Signet Banking Corporation
Signet Banking Corporation
7 North 8th Street
Richmond, Virginia 23219-3301
Fax: (804) 771-7599
Total Assets: $10.8 billion
Stock Exchanges: New York Chicago Boston
SICs: 6712 Bank Holding Companies; 6021 National
Commercial Banks; 6022 State Commercial Banks; 6099
Foreign Currency Exchange; 6162 Mortgage Banks; 6211
Security Brokers and Traders; 6411 Insurance Agents
Signet Banking Corporation is a registered multi-bank, multistate holding company with 24-hour telebanking, 240 regional offices, and over 230 automatic teller machines (ATMs) located throughout Maryland, the District of Columbia, and Virginia providing a wide range of financial services to its customers and shareholders. With assets in excess of $10.8 billion, Signet is comprised of five financial groups, including consumer loans, commercial banking, real estate lending, security markets, and the largest and most successful of these lines—the credit card division. Due to the phenomenal growth of its bank card business in the early 1990s, Signet was ranked among the top 15 largest MasterCard and Visa credit card agents in the United States, with over four million cardholders and $6.6 million in outstanding managed debts. According to company literature, Signet’s mission for the 1990s was “to maximize shareholder value by becoming widely regarded as among the best banks in the United States.”
Signet’s history has been one of continual expansion and diversification. The company originated in 1922, with an innovative financial institution called the Morris Plan Bank of Richmond, Virginia. Originally founded by Arthur J. Morris, Morris Plan banks filled a growing niche in the communities of the early 1900s, providing loans to individuals who were generally unable to secure funds elsewhere. Any consumer who could offer two cosigners or collateral and was of “good character” qualified for a Morris Plan loan.
During the next 20 years, the Morris Plan Bank of Richmond became the Morris Plan Bank of Virginia (1928) and the Bank of Virginia (1945). Then, on January 11, 1962, after acquiring the Bank of Henrico, the Bank of Occoquan, the Bank of Salem, and the Bank of Warwick, the organization was recreated as the Virginia Commonwealth Corporation. After merging with the Bank of Dinwiddie in 1963, the corporation acquired three more banks (Bristol Washington Trust & Savings Bank, Inc., Peoples National Bank of Pulaski, and the Bank of Nokesville), then merged once again with the Hallwood National Bank in 1964. After two further mergers—Guardian National Bank of Springfield and the Bank of Boydton—the company again altered its name and became Virginia Commonwealth Bankshares Inc. on October 10, 1966. The same year, the company merged with the National Bank of Rosslyn and acquired the Bank of Central Virginia.
The rest of the decade was marked by continued evolution, with five more acquisitions (National Bank of Commerce in Fairfax County, American National Bank of Fredericksburg, First Valley Bank in Weber City, First Colonial Bank of Virginia Beach, Security Bank and Trust Company of Danville) and six mergers (Bank of Lacrosse, Farmers Bank in Boydton, Peoples Bank of Reedville, the Peoples Bank of White Stone, the Russell County National Bank, Fidelity National Bank in Arlington).
During the 1970s, the company reached several important milestones beginning with regulatory approval in 1970 to form Virginia Commonwealth International. In October 1971, the company spent over $3.47 million for Canadian Factors Corp., acquired The Merchants and Farmers Bank of Galax, and formed two Bank of Virginia branches in Roanoke and Loudoun. During this time, Robert M. Freeman joined the company as vice-president in the main offices in Richmond. In 1972, after an exchange of stock, the Bank of Whaleyville and the Bank of Warren joined the Virginia Commonwealth’s holdings, then an additional 60,965 common shares were proffered to acquire both Hanover Mortgage Corp. and Richmond Finance Corp. This year also marked the adoption of a more simple name: Bank of Virginia.
For the remainder of 1970s, the company reorganized its vast holdings, seeking to make the Bank of Virginia family both recognized and renowned in its market area and beyond. Significant acquisitions included the General Finance Service Corp. of Huntingdon, Pennsylvania, Cavanagh Leasing Corp., and Commonwealth Mortgage Company. The latter two were merged into the BVA Credit Corp. (originally formed in 1973), which later spawned the BVA Mortgage Corporation in 1974. After four years with the company, Robert Freeman was promoted to senior vice-president, and then in 1977, was named executive vice-president. In December of 1978, the nine banking affiliates owned by the Bank of Virginia Company were merged into today’s Signet Bank/Virginia with the Bank of Virginia retaining 100 percent ownership of its stock.
The next dozen years were of growth, both internal and external. Several branches were brought under the Bank of Virginia umbrella, including four from the Northern Virginia Savings & Loan Association at the end of May 1982. By the end of 1982, the company acquired 92 percent of the Bank of Vienna, which was merged into Bank of Virginia holdings the next May. In September 1983, assets of the General Finance Service Corp. (acquired March 30, 1973) were sold to the Security Pacific Corp. for $32 million.
On May 2, 1985, the company created the Corporate Finance Advisors, which would become Signet Financial Services, Inc. in 1992 and eventually Signet Investment Banking Company. In December of 1985, Union Trust Bancorp and its subsidiary, the Union Trust Bank of Maryland (later renamed Signet Bank/Maryland), were acquired. Terms of the agreement stipulated that Union Trust’s common stock be converted to 2.05 shares of the Bank of Virginia Company’s common stock.
In March 1986, the company formed the BVA Investment Corp., which would later become part of the Signet Investment Banking Company. And, in another acquisition, the Security National Corp. of Washington, D.C. and its banking subsidiary, the Security National Bank, became a part of the Bank of Virginia Company. Finally, 1986 also marked the Bank of Virginia Company’s move to the name Signet Banking Corporation, on July 14. The following year, two subsidiaries were added to the Signet conglomerate: the Signet Production Company and the Signet Loan Company of Pennsylvania. Reorganizing its assets in 1988, Signet sold Landmark Financial Services Inc. for $82 million to the MNC Financial Corp.
To raise capital, Signet sold 400,000 shares of common stock to European investors in 1988, shoring up stateside operations and strengthening its capital position. According to Signet, this decision gave the corporation necessary “liquidity, stability and greater resources,” which were rerouted internally. This year also marked Signet’s highest earnings yet—hitting $152.5 million—helped in part by the sale of Landmark Financial Services. In 1989, Signet scored an 11 percent gain in earnings, with net income of $123.3 million. Robert Freeman, who had become president and chief executive officer of Signet, continued to play a pivotal role in guiding the company’s evolution.
In 1990, Freeman became chairperson and CEO, with Malcolm S. McDonald as president and chief operating officer. During this time, Signet developed its master plan to become one of the most respected and stable banking institutions in the country. The “Best Bank” blueprint, it was hoped, would vault Signet to the forefront of the industry by transforming its problematic, non-performing assets into healthy ones, and utilizing its “information-based strategy” to move Signet’s computer network into the future. Net income for 1990 plummeted 66 percent to $41.4 million, due in part to fluctuations in the real estate market. The “Best Bank” vision then became crucial—and to stem losses, Signet announced the formation of the “Accelerated Real Estate Asset Reduction Program” in 1991.
Meanwhile, in Washington, D.C., the Federal Reserve Board pumped nearly $100 million into the failing Madison National Bank to no avail. After regulators seized the bank, Signet bought Madison’s 12-branch franchise (ten branches were merged into Signet Bank N.A and the remaining two into Signet Bank/Virginia). By the end of 1991, Signet had managed to reduce nonperforming real estate assets by $400 million, but suffered an overall net loss of $25.7 million.
By placing greater emphasis on what Signet called its “credit culture” and giving employees carte blanche to develop and implement non-traditional methods for personalized products and services, Signet bounced back from 1991’s heavy losses to a net income of $109.2 million. In 1993, Signet concerted efforts to promote internal growth and bring nonperforming assets to more acceptable levels. By consolidating commercial real estate activities and scaling down construction loans, commercial mortgages, and foreclosed properties to $934 million in outstandings (or less than shareholder equity), Signet terminated its Accelerated Real Estate Asset Reduction Program. Net income for 1993 grew 60 percent to 1$74.4 million, and earnings per share rose 56 percent from $1.96 to $3.06. Signet’s annual report boasted a stock performance among the best in the industry with 54 percent appreciation in stock prices and dividends rising twice. The 1993 annual rate of $1.00 per share represented a 67 percent increase over 1992.
According to bank stock specialists Keefe, Bruyette & Woods, Signet’s return on equity of 19.63 percent ranked fifth and their 1.50 percent return on assets was fourth best among the nation’s largest 50 banks. Signet’s capital base also grew to a robust 81.4 percent equity-to-assets ratio by the end of 1993. “Unquestionably, the success of our information-based strategy in the credit card business was the single most important contributor to our results in 1993,” chairperson and CEO Freeman observed.
Credit card loans, including securitized receivables, accounted for more than 50 percent (and perhaps closer to 65 percent) of Signet’s loan portfolio with approximately $1.5 million new accounts in 1993, adding $2.9 billion in receivables, which brought Signet’s total managed assets to $5.1 billion. Signet issued $2.3 billion in asset-backed securities during 1993, which elevated their total securitized assets to a total of $3.3 billion, enabling the bank to obtain and offer highly competitive interest rates. Spending around $60 million annually on bank card promotion, Signet took a relatively small, competitive business in its immediate marketing area and created “a highly profitable national business driven by specialized target marketing.”
In 1994, Signet merged with Pioneer Financial Corp., the parent company of the $400 million Pioneer Federal Savings Bank, located in Chester, Virginia. This year would mark exceptional second quarter growth for Signet’s bank card portfolio, as net income climbed 25 percent to $50.4 million or 88 cents per share, up from the previous year’s second quarter figures of $40.4 million and 71 cents per share. However, these figures were below analysts’ predicted returns, and Signet stock sank 11 percent ($4.375) to $36.50 per share in composite NYSE trading. Net interest income also decreased four percent, shrinking the net interest margin to 5.01 percentage points, a 0.23 percentage point loss from 1994 first quarter figures, and 0.2 from the year before.
As one of five firms profiled in Money magazine’s “Wall Street Newsletter,” industry analysts cited Signet as one to watch for significant investment returns of 14-30 percent in 1995. Analysts Moshe A. Orenbuch, of Sanford C. Bernstein in New York City, and John A. Heffern of Baltimore’s Alex. Brown & Sons, both believed Signet’s earnings potential would reach 20 percent annually in 1995 and 1996, while delivering stock growth of as much as 25 percent or around 53 a share. “Signet was once a takeover target, but they’ve found a way to generate revenue and earnings growth on their own,” said Heffern.
On July 27, 1994, Signet announced the spin-off its most profitable enterprise—its credit card portfolio—into a separate company. “In 1988, we began investing in technology that would enable us to become a state-of-the-art, unique provider of financial products and services. We successfully achieved this objective in our credit card division, and with the spin-off,” Freeman contended, they would “be able to concentrate fully on improving the business strategies of our core bank.”
Signet filed a registration statement with the SEC for an initial public offering of up to 19.9 percent interest in the newly formed corporation, to be completed by the fall of 1994. Stockholders were to be provided with a tax-free offering of the remaining shares in the new company by 1995, with about $57 million shares outstanding. “By spinning them apart,” Freeman explained, “shareholders will have one of each and realize the full value.”
The new credit card unit, called OakStone Financial Corporation—so named to reflect “its financial strength and stability” according to OakStone’s newly appointed chairperson and CEO Richard D. Fairbank—was expected to apply for a New York Stock Exchange listing. Costs of creating the company and restructuring were expected to result in a one-time debit of between $60 and $70 million during the third quarter. Some industry analysts believed Signet would once again be a takeover target after the spin-off was complete. “We’ve been on [the] takeover list ever since I can remember,” Freeman admitted to the Wall Street Journal as the news broke. “We believe, and the board believes, that we have the talent and management plans to remain independent.” Freeman was equally candid about Signet’s shortcomings and plans for the future: ’It’s a fair assessment to say that today, the core bank is underperforming. But therein lies the opportunity to reinvent the corporation.” Signet’s shares rose $1.75 to $39.25 on the NYSE after the spin-off news release.
Oakstone was slated to be headquartered in northern Virginia with offices in Richmond and Fredericksburg, Virginia. As the spin-off was finalized, Signet’s core strength were expected to be put to the test. “We will reinvent Signet Bank one process and one product at a time,” Malcolm S. McDonald, Signet president and COO, said in July 1994, “with the goal of delivering maximum long-term value to our customers and our shareholders.”
Signet Bank, N.A.; Signet Bank Ltd. (Bahamas); Signet Asset Management, Inc.; Signet Commercial Credit Corp.; Signet Equipment Company; Signet Financial Services Corp.; Signet Insurance Services, Inc.; Signet Investment Banking Company; Signet Leasing & Financial Corp.; Signet Lending Services, Inc.; Mortgage Corporation; Signet Second Mortgage Corporation; Signet Production Company; Signet Properties Company; Signet Realty, Inc.; Signet Strategic Capital Corporation; Signet Trust Company Inc.; 800 Building Corporation; Elgin Corporation; General Finance Service Corporation; Landexco Inc.; MH Utilities Corp.; Mystic Harbour Corp.; Second Eleutheran Investment Co., Ltd.; SM Corporation; St. Paul Realty, Inc.; The Budget Plan Company of Virginia; Wharton & Bennett, Inc.
Dreman, David, “Where Are the Values?,” Forbes, May 28, 1990.
Halper, Mark, “EDS/Signet Contract Shows Signs of Strain,” Computerworld, June 15, 1992.
Lipin, Steven, “Signet Plans Restructuring, Sets Spinoff and Public Offering of Credit-Card Unit,” Wall Street Journal, July 28, 1994.
“Signet Banking to Spin Off Credit Card Business,” New York Times, July 28, 1994.
Sivy, Michael, “How to Earn 14%-Plus Profits on the Bank of the Future,” Money, July 1994.
Yang, Catherine, and Dean Foust, “Disaster on a Watchdog’s Doorstep,” Business Week, June 3, 1991.