-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, Il61PVe/ET5JM7T2BYilVUAzNPUSofDdcuz2kLAqSD8ZDMdrNW3DgBzU2ypkJ8x5 /KX4ZRPTRn/wgU8RXIFrFQ== 0000950118-94-000063.txt : 19940331 0000950118-94-000063.hdr.sgml : 19940331 ACCESSION NUMBER: 0000950118-94-000063 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19931231 FILED AS OF DATE: 19940330 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SIGNET BANKING CORP CENTRAL INDEX KEY: 0000009659 STANDARD INDUSTRIAL CLASSIFICATION: 6022 IRS NUMBER: 546037910 STATE OF INCORPORATION: VA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 34 SEC FILE NUMBER: 001-06505 FILM NUMBER: 94519020 BUSINESS ADDRESS: STREET 1: 7 N EIGHTH ST STREET 2: PO BOX 25970 CITY: RICHMOND STATE: VA ZIP: 23260 BUSINESS PHONE: 8047472000 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-K 1 FORM 10-K SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-K [ X ] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 (Fee Required). For the fiscal year ended December 31, 1993 [ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 (No Fee Required). For the transition period from ____________ to ____________. Commission File No. 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 incorporation or organization) Number) 7 North Eighth Street 23219 Richmond, Virginia (Zip Code) (Address of principal executive offices) Registrant's telephone number, including area code: (804) 747-2000 Securities registered pursuant to Section 12(b) of the Act: Common Stock, $5 Par Value New York Stock Exchange Rights to Purchase Series A Junior Participating Preferred Stock, $20 par value New York Stock Exchange (Title of each class) (Name of each exchange on which registered) Securities registered pursuant to Section 12(g) of the Act: None 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, and (2) has been subject to such filing requirements for the past 90 days. Yes X No Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ( ) The aggregate market value of the voting stock held by nonaffiliates of the registrant as of February 28, 1994: * Common Stock, $5 Par Value - $1,937,584,250 The number of shares outstanding of each of the registrant's classes of common stock as of February 28, 1994: Common Stock, $5 Par Value - 56,709,912 * In determining this figure, the Registrant has assumed that the executive officers of the Registrant, the Registrant's directors, and persons known to the Registrant to be the beneficial owners of more than five percent of the Registrant's Common Stock, that directly or indirectly control the Registrant, are affiliates. Such assumption shall not be deemed to be conclusive for any other purpose. DOCUMENTS INCORPORATED BY REFERENCE 1. Portions of the annual report to shareholders for the year ended December 31, 1993 are incorporated by reference into Parts I, II and IV. 2. Portions of the proxy statement for the annual shareholders' meeting to be held on April 26, 1994 are incorporated by reference into Part III. PART I ITEM 1. BUSINESS. General The Registrant is a registered bank holding company, incorporated in Virginia in 1962, and had consolidated assets of $11.8 billion as of December 31, 1993. On the basis of total assets and deposits at December 31, 1993, the Registrant is the second largest banking organization headquartered in Virginia. The Registrant provides interstate 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. The Registrant is engaged in the general commercial and consumer banking business through its three principal bank subsidiaries, which are members of the Federal Reserve System. The bank subsidiaries provide financial services through banking offices located throughout Virginia, Maryland and Washington, D.C. and a 24-hour full-service Telephone Banking Center. Signet is a major issuer of credit cards nationwide, offering a broad spectrum of card products designed to meet the unique needs of differing market segments. Signet Bank/Virginia owns a commercial bank operating in the Bahamas. International banking operations are conducted through foreign branches of Signet Bank/Virginia and Signet Bank/Maryland. Service subsidiaries are engaged in writing insurance in connection with the lending activities of the banks and bank-related subsidiaries and owning real estate for banking premises. Other subsidiaries are engaged in trust operations, various kinds of lending and leasing activities, insurance agency activities, mortgage lending, certain investment banking activities and broker and dealer activities relating to certain phases of the domestic securities business. As of December 31, 1993, the Registrant and its subsidiaries employed 5,753 full-time and 1,386 part-time employees. Domestic Banking Operations Signet Bank/Virginia, incorporated under the laws of Virginia, had assets of $9.0 billion at December 31, 1993. Signet Bank/Maryland, incorporated under the laws of Maryland, had assets of $3.2 billion at December 31, 1993. Signet Bank N.A., incorporated under the laws of the United States, had assets of $624 million at December 31, 1993. The bank subsidiaries provide all customary banking services to businesses and individuals. Domestic Trust Operations Trust operations are administered by Signet Trust Company, a subsidiary of the Registrant which presently operates four offices in Virginia, one office in Maryland and one office in Washington, D.C. International Banking Operations International banking operations are conducted through Signet Bank/Maryland's and Signet Bank/Virginia's international divisions and through Signet Bank (Bahamas), Ltd., a subsidiary of Signet Bank/Virginia. Signet Bank/Virginia and Signet Bank/Maryland also conduct international banking operations through foreign branches located in the Bahamas and Cayman Islands, respectively. International banking is subject to special risks such as exchange controls and other regulatory or political policies of governments, both foreign and domestic. Currency devaluation is an additional risk of international banking; however, substantially all of the Registrant's international assets are repayable in U.S. dollars. Domestic Bank-Related Activities Signet Commercial Credit Corporation, a wholly-owned subsidiary of the Registrant, is engaged in bank-related activities in the United States. It makes loans that are often secured by inventory, accounts receivable or like security and are generally structured on a revolving basis. Signet Insurance Services, Inc. and Signet Insurance Services, Inc./Maryland, wholly-owned subsidiaries of the Registrant, provide, as agents, a full line of life and property/casualty insurance coverage for both individuals and business enterprises. Signet Mortgage Corporation, a wholly-owned subsidiary of Signet Bank/Virginia, engages in the business of originating, servicing, and selling mortgage loans. Signet Leasing and Financial Corporation, a wholly-owned subsidiary of Signet Bank/Maryland, engages in diversified equipment lease financing activities (excluding passenger automobiles) for commercial customers primarily in Maryland and the Mid-Atlantic region. Signet Financial Services, Inc., formerly Signet Investment Corporation, a wholly-owned subsidiary of the Registrant, acts as a broker and dealer in certain phases of the domestic securities business. Signet Investment Banking Company, a wholly-owned subsidiary of the Registrant, is engaged in certain investment banking activities. Competition The Registrant is subject to substantial competition in all phases of its business. Its banks compete not only with other commercial banks but with other financial institutions, including brokerage firms, savings and loan associations and savings banks, credit unions, consumer loan companies, finance companies, insurance companies and certain governmental agencies. The Registrant's non-banking subsidiaries also operate in highly competitive fields and compete with organizations substantially larger than themselves. See "Regulation" below for a discussion of legislation which has increased competition in the markets served by the Registrant. Government Policy The earnings of the Registrant are affected not only by general economic conditions but also by the policies of various governmental regulatory authorities. In particular, the Federal Reserve System regulates money and credit conditions in order to influence general economic conditions, primarily through open market transactions in U.S. Government securities, varying the discount rate on member bank borrowings and setting reserve requirements against member bank deposits. These policies have a significant influence on overall growth and distribution of bank loans, investments and deposits, and affect interest rates charged on loans or paid for time and savings deposits. Federal Reserve monetary policies have had a significant effect on the operating results of commercial banks in the past and are expected to continue to do so in the future. The Registrant cannot accurately predict the effect such policies may have in the future on its business and earnings. Capital Guidelines The Board of Governors of the Federal Reserve System (the "Federal Reserve Board") has adopted final risk-based capital guidelines for bank holding companies. The minimum guidelines for the ratio of capital to risk- weighted assets (including certain off-balance-sheet activities, such as standby letters of credit) is 8 percent. At least half of the total capital must be composed of common equity, retained earnings and qualifying perpetual preferred stock less disallowed intangibles, including goodwill ("Tier I capital"). The remainder may consist of qualifying subordinated debt, other preferred stock and a limited amount of the loan loss allowance. At December 31, 1993, the Registrant's Tier I and total capital ratios were 11.12 percent and 15.02 percent, respectively. In addition, the Federal Reserve Board has established minimum leverage ratio guidelines for bank holding companies. These guidelines provide for a minimum leverage ratio of Tier I capital to adjusted average quarterly assets equal to 3 percent for bank holding companies that meet certain specified criteria, including that they have the highest regulatory rating. All other bank holding companies are generally required to maintain a leverage ratio of 3 percent plus an additional cushion of at least 100 to 200 basis points. The Registrant's leverage ratio at December 31, 1993 was 8.13 percent. The guidelines also provide that bank holding companies experiencing internal growth or making acquisitions will be expected to maintain strong capital positions substantially above the minimum supervisory levels without significant reliance on intangible assets. Furthermore, the Federal Reserve Board has indicated that it will continue to consider a "tangible Tier I leverage ratio" (deducting all intangibles) in evaluating proposals for expansion or new activities. Each of the Registrant's subsidiary banks is subject to similar capital requirements adopted by the appropriate federal bank regulator. Following are the capital ratios for the Company's three principal subsidiaries at December 31, 1993: Ratio Signet Bank/Virginia Signet Bank/Maryland Signet Bank N.A. Tier I 9.26% 10.82% 19.28% Total Capital 11.74 13.38 20.57 Leverage 6.84 6.75 9.02 Failure to meet capital guidelines could subject a national or state member bank to a variety of enforcement remedies, including the termination of deposit insurance by the FDIC and a prohibition on the taking of brokered deposits. Bank regulators continue to indicate their desire to raise capital requirements applicable to banking organizations beyond current levels. However, management is unable to predict whether and when higher capital requirements would be imposed and, if so, at what levels and on what schedule. For further discussion, refer to the portions of the 1993 Annual Report to Shareholders incorporated by reference herein (Exhibit 13.1). Supervision Signet Bank/Virginia and Signet Bank/Maryland are supervised and regularly examined by the Federal Reserve Board and by the Bureau of Financial Institutions of the Virginia State Corporation Commission or the Maryland Bank Commissioner. Signet Bank N.A. is subject to regulation, supervision and examination by the Office of the Comptroller of the Currency. Each of such banking subsidiaries is subject to regulation and examination by the Federal Deposit Insurance Corporation. The Registrant is also subject to examination by the Federal Reserve Board. The Registrant's non-banking subsidiaries are supervised by the Federal Reserve Board. In addition, Signet Insurance Services, Inc. and Signet Insurance Services, Inc./Maryland are subject to insurance laws and regulations of Virginia and Maryland, respectively, and the activities of Signet Financial Services, Inc. are governed by the Securities and Exchange Commission, the National Association of Securities Dealers, Inc. and state securities laws. Regulation The Registrant is registered under the Bank Holding Company Act of 1956, as amended (the "BHC Act"). The BHC Act restricts the activities of the Registrant and requires prior approval of the Federal Reserve Board of any acquisition by the Registrant of more than 5% of the voting shares of any bank or bank holding company, any acquisition of all or substantially all of the assets of a bank and any merger or consolidation with another bank holding company. Under the BHC Act, the Registrant may not acquire any domestic bank located outside of Virginia unless such acquisition is specifically authorized by statute in the state where the bank is located. (See the discussion of interstate banking legislation below.) The BHC Act also prohibits the Registrant from engaging in any business in the United States other than that of managing or controlling banks or businesses closely related to banking, or of furnishing services to or performing services for subsidiaries and, with certain limited exceptions, from acquiring more than 5% of the voting shares of any company. The Federal Reserve Board generally follows a restrictive policy in permitting the entry of bank holding companies and other bank affiliates into domestic and foreign bank-related activities. Further, under Section 106 of the 1970 Amendments to the BHC Act and the Federal Reserve Board's regulations, a bank holding company and its subsidiaries are prohibited from engaging in certain tie-in arrangements in connection with any extension of credit or provision of any property or service. Federal law imposes limitations on the ability of the Registrant and its subsidiaries to engage in certain phases of the domestic securities business. The Registrant is a bank holding company and is a legal entity separate and distinct from its banking and other subsidiaries. The principal sources of the Registrant's revenues are interest income derived from loans to and deposits in subsidiaries and dividends the Registrant receives from its subsidiaries. The right of the Registrant to participate as a shareholder in any distribution of assets of any subsidiary upon its liquidation or reorganization or otherwise is subject to the prior claims of creditors of any such subsidiary. Signet Bank/Virginia, Signet Bank/Maryland and Signet Bank N.A. are subject to claims by creditors for long-term and short-term debt obligations, including substantial obligations for federal funds purchased and securities sold under repurchase agreements, as well as deposit liabilities. There are also a number of federal and state legal limitations on the extent to which Signet Bank/Virginia, Signet Bank/Maryland and Signet Bank N.A. may pay dividends or otherwise supply funds to the Registrant or its affiliates. The prior approval of the appropriate federal bank regulator is required if the total of all dividends declared by a national bank or state member bank in any calendar year will exceed the sum of such bank's net profits, as defined by the regulators, for the year and its retained net profits for the preceding two calendar years. In addition, a dividend may not be paid in excess of a bank's undivided profits then on hand, after deducting losses and bad debts in excess of the allowance for loan and lease losses. The payment of dividends by the Registrant and its banking subsidiaries may also be affected or limited by other factors, such as the requirement to maintain adequate capital above regulatory minimums. In addition, the appropriate federal regulatory authority is authorized to determine under certain circumstances relating to the financial condition of a national bank, a state member bank or a bank holding company that the payment of dividends would be an unsafe or unsound practice and to prohibit payment thereof. The payment of dividends that deplete a bank's capital base could be deemed to constitute such an unsafe or unsound practice. The Federal Reserve Board and the Office of the Comptroller of the Currency have each indicated that banking organizations should generally pay dividends only out of current operating earnings. Under applicable regulatory restrictions, all of the Registrant's banking subsidiaries were able to pay dividends to the Registrant as of January 1, 1994. Under federal law, Signet Bank/Virginia, Signet Bank/Maryland and Signet Bank N.A. may not, subject to certain limited exceptions, make loans or extensions of credit to, or investments in the securities of, the Registrant or any non-bank subsidiary or take their securities as collateral for loans to any borrower. In addition, federal law requires that certain transactions between Signet Bank/Virginia, Signet Bank/Maryland and Signet Bank N.A. and their affiliates, including sales of assets and furnishing of services, must be on terms that are at least as favorable to the banks as those prevailing in transactions with independent third parties. Signet Bank/Virginia, Signet Bank/Maryland and Signet Bank N.A. are subject to various statutes and regulations relating to required reserves, investments, loans, acquisitions of fixed assets, interest rates payable on deposits, requirements for meeting community credit needs, transactions among affiliates and the Registrant, mergers and consolidations, and other aspects of their operations. Virginia, Maryland and the District of Columbia have each adopted interstate banking statutes under which bank holding companies located in certain other states (primarily Southeastern states) may acquire banks or bank holding companies located in Virginia, Maryland or the District of Columbia, as applicable, provided the laws of the state in which the bank holding company making the acquisition has its principal place of business permit bank holding companies located in Virginia, Maryland or the District of Columbia, as applicable, to acquire banks and bank holding companies in that state. In addition, a number of other states have adopted interstate banking statutes that permit bank holding companies located in Virginia, Maryland or the District of Columbia to acquire out-of-state banks or bank holding companies, either on a reciprocal basis or without regard to reciprocity. Many of these statutes, and many of the interstate banking statutes referred to above, contain provisions which could restrict acquisitions by the Registrant of out-of-state banks or bank holding companies and, conversely, acquisitions of the Registrant by out-of-state banks or bank holding companies. On February 23, 1994, the Virginia General Assembly passed legislation which amends Virginia's interstate banking statutes to allow Virginia bank holding companies to acquire banking institutions located in any state with reciprocal national banking laws and out-of-state bank holding companies to acquire Virginia banking institutions if the laws of the out-of-state bank holding company's home state permit acquisitions of banking institutions in that state by Virginia bank holding companies under the same conditions. The new legislation has not yet been signed by the Governor of Virginia. If signed by the Governor, it will become effective July 1, 1994. Other provisions of Maryland law affect the competitive posture of Maryland banks. Under Maryland law, an out-of-state bank holding company, regardless of location, may establish new banks in Maryland that may compete generally with Maryland banks, provided certain capital investment and employment requirements are met and, unless otherwise waived, the out-of- state bank holding company agrees to locate the headquarters of the new Maryland bank in a designated enterprise zone. Maryland law allows branching, subject to regulatory approval. Virginia law provides that a bank may establish new branches, subject to regulatory approval, anywhere in the state. District of Columbia law allows branching by District of Columbia banks within the District, subject to regulatory approval. The Financial Institutions Reform, Recovery, and Enforcement Act of 1989 ("FIRREA"), enacted August 9, 1989, contains a number of provisions which directly or indirectly affect the activities of federally insured national and state-chartered commercial banks. FIRREA made a number of important changes in the deposit insurance system. FIRREA established separate insurance funds for banks (the Bank Insurance Fund ("BIF")) and savings associations (the Savings Association Insurance Fund) to be managed by the Federal Deposit Insurance Corporation (the "FDIC"). All national and state-chartered commercial banks that were insured by the FDIC at the time of the enactment of FIRREA were automatically insured by BIF. FIRREA allows the FDIC to recover from a depository institution for any loss or anticipated loss to the FDIC that results from the default of a commonly controlled insured depository institution or from assistance provided to such an institution. Signet Bank/Virginia, Signet Bank/Maryland and Signet Bank N.A. are commonly controlled for purposes of this provision. The FDIC's claim for loss reimbursement under the "cross-guaranty" provisions is superior to any claims of shareholders of the liable institution or any claims of affiliates of such institution (other than claims on secured debt that existed as of May 1, 1989). The FDIC's claim is subordinate to the claims of depositors, third party secured creditors, senior and general creditors and holders of subordinated debt other than affiliates. FIRREA gives the Federal Reserve Board specific authority to permit the acquisition of healthy, as well as failing, savings associations by a bank holding company under the BHC Act. FIRREA enhances the enforcement powers of the federal banking regulators, increases the penalties for violations of law and substantially revises and codifies the powers of receivers and conservators of depository institutions. The receivership and conservatorship provisions of FIRREA include a statutory claims procedure and provisions which confirm the powers of the FDIC to obtain a stay of pending litigation and to repudiate certain contracts or leases. The Crime Control Act of 1990, enacted November 29, 1990, also contains a number of provisions which enhance the enforcement powers of the federal banking regulators and increase the penalties for violations of law. Under the National Bank Act, if the capital stock of a national bank, such as Signet Bank N.A., is impaired by losses or otherwise, the Office of the Comptroller of the Currency is authorized to require payment of the deficiency by assessment upon the bank's shareholders, prorata, and to the extent necessary, if any such assessment is not paid by any shareholder after three months notice, to sell the stock of such shareholder to make good the deficiency. Under Federal Reserve Board policy, the Registrant is expected to act as a source of financial strength to each of its subsidiary banks and to commit resources to support each of such subsidiaries. This support may be required at times when, absent such Federal Reserve Board policy, the Registrant may not find itself able to provide it. The Registrant's subsidiary banks are subject to FDIC deposit insurance assessments. FIRREA requires that the FDIC reach an insurance fund reserve for the BIF of $1.25 for every $100 of insured deposits. If the reserve ratio of the BIF is less than the designated reserve ratio, the FDIC is required to set assessment rates sufficient to increase the ratio to the required ratio, and is authorized to impose special additional assessments. A significant increase in the assessment could have an adverse impact on the Registrant's results of operations. See discussion below under Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA"), for further information on the risk-based insurance assessment system adopted by the FDIC. In December 1991, FDICIA was enacted. FDICIA substantially revises the bank regulatory and funding provisions of the Federal Deposit Insurance Act and makes revisions to several other federal banking statutes. FDICIA requires the federal banking agencies to take "prompt corrective action" with depository institutions that do not meet minimum capital requirements. FDICIA establishes five capital tiers: "well capitalized", "adequately capitalized", "undercapitalized", "significantly undercapitalized" and "critically undercapitalized". A depository institution's capital tier depends upon where its capital levels are in relation to various relevant capital measures, which include a risk-based capital measure and a leverage ratio capital measure, and certain other factors. As of December 31, 1993, all three of the Registrant's banks met the "well capitalized" criteria. A depository institution is well capitalized if it significantly exceeds the minimum level required by regulation for each relevant capital measure, adequately capitalized if it meets each such measure, undercapitalized if it fails to meet any such measure, significantly undercapitalized if it is significantly below any such measure and critically undercapitalized if it fails to meet any critical capital level set forth in regulations. The critical capital level must be a level of tangible equity equal to not less than two percent of total assets and not more than 65 percent of the minimum leverage ratio to be prescribed by regulation (except to the extent that two percent would be higher than such 65 percent level). An institution may be deemed to be in a capitalization category that is lower than is indicated by its actual capital position if, among other things, it receives an unsatisfactory examination rating. FDICIA generally prohibits a depository institution from making any capital distribution (including payment of a dividend) or paying any management fee to its holding company if the depository institution would thereafter be undercapitalized. Undercapitalized depository institutions are subject to restrictions on borrowing from the Federal Reserve System. In addition, undercapitalized depository institutions are subject to growth limitations and are required to submit a capital restoration plan. The federal banking agencies may not accept a capital plan without determining, among other things, that the plan is based on realistic assumptions and is likely to succeed in restoring the depository institution's capital. For a capital restoration plan to be acceptable, the depository institution's parent holding company must guarantee that the institution will comply with such capital restoration plan. The aggregate liability of the parent holding company is limited to the lesser of (i) an amount equal to 5 percent of the depository institution's total assets at the time it became undercapitalized and (ii) the amount which is necessary (or would have been necessary) to bring the institution into compliance with all capital standards applicable with respect to such institution as of the time it fails to comply with the plan. If a depository institution fails to submit an acceptable plan, it is treated as if it is significantly undercapitalized. Significantly undercapitalized depository institutions may be subject to a number of requirements and restrictions, including orders to sell sufficient voting stock to become adequately capitalized, requirements to reduce total assets, and cessation of receipt of deposits from correspondent banks. Critically undercapitalized institutions are subject to the appointment of a receiver or conservator. Under FDICIA, an institution that is not well capitalized is generally prohibited from accepting brokered deposits and offering interest rates on deposits higher than the prevailing rate in its market. In addition, "pass through" insurance coverage may not be available for certain employee benefit accounts. FDICIA restated Section 22(h) of the Federal Reserve Act, a statutory provision which, among other points, restricts the amounts and terms of extensions of credit which may be made by a bank to its executive officers, directors, principal shareholders (collectively, "insiders"), and to their related interest. In addition to limitations previously in place, FDICIA requires a bank, when lending to insiders, to follow credit underwriting procedures that are not less stringent than those applicable to comparable transactions by the bank with persons outside the bank. Directors and their related interests are now subject to the same aggregate lending limits previously applicable to executive officers and their principal shareholders and their related interests; further, the amount a bank can lend in the aggregate to insiders, and to their related interests, is limited to an amount equal to the bank's unimpaired capital and surplus. Insiders are also prohibited from knowingly receiving, or knowingly permitting their related interests to receive, any extension of credit not authorized by Section 22(h) of the Federal Reserve Act. Under FDICIA, each insured depository institution will be required to submit annual financial statements to the FDIC, its primary federal regulatory, and any appropriate state banking supervisor and a report signed by the chief executive officer and chief accounting or financial officer which contains (i) a statement of management's responsibilities for preparing financial reports, establishing and maintaining an adequate internal control structure, and complying with laws and regulations relating to safety and soundness, and (ii) an assessment of the effectiveness of such structures and compliance effort. The institution's independent public accountant will then be required to attest to and report separately on the assertions of the institution's management. Under FDICIA, the appropriate federal banking agencies have issued regulations requiring insured depository institutions to have annual independent audits (which can be performed only by accounting firms which have, among other points, agreed to provide related working papers, policies and procedures to the FDIC, and the appropriate federal and state banking authorities, if so requested). In the case of institutions that are subsidiaries of holding companies, the audit requirement can be met by an audit of the holding company. The accountants must issue reports in compliance with generally accepted accounting principles and FDICIA. The scope of the audit shall include a review of whether the financial statements of the institution are presented fairly in accordance with generally accepted accounting principles and whether they comply with such other disclosure requirements as the federal banking agencies may prescribe. Also, the accountants must apply procedures agreed upon by the FDIC to determine objectively if an institution is in compliance with laws and regulations. Institutions are required to provide their accountants copies of reports of condition, examination reports, and information concerning any agency enforcement actions. Copies of the accounting firm reports are to be provided to the FDIC and the appropriate federal banking agency. Each insured depository institution will be required to have an independent audit committee made up entirely of outside directors who are independent of management of the institution and who satisfy any specific requirements the FDIC may establish. Their duties are to include review of the various new reports required under FDICIA. In the case of any insured depository institution which the FDIC determines to be a "large institution", the audit committee must include members with banking or related financial expertise. Also, in the case of such large institutions, the committee must have access to its own outside counsel, and may not include any large customers of the institution. There are certain exemptions for institutions that are part of a holding company structure, but the institution must have total assets of less than $9 billion, and an examination rating of 1 or 2. FDICIA amends the Federal Deposit Insurance Act by inserting a new provision concerning accounting objectives, standards, and requirements. Among other matters, the federal banking agencies are required to: (i) review the accounting principles used by depository institutions in preparing financial reports required to be filed with a federal banking agency and related matters with respect to such reports; (ii) modify or eliminate any accounting principles or reporting requirements which are inconsistent with FDICIA's objectives of effective supervision, prompt corrective action, and increased accuracy of financial statements; (iii) prescribe regulations which require that all assets and liabilities, including contingent assets and liabilities, of insured depository institutions be reported in, or otherwise taken into account of, in the preparation of any balance sheet, financial statement, report of condition, or other report required to be filed with the federal banking agency; and (iv) develop jointly with the other appropriate federal banking agencies, a method for insured depository institutions to provide supplemental disclosure of the estimated fair market value of assets and liabilities, to the extent feasible and practical, in any such reports. All financial reports and statements are to be prepared in accordance with generally accepted accounting principles, except that each federal banking agency has the power to implement more stringent procedures in certain instances. FDICIA also imposes certain operational and managerial standards on financial institutions relating to internal controls, loan documentation, credit underwriting, interest rate exposure, asset growth, and compensation, fees and benefits. FDICIA also imposes new restrictions on activities and investments of insured state banks, and prescribes limitations on risks posed by exposure of insured banks to other depository institutions, including adoption of policies to limit overnight credit exposures to correspondent banks. FDICIA requires the federal banking regulators to adopt rules prescribing certain safety and soundness standards for insured depository institutions and their holding companies. Proposed regulations implementing these standards to cover operations and management, asset quality and earnings, and employee compensation are pending adoption. The standards are intended to enable the regulatory agencies to address problems at depository institutions and holding companies before the problems cause significant deterioration in the financial condition of the institution. The proposal would establish the objectives of proper operations and management, but would leave specific methods for achieving those objectives to each institution. FDICIA set forth a new Truth in Savings Act. The Federal Reserve Board has adopted regulations implementing the Truth in Savings Act. A variety of significant new disclosure requirements are imposed concerning interest rates and terms of deposit accounts. A requirement is also imposed that interest paid on interest-bearing accounts must be calculated on the full amount of principal, as opposed to on only non-reservable balances. Under FDICIA, the federal banking agencies adopted regulations providing standards for extensions of credit that are secured by liens on interest in real estate or made for the purpose of financing the construction of building or other improvements of real estate. In prescribing standards, the agencies are to consider the risk posed to the deposit insurance fund, the need for safe and sound operation of depository institutions, and the availability of credit. Under FDICIA, the FDIC adopted a risk-based insurance assessment system for implementation January 1, 1994 that evaluates an institution's potential for causing a loss to the insurance fund and to base deposit insurance premiums upon individual bank profiles. A transitional risk-based assessment system was in place during 1993. There were no significant changes between the transitional system and the final regulation. Under the risk-based assessment system, each institution pays FDIC insurance premiums within a range from 23 cents to 31 cents per $100 of deposits, depending on the institution's capital adequacy and a supervisory judgment of overall risk. As of December 31, 1993, all three of the registrant's banks pay the lowest FDIC insurance premium, 23 cents per $100 of deposits. From time to time, various legislative proposals are submitted to and considered by Congress concerning the banking industry. Recent legislative initiatives have included, among other things, proposals to reform deposit insurance, limit the investments that a depository institution may make with insured funds, eliminate restrictions on interstate banking, expand the powers of banking organizations to enter into new financial service industries and revise the structure of the Bank regulatory system. The Registrant cannot determine the ultimate effect that FDICIA and the implementing regulations adopted or to be adopted thereunder, or any potential legislation, if enacted, would have upon its financial condition or operations. Executive Officers of the Registrant The following table sets forth information with respect to the Registrant's executive officers: Names, Positions and Offices With Registrant During Last An Officer of the Five Years Age Registrant Since Robert M. Freeman 52 1978 Chairman and Chief Executive Officer. Prior to April, 1990, he was President and Chief Executive Officer. Prior to April, 1989, he was President and Chief Operating Officer. Malcolm S. McDonald 55 1982 President and Chief Operating Officer. Prior to April 1990, he was Vice Chairman. David L. Brantley 44 1988 Senior Vice President and Treasurer. Prior to August, 1988, he was Managing Director of Signet Investment Banking Company. Robert L. Bryant 43 1990 Executive Vice President. Prior to February, 1990, he was Senior Vice President, Signet Bank/Virginia. George P. Clancy, Jr. 51 1988 Senior Executive Vice President. Philip H. Davidson 49 1977 Executive Vice President. T. Gaylon Layfield, III 42 1988 Senior Executive Vice President. Robert J. Merrick 48 1984 Executive Vice President and Chief Credit Officer. Wallace B. Millner, III 54 1971 Senior Executive Vice President and Chief Financial Officer (Principal Financial Officer). Names, Positions and Offices With Registrant During Last An Officer of the Five Years Age Registrant Since Andrew T. Moore, Jr. 53 1972 Senior Vice President and Corporate Secretary. David S. Norris 55 1973 Executive Vice President and Controller (Principal Accounting Officer). Anthony Torentinos 45 1993 Executive Vice President and Officer in charge of Human Resources Kenneth H. Trout 45 1990 Senior Executive Vice President. Prior to May, 1991, he was an Executive Vice President. Prior to July, 1990, he was Executive Vice President, Signet Bank N.A. Sara R. Wilson 43 1980 Executive Vice President and General Counsel. Prior to January, 1994, she was Senior Vice President and Senior Corporate Counsel Randolph W. Wyckoff 46 1989 Executive Vice President. There are no family relationships (as defined in the applicable regulations) among the above listed officers. The executive officers of the Registrant are elected to serve until the next organizational meeting of the board of directors of the Registrant following the next annual meeting of the stockholders of the Registrant and until their successors are elected. Statistical Information The statistical information required by Item 1 is in the Registrant's Annual Report to its shareholders for the year ended December 31, 1993, and is incorporated herein by reference, as follows: Page in the Registrant's Annual Report to its shareholders for Guide 3 Disclosure the year ended December 31, 1993 I. Distribution of Assets, Liabilities and Stockholders' Equity; Interest Rates and Interest Differential A. Average Balance Sheet 30 & 31 B. Net Interest Earnings Analysis 30 & 31 C. Rate/Volume Analysis 23 II. Investment Portfolio A. Book Value of Investment Securities 59 B. Maturities of Investment Securities 32 C. Investment Securities Concentrations 33 III. Loan Portfolio A. Types of Loans 33 B. Maturities and Sensitivities of Loans to Changes in Interest Rates 34 C. Risk Elements 1. Nonaccrual, Past Due and Restructured Loans 36, 37 & 38 2. Potential Problem Loans 38 3. Foreign Outstandings Not Applicable 4. Loan Concentrations 33 D. Other Interest Bearing Assets Not Applicable IV. Summary of Loan Loss Experience A. Analysis of Allowance for Loan Losses 25 B. Allocation of the Allowance for Loan Losses 26 V. Deposits A. Average Balances 30 & 31 B. Maturities of Large Denomination Certificates 41 C. Foreign Deposit Liability Disclosure 41 VI. Return on Equity and Assets A. Return on Assets 22 B. Return on Equity 22 C. Dividend Payout Ratio 42 D. Equity to Assets Ratio 22 VII. Short-Term Borrowings 61 & 62 ITEM 2. PROPERTIES. The executive offices of the Registrant and Signet Bank/Virginia are located at 7 N. Eighth St., Richmond, Virginia, in a building owned by a subsidiary of the Registrant. The Registrant's main operations center and its bank card center are located in Henrico County, Virginia, in two office buildings owned by a subsidiary of Signet Bank/Virginia. The principal offices of Signet Bank/Maryland are located at 7 St. Paul St., Baltimore, Maryland. The principal offices of Signet Bank N.A. are located at 1130 Connecticut Ave. N.W., Washington, D.C. The principal offices of Signet Bank/Maryland and Signet Bank N.A. are leased. Of the 239 domestic banking locations, 104 are owned by subsidiaries of the Registrant, of which one is subject to mortgage indebtedness of approximately $691,000. The remaining 135 banking locations and offices of other subsidiaries are leased for various terms at an aggregate annual rent of approximately $19,426,000, of which approximately $4,690,000 is for Signet Bank/Maryland's principal offices. ITEM 3. LEGAL PROCEEDINGS. The Registrant and its subsidiaries are parties plaintiff or defendant to numerous suits arising out of the collection of loans and the enforcement or defense of the priority of its security interests. Management believes that the pending actions against the Registrant or its subsidiaries, both individually and in the aggregate, will not have a material adverse effect on the financial condition or future operations of the Registrant. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. None. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS. The information required by Item 5 is included in the Registrant's Annual Report to its shareholders for the year ended December 31, 1993 on page 81 under the heading "Selected Quarterly Financial Data" and on page 67 in Note L, and is incorporated herein by reference. ITEM 6. SELECTED FINANCIAL DATA. The information required by Item 6 is included in the Registrant's Annual Report to its shareholders for the year ended December 31, 1993 on pages 22 and 42 under the headings "Selected Financial Data" and "Risk-Based and Other Capital Data", respectively, and is incorporated herein by reference. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. The information required by Item 7 is included in the Registrant's Annual Report to its shareholders for the year ended December 31, 1993 on pages 21_51 under the heading "Management's Discussion and Analysis of Financial Condition and Results of Operations", and is incorporated herein by reference. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. The information required by Item 8 is included in the Registrant's Annual Report to its shareholders for the year ended December 31, 1993 on pages 52_76 under the heading "Signet Banking Corporation Consolidated Financial Statements" and on page 81 under the heading "Selected Quarterly Financial Data", and is incorporated herein by reference. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. The information required by Item 10 as to the directors of the Registrant is included in the Registrant's 1994 Proxy Statement on pages 2_5 under the headings "Election of Directors" and "Other Directorships", and is incorporated herein by reference. The information required by Item 10 as to the executive officers of the Registrant is included in Item 1 under the heading "Executive Officers of the Registrant". ITEM 11. EXECUTIVE COMPENSATION. The information required by Item 11 is included in the Registrant's 1994 Proxy Statement on pages 8_13 under the headings "Compensation of the Board" and "Executive Compensation", and is incorporated herein by reference. Information under the headings "Organization and Compensation Committee Report on Executive Compensation" and "Performance Graph" in the Registrant's 1994 Proxy Statement is not incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. The information required by Item 12 is included in the Registrant's 1994 Proxy Statement on pages 1, 5 and 6 under the headings "Proxy Statement" and "Stock Ownership", and is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. The information required by Item 13 is included in the Registrant's 1994 Proxy Statement on pages 6 and 7 under the heading "Transactions", and is incorporated herein by reference. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) (1) The following consolidated financial statements of Signet Banking Corporation and Subsidiaries, included in the Registrant's Annual Report to its shareholders for the year ended December 31, 1993, are incorporated herein by reference in Item 8: Consolidated Balance Sheet - December 31, 1993 and 1992 Statement of Consolidated Operations - Years ended December 31, 1993, 1992 and 1991 Statement of Consolidated Cash Flows - Years ended December 31, 1993, 1992 and 1991 Statement of Changes in Consolidated Stockholders' Equity - Years ended December 31, 1993, 1992 and 1991 Notes to Consolidated Financial Statements Report of Ernst & Young, Independent Auditors (2) All schedules are omitted since the required information is either not applicable, not deemed material, or is shown in the respective financial statements or in notes thereto. (3) Exhibits: 3.1 Articles of Incorporation (Incorporated by reference to Exhibit 3.1 to Annual Report on Form 10_K for the fiscal year ended December 31, 1992). 3.2 Bylaws (Filed herewith). 4.1 Indenture dated as of May 1, 1972 Providing for Issuance of Unlimited Senior Debt Securities (Incorporated by reference to Exhibit 4-3 to Registration Statement No. 2-43731). 4.2 First Supplemental Indenture dated as of November 1, 1972 relating to 7 3/4% Senior Debentures due November 1, 1997 (Incorporated by reference to Exhibit 4-5 to Registration Statement No. 2-45986). 4.3 Indenture dated as of September 1, 1970 Providing for Issuance of Unlimited Capital Notes (Incorporated by reference to Exhibit 4-2 to Registration Statement No. 2-37919). 4.4 Indenture dated as of May 1, 1985 relating to $50,000,000 Floating Rate Subordinated Notes due 1997 (Incorporated by reference to Exhibit 4(a) to Registration Statement No. 2-97720). 4.5 Indenture dated as of April 1, 1986 Providing for Issuance of Unlimited Subordinated Debt Securities (Incorporated by reference to Exhibit 4(a) to Registration Statement No. 33-4491). 4.6 Officer's Certificate dated as of April 4, 1986 setting forth the form and terms of $100,000,000 of unsecured floating rate Subordinated Notes due in 1998 (Incorporated by reference to Exhibit 4.11 to Annual Report on Form 10-K for the fiscal year ended December 31, 1989). 4.7 Officers' certificate dated as of May 23, 1989 setting forth the form and terms of $100,000,000 of unsecured 9 5/8% Subordinated Notes due in 1999 (Incorporated by reference to Exhibit 4.12 to Annual Report on Form 10-K for the fiscal year ended December 31, 1989). 4.8 Articles of Amendment, Rights Agreement, Series A Junior Participating Preferred Stock (Incorporated by reference to Exhibit 1 to Current Report on Form 8-K dated May 23, 1989). 10.0 Management Contracts and Compensatory Plans Required to be filed as Exhibits 10.1 Executive Incentive Compensation Plans (2)(Incorporated by reference to Exhibit 10.2 to Annual Report on Form 10-K for the fiscal year ended December 31, 1982). 10.2 Executive Employee Supplemental Retirement Plan (Incorporated by reference to Exhibit 10.4 to Annual Report on Form 10-K for the fiscal year ended December 31, 1988). 10.3 Form of Executive Employment Agreement between the Registrant and David L. Brantley, Robert L. Bryant, George P. Clancy, Jr., Philip H. Davidson, William C. Dieter, Jr., Robert M. Freeman, T.Gaylon Layfield, III, Malcolm S. McDonald, Robert J. Merrick, Wallace B. Millner, III, Andrew T. Moore, Jr., David S. Norris, Anthony Torentinos, Kenneth H. Trout, Sara R. Wilson and Randolph W. Wyckoff (Incorporated by reference to Exhibit 10.8 on Form 10-K for the fiscal year ended December 31, 1989). 10.4 1983 Stock Option Plan (Incorporated by reference to Exhibit A to Proxy Statement for 1983 Annual Meeting of Shareholders). 10.5 1985 Union Trust Bancorp Key Employee Stock Option Plan (Incorporated by reference to Exhibit 10.13 to Annual Report on Form 10-K for the fiscal year ended December 31, 1985). 10.6 Union Trust Bancorp 1985 Restricted Stock Award Plan (Incorporated by reference to Exhibit 10.12 to Annual Report on Form 10-K for the fiscal year ended December 31, 1988). 10.7 1992 Stock Option Plan (Incorporated by reference to Exhibit II to Proxy Statement for 1992 Annual Meeting of Shareholders). 10.8 Executive Employee Excess Savings Plan (Incorporated by reference to Exhibit 10.14 to Annual Report on Form 10-K for the fiscal year ended December 31, 1987). 10.9 Split Dollar Life Insurance Plan and Agreement (Incorporated by reference to Exhibit 10.13 to Annual Report on Form 10-K for the fiscal year ended December 31, 1989). 10.10 Executive Employee Deferred Compensation Plan (Incorporated by reference to Exhibit 10.15 to Annual Report on Form 10-K for the fiscal year ended December 31, 1988). 10.11 1988 Deferred Compensation Plan (Incorporated by reference to Exhibit 10.16 to Annual Report on Form 10- K for the fiscal year ended December 31, 1988). 10.12 Excess Benefit Retirement Plan (Incorporated by reference to Exhibit 10.17 to Annual Report on Form 10- K for the fiscal year ended December 31, 1988). 11.1 Computation of Earnings Per Share (Filed herewith). 13.1 1993 Annual Report to Shareholders (Filed herewith). 22.1 Subsidiaries of the Registrant (Filed herewith). 24.1 Consent of Ernst & Young (Filed herewith). 25.1 Power of Attorney (Filed herewith). (b) Reports on Form 8-K The Registrant filed a Current Report on Form 8_K, dated February 22, 1994, reporting the agreement to merge between Signet Banking Corporation and Pioneer Financial Corporation. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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 Date: March 25, 1994 By /s/ D. S. Norris D. S. Norris, Executive Vice President and Controller Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities indicated on the 25th day of March, 1994. SIGNATURES TITLE Robert M. Freeman* Director, Chairman and Chief Executive Officer (Principal Executive Officer) Malcolm S. McDonald* Director, President and Chief Operating Officer /s/ Wallace B. Millner Senior Executive Vice President and Wallace B. Millner, III Chief Financial Officer (Principal Financial Officer) /s/ D.S. Norris Executive Vice President and Controller D. S. Norris (Principal Accounting Officer) J. Henry Butta* Director SIGNATURES TITLE William C. DeRusha* Director William R. Harvey, Ph.D.* Director Elizabeth G. Helm* Director Robert M. Heyssel, M.D.* Director Henry A. Rosenberg, Jr.* Director Louis B. Thalheimer* Director Stanley I. Westreich* Director *By /s/ Andrew T. Moore Andrew T. Moore, Jr. Attorney-in-Fact EXHIBITS TO SIGNET BANKING CORPORATION ANNUAL REPORT ON FORM 10-K DATED DECEMBER 31, 1993 COMMISSION FILE NO. 1-6505 EXHIBIT INDEX Page Number or Exhibit Incorporation by Number Description Reference to 3.1 Articles of Incorporation Exhibit 3.1 to Annual Report on Form 10-K for the fiscal year ended December 31, 1992 3.2 Bylaws Page 25 4.1 Instruments defining the rights of Exhibit 4_3, Registration No. 2_43731; security holders, including Indentures Exhibit 4_5, Registration No. 2_45986; Exhibit 4_2, Registration No. 2_37919; Exhibit 4_6, Registration No. 2_45986; Exhibit 4(a), Registration No. 2_97720; Exhibit 4(a), Registration Statement No. 33_4491; Exhibit 1 to Current Report on Form 8_K dated May 23, 1989; Exhibit 4.11 to Annual Report on Form 10_K for the fiscal year ended December 31, 1989 10.1 Executive Incentive Compensation Exhibit 10.2 to Annual Report on Plans (2) Form 10_K for the fiscal year ended December 31, 1982 10.2 Executive Employee Supplemental Exhibit 10.4 to Annual Report on Retirement Plan Form 10_K for the fiscal year ended December 31, 1988 10.3 Form of Executive Employment Exhibit 10.8 to Annual Report on Form Agreement between the Registrant 10_K for the fiscal year ended December and David L. Brantley, Robert L. 31, 1989 Bryant, George P. Clancy, Jr., Philip H. Davidson, William G. Dieter, Jr., Robert M. Freeman, T. Gaylon Layfield, III, Malcolm S. McDonald, Robert J. Merrick, Wallace B. Millner, III, Andrew T. Moore, Jr., David S. Norris, Anthony Torentinos, Kenneth H. Trout, Sara R. Wilson and Randolph W. Wyckoff. 10.4 1983 Stock Option Plan Exhibit A to Proxy Statement for 1983 Annual Meeting of Shareholders 10.5 1985 Union Trust Bancorp Key Exhibit 10.13 to Annual Report on Form Employee Stock Option Plan 10_K for the fiscal year ended December 31, 1985 10.6 Union Trust Bancorp 1985 Exhibit 10.12 to Annual Report on Form Restricted Stock Award Plan 10_K for the fiscal year ended December 31, 1988 10.7 1993 Stock Option Plan Exhibit II to Proxy Statement for 1993 Annual Meeting of Shareholders 10.8 Executive Employee Excess Exhibit 10.14 to Annual Report on Form Savings Plan 10_K for the fiscal year ended December 31, 1987 10.9 Split Dollar Life Insurance Plan Exhibit 10.13 to Annual Report on and Agreement Form 10_K for the fiscal year ended December 31, 1989 10.10 Executive Employee Deferred Exhibit 10.15 to Annual Report on Form Compensation Plan 10_K for the fiscal year ended December 31, 1988 10.11 1988 Deferred Compensation Plan Exhibit 10.16 to Annual Report on Form 10_K for the fiscal year ended December 31, 1988 10.12 Excess Benefit Retirement Plan Exhibit 10.17 to Annual Report on Form 10_K for the fiscal year ended December 31, 1988 11.1 Computation of Earnings per Share Page 31 13.1 1993 Annual Report to Shareholders Page 32 22.1 Subsidiaries of the Registrant Page 120 24.1 Consent of Ernst & Young Page 124 25.1 Power of Attorney Page 125
EX-3 2 EXHIBIT 3.2 - BY LAWS Exhibit 3.2 As adopted December 21, 1966 by the Board of Directors and amended through January 25, 1994 BYLAWS OF SIGNET BANKING CORPORATION ARTICLE I CORPORATE SEAL The seal of the Corporation shall consist of a circular impression stamped upon paper, with or without a wafer, with the name of the Corporation and the word "Virginia" inscribed along its circumference and the word "seal" inscribed in its center, in the design and form now here impressed upon the margin of this page. It may be affixed and attested by any officer. ARTICLE II STOCK CERTIFICATES Each holder of the shares of stock of the Corporation shall be entitled to a stock certificate evidencing his ownership of the shares of the Corporation. Stock certificates shall be in such form as may be required by and approved by the Board of Directors. The signatures of the officers upon any stock certificate may be facsimiles if such certificate is countersigned by a transfer agent designated by the Board of Directors, other than the Corporation itself or an employee of the Corporation, and the signature of the transfer agent may be by facsimile if the certificate is registered by the manual signature of a registrar designated by the Board of Directors other than the Corporation itself or an employee of the Corporation. (Amended November 18, 1970) ARTICLE III MEETING OF STOCKHOLDERS Section 1. Place of Meeting. All meetings of the stockholders of the Corporation shall be held in the City of Richmond, Virginia, at the registered office of the Corporation or at such other place within or without the State of Virginia, as may be fixed in the notice of the meeting or in the waiver thereof. (Amended February 16, 1983). Section 2. Annual Meeting. The annual meeting of the stockholders of the Corporation shall be held on such date in March, April, May or June as the Board of Directors may designate. (Amended February 16, 1983) Section 3. Special Meetings. Special meetings of the stockholders may be called by the Chairman of the Board, the President or the Board of Directors. (Amended December 18, 1985) Section 4. Notice of Meetings. Unless waived in the manner prescribed by law, written notice stating the place, day and hour of the meeting and, in the case of a special meeting, the purpose or purposes for which the meeting is called shall be given not less than ten or more than fifty days before the date of the meeting (except as a different time is specified by law), either personally or by mail, at the direction of the Chairman of the Board, the President, the Secretary, or the persons calling the meeting, to each stockholder of record entitled to vote at such meeting. Section 5. Quorum and Voting. A majority of the shares entitled to vote, represented in person or by proxy, shall constitute a quorum at all meetings of the stockholders, regular or special. If a quorum is present, the affirmative vote of the majority of the shares represented at the meeting and entitled to vote on the subject matter shall be the act of the stockholders, unless the vote of a greater number or voting by class is required by law, and except that in elections of directors those receiving the greatest number of votes shall be deemed elected even though not receiving a majority. Each stockholder shall be entitled to one vote in person or by proxy for each share of stock entitled to vote standing in his name on the books of the Corporation. The vote on all questions shall be taken in such a manner as the Chairman prescribes, provided, however, that on demand of the holders of not less than one-tenth of the stock represented at the meeting and entitled to vote any such vote shall be by ballot. Section 6. Procedure. Stockholders' meetings shall be presided over by the Chairman of the Board, or, in his absence, the President, or, in his absence, the Vice Chairman of the Board, if any, or, in the absence of all of them, a chairman to be elected at the meeting. The Secretary of the Corporation or, in his absence, an Assistant Secretary or a secretary elected at the meeting for the purpose, shall act as secretary of each meeting and record the minutes. At each meeting of the stockholders, a committee may be appointed by the Chairman, and shall be appointed by the Chairman on the demand of the stockholders of not less than one-tenth of the stock represented at the meeting and entitled to vote, to determine the number of shares represented at the meeting by stockholders in person or by proxy. Any meeting may be adjourned from day to day, or from time to time, and such adjournment may be directed without a quorum, but no business except adjournment shall be transacted in the absence of a quorum. (Amended November 21, 1973) ARTICLE IV DIRECTORS AND THEIR MEETINGS Section 1. Number, Election and Qualifying Shares. The general management of the property, business and affairs of the Corporation shall be vested in a Board of Directors of eleven (11) Directors including the Chairman of the Board and President. The Directors shall be elected at the annual meeting of the stockholders or as soon thereafter as practicable, and shall hold office until the next annual meeting of stockholders and until their successors shall have been elected. Vacancies in the board shall be filled as provided by law. On and after July 1, 1963, each Director of the Corporation shall be the owner in his own name and have in his possession or control shares of the common stock of the Corporation having an aggregate par value of not less than one thousand dollars ($1,000.00). Such stock must be unpledged and unencumbered at the time such Director becomes a Director and during the whole of his term as such. (Amended January 25, 1994) Section 2. Meetings. Regular meetings of the Board of Directors shall be held on the fourth Tuesday in each month except the month of August or as provided below for the transaction of such business as may properly come before such meeting. The meeting held during the month of the stockholders meeting shall be held after the stockholders meeting, shall be the annual organizational meeting and shall be held for the purpose of the election of officers and designation of committees for the ensuing year and for the transaction of such other business as may properly come before the meeting. No notice of the regular organizational meeting of the Board shall be necessary. Special meetings of the Board of Directors shall be held on call of the Chairman of the Board or the President. Unless waived in the manner prescribed by law, notice of a special meeting shall be telephoned, mailed or telegraphed to each Director at least 24 hours prior to the time of the meeting. Neither the business to be transacted at, nor the purpose of any special meeting, need be specified in the notice of the meeting. Meetings of the Board of Directors may be held at any time without notice if all the Directors are present, or if those not present waive notice either before or after the meeting. Meetings of the Board of Directors may be conducted by means of conference telephones or similar communications equipment and a written record shall be made of the action taken at such meetings. (Amended July 16, 1985) Section 3. Quorum. A majority of the Directors shall constitute a quorum at any meeting, regular or special, and a majority of the Directors present at any meeting at which a quorum is present shall be sufficient for the transaction of any and all business for which a different quorum or vote is not otherwise specifically and expressly required by law or the bylaws. (Amended January 17, 1973) Section 4. Executive Committee. The Board of Directors may, by a resolution passed by a majority of the whole Board, designate as an Executive Committee five Directors, one of whom shall be the Chairman of the Board, who may be the Chairman of the Executive Committee if so designated, and one of whom shall be the President. The Committee, during the interim between Board meetings, shall have, and may exercise all of the authority of the Board of Directors, except to approve an amendment to the Articles of Incorporation or a Plan of Merger or Consolidation. The Executive Committee shall meet at such time and place as established by a resolution of the Committee, and, in the alternative, on the call of the Chairman or the President. Notice of meetings of the Executive Committee shall be given in the same manner as notices are required to be given for special meetings of the Board of Directors. In the event that any outside Director designated as a member of the Executive Committee shall be unable to attend a meeting of the Committee, any outside Director not so designated may be requested to attend by the Chairman of the Board or the President as a substitute for the absent member, and, when so in attendance, shall be deemed for all purposes a duly elected member of the Executive Committee. Meetings of the Executive Committee may be conducted by means of conference telephones or similar communications equipment and a written record shall be made of the action taken at such meetings. (Amended February 27, 1990) Section 5. Audit Committee. The Audit Committee shall be composed of outside Directors. It shall meet at least quarterly in order to perform the following functions and duties and to recommend to the Board of Directors such action as is appropriate to the performance thereof. 1. Review the engagement of the independent accountants, including the scope and general extent of their review, the audit procedures which will be utilized, and the compensation to be paid; and, 2. Review with the independent accountants, and with the Corporation's chief financial officer (as well as with other appropriate personnel), the general policies and procedures utilized by the Corporation with respect to internal auditing, accounting, and financial controls. The members of the Committee shall have at least a general familiarity with the accounting and reporting principles and practices applied by the Corporation in preparing its financial statements; and, 3. Review with the independent accountants, upon completion of their audit (a) any report or opinion proposed to be rendered in connection herewith; (b) the independent accountants' perceptions of the Corporation's financial and accounting personnel; (c) the cooperation which the independent accountants received during the course of their review; (d) the extent to which the resources of the Corporation were and should be utilized to minimize the time spent by the outside auditors; (e) any significant transactions which are not a normal part of the Corporation's business; (f) improper payments; (g) any change in accounting principles; (h) all significant adjustments proposed by the auditor; (i) any recommendations which the independent accountants may have with respect to improving internal financial controls; choice of accounting principles or management reporting systems; and 4. Inquire of the appropriate personnel and the independent auditors as to any instances of deviations from established codes of conduct of the Corporation and periodically review such policies; and 5. Meet with the Corporation's financial staff at least twice a year to review and discuss with them the scope of internal accounting and auditing procedures then in effect; and the extent to which recommendations made by the internal staff or by the independent accountants have been implemented; and, 6. Meet with the Corporation's independent accountants in the absence of management to discuss the general operations of the Corporation. 7. Prepare and present to the Board of Directors a report summarizing its recommendation with respect to the retention (or discharge) of the independent accountants for the ensuing year; and 8. Direct and supervise an investigation into any matter brought to its attention within the scope of its duties (including the power to retain outside counsel or independent public accountants in connection with any such investigation). 9. The Committee shall review all significant difficulties encountered or important discoveries made by the independent accountants or the internal auditors for report to the Board; and 10. Review in advance the employment of the independent accountants to perform any function other than auditing the accounts of the Corporation and the review of its income tax return. 11. The Committee shall keep under review the question of Director conflict of interest or the appearance thereof and report such to the Board as appropriate; and, 12. The Committee and/or its Chairman shall from time to time, with the Secretary of the Committee, meet with the Chief Executive Officer of the Corporation in order to communicate to management, significant concerns of the Committee developed in the performance of its responsibilities as set forth herein. (Amended December 20, 1978) Section 6. Organization and Compensation Committee. The Organization and Compensation Committee shall be charged with the review and/or approval of the Corporation's officer title, salary, bonus, incentive and other employee benefit programs for the employees of the Corporation and its subsidiaries. It shall also be charged with at least annually, reviewing senior management's plans and recommendations with regard to management succession. Section 7. Other Committees. The Board of Directors by resolution adopted by a majority of the Directors present at a meeting at which a quorum is present, may designate other committees to consist of Directors, officers, or employees of the Corporation, or others, who shall advise with the officers on matters relating to the specific fields for which they are appointed and shall otherwise have the duties specified in the resolution of appointment. Section 8. Quorum Rules. A majority of a Committee shall be necessary for a quorum. A Committee shall have authority to elect a secretary (unless otherwise herein provided), and to fix its own rules as to notice and procedure; in the absence of such rules, the provisions as to notice of special meeting of the Board of Directors shall govern as to notice of a Committee meeting. ARTICLE V OFFICERS AND THEIR DUTIES Section 1. Officers, Election and Removal. The officers of the Corporation shall be a Chairman of the Board, a President, a Secretary, a Treasurer and such additional officers as the Board of Directors may from time to time prescribe, all of whom shall be elected annually at the meeting of the Board of Directors following the annual meeting of the stockholders, to serve until the next such meeting of the Board and until their successors are elected, unless sooner removed, but may be removed at any time at the pleasure of the Board, and vacancies may be filled at any meeting of the Board. Any two or more offices may be held by the same person, except the offices of President and Secretary. Section 2. Chairman of the Board. The Chairman of the Board shall have general authority to conduct the business of the Corporation and shall preside at all meetings of the stockholders and the Board of Directors. He may be the Chief Executive Officer of the Corporation if so designated. Also, the Chairman of the Board shall have the authority to appoint officers of the Corporation up to but not including the titles of members of the Management Committee and to delegate that authority up to and including the position of Senior Vice President. (Amended February 27, 1990) Section 2A. Chairman Emeritus. The Chairman Emeritus, if there be one, shall preside as Chairman of the Executive Committee unless another Chairman of the Executive Committee is designated by the Board of Directors. (Amended February 27, 1990) Section 3. President. The President shall perform the duties of the Chairman of the Board in the absence or upon the disability of the Chairman of the Board. He may be the Chief Executive Officer or the Chief Operating Officer of the Corporation if so designated. In the absence of the Chairman of the Board, the President shall preside at meetings of the stockholders, Board of Directors, and the Executive Committee. Also, the President shall have the authority to appoint officers of the Corporation up to but not including the titles of members of the Management Committee and to delegate that authority up to and including the position of Senior Vice President. (Amended April 27, 1989) Section 4. Vice Chairman of the Board. The Vice Chairman of the Board, if any, shall perform such duties as may be assigned from time to time to him or the President, and may be the chief administrative officer of the Corporation if so designated. In the absence or disability of the President, he shall exercise his duties and exercise his authority and, if the Chairman of the Board and the President are one and the same person, then, in his absence, the Vice Chairman of the Board shall preside at meetings of the stockholders, Board of Directors and the Executive Committee. In the absence or disability of the Chairman of the Board and the President he shall act as Chief Executive Officer. (Amended November 17, 1976) Section 5. Executive Vice President. The Executive Vice President, if any, shall assist the President in the performance of his duties and shall perform such other duties as may be assigned to him from time to time by the Board of Directors, the Executive Committee, the Chairman of the Board, the President or the Vice Chairman of the Board. (Amended November 21, 1973) Section 6. Secretary. The Secretary shall perform the usual duties of the office of Secretary and shall have such special authority as may from time to time be conferred upon him by the bylaws or the Board of Directors. (Amended November 21, 1973) Section 7. Treasurer. The Treasurer shall perform the usual duties of the office of Treasurer. Section 8. Duties. In addition to the duties herein assigned to certain officers, they and other officers prescribed by the Board of Directors shall perform such duties and have such special authority as may from time to time be conferred upon them by the Board of Directors, the Executive Committee, or officers senior in rank to them. ARTICLE VI VOTING OF STOCK OWNED Unless otherwise provided by a vote of the Board of Directors, the Chairman of the Board, the President, the Vice Chairman of the Board, any Vice President, the Secretary or the Treasurer may appoint attorneys to vote any stock in any other corporation owned by the Corporation or may attend any meeting of the holders of stock of such corporation and vote such shares in person. (Amended November 21, 1973) ARTICLE VII Bylaws for the Corporation may be made, altered, amended or repealed by the Board of Directors, but bylaws made by the Board of Directors may be repealed or changed, and new bylaws made, by the stockholders. EX-11 3 EXHIBIT 11.1 - EARNINGS PER SHARE EXHIBIT 11.1 SIGNET BANKING CORPORATION AND SUBSIDIARIES COMPUTATION OF EARNINGS (LOSS) PER SHARE (dollars except per share in thousands) 1993 1992 1991 Common and common equivalent: Average shares outstanding 56,291,808 55,147,928 53,702,538 Dilutive stock options - based on the treasury stock method using average market price 574,866 507,222 251,590 Shares used 56,866,674 55,655,150 53,954,128 Net income (loss) applicable to Common Stock $174,414 $109,200 $(25,747) Per share amount $ 3.07 $ 1.96 $ (.48) Assuming full dilution: Average shares outstanding 56,291,808 55,147,928 53,702,538 Dilutive stock options - based on the treasury stock method using the period end market price, if higher than average market price 628,282 575,582 287,186 Assuming conversion of Subordinated Convertible Debentures 3,848 4,616 Shares used 56,920,090 55,727,358 53,994,340 Net income (loss) $174,414 $109,200 $(25,747) Add: Interest on Subordinated Convertible Debentures, net of income tax effect 2 2 Net income (loss) applicable to Common Stock assuming conversion $174,414 $109,202 $(25,745) Per share amount $ 3.06 $ 1.96 $ (.48)
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. The per common share and common shares outstanding data above reflect a two-for- one common stock split in the form of a dividend which was declared on June 23, 1993 to shareholders of record July 6, 1993 and distributed July 27, 1993. EX-13 4 EXHIBIT 13.1 - ANNUAL REPORT Signet Banking Corporation and Subsidiaries Management's Discussion and Analysis of Financial Condition and Results of Operations-1993 Compared to 1992 Introduction Signet Banking Corporation ("Signet" or "the Company"), with headquarters in Richmond, Virginia, is a registered multi-bank, multi-state holding company listed on the New York Stock Exchange under the symbol SBK. At December 31, 1993, Signet had assets of $11.8 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., head- quartered in Washington, D.C. Signet is engaged in the general commercial and consumer banking businesses and provides a full range of financial services to individuals, businesses and organizations through 239 banking offices, 243 automated teller machines and a 24-hour full-service Telephone Banking Center. Signet is a major issuer of credit cards, offering a broad spectrum of card products designed to meet the unique needs of differing market segments. Signet also offers investment services including municipal bond, government, federal agency and money market sales and trading, foreign exchange trading and discount brokerage. In addition, an international operation concentrating on trade finance, specialized services for trust, leasing, asset based lending, cash management, real estate, insurance, consumer financing and investment banking are offered. Signet's primary market area extends from Baltimore to Washington, south to Richmond, and on to Hampton Roads/Tidewater Virginia. Signet's credit card business operates nationally. Signet's recent financial performance has been affected by several notable events. In 1993, Signet reported record earnings resulting from a combination of higher net interest income and increased non-interest revenue driven primarily by the outstanding success of its credit card business. Additionally, improved credit quality and lower charge-offs resulted in reduced levels of loan loss provisions. During 1993, Signet's managed credit card portfolio increased 127%, or $2.9 billion, from year- end 1992 and totaled $5.1 billion at December 31, 1993. Signet securitized $2.3 billion of this growth during 1993. On June 23, 1993, the Company declared a two-for-one split of its common stock in the form of a 100% stock dividend. One additional share of stock was issued on July 27, 1993, for each share held by stockholders of record at the close of business on July 6, 1993. All per share data in this Report have been adjusted to reflect this stock split. In recognition of the Company's excellent earnings, improved asset quality and capital strength, the Board of Directors increased the common stock dividend twice during 1993 by a total of 67%, from an annual rate of $.60 per share at the end of 1992 to $1.00 per share by year-end 1993. During 1992, Signet completed the successful conversion of existing automated applications (except credit card and commercial loans) to an integrated system. The Company also increased the common stock dividend by 50% in 1992, from an annual rate of $.40 to $.60 per share. A detailed discussion of the 1993 operating results and financial condition at December 31, 1993 follows and is intended to help readers analyze the accompanying Consolidated Financial Statements and related Notes. A Glossary of Financial Terms has also been included in this Report. Summary of Performance Signet reported record consolidated net income for 1993 of $174.4 million, or $3.06 per share, compared with $109.2 million, or $1.96 per share, in 1992. The 1993 performance reflected improved net interest margins and substantial growth in non-interest sources of revenues, primarily resulting from the strong growth in the Company's credit card business and significant improvement in asset quality, which was due primarily to the success of the Accelerated Real Estate Asset Reduction Program ("the Program"). The Program was established at the end of 1991 to enable the Company to reduce problem real estate assets and minimize their impact Table 1 Selected Financial Data Five Year Compound 1993 1992 1991 1990 1989 1988 Growth Rate Summary of Operations (dollars in thousands-except per share) Net interest income-taxable equivalent $545,093 $454,912 $420,026 $469,807 $462,185 $439,909 4.38% Less: taxable equivalent adjustment 15,753 19,302 22,056 25,879 27,325 28,353 (11.09) Net interest income 529,340 435,610 397,970 443,928 434,860 411,556 5.16 Provision for loan losses(1) 47,286 67,794 287,484 182,724 58,530 54,637 (2.85) Net interest income after provision for loan losses 482,054 367,816 110,486 261,204 376,330 356,919 6.20 Non-interest operating income(2) 361,118 280,988 248,537 188,571 175,810 200,037 12.54 Securities available for sale gains 3,913 10,504 94,666 N/M Investment securities gains (losses) 405 (17,951) (1,445) 12,971 9,438 14,063 N/M Total non-interest income 365,436 273,541 341,758 201,542 185,248 214,100 11.29 Non-interest expense(3) 598,316 499,239 508,925 414,535 395,061 375,197 9.78 Income (loss) before income taxes (benefit) 249,174 142,118 (56,681) 48,211 166,517 195,822 4.94 Applicable income taxes (benefit)(4) 74,760 32,918 (30,934) 6,833 43,197 43,354 11.51 Net income (loss) $174,414 $109,200 $(25,747) $ 41,378 $123,320 $152,468 2.73 Per common share(5): Net income (loss) $ 3.06 $ 1.96 $ (.48) $ .78 $ 2.27 $ 2.85 1.43 Cash dividends declared(6) .80 .45 .30 .78 .76 .69 3.00 Book value at year-end 17.04 14.77 13.17 13.83 14.07 12.54 6.32 Average common shares outstanding(5) 56,920,090 55,727,358 53,994,340 53,026,764 53,372,898 52,097,036 1.79 Selected Average Balances (dollars in millions) Assets $ 11,617 $11,168 $ 11,534 $ 12,349 $ 11,467 $ 11,012 1.08 Earning assets 10,553 10,181 10,538 11,374 10,518 10,145 .79 Temporary investments 2,443 2,447 3,592 989 725 601 32.38 Investment securities 1,904 2,115 875 3,168 2,877 2,810 (7.49) Loans (net of unearned income) 6,206 5,618 6,071 7,218 6,916 6,734 (1.62) Deposits 7,733 7,886 8,362 7,900 7,341 7,552 .47 Long-term borrowings 287 298 318 353 320 275 .86 Interest bearing liabilities 9,121 9,000 9,506 10,291 9,344 9,030 .20 Common stockholders' equity 889 768 750 755 709 592 8.47 Managed credit card portfolio(7) 3,530 1,709 1,606 1,474 1,241 1,091 26.50 Selected Year-End Balances (dollars in millions) Assets $ 11,849 $12,093 $ 11,239 $ 11,405 $ 12,476 $ 11,002 Earning assets 10,745 11,010 9,443 10,291 11,417 10,026 Temporary investments 2,665 3,128 1,659 3,241 810 544 Investment securities 1,770 2,073 1,900 605 3,392 2,575 Loans (net of unearned income) 6,310 5,809 5,884 6,445 7,215 6,907 Deposits 7,821 7,823 8,481 8,344 7,595 7,546 Long-term borrowings 266 298 299 350 361 273 Interest bearing liabilities 9,167 9,684 9,031 9,272 10,145 8,785 Common stockholders' equity 965 827 712 736 751 663 Managed credit card portfolio(7) 5,098 2,244 1,700 1,580 1,418 1,200 Operating Ratios Net income to: Average common stockholders' equity 19.62% 14.22% N/M 5.48% 17.12% 25.13% Average total stockholders' equity 19.62 14.22 N/M 5.48 16.81 23.39 Average assets 1.50 .98 N/M .34 1.08 1.38 Total stockholders' equity to assets (average) 7.65 6.88 6.50% 6.11 6.40 5.92 Loans to deposits (average) 80.26 71.24 72.92 91.36 94.20 89.16 Net loan losses to average loans .91 2.34 2.03 1.51 .74 1.42 Net interest spread(8) 4.76 4.05 3.40 3.41 3.49 3.53 Net yield margin(8) 5.17 4.47 3.98 4.13 4.39 4.33 At year-end: Allowance for loan losses to loans 4.01 4.57 5.60 2.54 1.30 1.25 Allowance for loan losses to non-performing loans 342.63 228.25 156.84 117.15 116.53 162.23 (1) 1991 included a special provision of $146.6 million to accelerate the reduction of real estate assets. (2) 1989 included a $16.3 million gain on the sale of credit card accounts and 1988 included a $47.0 million gain on the sale of a subsidiary. (3) 1993, 1992 and 1991 included provisions of $ 7.4 million, $15.5 million and $71.9 million, respectively, to the reserve for foreclosed properties, which had December 31, 1993, 1992 and 1991 balances of $ 5.7 million, $10.6 million and $41.6 million, respectively. 1993, 1992, 1991, 1990 and 1989 included $55.8 million, $23.1 million, $14.6 million, $21.4 million and $14.5 million, respectively, of credit card solicitation expenses. (4) Income taxes (benefit) applicable to net securities available for sale gains and investment securities gains (losses) were as follows: 1993-$1.5 million; 1992-($2.5) million; 1991- $32.9 million; 1990-$4.6 million; 1989-$3.3 million; and 1988- $5.2 million. Additionally, 1992 included $6.3 million of recaptured alternative minimum tax, 1990 included $6.3 million of alternative minimum tax and 1988 included $12.0 million of tax benefits related to the 1987 less developed countries loan loss provisions. (5) The per common share and common shares outstanding data reflect a two-for-one common stock split in the form of a dividend which was declared on June 23, 1993 to shareholders of record July 6, 1993 and distributed July 27, 1993. (6) In March, 1991, Signet announced that, thereafter, its dividend declaration would be made in the month following the end of each quarter instead of in the last month of each quarter. As a result, 1991 included only three dividend declarations; however, four dividend payments were made. (7) Managed credit card portfolio includes credit card loans, credit card loans held for sale and securitized credit card loans. (8) Net interest spread and net yield margin were calculated on a taxable equivalent basis, using a tax rate of 35% for 1993 and 34% for 1992, 1991, 1990, 1989 and 1988.
on future earnings. Since the commencement of the Program, the Company has reduced the assets in the Program by 65%, within the discounts originally provided, thereby accomplishing the Program's objective. As a result, the Company terminated the Program effective January 1, 1994. The remaining assets will be assigned to work out units. During 1993, the Company reduced its overall risk real estate exposure (construction loans, commercial mortgage loans and foreclosed properties) by $311.9 million and non-performing assets declined by $64.6 million to total $116.5 million at December 31, 1993. Profitability measures reflected the record level of earnings in 1993 as return on assets ("ROA") was 1.50% and return on common stockholders' equity ("ROE") was 19.62%. These impressive ratios are indicative of Signet's improved performance and compare very favorably with the .98% ROA and 14.22% ROE achieved in 1992. Taxable equivalent net interest income of $545.1 million was the principal component of earnings and reflected an increase of $90.2 million from the 1992 level. This increase was due primarily to the significant growth in the credit card portfolio and wider net interest spreads during the year. The net yield margin for 1993 was 5.17%, a 70 basis point increase from 1992. The provision for loan losses of $47.3 million represented a significant decrease from the 1992 level of $67.8 million as credit quality improved. Non-interest operating income totaled $361.1 million for 1993, a 29% increase over the prior year. The growth resulted from increases in nearly all sources of non-interest income, with the largest dollar increase being in the credit card servicing income category. During 1993, Signet recognized net securities gains of $4.3 million compared with net losses of $7.4 million in 1992. Non-interest expense increased $99.1 million from the previous year due in large part to an increase of $32.7 million in expenses related to the credit Table 2 Net Interest Income Analysis taxable equivalent basis(1) Year Ended 1993 vs 1992 Year Ended 1992 vs. 1991 December 31 Increase Change due to(3) December 31 Increase Change due to(3) (in thousands) 1993 1992 (Decrease) Volume Rates 1991 (Decrease) Volume Rates Interest income: Loans, including fees:(2) Commercial $158,587 $181,600 $(23,013) $(10,529) $(12,484) $220,910 $ (39,310) $ (9,522) $(29,788) Credit card 215,607 110,864 104,743 133,532 (28,789) 104,204 6,660 12,855 (6,195) Other consumer 95,273 103,948 (8,675) 656 (9,331) 131,417 (27,469) (8,851) (18,618) Real estate-construction 31,590 53,812 (22,222) (23,056) 834 94,942 (41,130) (23,462) (17,668) Real estate-commercial mortgage 47,757 50,147 (2,390) 305 (2,695) 57,769 (7,622) (250) (7,372) Real estate-residential mortgage 7,634 9,801 (2,167) (1,678) (489) 13,030 (3,229) (3,071) (158) Total loans 556,448 510,172 46,276 52,791 (6,515) 622,272 (112,100) (44,377) (67,723) Interest bearing deposits with other banks 12,031 24,103 (12,072) (14,273) 2,201 42,154 (18,051) (5,198) (12,853) Federal funds and resale agreements 23,196 29,984 (6,788) (2,775) (4,013) 39,397 (9,413) 7,870 (17,283) Other temporary investments 101,631 74,412 27,219 28,034 (815) 204,443 (130,031) (93,510) (36,521) Investment securities- taxable 93,806 112,087 (18,281) (10,704) (7,577) 40,642 71,445 78,450 (7,005) Investment securities- nontaxable 32,366 35,806 (3,440) (3,630) 190 36,734 (928) (1,397) 469 Total interest income 819,478 786,564 32,914 28,826 4,088 985,642 (199,078) (32,469) (166,609) Interest expense: Money market and interest checking 22,544 27,638 (5,094) 2,485 (7,579) 33,473 (5,835) 6,766 (12,601) Money market savings 45,463 64,500 (19,037) (5,504) (13,533) 92,383 (27,883) 10,815 (38,698) Savings accounts 24,079 21,189 2,890 6,914 (4,024) 21,115 74 5,472 (5,398) Savings certificates 58,514 102,519 (44,005) (18,376) (25,629) 227,644 (125,125) (34,874) (90,251) Large denomination certificates 10,970 13,936 (2,966) 207 (3,173) 46,022 (32,086) (24,866) (7,220) Foreign 6,627 994 5,633 5,750 (117) 2,573 (1,579) (621) (958) Total interest on deposits 168,197 230,776 (62,579) (10,309) (52,270) 423,210 (192,434) (32,048) (160,386) Federal funds and repurchase agreements 63,986 65,561 (1,575) 8,553 (10,128) 104,067 (38,506) 2,265 (40,771) Other short-term borrowings 25,521 15,899 9,622 10,081 (459) 14,289 1,610 3,305 (1,695) Long-term borrowings 16,681 19,416 (2,735) (728) (2,007) 24,050 (4,634) (1,387) (3,247) Total interest expense 274,385 331,652 (57,267) 4,382 (61,649) 565,616 (233,964) (28,765) (205,199) Net Interest Income $545,093 $454,912 $90,181 $ 16,860 $ 73,321 $420,026 $ 34,886 $(14,731) $ 49,617 (1) Total income from earning assets includes the effects of taxable equivalent adjustments, using a tax rate of 35% for 1993 and 34% for 1992 and 1991 in adjusting interest on the tax-exempt loans and securities to taxable equivalent basis. (2) Includes fees on loans of approximately $24,440, $19,305 and $18,916 for 1993, 1992, and 1991, respectively. (3) The change in interest due to both volume and rates has been allocated in proportion to the relationship of the absolute dollar amounts of the change 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.
card account solicitation program. Sizable increases in staff-related expenses arose mainly from increasing the number of employees to support the growth in the managed credit card portfolio, higher accruals for profit-based compensation which stemmed from record 1993 earnings and the expense related to the adoption of Statement of Financial Accounting Standards ("SFAS") No. 112, "Employers' Accounting for Postemployment Benefits." Table 1 shows selected financial data for the past six years and five- year compound growth rates. Income Statement Analysis Net Interest Income Taxable equivalent net interest income, Signet's primary contributor to earnings, was $545.1 million for 1993, an increase of $90.2 million, or 20%, over 1992. The overall improvement in net interest income reflected the impact of strong growth in the credit card portfolio and significantly lower cost of funds, offset in part by lower yields on all earning assets categories resulting from declining market interest rates. The discussion of net interest income should be read in conjunction with Table 2-Net Interest Income Analysis and Table 7-Average Balance Sheet. Average earning assets totaled $10.6 billion for 1993, an increase of 4% from the previous year. The credit card securitizations reduced the earning assets growth. Adding average securitized credit card loans to both years' average earning assets would result in a 7% increase from year-to-year. The credit card, real estate mortgage-commercial and other consumer loan categories experienced increases in average balances in 1993. Decreases occurred in the commercial, real estate- construction and real estate-residential mortgage categories of the loan portfolio, generally reflecting the sluggish economy, commercial and consumer customers' desire to reduce debt and the successful efforts of the Program to reduce real estate loans. Investment securities declined by $212 million on average over 1992 as securities were called or matured. Temporary invest ments, other than credit card loans held for sale (securitization), declined $399 million from 1992 as Signet redeployed these assets into higher yielding credit card loans. Credit card loans held for sale (securitization), which are included in other temporary investments, averaged $394 million for 1993. There were no credit card loans classified as held for sale for 1992. See a more detailed discussion of Earning Assets elsewhere in this Report. Average interest bearing liabilities rose 1% to $9.1 billion for 1993. Declines in savings certificates, money market savings and long-term borrowings were offset by growth in savings accounts, money market and interest-checking, and purchased funds categories (other than long-term borrowings). In 1993, average core deposits of $7.3 billion declined 4% from the prior year and represented 69% of average earning assets and 117% of average loans. The mix in core deposits changed as depositors responded to lower interest rates by shortening the maturities of and transferring from savings certificates into money market and demand products. Non-interest bearing demand deposits increased 12%, on average, during 1993. See a more comprehensive discussion of Funding elsewhere in this Report. The net interest spread of 4.76% for 1993 was an increase from the 4.05% of the previous year. The net increase was due to a better mix of earning assets and interest bearing liabilities and lower levels of non-performing loans. The primary change in the mix of earning assets resulted from the significant growth in relatively high yielding credit card loans, partially offset by a decline in lower yielding temporary investments. The overall yield on earning assets was 7.77%, up 4 basis points from 1992, while the drop in rates paid for interest bearing liabilities contributed 67 basis points to the increased net interest spread. The net yield margin rose in 1993 to 5.17% from 4.47% for 1992, an increase of 70 basis points. The increase in the net yield margin was primarily the net result of several factors: a change in the mix of earning assets due to the impact of growth in the Table 3 Summary of Allowance for Loan Losses Year Ended December 31 (dollars in thousands) 1993 1992 1991 1990 1989 Balance at beginning of year $265,536 $329,371 $163,669 $ 93,572 $86,226 Provision for loan losses(1) 47,286 67,794 287,484 182,724 58,530 Net addition (deduction) arising in purchase/sale transactions (2,902) 1,503 (3,926) Loans charged-off: Commercial 17,832 33,238 55,312 29,365 12,506 Credit card 38,582 43,309 44,902 58,910 45,962 Other consumer 2,893 4,876 4,362 5,297 6,408 Real estate-construction 26,890 58,406 32,514 24,396 1,700 Real estate-mortgage(2) 5,720 15,140 2,990 3,858 47 Total loans charged-off 91,917 154,969 140,080 121,826 66,623 Recoveries of loans previously charged-off: Commercial 13,138 6,992 3,263 2,395 5,255 Credit card 15,937 14,043 10,691 8,909 8,340 Other consumer 1,421 1,445 1,362 1,648 1,620 Real estate-construction 4,259 523 1,479 2 99 Real estate-mortgage(2) 555 337 171 125 Total recoveries 35,310 23,340 16,795 13,125 15,439 Net loans charged-off 56,607 131,629 123,285 108,701 51,184 Balance at end of year(3) $253,313 $265,536 $329,371 $163,669 $93,572 Net charge-offs to average loans: Commercial .22% 1.17% 2.22% 1.06% .30% Other consumer .12 .29 .23 .27 .34 Real estate 2.45 4.93 1.88 1.40 .08 Sub-total .76 2.09 1.64 1.00 .24 Credit card 1.28 4.13 5.44 3.76 3.03 Total .91 2.34 2.03 1.51 .74 Allowance for loan losses to net loans at year-end 4.01% 4.57% 5.60% 2.54% 1.30% (1) Included $146,600 special provision to accelerate the reduction of real estate loans in 1991. (2) Real estate-mortgage includes real estate-commercial mortgage and real estate-residential mortgage. Real estate- residential mortgage charge-offs and recoveries were not significant for the periods presented. (3) Included $57,631, $99,988 and $179,538 allocated to the Program for December 31, 1993, 1992 and 1991, respectively.
credit card portfolio (23 basis points); a decrease in average temporary investments, other than credit card loans held for sale (securitization) (12 basis points); a favorable change in the mix of funding sources and, due to the lower rate environment, lower costs associated with these funding sources (60 basis points); lower levels and related effects of non-performing loans (2 basis points); and higher levels of demand deposits (5 basis points). These favorable factors were partially offset by lower yields on and changes in the mix of earning assets, excluding temporary investments, due to the lower rate environment experienced during 1993 (32 basis points). Signet uses various off-balance sheet interest rate derivatives to participate in trading activities and 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 enters into derivative transactions. Derivative contracts, used for hedging purposes, increased interest on earning assets by $14.3 million and $13.6 million and decreased borrowing costs by $82.4 million and $103.8 million for 1993 and 1992, respectively. The overall increase in the net yield margin as a result of these instruments amounted to 92 basis points and 115 basis points for 1993 and 1992, respectively. For a more detailed description and discussion of derivative income and expense impact on net income, refer to the Interest Rate Sensitivity section elsewhere in this Report. Credit card securitizations also have an effect on net interest income and the net yield margin. For a detailed analysis of this effect, see discussion of the Credit Card Business elsewhere in this Report. Provision and Allowance for Loan Losses Table 4 Allowance for Loan Losses Allocation December 31, 1993 December 31, 1992 December 31, 1991 December 31, 1990 December 31, 1989 Percentage Percentage Percentage Percentage Percentage of Loans of Loans of Loans of Loans of Loans in Each in Each in Each in Each in Each Allow- Category Allow- Category Allow- Category Allow- Category Allow- Category (dollars ance to Total ance to Total ance to Total ance to Total ance to Total in thousands) Amount Loans Amount Loans Amount Loans Amount Loans Amount Loans Commercial $33,618 35.87% $33,930 36.87% $50,795 39.08% $57,792 39.21% $16,775 35.59% Commercial- special(1) .24 1,064 .34 6,376 .52 Credit card 63,500 28.40 55,974 21.21 31,522 11.79(3) 20,400 10.46(3) 39,100 19.52 Other consumer 3,530 20.37 3,527 20.11 4,845 20.77 4,275 20.30 5,550 19.26 Real estate(2) 25,684 11.31 19,056 14.30 20,466 16.40 54,725 30.03 9,635 25.63 Real estate- special(1) 57,631 3.81 98,924 7.17 173,162 11.44 Unallocated 69,350 53,061 42,205 26,477 22,512 Total $253,313 100.00% $265,536 100.00% $329,371 100.00% $163,669 100.00% $93,572 100.00% (1) Allowance allocated to the Program. (2) Real estate loans include real estate-construction, real estate-commercial mortgage and real estate-residential mortgage loans. Real estate-residential has an insignificant amount of allowance allocated to it because of the minimal credit risk associated with that type of loan. (3) The decline in the percentage of credit card loans to total loans was due to credit card securitizations.
The provision for loan losses is the periodic expense of maintaining an adequate allowance to absorb possible future losses, net of recoveries, inherent in the existing loan portfolio. In evaluating the adequacy of the provision and the allowance for loan losses, management takes into consideration several factors including national and local economic trends and conditions; weighted average historical losses; trends in delinquencies, bankruptcies and non-performing loans; trends in watch list growth/reduction; off-balance sheet credit risk; known deterioration and concentrations of credit; effects of any changes in lending policies and procedures; credit evaluations; experience and ability of lending management and staff; and the liquidity and volatility of the markets in which Signet does business. Particular emphasis is placed on adversely rated loans. Signet's charge-off policy is closely integrated with the loan review process. Commercial and real estate loan charge-offs are recorded when any loan or portions of loans are determined to be uncollectible. Credit card loans typically are charged off when they are six months past due and no payments have been received for 60 days, while other consumer loans are typically charged off when they are six months past due. Once a loan has been charged off, it is Signet's policy to continue to pursue the collection of principal and interest. Table 3 provides a five-year comparison of the activity in the allowance for loan losses along with the details of the charge-offs and recoveries by loan category. The provision for loan losses totaled $47.3 million for 1993, a decrease of $20.5 million from the 1992 total of $67.8 million. This decrease was the result of lower charge-offs due to Signet's improved credit quality. Credit card securitizations have an effect on the level of charge-offs and provisioning. For a detailed analysis of this effect, see discussion of the Credit Card Business elsewhere in this Report. Net charge-offs decreased 57% to $56.6 million for 1993, compared with $131.6 million for the prior year. Decreases were noted in all loan categories. Commercial loan net charge-offs experienced a sharp improvement when comparing 1993 with 1992 due to lower gross charge-offs and to a strong increase in commercial loan recoveries. Real estate-construction and real estate-mortgage loans also experienced significant declines in net losses for 1993 due to a higher level of Program charge-offs in 1992. Of the $27.8 million in real estate net charge-offs, $26.5 million were in Program loans. The primary objective of the Program was to accelerate the reduction of real estate exposure, which in turn resulted in higher levels of charge-offs of Program assets. In spite of $9.1 million of Program commercial net charge-offs in 1993, commercial net charge-offs for the Company, as a whole, totaled only $4.7 million, a decrease of $21.6 million from the previous year. This resulted Table 5 Non-Interest Income Percent Change Year Ended Increase Year Ended (dollars in thousands) December 31 (Decrease) December 31 1993 1992 1993/1992 1991 1990 1989 Credit card servicing income $153,018 $101,185 51% $62,664 $12,435 $ 138 Service charges on deposit accounts 64,471 66,971 (4) 62,924 57,799 52,328 Credit card service charges 63,222 31,553 100 42,276 59,574 55,109 Trust income 17,599 15,949 10 16,019 15,006 13,215 Gain on sale of credit card accounts 16,335 Gain on sale of bank card merchant business 8,946 Mortgage servicing and origination 24,210 16,529 46 8,726 6,463 4,516 Other service charges and fees 16,260 17,540 (7) 12,815 12,120 11,192 Trading profits (losses) (1,396) 11,193 N/M 14,867 6,981 346 Other 23,734 20,068 18 19,300 18,193 22,631 Non-Interest Operating Income 361,118 280,988 29 248,537 188,571 175,810 Securities available for sale gains 3,913 10,504 (63) 94,666 Investment securities gains (losses) 405 (17,951) N/M (1,445) 12,971 9,438 Total Non-Interest Income $365,436 $273,541 34% $341,758 $201,542 $185,248
from a significant increase in commercial loan recoveries. Many of the commercial charge-offs for the last several years were real estate-related in that the secondary collateral for many commercial loans is real estate, and unsecured working capital/operating lines to real estate developers are classified as commercial loans. Other consumer net charge-offs declined to $1.5 million, or .12% of average other consumer loans. Credit card net charge-offs amounted to $22.6 million in 1993, or 1.28% of average credit card loans. Improvement in the credit quality and substantial growth of the credit card portfolio caused the percentage of net credit card losses to average credit card loans on the balance sheet to decline from 1992 to 1993. Net losses for 1993 on the total managed credit card portfolio, which included securitized receivables, were 2.34% of total average managed credit card loans, compared with 5.31% reported for 1992. The low level of credit card losses in 1993, during the time of record growth in the managed portfolio, is a reflection of management's attention to the diversification of the portfolio as well as the quality of Signet's credit card underwriting standards and collection efforts. The low credit card charge-off ratios are also influenced by the high growth in new accounts, some of which have not aged sufficiently to experience any significant charge-offs. The allowance for loan losses at December 31, 1993 was $253.3 million, or 4.01% of year-end loans, compared with the 1992 year- end allowance of $265.5 million, or 4.57% of loans, and included $57.6 million designated for the Program. The 1992 year-end allowance included $100.0 million designated for the Program. The 1993 allowance for loan losses was 343% of year-end non- performing loans and 217% of year-end non-performing assets indicating significantly improved coverage over 1992 when the December 31, 1992 allowance for loan losses was 228% of non- performing loans and 147% of non-performing assets. The decline in the level of the allowance was the result of improved credit quality and the successful completion of the Program's objective (reduction of real estate assets with minimal impact on future earnings). Signet's allocated allowance for loan losses for all loan categories is detailed in Table 4. On a monthly basis, loans warranting management's attention are identified and examined, and factors such as the credit position of the borrower, the adequacy of underlying collateral and the impact of business and economic conditions upon the borrower are evaluated. Based on this information and action plans provided by the lending Table 6 Non-Interest Expense Percent Change Year Ended Increase Year Ended (dollars in thousands) December 31 (Decrease) December 31 1993 1992 1993/1992 1991 1990 1989 Salaries $212,665 $186,600 14% $177,626 $174,517 $169,480 Employee benefits 65,249 49,388 32 31,366 33,615 45,280 Total staff expense 277,914 235,988 18 208,992 208,132 214,760 Credit card solicitation 55,815 23,133 141 14,648 21,382 14,527 Supplies and equipment 40,550 32,536 25 36,660 45,061 43,394 Occupancy 40,192 38,899 3 39,231 37,388 33,310 External data processing services 36,578 31,138 17 18,846 902 470 Travel and communications 35,416 25,662 38 24,688 23,027 22,508 Foreclosed property 13,575 26,741 (49) 78,085 4,069 2,522 FDIC assessment 18,253 18,769 (3) 17,476 8,894 6,053 Public relations, sales and advertising 17,213 7,868 119 9,204 12,661 12,037 Professional services 16,159 14,278 13 11,793 11,778 11,159 Credit and collection 10,619 9,231 15 7,969 5,584 4,833 Other 36,032 34,996 3 41,333 35,657 29,488 Total Non-Interest Expense $598,316 $499,239 20% $508,925 $414,535 $395,061
units, Signet's Credit Risk Management Division determines the aggregate level of the allowance according to the distribution of the loan risk classifications. The credit card portfolio receives an overall allocation based on such factors as current and anticipated economic conditions, historical charge-off and recovery activity and trends in delinquencies, projected charge- offs by loan solicitation tranche, bankruptcies and loan volume. The remaining loan portfolio (unclassified commercial, real estate and consumer loans) receives a general allocation deemed to be reasonably necessary to provide for losses within the categories of loans set forth in the table and based on risk ratings and the factors previously listed. The $57.6 million of the 1993 year-end allowance designated for the Program was determined and maintained separately from the above allocation process and is discussed in the Risk Elements section. While this allocation was developed after an analysis of individual assets, it represented a general allocation applicable to all loans included in the Program. The overall allocation should not be interpreted as a prediction of future charge-off trends. Furthermore, the portion allocated to each loan category is not the total amount available for future losses that might occur within such categories since the total allowance is a general allowance applicable to the entire loan portfolio. Management believes that the allowance for loan losses is adequate to cover anticipated losses in the loan portfolio under current economic conditions. Non-Interest Income A significant portion of Signet's revenue is derived from non-interest related sources including servicing income, service charges, trust fees and other income. The 1993 results reflected Signet's continued emphasis on non-interest operating income. Table 5 details the various components of non-interest income for the past five years. Non-interest income for 1993 was $365.4 million, up from $273.5 million for 1992 and included $4.3 million ($2.8 million after-tax) of net investment securities and securities available for sale gains. The 1992 amount included $7.4 million ($4.9 million after-tax) in net losses on investment securities and securities available for sale transactions. Non-interest operating income amounted to $361.1 million for 1993, an increase of $80.1 million, or 29% over 1992. The primary sources of growth were increases in credit card servicing income, credit card service charges and mortgage servicing and origination fees. These increases were partially offset by a sharp decline in trading profits. Credit card servicing income totaled $153.0 million for 1993, an increase of $51.8 million over last year. This category primarily houses the income received for servicing the $3.3 billion of securitized credit card receivables ($500 million in September, 1990, $500 million in March, 1991, $1.2 billion in September, 1993, and $1.1 billion in December, 1993). The increase in credit card servicing income is offset by a corresponding reduction of credit card service charges and net interest income because securitization has the effect of transferring revenue from net interest income and credit card service charges to credit card servicing income. Improvement in charge-off experience and declining interest rates continued to have a favorable impact on credit card servicing income because the March, 1991 and portions of the September and December, 1993 securitizations pay a coupon based on a variable rate and the declining rates have created an increase in the spread earned by the Company. Service charges on deposit accounts declined $2.5 million, or 4%, over 1992 to $64.5 million. This reduction was caused by certain retail promotions in late 1992 and early 1993 whereby customers were offered one year of waived maintenance fees. Credit card service charges, which include membership fees and other credit card processing fees, totaled $63.2 million for 1993, an increase of $31.7 million from 1992 due to an increase in volume resulting from the success of the solicitation program. For further discussion of the impact of credit card securitizations on the income statement, see the Credit Card Business section elsewhere in this Report. Trust income, which totaled $17.6 million, was up 10% from last year primarily due to revised personal trust fee schedules. Mortgage servicing and origination income totaled $24.2 million for 1993 compared to $16.5 million in 1992, an increase of 46%, as a result of a significant increase in the volume of mortgage refinancings. During 1993, mortgage production totaled $1.7 billion, which was 57% higher than the 1992 level. Since the majority of these loans are sold in the secondary market with servicing retained by Signet, the Company's servicing portfolio grew to $3.2 billion at December 31, 1993. Other service charges and fees, which consisted primarily of fees related to: commercial and standby letters of credit ($4.4 million); discount brokerage ($4.0 million); and checkbooks ($3.5 million); totaled $16.3 million, a reduction of 7%. The decline in this category was attributable to lower brokerage fees as Signet converted its proprietary mutual funds to a no-load basis. Trading losses, which totaled $1.4 million in 1993, a sharp contrast to trading profits of $11.2 million in 1992, were derived from services performed as a dealer bank for customers and from profits and losses earned on securities trading and arbitrage positions. The remaining recurring categories of non-interest operating income, which included increases in Company-owned life insurance cash surrender value, credit card application fees, gains and losses on sales of mortgage loans, safe deposit box rentals, income from various insurance products and miscellaneous income from other sources, amounted to $23.7 million for 1993, an increase of $3.7 million, or 18% over the prior year. During 1993, Signet recognized gains of $3.9 million on transactions in the securities available for sale portfolio and nominal gains on investment securities as certain securities were called. In 1992, Signet recognized net losses of $7.4 million on investment securities and securities available for sale transactions primarily the result of $17.0 million of writedowns on collateralized mortgage obligation residuals and excess mortgage servicing held in the investment securities portfolio. No such writedowns were necessary in 1993. These securities, of which only $3.8 million remain, are sensitive to the increases in mortgage prepayments caused by the lower interest rates and high volume of refinancings. During 1992, gains of $10.5 million were recognized on transactions in the securities available for sale portfolio, primarily on sales of 30-year mortgage-backed securities. Non-Interest Expense Non-interest expense for 1993 totaled $598.3 million, an increase of $99.1 million, or 20% from 1992. Excluding credit card solicitation and foreclosed property expenses for both years, non-interest operating expense Table 7 Average Balance Sheet 1993 1992 1991 Average Income/ Yield/ Average Income/ Yield/ Average Income/ Yield/ Balance Expense Rate Balance Expense Rate Balance Expense Rate Assets Earning assets (taxable equivalent basis):(1) Interest bearing deposits with other banks $ 262,910 $12,031 4.58% $578,464 24,103 4.17% $671,110 $42,154 6.28% Federal funds and resale agreements 752,510 23,196 3.08 835,398 29,984 3.59 678,826 39,397 5.80 Other temporary investments 1,427,039 101,631 7.12 1,033,518 74,412 7.20 2,241,808 204,443 9.12 Investment securities-taxable 1,628,855 93,806 5.76 1,809,648 112,087 6.19 557,092 40,642 7.30 Investment securities-nontaxable 274,967 32,366 11.77 305,814 35,806 11.71 317,781 36,734 11.56 Loans (net of unearned income):(2) Commercial 2,101,423 158,587 7.55 2,235,382 181,600 8.12 2,339,531 220,910 9.44 Credit card 1,764,277 215,607 12.22 709,266 110,864 15.63 628,531 104,204 16.58 Other consumer 1,207,323 95,273 7.89 1,199,711 103,948 8.66 1,291,047 131,417 10.18 Real estate-construction 448,859 31,590 7.04 776,447 53,812 6.93 1,082,342 94,942 8.77 Real estate-commercial mortgage 607,573 47,757 7.86 603,934 50,147 8.30 606,610 57,769 9.52 Real estate-residential mortgage 76,962 7,634 9.92 93,672 9,801 10.46 123,006 13,030 10.59 Total loans 6,206,417 556,448 8.97 5,618,412 510,172 9.08 6,071,067 622,272 10.25 Total earning assets 10,552,698 $819,478 7.77 10,181,254 $786,564 7.73 10,537,684 $985,642 9.35 Non-rate related assets: Cash and due from banks 461,249 446,084 429,020 Allowance for loan losses (263,593) (307,558) (191,856) Premises and equipment (net) 201,792 207,186 217,386 Other assets 665,305 640,920 541,489 Total assets $11,617,451 $11,167,886 $11,533,723 Liabilities and Stockholders' Equity Interest bearing liabilities: Deposits: Money market and interest checking $ 960,342 $22,544 2.35% $875,654 $27,638 3.16% $ 709,136 33,473 4.72% Money market savings 1,738,336 45,463 2.62 1,912,875 64,500 3.37 1,692,870 92,383 5.46 Savings accounts 772,194 24,079 3.12 563,932 21,189 3.76 434,484 21,115 4.86 Savings certificates 2,364,320 58,514 2.47 2,967,714 102,519 3.45 3,597,228 227,644 6.33 Large denomination certificates 272,693 10,970 4.02 268,713 13,936 5.19 727,160 46,022 6.33 Foreign 200,440 6,627 3.31 26,919 994 3.69 38,271 2,573 6.72 Total interest bearing deposits 6,308,325 168,197 2.67 6,615,807 230,776 3.49 7,199,149 423,210 5.88 Federal funds and repurchase agreements 2,043,207 63,986 3.13 1,793,836 65,561 3.65 1,755,343 104,067 5.93 Other short-term borrowings 482,405 25,521 5.29 292,210 15,899 5.44 233,945 14,289 6.11 Long-term borrowings 286,809 16,681 5.82 298,475 19,416 6.51 317,799 24,050 7.57 Total interest bearing liabilities 9,120,746 $274,385 3.01 9,000,328 $331,652 3.68 9,506,236 $565,616 5.95 Non-interest bearing liabilities: Demand deposits 1,424,260 1,270,364 1,162,973 Other liabilities 183,284 129,231 114,607 Preferred stock Common stockholders' equity 889,161 767,963 749,907 Total liabilities and stockholders' equity $11,617,451 $11,167,886 $11,533,723 Net interest spread 4.76% 4.05% 3.40% Interest income to average earning assets 7.77% 7.73% 9.35% Interest expense to average earning assets 2.60 3.26 5.37 Net yield margin 5.17% 4.47% 3.98% (1) Includes the effects of taxable equivalent adjustments, using a tax rate of 35% for 1993 and 34% for 1992, 1991, 1990, 1989 and 1988. (2) For the purpose of these computations, nonaccrual loans are included in the daily average loan amounts. Also, interest income includes fees on loans of approximately $24,440, $19,305, $18,916, $21,803, $21,057 and $21,389 for the years 1993 through 1988, respectively.
Growth Rate 1990 1989 1988 Average Balances Average Income/ Yield/ Average Income/ Yield/ Average Income/ Yield/ One-Year Five-Year Balance Expense Rate Balance Expense Rate Balance Expense Rate 1993-1992 Compounded $ 235,430 $ 19,650 8.35% $ 136,869 $ 12,705 9.28% $ 85,675 $ 5,788 6.76% (54.55)% 25.14% 529,737 43,706 8.25 361,551 34,354 9.50 397,487 31,212 7.85 (9.92) 13.62 223,536 19,488 8.72 227,061 19,940 8.78 118,051 8,595 7.28 38.08 64.62 2,801,688 265,697 9.48 2,497,587 238,938 9.57 2,419,571 233,328 9.64 (9.99) (7.61) 366,148 41,607 11.36 379,038 42,956 11.33 390,881 44,422 11.36 (10.09) (6.79) 2,535,436 271,820 10.72 2,455,966 287,447 11.70 2,423,881 250,350 10.33 (5.99) (2.81) 1,331,523 221,127 16.61 1,241,347 195,915 15.78 1,091,189 168,387 15.43 148.75 10.09 1,340,139 150,220 11.21 1,402,238 161,905 11.55 1,514,627 171,716 11.34 .63 (4.43) 1,245,071 137,009 11.00 1,135,575 142,655 12.56 1,160,552 130,435 11.24 (42.19) (17.30) 593,976 67,319 11.33 554,111 65,499 11.82 436,175 44,742 10.26 .60 6.85 171,502 17,848 10.41 126,320 11,931 9.45 107,141 11,116 10.38 (17.84) (6.40) 7,217,647 865,343 11.99 6,915,557 865,352 12.51 6,733,565 776,746 11.54 10.47 (1.62) 11,374,186 $1,255,491 11.04 10,517,663 $1,214,245 11.54 10,145,230 $1,100,091 10.84 3.65 .79 454,276 464,933 452,501 (118,240) (88,211) (98,930) 210,462 198,383 202,797 428,395 374,247 310,314 $12,349,079 $11,467,015 $11,011,912 $ 613,871 $ 30,236 4.93% $ 571,538 $ 29,812 5.22% $ 562,018 $ 27,615 4.91% 9.67% 11.31% 1,524,107 100,965 6.62 1,487,758 102,493 6.89 1,460,587 89,374 6.12 (9.12) 3.54 417,276 20,326 4.87 433,559 21,203 4.89 490,277 25,329 5.17 36.93 9.51 2,909,487 240,991 8.28 2,482,965 210,076 8.46 2,322,641 184,691 7.95 (20.33) .36 1,125,161 92,288 8.20 967,397 86,689 8.96 1,398,713 112,169 8.02 1.48 (27.89) 179,058 14,946 8.35 191,961 17,755 9.25 106,942 8,470 7.92 644.60 13.39 6,768,960 499,752 7.38 6,135,178 468,028 7.63 6,341,178 447,648 7.06 (4.65) (.10) 2,764,929 223,455 8.08 2,332,701 204,114 8.75 1,972,539 155,800 7.90 13.90 .71 404,033 31,590 7.82 555,905 50,337 9.05 441,689 33,633 7.61 65.09 1.78 353,452 30,887 8.74 320,302 29,581 9.24 275,091 23,101 8.40 (3.91) .84 10,291,374 $785,684 7.63 9,344,086 $752,060 8.05 9,030,497 $660,182 7.31 1.34 .20 1,131,186 1,206,302 1,210,946 171,749 182,855 118,674 24,657 60,000 754,770 709,115 591,795 $12,349,079 $11,467,015 $11,011,912 3.41% 3.49% 3.53% 11.04% 11.54% 10.84% 6.91 7.15 6.51 4.13% 4.39% 4.33%
Table 8 Temporary Investments Maturity Analysis December 31, 1993 (in thousands) Balance Percent Overnight $671,326 25% 1-90 days 761,286 29 Over 90 days 1,232,618 46 Total $2,665,228 100% rose 18% from the prior year. Table 6 details the various categories of non-interest expense for the past five years. Signet's efficiency ratio (the ratio of non-interest expense to taxable equivalent operating income) was 66.02% for 1993, an improvement from 67.84% for 1992. Reducing non-interest expense by the amount of foreclosed property expense drops the ratio to 64.53% and 64.21% for the respective years. Considering that charge-offs on securitized credit card loans reduce credit card servicing income, one could argue that operating income, for the purpose of calculating the efficiency ratio, should exclude the negative impact of these charge-offs. Making this adjustment to revenue further reduces the ratio to 60.67% for 1993 and 59.10% for 1992. Management is continuing to strive to improve Signet's efficiency ratio. Staff expense (salaries and employee benefits), the largest component of non-interest expense, totaled $277.9 million, an 18% increase over 1992. Salaries rose 14% year-over-year primarily due to the increased staffing to support the significant growth in the credit card business. The number of full-time equivalent employees rose 22% from year-end 1992. The incentive compensation amounts increased as a direct result of the record earnings performance of the Company. For 1993, profit sharing awards of $18.8 million were recorded in the employee benefits category due to higher corporate earnings. This compares with $13.0 million of profit sharing expense in 1992. The cost of implementing SFAS No. 112, which totaled $6.0 million, and the rising cost of medical insurance and other benefits also contributed to the overall increase in employee benefits. Both 1993 and 1992 included expenses related to the credit card account solicitation program initiated during early 1989. These costs totaled $55.8 million ($36.3 million after-tax, or $.64 per share) for 1993 and $23.1 million ($15.3 million after-tax, or $.27 per share) for 1992. These programs were implemented to increase the growth of accounts and outstandings and have required significant out-of-pocket expenses to launch large scale but carefully planned solicitations to a national marketplace. Signet's solicitation strategy, which uses extensive testing, is designed to improve the efficiency of the solicitation process, thereby improving opportunities to create value by controlling credit exposure and creating higher probabilities for success. The success of this strategy has been outstanding as the total managed credit card portfolio grew from $2.2 billion at December 31, 1992 to $5.1 billion at December 31, 1993. Management expects to incur additional solicitation expense in the future as Signet continues to invest in its credit card business. The other non-interest expense categories reflected the costs associated with increased business volume. Approximately half of the $8.0 million increase in supplies Table 9 Investment Securities December 31, 1993 Maturities Within 1 Year 1-5 Years 6-10 Years After 10 Years Total (dollars in thousands) Book Yield Book Yield Book Yield Book Yield Book Yield U.S. Government and agency obligations - Mortgage-backed securities $74,415 5.79% $207,291 6.52% $153,905 3.83% $25,734 3.83% $ 461,345 5.36% Other 69,494 4.15 855,731 6.07 925,225 5.74 States and political subdivisions 26,452 11.73 144,414 11.69 59,715 11.97 28,234 9.60 258,815 11.53 Other 1,645 5.49 26,939 8.08 16,451 6.00 79,195 5.03 124,230 5.83 Total $172,006 6.04% $1,234,375 6.85% $230,071 6.10% $133,163 5.77% $1,769,615 6.59% The yields shown are actual weighted average interest rates at year-end on a taxable equivalent basis using a tax rate of 35%.
and equipment expense is attributable to servicing the expanded credit card base. Travel and communications expense rose $9.8 million, or 38%, from year-to-year, also due primarily to the credit card growth. Public relations, sales and advertising expense during 1993 rose $9.3 million from the 1992 level due to bank-wide retail promotional campaigns. The deposit insurance assessment from the Federal Deposit Insurance Corporation ("FDIC") totaled $18.3 million, a slight decline from 1992. Management anticipates that FDIC insurance premiums will continue to fall in 1994 as the deposit base has fallen and the three Signet banks are "well capitalized" and, as a result, will pay the lowest FDIC insurance premium rate. The decrease of $13.2 million in foreclosed property expense was primarily due to a decline in provisions recorded to maintain the reserve for foreclosed properties. During 1993, provisions of $7.4 million were expensed compared to $15.5 million during 1992. This reserve balance was $5.7 million at year-end 1993. See Table 16 in the Risk Elements section for an analysis of this reserve. The majority ($36.4 million, or 86%) of Signet's net foreclosed properties at year-end were included in the Program. On a property by property basis, provisions are made to the reserve when required or deemed necessary by management. Subsequent to foreclosure, gains and losses on the sale of and losses on the periodic revaluation of real estate (not included in the Program) are credited or charged to expense. Costs of maintaining and operating foreclosed properties are expensed as incurred. Expenditures to complete or improve foreclosed properties are capitalized only if expected to be recovered; otherwise they are expensed. In 1991, Signet entered into a ten-year contract with Electronic Data Systems ("EDS") under which EDS will manage Signet's information services, including the data center, telecommunications and systems and programming. During 1992, EDS and Signet converted most existing application systems to an integrated system, with a broader range of capabilities to support product delivery and services throughout the Company. Expense categories favorably affected by the outsourcing decision were primarily staff expense and supplies and equipment, offset, in part, by external data processing services (includes expenses for services of several outsourcing vendors with EDS being the principal one). In December, 1990, the Financial Accounting Standards Board ("FASB") issued SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other than Pensions", which was effective for annual financial statements for years beginning after December 15, 1992. SFAS No. 106 required that future costs related to postretirement benefits other than pensions, i.e. medical care and life insurance, be estimated and recognized over the service period of the employees. Prior to 1993, the Company recognized these costs on a cash basis rather than on the accrual basis. Costs related to postretirement benefits during 1992 were not significant. According to SFAS No. 106, the Company must report an accumulated postretirement benefit liability on the balance sheet, and recognize the future costs from the employees' hire date to the date they become fully eligible to receive Table 10 Summary of Total Loans December 31 (in thousands) 1993 1992 1991 1990 1989 Loans: Commercial $2,299,973 $2,181,218 $2,351,990 $2,549,462 $2,586,273 Credit card 1,808,515 1,243,873 700,488 679,854 1,418,415 Other consumer 1,297,309 1,179,303 1,233,310 1,319,432 1,399,772 Real estate - -construction 309,842 549,001 952,687 1,199,599 1,199,085 Real estate - -commercial mortgage 581,529 632,072 587,644 617,621 531,498 Real estate - -residential mortgage 71,411 77,844 113,466 135,227 132,072 Total loans $6,368,579 $5,863,311 $5,939,585 $6,501,195 $7,267,115
Table 11 Maturities of Selected Loans December 31, 1993 Maturing Within After One Year After (in thousands) One Year But Within Five Years Five Years Total Commercial $243,049 $ 1,801,461 $ 255,463 $2,299,973 Real estate - -construction 101,079 197,24 11,519 309,842 Real estate - -commercial mortgage 18,445 427,379 135,705 581,529 Total $362,573 $2,426,084 $402,687 $3,191,344 For interest sensitivity purposes, $470,665 of the amounts due after one year are fixed rate loans and $2,358,106 are variable rate loans.
benefits under the plan. The Company had a choice to elect to record the cumulative effect of the accounting change as a charge against income in the year the rule was adopted, or alternatively, on a prospective basis as part of the future annual benefit cost, where the cumulative impact may be adopted through a 20-year transition period. The Company applied the new rule starting in the first quarter of 1993 on a prospective basis. The charge against income was $6.6 million for 1993. Postretirement benefit cost for prior years, which was recorded on a cash basis, has not been restated. The Company made an investment from which the income offset this 1993 expense. In November 1992, SFAS No. 112, "Employers' Accounting for Postemployment Benefits" was issued establishing accounting standards for employers who provide benefits to former or inactive employees after employment but before retirement. Postemployment benefits are all types of benefits including salary continuation, supplemental unemployment benefits, severance benefits, disability-related benefits and continuation of benefits such as health care benefits and life insurance coverage. Employers are required to recognize the obligation to provide such benefits for fiscal years beginning after December 15, 1993. Signet's decision to adopt SFAS No. 112 in 1993 increased benefits expense by approximately $6.0 million ($3.9 million after-tax, or $.07 per share). The related expense for 1994 is not expected to be significant. Income Taxes Income tax expense reported for 1993 was $74.8 million as compared with $32.9 million for 1992. This represented an effective tax rate of 30.0% for 1993 and 23.2% for 1992. The 1992 income tax expense included an alternative minimum tax credit of $6.3 million resulting in lower effective tax rates. The 1993 effective tax rate was influenced by a lower relative proportion of tax-exempt income to total taxable income when compared with 1992. Note M to Consolidated Financial Statements reconciles reported income tax expense to the amount computed by applying the Federal statutory rate to income before income taxes. An increase in the Federal tax rate from 34% to 35% in 1993 had minimal impact on income tax expense. Adoption of SFAS No. 109, "Accounting for Income Taxes" in 1993 did not have a material impact on the Company's financial position or results of operations. Balance Sheet Review Earning Assets Average earning assets totaled $10.6 billion for 1993, as shown in Table 7 (Average Balance Sheet), an increase of 3.6% from the 1992 level. Decreases occurred in the temporary investment ($5 million) and investment securities ($212 million) portfolios, while the loan portfolio increased by $588 million. A detailed discussion of each earning asset category follows. Temporary Investments Temporary investments, which consist of interest-bearing deposits with other banks, federal funds sold and securities purchased under agreements to resell, securities avail- Table 12 Delinquencies of the Credit Card Portfolio* December 31 (dollars in thousands) 1993 1992 1991 1990 Number of Days Delinquent Delinquent Delinquent Delinquent Delinquent Amount Percent Amount Percent Amount Percent Amount Percent 30-59 days $52,099 1.01% $46,500 2.05% $53,106 3.04% N/A N/A 60-89 days 28,236 0.55 25,443 1.12 29,955 1.72 $19,905 1.29% 90+ days 50,359 0.98 49,579 2.18 57,070 3.27 30,400 1.97 Total $130,694 2.54% $121,522 5.35% $140,131 8.03% $50,305 3.26% *The portfolio for this schedule includes the managed credit card portfolio as well as an immaterial amount of credit line loans serviced on the bank card system.
able for sale, trading account securities and loans held for sale (including credit card loans held for securitization) averaged $2.4 billion, a slight decline from 1992. This category of earning assets arises from: the normal process of balancing the subsidiary banks' reserve position; arbitrage activities where positions, either maturity matched or unmatched, are established for short periods of time; dealer activities, in which money market instruments are bought and then sold to customers; and, for a short period of time, holding loans and/or securities to be sold in the secondary market. Temporary investments are generally short-term (as shown in Table 8), high quality and very liquid (see Liquidity discussion), and consequently, have yields generally lower than loans or investment securities. The level of these investments can vary from year to year as they are used to manage interest rate risk, to take advantage of short-term interest rate opportunities and provide liquidity. This category of earning assets, excluding credit card loans held for sale (securitization), decreased sig Table 13 Managed Credit Card Portfolio December 31 (dollars in thousands) 1993 1992 1991 1990 1989 Year-end balances: On balance sheet temporary investments $ 400,000 On balance sheet loans $1,808,515 $1,243,873 $ 700,488 679,854 $1,418,415 Off balance sheet loans 3,289,656 1,000,000 1,000,000 500,000 Total managed portfolio (year-end $5,098,171 $2,243,873 $1,700,488 $ 1,579,854 $1,418,415 Average balances: On balance sheet temporary investments $ 393,835 $ 92,055 $ 1,096 On balance sheet loans 1,764,277 $ 709,266 628,531 1,331,523 $1,241,347 Off balance sheet loans 1,372,187 1,000,000 884,931 141,097 Total managed portfolio (average) $3,530,299 $1,709,266 $1,605,517 $1,473,716 $1,241,347
nificantly from last year in recognition of Signet's liquidity position, the lower level of deposits, the sluggish economy and the redeployment of these assets into higher yielding credit card loans. In addition, $57.8 million of mortgage-backed securities available for sale were sold during 1993 resulting in net gains of $3.9 million. This was done in reaction to the rapid repayments being experienced on the underlying mortgage loans as consumers continued to refinance mortgage loans at extremely high levels during 1993. The portfolio (excluding credit card loans held for sale) yield of 4.91% declined from the 1992 level of 5.25% due to the significantly lower market rates experienced during 1993. Credit card loans held for sale (securitization), included in other temporary investments averaged $394 million with a yield of 9.21% for 1993. There were no credit card loans held for sale (securitization) in 1992. Securities available for sale, which are carried at the lower of aggregate cost or market, are used as part of management's asset/liability strategy and may be sold in response to changes in interest rates, resultant prepayment risk and other factors dictated by its strategy. The Company will adopt SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities" in 1994. Securities available for sale will then represent those securities not classified as either investment securities or trading account securities and will be carried at fair value with unrealized gains and losses reported as a separate component of stockholders' equity. At adoption, securities totaling $1.5 billion will be reclassified from investment securities to securities available for sale and an unrealized after-tax gain of $30.0 million will be carried separately in stockholders' equity. Investment Securities Signet's investment securities portfolio of $1.8 billion at December 31, 1993 consisted of obligations of the U.S. Treasury and government sponsored agencies, obligations of states, municipalities and other political subdivisions, as well as stocks, bonds and notes of corporations. Investment securities are primarily fixed rate instruments with maturities ranging from less than one year to fifteen or more years, or in some cases, such as investments in equity securities, have no maturity. These assets are used as security for public and trust deposits, as collateral for repurchase transactions and to provide interest income. If the Company has the intent to hold securities until maturity, they are classified as investment securities and carried at amortized historical cost. Table 14 Impact of the Credit Card Securitizations Year Ended December 31 (dollars in thousands) 1993 1992 1991 1990 Statement of Consolidated Operations (as reported) Net interest income $ 529,340 $ 435,610 $ 397,970 $ 443,928 Provision for loan losses 47,286 67,794 287,484 182,724 Non-interest income 365,436 273,541 341,758 201,542 Non-interest expense 598,316 499,239 508,925 414,535 Income (loss) before income taxes (benefit) $ 249,174 $ 142,118 $ (56,681) $ 48,211 Adjustments for Securitizations Net interest income $ 167,662 $ 131,424 $ 85,958 $ 15,107 Provision for loan losses 57,633 63,599 51,026 6,626 Non-interest income (110,029) (67,825) (34,932) (8,481) Non-interest expense - - - - Income before income taxes $ - $ - $ - $ - Managed Statement of Operations (adjusted) Net interest income $ 697,002 $ 567,034 $ 483,928 $ 459,035 Provision for loan losses 104,919 131,393 338,510 189,350 Non-interest income 255,407 205,716 306,826 193,061 Non-interest expense 598,316 499,239 508,925 414,535 Income (loss) before income taxes (benefit $ 249,174 $ 142,118 $ (56,681) $ 48,211 As reported: Average earning assets $ 10,552,698 $ 10,181,254 $ 10,537,684 $ 11,374,186 Return on assets 1.50% .98% N/M .34% Net yield margin 5.17 4.47 3.98% 4.13 Including securitized credit cards: Average earning assets $ 11,924,885 $ 11,181,254 $ 11,422,615 $ 11,515,283 Return on assets 1.34% .90% N/M .33% Net yield margin 5.97 5.24 4.43% 4.21 Yield on managed credit card portfolio 13.76% 17.51% 16.39% 16.41%
Otherwise, securities are classified either as available for sale (temporary investments) and carried at the lower of aggregate cost or market or as trading account securities (temporary investments) and carried at market, depending on management's asset/liability strategy, liquidity needs or objectives. The accounting policy for investment securities is included in Note A to Consolidated Financial Statements. As noted earlier, the Company will implement SFAS No. 115, "Accounting for Certain Debt and Equity Securities" in 1994. At adoption, Table 15 Non-Performing Assets and Past Due Loans December 31 (dollars in thousands) 1993 1992 1991 1990 1989 Non-accrual loans: Commercial $ 42,303 $ 25,470 $ 57,824 $ 67,945 $ 29,283 Consumer 2,191 808 989 658 2,048 Real estate-construction 17,837 52,051 107,778 66,557 30,829 Real estate-mortgage(1) 6,523 7,341 40,494 1,159 14,310 Total non-accrual loans 68,854 85,670 207,085 136,319 76,470 Restructured loans: Commercial 1,609 8,099 2,923 3,392 3,828 Real estate-construction 3,470 22,568 Total restructured loans 5,079 30,667 2,923 3,392 3,828 Total non-performing loans 73,933 116,337 210,008 139,711 80,298 Legally foreclosed properties 37,938 64,279 124,006 67,945 21,308 In substance foreclosed properties 10,357 11,124 40,008 63,248 Less foreclosed property reserve (5,742) (10,625) (41,632) Total foreclosed properties 42,553 64,778 122,382 131,193 21,308 Total non-performing assets(2) $116,486 $181,115 $332,390 $270,904 $101,606 Percentage to loans (net of unearned) and foreclosed properties 1.83% 3.08% 5.53% 4.12% 1.40% Allowance for loan losses to: Non-performing loans 342.63% 228.25% 156.84% 117.15% 16.53% Non-performing assets 217.46 146.61 99.09 60.42 92.09 Accruing loans past due 90 days or more $ 58,891 $64,835 $ 91,971 $ 93,676 $ 43,331 (1)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. (2)$55,238, $136,154 and $248,842 of this total was included in the Program at December 31, 1993, 1992 and 1991, respectively.
securities totaling $1.5 billion will be reclassified from investment securities to securities available for sale. Investment securities for 1993 averaged $1.9 billion, a decrease of $212 million over the 1992 level as securities were called or matured. The Company increased its holdings of U.S. Treasury securities during late 1991 and 1992 in response to reduced loan demand and to generate sustainable sources of interest income. Additionally in 1992, increased prepayments on the assets underlying the Company's portfolio of collateralized mortgage obligation residuals and excess mortgage servicing resulted in $17 million of writedowns. No such writedowns were necessary in 1993. This portfolio totaled $3.8 million at year-end 1993 down from $8.8 million at the prior year-end. At year-end 1993, the investment securities portfolio (excluding securities having no maturity) had a remaining average maturity of 5 years and unrealized gains of $64.6 million and unrealized losses of $5.0 million. Investment securities portfolio yields declined to 6.63% from the 1992 level of 6.99% as higher yielding securities were called or matured. Table 9 shows the maturities of the investment securities portfolio and the weighted average yields to maturity of such securities (non-taxable securities are on a taxable equivalent basis). At the end of the past two years, Signet did not have any aggregate investments with a single issuer (except for U.S. Government and agency obligations which are separately disclosed in this Report) which were greater than ten percent of stockholders' equity. Loans Loans (net of unearned income) for 1993, averaged $6.2 billion, an increase of $588 million, or 10%, from the 1992 level. Average balances increased in the credit card, other Table 16 Reserve for Foreclosed Properties Analysis Year Ended December 31 (in thousands) 1993 1992 1991 Balance at beginning of year $10,625 $41,632 $ - Additions to reserve charged to expense (includes special provision of $18,400 for 1991) 7,405 15,503 71,878 Writedowns (12,288) (46,510) (30,246) Balance at end of year $ 5,742 $10,625 $41,632 Table 17 Non-Performing Real Estate Assets Composition December 31, 1993 (dollars in millions) Geographical Concentration Metro- Out of Percent Type of Project Baltimore, MD Washington Area Richmond, VA Tidewater, VA Market Area Total of Total Office Building $1.3 $1.2 $.8 $4.7 $8.0 10.5% Industrial / Warehouse 2.1 .3 .8 3.2 4.2 Apartments .9 1.5 $.9 3.3 4.3 Shopping / Retail 5.2 5.8 .8 11.8 15.5 Residential 1.3 10.1 .3 .8 .1 12.6 16.6 Land A & D Residential 2.0 12.1 .1 3.0 .4 17.6 23.1 Land A & D Commercial 5.3 8.8 3.4 2.1 19.6 25.8 Total Outstanding $17.2 $39.2 $7.7 $6.8 $5.2 $76.1 100.0% Percent of Total 22.6% 51.5% 10.1% 9.0% 6.8% 100.0%
consumer and real estate-commercial mortgage loan categories, while the commercial, real estate-construction and real estate- residential mortgage loan average balances declined. The composition of the loan portfolio has been significantly altered over the past two years by the credit card national solicitations and securitizations and weak commercial loan demand caused by a sluggish economy. In addition, Signet reduced its overall risk real estate exposure by $312 million during 1993. At year-end 1993, Signet had no commercial loans outstanding, not otherwise disclosed, to borrowers in the same or related industries which, in total, exceeded ten percent of total loans. Borrowers were concentrated in a market area which extended from the Baltimore- Washington corridor through Richmond east to the Hampton Roads area of Virginia. The various loan categories for the past five year-ends are detailed in Table 10. Commercial loans, which represented 34% of the total average loan portfolio, averaged $2.1 billion for 1993, a slight decline from last year. Signet's commercial loan portfolio is strongly oriented toward diversified middle market borrowers. These loans are predominately in the manufacturing, wholesaling, services and real estate industries. The credit risk associated with middle market borrowers is principally influenced by general economic conditions and the resulting impact on the borrower's operations. The Company has been selectively participating in the financing of highly leveraged transactions ("HLTs") for several years. Since borrowers in these financings generally have a high ratio of debt compared to equity, the risks can be considerable; however, Signet believes it has minimized the risks involved in HLTs since Signet is not an active participant in large syndicated HLTs that rely on the breakup value of the borrower as the source of repayment and instead relies on its expertise in lending to middle market or specialized industry companies in its own market areas, especially those with which it has worked closely for many years. HLTs represented less than 1% of total loans at December 31, 1993. Credit card receivables on the balance sheet averaged $1.8 billion for 1993, an increase of 145% from 1992, and represented 28% of the total average loan portfolio. Credit card outstandings increased significantly in spite of $2.3 billion of securitizations ($1.2 billion in September, 1993 and $1.1 billion in December, 1993). The primary purpose of securitization is to fund the growth in credit card receivables. As noted earlier, net income is not significantly affected by the securitizations. The solicitation program added approximately 1,400,000 and 400,000 new accounts for 1993 and 1992, respectively. At year-end, on- balance sheet credit card loans totaled $1.8 billion, an increase of 45% over 1992, as Signet's solicitation program yielded substantial results. The growth was achieved through a variety Table 18 Accruing Loans Past Due 90 Days or More December 31 (in thousands) 1993 1992 Commercial $ 2,641 $ 3,237 Credit card 16,491 20,210 Other consumer 22,637 18,926 Real estate-construction 11,133 9,083 Real estate-commercial mortgage 4,333 10,209 Real estate-residential mortgage 1,656 3,170 $58,891 $64,835 Table 19 Risk Real Estate Loan Portfolio Stratification December 31, 1993 (dollars in millions) Residential Commercial Totals Category # Commitment Outstanding # Commitment Outstanding # Commitment Outstanding Over $25 million 1 $ 30.5 $ 28.0 1 $ 30.5 $ 28.0 $20 - $25 million 1 $ 21.5 $ 5.6 1 21.5 5.6 $15 - $20 million 5 85.6 85.6 5 85.6 85.6 $10 - $15 million 6 69.2 68.0 6 69.2 68.0 $5 - $10 million 7 53.5 37.4 18 121.1 121.1 25 174.6 158.5 $1 - $5 million 51 78.3 36.5 137 316.9 310.1 188 395.2 346.6 Less than $1 million 71 49.8 27.8 867 172.5 171.2 938 222.3 199.0 Totals 130 $ 203.1 $ 107.3 1,034 $ 795.8 $ 784.0 1,164 $998.9 $ 891.3 Construction 130 $ 203.1 $ 107.3 63 $ 208.9 $ 202.5 193 $412.0 $ 309.8 Mortgage 971 586.9 581.5 971 586.9 581.5 Totals 130 $ 203.1 $ 107.3 1,034 $ 795.8 $ 784.0 1,164 $998.9 $ 891.3
of attractive products offered to carefully targeted customer segments with a low risk profile. The total managed credit card portfolio which grew $2.9 billion during the year, totaled $5.1 billion at December 31, 1993. The managed portfolio includes both loans on the balance sheet and securitized assets. See the Credit Card Business section for a more detailed discussion. Other consumer loans averaged $1.2 billion for 1993, a slight increase from 1992, and represented 19% of the total loan portfolio. This category consisted of home equity loans ($453 million-1993, $491 million-1992), student loans ($409 million-1993, $293 million-1992), second mortgage loans ($67 million-1993, $98 million-1992), direct and indirect automobile installment loans ($57 million-1993, $73 million-1992) and other consumer-type loans ($221 million- 1993, $244 million-1992). The slight increase in overall other consumer loans was concentrated in student loans. Consumer real estate loans declined due to the high volumes of mortgage loan refinancings in 1993. Signet continues to emphasize credit judgments that focus on a customer's debt obligations, ability and willingness to repay and economic trends in general. Signet expects to implement growth strategies in the consumer real estate and student loan markets in 1994. Real estate-construction loans totaled $449 million, a decrease of 42%, or $328 million, from the 1992 average. This category represented 7% of the average loan portfolio for 1993, down from 14% in 1992. During 1991 and 1990, problem real estate assets significantly affected Signet's profitability due to the need for increased loan loss provisions associated with the high level of non-performing assets and expenses related to foreclosed properties. The Program was established in December, 1991, to help resolve these real estate problems and return Signet to Table 20 The Program Portfolio Composition By Project Type and Location December 31, 1993 (dollars in millions) Geographical Concentration Metro- Out of Percent Type of Project Baltimore, MD Washington Area Richmond, VA Tidewater, VA Market Area Total of Total Office Building $ .5 $ 48.0 $ 1.2 $ .3 $ 4.4 $ 54.4 19.1% Industrial / Warehouse 4.4 5.9 4.5 .4 15.2 5.3 Apartments .9 .6 4.8 1.3 7.6 2.7 Hotel / Motel 17.3 8.3 25.6 9.0 Shopping / Retail 19.1 29.9 12.4 2.2 63.6 22.3 Residential .5 11.5 24.9 36.9 12.9 Land A & D Residential 1.6 28.5 1.5 1.6 33.2 11.7 Land A & D Commercial 7.4 15.6 3.8 4.7 31.5 11.1 Other .5 13.0 3.2 16.7 5.9 Total Outstanding $34.0 $170.6 $27.2 $38.9 $ 14.0 $284.7* 100.0% Percent of Total 11.9% 59.9% 9.6% 13.7% 4.9% 100.0% * Does not include $15.2 in lines of credit to developers (classified as commercial loans) resulting in a total exposure of $299.9.
Table 21 The Program Portfolio Composition December 31 Percent Change (dollars in thousands) 1993 1992 1991 1993-1992 1993-1991(1) Performing loans: Commercial $ 9,612 $ 18,946 $ 26,062 (49)% (63)% Real estate -construction 117,043 234,856 468,296 (50) (75) Real estate -mortgage 112,256 110,892 82,146 1 37 Total performing loans 238,911 364,694 576,504 (34) (59) Non-accrual loans: Commercial 4,008 1,013 4,887 296 (18) Real estate -construction 9,687 51,048 105,624 (81) (91) Real estate -mortgage 50 3,477 23,576 (99) (99) Total non-accrual loans 13,745 55,538 134,087 (75) (90) Restructured loans: Commercial 1,609 N/M N/M Real estate -construction 3,470 20,265 (83) N/M Total restructured loans 5,079 20,265 (75) N/M Total non -performing loans 18,824 75,803 134,087 (75) (86) Total loans 257,735 440,497 710,591 (41) (64) Foreclosed Properties: Legal 35,126 60,861 116,745 (42) (70) In substance 7,030 10,115 39,628 (30) (82) Total foreclosed properties 42,156 70,976 156,373 (41) (73) Total 299,891 511,473 866,964 (41) (65) Less: Allowance for loan losses(2) (57,631) (99,988) (179,538) (42) (68) Reserve for foreclosed properties (5,742) (10,625) (41,632) (46) (86) Total (63,373) (110,613) (221,170) (43) (71) Total assets (3) $236,518 $400,860 $645,794 (41)% (63)% (1) This covers the time period since the inception of the Program. (2) Amount of overall allowance allocated to the Program. (3) Included in total assets at December 31, 1993 were $35,152 of performing loans that were the result of financing the sale of foreclosed properties in the Program.
higher levels of performance. This step allowed Signet to significantly reduce its real estate exposure during the last two years. Further details about the Program and the composition of this loan category, are covered in the Risk Elements section of this Report. Real estate-commercial mortgage loans represented 10% of the average loan portfolio. This category averaged $608 million, an increase of less than 1%, from 1992. The portfolio consisted of $319 million of commercial mortgage loans and $289 million of mini-permanent (interim) mortgage loans compared with $412 million and $192 million for the respective loan types in 1992. Real estate-commercial mortgage loans grew as a result of the conversion of construction loans to mini-permanent mortgage loans. Construction loans typically are converted to mini- permanent mortgage loans when the related project is cash flowing to cover debt service, and permanent financing, for various reasons, is not desired or obtainable at the Table 22 Changes in the Program Assets Year Ended Two Years Ended (in thousands) December 31, 1993 December 31, 1993* Beginning balance $511,473 $866,964 Advances, payments, sales and reductions (net) (159,872) (362,125) Transfers out of Program (34,240) Loans charged-off (gross) (39,422) (111,910) Foreclosed properties written down (12,288) (58,798) Net decrease (211,582) (567,073) Ending balance $299,891 $299,891 *This covers the time period since inception of the Program.
present time. Real estate-residential mortgage loans declined $17 million, or 18%, from 1992 to average $77 million. This category consisted of conventional home mortgages which experienced record levels of refinancing during 1993. Table 11 shows the maturities of selected loan categories at year-end 1993. Loans, as a result of maturities, monthly payments, sales and securitizations provide an important source of liquidity. See discussion on Liquidity elsewhere in this Report. Unused Table 23 Discounts on Assets Designated for the Program December 31, 1993 Current Prior Allowance/ Charge-offs Reserve Total Category Writedowns Discount Discount Performing loans 0% 23% 23% Non-performing loans 49 9 58 Foreclosed properties 49 7 56 Total 16% 18% 34% Percentages were calculated based on loan balances prior to any charge-offs and writedowns.
loan commitments related primarily to commercial loans and excluding credit card were approximately $2.7 billion at year-end 1993 and 1992. Credit Card Business The credit card industry is highly competitive and operates in a legal and regulatory environment increasingly focused on the cost of services charged to consumers. There is an increasing use of advertising, target marketing, pricing competition and incentive programs. The Company has responded to competition by targeting the origination of new accounts through the creation of products for multiple customer segments using various marketing channels. For example, Signet offers credit cards nationwide with different finance charge and fee combinations or other special features such as a balance transfer option. The Company approves prospective account holders through preapproval in conjunction with full application underwriting procedures. Using information derived from proprietary statistical models, Signet matches prospective account holders who meet the various applicable underwriting criteria with an appropriate credit card product. The Company has invested heavily over the past five years in a sophisticated information-based strategy for originating and managing credit card accounts. Signet uses this strategy to develop improved credit risk models which increase the credit quality of new solicitations. Signet's credit card business benefited significantly from its information-based strategy in 1993. The managed credit card portfolio (which includes securitized receivables) increased by $2.9 billion, Table 24 Maturities of Domestic Large Denomination Certificates $100,000 or more December 31, 1993 (in thousands) Balance Percent 3 months or less $197,699 57% Over 3 through 6 months 32,723 9 Over 6 through 12 months 29,968 9 Over 12 months 87,430 25 $347,820 100% The majority of foreign deposits are in denominations of $100,000 or more. or 127%, from December 31, 1992. In spite of this increase, absolute dollars of net loan losses, on a managed portfolio basis, declined from $94.2 million in 1992 to $83.9 million for 1993 as the more seasoned accounts in the portfolio continued to show improved credit quality. The high quality of the credit card portfolio is also reflected in loan delinquency data. The total managed credit card loans sixty days or more past due ratio dropped to 1.53% of related loans at year-end 1993 from 3.30% for year-end 1992, while the dollar amount remained relatively stable at approximately $79 million compared with $75 million at the same respective dates. Refer to Table 12 for a summary of delinquency data related to credit card loans. New account solicitations represent a diversity of product offerings, largely targeted at lower risk consumers. Management is committed to continually increasing sophistication in all areas of risk management. It is management's expectation that growth in outstandings and accounts will continue for the near term. Signet's managed credit card portfolio is comprised of credit card loans, credit card loans held for sale (securitization) and securitized credit card receivables. Credit card loans are included in gross loans, credit card loans held for sale (in the process of being securitized) are considered temporary investments and securitized credit card receivables are not assets of the Company and, therefore, are not shown on the balance sheet. See Table 13 for a five year summary of Signet's managed credit card portfolio. Securitization is the transformation of a pool of credit card receivables into marketable securities. Credit card receivables are transferred to a trust and interests in the trust are sold to investors for cash. The securitization of credit card receivables is an effective balance sheet management tool for facilitating the credit card growth. Such securitizations reduce the net yield margin and provision for loan losses and increase non-interest income, but the net effect on Signet's earnings is minimal, while increasing the return on assets. Signet's Credit Card Division services the related credit card accounts after the receivables are securitized. Because securitization changes Signet's involvement from that of a lender to that of a loan servicer, there is a change in how the revenue is reported in the income statement. For securitized receivables, amounts that would previously have been reported as interest income, credit card service charges and provision for loan losses are instead reported in non-interest income as credit card servicing income. Because credit losses are absorbed against these cash flows, Signet's credit card servicing income over the terms of these transactions may vary depending upon the credit performance of the securitized receivables. However, Signet's exposure to credit losses on the securitized receivables is contractually limited to these cash flows. In certain marketing programs, Signet makes use of introductory periodic finance charge rates which are predominantly fixed for some initial period and at the conclusion of this period rise to a higher, variable rate finance charge. If accountholders choose to utilize competing sources of credit, the rate at which new receivables are generated may be reduced and certain purchase and payment patterns with respect to the receivables may be affected. Signet has securitized a total of $3.3 billion of credit card receivables as of December 31, 1993 ($500 million in September, 1990, $500 million in March, 1991, $1.2 billion in September, 1993 and $1.1 billion in December, 1993). Table 14 indicates the impact of the securitizations on the statement of consolidated operations, average assets, return on assets and net yield margin for the past four years. It is management's intention to securitize additional credit card receivables in the near future and to continue to solicit new credit card accounts. Signet has successfully implemented its information-based strategy to originate and manage credit card accounts. While Signet Table 25 Risk-Based and Other Capital Data December 31 1993 1992 (dollars in thousands - -except per share) Balance Percent Balance Percent Common stockholders' equity $ 964,662 $ 826,632 Less goodwill and other disallowed intangibles (23,404) (26,067) Total Tier I capital 941,258 11.12% 800,565 9.56% Qualifying debt 222,607 253,692 Qualifying allowance for loan losses 107,646 106,656 Total Tier II capital 330,253 3.90 360,348 4.30 Total risk-based capital $1,271,511 15.02% $ 1,160,913 13.86% Total risk-adjusted assets $8,466,048 $ 8,373,605 Leverage ratio 8.13% 7.24% December 31 1993 1992 1991 1990 1989 Ratios: Common equity to assets 8.14% 6.84% 6.33% 6.46% 6.02% Tangible common equity to assets 7.88 7.02 5.82 6.07 5.73 Total stockholders' equity + allowance to loans 19.30 18.80 17.69 13.96 11.70 Internal equity capital generation rate 13.21 10.99 (5.58) .01 11.42 Common dividend payout ratio 26.14 22.96 N/M 100.00 33.41 Book value per share* $17.04 $14.77 $13.17 $13.83 $14.07 * Adjusted for the two-for-one stock split declared on June 23, 1993 and distributed on July 27, 1993.
plans to continue to increase its investment in the credit card business and expects continued growth and further successes, the growth rate experienced during 1993 is not sustainable indefinitely. Signet plans to or has already started to implement this information-based strategy in other areas of the Company, such as educational lending, equity line and mortgage banking. It is too early to determine how successful this strategy will be in the other areas of the Company. Risk Elements Non-Performing Assets Non-performing assets include non-accrual loans, restructured loans and foreclosed properties. Non-accrual loans are loans on which interest accruals have been suspended. It is Signet's policy to discontinue interest accruals on commercial and real estate loans when they become contractually past due 90 days as to principal or interest payments or when other internal or external factors indicate that collection of principal or interest is doubtful. Occasionally, exceptions are made to this policy if supporting collateral is adequate and the loan is in the process of collection. Credit card loans typically are charged off when the loan is six months past due and no payments have been received for 60 days, while other consumer loans typically are charged off when the loan is six months past due; therefore, these loans are not usually placed in non- accruing status. Restructured loans are loans on which a concession, such as a reduction in interest rate below the current market rate for new debt with similar risks, is granted to a borrower. Foreclosed properties are classified as either in substance foreclosures or legal foreclosures. In substance foreclosures occur when the borrower has little equity in the project based on the fair market value of the collateral, the repayment of the loan Table 26 Intangible Assets December 31 (in thousands) 1993 1992 1991 1990 1989 Goodwill $22,883 $26,067 $29,250 $32,433 $35,616 Credit card premium 7,271 8,094 8,917 9,740 Core deposit premiums 11,730 14,130 16,523 Mortgage servicing rights 12,847 3,473 2,946 1,523 379 Total intangible assets $54,731 $51,764 $57,636 $43,696 $35,995 The amortization of intangibles is expected to be approximately $6,406 annually over the next five years.
can be made only through operations or the sale of the collateral, and the debtor has abandoned control of the collateral or has retained control but it is doubtful that in the foreseeable future the debtor will be able to rebuild sufficient equity or repay the loan. Legal foreclosures occur when Signet legally takes title to the collateral. Non-performing assets at year-end 1993 totaled $116.5 million (net of the $5.7 million foreclosed property reserve), or 1.83% of loans and foreclosed properties, compared with $181.1 million, or 3.08%, respectively, at the end of 1992. The decline in non- performing assets can be attributed to the Program. Overall non- performing real estate assets declined $76.4 million, or 52%, including $22.2 million of foreclosed properties (net of reserves). One large commercial credit ($24.7 million) was placed on non-accrual status at the end of 1993. In early 1994, the Company sold this loan well within the loan's allocated allowance at year-end. Table 15 provides details on the various components of non-performing assets and past due loans for the last five years. Foreclosed properties totaled $42.6 million (net of reserve) at the end of 1993, and were equal to 37% of total non-performing assets and 60% of non-performing real estate assets. The reserve for foreclosed properties is analyzed in Table 16 and amounted to 12% of the foreclosed property balance before the reserve. The gross foreclosed properties balance reflected an aggregate discount of 48% from prior charge-offs and writedowns. There were $7.4 million of additions to the reserve Table 27 Interest Rate Sensitivity December 31, 1993 1-30 31-60 61-90 91-180 Within 180 Days- >1 Year- Over (dollars in millions) Days Days Days Days 180 Days 1 Year 5 Years 5 Years Earning assets (taxable equivalent basis): Temporary investments $2,427 $ 95 $ 6 $ 38 $2,566 $ 61 $ 23 $15 Investment securities 330 39 12 74 455 113 1,155 47 Loans 2,985 39 538 65 3,627 102 2,217 364 Total earning assets 5,742 173 556 177 6,648 276 3,395 426 Interest bearing liabilities: Deposits: Savings(1) 316 1,357 47 1,720 524 158 1,262 Other time 319 158 207 435 1,119 418 1,059 16 Short-term borrowings 2,479 51 57 34 2,621 3 1 Long-term borrowings 150 50 200 62 4 Total interest bearing liabilities 3,264 209 1,671 516 5,660 945 1,280 1,282 Non-rate related assets and liabilities, net 1,218 360 Interest sensitivity gap 2,478 (36) (1,115) (339) 988 (669) 897 (1,216) Impact of interest rate swaps, financial futures, floors and caps(2) (306) (512) (1,200) (263) (2,281) (260) 2,041 500 Impact of credit card securitizations and repricing(3) (1,799) 422 670 598 (109) 418 (309) Interest sensitivity gap adjusted for impact of securitization interest rate swaps, financial futures, floors and caps(2) $373 $(126) $(1,645) $ (4) $(1,402) $(511) $2,629 $(716) Adjusted interest sensitivity gap as a percentage of total assets 3.17% (1.07%) (13.89%) 0% (11.82%) (4.31)% 22.17% (6.04%) Cumulative interest sensitivity gap $373 $247 $(1,398) $(1,402) $(1,402) $(1,913) $ 716 Adjusted cumulative interest sensitivity gap as a percentage of total assets 3.17% 2.10% (11.78%) (11.82%) (11.82%) (16.13%) 6.04% (1) Historical rate sensitivity analysis shows that interest checking and statement savings, while technically subject to immediate withdrawal, actually have shown repricings and run-off characteristics that generally fall within 1-5 years. A similar analysis has been done with the liquid savings and liquid checking products and these products have been adjusted accordingly. (2) $400 million of caps on three-month LIBOR limits Signet's exposure to rising rates but would allow the Company to take advantage of declining rates. (3) Some of the coupons on securitizations are tied to commercial paper and LIBOR rates and therefore are shown in the earliest period for repricing. While the income from securitization is booked in non-interest income, it is shown in this chart as it is impacted by rate movements.
charged to expense during 1993. These additions principally represented transfers from the allowance allocated to Program loans as these loans migrated to foreclosed properties. Signet sold $39.8 million of foreclosed properties during 1993. The average discount from the loan balance prior to any charge- offs and writedowns was approximately 40%. This percentage was comprised of 18% taken as charge-offs prior to foreclosure and 22% taken in writedowns and other expenses at sale. Signet did not provide financing on any of the foreclosed properties sold in 1993. Table 17 details Signet's non-performing real estate assets (construction loans, mortgage loans and foreclosed properties) at December 31, 1993 by location and types of projects. This table shows that the largest geographic exposure, 52%, was in the Metro-Washington area, and residential development projects made up 40% of the total. Accruing loans past due 90 days or more as to principal or interest payments totaled $58.9 million and $64.8 million at the end of 1993 and 1992, respectively. The details of these past due loans are displayed in Table 18. The past due commercial and real estate loans were in the process of collection and were adequately collateralized. Also, of the 1993 past due other consumer loans, 75% or $17.0 million, were student loan delinquencies, which are indirectly government guaranteed and do not represent material loss exposure to Signet. As noted earlier, credit card loans typically are charged off when the loan is six months past due and no payments have been received for 60 days, while other consumer loans typically are charged off when the loan is six months past due; therefore, these loans are not usually placed in non-accruing status. Although credit card outstandings have risen sharply during 1993, there has not been a similar increase in credit card loans past due 90 days or more. At year-end 1993, management was monitoring $113.2 million of loans for which the ability of the borrower to comply with present repayment terms was uncertain. These loans were not included in the above disclosure. They are followed closely, and management, at present, believes that the allowance for loan losses is adequate to cover anticipated losses that may be attributable to these loans. Interest recorded as income on year-end non-accrual and restructured loans was $2.5 million, $5.4 million and $6.6 million for 1993, 1992 and 1991, respectively, compared with interest income of $7.5 million, $13.4 million and $22.9 million for the same respective periods which would have been recorded had these loans performed in accordance with their original terms. The pre-tax costs of carrying (funding) an average of $61.6 million of foreclosed properties in 1993, $114.7 million in 1992 and $135.7 million in 1991 were approximately $1.9 million, $4.2 million and $8.1 million, respectively, when calculated by applying an average annual cost of funds to the outstanding balance. These amounts have been calculated using historical rates; and may not necessarily reflect improved earnings on a prospective basis, as these funds may be reemployed at different rates. The FASB recently issued SFAS No. 114, "Accounting by Creditors for Impairment of a Loan." The new statement, which is effective for financial statements issued for fiscal years beginning after December 15, 1994, requires impaired loans be measured at the present value of expected future cash flows by discounting those cash flows generally at the loan's effective interest rate. The new statement also requires troubled debt restructurings involving a modification of terms be remeasured on a discounted basis. The Company is currently evaluating the impact that SFAS 114 will have on the Company; however, management does not expect that this statement will have a materially adverse impact on future results of operations or financial position. Table 28 Liquidity Ratios December 31 1993 1992 1991 1990 1989 Ratio of liquid assets to: Purchased funds 121.6% 130.5% 134.3% 121.0% 80.8% Loans 66.5 82.0 54.1 58.8 57.0 Assets 35.4 39.4 28.3 33.2 33.0 Real Estate Lending This section of the Report discusses and details Signet's entire real estate loan exposure, while the next section, entitled Accelerated Real Estate Asset Reduction Program, discusses the successful steps management has taken to reduce Signet's overall risk real estate exposure. Signet's real estate-construction loan exposure at December 31, 1993, totaled $310 million, a decline of 44%, or $239 million, from the 1992 year-end level. Approximately 61% of these loans was located in the Metro-Washington area, while only 3% was located outside Signet's market area. The largest type of construction financing was residential, followed closely by office buildings. Of the construction loan portfolio, $17.8 million were on non-accruing status and $3.5 million were classified as restructured troubled debt at year-end (see discussion on Non-Performing Assets). Also, virtually all of Signet's $42.6 million (net of reserve) of foreclosed properties resulted from construction lending. The remaining unfunded commitments on Signet's construction loans at year-end 1993 totaled approximately $102 million. The other category of real estate lending is mortgage loans, which includes two categories-commercial mortgage and residential mortgage. Commercial mortgage loans totaled $582 million at December 31, 1993 and included $290 million of mini-permanent (interim) mortgage loans. Construction loans typically are converted to mini-permanent mortgage loans when the related project is cash flowing to cover debt service and permanent financing, for various reasons, is not desired or obtainable at the present time. Residential mortgages consist of conventional home mortgage loans and have experienced very few losses. This loan category totaled $71 million at year-end 1993. Table 19 stratifies Signet's year-end 1993 total risk real estate loan portfolio, which excludes residential mortgages. The table shows that approximately 12% of the portfolio was in residential development projects, which management believes generally represent less risk than commercial projects. Additionally, 94% of the $102 million unfunded construction loan commitments are residential, which are usually not fully funded. Accelerated Real Estate Asset Reduction Program ("the Program") As previously noted, the Company initiated a program in December, 1991, to accelerate the reduction of real estate assets. The Program's objective was to significantly reduce the Company's overall exposure to risk real estate assets through the use of discounts without adversely impacting future earnings. The Program has been very successful and has substantially accomplished its objective as evidenced in the following discussion. As a result of the success, Signet terminated the Program as a separate reporting unit effective January 1, 1994. The remaining assets will be assigned to work out units or in some cases, will be allowed to mature in accordance with their terms. Table 20 shows the composition of the portfolio by project type and location. Since inception of the Program, its assets (before reserves) have been reduced by 65%, or $567.1 million. As shown in Table 21, the Program started with $645.8 million of assets (net of the allowance for loan losses of $179.5 million and the reserve for foreclosed properties of $41.6 million) and ended 1993 with $236.5 million of assets (net of the allowance for loan losses of $57.6 million and the reserve for foreclosed properties of $5.7 million). During the two years of the Program's operation, the largest reductions of assets were in real estate-construction performing loans ($351.3 million), real estate-construction non-accrual loans ($95.9 million) and legal foreclosed properties ($81.6 million). Total loans declined by 64%, or $452.9 million, and foreclosed properties declined by 73%, or $114.2 million. Of the remaining assets in the Program at December 31, 1993, $238.9 million, or 80%, were performing loans and $70.1 million, or 23%, were residential development projects. Table 22 details the activity that occurred in the Program for 1993 and since inception. Transfers out of the Program noted in Table 22 currently meet Signet's underwriting standards and acceptable risk profiles. In 1992 and 1993, Signet sold $145.2 million of Program foreclosed properties at a 23% discount from the December 31, 1991 balance, which was approximately equal to the 21% discount established on these properties. Loans removed from the Program on financings, payoffs, etc. were $350.5 million. Discounts taken on these loans were 22% compared to the 26% discount originally established. Since the commencement of the Program, the total discounts taken for all asset sales or removals were 23% compared to the 24% discount established. The remaining discounts in the Program at year-end 1993 of $63.4 million represented 21% of the assets in the Program as compared to 26% at the inception of the Program. The lower level of remaining overall discount is a reflection of reducing certain assets during 1992 and 1993 with high discounts and aggressively writing down certain properties to anticipated sale prices. Table 23 indicates that previous writedowns and charge-offs, coupled with the current allowance/reserve provides coverage of 23% on performing loans, 58% on non-performing loans, 56% on foreclosed properties and 34% in the aggregate. Management believes that the remaining discount of $63.4 million is adequate to resolve the remaining Program assets. There were $15 million of unfunded commitments at December 31, 1993 compared to $47 million and $118 million at December 31, 1992 and 1991, respectively. At December 31, 1993, remaining balances on assets which Signet financed totaled $47 million (which were retained in the Program) under normal business terms and with normal underwriting standards, except for $5 million of which were considered restructured troubled debt and were included in the Program's non-performing assets. Funding Deposits The Company offers a diverse range of products to its customers, including interest bearing and non-interest bearing demand, savings and certificates of deposits, both domestic and foreign. Signet competes for deposits with other commercial banks, with savings banks, savings and loan associations, the bond and stock market and other providers of non-bank financial services, including money market funds, credit unions and other deposit gathering institutions. Average deposits totaled $7.7 billion for 1993, a decrease of 2%, or $154 million, from 1992. The overall decrease and the change in the mix of deposits was principally the result of declining rates and the consumers' decision to shorten maturities, increase liquidity and to move funds into non-financial institution products. Signet's own mutual fund family, the Signet Select Series, attracted $199 million in 1993, a portion of which was generated from deposit customers of the Company. In addition, Signet's sales of non-proprietary mutual fund and annuity products totaled $86 million in 1993. These products provide fee income for the Company which raises the return on assets. Core deposits averaged $7.3 billion for 1993, a decrease of 4% from 1992. These deposits represent Signet's largest and most important funding source due to their relatively low cost and reasonably stable nature. The category of core deposits which experienced the greatest decline was savings certificates which fell $603 million, or 20%, from 1992 as depositors responded to lower interest rates by shortening the maturities of their investments and transferring their funds into money market and demand products. This source of funding also enhances the overall liquidity position of the Company. Signet has maintained its deposit and customer base during the year through new products, innovative marketing techniques and quality customer service; however, the competition among the various financial institutions for these deposits and increased awareness on the part of consumers and desire for a higher return on their funds has effectively increased the relative cost of and reduced the overall benefits received from these deposits. Purchased deposits (large denomination certificates and foreign deposits), averaged $473 million for 1993, an increase of $178 million, or 60%, from the prior year. The majority of the large denomination certificates are sold to existing corporate customers. The demand for such funds depends upon the Company's varying financing needs and also reflects the previously mentioned customers' shifting of deposits to shorter more liquid products. As a result, the interest rates are based upon market competition for these funds. Table 24 shows the maturity composition of large denomination certificates at year-end 1993. Short-Term and Long-Term Borrowings Short-term borrowings consist of federal funds purchased, securities sold under repurchase agreements, commercial paper, Treasury tax and loan deposits, Federal Reserve borrowings and short-term borrowings from other banks. This category of borrowings is an accessible source of moderately priced funds and has become an important financing vehicle for Signet's balance sheet management. Signet supplements its funding sources in the short-term money market and through securitizations. These instruments have an original maturity of less than one year. This category increased $440 million, or 21%, over 1992 to average $2.5 billion. The increase in purchased funds was to temporarily fund the growth in credit card receivables prior to securitization. See Note G to Consolidated Financial Statements for further details on this source of funds. Long-term borrowings represent a very stable, although relatively expensive, source of funds and have been used to provide Tier II capital to Signet's subsidiaries, for acquisitions and for general corporate purposes. This category averaged $287 million for 1993, a decline of 4%, or $12 million, from 1992. This decline resulted partly from regularly scheduled amortization of principal and maturities and from a prepayment of a high rate mortgage. No long-term debt was issued during the year. On February 1, 1994, Signet called for redemption at par the remaining $11.9 million of 7 3/4% Senior Debentures due in 1997. Note H to Consolidated Financial Statements provides a detailed analysis of long-term borrowings at December 31, 1993 and 1992. Stockholders' Equity Stockholders' equity provides a source of permanent funding, allows for future growth and assists the Company to withstand unforeseen adverse developments. At December 31, 1993, stockholders' equity totaled $965 million, an increase of $138 million, or 17%, from the previous year-end level of $827 million. The increase reflects net retained income for 1993 of $129.4 million and the issuance of common stock through investor and employee stock purchase plans, as well as the stock option plan, which, in total, added an additional $9.2 million in net proceeds to equity. As an indication of Signet's improved financial health, the Board of Directors approved a 25% quarterly dividend increase from $.20 to $.25 per share effective with the dividend payable November 24, 1993. This latest increase followed a 33% increase declared on April 28, 1993. The result of the two dividend increases in 1993 was to increase the annual rate to $1.00 from $.60 per share, or a 67% increase. The principal source of dividends to be paid by the Company to its shareholders is normally dividends and interest from the Company's subsidiary banks. Various state and federal laws and policies limit the ability of the Company to pay dividends to shareholders and the ability of Signet's subsidiary banks to pay dividends to the Company. Under applicable regulatory restrictions, all of the Company's banking subsidiaries will be able to pay dividends to the Company in 1994. Capital Analysis A primary objective of management is and has been to sustain its strong capital position to merit the confidence of customers, the investing public, banking regulators and stockholders. A strong capital position has helped the Company withstand unforeseen adverse developments and take advantage of profitable investment opportunities. It also allowed Signet to implement the Program during 1991 and increase its quarterly dividend by 67% during 1993. Capital adequacy is defined as the amount of capital needed to maintain future asset growth and to absorb losses. Regulators consider a range of factors when determining capital adequacy, such as the organization's size, quality and stability of earnings, risk diversification, management expertise, asset quality, liquidity and internal controls. Management reviews the various capital measures monthly and takes appropriate action to ensure that they are within established internal and external guidelines. Management believes that Signet's current capital and liquidity positions are strong and that its capital position is adequate to support its various lines of business. Effective in 1989, the Federal Reserve Board issued capital guidelines which are sensitive to credit risk factors (including off-balance sheet exposure). Emphasis is placed on common stockholders' equity in relationship to total assets adjusted for risk. The focus is principally on credit risk, but does include certain interest rate and market risks when assigning risk categories. The risk-based capital guidelines define capital as either core capital (Tier I) or supplementary capital (Tier II). These guidelines required banking organizations to meet a minimum total capital ratio of 8%, with at least 4% Tier I Capital, by year-end 1992. Under the Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA"), the risk-based capital standards will be revised in 1994 to incorporate interest rate risk. FDICIA also requires the federal banking agencies to take prompt corrective action in respect to depository institutions that do not meet minimum capital requirements. FDICIA established five capital tiers: well-capitalized, adequately capitalized, undercapitalized, significantly undercapitalized and critically undercapitalized. A depository institution's capital tier depends upon where its capital levels are in relation to various relevant capital measures, which include a risk-based capital measure and a leverage ratio capital measure, and certain other factors. As of December 31, 1993, all three of Signet's banking subsidiaries met the well-capitalized criteria. As detailed in Table 25, the Company's consolidated risk-based capital ratios at December 31, 1993 were 15.02% and 11.12% for Total Capital and Tier I Capital, respectively. The Federal Reserve Board also requires a minimum leverage ratio of 3%. For most corporations, including Signet, the minimum leverage ratio is 3% plus an additional cushion of at least 100 to 200 basis points depending upon risk profiles and other factors. 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 December 31, 1993 was 8.13%. For informational purposes, Table 26 details the components of Signet's intangible assets for the past five years and the estimated amortization for the next five years. Off-Balance Sheet Risk Signet has been party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers, to reduce its own exposure to fluctuations in interest rates and to participate in trading activities. These financial instruments include commitments to extend credit, standby and commercial letters of credit, forward and futures contracts, interest rate swaps, interest rate caps and floors written, options written and mortgages sold with recourse. These instruments involve, to varying degrees, elements of credit or interest rate risk in excess of the amount recognized on the balance sheet. Signet used the same credit policies for off-balance sheet items as it does for on-balance sheet instruments. See the Interest Rate Sensitivity discussion and Note O to Consolidated Financial Statements for further details of off-balance sheet risk. Interest Rate Sensitivity Signet's interest rate sensitivity position is managed by the Asset and Liability Committee ("ALCO"). ALCO's purpose is to optimize rate sensitive income by managing balance sheet mix and interest rate sensitivity in order to create an acceptable balance among soundness, profitability and liquidity. Legislative changes, monetary control efforts and the effects of deregulation have significantly affected the task of managing interest rate sensitivity positions in recent years. Interest rate sensitivity is the relationship between changes in market interest rates and changes in net interest income due to the repricing characteristics of assets and liabilities. When interest rates are rising, a net asset position is desirable as more assets will be repriced at higher rates than liabilities, resulting in a favorable impact on net interest income. Similarly, when interest rates are declining, a net liability position is preferred. ALCO routinely uses derivatives such as interest rate swaps to insulate the Company against the possibility of sudden changes in interest rates. ALCO, in managing interest rate sensitivity, also uses simulations to better identify the impact that market changes and alternative strategies might have on net interest income. Current simulations indicate that an immediate and sustained 100 basis point change in interest rates would have less than a 4% impact on rate sensitive income over the next twelve months, reflecting Signet's conservative balance sheet strategy. ALCO operates under a policy 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. During 1993, as well as at year-end, Signet positioned itself for a declining rate environment. While Table 27 shows a basic 180-day net asset position of $988 million at December 31, 1993, the Company had taken steps to limit its exposure to rising rates through the purchase of derivative products. Execution of these off-balance sheet interest rate and hedging instruments resulted in an 180-day net liability position of $1.4 billion, or 12% of total assets. At December 31, 1993, the notional values of the Company's derivative products for the purpose of hedging interest rate risk are $2.4 billion of interest rate swaps, $700 million of interest rate floors, $400 million of interest rate caps and $200 million of futures contracts. Interest rate swaps, where the Company makes variable rate payments and receives fixed rate payments, were entered into to hedge the interest rate sensitivity in the Company's existing balance sheet mix. During 1993, the Company's interest rate swaps increased income on earning assets by $2.7 million and reduced borrowing costs by $90.3 million. The majority of the existing interest rate swaps have either a 3- or 5- year life and will have matured by 1999. Interest rate floors, with average strike prices of approximately 5% tied to the three-month London Inter- Bank Offering Rate ("LIBOR"), increased income on earning assets by $11.4 million in 1993. Interest rate floors were purchased to hedge variable rate assets against decreases in interest rates. Maturity dates on the interest rate floors range from 1997-2003. Interest rate caps, with average strike prices of approximately 5.5% tied to the three-month LIBOR, increased borrowing costs by $7.9 million in 1993. Interest rate caps were purchased to hedge variable rate liabilities against increases in interest rates. All existing interest rate caps will mature by mid-1995. Futures contracts were purchased to hedge interest rate changes in temporary investments. During 1993, gains of $200 thousand on closed contracts increased income on temporary investments. As the derivative contracts mature, management will determine the necessity to enter into additional contracts at that time. Liquidity Liquidity is the ability to meet present and future financial obligations either through the sale or maturity of existing assets or by the acquisition of additional funds through liability management. Therefore, both the coordination of asset and liability maturities and effective liability management are important to the maintenance of liquidity. Stable core deposits and other interest-bearing funds, accessibility to local, regional and national funding sources and readily marketable assets are all important determinants of liquidity. Table 28 reflects certain liquidity ratios for the past five year-ends. The 1993 ratios remained very strong. Asset liquidity is generally provided by temporary investments. Table 8 shows 54% of this portfolio maturing within 90 days. As indicated in Table 9, $172 million of investment securities mature within one year. Liability liquidity is measured by the Company's ability to obtain deposits and purchase 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 1993 maintained the Company's strong liquidity position. Signet's 1993 year-end and average loan balances were entirely funded with core deposits. Signet's equity base, as noted earlier, also provides a stable source of funding. The parent company does not rely on the capital markets for funding on a regular basis. The parent company issues a modest amount of commercial paper in its local market, which is reinvested in repurchase agreements with its subsidiary banks (included in Advances to Bank Subsidiaries on the parent company's balance sheet). Additionally, the parent company does not have any significant long-term debt issues maturing until 1997; however, as noted earlier, on February 1, 1994, Signet called for redemption at par the remaining $11.9 million of 7 3/4% Senior Debentures due in 1997. For 1993, cash and cash equivalents declined by $321 million as Federal funds sold overnight dropped sharply. Cash provided by operations was $424 million for this time period resulting mainly from proceeds from securitization of credit card loans. Cash used by investing activities amounted to $304 million principally due to an increase in loans. Cash used by financing activities amounted to $441 million due primarily to the decrease in short- term borrowings. Inflation Since interest rates and inflation rates do not always move in concert, the effect of inflation on banks, may not necessarily be the same as on other businesses. A bank's asset and liability structure differs significantly from that of manufacturing and other concerns in that virtually all assets and liabilities are of a monetary nature. Inflation affects a bank's lending activities. Since inflation tends to drive the costs of goods and services higher, the level of customers' financing needs usually rise to keep pace. As loan demand increases, competition for variable funds may raise the base rate charged for these funds. Banks are then faced with increased credit risk as borrowers experience greater exposure to financial risk from the higher rates. In such cases, banks place more emphasis on the adequacy of the allowance for loan losses. As a result, continued inflation increases the overall cost of doing business, both directly and indirectly. Fair Value The FASB has issued SFAS No. 107, "Disclosures About Fair Value of Financial Instruments" and Note R to Consolidated Financial Statements includes the requirements of this statement. Since interest rates, credit risks and other dimensions of fair value of the Company's assets, liabilities and off-balance sheet instruments change rapidly and, additionally, since this disclosure excludes some aspects of the Company's overall fair value, Note R should not be viewed as an indication of the Company's overall market value. Furthermore, certain valuation techniques used in developing Note R require assumptions and forecasts of cash flows. While Note R complies with Statement No. 107, these assumptions and other subjective determinations should be considered when interpreting the data. Signet Banking Corporation and Subsidiaries Management's Discussion and Analysis of Financial Condition and Results of Operations-1992 Compared to 1991 Summary of Performance On June 23, 1993, the Company declared a two-for-one split of its common stock in the form of a 100% stock dividend. One additional share of stock was issued on July 27, 1993, for each share held by stockholders of record at the close of business on July 6, 1993. All per share data in this Report have been adjusted to reflect this stock split. Signet's financial performance for 1992 and 1991 was affected by several events. During 1992, Signet completed the successful conversion of existing automated applications (except credit card and commercial loans) to an integrated system and increased the common stock dividend by 50%, from an annual rate of $.40 to $.60 per share. In 1991, Signet made a special provision of $165.0 million ($146.6 million to the allowance for loan losses and $18.4 million to the reserve for foreclosed properties) to accelerate the reduction of real estate assets. In addition, 1991 included the assumption of approximately $450 million of deposits from the failed Madison National Banks in Washington, D.C. and Virginia ("the failed Madison Banks"), the March 1991 securitization of $500 million of credit card receivables and the fourth quarter sale of the merchant credit card processing business. Signet reported consolidated net income of $109.2 million for 1992, or $1.96 per share, compared with a consolidated net loss of $25.7 million, or $.48 per share, in 1991. The 1992 performance reflected improved net interest margins, substantial growth in non-interest sources of revenues, expense control and significant improvement in asset quality, which was due primarily to the success of the Accelerated Real Estate Asset Reduction Program ("the Program"). The Program was established at the end of 1991 to enable the Company to reduce problem real estate assets and minimize their impact on future earnings. The Company reduced its overall risk real estate exposure (construc tion loans, commercial mortgage loans and foreclosed properties) by $417 million and non-performing assets declined by $151 million to total $181 million at December 31, 1992. Profitability measures reflected the improved level of earnings in 1992 as return on assets ("ROA") was .98% and return on common stockholders' equity ("ROE") was 14.22%. Comparative 1991 results included net securities gains of $93.2 million, an $8.9 million gain on the sale of the merchant credit card processing business, $14.6 million of credit card solicitation expenses, as well as the $165.0 million special loan loss and foreclosed property provisions to establish the Program mentioned above. Income Statement Analysis Net Interest Income Taxable equivalent net interest income was $454.9 million for 1992, an increase of $34.9 million, or 8%, over 1991. The overall improvement in net interest income resulted from the mix and volume of earning assets and interest bearing liabilities, and their relative sensitivity to interest rate movements. The net yield margin rose in 1992 to 4.47% from 3.98% for 1991, an increase of 49 basis points. The increase in the net yield margin was the net result of several factors: a change in the mix of earning assets due primarily to the impact of the 1991 credit card securitization (9 basis points); and lower yields on and changes in the mix of earning assets, including temporary investments, due to the lower rate environment experienced during 1992 (168 basis points) offset, in part, by a favorable change in the mix of funding sources and, due to the lower rate environment, lower costs associated with these funding sources (202 basis points); lower levels and related effects of non-performing loans (10 basis points); and higher levels of credit card outstandings and demand deposits (14 basis points). Provision and Allowance for Loan Losses The provision for loan losses totaled $67.8 million for 1992, a decrease of $219.7 million from the 1991 total of $287.5 million. As noted earlier, in December, 1991, Signet made a special provision of $146.6 million to the allowance for loan losses as part of the Program. Net charge-offs amounted to $131.6 million for 1992, compared with $123.3 million in 1991. Increases were noted in both real estate categories. Real estate-construction net charge-offs for 1992 totaled $57.9 million, up from the $31.0 million level reported for 1991, while real estate-mortgage net charge-offs (primarily commercial mortgages) totaled $14.8 million, compared to $3.0 million for last year. Of the $72.7 million in real estate net charge-offs, $63.8 million were in Program loans. Commercial net charge-offs totaled $26.2 million for 1992, a decrease of $25.8 million from 1991. This included $6.8 million of commercial net charge-offs in the Program. Other consumer net charge-offs increased to $3.4 million, or .29% of average other consumer loans. Credit card net charge-offs amounted to $29.3 million in 1992, or 4.13% of average credit card loans. The 1992 net charge-offs ratio for the credit card loans both on balance sheet and securitized was 5.31%. This is slightly lower than the 1991 level of 5.46% and reflects a downward trend in charge-offs and delinquencies. The two credit card securitizations reduced the dollar level and ratios of credit card net charge-offs for 1992 in comparison with 1991. The allowance for loan losses at December 31, 1992 was $265.5 million, or 4.57% of year-end loans, compared with the 1991 year- end allowance of $329.4 million, or 5.60% of loans, and included $100.0 million designated for the Program. The 1991 year-end allowance included $179.5 million designated for the Program. The 1992 allowance for loan losses was 228% of year-end non-performing loans and 147% of year-end non-performing assets indicating significantly improved coverage over 1991 when the December 31, 1991 allowance for loan losses was 157% of non-performing loans and 99% of non- performing assets. Non-Interest Income Non-interest operating income amounted to $281.0 million for 1992, an increase of $32.5 million, or 13% over 1991. Credit card servicing income totaled $101.2 million for 1992, an increase of $38.5 million over last year. This category primarily houses the income received for servicing the $1.0 billion of credit card receivables securitized ($500 million in September, 1990 and $500 million in March, 1991). Service charges on deposit accounts continued its steady growth with an increase of $4.0 million, or 6%, over 1991 to $67.0 million. This growth was the result of a full year of service charges on the deposits assumed from the failed Madison Banks, increased volume of business activity and fee repricing due to rising costs of servicing deposit accounts and to an emphasis on profitability in target pricing for certain services. Credit card service charges, which include membership fees and other credit card processing fees, totaled $31.6 million for 1992, a decline of $10.7 million from 1991 due to the securitizations and the 1991 fourth quarter sale of the merchant credit card processing business. Trust income, which totaled $15.9 million, was slightly below last year, due to revised fee schedules and a change in the mix of business activity in the trust services area. Mortgage origination and servicing income totaled $16.5 million for 1992 compared to $8.7 million in 1991, an increase of 89%, as a result of a significant increase in the volume of mortgage refinancings. During 1992, mortgage production totaled $1.1 billion, which was more than double the 1991 level. Since the majority of these loans are sold in the secondary market with servicing retained by Signet, the Company's servicing portfolio grew to $2.1 billion at December 31, 1992. Trading profits totaled $11.2 million, a decrease of $3.7 million from 1991. Other service charges and fees, which consist primarily of fees related to: discount brokerage ($6.7 million); commercial and standby letters of credit ($4.7 million); and checkbooks ($2.8 million) totaled $17.5 million, an increase of 37% from 1991. The remaining recurring categories of non-interest operating income, which included safe deposit box rentals, income from various insurance products and miscellaneous income from other sources, amounted to $20.1 million for 1992, an increase of $.8 million, or 4% over 1991. In 1992, Signet recognized net losses of $7.4 million on investment securities and securities available for sale transactions primarily the result of $17.0 million of writedowns on collateralized mortgage obligation residuals and excess mortgage servicing held in the investment securities portfolio. These securities are sensitive to the increases in mortgage prepayments caused by the lower interest rates and high volume of refinancings experienced during 1992. Gains of $10.5 million were recognized on transactions in the securities available for sale portfolio, primarily on sales of 30-year mortgage-backed securities. The net losses of $7.4 million in 1992 compares with $93.2 million of net gains in 1991, primarily on transactions in the Company's available for sale portfolio. Non-Interest Expense Non-interest expense for 1992 totaled $499.2 million, a decrease of $9.7 million, or 2% from 1991. Excluding foreclosed property expense from both years, non-interest operating expense increased 10% as a result of increases in incentive compensation, employee benefits and credit card solicitation costs. Staff expense (salaries and employee benefits), the largest component of non-interest expense, totaled $236.0 million, a 13% increase over 1991. Salaries (excluding incentives of $20.8 million for 1992 and $10.1 million for 1991) declined year-over-year due to the reduction in staff, which was offset partially by promotional and merit increases. The incentive compensation amounts increased as a direct result of the overall performance of the Company. For 1992, profit sharing awards of $13.0 million were recorded in the employee benefits category due to higher corporate earnings. In 1991, no profit sharing expense was incurred. The rising cost of medical insurance and other benefits also contributed to the overall increase in employee benefits. Part of the decline (approximately 270) in the number of employees during 1991 was related to contracting out data processing services to a third party vendor. Both 1992 and 1991 included expenses related to the credit card solicitation program initiated during early 1989. These costs totaled $23.1 million ($15.3 million after-tax, or $.27 per share) for 1992 and $14.6 million ($9.7 million after-tax, or $.18 per share) for 1991. Supplies and equipment expense declined $4.1 million or 11% year- to-year primarily due to Signet's decision to outsource its information services. Public relations, sales and advertising expense during 1992 declined $1.3 million from the 1991 level due to reductions in promotional campaigns. Two non-interest expense categories (professional services and credit and collection) reflected the costs associated with increased business volume and expense related to the economic downturn net of several cost reduction initiatives instituted during 1991 and 1992. Other non- interest expense declined $6.3 million, or 15%, from 1991. This decrease was due primarily to a lower and more normal level of operational losses during 1992. The decrease of $51.3 million in foreclosed property expense was primarily due to the provisions recorded during 1991 to establish a reserve for foreclosed properties. During 1992, provisions of $15.5 million were expensed compared to $71.9 million during 1991. This reserve had a balance of $10.6 million at year-end 1992. The majority ($60.4 million, or 93%) of Signet's net foreclosed properties at the end of 1992 were included in the Program. During 1991, Signet assumed the deposit liabilities of the failed Madison Banks and incurred some transition and branch operating costs associated with this assumption. Most of the expense categories were affected to some extent by these costs, which totaled approximately $7 million in 1991. Income Taxes Income tax expense reported for 1992 was $32.9 million as compared with income tax benefit of $30.9 million for 1991. This represented an effective tax rate of 23.2% for 1992 and an effective tax benefit rate of 54.6% for 1991. The Company's income taxes (benefit) were significantly affected by the alternative minimum tax credit in 1992 and by the relative proportion of taxable and tax-exempt income due to the increased provision for loan losses in 1991. The 1992 income tax expense included an alternative minimum tax credit of $6.3 million. Balance Sheet Review Earning Assets Average earning assets totaled $10.2 billion for 1992, a decline of 3% from the 1991 level. Decreases occurred in the temporary investments ($1.1 billion) and loan ($453 million) portfolios, while the investments securities portfolio increased by $1.2 billion. A detailed discussion of each earning asset category follows. Temporary investments averaged $2.4 billion, a decrease of 32%, from 1991. This category of earning assets decreased significantly from 1991 to 1992 in recognition of Signet's liquidity position, the lower level of deposits and the sluggish economy. In addition, $262.9 million of mortgage-backed securities available for sale were sold during 1992 resulting in net gains of $10.5 million. The overall portfolio yield of 5.25% declined from the 1991 level of 7.96% due to the significantly lower market rates experienced during 1992. Investment securities for 1992 averaged $2.1 billion, an increase of $1.2 billion over the 1991 level. The Company increased its holdings of U.S. Treasury securities during late 1991 and 1992 in response to reduced loan demand and to generate sustainable sources of interest income. In addition, $17 million of writedowns were recorded in the Company's portfolio of collateralized mortgage obligation residuals and excess mortgage servicing caused by the previously noted increase in prepayments on the mortgages underlying these types of securities. This portfolio totaled $8.8 million at year-end 1992. At year-end 1992, the investment securities portfolio (excluding securities having no maturity) had a remaining average maturity of 5 years and unrealized gains of $51.1 million and unrealized losses of $15.8 million. Investment securities portfolio yields declined to 6.99% in 1992 from the 1991 level of 8.84% as a result of the change in the mix of the portfolio caused by the more recently purchased U.S. Treasuries. Loans (net of unearned income) for 1992, averaged $5.6 billion, a decrease of $453 million, or 7%, from the 1991 level. Decreases occurred in all loan categories, on average, except for a 13% increase in credit card loans. The loan portfolio was significantly affected in 1991 and 1992 by the two credit card securitizations and weak loan demand caused by the sluggish economy and customers lowering their debt levels. Commercial loans, which represented 40% of the total average loan portfolio, averaged $2.2 billion for 1992, a slight decline from 1991. Signet's commercial loan portfolio is strongly oriented toward diversified middle market borrowers. Credit card receivables averaged $709 million for 1992, an increase of 13% from 1991, and represented 13% of the total average loan portfolio. The credit card outstandings were significantly reduced by the $1.0 billion of securitizations ($500 million in September, 1990 and $500 million in March, 1991). The credit card solicitation program added approximately 400,000 new accounts for 1992. Other consumer loans averaged $1.2 billion for 1992, a 7% decline from 1991, and represented 21% of the total loan portfolio. This category consisted of home equity loans ($491 million-1992, $512 million-1991), student loans ($293 million-1992, $276 million-1991), second mortgage loans ($98 million-1992, $127 million-1991), direct and indirect automobile installment loans ($73 million-1992, $117 million-1991), and other consumer-type loans ($244 million-1992, $259 million-1991). Real estate-construction loans totaled $776 million, a decrease of 28%, or $306 million, from the 1991 average. It represented 14% of the average loan portfolio for 1992 down from 18% in 1991. Real estate-commercial mortgage loans represented 11% of the average loan portfolio. This category averaged $604 million, a decrease of less than 1%, from 1991. The portfolio consisted of $412 million of commercial mortgage loans and $192 million of mini-permanent (interim) mortgage loans. Real estate-residential mortgage loans declined $29 million, or 24%, from 1991 to average $94 million. Risk Elements Non-Performing Assets Non-performing assets at year-end 1992 totaled $181.1 million (net of the $10.6 million foreclosed property reserve), or 3.08% of loans and foreclosed properties, compared with $332.4 million, or 5.53%, respectively, at the end of 1991. The overall decline in non-performing assets can be directly attributed to the Program. Overall non-performing real estate assets declined $154.9 million, or 50%, including $57.6 million of foreclosed properties (net of reserves). Foreclosed properties totaled $64.8 million (net of reserve) at the end of 1992, and represented 36% of total non-performing assets and 44% of non- performing real estate assets. The reserve for foreclosed properties at the end of 1992 represented 14% of the foreclosed property balance before the reserve which already reflected a 51% discount from prior charge-offs and writedowns. There were $15.5 million of additions to the reserve charged to expense during 1992. Signet sold $116.0 million of foreclosed properties during 1992. The average discount from the loan balance prior to any charge-offs and writedowns was approximately 37%. This percentage was comprised of 13% taken as charge-offs prior to foreclosure and 24% taken in writedowns and other expenses at sale. Of the $116.0 million of foreclosed properties sold during 1992, Signet provided financing, under normal business terms and underwriting standards, of $25.6 million. Accruing loans past due 90 days or more as to principal or interest payments totaled $64.8 million and $92.0 million at the end of 1992 and 1991, respectively. At year-end 1992, management was monitoring $128.9 million of loans for which there was uncertainty as to the ability of the borrower to comply with present repayment terms and which were not included in the above disclosure. Real Estate Lending Signet's real estate-construction loan exposure at December 31, 1992, totaled $549 million, a decline of 42%, or $404 million, from the 1991 year-end level. Approximately 62% of these loans was located in the Metro-Washington area, while only 5% was located outside Signet's market area. The largest type of construction financing was office buildings, followed closely by residential. The other category of real estate lending is mortgage loans, which consist of two categories-commercial mortgage and residential mortgage. Commercial mortgage loans totaled $632 million at December 31, 1992 and included $281 million of mini- permanent (interim) mortgage loans. Residential mortgages totaled $78 million at the 1992 year-end. Accelerated Real Estate Asset Reduction Program ("the Program") The Company initiated a program in December, 1991, to accelerate the reduction of real estate assets. The Program's objective was to significantly reduce the Company's overall exposure to risk real estate assets through the use of discounts without adversely impacting future earnings. During 1992, Program assets (before reserves) were reduced by 41%, or $355.5 million. The Program started the year with $645.8 million of assets (net of the allowance for loan losses of $179.5 million and the reserve for foreclosed properties of $41.6 million) and ended 1992 with $400.9 million of assets (net of the allowance for loan losses of $100.0 million and the reserve for foreclosed properties of $10.6 million). During 1992, Signet sold $110.3 million of Program foreclosed properties at a 20% discount from the previous year-end balance. This was approximately equal to the discounts established on these properties. Loans removed from the Program on refinancings, payoffs, etc. were $161.1 million. Discounts taken on these loans were 15% compared to the 21% discount originally established. In total, the discounts taken for all asset sales or removals were 18% compared to the 21% discount established. The remaining discounts in the Program at year-end 1992 of $110.6 million represented 21.6% of the assets in the Program as compared to 25.5% at the inception of the Program. The previous writedowns and charge-offs, coupled with the current allowance/reserve provides coverage of 25% on performing loans, 32% on non-performing loans, 50% on foreclosed properties and 31% in the aggregate. Funding Deposits Average deposits totaled $7.9 billion for 1992, a decrease of 6%, or $476 million, from 1991. This decline was due primarily to decreases of $630 million in savings certificates and $458 million in large denomination certificates. Core deposits averaged $7.6 billion for 1992, a decrease of less than 1% from 1991. Purchased deposits, primarily large denomination certificates, averaged $296 million for 1992, a decrease of $470 million, or 61%, from 1991. Signet's own mutual fund family, the Signet Select Series, attracted $102 million in 1992. In addition, Signet's sales of non-proprietary mutual fund and annuity products totaled $135 million in 1992. Short-Term and Long-Term Borrowings Short-term borrowings increased $97 million, or 5%, over 1991 to average $2.1 billion. Long-term borrowings averaged $298 million for 1992, a decline of 6%, or $19 million, from 1991. Capital At December 31, 1992, stockholders' equity totaled $827 million, an increase of $115 million, or 16% from the previous year-end level of $712 million. The increase reflected net retained income for 1992 of $84.4 million and the issuance of 626,372 shares of new common stock in a public offering in May, 1992, which provided approximately $19.7 million in new equity. Issuance of common stock through investor and employee stock purchase plans, as well as the stock option plan, added an additional $6.9 million in net proceeds to equity. In November, 1992, Signet increased its quarterly dividend from $.10 to $.15 per share, which brought the new annual rate to $.60 from $.40 per share. The valuation allowance for marketable equity securities declined by $4.0 million during 1992 due principally to the improvement in the market value of certain of these securities. At year-end 1992, the book value of these securities was approximately market value. The Company's consolidated risk-based capital ratios at December 31, 1992 were 13.86% and 9.56% for Total Capital and Tier I Capital, respectively. Signet's leverage ratio at December 31, 1992 was 7.24%. Interest Rate Sensitivity, Liquidity and Inflation At December 31, 1992, the Company had a basic 180-day net asset position of $2.0 billion. Execution of off-balance sheet interest rate and hedging instruments resulted in a 180-day net liability position of $224 million, or 1.85% of total assets. The high level of average core deposits during 1992 maintained the Company's strong liquidity position. Signet's 1992 year-end and average loan balances were entirely funded with core deposits. A bank's asset and liability structure differs significantly from that of manufacturing and other concerns in that virtually all assets and liabilities are of a monetary nature. Continued inflation has increased the overall cost of doing business, both directly and indirectly. Signet Banking Corporation and Subsidiaries Glossary of Financial Terms Basis Point-A unit of measure for interest yields and rates equivalent to one one-hundredth of one percent. One hundred basis points equals one percent. Book Value Per Common Share-The value of a share of common stock determined by dividing total common stockholders' equity at the end of a period by the total number of common shares outstanding at the end of the same period. Core Deposits-The total of all deposit sources of funds except large denomination certificates and foreign deposits. Credit Card Securitization-An off-balance sheet funding technique which transforms credit card receivables into marketable securities. The receivables are transferred to a trust and interests in the trust are sold to investors for cash. In this transaction, the net of interest income, fee income, charge-offs, and the investors' coupon payment becomes servicing fees. Earning Assets-Assets that generate interest income and yield- related fee income, such as temporary investments, investment securities and loans. Interest Bearing Liabilities-Liabilities upon which interest is paid for the use of funds and consist of all deposit accounts (except demand deposits), short-term borrowings and long-term borrowings. Interest Sensitivity Gap-The amount by which interest-rate sensitive assets exceed interest-rate sensitive liabilities for a designated time period is referred to as a net asset position. An excess of liabilities would represent a net liability position. Interest-Rate Sensitive Assets/Liabilities-Assets and liabilities whose yields or rates can change within a designated time period, due either to their maturity during this period or to the contractual ability of the institution to change the yield/rate during this period. Leverage Ratio-Tier I capital divided by total assets less goodwill. Managed Credit Card Portfolio-The total of credit card loans, credit card loans held for sale and securitized credit card loans. Net Charge-Offs-The amount of loans written off as uncollectible net of any recoveries on loans previously written off as uncollectible. Net Interest Income-The difference between total interest income and total interest expense. Net Interest Spread-The difference between the yield on interest- earning assets (taxable equivalent basis) and the rate paid on interest bearing liabilities. Net Yield Margin-A measurement of how effectively an institution utilizes its earning assets in relationship to the interest cost of funding them. It is computed by dividing net interest income (taxable-equivalent basis) by average interest- earning assets. Non-Accrual Loans-Loans on which interest accruals have been discontinued due to the borrower's financial difficulties. Non-Performing Assets-The total of non-performing loans and foreclosed properties. Non-Performing Loans-The total of non-accrual and restructured loans. Purchased Deposits-The total of large denomination certificates and foreign deposits. Restructured Loans-A loan is considered restructured when an institution for economic or legal reasons related to the debtor's financial difficulties grants a concession to the debtor that it would not otherwise consider. Return on Assets (ROA)-A measure of profitability that indicates how effectively an institution utilized its assets. It is calculated by dividing net income by total average assets. Return on Common Stockholders' Equity (ROE)- A measure of profitability that indicates what an institution earned on its stockholders' investment. It is calculated by dividing net income attributable to common shares by total average common stockholders' equity. Risk Real Estate Assets-The total of construction loans, commercial mortgage loans and foreclosed properties. Supplementary Capital-Tier II, or supplementary capital, may consist of an institution's subordinated debt instruments, redeemable preferred stock and a limited amount of the allowance for loan losses. Taxable Equivalent Income-Tax exempt interest income which, for comparative purposes, has been increased by an amount equivalent to the federal income taxes which would have been paid if this income were fully taxable at the federal statutory rate. Tier I Capital-Core capital, or Tier I capital, may consist of an institution's common stockholders' equity, qualifying perpetual preferred stock less goodwill. Total Capital-The total of Tier I capital and supplementary capital (Tier II). Signet Banking Corporation and Subsidiaries Consolidated Balance Sheet December 31 (dollars in thousands-except per share) 1993 1992 Assets Cash and due from banks $ 463,358 $ 502,998 Temporary investments: Interest bearing deposits with other banks 540,312 418,821 Federal funds sold and securities purchased under resale agreements 1,075,754 1,479,061 Securities available for sale 248,163 346,843 Loans held for sale 421,361 215,084 Trading account securities 379,638 668,311 Total temporary investments 2,665,228 3,128,120 Investment securities (market value 1993-$1,829,231, 1992-$2,108,775) 1,769,615 2,073,462 Loans: Commercial 2,299,973 2,181,218 Credit card 1,808,515 1,243,873 Other consumer 1,297,309 1,179,303 Real estate-construction 309,842 549,001 Real estate-commercial mortgage 581,529 632,072 Real estate-residential mortgage 71,411 77,844 Gross loans 6,368,579 5,863,311 Less: Unearned income (58,267) (54,689) Allowance for loan losses (253,313) (265,536) Net loans 6,056,999 5,543,086 Premises and equipment (net) 216,524 199,153 Interest receivable 84,118 100,852 Other assets 593,380 545,076 $11,849,222 $12,092,747 Liabilities Non-interest bearing deposits $1,544,852 $1,432,977 Interest bearing deposits: Money market and interest checking 1,039,215 973,319 Money market savings 1,745,066 1,855,374 Savings accounts 880,072 674,860 Savings certificates 2,051,300 2,530,227 Large denomination certificates 347,820 257,225 Foreign 212,288 99,332 Total interest bearing deposits 6,275,761 6,390,337 Total deposits 7,820,613 7,823,314 Securities sold under repurchase agreements 1,281,645 2,236,469 Federal funds purchased 942,969 465,972 Commercial paper 168,488 125,126 Other short-term borrowings 232,024 168,273 Long-term borrowings 266,152 297,962 Interest payable 28,205 27,610 Other liabilities 144,464 121,389 Total liabilities 10,884,560 11,266,115 Stockholders' Equity Common Stock, par value $5 per share; Authorized 100,000,000 shares, issued and outstanding 56,608,578 (1993) and 27,980,824 (1992) 283,043 139,904 Capital surplus 133,038 126,282 Retained earnings 548,581 560,446 Total stockholders' equity 964,662 826,632 $11,849,222 $12,092,747 See notes to consolidated financial statements. Signet Banking Corporation and Subsidiaries Statement of Consolidated Operations Year Ended December 31 (in thousands-except per share) 1993 1992 1991 Interest income: Loans, including fees: Commercial $157,157 $178,465 $216,909 Credit card 215,607 110,864 104,204 Other consumer 95,273 103,948 131,417 Real estate-construction 31,570 53,754 94,876 Real estate-commercial mortgage 44,830 46,570 53,165 Real estate-residential mortgage 7,634 9,801 13,030 Total loans, including fees 552,071 503,402 613,601 Temporary investments 136,726 128,228 285,654 Investment securities-taxable 93,538 111,550 39,335 Investment securities-nontaxable 21,390 24,082 24,996 Total interest income 803,725 767,262 963,586 Interest expense: Money market and interest checking 22,544 27,638 33,473 Money market savings 45,463 64,500 92,383 Savings accounts 24,079 21,189 21,115 Savings certificates 58,514 102,519 227,644 Large denomination certificates 10,970 13,936 46,022 Foreign 6,627 994 2,573 Total interest on deposits 168,197 230,776 423,210 Securities sold under repurchase agreements 42,193 53,586 78,368 Federal funds purchased 21,793 11,975 25,699 Other short-term borrowings 25,521 15,899 14,289 Long-term borrowings 16,681 19,416 24,050 Total interest expense 274,385 331,652 565,616 Net interest income 529,340 435,610 397,970 Provision for loan losses 47,286 67,794 287,484 Net interest income after provision for loan losses 482,054 367,816 110,486 Non-interest income: Credit card servicing income 153,018 101,185 62,664 Service charges on deposit accounts 64,471 66,971 62,924 Credit card service charges 63,222 31,553 42,276 Trust income 17,599 15,949 16,019 Other 62,808 65,330 64,654 Non-interest operating income 361,118 280,988 248,537 Securities available for sale gains 3,913 10,504 94,666 Investment securities gains (losses) 405 (17,951) (1,445) Total non-interest income 365,436 273,541 341,758 Non-interest expense: Salaries 212,665 186,600 177,626 Employee benefits 65,249 49,388 31,366 Credit card solicitation 55,815 23,133 14,648 Supplies and equipment 40,550 32,536 36,660 Occupancy 40,192 38,899 39,231 External data processing services 36,578 31,138 18,846 Travel and communications 35,416 25,662 24,688 Foreclosed property 13,575 26,741 78,085 Other 98,276 85,142 87,775 Total non-interest expense 598,316 499,239 508,925 Income (loss) before income taxes (benefit) 249,174 142,118 (56,681) Applicable income taxes (benefit) 74,760 32,918 (30,934) Net income (loss) $174,414 $109,200 $(25,747) Earnings (loss) per common share $ 3.06 $ 1.96 $ (0.48) Cash dividends declared per share .80 .45 .30 Average common shares outstanding 56,920 55,727 53,994 See notes to consolidated financial statements. Signet Banking Corporation and Subsidiaries Statement of Consolidated Cash Flows Year Ended December 31 (in thousands) 1993 1992 1991 Operating Activities Net Income (loss) $ 174,414 $109,200 $ (25,747) Adjustments to reconcile net income to net cash provided by operating activities: Provision for loan losses 47,286 67,794 287,484 Provision and writedowns on foreclosed property 7,852 17,170 71,878 Depreciation and amortization 37,073 35,178 43,155 Investment securities (gains) losses (405) 17,951 1,445 Securities available for sale gains (3,913) (10,504) (94,666) Decrease (increase) in interest receivable 16,734 (4,355) 14,758 Increase in other assets (63,663) (58,226) (153,114) Increase (decrease) in interest payable 595 (12,597) (13,019) Increase in other liabilities 23,075 6,363 39,609 Proceeds from sales and maturities of securities available for sale 108,593 660,064 2,103,013 Purchases of securities available for sale (6,000) (400,330) (711,499) Proceeds from securitization of credit card loans 2,283,329 498,850 Proceeds from sales of loans held for sale 11,518,162 21,628,906 33,283,838 Purchases and originations of loans held for sale (14,007,768) (21,709,180) (33,290,799) Proceeds from sales of trading account securities 13,184,093 10,706,397 12,029,998 Purchases of trading account securities (12,895,420) (11,186,538) (12,150,565) Decrease (increase) in receivable from security sales 773,595 (773,595) Other (8,946) Net cash provided by operating activities 424,037 640,888 1,152,078 Investing Activities Proceeds from sales of investment securities 13,225 534,637 Proceeds from maturities of investment securities 519,509 380,335 27,382 Purchases of investment securities (218,197) (591,832) (1,757,550) Net (increase) decrease in loans (596,509) (79,929) 312,614 Recoveries of loans previously charged-off 35,310 23,340 16,795 Proceeds from sale of bank card merchant business 8,946 Purchases of premises and equipment (44,526) (8,234) (23,842) Net cash received from acquisition 383,590 Net cash used by investing activities (304,413) (263,095) (497,428) Financing Activities Net decrease in deposits (2,701) (657,224) (312,302) Net (decrease) increase in short-term borrowings (370,714) 1,403,383 (310,358) Repayment of long-term debt (31,810) (1,059) (51,271) Proceeds from issuance of common stock 9,203 26,625 4,852 Payment of cash dividends (45,058) (24,768) (26,501) Net cash (used) provided by financing activities (441,080) 746,957 (695,580) (Decrease) increase in cash and cash equivalents (321,456) 1,124,750 (40,930) Cash and cash equivalents at beginning of year 2,400,880 1,276,130 1,317,060 Cash and cash equivalents at end of year $2,079,424 $2,400,880 $1,276,130 See notes to consolidated financial statements. Signet Banking Corporation and Subsidiaries Statement of Changes in Consolidated Stockholders' Equity Common Stock Capital Retained (dollars in thousands-except per share) Shares Amount Surplus Earnings Balance December 31, 1990 26,614,593 $133,073 $101,636 $501,646 Net loss (25,747) Issuance of Common Stock 402,957 2,015 2,837 Cash dividends - Common Stock- $.30 a share (16,121) Change in valuation allowance-marketable equity securities 12,212 Balance December 31, 1991 27,017,550 135,088 104,473 471,990 Net income 109,200 Issuance of Common Stock 963,274 4,816 21,809 Cash dividends - Common Stock- $.45 a share (24,768) Change in valuation allowance-marketable equity securities 4,024 Balance December 31, 1992 27,980,824 139,904 126,282 560,446 Net income 174,414 Issuance of Common Stock 489,283 2,447 6,756 Cash dividends - Common Stock- $.80 a share (45,058) Change in valuation allowance-marketable equity securities (529) Two-for-one common stock split 28,138,471 140,692 (140,692) Balance December 31, 1993 56,608,578 $283,043 $133,038 $548,581 See notes to consolidated financial statements.
Signet Banking Corporation and Subsidiaries Notes to Consolidated Financial Statements (dollars in thousands-except per share) Note A-Significant Accounting Policies The consolidated financial statements of Signet Banking Corporation ("Signet" or the "Company") and subsidiaries are prepared in conformity with generally accepted accounting principles and prevailing practices of the banking industry. The following is a summary of the significant accounting and reporting policies used in preparing the financial statements. Consolidation and Reclassifications: The consolidated financial statements include the accounts of Signet, including Signet Bank/Virginia, Signet Bank/Maryland and Signet Bank N.A., its principal banking subsidiaries. All significant intercompany balances and transactions have been eliminated. Certain prior years' amounts have been reclassified to conform to the 1993 presentation. Statement of Consolidated Cash Flows: Cash and cash equivalents, as presented in the statement of cash flows, includes cash and due from banks, interest bearing deposits with other banks and federal funds sold and securities purchased under resale agreements. Cash paid during the years ended December 31, 1993, 1992 and 1991 for interest was $273,790, $344,249 and $578,097, respectively. Cash paid for income taxes for the same periods was $48,520, $29,857 and $37,641, respectively. During 1993 and 1992, $26,238 and $86,024 respectively, was transferred from loans to foreclosed property. During 1993, no loans were originated to facilitate the sale of foreclosed properties. During 1992, $25,645 of loans were originated to facilitate the sale of foreclosed properties. Temporary Investments: Temporary investments are carried at the lower of aggregate cost or market, except that trading account securities are carried at market. Securities Available For Sale: Securities available for sale includes securities for which the primary objective is to realize a holding gain and/or securities held for indefinite periods of time and not intended to be held until maturity. Securities held for indefinite periods of time include securities that may be sold in response to changes in interest rates and/or significant prepayment risk. Securities available for sale are carried at the lower of aggregate cost or market value. When securities are sold, the adjusted cost of the specific certificate sold is used to compute gains or losses on the sale. The Company will adopt Statement of Financial Accounting Standards ("SFAS") No. 115, "Accounting for Certain Investments in Debt and Equity Securities" in 1994. Securities available for sale will then represent those securities not classified as either investment securities or trading account securities and will be carried at fair value with unrealized gains and losses reported as a separate component of stockholders' equity. At adoption, securities totaling $1,509,328 will be reclassified from investment securities to securities available for sale. An after-tax gain of $29,987 will be carried as a separate component of stockholders' equity, representing the unrealized gain in securities available for sale. Loans Held For Sale: Loans held for sale are carried at the lower of aggregate cost or market value. Investment Securities: When securities are purchased and at each balance sheet date, they are classified as investment securities if it is management's intent to hold them until maturity. These securities (other than marketable equity securities) are carried at cost, adjusted for amortization of premiums and accretion of discounts, both computed by the effective yield method. When securities are sold, the adjusted cost of the specific certificate sold is used to compute gains or losses on the sale. Marketable equity securities are stated at the lower of cost or market. A valuation allowance representing the excess of cost over market is established by charges to stockholders' equity. During 1992 and 1991, the Company realized $46 and $4,710, respectively, in losses on marketable equity securities. During 1993, the Company realized no such losses. At December 31, 1993, there were gross unrealized gains of approximately $581 on the marketable equity securities compared with gross unrealized losses of approximately $370 at December 31, 1992. At the time of sale, the cost of marketable equity securities is determined by the specific identification method. The Company will adopt SFAS No. 115 in 1994 as noted in the Securities Available For Sale discussion above. Loans: Interest on loans is computed by methods which generally result in level rates of return on principal amounts outstanding. It is management's practice to cease accruing interest on commercial and real estate loans when payments are 90 days delinquent. However, management may elect to continue the accrual of interest when the estimated net realizable value of collateral is sufficient to cover the principal balance and accrued interest, and the loan is in the process of collection. Credit card loans typically are charged off when the loan is six months past due and no payments have been received for 60 days, while other consumer loans typically are charged off when the loan is six months past due. Loan origination and commitment fees and certain direct loan origination costs are deferred and generally amortized as an adjustment of the related loans' yield over the contractual life of the related loans except for certain loans (e.g., home equity line) which consider anticipated prepayments in establishing an economic life. Credit card loan origination costs are deferred and amortized over one year. Allowance for Loan Losses: The allowance for loan losses is maintained to absorb possible future losses, net of recoveries, inherent in the existing loan portfolio. The provision for loan losses is the periodic cost of maintaining an adequate allowance. In evaluating the adequacy of the allowance for loan losses, management, on a monthly basis, takes into consideration the following factors: the condition of industries and geographic areas experiencing or expected to experience particular economic adversities; historical charge-off and recovery activity (noting any particular trend changes over recent periods); trends in delinquencies, bankruptcies and non-performing loans; trends in loan volume and size of credit risks; any irrevocable commitments to extend funds; the degree of risk inherent in the composition of the loan portfolio; current and anticipated economic conditions; credit evaluations; underwriting policies; and the liquidity and volatility of the markets in which Signet does business. The Company will adopt SFAS No. 114, "Accounting by Creditors for Impairment of a Loan" in 1995. This statement sets forth the appropriate method of computing the allowance for loan losses for impaired loans, but does not give guidance on the overall allowance adequacy. Impaired loans will be measured at the present value of their expected future cash flows by discounting those cash flows at the loan's effective interest rate. The difference between this discounted amount and the loan balance is recorded as an allowance for loan losses. The new statement also requires that troubled debt restructurings involving a modification of terms be remeasured on a discounted basis. The Company is currently evaluating the impact that SFAS No. 114 will have on the Company's future results of operations and financial position. However, management does not expect that this statement will have a materially adverse impact on these results. Premises and Equipment: Premises and equipment are stated at cost less allowances for depreciation and amortization ($188,845 at December 31, 1993; $170,241 at December 31, 1992). Depreciation and amortization expense is computed generally by the straight- line method. Interest costs relating to the construction of major operating facilities are capitalized using a weighted average rate. Foreclosed Property: Real estate acquired in satisfaction of a loan and in-substance foreclosures are included in other assets, and stated at the lower of (1) fair value minus estimated costs to sell; or (2) cost, defined as the fair value of the asset on the date of foreclosure or classification into in substance foreclosure. A foreclosed property reserve is maintained for subsequent valuation adjustments on a specific property basis. In substance foreclosures are properties in which the borrower has little or no equity in the collateral, where repayment of the loan is expected only from the operation or sale of the collateral, and the borrower either effectively abandons control of the property or the borrower has retained control of the property but the ability to rebuild equity based on current financial conditions is considered doubtful. Interest Rate Futures, Options, Caps, Floors and Swaps: Interest rate futures, options, caps and floors are utilized to reduce interest rate risks and to assist in the asset/liability management function. Gains and losses on futures and options contracts used in securities trading operations are recognized currently by the mark-to-market method of accounting and included in trading profits (losses). Gains and losses on hedging contracts and costs associated with interest rate caps and floors used in asset/liability management are deferred and amortized over the lives of the hedged assets or liabilities as an adjustment to interest income or expense. Interest rate swaps are utilized to manage interest rate exposure and as a source of fee income. In general, income or expense associated with interest rate swap transactions is recorded in the same category as the item being hedged and accrued over the life of the agreements. As an intermediary, the Company maintains a portfolio of generally matched offsetting swap agreements. At inception of the swap agreements, the portion of the compensation related to credit risk and ongoing servicing is deferred and taken into income over the term of the swap agreements. The portion of the compensation related to arrangement fees is recognized currently. Income Taxes: Prepaid and deferred income taxes are provided for timing differences between income and expense for financial reporting purposes and for income tax purposes. Adoption of SFAS No. 109, "Accounting for Income Taxes" did not have a material impact on the Company's financial position or results of operations. As permitted by SFAS No. 109, the Company elected not to restate the financial statements of any prior years. Earnings Per Share: Earnings per share were based on the average number of shares outstanding, applicable equivalents (stock options) and additional contingently issuable shares (related to conversion of debentures). Note B-Cash and Due From Banks The domestic bank subsidiaries are required to maintain average reserve balances with the Federal Reserve Bank. The average amount of those reserve balances were approximately $99,318 and $83,403 for the years ended December 31, 1993 and 1992, respectively. Note C-Securities Available For Sale Securities available for sale are summarized as follows: Gross Gross Book Unrealized Unrealized Market December 31, 1993 Value Gains Losses Value U.S. Government and agency obligations- Mortgage-backed securities $47,672 $3,123 $50,795 Other 199,641 1,484 201,125 Other 850 850 $248,163 $4,607 $252,770 December 31, 1992 U.S. Government and agency obligations- Mortgage-backed securities $146,880 $8,889 $155,769 Other 199,208 292 199,500 Other 755 755 $346,843 $9,181 $356,024 December 31, 1991 U.S. Government and agency obligations- Mortgage-backed securities $399,323 $23,533 $ (451) $422,405 Other 190,713 (13) 190,700 Other 1,078 1,078 $591,114 $23,533 $ (464) $614,183 The book and market values of securities available for sale by contractual maturity, except mortgage-backed securities for which an average life is used, at December 31, 1993 are shown below: Book Market Value Value Due in one year or less $199,641 $201,125 Due after one year through five years 47,672 50,795 Due after ten years 850 850 $248,163 $252,770 Securities available for sale with aggregate book values of approximately $198,619, $341,050, and $340,689 at December 31, 1993, 1992 and 1991, respectively, were pledged to secure public deposits, repurchase agreements and other banking transactions. Proceeds from sales of securities available for sale during 1993, 1992 and 1991 were $62,354, $262,949, and $1,953,975, respectively. Gross gains of $3,913, $10,984 and $94,962, and gross losses of $-0-, $480 and $296 were realized on those sales for 1993, 1992 and 1991, respectively. Note D-Investment Securities: Investment securities are summarized as follows: Gross Gross Book Unrealized Unrealized Market December 31, 1993 Value Gains Losses Value U.S. Government and agency obligations- Mortgage-backed securities $461,345 $4,843 $(37) $466,151 Other 925,225 39,263 (6) 964,482 Obligations of states and political subdivisions 258,815 18,690 (49) 277,456 Other 124,230 1,797 (4,885) 121,142 $1,769,615 $64,593 $(4,977) $1,829,231 December 31, 1992 U.S. Government and agency obligations- Mortgage-backed securities $ 755,506 $ 9,673 $ (31) $ 765,148 Other 868,272 14,666 (5) 882,933 Obligations of states and political subdivisions 291,727 24,553 (435) 315,845 Other 157,957 2,205 (15,313) 144,849 $2,073,462 $51,097 $(15,784) $2,108,775 December 31, 1991 U.S. Government and agency obligations- Mortgage-backed securities $ 669,941 $15,981 $685,922 Other 698,744 8,701 707,445 Obligations of states and political subdivisions 313,897 26,292 $(951) 339,238 Other 217,584 4,106 (25,239) 196,451 $1,900,166 $55,080 $(26,190) $1,929,056 The book and market values of investment securities by contractual maturity, except mortgage-backed securities for which an average life is used, at December 31, 1993 are shown below: Book Market Value Value Due in one year or less $172,006 $173,046 Due after one year through five years 1,234,375 1,288,425 Due after five years through ten years 230,071 235,865 Due after ten years 133,163 131,895 $1,769,615 $1,829,231 Investment securities with aggregate book values of approximately $1,460,790, $1,529,001 and $1,448,838 at December 31, 1993, 1992 and 1991, respectively, were pledged to secure public deposits, repurchase agreements and other banking transactions. Proceeds from sales of investment securities during 1993, 1992 and 1991 were $-0-, $13,225 and $311,655, respectively. Gross gains of $534, $3,132 and $3,262 and gross losses of $129, $4,083 and $4,707 were realized on those sales and called securities for 1993, 1992 and 1991, respectively. Note E-Allowance for Loan Losses and Reserve for Foreclosed Property The following is a summary of changes in the allowance for loan losses: Year Ended December 31 1993 1992 1991 Balance at beginning of year $265,536 $329,371 $163,669 Provision for loan losses 47,286 67,794 287,484 Net addition (deduction) arising in purchase/sale transactions (2,902) 1,503 Losses 91,917 154,969 140,080 Recoveries 35,310 23,340 16,795 Net loan losses 56,607 131,629 123,285 Balance at end of year $253,313 $265,536 $329,371 Following is a summary of changes in the reserve for foreclosed property: Year Ended December 31 1993 1992 1991 Balance at beginning of year $ 10,625 $ 41,632 $ - Provision for foreclosed property 7,405 15,503 71,878 Writedowns of foreclosed property (12,288) (46,510) (30,246) Balance at end of year $ 5,742 $ 10,625 $41,632 During December 1991, the Company made special provisions of $146,600 and $18,400 to the allowance for loan losses and reserve for foreclosed property, respectively, to accelerate the reduction of certain performing and non-performing real estate assets. Note F-Non-Performing Assets Following is a summary of non-performing assets at December 31, 1993 and 1992 along with the interest recorded as income in 1993 and 1992 on the year-end non-accrual and restructured loans, as well as the interest income for the same respective periods which would have been recorded had the loans performed in accordance with their original terms: Non- Restructured Foreclosed Accrual Loans Properties Total Loans 1993 Aggregate recorded investment $68,854 $ 5,079 $42,553 $116,486 Interest at contracted rates 5,761 1,738 - 7,499 Interest recorded as income 2,152 352 - 2,504 1992 Aggregate recorded investment $85,670 $30,667 $64,778 $181,115 Interest at contracted rates 9,836 3,596 - 13,432 Interest recorded as income 3,769 1,622 - 5,391 Foreclosed properties were net of a $5,742 and $10,625 reserve at December 31, 1993 and 1992, respectively, and include $10,357 and $11,124 of in substance foreclosed property at December 31, 1993 and 1992, respectively. Note G-Securities Sold Under Repurchase Agreements and Other Short-Term Borrowings Information related to the Company's securities sold under repurchase agreements at December 31, 1993 is segregated below by type of securities sold by due date. The amounts below exclude repurchase agreements that are collateralized by securities that are marked to market on a monthly basis and those secured by "reversed in collateral"/reverse repurchase agreements. Less After Than 30-90 90 Overnight 30 Days Days Days Demand Total U.S. Treasury: Carrying value $618,343 $78,881 $19,367 $ 5,808 $156,633 $ 879,032 Market value 627,050 79,688 19,250 5,790 157,075 888,853 Repurchase agreements 618,343 78,881 19,367 5,808 156,633 879,032 Interest rate 2.36% 3.18% 3.07% 3.31% 2.73% 2.52% U.S. Government agencies: Carrying value $264,017 $49,349 $17,913 $ 6,656 $ 64,678 $ 402,613 Market value 268,572 50,198 18,239 6,789 65,769 409,567 Repurchase agreements 264,017 49,349 17,913 6,656 64,678 402,613 Interest rate 1.99% 3.08% 2.90% 3.32% 2.73% 2.31% Total: Carrying value $882,360 $128,230 $37,280 $12,464 $221,311 $1,281,645 Market value 895,622 129,886 37,489 12,579 222,844 1,298,420 Repurchase agreements 882,360 128,230 37,280 12,464 221,311 1,281,645 Interest rate 2.25% 3.14% 2.99% 3.32% 2.73% 2.45%
Following is a summary of short-term borrowings for the years ended December 31, 1993, 1992 and 1991: Maximum Average Outstanding Weighted Interest at Any Outstanding Average Average Rate at Month End at Year End Outstanding Interest Rate Year End 1993 Repurchase agreements $1,674,044 $1,281,645 $1,337,553 3.2% 2.5% Federal funds 1,043,546 942,969 705,654 3.1 3.1 Commercial paper 174,552 168,488 144,129 2.5 3.0 Other short-term borrowings 459,346 232,024 338,276 6.5 6.2 Total $2,625,126 $2,525,612 3.5% 3.2% 1992 Repurchase agreements $2,236,469 $2,236,469 $1,450,036 3.7% 2.9% Federal Funds 465,972 465,972 343,799 3.5 2.6 Commercial paper 140,681 125,126 128,134 2.9 2.3 Other short-term borrowings 343,088 168,273 163,904 7.5 7.2 Total $2,995,840 $2,085,873 3.9% 3.4% 1991 Repurchase agreements $1,544,384 $ 954,385 $1,307,251 6.0% 3.8% Federal funds 494,483 411,895 448,092 5.7 4.1 Commercial paper 202,318 145,317 159,037 5.1 3.7 Other short-term borrowings 171,019 80,860 74,908 8.3 7.2 Total $1,592,457 $1,989,288 5.9 % 4.0%
The weighted average interest rate is calculated by dividing annual interest expense by the daily average outstanding principal balance. Below is data concerning reverse repurchase agreements under which the amount at risk with the listed counterparties exceeds 10% of the Company's stockholders' equity at December 31, 1993: Weighted Name of Counterparty Amount at Risk Average Maturity Kidder Peabody & Company, Inc. $ 156,675 January 7, 1994 Donaldson, Lufkin, Jenrette Securities Corporation 125,000 January 13, l994 Nikko Securities Company 125,000 January 14, l994 Goldman Sachs & Company 110,350 January 3, 1994 Note H-Long-Term Borrowings Long-term borrowings consisted of the following: December 31 1993 1992 7 3/4% Senior Debentures due 1997 $ 11,900 $ 12,698 Notes and mortgages: 11% Mortgage 17,000 9 3/8% Mortgage 13,432 Other (5-11 3/5%) 4,252 4,832 4,252 35,264 Subordinated notes: 9 5/8% due 1999 100,000 100,000 Floating Rate due 1998 100,000 100,000 Floating Rate due 1997 50,000 50,000 250,000 250,000 $266,152 $297,962 The Senior Debentures may be redeemed at the option of the Company, at par. On February 1, 1994, Signet called for redemption the remaining $11,900 of senior debentures. In 1989, the Company issued $100,000 principal amount of unsecured 9 5/8% Subordinated Notes due in 1999. Interest on the Notes is payable semiannually on June 1 and December 1 of each year. The Notes will mature on June 1, 1999. The Notes are not redeemable prior to maturity. In 1986, the Company issued $100,000 principal amount of Floating Rate Subordinated Notes due in 1998. The Notes are redeemable at the option of the Company at their principal amount plus accrued interest. The interest rate is determined quarterly based on the London interbank offered quotations for three-month U.S. dollar deposits. In 1985, the Company issued $50,000 principal amount of Floating Rate Subordinated Notes due in 1997. The Notes are redeemable at the option of the Company at their principal amount plus accrued interest. The interest rate is determined quarterly based on the London interbank offered quotations for three-month U.S. dollar deposits. Premises stated at approximately $4,740 at December 31, 1993 are subject to liens relating to notes and mortgages. Maturities of long-term borrowings in the aggregate for the next five years are as follows: 1994 $12,511 1996 $273 1998 $100,297 1995 616 1997 50,290 Note I-Preferred Stock The Company is authorized to issue, in series, up to 5,000,000 shares of Preferred Stock with a par value of $20 per share. Note J-Common Stock At December 31, 1993, the Company had reserved 3,683,808 shares of its Common Stock for issuance in connection with stock option, employee and investor stock purchase plans. The following is a summary of the number of shares of common stock issued: Year Ended December 31 1993 1992 1991 Two-for-one Stock Split 28,138,471 Stock issuance 626,372 Investor stock purchase plan 166,224 123,508 216,787 Employee stock purchase plan 76,344 63,760 163,550 Stock option plan 246,715 147,433 22,620 Other 2,201 Total 28,627,754 963,274 402,957 In June, 1993, the Company declared a two-for-one split of its Common Stock in the form of a 100% stock dividend. One additional share of stock was issued on July 27, 1993 for each share held by stockholders of record at the close of business on July 6, 1993. All information in the accompanying consolidated financial statements pertaining to per share data has been retroactively adjusted to reflect the stock split. Under the Investor Stock Purchase Plan, 199,103 shares of Common Stock were reserved at December 31, 1993. The plan provides that the price of the Common Stock will be 95% of market value at the time of purchase through dividend reinvestment and 100% of market value at the time of purchase through optional cash contributions. In March 1991, the Company announced that, thereafter, its dividend declaration would be made in the month following the end of each quarter instead of in the last month of each quarter. As a result, 1991 included only three dividend declarations; however, four dividend payments were made. In May 1989, the Company's Board of Directors declared a dividend of one Preferred Share Purchase Right for each outstanding share of the Company's Common Stock. Each right will entitle stockholders to buy one two-hundredth of a share of a new Series of Preferred Stock at an exercise price of $70. Each two- hundredth of a share of the new Preferred Stock has terms designed to approximate the economic equivalent of one share of Common Stock. The rights will be exercisable only if a person or group acquires 20% or more of the Company's Common Stock or announces a tender offer, the consummation of which would result in ownership by a person or group of 20% or more of the Common Stock. The rights, which do not have voting privileges, expire in 1999, but may be redeemed by the Company prior to that time under certain circumstances, for $0.01 per right. These rights should not interfere with a business combination approved by the Company's Board of Directors; however, they could cause substantial dilution to a person or group attempting to acquire the Company without conditioning the offer on redemption of the rights or acquiring a substantial number of the rights. Until the rights become exercisable, they have no dilutive effect on earnings per share. Note K-Employee Benefit Plans The Company and its subsidiaries have a defined benefit pension plan covering substantially all of its employees. The benefits are based on years of service and the employee's career average earnings. The Company's funding policy is to contribute amounts to the plan sufficient to meet the minimum funding requirements set forth in the Employee Retirement Income Security Act of 1974 plus such additional amounts as the Company may determine to be appropriate from time to time. Approximately 94% of the plan assets at December 31, 1993 were invested in listed stocks and bonds. Another 5% is invested in a money market fund sponsored by Signet Trust Company (a subsidiary of the Parent Company). Net periodic pension cost included the following components: 1993 1992 1991 Service cost-benefits earned during the period $6,505 $5,737 $5,372 Interest cost on projected benefit obligation 6,482 5,873 5,341 Actual return on plan assets (3,532) (4,477) (21,131) Net amortization and deferral (5,435) (4,097) 12,492 Net periodic pension cost $4,020 $3,036 $2,074 The following sets forth the plan's funded status and amounts recognized in the Company's consolidated balance sheet: December 31 1993 1992 Actuarial present value of benefit obligations: Vested benefit obligation $(87,063) $(72,123) Accumulated benefit obligation $(93,249) $(78,395) Projected benefit obligation $(93,249) $(78,395) Plan assets, at fair value 89,979 95,363 Plan assets in excess of (less than) projected benefit obligation (3,270) 16,968 Unrecognized net asset (6,962) (7,956) Unrecognized prior service cost 2,844 (1,024) Unrecognized net loss 13,965 2,609 Additional minimum liability (9,847) Net pension asset (3,270) $10,597 Assumptions used were as follows: 1993 1992 1991 Discount rates 7.25% 8.25% 8.25% Rates of increase in compensation levels of employees 5.00 5.75 6.25 Expected long-term rate of return on plan assets 8.75 8.75 9.25 Effective January 1, 1993, the Company adopted a cash balance pension plan. The plan will enable the Company to better project its future pension costs. The Company sponsors a contributory savings plan and a profit sharing plan. The savings plan allows substantially all full time employees to participate while the profit sharing plan allows participation after satisfaction of service requirements. The Company matches a portion of the contribution made by employees, which is based upon a percent of defined compensation, to the savings plan. The profit sharing contribution is based upon the income of the Company. The Company's expense was $22,235, $15,881 and $2,754 in 1993, 1992 and 1991 under these plans, respectively. There was no profit sharing contribution for 1991. At December 31, 1993, employees of the Company held options to purchase 1,033,508 common shares at an average option price of $16.81 per share. These options expire on various dates beginning February 1, 1994 and ending August 19, 2003. At the time options are exercised, proceeds from the shares issued are credited to capital and no charges or credits to income are made with respect to any of the options. Under the 1992 Stock Option Plan, options for the purchase of up to 2,000,000 shares of Common Stock may be granted to key personnel at prices not less than the market price per share on the date of grant, and are exercisable not more than ten years from the date of grant. At December 31, 1993 and 1992, options to purchase 1,397,498 and 1,693,164 shares, respectively, of Common Stock were available for future grants. Under the 1992 Stock Option Plan, a feature was established by the Company, whereby an employee is automatically granted a reload option when shares of common stock owned by the employee are delivered for cancellation to the Company in order to exercise options. The option price of the reload options is the fair market value of common stock on the date that the employee delivers shares to the Company. The reload options are not exercisable within the first six months after grant unless the employee dies or becomes disabled during the six month period. A summary of changes, under several plans, in shares of Common Stock under option for the years 1993, 1992 and 1991 is as follows: Option Price Shares Per Share Outstanding December 31, 1990 1,083,176 $6.50-18.63 Granted 498,400 3.72 Exercised (48,040) 3.72-6.50 Cancelled (96,396) 6.50-17.06 Outstanding December 31, 1991 1,437,140 3.72-18.63 Granted 330,872 13.53-22.84 Exercised (503,330) 3.72-17.06 Cancelled (49,314) 6.50-17.06 Outstanding December 31, 1992 1,215,368 3.72-22.84 Granted 306,666 23.72-31.25 Exercised (446,032) 3.72-23.72 Cancelled (42,494) 12.72-23.72 Outstanding December 31, 1993 1,033,508 $ 3.72-31.25 The Company has an employee stock purchase plan whereby employees of the Company and its subsidiaries are eligible to participate through monthly salary deduction of a maximum of 15% and a minimum of 2% of monthly base pay. The amounts deducted are applied to the purchase of unissued Common Stock of the Company at 85% of the current market price. No charges or credits to income are made with respect to this plan. The Company sponsors postretirement defined benefit plans that provide medical and life insurance benefits to retirees. Employees who retire after age 55 with 10 years of service are eligible to participate. The postretirement health care plan is contributory for participants who retire after June 1, 1991 with retiree contributions adjusted annually and contains other cost sharing features such as deductibles and coinsurance. The life insurance is noncontributory. The accounting for the health care plan anticipates future cost-sharing changes to the written plan that are consistent with the Company's expressed intent to increase retiree contributions annually in accordance with increases in health care costs. The Company's policy is to fund the cost of medical benefits in amounts determined at the discretion of management. In 1993, the Company adopted SFAS No. 106 "Employers' Accounting for Postretirement Benefits Other than Pensions". The effect of adopting the new rules increased 1993 net periodic postretirement benefit cost by $4,571. Postretirement benefit cost for 1992, which was recorded on a cash basis, has not been restated. The following table sets forth the plans' combined funded status reconciled with the amount shown in the Company's consolidated balance sheet: December 31 1993 1992 Accumulated postretirement benefit obligation: Retirees $(35,105) $(33,383) Fully eligible active plan participants (2,220) (2,019) Other active plan participants (14,475) (11,907) (51,800) (47,309) Plan assets at fair value, primarily listed stocks and bonds 5,245 5,704 Accumulated postretirement benefit obligation in excess of plan assets (46,555) (41,605) Unrecognized transition obligation 39,525 41,605 Unrecognized net loss 1,919 Accrued postretirement benefit cost $(5,111) $ -
Net periodic postretirement benefit cost for the year ended December 31, 1993 included the following components: Service cost $1,230 Interest cost 3,800 Actual return on plan assets (133) Amortization of transition obligation over 20 years 2,080 Net amortization and deferral (366) Net periodic postreitrement benefit cost $6,611 For measurement purposes, a 13% and 10% annual rate of increase in the per capita cost of covered health care benefits was assumed for 1994 for participants under 65 years of age and 65 years and over, respectively; the rate was assumed to decrease gradually to 5.25% for 2007 and remain at that level thereafter. The health care cost trend rate assumption has a significant effect on the amounts. For example, increasing the assumed health care cost trend rates by one percentage point in each year would increase the accumulated postretirement benefit obligation for the medical plans as of December 31, 1993 by $6.1 million, and the aggregate of the service and interest cost components of net periodic postretirement benefit cost for 1993 by $.6 million. The weighted-average discount rate used in determining the accumulated postretirement benefit obligation was 7.25%. The expected long-term rate of return on plan assets, after estimated income taxes, was 8.75%. In November 1992, SFAS No. 112, "Employers' Accounting for Postemployment Benefits" was issued establishing accounting standards for employers who provide benefits to former or inactive employees after employment but before retirement. Postemployment benefits are all types of benefits including salary continuation, supplemental unemployment benefits, severance benefits, disability-related benefits and continuation of benefits such as health care benefits and life insurance coverage. Employers are required to recognize the obligation to provide such benefits on an accrual basis for fiscal years beginning after December 15, 1993, instead of recognizing an expense for these benefits when paid. The Company elected to adopt this accounting standard in 1993. The related expense reflected on the 1993 income statement was approximately $6.0 million. Effective April 1, 1993, the Company adopted a Flexible Benefits Plan for its employees. The plan allows employees to select their benefit options, including medical coverage, disability insurance and paid leave. The plan enables the Company to better manage its rising health care costs, as well as provide employees more choice in the selection of their benefits package. Note L-Dividends and Other Restrictions Certain regulatory restrictions exist regarding the ability of the subsidiaries to transfer funds to the Parent Company in the form of cash dividends, loans or advances. At December 31, 1993, approximately $119,886, $3,861 and $3,165 of the retained earnings of Signet Bank/Virginia, Signet Bank N.A. and Signet Trust Company, respectively, and approximately $4,922 of the retained earnings of the non-bank subsidiaries were available for payment of dividends to the Parent Company, without prior approval by regulatory authorities. The regulatory authorities may also consider factors such as the level of current and expected earnings stream, maintenance of an adequate loan loss reserve and an adequate capital base when determining amounts available for the payment of dividends. The restricted net assets of the domestic bank subsidiaries amounted to $754,504 at December 31, 1993. Note M-Income Taxes Effective January 1, 1993, the Company adopted FASB Statement No. 109, "Accounting for Income Taxes." Under Statement 109, the liability method is used in accounting for income taxes. Under this method, deferred tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. Prior to the adoption of Statement 109, income tax expense was determined using the deferred method. Deferred tax expense was based on items of income and expense that were reported in different years in the financial statements and tax returns and were measured at the tax rate in effect in the year the difference originated. As permitted by Statement 109, the Company has elected not to restate the financial statements of any prior years. The effect of the change on pretax income from continuing operations for the year ended December 31, 1993, and the cumulative effect of the change as of January 1, 1993, were not material. Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company's deferred tax assets and liabilities as of December 31, 1993, are as follows: Deferred tax assets: Allowance for loan losses $92,268 Foreclosed property 9,589 Other 23,159 Total deferred tax assets 125,016 Deferred tax liabilities: Leasing 63,671 Other 21,162 Total deferred tax liabilities 84,833 Net deferred tax assets $40,183 Differences between applicable income taxes (benefit) and the amount computed by applying statutory income tax rates are summarized as follows: Year Ended December 31 1993 1992 1991 Liability Method Deferred Method Amounts at statutory rates (35% in 1993, 34% in 1992 and 1991) $87,211 $48,320 $(19,272) Effect of: Tax exempt income (9,913) (11,403) (12,988) Alternative minimum tax (6,303) State taxes net of federal benefit 2,066 1,101 (591) Other (4,604) 1,203 1,917 Applicable income taxes $74,760 $32,918 $(30,934) Taxes currently payable $58,201 $15,989 $ 42,384 Deferred income taxes 16,559 16,929 (73,318) Applicable income taxes $74,760 $32,918 $(30,934) Applicable income taxes include $1,513 in 1993, ($2,532) in 1992 and $32,903 in 1991 relating to securities available for sale gains and investment securities gains (losses). The components of the deferred tax expense resulting from timing differences are as follows: Year Ended December 31 1992 1991 Allowance for loan losses $ 20,681 $(55,858) Foreclosed property 2,784 (21,584) Alternative minimum tax (12,374) Leasing 8,790 8,703 Depreciation (521) (482) Other (2,431) (4,097) $16,929 $(73,318) The components of income tax expense are as follows: Year Ended December 31 1993 1992 1991 Liability Method Deferred Method Current Deferred Current Deferred Current Deferred Federal $57,960 $13,621 $15,694 $15,555 $43,420 $(73,459) State 241 2,938 295 1,374 (1,036) 141 $58,201 $16,559 $15,989 $16,929 $42,384 $(73,318) Note N-Other Non-Interest Operating Income and Expense The following schedule represents the items comprising other non- interest operating income and expense: Year Ended December 31 1993 1992 1991 Other non-interest operating income: Mortgage servicing and origination $24,210 $16,529 $8,726 Other service charges and fees 16,260 17,540 12,815 Trading profits (losses) (1,396) 11,193 14,867 Gain on sale of bank card merchant business 8,946 Other 23,734 20,068 19,300 Total $62,808 $65,330 $64,654 Other non-interest operating expense: FDIC assessment $18,253 $18,769 $17,476 Public relations, sales and advertising 17,213 7,868 9,204 Professional services 16,159 14,278 11,793 Credit and collection 10,619 9,231 7,969 Insurance 2,030 2,069 2,462 Taxes and licenses other than payroll and income 2,962 1,966 2,687 Other 31,040 30,961 36,184 Total $98,276 $85,142 $87,775 Note O-Off-Balance Sheet Items and Contingent Liabilities The Company is party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of customers, to reduce its own exposure to fluctuations in interest rates and to participate in trading activities. These financial instruments include commitments to extend credit, standby and commercial letters of credit, forward and futures contracts, interest rate swaps, interest rate caps and floors written, options written and mortgages sold with recourse. These instruments involve, to varying degrees, elements of credit or interest rate risk in excess of the amount recognized in the balance sheet. The contract or notional amounts of these instruments shown in the Table represent the extent of involvement the Company has in particular classes of financial instruments at December 31, 1993 and 1992. Commitments to extend credit include the unused portions of commitments that obligate a bank to extend credit in the form of loans, participations in loans or similar transactions. Commitments to extend credit would also include loan proceeds that a bank is obligated to advance, such as loan draws, construction progress payments, rotating or revolving credit arrangements (other than credit cards and related plans) or similar transactions. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee by the counterparty. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. Standby and commercial letters of credit are conditional commitments issued by the Company, and unless discussed otherwise, have the same characteristics as discussed for commitments. Standby letters of credit are instruments issued by an institution which represents an obligation to guarantee payments on certain transactions. If a customer defaulted on loan payments, the issuer of the letter would be called upon to make payments. Standby letters of credit represent contingent liabilities and therefore they are not included on an institution's balance sheet. Commercial letters of credit are conditional commitments on the part of a bank to provide payment on drafts drawn in accordance with the terms of a document. A commercial letter of credit is issued to specifically facilitate trade or commerce. Under the terms of a commercial letter of credit, as a general rule, drafts will be drawn when the underlying transaction is consummated as intended. The Company evaluates each customer's creditworthiness on a case-by-case basis. The amount of collateral deemed necessary by the Company upon extension of credit is based on management's credit evaluation of the counterparty and the particular transaction. Collateral held varies but may include accounts receivable, marketable securities, deposit accounts, inventory and property, plant and equipment. Credit risk (the possibility that a loss may occur from the failure of another party to perform according to the terms of a contract) exists to the extent of the contract amount in the case of commitments and letters of credit. No significant losses are anticipated as a result of these transactions. Futures contracts are legal agreements to buy or sell a standardized quantity of a commodity or standardized financial instrument at a specified future date and price. Futures contracts are traded in organized exchanges. Forward contracts are legal contracts between two parties to purchase and sell a specific quantity of a financial instrument or commodity at a price specified now, with delivery and settlement at a specified future date. Exchange traded futures do not have any credit risk; however, risks related to futures and forwards traded over-the- counter arise from the possible inability of counterparties to meet the terms of their contracts and from movements in securities values and interest rates. Failure of a counterparty would result in purchasing the underlying security in the market, but would not cause an accounting loss. While in theory futures and forwards represent obligations to make or take delivery, in fact most are closed out by taking an exact but opposite position in the same contract. Cash requirements of futures and forwards include receipt/payment of cash for the sale or purchase of the contracts. The Company enters into a variety of interest rate contracts- including interest rate swaps and corridors, interest rate caps and floors written, and options written in its trading activities and managing its interest rate exposure. Notional principal amounts often are used to express the volume of these transactions, but the amounts potentially subject to credit risk are much smaller. Interest rate swap transactions generally involve the exchange of fixed and floating rate interest payment obligations without the exchange of the underlying principal amounts. Entering into interest rate swap agreements involves not only the risk of dealing with counterparties and their ability to meet the terms of the contracts but also the interest rate risk associated with unmatched positions. Interest rate corridors are tools to manage exposure to interest rate risk by maintaining a minimum spread within a specified range of rates. Interest rate caps are tools used to manage exposure to interest rate risk by modifying the rate sensitivity of selected liabilities by setting an upper limit on a certain interest rate index. The institution typically pays a fee for the cap and receives the amount by which the actual rate exceeds the contractual rate, if any. Interest rate floors are tools to manage exposure to interest rate risk by modifying the rate sensitivity of selected assets by setting a lower limit on a certain interest rate index. The institution typically pays a fee for the floor and receives the amount by which the contractual rate exceeds the actual rate, if any. Cash flows from swaps, caps and floors are received or paid on the established contract dates. Options are contracts that gives the holder the right to buy (call) or sell (put) a specified quantity of an asset from/to the issuer of such a contract at a fixed price within a specified period of time. As a writer of options, the Company receives a premium at the outset and then bears the risk of an unfavorable change in the price of the financial instrument underlying the option. The Company also acts as an intermediary in arranging interest rate swaps, caps and floors. As an intermediary, the Company becomes a principal in the exchange of interest payments between the parties and, therefore, is exposed to loss should one of the parties default. The Company minimizes the risk by performing normal credit reviews on its customers. As a writer of interest rate caps and floors, the Company receives a fee at the outset and then bears the risk of an unfavorable change in interest rates. The Company minimizes its exposure to interest rate risk by entering into offsetting positions that essentially counterbalance each other. The Company sells residential mortgage loans with recourse to the Federal National Mortgage Association (FNMA) and the Federal Home Loan Mortgage Company (FHLMC). Credit risk exists to the extent of recourse, which totaled $25,976 and $55,938 at December 31, 1993 and 1992, respectively. Mortgages are collateralized by 1-4 family residential homes. The Company's policy is for an average 85% loan-to-value ratio upon inception of the loan. Loans above 80% have mortgage insurance. Off-Balance Sheet Items December 31 (in millions) 1993 1992 Financial instruments whose contract amounts represent credit risk: Commitments to extend credit (unused) - net $7,461 $5,522 Standby and commercial letters of credit 337 383 Financial instruments whose contract amounts exceed the amount of credit risk: Forward and futures contracts 4,717 1,634 Interest rate swap agreements 2,886 2,818 Interest rate caps and floors written and options written 2,100 3,178 Mortgages sold with recourse 26 56 Certain premises and equipment are leased under agreements which expire at various dates through 2051, without taking into consideration renewal options available to the lessee. Many of these leases provide for payment by the lessee of property taxes, insurance premiums, cost of maintenance and other costs. In some cases, rentals are subject to increase in relation to a cost of living index. Total rental expense amounted to approximately $18,541 in 1993, $17,715 in 1992 and $20,129 in 1991. Future minimum rental commitments as of December 31, 1993 for all non-cancellable operating leases with initial or remaining terms of one year or more amounted to $138,535 and rental commitments for the next five years are as follows: 1994 $18,651 1996 $16,779 1998 $11,900 1995 18,397 1997 14,077 The Company has entered into several agreements under which certain data processing services, including management of the Company's data center and installation of various new application systems, will be provided by outside parties. The cost of these services is determined by volume considerations, in addition to an agreed base rate, for remaining terms up to eight years. Note P-Securitizations The Company securitized $2,289,656 of credit card receivables in 1993 as well as $500,000 in 1991 and 1990. These transactions were recorded as sales in accordance with SFAS No. 77, "Reporting by Transferors for Transfers of Receivables with Recourse." At December 31, 1993, $3,289,656 of receivables were outstanding under the securitizations. Proceeds from the sales in 1993 and 1991 totaled $2,283,329 and $498,850, 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 the Company. 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 $68,421 at December 31, 1993 and $50,000 at December 31, 1992. Note Q-Significant Group Concentrations of Credit Risk During 1993 and 1992, the Company maintained a concentration of business activities with customers located within Maryland, the District of Columbia and Virginia. As of December 31, 1993 and 1992, the Company held approximately $1.8 billion and $2.3 billion, respectively, in U.S. Government sponsored and U.S. Government agency financial instruments, which have little, if any, credit risk. The Company's current commercial lending policies are strongly oriented toward diversified middle market borrowers. The amount of collateral obtained, if deemed necessary by the Company upon extension of credit, is based on management's credit evaluation of the counterparty. Collateral held varies but may include accounts receivable, marketable securities, deposit accounts, inventory, property, plant and equipment, real estate and income-producing commercial properties. Note R-Disclosures About Fair Value of Financial Instruments SFAS No. 107, "Disclosures about Fair Value of Financial Instruments", requires disclosure of fair value information about financial instruments, whether or not recognized in the balance sheet, for which it is practicable to estimate that value. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. In that regard, the derived fair value estimates cannot be substantiated by comparison to independent markets and, in many cases, could not be realized in immediate settlement of the instrument. SFAS No. 107 excludes certain financial instruments and all nonfinancial instruments from its disclosure requirements though the Company has decided to include certain of the non-required items. Accordingly, the aggregate fair value amounts presented do not represent the underlying value of the Company. The following methods and assumptions were used by the Company in estimating the fair value for its financial instruments and other non-required items as defined by SFAS No. 107: Cash and Due From Banks: The carrying amount approximates fair value. Temporary Investments: For interest bearing deposits with other banks and federal funds sold and securities purchased under resale agreements, the carrying amount approximates fair value. For securities available for sale, loans held for sale and trading account securities, fair values are based on published market prices or dealer quotes. Investment Securities: Fair values are based on published market prices or dealer quotes. Loans: For credit card and equity line receivables with short- term and/or variable characteristics, the total receivables outstanding approximates fair value. This amount excludes any value related to account relationship. The fair value of other types of loans is estimated by discounting the future cash flows using the comparable risk-free rate and adjusting for credit risk and operating costs. Interest Receivable and Interest Payable: The carrying amount approximates fair value. Other Assets and Other Liabilities: For financial instruments included in these categories, the carrying amount approximates fair value. Non-Interest Bearing Deposits: The fair value of these instruments, by the SFAS No. 107 definition, is the amount payable on demand at the reporting date. Interest Bearing Deposits: The fair value of demand deposits, savings accounts and money market deposits with no defined maturity, by SFAS No. 107 definition, is the amount payable on demand at the reporting date. The fair value of certificates of deposit is estimated by discounting the future cash flows using the current rates at which similar deposits would be made. Securities Sold Under Repurchase Agreements, Federal Funds Purchased, Commercial Paper and Other Short-Term Borrowings: For these short-term instruments, the carrying amount approximates fair value. Long-Term Borrowings: For these instruments, fair value is based on dealer quotes, where available, and on estimates made by discounting the future cash flows using the current rates at which similar borrowings would be made. Commitments To Extend Credit and Standby and Commercial Letters of Credit: The fair value of commercial lending related letters of credit and commitments is estimated as the amount of fees currently charged to enter into similar agreements, taking into account the present creditworthiness of the counterparties. This amount is included with the fair value of the related loans. The Company has commitments of $265,586 related to the mortgage loan portfolio. It is not practicable to separately estimate the value of these commitments due to the excessive cost involved. These values are included in the loans held for sale valuation which is part of temporary investments. The fair value of credit card and equity line commitments is included in Account Relationships discussed below. Interest Rate Caps and Floors: The fair value of these instruments is based on quoted market prices. Interest Rate Swap Agreements: The fair value of these instruments is the estimated amount that the Company would receive or pay to terminate the swap agreements at the reporting date, taking into account current interest rates and the current creditworthiness of the swap counterparties. Account Relationships: The estimated value ascribed to equity line account relationships is derived from dealer quotes based on portfolio characteristics. The estimated value ascribed to credit card account relationships is derived from the portfolio's anticipated net operating cash flows discounted using an appropriate weighted average cost of capital. Core Deposit Intangible: The estimated value ascribed to core deposits is computed by discounting the estimated cost savings from these deposits over their estimated life, using an incremental cost of funds rate. Servicing Portfolio for Mortgage Loans: The fair value of these instruments is estimated by using an internal valuation model. December 31 1993 1992 Carrying Fair Carrying Fair Value Value Value Value The estimated fair values of the Company's financial instruments required to be disclosed under SFAS No. 107: Assets: Cash and due from banks $463,358 $463,358 $502,998 $502,998 Temporary investments 2,665,228 2,669,835 3,128,120 3,138,618 Investment securities 1,769,615 1,829,232 2,073,462 2,108,775 Loans (a) 5,851,263 6,094,574 5,373,339 5,561,387 Interest receivable 84,118 84,118 100,852 100,852 Other assets (b) 16,716 16,716 23,107 23,107 Liabilities: Non-interest bearing deposits 1,544,852 1,544,852 1,432,977 1,432,977 Interest bearing deposits 6,275,761 6,304,724 6,390,337 6,447,687 Securities sold under repurchase agreements 1,281,645 1,281,645 2,236,469 2,236,469 Federal funds purchased 942,969 942,969 465,972 465,972 Commercial paper 168,488 168,488 125,126 125,126 Other short-term borrowings 232,024 232,024 168,273 168,273 Long-term borrowings 266,152 282,269 297,962 308,013 Interest payable 28,205 28,205 27,610 27,610 Other liabilities (b) 7,743 7,743 12,744 12,744 Off-Balance Sheet Instruments: Interest rate swap agreements 105,245 128,136 Interest rate caps and floors 11,310 1,512 The estimated fair value of items not required to be disclosed under SFAS No. 107: Account relationships 1,004,918 469,944 Core deposit intangible 366,043 500,035 Servicing portfolio for mortgage loans 44,235 20,303 (a) As required by SFAS No. 107, lease receivables (net of unearned income) with a carrying value totaling $205,736 and $169,747 at December 31, 1993 and 1992, respectively, are excluded. The carrying values are net of the allowance for loan losses and related unearned income. (b) Only financial instruments as defined by SFAS No. 107 are included in this category. Note S-Signet Banking Corporation (Parent Company Only) Condensed Financial Information December 31 Balance Sheet 1993 1992 Assets Temporary investments $55,850 $65,755 Investment securities 16,675 15,538 Advances to: Bank subsidiaries 304,360 244,972 Non-bank subsidiaries 1,201 13,468 Investments in: Bank subsidiaries 954,656 825,322 Non-bank subsidiaries 9,769 8,184 Other assets 58,980 46,939 $1,401,491 $1,220,178 Liabilities Commercial paper $ 168,488 $ 125,126 Long-term borrowings: Senior debentures 11,900 12,698 Subordinated notes 250,000 250,000 Other 43 93 Other liabilities 6,398 5,629 Total liabilities 436,829 393,546 Common Stockholders' Equity 964,662 826,632 $1,401,491 $1,220,178 Statement of Operations Year Ended December 31 1993 1992 1991 Income: Dividends from bank subsidiaries $50,328 $19,923 $64,140 Interest from: Bank subsidiaries 8,716 9,006 15,893 Non-bank subsidiaries 127 816 1,195 Others 2,674 3,037 4,851 Other income (loss)-net 2,738 1,251 (1,071) 64,583 34,033 85,008 Expense: Interest 18,002 19,631 27,435 Non-interest 3,795 1,029 3,664 21,797 20,660 31,099 Income before income taxes benefit and equity in undistributed net income of subsidiaries 42,786 13,373 53,909 Applicable income taxes benefit (2,122) (3,119) (4,618) 44,908 16,492 58,527 Equity in undistributed net income (loss): Bank subsidiaries 129,455 91,464 (79,865) Non-bank subsidiaries 51 1,244 (4,409) Net income (loss) $174,414 $109,200 $(25,747) Statement of Cash Flows Year Ended December 31 1993 1992 1991 OPERATING ACTIVITIES Net Income (loss) $174,414 $109,200 $(25,747) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Equity in undistributed (income) loss of subsidiaries (129,506) (92,708) 84,274 Realized investment security (gains) losses (95) 74 4,687 Decrease (increase) in other assets (12,472) 4,227 (11,553) Increase (decrease) in other liabilities 769 (485) (1,629) Net cash provided by operating activities 33,110 20,308 50,032 INVESTING ACTIVITIES Decrease (increase) in temporary investments 9,905 (60,755) 55,000 Net (purchases) sales of investment securities (671) 15,481 16,176 Decrease (increase) in advances to subsidiaries (47,121) 60,839 10,591 Decrease (increase) in investment in subsidiaries (1,413) (17,500) (46,067) Net cash provided (used) by investing activities (39,300) (1,935) 35,700 FINANCING ACTIVITIES Increase (decrease) in commercial paper 43,362 (20,191) (63,982) Decrease in long-term borrowings (848) (95) (50) Proceeds from issuance of common stock 9,203 26,625 4,852 Payment of cash dividends (45,058) (24,768) (26,501) Net cash provided (used) by financing activities 6,659 (18,429) (85,681) Increase (decrease) in cash and cash equivalents 469 (56) 51 Cash and cash equivalents at beginning of year 39 95 44 Cash and cash equivalents at end of year $508 $39 $95 Maturities of long-term borrowings for the next five years are as follows: 1994-$11,943, 1995-$0, 1996-$0, 1997-$50,000, 1998-$100,000. Cash paid during the years ended December 31, 1993, 1992 and 1991 for interest was $18,029, $19,893 and $28,935, respectively. Net cash paid (received) for income taxes for the same time periods was $9,238, $(4,543) and $(4,306), respectively. Report of Ernst & Young, Independent Auditors Stockholders and Board of Directors Signet Banking Corporation We have audited the accompanying consolidated balance sheet of Signet Banking Corporation and subsidiaries as of December 31, 1993 and 1992, and the related consolidated statements of operations, changes in stockholders' equity and cash flows for each of the three years in the period ended December 31, 1993. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Signet Banking Corporation and subsidiaries at December 31, 1993 and 1992, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1993, in conformity with generally accepted accounting principles. Richmond, Virginia January 21, 1994 Signet Banking Corporation and Subsidiaries Selected Financial Data (dollars in thousands) 1993 1992 1991 1990 1989 1988 Year-End Balances Cash and due from banks $ 463,358 $ 502,998 $530,557 $ 534,859 $ 522,763 $ 518,554 Temporary investments 2,665,228 3,128,120 1,659,667 3,240,822 810,146 544,137 Investment securities-taxable 1,510,800 1,781,735 1,586,269 284,391 3,015,958 2,190,841 Investment securities- nontaxable 258,815 291,727 313,897 321,091 376,230 384,059 Loans: Commercial 2,299,973 2,181,218 2,351,990 2,549,462 2,586,273 2,666,708 Credit card 1,808,515 1,243,873 700,488 679,854 1,418,415 1,199,800 Other consumer 1,297,309 1,179,303 1,233,310 1,319,432 1,399,772 1,394,947 Real estate-construction 309,842 549,001 952,687 1,199,599 1,199,085 1,093,971 Real estate-commercial mortgage 581,529 632,072 587,644 617,621 531,498 454,899 Real estate-residential mortgage 71,411 77,844 113,466 135,227 132,072 127,620 Gross loans 6,368,579 5,863,311 5,939,585 6,501,195 7,267,115 6,937,945 Less: Unearned income (58,267) (54,689) (55,923) (56,205) (52,220) (30,893) Allowance for loan losses (253,313) (265,536) (329,371) (163,669) (93,572) (86,226) Net loans 6,056,999 5,543,086 5,554,291 6,281,321 7,121,323 6,820,826 Premises and equipment (net) 216,524 199,153 216,378 218,985 205,100 203,111 Other assets 677,498 645,928 1,377,741 523,855 424,572 340,070 Total assets $11,849,222 $12,092,747 $11,238,800 $11,405,324 $12,476,092 $11,001,598 Deposits: Non-interest bearing $1,544,852 $1,432,977 $1,341,490 $1,258,902 $1,383,285 $1,352,626 Money market and interest checking 1,039,215 973,319 808,045 655,786 597,025 588,500 Money market savings 1,745,066 1,855,374 1,901,670 1,601,282 1,472,702 1,519,618 Savings accounts 880,072 674,860 449,366 406,001 417,909 455,378 Savings certificates 2,051,300 2,530,227 3,502,677 3,478,090 2,561,531 2,340,552 Large denomination certificates 347,820 257,225 455,507 897,693 952,754 1,207,048 Foreign 212,288 99,332 21,783 46,376 209,854 82,211 Total deposits 7,820,613 7,823,314 8,480,538 8,344,130 7,595,060 7,545,933 Federal funds and repurchase agreements 2,224,614 2,702,441 1,366,280 1,626,763 3,074,898 1,927,149 Other short-term borrowings 400,512 293,399 226,177 209,299 497,270 391,483 Long-term borrowings 266,152 297,962 299,021 350,292 361,186 273,462 Other liabilities 172,669 148,999 155,233 138,485 196,934 141,056 Preferred stock 60,000 Common stockholders' equity 964,662 826,632 711,551 736,355 750,744 662,515 Total liabilities and stockholders' equity $11,849,222 $12,092,747 $11,238,800 $11,405,324 $12,476,092 $11,001,598 Supplemental Data Number of employees at year-end: Full-time 5,753 4,702 4,697 5,330 5,677 5,797 Part-time 1,386 1,126 1,035 946 915 928 Number of common stockholders at year-end 14,606 14,823 16,822 17,466 16,417 16,576
Signet Banking Corporation and Subsidiaries Selected Financial Data (dollars in thousands - -except per share) 1993 1992 1991 1990 1989 1988 Average Balances Cash and due from banks $ 461,249 $ 446,084 $ 429,020 $ 454,276 $ 464,933 $ 452,501 Temporary investments 2,442,459 2,447,380 3,591,744 988,703 725,481 601,213 Investment securities - -taxable 1,628,855 1,809,648 557,092 2,801,688 2,497,587 2,419,571 Investment securities - -nontaxable 274,967 305,814 317,781 366,148 379,038 390,881 Loans (net of unearned income): Commercial 2,101,423 2,235,382 2,339,531 2,535,436 2,455,966 2,423,881 Credit card 1,764,277 709,266 628,531 1,331,523 1,241,347 1,091,189 Other consumer 1,207,323 1,199,711 1,291,047 1,340,139 1,402,238 1,514,627 Real estate -construction 448,859 776,447 1,082,342 1,245,071 1,135,575 1,160,552 Real estate -commercial mortgage 607,573 603,934 606,610 593,976 554,111 436,175 Real estate -residential mortgage 76,962 93,672 123,006 171,502 126,320 107,141 Total loans 6,206,417 5,618,412 6,071,067 7,217,647 6,915,557 6,733,565 Less: Allowance for loan losses (263,593) (307,558) (191,856) (118,240) (88,211) (98,930) Net loans 5,942,824 5,310,854 5,879,211 7,099,407 6,827,346 6,634,635 Premises and equipment (net) 201,792 207,186 217,386 210,462 198,383 202,797 Other assets 665,305 640,920 541,489 428,395 374,247 310,314 Total assets $11,617,451 $11,167,886 $11,533,723 $12,349,079 $11,467,015 $11,011,912 Deposits: Non-interest bearing $ 1,424,260 $ 1,270,364 $ 1,162,973 $ 1,131,186 $ 1,206,302 $ 1,210,946 Money market and interest checking 960,342 875,654 709,136 613,871 571,538 562,018 Money market savings 1,738,336 1,912,875 1,692,870 1,524,107 1,487,758 1,460,587 Savings accounts 772,194 563,932 434,484 417,276 433,559 490,277 Savings certificates 2,364,320 2,967,714 3,597,228 2,909,487 2,482,965 2,322,641 Large denomination certificates 272,693 268,713 727,160 1,125,161 967,397 1,398,713 Foreign 200,440 26,919 38,271 179,058 191,961 106,942 Total deposits 7,732,585 7,886,171 8,362,122 7,900,146 7,341,480 7,552,124 Federal funds and repurchase agreements 2,043,207 1,793,836 1,755,343 2,764,929 2,332,701 1,972,539 Other short - -term borrowings 482,405 292,210 233,945 404,033 555,905 441,689 Long-term borrowings 286,809 298,475 317,799 353,452 320,302 275,091 Other liabilities 183,284 129,231 114,607 171,749 182,855 118,674 Preferred stock 24,657 60,000 Common stockholders' equity 889,161 767,963 749,907 754,770 709,115 591,795 Total liabilities and stockholders' equity $11,617,451 $11,167,886 $11,533,723 $12,349,079 $11,467,015 $11,011,912 Average Yields (taxable equivalent basis): Temporary investments 5.60% 5.25% 7.96% 8.38% 9.24% 7.58% Investment securities - -taxable 5.76 6.19 7.30 9.48 9.57 9.64 Investment securities - -nontaxable 11.77 11.71 11.56 11.36 11.33 11.36 Loans 8.97 9.08 10.25 11.99 12.51 11.54 Interest income to average earning assets 7.77 7.73 9.35 11.04 11.54 10.84 Average Rates: Total interest bearing deposits 2.67 3.49 5.88 7.38 7.63 7.06 Federal funds and repurchase agreements 3.13 3.65 5.93 8.08 8.75 7.90 Other short-term borrowings 5.29 5.44 6.11 7.82 9.05 7.61 Long-term borrowings 5.82 6.51 7.57 8.74 9.24 8.40 Total borrowed funds 3.01 3.68 5.95 7.63 8.05 7.31 Interest expense to average earning assets 2.60 3.26 5.37 6.91 7.15 6.51 Net yield margin 5.17 4.47 3.98 4.13 4.39 4.33
Signet Banking Corporation and Subsidiaries Selected Financial Data (dollars in thousands - -except per share) 1993 1992 1991 1990 1989 1988 Summary of Operations Interest income: Loans, including fees $ 552,071 $ 503,402 $ 613,601 $ 855,644 $ 854,890 $ 764,455 Temporary investments 136,726 128,228 285,654 81,226 64,684 44,343 Investment securities -taxable 93,538 111,550 39,335 264,176 237,802 232,368 Investment securities - -nontaxable 21,390 24,082 24,996 28,566 29,544 30,572 Total interest income 803,725 767,262 963,586 1,229,612 1,186,920 1,071,738 Interest expense: Deposits 168,197 230,776 423,210 499,752 468,028 447,648 Other borrowings 106,188 100,876 142,406 285,932 284,032 212,534 Total interest expense 274,385 331,652 565,616 785,684 752,060 660,182 Net interest income 529,340 435,610 397,970 443,928 434,860 411,556 Provision for loan losses 47,286 67,794 287,484 182,724 58,530 54,637 Net interest income after provision for loan losses 482,054 367,816 110,486 261,204 376,330 356,919 Non-interest income: Credit card servicing income 153,018 101,185 62,664 12,435 138 Service charges on deposit accounts 64,471 66,971 62,924 57,799 52,328 45,410 Credit card service charges 63,222 31,553 42,276 59,574 55,109 48,077 Trust income 17,599 15,949 16,019 15,006 13,215 11,846 Gain on sale of subsidiary 47,026 Gain on sale of credit card accounts 16,335 Other 62,808 65,330 64,654 43,757 38,685 47,678 Non-interest operating income 361,118 280,988 248,537 188,571 175,810 200,037 Securities gains (losses) 4,318 (7,447) 93,221 12,971 9,438 14,063 Total non -interest income 365,436 273,541 341,758 201,542 185,248 214,100 Non-interest expense: Salaries 212,665 186,600 177,626 174,517 169,480 167,425 Employee benefits 65,249 49,388 31,366 33,615 45,280 39,627 Credit card solicitation 55,815 23,133 14,648 21,382 14,527 Supplies and equipment 40,550 32,536 36,660 45,061 43,394 37,931 Occupancy 40,192 38,899 39,231 37,388 33,310 32,333 Travel and communications 35,416 25,662 24,688 23,027 22,508 21,826 Other 148,429 143,021 184,706 79,545 66,562 76,055 Non-interest expense 598,316 499,239 508,925 414,535 395,061 375,197 Income (loss) before income taxes (benefit) 249,174 142,118 (56,681) 48,211 166,517 195,822 Applicable income taxes (benefit) 74,760 32,918 (30,934) 6,833 43,197 43,354 Net income (loss) $ 174,414 $ 109,200 $ (25,747) $ 41,378 $ 123,320 $ 152,468 Operating Ratios Net income to: Average total stockholders' equity 19.62% 14.22% N/M 5.48% 16.81% 23.39% Average common stockholders' equity 19.62 14.22 N/M 5.48 17.12 25.13 Average assets 1.50 .98 N/M .34 1.08 1.38 Net yield margin 5.17 4.47 3.98% 4.13 4.39 4.33 Net loan losses to average loans .91 2.34 2.03 1.51 .74 1.42 At year-end: Allowance for loan losses to loans 4.01 4.57 5.60 2.54 1.30 1.25 Allowance for loan losses to non-performing loans 342.63 228.25 156.84 117.15 116.53 162.23 Common equity to assets 8.14 6.84 6.33 6.46 6.02 6.02 Common Shares Outstanding at year-end 56,608,578 27,980,824 27,017,550 26,614,593 26,672,896 26,425,525 Average (includes common stock equivalents)* 56,920,090 55,727,358 53,994,340 53,026,764 53,372,898 52,097,036 Per Common Share* Book value at year-end $ 17.04 $ 14.77 $ 13.17 $ 13.83 $ 14.07 $ 12.54 Market price range 36 7/8- 23 3/8- 12 5/16- 16 11/16- 21 5/8- 16 15/16- 21 1/2 10 7/8 3 5/8 4 1/16 14 3/8 11 5/8 Earnings (loss) 3.06 1.96 (.48) .78 2.27 2.85 Cash dividends declared .80 .45 .30 .78 .76 .69 * The per common share and average common shares outstanding data above reflect a two-for-one common stock split in the form of dividend which was declared on June 23, 1993 to shareholders of record July 6, 1993 and distributed July 27, 1993.
Signet Banking Corporation and Subsidiaries Consolidating Balance Sheet December 31, 1993 Signet Signet Banking Signet Bank/ Signet Bank/ Banking Corporation Virginia Maryland Signet Bank Other Corporation (Parent Company) Consolidated Consolidated N.A. Subsidiaries Eliminations Consolidated Assets Cash and due from banks $ 508 $ 329,607 $ 228,922 $ 36,819 $ 6,385 $ (138,883) $ 463,358 Temporary investments 255,778 2,611,115 629,285 317,249 5,117 (1,153,316) 2,665,228 Investment securities 16,675 1,363,163 305,482 82,768 45 1,482 1,769,615 Loans 104,980 4,175,363 2,078,462 161,584 (151,810) 6,368,579 Less: Unearned income (8) (57,785) (474) (58,267) Allowance for loan losses (172,818) (70,131) (10,364) (253,313) Net loans 104,980 4,002,537 1,950,546 150,746 (151,810) 6,056,999 Premises and equipment 167,024 41,703 4,384 3,413 216,524 Other assets 1,023,550 534,405 72,783 32,459 10,220 (995,919) 677,498 $ 1,401,491 $9,007,851 $ 3,228,721 $ 624,425 $ 25,180 $ (2,438,446) $11,849,222 Liabilities and Stockholders' Equity Non-interest bearing deposits $827,157 $ 699,043 $ 157,535 $ (138,883) $ 1,544,852 Interest bearing deposits 4,233,914 1,767,146 274,701 6,275,761 Total deposits 5,061,071 2,466,189 432,236 (138,883) 7,820,613 Other short - -term borrowings $ 168,488 3,153,680 505,821 99,752 $ 2,510 (1,305,125) 2,625,126 Long-term borrowings 261,943 4,160 49 266,152 Other liabilities 6,398 135,392 45,045 12,927 2,920 (30,013) 172,669 Stockholders' equity 964,662 653,548 211,617 79,510 19,750 (964,425) 964,662 $1,401,491 $ 9,007,851 $ 3,228,721 $ 624,425 $ 25,180 $ (2,438,446) $11,849,222
STATEMENT OF CONSOLIDATING OPERATIONS Year ended December 31, 1993 (in thousands) (unaudited) Interest income $ 12,102 $ 623,265 $ 193,468 $ 31,812 $ 554 $ (57,476) $ 803,725 Interest expense 18,587 233,191 67,744 11,273 379 (56,789) 274,385 Net interest income (expense) (6,485) 390,074 125,724 20,539 175 (687) 529,340 Provision for loan losses 44,534 3,965 675 (1,888) 47,286 Net interest income (expense) after provision for loan losses (6,485) 345,540 121,759 19,864 2,063 (687) 482,054 Non-interest operating income 2,643 289,315 35,779 7,367 26,066 (52) 361,118 Securities gains (losses) 95 4,356 36 (169) 4,318 Non-interest expense 3,795 421,708 127,122 21,786 24,517 (612) 598,316 Income (loss) before income taxes (benefit) (7,542) 217,503 30,452 5,445 3,612 (296) 249,174 Applicable income taxes (benefit) (2,122) 65,576 7,998 2,179 1,425 (296) 74,760 Net income (loss) $ (5,420) $ 151,927 $ 22,454 $ 3,266 $2,187 $ 0 $ 174,414
Signet Banking Corporation and Subsidiaries Selected Quarterly Financial Data 1993 1992 Fourth Third Second First Fourth Third Second First Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter (unaudited) Summary of Operations (in thousands) Interest income $195,853 $212,536 $201,466 $193,870 $184,337 $182,468 $196,949 $203,508 Interest expense 66,097 72,614 71,684 63,990 66,332 77,244 90,843 97,233 Net interest income 129,756 139,922 129,782 129,880 118,005 105,224 $106,106 106,275 Provision for loan losses 10,276 12,501 9,011 15,498 14,316 14,060 14,458 24,960 Net interest income (expense) after provision for loan losses 119,480 127,421 120,771 114,382 103,689 91,164 91,648 81,315 Non-interest operating income 119,654 85,515 81,183 74,766 74,885 72,458 74,711 58,934 Securities available for sale gains 2,248 1,665 1,316 6,546 1,244 1,398 Investment securities gains (losses) 254 2 46 103 (2,973) (7,349) (6,175) (1,454) Non-interest expense (1) 169,934 147,516 146,809 134,057 135,230 126,560 127,340 110,109 Income before income taxes 71,702 65,422 55,191 56,859 41,687 36,259 34,088 30,084 Applicable income tax 21,758 19,659 14,751 18,592 9,857 7,656 7,378 8,027 Net income $49,944 $45,763 $40,440 $38,267 $31,830 $28,603 $26,710 $ 22,057 Average Balance Sheet Data (in millions) Loans (net of unearned income) $ 6,074 $ 6,210 $ 6,512 $ 6,029 $ 5,601 $ 5,400 $ 5,615 $ 5,861 Investment securities 1,790 1,840 1,953 2,037 2,100 2,154 2,163 2,043 Temporary investments 2,583 2,920 2,179 2,076 2,346 2,348 2,560 2,538 Total earning assets 10,447 10,970 10,644 10,142 10,047 9,902 10,338 10,442 Cash and due from banks 500 460 454 431 463 412 443 466 Other non-rate related assets 654 605 584 570 575 592 528 467 Total average assets $11,601 $12,035 $11,682 $11,143 $ 11,085 $10,906 $ 11,309 $11,375 Interest bearing deposits $ 6,273 $ 6,388 $ 6,366 $ 6,205 $ 6,313 $ 6,455 $ 6,713 $ 6,987 Short-term borrowings 2,405 2,842 2,573 2,278 2,160 1,982 2,141 2,060 Long-term borrowings 266 286 297 298 298 298 299 299 Non-interest bearing liabilities 1,718 1,612 1,578 1,521 1,502 1,384 1,404 1,308 Common stockholders' equity 939 907 868 841 812 787 752 721 Total average liabilities and stockholders' equity $11,601 $12,035 $11,682 $11,143 $11,085 $10,906 $11,309 $11,375 Per Common Share (2) Net income $ .87 $ .80 $ .71 $ .68 $ .57 $ .51 $ .48 $ .40 Cash dividends declared .25 .20 .20 .15 .15 .10 .10 .10 Market prices: High 36 7/8 35 30 5/8 28 13/16 23 3/8 20 9/16 19 3/4 15 7/8 Low 30 5/8 26 3/4 24 3/4 21 1/2 18 11/16 17 12 13/16 10 7/8 Average Common Shares and Common Stock Equivalents (2) (in thousands) 57,087 57,010 56,871 56,705 56,454 56,255 55,648 54,537 (1) First, second, third and fourth quarters of 1992 included credit card solicitation expenses of $.7, $4.3, $7.8, and $10.3 million, respectively. First, second, third, and fourth quarters of 1993 included credit card solicitation expenses of $9.3 million, $17.2 million, $13.7 million, and $15.6 million, respectively. (2) The per common share and common shares outstanding data above reflect a two-for-one common stock split in the form of a dividend which was declared on June 23, 1993 to shareholders of record July 6, 1993 and distributed July 27, 1993. The above schedule is a tabulation of the Company's unaudited quarterly results of operations for the years ended December 31, 1993 and 1992. The Company's common shares are traded on the New York Stock Exchange under the symbol SBK. In addition, shares may be traded in the over-the-counter stock market. There were 14,606 common stockholders of record at December 31, 1993.
EX-22 5 EXHIBIT 22.1 - SUBSIDIARIES EXHIBIT 22.1 SUBSIDIARIES OF SIGNET BANKING CORPORATION December 31, 1993 Subsidiary Place of Incorporation Signet Bank/ Virginia Virginia 800 Building Corporation Virginia Signet Mortgage Corporation Virginia Signet Second Mortgage Corporation Virginia Signet Bank (Bahamas), Ltd. Bahamas Second Eleutheran Investment Co., Ltd. Bahamas Signet Trust Company Virginia Signet Properties Company Virginia Signet Insurance Services, Inc. Virginia Signet Financial Services, Inc. Virginia Signet Commercial Credit Corporation Virginia Signet Strategic Capital Corporation Virginia General Finance Service Corporation Pennsylvania Elgin Corporation Virginia Signet Investment Banking Company Virginia Signet Bank/Maryland Maryland St. Paul Realty, Inc. Maryland Signet Equipment Company Maryland Wharton & Bennett, Inc. Maryland Sect. 12-A Corp. Maryland Sect. 12-B Corp. Maryland Sect. 13 Corp. Maryland Sect. 14 Corp. Maryland UTC Prop. No. 1, Inc. Maryland UTC Prop. No. 2, Inc. Maryland UTC Prop. No. 3, Inc. Maryland UTC Prop. No. 4, Inc. Maryland UTC Prop. No. 5, Inc. Maryland UTC Prop. No. 6, Inc. Maryland Landexco, Inc. Maryland Signet Leasing and Financial Corporation Maryland Signet Insurance Services Inc./ Maryland Maryland Signet Realty, Inc. Maryland Signet Bank N. A. Washington, D. C. Signet Municipal LeaseCorp Virginia NSM Corporation Virginia The Budget Plan Company of Virginia Virginia Signet Lending Services, Inc. Tennessee DOPWO, Inc. Virginia NP Corporation Maryland NP No. 2 Corporation Maryland NP No. 3 Corporation Maryland NP No. 4 Corporation Maryland NP No. 5 Corporation Maryland NP No. 6 Corporation Maryland NP No. 7 Corporation Maryland NP No. 8 Corporation Maryland NP No. 9 Corporation Maryland NP No. 10 Corporation Maryland VMD Servicing Corporation Maryland MWG I, Inc. Maryland MWG II, Inc. Maryland MWG III, Inc. Maryland MWG IV, Inc. Maryland MWG V, Inc. Maryland MWG VI, Inc. Maryland MWG VII, Inc. Maryland F H Properties, Inc. Virginia F H Properties, No. 2, Inc. Virginia F H Properties, No. 3, Inc. Virginia F H Properties, No. 4, Inc. Virginia F H Properties, No. 5, Inc. Virginia F H Properties, No, 6, Inc. Virginia F H Properties, No. 7, Inc. Virginia F H Properties, No. 8, Inc. Virginia F H Properties, No. 9, Inc. Virginia F H Properties, No. 10, Inc. Virginia F H Properties, No. 11, Inc. Virginia F H Properties, No. 12, Inc. Virginia F H Properties, No. 13, Inc. Virginia F H Properties, No. 14, Inc. Virginia F H Properties, No. 15, Inc. Virginia RE I, Inc. Maryland RE II, Inc. Maryland RE III, Inc. Maryland RE IV, Inc. Maryland RE V, Inc. Maryland RE VI, Inc. Maryland RE VII, Inc. Maryland RE VIII, Inc. Maryland RE IX, Inc. Maryland RE X, Inc. Maryland RE XI, Inc. Maryland RE XII, Inc. Maryland RE XIII, Inc. Maryland RE XIV, Inc. Maryland RE XV, Inc. Maryland SM II, Inc. Maryland SM III, Inc. Maryland SM IV, Inc. Maryland SM V, Inc. Maryland SM VI, Inc. Maryland SM VII, Inc. Maryland SM VIII, Inc. Maryland SM IX, Inc. Maryland SM X, Inc. Maryland SM XI, Inc. Maryland SM XII, Inc. Maryland SM XIII, Inc. Maryland SM XIV, Inc. Maryland SM XV, Inc. Maryland SM XVI, Inc. Maryland Signet Asset Management, Inc./Delaware Delaware Signet Banking Corporation/Delaware Delaware Signet Commercial Credit Corporation/Delaware Delaware Signet Credit Corporation/Delaware Delaware Signet Equipment Company/Delaware Delaware Signet Financial Corporation/Delaware Delaware Signet Insurance Services, Inc./Delaware Delaware Signet Investment Banking Corporation/Delaware Delaware Signet Investment Corporation/Delaware Delaware Signet Leasing & Financial Corporation/Delaware Delaware Signet Properties Company/Delaware Delaware Signet Services Corporation/Delaware Delaware Signet Venture Capital Corporation/Delaware Delaware EX-24 6 EXHIBIT 24.1 - CONSENT OF ERNST & YOUNG Exhibit 24.1 CONSENT OF ERNST & YOUNG INDEPENDENT AUDITORS We consent to the incorporation by reference in this Annual Report (Form 10-K) of Signet Banking Corporation of our report dated January 21, 1994, included in the 1993 Annual Report to Shareholders of Signet Banking Corporation. We also consent to the incorporation by reference in the following Registration Statements, or most recent post-effective amendments thereto, filed prior to March 23, 1994 of our report dated January 21, 1994, with respect to the consolidated financial statements incorporated herein by reference: - Form S-8 (2-82600) - Form S-3 (33-4491) - Form S-8 (33-2498) - Form S-3 (33-21963) - Form S-8 (33-43190) - Form S-3 (33-28089) - Form S-8 (33-10637) - Form S-3 (2-92081) - Form S-8 (33-47591) - Form S-8 (33-47590) /s/ Ernst & Young ERNST & YOUNG Richmond, Virginia March 23, 1994 EX-25 7 EXHIBIT 25.1 - POWER OF ATTORNEY Exhibit 25.1 POWER OF ATTORNEY Each of the undersigned hereby appoints Andrew T. Moore, Jr. and David S. Norris, and each of them (with full power in either of them to act alone), as his or her true and lawful attorneys-in-fact, and grants unto said attorneys the authorities in his or her name and on his or her behalf to execute (individually and in the capacity stated below) and to file an Annual Report on Form 10-K for Signet Banking Corporation for the fiscal year ended December 31, 1993, together with any and all amendments or supplements thereto and any and all exhibits and other documents required to be filed in connection therewith. Each of the undersigned further grants unto said attorneys the authority in his or her name and on his or her behalf to perform each and every act necessary to accomplish the foregoing filing. IN WITNESS WHEREOF, Each of the undersigned has signed this Power of Attorney this 22nd day of February, 1994. SIGNATURE TITLE /s/ Robert M. Freeman Director, Chairman of the Board and Robert M. Freeman Chief Executive Officer (Principal Executive Officer) /s/ Malcolm S. McDonald Director, President and Malcolm S. McDonald Chief Operating Officer /s/ J. Henry Butta Director J. Henry Butta /s/ William C. DeRusha Director William C. DeRusha /s/ William R. Harvey Director William R. Harvey, Ph.D. /s/ Elizabeth G. Helm Director Elizabeth G. Helm /s/ Robert M. Heyssel Director Robert M. Heyssel, M.D. /s/ Henry A. Rosenberg, Jr. Director Henry A. Rosenberg, Jr. /s/ Louis B. Thalheimer Director Louis B. Thalheimer /s/ Stanley I. Westreich Director Stanley I. Westreich -----END PRIVACY-ENHANCED MESSAGE-----