-----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, F1Wxu6fH00jmBXkNJWFJq7KjZf9WUgS+DeHhX9twjNfK92UrYrk9oagYUahULbOq hq6lLzD0KtRmQfo1jO/s9Q== 0000916641-95-000384.txt : 19951118 0000916641-95-000384.hdr.sgml : 19951118 ACCESSION NUMBER: 0000916641-95-000384 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19950930 FILED AS OF DATE: 19951109 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: 95588747 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 September 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 October 31, 1995 - 59,065,140 Index SIGNET BANKING CORPORATION AND SUBSIDIARIES September 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 28 SIGNATURES 28 PART 1. FINANCIAL INFORMATION Item 1. Financial Statements Signet Banking Corporation Consolidated Balance Sheet (in thousands-except per share) (unaudited)
September 30 December 31 1995 1994 1994 Assets Cash and due from banks $ 498,193 $ 453,020 $ 531,747 Interest bearing deposits with other banks 1,712 239,274 355,795 Federal funds sold and securities purchased under resale agreements 425,305 1,090,348 1,135,821 Trading account securities 464,950 279,245 353,040 Loans held for securitization 750,000 151,198 Loans held for sale 267,535 128,613 69,506 Securities available for sale 2,195,180 1,113,371 1,241,696 Investment securities 297,237 203,021 398,783 Loans: Consumer 1,776,434 3,409,732 4,612,633 Commercial 2,982,401 2,282,334 2,472,620 Real estate - construction 237,271 218,500 209,183 Real estate - commercial mortgage 406,102 532,391 526,956 Real estate - residential mortgage 248,145 133,084 191,508 Gross loans 5,650,353 6,576,041 8,012,900 Less: Unearned income (140,916) (64,886) (88,723) Allowance for loan losses (129,672) (225,359) (220,519) Net loans 5,379,765 6,285,796 7,703,658 Premises and equipment (net) 180,549 253,791 258,715 Interest receivable 98,000 80,491 98,557 Other assets 534,689 767,065 783,911 Total assets (Capital One Financial Corporation amounted to $0, $2,246,106 and $3,072,546, respectively) $ 11,093,115 $ 11,045,233 $ 12,931,229 Liabilities Non-interest bearing deposits $ 1,603,922 $ 1,592,825 $ 1,542,349 Interest bearing deposits: Money market and interest checking 1,064,412 1,011,484 1,050,176 Money market savings 1,337,665 1,500,611 1,453,629 Savings accounts 1,338,824 1,095,370 1,170,990 Savings certificates 1,828,217 2,039,352 1,952,090 Large denomination certificates 99,890 216,428 643,054 Foreign 80,318 195,010 9,225 Total interest bearing deposits 5,749,326 6,058,255 6,279,164 Total deposits 7,353,248 7,651,080 7,821,513 Securities sold under repurchase agreements 1,153,479 904,723 875,458 Federal funds purchased 1,285,918 610,081 881,693 Commercial paper 118,928 108,664 Other short-term borrowings 160,221 1,446,955 Long-term borrowings 253,129 253,729 253,641 Interest payable 23,455 28,036 31,078 Other liabilities 181,514 235,349 400,748 Total liabilities 10,250,743 9,962,147 11,819,750 Stockholders' Equity Common Stock, $5 par value; Authorized 100,000,000 shares, issued and outstanding 59,048,852, 58,477,850 and 58,636,759 shares, respectively 295,244 292,389 293,184 Capital Surplus 197,911 195,704 198,869 Retained Earnings 349,217 594,993 619,426 Total stockholders' equity 842,372 1,083,086 1,111,479 Total liabilities and stockholders' equity $ 11,093,115 $ 11,045,233 $ 12,931,229
Signet Banking Corporation Statement of Consolidated Income (in thousands-except per share) (unaudited)
Three Months Ended Nine Months Ended September 30 September 30 1995 1994 1995 1994 Interest income: Loans, including fees: Consumer $ 60,296 $ 82,777 $ 239,998 $ 238,763 Commercial 53,703 40,539 150,426 120,858 Real estate - construction 6,080 5,298 16,860 15,774 Real estate - commercial mortgage 9,358 12,707 32,765 34,869 Real estate - residential mortgage 5,011 1,917 14,364 5,247 Total loans, including fees 134,448 143,238 454,413 415,511 Interest bearing deposits with other banks 127 2,851 1,923 8,374 Federal funds sold and resale agreements 7,166 11,602 30,707 25,226 Trading account securities 7,410 5,062 23,064 15,449 Loans held for securitization 11,561 13,181 22,186 38,904 Loans held for sale 7,785 2,270 15,122 11,146 Securities available for sale 31,963 15,949 91,042 56,185 Investment securities - taxable 4,190 311 12,393 1,003 Investment securities - nontaxable 2,093 3,758 8,160 12,284 Total interest income 206,743 198,222 659,010 584,082 Interest expense: Money market and interest checking 6,794 5,842 19,874 16,999 Money market savings 11,873 10,918 35,535 33,617 Savings accounts 12,785 8,656 35,312 23,355 Savings certificates 22,070 14,820 59,964 41,863 Large denomination certificates 1,332 3,115 10,218 9,974 Foreign 1,721 2,385 5,209 6,678 Total interest on deposits 56,575 45,736 166,112 132,486 Securities sold under repurchase agreements 14,689 9,342 40,396 27,617 Federal funds purchased 14,211 5,540 38,348 19,002 Other short-term borrowings 3,751 15,302 10,949 Long-term borrowings 4,324 4,131 21,213 12,180 Total interest expense 89,799 68,500 281,371 202,234 Net interest income 116,944 129,722 377,639 381,848 Provision for loan losses 8,681 3,000 20,111 11,498 Net interest income after provision for loan losses 108,263 126,722 357,528 370,350 Non-interest income: Credit card servicing and service charge income 2,511 108,685 87,921 296,705 Service charges on deposit accounts 17,732 16,234 51,415 50,037 Trust income 6,430 4,747 16,534 14,417 Other 19,690 21,992 53,943 55,299 Non-interest operating income 46,363 151,658 209,813 416,458 Securities available for sale gains 166 140 512 3,193 Investment securities gains (losses) 565 22 823 (1) Total non-interest income 47,094 151,820 211,148 419,650 Non-interest expense: Salaries 45,792 68,028 147,161 192,314 Employee benefits 10,517 17,354 40,934 53,405 Supplies and equipment 9,384 13,502 32,625 38,596 Occupancy 9,635 13,038 31,023 34,604 Credit card solicitation 24,200 29,050 69,837 Travel and communications 6,138 14,499 24,895 41,362 External data processing services 6,868 13,049 22,662 36,456 Contract termination 49,000 49,000 Restructuring charge 33,619 33,619 Other 21,173 30,525 83,527 86,355 Total non-interest expense 109,507 276,814 411,877 635,548 Income before income taxes (Capital One Financial Corporation amounted to $0, $(1,529), $27,407 and $105,751, respectively) 45,850 1,728 156,799 154,452 Applicable income taxes (benefit) 15,707 (1,734) 54,745 47,492 Net income $ 30,143 $ 3,462 $ 102,054 $ 106,960 Earnings per common share $ 0.50 $ 0.05 $ 1.71 $ 1.86 Cash dividends declared per share 0.17 0.25 0.59 0.75 Average common shares outstanding 60,146 57,898 59,691 57,504
Signet Banking Corporation Statement of Changes in Consolidated Stockholders' Equity (in thousands) (unaudited)
Common Capital Retained Stock Surplus Earnings Nine Months Ended September 30, 1995 Balance at beginning of period $ 293,184 $ 198,869 $ 619,426 Net income 102,054 Issuance of Common Stock 3,352 6,249 Purchase of Common Stock (1,292) (7,207) Cash dividends (34,661) Spin-off of Capital One Financial Corporation (383,200) Change in net unrealized gains on securities available for sale, net of tax of $24,553 45,598 Balance at end of period $ 295,244 $ 197,911 $ 349,217 Nine Months Ended September 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 106,960 Issuance of Common Stock Related to acquisition 7,571 51,714 Other 1,775 10,952 Cash dividends (42,582) Change in net unrealized losses on securities available for sale, net of tax benefit of $25,821 (47,953) Balance at end of period $ 292,389 $ 195,704 $ 594,993
5 Signet Banking Corporation Statement of Consolidated Cash Flows (in thousands) (unaudited)
Nine Months Ended September 30 1995 1994 Operating Activities Net income $ 102,054 $ 106,960 Adjustments to reconcile net income to net cash (used) provided by operating activities: Provision for loan losses 20,111 11,498 Provision and writedowns on foreclosed property 2,040 1,414 Depreciation and amortization 23,251 32,328 Investment securities (gains) losses (823) 1 Securities available for sale gains (512) (3,193) Decrease in interest receivable 557 3,627 Increase in other assets (381,345) (183,179) Increase (decrease) in interest payable 13,794 (169) (Decrease) increase in other liabilities (16,119) 90,886 Proceeds from securitization of credit card loans 184,900 1,843,936 Proceeds from sales of loans held for sale 29,325,216 18,438,000 Purchases and originations of loans held for sale (29,708,145) (19,989,188) Proceeds from sales of trading account securities 12,082,168 11,306,019 Purchases of trading account securities (12,194,078) (11,205,626) Net cash used by operating activities (546,931) 453,314 Investing Activities Proceeds from maturities of investment securities 115,279 50,137 Purchases of investment securities (25,510) (102) Proceeds from sales of securities available for sale 494,445 1,361,970 Proceeds from maturities of securities available for sale 626,389 2,241,243 Purchases of securities available for sale (2,425,232) (2,967,120) Net increase in loans (993,038) (415,690) Recoveries of loans previously charged-off 8,266 24,196 Purchases of premises and equipment (53,266) (61,031) Net cash (used) provided by investing activities (2,252,667) 233,603 Financing Activities Net increase (decrease) in deposits 154,633 (169,533) Net increase (decrease) in short-term borrowings 192,730 (831,175) Increase in Capital One Financial Corporation long-term debt 1,388,153 Net decrease in other long-term debt (512) (12,422) Net issuance of common stock 1,102 72,012 Payment of cash dividends (34,661) (42,582) Net cash provided (used) by financing activities 1,701,445 (983,700) Decrease in cash and cash equivalents (1,098,153) (296,783) Cash and cash equivalents at beginning of period 2,023,363 2,079,424 Cash and cash equivalents at end of period $ 925,210 $ 1,782,641 Supplemental disclosures Interest paid $ 288,993 $ 202,404 Income taxes paid 21,436 46,754 Transfer of loans to foreclosed property 2,446 7,950 Transfer of loans to loans held for securitization 900,000 2,000,000
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:
September 30,1995 September 30, 1994 December 31, 1994 Cost Fair Value Cost Fair Value Cost Fair Value U.S. Government and agency obligations - Mortgage-backed securities $1,135,678 $1,173,564 $ 608,709 $ 590,488 $ 633,338 $ 607,003 Other 912,132 920,609 398,264 397,174 461,140 457,877 States and political subdivisions 111 119 14,24 214,618 110 116 Other 112,885 100,888 119,796 111,091 184,703 176,700 Total $2,160,806 $2,195,180 $1,141,011 $1,113,371 $1,279,291 $1,241,696
Investment Securities Investment securities are summarized as follows:
September 30, 1995 September 30, 1994 December 31, 1994 Cost Fair Value Cost Fair Value Cost Fair Value U.S. Government and agency obligations - Mortgage-backed securities $ 71,393 $ 72,914 $ 75,174 $ 73,307 Other 74,679 75,547 74,550 72,656 State and political subdivisions 89,772 92,444 $182,951 $190,923 173,571 179,467 Other 61,393 62,427 20,070 20,070 75,488 74,236 Total $297,237 $303,332 $203,021 $210,993 $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 The Company securitized $185,000 of credit card receivables in the first nine months of 1995 and $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 entered into prior to November 22, 1994 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 $290,833 at September 30, 1995. Proceeds from the sales in the first nine months of 1995 and 1994 totaled $184,900 and $2,393,93 6, respectively. 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 September 30, 1995. Recent Accounting Statements Beginning in 1995, Signet adopted SFAS No. 114, "Accounting by Creditors for Impairment of a Loan," and SFAS No. 118, "Accounting by Creditors for Impairment of a Loan - Income Recognition and Disclosures." In accordance with SFAS No. 114, impaired loans are measured and reported based on the present value of expected cash flows discounted at the loan's effective intere st rate, or at the fair value of the loan's collateral if the loan is collateral dependent. Impaired loans are specifically reviewed loans for which it is probable that the creditor will be unable to collect all amounts due according to the terms of the loan agreement. A valuation allowance is required to the extent that the measure of impaired loans is less than the recorded investment. SFAS No. 114 does not apply to large groups of homogeneous loans such as consumer installment and bank card loans, which are collectively evaluated for impairment. Smaller balance populations of commercial loans are also excluded from the application of the Statement. At September 30, 1995, Signet's loans that are considered to be impaired under SFAS No. 114 are comprised of $33.7 million of non-accrual loans for which the related allowance for credit losses is $9.8 million. The average recorded investment in impaired loans during the nine months ended September 30, 1995 was approximately $28.6 million. Collateral dependent loans, which were measured at the fair value of the loan's collateral made up the majority of impaired loans at September 30, 1995. SFAS No. 118 allows a creditor to use existing methods for recognizing interest income on impaired loans. Interest receipts on impaired loans are applied in a manner consistent with Signet's policy for non-accrual loans. For the nine months ended September 30, 1995, no interest income was recorded on non-accrual loans. All interest receipts on impaired loans were applied to the principal. During the third quarter of 1995, the Company elected to adopt SFAS No. 122, "Accounting for Mortgage Servicing Rights." In accordance with the Statement, the cost of mortgage loans purchased or originated, with a definitive plan to sell the loans and retain the mortgage servicing rights, is allocated between the loans and the servicing rights based on their estimated fair values at the purchase or origination date. The estimated fair value of mortgage servicing rights is determined based upon quoted market prices for similar assets, if available, or the results of valuation techniques such as the present value of future cash flows using an appropriate discount rate. In determining the estimated fair value of mortgage servicing rights, Signet utilizes a discounted cash flow model which incorporates assumptions such as prepayment speeds of the underlying loans, default rates, servicing income, servicing costs, and inflation factors. For the purpose of evaluating and measuring impairment of capitalized mortgage servicing rights, SFAS No. 122 requires that such rights be stratified based on one or more of the predominant risk characteristics of the underlying loans. For Signet, these characteristics include loan type, term, and interest rate. The amount of impairment recognized is the amount by which the capitalized mortgage servicing rights in each stratum exceed their fair value and is recorded through a valuation allowance. Subsequent to the initial measurement of impairment, the valuation allowance should be adjusted to reflect changes in the measurement of impairment. Fair value in excess of the amount capitalized net of amortization is, however, not recognized. The initial adoption of these impairment provisions did not require Signet to record a valuation allowance for any of its capitalized mortgage servicing rights, including servicing rights that had been purchased prior to the adoption of the SFAS No. 122. The effect of adopting SFAS No. 122 on the Company's consolidated financial statements was an increase in pre-tax income of approximately $3.7 million (net of amortization) with a corresponding increase in mortgage servicing rights. The additional income resulted from a lower adjusted cost basis of originated mortgage loans sold with servicing retained. In addition to the servicing rights capitalized on originated mortgage servicing rights, Signet capitalized $15.1 million of purchased mortgage servicing rights in the first nine months of 1995. Amortization expense related to all capitalized mortgage servicing rights was $3.6 million for the first nine months of 1995. SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of," was issued in March 1995. The Statement requires that long-lived assets and certain identifiable intangibles to be held and used be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. In determining the recoverability of an asset, the enterprise should estimate the future cash flows expected to result from the use of the asset and its eventual disposition. If the sum of the undiscounted cash flows is less than the carrying amount of the asset, an impairment loss would be recognized. The Statement also requires that long-lived assets and certain identifiable intangibles to be disposed of be reported at the lower of carrying amount or fair value less selling costs. The Statement is effective for fiscal years beginning after December 15, 1995. Earlier adoption is encouraged. The effect of adopting SFAS No. 121, which is expected to occur on January 1, 1996, is not expected to have a material impact on the financial statements of the Company. 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. Capital One summary financial data follows:
February 28, 1995 September 30, 1994 December 31, 1994 Total assets $3,639,288 $2,246,106 $3,072,546 Total stockholders'/division equity 492,872 240,195 474,557
Two Months Ended Three Months Ended Nine Months Ended February 28, 1995 September 30, 1994 September 30, 1994 Net interest income $ 25,167 $ 40,555 $ 132,375 Provision for loan losses 3,929 8,162 24,594 Net interest income after provision for loan losses 21,238 32,393 107,781 Non-interest income 87,679 104,528 284,852 Non-interest expense (1994 includes a $49,000 contract termination fee) 81,510 138,450 286,882 Income (loss) before income taxes (benefit) 27,407 (1,529) 105,751 Applicable income taxes (benefit) 9,870 (535) 37,013 Net income (loss) $ 17,537 $ (994) $ 68,738
Signet Banking Corporation Financial Highlights (dollars in thousands-except per share)
Three Months Ended Nine Months Ended September 30 Percent September 30 Percent 1995 1994 Change 1995 1994 Change Earnings Net interest income (taxable equivalent) $ 119,482 $ 133,177 (10.28)% $ 386,394 $ 392,106 (1.46)% Net interest income 116,944 129,722 9.85 377,639 381,848 (1.10) Net income 30,143 3,462 N/M 102,054 106,960 (4.59) Per Common Share Net income $ 0.50 $ 0.05 N/M $ 1.71 $ 1.86 (8.06) Cash dividends declared 0.17 0.25 (32.00) 0.59 0.75 (21.33) Book value 14.27 18.52 (22.95) Period-end price 26 3/8 34 1/2 (23.55) Average Daily Balance Assets $10,755,762 $10,971,450 (1.97) $11,185,698 $11,259,824 (0.66) Earning Assets 9,555,056 9,632,783 (0.81) 9,978,031 10,002,131 (0.24) Loans (net of unearned income) 5,825,017 6,080,017 (4.19) 6,296,105 6,219,301 1.23) Deposits 7,259,988 7,635,425 (4.92) 7,374,330 7,739,229 (4.71) Core deposits 7,043,417 7,154,496 (1.55) 7,030,864 7,195,533 (2.29) Common stockholders' equity 824,191 1,064,431 (22.57) 872,580 1,029,750 (15.26) Common shares outstanding 60,145,919 57,898,078 (3.88) 59,690,734 57,503,856 3.80 Ratios Return on average assets 1.11% 0.13% N/M 1.22% 1.27% (3.94) Return on average common stockholders' equity 14.51 1.29 N/M 15.64 13.89 (12.60) Net yield margin 4.96 5.49 (9.65) 5.18 5.24 (1.15) Allowance for loan losses to: Non-performing loans 339.92 589.84 (42.37) Non-performing assets 251.77 342.19 (26.42) Net loans 2.35 3.46 (32.08) Non-performing assets to loans and foreclosed properties 0.93 1.01 (7.92) Stockholders' equity to assets 7.59 9.81 (22.63) At Period-end Assets $11,093,115 $11,045,233 0.43 Earning assets 9,911,356 9,716,225 2.01 Loans (net of unearned income 5,509,437 6,511,155 (15.38) Deposits 7,353,248 7,651,080 (3.89) Core deposits 7,173,040 7,239,642 (0.92) Common stockholders' equity 842,372 1,083,086 (22.22) Non-performing assets 51,504 65,857 (21.79) Number of common stockholders 15,134 15,462 (2.12) Full-time employees 3,900 6,284 (37.94) Part-time employees 1,049 1,288 (0.19)
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 Signet Banking Corporation Selected Quarterly Financial Information 3rd Qtr 2nd Qtr 1st Qtr 4th Qtr 3rd Qtr 1995 1995 1995 1994 1994 Summary of Operations(1) (dollars in thousands - except per share) Net interest income (taxable equivalent) $ 119,482 $ 120,401 $ 146,511 $ 131,611 $ 133,177 Less: taxable equivalent adjustment 2,538 2,955 3,262 3,448 3,455 Net interest income 116,944 117,446 143,249 128,163 129,722 Provision for loan losses 8,681 4,250 7,180 3,000 3,000 Net interest income after provision for loan losses 108,263 113,196 136,069 125,163 126,722 Non-interest income 47,094 42,939 121,115 148,433 151,820 Non-interest expense (2) 109,507 111,444 190,926 210,875 276,814 Income before income taxes (benefit) 45,850 44,691 66,258 62,721 1,728 Applicable income taxes (benefit) 15,707 15,005 24,033 19,847 (1,734) Net income $ 30,143 $ 29,686 $ 42,225 $ 42,874 $ 3,462 Per common share: Net income $ 0.50 $ 0.50 $ 0.71 $ 0.73 $ 0.05 Cash dividends declared 0.17 0.17 0.25 0.25 0.25 Average common shares outstanding 60,145,919 59,668,541 59,142,042 58,927,134 57,898,078 Selected Average Balances (dollars in millions) Assets $ 10,756 $ 10,486 $ 12,332 $ 12,088 $ 10,971 Earning assets 9,555 9,395 11,000 10,598 9,633 Loans (net of unearned income) 5,825 5,837 7,242 6,966 6,080 Deposits 7,260 7,248 7,619 7,768 7,635 Core deposits 7,043 7,009 7,040 7,178 7,154 Interest bearing liabilities 8,158 7,985 9,524 9,091 8,121 Stockholders' equity 824 794 1,002 1,094 1,064 Ratios Return on average assets 1.11% 1.14% 1.39% 1.41% 0.13% Return on average common stockholders' equity 14.51 15.00 17.09 15.55 1.29 Net loan losses to average loans 0.89 1.27 0.33 0.44 1.74 Net interest spread 4.32 4.50 4.79 4.34 4.96 Net yield margin 4.96 5.14 5.40 4.93 5.49 At period-end: Allowance for loan losses to: Non-performing loans 339.92 297.24 574.88 846.32 589.84 Non-performing assets 251.77 237.60 364.76 454.34 342.19 Net loans 2.35 2.40 2.69 2.78 3.46 Non-performing assets to loans and foreclosed properties 0.93 1.01 0.74 0.61 1.01 Stockholders' equity to assets 7.59 7.70 7.36 8.60 9.81
(1)The 1995 numbers reflect the spin-off of Capital One Financial Corporation ("COF") on February 28, 1995 (2)The third and fourth quarters of 1994 included $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 Signet Banking Corporation Net Interest Income Analysis Taxable Equivalent Basis (in thousands)
Third Quarter 1995 Compared Third Quarter 1995 Compared YTD September 1995 Compared with Third Quarter 1994 with Second Quarter 1995 with YTD September 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 $ (8,653) $ (4,971) $(3,682) $ 130 $ 102 $ 28 $ 40,015 $ 12,950 $ 27,065 Securities available for sale 15,822 10,721 5,101 534 (276) 810 34,413 11,366 23,047 Investment securities 1,352 1 1,351 (1,318) (57) (1,261) 5,094 (153) 5,247 Other earning assets (917) 6,454 (7,371) 4,245 (3,505) 7,750 (6,097) 7,546 (13,643) Total interest income 7,604 10,248 (2,644) 3,591 (1,284) 4,875 73,425 47,593 25,832 Interest expense: Interest bearing deposits 10,839 15,634 (4,795) 1,964 2,294 (330) 33,626 25,973 7,653 Fed funds and repurchase agreements 14,018 8,965 5,053 2,754 (767) 3,521 32,125 11,991 20,134 Other short-term borrowings (3,751) (2,805) (946) (413) (207) (206) 4,353 4,184 169 Long-term borrowings 193 210 (17) 205 208 (3) 9,033 (21) 9,054 Total interest expense 21,299 21,194 105 4,510 2,188 2,322 79,137 67,999 11,138 Net interest income $(13,695) $(13,320) $ (375) $ (919) $(3,375) $ 2,456 $ (5,712) $ (5,367) (345)
*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 whose stock is listed on the New York Stock Exchange under the symbol SBK. At September 30, 1995, Signet had assets of $11.1 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 244 banking offices, 252 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. During the third quarter of 1995, Signet adopted Statement of Financial Accounting Standards ("SFAS") No. 122, "Accounting For Mortgage Servicing Rights". The statement requires that a mortgage banking enterprise recognize internally originated rights to service mortgage loans sold to others as separate assets. Upon adoption, Signet recognized pre-tax income of approximately $3.7 million. Also during the three months ended September 30, 1995, Signet experienced higher charge-offs related to risk tests conducted for its "loan-by-check" product. These charge-offs were on loans generated from direct mail solicitations in late 1994 as Signet ran controlled tests to determine the criteria to be used when Signet expands loan-by-check solicitations. Management expects consumer loan charge-offs to decline to more moderate levels once the loans from these solicitations have seasoned. 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 cardholders 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. 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 nine months ended September 30, 1995 are not necessarily indicative of results to be attained for any other period. In addition to the discussion of consolidated information, PRO FORMA data is provided for the same periods where it was meaningful to discuss the Company's results excluding Capital One. Consolidated and PRO FORMA results are the same for the second and third quarters of 1995. PRO FORMA financial information is provided as supplementary financial data on pages 21 through 27. EARNINGS ANALYSIS Consolidated net income for the third quarter of 1995 was $30.1 million, or $. 50 per share, compared with $3.5 million, or $.05 per share, in the same quarter last year. The third quarter 1994 consolidated earnings were impacted by $82.6 million of special pre-tax charges for restructuring and for terminating certain data processing contracts. On a PRO FORMA basis, the third quarter 1995 net income increased 15% from $26.7 million or $.45 per share for the same three months last year, excluding restructuring charges. Consolidated net income for the first nine months of 1995 was $102.1 million or $1.71 per share compared with $107.0 million or $1.86 per share in the same period last year. Consolidated earnings for the nine months ended September 30, 1995, include the results of Capital One for the two months prior to the Spin-Off on February 28, 1995. On a PRO FORMA basis, net income for the first nine months of 1995 was $86.5 million, an increase of 44% from the $60.1 million earned in the first nine months of 1994 after adjusting for the restructuring charges. The return on assets (ROA) for the third quarter and nine months ended September 30, 1995 was 1.11% and 1.22%, respectively. This compares with .13% and 1.27% for the same respective periods last year. On a PRO FORMA basis, ROA for the first nine months of 1995 was 1.10%, up from .93% in 1994, excluding restructuring charges. The third quarter 1995 ROA of 1.11% fell from the PRO FORMA ROA of 1.23% for the same period in 1994, excluding restructuring charges, as average assets increased proportionally more than net income. The return on common stockholders' equity (ROE) for the third quarter and nine months ended September 30, 1995 was 14.51% and 15.64%, respectively. This compares with 1.29% and 13.89% for the same periods last year. On a PRO FORMA basis and excluding the 1994 restructuring charges, ROE for the first nine months of 1995 increased significantly from 9.80% in 1994 to 14.62% this year. The 14.51% ROE for the third quarter of 1995 also improved nearly 200 basis points from 12.56% (PRO FORMA and excluding restructuring charges) in the third quarter of 1994. NET INTEREST INCOME Taxable equivalent net interest income, a principal component of earnings, totaled $119.5 million for the quarter and $386.4 million for the nine months ended September 30, 1995. This was a 10% decrease from the same quarter and less than a 2% decline from the first nine months last year. On a PRO FORMA ba sis, taxable equivalent net interest income totaled $361.2 million for the nine months ended September 30, 1995. This compares with $92.6 million for the quarter and $259.7 million for the first nine months of last year, on a PR O FORMA basis, representing increases of 29% and 39% for the respective periods. PRO FORMA taxable equivalent net interest income increased in 1995 compared with 1994 due to strong growth in earning assets, particularly in the consumer loan portfolio. The net yield margin for the third quarter and nine months ended September 30, 1995 was 4.96% and 5.18%, respectively, down 53 basis points and 6 basis points from the same periods last year. On a PRO FORMA basis, the net yield margin was 5.17% for the nine months ended September 30, 1995. The net yield margin rose 6 basis points and 62 basis points, on a pro forma basis , from the third quarter and first nine months of last year, respectively. The increase in the pro forma 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 second quarter to the third quarter of 1995. An approximate basis point impact was calculated for each item noted. The decrease in net interest spread and net yield margin from the second quarter of 1995 was primarily due to a shift in the earning asset mix. 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 September 30, 1995, the notional values of the Company's derivative products for the purpose of hedging interest rate risk were $2.7 billion of interest rate swaps, $650 million of interest rate floors and $300 million of interest rate caps. Interest rate derivative products reduced the third quarter margin by 3 basis points compared with adding 5 basis points to the second quarter of 1995 net yield margin, primarily due to contracts maturing. The impact of these contracts fell from $ 1.3 million of income in the second quarter of 1995 to $.7 million of expense in the current quarter. Table 3 SIGNET BANKING CORPORATION ANALYSIS OF CHANGE IN NET YIELD MARGIN Second Quarter 1995 versus Third Quarter 1995 Net Yield Margin for Second Quarter 1995 5.14% Higher average and lower yield on Commercial Loans (0.09) Decrease in derivative income (0.08) Lower funding costs (excluding decrease in derivative income) 0.03 Change in mix and yield on remaining earning assets (0.03) Higher average and lower yield on Consumer Loans (Total On-Balance Sheet) (0.01) Net Yield Margin for Third Quarter 1995 4.96%
Provision and Allowance for Loan Losses On a pro forma basis, the provision for loan losses was $8.7 million for the third quarter and $16.2 million for the first nine months of 1995. This compares with provision reversals of $5.2 million in the third quarter and $13 .1 million for the first nine months of 1994. The increase in provision was related to growth in the consumer loan portfolio. For the first nine months of 1995, pro forma net loan losses totaled $34.3 million, $13.9 million of which resulted from the bulk sale of real estate related loans in the second quarter 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. The remaining 1995 loan losses are principally due to a 73% increase in the average consumer loan portfolio in the first nine months of 1995 compared with the same period last year and higher charge-offs related to late 1994 loan-by-check risk tests. Management expects consumer loan charge-offs to decline to more moderate levels once the loans from these solicitations have seasoned. Excluding charge-offs related to the 1995 and 1994 sales of real estate related loans, loan losses for the first nine months of 1995 amounted to .47% of average loans which is a 40 basis points increase from the comparable period in 1994, on a pro forma basis. The allowance for loan losses at September 30, 1995 was $129.7 million, or 2.35% of net loans, compared with $156.8 million, or 3.32% of net loans, at September 30, 1994, on a pro forma basis, and $136.5 million, or 2.40% of net loans, at June 30, 1995. The decrease from September 30, 1994, on a pro forma basis, resulted primarily from a $3.1 million loan loss provision reversal in the fourth quarter of 1994, higher consumer loan charge-offs and charge-offs taken on real estate related loans during the past year, the majority of which were related to the real estate loan sale in 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 creditworthiness of the borrower, the adequacy of underlying collateral and the impact of business and economic conditions upon the borrower. Beginning in 1995, Signet adopted SFAS No. 114, "Accounting by Creditors for Impairment of a Loan," and SFAS No. 118, "Accounting by Creditors for Impairment of a Loan - Income Recognition and Disclosures." In accordance with the SFAS No. 114, impaired loans are measured and reported based on the present value of the loan's collateral if the loan is collateral dependent. Impaired loans are specifically reviewed loans for which it is probable that the creditor will be unable to collect all amounts due according to the terms of the loan agreement. A valuation allowance is required to the extent that the measure of impaired loans is less than the recorded investment. SFAS No. 114 does not apply to large groups of homogeneous loans such as consumer installment and bank card loans, which are collectively evaluated for impairment. Smaller balance populations of commercial loans are also excluded from the application of SFAS No. 114. At September 30, 1995, Signet's loans that are considered to be impaired under SFAS No. 114 are comprised of $33.7 million of non-accrual loans for which the related allowance for credit losses is $9.8 million. The average recorded investment in impaired loans during the nine months ended September 30, 1995 was approximately $28.6 million. Collateral dependent loans, which were measured at the fair value of the loan's collateral made up the majority of impaired loans at September 30, 1995. SFAS No. 118 allows a creditor to use existing methods for recognizing interest income on impaired loans. Interest receipts on impaired loans are applied in a manner consistent with Signet's policy for non-accrual loans. For the nine months ended September 30, 1995, no interest income was recorded on non-accrual loans. All interest receipts on impaired loans were applied to the principal. The consumer portfolio receives an overall allocation based on such factors as current and anticipated economic conditions, historical charge-off and recovery rates and trends in delinquencies. The remaining loan 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. Manage- ment believes that the allowance for loan losses is adequate to cover anticipated losses in the loan portfolio under current economic conditions. Table 4 Signet Banking Corporation Statement of Changes in Allowance For Loan Losses (dollars in thousands)
Three Months Ended Nine Months Ended September 30 June 30 September 30 1995 1994 1995 1995 1994 Balance at beginning of period $ 136,497 $ 245,764 $ 151,729 $ 220,519 $ 253,313 Additions to allowance charged to expense 8,681 3,000 4,250 20,111 11,498 Transfer to loans held for securitization/sale (2,542) (350) (889) (4,920) (4,719) Additions arising from acquisition 3,327 3,327 Transfer to Capital One Financial Corporation (68,516) Loans charged off: Consumer 9,354 7,198 5,744 24,218 24,530 Commercial * 77 626 1,413 1,918 8,686 Real estate - construction 683 8,831 389 1,080 8,831 Real estate - mortgage * 4,325 19,335 13,343 18,572 20,209 Total loans charged off 14,439 35,990 20,889 45,788 62,256 Recoveries of loans previously charged off: Consumer 402 2,558 315 2,963 9,670 Commercial 758 737 1,056 3,800 5,355 Real estate - construction 131 3,637 833 1,201 4,746 Real estate - mortgage * 184 2,676 92 302 4,425 Total recoveries 1,475 9,608 2,296 8,266 24,196 Net loans charged off 12,964 26,382 18,593 37,522 38,060 Balance at end of period $ 129,672 $ 225,359 $ 136,497 $ 129,672 $ 225,359 Net loan losses (annualized) as a percentage of average loans: Consumer 1.64% 0.61% 0.92% 1.01% 0.62% Commercial (0.10) (0.02) 0.06 (0.10) 0.21 Real estate 2.10 9.89 5.49 2.63 2.90 Total 0.89% 1.74% 1.27% 0.79% 0.82% Allowance for loan losses to net loans at end of period 2.40% 2.35% 3.46%
* 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. Charge-offs related to the loan sale in the third quarter of 1994 were $21,012, of which $16,494 were real estate mortgage and $4,518 were real estate construction. Non-Interest Income Total non-interest income was $47.1 million in the third quarter of 1995, a decrease of $104.7 million from the third quarter of 1994 and a $4.2 million increase from the second quarter of 1995. The decrease from 1994 was caused by a sharp decline in credit card servicing and service charge income in 1995 due to the Spin-Off. On a pro forma basis, total non-interest income declined $8.1 million from the third quarter of 1994 primarily the result of a $4.9 million drop in credit card servicing and service charge income. During 1994, for pro forma purposes, the credit card portfolio was assumed to be entirely off-balance sheet which caused servicing income to be higher. The increase in non-interest income from the second quarter of 1995 was caused by growth in service charges on deposit accounts, a rise in trust income as Signet recorded fees for managing the recently acquired Blanchard funds and the adoption of SFAS No. 122 mentioned earlier. Mortgage servicing and origination fee income increased 10% from the second quarter this year to $6.0 million as a result of an increase in mortgage loan volume. An increase in mortgage servicing income from third quarter 1994 to third quarter 1995 more than offset a declin e in loan origination income. For the third quarter of 1995, Signet recorded trading gains of $1.8 million, a decline from $3.8 million of trading gains in the second quarter, but an improvement from $0.3 million of net gains recognized in the third quarter of 1994. Non-Interest Expense Total non-interest expense amounted to $109.5 million in the third quarter of 1995, a significant decline from $276.8 million in the third quarter of 1994. Decreases occurred in all categories as a result of the Spin-Off and the restructuring charges recorded in 1994. The number of full-time equivalent employees fell 36% from the third 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 $29.1 million, or 34%, from the third quarter of 1994 to the third quarter of 1995. During the third quarter of 1995, Signet received a rebate of approximately $4.1 million on its FDIC assessment which reduced expenses further. On a pro forma basis, total non-interest expense declined slightly from the second quarter of this year's total of $111.4 million and decreased 3% from $112.6 million (excluding the restructuring charges) in the third quarter of 1994 as Signet continued efforts to reduce non-interest expense. Excluding Capital One, restructuring charges and foreclosed property expense for all periods, Signet's efficiency ratio (the ratio of non-interest expense to taxable equivalent operating income) for the third quarter of 1995 improved to 65.99% compared with 75.89% for the same quarter last year and 68.67% for the second quarter this year. The improvement in this ratio is primarily the result of strong revenue growth. The third quarter 1995 efficiency ratio is within the range that management set as a goa l to reach by the fourth quarter of 1995. Table 5 Signet Banking Corporation (excluding Capital One) Non-Interest Income and Expense (in thousands)
Three Months Ended Nine Months Ended September 30 June 30 September 30 1995 1994 1995 1995 1994 Non-interest income: Service charges on deposit accounts $ 17,732 $ 16,234 $ 17,212 $ 51,415 $ 50,037 Credit card servicing and service charge income 2,511 7,379 1,633 6,695 20,002 Trust income 6,430 4,747 5,212 16,534 14,417 Mortgage servicing and origination 5,985 4,117 5,445 15,592 14,363 Other service charges and fees 3,819 3,591 3,467 10,999 11,289 Trading profits (losses) 1,806 343 3,816 8,015 (374) Gains (losses) on sale of mortgage loans 2,422 (71) (545) 1,877 (2,255) Gains on sale of mortgage servicing 6,000 977 977 6,000 Other 5,658 12,690 5,475 14,010 40,256 Non-interest operating income 46,363 55,030 42,692 126,114 153,735 Securities available for sale gains 166 140 244 512 3,193 Investment securities gains (losses) 565 22 3 823 (1) Total non-interest income $ 47,094 $ 55,192 $ 42,939 $ 127,449 $ 156,927 Non-interest expense: Salaries $ 45,792 $ 48,078 $ 43,668 $ 132,098 $ 142,254 Employee benefits 10,517 12,360 12,076 36,291 41,269 Total staff expense 56,309 60,438 55,744 168,389 183,523 Occupancy 9,635 11,248 9,434 28,912 31,201 Supplies and equipment 9,384 8,019 8,715 26,657 24,937 External data processing services 6,868 8,236 6,748 19,826 20,636 Travel and communications 6,138 5,638 5,604 17,336 16,806 Restructuring charge 33,619 33,619 Professional services 3,783 3,257 4,069 11,238 11,306 Public relations, sales and advertising 3,360 2,844 4,272 10,887 10,221 FDIC assessment (312) 4,242 4,139 7,965 12,381 Credit and collection 760 694 265 1,097 1,870 Foreclosed property - net 64 595 (556) 80 1,189 Other 13,518 7,433 13,010 39,942 23,106 Total non-interest expense $ 109,507 $ 146,263 $ 111,444 $ 332,329 $ 370,795
Note:Other non-interest expense for the nine months ended September 30, 1995 included $2,018 of minority interest (net of income taxes) in Capital One Financial Corporation. Table 6 Signet Banking Corporation CONSOLIDATED AVERAGE BALANCE SHEET (dollars in thousands)
Three Months Ended September 30 1995 1994 Average Income/ Yield/ Average Income/ Yield/ Balance Expense Rate Balance Expense Rate ASSETS Earning assets (tax equivalent basis):* Interest bearing deposits with other banks $ 8,136 $ 127 6.11% $ 243,888 $ 2,851 4.57% Federal funds and resale agreements 469,512 7,166 5.97 1,003,048 11,602 4.53 Trading account securities 464,254 7,410 6.33 257,789 5,062 7.79 Loans held for securitization 425,543 11,561 10.87 554,738 13,181 9.50 Loans held for sale 312,734 7,785 9.74 127,542 2,270 6.96 Securities available for sale 1,712,148 31,946 7.30 1,157,308 16,124 5.45 Investment securities - taxable 230,852 4,190 7.26 20,984 311 5.93 Investment securities - nontaxable 106,860 3,140 11.75 187,469 5,667 12.09 Loans (net of unearned income): Consumer 2,182,724 60,296 10.98 3,046,722 82,777 10.82 Commercial 2,747,241 54,598 7.88 2,149,870 41,220 7.61 Real estate - construction 230,364 6,080 10.33 229,590 5,306 9.04 Real estate - commercial mortgage 423,622 9,971 9.34 564,423 13,389 9.41 Real estate - residential mortgage 241,066 5,011 8.31 89,412 1,917 8.58 Total loans 5,825,017 135,956 9.26 6,080,017 144,609 9.44 Total earning assets 9,555,056 $209,281 8.69% 9,632,783 $201,677 8.31% Non-rate related assets: Cash and due from banks 533,901 501,289 Allowance for loan losses (133,144) (241,813) Premises and equipment (net) 174,691 248,569 Other assets 625,258 830,622 Total assets $10,755,762 $10,971,450 LIABILITIES AND STOCKHOLDERS' EQUITY Interest bearing liabilities: Deposits: Money market and interest checking $ 1,037,342 $ 6,794 2.60% $ 1,012,616 $ 5,842 2.29% Money market savings 1,341,762 11,873 3.51 1,618,108 10,918 2.68 Savings accounts 1,315,832 12,785 3.85 1,042,726 8,656 3.29 Savings certificates 1,791,296 22,070 4.89 1,937,671 14,820 3.03 Large denomination certificates 100,367 1,332 5.19 274,959 3,115 4.43 Foreign 116,204 1,721 5.80 205,970 2,385 4.53 Total interest bearing deposits 5,702,803 56,575 3.94 6,092,050 45,736 2.98 Federal funds and repurchase agreements 2,201,617 28,900 5.14 1,470,682 14,882 3.96 Other short-term borrowings 304,970 3,751 4.81 Long-term borrowings 253,174 4,324 6.68 253,773 4,131 6.37 Total interest bearing liabilities 8,157,594 $ 89,799 4.37% 8,121,475 $ 68,500 3.35% Non-interest bearing liabilities: Demand deposits 1,557,185 1,543,375 Other liabilities 216,792 242,169 Common stockholders' equity 824,191 1,064,431 Total liabilities and stockholders' equity $10,755,762 $10,971,450 Net interest income/spread $119,482 4.32% $133,177 4.96% Interest income to average earning assets 8.69% 8.31% Interest expense to average earning assets 3.73 2.82 Net yield margin 4.96% 5.49%
*Includes the effects of taxable equivalent adjustments using a tax rate of 35%.
Nine Months Ended June 30 September 30 1995 1995 1994 Average Income/ Yield/ Average Income/ Yield/ Average Income/ Yield/ Balance Expense Rate Balance Expense Rate Balance Expense Rate $ 22,799 $ 358 6.21% $ 42,739 $ 1,923 5.93% $ 250,754 $ 8,374 4.40% 532,922 8,232 6.11 678,648 30,707 5.97 823,814 25,226 4.04 553,080 8,936 6.48 478,617 23,064 6.44 272,145 15,449 7.59 153,300 6,420 16.75 242,858 22,186 12.18 552,329 38,904 9.39 234,107 5,858 9.90 214,652 15,122 9.29 231,268 11,146 6.36 1,679,836 31,412 7.40 1,657,709 91,201 7.25 1,425,643 56,788 5.25 235,514 4,257 7.23 229,777 12,393 7.19 22,916 1,003 5.84 146,867 4,391 11.96 136,926 12,247 11.93 203,961 18,543 12.12 2,349,345 62,068 10.59 2,819,625 239,998 11.37 3,172,924 238,763 10.03 2,553,554 51,058 8.02 2,555,956 152,790 7.99 2,133,242 122,309 7.67 217,685 5,628 10.23 218,701 16,862 10.17 261,718 15,795 7.96 480,112 11,998 10.02 474,337 34,908 9.84 572,674 36,793 8.59 236,107 5,074 8.60 227,486 14,364 8.42 78,743 5,247 8.88 5,836,803 135,826 9.33 6,296,105 458,922 9.75 6,219,301 418,907 9.01 9,395,228 $205,690 8.78% 9,978,031 $667,765 8.95% 10,002,131 $594,340 7.94% 509,633 516,299 496,765 (144,407) (157,777) (247,634) 164,536 189,071 237,224 561,476 660,074 771,338 $10,486,466 $11,185,698 $11,259,824 $ 1,031,701 $ 6,939 2.70% $ 1,027,833 $ 19,874 2.59% $ 1,018,734 $ 16,999 2.23% 1,346,920 11,704 3.49 1,363,374 35,535 3.48 1,662,027 33,617 2.70 1,255,593 11,800 3.77 1,253,802 35,312 3.77 978,809 23,355 3.19 1,876,689 20,747 4.43 1,872,103 59,964 4.28 1,981,775 41,863 2.82 92,660 1,186 5.06 227,757 10,218 5.92 316,045 9,974 4.16 146,829 2,235 6.02 115,709 5,209 5.94 227,651 6,678 3.87 5,750,392 54,611 3.81 5,860,578 166,112 3.79 6,185,041 132,486 2.86 1,950,959 26,146 5.30 1,982,044 78,744 5.24 1,697,530 46,619 3.62 30,098 413 5.43 305,599 15,302 6.60 304,563 10,949 4.74 253,427 4,119 6.43 402,331 21,213 6.95 255,332 12,180 6.29 7,984,876 $ 85,289 4.28% 8,550,552 $281,371 4.40% 8,442,466 $202,234 3.20% 1,497,770 1,513,752 1,554,188 210,092 248,814 233,420 793,728 872,580 1,029,750 $10,486,466 $11,185,698 $11,259,824 $120,401 4.50% $386,394 4.55% $392,106 4.74% 8.78% 8.95% 7.94% 3.64 3.77 2.70 5.14% 5.18% 5.24%
In the third quarter of 1994, Signet recorded a $43.2 million restructuring charge related to a comprehensive plan for reducing costs and increasing revenue in order to enhance its competitive position. As of September 30, 1995, the amounts actually paid and charged against the restructuring liability were approximately $6.5 million for severance payments to approximately 650 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 $28 .0 million is primarily comprised of accrued retiree medical and pension benefits and accrued facilities related costs. Income Taxes Signet recorded income tax expense of $15.7 million for the third quarter of 1995 compared with a tax benefit of $1.2 million for the third quarter of 1994, on a pro forma basis, and $15.0 million for the second quarter of this year. The tax benefit in the third quarter of 1994 was principally due to tax-exempt income exceeding the pre-tax income as a result of the restructuring charges. The effective tax rate for the second and third quarters of 1995 was 34%. FINANCIAL CONDITION (on a pro forma basis) Earning assets averaged $9.6 billion for the third quarter and $9.3 billion for the first nine months of 1995, an increase of 23% and 22% from the same respective periods last year. Average investment securities rose $129 million and average securities available for sale were up $555 million from the prior year's third quarter. Loans held for securitization averaged $426 million for the third quarter of 1995. These assets were reclassified from the loan category in anticipation of securitizations. There were no loans held for securitization in the third quarter of last year. Total loans averaged $5.8 billion for the quarter, reflecting a 30% rise from the third quarter of 1994. Average consumer loans increased 49% to $2.2 billion as a result of the growth in student and installment loans. The on-balance sheet average consumer loan portfolio increased 89% to $2.8 billion from the 1994 third quarter. This amount includes the consumer loan portfolio, loans held for securitization and loans held for sale. Average real estate-construction loans remained level at $230 million. Average real estate-commercial mortgage loans declined 25% to $424 million. Real estate-residential mortgages were up 170% to $241 million as a result of loans acquired from Pioneer Financial Corporation and management's decision to retain rather than sell a portion of the mortgages originated by Signet. 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 8.69% for the third quarter of 1995 down from 8.78% for the second quarter this year due to a shift in the mix of earning assets. Average interest bearing liabilities totaled $8.2 billion in the third quarter and $8.0 billion for the first nine months of 1995, up 37% and 31% from the same respective periods of 1994. Money market savings declined $276 million, or 17%, and savings certificates decreased $146 million, or 8%, from the same quarter last year. Deposit categories experiencing increases from the same quarter last year included money market and interest checking up $25 million and savings accounts up $273 million, or 26%. Average core deposits fell $111 million, or less than 2%, when comparing third 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 $2.7 billion for the 1995 third quarter, up $19 7 million from the second quarter of 1995. The average rate on interest bearing liabilities was 4.37% for the third quarter of 1995 compared with 4.28% for the second quarter this year, an increase of 9 basis points, which was generally the due to a decline in derivative income. CONSUMER LOAN GROWTH In 1994, Signet expanded its use of information-based strategies to all types of consumer loans, which significantly increased growth. This technique 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 in the form of a check. To activate the loan, the customer endorses the note and deposits the check. Signet is also applying information-based strategies to home equity, student and small business loans. Solicita- tions in these areas are mostly in the preliminary testing stages. These tests are designed to help Signet develop products that are both appealing to customers and economically feasible for the Company. As a result of these solicitations, loans are growing at a strong pace. From September 30, 1994 to September 30, 1995, the student loan portfolio (including $300 million in student loans held for securitization) increased $211 million; the installment loan portfolio (including $165 million in loans held for sale) grew $636 million; and the home equity loan portfolio (including $450 million in loans held for securitization) was up $53 million. The managed consumer loan portfolio, which includes securitized receivables, increased by $725 million, or 37%, from September 30, 1994, on a pro forma basis, and by $125 million, or 5%, from June 30, 1995. Table 7 Signet Banking Corporation Non-performing Assets and Past Due Loans (dollars in thousands)
September 30 June 30 December 31 1995 1994 1995 1994 Non-accrual loans: Commercial $ 8,595 $ 16,361 $ 10,785 $ 10,548 Consumer 1,039 1,518 1,434 1,708 Real estate - construction 3,471 9,080 4,116 5,490 Real estate - mortgage * 25,043 9,064 29,587 7,310 Total non-accrual loans 38,148 36,023 45,922 25,056 Restructured loans: Commercial 1,184 Real estate - construction 1,000 1,000 Total restructured loans 2,184 1,000 Total non-performing loans 38,148 38,207 45,922 26,056 Foreclosed properties 13,356 28,213 11,525 22,480 Less foreclosed property reserve (563) Total foreclosed properties 13,356 27,650 11,525 22,480 Total non-performing assets $ 51,504 $ 65,857 $ 57,447 $ 48,536 Percentage to loans (net of unearned) and foreclosed properties 0.93% 1.01% 1.01% 0.61% Allowance for loan losses to: Non-performing loans 339.92 589.84 297.24 846.32 Non-performing assets 251.77 342.19 237.60 454.34 Accruing loans past due 90 days or more $ 66,232 $ 62,626 $ 54,538 $ 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. RISK ELEMENTS Non-performing assets include non-accrual loans, restructured loans and foreclosed properties. Non- performing assets declined $5.9 million or 10% in the third quarter of 1995. Non-performing assets represented 0.93% of total loans and foreclosed properties at September 30, 1995, down from 1.01% and 1.39% at June 30, 1995 and September 30, 1994, on a pro forma basis, respectively. The allowance for loan losses equaled 340% of non-performing loans at September 30, 1995, up from 297% at June 30, 1995 and down from 411% at September 30, 1994, on a pro forma basis. The ratio of the allowance to non-performing assets rose to 252% at September 30, 1995 from 238% at June 30, 1995 and September 30, 1994, on a pro forma basis. Foreclosed properties totaled $13.4 million at the end of the third quarter of 1995, down from $22.5 million at the previous year-end, and were equal to 26% of total non-performing assets and 32% of non-performing real estate assets. 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 $66.2 million at September 30, 1995. This is a 21% increase from the $54.5 million level as of June 30, 1995, and represents a 47% increase from the $45.1 million reported at September 30, 1994, on a pro forma basis. The September 30, 1995 total was comprised of $47.3 million of consumer loans (of which $28.1 million were student loan delinquencies, which are indirectly government guaranteed and do not represent material loss exposure, and $5.1 million of credit card loans); $14.6 million of mortgage loans; $3.9 million of commercial loans; and $.4 million of construction loans. STOCKHOLDERS' EQUITY DATA At September 30, 1995, stockholders' equity totaled $842 million, an increase of 13% from the December 31, 1994 level of $744 million, on a pro forma basis. Approximately $383 million of Signet's stockholders' equity transferred to Capital One in connection with the Spin-Off. The Company's total stockholders' equity to assets ratio was 7.59% at September 30, 1995, slightly lower than the 7.70% at June 30, 1995 but higher than the 7.54% at December 31, 1994, on a pro forma basis. Signet's risk-adjusted capital ratios at September 30, 1995 remained strong at 9.91% and 12.68% 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 September 30, 1995 was 7.06% down from 7.20% at June 30, 1995. 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 September 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 Signet Banking Corporation Selected Capital Data (dollars in thousands)
September 30 December 31 1995 1994 1994 Qualifying common stockholders' equity $ 815,149 $ 1,098,911 $ 1,237,453 Less goodwill and other disallowed intangibles (60,553) (44,014) (44,581) Total Tier I capital 754,596 1,054,897 1,192,872 Qualifying debt 115,334 166,400 165,800 Qualifying allowance for loan losses 95,587 105,237 119,812 Total Tier II capital 210,921 271,637 285,612 Total risked-based capital $ 965,517 $1,326,534 $ 1,478,484 Total risk-adjusted assets $7,612,866 $8,298,825 $ 9,484,219 Ratios: Tier I capital 9.91% 12.71% 12.58% Total risk-based capital 12.68 15.98 15.59 Tier I leverage 7.06 9.65 9.90 Tangible Tier I leverage 6.64 9.30 9.57 Total stockholders' equity to assets 7.59 9.81 8.60 Common dividend payout ratio (year-to-date) 34.50 40.32 38.61 Book value per share $ 14.27 $ 18.52 $ 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. Impr oved 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 $4.1 billion, or 41% of earning assets at September 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 121% of total loans as of September 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 nine months of 1995, cash and cash equivalents decreased by $1.1 billion primarily as a result of a sharp decline in Federal funds sold and securities purchased under resale agreements. Cash used by operations was $547 million for this time period resulting mainly from the increase in other assets. Cash used by investing activities amounted to $2.3 billion principally due to the increase in securities available for sale. Cash provided by financing activities amounted to $1.7 billion principally related to financing Capital One prior to the Spin-Off. Supplemental Financial Data Signet Banking Corporation (Excluding Capital One) On February 28, 1995, Signet Banking Corporation ("Signet") spun off Capital One Financial Corporation ("Capital One"). The supplemental financial data which follows portrays Signet's financial position and the results of operations on a pro forma basis, for the periods prior to February 28, 1995. Amounts related to Capital One were subtracted from the Signet totals and were computed as follows: actual interest income, an allocation for funding (interest expense) when Capital One operated as a division of Signet Bank/Virginia (prior to November 22, 1994) and actual interest expense for the period thereafter, and actual non-interest income and non-interest expense. Overhead expenses, allocable to Capital One prior to November 22, 1994, were not subtracted since the major portion of these predominantly fixed expenses remain with Signet Bank. These expenses were added to non-inter est income to reflect the intercompany allocation to Capital One. Signet Banking Corporation (excluding Capital One) Selected Quarterly Financial Information (dollars in thousands - except per share)
3rd Qtr 2nd Qtr 1st Qtr 4th Qtr 3rd Qtr 1995 1995 1995 1994 1994 Earnings Net interest income (taxable equivalent) $ 119,482 $ 120,401 $ 121,344 $ 99,009 $ 92,621 Net interest income 116,944 117,446 118,082 95,561 89,166 Net income 30,143 29,686 26,706 17,621 4,456 Net income excluding restructuring charges (1) 30,143 29,686 26,706 23,857 26,308 Per Common Share Net income $ 0.50 $ 0.50 $ 0.45 $ 0.31 $ 0.07 Net income excluding restructuring charges (1) 0.50 0.50 0.45 0.42 0.45 Book value (2) 14.27 13.90 13.15 12.69 18.52 At Period-end Earning assets $ 9,911,356 $ 9,514,318 $ 9,337,761 $ 8,824,793 $ 7,774,290 Loans (net of unearned income) 5,509,437 5,684,427 5,647,599 5,695,722 4,720,418 Core Deposits 7,173,040 7,106,437 7,113,166 7,164,587 7,239,642 Number of common stockholders 15,134 15,259 15,374 15,503 15,462 Full-time employees 3,900 3,743 3,759 3,723 4,154 Part-time employees 1,049 1,133 1,029 987 967 Ratios Return on average assets 1.11 1.14 1.06 0.74 0.21% Return on average common stockholders' equity (2) 14.51 15.00 14.34 8.61 2.13 Efficiency ratio excluding restructuring charges (3) 65.99 68.67 69.95 77.46 75.89 Net interest spread 4.32 4.50 4.83 4.07 4.26 Net yield margin 4.96 5.14 5.42 4.73 4.90 Total stockholders' equity to assets (2) 7.59 7.70 7.36 7.54 9.58 Average Shares Outstanding 60,145,919 59,668,541 59,142,042 58,927,134 57,898,078 Credit Quality Data Non-performing assets $ 51,504 $ 57,447 $ 41,597 $ 48,536 $ 65,857 Accruing loans past due 90 days or more 66,232 54,538 42,919 40,572 45,080 Net charge-offs (4) 12,965 18,593 2,775 1,707 21,570 Allowance for loan losses to: Non-performing loans 339.92 297.24 574.88 583.37 410.51% Non-performing assets 251.77 237.60 364.76 313.18 238.16 Net loans 2.35 2.40 2.69 2.67 3.32 Non-performing assets to loans and foreclosed properties 0.93 1.01 0.74 0.85 1.39 Net loan losses to average loans 0.89 1.27 0.19 0.14 1.92
(1) The third and fourth quarters of 1994 included $33.6 million and $9.6 million of restructuring charges, respectively. (2) Historically, Signet Banking Corporation ("SBK") allocated Division Equity to Capital One Financial Corporation ("COF") for preparing financial statements of COF. On September 30, 1994, SBK allocated $240,195 to COF. On November 22, 1994, SBK actually transferred $357,825 to COF. (3) The efficiency ratio has been adjusted to exclude restructuring charges, foreclosed property expense and one-time spin-off expenses. (4) The second quarter of 1995 and the third quarter of 1994 included approximately $13.9 million and $20.6 million, respectively, of charge-offs related to the sale of approximately $55.0 million and $101.5 million, respectively, of real estate related loans for which there was sufficient allowance. SIGNET BANKING CORPORATION (EXCLUDING CAPITAL ONE) QUARTERLY AVERAGE BALANCE SHEET TREND (IN THOUSANDS)
Three Months Ended 9/30/95 6/30/95 3/31/95 12/31/94 9/30/94 ASSETS Earning Assets Interest bearing deposit with other banks $ 8,136 $ 22,799 $ 89,749 $ 247,233 $ 243,888 Federal funds sold and resale agreements 469,512 532,922 812,447 1,230,529 1,003,048 Trading account securities 464,254 553,080 418,011 309,084 257,789 Loans held for securitization 425,543 153,300 1,667 Loans held for sale 312,734 234,107 94,718 110,040 127,541 Securities available for sale 1,712,148 1,679,836 1,494,844 1,037,842 1,157,308 Investment securities - taxable 230,852 235,514 214,027 191,270 20,984 Investment securities - nontaxable 106,860 146,867 157,609 177,261 187,469 Loans (net of unearned income) Consumer 2,182,724 2,349,345 2,505,854 1,913,217 1,464,321 Commercial 2,747,241 2,553,554 2,362,850 2,194,675 2,149,870 Real estate - construction 230,364 217,685 207,805 212,661 229,590 Real estate mortgage - commercial 423,622 480,112 520,340 524,541 564,423 Real estate mortgage - residential 241,066 236,107 204,888 154,567 89,412 Total Loans 5,825,017 5,836,803 5,801,737 4,999,661 4,497,616 Total earning assets 9,555,056 9,395,228 9,084,809 8,302,920 7,495,643 Non-rate related assets: Cash and due from banks 533,901 509,633 503,217 485,718 500,352 Allowance for loan losses (133,144) (144,407) (151,757) (156,150) (170,879) Premises and equipment (net) 174,691 164,536 160,217 184,648 186,738 Other assets 625,258 561,476 598,458 587,877 502,227 Total Assets $ 10,755,762 $ 10,486,466 $ 10,194,944 $ 9,405,013 $ 8,514,081 LIABILITIES AND STOCKHOLDERS' EQUITY Interest bearing liabilities Deposits: Money market and interest checking $ 1,037,342 $ 1,031,701 $ 1,014,201 $ 1,027,081 $ 1,012,616 Money market savings 1,341,762 1,346,920 1,402,102 1,489,537 1,618,108 Savings accounts 1,315,832 1,255,593 1,188,584 1,138,532 1,042,726 Savings certificates 1,791,296 1,876,689 1,943,788 1,981,963 1,937,671 Large denomination certificates 100,367 92,660 123,864 126,316 100,199 Foreign 116,204 146,829 83,737 263,810 Total interest bearing deposits 5,702,803 5,750,392 5,756,276 6,027,239 5,711,320 Federal funds and repurchase agreements 2,201,617 1,950,959 1,512,558 269,945 Other short-term borrowings 30,098 195,275 294,721 Long-term borrowings 253,174 253,427 253,596 253,685 253,773 Total interest bearing liabilities 8,157,594 7,984,876 7,717,705 6,845,590 5,965,093 Non-interest bearing liabilities Demand deposits 1,557,185 1,497,770 1,515,423 1,536,099 1,543,375 Other liabilities 216,792 210,092 206,520 211,256 174,840 Common stockholders' equity 824,191 793,728 755,296 812,068 830,773 Total Liabilities & Stockholders' Equity $ 10,755,762 $ 10,486,466 $ 10,194,944 $ 9,405,013 $8,514,081
Signet Banking Corporation (excluding Capital One) Quarterly Income Trend (in thousands)
Three Months Ended 9/30/95 6/30/95 3/31/95 12/31/94 9/30/94 Interest income: Loans, including fees: Consumer $ 60,296 $ 62,068 $ 70,095 $ 46,254 $ 34,054 Commercial 53,703 50,358 46,365 42,337 40,539 Real estate - construction 6,080 5,628 5,152 5,203 5,298 Real estate - commercial mortgage 9,358 11,276 12,131 12,651 12,707 Real estate - residential mortgage 5,011 5,074 4,279 3,152 1,917 Total loans, including fees 134,448 134,404 138,022 109,597 94,515 Interest bearing deposits with other banks 127 358 1,316 3,067 2,851 Federal funds sold and resale agreements 7,166 8,232 12,029 17,053 11,602 Trading account securities 7,410 8,936 6,718 6,038 5,062 Loans held for securitization 11,561 6,420 73 Loans held for sale 7,785 5,858 1,479 1,864 2,270 Securities available for sale 31,963 31,342 26,512 15,928 15,949 Investment securities - taxable 4,190 4,257 3,811 3,302 311 Investment securities - nontaxable 2,093 2,928 3,139 3,560 3,756 Total interest income 206,743 202,735 193,099 160,409 136,316 Interest expense: Money market and interest checking 6,794 6,939 6,141 6,124 5,842 Money market savings 11,873 11,704 11,958 10,954 10,918 Savings accounts 12,785 11,800 10,727 10,106 8,656 Savings certificates 22,070 20,747 17,147 19,514 16,468 Large denomination certificates 1,332 1,186 1,529 2,143 1,135 Foreign 1,721 2,235 1,253 3,393 Total interest on deposits 56,575 54,611 48,755 52,234 43,019 Securities sold under repurchase agreements 14,689 13,880 11,732 Federal funds purchased 14,211 12,266 7,294 3,213 Other short-term borrowings 413 2,762 4,896 Long-term borrowings 4,324 4,119 4,474 4,505 4,131 Total interest expense 89,799 85,289 75,017 64,848 47,150 Net interest income 116,944 117,446 118,082 95,561 89,166 Provision for loan losses 8,681 4,250 3,251 (3,133) (5,162) Net interest income after provision for loan losses 108,263 113,196 114,831 98,694 94,328 Non-interest income: Service charges on deposit accounts 17,732 17,212 16,471 16,104 16,234 Credit card servicing and service charge income 2,511 1,633 2,551 6,832 7,379 Trust income 6,430 5,212 4,892 5,025 4,747 Other 19,690 18,635 13,145 13,509 26,670 Non-interest operating income 46,363 42,692 37,059 41,470 55,030 Securities available for sale gains 166 244 102 220 140 Investment securities gains 565 3 255 47 22 Total non-interest income 47,094 42,939 37,416 41,737 55,192 Non-interest expense: Salaries 45,792 43,668 42,638 43,962 48,078 Employee benefits 10,517 12,076 13,698 8,770 12,360 Occupancy 9,635 9,434 9,843 10,668 11,248 Supplies and equipment 9,384 8,715 8,558 9,108 8,019 External data processing services 6,868 6,748 6,210 7,024 8,236 Travel and communications 6,138 5,604 5,594 5,952 5,638 Restructuring charges 9,593 33,619 Foreclosed property - net 64 (556) 572 (1,888) 595 Other 21,109 25,755 24,265 24,325 18,470 Total non-interest expense 109,507 111,444 111,378 117,514 146,263 Income before income taxes (benefit) 45,850 44,691 40,869 22,917 3,257 Applicable income taxes (benefit) 15,707 15,005 14,163 5,296 (1,199) Net income $ 30,143 $ 29,686 $ 26,706 $ 17,621 $ 4,456
SIGNET BANKING CORPORATION (EXCLUDING CAPITAL ONE) STATEMENT OF CONSOLIDATED INCOME (IN THOUSANDS) Nine Months Ended September 30 1995 1994 INTEREST INCOME: Loans, including fees: Consumer $192,459 $ 82,316 Commercial 150,426 120,858 Real estate - construction 16,860 15,774 Real estate - commercial mortgage 32,765 34,869 Real estate - residential mortgage 14,364 5,247 Total loans, including fees 406,874 259,064 Interest bearing deposits with other banks 1,801 8,374 Federal funds sold and resale agreements 27,427 25,226 Trading account securities 23,064 15,449 Loans held for securitization 18,054 Loans held for sale 15,122 11,146 Securities available for sale 89,817 56,185 Investment securities - taxable 12,258 1,003 Investment securities - nontaxable 8,160 12,283 Total interest income 602,577 388,730 INTEREST EXPENSE: Money market and interest checking 19,874 16,999 Money market savings 35,535 33,617 Savings accounts 35,312 23,355 Savings certificates 59,964 46,838 Large denomination certificates 4,047 5,239 Foreign 5,209 1,029 Total interest on deposits 159,941 127,077 Securities sold under repurchase agreements 40,301 Federal funds purchased 33,771 Other short-term borrowings 3,175 Long-term borrowings 12,917 12,180 Total interest expense 250,105 139,257 Net interest income 352,472 249,473 Provision for loan losses 16,182 (13,096) Net interest income after provision for loan losses 336,290 262,569 NON-INTEREST INCOME: Service charges on deposit accounts 51,415 50,037 Credit card servicing and service charge income 6,695 20,002 Trust income 16,534 14,417 Other 51,470 69,279 Non-interest operating income 126,114 153,735 Securities available for sale gains 512 3,193 Investment securities gains 823 (1) Total non-interest income 127,449 156,927 NON-INTEREST EXPENSE: Salaries 132,098 142,254 Employee benefits 36,291 41,269 Occupancy 28,912 31,201 Supplies and equipment 26,657 24,937 External data processing services 19,826 20,636 Travel and communications 17,336 16,806 Restructuring charges 33,619 Foreclosed property - net 80 1,189 Other 71,129 58,884 Total non-interest expense 332,329 370,795 Income before income taxes 131,410 48,701 Applicable income taxes 44,875 10,479 Net income $ 86,535 $ 38,222 Signet Banking Corporation (excluding Capital One) Quarter-end Balance Sheet Trend (in thousands)
9/30/95 6/30/95 3/31/95 12/31/94 9/30/94 ASSETS Cash and due from banks $ 498,193 $ 529,205 $ 541,946 $ 437,867 $ 451,079 Interest bearing deposits with other banks 1,712 14,610 33,523 342,795 239,274 Federal funds sold and resale agreements 425,305 638,641 772,865 835,821 1,090,348 Trading account securities 464,950 439,737 490,266 353,040 279,245 Loans held for securitization 750,000 450,300 150,000 Loans held for sale 267,535 259,372 159,224 69,506 128,613 Securities available for sale 2,195,180 1,651,554 1,692,387 1,142,626 1,113,371 Investment securities 297,237 375,677 391,897 385,283 203,021 Loans (net of unearned income) Consumer 1,776,434 2,116,882 2,229,957 2,384,178 1,618,995 Commercial 2,982,401 2,820,339 2,577,674 2,472,620 2,282,334 Real estate - construction 237,271 227,531 211,097 209,183 218,500 Real estate mortgage - commercial 406,102 433,701 505,717 526,956 532,391 Real estate mortgage - residential 248,145 224,433 225,477 191,508 133,084 Gross loans 5,650,353 5,822,886 5,749,922 5,784,445 4,785,304 Less: Unearned income (140,916) (138,459) (102,323) (88,723) (64,886) Allowance for loan losses (129,672) (136,497) (151,729) (152,003) (156,843) Net loans 5,379,765 5,547,930 5,495,870 5,543,719 4,563,575 Premises and equipment (net) 180,549 166,731 160,672 159,031 202,714 Interest receivable 98,000 90,190 75,082 83,942 70,484 Other assets 534,689 458,370 513,994 505,053 457,403 Total Assets $ 11,093,115 $ 10,622,317 $ 10,477,726 $ 9,858,683 $ 8,799,127 LIABILITIES Non-interest bearing deposits $ 1,603,922 $ 1,647,309 $ 1,533,797 $ 1,537,702 $ 1,592,825 Interest bearing deposits: Money market and interest checking 1,064,412 1,038,959 1,023,532 1,050,176 1,011,484 Money market savings 1,337,665 1,319,829 1,382,105 1,453,629 1,500,611 Savings accounts 1,338,824 1,291,289 1,224,393 1,170,990 1,095,370 Savings certificates 1,828,217 1,809,051 1,949,339 1,952,090 2,039,352 Large denomination certificates 99,890 99,020 100,987 168,853 216,428 Foreign 80,318 96,084 183,337 9,225 85,242 Total interest bearing deposits 5,749,326 5,654,232 5,863,693 5,804,963 5,948,487 Total deposits 7,353,248 7,301,541 7,397,490 7,342,665 7,541,312 Securities sold under repurchase agreements 1,153,479 1,229,433 1,202,629 875,458 Federal funds purchased 1,285,918 816,946 521,295 195,005 Other short-term borrowings 105,408 201,619 Long-term borrowings 253,129 253,222 253,550 253,641 253,729 Interest payable 23,455 18,030 26,047 21,814 28,036 Other liabilities 181,514 185,140 199,831 224,659 133,159 Total liabilities 10,250,743 9,804,312 9,706,250 9,114,861 7,956,236 STOCKHOLDERS' EQUITY Common Stock 295,244 294,175 293,298 293,184 292,389 Capital Surplus 197,911 195,899 193,986 198,869 195,704 Retained Earnings 349,217 327,931 284,192 251,769 354,798 Total stockholders' equity 842,372 818,005 771,476 743,822 842,891 Total Liabilities and Stockholders' Equity $ 11,093,115 $ 10,622,317 $ 10,477,726 $ 9,858,683 $ 8,799,127
SIGNET BANKING CORPORATION (EXCLUDING CAPITAL ONE) MANAGED CONSUMER LOAN PORTFOLIO (IN THOUSANDS
Three Months Ended SEPTEMBER 30 June 30 March 31 December 31 September 30 1995 1995 1995 1994 1994 AVERAGE BALANCES: Student loans $ 645,145 $ 922,956 $ 889,679 $ 789,483 $ 657,822 Installment loans 730,186 651,052 634,387 408,033 251,955 Home equity loans 525,232 519,498 516,265 497,523 473,384 Credit card 195,115 160,381 366,453 122,284 Other loans 87,046 95,458 99,070 95,894 81,160 Sub-total average consumer loan portfolio 2,182,724 2,349,345 2,505,854 1,913,217 1,464,321 Consumer loans held for sale 163,082 133,163 1,131 Credit card loans held for securitization 120,652 150,003 1,667 Home equity loans held for securitization 4,891 Student loans held for securitization 300,000 3,297 Total average on-balance sheet portfolio 2,771,349 2,635,808 2,508,652 1,913,217 1,464,321 Securitized consumer loans 195,390 266,493 374,583 379,538 320,000 Less loans that may be sold to Capital One (374,960) (424,437) (537,726) (184,974) Total average managed consumer loan portfolio $2,591,779 $2,477,864 $2,345,509 $2,107,781 $1,784,321 PERIOD-END BALANCES: Student loans $ 675,348 $ 636,925 $ 906,271 $ 848,099 $ 764,505 Installment loans 753,631 693,517 577,330 577,105 282,769 Home equity loans 89,843 524,625 512,175 511,947 486,874 Credit card 197,419 167,792 136,782 339,270 Other loans 60,193 94,023 97,399 107,757 84,847 Sub-total period-end consumer loan portfolio 1,776,434 2,116,882 2,229,957 2,384,178 1,618,995 Consumer loans held for sale 165,205 157,289 101,857 Credit card loans held for securitization 150,300 150,000 Home equity loans held for securitization 450,000 Student loans held for securitization 300,000 300,000 Total period-end on-balance sheet portfolio 2,691,639 2,724,471 2,481,814 2,384,178 1,618,995 Securitized consumer loans 290,833 213,331 320,833 428,333 320,000 Less loans that may be sold to Capital One (318,160) (398,007) (425,988) (517,295) Total period-end managed consumer loan portfolio $2,664,312 $2,539,795 $2,376,659 $2,295,216 $1,938,995
Note: On March 31, 1995, Signet transferred $110 million of credit card loans to Capital One in accordance with previously agreed upon terms of the spin-off. On September 13, 1995, Signet securitized $185 million of credit card loans. SIGNET BANKING CORPORATION (EXCLUDING CAPITAL ONE) STATEMENT OF CHANGES IN ALLOWANCE FOR LOAN LOSSES (DOLLARS IN THOUSANDS)
Three Months Ended Nine Months Ended September 30 June 30 September 30 1995 1994 1995 1995 1994 Balance at beginning of period $136,497 $180,248 $151,729 $152,003 $189,797 Additions to allowance charged to expense 8,681 (5,162) 4,250 16,182 (13,096) Transfer to loans held for securitization/sale (2,542) (889) (4,181) Addition arising from acquisition 3,327 3,327 Loans charged off: Consumer * 9,354 218 5,744 19,120 872 Commercial ** 77 626 1,413 1,918 8,686 Real estate - construction 683 8,831 389 1,080 8,831 Real estate - mortgage ** 4,325 19,335 13,343 18,572 20,209 Total loans charged off 14,439 29,010 20,889 40,690 38,598 Recoveries of loans previously charged off: Consumer 402 390 315 1,055 887 Commercial 758 737 1,056 3,800 5,355 Real estate - construction 131 3,637 833 1,201 4,746 Real estate - mortgage ** 184 2,676 92 302 4,425 Total recoveries 1,475 7,440 2,296 6,358 15,413 Net loans charged off 12,964 21,570 18,593 34,332 23,185 Balance at end of period $129,672 $156,843 $136,497 $129,672 $156,843 Net loan losses (annualized) as a percentage of average loans: Consumer 1.64% (0.05)% 0.92% 1.03% N/M Commercial (0.10) (0.02) 0.06 (0.10) 0.21% Real estate 2.10 9.89 5.49 2.63 2.90 Total 0.89% 1.92% 1.27% 0.79% 0.70% Allowance for loan losses to net loans at end of period 2.40% 2.35% 3.32% *Consumer includes loan-by-check charge-offs as noted below: Loan-by-check risk tests $ 5,763 $ 2,151 $ 7,937 Other loan-by-check 880 $ 18 777 1,874 $ 37 Total loan-by-check $ 6,643 $ 18 $ 2,928 $ 9,811 $ 37 Net loan losses (annualized) as a percentage of average loans-by-check: Loan-by-check risk tests 11.23% 3.83% 4.79% Other loan-by-check 1.27 0.14% 1.70 1.39 0.27% Total loan-by-check 5.52% 0.14% 2.87% 3.27% 0.27%
**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. Charge-offs related to the loan sale in the third quarter of 1994 were $21,012, of which $16,494 were real estate - mortgage and $4,518 were real estate - construction. 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 thereunto duly authorized. SIGNET BANKING CORPORATION (Registrant) Date: November 7, 1995 /s/ WALLACE B. MILLNER III Wallace B. Millner III Senior Executive Vice President and Chief Financial Officer (Principal Financial Officer) Date: November 7, 1995 /s/ W. H. CATLETT, JR. W. H. Catlett, Jr. Executive Vice President and Controller (Principal Accounting Officer) EXHIBIT 11 -- COMPUTATION OF EARNINGS PER SHARE (dollars in thousands - except per share)
Three Months Nine Months Ended September 30 Ended September 30 1995 1994 1995 1994 Common and common equivalent: Average shares outstanding 58,923,625 57,401,869 58,752,290 56,956,229 Dilutive stock options - based on the treasury stock method using average market price 1,171,588 496,209 900,173 537,132 Shares used 60,095,213 57,898,078 59,652,463 57,493,361 Net income applicable to Common Stock $ 30,143 $ 3,462 $ 102,054 $ 106,960 Per share amount $ 0.50 $ 0.05 $ 1.71 $ 1.86 Assuming full dilution: Average shares outstanding 58,923,625 57,401,869 58,752,290 56,956,229 Dilutive stock options - based on the treasury stock method using the period end market price, if higher than the average market price 1,222,294 496,209 938,444 547,627 Shares used 60,145,919 57,898,078 59,690,734 57,503,856 Net income applicable to Common Stock $ 30,143 $ 3,462 $ 102,054 $ 106,960 Per share amount $ 0.50 $ 0.05 $ 1.71 $ 1.86
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 2 EXHIBIT 27
9 1,000 9-MOS DEC-31-1995 SEP-30-1995 498,193 1,712 425,305 464,950 267,535 297,237 303,332 5,650,353 129,672 11,093,115 7,353,248 2,439,397 204,969 253,129 295,244 0 0 547,128 11,093,115 454,413 20,553 184,044 659,010 166,112 281,371 377,639 20,111 1,335 411,877 156,799 156,799 0 0 102,054 1.71 1.71 5.18 51,504 66,232 0 0 220,519 45,788 8,266 129,672 129,672 0 9,842
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