-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, SuAdJReXyNwmO1NSWX0V9oO8IUa/4MhKwj5EqaUygLwvSyKD1kRAqn7XJmG+V+R1 QE9vDyYWO5DzTzHPwjiRog== 0000083246-99-000011.txt : 19990816 0000083246-99-000011.hdr.sgml : 19990816 ACCESSION NUMBER: 0000083246-99-000011 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19990630 FILED AS OF DATE: 19990813 FILER: COMPANY DATA: COMPANY CONFORMED NAME: REPUBLIC NEW YORK CORP CENTRAL INDEX KEY: 0000083246 STANDARD INDUSTRIAL CLASSIFICATION: NATIONAL COMMERCIAL BANKS [6021] IRS NUMBER: 132764867 STATE OF INCORPORATION: MD FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-07436 FILM NUMBER: 99688608 BUSINESS ADDRESS: STREET 1: 452 FIFTH AVE CITY: NEW YORK STATE: NY ZIP: 10018 BUSINESS PHONE: 2125256100 10-Q 1 QUATERLY REPORT DATED AUGUST 13, 1999 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly Period Ended June 30, 1999. [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File No. 1-7436 REPUBLIC NEW YORK CORPORATION (Exact name of registrant specified in its charter) MARYLAND 13-2764867 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 452 FIFTH AVENUE, NEW YORK, NEW YORK 10018 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (212) 525-6100 NOT APPLICABLE Former name, former address and former fiscal year, if changed since last report Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No __ - -------------------------------------------------------------------------------- The number of shares outstanding of the registrant's common stock, was 104,793,308 at July 30, 1999. REPUBLIC NEW YORK CORPORATION AND SUBSIDIARIES PART I - FINANCIAL INFORMATION PAGE NO. Item 1. Financial Statements: Consolidated Statements of Condition - Unaudited June 30, 1999 and December 31, 1998 2 Consolidated Statements of Income - Unaudited Six Months and Three Months Ended June 30, 1999 and 1998 3 Consolidated Statements of Cash Flows - Unaudited Six Months Ended June 30, 1999 and 1998 4 Consolidated Statements of Changes in Stockholders' Equity - Unaudited Six Months Ended June 30, 1999 and 1998 5 Notes to Consolidated Financial Statements 6-9 Item 2. Management's Discussion and Analysis 10-26 PART II - OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders 27 Item 6. Exhibits and Reports on Form 8-K 28 The information contained in the financial statements furnished in this report is unaudited. However, in the opinion of management, all adjustments, consisting of normal recurring accruals, necessary for a fair presentation of the results of operations for the interim periods presented, have been included. -1-
ITEM 1. FINANCIAL STATEMENTS REPUBLIC NEW YORK CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CONDITION UNAUDITED (Dollars in thousands) June 30, December 31, Assets 1999 1998 ------------ ------------ Cash and due from banks $ 901,766 $ 1,040,290 Interest-bearing deposits with banks 5,654,600 4,218,893 Precious metals 785,048 977,783 Securities held to maturity (approximate market value of $5,659,535 in 1999 and $6,882,926 in 1998) 5,618,919 6,731,714 Securities available for sale (at approximate market value) 16,546,090 16,434,523 ------------ ------------ Total investment securities 22,165,009 23,166,237 Trading account assets (note 2) 2,966,059 3,397,110 Federal funds sold and securities purchased under resale agreements 1,495,985 689,335 Loans (net of unearned income of $5,730 in 1999 and $14,138 in 1998) 14,193,813 13,648,837 Allowance for credit losses (note 2) (290,669) (293,952) Customers' liability on acceptances 44,128 36,287 Accounts receivable and accrued interest 998,684 1,352,619 Investment in affiliate 821,093 849,677 Premises and equipment 430,170 467,651 Other assets 1,013,967 873,387 ------------ ------------ Total assets $ 51,179,653 $ 50,424,154 ============ ============ Liabilities and Stockholders' Equity Noninterest-bearing deposits: In domestic offices $ 2,971,844 $ 2,882,572 In foreign offices 223,130 179,709 Interest-bearing deposits: In domestic offices 10,613,420 10,904,022 In foreign offices 18,621,045 19,253,456 ------------ ------------ Total deposits 32,429,439 33,219,759 Trading account liabilities 2,741,941 3,350,456 Short-term borrowings 6,525,422 4,441,210 Acceptances outstanding 45,391 37,465 Accounts payable and accrued expenses 919,772 940,129 Due to factored clients 669,222 589,263 Other liabilities (note 2) 156,222 166,649 Long-term debt 1,449,337 1,542,773 Subordinated long-term debt and perpetual capital notes 2,624,700 2,645,700 Company-obligated mandatorily redeemable preferred securities of subsidiary trusts holding solely junior subordinated debt securities 350,000 350,000 Stockholders' equity (notes 1 and 3): Cumulative preferred stock, no par value 7,501,250 shares outstanding in 1999 and 1998 500,000 500,000 Common stock, $5 par value 150,000,000 shares authorized; 104,798,914 shares issued in 1999 and 107,322,157 in 1998 523,995 536,611 Surplus 118,037 96,487 Retained earnings 2,496,221 2,373,147 Accumulated other comprehensive loss, net of taxes (282,977) (361,872) Common stock in treasury, at cost 1,788,706 shares in 1999 and - 55,905 shares in 1998 (87,069) (3,623) ------------ ------------ Total stockholders' equity 3,268,207 3,140,750 ------------ ------------ Total liabilities and stockholders' equity $ 51,179,653 $ 50,424,154 ============ ============ See accompanying notes to consolidated financial statements
-2- REPUBLIC NEW YORK CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME UNAUDITED (In thousands except per share data)
Six Months Ended Three Months Ended June 30, June 30, ----------------------- ----------------------- 1999 1998 1999 1998 ---------- ---------- ---------- ---------- Interest Income: Interest and fees on loans $ 509,888 $ 548,894 $ 261,695 $ 289,354 Interest on deposits with banks 74,931 146,310 32,663 77,785 Interest and dividends on investment securities: Taxable 689,175 785,322 343,185 386,210 Exempt from federal income taxes 36,509 42,816 17,994 20,030 Interest on trading account assets 35,173 44,147 18,250 25,380 Interest on federal funds sold and securities purchased under resale agreements 46,831 91,697 24,959 52,380 ---------- ---------- ---------- ---------- Total interest income 1,392,507 1,659,186 698,746 851,139 ---------- ---------- ---------- ---------- Interest Expense: Interest on deposits 581,490 749,258 286,304 368,459 Interest on short-term borrowings 150,813 228,740 76,014 137,618 Interest on long-term debt 131,685 152,552 65,208 76,708 ---------- ---------- ---------- ---------- Total interest expense 863,988 1,130,550 427,526 582,785 ---------- ---------- ---------- ---------- Net Interest Income 528,519 528,636 271,220 268,354 Provision for credit losses 8,000 8,000 4,000 4,000 ---------- ---------- ---------- ---------- Net interest income after provision for credit losses 520,519 520,636 267,220 264,354 ---------- ---------- ---------- ---------- Other Operating Income: Trading revenue (note 4) 109,728 83,601 37,425 43,463 Investment securities transactions, net 17,321 3,949 11,038 12,430 Loans sold or held for sale, net 82 3,504 239 (161) Commission income 50,432 48,168 24,647 24,210 Equity in earnings of affiliate 72,403 72,726 41,887 36,780 Other income (note 6) 109,813 54,964 90,062 27,594 ---------- ---------- ---------- ---------- Total other operating income 359,779 266,912 205,298 144,316 ---------- ---------- ---------- ---------- Other Operating Expenses: Salaries and employee benefits 303,099 266,649 157,554 133,818 Occupancy, net 36,660 37,007 17,810 18,115 Restructuring charge (note 5) 97,000 - - - Other expenses 187,763 191,472 96,309 91,453 ---------- ---------- ---------- ---------- Total other operating expenses 624,522 495,128 271,673 243,386 ---------- ---------- ---------- ---------- Income Before Income Taxes 255,776 292,420 200,845 165,284 Income taxes 66,148 56,109 57,719 46,447 ---------- ---------- ---------- ---------- Net Income $ 189,628 $ 236,311 $ 143,126 $ 118,837 ========== ========== ========== ========== Net Income Applicable to Common Stock - Diluted $ 176,780 $ 222,272 $ 136,669 $ 111,852 ========== ========== ========== ========== Net income per common share: Basic $ 1.71 $ 2.11 $ 1.33 $ 1.06 Diluted 1.69 2.08 1.31 1.05 Average common shares outstanding: Basic 102,929 104,795 102,541 104,691 Diluted 104,564 106,694 104,086 106,652 See accompanying notes to consolidated financial statements.
-3- REPUBLIC NEW YORK CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS UNAUDITED (In thousands)
Six Months Ended June 30, -------------------------- 1999 1998 ----------- ----------- Cash Flows From Operating Activities: Net income $ 189,628 $ 236,311 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization, net 56,578 54,220 Provision for trading and credit losses 12,000 8,000 Investment securities transactions, net (17,321) (3,949) Loans sold or held for sale, net (82) (3,504) Equity in earnings of affiliate (72,403) (72,726) Net change in precious metals 192,735 459,690 Net change in trading accounts (181,464) (846,518) Net change in accounts receivable and accrued interest 348,293 (5,945) Net change in accounts payable and accrued expenses (74,882) 123,613 Other, net (note 6) (194,807) (162,841) ----------- ----------- Net cash provided by (used in) operating activities 258,275 (213,649) ----------- ----------- Cash Flows From Investing Activities: Interest-bearing deposits with banks (1,435,707) (3,870,099) Federal funds sold and securities purchased under resale agreements (806,650) (49,106) Short-term investments 125,835 137,098 Purchases of securities held to maturity (34,899) (11,780) Proceeds from maturities of securities held to maturity 1,147,694 1,269,739 Purchases of securities available for sale (3,764,679) (5,193,725) Proceeds from sales of securities available for sale 1,454,195 1,498,454 Proceeds from maturities of securities available for sale 3,475,255 3,238,318 Loans (1,693,776) (2,117,366) Investment in affiliate 56,437 56,439 ----------- ----------- Net cash used in investing activities (1,476,295) (5,042,028) ----------- ----------- Cash Flows From Financing Activities: Deposits (789,852) 832,031 Short-term borrowings 2,084,212 4,600,800 Due to factored clients 79,959 45,350 Proceeds from issuance of long-term debt 346,127 508,683 Repayment of long-term debt (439,563) (439,986) Repurchase of subordinated long-term debt and perpetual capital notes (21,000) - Repurchase of common stock (39,495) (51,810) Purchase of treasury stock at cost (83,446) (3,576) Cash dividends paid (66,932) (65,827) Other, net 13,993 6,446 ----------- ----------- Net cash provided by financing activities 1,084,003 5,432,111 ----------- ----------- Effect of exchange rate changes on cash and due from banks (4,507) (11,374) ----------- ----------- Net (decrease) increase in cash and due from banks (138,524) 165,060 Cash and due from banks at beginning of period 1,040,290 901,783 ----------- ----------- Cash and due from banks at end of period $ 901,766 $ 1,066,843 =========== =========== Supplemental disclosures of cash flow information: Cash paid during the period for: Interest $ 842,694 $ 1,097,700 Income taxes 69,817 56,374 Transfers from securities available for sale to trading account assets - 222,890 See accompanying notes to consolidated financial statements.
-4- REPUBLIC NEW YORK CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY UNAUDITED (Dollars in thousands)
Six Months Ended June 30, -------------------------- 1999 1998 ----------- ----------- Cumulative Preferred Stock: Balance at beginning and end of period $ 500,000 $ 500,000 =========== =========== Common Stock: Balance at beginning of period $ 536,611 $ 543,543 Net issuance (cancellation) under stock option, restricted stock and restricted stock election plans of (1,654,940) shares in 1999 and 292,996 shares in 1998 (8,275) 1,465 Retirement of 868,303 shares in 1999 and 913,702 shares in 1998 (4,341) (4,569) ----------- ----------- Balance at end of period $ 523,995 $ 540,439 =========== =========== Surplus: Balance at beginning of period $ 96,487 $ 149,763 Net issuance (cancellation) of common stock under stock option, restricted stock and restricted stock election plans of (1,654,940) shares in 1999 and 292,996 shares in 1998 49,976 15,048 Treasury stock transactions of affiliate (505) 937 Deferred compensation 7,233 3,576 Retirement of 868,303 common shares in 1999 and 913,702 common shares in 1998 (35,154) (47,241) ----------- ----------- Balance at end of period $ 118,037 $ 122,083 =========== =========== Retained Earnings: Balance at beginning of period $ 2,373,147 $ 2,259,172 Net income 189,628 236,311 Dividends declared on common stock (53,823) (54,105) Dividends declared on issues of preferred stock (12,731) (13,175) ----------- ----------- Balance at end of period $ 2,496,221 $ 2,428,203 =========== =========== Accumulated Other Comprehensive Loss, Net of Taxes: Balance at beginning of period $ (361,872) $ (14,498) Net appreciation (depreciation) on securities available for sale 126,610 (71,232) Less: reclassification adjustment for gains included in net income 12,901 2,461 ----------- ----------- Net unrealized (depreciation) appreciation on securities available for sale 113,709 (73,693) Foreign currency translation (34,814) (13,127) ----------- ----------- Other comprehensive income (loss) 78,895 (86,820) ----------- ----------- Balance at end of period $ (282,977) $ (101,318) =========== =========== Common Stock in Treasury, at Cost: Balance at beginning of period $ (3,623) $ - Purchases of treasury stock at cost, 1,732,801 shares in 1999 and 54,970 shares in 1998 (83,446) (3,576) ----------- ----------- Balance at end of period $ (87,069) $ (3,576) =========== =========== Total Stockholders' Equity: Balance at beginning of period $ 3,140,750 $ 3,437,980 Net changes during the period 127,457 47,851 ----------- ----------- Balance at end of period $ 3,268,207 $ 3,485,831 =========== =========== Total Comprehensive Income, Net of Taxes: Net income $ 189,628 $ 236,311 Other comprehensive income (loss) 78,895 (86,820) ----------- ----------- Total comprehensive income, net of taxes $ 268,523 $ 149,491 =========== =========== See accompanying notes to consolidated financial statements
-5- REPUBLIC NEW YORK CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS COVERING THE SIX MONTHS ENDED JUNE 30, 1999 AND 1998 1. On May 10, 1999, the Corporation and Safra Republic Holdings S.A. ("SRH ") entered into a definitive agreement providing for (1) the merger of the Corporation with a wholly-owned subsidiary of HSBC Holdings plc ("HSBC") in which each outstanding share of the Corporation's common stock would be converted into the right to receive $72 in cash and (2) a tender offer for the outstanding common shares of SRH (other than those owned by the Corporation) at $72 in cash per common share or, at the shareholder's option, for all or any common shares tendered, an interest-bearing note of HSBC due 2010, equal to $72 per common share. Saban S.A., the principal stockholder of the Corporation, which is controlled by the Corporation's founder, Edmond J. Safra, has irrevocably undertaken to vote its 29% stockholding in the Corporation in favor of the merger and, in addition, to accept the cash tender offer in respect of its 20.8% stockholding in SRH. All outstanding preferred shares and public debt securities of each company will remain outstanding after these transactions. The consummation of the transactions are subject to a number of conditions, including approval by the Corporation's stockholders and regulatory approvals in various jurisdictions. The merger and tender offer are to close at the same time, which is expected to be in the fourth quarter of 1999. In connection with the merger, the Corporation has issued an option to HSBC, which would allow HSBC to purchase up to 19.9% of the outstanding common shares of the Corporation at $72 per common share in limited circumstances. 2. The following table sets forth the components of the aggregate allowance for credit losses at the dates indicated. June 30, December 31, June 30, (In thousands) 1999 1998 1998 -------- -------- -------- Credit losses $290,669 $293,952 $326,776 Trading accounts 17,485 13,516 14,857 Off balance-sheet credit commitments 7,216 5,818 10,000 -------- -------- -------- Aggregate allowance for credit losses $315,370 $313,286 $351,633 ======== ======== ======== The following table presents data related to the Corporation's aggregate allowance for credit losses for the six-month periods ended June 30, 1999 and 1998. 1999 1998 ----------- ----------- (In thousands) Aggregate balance at beginning of period $ 313,286 $ 353,481 Charge-offs (14,078) (13,841) Recoveries 5,387 4,475 ----------- ----------- Net charge-offs (8,691) (9,366) Provision for trading and credit losses 12,000 8,000 Translation adjustment (1,225) (482) ----------- ----------- Aggregate balance at end of period $ 315,370 $ 351,633 =========== =========== -6- REPUBLIC NEW YORK CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS COVERING THE SIX MONTHS ENDED JUNE 30, 1999 AND 1998 3. Common stock in treasury consists of the cost of shares of common stock of the Corporation which are held by a trust, established in connection with the Corporation's 1998 Long-Term Incentive Compensation Plan (the "Plan"), for the benefit of certain employees who have elected to invest a portion of their deferred restricted cash compensation in common stock of the Corporation. Pursuant to the Plan, at the end of the deferral period, the common stock will be delivered by the trust to the employee. See Footnote 1 for a discussion of the transaction described therein, as a result of which the common stock held by the Plan will be converted into cash at $72 per share. During the first six months of 1999, there was a net increase in shares held in treasury of 1,733,000 shares at a cost of approximately $83.4 million. 4. The following table presents information related to trading revenue for the periods indicated.
Six Months Ended Three Months Ended June 30, June 30, ---------------------- ---------------------- 1999 1998 1999 1998 --------- --------- --------- --------- (In thousands) Precious metals $ 2,054 $ 3,620 $ (2,239) $ 254 Foreign exchange 91,268 72,222 28,586 41,979 Trading account profits and commissions 20,406 7,759 11,078 1,230 Provision for trading credit losses (4,000) - - - --------- --------- --------- --------- Total trading revenue $ 109,728 $ 83,601 $ 37,425 $ 43,463 ========= ========= ========= =========
5. In the first quarter of 1999, the Corporation recorded a $97 million pre-tax restructuring charge, resulting from the Corporation's lines-of-business review and its plan to grow its core private banking and special niche businesses. The restructuring charge is related to workforce reductions, branch consolidations, outsourcing certain data processing functions and related network and communication operations and the decision to exit certain activities. The migration of the Corporation's data centers has been delayed at the recommendation of the outsourcer due to telecommunication constraints and will not occur until 2000. In addition to unfilled open positions being closed, approximately 450 employees, of which 270 are officer level employees, have been notified of their termination under the restructuring plan. The components of this charge are as follows: (In thousands) Salaries and employee benefits $ 53,800 Occupancy, net 7,900 Other expenses 35,300 --------------- Total restructuring charge $ 97,000 =============== The occupancy and other expenses in the table above include an aggregate of approximately $32 million related to outsourcing certain data processing functions and related network and communication operations. -7- REPUBLIC NEW YORK CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS COVERING THE SIX MONTHS ENDED JUNE 30, 1999 AND 1998 5. Continued The following table summarizes the accruals in the restructuring charge for the six-month period ended June 30, 1999: (In thousands) Restructuring charge $ 97,000 Payments (31,400) Non-cash writedowns (11,200) -------------- Ending accrual at June 30, 1999 $ 54,400 ============== 6. In the second quarter of 1999, the Corporation recorded a gain of $69.8 million, pre-tax, relating to its investment in the Canary Wharf Group and the completion of the Canary Wharf initial public offering in April 1999. The non-cash portion of this gain was $64.3 million. 7. The Corporation has strategically aligned its operations into five major business segments based on the needs of its clients and trading partners. The five major business segments are Private Banking, Consumer Financial Services, Lending, Global Treasury and Global Markets. As a result of the restructuring ("Reduction in Force") announced in the first quarter of 1999, the five major business segments were realigned and historical results have been adjusted to reflect this realignment. The Corporation manages these business segments using an internal profitability reporting system to measure independently each of the major segments by its net income. The information generated is not necessarily comparable with similar information for any other financial institution. The following tables present the summary results by segment for the three-month and six-month periods ended June 30, 1999 and 1998, respectively.
Three Months Ended June 30, 1999 -------------------------------------------------------------------------------- Consumer Private Financial Global Global (In millions) Banking Services Lending Treasury Markets Other Total -------------------------------------------------------------------------------- Net interest income $ 16.5 $ 91.7 $ 70.0 $ 86.5 $ 10.3 $ (3.8) $ 271.2 Other income 59.7 13.3 9.7 77.3 44.0 1.3 205.3 Revenue sharing 3.8 4.3 0.2 (5.0) (5.0) 1.7 - Income taxes 9.6 10.2 8.4 34.7 3.5 (8.7) 57.7 Net income (loss) 32.2 18.8 15.6 86.2 6.4 (16.1) 143.1 Average assets $ 2,681 $ 955 $ 10,038 $ 32,751 $ 4,469 $ (3,338) $ 47,556 ================================================================================
-8- REPUBLIC NEW YORK CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS COVERING THE SIX MONTHS ENDED JUNE 30, 1999 AND 1998 7. Continued
Three Months Ended June 30, 1998 -------------------------------------------------------------------------------- Consumer Private Financial Global Global (In millions) Banking Services Lending Treasury Markets Other Total -------------------------------------------------------------------------------- Net interest income $ 16.1 $ 88.5 $ 61.4 $ 73.4 $ 16.3 $ 12.7 $ 268.4 Other income 55.2 13.5 16.8 15.1 42.5 1.2 144.3 Revenue sharing 3.0 2.1 0.1 (3.6) (1.6) - - Income taxes 10.3 12.7 8.7 11.1 8.3 (4.7) 46.4 Net income 29.6 15.4 16.2 38.4 15.4 3.8 118.8 Average assets $ 2,684 $ 845 $ 11,036 $ 38,103 $ 8,724 $ (4,962) $ 56,430 ================================================================================ Six Months Ended June 30, 1999 ------------------------------------------------------------------------------- Consumer Private Financial Global Global (In millions) Banking Services Lending Treasury Markets Other Total ------------------------------------------------------------------------------- Net interest income $ 35.8 $182.5 $ 133.4 $ 182.4 $ 33.7 $ (39.3) $ 528.5 Other income 106.9 27.6 22.7 88.0 111.8 2.8 359.8 Revenue sharing 7.2 8.2 0.2 (9.4) (8.0) 1.8 - Restructuring charge - - - - - 97.0 97.0 Income taxes 18.7 17.8 14.5 49.1 15.7 (49.7) 66.1 Net income (loss) 56.5 41.7 27.1 128.6 27.4 (91.7) 189.6 Average assets $ 2,719 $ 942 $ 9,952 $ 32,674 $ 4,816 $ (3,373) $ 47,730 =============================================================================== Six Months Ended June 30, 1998 -------------------------------------------------------------------------------- Consumer Private Financial Global Global (In millions) Banking Services Lending Treasury Markets Other Total -------------------------------------------------------------------------------- Net interest income $ 29.1 $170.4 $ 119.3 $ 148.0 $ 38.3 $ 23.5 $ 528.6 Other income 115.4 25.7 33.4 13.9 77.7 0.8 266.9 Revenue sharing 5.4 4.0 0.2 (5.4) (4.2) - - Income taxes 21.8 22.6 16.2 (7.2) 13.9 (11.2) 56.1 Net income 59.5 28.4 30.1 91.0 25.8 1.5 236.3 Average assets $ 2,766 $ 834 $ 10,600 $ 37,769 $ 8,668 $ (4,954) $ 55,683 ================================================================================
8. Certain amounts from the prior year have been reclassified to conform with 1999 classifications. -9- ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS Management's discussion and analysis of the summary of operations should be read in conjunction with the consolidated financial statements (unaudited) and notes shown elsewhere in this Report. In the following discussion, the interest income earned on tax exempt obligations has been adjusted (increased) to a fully-taxable equivalent basis. The rate used for this adjustment was approximately 43% in 1999 and 1998. This tax equivalent adjustment permits all interest income and net interest income to be analyzed on a comparable basis. The following tables present a comparative summary of the results of operations for the three months and six months ended June 30, 1999, compared to the corresponding periods in 1998 and the increases (decreases) in income and expense between such periods. Increase (Decrease) ------------------- Three Months Ended 2nd Qtr. 1999 vs. June 30, 2nd Qtr. 1998 --------------------- ------------------- 1999 1998 Amount Percent --------- --------- --------- ------- (Dollars in thousands) Interest income $ 704,857 $ 857,900 $(153,043) (17.8) Interest expense 427,526 582,785 (155,259) (26.6) --------- --------- -------- Net interest income 277,331 275,115 2,216 0.8 Provision for credit losses 4,000 4,000 - - --------- --------- -------- Net interest income after provision for credit losses 273,331 271,115 2,216 0.8 Other operating income 205,298 144,316 60,982 42.3 Other operating expenses 271,673 243,386 28,287 11.6 --------- --------- -------- Income before income taxes 206,956 172,045 34,911 20.3 --------- --------- -------- Applicable income taxes 57,719 46,447 11,272 24.3 Tax equivalent adjustment 6,111 6,761 (650) (9.6) --------- --------- -------- Total applicable income taxes 63,830 53,208 10,622 20.0 --------- --------- -------- Net income $ 143,126 $ 118,837 $ 24,289 20.4 ========= ========= ========= ==== Net income applicable to common stock - diluted $ 136,669 $ 111,852 $ 24,817 22.2 ========= ========= ========= ==== -10- Increase (Decrease) ------------------- Six Months Ended Six Months 1999 vs. June 30, Six Months 1998 ----------------------- ------------------- 1999 1998 Amount Percent ----------- ---------- ----------- ------- (Dollars in thousands) Interest income $ 1,404,940 $1,673,892 $ (268,952) (16.1) Interest expense 863,988 1,130,550 (266,562) (23.6) ----------- ---------- ----------- Net interest income 540,952 543,342 (2,390) (0.4) Provision for credit losses 8,000 8,000 - - ----------- ---------- ----------- Net interest income after provision for credit losses 532,952 535,342 (2,390) (0.4) Other operating income 359,779 266,912 92,867 34.8 Other operating expenses 624,522 495,128 129,394 26.1 ----------- ---------- ----------- Income before income taxes 268,209 307,126 (38,917) (12.7) ----------- ---------- ----------- Applicable income taxes 66,148 56,109 10,039 17.9 Tax equivalent adjustment 12,433 14,706 (2,273) (15.5) ----------- ---------- ----------- Total applicable income taxes 78,581 70,815 7,766 11.0 ----------- ---------- ----------- Net income $ 189,628 $ 236,311 $ (46,683) (19.8) =========== ========== =========== ==== Net income applicable to common stock - diluted $ 176,780 $ 222,272 $ (45,492) 20.5) =========== ========== =========== ==== NET INTEREST INCOME - on a fully-taxable equivalent basis was $277.3 million in the second quarter of 1999, compared to $275.1 million in the second quarter of 1998. As shown in the table on page 12, the net interest rate differential rose to 2.60% in the second quarter of 1999 compared to 2.30% in the second quarter of 1998, which reflected reductions in higher cost short-term liabilities and a corresponding decline in interest-bearing deposits with banks, investment securities and federal funds. Average interest-earning assets were $42.7 billion in the second quarter of 1999, compared to $48.0 billion in the second quarter of 1998. In the second quarter of 1999, $3.0 million of past-due interest was received on previously written down Russian obligations and $5.2 million of mortgage prepayment penalty income was recorded. The second quarter of 1998 reflected $8.9 million of additional earnings on the repayment of an international loan. Premium amortization attributable to prepayments on mortgage-backed securities was $17.2 million in the second quarter of 1999, compared to $25.7 million in the second quarter of 1998. Net interest income on a fully-taxable equivalent basis was $541.0 million in the first six months of 1999, compared to $543.3 million in the comparable period of 1998. As shown in the table on page 13, the net interest rate differential was 2.56% for the first six months of 1999, compared to 2.33% in the six-month period of 1998. Average interest-earning assets were $42.6 billion for the first six months of 1999, compared to $47.0 billion for the corresponding period of 1998. The decline in average interest-earning assets and the increase in net interest rate differential for the six month period of 1999 compared to the six month period of 1998, were attributable to the same factors that contributed to these changes in the second quarter of 1999. -11- AVERAGE BALANCES, NET INTEREST DIFFERENTIAL, AVERAGE RATES EARNED AND PAID UNAUDITED (Fully taxable equivalent basis) (Dollars in thousands)
Three Months Ended June 30, ------------------------------------------------------------------------------------------ 1999 1998 ------------------------------------------- -------------------------------------------- Average Average Interest Rates Interest Rates Average Income/ Earned/ Average Income/ Earned/ Balance Expense Paid % Balance Expense Paid % ------------ --------- ---------- ----------- --------- ---------- Interest-earning assets: Interest-bearing deposits with banks $2,894,968 $ 32,663 4.53 $ 4,900,070 $ 77,785 6.37 Investment securities (1): Taxable 20,996,437 343,185 6.56 23,061,629 386,210 6.72 Exempt from federal income taxes 1,330,929 24,105 7.26 1,359,317 26,791 7.91 ------------ --------- ----------- --------- Total investment securities 22,327,366 367,290 6.60 24,420,946 413,001 6.78 Trading account assets (2) 1,241,788 18,250 5.89 1,256,439 25,380 8.10 Federal funds sold and securities purchased under resale agreements 2,057,333 24,959 4.87 3,789,488 52,380 5.54 Loans, net of unearned income: Domestic offices 10,461,297 189,887 7.28 9,683,560 200,490 8.30 Foreign offices 3,755,721 71,808 7.67 3,989,617 88,864 8.93 ------------ --------- ----------- --------- Total loans, net of unearned income 14,217,018 261,695 7.38 13,673,177 289,354 8.49 ------------ --------- ----------- --------- Total interest-earning assets 42,738,473 $ 704,857 6.61 48,040,120 $ 857,900 7.16 ========= ==== ========= ==== Cash and due from banks 918,170 896,245 Other assets 3,898,983 7,493,606 ------------ ----------- Total assets $ 47,555,626 $56,429,971 ============ =========== Interest-bearing funds: Consumer and other time deposits $9,982,356 $ 80,164 3.22 $10,507,775 $ 99,927 3.81 Certificates of deposit 654,344 6,564 4.02 1,281,931 16,293 5.10 Deposits in foreign offices 15,858,709 199,576 5.05 17,211,301 252,239 5.88 ------------ --------- ----------- --------- Total interest-bearing deposits 26,495,409 286,304 4.33 29,001,007 368,459 5.10 Trading account liabilities (2) 318,465 594 0.75 408,373 5,918 5.81 Short-term borrowings 6,596,960 75,420 4.59 10,114,149 131,700 5.22 Total long-term debt 4,345,990 65,208 6.02 4,764,732 76,708 6.46 ------------ --------- ----------- --------- Total interest-bearing funds 37,756,824 $ 427,526 4.54 44,288,261 $ 582,785 5.28 ========= ==== ========= ==== Noninterest-bearing deposits: In domestic offices 2,918,842 2,613,450 In foreign offices 204,607 246,061 Other liabilities 3,388,111 5,745,263 Stockholders' equity: Preferred stock 500,000 500,000 Common stockholders' equity 2,787,242 3,036,936 ------------ ------------ Total stockholders' equity 3,287,242 3,536,936 ------------ ------------ Total liabilities and stockholders' equity $ 47,555,626 $ 56,429,971 ============ ============ Interest income/earning assets $ 704,857 6.61 $ 857,900 7.16 Interest expense/earning assets 427,526 4.01 582,785 4.86 --------- ---- --------- ---- Net interest differential $ 277,331 2.60 $ 275,115 2.30 ========= ==== ========= ==== (1) Based on amortized or historic cost with the mark-to-market adjustment on securities available for sale included in other assets. (2) Excludes noninterest-bearing balances, which are included in other assets or other liabilities, respectively.
-12- AVERAGE BALANCES, NET INTEREST DIFFERENTIAL, AVERAGE RATES EARNED AND PAID UNAUDITED (Fully taxable equivalent basis) (Dollars in thousands)
Six Months Ended June 30, -------------------------------------------------------------------------------- 1999 1998 --------------------------------------- -------------------------------------- Average Average Interest Rates Interest Rates Average Income/ Earned/ Average Income/ Earned/ Balance Expense Paid % Balance Expense Paid % ------------ ----------- -------- ----------- ----------- -------- Interest-earning assets: Interest-bearing deposits with banks $ 2,934,883 $ 74,931 5.15 $ 4,552,310 $ 146,310 6.48 Investment securities (1): Taxable 21,254,349 689,175 6.54 23,217,833 785,322 6.82 Exempt from federal income taxes 1,332,045 48,942 7.41 1,457,550 57,522 7.96 ------------ ---------- ----------- ---------- Total investment securities 22,586,394 738,117 6.59 24,675,383 842,844 6.89 Trading account assets (2) 1,239,247 35,173 5.72 1,133,182 44,147 7.86 Federal funds sold and securities purchased under resale agreements 1,949,443 46,831 4.84 3,328,292 91,697 5.56 Loans, net of unearned income: Domestic offices 10,253,328 374,291 7.36 9,286,899 383,880 8.34 Foreign offices 3,652,525 135,597 7.49 3,975,497 165,014 8.37 ------------ ---------- ----------- ---------- Total loans, net of unearned income 13,905,853 509,888 7.39 13,262,396 548,894 8.35 ------------ ---------- ----------- ---------- Total interest-earning assets 42,615,820 $1,404,940 6.65 46,951,563 $1,673,892 7.19 ========== ==== ========== ==== Cash and due from banks 931,733 847,726 Other assets 4,182,264 7,883,968 ------------ ----------- Total assets $ 47,729,817 $55,683,257 ============ =========== Interest-bearing funds: Consumer and other time deposits $ 10,041,231 $ 162,446 3.26 $10,532,463 $ 203,623 3.90 Certificates of deposit 710,861 14,861 4.22 1,410,929 35,926 5.13 Deposits in foreign offices 15,881,737 404,183 5.13 17,546,361 509,709 5.86 ------------ ---------- ----------- ---------- Total interest-bearing deposits 26,633,829 581,490 4.40 29,489,753 749,258 5.12 Trading account liabilities (2) 350,710 1,489 0.86 394,711 8,850 4.52 Short-term borrowings 6,501,575 149,324 4.63 8,469,768 219,890 5.24 Total long-term debt 4,404,588 131,685 6.03 4,753,623 152,552 6.47 ------------ ---------- ----------- ---------- Total interest-bearing funds 37,890,702 $ 863,988 4.60 43,107,855 $1,130,550 5.29 ========== ==== ========== ==== Noninterest-bearing deposits: In domestic offices 2,881,364 2,602,652 In foreign offices 217,183 257,654 Other liabilities 3,559,557 6,219,883 Stockholders' equity: Preferred stock 500,000 500,000 Common stockholders' equity 2,681,011 2,995,213 ------------ ----------- Total stockholders' equity 3,181,011 3,495,213 ------------ ----------- Total liabilities and stockholders' equity $ 47,729,817 $55,683,257 ============ =========== Interest income/earning assets $1,404,940 6.65 $1,673,892 7.19 Interest expense/earning assets 863,988 4.09 1,130,550 4.86 ---------- ---- ---------- ---- Net interest differential $ 540,952 2.56 $ 543,342 2.33 ========== ==== ========== ==== (1) Based on amortized or historic cost with the mark-to-market adjustment on securities available for sale included in other assets. (2) Excludes noninterest-bearing balances, which are included in other assets or other liabilities, respectively.
-13- PROVISION FOR TRADING AND CREDIT LOSSES - The aggregate provisions of $4.0 million in the second quarters of 1999 and 1998 were related to credit losses. The aggregate provision for the first six months of 1999 was $12.0 million which consisted of $8.0 million related to credit losses and $4.0 million related to trading credit losses which is reflected in trading revenue. The aggregate provision of $8.0 million in the six-month period in 1998, related to credit losses. Net charge-offs were $4.6 million in the second quarter of 1999, compared to $3.9 million in the second quarter of 1998. For the first six months of 1999, net charge-offs were $8.7 million compared to net charge-offs of $9.4 million for the six-month period of 1998. See Note 2 of notes to consolidated financial statements for additional information related to the aggregate allowance for credit losses and net charge-offs. The following table presents summary data related to non-accrual loans and other non-performing assets at periods ended: June 30, March 31, Dec. 31, (in thousands) 1999 1999 1998 ------- ------- ------- Non-accrual loans: Domestic $49,832 $78,378 $73,257 Foreign 8,162 8,211 7,597 ------- ------- ------- Total non-accrual loans 57,994 86,589 80,854 Other assets and real estate owned 10,785 7,374 12,297 ------- ------- ------- Total non-performing assets $68,779 $93,963 $93,151 ======= ======= ======= Non-accrual loans as a percentage of loans outstanding at period end 0.41% 0.62% 0.59% ======= ======= ======= Total non-performing assets as a percentage of period end total assets 0.13% 0.19% 0.18% ======= ======= ======= OTHER OPERATING INCOME - was $205.3 million in the second quarter of 1999, which included a gain on a real estate investment of $69.8 million discussed below, compared to $144.3 million in the second quarter of 1998. For the first six months of 1999, such income was $359.8 million, compared to $266.9 million in the corresponding period of 1998. Total trading revenue, including associated net interest income, which is reported as net interest income, was $56.5 million in the second quarter of 1999, compared to $63.7 million in the second quarter of 1998. The second quarter to second quarter change reflected increased trading account profits and commissions which were more than offset by declines in precious metals and foreign exchange trading income. For the six-month period ended June 30, 1999, such revenue amounted to $146.5 million, compared to $129.6 million in the corresponding period of 1998. Trading net interest income, which was primarily attributable to precious metals and trading account activities, was $19.1 million and $36.8 million, respectively, in the second quarter and first six months of 1999 compared to $20.2 million and $46.0 million in the corresponding periods of 1998. The items of net interest income/(expense) in the following table represent the net interest earned or paid on instruments held for trading, as well as an allocation by management to reflect the funding benefit or cost associated with the trading positions. -14
Three Months Ended Six Months Ended June 30, June 30, ---------------------- ---------------------- 1999 1998 1999 1998 --------- --------- --------- --------- (In thousands) Precious metals: Trading revenue (loss) $ (2,239) $ 254 $ 2,054 $ 3,620 Net interest income 15,096 16,516 30,552 35,438 --------- --------- --------- --------- Total 12,857 16,770 32,606 39,058 --------- --------- --------- --------- Foreign exchange: Trading revenue 28,586 41,979 91,268 72,222 Net interest expense (1,268) (2,213) (2,507) (2,831) --------- ---------- --------- --------- Total 27,318 39,766 88,761 69,391 --------- ---------- --------- --------- Trading account profits and commissions: Trading revenue 11,078 1,230 20,406 7,759 Net interest income 5,282 5,903 8,767 13,422 --------- --------- --------- --------- Total 16,360 7,133 29,173 21,181 --------- --------- --------- --------- Provision for trading credit losses - - (4,000) - --------- --------- --------- --------- Total: Trading revenue 37,425 43,463 109,728 83,601 Net interest income 19,110 20,206 36,812 46,029 --------- --------- --------- --------- Total $ 56,535 $ 63,669 $ 146,540 $ 129,630 ========= ========= ========= =========
Investment securities transactions resulted in net gains of $11.0 million in the second quarter of 1999, compared to net gains of $12.4 million in the second quarter of 1998. The net gains in the second quarter of 1999 were realized from the repayment and sales of Russian securities. For the first six months of 1999, net gains were $17.3 million compared to $3.9 million in the first six months of 1998. The net gains for the first six months of 1999 were primarily from the repayment and sales of Russian securities and sales of Brazilian securities. Loans sold or held for sale, net resulted in gains of $0.2 million in the second quarter of 1999, compared to a loss of $0.2 million in the second quarter of 1998. For the six-month period of 1999, such gain amounted to $0.1 million compared to $3.5 million in the corresponding period of 1998. Commission income consists primarily of securities brokerage commissions, fees for the issuance of banker acceptances and letters of credit and retail services. Such income was $24.6 million in the second quarter of 1999, compared to $24.2 million in the second quarter of 1998. For the first six months of 1999, commission income amounted to $50.4 million compared to $48.2 million for the six-month period of 1998. -15- Equity in the earnings of affiliate was $41.9 million in the second quarter of 1999, compared to $36.8 million in the second quarter of 1998. This income represents the Corporation's share of the earnings of Safra Republic Holdings S.A. ("SRH"), a European international private banking group of which the Corporation owns approximately 49%. The second quarter to second quarter increase reflects a $34.8 million pre-tax gain related to SRH's investment in the Canary Wharf Group and the completion of the Canary Wharf initial public offering in April 1999. The effect of the gain was partially offset by $4.0 million of merger-related expenses and $4.5 million for professional fees and employee benefits. SRH's total client account assets, both on-and off-balance sheet, increased to $33.9 billion at June 30, 1999 from $32.1 billion at June 30, 1998. This change consisted of increases of $1.4 billion in client portfolio assets and $0.4 billion in client deposits. For the six-month period of 1999, equity in the earnings of SRH was $72.4 million, compared to $72.7 million for the six-month period of last year. Other income was $90.1 million in the second quarter of 1999, which included the $69.8 million gain relating to an investment in the Canary Wharf Group and the completion of the Canary Wharf initial public offering, compared to $27.6 million in the second quarter of 1998, which included a gain of $4.4 million related to sales of real estate. The consumer financial services group and the private banking group generate fee income through service charges to clients for deposit accounts and trust and securities activities. Other income included revenues from these activities of $17.0 million in the second quarter of 1999, compared to $16.4 million in the second quarter of 1998 and $33.4 million for the six months of 1999, compared to $32.0 million for the six months of 1998. Other income for the six-month periods ended June 30, 1999 and 1998 was $109.8 million and $55.0 million, respectively. OTHER OPERATING EXPENSES - were $251.4 million in the second quarter of 1999, excluding merger related executive pension and incentive accruals and certain other merger-related expenses in the aggregate amount of $20.3 million further discussed below, compared to $243.4 in the second quarter of 1998. For the first six months of 1999, other operating expenses were $500.2 million, excluding restructuring and one-time special charges of $104.0 million discussed below and the $20.3 million mentioned above, compared to $495.1 million in the corresponding period of 1998. Year 2000 expenses for the second quarter and first six months of 1999 were $3.5 million and $8.2 million, respectively, compared to $8.6 million and $27.5 million, respectively, for the corresponding periods of 1998. Salaries and employee benefits were $141.1 million in the second quarter of 1999, excluding a charge of $16.5 million related to the implementation of a Supplemental Executive Retirement Plan to retain the services of certain executive officers, compared to $133.8 million in the second quarter of 1998. For the six months of 1999, salaries and employee benefits were $280.8 million, excluding $22.3 million of executive pension and incentive accruals, and one-time special charges, compared to $266.6 million for the six months of 1998. The increases for both the second quarter and six-month periods of 1999, when compared to 1998 were due to higher levels of incentive compensation accruals. Occupancy expense was $17.8 million in the second quarter of 1999 and $36.7 million for the six-month period of 1999, compared to $18.1 million and $37.0 million in the corresponding periods of 1998. -16- All other expenses were $89.0 million in the second quarter and $175.2 million in the first six months of 1999, compared to $83.9 million and $166.0 million in the corresponding periods of 1998. The respective totals exclude $7.3 million in the second quarter of 1999, $7.6 million in the second quarter of 1998, $12.6 million in the first six months of 1999 and $25.5 million in the first six months of 1998 of merger-related professional fees, one-time special charges and Year 2000 expenses. Amortization of goodwill and other intangible assets was $6.8 million in the second quarter of 1999, compared to $6.7 million in the second quarter of last year. TOTAL APPLICABLE INCOME TAXES - have been adjusted (increased) to reflect the inclusion of interest income on tax exempt obligations as if they were subject to federal, state and local taxes, after giving effect to the deductibility of state and local taxes for federal income tax purposes. Total applicable income taxes increased $10.6 million in the second quarter of 1999 and $7.8 million during the first six months of 1999 when compared to the corresponding periods of 1998. The effective tax rates, total applicable income taxes as a percentage of income before income taxes, were 31% for the second quarter and 29% for the six-month period of 1999, compared to 31% and 23%, respectively, in the corresponding periods of last year. The effective tax rate for the six-month period of 1998 reflected the reversal of certain tax liabilities accrued in prior years. Lines-of-Business The Corporation's operation's are organized into five major business segments: Private Banking, Consumer Financial Services, Lending, Global Treasury and Global Markets. As a result of the Reduction in Force announced in the first quarter of 1999, the five major business segments were realigned and historical results have been adjusted to reflect this realignment. The following table presents the results by segment for the three-month periods ended June 30, 1999 and 1998.
Three Months Ended June 30, 1999 ---------------------------------------------------------------------------------------- Consumer Private Financial Global Global Banking Services Lending Treasury Markets Other Total ---------- ---------- ---------- ---------- ---------- ---------- ---------- (Dollars in millions) Net income (loss) $ 32.2 $ 18.8 $ 15.6 $ 86.2 $ 6.4 $ (16.1) $ 143.1 Average assets 2,681 955 10,038 32,751 4,469 (3,338) 47,556 Average liabilities and preferred stock 8,552 11,167 8,120 12,278 5,614 (963) 44,768 Average risk-adjusted equity 571 411 341 1,246 215 3 2,787 Efficiency ratio 47% 72% 58% 21% 81% - 57% Return on average risk- adjusted equity 22.6% 18.3% 18.4% 25.7% 12.0% - 19.7% Three Months Ended June 30, 1998 ---------------------------------------------------------------------------------------- Consumer Private Financial Global Global Banking Services Lending Treasury Markets Other Total ---------- ---------- ---------- ---------- ---------- ---------- ---------- (Dollars in millions) Net income $ 29.6 $ 15.4 $ 16.2 $ 38.4 $ 15.4 $ 3.8 $ 118.8 Average assets 2,684 845 11,036 38,103 8,724 (4,962) 56,430 Average liabilities and preferred stock 10,955 11,607 8,513 17,014 11,842 (6,538) 53,393 Average risk-adjusted equity 563 428 368 1,403 275 - 3,037 Efficiency ratio 45% 72% 58% 40% 57% - 59% Return on average risk- adjusted equity 21.1% 14.4% 17.7% 9.0% 22.4% - 14.8%
-17- The variances in net income between the second quarter of 1999 and the same quarter in 1998 are described below. Private Banking had net income of $32.2 million in the second quarter of 1999, compared to $29.6 million in the second quarter of 1998. The increase in net income of $2.6 million related to an increase in the equity earnings of SRH, which included a gain related to SRH's investment in the Canary Wharf Group that was partially offset by merger-related expenses, professional fees and employee benefits and decreases in income from the Asian Private Banking group attributable to higher levels of expenses related to new staff hirings and lower earnings. The Private Banking segment had an increase in total private client account assets, both on-and-off balance sheet, to $25.3 billion at June 30, 1999 from $20.9 billion at June 30, 1998. Consumer Financial Services had net income of $18.8 million for the second quarter of 1999, compared to $15.4 million for the second quarter of 1998. The $3.4 million increase in net income resulted from higher fees and commissions, earnings on funds employed and improvement in consumer lending. Lending had net income of $15.6 million for the second quarter of 1999, compared to $16.2 million in the second quarter of 1998. The markets where the Corporation's lending units compete continue to be highly competitive with respect to transactions that meet our credit risk requirements with the proper returns. Global Treasury had net income of $86.2 million for the second quarter of 1999, compared to $38.4 million in the second quarter of 1998, an increase of $47.8 million. This increase resulted primarily from the gain of $69.8 million on the Corporation's investment in the Canary Wharf Group. Interest totaling $3.0 million was received on previously written down Russian obligations in the second quarter of 1999. Global Markets had net income of $6.4 million in the second quarter of 1999, compared to $15.4 million in the second quarter of 1998. The decrease of $9.0 million is attributable to foreign exchange and precious metals trading activities, which was partially offset by an increase in trading account profits and commissions. Other had a net loss of ($16.1) million in the second quarter of 1999, compared to net income of $3.8 million in the second quarter of 1998. This decline includes intercompany eliminations in 1999 that are being segregated from the lines of business and the residual effects of unallocated administrative expenses, such as merger-related expenses, which amounted to $20.3 million. The decline was partially offset by a reduction in Year 2000 expenses which amounted to $4.0 million in the second quarter of 1999, compared to $9.9 million in the second quarter of 1998. -18- The following table presents the results by segment for the six-month periods ended June 30, 1999 and 1998.
Six Months Ended June 30, 1999 ---------------------------------------------------------------------------------------- Consumer Private Financial Global Global Banking Services Lending Treasury Markets Other Total ---------- ---------- ---------- ---------- ---------- ---------- ---------- (Dollars in millions) Net income $ 56.5 $ 41.7 $ 27.1 $ 128.6 $ 27.4 $ (91.7) $ 189.6 Average assets 2,719 942 9,952 32,674 4,816 (3,373) 47,730 Average liabilities and preferred stock 8,627 11,260 8,144 12,500 6,049 (1,531) 45,049 Average risk-adjusted equity 560 412 345 1,142 220 2 2,681 Efficiency ratio 49% 71% 62% 30% 69% - 70% Return on average risk- adjusted equity 20.4% 20.4% 15.9% 20.4% 25.2% - 13.3% Six Months Ended June 30, 1998 ---------------------------------------------------------------------------------------- Consumer Private Financial Global Global Banking Services Lending Treasury Markets Other Total ---------- ---------- ---------- ---------- ---------- ---------- ---------- (Dollars in millions) Net income $ 59.5 $ 28.4 $ 30.1 $ 91.0 $ 25.8 $ 1.5 $ 236.3 Average assets 2,766 834 10,600 37,769 8,668 (4,954) 55,683 Average liabilities and preferred stock 10,963 11,622 8,487 16,597 11,729 (6,710) 52,688 Average risk-adjusted equity 557 424 376 1,370 268 - 2,995 Efficiency ratio 45% 74% 59% 45% 63% - 62% Return on average risk- adjusted equity 21.6% 13.5% 16.2% 11.3% 19.4% - 15.0%
The variances in net income between the six months ended June 30, 1999 and the same period in 1998 are described below. Private Banking had net income of $56.5 million for the six months ended June 30, 1999, compared to $59.5 million in 1998. The decrease of $3.1 million reflects $7.8 million of one-time incentive management fees which were included in the first six months of 1998 from Safra Republic Investments Limited and by decreases in Asian Private Banking income due to expenses related to new staff hirings and lower earnings. Total private client account assets, both on-and-off balance sheet, for the Private Banking segment increased to $25.3 billion at June 30, 1999 from $20.9 billion at June 30, 1998. Consumer Financial Services had net income of $41.7 million for the six months ended June 30, 1999, compared to $28.4 million in the corresponding period of 1998. The increase of $13.3 million for the six months of 1999, resulted from higher fees and commissions, particularly from Republic Financial Services, earnings on funds employed and improvement in consumer lending. Republic launched its Internet Banking product during the first quarter of 1999. This product offers customers the same account access, funds transfer, and bill payment capabilities already offered in the PC Banking product, but now allows them access to these services from any computer connected to the internet. In the second quarter of 1999, Republic successfully introduced Webloan, a innovative new internet-based system that allows its mortgage brokers, sales executives and retail outlets to prequalify quickly a prospect for a mortgage loan from the point of sale, significantly reducing loan origination time. -19- Lending had net income of $27.1 million for the six months ended June 30, 1999, compared to $30.1 million for the six months ended June 30, 1998. This decrease of $3.0 million reflects a decline in commercial real estate due to one-time prepayment penalties and OREO sales in 1998, partially offset by improvements in RNB Mexico. Global Treasury had net income of $128.6 for the six months ended June 30, 1999, compared to $91.0 million for the six-month period of 1998. This increase of $37.6 million primarily reflects a gain of $69.8 million on the Republic's investment in the Canary Wharf Group in the second quarter of 1999. Interest totaling $6.1 million for previously written down Russian obligations was received during the six months ended June 30, 1999. These increases were partially offset by the effects of reducing the Corporation's exposure to emerging markets and competitive market conditions. Global Markets had net income of $27.4 million for the six months ended June 30, 1999, compared to $25.8 million in the six-month period of 1998. Other had a net (loss) of ($91.7) million for the six months ended June 30, 1999, compared to net income of $1.4 million for the six-month period in 1998. The decrease of $93.1 million reflects the restructuring charge of $97 million in the first quarter of 1999, and intercompany eliminations being segregated from the lines of business in 1999 and the residual effects of unallocated activities, including merger-related costs of $20.3 million offset by a decline in Year 2000 costs which were $9.3 million for the six-month period of 1999 and $20.0 million for the six-month period of 1998. STATEMENT OF CONDITION CAPITAL RATIOS The Corporation's leverage ratio, Tier 1 capital to quarterly average assets, and its risk-based capital ratios, Tier 1 and total qualifying capital to risk-weighted assets, include the assets and capital of Safra Republic on a consolidated basis in accordance with the requirements of the Federal Reserve Board (the "FRB") specifically applied to the Corporation. These ratios do not reflect the effect on stockholders' equity related to the FASB 115 valuation of the Corporation's portfolio of securities available for sale which is included in accumulated other comprehensive loss, net of taxes. The following table presents the Corporation's risk-based capital ratios: June 30, Dec. 31, 1999 1998 -------- ------- Risk-based capital ratios: Tier 1 risk-based capital ratio 13.27% 13.95% Total risk-based capital ratio 21.61% 22.99% Leverage ratio 6.73% 6.51% Common stockholders' equity/total assets 5.41% 5.24% CROSS-BORDER EXPOSURE The following table presents information on the Corporation's cross-border exposure to Latin American countries at the dates indicated: -20- Net Cross-border Outstandings at (1) ----------------------------------- (In millions) June 30, 1999 Dec. 31, 1998 ---------------- ---------------- Brazil $459(2) $720(2) Mexico 264 350 Argentina 257 279 Venezuela 93 153 Chile 67 65 (1) Net cross-border outstandings include foreign office local country claims on local residents less local country liabilities. (2) Net outstandings before the FASB 115 appreciation adjustment of $3 million at June 30, 1999 and depreciation adjustment of $17 million at December 31, 1998, exclude $636 million at June 30, 1999 and $653 million at December 31, 1998 of sovereign risk assets, funded with U.S. dollars where the providers of funds agree that, in the event their claims cannot be repaid in the designated currency due to sovereign default or currency exchange restrictions in a given country, they will wait to receive the non-local currency until such time as such default is cured or the currency restrictions are removed or such currency becomes available in the local market; under limited circumstances, the providers may receive either local currency or local market debt instruments. Also excluded are net outstandings of approximately $150 million at June 30, 1999 and $147 million at December 31, 1998, which represent the Corporation's share of SRH's net exposure. The Corporation's Latin American exposure consists primarily of sovereign securities. The mark-to-market value of these securities is fully reflected, after tax benefit, as an adjustment to stockholders' equity through accumulated other comprehensive loss. RISK ELEMENTS Year 2000 Risk STATE OF READINESS SCOPE OF PROGRAM - The Corporation continues to manage the risks arising from the Year 2000 date change ("Year 2000 Risk") through its Ready 2000 Program Management Office ("PMO"). The Ready 2000 Program covers both information technology ("IT") applications and non-information technology ("non-IT") applications. PROGRAM DESCRIPTION - As the process of certifying its various applications is essentially complete, the Corporation is focusing its attention on other aspects of its Ready 2000 program. These include the continued monitoring of Year 2000 Risk posed by third parties, managing its "clean management" program and testing its business resumption contingency plans. The Corporation is also finalizing the procedures that will enable it to monitor the Corporation's operations on a centralized basis on and after January 1, 2000 and thereby quickly recognize and address any issues which may arise, commonly known as "event planning". -21- When the PMO certifies an application, it has been subjected to such standards as are appropriate for that type of application and a reasonable belief was reached that the application will perform in a Year 2000 ready manner. The Corporation's internal certification of an application does not mean that it is warranting or guaranteeing to any customer or other third party that the application will perform in a Year 2000 ready manner. The Corporation is, however, confident that its certification process will be effective. Once an application is certified, it becomes subject to the PMO's "clean management" procedures. Clean management means that if a certified application is modified subsequently in a way that affects date recognition or processing, the modified application may not be returned to production without first being re-tested in order to confirm that the modified application remains Year 2000 ready. PROGRAM STATUS - As of June 30, 1999, the Corporation certified 96 percent of all its IT and non-IT applications, including 99 percent of its mission-critical applications. A small number of applications are not yet certified because doing so requires the participation of a third party, which has not yet occurred, or because the application was recently added to inventory. The Corporation expects to complete certifying all remaining applications that will be implemented this year. The table below illustrates the overall progress of the Corporation's Ready 2000 effort as of this date as reflected in the percentages of total milestones completed and applications certified. % of Total Milestones % of Total Applications Completed at June 30, 1999 Certified at June 30, 1999 --------------------------- -------------------------- IT Non-IT IT Non-IT ---------- ----------- ----------- ----------- Mission critical 100 100 99 100 Medium 97 99 91 97 Low 99 100 98 99 In addition to conducting its own Ready 2000 program, the Corporation is reviewing the results of the progress of SRH's Year 2000 readiness program. As of June 30, 1999, SRH has completed remediating and testing 95% of its approximately 400 applications, including 97% of its mission-critical business applications. SRH expects to complete certifying its remaining applications shortly. SRH is finalizing its business resumption contingency plans for its core business processes and will be validating, testing and refining such plans during the remainder of this year. COSTS The Corporation estimates that total incremental costs associated with its Year 2000 readiness efforts through the end of the first quarter of 2000, which are being funded through general operating funds, will be approximately $60 million. At the inception of the Ready 2000 program, the Corporation did not institute a formal system for tracking all internal IT resource costs, which would consist principally of the time of IT personnel and certain personnel from other business units spent on Year 2000 activities. However, management believes that these internal resources devoted to Year 2000 readiness are not a significant portion of the overall IT budget. The incremental expenses incurred by the Corporation in connection with its Ready 2000 program above are not expected to include a material amount of expenses pertaining to the accelerated replacement of any software or hardware systems. In addition, the Corporation's Year 2000 readiness program has not resulted in the deferral or cancellation of any material IT projects. -22- YEAR 2000 RISK The Corporation is addressing Year 2000 risk with respect to business activities conducted through its own applications and systems and those that require reliance upon or interaction with a third party. In either case, a partial malfunction or total failure could cause the Corporation to suffer a business slowdown or interruption, resulting in financial loss, legal liability or action by its regulators that could have a material adverse affect on the Corporation's financial condition and operations. Business activities conducted using applications that the Corporation owns or whose use is licensed from a vendor include trading with counterparties, buying and selling securities on public exchanges and in over-the-counter markets, managing customer deposits and transactions and maintaining accurate accounting records. The malfunction or failure of its own systems could result in a financial loss to the Corporation and legal liability to customers and counterparties for whom transactions could not be initiated or completed. The Corporation also faces Year 2000 Risk arising from numerous third parties whose services or relationships are significant to its operations. Even if the Corporation completes its Ready 2000 program successfully, failures by such third parties to address their Year 2000 Risk may disrupt the Corporation's operations and cause it to incur financial losses. These third parties include major trading counterparties, securities exchanges, clearing organizations, service bureaus, vendors, generating utilities, telecommunication companies and borrowers. Accordingly, the Corporation is assessing the readiness of such third parties in order to confirm that they are evaluating their own Year 2000 Risk and, as necessary, remediating or replacing their hardware and software systems, as well as developing contingency plans addressing unexpected disruptions caused by the Year 2000 date change. On May 10, 1999, the Corporation announced that it had agreed to be acquired by HSBC. This acquisition is expected to be consummated during the fourth quarter of 1999. The HSBC acquisition will result in the Corporation's various business units being consolidated into complementary HSBC operations. The Corporation and HSBC plan to delay the operational consolidation of the two companies until after January 1, 2000 in order to avoid adversely affecting the Year 2000 readiness preparations that have been made by each party. The Corporation reported previously that a third party provider has assumed responsibility for the operations of the Corporation's data centers and related network and communication operations and the measures it was taking to mitigate Year 2000 Risk pertaining to such arrangement. While the Corporation believes it is well-prepared for the Year 2000 date change, if an unexpected problem arises in one of its own applications or one for which it relies on a third party provider the Corporation has prepared contingency plans addressing Year 2000 Risk, as more fully described below. CONTINGENCY PLANNING While the Corporation is confident that its Ready 2000 program will be successful, the possibility remains that the Corporation may experience Year 2000-related disruptions in its own applications or in those supplied by third parties. The Corporation has evaluated this type of Year 2000 Risk and developed contingency plans addressing it. During 1998 the Corporation developed remediation contingency plans that provided an alternative means for certifying its mission-critical business applications to be Year 2000 ready in a timely manner. The Corporation has recently completed developing business resumption contingency plans for these same applications. -23- Business resumption contingency planning addresses the risks of a failure by each core business process as a result of the Year 2000 date change, including the failure of systems maintained by third parties. The Corporation has revised its existing business resumption contingency plans in order to address these special risks, including developing a methodology for validating each plan. The Corporation will be testing and refining its business resumption contingency plans for the remainder of this year. RISK MANAGEMENT ON- AND OFF-BALANCE-SHEET MARKET RISK SENSITIVITY One of the Corporation's most significant risks is to U.S. interest rate fluctuations in its investing, lending and borrowing activities. The extent of this risk will fluctuate when the level and interest sensitivity characteristics of its interest-earning assets differs from its interest-bearing liabilities. Based on the Corporation's asset and liability positions, including associated off-balance-sheet interest rate hedges, primarily swaps and caps, the Corporation has simulated the effect of an immediate 10% parallel upward shift in the base yield curve and the impact of this shift on the fair value of its financial assets and liabilities and on net interest income at June 30, 1999 and December 31, 1998. Based on the results of this simulation, the Corporation estimated that this change in interest rates would reduce the value of net financial assets by approximately $373 million and $131 million at June 30, 1999 and December 31, 1998, respectively. The change in value in financial assets was primarily due to a lengthening of the average maturities in the Corporation's mortgage-backed securities portfolio during the six-month period. Net interest income would increase by approximately $12 million and $20 million over the twelve months from the respective simulation dates. -24- TRADING-MARKET RISK SENSITIVITY The Corporation uses Value at Risk ("VaR") analysis which attempts to determine the potential U.S. dollar loss resulting from unfavorable market developments within a given time horizon (typically one day) and given a certain confidence level (99%) across all global trading positions. The following tables present the calculated VaR amounts based on stress projections given a 99% confidence level across all global trading positions, for the periods indicated in 1999 and 1998 and the VaR components by risk category at June 30, 1999 and December 31, 1998, after considering correlation. 6 Mos. Ended June 30, 1999 1-day VaR at - ----------------------------------- --------------------- Average Minimum Maximum June 30, Dec. 31, - --------- ----------- ----------- Risk Asset Class 1999 1998 (In millions) ------------------- ---------- --------- $4.9 $3.0 $8.9 (In millions) 6 Mos. Ended June 30, 1998 Foreign exchange $2.2 $0.5 - ----------------------------------- Interest rate 7.6 3.8 Average Minimum Maximum Commodity 2.6 1.5 - --------- ----------- ----------- Equity 0.1 - (In millions) Optionality 1.8 1.3 $11.1 $6.2 $17.4 Correlation effects (6.3) (2.9) ---------- --------- $8.0 $4.2 2nd Qtr 1999 ========== ========= - ----------------------------------- Average Minimum Maximum - --------- ----------- ----------- (In millions) $5.4 $3.6 $8.9 2nd Qtr 1998 - ----------------------------------- Average Minimum Maximum - --------- ----------- ----------- (In millions) $11.6 $9.8 $17.4 -25- FORWARD-LOOKING INFORMATION IN CONNECTION WITH THE INFORMATION RELATING TO NET INTEREST INCOME, THE VALUE AT RISK ANALYSIS, THE YEAR 2000 AND THE ANTICIPATED SAVINGS FROM THE LINE-OF-BUSINESS REVIEW, THIS REPORT CONTAINS STATEMENTS THAT CONSTITUTE FORWARD-LOOKING STATEMENTS AND ARE SUBJECT TO CERTAIN RISKS AND UNCERTAINTIES THAT COULD CAUSE THE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE CONTAINED IN THIS REPORT. WITH RESPECT TO NET INTEREST INCOME AND THE VALUE AT RISK ANALYSIS, THE ACTUAL RESULTS MIGHT BE AFFECTED BY SUCH UNCERTAINTIES AS DEFAULTS IN CERTAIN EMERGING MARKET COUNTRIES AND CHANGES IN CONDITIONS IN THOSE MARKETS, CHANGES IN INTEREST RATES, CHANGES IN THE GLOBAL SECURITIES MARKETS AND THE GENERAL ECONOMIC ENVIRONMENT AND THE ACTIONS THAT THE CORPORATION MIGHT TAKE IN LIGHT OF SUCH CHANGES. WITH RESPECT TO THE YEAR 2000, UNCERTAINTIES COULD INCLUDE UNANTICIPATED EVENTS RELATING TO WORK ON THE DEVELOPMENTS OR MODIFICATIONS TO COMPUTER SYSTEMS AND TO SOFTWARE, INCLUDING WORK PERFORMED BY SUPPLIERS OR VENDORS TO THE CORPORATION, AND THE SATISFACTORY RESOLUTION OF SUCH EVENTS MAY BE BEYOND THE CORPORATION'S CONTROL IN RESPONDING TO SUCH EVENTS. WITH RESPECT TO THE CONTEMPLATED SAVINGS IN OPERATING EXPENSES, THE ACTUAL RESULTS MAY BE AFFECTED BY, AMONG OTHER THINGS, THE INABILITY TO REALIZE FULLY THE EXPECTED COST SAVINGS WITHIN THE EXPECTED TIME FRAME, COMPETITIVE PRESSURES AMONG FINANCIAL INSTITUTIONS MAY INCREASE SIGNIFICANTLY, UNANTICIPATED CHANGES IN THE REGULATORY ENVIRONMENT MAY BE ENACTED AND TECHNOLOGICAL CHANGES MAY BE MORE DIFFICULT OR EXPENSIVE THAN ANTICIPATED. READERS ARE CAUTIONED NOT TO PLACE UNDUE RELIANCE ON THESE FORWARD-LOOKING STATEMENTS, WHICH SPEAK ONLY TO THE DATE OF THIS REPORT. -26- PART II - OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders. (a) The Corporation's Annual Meeting of Stockholders was held on April 21, 1999. (c) The following matters were voted upon at such meeting: (i) Election of the following twenty persons as directors of the Corporation, with shares voted for and withheld indicated. NOMINEE SHARES FOR SHARES WITHHELD Cyril S. Dwek 91,874,085 1,025,452 Ernest Ginsberg 91,878,704 1,020,833 Nathan Hasson 91,879,777 1,019,760 Peter Kimmelman 92,031,918 867,619 Leonard Lieberman 92,029,668 869,869 William C. MacMillen, Jr. 92,003,492 896,045 Peter J. Mansbach 92,030,533 869,004 Martin F. Mertz 92,003,083 896,453 James L. Morice 92,031,918 867,619 E. Daniel Morris 91,482,304 1,417,233 Janet L. Norwood 91,850,009 1,049,529 John A. Pancetti 92,031,514 868,022 Vito S. Portera 92,031,718 867,819 William P. Rogers 92,002,355 897,183 Elias Saal 92,027,655 871,882 Steven J. Saali 91,949,993 949,544 Dov C. Schlein 91,950,866 948,671 Rodney G. Ward 92,031,918 867,619 Walter H. Weiner 92,003,799 895,738 George T. Wendler 92,031,918 867,619 (ii) Approval of selection of KPMG LLP, as the Corporation's auditors for 1999. The number of votes cast for or against, as well as the number of abstentions as to such matter, were as follows: FOR AGAINST ABSTAIN --- ------- ------- 92,488,741 189,284 221,510 (iii) Reapproval of the 1994 Performance Based Incentive Compensation Plan. The number of votes cast for or against, as well as the number of abstentions as to such matter, were as follows: FOR AGAINST ABSTAIN --- ------- ------- 89,864,019 2,690,188 345,323 -27- Item 6. Exhibits and Reports on Form 8-K (a) Exhibits 11. Computation of Earnings Per Common Share 27. Financial Data Schedule (b) Reports on Form 8-K (i) On May 10, 1999 a report on Form 8-K was filed to report that the Corporation and SRH had entered into a definitive agreement providing for (1) the merger of the Corporation with a wholly owned subsidiary of HSBC Holdings plc ("HSBC") in which each outstanding common share of the Corporation would be converted into the right to receive $72.00 in cash and (2) a tender offer for the outstanding ordinary shares of SRH (other than those owned by the Corporation) at $72.00 per share. Saban S.A., the principal stockholder of the Corporation, which is controlled by the Corporation's founder, Edmond J. Safra, had irrevocably undertaken to vote its 29% stockholding in the Corporation in favor of the merger and, in addition, to accept the tender offer in respect of its 20.8% stockholding in SRH. The consummation of the transactions are subject to a number of conditions, including the Corporation's stockholder approval and regulatory approvals in various jurisdictions. The merger and tender offer are to close at the same time, which is expected to be during the last quarter of 1999. In connection with the merger, the Corporation has issued an option to HSBC, which would allow HSBC to purchase up to 19.9% of the outstanding shares of RNYC at $72.00 per share in limited circumstances. (ii) On May 13, 1999 an amended report on Form 8-K/A was filed in connection with the Corporation's current report on Form 8-K, dated May 10, 1999. In connection with the merger, the Corporation had issued an option to HSBC to purchase up to 19.9% of the outstanding shares of the Corporation at $72.00 per share in limited circumstances. Also in connection with the merger, Edmond J. Safra, RNYC Holdings Limited, Congregation Beit Yaakov and Saban S.A. entered into a Stockholder Agreement to vote in favor of the merger. This amended Current Report on Form 8-K included the (i) Transaction Agreement and Plan of Merger by and among HSBC, the Corporation and SRH dated as of May 10, 1999; (ii) Stock Option Agreement, dated May 10, 1999 between the Corporation and HSBC; and (iii) Stockholder Agreement, dated as of May 10, 1999 by and among RNYC Holdings Limited, Congregation Beit Yaakov, Saban S.A. and Edmond J. Safra. -28- SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. REPUBLIC NEW YORK CORPORATION Dated: August 13, 1999 BY /S/DOV C. SCHLEIN -------------------- Dov C. Schlein Chairman of the Board Dated: August 13, 1999 BY /S/STAN MARTIN ----------------- Stan Martin Executive Vice President and Chief Financial Officer -29- FORM 10-Q QUARTERLY REPORT For the fiscal quarter ended June 30, 1999 REPUBLIC NEW YORK CORPORATION EXHIBIT INDEX NO. EXHIBIT DESCRIPTION 11 Computation of Earnings Per Common Share 27 Financial Data Schedule EX-11 2 STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
REPUBLIC NEW YORK CORPORATION AND SUBSIDIARIES COMPUTATION OF EARNINGS PER COMMON SHARE UNAUDITED (In thousands except per share data) Six Months Ended Three Months Ended June 30, June 30, ---------------------- ---------------------- 1999 1998 1999 1998 --------- --------- --------- --------- Basic earnings: Net income $ 189,628 $ 236,311 $ 143,126 $ 118,837 Less preferred stock dividends (12,731) (13,175) (6,355) (6,573) Less dividends on restricted stock plan shares (574) (1,747) (225) (882) --------- --------- --------- --------- Net income applicable to common stock - basic $ 176,323 $ 221,389 $ 136,546 $ 111,382 ========= ========= ========= ========= Average common shares outstanding - excluding restricted stock plan shares 102,929 104,795 102,541 104,691 ========= ========= ========= ========= Basic earnings per common share $ 1.71 $ 2.11 $ 1.33 $ 1.06 ========= ========= ========= ========= Diluted earnings: Net income applicable to common stock - basic $ 176,323 $ 221,389 $ 136,546 $ 111,382 Dividend adjustment on restricted stock plan shares to reflect shares assumed issued 457 883 123 470 --------- --------- --------- --------- Net income applicable to common stock - diluted $ 176,780 $ 222,272 $ 136,669 $ 111,852 ========= ========= ========= ========= Shares: Average common shares outstanding - excluding restricted stock plan shares 102,929 104,795 102,541 104,691 Net shares assumed issued under compensation stock plans 1,576 1,816 1,489 1,883 Shares assumed issued on exercise of stock options 59 83 56 78 --------- --------- --------- --------- Average common shares outstanding 104,564 106,694 104,086 106,652 ========= ========= ========= ========= Diluted earnings per common share $ 1.69 $ 2.08 $ 1.31 $ 1.05 ========= ========= ========= =========
EX-27 3 FINANCIAL DATA SCHEDULE
9 1,000 6-MOS DEC-31-1999 JUN-30-1999 901,766 5,654,600 1,495,985 2,966,059 16,546,090 5,589,260 5,634,744 14,193,813 290,669 51,179,653 32,429,439 6,525,422 156,222 4,074,037 523,995 0 500,000 2,244,212 51,179,653 509,888 725,684 156,935 1,392,507 581,490 863,988 528,519 8,000 17,321 624,522 255,776 189,628 0 0 189,628 1.71 1.69 0 0 0 0 0 0 0 0 0 0 0 0
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