,635 7,769 Core deposits 7,009 7,040 7,178 7,154 7,209 Interest bearing liabilities 7,985 9,524 9,091 8,121 8,699 Stockholders' equity 794 1,002 1,094 1,064 1,017 RATIOS Return on average assets 1.14% 1.39% 1.41% 0.13% 1.76% Return on average common stockholders' equity 15.00 17.09 15.55 1.29 19.87 Net loan losses to average loans 1.27 0.33 0.44 1.74 0.38 Net interest spread 4.50 4.79 4.34 4.96 4.51 Net yield margin 5.14 5.40 4.93 5.49 5.01 At period-end: Allowance for loan losses to: Non-performing loans 297.24 574.88 846.32 589.84 616.91 Non-performing assets 237.60 364.76 454.34 342.19 316.48 Net loans 2.40 2.69 2.78 3.46 4.29 Non-performing assets to loans and foreclosed properties 1.01 0.74 0.61 1.01 1.35 Total stockholders' equity to assets 7.70 7.36 8.60 9.81 9.58
(1) The 1995 numbers reflect the spin-off of Capital One Financial Corporation (COF) on February 28, 1995. (2) The second, third and fourth quarters of 1994 included $24.2, $24.2, and $31.1 million of credit card solicitation expense, respectively. The first quarter of 1995 included $29.0 million of credit card solicitation expense which represented two months' worth since COF spun off on February 28, 1995. The third quarter of 1994 included a $49.0 million contract termination fee and $33.6 million of restructuring charges. The fourth quarter of 1994 included $9.6 million of restructuring charges. Table 2 NET INTEREST INCOME ANALYSIS Taxable Equivalent Basis (in thousands)
Second Quarter 1995 Compared Second Quarter 1995 Compared YTD June 1995 Compared with Second Quarter 1994 with First Quarter 1995 with YTD June 1994 Increase Change due to* Increase Change due to* Increase Change due to* (Decrease) Rate Volume (Decrease) Rate Volume (Decrease) Rate Volume INTEREST INCOME: Loans, including fees $(3,365) $11,370 $(14,735) $(51,314) $(18,496) $(32,818) $48,667 $30,624 $ 18,043 Securities available for sale 14,883 12,089 2,794 3,569 1,561 2,008 18,591 15,228 3,363 Investment securities 2,110 (13) 2,123 (14) 81 (95) 3,742 (1) 3,743 Other earning assets (7,532) 14,701 (22,233) 655 4,006 (3,351) (5,180) 12,936 (18,116) Total interest income 6,096 29,886 (23,790) (47,104) (13,376) (33,728) 65,820 65,575 245 INTEREST EXPENSE: Interest bearing deposits 10,134 14,964 (4,830) (315) 2,871 (3,186) 22,787 23,960 (1,173) Fed funds and repurchase agreements 7,636 7,403 233 2,448 16 2,432 18,107 16,133 1,974 Other short-term borrowings (3,732) 703 (4,435) (14,476) (2,303) (12,173) 8,104 2,275 5,829 Long-term borrowings (64) (59) (5) (8,651) (1,289) (7,362) 8,840 587 8,253 Total interest expense 13,974 22,601 (8,627) (20,994) (5,210) (15,784) 57,838 53,420 4,418 Net interest income $(7,878) $ 5,258 $(13,136) $(26,110) $ (6,478) $(19,632) $ 7,982 $ 7,826 $ 156
* The change in interest due to both volume and rates has been allocated in proportion to the relationship of the absolute dollar amount of the changes in each. The changes in income and expense are calculated independently for each line in the schedule. The totals for the volume and rate columns are not the sum of the individual lines. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS INTRODUCTION Signet Banking Corporation ("Signet" or "the Company"), with headquarters in Richmond, Virginia, is a registered multi-bank, multi-state holding company listed on the New York Stock Exchange under the symbol SBK. At June 30, 1995, Signet had assets of $10.6 billion and provided financial services through three principal subsidiaries: Signet Bank/Virginia, headquartered in Richmond, Virginia; Signet Bank/Maryland, headquartered in Baltimore, Maryland; and Signet Bank N.A., headquartered in Washington, D.C. Signet engages in general commercial and consumer banking businesses and provides a full range of financial services to individuals, businesses and organizations through 246 banking offices, 254 automated teller machines and a 24-hour a day full-service Telephone Banking Center. Signet offers investment services including municipal bond, government, federal agency and money market sales and trading, foreign exchange trading, mutual funds and discount brokerage. In addition, specialized services for trust, leasing, asset based lending, cash management, real estate, insurance, consumer financing and an international operation concentrating on trade finance are offered. Signet's primary market area extends from Baltimore to Washington, south to Richmond, and on to Hampton Roads/Tidewater Virginia. Signet markets several of its products nationally. On October 25, 1994, Signet filed an amended registration statement with the Securities and Exchange Commission which described plans to spin off Capital One Financial Corporation ("Capital One"). Under such plans, designated assets and liabilities of Signet Bank/Virginia's credit card division, including all credit card servicing functions, a credit card securitization master trust and substantially all credit card accounts, were transferred to Capital One Bank, a newly chartered limited purpose credit card bank. Capital One Bank became, in conjunction with the transfer, a wholly-owned subsidiary of Capital One, a wholly-owned subsidiary of Signet (the "Separation"). Accounts of card holders in Signet's market area representing approximately $335 million, or 5%, of the managed credit card portfolio were retained by Signet. The Separation occurred November 22, 1994 at which time 7,125,000 shares of common stock of Capital One were sold in an initial public offering. Signet distributed all of the remaining common stock it held in Capital One to Signet stockholders in a tax-free distribution on February 28, 1995 ("the Spin-Off") at which time Signet and Capital One became independent companies. Capital One is listed on the New York Stock Exchange under the symbol COF. In May 1995, Signet sold $55 million of real estate related loans. The sale of these loans accounted for approximately $13.9 million of the second quarter charge-offs for which there was already sufficient allowance. The sale was made as part of Signet's overall strategy to reduce its commercial real estate exposure. On July 12, 1995, Signet completed the acquisition of the assets of Sheffield Management Company and Sheffield Investments, Inc., managers and distributors of the Blanchard group of mutual funds. These funds are marketed nationally through direct mail and are comprised of eleven fixed income and equity funds totaling approximately $1 billion. With this acquisition, Signet's total mutual fund assets under management now exceed $2.4 billion. In the first quarter of 1995, Signet began construction on a new operations center located near Richmond, Virginia. The estimated total cost of this project is $45 million. The building is expected to be occupied in the first quarter of 1996. The following discussion should be read in conjunction with the accompanying financial statements, notes and other supplemental information contained in this document. Results of operations for the three and six months ended June 30, 1995 are not necessarily indicative of results to be attained for any other period. EARNINGS ANALYSIS Consolidated net income for the second quarter of 1995 was $29.7 million, or $.50 per share, compared with $50.4 million, or $.88 per share in the same quarter last year. After adjusting the 1994 second quarter results for the Spin-Off, net income increased 88% from $15.8 million or $.28 per share. Net income for the first six months of 1995 was $71.9 million or $1.21 per share compared to $103.5 million or $1.81 per share in the same period last year. This includes the results of Capital One for the two months prior to the Spin-Off on February 28, 1995. Excluding Capital One, net income for the first six months of 1995 was $56.4 million, an increase of 61% from the $33.8 million earned in the first six months of 1994. Also, for the first six months, Signet recognized nominal net gains on securities available for sale compared with $3.1 million of net gains during the same period last year. The return on assets (ROA) for the second quarter and six months ended June 30, 1995 was 1.14% and 1.27%, respectively. This compares to 1.76% and 1.83% for the comparable periods last year. After adjusting for the Spin-Off, ROA for the first six months of 1995 increased 41% from .78% in 1994 to 1.10% and ROA for the second quarter increased 54% from .74% in the second quarter of 1994. The return on common stockholders' equity (ROE) for the second quarter and six months ended June 30, 1995 was 15.00% and 16.16%, respectively. This compares to 19.87% and 20.62% for the same periods last year. ROE for the first six months of 1995, adjusted for the Spin-Off, increased 70% from 8.63% in 1994 to 14.68% this year. ROE for the second quarter increased 91% from 7.87% in the second quarter of 1994, adjusted for the Spin-Off. In July of 1994, management set interim targets to bring Signet's ROE up from well below 10 percent to the 15 to 16 percent range by the fourth quarter of 1995. Management is pleased that Signet met this benchmark by the second quarter, well ahead of schedule. NET INTEREST INCOME Taxable equivalent net interest income, a principal component of earnings, totaled $120.4 million for the 1995 second quarter and $266.9 million for the six months ended June 30, 1995. This was a 6% decrease over the same quarter last year resulting from the net effect of a 13 basis point increase in the net yield margin and a $872.0 million decline in average earning assets, primarily due to the Spin-Off. Taxable equivalent net interest income increased 3% in the first six months of 1995 compared to the same period last year as the increase in the yield on earning assets slightly exceeded the rise in funding rates, partially as a result of including the Capital One portfolio for the first two months of 1995. The net yield margin for the second quarter and six months ended June 30, 1995 was 5.14% and 5.28%, respectively, an increase of 13 basis points and 16 basis points from the same respective periods last year. The increase in the net yield margin from 1994 was primarily due to yields on earning assets improving more quickly than the rise in funding costs. Table 3 analyzes the change in the net yield margin from the first quarter to the second quarter of 1995 for Signet Bank (excluding Capital One). An approximate basis point impact was calculated for each item noted. The decrease in net interest spread and net yield margin from the first quarter of 1995 was primarily due to the expiration of an interest rate hedge which contributed 21 basis points to the first quarter 1995 net yield margin. Table 3 Signet Bank (excluding Capital One) ANALYSIS OF CHANGE IN NET YIELD MARGIN First Quarter 1995 versus Second Quarter 1995 Net Yield Margin for First Quarter 1995 5.42% Higher funding costs (excluding decrease in derivative income) (0.19) Decrease in derivative income (0.13) Change in mix and yield on short-term investments 0.12 Higher average and lower yield on Commercial Loans (0.05) Higher average and lower yield on Consumer Loans (Total On-Balance Sheet) (0.03) Net Yield Margin for Second Quarter 1995 5.14% Note: An interest rate hedge which expired in March, 1995, contributed 21 basis points to the first quarter 1995 net yield margin. Signet uses various off-balance sheet interest rate derivatives as an integral part of its asset and liability management. For Signet's core business, variable rate assets generally exceed variable rate liabilities. To hedge against the resulting interest rate risk, Signet has entered into derivative transactions. At June 30, 1995, the notional values of the Company's derivative products for the purpose of hedging interest rate risk were $2.5 billion of interest rate swaps and $650 million of interest rate floors. Interest rate derivative products contributed 5 basis points to the second quarter margin compared with 20 basis points in the first quarter of 1995. The total income from these contracts fell from $5.5 million in the first quarter of 1995 to $1.3 million in the current quarter. PROVISION AND ALLOWANCE FOR LOAN LOSSES The provision for loan losses was $4.3 million for the second quarter of 1995 up from $3.0 million for the same period last year and lower than the $7.2 million in the first quarter of 1995. For the second quarter of 1995, net loan losses totaled $18.6 million, $13.9 million of which resulted from the sale of real estate related loans for which there was already sufficient allowance. The remaining loan losses are principally in the consumer loan portfolio which experienced a 76% increase in its average balance from the second quarter of last year excluding Capital One. Another reason for the rise in consumer loan charge-offs in addition to the increase in the consumer loan volume is that at this stage in the testing program, the charge-off ratio typically runs high. Future charge-off ratios on consumer loans are expected to be lower, although there is no guarantee that this will occur. Excluding Capital One and the charge-offs related to the sale of real estate related loans, second quarter net loan losses amounted to 0.32% of average loans which is a 13 basis points increase from the comparable period in 1994 and a 20 basis points rise from the first quarter of 1995. Table 4 STATEMENT OF CHANGES IN ALLOWANCE FOR LOAN LOSSES (dollars in thousands)
Three Months Ended Six Months Ended June 30 March 31 June 30 1995 1994 1995 1995 1994 Balance at beginning of period $151,729 $250,477 $220,519 $220,519 $253,313 Additions to allowance charged to expense 4,250 2,999 7,180 11,430 8,498 Transfer to loans held for securitization/sale (889) (1,619) (1,489) (2,378) (4,369) Transfer to Capital One Financial Corporation (68,516) (68,516) Loans charged off: Consumer 5,744 8,404 9,120 14,864 17,332 Commercial * 1,413 3,310 428 1,841 8,060 Real estate -- construction 389 8 397 Real estate -- mortgage * 13,343 462 904 14,247 874 Total loans charged off 20,889 12,176 10,460 31,349 26,266 Recoveries of loans previously charged off: Consumer 315 3,617 2,246 2,561 7,112 Commercial 1,056 1,490 1,986 3,042 4,618 Real estate -- construction 833 884 237 1,070 1,109 Real estate -- mortgage * 92 92 26 118 1,749 Total recoveries 2,296 6,083 4,495 6,791 14,588 Net loans charged off 18,593 6,093 5,965 24,558 11,678 Balance at end of period $136,497 $245,764 $151,729 $136,497 $245,764 Net loan losses (annualized) as a percentage of average loans: Consumer 0.92% 0.58% 0.70% 0.78% 0.63% Commercial 0.06 0.35 (0.26) (0.10) 0.32 Real estate 5.49 (0.23) 0.28 2.88 (0.43) Total 1.27% 0.38% 0.33% 0.75% 0.37% Allowance for loan losses to net loans at end of period 2.69% 2.40% 4.29%
*Real estate-mortgage includes real estate-commercial mortgage and real estate-residential mortgage. Real estate-residential mortgage charge-offs and recoveries were not significant for the periods presented. Charge-offs related to the loan sale in the second quarter of 1995 were $13,897, of which $12,594 were real estate-mortgage and $1,303 were commercial. The allowance for loan losses at June 30, 1995 was $136.5 million, or 2.40% of net loans, compared with $245.8 million, or 4.29% of net loans, at June 30, 1994 and $151.7 million, or 2.69% of net loans, at March 31, 1995. The decrease from June 30, 1994 primarily reflected the Spin-Off at which time $68.5 million of the allowance was transferred from Signet Bank/Virginia to Capital One. The remaining decrease resulted primarily from charge-offs taken on real estate related loans during the past year, the majority of which were related to real estate loan sales in the third quarter of 1994 and the second quarter of 1995. To determine the appropriate level of allowance for loan losses, management identifies and examines on a monthly basis the commercial, real estate and large consumer loans warranting attention and reviews the credit worthiness of the borrower, the adequacy of underlying collateral and the impact of business and economic conditions upon the borrower. Based on this information and action plans provided by the lending units, Signet's Credit Risk Management Division determines the aggregate level of the allowance. Beginning in 1995, Signet adopted Financial Accounting Standards Board Statement No. 114, "Accounting by Creditors for Impairment of a Loan." Under the new standard, the 1995 allowance for loan losses related to loans that are identified for evaluation in accordance with Statement No. 114 is based on discounted cash flows using the loan's initial effective interest rate or the fair value of the collateral for certain collateral dependent loans. The loans that are considered to be impaired under Statement No. 114 are comprised of $41.4 million of non-accrual loans for which the related allowance for credit losses is $12.5 million. The average recorded investment in impaired loans during the six months ended June 30, 1995 was approximately $24.2 million. The consumer portfolio receives an overall allocation based on such factors as current and anticipated economic conditions, historical charge-off and recovery rates and trends in delinquencies, projected charge-offs by loan solicitation tranche, bankruptcies and loan volume. The remaining loan portfolio (unclassified commercial real estate loans) receives a general allocation deemed to be reasonably necessary to provide for losses based on the factors listed above and on migration analysis which traces loan risk ratings and related losses over time. Management believes that the allowance for loan losses is adequate to cover anticipated losses in the loan portfolio under current economic conditions. NON-INTEREST INCOME Total non-interest income was $42.9 million in the second quarter of 1995, a decrease of $96.5 million from the second quarter of 1994 and a $78.2 million decline from the first quarter of 1995. The decreases were caused by a sharp decline in credit card servicing and service charge income in the second quarter of 1995 due to the Spin-Off. The first quarter of 1995 included two months of credit card servicing income reflecting the timing of the Spin-Off and the second quarter of 1994 included a full quarter. Credit card servicing and service charge income decreased $94.4 million from the 1994 second quarter and decreased $82.1 million from the first quarter of 1995. Mortgage servicing and origination fee income increased 26.7% from the first quarter of this year to $5.4 million as a result of an increase in mortgage loan volume due to declining interest rates. An increase in mortgage servicing income from second quarter 1994 to second quarter 1995 more than offset a decline in loan origination income. For the second quarter of 1995, Signet recorded trading gains of $3.8 million, an improvement from $106 thousand of trading gains in the first quarter and $266 thousand of net losses recognized in the second quarter of 1994. In the first half of 1995, Signet recognized nominal gains on securities available for sale compared with $3.1 million of net gains during the same period last year. NON-INTEREST EXPENSE Total non-interest expense was $111.4 million in the second quarter of 1995, a significant decrease from $190.9 million in the first quarter this year and $186.6 million in the second quarter of 1994. Decreases occurred in all categories as a result of the Spin-Off. The first quarter of 1995 included two months of Capital One's expenses. Excluding Capital One, total non-interest expense remained level with the first quarter of this year at $111.4 million and decreased 2.7% from $114.5 million in the second quarter of 1994 as Signet continued efforts to reduce non-interest expense. The number of full-time equivalent employees fell 40% from the second quarter of 1994 as a result of the Spin-Off, the displacement of approximately 750 employees during the latter half of 1994 and an early retirement program in which 225 employees participated. Total salary and employee benefits declined $6.6 million in the same period. Excluding Capital One and foreclosed property expense for all periods, Signet's efficiency ratio (the ratio of non-interest expense to taxable equivalent operating income) for the second quarter of 1995 improved to 68.67% compared with 87.04% for the same quarter last year and 69.95% for the first quarter this year. The improvement in this ratio is primarily the result of strong revenue growth as a result of innovative marketing. The second quarter 1995 efficiency ratio is within the range that management set as a goal to reach by the fourth quarter of 1995. Table 5 NON-INTEREST INCOME AND EXPENSE (in thousands)
Three Months Ended Six Months Ended June 30 March 31 June 30 1995 1994 1995 1995 1994 NON-INTEREST INCOME: Credit card servicing and service charge income $ 1,633 $ 96,035 $ 83,777 $ 85,410 $188,020 Service charges on deposit accounts 17,212 18,106 16,471 33,683 33,803 Trust income 5,212 4,869 4,892 10,104 9,670 Mortgage servicing and origination 5,445 4,601 4,162 9,607 10,246 Other service charges and fees 3,467 4,064 3,713 7,180 7,792 Trading profits (losses) 3,816 (266) 2,379 6,195 (717) Other 5,907 8,748 5,364 11,271 15,986 Non-interest operating income 42,692 136,157 120,758 163,450 264,800 Securities available for sale gains 244 3,265 102 346 3,053 Investment securities gains (losses) 3 45 255 258 (23) Total non-interest income $ 42,939 $139,467 $121,115 $164,054 $267,830 NON-INTEREST EXPENSE: Salaries $ 43,668 $ 64,345 $ 57,701 $101,369 $124,286 Employee benefits 12,076 17,989 18,341 30,417 36,051 Total staff expense 55,744 82,334 76,042 131,786 160,337 Credit card solicitation 24,250 29,050 29,050 45,637 Supplies and equipment 8,715 13,095 14,526 23,241 25,094 Occupancy 9,434 10,855 11,954 21,388 21,566 Travel and communications 5,604 13,546 13,153 18,757 26,863 External data processing services 6,748 12,128 9,046 15,794 23,407 Professional services 4,069 6,069 7,130 11,199 10,349 Public relations, sales and advertising 4,272 4,824 5,368 9,640 9,092 FDIC assessment 4,139 4,248 4,313 8,452 8,139 Credit and collection 265 3,088 1,818 2,083 5,741 Foreclosed property -- net (556) 810 572 16 594 Other 13,010 11,378 17,954 30,964 21,915 Total non-interest expense $111,444 $186,625 $190,926 $302,370 $358,734
Note: Other non-interest expense for the three months ended March 31, 1995 included $2,018 of minority interest (net of income taxes) in Capital One Financial Corporation. In 1994, Signet recorded a $43.2 million restructuring charge related to a comprehensive plan for reducing costs and increasing revenue in order to enhance its competitive position. As of June 30, 1995, the amounts actually paid and charged against the restructuring liability were approximately $4.4 million for severance payments to approximately 600 employees, $2.5 million for payments made under the early retirement program and approximately $6.2 million for lease termination and other facilities related costs. The remaining liability of $30.1 million is comprised of $19.5 million for accrued retiree medical and pension benefits, $2.2 million for accrued severance costs and $8.4 million for accrued facilities related costs. INCOME TAXES Signet recorded income tax expense of $15.0 million for the second quarter of 1995 compared with $24.4 million for the second quarter of 1994 and $24.0 million for the first quarter of this year. The decrease in tax expense in the second quarter of 1994 over the previous periods was principally due to a significant decline in taxable income as a result of the Spin-Off. The effective tax rate for the second quarter of 1995 was 34% compared with 33% for the second quarter of 1994 and 36% for the first quarter of this year. Table 6 CONSOLIDATED AVERAGE BALANCE SHEET (dollars in thousands)
Three Months Ended June 30 1995 1994 AVERAGE INCOME/ YIELD/ Average Income/ BALANCE EXPENSE RATE Balance Expense ASSETS Earning assets (tax equivalent basis):* Interest bearing deposits with other banks $ 22,799 $ 358 6.21% $ 247,936 $ 2,952 Federal funds and resale agreements 532,922 8,232 6.11 856,757 8,674 Trading account securities 553,080 8,936 6.48 272,872 4,747 Loans held for securitization 153,300 6,420 16.75 755,494 17,848 Loans held for sale 234,107 5,858 9.90 212,378 3,115 Securities available for sale 1,679,836 31,412 7.40 1,351,368 16,529 Investment securities -- taxable 235,514 4,257 7.23 20,942 307 Investment securities-nontaxable 146,867 4,391 11.96 205,078 6,231 Loans (net of unearned income): Consumer 2,349,345 62,068 10.59 3,325,947 79,936 Commercial 2,553,554 51,058 8.02 2,108,076 40,103 Real estate -- construction 217,685 5,628 10.23 262,844 5,248 Real estate -- commercial mortgage 480,112 11,998 10.02 573,203 12,390 Real estate -- residential mortgage 236,107 5,074 8.60 74,312 1,514 Total loans 5,836,803 135,826 9.33 6,344,382 139,191 Total earning assets 9,395,228 $205,690 8.78% 10,267,207 $199,594 Non-rate related assets: Cash and due from banks 509,633 499,712 Allowance for loan losses (144,407) (248,846) Premises and equipment (net) 164,536 238,529 Other assets 561,476 744,834 Total assets $10,486,466 $11,501,436 LIABILITIES AND STOCKHOLDERS' EQUITY Interest bearing liabilities: Deposits: Money market and interest checking $ 1,031,701 $ 6,939 2.70% $ 1,022,071 $ 5,605 Money market savings 1,346,920 11,704 3.49 1,669,819 11,381 Savings accounts 1,255,593 11,800 3.77 981,676 7,751 Savings certificates 1,876,689 20,747 4.43 1,972,308 13,993 Large denomination certificates 92,660 1,186 5.06 344,830 3,635 Foreign 146,829 2,235 6.02 215,035 2,112 Total interest bearing deposits 5,750,392 54,611 3.81 6,205,739 44,477 Federal funds and repurchase agreements 1,950,959 26,146 5.30 1,905,695 18,510 Other short-term borrowings 30,098 413 5.43 333,315 4,145 Long-term borrowings 253,427 4,119 6.43 254,007 4,183 Total interest bearing liabilities 7,984,876 $ 85,289 4.28% 8,698,756 $ 71,315 Non-interest bearing liabilities: Demand deposits 1,497,770 1,563,117 Other liabilities 210,092 222,536 Common stockholders' equity 793,728 1,017,027 Total liabilities and stockholders' equity $10,486,466 $11,501,436 Net interest income / spread $120,401 4.50% $128,279 Interest income to average earning assets 8.78% Interest expense to average earning assets 3.64 Net yield margin 5.14% *Includes the effects of taxable equivalent adjustments using a tax rate of 35%. Six Months Ended March 31 June 30 1995 1995 1994 Yield/ Average Income/ Yield/ Average Income/ Yield/ Average Income/ Yield/ Rate Balance Expense Rate Balance Expense Rate Balance Expense Rate 4.71% $ 98,271 $ 1,438 5.85% $ 60,327 $ 1,796 5.92% $ 254,244 $ 5,523 4.32% 4.01 1,039,776 15,309 5.89 784,948 23,541 5.96 732,711 13,624 3.70 6.98 418,011 6,718 6.52 485,918 15,654 6.50 279,441 10,387 7.50 9.45 146,667 4,205 11.47 150,002 10,625 14.17 551,105 25,723 9.34 5.80 94,718 1,479 6.25 164,798 7,337 8.86 283,990 8,876 6.22 4.84 1,579,687 27,843 7.05 1,630,038 59,255 7.23 1,562,035 40,664 5.18 5.86 222,877 3,946 7.08 229,230 8,203 7.16 23,898 692 5.79 12.15 157,609 4,716 11.97 152,208 9,107 11.97 212,343 12,876 12.13 9.61 3,946,185 117,634 11.98 3,143,354 179,702 11.49 3,237,071 155,986 9.65 7.63 2,362,850 47,134 8.09 2,458,729 98,192 8.05 2,124,790 81,089 7.70 7.90 207,805 5,154 9.92 212,773 10,782 10.08 278,049 10,490 7.50 8.67 520,340 12,939 10.08 500,115 24,937 10.06 576,868 23,404 8.18 8.15 204,888 4,279 8.35 220,584 9,353 8.48 73,321 3,330 9.08 8.80 7,242,068 187,140 10.48 6,535,555 322,966 9.97 6,290,099 274,299 8.79 7.80% 10,999,684 $252,794 9.32% 10,193,024 $458,484 9.07% 10,189,866 $392,664 7.77% 505,045 507,352 494,466 (196,476) (170,298) (250,593) 228,577 196,380 231,458 795,359 677,771 741,204 $12,332,189 $11,404,229 $11,406,401 2.20% $ 1,014,201 $ 6,141 2.46% $ 1,022,999 $ 13,080 2.58% $ 1,021,843 $ 11,157 2.20% 2.73 1,402,102 11,958 3.46 1,374,359 23,662 3.47 1,684,351 22,699 2.72 3.17 1,188,584 10,727 3.66 1,222,274 22,527 3.72 946,321 14,699 3.13 2.85 1,950,069 17,147 3.57 1,913,176 37,894 3.99 2,004,193 27,043 2.72 4.17 494,575 7,700 6.23 292,507 8,886 6.04 336,928 6,859 4.05 3.89 83,737 1,253 5.99 115,457 3,488 6.01 238,672 4,293 3.58 2.87 6,133,268 54,926 3.63 5,940,772 109,537 3.72 6,232,308 86,750 2.81 3.84 1,789,022 23,698 5.30 1,870,438 49,844 5.30 1,812,834 31,737 3.48 4.92 896,552 14,889 6.64 460,932 15,302 6.60 304,355 7,198 4.70 6.51 705,362 12,770 7.24 478,146 16,889 7.03 256,125 8,049 6.25 3.29% 9,524,204 $106,283 4.53% 8,750,288 $191,572 4.41% 8,605,622 $133,734 3.13% 1,485,515 1,491,676 1,559,684 320,698 265,090 228,973 1,001,772 897,175 1,012,122 $12,332,189 $11,404,229 $11,406,401 4.51% $146,511 4.79% $266,912 4.66% $258,930 4.64% 7.80% 9.32% 9.07% 7.77% 2.79 3.92 3.79 2.65 5.01% 5.40% 5.28% 5.12%
FINANCIAL CONDITION Earning assets averaged $9.4 billion for the second quarter of 1995, a decrease of 8% from the same period last year. Average investment securities rose $134 million and average securities available for sale fell $198 million from the prior year's second quarter. Loans held for securitization averaged $153 million for the second quarter of 1995, down from $755 million for the same quarter of last year as a result of securitizations by Capital One in 1994. These assets were reclassified from the loan category in anticipation of securitizations. Total loans averaged $5.8 billion for the quarter, reflecting an 8% decline from the second quarter in 1994. Average consumer loans decreased 29% to $2.3 billion as a result of the net effect of the Spin-Off and the growth in student and installment loans. Excluding Capital One, the total on-balance sheet consumer loan portfolio average balance nearly doubled from the second quarter of 1994 amount of $1.3 billion to the current quarter's average of $2.6 billion. These amounts include the consumer loan portfolio, loans held for securitization and loans held for sale. Average real estate-construction loans declined 17% to $218 million and average real estate-commercial mortgage loans declined 16% to $480 million. Real estate-residential mortgages were up 218% to $236 million as a result of loans acquired from Pioneer Financial Corporation and management's decision to retain rather than sell mortgages originated by Signet. The decline in construction loans was principally the result of management's continued desire to reduce the level of commercial real estate asset exposure. The sale of real estate related loans in the third quarter of 1994 and second quarter of 1995 primarily impacted the real estate-construction and real estate-commercial mortgage loan categories. The yield on earning assets was 8.78% for the second quarter of 1995 compared with 7.80% for the second quarter last year, an increase of 98 basis points due to a rise in market yields as well as an improvement in the mix of earning assets. Average interest bearing liabilities totaled $8.0 billion in the second quarter, down 8% from the second quarter of 1994 and down 16% from the first quarter of 1995. Money market savings declined $323 million, or 19%, large denomination certificates fell $252 million, or 73%, and savings certificates decreased $96 million, or 5% from the same quarter last year. Deposit categories experiencing increases included money market and interest checking up $10 million and savings accounts up $274 million, or 28%. Foreign deposits decreased $68 million from the second quarter of 1994. Average core deposits remained relatively stable when comparing second quarter of 1995 with the same quarter last year. Purchased funds, which include large denomination certificates, foreign deposits, federal funds and repurchase agreements and other short-term and long-term borrowings averaged $2.5 billion for the 1995 second quarter, down $579 million from the comparable 1994 period and down $1.5 billion from the first quarter of 1995. The higher level of purchased funds in the first quarter of 1995 and second quarter of 1994 resulted from temporarily funding the growth in Capital One's credit card receivables prior to securitization. The average rate on interest bearing liabilities was 4.28% for the second quarter of 1995 compared with 3.29% for the second quarter last year, an increase of 99 basis points which was generally the same as the rise in the yield on earning assets. CONSUMER LOAN GROWTH In 1994, Signet expanded its use of information-based technology to all types of consumer loans which significantly increased growth. The technology involves generating a data base of creditworthy customers for particular products and then following up with direct-mail solicitations. Much of the growth was in a new loan product, "loan-by-check". Customers who receive a direct-mail solicitation are offered installment loans of various amounts and terms according to their risk profile simply by endorsing the check and depositing it. Signet is also applying this technology to home equity, student and small business loans. Solicitations in these areas are mostly in the preliminary testing stages. These tests are designed to help Signet develop products that are both appealing to customers and economically feasible for the Company. The early results have been very satisfying and loans are growing at a healthy pace. From June 30, 1994 to June 30, 1995, student loans increased $314 million (including $300 million in student loans held for securitization), installment loans grew $626 million (including $149 million in loans held for sale) and home equity loans were up $73 million (including $8 million in loans held for sale). RISK ELEMENTS Non-performing assets include non-accrual loans (including loans impaired under Statement No. 114), restructured loans and foreclosed properties. Non-performing assets increased $15.9 million or 38% in the second quarter of 1995. The rise in non-accrual loans resulted from placing two commercial real estate loans totaling $22 million on non-accrual. In July 1995, one of these loans, which comprised the majority ($14.6 million) of the $22 million, was brought current by the borrower. Non-performing assets represented 1.01% of total loans and foreclosed properties at June 30, 1995, up from .74% and down from 1.35% at March 31, 1995 and June 30, 1994, respectively. The allowance for loan losses equaled 297% of non-performing loans at June 30, 1995, down from 575% at March 31, 1995 and 617% at June 30, 1994. The ratio of the allowance to non-performing assets decreased to 238% at June 30, 1995 from 365% at March 31, 1995 and 316% at June 30, 1994. Table 7 NON-PERFORMING ASSETS AND PAST DUE LOANS (dollars in thousands)
June 30 March 31 December 31 1995 1994 1995 1994 Non-accrual loans: Commercial $10,785 $17,258 $10,998 $10,548 Consumer 1,434 1,634 1,596 1,708 Real estate -- construction 4,116 9,759 5,161 5,490 Real estate -- mortgage * 29,587 7,512 8,638 7,310 Total non-accrual loans 45,922 36,163 26,393 25,056 Restructured loans: Commercial 2,675 Real estate -- construction 1,000 1,000 Total restructured loans 3,675 1,000 Total non-performing loans 45,922 39,838 26,393 26,056 Foreclosed properties 11,525 40,108 15,204 22,480 Less foreclosed property reserve (2,291) Total foreclosed properties 11,525 37,817 15,204 22,480 Total non-performing assets $57,447 $77,655 $41,597 $48,536 Percentage to loans (net of unearned) and foreclosed properties 1.01% 1.35% 0.74% 0.61% Allowance for loan losses to: Non-performing loans 297.24 616.91 574.88 846.32 Non-performing assets 237.60 316.48 364.76 454.34 Accruing loans past due 90 days or more $54,538 $53,679 $42,919 $65,333
* Real estate -- mortgage includes real estate-commercial mortgage and real estate-residential mortgage. Real estate -- residential mortgage non-accrual loans were not significant for the periods presented. Foreclosed properties totaled $11.5 million at the end of the second quarter of 1995 and were equal to 20% of total non-performing assets and 26% of non-performing real estate assets. Signet sold $10.3 million of foreclosed properties during the first six months of 1995. In accordance with Statement No. 114, a loan is classified as foreclosed property when possession has been taken of the collateral, regardless of whether formal foreclosure proceedings have taken place. Accruing loans which are contractually past due 90 days or more as to principal or interest payments totaled $54.5 million at June 30, 1995. This is a 27% increase from the $42.9 million level as of March 31, 1995, and represents a 2% increase from the $53.7 million reported at June 30, 1994. The June 30, 1995 total was comprised of $37.2 million of consumer loans (of which $21.9 million are student loan delinquencies, which are government guaranteed and do not represent material loss exposure, and $7.2 million of credit card loans); $10.6 million of mortgage loans; $5.6 million of commercial loans; and $1.1 million of construction loans. STOCKHOLDERS' EQUITY DATA At June 30, 1995, stockholders' equity totaled $818 million, a decline of 21% from the June 30, 1994 level of $1.0 billion. This decrease reflects the transfer to Capital One of approximately $383 million of Signet's stockholders' equity in connection with the Spin-Off. The Company's total stockholders' equity to assets ratio was 7.70% at June 30, 1995, an increase from 7.36% at March 31, 1995 and down from 9.58% at June 30, 1994. Signet's risk-adjusted capital ratios at June 30, 1995 remained strong at 10.10% and 12.91% for Tier I and Total Capital, respectively. The leverage ratio is calculated by dividing Tier I Capital by the current quarter's total average assets less goodwill and other disallowed intangibles. Signet's leverage ratio at June 30, 1995 was 7.20%, up from 5.93% at March 31, 1995 and down from 8.94% at June 30, 1994. The decline in these capital ratios from June 30, 1994 reflects the impact of the Spin-Off. For most corporations, including Signet, the minimum leverage ratio is 3% plus an additional cushion of 100 to 200 basis points depending upon risk profiles and other factors. At June 30, 1995, all three of Signet's banking subsidiaries met the criteria established by the Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA") for "well capitalized" institutions. Table 8 SELECTED CAPITAL DATA (dollars in thousands)
June 30 December 31 1995 1994 1994 Qualifying common stockholders' equity $ 792,406 $ 1,047,739 $ 1,237,453 Less goodwill and other disallowed intangibles (39,974) (21,292) (44,581) Total Tier I capital 752,432 1,026,447 1,192,872 Qualifying debt 116,134 167,000 165,800 Qualifying allowance for loan losses 93,672 104,503 119,812 Total Tier II capital 209,806 271,503 285,612 Total risked-based capital $ 962,238 $ 1,297,950 $ 1,478,484 Total risk-adjusted assets $7,450,922 $ 8,218,941 $ 9,484,219 RATIOS: Tier I capital 10.10% 12.49% 12.58% Total risk-based capital 12.91 15.79 15.59 Tier I leverage 7.20 8.94 9.90 Tangible Tier I leverage 6.83 8.55 9.57 Total stockholders' equity to assets 7.70 9.58 8.60 Common dividend payout ratio (year-to-date) 34.71 27.62 38.61 Book value per share $ 13.90 $ 18.23 $ 18.96
INTEREST RATE SENSITIVITY AND LIQUIDITY Signet's interest rate sensitivity position is managed by the Asset and Liability Committee ("ALCO") and monitored through the use of simulations on rate sensitive pre-tax income. Interest rate sensitivity is the relationship between changes in market interest rates and changes in rate sensitive income due to the repricing characteristics of assets and liabilities. For example, in periods of rising rates, the core banking businesses will experience wider spreads as consumer deposit costs lag increases in market interest rates. Improved spreads due to the lag in pricing on consumer deposits will be partially offset to the extent that the funding cost on the investment portfolio increases. ALCO routinely uses derivatives, such as interest rate swaps, to help insulate the Company against the possibility of sudden changes in interest rates. ALCO, in managing interest rate sensitivity, also uses simulations to better measure the impact that market changes and alternative strategies might have on net interest income. Both current period maturity and repricing information and projected balance sheet strategies are used to simulate rate sensitivity. The lag effect of consumer deposit rates, determined through historical analysis and forecasting techniques, is also modeled. These simulations show that an immediate and sustained 100 basis point change in interest rates would have less than a 1% impact on rate sensitive income over the next twelve months, reflecting Signet's conservative balance sheet strategy. ALCO operates under a policy designed to limit the impact of a sudden 100 basis point change in interest rates to no more than a 5% change in net income over a twelve month period. Asset liquidity is generally provided by interest bearing deposits with other banks, Federal funds sold and securities purchased under resale agreements, trading account securities, loans held for securitization, loans held for sale and securities available for sale. This group of interest-earning assets totaled $3.5 billion, or 36% of earning assets at June 30, 1995. The loan portfolio is a secondary source of asset liquidity. Liability liquidity is measured by the Company's ability to obtain funds at favorable rates and in adequate amounts. Core deposits are the largest and most important funding source. These deposits totaled 125% of total loans as of June 30, 1995. Purchased funds consisted primarily of funds from local customers which are considered to be less volatile than other purchased liabilities and repurchase agreements. For the first six months of 1995, cash and cash equivalents decreased by $841 million primarily as a result of a sharp decline in securities available for sale. Cash used by operations was $475 million for this time period resulting mainly from the increase in other assets. Cash used by investing activities amounted to $1.6 billion principally due to the increase in securities available for sale. Cash provided by financing activities amounted to $1.3 billion principally related to financing Capital One prior to the Spin-Off. PART II. OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits: Exhibit 11-Computation of Earnings Per Share (b) Reports on Form 8-K None SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned there-unto duly authorized. SIGNET BANKING CORPORATION (Registrant) Date: August 9, 1995 /s/ WALLACE B. MILLNER III Wallace B. Millner III Senior Executive Vice President and Chief Financial Officer (Principal Financial Officer) Date: August 9, 1995 /s/ W. H. CATLETT, JR. W. H. Catlett, Jr. Executive Vice President and Controller (Principal Accounting Officer) EX-11 2 EXHIBIT 11 SIGNET BANKING CORPORATION AND SUBSIDIARIES FORM 10-Q EXHIBIT 11 - COMPUTATION OF EARNINGS PER SHARE (dollars in thousands - except per share)
Three Months Six Months Ended June 30 Ended June 30 1995 1994 1995 1994 Common and common equivalent: Average shares outstanding 58,740,522 56,793,041 58,665,203 56,729,716 Dilutive stock options - based on the treasury stock method using average market price 926,858 564,899 713,119 557,593 Shares used 59,667,380 57,357,940 59,378,322 57,287,309 Net income applicable to Common Stock $ 29,686 $ 50,385 $ 71,911 $ 103,498 Per share amount $ 0.50 $ 0.88 $ 1.21 $ 1.81 Assuming full dilution: Average shares outstanding 58,740,522 56,793,041 58,665,203 56,729,716 Dilutive stock options - based on the treasury stock method using the period end market price, if higher than the average market price 928,019 564,899 740,507 573,336 Shares used 59,668,541 57,357,940 59,405,710 57,303,052 Net income applicable to Common Stock $ 29,686 $ 50,385 $ 71,911 $ 103,498 Per share amount $ 0.50 $ 0.88 $ 1.21 $ 1.81
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 1,000 6-MOS DEC-31-1995 JUN-30-1995 529,205 14,610 638,641 439,737 259,372 375,677 383,177 5,822,886 136,497 10,622,317 7,301,541 2,046,379 203,170 253,222 294,175 0 0 523,830 10,622,317 319,965 14,270 118,032 452,267 109,537 191,572 260,695 11,430 604 302,370 110,949 110,949 0 0 71,911 1.21 1.21 5.28 57,447 54,538 0 0 220,519 31,349 6,791 136,497 136,497 0 18,378
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