-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, OozQtsj35ZIqiYW8yXIhTYb/xWok5USEnE5W0JacS7WzKoTfVTh0ePsauJph0Cso vuFQcswNe6NrfExUepHbeQ== 0000009749-95-000105.txt : 19951120 0000009749-95-000105.hdr.sgml : 19951120 ACCESSION NUMBER: 0000009749-95-000105 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19950930 FILED AS OF DATE: 19951114 SROS: AMEX SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: BANKERS TRUST NEW YORK CORP CENTRAL INDEX KEY: 0000009749 STANDARD INDUSTRIAL CLASSIFICATION: STATE COMMERCIAL BANKS [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: 95593186 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, 1995 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, 1995: Common Stock, $1 par value, 78,687,725 shares. 1 BANKERS TRUST NEW YORK CORPORATION September 30, 1995 FORM 10-Q TABLE OF CONTENTS Page PART I. FINANCIAL INFORMATION Item 1. Financial Statements Consolidated Statement of Income Three Months Ended September 30, 1995 and 1994 2 Nine Months Ended September 30, 1995 and 1994 3 Consolidated Balance Sheet At September 30, 1995 and December 31, 1994 4 Consolidated Statement of Changes in Stockholders' Equity Nine Months Ended September 30, 1995 and 1994 5 Consolidated Statement of Cash Flows Nine Months Ended September 30, 1995 and 1994 6 Consolidated Schedule of Net Interest Revenue Three Months and Nine Months Ended September 30, 1995 and 1994 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. The results of operations for the three months and nine months ended September 30, 1995 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 1994 Annual Report as supplemented by the 1995 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 36 SIGNATURE 37 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, 1995 1994 (Decrease) NET INTEREST REVENUE Interest revenue $1,556 $1,207 $349 Interest expense 1,352 943 409 Net interest revenue 204 264 (60) Provision for credit losses 7 17 (10) Net interest revenue after provision for credit losses 197 247 (50) NONINTEREST REVENUE Trading 257 278 (21) Fiduciary and funds management 174 188 (14) Fees and commissions 152 163 (11) Securities available for sale gains 10 28 (18) Other 162 50 112 Total noninterest revenue 755 707 48 NONINTEREST EXPENSES Salaries 196 200 (4) Incentive compensation and employee benefits 187 197 (10) Occupancy, net 41 40 1 Furniture and equipment 40 42 (2) Other 264 234 30 Total noninterest expenses 728 713 15 Income before income taxes 224 241 (17) Income taxes 69 72 (3) NET INCOME $ 155 $ 169 $(14) NET INCOME APPLICABLE TO COMMON STOCK $ 139 $ 161 $(22) EARNINGS PER COMMON SHARE: PRIMARY $1.72 $1.98 $(.26) FULLY DILUTED $1.71 $1.98 $(.27) Cash dividends declared per common share $1.00 $.90 $.10
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, 1995 1994 (Decrease) NET INTEREST REVENUE Interest revenue $4,429 $3,673 $ 756 Interest expense 3,821 2,730 1,091 Net interest revenue 608 943 (335) Provision for credit losses 21 17 4 Net interest revenue after provision for credit losses 587 926 (339) NONINTEREST REVENUE Trading 258 416 (158) Fiduciary and funds management 511 563 (52) Fees and commissions 508 540 (32) Securities available for sale gains 29 51 (22) Other 378 279 99 Total noninterest revenue 1,684 1,849 (165) NONINTEREST EXPENSES Salaries 598 566 32 Incentive compensation and employee benefits 455 561 (106) Occupancy, net 120 115 5 Furniture and equipment 122 118 4 Provision for severance-related costs 50 - 50 Other 795 682 113 Total noninterest expenses 2,140 2,042 98 Income before income taxes 131 733 (602) Income taxes 42 219 (177) NET INCOME $ 89 $ 514 $ (425) NET INCOME APPLICABLE TO COMMON STOCK $ 53 $ 492 $ (439) EARNINGS PER COMMON SHARE: PRIMARY $.66 $5.97 $(5.31) FULLY DILUTED $.65 $5.97 $(5.32) Cash dividends declared per common share $3.00 $2.70 $.30
4 BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET ($ in millions, except par value) (unaudited)
September 30, December 31, 1995 1994 ASSETS Cash and due from banks $ 1,715 $ 1,985 Interest-bearing deposits with banks 1,605 3,390 Federal funds sold 29 2,544 Securities purchased under resale agreements 16,081 9,943 Securities borrowed 7,467 6,197 Trading assets 50,364 47,514 Securities available for sale 7,140 7,475 Loans 12,786 12,501 Allowance for credit losses (1,032) (1,252) Premises and equipment, net 900 915 Due from customers on acceptances 461 378 Accounts receivable and accrued interest 3,168 2,356 Other assets 3,265 3,070 Total $103,949 $97,016 LIABILITIES Deposits Noninterest-bearing In domestic offices $ 2,898 $ 3,285 In foreign offices 522 541 Interest-bearing In domestic offices 5,052 5,769 In foreign offices 15,685 15,344 Total deposits 24,157 24,939 Trading liabilities 24,672 20,949 Securities sold under repurchase agreements 17,899 15,617 Other short-term borrowings 16,573 18,222 Acceptances outstanding 461 378 Accounts payable and accrued expenses 4,351 3,174 Other liabilities 2,171 2,328 Long-term debt 8,354 6,455 Total liabilities 98,638 92,062 PREFERRED STOCK OF SUBSIDIARY 250 250 STOCKHOLDERS' EQUITY Preferred stock 865 395 Common stock, $1 par value Authorized, 300,000,000 shares Issued, 83,678,973 shares 84 84 Capital surplus 1,301 1,317 Retained earnings 3,295 3,494 Common stock in treasury, at cost: 1995, 5,085,045 shares; 1994, 5,609,707 shares (373) (416) Other (111) (170) Total stockholders' equity 5,061 4,704 Total $103,949 $97,016
5 BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (in millions) (unaudited)
NINE MONTHS ENDED SEPTEMBER 30, 1995 1994 PREFERRED STOCK Balance, January 1 $ 395 $ 250 Preferred stock issued 470 350 Preferred stock redeemed - (205) Balance, September 30 865 395 COMMON STOCK Balance, January 1 and September 30 84 84 CAPITAL SURPLUS Balance, January 1 1,317 1,321 Preferred stock issuance and conversion costs (17) (8) Common stock distributed under employee benefit plans 1 3 Balance, September 30 1,301 1,316 RETAINED EARNINGS Balance, January 1 3,494 3,226 Net income 89 514 Cash dividends declared Preferred stock (33) (21) Common stock (235) (213) Treasury stock distributed under employee benefit plans (20) (19) Balance, September 30 3,295 3,487 COMMON STOCK IN TREASURY, AT COST Balance, January 1 (416) (233) Purchases of stock (13) (262) Restricted stock granted, net 9 23 Treasury stock distributed under employee benefit plans 47 31 Balance, September 30 (373) (441) COMMON STOCK ISSUABLE - STOCK AWARDS Balance, January 1 160 143 Deferred stock awards granted, net 34 37 Deferred stock distributed (16) (1) Balance, September 30 178 179 DEFERRED COMPENSATION - STOCK AWARDS Balance, January 1 (63) (47) Deferred stock awards granted, net (34) (38) Restricted stock granted, net (7) (20) Amortization of deferred compensation, net 42 47 Balance, September 30 (62) (58) CUMULATIVE TRANSLATION ADJUSTMENTS Balance, January 1 (336) (319) Translation adjustments (9) (57) Income taxes applicable to translation adjustments (4) 51 Balance, September 30 (349) (325) SECURITIES VALUATION ALLOWANCE Balance, January 1 69 109 Change in unrealized net gains, after applicable income taxes and minority interest 53 (15) Balance, September 30 122 94 TOTAL STOCKHOLDERS' EQUITY, SEPTEMBER 30 $5,061 $4,731
6 BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS (in millions) (unaudited)
NINE MONTHS ENDED SEPTEMBER 30, 1995 1994 CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 89 $ 514 Adjustments to reconcile net income to net cash provided by operating activities: Provision for credit losses 21 17 Provision for severance-related costs 50 - Provision for policyholder benefits 202 156 Deferred income taxes (141) 1 Depreciation and amortization of premises and equipment 101 93 Other, net (62) (50) Earnings adjusted for noncash charges and credits 260 731 Net change in: Trading assets (3,610) (5,264) Trading liabilities 4,302 12,003 Receivables and payables from securities transactions 514 (1,798) Other operating assets and liabilities, net (518) (130) Securities available for sale gains (29) (51) Net cash provided by operating activities 919 5,491 CASH FLOWS FROM INVESTING ACTIVITIES Net change in: Interest-bearing deposits with banks 1,618 (1,466) Federal funds sold 2,515 (895) Securities purchased under resale agreements (6,062) (5,542) Securities borrowed (1,270) (2,776) Loans (426) 2,956 Securities available for sale: Purchases (3,034) (4,358) Maturities and other redemptions 2,413 2,472 Sales 1,436 1,575 Acquisitions of premises and equipment (94) (223) Other, net (88) (60) Net cash used in investing activities (2,992) (8,317) CASH FLOWS FROM FINANCING ACTIVITIES Net change in: Deposits (673) (1,127) Securities sold under repurchase agreements 1,946 1,386 Other short-term borrowings (1,498) 2,454 Issuances of long-term debt 3,210 1,813 Repayments of long-term debt (1,137) (1,387) Issuances of preferred stock 221 342 Redemption of preferred stock - (205) Purchases of treasury stock (13) (262) Cash dividends paid (268) (237) Other, net 21 20 Net cash provided by financing activities 1,809 2,797 Net effect of exchange rate changes on cash (6) 59 NET INCREASE (DECREASE) IN CASH AND DUE FROM BANKS (270) 30 Cash and due from banks, beginning of year 1,985 1,750 Cash and due from banks, end of period $ 1,715 $ 1,780 Interest paid $3,618 $2,755 Income taxes paid, net $191 $228 Noncash investing activities $92 $188 Noncash financing activities: Conversion of debt to preferred stock $245 $ - Other - 23 Total noncash financing activities $245 $23
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, 1995 1994 1995 1994 INTEREST REVENUE Interest-bearing deposits with banks $ 45 $ 27 $ 154 $ 85 Federal funds sold 12 3 68 9 Securities purchased under resale agreements 255 114 750 318 Securities borrowed 138 56 371 129 Trading assets 778 700 2,108 2,221 Securities available for sale Taxable 82 76 252 201 Exempt from federal income taxes 13 29 44 72 Loans 233 202 682 638 Total interest revenue 1,556 1,207 4,429 3,673 INTEREST EXPENSE Deposits In domestic offices 93 76 284 183 In foreign offices 236 165 714 467 Trading liabilities 275 180 725 613 Securities sold under repurchase agreements 312 226 858 674 Other short-term borrowings 315 225 920 603 Long-term debt 121 71 320 190 Total interest expense 1,352 943 3,821 2,730 NET INTEREST REVENUE $ 204 $ 264 $ 608 $ 943
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 $155 million for the quarter ended September 30, 1995, or $1.72 primary earnings per share. In the third quarter of 1994, the Corporation earned $169 million, or $1.98 primary earnings per share. For the first nine months of 1995, the Corporation earned $124 million, or $1.09 primary earnings per share, excluding an after-tax provision for severance-related costs of $35 million taken in connection with the Corporation's expense reduction programs. Net income for the first nine months, including the effect of this provision was $89 million, or $.66 primary earnings per share. For the nine months ended September 30, 1994, net income was $514 million, or $5.97 primary earnings per share. 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 1994 Annual Report on Form 10-K. 9 BUSINESS FUNCTIONS (continued)
Business Functions Profitability (in millions) Quarter Ended Nine Months Ended September 30, Increase September 30, Increase 1995 1994 (Decrease) 1995 1994 (Decrease) Client Finance $ 20 $ 19 $ 1 $ 82 $ 98 $ (16) Client Advisory 15 4 11 54 57 (3) Client Financial Risk Management 1 67 (66) (170) 231 (401) Client Transaction Processing 20 20 - 53 78 (25) Trading and Positioning 104 68 36 121 71 50 Unallocated (5) (9) 4 (51) (21) (30) Income (Loss) $155 $169 $(14) $ 89 $514 $(425)
Client Finance - Client Finance income was $20 million in the third quarter of 1995, up $1 million from last year's third quarter. Revenue from loan syndication, private placement and securities underwriting activities was relatively unchanged from the year-ago third quarter. Credit costs for the current quarter were lower than the 1994 third quarter as a result of the continued improvement in the Corporation's loan portfolio. Income for the first nine months of 1995 was $82 million, down from $98 million recorded in the comparable period in 1994. Client Advisory - Client Advisory income was $15 million in the current quarter, an increase of $11 million from the prior year's third quarter. After normalizing for charges taken in the third quarter of 1994 related to the funds management business, Client Advisory income for the third quarter of 1995 was relatively flat compared to the year-ago quarter. Income for the first nine months of 1995 was $54 million, down from $57 million recorded in 1994. Client Financial Risk Management - Although Client Financial Risk Management income of $1 million in the current quarter declined $66 million from last year's third quarter, it increased $50 million from the 1995 second quarter. This improvement in performance versus the second quarter was the result of the elimination of the losses associated with Latin American derivatives, as well as a general improvement in the Firm's other derivatives businesses. Income for the nine months ended September 30, 1995 declined by $401 million from the same period in 1994. Client Transaction Processing - Client Transaction Processing income of $20 million was unchanged from the prior year's third quarter as transaction processing volumes remained relatively steady. Client Transaction Processing income for the first nine months of 1995 declined $25 million from the first nine months of 1994. 10 BUSINESS FUNCTIONS (continued) Trading and Positioning - Trading and Positioning income of $104 million during the current quarter increased $36 million, or 53 percent, from the prior year's third quarter. This increase was due in part to net revenue from equity investment transactions, including a $62 million gain on the sale of a portion of the Corporation's merchant banking investment in Northwest Airlines Corporation. The Corporation recorded higher revenue from both client-related and proprietary trading in foreign exchange markets as compared to the second quarter of 1995. Trading and Positioning income for the first nine months of 1995 improved $50 million, or 70 percent, from the comparable 1994 period. Unallocated - Included in the unallocated category for the first nine months of 1995 was a $35 million after-tax provision taken in the first quarter for severance-related costs associated with the expense reduction programs. 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, 1995 1994 1995 1994 NET INTEREST REVENUE (in millions) Book basis $204 $264 $608 $ 943 Tax equivalent adjustment 11 18 35 60 Fully taxable basis $215 $282 $643 $1,003 AVERAGE BALANCES (in millions) Interest-earning assets $82,288 $72,493 $80,651 $75,848 Interest-bearing liabilities 77,668 70,402 77,002 73,150 Earning assets financed by noninterest-bearing funds $ 4,620 $ 2,091 $ 3,649 $ 2,698 AVERAGE RATES (fully taxable basis) Yield on interest-earning assets 7.56% 6.70% 7.40% 6.58% Cost of interest-bearing liabilities 6.91 5.31 6.63 4.99 Interest rate spread .65 1.39 .77 1.59 Contribution of noninterest-bearing funds .39 .15 .30 .18 Net interest margin 1.04% 1.54% 1.07% 1.77%
Net interest revenue for the third quarter of 1995 totaled $204 million, down $60 million, or 23 percent, from the third quarter of 1994. The third quarter of 1995 included $20 million of trading-related net interest revenue, a decline of $92 million from the third quarter of 1994. 11 REVENUE (continued) Net interest revenue was $608 million for the first nine months of 1995, down $335 million, or 36 percent, from the first nine months of 1994. Of this decline, $332 million was from trading-related net interest revenue. A significant portion of the Firm's trading and risk management activities involve positions in interest rate instruments and related derivatives. The revenue from these activities can periodically shift between trading and net interest, depending on a variety of factors, including risk management strategies. Therefore, the Corporation views trading revenue and trading-related net interest revenue together.
Trading- Related Net Trading Interest (in millions) Revenue Revenue Total Quarter ended September 30, 1995 Interest rate risk $ 89 $27 $116 Foreign exchange risk 68 - 68 Equity and commodity risk 100 (7) 93 Total $257 $20 $277 Quarter ended September 30, 1994 Interest rate risk $107 $118 $225 Foreign exchange risk 85 - 85 Equity and commodity risk 86 (6) 80 Total $278 $112 $390 Nine months ended September 30, 1995 Interest rate risk $ 42 $117 $159 Foreign exchange risk 30 - 30 Equity and commodity risk 186 (39) 147 Total $258 $ 78 $336 Nine months ended September 30, 1994 Interest rate risk $ 336 $425 $ 761 Foreign exchange risk (136) - (136) Equity and commodity risk 216 (15) 201 Total $ 416 $410 $ 826
12 REVENUE (continued) Third Quarter 1995 vs. Third Quarter 1994 Interest Rate Risk - A number of the Firm's positions in interest rate instruments declined as compared to the third quarter of 1994. Volumes in derivative products remained steady, although activity during the third quarter of 1995 was comprised mainly of low margin transactions. Total trading and trading-related net interest revenue declined $109 million compared to the third quarter of 1994, principally as a result of the decline in positions. Foreign Exchange Risk - Foreign exchange risk revenue declined $17 million from the third quarter of 1994, as volatility in foreign exchange markets negatively affected this category. Improved performance in Asian/Australian foreign exchange markets was offset by weakness in Latin American trading operations. Equity and Commodity Risk - Total trading and trading-related net interest revenue increased $13 million compared to the third quarter of 1994. Improved performance in selected derivative product businesses spurred an increase in equity risk trading revenue. This was offset by a decline in securities trading revenue in commodity-related derivative products. Nine Months 1995 vs. Nine Months 1994 Interest Rate Risk - Interest rate risk revenue was adversely affected by a decline in a number of fixed income securities positions that occurred in 1995, coupled with the liquidity problems that affected the Firm's derivative products in the emerging markets of Latin America. Total trading and trading-related net interest revenue declined $602 million compared to the nine months ended September 30, 1994. Foreign Exchange Risk - Foreign exchange risk revenue increased to $30 million from a $136 million loss for the nine months ended September 30, 1994. The improvement was principally due to a rebound in the Firm's proprietary trading businesses and improved performance in Latin American markets. Equity Risk and Commodity Risk - Trading revenue and trading-related net interest revenue declined by $54 million compared to the first nine months of 1994. The decline was largely due to the downturn in the commodity derivatives business. 13 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 1995 1994 (Decrease) 1995 1994 (Decrease) Trading $257 $278 $(21) $ 258 $ 416 $(158) Fiduciary and funds management 174 188 (14) 511 563 (52) Fees and commissions Corporate finance fees 74 76 (2) 273 299 (26) Service charges on deposit accounts 18 21 (3) 54 65 (11) Acceptances and letters of credit commissions 11 12 (1) 32 33 (1) Other 49 54 (5) 149 143 6 Total fees and commissions 152 163 (11) 508 540 (32) Securities available for sale gains 10 28 (18) 29 51 (22) Other noninterest revenue Insurance premiums 64 43 21 176 139 37 Net revenue from equity investment transactions, including write-offs 85 4 81 124 59 65 Other 13 3 10 78 81 (3) Total other noninterest revenue 162 50 112 378 279 99 Total noninterest revenue $755 $707 $ 48 $1,684 $1,849 $(165)
Third Quarter 1995 vs. Third Quarter 1994 Fiduciary and funds management revenue totaled $174 million for the third quarter, down $14 million, or 7 percent, from the same period last year. The decrease in revenue was due primarily to a decline in transaction volumes in global fiduciary services. Fees and commissions of $152 million decreased by $11 million, or 7 percent, from the third quarter of 1994. Corporate finance fees of $74 million decreased by $2 million, or 3 percent, from the same period last year. Lower revenue from commercial banking and securities underwriting fees were partially offset by higher revenue from financial advisory and loan syndication activities. The Corporation's securities available for sale gains were $10 million, compared with $28 million in the prior year's third quarter. 14 REVENUE (continued) Other noninterest revenue totaled $162 million, up $112 million from the prior year's quarter. The largest component of this increase was an $81 million rise in net revenue from equity investment transactions, including a $62 million gain on the sale of a portion of the Corporation's merchant banking investment in Northwest Airlines Corporation. Also contributing to the increase in other noninterest revenue was higher insurance premium revenue from operations in Chile. The 1994 third quarter had included charges related to the funds management business. Nine Months 1995 vs. Nine Months 1994 Fiduciary and funds management revenue of $511 million decreased $52 million, or 9 percent, from the first nine months of 1994. The decrease in revenue was due primarily to a decline in the volume of transactions in global fiduciary services. Fees and commissions decreased $32 million, or 6 percent, from the first nine months of 1994. The $26 million, or 9 percent, decrease in corporate finance fees was due to lower revenue from securities underwriting and public finance fees offset in part by higher revenue from private placement fees. Other noninterest revenue totaled $378 million, up $99 million, or 35 percent, from the first nine months of 1994. The increase was due to the above-mentioned rise in net revenue from equity investment transactions as well as higher insurance premium revenue from operations in Chile. Also contributing to the results were charges taken in 1994 related to the funds management business. This was offset in part by the impact of the 1994 insurance settlement related to the fire at the Corporation's headquarters at 280 Park Avenue. 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 was $7 million for the third quarter of 1995, compared with $17 million in the prior year's third quarter. Net charge-offs for the quarter were $218 million, compared with $28 million a year ago. The current quarter's net charge-offs included leveraged derivative contract charge-offs of $205 million against the allowance for credit losses. During the fourth quarter of 1994, $423 million of leveraged derivative contracts that had been reclassified as receivables in the loan portfolio were placed on a cash basis. Of this amount, $72 million was then charged-off leaving a balance of $351 million. Since then some of these receivables have been satisfactorily settled, but in line 15 PROVISION AND ALLOWANCE FOR CREDIT LOSSES (continued) with the Corporation's credit policies, a $205 million portion of the remaining balance has been charged-off. For the third quarter of 1994, nonrefinancing country net charge-offs were $33 million and included net charge-offs of $32 million of real estate loans. 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, Allowance for credit losses 1995 1994 1995 1994 Balance, beginning of period $1,243 $1,340 $1,252 $1,324 Net charge-offs Charge-offs 223 37 270 75 Recoveries 5 9 29 63 Total net charge-offs* 218 28 241 12 Provision for credit losses 7 17 21 17 Balance, end of period $1,032 $1,329 $1,032 $1,329 *Components: Secured by real estate $ 9 $12 $ 12 $ 24 Real estate related - 20 2 22 Highly leveraged 6 1 28 (8) Other 203 - 207 9 Refinancing country - (5) (8) (35) Total $218 $28 $241 $ 12
The allowance for credit losses, at $1.032 billion at September 30, 1995, was down $211 million from its level at June 30, 1995, and down $220 million from December 31, 1994. The allowance was equal to 137 percent, 134 percent and 126 percent of total cash basis loans at September 30, 1995, June 30, 1995 and December 31, 1994, 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 entire portfolio. On January 1, 1995, the Corporation adopted SFAS 114, "Accounting by Creditors for Impairment of a Loan" as amended by SFAS 118, "Accounting by Creditors for Impairment of a Loan - Income Recognition and Disclosure." 16 PROVISION AND ALLOWANCE FOR CREDIT LOSSES (continued) SFAS 114 requires the creation of a valuation allowance for impaired loans. Under SFAS 114, a loan is impaired when, based on current information and events, it is probable that a creditor will be unable to collect all amounts due according to the loan's contractual terms. At September 30, 1995, the recorded investment in loans that was considered to be impaired under SFAS 114 was $853 million which consisted of total cash basis loans and renegotiated loans. Included in this amount was $444 million of loans for which the related valuation allowance was $88 million. EXPENSES Third Quarter 1995 vs. Third Quarter 1994 Total noninterest expenses of $728 million increased by $15 million, or 2 percent, from the third quarter of 1994. Incentive compensation and employee benefits expense decreased $10 million, or 5 percent. Salaries expense decreased $4 million, or 2 percent, from the third quarter of 1994, mostly due to a 2 percent decrease in the average number of employees. All other expenses totaled $345 million for the quarter, up $29 million, or 9 percent, from last year's third quarter. The provision for policyholder benefits and professional fees accounted for this increase. Nine Months 1995 vs. Nine Months 1994 Total noninterest expenses of $2.140 billion for the first nine months of 1995 increased by $98 million, or 5 percent, from the first nine months of 1994. Excluding the provision for severance-related costs of $50 million, noninterest expenses were $2.090 billion, an increase of $48 million, or 2 percent, from the first nine months of 1994. Incentive compensation and employee benefits expense decreased $106 million, or 19 percent, due to lower bonus expense reflecting reduced earnings. Salaries expense increased $32 million, or 6 percent, from the first nine months of 1994. The number of full time staff at September 30, 1995 was 13,808, a net decrease of 721 from December 31, 1994. Management has implemented expense reduction programs designed to reduce overall operating expenses -- principally noninterest expenses before bonus, policyholder benefits and minority interest. The Corporation previously announced that it would be reducing these expenses, as compared to the annualized fourth quarter 1994 amounts, by approximately $200 million in 1995 and approximately $275 million in 1996. Operating expense trends in the first nine months of 1995 indicate that the Corporation is on target to achieve these cost reductions. All other expenses, excluding the provision for severance-related costs, totaled $1.037 billion for the first nine months of 1995, up $122 million, or 13 percent, from the first nine months of 1994. Increases in the provision for policyholder benefits, professional fees and minority interest accounted for almost three-fourths of this increase. 17 INCOME TAXES Income tax expense for the third quarter of 1995 amounted to $69 million, compared with $72 million for the third quarter of 1994. For the first nine months of 1995, income tax expense was $42 million, compared with $219 million for the first nine months of 1994. The effective tax rates for the quarter and nine months ended September 30, 1995, were 31 percent and 32 percent, respectively, compared with 30 percent for the quarter and nine months ended September 30, 1994. 18 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 this amount 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 nine month periods ended September 30, 1995 and 1994 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, 1995 1994 1995 1994 Net income applicable to common stock $139 $161 $53 $492 Average number of common shares outstanding 78.423 78.564 78.362 79.430 Primary earnings per share Average number of common and common equivalent shares outstanding 81.039 81.377 80.788 82.397 Fully diluted earnings per share Average number of common and common equivalent shares outstanding - assuming full dilution 81.403 81.427 80.987 82.429
19 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 1995 1995 1994 ASSETS Interest-bearing deposits with banks $ 2,566 $ 2,276 $ 2,139 Federal funds sold 800 1,331 1,497 Securities purchased under resale agreements 18,502 23,020 14,380 Securities borrowed 9,726 8,533 6,494 Trading assets 32,621 29,477 33,106 Securities available for sale Taxable 4,791 4,231 5,240 Exempt from federal income taxes 1,568 1,749 2,238 Total securities available for sale 6,359 5,980 7,478 Loans 11,714 10,776 12,548 Total interest-earning assets 82,288 81,393 77,642 Cash and due from banks 1,848 1,615 1,835 Noninterest-earning trading assets 19,722 20,884 19,778 All other assets 6,750 7,137 8,081 Allowance for credit losses (1,248) (1,256) (1,327) Total $109,360 $109,773 $106,009 LIABILITIES Interest-bearing deposits In domestic offices $ 5,535 $ 5,802 $ 5,584 In foreign offices 15,014 16,042 15,611 Total interest-bearing deposits 20,549 21,844 21,195 Trading liabilities 10,817 10,000 8,856 Securities sold under repurchase agreements 20,477 23,967 20,833 Other short-term borrowings 17,481 14,750 18,327 Long-term debt 8,344 7,113 6,310 Total interest-bearing liabilities 77,668 77,674 75,521 Noninterest-bearing deposits 3,643 3,169 3,728 Noninterest-bearing trading liabilities 16,576 17,821 15,539 All other liabilities 6,277 6,124 6,212 Total liabilities 104,164 104,788 101,000 PREFERRED STOCK OF SUBSIDIARY 250 250 250 STOCKHOLDERS' EQUITY Preferred stock 864 691 395 Common stockholders' equity 4,082 4,044 4,364 Total stockholders' equity 4,946 4,735 4,759 Total $109,360 $109,773 $106,009 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, excluding noninterest-earning/bearing trading assets/liabilities, are included in "all other assets" and "all other liabilities" in the condensed average balance sheets.
20 BALANCE SHEET ANALYSIS (continued) Third Quarter 1995 vs. Second Quarter 1995 The Corporation's average total assets amounted to $109.4 billion for the third quarter of 1995, a decrease of $413 million from the second quarter of 1995. Average interest-earning assets increased $895 million, or 1 percent, and the proportion of interest-earning assets to total assets increased slightly, from 74 percent to 75 percent. The increase in interest-earning assets was primarily due to increases in trading assets (up $3.1 billion, or 11 percent), securities borrowed (up $1.2 billion, or 14 percent) and loans (up $938 million, or 9 percent) offset in part by a decrease in securities purchased under resale agreements (down $4.5 billion, or 20 percent). Interest-earning trading assets as a percentage of average total assets increased from 27 percent to 30 percent. Noninterest-earning trading assets decreased $1.2 billion, or 6 percent, from the second quarter of 1995. Average total liabilities decreased $624 million, or 1 percent, from the second quarter of 1995. Within interest-bearing liabilities a decrease in securities sold under repurchase agreements (down $3.5 billion, or 15 percent) was offset in part by an increase in other short-term borrowings (up $2.7 billion or 19 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 from 50 percent to 49 percent in the third quarter of 1995. Noninterest-bearing trading liabilities decreased $1.2 billion, or 7 percent, from the second quarter of 1995. Third Quarter 1995 vs. Fourth Quarter 1994 The Corporation's average total assets for the third quarter of 1995, increased $3.4 billion, or 3 percent, from the fourth quarter of 1994. Average interest-earning assets increased $4.6 billion, or 6 percent, and the proportion of interest-earning assets to total assets increased, from 73 percent to 75 percent. The increase in interest-earning assets was primarily due to increases in securities purchased under resale agreements (up $4.1 billion, or 29 percent) and securities borrowed (up $3.2 billion, or 50 percent) offset in part by a decrease in securities available for sale (down $1.1 billion, or 15 percent) and loans (down $834 million, or 7 percent). As a percentage of average total assets, interest-earning trading assets decreased from 31 percent to 30 percent in the third quarter of 1995, and loans decreased from 12 percent to 11 percent. Average total liabilities increased $3.2 billion, or 3 percent, from the fourth quarter of 1994. Interest-bearing liabilities increased $2.1 billion, or 3 percent, from last year's fourth quarter. This increase was primarily attributable to increases in long-term debt (up $2.0 billion, or 32 percent) and trading liabilities (up $2.0 billion, or 22 percent) offset in part by a decrease in other short-term borrowings (down $846 million, or 5 percent) and interest-bearing deposits (down $646 million, or 3 percent). Total short-term borrowings (securities sold under repurchase agreements and other short-term borrowings) as a percentage of total 21 BALANCE SHEET ANALYSIS (continued) interest-bearing liabilities decreased to 49 percent, from 52 percent in the fourth quarter of 1994. Noninterest-bearing trading liabilities increased $1.0 billion from the fourth quarter of 1994. Trading Assets and Trading Liabilities The components of these accounts, which are carried at fair value, were as follows (in millions):
September 30, December 31, 1995 1994 TRADING ASSETS U.S. government and agency securities $10,656 $10,974 Obligations of U.S. states and political subdivisions 468 179 Foreign government securities 9,574 8,359 Corporate debt securities 5,267 5,571 Equity securities 4,892 3,850 Bankers acceptances and certificates of deposit 3,254 1,316 Swaps, options and other derivative contracts (1) 11,885 14,071 Other 4,368 3,194 Total trading assets $50,364 $47,514 TRADING LIABILITIES Securities sold, not yet purchased U.S. government and agency securities $ 5,966 $4,159 Foreign government securities 3,424 2,751 Equity securities 3,105 2,298 Other 376 174 Swaps, options and other derivative contracts (1) 11,801 11,567 Total trading liabilities $24,672 $20,949 (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.
22 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, 1995 1995 1994 Fair value $7,140 $6,479 $7,475 Amortized cost 6,897 6,396 7,306 Excess of fair value over amortized cost (1) $ 243 $ 83 $ 169 (1) Components: Unrealized gains $323 $168 $ 270 Unrealized losses (80) (85) (101) $243 $ 83 $ 169 Included in the September 30, 1995 amounts was a portion of the Corporation's merchant banking investment in Northwest Airlines Corporation that was transferred from other assets to securities available for sale during the quarter.
Long-term Debt During the third quarter of 1995, the Corporation obtained $1.014 billion of cash proceeds from the issuances of long-term debt and repaid $137 million of long-term debt. The larger of these debt issuances were as follows (in millions):
Face Amount Bankers Trust Company Redeemable Preference Securities due June 2000 to December 2003 (1) $554 Bank Notes due May 2006 $112 BT Securities Corporation Floating Rate Notes due 1998 $200 (1) At September 30, 1995, certain subsidiaries of Bankers Trust Company had outstanding $2.0 billion of mandatorily redeemable preference securities with maturities ranging from September 1996 to December 2003.
23 TRADING DERIVATIVES The Corporation actively manages trading positions in a variety of derivative contracts. Most of the Corporation's trading positions are established as a result of providing derivative products to meet customers' demands. To anticipate customer demand for such transactions, the Corporation also carries an inventory of capital market instruments and maintains its access to market liquidity by quoting bid and offer prices to, and trading with, other market makers. These two activities are essential to provide customers with capital market products at competitive prices. All positions are reported at fair value and changes in fair values are reflected in trading revenue as they occur. The following tables reflect the gross fair values and balance sheet amounts of trading derivatives:
At September 30, Average During 1995 3rd Qtr.1995 (Liabi- (Liabi- (in millions) Assets lities) Assets lities) OTC Financial Instruments Interest Rate and Currency Swap Contracts $16,330 $(14,692) $16,590 $(16,652) Interest Rate Contracts Forwards 172 (106) 134 (126) Options purchased 1,130 1,176 Options written (2,301) (1,670) Foreign Exchange Rate Contracts Spot and Forwards 9,488 (10,152) 11,100 (10,279) Options purchased 1,282 1,426 Options written (1,177) (1,083) Equity-related contracts 1,751 (1,784) 1,766 (1,787) Commodity-related and other contracts 587 (480) 614 (429) Exchange-Traded Options Interest Rate 29 (41) 100 (56) Equity 151 (103) 149 (82) Commodity - - - (2) Total Gross Fair Values 30,920 (30,836) 33,055 (32,166) Impact of Netting Agreements (19,035) 19,035 (18,844) 18,844 $11,885(1) $14,211 $(11,801)(1) $(13,322) (1) As reflected on the balance sheet in "Trading Assets" and "Trading Liabilities."
24 TRADING DERIVATIVES (continued)
At December 31, Average During 1994 4th Qtr.1994 (Liabi- (Liabi- (in millions) Assets lities) Assets lities) OTC Financial Instruments Interest Rate and Currency Swap Contracts $ 15,055 $(11,388) $ 15,087 $(12,042) Interest Rate Contracts Forwards 91 (127) 77 (96) Options purchased 1,211 1,363 Options written (2,330) (2,109) Foreign Exchange Rate Contracts Spot and Forwards 8,127 (7,988) 12,133 (12,150) Options purchased 1,504 1,378 Options written (1,522) (1,280) Equity-related contracts 1,005 (1,316) 1,660 (1,778) Commodity-related and other contracts 578 (451) 479 (411) Exchange-Traded Options Interest Rate 191 (113) 105 (80) Foreign Exchange - (62) 19 (54) Equity 82 (43) 90 (63) Total Gross Fair Values 27,844 (25,340) 32,391 (30,063) Impact of Netting Agreements (13,773) 13,773 (17,843) 17,843 $ 14,071 (1) $ 14,548 $(11,567) (1) $(12,220) (1) As reflected on the balance sheet in "Trading Assets" and "Trading Liabilities."
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 certain 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. Revenue or expense pertaining to management of interest rate exposure is predominantly recognized over the life of the contract as an adjustment to interest revenue or expense. At September 30, 1995, total net end-user derivative unrealized gains were $1 million, compared to $330 million of total net end-user derivative unrealized losses at December 31, 1994. The $331 million improvement during the first nine months of 1995 was due to decreases in interest rates. 25 END-USER DERIVATIVES (continued) The following tables provide the gross unrealized gains and losses for end-user derivatives. Gross unrealized gains and losses for hedges of securities available for sale are recognized in the financial statements with the offset as an adjustment to securities valuation allowance in stockholders' equity. Gross unrealized gains and losses for hedges of other assets, interest-bearing deposits, other short-term borrowings, long- term debt and net investments in foreign subsidiaries are not yet recognized in the financial statements.
Other Net invest- short- ments in Securities Interest- term Long- foreign (in millions) available Other bearing borrow- term subsi- September 30, for sale assets deposits ings debt diaries Total 1995 Interest Rate Swaps Pay Variable Unrealized Gain $ - $- $ 82 $ 5 $ 224 $- $ 311 Unrealized (Loss) - - (26) (4) (49) - (79) Pay Variable Net - - 56 1 175 - 232 Pay Fixed Unrealized Gain 1 - 22 - 30 - 53 Unrealized (Loss) (56) - (68) (1) (75) - (200) Pay Fixed Net (55) - (46) (1) (45) - (147) Total Unrealized Gain 1 - 104 5 254 - 364 Total Unrealized (Loss) (56) - (94) (5) (124) - (279) Total Net $(55) $- $ 10 $ - $ 130 $- $ 85 Forward Rate Agreements Unrealized Gain $- $- $ 3 $- $- $- $ 3 Unrealized (Loss) - - (3) - - - (3) Net $- $- $ - $- $- $- $ - Currency Swaps and Forwards Unrealized Gain $ - $- $ 20 $ - $ 24 $ - $ 44 Unrealized (Loss) (1) - (15) (1) (44) (38) (99) Net $(1) $- $ 5 $(1) $(20) $(38) $(55) Other Contracts (1) Unrealized Gain $ - $ - $- $- $- $- $ - Unrealized (Loss) (5) (24) - - - - (29) Net $(5) $(24) $- $- $- $- $(29) Total Unrealized Gain $ 1 $ - $ 127 $ 5 $ 278 $ - $ 411 Total Unrealized (Loss) (62) (24) (112) (6) (168) (38) (410) Total Net $(61) $(24) $ 15 $(1) $ 110 $(38) $ 1 (1) Other contracts are principally equity swaps and collars.
26 END-USER DERIVATIVES (continued)
Other Net invest- short- ments in Securities Interest- term Long- foreign (in millions) available Other bearing borrow- term subsi- December 31, for sale assets deposits ings debt diaries Total 1994 Interest Rate Swaps Pay Variable Unrealized Gain $ - $- $ 17 $ 4 $ 62 $- $ 83 Unrealized (Loss) (1) - (191) (4) (200) - (396) Pay Variable Net (1) - (174) - (138) - (313) Pay Fixed Unrealized Gain 48 - 105 - 28 - 181 Unrealized (Loss) (19) - (31) - (15) - (65) Pay Fixed Net 29 - 74 - 13 - 116 Total Unrealized Gain 48 - 122 4 90 - 264 Total Unrealized (Loss) (20) - (222) (4) (215) - (461) Total Net $ 28 $- $(100) $ - $(125) $- $(197) Forward Rate Agreements Unrealized Gain $- $- $ 4 $- $- $- $ 4 Unrealized (Loss) - - (5) - - - (5) Net $- $- $(1) $- $- $- $(1) Currency Swaps Unrealized Gain $- $- $ 9 $ - $ 4 $ - $ 13 Unrealized (Loss) - - (2) (1) (74) (22) (99) Net $- $- $ 7 $(1) $(70) $(22) $(86) Other Contracts (1) Unrealized Gain $5 $ 2 $- $- $- $- $ 7 Unrealized (Loss) - (53) - - - - (53) Net $5 $(51) $- $- $- $- $(46) Total Unrealized Gain $ 53 $ 2 $ 135 $ 4 $ 94 $ - $ 288 Total Unrealized (Loss) (20) (53) (229) (5) (289) (22) (618) Total Net $ 33 $(51) $ (94) $(1) $(195) $(22) $(330) (1) Other contracts are principally equity swaps and collars.
27 END-USER DERIVATIVES (continued) For pay variable and pay fixed interest rate swaps entered into as an end user, the weighted average receive rate and weighted average pay rate (interest rates were based on the weighted averages of both U.S. and non- U.S. currencies) by maturity and corresponding notional amounts were as follows ($ in millions):
At September 30, 1995 Notional Amount Paying Variable Paying Fixed Maturing Notional Receive Pay Notional Receive Pay Total In: Amount Rate Rate Amount Rate Rate Notional 1995 $ 6,594 5.86% 5.91% $ 1,314 5.98% 5.74% $ 7,908 1996-1997 19,442 6.05 5.92 9,791 5.96 6.21 29,233 1998-1999 2,527 6.04 5.86 981 4.30 5.11 3,508 2000 and thereafter 5,677 7.00 6.03 1,875 4.94 6.59 7,552 Total $34,240 $13,961 $48,201 All rates were those in effect at September 30, 1995. Variable rates are primarily based on LIBOR and may change significantly, affecting future cash flows.
At December 31, 1994 Notional Amount Paying Variable Paying Fixed Maturing Notional Receive Pay Notional Receive Pay Total In: Amount Rate Rate Amount Rate Rate Notional 1995 $11,211 5.88% 6.09% $2,908 5.90% 6.00% $14,119 1996-1997 7,830 6.03 5.77 3,219 5.92 5.78 11,049 1998-1999 2,444 5.81 5.83 993 5.34 5.38 3,437 2000 and thereafter 4,113 6.79 5.72 1,730 5.83 8.13 5,843 Total $25,598 $8,850 $34,448 All rates were those in effect at December 31, 1994. Variable rates are primarily based on LIBOR and may change significantly, affecting future cash flows. The December 31, 1994 table corrects a typographical error which transposed the rates shown under the respective headings "Receive Rate" and "Pay Rate" that appeared on page 73 of the 1994 10-K.
28 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 1994 Annual Report on Form 10-K, on page 31, 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, 1995, 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, 1995 and December 31, 1994, 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 1995 1994 Guidelines CORPORATION Risk-Based Ratios Tier 1 Capital 8.09% 9.05% 4.0% Total Capital 12.96% 14.77% 8.0% Leverage Ratio 5.53% 5.26% 3.0% BTCo. Risk-Based Ratios Tier 1 Capital 8.75% 9.92% 4.0% Total Capital 11.09% 12.90% 8.0% Leverage Ratio 5.50% 5.91% 3.0%
The following were the essential components of the Corporation's risk- based capital ratios (in millions):
September 30, December 31, 1995 1994 Tier 1 Capital $4,490 $4,372 Tier 2 Capital 2,705 2,760 Total Capital $7,195 $7,132 Total risk-weighted assets $55,517 $48,285
29 REGULATORY CAPITAL (continued) During the first nine months of 1995, the Corporation's Tier 1 Capital and Total Capital ratios declined by 96 basis points and 181 basis points, respectively, as a result of the increase in total risk-weighted assets. The Leverage Ratio increased by 27 basis points during the first nine months of 1995 primarily as a result of the decrease in average total assets. The $118 million increase in Tier 1 Capital was primarily attributable to the issuances of preferred stock offset by the decrease in retained earnings due to the cash dividends declared. The Corporation's total risk-weighted assets at September 30, 1995 were $7.232 billion higher than at year-end 1994. LIQUIDITY Liquidity management at the Corporation focuses on both asset liquidity and liability management. Enhancing asset liquidity remains a particularly important element of the Corporation's 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, 1995, the Corporation's liquid assets amounted to $84.4 billion, or 80 percent of gross total assets, compared with 82 percent and 80 percent, respectively, at June 30, 1995 and December 31, 1994. Cash Flows The following comments apply to the consolidated statement of cash flows, which appears on page 6. Cash and due from banks decreased $270 million during the first nine months of 1995, as net cash used in investing activities exceeded the sum of net cash provided by financing and operating activities. Within the investing activities category, cash outflows from net changes in securities purchased under resale agreements ($6.1 billion) and purchases of securities available for sale ($3.0 billion) were offset in part by cash inflows from sales, maturities and other redemptions of securities available for sale ($3.8 billion) as well as net changes in federal funds sold ($2.5 billion). The $1.8 billion of net cash provided by financing activities was largely the result of cash inflows from the issuances of long-term debt ($3.2 billion) and net changes in securities sold under repurchase agreements ($1.9 billion) offset in part by cash outflows from the net changes in other short-term borrowings ($1.5 billion) and repayments of long-term debt ($1.1 billion). The $919 million of net cash provided by operating activities primarily resulted from a $692 million net change in trading assets and liabilities. 30 LIQUIDITY (continued) For the nine months ended September 30, 1994, cash and due from banks increased $30 million, 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 issuances 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). Interest Rate Sensitivity Condensed interest rate sensitivity data for the Corporation at September 30, 1995 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. The interest rate gaps reported in the table arise when assets are funded with liabilities having different repricing intervals, after considering the effect of off-balance sheet hedging instruments. Since these 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, 1 year years 5 years funds Total 1995 Assets $ 72.0 $ 3.1 $ 3.0 $ 25.8 $103.9 Liabilities, preferred stock of subsidiary and preferred stock (65.0) (7.1) (2.2) (25.4) (99.7) Common stockholders' equity - - - (4.2) (4.2) Effect of off-balance sheet hedging instruments (7.8) 5.6 2.2 - - Interest rate sensitivity gap $ (.8) $ 1.6 $ 3.0 $ (3.8) $ -
31 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, 1995 1994 CASH BASIS LOANS (NONREFINANCING COUNTRY) Domestic Commercial and industrial $237 $316 Secured by real estate 326 277 Financial institutions 10 25 Total domestic 573 618 International Commercial and industrial 107 247 Secured by real estate 68 79 Financial institutions 2 48 Other 2 2 Total international 179 376 Total cash basis loans (nonrefinancing country) 752 994 CASH BASIS LOANS (REFINANCING COUNTRY) International - 2 Total cash basis loans $752 $996 Ratio of cash basis loans to total loans 5.9% 8.0% Ratio of allowance for credit losses to cash basis loans 137% 126% RENEGOTIATED LOANS Secured by real estate $ 89 $65 Other nonrefinancing country 12 1 Total renegotiated loans $101 $66 OTHER REAL ESTATE $281 $301 OTHER NONPERFORMING ASSETS Assets acquired in credit workouts $62 $61 Nonperforming derivative contracts 2 2 Total other nonperforming assets $64 $63 Loans 90 days or more past due and still accruing interest $- $-
32 NONPERFORMING ASSETS (continued) An analysis of the changes in the Corporation's total cash basis loans during the first nine months of 1995 follows (in millions).
Balance, December 31, 1994 $ 996 Net transfers to cash basis loans 250 Net paydowns (212) Charge-offs (270) Net transfers from other real estate (1) 13 Other (25) Balance, September 30, 1995 $ 752 (1) Includes $35 million of in-substance foreclosed properties that were transferred from other real estate to cash basis loans as a result of the adoption of SFAS 114.
The Corporation's total cash basis loans amounted to $752 million at September 30, 1995, down $244 million, or 24 percent, from December 31, 1994. The decrease in cash basis loans was primarily due to the previously mentioned leveraged derivative contract charge-offs of $205 million against the allowance for credit losses during the current quarter. Within cash basis loans, leveraged derivative contracts were $79 million and $351 million at September 30, 1995 and December 31, 1994, respectively. Also within cash basis loans, loans secured by real estate increased $38 million, to $394 million, during the first nine months of 1995. Commercial and industrial loans to highly leveraged borrowers were $148 million and $150 million at September 30, 1995 and December 31, 1994, respectively. Other real estate decreased by $20 million during the first nine months of 1995 primarily as a result of the adoption of SFAS 114 during the first quarter of 1995 which required the transfer of in-substance foreclosed properties, where the Corporation had not taken possession of the collateral, to cash basis. 33 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) 1995 1994 Domestic Loans Gross amount of interest that would have been recorded at original rate $50 $30 Less, interest, net of reversals, recognized in interest revenue 7 3 Reduction of interest revenue 43 27 International Loans Gross amount of interest that would have been recorded at original rate 13 12 Less, interest, net of reversals, recognized in interest revenue - 3 Reduction of interest revenue 13 9 Total reduction of interest revenue $56 $36
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 1994 Annual Report on Form 10-K, on page 39, provides a detailed discussion of the definition.
Highly Leveraged Transactions September 30, December 31, (in millions) 1995 1994 Loans Senior debt $772 $ 959 Subordinated debt 63 101 Total loans $835 $1,060 Unfunded commitments Commitments to lend $565 $311 Letters of credit 123 198 Total unfunded commitments $688 $509 Equity investments $665 $413 Commitments to invest $313 $313
34 HIGHLY LEVERAGED TRANSACTIONS (continued) The Corporation's outstanding loans were to 77 separate borrowers in 34 separate industry groups at September 30, 1995, compared to 76 separate borrowers in 30 separate industry groups at December 31, 1994. There were no industry concentrations which exceeded 10 percent of total HLT loans outstanding at September 30, 1995. In addition to the amounts shown in the table above, at September 30, 1995, the Corporation had issued commitment letters which had been accepted, subject to documentation and certain other conditions, of $665 million (which were in various stages of syndication) and had additional HLTs in various stages of discussion and negotiation. During the first nine months of 1995, the Corporation originated $1.4 billion of HLT commitments. It should be noted that the Corporation's loans and commitments in connection with HLTs fluctuate as new loans and commitments are made and as loans and commitments are syndicated, participated or paid. 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, 1995 was less than $11 million. However, at September 30, 1995, the Corporation had total exposure (loans outstanding plus unfunded commitments) in excess of $50 million to 9 separate highly leveraged borrowers. At September 30, 1995, $148 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 charge-offs of $28 million of HLT loans were recorded in the first nine months of 1995. In addition, the Corporation recorded a net gain of $109 million in connection with the sales and/or write-offs of its equity investments in highly leveraged companies during the first nine months of 1995. 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 $80 million during the first nine months of 1995 and that as of September 30, 1995, approximately $19 million of fees were deferred and will be recognized as future revenue. 35 RECENT DEVELOPMENTS Following the sharp increase in interest rates during the first quarter of 1994, various counterparties that had entered into leveraged derivative transactions with certain subsidiaries of the Corporation experienced losses and some of those counterparties have made claims against the Corporation. The Corporation has settled some of the claims made by certain counterparties and is contesting allegations made by others. In the fourth quarter of 1994, Procter & Gamble brought a lawsuit against Bankers Trust Company and its subsidiaries ("BTCo."). In the first quarter of 1995 the suit was amended to include BT Securities Corporation, and in the third quarter of 1995, the suit was further amended to add Claims under Title IX of the Organized Crime Control Act of 1970. The suit seeks to void and rescind two interest rate swap transactions entered into with BTCo. and claims $195.5 million in compensatory damages and unspecified punitive damages. 36 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, 1995. - The report dated July 20, 1995 filed the Corporation's Press Release dated July 20, 1995, which announced earnings for the quarter ended June 30, 1995. - The report dated September 21, 1995 filed the Corporation's Press Release which announced that Frank N. Newman has joined Bankers Trust New York Corporation and Bankers Trust Company as senior vice chairman and a director. 37 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, 1995. BANKERS TRUST NEW YORK CORPORATION BY: GEOFFREY M. FLETCHER Geoffrey M. Fletcher Senior Vice President and Principal Accounting Officer BANKERS TRUST NEW YORK CORPORATION FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 1995 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 (27) Financial Data Schedule [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. 38 39 EX-12.A 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, 1990 1991 1992 1993 1994 1995 Earnings: 1. Income (loss) before income taxes and cumulative effects of accounting changes $ 815 $ 834 $ 906 $1,550 $ 869 $ 89 2. Add: Fixed charges excluding capitalized interest (Line 10) 4,826 3,614 3,099 3,148 3,884 3,841 3. Less: Equity in undistri- buted income of unconsolidated subsidiaries and affiliates 47 31 40 30 45 22 4. Earnings including interest on deposits 5,594 4,417 3,965 4,668 4,708 3,908 5. Less: Interest on deposits 2,226 1,589 1,119 1,013 965 998 6. Earnings excluding interest on deposits$3,368 $2,828 $2,846 $3,655 $3,743 $2,910 Fixed Charges: 7. Interest Expense $4,799 $3,585 $3,072 $3,122 $3,858 $3,821 8. Estimated interest component of net rental expense 27 29 27 26 26 20 9. Amortization of debt issuance expense - - - - - - 10. Total fixed charges including interest on deposits and excluding capitalized interest 4,826 3,614 3,099 3,148 3,884 3,841 11. Add: Capitalized interest - - - - - - 12. Total fixed charges 4,826 3,614 3,099 3,148 3,884 3,841 13. Less: Interest on deposits (Line 5) 2,226 1,589 1,119 1,013 965 998 14. Fixed charges excluding interest on deposits $2,600 $2,025 $1,980 $2,135 $2,919 $2,843 Consolidated Ratios of Earnings to Fixed Charges: Including interest on deposits (Line 4/Line 12) 1.16 1.22 1.28 1.48 1.21 1.02 Excluding interest on deposits (Line 6/Line 14) 1.30 1.40 1.44 1.71 1.28 1.02
EX-12.B 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, 1990 1991 1992 1993 1994 1995 Earnings: 1. Income (loss) before income taxes and cumulative effect of accounting changes $ 815 $ 834 $ 906 $1,550 $ 869 $ 89 2. Add: Fixed charges excluding capitalized interest (Line 13) 4,826 3,614 3,099 3,148 3,884 3,841 3. Less: Equity in undistri- buted income of unconsolidated subsidiaries and affiliates 47 31 40 30 45 22 4. Earnings including interest on deposits 5,594 4,417 3,965 4,668 4,708 3,908 5. Less: Interest on deposits 2,226 1,589 1,119 1,013 965 998 6. Earnings excluding interest on deposits$3,368 $2,828 $2,846 $3,655 $3,743 $2,910 Preferred Stock Dividend Requirements: 7. Preferred stock dividend requirements $ 31 $ 34 $ 30 $ 23 $ 28 $ 36 8. Ratio of income from continuing operations before income taxes to income from continuing operations after income taxes 123% 125% 142% 145% 141% 147% 9. Preferred stock dividend requirements on a pretax basis $ 38 $ 43 $ 43 $ 33 $ 39 $ 53 Fixed Charges: 10. Interest Expense $4,799 $3,585 $3,072 $3,122 $3,858 $3,821 11. Estimated interest component of net rental expense 27 29 27 26 26 20 12. Amortization of debt issuance expense - - - - - - 13. Total fixed charges including interest on deposits and excluding capitalized interest 4,826 3,614 3,099 3,148 3,884 3,841 14. Add: Capitalized interest - - - - - - 15. Total fixed charges 4,826 3,614 3,099 3,148 3,884 3,841 16. Add: Preferred stock dividend require- ments - pretax (Line 9) 38 43 43 33 39 53 17. Total combined fixed charges and preferred stock dividend require- ments on a pretax basis 4,864 3,657 3,142 3,181 3,923 3,894 18. Less: Interest on deposits (Line 5) 2,226 1,589 1,119 1,013 965 998 19. Combined fixed charges and preferred stock dividend requirements on a pretax basis excluding interest on deposits $2,638 $2,068 $2,023 $2,168 $2,958 $2,896 Consolidated Ratios of Earnings to Combined Fixed Charges and Preferred Stock Dividend Requirements: Including interest on deposits (Line 4/Line 17) 1.15 1.21 1.26 1.47 1.20 1.00 Excluding interest on deposits (Line 6/Line 19) 1.28 1.37 1.41 1.69 1.27 1.00
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, 1995 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, 1995 (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 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CONDITION AT SEPTEMBER 30, 1995 AND THE CONSOLIDATED STATEMENT OF INCOME FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000,000 9-MOS DEC-31-1995 JAN-01-1995 SEP-30-1995 1,715 1,605 29 50,364 7,140 0 0 12,786 1,032 103,949 24,157 34,472 6,522 8,354 84 0 865 4,112 103,949 682 296 1,343 4,429 998 3,821 608 21 29 2,140 131 131 0 0 89 .66 .65 1.07 752 0 101 0 1,252 270 29 1,032 273 245 514 Short-term borrowings include the following: Securities sold under repurchase agreements 17,899 Other short-term borrowings 16,573 Total 34,472 Other liabilities include the following: Accounts payable and accrued expenses 4,351 Other liabilities 2,171 Total 6,522 Other interest income includes the following: Interest-bearing deposits with banks 154 Federal funds sold 68 Securities purchased under resale agreements 750 Securities borrowed 371 Total 1,343
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