-----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, A/ti4QhpBtOoI2/7TW84MbFkQk2/jH/5pslY/ZZTlFuxy+nJ/ltZ/AAR9rpftwTI QnMMhc279CZL3w/iLoxk0A== 0000916641-96-000335.txt : 19960513 0000916641-96-000335.hdr.sgml : 19960513 ACCESSION NUMBER: 0000916641-96-000335 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19960331 FILED AS OF DATE: 19960510 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: 96559557 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 March 31, 1996 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 April 30, 1996 - 59,417,073 Page 1 of 28 1 Index SIGNET BANKING CORPORATION AND SUBSIDIARIES March 31, 1996 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 27 SIGNATURES 27 2 PART 1. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS SIGNET BANKING CORPORATION CONSOLIDATED BALANCE SHEET (IN THOUSANDS-EXCEPT PER SHARE) (UNAUDITED)
March 31 December 31 1996 1995 1995 ASSETS Cash and due from banks $ 477,370 $ 541,946 $ 599,113 Interest bearing deposits with other banks 2,479 33,523 3,129 Federal funds sold and securities purchased under resale agreements 1,048,139 772,865 460,217 Trading account securities 487,206 490,266 478,723 Loans held for securitization 300,000 150,000 389,700 Loans held for sale 297,147 159,224 361,260 Securities available for sale 2,443,956 1,692,387 2,333,971 Investment securities 391,897 Loans: Consumer 2,086,519 2,229,957 1,751,274 Commercial 3,011,812 2,577,674 3,090,904 Real estate-construction 250,046 211,097 236,103 Real estate-commercial mortgage 359,445 505,717 366,698 Real estate-residential mortgage 232,322 225,477 122,584 Gross loans 5,940,144 5,749,922 5,567,563 Less: Unearned income (146,093) (102,323) (151,535) Allowance for loan losses (126,433) (151,729) (129,702) Net loans 5,667,618 5,495,870 5,286,326 Premises and equipment (net) 201,690 160,672 192,431 Interest receivable 106,094 75,082 104,437 Due from broker 299,645 Other assets 562,325 513,994 768,558 Total assets $11,893,669 $10,477,726 $10,977,865 LIABILITIES Non-interest bearing deposits $ 1,713,563 $ 1,533,797 $ 1,726,378 Interest bearing deposits: Money market and interest checking 179,609 1,023,532 1,102,140 Money market savings 2,405,436 1,382,105 1,338,985 Savings accounts 961,171 1,224,393 1,395,514 Savings certificates 2,065,355 1,949,339 1,850,397 Large denomination certificates 126,077 100,987 129,711 Foreign 291,382 183,337 49,846 Total interest bearing deposits 6,029,030 5,863,693 5,866,593 Total deposits 7,742,593 7,397,490 7,592,971 Securities sold under repurchase agreements 1,228,482 1,202,629 1,124,105 Federal funds purchased 1,002,344 521,295 780,193 Other short-term borrowings 105,408 Long-term borrowings 252,974 253,550 253,033 Interest payable 24,873 26,047 19,460 Due to broker 600,812 Other liabilities 186,938 199,831 344,154 Total liabilities 11,039,016 9,706,250 10,113,916 STOCKHOLDERS' EQUITY Common stock, $5 par value; authorized 100,000,000 shares, issued and outstanding 59,387,304, 58,659,679 and 59,208,745 shares, respectively 296,936 293,298 296,044 Capital surplus 202,513 193,986 200,093 Retained earnings 355,204 284,192 367,812 Total stockholders' equity 854,653 771,476 863,949 Total liabilities and stockholders' equity $11,893,669 $10,477,726 $10,977,865
3 SIGNET BANKING CORPORATION STATEMENT OF CONSOLIDATED INCOME (IN THOUSANDS-EXCEPT PER SHARE) (UNAUDITED)
Three Months Ended March 31 1996 1995 Interest income: Loans, including fees: Consumer $ 53,062 $117,634 Commercial 55,352 46,365 Real estate-construction 6,062 5,152 Real estate-commercial mortgage 8,150 12,131 Real estate-residential mortgage 3,204 4,279 Total loans, including fees 125,830 185,561 Interest bearing deposits with other banks 154 1,438 Federal funds sold and resale agreements 8,188 15,309 Trading account securities 8,122 6,718 Loans held for securitization 7,419 4,205 Loans held for sale 10,086 1,479 Securities available for sale 41,783 27,737 Investment securities-taxable 3,946 Investment securities-nontaxable 3,139 Total interest income 201,582 249,532 Interest expense: Money market and interest checking 4,451 6,141 Money market savings 13,629 11,958 Savings accounts 11,495 10,727 Savings certificates 22,535 17,147 Large denomination certificates 1,525 7,700 Foreign 1,279 1,253 Total interest on deposits 54,914 54,926 Securities sold under repurchase agreements 14,511 11,827 Federal funds purchased 11,809 11,871 Other short-term borrowings 14,889 Long-term borrowings 4,114 12,770 Total interest expense 85,348 106,283 Net interest income 116,234 143,249 Provision for loan losses 11,257 7,180 Net interest income after provision for loan losses 104,977 136,069 Non-interest income: Service charges on deposit accounts 16,231 16,471 Consumer loan servicing and service charge income 12,156 83,777 Trust and other financial services income 9,605 7,341 Other 19,432 13,169 Non-interest operating income 57,424 120,758 Securities available for sale gains 592 102 Investment securities gains 255 Total non-interest income 58,016 121,115 Non-interest expense: Salaries 48,700 57,701 Employee benefits 12,401 18,341 Occupancy 10,194 11,954 Supplies and equipment 9,605 14,526 External data processing services 7,146 9,046 Travel and communications 5,920 13,153 Credit card solicitation 29,050 Other 21,649 37,155 Total non-interest expense 115,615 190,926 Income before income taxes (Capital One Financial Corporation amounted to $0 and $27,407, respectively) 47,378 66,258 Applicable income taxes 16,183 24,033 Net income $ 31,195 $ 42,225 Earnings per common share $ 0.52 $ 0.71 Cash dividends declared per share 0.20 0.25 Average common shares outstanding 60,357 59,163
4 SIGNET BANKING CORPORATION STATEMENT OF CHANGES IN CONSOLIDATED STOCKHOLDERS' EQUITY (IN THOUSANDS) (UNAUDITED)
Common Capital Retained Stock Surplus Earnings THREE MONTHS ENDED MARCH 31, 1996 Balance at beginning of period $296,044 $200,093 $ 367,812 Net income 31,195 Issuance of Common Stock 892 2,420 Cash dividends (11,863) Change in net unrealized gains on securities available for sale, net of tax benefit of $17,198 (31,940) Balance at end of period $296,936 $202,513 $ 355,204 THREE MONTHS ENDED MARCH 31, 1995 Balance at beginning of period $293,184 $198,869 $ 619,426 Net income 42,225 Issuance of Common Stock 1,406 2,324 Purchase of Common Stock (1,292) (7,207) Cash dividends (14,645) Spin-off of Capital One Financial Corporation (383,200) Change in net unrealized gains on securities available for sale, net of tax of $10,977 20,386 Balance at end of period $293,298 $193,986 $ 284,192
5 SIGNET BANKING CORPORATION STATEMENT OF CONSOLIDATED CASH FLOWS (IN THOUSANDS) (UNAUDITED)
Three Months Ended March 31 1996 1995 OPERATING ACTIVITIES Net Income $ 31,195 $ 42,225 Adjustments to reconcile net income to net cash provided by operating activities: Provision for loan losses 11,257 7,180 Provision and writedowns on foreclosed property 10 1,856 Depreciation and amortization 7,226 11,031 Investment securities losses (255) Securities available for sale gains (592) (102) (Increase) decrease in interest receivable (1,657) 23,475 Increase in due from broker (299,645) Decrease (increase) in other assets 201,418 (358,691) Increase in interest payable 5,413 16,386 Increase in due to broker 600,812 Decrease in other liabilities (203,382) (23,014) Proceeds from securitization of consumer loans 90,000 Proceeds from sales of loans held for sale 8,118,514 6,879,125 Purchases and originations of loans held for sale (8,054,701) (6,968,843) Proceeds from sales of trading account securities 4,274,954 3,420,653 Purchases of trading account securities (4,283,437) (3,557,879) Net cash provided (used) by operating activities 497,385 (506,853) INVESTING ACTIVITIES Proceeds from maturities of investment securities 18,870 Purchases of investment securities (25,060) Proceeds from sales of securities available for sale 595,337 14,468 Proceeds from maturities of securities available for sale 169,214 320,527 Purchases of securities available for sale (856,045) (1,137,009) Net increase in loans (393,627) (492,441) Recoveries of loans previously charged-off 1,078 4,495 Purchases of premises and equipment (15,353) (22,214) Net cash used by investing activities (499,396) (1,318,364) FINANCING ACTIVITIES Net increase in deposits 149,622 198,875 Net increase (decrease) in short-term borrowings 326,528 (417,335) Net increase in Capital One Financial Corporation long-term debt prior to spin-off 1,388,153 Net decrease in other long-term debt (59) (91) Net issuance (purchase) of common stock 3,312 (4,769) Payment of cash dividends (11,863) (14,645) Net cash provided by financing activities 467,540 1,150,188 Increase (decrease) in cash and cash equivalents 465,529 (675,029) Cash and cash equivalents at beginning of period 1,062,459 2,023,363 Cash and cash equivalents at end of period $ 1,527,988 $ 1,348,334 SUPPLEMENTAL DISCLOSURES Interest paid $ 79,935 $ 111,314 Income taxes paid 573 57 Transfer of loans to foreclosed property 304 210 Transfer of loans to loans held for securitization 150,000
6 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 1995 annual report and as noted below, except certain amounts which have been reclassified for prior periods to conform to the 1996 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:
MARCH 31, 1996 March 31, 1995 December 31, 1995 FAIR Fair Fair COST VALUE Cost Value Cost Value U.S. Government and agency obligations- Mortgage-backed securities $1,752,036 $1,765,446 $1,143,993 $1,149,091 $1,478,517 $1,530,818 Other 462,011 470,541 433,641 433,216 562,815 583,275 States and political subdivisions 42,689 44,151 110 118 53,031 54,696 Other 169,903 163,818 119,805 109,962 173,137 165,182 Total $2,426,639 $2,443,956 $1,697,549 $1,692,387 $2,267,500 $2,333,971
INVESTMENT SECURITIES The Company reclassified all of its investment securities to available for sale in December 1995 as allowed by implementation guidance for Statement of Financial Accounting Standards ("SFAS") No. 115, "Accounting for Certain Investments in Debt and Equity Securities." 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 $90,000 of credit card receivables in the first three months of 1996 and $185,000 in 1995. These transactions were recorded as sales in accordance with SFAS No. 77, "Reporting by Transferors for Transfers of Receivables with Recourse." Proceeds from the sales in the first three months of 1996 and 1995 totaled $90,000 and $184,900, respectively. Receivables outstanding under credit card securitizations were $275,000 at March 31, 1996. Recourse obligations related to these transactions are not material. Excess servicing fees related to the credit card securitizations are recorded over the life of each sale transaction. The excess servicing fee is based upon the difference between finance charges received from the cardholders less the yield paid to investors, credit losses, and a normal servicing fee, which is also retained by the Company. In accordance with the sale agreements, a fixed amount of excess servicing fees may be set aside to absorb credit losses.The amount available to absorb credit losses was zero at March 31, 1996. In conjunction with the spin-off of Capital One, Signet's rights and obligations under the majority of its credit card securitization agreements entered into prior to February 28, 1995, as well as any related assets and liabilities were transferred to Capital One Bank. Receivables outstanding under Signet's remaining securitizations totaled $275,000 at March 31, 1996. In 1995, the Company also securitized $480,702 of home equity lines of credit. This transaction was also recorded as a sale in accordance with SFAS No. 77. Proceeds from the sale totaled $478,794. Receivables outstanding under this securitization were $459,949 at March 31, 1996. Recourse obligations related to this transaction are not material. A gain, equal to the present value of anticipated future net cash flows, net of transaction expenses and any unamortized deferred loan origination costs, of $9,562 was recorded as a result of the sale. In accordance with the sale agreement, a fixed amount of excess servicing fees is set aside to absorb credit losses. The amount available to absorb credit losses at March 31, 1996 was $5,288. 7 SUPPLEMENTAL NOTES TO QUARTERLY FINANCIAL STATEMENTS (CONTINUED) (DOLLARS IN THOUSANDS) (UNAUDITED) RECENT ACCOUNTING STATEMENT The Company adopted SFAS No. 121, "Accounting for the Impairment of Long- Lived Assets and for Long-Lived Assets to be Disposed Of," on January 1, 1996. SFAS No. 121 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. SFAS No. 121 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. Adoption of SFAS No. 121 did not have a material impact on the Company's financial position or results of operations. COMMERCIAL FRAUD LOSS On March 19, 1996, subsequent to the announcement of 1995 earnings, management discovered the Company was one of several major financial institutions that were victims of fraudulent commercial loan transactions which occurred prior to 1996. The Company had loan outstandings related to these transactions of approximately $81 million. Federal authorities informed the Company that they believe there will be substantial recoveries of assets related to these transactions. Management recorded a $35 million commercial fraud loss in non-interest expense at December 31, 1995 and recorded the estimated probable recovery amount of $46 million in other assets as a receivable. The receivable represents an amount that management believes is likely to be recovered based on current facts and circumstances. The amount of the recovery was based on the Company's pro-rata share of known claims to the total amount currently restrained and held by federal authorities, less associated costs. The restrained assets have been turned over to a trustee. The recovery amount is subject to change, even in the near term, as additional assets are recovered, additional claims are asserted or the market value of the restrained assets fluctuates. Management still believes the $35 million charge to 1995 earnings is adequate to cover estimated losses related to these fraudulent transactions based on currently available information, but is unable to predict the timing of the recovery. The Company will vigorously pursue other sources of recovery, but currently is unable to determine the probability or amount of additional recoveries. 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's credit card division were transferred to Capital One Bank, a newly chartered limited purpose credit card bank. Capital One Bank became, in conjunction with the transfer, a wholly-owned subsidiary of Capital One, a wholly-owned subsidiary of Signet (the "Separation"). Accounts representing approximately $335 million, or 5%, of the managed credit card portfolio were retained by Signet. The Separation occurred November 22, 1994, at which time 7,125,000 shares of common stock of Capital One were sold in an initial public offering. On February 28, 1995, Signet distributed all of the common stock it held in Capital One to Signet stockholders in a tax free distribution. Included in Signet's 1995 non-interest expense is $2,018 of minority interest in Capital One's earnings. Capital One's results of operations and financial position are excluded from those of the Company for periods subsequent to February 28, 1995. Capital One summary financial data follows: February 28 1995 Total assets $ 3,639,288 Total stockholders' equity 492,872 Two Months Ended February 28, 1995 Net interest income $ 25,167 Provision for loan losses 3,929 Net interest income after provision for loan losses 21,238 Non-interest income 87,697 Non-interest expense 81,510 Income before income taxes 27,407 Applicable income taxes 9,879 Net income $ 17,537 8 SIGNET BANKING CORPORATION AND SUBSIDIARIES FINANCIAL HIGHLIGHTS (DOLLARS IN THOUSANDS-EXCEPT PER SHARE) Signet Banking Corporation ("Signet") completed the spin-off of its subsidiary, Capital One Financial Corporation on February 28, 1995. Due to the significance of the spin-off, PRO FORMA financial information for the first quarter of 1995 is provided below to illustrate Signet's financial results and other data assuming the spin-off had occurred prior to January 1, 1995.
CONSOLIDATED CONSOLIDATED PRO FORMA Three Months Three Months Ended March 31 Percent Ended March 31 1996 1995 Change 1995 EARNINGS Net interest income (taxable equivalent) $ 118,378 $ 121,344 (2.4)% $ 146,511 Net interest income 116,234 118,082 (1.6) 143,249 Net income 31,195 26,706 16.8 42,225 PER COMMON SHARE Net income $ 0.52 $ 0.45 15.6 $ 0.71 Cash dividends declared 0.20 - - 0.25 Book value 14.39 13.15 9.4 13.15 Period-end price 24.88 20.38 22.1 20.38 AVERAGE DAILY BALANCE Assets $11,067,630 $10,194,944 8.6 $12,332,189 Earning assets 9,705,995 9,084,809 6.8 10,999,684 Loans (net of unearned income) 5,566,470 5,801,737 (4.1) 7,242,068 Managed consumer loan portfolio 2,951,259 2,345,509 25.8 - Deposits 7,551,264 7,271,699 3.8 7,618,783 Core deposits 7,346,635 7,064,098 4.0 7,040,471 Common stockholders' equity 859,388 755,296 13.8 1,001,772 Common shares outstanding 60,356,655 59,162,565 2.0 59,162,565 RATIOS Return on average assets 1.13% 1.06% 6.6 1.39% Return on average common stockholders' equity 14.60 14.34 1.8 17.09 Net yield margin 4.91 5.42 (9.4) 5.40 Allowance for loan losses to: Non-performing loans 395.64 574.88 (31.2) 574.88 Non-performing assets 267.85 364.76 (26.6) 364.76 Net loans 2.18 2.69 (19.0) 2.69 Non-performing assets to loans and foreclosed properties 0.81 0.74 9.5 0.74 Stockholders' equity to assets 7.19 7.36 (2.3) 7.36 AT PERIOD-END Assets $11,893,669 $10,477,726 13.5 $10,477,726 Earning assets 10,372,978 9,337,761 11.1 9,337,761 Loans (net of unearned income) 5,794,051 5,647,599 2.6 5,647,599 Managed consumer loan portfolio 3,121,468 2,376,659 31.3 2,376,659 Deposits 7,742,593 7,397,490 4.7 7,397,490 Core deposits 7,325,134 7,113,166 3.0 7,113,166 Common stockholders' equity 854,653 771,476 10.8 771,476 Non-performing assets 47,203 41,597 13.5 41,597 Number of common stockholders 15,176 15,374 (1.3) 15,374 Full-time employees 4,119 3,759 9.6 3,759 Part-time employees 954 1,029 (0.1) 1,029
Note: The common stock of Signet Banking Corporation is traded on the New York Stock Exchange under the symbol "SBK." 9 Table 1 SIGNET BANKING CORPORATION SELECTED QUARTERLY FINANCIAL INFORMATION
1ST QTR 4th Qtr 3rd Qtr 2nd Qtr 1st Qtr 1996 1995 1995 1995 1995 SUMMARY OF OPERATIONS (1) (DOLLARS IN THOUSANDS-EXCEPT PER SHARE) Net interest income (taxable equivalent) $ 118,378 $ 117,443 $ 119,482 $ 120,401 $ 146,511 Less: taxable equivalent adjustment 2,144 1,848 2,538 2,955 3,262 Net interest income 116,234 115,595 116,944 117,446 143,249 Provision for loan losses 11,257 18,604 8,681 4,250 7,180 Net interest income after provision for loan losses 104,977 96,991 108,263 113,196 136,069 Non-interest income 58,016 68,120 47,094 42,939 121,115 Non-interest expense (2) 115,615 152,191 109,507 111,444 190,926 Income before income taxes (benefit) 47,378 12,920 45,850 44,691 66,258 Applicable income taxes (benefit) 16,183 3,894 15,707 15,005 24,033 Net income $ 31,195 $ 9,026 $ 30,143 $ 29,686 $ 42,225 Net income excluding commercial fraud loss $ 31,195 $ 31,776 $ 30,143 $ 29,686 $ 42,225 Per common share: Net income (2) $ 0.52 $ 0.15 $ 0.50 $ 0.50 $ 0.71 Net income excluding commercial fraud loss 0.52 0.53 0.50 0.50 0.71 Cash dividends declared 0.20 0.20 0.17 0.17 0.25 Average common shares outstanding 60,356,655 60,230,489 60,145,919 59,668,541 59,162,565 SELECTED AVERAGE BALANCES (DOLLARS IN MILLIONS) Assets $ 11,068 $ 10,982 $ 10,756 $ 10,486 $ 12,332 Earning assets 9,706 9,745 9,555 9,395 11,000 Loans (net of unearned income) 5,566 5,598 5,825 5,837 7,242 Deposits 7,551 7,346 7,260 7,248 7,619 Core deposits 7,347 7,164 7,043 7,009 7,040 Interest bearing liabilities 8,336 8,353 8,158 7,985 9,524 Stockholders' equity 859 856 824 794 1,002 RATIOS Return on average assets (3) 1.13% 0.33% 1.11% 1.14% 1.39% Return on average common stockholders' equity (3) 14.60 4.18 14.51 15.00 17.09 Net loan losses to average loans 1.04 1.12 0.89 1.27 0.33 Net interest spread 4.32 4.16 4.32 4.50 4.79 Net yield margin 4.91 4.78 4.96 5.14 5.40 At period-end: Allowance for loan losses to: Non-performing loans 395.64 337.05 339.92 297.24 574.88 Non-performing assets 267.85 238.85 251.77 237.60 364.76 Net loans 2.18 2.39 2.35 2.40 2.69 Non-performing assets to loans and foreclosed properties 0.81 1.00 0.93 1.01 0.74 Stockholders' equity to assets 7.19 7.87 7.59 7.70 7.36
(1) The 1995 numbers reflect the spin-off of Capital One on February 28, 1995. (2) The fourth quarter of 1995 included the $35.0 million commercial fraud loss. The first quarter of 1995 included $29.0 million of credit card solicitation expense associated with Capital One. (3) The fourth quarter 1995 return on average assets and return on average stockholders equity excluding the $35.0 million commercial fraud loss were 1.15% and 14.72%, respectively. 10 Table 2 SIGNET BANKING CORPORATION NET INTEREST INCOME ANALYSIS Taxable Equivalent Basis (IN THOUSANDS)
First Quarter 1996 Compared First Quarter 1996 Compared with First Quarter 1995 with Fourth Quarter 1995 Increase Change due to * Increase Change due to * (Decrease) Rate Volume (Decrease) Rate Volume INTEREST INCOME: Loans, including fees ($59,616) ($36,503) ($23,113) ($2,873) ($943) ($1,930) Securities available for sale 14,390 1,084 13,306 6,717 539 6,178 Investment securities (8,662) 0 (8,662) (4,164) 0 (4,164) Other earning assets 4,820 (809) 5,629 (4,791) 352 (5,143) Total interest income (49,068) (34,733) (14,335) (5,111) (3,201) (1,910) INTEREST EXPENSE: Interest bearing deposits (12) 3,290 (3,302) (1,159) (1,925) 766 Fed funds and repurchase agreements 2,622 (4,945) 7,567 (4,897) (3,059) (1,838) Other short-term borrowings (14,889) 0 (14,889) 0 0 0 Long-term borrowings (8,656) (2,987) (5,669) 10 13 (3) Total interest expense (20,935) (14,407) (6,528) (6,046) (5,803) (243) NET INTEREST INCOME ($28,133) ($19,693) ($8,440) $ 935 $ 1,633 ($698)
* 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-state bank holding company whose stock is listed on the New York Stock Exchange under the symbol SBK. At March 31, 1996, Signet had assets of approximately $11.9 billion and provided interstate financial services through two principal subsidiaries: Signet Bank (which resulted from the merger of Signet Bank/Virginia and Signet Bank/Maryland in 1995) headquartered in Richmond, Virginia and Signet Bank N.A., headquartered in Falls Church, Virginia. The Company is in the process of merging Signet Bank N. A. into Signet Bank and expects to complete the combination of the two banks during 1996. Signet engages in general commercial and consumer banking businesses and provides a full range of financial services to individuals, businesses and organizations through 244 banking offices, 252 automated teller machines and a 24-hour full-service Telephone Banking Center. Signet offers investment services including municipal bond, government, federal agency and money market sales and trading, foreign exchange trading, mutual funds and discount brokerage. In addition, specialized services for trust, leasing, asset based lending, cash management, real estate, insurance, consumer financing and trade finance are offered. Signet's primary market area extends from Baltimore to Washington, south to Richmond, and on to Hampton Roads/Tidewater, Virginia. The Company also markets several of its products nationally. On March 19, 1996, subsequent to the announcement of 1995 earnings, management discovered the Company was one of several major financial institutions that were victims of fraudulent commercial loan transactions which occurred prior to 1996. The Company had loan outstandings related to these transactions of approximately $81 million. Federal authorities informed the Company that they believe there will be substantial recoveries of assets related to these transactions. Management recorded a $35 million commercial fraud loss in non-interest expense at December 31, 1995 ("the fraud loss") and recorded the estimated probable recovery amount of $46 million in other assets as a receivable. The receivable represents an amount that management believes is likely to be recovered based on current facts and circumstances. The amount of the recovery was based on the Company's pro-rata share of known claims to the total amount currently restrained and held by federal authorities, less associated costs. The restrained assets have been turned over to a trustee. The recovery amount is subject to change, even in the near term, as additional assets are recovered, additional claims 11 are asserted or the market value of the restrained assets fluctuates. Management still believes the $35 million charge to 1995 earnings is adequate to cover estimated losses related to these fraudulent transactions based on currently available information, but is unable to predict the timing of the recovery. The Company will vigorously pursue other sources of recovery, but currently is unable to determine the probability or amount of additional recoveries. Signet distributed all of the remaining Capital One Financial Corporation ("Capital One") common stock it held to Signet stockholders in a tax-free distribution on February 28, 1995 (the "spin-off"). Related assets of $3.6 billion and equity of $0.4 billion were spun off at this time. The spin-off created two independent financial institutions, each possessing substantial financial and managerial strength and each pursuing separate long-term business strategies. In 1995, Signet began construction on a new operations center located close to Richmond, Virginia which will be completed in 1996 at a total cost of approximately $55 million, the majority of which has already been incurred. Occupancy commenced during the first quarter of 1996. The following discussion should be read in conjunction with the accompanying financial statements, notes and other supplemental information contained in this document. Results of operations for the three months ended March 31, 1996 are not necessarily indicative of results to be attained for any other period. In addition to the discussion of consolidated information, Signet Banking Corporation excluding Capital One ("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 time periods subsequent to February 28, 1995, the date of the spin-off. PRO FORMA financial information is provided as supplementary financial data on pages 21 through 26. EARNINGS ANALYSIS Signet reported consolidated net income for the first quarter of 1996 of $31.2 million, or $.52 per share, compared with $42.2 million, or $.71 per share, in the first quarter of 1995. Consolidated earnings for the first quarter of 1995 included the results of Capital One for the two months prior to the spin-off on February 28, 1995. On a PRO FORMA basis, the first quarter 1996 net income increased 17% from $26.7 million, or $.45 per share, in the first quarter of 1995. The 1996 performance reflected a 12% increase in total revenues (net interest income and non-interest income) for the quarter compared with PRO FORMA results for the 1995 first quarter. The return on assets ("ROA") and the return on common stockholders' equity ("ROE") improved from the first quarter of 1995, on a PRO FORMA basis. For the first quarter of 1996, ROA was 1.13% and ROE was 14.60% compared with the first quarter 1995 PRO FORMA profitability ratios of 1.06% and 14.34%, respectively. These ratios are indicative of Signet's improved performance. NET INTEREST INCOME Taxable equivalent net interest income, a primary contributor to earnings, totaled $118.4 million for the first quarter of 1996, a slight increase from the fourth quarter 1995 level of $117.4 million. The net interest income in the first quarter of 1996 declined 19%, from $146.5 million, in the first quarter of 1995. On a PRO FORMA basis, taxable equivalent net interest income was $121.3 million in the first quarter of 1995. The net yield margin for the first quarter of 1996 was 4.91%, a 13 basis point increase over the fourth quarter of 1995 primarily the result of lower funding rates partially offset by a change in the yield and mix on earning assets. Table 3 analyzes the change in the net yield margin from the fourth quarter of 1995 to the first quarter of 1996. The net yield margin decreased 51 basis points in the first quarter of 1996 from the net yield margin of 5.42% in the first quarter of 1995, on a PRO FORMA basis. The decrease in the net yield margin was principally the result of lower yields on earning assets and higher funding rates. The net interest spread of 4.32% for the first quarter of 1996 increased 16 basis points from the fourth quarter of 1995 and declined 51 basis points from the first quarter 1995 PRO FORMA level of 4.83%. Signet uses various off-balance sheet interest rate derivatives as an integral part of its asset and liability management and trading activities. For Signet's core business, variable rate assets generally exceed variable rate liabilities. To manage the resulting interest rate risk, Signet enters into derivative transactions. On a consolidated basis, derivative contracts, used for interest rate risk management purposes, decreased interest on earning assets by $1.8 million, $3.2 million and $3.3 million and decreased borrowing costs by $3.8 million, $3.3 million and $7.6 million for the first quarter of 1996, fourth quarter of 1995 and first quarter of 1995 on a PRO FORMA basis, respectively. The overall increase in the net yield margin as a result of these instruments amounted to 8, 0 and 19 basis points for the respective periods. Table 3 SIGNET BANKING CORPORATION ANALYSIS OF CHANGE IN NET YIELD MARGIN Fourth Quarter 1995 versus First Quarter 1996 Net yield margin for Fourth Quarter 1995 4.78% Lower funding costs (excluding increase in derivative income) 0.17 Change in yield and mix on earning assets (0.12) Increase in derivative income 0.08 Net yield margin for First Quarter 1996 4.91% 12 Table 4 SIGNET BANKING CORPORATION STATEMENT OF CHANGES IN ALLOWANCE FOR LOAN LOSSES (DOLLARS IN THOUSANDS)
Three Months Ended Consolidated PRO FORMA March 31 December 31 March 31 1996 1995 1995 1995 Balance at beginning of period $129,702 $220,519 $129,672 $152,003 Additions to allowance charged to expense 11,257 7,180 18,604 3,251 Transfer to loans held for securitization/sale (1) (1,489) (2,951) (750) Transfer to Capital One Financial Corporation (68,516) Loans charged off: Consumer (2) 11,281 9,120 13,266 4,022 Commercial (3) 2,881 428 3,822 428 Real estate-construction (3) 839 8 63 8 Real estate-mortgage (3) 603 904 55 904 Total loans charged off 15,604 10,460 17,206 5,362 Recoveries of loans previously charged off: Consumer (2) 354 2,246 454 338 Commercial 391 1,986 770 1,986 Real estate-construction 48 237 295 237 Real estate-mortgage (3) 285 26 64 26 Total recoveries 1,078 4,495 1,583 2,587 Net loans charged off 14,526 5,965 15,623 2,775 Balance at end of period $126,433 $151,729 $129,702 $151,729 Net loan losses (annualized) as a percentage of average loans: Consumer 2.29% 0.70% 2.81% 0.59% Commercial 0.34 (0.26) 0.43 (0.26) Real estate 0.58 0.28 (0.11) 0.28 Total 1.04% 0.33% 1.12% 0.19% Allowance for loan losses to net loans at end of period 2.18% 2.69% 2.39% 2.69% (1)The amounts transferred to loans held for sale related to Capital One assets were $0, $0 and $2,651 for the first quarter of 1996 and the first and fourth quarters of 1995, respectively. (2)Consumer includes loan-by-check net charge-offs as noted below: Loan-by-check risk tests $ 7,233 $ 23 $ 8,835 $ 23 Other loan-by-check 2,672 217 1,706 217 Total loan-by-check net charge-offs $ 9,905 $ 240 $ 10,541 $ 240 Average loan-by-check: Loan-by-check risk tests $158,523 $233,474 $181,357 $233,474 Other loan-by-check 515,743 78,423 335,685 78,423 Total loan-by-check $674,266 $311,897 $517,042 $311,897 Net loan losses (annualized) as a percentage of average loan-by-check: Loan-by-check risk tests 18.25% 0.04% 19.49% 0.04% Other loan-by-check 2.07 1.11 2.03 1.11 Total loan-by-check 5.88% 0.31% 8.15% 0.31%
(3)Real estate-mortgage includes real estate-commercial mortgage and real estate-residential mortgage. Real estate-residential mortgage charge-offs and recoveries were not significant for the periods presented. 13 PROVISION AND ALLOWANCE FOR LOAN LOSSES (ON A PRO FORMA BASIS) The $11.3 million provision for loan losses in the first quarter of 1996 represented an $8.0 million increase from the 1995 first quarter level of $3.3 million. The increase in the provision resulted primarily from growth and increased losses in the consumer loan portfolio. The Company provided $18.6 million for the allowance for loan losses in the 1995 fourth quarter which was significantly higher than previous quarters due to higher loss estimates on the loan-by-check risk tests. See the following paragraph and the Consumer Loan Growth section for further discussion concerning the loan-by-check product. Net charge-offs were $14.5 million in the first quarter of 1996, a $1.1 million decrease from the fourth quarter 1995 level of $15.6 million. Net charge-offs were $2.8 million in the first quarter of 1995. The $11.7 million increase in net charge-offs from the prior year first quarter was primarily caused by loan-by-check risk test charge-offs ($7.2 million) and an increase in other loan-by-check charge-offs ($2.5 million). The loan-by-check risk test 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. See footnote 2 to Table 4 for more detailed information on the loan-by-check charge-offs. Management expects the consumer loan charge-off ratio to decline to more moderate levels once the loans from the risk test solicitations have seasoned. Commercial net charge-offs accounted for $2.5 million of the increase in net charge-offs from the first quarter of last year for which there was sufficient specific allowance. The allowance for loan losses at March 31, 1996 was $126.4 million, or 2.18% of period-end loans, compared with $151.7 million, or 2.69% of loans at March 31, 1995 and the December 31, 1995 allowance of $129.7 million, or 2.39% of loans. The March 31, 1996 allowance for loan losses equated to 4.0 times non-performing loans and 2.7 times non-performing assets, down from March 31, 1995 when the allowance for loan losses amounted to 5.8 times non-performing loans and 3.6 times non-performing assets. The decline in the level of the allowance from March 31, 1995 resulted partially from $13.9 million of charge-offs related to a bulk sale of commercial real estate related loans in the second quarter of 1995 for which sufficient allowance had already been provided. To determine the appropriate level of allowance for loan losses, management allocates a specific amount to classified commercial and real estate loans which are individually reviewed. Classified loans represent those loans in which normal repayment of principal and interest is questionable. The credit worthiness of the borrower, the adequacy of the underlying collateral and the impact of business and economic conditions upon the borrower are all evaluated monthly. These factors lead to the risk allowance allocation. The consumer portfolio receives an overall allocation based on such factors as current and anticipated economic conditions, historical charge-off and recovery rates and trends in delinquencies. The remaining loan portfolios (unclassified commercial and real estate loans) are attributed allowance by applying historical loss information to the loan portfolios and taking into consideration other factors listed above. Management continuously refines this process and believes that the allowance for loan losses is adequate to cover anticipated losses in the loan portfolio under current economic conditions. At March 31, 1996, Signet's loans that were considered to be impaired under Statement of Financial Accounting Standards ("SFAS") No. 114 were comprised of $26.7 million of non-accrual loans for which the related allowance was $5.4 million. The average recorded investment in impaired loans during the period ended March 31, 1996 was approximately $29.6 million. Collateral dependent loans, which were measured at the fair value of the loan's collateral made up the majority of impaired loans at March 31, 1996. The Company adopted SFAS No. 121, "Accounting for the Impairment of Long- Lived Assets and for Long-Lived Assets to be Disposed Of," on January 1, 1996. SFAS No. 121 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. SFAS No. 121 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. Adoption of SFAS No. 121 did not have a material impact on the Company's financial position or results of operations. NON-INTEREST INCOME (ON A PRO FORMA BASIS) A significant portion of Signet's revenue is derived from non-interest related sources including consumer loan servicing income, deposit account service charges, trust and investment management fees and other income. Signet's business strategies continued to emphasize non-interest operating income sources. Table 5 details the various components of non-interest income for the first quarter of 1996 compared with the first and fourth quarters of 1995. Non-interest income for the first quarter of 1996 was $58.0 million, a 55%, or $20.6 million increase over the first quarter of 1995 on a PRO FORMA basis. Non-interest income declined $10.1 million, or 15%, in the first quarter of 1996 compared with the fourth quarter of 1995. Several factors contributed to the increase in non-interest income in the first quarter of 1996 compared to the first quarter of 1995. Trust and other financial services income increased $2.5 million, or 35%, from additional fee income related to the Blanchard funds acquisition in the second quarter of 1995. Consumer loan servicing and service charge income increased $9.6 million, or 377%, due to the securitization of approximately $756 million of consumer loans since the end of the first quarter of 1995. A $3.5 million increase in mortgage servicing and origination resulted from a rise in mortgage loan volume due to a decline in interest rates. Signet recorded a $3.4 million gain on the sale of mortgage servicing rights in the first quarter of 1996. 14 Table 5 SIGNET BANKING CORPORATION (EXCLUDING CAPITAL ONE) NON-INTEREST INCOME AND EXPENSE (IN THOUSANDS)
Three Months Ended March 31 December 31 1996 1995 1995 NON-INTEREST INCOME: Service charges on deposit accounts $ 16,231 $ 16,471 $ 16,816 Consumer loan servicing and service charge income 12,156 2,551 6,468 Gain on securitization of loans 9,562 Trust and other financial services income 9,605 7,096 9,460 Mortgage servicing and origination 7,668 4,162 6,837 Other service charges and fees 3,882 3,468 3,889 Gain on sale of mortgage servicing 3,426 Gains (losses) on sale of mortgage loans 1,576 (192) 5,301 Trading profits 767 2,393 3,954 Other 2,113 1,110 5,379 Non-interest operating income 57,424 37,059 67,666 Securities available for sale gains 592 102 20 Investment securities gains 255 434 Total non-interest income $ 58,016 $ 37,416 $ 68,120 NON-INTEREST EXPENSE: Salaries $ 48,700 $ 42,638 $ 48,932 Employee benefits 12,401 13,698 7,723 Total staff expense 61,101 56,336 56,655 Occupancy 10,194 9,843 9,572 Supplies and equipment 9,605 8,558 9,513 External data processing services 7,146 6,210 7,289 Travel and communications 5,920 5,594 7,208 Commercial fraud loss 35,000 Professional services 3,313 3,386 4,938 Public relations, sales and advertising 4,889 3,255 5,054 Credit and collection 1,347 72 947 FDIC assessment 170 4,138 841 Foreclosed property - net (820) 572 (300) Other 12,750 13,414 15,474 Total non-interest expense $115,615 $111,378 $152,191
The $10.1 million decline in non-interest income from the fourth quarter of 1995 to the first quarter of 1996 resulted primarily from a $9.6 million gain on the home equity line securitization that took place in the fourth quarter. Consumer loan servicing and service charge income increased $5.7 million, or 88%, in the first quarter of 1996 also due to the $481 million home equity line securitization in December, 1995. This increase was offset by a $3.2 million decrease in trading profits and a $3.7 million reduction in gains on the sale of mortgage loans. Signet recorded a $3.1 million gain on the sale of approximately $179 million of adjustable rate residential mortgages in December, 1995. NON-INTEREST EXPENSE (ON A PRO FORMA BASIS) Non-interest expense for the first quarter of 1996 totaled $115.6 million, an increase of $4.2 million, or 4%, from the first quarter of 1995. The largest increase was $4.8 million in staff expense resulting primarily from a 9.6% increase in the number of full-time employees. Public relations, sales and marketing expense increased $1.6 million as solicitation volume increased on various consumer products. Credit and collection expenses increased $1.3 million due to increased costs associated with the growth in Signet's consumer loan portfolio. The FDIC assessment 15 declined $4.0 million due to lower rates that became effective January 1, 1996. The $1.0 million increase in supplies and equipment expense was attributable to servicing the expanded consumer loan base. Non-interest expense declined $36.6 million, or 24%, in the first quarter of 1996 compared to the fourth quarter of 1995 level of $152.2 million. The $35 million fraud loss recorded in the fourth quarter accounted for most of the decrease. Signet's efficiency ratio (the ratio of non-interest expense, excluding foreclosed property expense, to taxable equivalent operating income) improved nearly 4 percentage points to 66.01% for the first quarter of 1996, compared with the PRO FORMA efficiency ratio of 69.95% for the first quarter of 1995. However, this ratio was up from 63.47% for the fourth quarter of 1995, excluding the fraud loss. 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 March 31, 1996, the amounts actually paid and charged against the restructuring liability were approximately $7.0 million for severance payments to approximately 700 employees, $2.5 million for payments made under the early retirement program and approximately $7.0 million for lease termination and other facilities related costs. In addition, $19.5 million was transferred from the restructuring liability to Signet's pension benefit liability and postretirement benefit liability and $.4 million was reallocated within the restructuring liability from accrued facilities related costs to accrued severance benefits as a result of a change in estimated costs. The remaining liability of $7.2 million is primarily comprised of accrued facilities related costs. The restructuring plan as it relates to severance, the early retirement program and lease terminations was fully implemented as of December 31, 1995. The remainder of the plan, which relates to the disposition of bank-owned properties is expected to be implemented by the end of 1996. INCOME TAXES (ON A PRO FORMA BASIS) Income tax expense for the first quarter of 1996 was $16.2 million compared with the first quarter 1995 expense of $14.2 million, on a PRO FORMA basis, and fourth quarter 1995 expense of $3.9 million. This represented an effective tax rate of 34.16% for the first quarter of 1996, 34.65% for the first quarter of 1995 and 30.14% for the fourth quarter of 1995. The unusually low effective tax rate for the fourth quarter of 1995 resulted primarily from the amount of tax-exempt income being unusually high in proportion to the level of pre-tax income due to the $35.0 million fraud loss. Table 6 SIGNET BANKING CORPORATION AVERAGE BALANCE SHEET (DOLLARS IN THOUSANDS)
Three Months Ended March 31 December 31 1996 1995 1995 AVERAGE INCOME/ YIELD/ Average Income/ Yield/ Average Income/ Yield/ ASSETS BALANCE EXPENSE RATE Balance Expense Rate Balance Expense Rate Earning assets (tax equivalent basis):* Interest bearing deposits with other banks $ 12,633 $ 154 4.82% $ 98,271 $ 1,438 5.85% $ 7,077 $ 102 5.64% Federal funds and resale agreements 591,396 8,188 5.48 1,039,776 15,309 5.89 538,752 8,025 5.83 Trading account securities 506,040 8,122 6.46 418,011 6,718 6.52 469,665 7,736 6.53 Loans held for securitization 330,557 7,419 9.03 146,667 4,205 11.47 623,801 14,262 9.07 Loans held for sale 389,569 10,086 10.24 94,718 1,479 6.25 369,802 8,635 9.14 Securities available for sale 2,309,330 42,233 7.32 1,579,687 27,843 7.05 1,932,161 35,516 7.19 Investment securities- taxable 222,877 3,946 7.08 154,857 2,797 7.22 Investment securities- nontaxable 157,609 4,716 11.97 50,812 1,367 10.76 Loans (net of unearned income): Consumer 1,906,768 53,062 11.19 3,946,185 117,634 11.98 1,824,487 52,026 11.33 Commercial 2,892,389 56,506 7.86 2,362,850 47,134 8.09 2,863,087 56,975 7.90 Real estate- construction 245,237 6,062 9.78 207,805 5,154 9.92 242,094 6,401 10.35 Real estate- commercial mortgage 357,989 8,690 9.76 520,340 12,939 10.08 387,273 9,367 9.60 Real estate- residential mortgage 164,087 3,204 7.81 204,888 4,279 8.35 281,250 5,628 8.00 Total loans 5,566,470 127,524 9.21 7,242,068 187,140 10.48 5,598,191 130,397 9.24 Total earning assets 9,705,995 $203,726 8.44% 10,999,684 $252,794 9.32% 9,745,118 $208,837 8.50% Non-rate related assets: Cash and due from banks 529,040 505,045 543,776 Allowance for loan losses (128,503) (196,476) (125,658) Premises and equipment (net) 196,314 228,577 188,689 Other assets 764,784 795,359 630,085 Totl Assets $11,067,630 $12,332,189 $10,982,010 LIABILITIES AND STOCKHOLDERS' EQUITY Interest bearing liabilities: Deposits: Money market and interest checking $ 723,470 $ 4,451 2.47% $ 1,014,201 $ 6,141 2.46% $ 1,050,321 $ 6,516 2.46% Money market savings 1,751,103 13,629 3.13 1,402,102 11,958 3.46 1,356,002 12,161 3.56 Savings accounts 1,248,406 11,495 3.70 1,188,584 10,727 3.66 1,372,400 13,426 3.88 Savings certificates 1,949,398 22,535 4.65 1,950,069 17,147 3.57 1,800,643 21,381 4.71 Large denomination certificates 111,194 1,525 5.43 494,575 7,700 6.23 104,933 1,451 5.41 Foreign 93,435 1,279 5.42 83,737 1,253 5.99 77,306 1,138 5.76 Total interest bearing deposits 5,877,006 54,914 3.76 6,133,268 54,926 3.63 5,761,605 56,073 3.86 Federal funds and repurchase agreements 2,205,733 26,320 4.72 1,789,022 23,698 5.30 2,338,713 31,217 5.22 Other short-term borrowings 896,552 14,889 6.64 Long-term borrowings 252,991 4,114 6.43 705,362 12,770 7.24 253,085 4,104 6.35 Total interest bearing liabilities 8,335,730 $ 85,348 4.12% 9,524,204 $106,283 4.53% 8,353,403 $ 91,394 4.34% Non-interest bearing liabilities: Demand deposits 1,674,258 1,485,515 1,584,375 Other liabilities 198,254 320,698 188,036 Common stockholders' equity 859,388 1,001,772 856,196 Total liabilities and stockholders' equity $11,067,630 $12,332,189 $10,982,010 Net interest income/spread $118,378 4.32% $146,511 4.79% $117,443 4.16% Interest income to average earning assets 8.44% 9.32% 8.50% Interest expense to average earning assets 3.54 3.92 3.72 Net yield margin 4.91% 5.40% 4.78%
* Includes the effects of taxable equivalent adjustments using a tax rate of 35%. 16,17 FINANCIAL CONDITION (ON A PRO FORMA BASIS) Average earning assets totaled $9.7 billion for the first quarter of 1996, up 7%, or $621 million, from the first quarter 1995 on a PRO FORMA basis and relatively unchanged from the fourth quarter of 1995. Loan securitizations reduced consumer loans by transferring assets off the balance sheet. Adding back average securitized loans to both years' average earning assets and adjusting for loans that may be sold to Capital One, in accordance with previously agreed upon terms of the spin-off, results in a 14% increase in managed earning assets from the first quarter of 1995, on a PRO FORMA basis, compared with the first quarter of 1996. Loans (net of unearned income) for the first quarter of 1996 averaged $5.6 billion, a 4% decline from the first quarter of 1995 PRO FORMA level of $5.8 billion and relatively level with fourth quarter of 1995. The decline from the first quarter of 1995 was primarily due to a $599 million reduction in the consumer loan portfolio as loans were reclassified to loans held for securitization, which increased $329 million over the same time periods, and then were securitized. Including securitized assets, managed loans grew $352 million during the quarter and totaled approximately $7 billion at March 31, 1996. Commercial loans increased $530 million when comparing the first quarter of 1996 to the same period in 1995, as Signet successfully targeted certain specialized industries, such as media and health care, as well as a diverse group of middle market borrowers. The drop in average real estate-residential mortgage outstandings resulted from the sale of approximately $179 million of adjustable rate mortgages in December, 1995. Investment securities declined from $372 million on average in the first quarter of 1995 to zero in the first quarter of 1996 reflecting the fact that the Company reclassified all of its investment securities to securities available for sale in December, 1995, as allowed by implementation guidance for SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities". Average securities available for sale increased $814 million, or 54%, in the first quarter of 1996 compared to the average for the first quarter of 1995, on a PRO FORMA basis. A portion of this increase resulted from the reclassification of investment securities to securities available for sale in December, 1995, as noted above. Interest bearing liabilities averaged $8.3 billion in the first quarter of 1996, an increase of $618 million, or 8%, from the first quarter of 1995, on a PRO FORMA basis. A $291 million decline in money market and interest checking was more than offset by a $349 million increase in money market savings. The $195 million drop in other short-term borrowings was more than offset by a $693 million increase in federal funds and repurchase agreements. Average non-interest bearing demand deposits increased 10%, or $159 million, from the first quarter of 1995, on a PRO FORMA basis, to the first quarter of 1996. Table 7 SIGNET BANKING CORPORATION NON-PERFORMING ASSETS (DOLLARS IN THOUSANDS) March 31 December 31 1996 1995 1995 Non-accrual loans: Commercial $ 5,873 $10,998 $ 9,033 Consumer 1,684 1,596 1,572 Real estate - construction 1,820 5,161 2,988 Real estate - mortgage * 22,580 8,638 24,888 Total non-accrual loans 31,957 26,393 38,481 Foreclosed properties 15,246 15,204 15,822 Total non-performing assets $47,203 $41,597 $54,303 Percentage to loans (net of unearned) and foreclosed properties 0.81% 0.74% 1.00% Allowance for loan losses to: Non-performing loans 395.64 574.88 337.05 Non-performing assets 267.85 364.76 238.85 * 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 at March 31, 1996 totaled $47.2 million, or 0.81% of loans and foreclosed properties. This compares with $41.6 million, or 0.74% and $54.3 million, or 1.00% at March 31, 1995 and December 31, 1995, respectively. Overall non-performing commercial loans declined $5.1 million from March 31, 1995 to March 31, 1996. Over the same period, real estate-construction decreased $3.3 million and real estate-mortgage increased $13.9 million. Foreclosed properties remained level at $15.2 million and were equal to 32% of total non-performing assets and 38% of non-performing real estate assets as of March 31, 1996. In accordance with SFAS No. 114, a loan is classified as foreclosed property where possession has been taken of the collateral, regardless of whether formal foreclosure proceedings have taken place. Table 7 provides details on the various components of non-performing assets at March 31, 1996, March 31, 1995 and December 31, 1995. 18 Table 8 SIGNET BANKING CORPORATION ACCRUING LOANS PAST DUE 90 DAYS OR MORE (DOLLARS IN THOUSANDS) March 31 December 31 1996 1995 1995 Commercial $ 5,679 $ 7,279 $ 6,326 Consumer: Student loans 35,056 19,710 32,308 Credit card 3,171 5,054 5,118 Loan-by-check-risk tests 7,969 791 8,812 Loan-by-check other 3,617 619 2,424 Other consumer 2,366 3,010 2,068 Total consumer 52,179 29,184 50,730 Mortgage 6,953 5,509 9,200 Construction 388 947 115 Total $65,199 $42,919 $66,371 Accruing loans past due 90 days or more as to principal or interest payments totaled $65.2 million, $42.9 million and $66.4 million as of March 31, 1996, March 31, 1995 and December 31, 1995, respectively. The details of these past due loans are displayed in Table 8. The past due commercial and real estate loans were in the process of collection and were adequately collateralized. Past due student loans accounted for $35.1 million, or 54%, of all past due loans. Of the past due student loan balances, 95% were indirectly government guaranteed and do not represent material loss exposure to Signet. STOCKHOLDERS' EQUITY DATA Stockholders' equity provides a source of permanent funding, allows for future growth and assists the Company in withstanding unforeseen adverse developments. At March 31, 1996, stockholders' equity totaled $855 million, an increase of $84 million, or 11%, from the March 31, 1995 level of $771 million. However, since December 31, 1995, stockholders' equity fell $9 million as the unrealized gains and losses, net of tax, on securities available for sale reduced equity by nearly $32 million in the first quarter of 1996. At March 31, 1996, the net unrealized gains, net of tax, related to securities available for sale, totaled $13.3 million. The dividends declared during the first quarter of 1996 were $11.9 million or $0.20 per common share. Table 9 SELECTED CAPITAL DATA (DOLLARS IN THOUSANDS)
March 31 December 31 1996 1995 1995 Qualifying common stockholders' equity $ 839,856 $ 769,995 $ 815,342 Less goodwill and other disallowed intangibles (57,208) (41,279) (58,881) Total Tier I capital 782,648 728,716 756,461 Qualifying debt 113,734 165,200 114,534 Qaulifying allowance for loan losses 101,844 88,308 96,751 Total Tier II capital 215,578 253,508 211,285 Total risked-based capital $ 998,226 $ 982,244 $ 967,746 Total risk-adjusted assets $8,122,928 $7,001,209 $7,707,111 RATIOS: Tier I capital 9.64% 10.41% 9.82% Total risk-based capital 12.29 14.03 12.56 Tier I leverage 7.14 5.93 6.93 Tangible Tier I leverage 6.50 5.63 6.36 Common equity to assets 7.19 7.36 7.87 Common dividend payout ratio (year-to-date) 38.46 35.21 42.47 Book value per share $ 14.39 $ 13.15 $ 14.59
19 The Company's risk-based capital ratios at March 31, 1996 were 12.29% and 9.64% for Total Capital and Tier I Capital, respectively. Signet's leverage ratio at March 31, 1996 was 7.14%. The decline in these capital ratios from December 31, 1995 reflected the impact of higher asset levels at March 31, 1996 than at the prior year-end along with a decline in equity. The high asset level at March 31, 1996 is temporary since it was primarily due to certain large amounts due to and due from brokers related to purchases and sales of securities available for sale. CONSUMER LOAN GROWTH In 1994, Signet expanded its use of information-based strategies to all types of consumer loans, which significantly increased growth in this portfolio. This technique involved generating a data base of potentially creditworthy customers for particular products and then following up with direct mail solicitations. Much of the growth was in a new loan product, "loan-by-check," whereby customers received a direct-mail solicitation and were offered installment loans in the form of a check. To activate the loan, the customer endorsed and deposited the check. Signet is also applying information-based strategies to home equity, student and small business loans. Solicitations in these areas are mostly in the preliminary testing stages. These tests are designed to help Signet develop products that are both appealing to customers and economically feasible for the Company. As a result of these solicitations, loans grew at a strong pace. From March 31, 1995, to March 31, 1996, the installment loan portfolio grew $496 million; the student loan portfolio (including $300 million in student loans held for securitization) increased $170 million; and the home equity loan portfolio (including $460 million of securitized loans) was up $59 million. In total, the managed consumer loan portfolio increased $745 million, or 31%. The managed consumer loan portfolio is composed of consumer loans, consumer loans held for sale, consumer loans held for securitization and securitized consumer loans, less loans that may be sold to Capital One in accordance with previously agreed upon terms of the spin-off. Securitized consumer loans are not assets of the Company and, therefore, are not shown on the balance sheet. INTEREST RATE SENSITIVITY Signet's interest rate sensitivity position is managed by the Asset and Liability Committee ("ALCO") and monitored through the use of simulations on rate sensitive pre-tax income. Interest rate sensitivity is the relationship between changes in market interest rates and changes in rate sensitive income due to the repricing characteristics of assets and liabilities. For example, in periods of rising rates, banking businesses will experience wider spreads as consumer deposit costs lag increases in market interest rates. Improved spreads due to the lag in pricing on consumer deposits will be partially offset to the extent that the funding cost on the investment portfolio increases. ALCO routinely uses derivatives such as interest rate swaps to manage the Company's interest rate risk. ALCO, in managing interest rate sensitivity, also uses simulations to measure the impact that market changes and alternative strategies might have on net interest income. Current period maturity, repricing information and projected balance sheet strategies are used to simulate rate sensitivity. The lag effect of consumer deposit rates, determined through historical analysis and forecasting techniques, is also modeled. These simulations show that an immediate and sustained 100 basis point change in interest rates would have less than a 2% impact on rate sensitive income over the next twelve months, reflecting Signet's conservative balance sheet strategy. ALCO operates under a policy designed to limit the impact of a sudden 100 basis point change in interest rates to no more than a 5% change in rate sensitive income over a twelve month period. During the first quarter of 1996, Signet's balance sheet was in a moderately liability sensitive position. The Company has taken steps to limit its exposure to rising interest rates through the use of derivative products. At March 31, 1996, the notional values of the Company's derivative products for the purpose of managing interest rate risk were $2.8 billion of interest rate swaps, $650 million of interest rate floors and $300 million of interest rate caps. Asset liquidity is generally provided by interest bearing deposits with other banks, federal funds sold and securities purchased under agreements to resell, securities available for sale, loans held for sale and trading account securities. Liability liquidity is measured by the Company's ability to obtain deposits and purchased funds at favorable rates and in adequate amounts and by the length of maturities. Since core deposits are the most stable source of liquidity a bank can have because they are government insured, the high level of average core deposits during the first quarter of 1996 maintained the Company's strong liquidity position. Signet's first quarter 1996 average loan balances were entirely funded with core deposits. However approximately $462 million of core deposits transferred to another financial institution in the first quarter of 1996. These deposits were held on behalf of Capital One under terms of the separation agreement. Signet's equity base, as noted earlier, also provides a stable source of funding. The parent company has not recently relied on the capital markets for funding. For the first quarter of 1996, cash and cash equivalents increased $466 million. Cash provided by operating activities increased $497 million resulting mainly from an increase in other liabilities. Cash used by investing activities amounted to $499 million principally due to net purchases of securities available for sale and an increase in loans. Cash provided by financing activities amounted to $468 million due primarily to an increase in short-term borrowings. 20 SUPPLEMENTAL FINANCIAL DATA SIGNET BANKING CORPORATION (EXCLUDING CAPITAL ONE) On February 28, 1995, Signet Banking Corporation ("Signet") spun off Capital One Financial Corporation. The supplemental financial data that follows portrays Signet's financial position and results of operations on a PRO FORMA basis for the first quarter of 1995 as if the spin-off had occurred prior to January 1, 1995. SIGNET BANKING CORPORATION (EXCLUDING CAPITAL ONE) SELECTED QUARTERLY FINANCIAL INFORMATION (DOLLARS IN THOUSANDS-EXCEPT PER SHARE)
1ST QTR 4th Qtr 3rd Qtr 2nd Qtr 1st Qtr 1996 1995 1995 1995 1995 EARNINGS Net interest income (taxable equivalent) $ 118,378 $ 117,443 $ 119,482 $ 120,401 $ 121,344 Net interest income 116,234 115,595 116,944 117,446 118,082 Net income 31,195 9,026 30,143 29,686 26,706 Net income excluding commercial fraud loss (1) 31,195 31,776 30,143 29,686 26,706 PER COMMON SHARE Net income $ 0.52 $ 0.15 $ 0.50 $ 0.50 $ 0.45 Net income excluding commercial fraud loss (1) 0.52 0.53 0.50 0.50 0.45 Book value 14.39 14.59 14.27 13.90 13.15 AT PERIOD-END Earning assets $10,372,978 $ 9,443,028 $ 9,911,356 $ 9,514,318 $ 9,337,761 Loans (net of unearned income) 5,794,051 5,416,028 5,509,437 5,684,427 5,647,599 Managed consumer loan portfolio 3,121,468 2,806,676 2,664,312 2,539,795 2,376,659 Core deposits 7,325,134 7,413,414 7,173,040 7,106,437 7,113,166 Number of common stockholders 15,176 15,166 15,134 15,259 15,374 Full-time employees 4,119 3,974 3,900 3,743 3,759 Part-time employees 954 1,021 1,049 1,133 1,029 RATIOS Return on average assets (2) 1.13% 1.15% 1.11% 1.14% 1.06% Return on average common stockholders' equity (2) 14.60 14.72 14.51 15.00 14.34 Efficiency ratio (excluding foreclosed prop. exp.) (2) 66.01 63.47 65.99 68.67 69.95 Net interest spread 4.32 4.16 4.32 4.50 4.83 Net yield margin 4.91 4.78 4.96 5.14 5.42 Stockholders' equity to assets 7.19 7.87 7.59 7.70 7.36 AVERAGE SHARES OUTSTANDING 60,356,655 60,230,489 60,145,919 59,668,541 59,162,565 CREDIT QUALITY DATA Non-performing assets $ 47,203 $ 54,303 $ 51,504 $ 57,447 $ 41,597 Net charge-offs (3) 14,526 15,623 12,964 18,593 2,775 Allowance for loan losses to: Non-performing loans 395.64% 337.05% 339.92% 297.24% 574.88% Non-performing assets 267.85 238.85 251.77 237.60 364.76 Net loans 2.18 2.39 2.35 2.40 2.69 Non-performing assets to loans and foreclosed properties 0.81 1.00 0.93 1.01 0.74 Net loan losses to average loans 1.04 1.12 0.89 1.27 0.19
(1) The fourth quarter of 1995 included the $35.0 million commercial fraud loss. (2) The fourth quarter 1995 return on average assets, return on average stockholders' equity and efficiency ratio have been adjusted to exclude the $35.0 million commercial fraud loss. (3) The second quarter of 1995 included approximately $13.9 million of charge-offs related to the sale of approximately $55.0 million of real estate related loans for which there was sufficient allowance. 21 QUARTER-END BALANCE SHEET TREND (IN THOUSANDS)
3/31/96 12/31/95 9/30/95 6/30/95 3/31/95 ASSETS Cash and due from banks $ 477,370 $ 599,113 $ 498,193 $ 529,205 $ 541,946 Interest bearing deposits with other banks 2,479 3,129 1,712 14,610 33,523 Federal funds sold and resale agreements 1,048,139 460,217 425,305 638,641 772,865 Trading account securities 487,206 478,723 464,950 439,737 490,266 Loans held for securitization 300,000 389,700 750,000 450,300 150,000 Loans held for sale 297,147 361,260 267,535 259,372 159,224 Securities available for sale 2,443,956 2,333,971 2,195,180 1,651,554 1,692,387 Investment securities 297,237 375,677 391,897 Loans Consumer 2,086,519 1,751,274 1,776,434 2,116,882 2,229,957 Commercial 3,011,812 3,090,904 2,982,401 2,820,339 2,577,674 Real estate-construction 250,046 236,103 237,271 227,531 211,097 Real estate mortgage-commercial 359,445 366,698 406,102 433,701 505,717 Real estate mortgage-residential 232,322 122,584 248,145 224,433 225,477 Gross loans 5,940,144 5,567,563 5,650,353 5,822,886 5,749,922 Less: Unearned income (146,093) (151,535) (140,916) (138,459) (102,323) Allowance for loan losses (126,433) (129,702) (129,672) (136,497) (151,729) Net loans 5,667,618 5,286,326 5,379,765 5,547,930 5,495,870 Premises and equipment (net) 201,690 192,431 180,549 166,731 160,672 Interest receivable 106,094 104,437 98,000 90,190 75,082 Due from broker 299,645 Other assets 562,325 768,558 534,689 458,370 513,994 Total assets $11,893,669 $10,977,865 $11,093,115 $10,622,317 $10,477,726 LIABILITIES Non-interest bearing deposits $ 1,713,563 $ 1,726,378 $ 1,603,922 $ 1,647,309 $ 1,533,797 Interest bearing deposits: Money market and interest checking 179,609 1,102,140 1,064,412 1,038,959 1,023,532 Money market savings 2,405,436 1,338,985 1,337,665 1,319,829 1,382,105 Savings accounts 961,171 1,395,514 1,338,824 1,291,289 1,224,393 Savings certificates 2,065,355 1,850,397 1,828,217 1,809,051 1,949,339 Large denomination certificates 126,077 129,711 99,890 99,020 100,987 Foreign 291,382 49,846 80,318 96,084 183,337 Total interest bearing deposits 6,029,030 5,866,593 5,749,326 5,654,232 5,863,693 Total deposits 7,742,593 7,592,971 7,353,248 7,301,541 7,397,490 Securities sold under repurchase agreements 1,228,482 1,124,105 1,153,479 1,229,433 1,202,629 Federal funds purchased 1,002,344 780,193 1,285,918 816,946 521,295 Other short-term borrowings 105,408 Long-term borrowings 252,974 253,033 253,129 253,222 253,550 Interest payable 24,873 19,460 23,455 18,030 26,047 Due to broker 600,812 Other liabilities 186,938 344,154 181,514 185,140 199,831 Total liabilities 11,039,016 10,113,916 10,250,743 9,804,312 9,706,250 STOCKHOLDERS' EQUITY Common stock 296,936 296,044 295,244 294,175 293,298 Capital surplus 202,513 200,093 197,911 195,899 193,986 Retained earnings 355,204 367,812 349,217 327,931 284,192 Total stockholders' equity 854,653 863,949 842,372 818,005 771,476 Total liabilities and stockholders' equity $11,893,669 $10,977,865 $11,093,115 $10,622,317 $10,477,726
22 QUARTERLY INCOME TREND (EXCLUDING CAPITAL ONE) (IN THOUSANDS)
Three Months Ended 3/31/96 12/31/95 9/30/95 6/30/95 3/31/95 Interest income: Loans, including fees: Consumer $ 53,062 $ 52,026 $ 60,296 $ 62,068 $ 70,095 Commercial 55,352 56,128 53,703 50,358 46,365 Real estate-construction 6,062 6,402 6,080 5,628 5,152 Real estate-commercial mortgage 8,150 8,856 9,358 11,276 12,131 Real estate-residential mortgage 3,204 5,628 5,011 5,074 4,279 Total loans, including fees 125,830 129,040 134,448 134,404 138,022 Interest bearing deposits with other banks 154 102 127 358 1,316 Federal funds sold and resale agreements 8,188 8,025 7,166 8,232 12,029 Trading account securities 8,122 7,736 7,410 8,936 6,718 Loans held for securitization 7,419 14,262 11,561 6,420 73 Loans held for sale 10,086 8,635 7,785 5,858 1,479 Securities available for sale 41,783 35,442 31,963 31,342 26,512 Investment securities-taxable 2,797 4,190 4,257 3,811 Investment securities-nontaxable 950 2,093 2,928 3,139 Total interest income 201,582 206,989 206,743 202,735 193,099 Interest expense: Money market and interest checking 4,451 6,516 6,794 6,939 6,141 Money market savings 13,629 12,161 11,873 11,704 11,958 Savings accounts 11,495 13,426 12,785 11,800 10,727 Savings certificates 22,535 21,381 22,070 20,747 17,147 Large denomination certificates 1,525 1,451 1,332 1,186 1,529 Foreign 1,279 1,138 1,721 2,235 1,253 Total interest on deposits 54,914 56,073 56,575 54,611 48,755 Securities sold under repurchase agreements 14,511 16,343 14,689 13,880 11,732 Federal funds purchased 11,809 14,874 14,211 12,266 7,295 Other short-term borrowings 413 2,761 Long-term borrowings 4,114 4,104 4,324 4,119 4,474 Total interest expense 85,348 91,394 89,799 85,289 75,017 Net interest income 116,234 115,595 116,944 117,446 118,082 Provision for loan losses 11,257 18,604 8,681 4,250 3,251 Net interest income after provision for loan losses 104,977 96,991 108,263 113,196 114,831 Non-interest income: Service charges on deposit accounts 16,231 16,816 17,732 17,212 16,471 Consumer loan servicing and service charge income 12,156 6,468 2,511 1,633 2,551 Trust and other financial services income 9,605 9,460 8,679 7,104 7,096 Gain on securitization of loans 9,562 Other 19,432 25,360 17,441 16,743 10,941 Non-interest operating income 57,424 67,666 46,363 42,692 37,059 Securities available for sale gains 592 20 166 244 102 Investment securities gains 434 565 3 255 Total non-interest income 58,016 68,120 47,094 42,939 37,416 Non-interest expense: Salaries 48,700 48,932 45,792 43,668 42,638 Employee benefits 12,401 7,723 10,517 12,076 13,698 Occupancy 10,194 9,572 9,635 9,434 9,843 Supplies and equipment 9,605 9,513 9,384 8,715 8,558 External data processing services 7,146 7,289 6,868 6,748 6,210 Travel and communications 5,920 7,208 6,138 5,604 5,594 Commercial fraud loss 35,000 Other 21,649 26,954 21,173 25,199 24,837 Total non-interest expense 115,615 152,191 109,507 111,444 111,378 Income before income taxes 47,378 12,920 45,850 44,691 40,869 Applicable income taxes 16,183 3,894 15,707 15,005 14,163 Net income $ 31,195 $ 9,026 $ 30,143 $ 29,686 $ 26,706
23 QUARTERLY AVERAGE BALANCE SHEET TREND (EXCLUDING CAPITAL ONE) (IN THOUSANDS)
Three Months Ended 3/31/96 12/31/95 9/30/95 6/30/95 3/31/95 ASSETS Earning assets Interest bearing deposits with other banks $ 12,633 $ 7,077 $ 8,136 $ 22,799 $ 89,749 Federal funds sold and resale agreements 591,396 538,752 469,512 532,922 812,447 Trading account securities 506,040 469,665 464,254 553,080 418,011 Loans held for securitization 330,557 623,801 425,543 153,300 1,667 Loans held for sale 389,569 369,802 312,734 234,107 94,718 Securities available for sale 2,309,330 1,932,161 1,712,148 1,679,836 1,494,844 Investment securities-taxable 154,857 230,852 235,514 214,027 Investment securities-nontaxable 50,812 106,860 146,867 157,609 Loans (net of unearned income) Consumer 1,906,768 1,824,487 2,182,724 2,349,345 2,505,854 Commercial 2,892,389 2,863,087 2,747,241 2,553,554 2,362,850 Real estate-construction 245,237 242,094 230,364 217,685 207,805 Real estate mortgage-commercial 357,989 387,273 423,622 480,112 520,340 Real estate mortgage-residential 164,087 281,250 241,066 236,107 204,888 Total loans 5,566,470 5,598,191 5,825,017 5,836,803 5,801,737 Total earning assets 9,705,995 9,745,118 9,555,056 9,395,228 9,084,809 Non-rate related assets: Cash and due from banks 529,040 543,776 533,901 509,633 503,217 Allowance for loan losses (128,503) (125,658) (133,144) (144,407) (151,757) Premises and equipment (net) 196,314 188,689 174,691 164,536 160,217 Other assets 764,784 630,085 625,258 561,476 598,458 Total assets $11,067,630 $10,982,010 $10,755,762 $10,486,466 $10,194,944 LIABILITIES AND STOCKHOLDERS' EQUITY Interest bearing liabilities Deposits: Money market and interest checking $ 723,470 $ 1,050,321 $ 1,037,342 $ 1,031,701 $ 1,014,201 Money market savings 1,751,103 1,356,002 1,341,762 1,346,920 1,402,102 Savings accounts 1,248,406 1,372,400 1,315,832 1,255,593 1,188,584 Savings certificates 1,949,398 1,800,643 1,791,296 1,876,689 1,943,788 Large denomination certificates 111,194 104,933 100,367 92,660 123,864 Foreign 93,435 77,306 116,204 146,829 83,737 Total interest bearing deposits 5,877,006 5,761,605 5,702,803 5,750,392 5,756,276 Federal funds and repurchase agreements 2,205,733 2,338,713 2,201,617 1,950,959 1,512,558 Other short-term borrowings 30,098 195,275 Long-term borrowings 252,991 253,085 253,174 253,427 253,596 Total interest bearing liabilities 8,335,730 8,353,403 8,157,594 7,984,876 7,717,705 Non-interest bearing liabilities Demand deposits 1,674,258 1,584,375 1,557,185 1,497,770 1,515,423 Other liabilities 198,254 188,036 216,792 210,092 206,520 Common stockholders' equity 859,388 856,196 824,191 793,728 755,296 Total liabilities and stockholders' equity $11,067,630 $10,982,010 $10,755,762 $10,486,466 $10,194,944
24 IMPACT OF CONSUMER LOAN SECURITIZATIONS (EXCLUDING CAPITAL ONE) (DOLLARS IN THOUSANDS)
1ST QTR 4th Qtr 3rd Qtr 2nd Qtr 1st Qtr 1996 1995 1995 1995 1995 STATEMENT OF INCOME Net interest income $ 116,234 $ 115,595 $ 116,944 $ 117,446 $ 118,082 Provision for loan losses 11,257 18,604 8,681 4,250 3,251 Non-interest income 58,016 68,120 47,094 42,939 37,416 Non-interest expense 115,615 152,191 109,507 111,444 111,378 Income before income taxes $ 47,378 $ 12,920 $ 45,850 $ 44,691 $ 40,869 ADJUSTMENTS FOR SECURITIZATIONS Net interest income $ 11,072 $ 7,071 $ 5,889 $ 7,857 $ 10,917 Provision for loan losses 2,011 1,876 2,314 3,205 4,314 Non-interest income (9,061) (14,757) (3,575) (4,652) (6,603) Non-interest expense Increase (decrease) to income before income taxes $ 0 $ (9,562) $ 0 $ 0 $ 0 ADJUSTMENTS FOR LOANS THAT MAY BE SOLD TO CAPITAL ONE Net interest income $ (2,724) $ (2,951) $ (2,632) $ (2,218) $ (1,758) Provision for loan losses 0 (3,957) (4,352) (4,618) (5,595) Non-interest income 2,724 (1,006) (1,720) (2,400) (3,837) Non-interest expense Increase (decrease) to income before income taxes $ 0 $ 0 $ 0 $ 0 $ 0 MANAGED STATEMENT OF INCOME (ADJUSTED) Net interest income $ 124,582 $ 119,715 $ 120,201 $ 123,085 $ 127,241 Provision for loan losses 13,268 16,523 6,643 2,837 1,970 Non-interest income 51,679 52,357 41,799 35,887 26,976 Non-interest expense 115,615 152,191 109,507 111,444 111,378 Income before income taxes $ 47,378 $ 3,358 $ 45,850 $ 44,691 $ 40,869 As reported (EXCLUDING CAPITAL ONE): Average earning assets $ 9,705,995 $9,745,118 $9,555,056 $9,395,228 $9,084,809 Return on assets 1.13% 0.33% 1.11% 1.14% 1.06% Net yield margin 4.91 4.78 4.96 5.14 5.42 On a managed basis: Average earning assets $10,187,961 $9,809,244 $9,375,586 $9,237,284 $8,921,666 Return on assets 1.09% 0.10% 1.13% 1.15% 1.08% Net yield margin 5.00 4.92 5.19 5.47 5.93 Yield on managed consumer loan portfolio 11.21% 10.85% 10.86% 10.88% 11.04%
25 MANAGED CONSUMER LOAN PORTFOLIO (EXCLUDING CAPITAL ONE) (IN THOUSANDS)
Three Months Ended MARCH 31 December 31 September 30 June 30 March 31 1996 1995 1995 1995 1995 AVERAGE BALANCES: Student loans $ 746,038 $ 683,704 $ 645,145 $ 922,956 $ 889,679 Installment loans 921,869 773,134 730,186 651,052 634,387 Home equity loans 101,404 87,915 525,232 519,498 516,265 Credit card 73,166 218,933 195,115 160,381 366,453 Other loans 64,291 60,801 87,046 95,458 99,070 Sub-total average consumer loan portfolio 1,906,768 1,824,487 2,182,724 2,349,345 2,505,854 Consumer loans held for sale 231,968 196,296 163,082 133,163 1,131 Credit card loans held for securitization 30,557 975 120,652 150,003 1,667 Home equity loans held for securitization 322,826 4,891 Student loans held for securitization 300,000 300,000 300,000 3,297 Total average on-balance sheet portfolio 2,469,293 2,644,584 2,771,349 2,635,808 2,508,652 Securitized consumer loans 713,934 370,180 195,390 266,493 374,583 Less loans that may be sold to Capital One (231,968) (306,054) (374,960) (424,437) (537,726) Total average managed consumer loan portfolio $2,951,259 $2,708,710 $2,591,779 $2,477,864 $2,345,509 PERIOD-END BALANCES: Student loans $ 776,663 $ 709,583 $ 675,348 $ 636,925 $ 906,271 Installment loans 1,072,831 810,999 753,631 693,517 577,330 Home equity loans 111,579 87,348 89,843 524,625 512,175 Credit card 64,261 81,532 197,419 167,792 136,782 Other loans 61,185 61,812 60,193 94,023 97,399 Sub-total period-end consumer loan portfolio 2,086,519 1,751,274 1,776,434 2,116,882 2,229,957 Consumer loans held for sale 215,961 240,902 165,205 157,289 101,857 Credit card loans held for securitization 89,700 150,300 150,000 Home equity loans held for securitization 450,000 Student loans held for securitization 300,000 300,000 300,000 300,000 Total period-end on-balance sheet portfolio 2,602,480 2,381,876 2,691,639 2,724,471 2,481,814 Securitized consumer loans 734,949 665,702 290,833 213,331 320,833 Less loans that may be sold to Capital One (215,961) (240,902) (318,160) (398,007) (425,988) Total period-end managed consumer loan portfolio $3,121,468 $2,806,676 $2,664,312 $2,539,795 $2,376,659
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. Signet securitized $185 million of credit card loans and $481 million of home equity loans in September and December of 1995, respectively. In February, 1996, Signet securitized an additional $90 million of credit card loans. 26 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: The Registrant filed a Current Report on Form 8-K, dated March 19, 1996, reporting that it was the victim of fraudulent commercial loan transactions amounting to approximately $81 million. 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: May 8, 1996 /s/ David L. Brantley David L. Brantley Executive Vice President and Treasurer Date: May 8, 1996 /s/ W. H. Catlett, Jr. W. H. Catlett, Jr. Executive Vice President and Controller (Principal Accounting Officer) 27 EX-11 2 COMPUTATION OF EARNINGS PER SHARE EXHIBIT 11 - COMPUTATION OF EARNINGS PER SHARE (DOLLARS IN THOUSANDS-EXCEPT PER SHARE)
Three Months Ended March 31 Common and common equivalent: Average shares outstanding 59,295,073 58,589,048 Dilutive stock options-based on the treasury stock method using average market price 1,051,629 511,009 Shares used 60,346,702 59,100,057 Net income applicable to Common Stock $ 31,195 $ 42,225 Per share amount $ 0.52 $ 0.71 Assuming full dilution: Average shares outstanding 59,295,073 58,589,048 Dilutive stock options-based on the treasury stock method using the period end market price, if higher than the average market price 1,061,582 573,517 Shares used 60,356,655 59,162,565 Net income applicable to Common Stock $ 31,195 $ 42,225 Per share amount $ 0.52 $ 0.71
The calculations of common and common equivalent earnings per share and fully diluted earnings per share are submitted in accordance with Securities Exchange Act of 1934 Release No. 9083 although both calculations are not required by footnote 2 to paragraph 14 of APB Opinion No. 15 because there is dilution of less than 3%. The Registrant has elected to show fully diluted earnings per share in its financial statements. 28 EX-27 3 ARTICLE 9 FDS FOR 10-Q
9 1,000 3-MOS DEC-31-1996 MAR-31-1996 477,370 2,479 1,048,139 487,206 297,147 0 0 5,940,144 (126,433) 11,893,669 7,742,593 2,230,826 812,623 252,974 0 0 296,936 557,717 11,893,669 125,830 0 75,752 201,582 54,914 85,348 116,234 11,257 592 115,615 47,378 47,378 0 0 31,195 0.52 0.52 4.91 47,203 65,199 0 0 129,702 15,604 1,078 126,433 126,433 0 2,161
-----END PRIVACY-ENHANCED MESSAGE-----