-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, Yt7Au1PFx+hVmoLDNK5AtOwtqdlLVtJxzH0zFKTSTp7NppOzuGF+1evVSaVN2HxV nLAi55t2wvdODD63LauURg== 0000009749-94-000081.txt : 19940817 0000009749-94-000081.hdr.sgml : 19940817 ACCESSION NUMBER: 0000009749-94-000081 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19940630 FILED AS OF DATE: 19940812 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BANKERS TRUST NEW YORK CORP CENTRAL INDEX KEY: 0000009749 STANDARD INDUSTRIAL CLASSIFICATION: 6022 IRS NUMBER: 136180473 STATE OF INCORPORATION: NY FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-05920 FILM NUMBER: 94543616 BUSINESS ADDRESS: STREET 1: 280 PARK AVE CITY: NEW YORK STATE: NY ZIP: 10017 BUSINESS PHONE: 2122502500 MAIL ADDRESS: STREET 1: 280 PARK AVENUE CITY: NEW YORK STATE: NY ZIP: 10017 FORMER COMPANY: FORMER CONFORMED NAME: BT NEW YORK CORP DATE OF NAME CHANGE: 19671107 10-Q 1 6/30/94 10-Q UNITED STATES 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, 1994 or [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File Number 1-5920 BANKERS TRUST NEW YORK CORPORATION (Exact name of registrant as specified in its charter) New York 13-6180473 (State or other jurisdiction of (I.R.S. employer incorporation or organization) identification no.) 280 Park Avenue New York, New York 10017 (Address of principal executive offices) (Zip code) (212) 250-2500 (Registrant's telephone number, including area code) 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 Indicate the number of shares outstanding of each of the registrant's classes of common stock as of July 31, 1994: Common Stock, $1 par value, 78,965,275 shares. 1 BANKERS TRUST NEW YORK CORPORATION JUNE 30, 1994 FORM 10-Q TABLE OF CONTENTS Page PART I. FINANCIAL INFORMATION Item 1. Financial Statements Consolidated Statement of Income Three Months Ended June 30, 1994 and 1993 2 Six Months Ended June 30, 1994 and 1993 3 Consolidated Balance Sheet At June 30, 1994 and December 31, 1993 4 Consolidated Statement of Changes in Stockholders' Equity Six Months Ended June 30, 1994 and 1993 5 Consolidated Statement of Cash Flows Six Months Ended June 30, 1994 and 1993 6 Consolidated Schedule of Net Interest Revenue Three Months and Six Months Ended June 30, 1994 and 1993 7 In the opinion of management, all material adjustments necessary for a fair presentation of the financial position and results of operations for the interim periods presented have been made. All such adjustments were of a normal recurring nature, except for the cumulative effects of accounting changes for postretirement and postemployment benefits (recorded in the first quarter of 1993). The results of operations for the three months and six months ended June 30, 1994 are not necessarily indicative of the results of operations for the full year or any other interim period. The financial statements included in this Form 10-Q should be read with reference to the Corporation's 1993 Annual Report as supplemented by the first quarter 1994 Form 10-Q. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 8 PART II. OTHER INFORMATION Item 5. Other Information 31 Item 6. Exhibits and Reports on Form 8-K 31 SIGNATURE 32 2 PART I. FINANCIAL INFORMATION BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF INCOME (in millions, except per share data) (unaudited)
Increase THREE MONTHS ENDED JUNE 30, 1994 1993 (Decrease) NET INTEREST REVENUE Interest revenue $1,255 $1,067 $ 188 Interest expense 946 768 178 Net interest revenue 309 299 10 Provision for credit losses - 23 (23) Net interest revenue after provision for credit losses 309 276 33 NONINTEREST REVENUE Trading 124 405 (281) Fiduciary and funds management 187 176 11 Fees and commissions 195 173 22 Securities available for sale gains 19 - 19 Investment securities gains - 8 (8) Other 112 70 42 Total noninterest revenue 637 832 (195) NONINTEREST EXPENSES Salaries 189 167 22 Incentive compensation and employee benefits 202 313 (111) Occupancy, net 38 39 (1) Furniture and equipment 37 34 3 Other 222 196 26 Total noninterest expenses 688 749 (61) Income before income taxes 258 359 (101) Income taxes 77 108 (31) NET INCOME $ 181 $ 251 $ (70) NET INCOME APPLICABLE TO COMMON STOCK $ 172 $ 246 $ (74) EARNINGS PER COMMON SHARE: PRIMARY $2.09 $2.90 $(.81) FULLY DILUTED $2.09 $2.90 $(.81) Cash dividends declared per common share $.90 $.78 $.12
3 BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF INCOME (in millions, except per share data) (unaudited)
Increase SIX MONTHS ENDED JUNE 30, 1994 1993 (Decrease) NET INTEREST REVENUE Interest revenue $2,466 $2,088 $ 378 Interest expense 1,787 1,489 298 Net interest revenue 679 599 80 Provision for credit losses - 53 (53) Net interest revenue after provision for credit losses 679 546 133 NONINTEREST REVENUE Trading 138 751 (613) Fiduciary and funds management 375 335 40 Fees and commissions 377 320 57 Securities available for sale gains 23 - 23 Investment securities gains - 12 (12) Other 229 148 81 Total noninterest revenue 1,142 1,566 (424) NONINTEREST EXPENSES Salaries 366 332 34 Incentive compensation and employee benefits 364 584 (220) Occupancy, net 75 74 1 Furniture and equipment 76 68 8 Other 448 372 76 Total noninterest expenses 1,329 1,430 (101) Income before income taxes and cumulative effects of accounting changes 492 682 (190) Income taxes 147 201 (54) INCOME BEFORE CUMULATIVE EFFECTS OF ACCOUNTING CHANGES 345 481 (136) Cumulative effects of accounting changes - (75) 75 NET INCOME $ 345 $ 406 $ (61) NET INCOME APPLICABLE TO COMMON STOCK $ 331 $ 394 $ (63) PRIMARY EARNINGS PER COMMON SHARE: Income before cumulative effects of accounting changes $3.99 $5.54 $(1.55) Cumulative effects of accounting changes - (.89) .89 Net income $3.99 $4.65 $ (.66) FULLY DILUTED EARNINGS PER COMMON SHARE: Income before cumulative effects of accounting changes $3.99 $5.53 $(1.54) Cumulative effects of accounting changes - (.89) .89 Net income $3.99 $4.64 $ (.65) Cash dividends declared per common share $1.80 $1.56 $.24
4 BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET ($ in millions, except par value) (unaudited)
June 30, December 31, 1994 1993 ASSETS Cash and due from banks $ 2,662 $ 1,750 Interest-bearing deposits with banks 1,579 1,638 Federal funds sold 1,574 361 Securities purchased under resale agreements 12,257 9,567 Securities borrowed 5,396 2,937 Trading assets 54,669 48,276 Securities available for sale 6,961 7,073 Loans 13,223 15,200 Allowance for credit losses (1,340) (1,324) Premises and equipment, net 763 719 Due from customers on acceptances 401 455 Accounts receivable and accrued interest 2,367 2,561 Other assets 3,127 2,869 Total $103,639 $92,082 LIABILITIES Deposits Noninterest-bearing In domestic offices $ 3,080 $ 3,185 In foreign offices 612 707 Interest-bearing In domestic offices 5,671 7,120 In foreign offices 11,099 11,764 Total deposits 20,462 22,776 Trading liabilities 25,151 9,349 Securities sold under repurchase agreements 21,509 23,834 Other short-term borrowings 19,188 18,992 Acceptances outstanding 402 455 Accounts payable and accrued expenses 3,656 3,771 Other liabilities 2,646 2,524 Long-term debt 5,582 5,597 Total liabilities 98,596 87,298 PREFERRED STOCK OF SUBSIDIARY 250 250 STOCKHOLDERS' EQUITY Preferred stock 450 250 Common stock, $1 par value Authorized, 300,000,000 shares Issued, 83,678,973 shares 84 84 Capital surplus 1,319 1,321 Retained earnings 3,404 3,226 Common stock in treasury, at cost: 1994, 4,714,603 shares; 1993, 3,076,439 shares (358) (233) Other (106) (114) Total stockholders' equity 4,793 4,534 Total $103,639 $92,082
5 BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (in millions) (unaudited)
SIX MONTHS ENDED JUNE 30, 1994 1993 PREFERRED STOCK Balance, January 1 $ 250 $ 500 Issuance of Adjustable Rate Cumulative Preferred Stock, Series Q 200 - Redemption of Money Market Cumulative Preferred Stock, Series E, F, G and H - (250) Balance, June 30 450 250 COMMON STOCK Balance, January 1 and June 30 84 84 CAPITAL SURPLUS Balance, January 1 1,321 1,306 Preferred stock issuance costs (4) - Common stock distributed under employee benefit plans 2 7 Balance, June 30 1,319 1,313 RETAINED EARNINGS Balance, January 1 3,226 2,552 Net income 345 406 Cash dividends declared Preferred stock (13) (12) Common stock (143) (129) Treasury stock distributed under employee benefit plans (11) (16) Balance, June 30 3,404 2,801 COMMON STOCK IN TREASURY, AT COST Balance, January 1 (233) (52) Purchases of stock (156) (106) Restricted stock granted, net 6 2 Treasury stock distributed under employee benefit plans 25 59 Balance, June 30 (358) (97) COMMON STOCK ISSUABLE - STOCK AWARDS Balance, January 1 143 53 Deferred stock awards granted, net 35 60 Deferred stock distributed - (1) Balance, June 30 178 112 DEFERRED COMPENSATION - STOCK AWARDS Balance, January 1 (47) (54) Deferred stock awards granted, net (36) (60) Restricted stock granted, net (5) (2) Amortization of deferred compensation, net 31 44 Balance, June 30 (57) (72) CUMULATIVE TRANSLATION ADJUSTMENTS Balance, January 1 (319) (288) Translation adjustments (46) (15) Income taxes applicable to translation adjustments 42 (7) Balance, June 30 (323) (310) SECURITIES VALUATION ALLOWANCE Balance, January 1 109 20 Change in unrealized net gains, after applicable income taxes and minority interest (13) (15) Balance, June 30 96 5 TOTAL STOCKHOLDERS' EQUITY, JUNE 30 $4,793 $4,086
6 BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS (in millions) (unaudited)
SIX MONTHS ENDED JUNE 30, 1994 1993 CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 345 $ 406 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Cumulative effects of accounting changes - 75 Provision for credit losses - 53 Provision for policyholder benefits 107 73 Deferred income taxes (74) (23) Depreciation and amortization of premises and equipment 60 50 Other, net (69) 32 Earnings adjusted for noncash charges and credits 369 666 Net change in: Trading assets (5,615) (10,070) Trading liabilities 15,577 1,499 Receivables and payables from securities transactions (330) 1,571 Other operating assets and liabilities, net 401 425 Securities available for sale gains (23) - Investment securities gains - (12) Net cash provided by (used in) operating activities 10,379 (5,921) CASH FLOWS FROM INVESTING ACTIVITIES Net change in: Interest-bearing deposits with banks 32 836 Federal funds sold (1,212) 438 Securities purchased under resale agreements (2,683) (1,841) Securities borrowed (2,459) (551) Loans 1,892 916 Securities available for sale: Purchases (3,352) - Maturities and other redemptions 1,723 - Sales 1,307 - Investment securities: Purchases - (5,403) Maturities and other redemptions - 3,890 Sales - 315 Acquisitions of premises and equipment (100) (89) Other, net 4 (5) Net cash used in investing activities (4,848) (1,494) CASH FLOWS FROM FINANCING ACTIVITIES Net change in: Deposits (2,821) (478) Securities sold under repurchase agreements (2,378) 7,611 Other short-term borrowings 670 281 Issuances of long-term debt 916 790 Repayments of long-term debt (958) (407) Issuance of preferred stock of subsidiary - 247 Issuance of preferred stock 196 - Redemption of preferred stock - (250) Purchases of treasury stock (156) (106) Cash dividends paid (157) (142) Other, net 17 125 Net cash provided by (used in) financing activities (4,671) 7,671 Net effect of exchange rate changes on cash 52 16 NET INCREASE IN CASH AND DUE FROM BANKS 912 272 Cash and due from banks, beginning of year 1,750 1,384 Cash and due from banks, end of period $ 2,662 $ 1,656 Interest paid $1,756 $1,494 Income taxes paid, net $156 $98 Noncash investing activities $120 $95 Noncash financing activities $6 $-
7 BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES CONSOLIDATED SCHEDULE OF NET INTEREST REVENUE (in millions) (unaudited)
Three Months Ended Six Months Ended June 30, June 30, 1994 1993 1994 1993 INTEREST REVENUE Interest-bearing deposits with banks $ 24 $ 61 $ 58 $ 116 Federal funds sold 4 4 6 9 Securities purchased under resale agreements 108 112 204 209 Securities borrowed 43 45 73 81 Trading assets 761 538 1,521 1,043 Securities available for sale Taxable 64 - 125 - Exempt from federal income taxes 22 - 43 - Investment securities Taxable - 84 - 168 Exempt from federal income taxes - 17 - 31 Loans 229 206 436 431 Total interest revenue 1,255 1,067 2,466 2,088 INTEREST EXPENSE Deposits In domestic offices 62 54 107 108 In foreign offices 149 192 302 388 Trading liabilities 237 87 433 171 Securities sold under repurchase agreements 234 239 448 427 Other short-term borrowings 204 137 378 279 Long-term debt 60 59 119 116 Total interest expense 946 768 1,787 1,489 NET INTEREST REVENUE $ 309 $ 299 $ 679 $ 599
8 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Bankers Trust New York Corporation (the "Parent Company") and subsidiaries (collectively, the "Corporation", or the "Firm") earned $181 million for the quarter ended June 30, 1994, or $2.09 primary earnings per share. In the second quarter of 1993, the Corporation earned $251 million, or $2.90 primary earnings per share. For the first six months of 1994, net income was $345 million, or $3.99 primary earnings per share. For the six months ended June 30, 1993, income before cumulative effects of accounting changes was $481 million, or $5.54 primary earnings per share. On January 1, 1994, the Corporation adopted FASB Interpretation No. 39, "Offsetting of Amounts Related to Certain Contracts." The Interpretation requires that unrealized gains and losses on swaps, forwards, options and similar contracts be recognized as assets and liabilities, except where such gains and losses arise from contracts covered by qualifying master netting agreements. It was the Corporation's former policy to record such unrealized gains and losses on a net basis on the balance sheet. As the result of this adoption, at June 30, 1994 the Corporation's consolidated total assets and total liabilities each increased by approximately $14 billion. Effective January 1, 1993, the Corporation adopted Statements of Financial Accounting Standards ("SFAS") for postretirement benefits other than pensions (SFAS 106) and postemployment benefits (SFAS 112). In adopting SFAS 106 and SFAS 112 the Corporation recorded charges to earnings of $100 million and $7 million, respectively, (or $70 million and $5 million, respectively, net of income taxes) in the first quarter of 1993 for the cumulative effects of these changes in accounting principles. BUSINESS FUNCTIONS ANALYSIS Because the Corporation's business is complex in nature and its operations are highly integrated, it is impractical to segregate the respective contributions of the business functions with precision. For example, the Client Advisory function is difficult to split from the Client Finance function, since most complex financings include both an element of advice and the arrangement of credit for the client. Further, transactions undertaken for purposes of Client Financial Risk Management may contain an element of Client Finance or Trading and Positioning. Finally, the Trading and Positioning function serves as an element of support for client-based activities. As a result, estimates and subjective judgments have been made to apportion revenue and expenses among the business functions. In addition, certain revenue and expenses have been excluded from the business functions because, in the opinion of management, they could not be reasonably allocated or because their attribution to a particular function would be distortive. The following table breaks down earnings on the basis of the Corporation's five business functions, which represent its core business activities and are an important tool for analyzing the results of operations. Detailed definitions of these categories, as well as a discussion of the methodology used to calculate their results, appear in the 1993 Annual Report on Form 10-K. 9 Business Functions Profitability (Income Before Cumulative Effects of Accounting Changes - in millions)
Second First Qtr. Qtr. Increase Six Months Increase 1994 1994(Decrease) 1994 1993 (Decrease) Client Finance $ 36 $ 43 $ (7) $ 79 $ 30 $ 49 Client Advisory 23 30 (7) 53 37 16 Client Financial Risk Management 50 114 (64) 164 161 3 Client Transaction Processing 26 32 (6) 58 37 21 Trading and Positioning 52 (49) 101 3 226 (223) Unallocated (6) (6) - (12) (10) (2) Total $181 $164 $ 17 $345 $481 $(136)
Client Finance - Client Finance income in the second quarter of 1994 was $36 million, a $7 million decrease from the strong first quarter results of $43 million. Income for the first half of 1994 rose to $79 million, more than double the results from the comparable half-year period in 1993. The first half growth was principally attributable to strong performance in loan syndications and high yield bond underwritings, accompanied by a decrease in the credit cost related to the loan portfolio. Client Advisory - Client Advisory income declined $7 million in the second quarter of 1994, to $23 million. Income rose over 40 percent in the first half of 1994, to $53 million, versus the comparable half-year period in 1993 as the majority of products earned higher revenue, led by funds management products in Australia. Additionally, both the private banking and core investment management areas also experienced improved revenue performance, offset by increased staffing costs. Performance-based funds management fees were down during the second quarter relative to both the first quarter and comparable 1993 periods. This function also produced improved results at the Corporation's Chilean insurance subsidiary, Consorcio Nacional de Seguros S.A., compared to the prior year's results. Client Financial Risk Management - Client Financial Risk Management income during the second quarter of 1994 slowed by 56 percent to $50 million, compared to the record results achieved in the first quarter, reflecting the generally adverse conditions and uncertain outlook prevailing in the United States and European markets, which tended to curtail client demand in those markets for risk management products. Income during the first half of 1994 was $164 million, just above the results achieved in the comparable half-year period in 1993. Results by product were all generally comparable with 1993 levels. The demand for risk management products during this period increased over 1993 levels in the emerging markets of Southeast Asia and Latin America. 10 Client Transaction Processing - Client Transaction Processing income declined to $26 million during the second quarter of 1994, from $32 million in the first quarter. Transaction processing volumes generally remained at levels consistent with the first quarter of 1994 and above the comparable 1993 periods. Although revenues declined slightly in the second quarter of 1994, profit margins in core cash management and securities custody and clearance activities remained generally improved relative to the comparable 1993 periods, as expenses were held relatively flat. The period also benefited from slightly higher earnings on balances generated in the business. As a result, Client Transaction Processing income increased 57 percent over the reported 1993 half-year levels, to $58 million. Trading and Positioning - Although the extremely difficult market conditions which prevailed early in the year have abated, the trading environment has continued to remain generally unfavorable in the second quarter of 1994. In this difficult environment, the Corporation posted Trading and Positioning income of $52 million in the second quarter of 1994 including the impact of the Brazilian Brady bonds and Past-Due Interest bonds, versus the first quarter loss of $49 million. As a result, the Corporation posted year-to-date Trading and Positioning income of $3 million. REVENUE The table below shows net interest revenue, average balances and average rates. The tax equivalent adjustment is made to present the revenue and yields on certain assets, primarily tax-exempt securities and loans, as if such revenue were taxable.
Quarter Ended Six Months Ended June 30, June 30, 1994 1993 1994 1993 NET INTEREST REVENUE (in millions) Book basis $309 $299 $679 $599 Tax equivalent adjustment 21 20 42 35 Fully taxable basis $330 $319 $721 $634 AVERAGE BALANCES (in millions) Interest-earning assets $74,107 $79,268 $77,553 $75,317 Interest-bearing liabilities 71,197 71,210 74,547 68,024 Earning assets financed by noninterest-bearing funds $ 2,910 $ 8,058 $ 3,006 $ 7,293 AVERAGE RATES (fully taxable basis) Yield on interest-earning assets 6.91% 5.50% 6.52% 5.68% Cost of interest-bearing liabilities 5.33 4.33 4.83 4.41 Interest rate spread 1.58 1.17 1.69 1.27 Contribution of noninterest-bearing funds .21 .44 .18 .43 Net interest margin 1.79% 1.61% 1.87% 1.70%
11 REVENUE (continued) Net interest revenue for the second quarter of 1994 totaled $309 million, up $10 million from the second quarter of 1993. Net interest revenue was $679 million for the first six months of 1994, up $80 million, or 13 percent, from the first half of 1993. This increase was primarily attributable to an improved interest rate spread, partially offset by an increase in average interest-bearing liabilities. The Corporation views trading revenue and trading-related net interest revenue in combination, as quantified below (in millions):
Quarter Ended Six Months Ended June 30, June 30, 1994 1993 1994 1993 Trading Revenue $124 $405 $138 $751 Trading-Related Net Interest Revenue 121 122 298 239 Total $245 $527 $436 $990
Second Quarter 1994 vs. Second Quarter 1993 The $282 million decrease in the trading revenue and trading-related net interest revenue combined total from the results achieved in the second quarter of 1993 was primarily attributable to sharply lower revenue from proprietary trading and positioning activities, as generally rising interest rates and related volatility in the United States and European markets made positioning activities difficult. In addition, these market conditions contributed to lower revenue during the quarter for the Firm's traditional interest rate and currency risk management products. On April 15, 1994, a debt exchange took place between the Brazilian government and its commercial bank creditors, including the Corporation, thereby completing the long-awaited refinancing of Brazil's medium- and long-term debt. Subsequent sales of these Brady bonds and Past-Due Interest bonds by the Corporation have had a significant positive impact on trading revenue and, to a lesser extent, net interest revenue for the second quarter of 1994. Six Months 1994 vs. Six Months 1993 For the six months ended June 30, 1994, the combined trading revenue and trading-related net interest revenue decreased $554 million. This decline was primarily attributable to lower revenue from proprietary trading and positioning activities, as generally rising interest rates and related volatility in the United States and European markets made positioning activities difficult during the first half of 1994. The main areas of reduced revenue were sovereign bond trading, foreign exchange trading, and the trading of emerging markets debt and equity issues. Also impacting trading revenue and net interest revenue for the six months ended June 30, 1994, as mentioned above, was the sale of Brazilian Brady and Past-Due Interest bonds. 12 REVENUE (continued) Shown below is a comparison of the components of noninterest revenue (in millions).
Quarter Ended Six Months Ended June 30, Increase June 30, Increase 1994 1993(Decrease) 1994 1993(Decrease) Trading $124 $405 $(281) $ 138 $ 751 $(613) Fiduciary and funds management 187 176 11 375 335 40 Fees and commissions Corporate finance fees 115 102 13 223 180 43 Service charges on deposit accounts 22 24 (2) 44 47 (3) Acceptances and letters of credit commissions 10 13 (3) 21 25 (4) Other 48 34 14 89 68 21 Total fees and commissions 195 173 22 377 320 57 Securities available for sale gains 19 - 19 23 - 23 Investment securities gains - 8 (8) - 12 (12) Other noninterest revenue Insurance premiums 41 27 14 96 65 31 Net revenue from equity investment transactions, including write-offs 26 28 (2) 55 58 (3) Other 45 15 30 78 25 53 Total other noninterest revenue 112 70 42 229 148 81 Total noninterest revenue $637 $832 $(195) $1,142 $1,566 $(424)
Second Quarter 1994 vs. Second Quarter 1993 Fiduciary and funds management revenue totaled $187 million for the second quarter, up $11 million, or 6 percent, from the same period last year. The increased revenue reflected higher levels of global private banking assets under management as well as new business in cash and securities processing, retirement services and corporate trust, offset in part by lower performance-based fees from foreign exchange funds managed. Fees and commissions of $195 million increased by $22 million, or 13 percent, from the second quarter of 1993. Corporate finance fees of $115 million increased by $13 million to their second highest level in nearly five years, led by higher revenue from financial advisory, private placement and merger and acquisition activities. These results were partially offset by lower leasing syndication and securities underwriting fees. Also impacting fees and commissions was higher fees from the structuring of products for employee benefit plans. Other noninterest revenue totaled $112 million, up $42 million from the prior year's quarter. This increase was due to several factors including the impact of an insurance settlement related to the January 1993 fire at the Corporation's headquarters at 280 Park Avenue, higher insurance premium revenue from operations in Chile and a gain from the revaluation of non-trading foreign currency investments, versus a loss in the prior year. 13 Six Months 1994 vs. Six Months 1993 Fiduciary and funds management revenue of $375 million increased $40 million, or 12 percent, from the first six months of 1993. Continued growth in private banking assets under management contributed significantly to this increase. Increases were also recorded by most other business activities within this revenue category, except for performance-based fees from foreign exchange funds managed, which declined during this period. Fees and commissions increased $57 million, or 18 percent, from the first half of 1993. The $43 million, or 24 percent, increase in corporate finance fees was due mostly to higher fees from loan syndication, financial advisory, merger and acquisition and private placement activities, offset in part by lower leasing syndication fees. Other noninterest revenue totaled $229 million, up $81 million from the first half of 1993. This increase was due to several factors including higher insurance premium revenue from operations in Chile, the impact of an insurance settlement related to the January 1993 fire at the Corporation's headquarters at 280 Park Avenue, a lower level of losses from the revaluation of non-trading foreign currency investments and an increase in equity in income of unconsolidated subsidiaries. PROVISION AND ALLOWANCE FOR CREDIT LOSSES The Corporation recorded $5 million of net charge-offs and no provision for credit losses in the second quarter of 1994. In the prior year's quarter, net charge-offs of $51 million and a provision for credit losses of $23 million were recognized. All of the $16 million of nonrefinancing country net charge-offs for the current quarter related to real estate loans and in the prior year's second quarter, virtually all of the $46 million of nonrefinancing country net charge-offs also related to real estate loans. Refinancing country net recoveries for the second quarter of 1994 were $11 million, compared with net charge-offs of $5 million for the second quarter of 1993, which included $25 million of gross charge-offs of nonperforming medium- and long-term loans to Brazilian borrowers largely offset by an $18 million recovery recorded on the sale of refinancing country loans. For the six months ended June 30, 1994, the Corporation recorded $16 million of net recoveries and no provision for credit losses, compared with $172 million of net charge-offs and a $53 million provision for credit losses for the same period last year. Nonrefinancing country net charge- offs were $14 million in the first half of 1994, compared with $168 million for the first six months of 1993. The 1993 amount included a charge-off of $66 million which resulted from the sale of Mexican government Par Bonds, as well as $51 million of real estate loans and $17 million of loans to highly leveraged borrowers. 14 PROVISION AND ALLOWANCE FOR CREDIT LOSSES (continued) The provision for credit losses and the other changes in the allowance for credit losses are shown below (in millions).
Quarter Ended Six Months Ended June 30, June 30, 1994 1993 1994 1993 Allowance for credit losses Balance, beginning of period $1,345 $1,529 $1,324 $1,620 Net charge-offs Charge-offs 17 75 38 205 Recoveries 12 24 54 33 Total net charge-offs (recoveries)* 5 51 (16) 172 Provision for credit losses - 23 - 53 Balance, end of period $1,340 $1,501 $1,340 $1,501 *Components: Secured by real estate $ 14 $44 $ 12 $ 50 Real estate related 2 - 2 1 Highly leveraged - - (9) 17 Other - 2 9 100 Refinancing country (11) 5 (30) 4 Total $ 5 $51 $(16) $172
The allowance for credit losses, at $1.340 billion at June 30, 1994, was down $5 million from its level at March 31, 1994, and was up $16 million from December 31, 1993. The allowance was equal to 180 percent, 156 percent and 136 percent of total cash basis loans at June 30, 1994, March 31, 1994 and December 31, 1993, respectively. The Corporation believes that its allowance must be viewed in its entirety and therefore is available for potential credit losses in its entire portfolio, including loans, credit-related commitments, derivatives and other financial instruments. In the opinion of management, the allowance, when taken as a whole, is adequate to absorb reasonably estimated credit losses inherent in the Corporation's portfolio. EXPENSES Second Quarter 1994 vs. Second Quarter 1993 Total noninterest expenses of $688 million decreased by $61 million from the second quarter of 1993. Incentive compensation and employee benefits expense decreased $111 million, or 35 percent, almost entirely due to lower bonus expense reflecting the reduced earnings. Salaries expense increased $22 million, or 13 percent, from the second quarter of 1993. The average number of employees increased by 4 percent versus the same period, to 13,833. 15 EXPENSES (continued) All other expenses totaled $297 million for the quarter, up $28 million, or 10 percent, from last year's second quarter. Increases in the provision for policyholder benefits, service bureaus and agency personnel fees were offset in part by a decrease in other real estate expense. Six Months 1994 vs. Six Months 1993 Total noninterest expenses of $1.329 billion for the first six months of 1994 decreased by $101 million from the first half of 1993. Incentive compensation and employee benefits expense decreased $220 million, or 38 percent, almost entirely due to lower bonus expense reflecting the reduced earnings. Salaries expense increased $34 million, or 10 percent, from the first half of 1993. The average number of employees increased by 5 percent versus the same period, to 13,740. All other expenses for the first six months of 1994 totaled $599 million, up $85 million, or 17 percent, from the first half of 1993. Increases in the provision for policyholder benefits, service bureaus, agency personnel fees and minority interest accounted for most of this increase. INCOME TAXES Income tax expense for the second quarter of 1994 amounted to $77 million, compared with $108 million for the second quarter of 1993. For the first six months of 1994, income tax expense was $147 million, compared with $201 million for the first six months of 1993. The effective tax rate was 30 percent for the quarter and six months ended June 30, 1994, compared with 30 percent and 29 percent for the quarter and six months ended June 30, 1993, respectively. The six month figure for 1993 excludes the income taxes included in the reported cumulative effects of accounting changes for SFAS 106 and SFAS 112. EARNINGS PER COMMON SHARE Primary and fully diluted earnings per common share amounts were computed by subtracting from earnings the dividend requirements on preferred stock to arrive at earnings applicable to common stock and dividing those amounts by the average number of common and common equivalent shares outstanding during the period. For both primary and fully diluted earnings per share, the average number of common and common equivalent shares outstanding was the sum of the average number of shares of common stock outstanding and the incremental number of shares issuable under outstanding stock options and deferred stock awards that had a dilutive effect as computed under the treasury stock method. Under this method, the number of incremental shares is determined by assuming the issuance of the outstanding stock options and deferred stock awards reduced by the number of shares assumed to be repurchased from the issuance proceeds, using the market price of the Parent Company's common stock. For primary earnings per share, this market price is the average market price for the period, while for fully diluted earnings per share, it is the period-end market price if it is higher than the average market price. At no time during the three and six month periods ended June 30, 1994 and 1993 did the Corporation have outstanding any securities which were convertible to the Parent Company's common stock. 16 EARNINGS PER COMMON SHARE (continued) The earnings applicable to common stock and the number of shares used for primary and fully diluted earnings per share were as follows (in millions):
Quarter Ended Six Months Ended June 30, June 30, 1994 1993 1994 1993 Earnings applicable to common stock: Income before cumulative effects of accounting changes $172 $246 $331 $469 Cumulative effects of accounting changes - - - (75) Net income $172 $246 $331 $394 Average number of common shares outstanding 79.432 82.785 79.870 82.862 Primary earnings per share Average number of common and common equivalent shares outstanding 82.168 84.779 82.914 84.680 Fully diluted earnings per share Average number of common and common equivalent shares outstanding - assuming full dilution 82.213 84.955 82.936 84.872
17 BALANCE SHEET ANALYSIS The following table highlights the changes in the balance sheet. Since quarter-end balances can be distorted by one-day fluctuations, an analysis of changes in the quarterly averages is provided to give a better indication of balance sheet trends.
CONDENSED AVERAGE BALANCE SHEETS (in millions) 2nd Qtr 1st Qtr 4th Qtr 1994 1994 1993 ASSETS Interest-bearing deposits with banks $ 1,273 $ 1,512 $ 2,042 Federal funds sold 425 279 488 Securities purchased under resale agreements 13,007 12,866 8,791 Securities borrowed 4,622 3,788 2,343 Trading assets 35,977 43,007 41,942 Securities available for sale Taxable 4,828 5,294 - Exempt from federal income taxes 1,389 1,288 - Total securities available for sale 6,217 6,582 - Investment securities Taxable - - 5,541 Exempt from federal income taxes - - 1,030 Total investment securities - - 6,571 Loans 12,586 13,003 14,211 Total interest-earning assets 74,107 81,037 76,388 Cash and due from banks 1,826 2,020 1,971 Noninterest-earning trading assets 19,297 19,359 3,772 All other assets 8,015 8,046 6,528 Allowance for credit losses (1,349) (1,349) (1,494) Total $101,896 $109,113 $87,165 LIABILITIES Interest-bearing deposits In domestic offices $ 6,193 $ 7,065 $ 8,511 In foreign offices 11,144 11,472 12,410 Total interest-bearing deposits 17,337 18,537 20,921 Trading liabilities 9,616 12,223 7,430 Securities sold under repurchase agreements 22,265 24,120 21,671 Other short-term borrowings 16,361 17,361 14,504 Long-term debt 5,618 5,694 5,450 Total interest-bearing liabilities 71,197 77,935 69,976 Noninterest-bearing deposits 3,623 4,154 3,932 Noninterest-bearing trading liabilities 14,748 15,358 1,694 All other liabilities 7,280 6,814 6,883 Total liabilities 96,848 104,261 82,485 PREFERRED STOCK OF SUBSIDIARY 250 250 250 STOCKHOLDERS' EQUITY Preferred stock 450 259 250 Common stockholders' equity 4,348 4,343 4,180 Total stockholders' equity 4,798 4,602 4,430 Total $101,896 $109,113 $87,165 The condensed average balance sheets are presented on a different basis than the spot balance sheets, in that the various categories of interest-earning assets and interest- bearing liabilities exclude certain noninterest-earning/bearing components included in the spot balance sheet captions. These components are included in "all other assets" and "all other liabilities" in the condensed average balance sheets.
18 BALANCE SHEET ANALYSIS (continued) Second Quarter 1994 vs. First Quarter 1994 The Corporation's average total assets amounted to $101.9 billion for the second quarter of 1994, a decrease of $7.2 billion, or 7 percent, from the first quarter of 1994. Average interest-earning assets decreased $6.9 billion, or 9 percent, and the proportion of interest-earning assets to total assets decreased slightly, from 74 percent to 73 percent. The decrease in interest-earning assets was primarily due to the decrease in interest-earning trading assets (down $7.0 billion, or 16 percent). As a percentage of average total assets, interest-earning trading assets decreased from 39 percent to 35 percent in the second quarter of 1994. Interest-bearing liabilities decreased $6.7 billion, or 9 percent, from the first quarter of 1994. This decrease was primarily attributable to decreases in trading liabilities (down $2.6 billion, or 21 percent), securities sold under repurchase agreements (down $1.9 billion, or 8 percent), total interest-bearing deposits (down $1.2 billion, or 6 percent) and other short-term borrowings (down $1.0 billion, or 6 percent). Total short-term borrowings (securities sold under repurchase agreements and other short-term borrowings) as a percentage of total interest-bearing liabilities increased slightly to 54 percent, from 53 percent in the first quarter of 1994. Second Quarter 1994 vs. Fourth Quarter 1993 The Corporation's average total assets for the second quarter of 1994, increased $14.7 billion, or 17 percent, from the fourth quarter of 1993. Noninterest-earning trading assets increased $15.5 billion due primarily to the adoption of FASB Interpretation No. 39, effective January 1, 1994. Average interest-earning assets decreased $2.3 billion and the proportion of interest-earning assets to total assets decreased, from 88 percent to 73 percent, due primarily to the adoption of FASB Interpretation No. 39. The decrease in interest-earning assets was primarily due to decreases in interest-earning trading assets (down $6.0 billion, or 14 percent) and loans (down $1.6 billion, or 11 percent) offset by increases in securities purchased under resale agreements (up $4.2 billion, or 48 percent) and securities borrowed (up $2.3 billion, or 97 percent). As a percentage of average total assets, interest-earning trading assets decreased from 48 percent to 35 percent in the second quarter of 1994, while loans decreased from 16 percent to 12 percent. Average total liabilities increased $14.4 billion, or 17 percent, from the fourth quarter of 1993. Noninterest-bearing trading liabilities increased $13.1 billion due primarily to the adoption of FASB Interpretation No. 39. Interest-bearing liabilities increased $1.2 billion, or 2 percent, from last year's fourth quarter. This increase was primarily attributable to higher levels of trading liabilities (up $2.2 billion, or 29 percent) and other short-term borrowings (up $1.9 billion, or 13 percent) offset in part by a decrease in total interest-bearing deposits (down $3.6 billion, or 17 percent). Total short-term borrowings (securities sold under repurchase agreements and other short-term borrowings) as a percentage of total interest-bearing liabilities increased to 54 percent, from 52 percent in the fourth quarter of 1993. 19 BALANCE SHEET ANALYSIS (continued) Trading Assets and Trading Liabilities The components of these accounts, which are carried at market value, were as follows (in millions):
June 30, December 31, 1994 1993 TRADING ASSETS U.S. government and agency securities $15,253 $19,648 Obligations of U.S. states and political subdivisions 252 494 Foreign government securities 8,332 13,229 Corporate debt securities 5,542 5,565 Equity securities 3,767 3,804 Bankers acceptances and certificates of deposit 1,928 2,178 Swaps, options and other derivative contracts (1) 16,356 732 Other 3,239 2,626 Total trading assets $54,669 $48,276 TRADING LIABILITIES Securities sold, not yet purchased U.S. government and agency securities $ 6,525 $4,023 Foreign government securities 1,963 3,099 Equity securities 1,929 1,644 Other 971 583 Swaps, options and other derivative contracts (1) 13,763 - Total trading liabilities $25,151 $9,349 (1) Comprised of fair values of interest rate instruments, foreign exchange rate instruments, and equity and commodity instruments, reduced by the effects of master netting agreements, in accordance with FASB Interpretation No. 39, at June 30, 1994. At December 31, 1993, prior to the adoption of FASB Interpretation No. 39, the Corporation's policy was to record the unrealized gains and losses on these contracts on a net basis.
20 BALANCE SHEET ANALYSIS (continued) Securities Available for Sale The fair value, amortized cost and gross unrealized holding gains and losses for the Corporation's securities available for sale follow (in millions):
June 30, March 31, December 31, 1994 1994 1993 Fair value $6,961 $5,791 $7,073 Amortized cost 6,783 5,585 6,898 Excess of fair value over amortized cost (1) $ 178 $ 206 $ 175 (1) Components: Unrealized gains $254 $279 $ 308 Unrealized losses (76) (73) (133) $178 $206 $ 175
Long-term Debt During the second quarter of 1994, the Corporation obtained $404 million of cash proceeds from the issuances of long-term debt and repaid $529 million of long-term debt. The larger of these debt issuances and redemptions were as follows (in millions):
Face Amount Issuances Redemptions Parent Company Japanese Yen Libor Linked Notes due October 1996 to October 1997 $86 9-3/8% Notes due May 1994 $150 Bankers Trust Company Bank Notes due April 1995 to September 2000 $91 Step-Down Coupon Notes due March 1999 $97
21 END-USER DERIVATIVES The Corporation, as an end user, utilizes various types of derivative products (principally interest rate swaps) to manage the interest rate, currency and other market risks associated with liabilities and assets such as interest-bearing deposits, short-term borrowings and long-term debt as well as investments in non-marketable equity instruments and net investments in foreign entities. End-user derivative products are accounted for on an accrual basis, that is, revenue or expense pertaining to management of interest rate exposure is recognized over the life of the contract as an adjustment to interest revenue or expense. At June 30, 1994, the Corporation reviewed its characterization of certain derivative contracts associated with short-term borrowings and long-term debt. Based upon this review, certain trading derivative contracts previously disclosed as end-user derivatives at March 31, 1994, have been appropriately excluded. This exclusion had no impact on net income. At June 30, 1994, total net end-user derivative unrealized losses were $199 million. On a comparable basis, total net end-user derivative unrealized losses were $53 million at March 31, 1994. The $146 million increase during the second quarter of 1994 was due to significant increases in interest rates. The following table provides the gross gains and gross losses not yet recognized in the financial statements for end-user derivatives applicable to certain hedged assets and liabilities (in millions):
Other short- Interest- term Long- Other bearing borrow- term June 30, 1994 assets deposits ings debt Total Interest Rate Swap Pay Variable Unrealized Gain $- $ 41 $ 3 $ 59 $ 103 Pay Variable Unrealized (Loss) - (97) (7) (134) (238) Pay Variable Net - (56) (4) (75) (135) Pay Fixed Unrealized Gain - 47 - 24 71 Pay Fixed Unrealized (Loss) - (62) - (39) (101) Pay Fixed Net - (15) - (15) (30) Total Unrealized Gain - 88 3 83 174 Total Unrealized (Loss) - (159) (7) (173) (339) Total Net $- $ (71) $ (4)$ (90) $(165) Currency Swap Unrealized Gain $ - $ 1 $ 1 $17 $ 19 Unrealized (Loss) (2) (3) (6) (3) (14) Net $(2) $(2) $(5) $14 $ 5 Equity Swap/Collar Unrealized Gain $ 9 $- $- $- $ 9 Unrealized (Loss) (48) - - - (48) Net $(39) $- $- $- $(39) Total Unrealized Gain $ 9 $ 89 $ 4 $ 100 $ 202 Total Unrealized (Loss) (50) (162) (13) (176) (401) Total Net $(41) $ (73) $ (9)$ (76) $(199) /TABLE 22 END-USER DERIVATIVES (continued) Derivatives which are used to manage the risks associated with securities available for sale are carried at fair value. The unrealized gains and unrealized losses on derivatives included in securities available for sale amounted to $24 million and $26 million, respectively, at June 30, 1994, with the corresponding offset to securities valuation allowance in stockholders' equity. End-user derivatives used to manage foreign exchange risk associated with net investments in foreign subsidiaries generated a net unrealized loss of $11 million. For pay variable and pay fixed interest rate swaps entered into as end user, the weighted average receive rate and weighted average pay rate (interest rates were based on the weighted averages of both U.S. and non- U.S. currencies) by maturity and corresponding notional amounts at June 30, 1994 were as follows ($ in millions):
Notional Amount Paying Variable(1) Paying Fixed Maturing Notional Receive Pay Notional Receive Pay Total In: Amount Rate Rate Amount Rate Rate Notional 1994 $ 5,113 4.35% 4.43% $ 928 4.57%6.43% $ 6,041 1995-1996 8,912 5.18 4.13 3,127 4.36 5.75 12,039 1997-1998 3,229 5.43 4.28 1,231 4.26 6.38 4,460 1999 and thereafter 4,294 6.14 4.21 1,460 4.44 8.09 5,754 Total $21,548 $6,746 $28,294 (1) Variable rates were those in effect at June 30, 1994.
23 REGULATORY CAPITAL The Federal Reserve Board's capital adequacy guidelines mandate that minimum ratios ("FRB Minimum Regulatory Guidelines") be maintained by bank holding companies and banks. The Corporation's 1993 Annual Report on Form 10-K, on page 39, provides a detailed discussion of both these regulatory capital guidelines and the federal bank regulations regarding capital tiers under the Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA") for the Corporation's bank subsidiaries. Based on their respective regulatory capital ratios at June 30, 1994, both Bankers Trust Company ("BTCo.") and Bankers Trust (Delaware) are well capitalized, based on the definitions in the regulations issued by the Federal Reserve Board and the other federal bank regulatory agencies setting forth the general capital requirements mandated by FDICIA. All three regulatory capital ratios, at both June 30, 1994 and December 31, 1993, excluded any benefit from the adoption of SFAS 115. The table below indicates the regulatory capital ratios of the Corporation and BTCo. and the minimum regulatory guidelines.
FRB Minimum June 30, December 31, Regulatory 1994 1993 Guidelines CORPORATION Risk-Based Ratios Tier 1 Capital 8.41% 8.50% 4.0% Total Capital 13.82% 14.46% 8.0% Leverage Ratio 5.97% 6.28% 3.0% BTCo. Risk-Based Ratios Tier 1 Capital 9.12% 9.38% 4.0% Total Capital 12.20% 12.96% 8.0% Leverage Ratio 6.33% 6.01% 3.0%
The following were the essential components of the Corporation's risk- based capital ratios (in millions):
June 30, December 31, 1994 1993 Tier 1 Capital $4,488 $4,072 Tier 2 Capital 2,882 2,859 Total Capital $7,370 $6,931 Total risk-weighted assets $53,342 $47,916
24 REGULATORY CAPITAL (continued) During the first half of 1994, each of the Corporation's three regulatory capital ratios declined. The Tier I Capital and Total Capital ratios declined by 9 basis points and 64 basis points, respectively, as the increase in capital was more than offset by the increase in total risk- weighted assets. The Leverage Ratio decreased by 31 basis points as a result of a 16 percent increase in quarterly average total assets, primarily due to the adoption of FASB Interpretation No. 39. The $416 million increase in Tier 1 Capital was primarily attributable to the issuance of Series Q Preferred Stock, the retention of earnings and the inclusion of net deferred tax assets which are permissible for regulatory capital. The Corporation's total risk-weighted assets at June 30, 1994 were $5.426 billion higher than at year-end 1993. LIQUIDITY Liquidity management at the Corporation focuses on both asset liquidity and liability management. Enhancing asset liquidity remains a particularly important element of its liquidity management philosophy. At the same time, management is continually seeking opportunities to further diversify the Corporation's funding sources. Liquid assets consist of cash and due from banks, interest-bearing deposits with banks, federal funds sold, securities purchased under resale agreements, securities borrowed, trading assets and securities available for sale. At June 30, 1994, the Corporation's liquid assets amounted to $85.1 billion, or 81 percent of gross total assets, compared with 79 percent and 77 percent, respectively, at March 31, 1994 and December 31, 1993. Cash Flows The following comments apply to the consolidated statement of cash flows, which appears on page 6. Cash and due from banks increased $912 million during the first six months of 1994, as the net cash provided by operating activities exceeded the sum of net cash used in investing and financing activities. The $10.4 billion of net cash provided by operating activities primarily resulted from a $10.0 billion net change in trading assets and liabilities. Within the investing activities category, cash outflows from purchases of securities available for sale ($3.4 billion) as well as net changes in securities purchased under resale agreements ($2.7 billion), securities borrowed ($2.5 billion) and federal funds sold ($1.2 billion) were offset in part by cash inflows from sales, maturities and other redemptions of securities available for sale ($3.0 billion) and a net change in loans ($1.9 billion). The $4.7 billion of net cash used in financing activities primarily resulted from net changes of $2.8 billion in deposits and $2.4 billion in securities sold under repurchase agreements. For the six months ended June 30, 1993, cash and due from banks increased $272 million, as net cash provided by financing activities exceeded the sum of net cash used in operating and investing activities. The $7.7 billion of net cash provided by financing activities primarily 25 LIQUIDITY (continued) resulted from a $7.6 billion increase in securities sold under repurchase agreements. The $5.9 billion of net cash used in operating activities primarily resulted from $6.6 billion of net cash outflows from changes in operating assets and liabilities (which amount included an $8.6 billion increase in net trading assets) as well as a $1.6 billion net change in receivables and payables from securities transactions, offset in part by $666 million of earnings adjusted for noncash charges and credits. Within the investing activities category, cash outflows from purchases of investment securities ($5.4 billion) and net changes in securities purchased under resale agreements ($1.8 billion) and securities borrowed ($551 million) were offset in part by cash inflows from sales, maturities and other redemptions of investment securities ($4.2 billion) as well as net changes in loans ($916 million), interest-bearing deposits with banks ($836 million) and federal funds sold ($438 million). Interest Rate Sensitivity Condensed interest rate sensitivity data for the Corporation at June 30, 1994 is presented in the table below. For purposes of this presentation, the interest-earning/bearing components of trading assets and trading liabilities are assumed to reprice within three months. Since the interest rate gaps are actively managed and change daily as adjustments are made in interest rate views and market outlook, positions at the end of any period may not be reflective of the Corporation's interest rate view in subsequent periods. Active management dictates that longer term economic views are balanced against prospects of short-term interest rate changes in all repricing intervals.
By Repricing Interval Non- interest- Within 1 - 5 After bearing (in billions) June 30, 1994 1 year years 5 years funds Total Assets $ 69.2 $ 2.9 $ 2.7 $ 28.8 $103.6 Liabilities, preferred stock of subsidiary and preferred stock (67.0) (3.7) (2.0) (26.6) (99.3) Common stockholders' equity - - - (4.3) (4.3) Effect of off-balance sheet hedging instruments (3.1) 2.5 .6 - - Interest rate sensitivity gap $ (.9) $ 1.7 $ 1.3 $ (2.1) $ -
26 NONPERFORMING ASSETS The components of cash basis loans, renegotiated loans, other real estate and other nonperforming assets are shown below ($ in millions).
June 30, December 31, 1994 1993 CASH BASIS LOANS (NONREFINANCING COUNTRY) Domestic Commercial and industrial $191 $285 Secured by real estate 301 306 Financial institutions 24 30 Total domestic 516 621 International Commercial and industrial 120 84 Secured by real estate 104 149 Other 2 2 Total international 226 235 Total cash basis loans (nonrefinancing country) 742 856 CASH BASIS LOANS (REFINANCING COUNTRY) International 2 118 Total cash basis loans $744 $974 Ratio of cash basis loans to total loans 5.6% 6.4% Ratio of allowance for credit losses to cash basis loans 180% 136% RENEGOTIATED LOANS Highly leveraged $ - $ 6 Secured by real estate 13 14 Other nonrefinancing country 1 1 Total renegotiated loans $14 $21 OTHER REAL ESTATE $310 $287 OTHER NONPERFORMING ASSETS Assets acquired in credit workouts $68 $ 85 Nonperforming derivative contracts 16 16 Total other nonperforming assets $84 $101 Loans 90 days or more past due and still accruing interest $- $40
27 NONPERFORMING ASSETS (continued) An analysis of the changes in the Corporation's total cash basis loans during the first six months of 1994 follows (in millions).
Balance, December 31, 1993 $974 Net transfers from accrual status 70 Net paydowns (83) Charge-offs (36) Transfers to other real estate (46) Transfers to other nonperforming assets (2) Loan sales (47) Other (86) Balance, June 30, 1994 $744
The Corporation's total cash basis loans amounted to $744 million at June 30, 1994, down $230 million, or 24 percent, from December 31, 1993. Nonrefinancing country cash basis loans decreased $114 million and the refinancing country component of the cash basis portfolio decreased $116 million during the first half of 1994. Within total nonrefinancing country cash basis loans were loans secured by real estate of $405 million and $455 million at June 30, 1994 and December 31, 1993, respectively. Also within nonrefinancing country cash basis loans, loans to highly leveraged borrowers (mainly included within the domestic commercial and industrial category in the table on page 26) decreased by $23 million, to $170 million, during the first six months of 1994. Other real estate increased by $23 million and assets acquired in credit workouts decreased by $17 million during the same period. 28 NONPERFORMING ASSETS (continued) The following table sets forth the approximate effect on interest revenue of cash basis loans and renegotiated loans. This disclosure reflects the interest on loans which were carried on the balance sheet and classified as either cash basis or renegotiated at June 30 of each year. The rates used in determining the gross amount of interest that would have been recorded at the original rate were not necessarily representative of current market rates.
Six Months Ended June 30, (in millions) 1994 1993 Domestic Loans Gross amount of interest that would have been recorded at original rate $21 $30 Less, interest, net of reversals, recognized in interest revenue 2 5 Reduction of interest revenue 19 25 International Loans Gross amount of interest that would have been recorded at original rate 9 26 Less, interest, net of reversals, recognized in interest revenue 2 28 Reduction of (Increase in) interest revenue 7 (2) Total reduction of interest revenue $26 $23
29 HIGHLY LEVERAGED TRANSACTIONS Amounts included in the table and discussion which follow are generally based on the definition that the Corporation uses in order to monitor the extent of its exposure to highly leveraged transactions ("HLTs"). The Corporation's 1993 Annual Report on Form 10-K, on page 45, provides a detailed discussion of the definition.
Highly Leveraged Transactions June 30,December 31, (in millions) 1994 1993 Loans Senior debt $582 $1,314 Subordinated debt 127 126 Total loans $709 $1,440 Unfunded commitments Commitments to lend $303 $603 Letters of credit 185 201 Total unfunded commitments $488 $804 Equity investments $389 $477 Commitments to invest $155 $127
The Corporation's outstanding loans were to 83 separate borrowers in 35 separate industry groups at June 30, 1994, compared to 105 separate borrowers in 35 separate industry groups at December 31, 1993. There were no industry concentrations which exceeded 10 percent of total HLT loans outstanding at June 30, 1994. In addition to the amounts shown in the table above, at June 30, 1994, the Corporation had issued commitment letters which had been accepted, subject to documentation and certain other conditions, of $587 million (which were in various stages of syndication) and had additional HLTs in various stages of discussion and negotiation. During the first half of 1994, the Corporation originated $816 million of HLT commitments, of which $273 million were sold, syndicated or participated, on a non-recourse basis. All loans and commitments to finance HLTs are reviewed and approved by senior credit officers of the Corporation. In addition to a strict transactional and credit approval process, the portfolio of leveraged loans and commitments is actively monitored and managed to minimize risk through diversification among borrowers and industries. As part of this strategy, sell and hold targets are regularly updated in connection with market 30 HIGHLY LEVERAGED TRANSACTIONS (continued) opportunities and the addition of new HLTs. Retention by the Corporation after syndication and sales of loan participations has typically been less than $50 million, and the average outstanding for the portfolio at June 30, 1994 was less than $9 million. However, at June 30, 1994, the Corporation had total exposure (loans outstanding plus unfunded commitments) in excess of $50 million to 5 separate highly leveraged borrowers. At June 30, 1994, $170 million of the HLT loan portfolio was on a cash basis. In addition, $18 million of the equity investments in HLT companies represented assets acquired in credit workouts, which are reported as other nonperforming assets. Net recoveries of $9 million of HLT loans were recorded in the first half of 1994. In addition, the Corporation recorded a net gain of $34 million in connection with the sales and/or write-offs of its equity investments in highly leveraged companies during the first half of 1994. Generally, fees (typically 2 to 4 percent of the principal amount committed) and interest charged (typically LIBOR plus 1.5 to 3 percent) on HLT loans are higher than on other credits. The Corporation does not account for revenue or expenses from HLTs separately from its other corporate lending activities. However, it is estimated that transaction fees recognized for lending activities relating to HLTs were approximately $66 million during the first half of 1994 and that as of June 30, 1994, approximately $10 million of fees were deferred and will be recognized as future revenue. During the first half of 1994, the Corporation transferred approximately $238 million of outstanding loans to highly leveraged borrowers from its loan portfolio to trading. The transferred loans were carried at market value upon transfer to trading. None of the loans was classified as a nonperforming asset at the time of transfer. Accordingly, subsequent to transfer these loans have been excluded from the Corporation's HLT outstandings at June 30, 1994 as reported above. No significant impact on earnings was recorded as a result of this transfer. 31 PART II. OTHER INFORMATION Item 5. Other Information ELECTION OF PHILLIP A. GRIFFITHS TO THE BOARD OF DIRECTORS Phillip A. Griffiths, the director of the Institute for Advanced Study, has been elected a director of Bankers Trust New York Corporation and Bankers Trust Company. The Institute for Advanced Study, in Princeton, N.J., is an independent center founded in 1930 to support advanced scholarship and fundamental research. It has a permanent faculty of distinguished scholars and about 160 members in residence each year in its four schools: Historical Studies, Mathematics, Natural Sciences and Social Science. Dr. Griffiths was provost and James B. Duke Professor of Mathematics at Duke University from 1983 until 1991, when he was named head of the Institute for Advanced Study. He has previously served as Dwight Parker Robinson Professor of Mathematics at Harvard University; Miller Fellow and faculty member, University of California at Berkeley and as a professor at Princeton University. Item 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits (4) Instruments Defining the Rights of Security Holders, Including Indentures (v) - The Corporation hereby agrees to furnish to the Commission, upon request, a copy of any instru- ments defining the rights of holders of long-term debt issued by Bankers Trust New York Corporation or its subsidiaries. (12) Statement re Computation of Ratios (b) Reports on Form 8-K - Bankers Trust New York Corporation filed one report on Form 8-K during the quarter ended June 30, 1994. - The report dated April 19, 1994 filed the Corporation's Press Release dated April 19, 1994, which announced earnings for the quarter ended March 31, 1994. 32 SIGNATURE 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, on August 12, 1994. BANKERS TRUST NEW YORK CORPORATION By: GEOFFREY M. FLETCHER Geoffrey M. Fletcher Senior Vice President and Principal Accounting Officer 33 BANKERS TRUST NEW YORK CORPORATION FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 1994 EXHIBIT INDEX (4) Instruments Defining the Rights of Security Holders, Including Indentures (v) - Long-Term Debt Indentures (a) (12) Statement re Computation of Ratios (a) - Computation of Consolidated Ratios of Earnings to Fixed Charges (b) - Computation of Consolidated Ratios of Earnings to Combined Fixed Charges and Preferred Stock Dividend Requirements [FN] (a) The Corporation hereby agrees to furnish to the Commission, upon request, a copy of any instruments defining the rights of holders of long-term debt issued by Bankers Trust New York Corporation or its subsidiaries. EX-12 2 RATIO OF EARNINGS TO FIXED CHARGES EXHIBIT 12(a) BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES COMPUTATION OF CONSOLIDATED RATIOS OF EARNINGS TO FIXED CHARGES (dollars in millions)
Six Months Ended Year Ended December 31, June 30, 1989 1990 1991 1992 1993 1994 Earnings: 1. Income (loss) before income taxes and cumulative effects of accounting changes $ (815) $ 815 $ 834 $ 906 $1,550 $ 492 2. Add: Fixed charges excluding capitalized interest (Line 10) 4,803 4,826 3,614 3,099 3,148 1,800 3. Less: Equity in undistri- buted income of unconsolidated subsidiaries and affiliates 14 47 31 40 30 17 4. Earnings including interest on deposits 3,974 5,594 4,417 3,965 4,668 2,275 5. Less: Interest on deposits 2,253 2,226 1,589 1,119 1,013 409 6. Earnings excluding interest on deposits $1,721 $3,368 $2,828 $2,846 $3,655 $1,866 Fixed Charges: 7. Interest Expense $4,775 $4,799 $3,585 $3,072 $3,122 $1,787 8. Estimated interest component of net rental expense 26 27 29 27 26 13 9. Amortization of debt issuance expense 2 - - - - - 10. Total fixed charges including interest on deposits and excluding capitalized interest 4,803 4,826 3,614 3,099 3,148 1,800 11. Add: Capitalized interest 5 - - - - - 12. Total fixed charges 4,808 4,826 3,614 3,099 3,148 1,800 13. Less: Interest on deposits (Line 5) 2,253 2,226 1,589 1,119 1,013 409 14. Fixed charges excluding interest on deposits $2,555 $2,600 $2,025 $1,980 $2,135 $1,391 Consolidated Ratios of Earnings to Fixed Charges: Including interest on deposits (Line 4/Line 12) 0.83 1.16 1.22 1.28 1.48 1.26 Excluding interest on deposits (Line 6/Line 14) 0.67 1.30 1.40 1.44 1.71 1.34 For the year ended December 31, 1989, earnings, as defined above, did not cover fixed charges, including and excluding interest on deposits, by $834 million as a result of the 1989 special provision for refinancing country credit losses of $1.6 billion.
EX-12 3 EARN. TO FIXED CHARGES & PRFD. DIV. REQUIREM'T EXHIBIT 12(b) BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES COMPUTATION OF CONSOLIDATED RATIOS OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDEND REQUIREMENTS (dollars in millions)
Six Months Ended Year Ended December 31, June 30, 1989 1990 1991 1992 1993 1994 Earnings: 1. Income (loss) before income taxes and cumulative effects of accounting changes $ (815) $ 815 $ 834 $ 906 $1,550 $ 492 2. Add: Fixed charges excluding capitalized interest (Line 13) 4,803 4,826 3,614 3,099 3,148 1,800 3. Less: Equity in undistri- buted income of unconsolidated subsidiaries and affiliates 14 47 31 40 30 17 4. Earnings including interest on deposits 3,974 5,594 4,417 3,965 4,668 2,275 5. Less: Interest on deposits 2,253 2,226 1,589 1,119 1,013 409 6. Earnings excluding interest on deposits $1,721 $3,368 $2,828 $2,846 $3,655 $1,866 Preferred Stock Dividend Requirements: 7. Preferred stock dividend requirements $ 7 $ 31 $ 34 $ 30 $ 23 $ 14 8. Ratio of income from continuing operations before income taxes to income from continuing operations after income taxes * 127% 123% 125% 142% 145% 143% 9. Preferred stock dividend requirements on a pretax basis $ 9 $ 38 $ 43 $ 43 $ 33 $ 20 Fixed Charges: 10. Interest Expense $4,775 $4,799 $3,585 $3,072 $3,122 $1,787 11. Estimated interest component of net rental expense 26 27 29 27 26 13 12. Amortization of debt issuance expense 2 - - - - - 13. Total fixed charges including interest on deposits and excluding capitalized interest 4,803 4,826 3,614 3,099 3,148 1,800 14. Add: Capitalized interest 5 - - - - - 15. Total fixed charges 4,808 4,826 3,614 3,099 3,148 1,800 16. Add: Preferred stock dividend require- ments - pretax (Line 9) 9 38 43 43 33 20 17. Total combined fixed charges and preferred stock dividend require- ments on a pretax basis 4,817 4,864 3,657 3,142 3,181 1,820 18. Less: Interest on deposits (Line 5) 2,253 2,226 1,589 1,119 1,013 409 19. Combined fixed charges and preferred stock dividend requirements on a pretax basis excluding interest on deposits $2,564 $2,638 $2,068 $2,023 $2,168 $1,411 Consolidated Ratios of Earnings to Combined Fixed Charges and Preferred Stock Dividend Requirements: Including interest on deposits (Line 4/Line 17) 0.82 1.15 1.21 1.26 1.47 1.25 Excluding interest on deposits (Line 6/Line 19) 0.67 1.28 1.37 1.41 1.69 1.32 * Represents income from continuing operations before income taxes, excluding the 1989 special provision for refinancing country credit losses of $1.6 billion, divided by income from continuing operations after income taxes, excluding the 1989 special provision for refinancing country credit losses of $1.6 billion, which adjusts preferred stock dividend requirements to a pretax basis. For the year ended December 31, 1989, earnings, as defined above, did not cover combined fixed charges and preferred stock dividend requirements, including and excluding interest on deposits, by $843 million as a result of the 1989 special provision for refinancing country credit losses of $1.6 billion.
BANKERS TRUST NEW YORK CORPORATION 280 PARK AVENUE NEW YORK, NEW YORK 10017 Geoffrey M. Fletcher Senior Vice President and Principal Accounting Officer August 12, 1994 Securities and Exchange Commission 450 Fifth Street, N.W. Washington, D.C. 20549 Dear Sirs: Accompanying this letter is Bankers Trust New York Corporation's quarterly report on Form 10-Q for the quarter ended June 30, 1994 (the "Form 10-Q"). The Form 10-Q is being filed electronically through the EDGAR System. One hard copy of the Form 10-Q will be sent to the Securities and Exchange Commission's Filer Support Unit, Alexandria, Virginia. If there are any questions or comments in connection with the enclosed filing, please contact the undersigned at 212-250-7098. Very truly yours, BANKERS TRUST NEW YORK CORPORATION By: GEOFFREY M. FLETCHER Geoffrey M. Fletcher Senior Vice President and Principal Accounting Officer -----END PRIVACY-ENHANCED MESSAGE-----