-----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, QHk+4MB05rVvlH9Ylg38GAHQa8nIgkYE/FbdV+e7t8gMuF1uYGpHcjEBjx5Z2s03 XoTWDGEXFsGWCbSA5q+0iA== 0000009749-94-000091.txt : 19941116 0000009749-94-000091.hdr.sgml : 19941116 ACCESSION NUMBER: 0000009749-94-000091 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19940930 FILED AS OF DATE: 19941114 SROS: AMEX SROS: NYSE 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: 94559931 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 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 September 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 October 31, 1994: Common Stock, $1 par value, 77,735,966 shares. 1 BANKERS TRUST NEW YORK CORPORATION SEPTEMBER 30, 1994 FORM 10-Q TABLE OF CONTENTS Page PART I. FINANCIAL INFORMATION Item 1. Financial Statements Consolidated Statement of Income Three Months Ended September 30, 1994 and 1993 2 Nine Months Ended September 30, 1994 and 1993 3 Consolidated Balance Sheet At September 30, 1994 and December 31, 1993 4 Consolidated Statement of Changes in Stockholders' Equity Nine Months Ended September 30, 1994 and 1993 5 Consolidated Statement of Cash Flows Nine Months Ended September 30, 1994 and 1993 6 Consolidated Schedule of Net Interest Revenue Three Months and Nine Months Ended September 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 nine months ended September 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 1994 Forms 10-Q. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 8 PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K 33 SIGNATURE 34 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 SEPTEMBER 30, 1994 1993 (Decrease) NET INTEREST REVENUE Interest revenue $1,207 $1,177 $ 30 Interest expense 943 835 108 Net interest revenue 264 342 (78) Provision for credit losses 17 17 - Net interest revenue after provision for credit losses 247 325 (78) NONINTEREST REVENUE Trading 278 431 (153) Fiduciary and funds management 188 183 5 Fees and commissions 163 198 (35) Securities available for sale gains 28 - 28 Investment securities gains - 3 (3) Other 50 114 (64) Total noninterest revenue 707 929 (222) NONINTEREST EXPENSES Salaries 200 176 24 Incentive compensation and employee benefits 197 326 (129) Occupancy, net 40 40 - Furniture and equipment 42 37 5 Other 234 210 24 Total noninterest expenses 713 789 (76) Income before income taxes 241 465 (224) Income taxes 72 155 (83) NET INCOME $ 169 $ 310 $(141) NET INCOME APPLICABLE TO COMMON STOCK $ 161 $ 305 $(144) EARNINGS PER COMMON SHARE: PRIMARY $1.98 $3.60 $(1.62) FULLY DILUTED $1.98 $3.60 $(1.62) 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 NINE MONTHS ENDED SEPTEMBER 30, 1994 1993 (Decrease) NET INTEREST REVENUE Interest revenue $3,673 $3,265 $ 408 Interest expense 2,730 2,324 406 Net interest revenue 943 941 2 Provision for credit losses 17 70 (53) Net interest revenue after provision for credit losses 926 871 55 NONINTEREST REVENUE Trading 416 1,182 (766) Fiduciary and funds management 563 518 45 Fees and commissions 540 518 22 Securities available for sale gains 51 - 51 Investment securities gains - 15 (15) Other 279 262 17 Total noninterest revenue 1,849 2,495 (646) NONINTEREST EXPENSES Salaries 566 508 58 Incentive compensation and employee benefits 561 910 (349) Occupancy, net 115 114 1 Furniture and equipment 118 105 13 Other 682 582 100 Total noninterest expenses 2,042 2,219 (177) Income before income taxes and cumulative effects of accounting changes 733 1,147 (414) Income taxes 219 356 (137) INCOME BEFORE CUMULATIVE EFFECTS OF ACCOUNTING CHANGES 514 791 (277) Cumulative effects of accounting changes - (75) 75 NET INCOME $ 514 $ 716 $ (202) NET INCOME APPLICABLE TO COMMON STOCK $ 492 $ 699 $ (207) PRIMARY EARNINGS PER COMMON SHARE: Income before cumulative effects of accounting changes $5.97 $9.14 $(3.17) Cumulative effects of accounting changes - (.88) .88 Net income $5.97 $8.26 $(2.29) FULLY DILUTED EARNINGS PER COMMON SHARE: Income before cumulative effects of accounting changes $5.97 $9.12 $(3.15) Cumulative effects of accounting changes - (.88) .88 Net income $5.97 $8.24 $(2.27) Cash dividends declared per common share $2.70 $2.34 $.36
4 BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET ($ in millions, except par value) (unaudited)
September 30, December 31, 1994 1993 ASSETS Cash and due from banks $ 1,780 $ 1,750 Interest-bearing deposits with banks 3,055 1,638 Federal funds sold 1,256 361 Securities purchased under resale agreements 15,129 9,567 Securities borrowed 5,713 2,937 Trading assets 54,180 48,276 Securities available for sale 7,036 7,073 Loans 12,268 15,200 Allowance for credit losses (1,329) (1,324) Premises and equipment, net 881 719 Due from customers on acceptances 294 455 Accounts receivable and accrued interest 3,942 2,561 Other assets 3,354 2,869 Total $107,559 $92,082 LIABILITIES Deposits Noninterest-bearing In domestic offices $ 2,972 $ 3,185 In foreign offices 440 707 Interest-bearing In domestic offices 5,415 7,120 In foreign offices 13,481 11,764 Total deposits 22,308 22,776 Trading liabilities 21,659 9,349 Securities sold under repurchase agreements 25,285 23,834 Other short-term borrowings 20,817 18,992 Acceptances outstanding 294 455 Accounts payable and accrued expenses 3,764 3,771 Other liabilities 2,397 2,524 Long-term debt 6,054 5,597 Total liabilities 102,578 87,298 PREFERRED STOCK OF SUBSIDIARY 250 250 STOCKHOLDERS' EQUITY Preferred stock 395 250 Common stock, $1 par value Authorized, 300,000,000 shares Issued, 83,678,973 shares 84 84 Capital surplus 1,316 1,321 Retained earnings 3,487 3,226 Common stock in treasury, at cost: 1994, 5,935,784 shares; 1993, 3,076,439 shares (441) (233) Other (110) (114) Total stockholders' equity 4,731 4,534 Total $107,559 $92,082
5 BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (in millions) (unaudited)
NINE MONTHS ENDED SEPTEMBER 30, 1994 1993 PREFERRED STOCK Balance, January 1 $ 250 $ 500 Issuance of Adjustable Rate Cumulative Preferred Stock, Series Q 200 - Issuance of Adjustable Rate Cumulative Preferred Stock, Series R 150 - Redemption of Adjustable Rate Cumulative Preferred Stock, Series D (205) - Redemption of Money Market Cumulative Preferred Stock, Series E, F, G and H - (250) Balance, September 30 395 250 COMMON STOCK Balance, January 1 and September 30 84 84 CAPITAL SURPLUS Balance, January 1 1,321 1,306 Preferred stock issuance costs (8) - Common stock distributed under employee benefit plans 3 11 Balance, September 30 1,316 1,317 RETAINED EARNINGS Balance, January 1 3,226 2,552 Net income 514 716 Cash dividends declared Preferred stock (21) (17) Common stock (213) (193) Treasury stock distributed under employee benefit plans (19) (27) Balance, September 30 3,487 3,031 COMMON STOCK IN TREASURY, AT COST Balance, January 1 (233) (52) Purchases of stock (262) (208) Restricted stock granted, net 23 2 Treasury stock distributed under employee benefit plans 31 96 Balance, September 30 (441) (162) COMMON STOCK ISSUABLE - STOCK AWARDS Balance, January 1 143 53 Deferred stock awards granted, net 37 78 Deferred stock distributed (1) (1) Balance, September 30 179 130 DEFERRED COMPENSATION - STOCK AWARDS Balance, January 1 (47) (54) Deferred stock awards granted, net (38) (78) Restricted stock granted, net (20) (2) Amortization of deferred compensation, net 47 74 Balance, September 30 (58) (60) CUMULATIVE TRANSLATION ADJUSTMENTS Balance, January 1 (319) (288) Translation adjustments (57) (14) Income taxes applicable to translation adjustments 51 (13) Balance, September 30 (325) (315) SECURITIES VALUATION ALLOWANCE Balance, January 1 109 20 Change in unrealized net gains, after applicable income taxes and minority interest (15) (8) Balance, September 30 94 12 TOTAL STOCKHOLDERS' EQUITY, SEPTEMBER 30 $4,731 $4,287
6 BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS (in millions) (unaudited)
NINE MONTHS ENDED SEPTEMBER 30, 1994 1993 CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 514 $ 716 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Cumulative effects of accounting changes - 75 Provision for credit losses 17 70 Provision for policyholder benefits 156 108 Deferred income taxes 1 161 Depreciation and amortization of premises and equipment 93 79 Other, net (50) 45 Earnings adjusted for noncash charges and credits 731 1,254 Net change in: Trading assets (5,264) (13,795) Trading liabilities 12,003 1,689 Receivables and payables from securities transactions (1,798) 465 Other operating assets and liabilities, net (130) 298 Securities available for sale gains (51) - Investment securities gains - (15) Net cash provided by (used in) operating activities 5,491 (10,104) CASH FLOWS FROM INVESTING ACTIVITIES Net change in: Interest-bearing deposits with banks (1,466) 641 Federal funds sold (895) 385 Securities purchased under resale agreements (5,542) (1,580) Securities borrowed (2,776) 1,626 Loans 2,956 1,696 Securities available for sale: Purchases (4,358) - Maturities and other redemptions 2,472 - Sales 1,575 - Investment securities: Purchases - (6,815) Maturities and other redemptions - 5,553 Sales - 758 Acquisitions of premises and equipment (223) (135) Other, net (60) (86) Net cash provided by (used in) investing activities (8,317) 2,043 CASH FLOWS FROM FINANCING ACTIVITIES Net change in: Deposits (1,127) (2,699) Securities sold under repurchase agreements 1,386 4,745 Other short-term borrowings 2,454 5,416 Issuances of long-term debt 1,813 1,670 Repayments of long-term debt (1,387) (430) Issuance of preferred stock of subsidiary - 247 Issuance of preferred stock 342 - Redemption of preferred stock (205) (250) Purchases of treasury stock (262) (208) Cash dividends paid (237) (212) Other, net 20 140 Net cash provided by financing activities 2,797 8,419 Net effect of exchange rate changes on cash 59 1 NET INCREASE IN CASH AND DUE FROM BANKS 30 359 Cash and due from banks, beginning of year 1,750 1,384 Cash and due from banks, end of period $ 1,780 $ 1,743 Interest paid $2,755 $2,364 Income taxes paid, net $228 $131 Noncash investing activities $188 $123 Noncash financing activities $23 $-
Certain prior period amounts have been reclassified to conform to the current presentation. 7 BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES CONSOLIDATED SCHEDULE OF NET INTEREST REVENUE (in millions) (unaudited)
Three Months Ended Nine Months Ended September 30, September 30, 1994 1993 1994 1993 INTEREST REVENUE Interest-bearing deposits with banks $ 27 $ 51 $ 85 $ 167 Federal funds sold 3 9 9 18 Securities purchased under resale agreements 114 96 318 305 Securities borrowed 56 29 129 110 Trading assets 700 663 2,221 1,706 Securities available for sale Taxable 76 - 201 - Exempt from federal income taxes 29 - 72 - Investment securities Taxable - 94 - 262 Exempt from federal income taxes - 15 - 46 Loans 202 220 638 651 Total interest revenue 1,207 1,177 3,673 3,265 INTEREST EXPENSE Deposits In domestic offices 76 56 183 164 In foreign offices 165 217 467 605 Trading liabilities 180 121 613 292 Securities sold under repurchase agreements 226 241 674 668 Other short-term borrowings 225 155 603 434 Long-term debt 71 45 190 161 Total interest expense 943 835 2,730 2,324 NET INTEREST REVENUE $ 264 $ 342 $ 943 $ 941
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 $169 million for the quarter ended September 30, 1994, or $1.98 primary earnings per share. In the third quarter of 1993, the Corporation earned $310 million, or $3.60 primary earnings per share. For the first nine months of 1994, net income was $514 million, or $5.97 primary earnings per share. For the nine months ended September 30, 1993, income before cumulative effects of accounting changes was $791 million, or $9.14 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 September 30, 1994 the Corporation's consolidated total assets and total liabilities each increased by approximately $13 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) Third Second Qtr. Qtr. Increase Nine Months Increase 1994 1994(Decrease) 1994 1993(Decrease) Client Finance $ 19 $ 36 $(17) $ 98 $ 53 $ 45 Client Advisory 4 23 (19) 57 50 7 Client Financial Risk Management 67 50 17 231 249 (18) Client Transaction Processing 20 26 (6) 78 49 29 Trading and Positioning 68 52 16 71 410 (339) Unallocated (9) (6) (3) (21) (20) (1) Total $169 $181 $(12) $514 $791 $(277)
Client Finance - Client Finance income was $19 million in the third quarter of 1994, down from $36 million in the second quarter. Income for the first nine months of 1994 rose to $98 million, more than 80 percent above the results from the comparable nine month period in 1993. The nine month growth was principally attributable to strong 1994 performance in loan syndications and high yield bond underwritings, accompanied by a significant improvement in the credit cost related to the loan portfolio. The third quarter decline versus the second quarter was principally attributable to a modest provision for credit losses in the third quarter and a slowdown in U.S. high-yield bond underwriting. Client Advisory - Client Advisory income was $4 million in the third quarter of 1994, a decline of $19 million from the second quarter. Income rose nearly 15 percent in the first nine months of 1994, to $57 million, versus the comparable nine month period in 1993. The majority of products, particularly funds management products in Australia, earned higher revenue in the first nine months of 1994. Both the private banking and core investment management areas experienced improved revenue performance during 1994 which was largely offset by increased staffing costs. Performance- based funds management fees were down from 1993 levels. This function also produced improved results in 1994 at the Corporation's Chilean insurance subsidiary, Consorcio Nacional de Seguros S.A. The third quarter decline versus the second quarter principally was due to the Corporation's provision for a contingency in the funds management business taken at September 30, 1994, the impact of which was reflected in the amount unallocated to business functions at that time. However, subsequent to this date, the contingency was realized and the effect has been reflected in the Client Advisory Function. Also contributing to the third quarter decline was a slight reduction in the profitability of Consorcio and continued investment in the funds management and risk advisory/risk merchant banking business. Client Financial Risk Management - Client Financial Risk Management income rose during the third quarter of 1994 to $67 million, up from $50 million in the second quarter. Income for the first nine months of 1994 was $231 million, slightly below the record results of $249 million achieved in the comparable nine-month period in 1993. For the nine months ended 1994, demand in the emerging markets of Southeast Asia and Latin America from all types of clients continued to show a substantial increase 10 and results by major product sub-groupings were all generally comparable with 1993 levels. The results during the third quarter generally reflected an improvement in the demand for risk management products from U.S. clients (principally corporations). During the third quarter, commodity and equity derivatives in particular continued to show increased performance. Client Transaction Processing - Client Transaction Processing income was $20 million in the third quarter of 1994, down $6 million from the second quarter. Income for the first nine months of 1994 rose nearly 60 percent, to $78 million, from the comparable nine-month period in 1993. Transaction processing volumes generally remained at levels above the comparable 1993 periods. However, during the third quarter of 1994, corporate trust, futures brokerage and securities lending volumes all declined modestly. Trading and Positioning - Trading and Positioning income during the third quarter of 1994 increased $16 million from the second quarter, to $68 million. Income for the first nine months of 1994 was $71 million versus the record results achieved during the comparable nine-month period in 1993. Although the market conditions continue to remain generally unfavorable, the third quarter showed improvement principally as a result of trading in the markets of Latin America and, to a lesser extent, those throughout Asia. 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 Nine Months Ended September 30, September 30, 1994 1993 1994 1993 NET INTEREST REVENUE (in millions) Book basis $264 $342 $ 943 $941 Tax equivalent adjustment 18 22 60 57 Fully taxable basis $282 $364 $1,003 $998 AVERAGE BALANCES (in millions) Interest-earning assets $72,493 $80,121 $75,848 $76,936 Interest-bearing liabilities 70,402 72,625 73,150 69,574 Earning assets financed by noninterest-bearing funds $ 2,091 $ 7,496 $ 2,698 $ 7,362 AVERAGE RATES (fully taxable basis) Yield on interest-earning assets 6.70% 5.94% 6.58% 5.77% Cost of interest-bearing liabilities 5.31 4.56 4.99 4.47 Interest rate spread 1.39 1.38 1.59 1.30 Contribution of noninterest-bearing funds .15 .42 .18 .43 Net interest margin 1.54% 1.80% 1.77% 1.73%
11 REVENUE (continued) Net interest revenue for the third quarter of 1994 totaled $264 million, down $78 million from the third quarter of 1993. Of this decline, $63 million was from trading-related net interest revenue, as shown below. Overall, interest rate spreads remained relatively constant compared with the comparable 1993 period, however, net interest margin declined due to a decrease in the level of average interest-earning assets. Net interest revenue was $943 million for the first nine months of 1994, up $2 million from the first nine months of 1993. The nontrading- related net interest revenue component for the nine-month period of 1994 was $533 million, up $6 million from the comparable 1993 period. The Corporation's 29 basis point improvement in interest rate spread was offset in part by a lower contribution from average non-interest bearing liabilities. The corporation views trading revenue and trading-related net interest revenue in combination, as quantified below (in millions):
Quarter Ended Nine Months Ended September 30, September 30, 1994 1993 1994 1993 Trading Revenue $278 $431 $416 $1,182 Trading-Related Net Interest Revenue 112 175 410 414 Total $390 $606 $826 $1,596
Third Quarter 1994 vs. Third Quarter 1993 This combined total for the third quarter of 1994 was $390 million, a $216 million decrease from the then-record results achieved in the third quarter of 1993 but was up $145 million, or 59 percent, from the second quarter of 1994. The firm's traditional interest, currency and equity risk management products, along with trading and positioning activities in the emerging markets of Latin America, contributed to the current quarter's trading revenue. Nine Months 1994 vs. Nine Months 1993 For the nine months ended September 30, 1994, the combined trading revenue and trading-related net interest revenue decreased $770 million. This decline was primarily attributable to lower revenue from proprietary trading and positioning activities, as market conditions continued to remain difficult during the first nine months of 1994. The main areas of reduced revenue, from the record results achieved during the comparable nine-month period in 1993, were in interest rate-sensitive securities and foreign exchange trading. Also positively impacting trading revenue and net interest revenue for the nine months ended September 30, 1994 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 Nine Months Ended September 30, Increase September 30, Increase 1994 1993 (Decrease) 1994 1993 (Decrease) Trading $278 $431 $(153) $ 416 $1,182 $(766) Fiduciary and funds management 188 183 5 563 518 45 Fees and commissions Corporate finance fees 76 119 (43) 299 299 - Service charges on deposit accounts 21 22 (1) 65 69 (4) Acceptances and letters of credit commissions 12 13 (1) 33 38 (5) Other 54 44 10 143 112 31 Total fees and commissions 163 198 (35) 540 518 22 Securities available for sale gains 28 - 28 51 - 51 Investment securities gains - 3 (3) - 15 (15) Other noninterest revenue Insurance premiums 43 30 13 139 95 44 Net revenue from equity investment transactions, including write-offs 4 64 (60) 59 122 (63) Other 3 20 (17) 81 45 36 Total other noninterest revenue 50 114 (64) 279 262 17 Total noninterest revenue $707 $929 $(222) $1,849 $2,495 $(646)
Third Quarter 1994 vs. Third Quarter 1993 Fiduciary and funds management revenue totaled $188 million for the third quarter, up $5 million, or 3 percent, from the same period last year. Higher revenue resulted from continued growth in global private banking assets under management, global custody and securities lending. These results were mostly offset by lower performance-based funds management fees. Fees and commissions of $163 million decreased by $35 million, or 18 percent, from the third quarter of 1993. Corporate finance fees decreased by $43 million, to $76 million, due to decreases in financing and advisory activities. Other noninterest revenue totaled $50 million, down $64 million from the prior year's quarter. This decline was due in part to a $60 million decrease in net revenue from equity investment transactions. Also impacting other noninterest revenue at September 30, 1994, was a provision for a contingency in the funds management business similar to a charge taken earlier in 1994. Subsequent to this date, the contingency has been realized. This decline in revenue was offset in part by higher insurance premium revenue from operations in Chile and an increase in equity in income of unconsolidated subsidiaries. 13 Nine Months 1994 vs. Nine Months 1993 Fiduciary and funds management revenue of $563 million increased $45 million, or 9 percent, from the first nine months of 1993. Continued growth in global 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 funds management fees, which declined during this period. Fees and commissions increased $22 million, or 4 percent, from the first nine months of 1993. Corporate finance fees of $299 million were unchanged from the first nine months of 1993. Higher fees from loan syndication and private placement activities, were mostly offset by lower leasing syndication and securities underwriting fees. Other noninterest revenue totaled $279 million, up $17 million from the first nine months of 1993. This increase was due to several factors including a $44 million increase in 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. These results were offset in part by a $63 million decrease in net revenue from equity investment transactions as well as the previously mentioned provision and subsequent realization of a contingency in the funds management business. PROVISION AND ALLOWANCE FOR CREDIT LOSSES The provision for credit losses is dependent upon management's evaluation as to the amount needed to maintain the allowance for credit losses at a level considered appropriate in relation to the risk of losses inherent in the portfolio. The provision for credit losses for the current and prior year third quarter was $17 million. Net charge-offs for the quarter were $28 million, down from $33 million a year ago. Nonrefinancing country net charge-offs for the current quarter were $33 million, which included $32 million of real estate loans, compared with $45 million in the prior year's third quarter, which included $27 million of real estate loans. Refinancing country net recoveries for the third quarter of 1994 were $5 million, compared with $12 million of net recoveries in last year's third quarter. For the nine months ended September 30, 1994, the provision for credit losses was $17 million, down from $70 million for the corresponding period in the prior year, reflecting the improved trend in asset quality. Total net charge-offs for the first nine months of 1994 were $12 million, compared with $205 million a year ago. Nonrefinancing country net charge- offs were $47 million in the first nine months of 1994, and included $46 million of real estate loans. In the first nine months of 1993, the Corporation recorded $213 million of nonrefinancing country net charge- offs, which included charge-offs of $79 million which resulted from the sale of Mexican government Par Bonds and Discount Bonds, as well as $78 million of real estate loans and $16 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 Nine Months Ended September 30, September 30, 1994 1993 1994 1993 Allowance for credit losses Balance, beginning of period $1,340 $1,501 $1,324 $1,620 Net charge-offs Charge-offs 37 55 75 260 Recoveries 9 22 63 55 Total net charge-offs* 28 33 12 205 Provision for credit losses 17 17 17 70 Balance, end of period $1,329 $1,485 $1,329 $1,485 *Components: Secured by real estate $12 $ 26 $ 24 $ 76 Real estate related 20 1 22 2 Highly leveraged 1 (1) (8) 16 Other - 19 9 119 Refinancing country (5) (12) (35) (8) Total $28 $ 33 $ 12 $205
The allowance for credit losses, at $1.329 billion at September 30, 1994, was down $11 million from its level at June 30, 1994, and was up $5 million from December 31, 1993. The allowance was equal to 192 percent, 180 percent and 136 percent of total cash basis loans at September 30, 1994, June 30, 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 Third Quarter 1994 vs. Third Quarter 1993 Total noninterest expenses of $713 million decreased by $76 million, or 10 percent, from the third quarter of 1993. Incentive compensation and employee benefits expense decreased $129 million, or 40 percent, due almost entirely to lower bonus expense reflecting the reduced earnings. Salaries expense increased $24 million, or 14 percent, from the third quarter of 1993. The average number of employees increased by 5 percent versus the same period, to 14,094. Of this increase, approximately 75 percent was in business growth areas in BT Australia Limited, Asian merchant banking and Chilean insurance subsidiaries. 15 EXPENSES (continued) All other expenses totaled $316 million for the quarter, up $29 million, or 10 percent, from last year's third quarter. Increases in the provision for policyholder benefits, agency personnel fees and service bureaus accounted for substantially all of this increase. Nine Months 1994 vs. Nine Months 1993 Total noninterest expenses of $2.042 billion for the first nine months of 1994 decreased by $177 million from the first nine months of 1993. Incentive compensation and employee benefits expense decreased $349 million, or 38 percent almost entirely due to lower bonus expense reflecting the reduced earnings. Salaries expense increased $58 million, or 11 percent, from the first nine months of 1993. The average number of employees increased by 5 percent versus the same period, to 13,856. All other expenses for the first nine months of 1994 totaled $915 million, up $114 million, or 14 percent, from the first nine months of 1993. Increases in the provision for policyholder benefits, service bureaus, agency personnel fees and minority interest accounted for substantially all of this increase. INCOME TAXES Income tax expense for the third quarter of 1994 amounted to $72 million, compared with $155 million for the third quarter of 1993. For the first nine months of 1994, income tax expense was $219 million, compared with $356 million for the first nine months of 1993. The effective tax rate was 30 percent for the quarter and nine months ended September 30, 1994, compared with 33 percent and 31 percent for the quarter and nine months ended September 30, 1993, respectively. The nine 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 16 EARNINGS PER COMMON SHARE (continued) 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 nine month periods ended September 30, 1994 and 1993 did the Corporation have outstanding any securities which were convertible to the Parent Company's common stock. 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 Nine Months Ended September 30, September 30, 1994 1993 1994 1993 Earnings applicable to common stock: Income before cumulative effects of accounting changes $161 $305 $492 $774 Cumulative effects of accounting changes - - - (75) Net income $161 $305 $492 $699 Average number of common shares outstanding 78.564 82.159 79.430 82.625 Primary earning per share Average number of common and common equivalent shares outstanding 81.377 84.648 82.397 84.656 Fully diluted earnings per share Average number of common and common equivalent shares outstanding - assuming full dilution 81.427 84.792 82.429 84.832
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) 3rd Qtr 2nd Qtr 4th Qtr 1994 1994 1993 ASSETS Interest-bearing deposits with banks $ 1,164 $ 1,273 $ 2,042 Federal funds sold 326 425 488 Securities purchased under resale agreements 12,777 13,007 8,791 Securities borrowed 5,136 4,622 2,343 Trading assets 34,151 35,977 41,942 Securities available for sale Taxable 6,176 4,828 - Exempt from federal income taxes 1,008 1,389 - Total securities available for sale 7,184 6,217 - Investment securities Taxable - - 5,541 Exempt from federal income taxes - - 1,030 Total investment securities - - 6,571 Loans 11,755 12,586 14,211 Total interest-earning assets 72,493 74,107 76,388 Cash and due from banks 1,970 1,826 1,971 Noninterest-earning trading assets 21,511 19,297 3,772 All other assets 7,728 8,015 6,528 Allowance for credit losses (1,346) (1,349) (1,494) Total $102,356 $101,896 $87,165 LIABILITIES Interest-bearing deposits In domestic offices $ 6,044 $ 6,193 $ 8,511 In foreign offices 11,728 11,144 12,410 Total interest-bearing deposits 17,772 17,337 20,921 Trading liabilities 9,884 9,616 7,430 Securities sold under repurchase agreements 20,092 22,265 21,671 Other short-term borrowings 16,970 16,361 14,504 Long-term debt 5,684 5,618 5,450 Total interest-bearing liabilities 70,402 71,197 69,976 Noninterest-bearing deposits 3,689 3,623 3,932 Noninterest-bearing trading liabilities 17,056 14,748 1,694 All other liabilities 6,147 7,280 6,883 Total liabilities 97,294 96,848 82,485 PREFERRED STOCK OF SUBSIDIARY 250 250 250 STOCKHOLDERS' EQUITY Preferred stock 448 450 250 Common stockholders' equity 4,364 4,348 4,180 Total stockholders' equity 4,812 4,798 4,430 Total $102,356 $101,896 $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) Third Quarter 1994 vs. Second Quarter 1994 The Corporation's average total assets amounted to $102.4 billion for the third quarter of 1994, an increase of $460 million from the second quarter of 1994. Average interest-earning assets decreased $1.6 billion, or 2 percent, and the proportion of interest-earning assets to total assets decreased slightly, from 73 percent to 71 percent. The decrease in interest-earning assets was primarily due to the decrease in interest- earning trading assets (down $1.8 billion, or 5 percent). As a percentage of average total assets, interest-earning trading assets decreased from 35 percent to 33 percent in the third quarter of 1994. Interest-bearing liabilities decreased $795 million from the second quarter of 1994. This decrease was primarily attributable to a decrease in securities sold under repurchase agreements (down $2.2 billion, or 10 percent) offset in part by increases in other short-term borrowings (up $609 million, or 4 percent) and total interest-bearing deposits (up $435 million, or 3 percent). Total short-term borrowings (securities sold under repurchase agreements and other short-term borrowings) as a percentage of total interest-bearing liabilities decreased slightly to 53 percent, from 54 percent in the second quarter of 1994. Third Quarter 1994 vs. Fourth Quarter 1993 The Corporation's average total assets for the third quarter of 1994, increased $15.2 billion, or 17 percent, from the fourth quarter of 1993. Noninterest-earning trading assets increased $17.7 billion due primarily to the adoption of FASB Interpretation No. 39, effective January 1, 1994. Average interest-earning assets decreased $3.9 billion and the proportion of interest-earning assets to total assets decreased, from 88 percent to 71 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 $7.8 billion, or 19 percent) and loans (down $2.5 billion, or 17 percent) offset by increases in securities purchased under resale agreements (up $4.0 billion, or 45 percent) and securities borrowed (up $2.8 billion, or 119 percent). As a percentage of average total assets, interest-earning trading assets decreased from 48 percent to 33 percent in the third quarter of 1994, while loans decreased from 16 percent to 11 percent. Average total liabilities increased $14.8 billion, or 18 percent, from the fourth quarter of 1993. Noninterest-bearing trading liabilities increased $15.4 billion due primarily to the adoption of FASB Interpretation No. 39. Interest-bearing liabilities increased $426 million from last year's fourth quarter. This increase was primarily attributable to higher levels of trading liabilities (up $2.5 billion, or 33 percent) and other short-term borrowings (up $2.5 billion, or 17 percent) offset by a decrease in total interest-bearing deposits (down $3.1 billion, or 15 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 53 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):
September 30,December 31, 1994 1993 TRADING ASSETS U.S. government and agency securities $17,015 $19,648 Obligations of U.S. states and political subdivisions 158 494 Foreign government securities 7,045 13,229 Corporate debt securities 6,147 5,565 Equity securities 4,316 3,804 Bankers acceptances and certificates of deposit 1,707 2,178 Swaps, options and other derivative contracts (1) 14,300 732 Other 3,492 2,626 Total trading assets $54,180 $48,276 TRADING LIABILITIES Securities sold, not yet purchased U.S. government and agency securities $ 5,236 $4,023 Foreign government securities 1,725 3,099 Equity securities 2,370 1,644 Other 361 583 Swaps, options and other derivative contracts (1) 11,967 - Total trading liabilities $21,659 $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 September 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):
September 30, June 30,December 31, 1994 1994 1993 Fair value $7,036 $6,961 $7,073 Amortized cost 6,855 6,783 6,898 Excess of fair value over amortized cost (1) $ 181 $ 178 $ 175 (1) Components: Unrealized gains $240 $254 $ 308 Unrealized losses (59) (76) (133) $181 $178 $ 175
Long-term Debt During the third quarter of 1994, the Corporation obtained $897 million of cash proceeds from the issuances of long-term debt and repaid $429 million of long-term debt. The larger of these debt issuances were as follows (in millions):
Face Amount Parent Company Japanese Yen Libor Linked Notes due December 1995 to October 2001 $158 Bankers Trust Company Redeemable Preference Securities due September 1996 $433
21 BALANCE SHEET ANALYSIS (continued) Preferred Stock Issuance/Redemption On August 22, 1994, the Parent Company issued $150 million, or 6 million depositary shares at $25 per share, each representing a one- hundredth interest in a share of Adjustable Rate Cumulative Preferred Stock, Series R (Liquidation Preference - $2,500 per share) ("Series R"). At the option of the Parent Company, the Series R may be redeemed, in whole or in part, on or after September 1, 1999, at $2,500 per share (or $25 per depositary share), plus, in each case, accrued and unpaid dividends to the redemption date. Any optional redemption shall be with the approval of the Federal Reserve Board unless at that time that body should determine that its approval is not required. Dividends on the Series R are cumulative and payable quarterly on March 1, June 1, September 1 and December 1 of each year. The dividend rate is determined by a formula that considers the interest rates of selected short- and long-term U.S. Treasury securities at the time the rate is set. In no event will the dividend rate be less than 4 1/2 percent per annum. A more detailed description of the terms of the Series R is contained in the Prospectus, as supplemented, which was filed with the Securities and Exchange Commission. During the third quarter of 1994, the Parent Company redeemed its Fixed/Adjustable Rate Cumulative Preferred Stock, Series D. As a result of the issuance and redemption of preferred stock during the quarter, the preferred stock component of total stockholders' equity decreased by $55 million. 22 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 September 30, 1994, total net end-user derivative unrealized losses were $297 million, compared to $199 million of total net end-user derivative unrealized losses at June 30, 1994. The $98 million increase during the third 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 September 30, 1994 assets deposits ings debt Total Interest Rate Swap Pay Variable Unrealized Gain $- $ 29 $ 2 $ 33 $ 64 Pay Variable Unrealized (Loss) - (118) (4) (170) (292) Pay Variable Net - (89) (2) (137) (228) Pay Fixed Unrealized Gain - 56 - 13 69 Pay Fixed Unrealized (Loss) - (48) - (29) (77) Pay Fixed Net - 8 - (16) (8) Total Unrealized Gain - 85 2 46 133 Total Unrealized (Loss) - (166) (4) (199) (369) Total Net $- $ (81) $(2) $(153) $(236) Currency Swap Unrealized Gain $- $ 4 $ 1 $ 13 $ 18 Unrealized (Loss) - (6) (1) (17) (24) Net $- $(2) $ - $ (4) $ (6) Equity Swap/Collar Unrealized Gain $ 8 $- $- $- $ 8 Unrealized (Loss) (63) - - - (63) Net $(55) $- $- $- $(55) Total Unrealized Gain $ 8 $ 89 $ 3 $ 59 $ 159 Total Unrealized (Loss) (63) (172) (5) (216) (456) Total Net $(55) $ (83) $(2) $(157) $(297)
23 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 $40 million and $20 million, respectively, at September 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 $14 million. For pay variable and pay fixed interest rate swaps entered into as end user, the weighted average receive rate and weighted average pay rate (interest rates were based on the weighted averages of both U.S. and non- U.S. currencies) by maturity and corresponding notional amounts at September 30, 1994 were as follows ($ in millions):
Notional Amount Paying Variable Paying Fixed Maturing Notional Receive Pay Notional Receive Pay Total In: Amount Rate Rate Amount Rate Rate Notional 1994 $ 2,772 4.48% 5.00% $1,290 4.96% 5.17% $ 4,062 1995-1996 10,616 5.44 4.88 3,504 4.46 5.80 14,120 1997-1998 3,424 5.51 4.94 1,647 4.65 6.09 5,071 1999 and thereafter 4,963 6.09 5.09 1,876 4.60 6.96 6,839 Total $21,775 $8,317 $30,092 All rates were those in effect at September 30, 1994.
24 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 September 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 September 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 September 30, December 31, Regulatory 1994 1993 Guidelines CORPORATION Risk-Based Ratios Tier 1 Capital 8.22% 8.50% 4.0% Total Capital 13.48% 14.46% 8.0% Leverage Ratio 5.54% 6.28% 3.0% BTCo. Risk-Based Ratios Tier 1 Capital 9.24% 9.38% 4.0% Total Capital 12.10% 12.96% 8.0% Leverage Ratio 6.09% 6.01% 3.0%
The following were the essential components of the Corporation's risk- based capital ratios (in millions):
September 30,December 31, 1994 1993 Tier 1 Capital $4,393 $4,072 Tier 2 Capital 2,809 2,859 Total Capital $7,202 $6,931 Total risk-weighted assets $53,413 $47,916
25 REGULATORY CAPITAL (continued) During the first nine months of 1994, each of the Corporation's three regulatory capital ratios declined. The Tier 1 Capital and Total Capital ratios declined by 28 basis points and 98 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 74 basis points as a result of a 22 percent increase in quarterly average total assets, primarily due to the adoption of FASB Interpretation No. 39. The $321 million increase in Tier 1 Capital was primarily attributable to the retention of earnings, the issuance of Series Q and Series R Preferred Stock and the inclusion of net deferred tax assets which are permissible for regulatory capital offset in part by the redemption of Series D Fixed/Adjustable Rate Cumulative Preferred Stock and the Corporation's previously announced stock repurchase plan. The Corporation's total risk- weighted assets at September 30, 1994 were $5.497 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 our 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 September 30, 1994, the Corporation's liquid assets amounted to $88.1 billion, or 81 percent of gross total assets, compared with 81 percent and 77 percent, respectively, at June 30, 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 $30 million during the first nine months of 1994, as the net cash used in investing activities exceeded the sum of net cash provided by operating and financing activities. The $8.3 billion of net cash used in investing activities was largely the result of cash outflows from net changes in securities purchased under resale agreements ($5.5 billion), as well as from purchases of securities available for sale ($4.4 billion) and net changes in securities borrowed ($2.8 billion). These factors were partially offset by cash inflows from sales, maturities and other redemptions of securities available for sale ($4.0 billion). The $5.5 billion of net cash provided by operating activities primarily resulted from a $6.7 billion net change in trading assets and liabilities. Within the financing activities category, cash inflows from the net changes in other short-term borrowings ($2.5 billion), as well as from the issuance of long-term debt ($1.8 billion) and net changes in securities sold under repurchase agreements ($1.4 billion) were offset in part by cash outflows from repayments of long-term debt ($1.4 billion) and the net change in deposits ($1.1 billion). 26 LIQUIDITY (continued) For the nine months ended September 30, 1993, cash and due from banks increased $359 million, as the sum of net cash provided by financing and investing activities exceeded the net cash used in operating activities. The $8.4 billion of net cash provided by financing activities resulted from increases of $5.4 billion in other short-term borrowings and $4.7 billion in securities sold under repurchase agreements, partially offset by a $2.7 billion decrease in deposits. Within the investing activities category, cash inflows from sales, maturities and other redemptions of investment securities ($6.3 billion) and net changes in loans ($1.7 billion) and securities borrowed ($1.6 billion) were offset in part by cash outflows from purchases of investment securities ($6.8 billion) as well as net changes in securities purchased under resale agreements ($1.6 billion). The $10.1 billion of net cash used in operating activities primarily resulted from a $12.1 billion increase in net trading assets, offset in part by $1.3 billion of earnings adjusted for noncash charges and credits. Interest Rate Sensitivity Condensed interest rate sensitivity data for the Corporation at September 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) September 30, 1994 1 year years 5 years funds Total Assets $ 74.3 $ 2.3 $ 3.1 $ 27.9 $ 107.6 Liabilities, preferred stock of subsidiary and preferred stock (73.2) (4.1) (1.6) (24.3) (103.2) Common stockholders' equity - - - (4.4) (4.4) Effect of off-balance sheet hedging instruments (3.8) 3.0 .8 - - Interest rate sensitivity gap $ (2.7) $ 1.2 $ 2.3 $ (.8) $ -
27 NONPERFORMING ASSETS The components of cash basis loans, renegotiated loans, other real estate and other nonperforming assets are shown below ($ in millions).
September 30,December 31, 1994 1993 CASH BASIS LOANS (NONREFINANCING COUNTRY) Domestic Commercial and industrial $179 $285 Secured by real estate 278 306 Financial institutions 25 30 Total domestic 482 621 International Commercial and industrial 120 84 Secured by real estate 87 149 Other 2 2 Total international 209 235 Total cash basis loans (nonrefinancing country) 691 856 CASH BASIS LOANS (REFINANCING COUNTRY) International 2 118 Total cash basis loans $693 $974 Ratio of cash basis loans to total loans 5.6% 6.4% Ratio of allowance for credit losses to cash basis loans 192% 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 $330 $287 OTHER NONPERFORMING ASSETS Assets acquired in credit workouts $54 $ 85 Nonperforming derivative contracts 13 16 Total other nonperforming assets $67 $101 Loans 90 days or more past due and still accruing interest $16 $40
28 NONPERFORMING ASSETS (continued) An analysis of the changes in the Corporation's total cash basis loans during the first nine months of 1994 follows (in millions).
Balance, December 31, 1993 $974 Net transfers from accrual status 86 Net paydowns (93) Charge-offs (71) Transfers to other real estate (72) Transfers to other nonperforming assets (2) Loan sales (47) Other (82) Balance, September 30, 1994 $693
The Corporation's total cash basis loans amounted to $693 million at September 30, 1994, down $281 million, or 29 percent, from December 31, 1993. Nonrefinancing country cash basis loans decreased $165 million and the refinancing country component of the cash basis portfolio decreased $116 million during the first nine months of 1994. Within total nonrefinancing country cash basis loans were loans secured by real estate of $365 million and $455 million at September 30, 1994 and December 31, 1993, respectively. Also within nonrefinancing country cash basis loans, real estate related loans (included within the domestic commercial and industrial category in the table on page 27) decreased $31 million, to $27 million, during the first nine months of 1994. Other real estate increased by $43 million and assets acquired in credit workouts decreased by $31 million during the same period. 29 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 September 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.
Nine Months Ended September 30, (in millions) 1994 1993 Domestic Loans Gross amount of interest that would have been recorded at original rate $30 $44 Less, interest, net of reversals, recognized in interest revenue 3 6 Reduction of interest revenue 27 38 International Loans Gross amount of interest that would have been recorded at original rate 12 38 Less, interest, net of reversals, recognized in interest revenue 3 42 Reduction of (Increase in) interest revenue 9 (4) Total reduction of interest revenue $36 $34
30 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 September 30, December 31, (in millions) 1994 1993 Loans Senior debt $685 $1,314 Subordinated debt 124 126 Total loans $809 $1,440 Unfunded commitments Commitments to lend $240 $603 Letters of credit 183 201 Total unfunded commitments $423 $804 Equity investments $401 $477 Commitments to invest $165 $127
The Corporation's outstanding loans were to 83 separate borrowers in 33 separate industry groups at September 30, 1994, compared to 105 separate borrowers in 35 separate industry groups at December 31, 1993. Processed foods and beverages, at 12 percent, was the only industry concentration which exceeded 10 percent of total HLT loans outstanding at September 30, 1994. In addition to the amounts shown in the table above, at September 30, 1994, the Corporation had issued commitment letters which had been accepted, subject to documentation and certain other conditions, of $2.1 billion (which were in various stages of syndication) and had additional HLTs in various stages of discussion and negotiation. During the first nine months of 1994, the Corporation originated $1.2 billion of HLT commitments, of which $413 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 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 September 30, 1994 was less than $10 million. However, at September 30, 1994, the Corporation had total exposure (loans outstanding plus unfunded commitments) in excess of $50 million to 6 separate highly leveraged borrowers. 31 HIGHLY LEVERAGED TRANSACTIONS (continued) At September 30, 1994, $188 million of the HLT loan portfolio was on a cash basis. In addition, $6 million of the equity investments in HLT companies represented assets acquired in credit workouts, which are reported as other nonperforming assets. Net recoveries of $8 million of HLT loans were recorded in the first nine months of 1994. In addition, the Corporation recorded a net gain of $40 million in connection with the sales and/or write-offs of its equity investments in highly leveraged companies during the first nine months 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 $70 million during the first nine months of 1994 and that as of September 30, 1994, approximately $12 million of fees were deferred and will be recognized as future revenue. During the first quarter 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. These and other trading assets have been excluded from the Corporation's HLT outstandings at September 30, 1994 as reported above. No significant impact on earnings was recorded as a result of this transfer. 32 RECENT DEVELOPMENTS Following the sharp increase in interest rates in the first quarter of this year, various counterparties experienced losses in connection with leveraged derivatives transactions they had entered into with certain subsidiaries of the Corporation. Various cases, which are being contested, have been brought against these subsidiaries seeking damages and other remedies. In addition, various regulatory authorities are investigating these events, and the Corporation is cooperating in those investigations. Finally, two shareholder derivative actions have been filed in connection with these events. The Corporation cannot predict the effect on the derivatives business generally, or the Corporation's derivative business in particular, of these events or of the current legislative, regulatory and media attention being given to the derivatives industry. 33 PART II. OTHER INFORMATION 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 (27) Financial Data Schedule (b) Reports on Form 8-K - Bankers Trust New York Corporation filed two reports on Form 8-K during the quarter ended September 30, 1994. - The report dated July 22, 1994 filed the Corporation's Press Release dated July 22, 1994, which announced earnings for the quarter ended June 30, 1994. - The report dated August 12, 1994 filed an underwriting agreement covering the issuance and sale by Bankers Trust New York Corporation of 6,000,000 Depositary Shares, each representing a one-hundredth interest in a share of Adjustable Rate Cumulative Preferred Stock, Series R and various other exhibits related to the issuance. 34 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 November 14, 1994. BANKERS TRUST NEW YORK CORPORATION BY: GEOFFREY M. FLETCHER Geoffrey M. Fletcher Senior Vice President and Principal Accounting Officer EX-12 2 EXHIBIT 12(a) BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES COMPUTATION OF CONSOLIDATED RATIOS OF EARNINGS TO FIXED CHARGES (dollars in millions)
Nine Months Ended Year Ended December 31, Sept. 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 $ 733 2. Add: Fixed charges excluding capitalized interest (Line 10) 4,803 4,826 3,614 3,099 3,148 2,750 3. Less: Equity in undistri- buted income of unconsolidated subsidiaries and affiliates 14 47 31 40 30 33 4. Earnings including interest on deposits 3,974 5,594 4,417 3,965 4,668 3,450 5. Less: Interest on deposits 2,253 2,226 1,589 1,119 1,013 650 6. Earnings excluding interest on deposits$1,721 $3,368 $2,828 $2,846 $3,655 $2,800 Fixed Charges: 7. Interest Expense $4,775 $4,799 $3,585 $3,072 $3,122 $2,730 8. Estimated interest component of net rental expense 26 27 29 27 26 20 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 2,750 11. Add: Capitalized interest 5 - - - - - 12. Total fixed charges 4,808 4,826 3,614 3,099 3,148 2,750 13. Less: Interest on deposits (Line 5) 2,253 2,226 1,589 1,119 1,013 650 14. Fixed charges excluding interest on deposits $2,555 $2,600 $2,025 $1,980 $2,135 $2,100 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 1.25 Excluding interest on deposits (Line 6/Line 14) 0.67 1.30 1.40 1.44 1.71 1.33 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 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)
Nine Months Ended Year Ended December 31, Sept. 30, 1989 1990 1991 1992 1993 1994 Earnings: 1. Income (loss) before income taxes and cumulative effect of accounting changes $ (815) $ 815 $ 834 $ 906 $1,550 $ 733 2. Add: Fixed charges excluding capitalized interest (Line 13) 4,803 4,826 3,614 3,099 3,148 2,750 3. Less: Equity in undistri- buted income of unconsolidated subsidiaries and affiliates 14 47 31 40 30 33 4. Earnings including interest on deposits 3,974 5,594 4,417 3,965 4,668 3,450 5. Less: Interest on deposits 2,253 2,226 1,589 1,119 1,013 650 6. Earnings excluding interest on deposits$1,721 $3,368 $2,828 $2,846 $3,655 $2,800 Preferred Stock Dividend Requirements: 7. Preferred stock dividend requirements $ 7 $ 31 $ 34 $ 30 $ 23 $ 22 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 $ 31 Fixed Charges: 10. Interest Expense $4,775 $4,799 $3,585 $3,072 $3,122 $2,730 11. Estimated interest component of net rental expense 26 27 29 27 26 20 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 2,750 14. Add: Capitalized interest 5 - - - - - 15. Total fixed charges 4,808 4,826 3,614 3,099 3,148 2,750 16. Add: Preferred stock dividend require- ments - pretax (Line 9) 9 38 43 43 33 31 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 2,781 18. Less: Interest on deposits (Line 5) 2,253 2,226 1,589 1,119 1,013 650 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 $2,131 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 1.24 Excluding interest on deposits (Line 6/Line 19) 0.67 1.28 1.37 1.41 1.69 1.31 * 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 November 14, 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 September 30, 1994 (the "Form 10-Q"). The Form 10-Q is being filed electronically through the EDGAR System. If there are any question 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 Attachment EX-27 4
9 1,000,000 9-MOS QTR-3 DEC-31-1994 DEC-31-1994 JAN-01-1994 JUL-01-1994 SEP-30-1994 SEP-30-1994 1,780 1,780 3,055 3,055 16,385 16,385 54,180 54,180 7,036 7,036 0 0 0 0 12,268 12,268 (1,329) (1,329) 107,559 107,559 22,308 22,308 46,102 46,102 6,161 6,161 6,054 6,054 84 84 0 0 395 395 4,252 4,252 107,559 107,559 638 202 273 105 814 305 3,673 1,207 650 241 2,730 943 943 264 17 17 51 28 2,042 713 733 241 733 241 0 0 0 0 514 169 5.97 1.98 5.97 1.98 1.77 1.54 693 693 16 16 14 14 0 0 1,324 1,340 75 37 63 9 1,329 1,329 167 167 232 232 930 930
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