-----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, VAYA3uNeJHaV5QCgNDvVLB9KhRJwQZAkPuZ9SNof0Olrg/pLYZGN3FEXzbratSAv 36Z6LXkedbFZJZt3QwNIVg== 0000009749-96-000121.txt : 19960517 0000009749-96-000121.hdr.sgml : 19960517 ACCESSION NUMBER: 0000009749-96-000121 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19960331 FILED AS OF DATE: 19960515 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: 96567694 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 March 31, 1996 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 April 30, 1996: Common Stock, $1 par value, 79,496,062 shares. 1 BANKERS TRUST NEW YORK CORPORATION March 31, 1996 FORM 10-Q TABLE OF CONTENTS Page PART I. FINANCIAL INFORMATION Item 1. Financial Statements Consolidated Statement of Income Three Months Ended March 31, 1996 and 1995 2 Consolidated Balance Sheet At March 31, 1996 and December 31, 1995 3 Consolidated Statement of Changes in Stockholders' Equity Three Months Ended March 31, 1996 and 1995 4 Consolidated Statement of Cash Flows Three Months Ended March 31, 1996 and 1995 5 Consolidated Schedule of Net Interest Revenue Three Months Ended March 31, 1996 and 1995 6 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 ended March 31, 1996 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 1995 Annual Report. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 7 PART II. OTHER INFORMATION Item 4 Submission of Matters to a Vote of Security Holders 36 Item 6. Exhibits and Reports on Form 8-K 37 SIGNATURE 38 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 MARCH 31, 1996 1995 (Decrease) NET INTEREST REVENUE Interest revenue $1,590 $1,353 $ 237 Interest expense 1,377 1,171 206 Net interest revenue 213 182 31 Provision for credit losses 5 14 (9) Net interest revenue after provision for credit losses 208 168 40 NONINTEREST REVENUE Trading 247 (78) 325 Fiduciary & funds management 183 171 12 Corporate finance fees 86 72 14 Other fees & commissions 87 73 14 Net revenue from equity investment transactions 21 26 (5) Securities available for sale gains 15 2 13 Insurance premiums 62 49 13 Other 49 27 22 Total noninterest revenue 750 342 408 NONINTEREST EXPENSES Salaries 201 208 (7) Incentive compensation & employee benefits 227 133 94 Agency & other professional service fees 60 76 (16) Communication & data services 46 47 (1) Occupancy, net 37 41 (4) Furniture & equipment 41 42 (1) Travel & entertainment 18 23 (5) Provision for policyholder benefits 72 56 16 Other 59 58 1 Provision for severance-related costs - 50 (50) Total noninterest expenses 761 734 27 Income (loss) before income taxes 197 (224) 421 Income taxes (benefit) 59 (67) 126 NET INCOME (LOSS) $ 138 $ (157) $ 295 NET INCOME (LOSS) APPLICABLE TO COMMON STOCK $ 123 $ (165) $ 288 Cash dividends declared per common share $1.00 $1.00 $- EARNINGS (LOSS) PER COMMON SHARE: PRIMARY $1.52 $(2.11) $3.63 FULLY DILUTED $1.51 $(2.11) $3.62 Certain prior period amounts have been reclassified to conform to the current presentation.
3 BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET ($ in millions, except par value)
March 31, December 31, 1996* 1995 ASSETS Cash and due from banks $ 1,181 $ 2,337 Interest-bearing deposits with banks 1,377 2,023 Federal funds sold 1,038 854 Securities purchased under resale agreements 15,670 13,206 Securities borrowed 15,390 10,951 Trading assets: Government securities 18,345 20,704 Corporate debt securities 5,670 5,648 Equity securities 6,024 5,098 Swaps, options and other derivative contracts 10,330 10,555 Other trading assets 5,136 5,888 Total trading assets 45,505 47,893 Securities available for sale 6,880 6,283 Loans 13,088 12,633 Allowance for credit losses (987) (992) Accounts receivable and accrued interest 4,072 4,220 Other assets 4,930 4,594 Total $108,144 $104,002 LIABILITIES Noninterest-bearing deposits Domestic offices $ 1,997 $ 2,687 Foreign offices 545 605 Interest-bearing deposits Domestic offices 5,824 5,402 Foreign offices 14,190 17,014 Total deposits 22,556 25,708 Trading liabilities: Securities sold, not yet purchased Government securities 11,897 11,092 Equity securities 3,918 3,262 Other trading liabilities 331 473 Swaps, options and other derivative contracts 10,903 11,264 Total trading liabilities 27,049 26,091 Securities sold under repurchase agreements 23,209 15,247 Other short-term borrowings 12,493 15,761 Accounts payable and accrued expenses 4,665 3,931 Other liabilities 2,742 2,736 Long-term debt 10,125 9,294 Total liabilities 102,839 98,768 PREFERRED STOCK OF SUBSIDIARY 250 250 STOCKHOLDERS' EQUITY Preferred stock 866 865 Common stock, $1 par value Authorized, 300,000,000 shares Issued, 83,678,973 shares 84 84 Capital surplus 1,304 1,302 Retained earnings 3,351 3,316 Common stock in treasury, at cost: 1995, 4,602,855 shares; 1996, 4,277,569 shares (311) (336) Other stockholders' equity (239) (247) Total stockholders' equity 5,055 4,984 Total $108,144 $104,002 Certain prior period amounts have been reclassified to conform to the current presentation. * Unaudited
4 BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (in millions) (unaudited)
THREE MONTHS ENDED March 31, 1996 1995 PREFERRED STOCK Balance, January 1 $ 865 $ 395 Preferred stock issued 1 244 Balance, March 31 866 639 COMMON STOCK Balance, January 1 and March 31 84 84 CAPITAL SURPLUS Balance, January 1 1,302 1,317 Preferred stock issuance and conversion costs - (10) Common stock distributed under employee benefit plans 2 (1) Balance, March 31 1,304 1,306 RETAINED EARNINGS Balance, January 1 3,316 3,494 Net income (loss) 138 (157) Cash dividends declared Preferred stock (15) (7) Common stock (79) (78) Treasury stock distributed under employee benefit plans (9) (9) Balance, March 31 3,351 3,243 COMMON STOCK IN TREASURY, AT COST Balance, January 1 (336) (416) Purchases of stock (20) (11) Restricted stock granted, net 23 7 Treasury stock distributed under employee benefit plans 22 27 Balance, March 31 (311) (393) COMMON STOCK ISSUABLE - STOCK AWARDS Balance, January 1 233 160 Deferred stock awards granted, net 66 10 Deferred stock distributed (1) (15) Balance, March 31 298 155 DEFERRED COMPENSATION - STOCK AWARDS Balance, January 1 (151) (63) Deferred stock awards granted, net (66) (9) Restricted stock granted, net (22) (6) Amortization of deferred compensation, net 41 11 Balance, March 31 (198) (67) CUMULATIVE TRANSLATION ADJUSTMENTS Balance, January 1 (348) (336) Translation adjustments (17) 3 Income taxes applicable to translation adjustments 16 (12) Balance, March 31 (349) (345) SECURITIES VALUATION ALLOWANCE Balance, January 1 19 69 Change in unrealized net gains, after applicable income taxes and minority interest (9) (23) Balance, March 31 10 46 TOTAL STOCKHOLDERS' EQUITY, MARCH 31 $5,055 $4,668
5 BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS (in millions) (unaudited)
THREE MONTHS ENDED MARCH 31, 1996 1995 CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss) $ 138 $ (157) Adjustments to reconcile net income to net cash provided by operating activities: Provision for credit losses 5 14 Provision for severance-related costs - 50 Provision for policyholder benefits 72 56 Deferred income taxes 26 53 Depreciation and amortization of premises and equipment 35 34 Other, net (15) (34) Earnings adjusted for noncash charges and credits 261 16 Net change in: Trading assets 2,308 (4,980) Trading liabilities 700 8,896 Receivables and payables from securities transactions 29 1,289 Other operating assets and liabilities, net 666 (363) Securities available for sale gains (15) (2) Net cash provided by operating activities 3,949 4,856 CASH FLOWS FROM INVESTING ACTIVITIES Net change in: Interest-bearing deposits with banks 624 332 Federal funds sold (184) 429 Securities purchased under resale agreements (2,337) (8,225) Securities borrowed (4,439) (1,510) Loans (348) 679 Securities available for sale: Purchases (1,568) (439) Maturities and other redemptions 892 1,049 Sales 135 914 Acquisitions of premises and equipment (54) (50) Other, net 11 37 Net cash used in investing activities (7,268) (6,784) CASH FLOWS FROM FINANCING ACTIVITIES Net change in: Deposits (3,250) (61) Securities sold under repurchase agreements 8,025 3,028 Other short-term borrowings (3,393) (1,654) Issuances of long-term debt 1,050 1,007 Repayments of long-term debt (187) (781) Issuances of preferred stock - 100 Purchases of treasury stock (20) (11) Cash dividends paid (94) (85) Other, net 15 7 Net cash provided by financing activities 2,146 1,550 Net effect of exchange rate changes on cash 17 (4) NET INCREASE (DECREASE) IN CASH AND DUE FROM BANKS (1,156) (382) Cash and due from banks, beginning of year 2,337 1,985 Cash and due from banks, end of period $ 1,181 $ 1,603 Interest paid $1,433 $808 Income taxes paid, net $81 $29 Noncash investing activities $30 $25 Noncash financing activities: Conversion of debt to preferred stock $1 $144 Certain prior period amounts have been reclassified to conform to the current presentation.
6 BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES CONSOLIDATED SCHEDULE OF NET INTEREST REVENUE (in millions) (unaudited)
Three Months Ended March 31, Increase 1996 1995 (Decrease) INTEREST REVENUE Interest-bearing deposits with banks $ 43 $ 49 $ (6) Federal funds sold 28 35 (7) Securities purchased under resale agreements 194 147 47 Securities borrowed 225 172 53 Trading assets 772 616 156 Securities available for sale Taxable 90 89 1 Exempt from federal income taxes 7 16 (9) Loans 231 229 2 Total interest revenue 1,590 1,353 237 INTEREST EXPENSE Deposits In domestic offices 88 93 (5) In foreign offices 247 241 6 Trading liabilities 326 213 113 Securities sold under repurchase agreements 308 236 72 Other short-term borrowings 271 298 (27) Long-term debt 137 90 47 Total interest expense 1,377 1,171 206 NET INTEREST REVENUE $ 213 $ 182 $ 31 Certain prior period amounts have been reclassified to conform to the current presentation.
7 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 $138 million for the quarter ended March 31, 1996, or $1.52 primary earnings per share. In the first quarter of 1995, the Corporation recorded a loss of $157 million, or $2.11 primary loss per share. ORGANIZATIONAL UNIT ANALYSIS Change in Functional Analysis In recent years a Business Function approach was used to analyze the principal components of the financial performance of the Corporation's businesses. As reported in the Corporation's 1995 Annual Report on Form 10- K, the Corporation has changed this financial analysis to reflect more closely its organizational structure. Presented on page 34 of this report, is net income by Business Functions compiled by utilizing the methods and assumptions that were relevant prior to the first quarter of 1996. Organizational Units Results The following table analyzes net income (loss) by Organizational Units:
Net Income (Loss) by Organizational Unit First First Quarter Quarter Increase (in millions) 1996 1995 (Decrease) Investment Banking $ 77 $ 24 $ 53 Risk Management Products & Services 1 (30) 31 Trading & Sales 24 11 13 Investment Management 1 (4) 5 Client Processing Services 21 20 1 Australia/New Zealand 24 22 2 Asia 6 (3) 9 Latin America 19 (108) 127 Corporate (including unallocated overhead) (35) (89) 54 Net Income (Loss) $138 $(157) $295 Note: See page 32 for Organizational Unit definitions and assumptions
8 ORGANIZATIONAL UNIT ANALYSIS (continued) The Investment Banking business produced net income of $77 million in the first quarter of 1996, compared with $24 million in the first quarter of the previous year. Higher revenue from corporate finance and private equity investments accounted for most of this increase. Risk Management Products & Services produced net income of $1 million in the first quarter of 1996, a significant improvement from the loss seen in the first quarter of 1995. This improvement was due to an increase in new business revenue as the Corporation continues its client-focused effort to restructure its Risk Management Products & Services business. Net income from the Trading & Sales business was up $13 million from the first quarter of 1995. Increased net income from arbitrage trading was partially offset by lower income from client-related foreign exchange activities. The Corporation's Investment Management business, which for reporting purposes does not include investment management activities in Australia/New Zealand, reported a small net income in the first quarter of 1996, a modest improvement from the first quarter of 1995. The Corporation has restructured this business and is implementing a development plan to improve results in the future. Client Processing Services produced $21 million of net income in the first quarter of 1996, consistent with the first quarter of 1995. Australia/New Zealand business net income was $24 million in the first quarter of 1996, up $2 million from the first quarter of 1995. Asia net income was $6 million in the first quarter of 1996, as compared with a $3 million loss in the first quarter of 1995. The increased income was primarily due to improved revenue in Thailand and Japan. Latin America net income was $19 million in the first quarter of 1996, due to strong trading results and improved revenue from the Corporation's Chilean insurance subsidiaries. The first quarter 1995 net loss was the result of certain client risk management and trading positions that were affected by extreme volatility and illiquidity in Latin American securities markets after the Mexican peso devaluation. These positions were resolved during the first half of 1995. 9 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.
Three Months Ended March 31, Increase 1996 1995 (Decrease) NET INTEREST REVENUE (in millions) Book basis $213 $182 $ 31 Tax equivalent adjustment 4 15 (11) Fully taxable basis $217 $197 $ 20 AVERAGE BALANCES (in millions) Interest-earning assets $85,576 $78,228 $7,348 Interest-bearing liabilities 82,912 75,642 7,270 Earning assets financed by noninterest-bearing funds $ 2,664 $ 2,586 $ 78 AVERAGE RATES (fully taxable basis) Yield on interest-earning assets 7.49% 7.09% .40% Cost of interest-bearing liabilities 6.68 6.28 .40 Interest rate spread .81 .81 - Contribution of noninterest-bearing funds .21 .21 - Net interest margin 1.02% 1.02% -
Net interest revenue for the first quarter of 1996 totaled $213 million, up $31 million, or 17 percent, from the first quarter of 1995. The $31 million increase in net interest revenue was primarily due to a $29 million increase in trading-related net interest revenue, which totaled $30 million for the first quarter of 1996. The Firm's non-trading-related net interest revenue, considered to be historically a more stable component of overall net interest revenue, was $183 million in the first quarter of 1996, compared to $181 million for the comparable 1995 quarter. 10 REVENUE (continued) 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. Combined trading revenue and trading-related net interest revenue for the first quarter of 1996 was $277 million, up $354 million from the $77 million loss reported in the first quarter of 1995. The table below quantifies the Corporation's trading revenue and trading-related net interest revenue by major category of market risk. These categories are based on management's view of the predominant underlying risk exposure of each of the Firm's trading positions.
Trading- Related Net Trading Interest (in millions) Revenue Revenue Total Quarter ended March 31, 1996 Interest rate risk $158 $ 52 $210 Foreign exchange risk 17 - 17 Equity and commodity risk 72 (22) 50 Total $247 $ 30 $277 Quarter ended March 31, 1995 Interest rate risk $(57) $ 18 $(39) Foreign exchange risk (43) - (43) Equity and commodity risk 22 (17) 5 Total $(78) $ 1 $(77)
11 REVENUE (continued) Interest Rate Risk - The increase in revenue was principally due to a rebound in the Firm's activities in Latin America as 1995 was characterized by heightened volatility in interest rates coupled with liquidity problems in the emerging markets of Latin America. Foreign Exchange Risk - Trading revenue improved compared to the same period last year due to increased stability in the foreign exchange markets. The first quarter of 1995 was affected by global volatility in foreign exchange markets during which the dollar fell to record lows against the yen and the mark. Equity and Commodity Risk - The improvement in revenue was principally due to a rebound in the Firm's equity related products in the Risk Management Products & Services, Trading & Sales and Investment Banking Organizational Units. Shown below is a comparison of the components of noninterest revenue (excluding trading).
Quarter Ended March 31, Increase (in millions) 1996 1995 (Decrease) Fiduciary & funds management revenue $183 $171 $12 Corporate finance fees 86 72 14 Other fees and commissions: Service charges on deposit accounts 15 19 (4) Transaction processing fees 37 33 4 Other 35 21 14 Total other fees & commissions 87 73 14 Net revenue from equity investment transactions 21 26 (5) Securities available for sale gains 15 2 13 Insurance premiums 62 49 13 Other 49 27 22 Total noninterest revenue (excluding trading) $503 $420 $83
12 REVENUE (continued) Fiduciary and funds management revenue totaled $183 million for the first quarter of 1996, up $12 million, or 7 percent, from the comparable period last year. The increase in revenue was due primarily to an increase in global private banking commissions and investment management revenue. These increases were attributable to a higher level of assets under management in the United States and Australian markets. Corporate finance fees of $86 million increased by $14 million, or 19 percent, from the same period last year. Higher revenue from securities underwriting fees and loan syndication fees was partially offset by lower revenue from merger and acquisition fees. Other fees and commissions totaled $87 million, an increase of $14 million, or 19 percent, compared with last year's first quarter. All other noninterest revenue totaled $147 million, up $43 million from the prior year's first quarter. Contributing to this increase were higher insurance premium revenue from operations in Chile and higher securities available for sale gains. 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 $5 million for the first quarter of 1996, compared with $14 million in the prior year's first quarter. Net charge-offs for the first quarter were $10 million, compared with $21 million a year ago. The current quarter's net charge-offs included a leveraged derivative contract recovery of $9 million against the allowance for credit losses. For the first quarter of 1995, nonrefinancing country net charge-offs were $28 million and included net charge-offs of $8 million of real estate loans. 13 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 March 31, Allowance for credit losses 1996 1995 Balance, beginning of period $992 $1,252 Net charge-offs Charge-offs 28 34 Recoveries 18 13 Total net charge-offs* 10 21 Provision for credit losses 5 14 Balance, end of period $987 $1,245 *Components: Secured by real estate $ 1 $ 6 Real estate related 4 2 Highly leveraged 20 20 Other (12) - Refinancing country (3) (7) Total $ 10 $21
The allowance for credit losses, at $987 million at March 31, 1996, was down $5 million from its level at December 31, 1995. The allowance was equal to 138 percent, and 133 percent of total cash basis loans at March 31, 1996, and December 31, 1995, 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. The recorded investment in loans that was considered to be impaired under SFAS 114 was $804 million and $844 million which consisted of total cash basis loans and renegotiated loans at March 31, 1996 and December 31, 1995, respectively. Included in these amounts were $423 million and $458 million of loans for which the related valuation allowance was $80 million and $90 million at these dates, respectively. 14 EXPENSES Total noninterest expenses of $761 million increased by $27 million, or 4 percent, from the first quarter of 1995. Incentive compensation and employee benefits expense increased $94 million, or 71 percent due to higher earnings. Salaries expense decreased $7 million, or 3 percent, from the first quarter of 1995, mostly due to a 2 percent decrease in the average number of employees. All other expenses totaled $333 million for the quarter, down $60 million, or 15 percent, from last year's first quarter. The first quarter of 1995 included a $50 million pre-tax provision for severance-related costs. INCOME TAXES Income tax expense for the first quarter of 1996 amounted to $59 million, compared with an income tax benefit of $67 million for the first quarter of 1995. The effective tax rate was 30 percent for the current and prior year quarters. 15 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 month period ended March 31, 1996 and 1995 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):
Three Months Ended March 31, 1996 1995 Net income (loss) applicable to common stock $123 $(165) Average number of common shares outstanding 77.495 78.346 Average common and common equivalent shares outstanding - primary (1) 80.896 78.346 Average common and common equivalent shares outstanding assuming full dilution (1) 81.560 78.346 (1) Common stock equivalents are excluded from the first quarter 1995 as the effect would be anti-dilutive in calculating earnings per share.
16 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) 1st Qtr 4th Qtr Increase 1996 1995 (Decrease) ASSETS Interest-earning Interest-bearing deposits with banks $ 2,167 $ 3,624 $(1,457) Federal funds sold 1,992 2,387 (395) Securities purchased under resale agreements 15,798 15,167 631 Securities borrowed 16,194 13,817 2,377 Trading assets 30,393 31,926 (1,533) Securities available for sale Taxable 5,303 5,206 97 Exempt from federal income taxes 1,335 1,365 (30) Total securities available for sale 6,638 6,571 67 Loans In domestic offices 7,000 7,199 (199) In foreign offices 5,394 5,624 (230) Total loans 12,394 12,823 (429) Total interest-earning assets 85,576 86,315 (739) Noninterest-earning Cash and due from banks 1,478 1,972 (494) Noninterest-earning trading assets 16,948 17,858 (910) All other assets 10,667 9,736 931 Allowance for credit losses (998) (1,028) 30 Total $113,671 $114,853 $(1,182) LIABILITIES Interest-bearing Interest-bearing deposits In domestic offices $ 5,928 $ 5,788 $ 140 In foreign offices 15,996 18,404 (2,408) Total interest-bearing deposits 21,924 24,192 (2,268) Trading liabilities 11,939 12,599 (660) Securities sold under repurchase agreements 23,922 22,680 1,242 Other short-term borrowings 15,449 15,960 (511) Long-term debt 9,678 8,904 774 Total interest-bearing liabilities 82,912 84,335 (1,423) Noninterest-bearing Noninterest-bearing deposits 3,347 3,606 (259) Noninterest-bearing trading liabilities 15,355 15,392 (37) All other liabilities 6,779 6,240 539 Total liabilities 108,393 109,573 (1,180) PREFERRED STOCK OF SUBSIDIARY 250 250 - STOCKHOLDERS' EQUITY Preferred stock 866 865 1 Common stockholders' equity 4,162 4,165 (3) Total stockholders' equity 5,028 5,030 (2) Total $113,671 $114,853 $(1,182) The condensed average balance sheets are presented on a slightly different basis than the balance sheets presented in the financial statements section of this report, in that the various categories of interest-earning assets and interest-bearing liabilities exclude certain noninterest- earning/bearing components included in the 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. Certain prior period amounts have been reclassified to conform to the current presentation.
17 BALANCE SHEET ANALYSIS (continued) The Corporation's average total assets amounted to $113.7 billion for the first quarter of 1996, a decrease of $1.2 billion from the fourth quarter of 1995. Average interest-earning assets decreased $739 million, or 1 percent, and the proportion of interest-earning assets to total assets remained constant at 75 percent. The decrease in interest-earning assets was primarily due to decreases in trading assets (down $1.5 billion, or 5 percent) and interest-bearing deposits with banks (down $1.5 billion, or 40 percent) offset in part by an increase in securities borrowed (up $2.4 billion, or 17 percent). Interest-earning trading assets, as a percentage of average total assets decreased from 28 percent to 27 percent. Noninterest-earning trading assets decreased $910 million, or 5 percent from the fourth quarter of 1995. Average total liabilities decreased $1.2 billion, or 1 percent, from the fourth quarter of 1995. Within interest-earning liabilities a decrease in total interest-bearing deposits ($2.3 billion, or 9 percent) was offset in part by an increase in securities sold under repurchase agreements ($1.2 billion, or 5 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 from 46 to 47 percent. 18 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):
March 31, December 31, 1996 1995 Fair value $6,880 $6,283 Amortized cost 6,821 6,204 Excess of fair value over amortized cost (1) $ 59 $ 79 (1) Components: Unrealized gains $154 $ 182 Unrealized losses (95) (103) $ 59 $ 79
Long-term Debt During the first quarter of 1996, the Corporation obtained $1.050 billion of cash proceeds from the issuances of long-term debt and repaid $187 million of long-term debt. The larger of these debt issuances were as follows (in millions):
Face Amount Parent Company Floating Rate Notes due 2001 $300 7 1/8% Subordinated Notes due 2006 $150 Bankers Trust Company Bank Notes due February 1998 to January 2006 $160 Equity Linked Notes due April 1996 to November 2003 $238 BT Securities Corporation Floating Rate Notes due 1999 $150
19 TRADING DERIVATIVES The Corporation actively manages trading positions in a variety of derivative contracts. Many 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 derivative financial instruments:
At March 31, Average During 1996 1st Qtr. 1996 (Liabi- (Liabi- (in millions) Assets lities) Assets lities) OTC Financial Instruments Interest Rate and Currency Swap Contracts $ 15,148 $(14,113) $15,321 $(15,074) Interest Rate Contracts Forwards 63 (61) 84 (87) Options purchased 940 1,269 Options written (1,176) (1,419) Foreign Exchange Rate Contracts Spot and Forwards 6,617 (7,876) 8,394 (9,882) Options purchased 1,069 1,014 Options written (985) (973) Equity-related contracts 1,990 (2,346) 2,058 (2,490) Commodity-related and other contracts 563 (541) 525 (527) Exchange-Traded Options Interest Rate 27 (2) 37 (13) Equity 174 (64) 150 (69) Total Gross Fair Values 26,591 (27,164) 28,852 (30,534) Impact of Netting Agreements (16,261) 16,261 (18,257) 18,257 $ 10,330(1) 10,595 $(10,903)(1) $(12,277) (1) As reflected on the balance sheet in "Trading Assets" and "Trading Liabilities."
20 TRADING DERIVATIVES (continued)
At December 31, Average During 1995 4th Qtr.1995 (Liabi- (Liabi- (in millions) Assets lities) Assets lities) OTC Financial Instruments Interest Rate and Currency Swap Contracts $ 15,858 $(15,471) $ 16,260 $(14,960) Interest Rate Contracts Forwards 83 (81) 127 (104) Options purchased 1,426 1,299 Options written (1,312) (1,729) Foreign Exchange Rate Contracts Spot and Forwards 7,931 (8,937) 9,473 (10,236) Options purchased 999 1,213 Options written (941) (1,148) Equity-related contracts 2,011 (2,359) 1,838 (2,093) Commodity-related and other contracts 541 (531) 542 (468) Exchange-Traded Options Interest Rate 33 (16) 32 (39) Equity 137 (80) 158 (105) Total Gross Fair Values 29,019 (29,728) 30,942 (30,882) Impact of Netting Agreements (18,464) 18,464 (19,152) 19,152 $ 10,555(1) $ 11,790 $(11,264)(1) $(11,730) (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. Total net end-user derivative unrealized gains were $53 million, and $212 million at March 31, 1996 and December 31, 1995, respectively. The $159 million decrease during the first quarter of 1996 was primarily due to increases in foreign interest rates. 21 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- March 31, 1996 for sale assets deposits ings debt diaries Total Interest Rate Swaps Pay Variable Unrealized Gain $ - $- $ 61 $ 1 $167 $- $ 229 Unrealized (Loss) - - (27) (7) (57) - (91) Pay Variable Net - - 34 (6) 110 - 138 Pay Fixed Unrealized Gain 4 - 16 - 36 - 56 Unrealized (Loss) (59) - (55) (1) (26) - (141) Pay Fixed Net (55) - (39) (1) 10 - (85) Total Unrealized Gain 4 - 77 1 203 - 285 Total Unrealized (Loss) (59) - (82) (8) (83) - (232) Total Net $(55) $- $ (5) $(7) $120 $- $ 53 Forward Rate Agreements Unrealized Gain $- $- $- $- $- $- $- Unrealized (Loss) - - - - - - - Net $- $- $- $- $- $- $- Currency Swaps and Forwards Unrealized Gain $- $- $18 $1 $ 44 $ 24 $ 87 Unrealized (Loss) - - (2) - (41) (33) (76) Net $- $- $16 $1 $ 3 $ (9) $ 11 Other Contracts (1) Unrealized Gain $ - $ - $- $- $- $- $ - Unrealized (Loss) (5) (6) - - - - (11) Net $(5) $(6) $- $- $- $- $(11) Total Unrealized Gain $ 4 $ - $ 95 $ 2 $ 247 $ 24 $ 372 Total Unrealized (Loss) (64) (6) (84) (8) (124) (33) (319) Total Net $(60) $(6) $ 11 $(6) $ 123 $ (9) $ 53 (1) Other contracts are principally equity swaps and collars.
22 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, 1995 for sale assets deposits ings debt diaries Total Interest Rate Swaps Pay Variable Unrealized Gain $ - $- $132 $ 4 $339 $- $ 475 Unrealized (Loss) - - (12) (1) (24) - (37) Pay Variable Net - - 120 3 315 - 438 Pay Fixed Unrealized Gain - - 11 - 14 - 25 Unrealized (Loss) (88) - (82) (1) (21) - (192) Pay Fixed Net (88) - (71) (1) (7) - (167) Total Unrealized Gain - - 143 4 353 - 500 Total Unrealized (Loss) (88) - (94) (2) (45) - (229) Total Net $(88) $- $ 49 $ 2 $308 $- $ 271 Forward Rate Agreements Unrealized Gain $- $- $ 1 $- $- $- $ 1 Unrealized (Loss) - - (1) - - - (1) Net $- $- $ - $- $- $- $ - Currency Swaps and Forwards Unrealized Gain $- $1 $ 17 $ - $ 20 $ 14 $ 52 Unrealized (Loss) - - (12) (1) (48) (30) (91) Net $- $1 $ 5 $(1) $(28) $(16) $(39) Other Contracts (1) Unrealized Gain $ - $ 1 $- $- $- $- $ 1 Unrealized (Loss) (5) (16) - - - - (21) Net $(5) $(15) $- $- $- $- $(20) Total Unrealized Gain $ - $ 2 $ 161 $ 4 $373 $ 14 $ 554 Total Unrealized (Loss) (93) (16) (107) (3) (93) (30) (342) Total Net $(93) $(14) $ 54 $ 1 $280 $(16) $ 212 (1) Other contracts are principally equity swaps and collars.
23 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 March 31, 1996 Notional Amount Paying Variable Paying Fixed Maturing Notional Receive Pay Notional Receive Pay Total In: Amount Rate Rate Amount Rate Rate Notional 1996 $23,456 5.70% 5.33% $ 6,768 5.80% 6.13% $30,224 1997-1998 10,183 5.70 5.48 3,845 5.05 5.77 14,028 1999-2000 3,479 6.43 6.02 1,240 3.46 4.77 4,719 2001 and thereafter 4,347 6.48 5.50 668 5.51 7.27 5,015 Total $41,465 $12,521 $53,986 All rates were those in effect at March 31, 1996. Variable rates are primarily based on LIBOR and may change significantly, affecting future cash flows.
At December 31, 1995 Notional Amount Paying Variable Paying Fixed Maturing Notional Receive Pay Notional Receive Pay Total In: Amount Rate Rate Amount Rate Rate Notional 1996 $30,770 5.97% 5.87% $ 8,742 6.00% 6.21% $39,512 1997-1998 6,558 5.99 5.84 3,657 5.33 5.76 10,215 1999-2000 3,448 6.57 6.34 1,373 3.86 4.99 4,821 2001 and thereafter 3,927 6.64 5.93 629 5.91 7.34 4,556 Total $44,703 $14,401 $59,104 All rates were those in effect at December 31, 1995. Variable rates are primarily based on LIBOR and may change significantly, affecting future cash flows.
24 REGULATORY CAPITAL The Federal Reserve Board's ("FRB") capital adequacy guidelines mandate that minimum capital ratios be maintained by bank holding companies and their bank subsidiaries. In addition, the Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA") mandated the establishment of capital tiers for banks based on these ratios. The Corporation's 1995 Annual Report on Form 10-K, on page 42, provides a detailed discussion of these guidelines and regulations. Based on their respective regulatory capital ratios as of March 31, 1996, both Bankers Trust Company ("BTCo") and Bankers Trust (Delaware) are well capitalized, as defined in the regulations issued by the FRB and the other federal bank regulatory agencies setting forth the general capital requirements mandated by FDICIA. The table below presents the regulatory capital ratios of Bankers Trust New York Corporation ("Corporation") and BTCo at March 31, 1996 and December 31, 1995, along with the FRB's minimum regulatory guidelines. All of these regulatory capital ratios excluded any impact from the adoption of SFAS 115.
FRB Minimum March 31, December 31, Regulatory 1996 1995 Guidelines CORPORATION Risk-Based Ratios Tier 1 Capital 8.20% 8.51% 4.0% Total Capital 13.41% 13.90% 8.0% Leverage Ratio 5.28% 5.12% 3.0% BTCo Risk-Based Ratios Tier 1 Capital 9.39% 9.47% 4.0% Total Capital 12.58% 12.78% 8.0% Leverage Ratio 5.49% 5.14% 3.0%
The following were the essential components of the Corporation's and BTCo's risk-based capital ratios (in millions):
March 31, December 31, 1996 1995 Corporation Tier 1 Capital $4,518 $4,512 Tier 2 Capital 2,867 2,858 Total Capital $7,385 $7,370 Total risk-weighted assets $55,073 $53,021
25 REGULATORY CAPITAL (continued)
March 31,December 31, 1996 1995 BTCo Tier 1 Capital $4,585 $4,394 Tier 2 Capital 1,554 1,532 Total Capital $6,139 $5,926 Total risk-weighted assets $48,811 $46,389
Comparing March 31, 1996 to December 31, 1995, the Corporation's Tier 1 Capital and Total Capital ratios declined by 31 basis points and 49 basis points, respectively, as a result of the increase in total risk-weighted assets. The Corporation's total risk-weighted assets at March 31, 1996 were $2.052 billion higher than at year-end 1995. The Leverage Ratio increased by 16 basis points at March 31, 1996 primarily as a result of a decrease in average total assets during the first quarter. These factors were also the causes for the variances in BTCo's Capital and Leverage ratios. LIQUIDITY Liquidity is the ability to have the funds available at all times to meet the commitments of the Corporation. The Corporation has a formal process for managing liquidity on a global basis for the Firm as a whole as well as for each of its significant subsidiaries. Management's guiding policy is to maintain conservative levels of liquidity designed to ensure that the Firm has the ability to meet its obligations under all conceivable circumstances. Management maintains a dual focus to ensure a conservative liquidity position by promoting asset liquidity and actively managing liability/capital levels, maturities and diversification. The fundamental objective in this regard is to ensure that, even in the event of a complete loss of access to the liability markets, the Corporation will be able to continue to fund those assets that cannot be liquidated in a timely manner. Most of the Corporation's assets are highly liquid and of high credit quality. The Corporation maintains excess liquidity through its base of liquid assets. 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. Securities purchased under resale agreements and securities borrowed are virtually all short-term in nature and are collateralized with U.S. government or other marketable securities, or cash equivalents. Trading assets are marked to market daily and primarily consist of U.S. government and agency securities, state and municipal securities, foreign government obligations, and money market instruments. The Corporation's liquid assets amounted to $87.0 billion as of March 31, 1996, and $83.5 billion as of December 31, 1995, both of which equaled 80 percent of gross total assets. 26 LIQUIDITY (continued) Cash Flows The following comments apply to the consolidated statement of cash flows, which appears on page 5. Cash and due from banks decreased by $1.2 billion during the first quarter of 1996, as the net cash used in investing activities exceeded the sum of the net cash provided by operating and financing activities. The $7.3 billion of net cash used in investing activities was primarily the result of cash outflows from the net change in securities borrowed($4.4 billion), securities purchased under resale agreements ($2.3 billion) and purchases of securities available for sale ($1.6 billion). This was partially offset by cash inflows from maturities and other redemptions of securities available for sale ($892 million). The $3.9 billion of net cash provided by operating activities primarily resulted from a $3.0 billion net change in trading assets and trading liabilities. The $2.1 billion of net cash provided by financing activities was primarily the result of an increase in the net change in securities sold under repurchase agreements ($8.0 billion) and the proceeds from the issuance of long term debt ($1.1 billion), offset in part by cash outflows from a $3.4 billion net change in other short term borrowing and a $3.3 billion net change in deposits. Cash and due from banks decreased $382 million during the first quarter of 1995, as the net cash used in investing activities exceeded the sum of net cash provided by operating and financing activities. The $6.8 billion of net cash used in investing activities was largely the result of cash outflows from net changes in securities purchased under resale agreements ($8.2 billion) and securities borrowed ($1.5 billion). These factors were partially offset by cash inflows from sales, maturities and other redemptions of securities available for sale ($2.0 billion). The $4.9 billion of net cash provided by operating activities primarily resulted from a $3.9 billion net change in trading assets and liabilities as well as a $1.3 billion net change in receivables and payables from securities transactions. Within the financing activities category, cash inflows from the net changes in securities sold under repurchase agreements ($3.0 billion), as well as from the issuance of long-term debt ($1.0 billion) were offset in part by cash outflows from the net changes in other short-term borrowings ($1.7 billion) and repayments of long-term debt ($781 million). Interest Rate Sensitivity Condensed interest rate sensitivity data for the Corporation at March 31, 1996 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 27 LIQUIDITY (continued) 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) March 31, 1996 1 year years 5 years funds Total Assets $ 76.0 $ 2.4 $ 3.8 $ 25.9 $ 108.1 Liabilities, preferred stock of subsidiary and preferred stock (72.0) (4.1) (3.0) (24.8) (103.9) Common stockholders' equity - - - (4.2) (4.2) Effect of off-balance sheet hedging instruments (5.6) 3.2 2.4 - - Interest rate sensitivity gap $ (1.6) $ 1.5 $ 3.2 $ (3.1) $ -
28 NONPERFORMING ASSETS The components of cash basis loans, renegotiated loans, other real estate and other nonperforming assets are shown below ($ in millions).
March 31,December 31, 1996 1995 CASH BASIS LOANS Domestic Commercial and industrial $253 $263 Secured by real estate 286 297 Financial institutions 10 10 Total domestic 549 570 International Commercial and industrial 96 106 Secured by real estate 65 65 Financial institutions 5 3 Total international 166 174 Total cash basis loans $715 $744 Ratio of cash basis loans to total loans 5.5% 5.9% Ratio of allowance for credit losses to cash basis loans 138% 133% RENEGOTIATED LOANS Secured by real estate $89 $ 88 Other - 12 Total renegotiated loans $89 $100 OTHER REAL ESTATE $257 $259 OTHER NONPERFORMING ASSETS Assets acquired in credit workouts $66 $66 Other 1 1 Total other nonperforming assets $67 $67 Loans 90 days or more past due and still accruing interest $- $26
29 NONPERFORMING ASSETS (continued) An analysis of the changes in the Corporation's total cash basis loans during the first quarter of 1996 follows (in millions).
Balance, December 31, 1995 $ 744 Net transfers to cash basis loans 25 Net paydowns (21) Charge-offs (28) Transfers to other real estate (4) Other (1) Balance, March 31, 1996 $ 715
The Corporation's total cash basis loans amounted to $715 million at March 31, 1996, down $29 million, or 4 percent, from December 31, 1995. This reduction was primarily the result of decreases in highly leveraged loans ($21 million), loans secured by real estate ($11 million) and other cash basis loans ($5 million) partially offset by an increase in real estate related loans ($8 million). Also within cash basis loans, loans secured by real estate were $351 million and $362 million at March 31, 1996 and December 31, 1995, respectively. Commercial and industrial loans to highly leveraged borrowers were $132 million and $153 million at March 31, 1996 and December 31, 1995, respectively. Within cash basis loans, leveraged derivative contracts were $107 million and $104 million at March 31, 1996 and December 31, 1995, respectively. Based on an analysis of the potential outcome of outstanding issues relating to leveraged derivative transactions, management continues to believe that the expected financial impact should be covered by existing reserves. 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 March 31 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. 30 NONPERFORMING ASSETS (continued)
Three Months Ended March 31, (in millions) 1996 1995 Domestic Loans Gross amount of interest that would have been recorded at original rate $14 $14 Less, interest, net of reversals, recognized in interest revenue 1 1 Reduction of interest revenue 13 13 International Loans Gross amount of interest that would have been recorded at original rate 3 6 Less, interest, net of reversals, recognized in interest revenue - - Reduction of interest revenue 3 6 Total reduction of interest revenue $16 $19
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 1995 Annual Report on Form 10-K, on page 57, provides a detailed discussion of the definition.
Highly Leveraged Transactions March 31, December 31, (in millions) 1996 1995 Loans Senior debt $1,053 $1,105 Subordinated debt 76 68 Total loans $1,129 $1,173 Unfunded commitments Commitments to lend $367 $539 Letters of credit 220 263 Total unfunded commitments $587 $802 Equity investments $666 $648 Commitments to invest $493 $289
31 HIGHLY LEVERAGED TRANSACTIONS (continued) The Corporation's outstanding loans were to 93 separate borrowers in 36 separate industry groups at March 31, 1996, compared to 97 separate borrowers in 38 separate industry groups at December 31, 1995. The industrial machinery group at 16 percent and the wholesale and retail food group at 11 percent were the only industry concentrations which exceeded 10 percent of total HLT loans outstanding at March 31, 1996. In addition to the amounts shown in the table above, at March 31, 1996, the Corporation had issued commitment letters which had been accepted, subject to documentation and certain other conditions, of $1.715 billion (which were in various stages of syndication) and had additional HLTs in various stages of discussion and negotiation. During the first quarter of 1996, 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 March 31, 1996 was less than $13 million. However, at March 31, 1996, the Corporation had total exposure (loans outstanding plus unfunded commitments) in excess of $50 million to 7 separate highly leveraged borrowers. At March 31, 1996, $132 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 $20 million of HLT loans were recorded in the first quarter of 1996. In addition, the Corporation recorded a net gain of $20 million in connection with the sales and/or write-offs of its equity investments in highly leveraged companies during the first quarter of 1996. 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 $25 million during the first quarter of 1996 and that as of March 31, 1996, approximately $17 million of fees were deferred and will be recognized as future revenue. 32 Organizational Unit Definitions and Assumptions The Corporation delivers a wide range of financial products and services worldwide principally through eight broad Organizational Units. Five units are organized around specific products and services: Investment Banking, Risk Management Products & Services, Trading & Sales, Investment Management, and Client Processing Services. Three additional units are organized to deliver these same types of financial products and services with the unique local expertise necessary to operate successfully in Australia/New Zealand, Asia and Latin America. The Units are described below: Investment Banking: Delivers the Firm's full range of financing, advisory and research products and services to corporate, financial institution and investor clients. Services include the underwriting, distribution and trading of public equity and debt (both investment grade and high-yield), private placements and structured finance, as well as merger and acquisition advisory services. The unit is responsible for the Firm's private equity investments. The Corporation's Asset-Based Lending activities, although managed separately, are included in Investment Banking for reporting purposes. Risk Management Products & Services: Assists clients in the management of their financial and economic risk. Products and services include interest rate, currency, equity, commodity and credit derivatives, as well as risk management advisory services. This business also manages the Corporation's risk associated with client derivative transactions. Trading & Sales: Provides financial products and services to the Corporation's clients and enters into securities, currency, commodity, derivatives and funding transactions on a proprietary basis. The unit is responsible for funding the Corporation worldwide, including capital and liquidity management. Investment Management: Manages investments for pension funds, corporations and other institutional investors worldwide (the Australian funds management business is reported in the results of Australia/New Zealand). Services provided include management of equities, fixed income securities and other financial instruments in many of the world's major financial markets. The Corporation's Private Banking activities, although managed separately, are included in Investment Management for reporting purposes. Client Processing Services: Gathers, moves and manages assets for institutional clients throughout the world. This unit delivers the Corporation's processing, fiduciary and trust services, such as cash management, custody and clearance, and deposit and credit services, to corporations, financial institutions and governments and their agencies around the world. It also provides retirement services, including recordkeeping and administrative services and portfolio measurement to sponsors of U.S. defined benefit and defined contribution plans. 33 Organizational Unit Definitions and Assumptions (continued) Geographically-Based Businesses: Australia/New Zealand - Provides funds management and corporate finance, and financial markets services to local and international clients, and trades for its own account in related markets. Asia - Provides advisory and corporate finance services to financial institutions, governments and both state-owned and privatized businesses. In addition, it engages in arbitrage trading and equity investments. Latin America - Engages in trading and distribution, organization and underwriting of corporate finance securities, mergers and acquisitions services and private equity investments. In addition, this organizational unit, through its Chilean insurance subsidiaries, underwrites pension- related life and disability insurance and sells pension-related life annuities. Corporate Unit include the unallocated costs of corporate staff together with the notional interest income on the Corporation's capital accounts. The Corporate unit also includes a residual portion of the Firm's loans to clients not booked in the business units. In addition to the provision for credit losses there are also various special charges and reserves reflected within Corporate such as the previously disclosed severance charge taken in the first quarter of 1995. Organizational Unit business results are determined based on the Corporation's internal management accounting process which allocates revenue and expenses among the Organizational Units. Because the Corporation's business is complex in nature and its operations are integrated, it is impractical to segregate respective contributions of the Organizational Units with precision. As a result, estimates and subjective judgments have been made to apportion revenue and expense items. The internal management accounting process, unlike financial accounting in accordance with generally accepted accounting principles, is based on the way the management views its business and is not necessarily comparable with similar information disclosed by other financial institutions. In order to provide comparability from one period to the next, the Corporation will restate this analysis to conform with material changes in the allocation process and/or significant changes in organizational structure. 34 Business Functions Profitability
First First Quarter Quarter Increase (in millions) 1996 1995 (Decrease) Client Finance $ 34 $ 14 $ 20 Client Advisory 22 20 2 Client Financial Risk Management 9 (122) 131 Client Transaction Processing 14 8 6 Trading and Positioning 76 (36) 112 Unallocated (17) (41) 24 Income (Loss) $138 $(157) $295
35 ADOPTION OF EMPLOYEE BENEFIT PLAN In the first quarter of 1996, the Corporation implemented a new key employee benefit plan called the Partnership for One-hundred Plan (the "Plan"), a copy of which is filed as Exhibit 10(iii)(A)(2) to this Report. Holders of plan units will be entitled to cash payments based on increases on the Corporation's common stock above $75 per share, with a maximum payout of $100 per unit at a share price of $100. The units vest in the last three years of a five year period unless the Corporation's common stock price reaches $100, in which case the units vest and become payable immediately. To date, 1,800,000 units of the 2,000,000 authorized under the Plan have been issued. RECENT DEVELOPMENTS On May 9, 1996, the Corporation and Procter & Gamble reached an agreement settling the two year old dispute between the two companies involving two derivatives transactions. The financial impact of the settlement will be covered by existing reserves, and the settlement will have no impact on the Corporation's results of operations. 36 PART II. OTHER INFORMATION Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS (a) The Annual Meeting of Stockholders was held on April 16, 1996. (b) Each of the persons named in the Proxy Statement as a nominee for Directors was elected. (c) The following are the voting results on each of the matters which were submitted to the stockholders:
Withheld or Broker For Against Abstain Non-Votes Election of Directors George B. Beitzel 70,107,922 1,448,050 Phillip A. Griffiths 70,115,223 1,440,749 William R. Howell 70,113,334 1,442,638 Jon M. Huntsman 70,129,201 1,426,771 Vernon E. Jordan, Jr. 69,984,166 1,571,806 Hamish Maxwell 70,096,146 1,459,826 Frank N. Newman 70,119,789 1,436,183 N. J. Nicholas Jr. 70,125,065 1,430,907 Russell E. Palmer 70,100,878 1,455,094 Patricia C. Stewart 70,086,285 1,469,687 George J. Vojta 70,085,557 1,470,415 Resolutions . To ratify the appointment of Ernst & Young LLP as indepen- dent auditor for 1996. 71,266,585 177,316 112,071 . To prescribe certain methods for conducting the activities of the Corporation's political action committee. 1,801,131 54,856,277 3,181,662 11,716,902 . To provide for cumulative voting in the election of directors. 16,812,958 42,035,855 990,258 11,716,901 . To report the Corporation's structural adjustment programs being undertaken in less developed countries and analyze the programs' impact on the Corporation's loans to those countries. 963,359 56,424,059 2,451,661 11,716,893
The text of the matters referred to under this Item 4 is set forth in the Proxy Statement dated March 20, 1996 previously filed with the Commission and incorporated herein by reference. 37 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. (10) Material Contracts iii(A) Management Contracts and Compensation Plans (12) Statement re Computation of Ratios (27) Financial Data Schedule (b) Reports on Form 8-K - Bankers Trust New York Corporation filed three reports on Form 8-K during the quarter ended March 31, 1996. - The report dated January 11, 1996 filed the Corporation's Press Release dated January 11, 1996 which announced that Richard H. Daniel joined Bankers Trust New York Corporation and Bankers Trust Company as Chief Financial Officer. - The report dated January 18, 1996 filed the Corporation's Press Release dated January 18, 1996, which announced earnings for the quarter and year ended December 31, 1995. - The report dated March 19, 1996 filed an underwriting agreement covering the issuance and sale by Bankers Trust New York Corporation of 7 1/8% Subordinated Notes due 2006 and various other exhibits related to the issuance. 38 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 May 15, 1996. 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 MARCH 31, 1996 EXHIBIT INDEX (4) Instruments Defining the Rights of Security Holders, Including Indentures (v) - Long-Term Debt Indentures (a) (10) Material Contracts iii (a) Management Contracts and Compensation Plans (1) Employment Contract for Richard H. Daniel (2) Partnership for One-hundred Plan Plan Document (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. EX-10 2 EXHIBIT 10(iii)(A)(1) January 10, 1996 Mr. Richard H. Daniel 957 Bellview Road McLean, VA 22102 Dear Dick: It gives me great pleasure to extend to you the following offer of employment. Your title will be Chief Financial Officer/ Managing Director of Bankers Trust Company (the "Company") and Chief Financial Officer of the Company's parent, Bankers Trust New York Corporation (the "Parent"). In addition, subject to approval of the Parent's Board of Directors, you will have the title of Executive Vice President of the Parent. You will be a member of the Operating Committee and Vice Chairman of the Asset Liability Committee. You will be responsible for the firm's financial functions (excluding Audit) and for Market Risk Management. You will report to me, as Chief Executive Officer of the Company and Parent, or any successor Chief Executive Officer of the Company and Parent, and will chair the Asset Liability Committee in my absence. Your services shall be principally performed, and your office shall be located, in New York City. Your annual base salary will be $350,000 paid monthly in equal installments. Your annual base salary will be subject to annual review by the Parent's compensation committee in accordance with Parent practice and may be increased from time to time at the sole discretion of the compensation committee. On your start date (which shall be determined by you but shall be no later than February 20, 1996, hereinafter the "Commencement Date"), you will receive a special one-time payment of $350,000 (less mandatory deductions), a $60,000 credit to your ADCAP retirement account, and 60,000 units from the Partnership for One Hundred Plan (POP). In addition, on the Commencement Date, you are to receive under the terms and conditions of the Parent's Stock Option and Stock Award Plan, a 20,000-share stock option award and 10,000 shares of three-year restricted stock. The price of your options will be based on the average of the high and low trading prices of the Parent's common stock on the Commencement Date as shown on the New York Stock Exchange transactions tape. Such options, as well as the options granted to you in respect of services for 1996 and 1997 as described below, will have a term of 10 years from the date of grant; will be subject to accelerated vesting under the Plan and as described below; will vest on the first anniversary of the date of grant; and will remain exercisable for 3 years following your termination of employment with the Parent and any of its subsidiaries for any reason, other than (i) your termination of employment by the Parent and any of its subsidiaries for "Cause" (as defined below) or (ii) your voluntary termination of employment without "Good Reason" (as defined below) which does not occur during the one year period following a "Change of Control" (as defined below). Should you forgo in whole or in part your 1995 bonus at your current employer as a result of joining the Parent, you will be made whole, up to $150,000 (less mandatory deductions). For your services in 1996, you will receive the following in addition to your base salary: A guaranteed minimum cash performance bonus of $1,000,000 (less mandatory deductions). $500,000 will be paid to you on May 15, 1996; the remaining $500,000 (less mandatory deductions) will be paid on the day that 1996 performance bonuses are normally paid to staff (usually December or the following January). 50,000 units in the 1996 Partnership Equity Plan (PEP). A 40,000-share stock option award to be granted on the normal award date in 1996 (usually in June). A $70,000 credit to your ADCAP retirement account. For your services in 1997, you will receive the following in addition to your base salary: A guaranteed minimum cash performance bonus of $1,000,000 (less mandatory deductions) on the day that 1997 performances bonuses are normally paid to staff (usually December or the following January). A 40,000-share stock option award to be granted on the normal award date in 1997 (usually in June). 50,000 units in the 1997 Partnership Equity Plan (PEP). A $70,000 credit to your ADCAP retirement account. Any 1996 and 1997 bonuses beyond the guaranteed minimums will be paid in accordance with the terms of the Equity Participation Plan, which means approximately 70% in cash and 30% in equity. Any amounts over the guaranteed cash will be paid in such a way as to approach the 70:30 cash to equity ratio for the total. The Parent or one of its subsidiaries will reimburse you or pay directly all reasonable relocation expenses for you and your family. These will include, without limitation: House-hunting expenses to include all travel, hotel, ground transportation and childcare expenses for you and your spouse. Temporary living expenses for you and your family for up to nine months from the Commencement Date, including, without limitation, rental cost of a temporary residence, rental cost of temporary furniture and any real estate commissions paid by you in procuring such residence. Home buy-out of your existing residence based on the average of two independent appraisals. Usual and customary closing costs on the sale of your existing home (including brokerage commissions) and on the acquisition of a primary residence in the New York City metropolitan area, including two points on the purchase and any brokerage commissions paid by you in connection with such purchase. Travel expenses and the cost of moving your household goods, including reimbursement for travel expenses incurred by you in connection with commuting weekly from your current residence in McLean, Virginia to New York City for up to nine months from the Commencement Date. A settling-in allowance of $100,000. All relocation-related expenses will be grossed up for tax purposes. During the term of your employment with either the Company or Parent you will be entitled to participate in all employee benefit plans, programs and arrangements of the Parent or any of its affiliates now or hereinafter made available to any senior executives of the Company or Parent on a basis no less favorable than is made available to any other such senior executives (including, without limitation, each plan, program or arrangement providing for retirement benefits, supplemental and excess retirement benefits, annual and long-term incentive compensation, stock options, group life insurance, accident and death insurance, medical and dental insurance, sick leave, disability benefits and fringe benefits and perquisites). In addition, you will be entitled to at least five (5) weeks paid vacation per calendar year and you shall receive prompt reimbursement from the Company or Parent for all reasonable out- of-pocket expenses incurred by you in performing your duties for the Company or Parent. You will be afforded the same indemnification protection regarding directors and officers liability that the Company and Parent provide to their senior executive officers and directors. In addition, you will be covered by any directors and officers liability policy generally in force for the Company's and Parent's senior executive officers and directors. Our offer is contingent upon your completing our standard employment package. The package includes an employment application, a security data sheet, a personal information form, and confirmation of employment authorization (which includes completing the Immigration and Naturalization Services Form I-9). You will also have to read and sign a Substance Abuse Policy Employee Acknowledgment Form which is enclosed in the envelope marked "Medical Evaluation." In addition, it will be necessary for you to successfully complete a medical evaluation, background investigation, including but not limited to a credit investigation, and all other components of the Company's and Parent's pre-employment screening process to the Company's and Parent's satisfaction. You may schedule an appointment for your medical evaluation either at our office at BT Plaza or if you wish in Washington, D.C. by calling Peter Gurney of Human Resources at (212) 250-2219. Please complete and bring the forms in the envelope marked "Medical Evaluation" to your appointment. You will be eligible to start employment once you have received notification of the successful completion of your medical evaluation and credit investigation which we estimate will take 48 hours. The Parent recently reviewed its policies and procedures as they relate to the handling of information of a proprietary or confidential nature. Included in this policy is a requirement that all employee and related accounts be maintained in designated accounts from brokerage firms approved by the Parent, currently, BT Brokerage, NatWest Investor Corporation and Smith Barney, Inc. Additional information pertaining to this policy can be found in the enclosed booklet entitled, "Confidential Information, Insider Trading and Related Matters." In the event your employment with the Parent or its subsidiaries is terminated (i) at any time by the Company or Parent without Cause, (ii) at any time by you with Good Reason, (iii) by you for any reason within one year following a "Change of Control" (as defined below), or (iv) as a result of your death or permanent disability, you will receive, as soon as practicable thereafter: (A) a lump sum cash payment equal to any portion of your annual base salary which shall have accrued but remain unpaid through your date of termination; (B) a lump sum cash payment equal to any cash performance bonus with respect to the immediately preceding calendar year which shall have accrued but remain unpaid as of the date of your termination; (C) if such termination of employment occurs on or prior to the fifth anniversary of the Commencement Date, a lump sum cash payment equal to the product of (x) the sum of (I) your annual base salary as in effect immediately prior to such termination plus (II) the average of cash performance bonuses paid or payable to you in respect of prior years during the term of your employment, or if such termination shall occur during the first year of your employment, $1,000,000, times (y) two (2) (the "Multiplier"); provided, however, that if such termination of employment occurs after the third anniversary of the Commencement Date, the Multiplier shall be proportionately reduced, in a manner consistent with that set forth by examples in Exhibit I hereto, to reflect the portion of the two year period between the third anniversary and fifth anniversary of the Commencement Date that shall have elapsed through the date of such termination of your employment; (D) also if such termination of employment occurs prior to the fifth anniversary of the Commencement Date, immediate full vesting of all restricted stock, PEP units, stock options, ADCAP credits, POP units and other incentive awards, without loss of floor protection with respect to PEP units (the "incentive plan awards") together with a lump sum cash payment equal to the equivalent value of any incentive plan awards described above which the Parent has agreed to grant to you for your services in 1996 and 1997 and which shall not have been granted as of the date of such termination of employment; and (E) continued coverage under the Parent's (or its affiliates') medical, dental, disability and life insurance plans, policies and programs on the same basis enjoyed by you while employed by the Company or Parent until the earlier of (A) two years following your date of termination or (B) the date on which you become eligible for medical, dental and life insurance coverage without a preexisting condition exclusion by a subsequent employer; provided that the aggregate amount of cash payments to be made to you in connection with your termination of employment due to your death or permanent disability shall be reduced by the aggregate present value of any cash death or disability payments payable to you in connection with such termination under the Parent's (or its affiliates') death and disability benefit plans, programs and arrangements. Your entitlement to the foregoing shall be without prejudice to any other severance or termination benefits for which you may be eligible under any other plan, policy or arrangement of the Parent or its affiliates, provided that the Company or Parent shall be entitled to reduce the amount of cash compensation otherwise payable to you under any other severance arrangement maintained by the Parent or its affiliates by the aggregate amount of cash compensation payable to you pursuant to clause (C) above. Any other compensation and benefits following your termination of employment under any of the circumstances described in clauses (i) through (iv) above by will be determined under the applicable plans, programs and arrangements of the Parent or its affiliates. In the event your employment with the Company and Parent is terminated at any time by the Company or Parent for Cause (as defined below) or is terminated by you without Good Reason, other than during the one year period following a Change of Control (a "Voluntary Resignation"), you will receive, as soon as practicable thereafter, a lump sum cash payment equal to the sum of: (i) any portion of your annual base salary which shall have accrued but remain unpaid through your date of termination; plus (ii) any cash performance bonus with respect to the immediately preceding calendar year which shall have accrued but remain unpaid as of the date of your termination. Your entitlement to the foregoing shall be without prejudice to any other severance or termination benefits for which you may be eligible under any other plan, policy or arrangement of the Parent or its affiliates. Your entitlement to any other compensation and benefits following your termination of employment by the Company or Parent for Cause or by you by Voluntary Resignation will be determined under the applicable plans, programs and arrangements of the Parent or its affiliates. For purposes of this agreement, the following definitions will apply: "Cause" will mean (i) conviction of a felony or commission of an act rising to the level of a felony, including, but not limited to, fraud, or (ii) your willful and continuing refusal or failure to substantially perform your duties for the Company following the Company's written notification to you of such alleged refusal or failure and your subsequent refusal or failure within 30 days of your receipt of such notice to perform or in good faith to commence the performance of your duties for the Company; provided that in no event shall your ineffectiveness or incompetence in the performance of your duties for the Company or a bona fide disagreement over corporate policy be deemed grounds for a termination for Cause. "Good Reason" will mean any material breach by the Company of its obligations to you hereunder including, without limitation, any material reduction in your duties, authority, status or responsibilities (whether or not accompanied by a change in title) as described in this agreement or any requirement that you report to any person or entity other than the Company's Chief Executive Officer, which breach is not cured by the Company within 30 days following written notice thereof from you. "Change of Control" will mean: (i) The acquisition, other than from the Parent, by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")) of beneficial ownership (within the meaning of rule 13d-3 promulgated under the Exchange Act) of 20% or more of either the then outstanding shares of common stock of the Parent (the "Outstanding Parent Common Stock") or the combined voting power of the then outstanding voting securities of the Parent entitled to vote generally in the election of directors (the "Parent Voting Securities"); provided, however, that any acquisition by the Parent or any of its subsidiaries, or any employee benefit plan (or related trust) of the Parent or its subsidiaries, or any corporation with respect to which, following such acquisition, more than 80% of, respectively, the then outstanding shares of common stock of such corporation and the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors is then beneficially owned, directly or indirectly, by the individuals and entities who were the beneficial owners, respectively, or the Outstanding Parent Common Stock and Parent Voting Securities immediately prior to such acquisition in substantially the same proportion as their ownership, immediately prior to such acquisition, of the Outstanding Parent Common Stock and Parent Voting Securities, as the case may be, shall not constitute a Change of Control; or (ii) Individuals who, as of January 1, 1994, constitute the Board (as of the date hereof the "Incumbent Board") cease for any reason to constitute at least a majority of the Board provided that any individual becoming a director subsequent to such date whose election, or nomination for election by the Parent's stockholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office is in connection with an actual or threatened election contest relating to the election of the directors of the Parent (as such terms are used in Rule 14A-11 of Regulation 14A promulgated under the Exchange Act); or (iii) Approval by the stockholders of the Parent of a reorganization, merger or consolidation, in each case, with respect to which the individuals and entities who were the respective beneficial owners of the common stock and voting securities of the Parent immediately prior to such reorganization, merger, or consolidation do not, following such reorganization, merger or consolidation, beneficially own, directly or indirectly, more than 80% of respectively, the then outstanding shares of common stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the Parent resulting from such reorganization, merger or consolidation, or a complete liquidation or dissolution of the Parent or of the sale or disposition of all or substantially all of the assets of the Parent. Anything herein to the contrary notwithstanding, a Change in Control shall not be deemed to have occurred if such Change in Control results from or arises out of a purchase or other acquisition of the Parent or the Company, directly or indirectly, by a corporation or other entity in which you have a direct or indirect equity interest representing more that 2% in value or voting power of the outstanding equity securities of such corporation or other entity; provided, however, that the limitation contained in this sentence shall not apply in respect of any awards entitling you to any direct or indirect equity interest in a corporation or other entity (a) which equity interest is part of a class of equity interests which are publicly traded on any securities exchange or other market system, or (b) received by you without your concurrence or consent, as a result of or in connection with a purchase of other acquisition of the Parent or the Company by such corporation or other entity. Upon a Change of Control, all restricted shares, PEP units, stock options, ADCAP credits, POP units and other incentive awards then held by you shall immediately vest, without loss of floor protection with respect to PEP units. To date, neither the Company nor the Parent has provided protection to any of its executives with respect to any potential excise taxes that might be imposed upon the executives in connection with a Change of Control under section 4999 of the Internal Revenue Code, or otherwise. In the event it shall be determined that any payments or benefits provided to you by the Company or the Parent (including any accelerated vesting of compensation and benefits) would be subject to the excise tax imposed by section 4999 of the Internal Revenue Code or any similar tax payable under any federal, state, local or other law (collectively, the "Excise Tax"), then you shall be entitled to gross-up or other protection with respect to such Excise Tax which is at least as favorable as such gross-up or other protection, if any, as may be provided by the Company or the Parent to any other senior executive of the Company or Parent. You will not be required to mitigate any payments or benefits due to you under this agreement by seeking alternative employment, nor will any payments from the Company or Parent be reduced by any amounts or benefits received in connection with such alternative employment. The Company or Parent will reimburse you for (i) all reasonable legal fees and disbursements incurred by you in connection with the negotiation and preparation of this agreement and (ii) all reasonable fees and disbursements incurred by you in connection with any dispute over the enforcement of your rights under this agreement, but only if you substantially prevail in such dispute. Needless to say, we are all very enthusiastic at the prospect of your joining Bankers Trust. Please sign and return one copy of this letter upon your acceptance of our offer. Call me if you have any questions regarding our offer. Sincerely, /S/FRANK N. NEWMAN Frank N. Newman President Agreed To: /S/RICHARD H. DANIEL Richard H. Daniel Date: January 19, 1996 Exhibit I to Daniel Offer Letter Examples Illustrating the Clause (C) Payment Amount (1) For each of the following examples, assume that the sum of your annual base salary plus the average of cash performance bonuses previously paid to you is $2,000,000. Example 1 In the event of a termination of your employment prior to the third anniversary of your Commencement, Clause (C) would entitle you to a payment of $4,000,000 ($2,000,000 times 2 (the Multiplier)). Example 2 In the event of a termination of your employment exactly 3 1/2 years after the Commencement Date, Clause (C) would entitle you to a payment of $3,000,000 ($2,000,000 times 1.5 (the Multiplier of 2, proportionately adjusted down to 1.5 to reflect that 6 months of the 24 month period between the third and fifth anniversaries of the Commencement Date had elapsed as of the date of your termination). Example 3 In the event of a termination of your employment exactly 4 years after the Commencement Date, Clause (C) would entitle you to a payment of $2,000,000 ($2,000,000 times 1 (the Multiplier of 2, proportionately adjusted down to 1 to reflect that 12 months of the 24 month period between the third and fifth anniversaries of the Commencement Date had elapsed as of the date of your termination). (1) Each example assumes your termination of employment under circumstances that would entitle you to the severance payments described in Clause (C) (i.e., a termination by the company or Parent without Cause, by you with Good Reason, by you without Good Reason within one year following a Change of Control or as a result of your death or permanent disability). EX-10 3 EXHIBIT 10(iii)(A)(2) BANKERS TRUST NEW YORK CORPORATION Partnership for One-hundred Plan Plan Document I. Purpose of the Plan The purpose of the Partnership for One hundred Plan (the "Plan") is to provide key employees of Bankers Trust New York Corporation and its subsidiaries (the "Corporation") with an incentive to exert their efforts to increase Bankers Trust New York Corporation share price. II. Administration of the Plan The Plan is to be administered by the Human Resources Committee of the Corporation's Board of Directors (the "Committee"). The Committee may amend, suspend or terminate the Plan at any time. The Committee also shall interpret the provisions of the Plan and may selectively accelerate the payout of the value of any employee's award. III. Eligible Employees Participants in the Plan will include approximately 35 senior executives selected by the Committee. IV. Plan Provisions Upon receiving an award under the Plan, participants will receive a number of units whose value will be based on the price of the Corporation's common stock (the "Stock"). The units awarded will vest one-third per year on the third, fourth and fifth anniversaries of the date of grant. The maximum number of units to be granted under the Plan is 2,000,000. V. Unit Values Unit values will be set according to a formula which will be based on the Stock price as shown on the New York Stock Exchange Transactions Tape (the "Tape"). When the Stock price increases to $76 per share each unit will be valued at $4 and will increase by increments of $4 per $1.00 of stock price increase to reach the maximum value of $100 at a $100 Stock price. VI. Plan Limitations Awards will immediately vest and be paid out when the Stock price reaches $100. VII. Transferability Restrictions Benefits under this agreement are not assignable, pledgeable or otherwise transferable. VIII. Distributions from the Plan All distributions from the plan are to be made in cash only. Payouts on the awards will occur at the earlier of the end of the five year performance period, or when the Stock price reaches $100 as shown on the Tape. Payouts that are made at the end of five years will be based on a thirty day moving average price of the Stock as of the last trading date of the performance period. IX. Change of Control In the event of a change in control (as defined in the 1994 Stock Option and Stock Award Plan, "Change of Control") the value of all awards under the Plan will vest and be immediately paid to the respective participants. Payouts that are made due to a Change in Control will be based on the average of the high and the low price of the Stock on the date that the Change of Control triggering event occurs as shown on the Tape. X. Termination Provisions a) Retirement (as defined in the Corporation's qualified pension plan, Death and Total Disability (as defined in the Corporation's Long-Term Disability Plan) - Units awarded will be valued and paid out at the end of the five year term or upon the Stock price reaching $100. b) Resignation - The value of the vested units paid will correspond to the lower of the Stock price on the resignation date or the end of the five year period. Unvested units are forfeited. c) Termination for Cause (as defined under the Corporation's Separation Allowance Plan) - All units, vested and unvested, are forfeited. d) Other Terminations - Units will be valued and paid out on the off-payroll date. XI. Employee Taxes Participating employees are responsible for all taxes due as required. XII. Choice of Law The Plan will be governed by and construed in accordance with the laws of the State of New York. XIII. Effective Date The effective date of the Plan is January 1, 1996. EX-12.A 4 EXHIBIT 12(a) BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES COMPUTATION OF CONSOLIDATED RATIOS OF EARNINGS TO FIXED CHARGES (dollars in millions)
Three Months Ended Year Ended December 31, March 31, 1991 1992 1993 1994 1995 1996 Earnings: 1. Income before income taxes and cumulative effects of accounting changes $ 834 $ 906 $1,550 $ 869 $ 215 $ 197 2. Add: Fixed charges excluding capitalized interest (Line 10) 3,614 3,099 3,148 3,884 5,356 1,384 3. Less: Equity in undistri- buted income of unconsolidated subsidiaries and affiliates 31 40 30 45 28 10 4. Earnings including interest on deposits 4,417 3,965 4,668 4,708 5,543 1,571 5. Less: Interest on deposits 1,589 1,119 1,013 965 1,359 335 6. Earnings excluding interest on deposits$2,828 $2,846 $3,655 $3,743 $4,184 $1,236 Fixed Charges: 7. Interest Expense $3,585 $3,072 $3,122 $3,858 $5,330 $1,377 8. Estimated interest component of net rental expense 29 27 26 26 26 7 9. Amortization of debt issuance expense - - - - - - 10. Total fixed charges including interest on deposits and excluding capitalized interest 3,614 3,099 3,148 3,884 5,356 1,384 11. Add: Capitalized interest - - - - - - 12. Total fixed charges 3,614 3,099 3,148 3,884 5,356 1,384 13. Less: Interest on deposits (Line 5) 1,589 1,119 1,013 965 1,359 335 14. Fixed charges excluding interest on deposits $2,025 $1,980 $2,135 $2,919 $3,997 $1,049 Consolidated Ratios of Earnings to Fixed Charges: Including interest on deposits (Line 4/Line 12) 1.22 1.28 1.48 1.21 1.03 1.14 Excluding interest on deposits (Line 6/Line 14) 1.40 1.44 1.71 1.28 1.05 1.18
EX-12.B 5 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)
Three Months Ended Year Ended December 31, March 31, 1991 1992 1993 1994 1995 1996 Earnings: 1. Income before income taxes and cumulative effect of accounting changes $ 834 $ 906 $1,550 $ 869 $ 215 $ 197 2. Add: Fixed charges excluding capitalized interest (Line 13) 3,614 3,099 3,148 3,884 5,356 1,384 3. Less: Equity in undistri- buted income of unconsolidated subsidiaries and affiliates 31 40 30 45 28 10 4. Earnings including interest on deposits 4,417 3,965 4,668 4,708 5,543 1,571 5. Less: Interest on deposits 1,589 1,119 1,013 965 1,359 335 6. Earnings excluding interest on deposits$2,828 $2,846 $3,655 $3,743 $4,184 $1,236 Preferred Stock Dividend Requirements: 7. Preferred stock dividend requirements $ 34 $ 30 $ 23 $ 28 $ 51 $ 15 8. Ratio of income from continuing operations before income taxes to income from continuing operations after income taxes 125% 142% 145% 141% 145% 143% 9. Preferred stock dividend requirements on a pretax basis $ 43 $ 43 $ 33 $ 39 $ 74 $ 21 Fixed Charges: 10. Interest Expense $3,585 $3,072 $3,122 $3,858 $5,330 $1,377 11. Estimated interest component of net rental expense 29 27 26 26 26 7 12. Amortization of debt issuance expense - - - - - - 13. Total fixed charges including interest on deposits and excluding capitalized interest 3,614 3,099 3,148 3,884 5,356 1,384 14. Add: Capitalized interest - - - - - - 15. Total fixed charges 3,614 3,099 3,148 3,884 5,356 1,384 16. Add: Preferred stock dividend require- ments - pretax (Line 9) 43 43 33 39 74 21 17. Total combined fixed charges and preferred stock dividend require- ments on a pretax basis 3,657 3,142 3,181 3,923 5,430 1,405 18. Less: Interest on deposits (Line 5) 1,589 1,119 1,013 965 1,359 335 19. Combined fixed charges and preferred stock dividend requirements on a pretax basis excluding interest on deposits $2,068 $2,023 $2,168 $2,958 $4,071 $1,070 Consolidated Ratios of Earnings to Combined Fixed Charges and Preferred Stock Dividend Requirements: Including interest on deposits (Line 4/Line 17) 1.21 1.26 1.47 1.20 1.02 1.12 Excluding interest on deposits (Line 6/Line 19) 1.37 1.41 1.69 1.27 1.03 1.16
BANKERS TRUST NEW YORK CORPORATION 280 PARK AVENUE NEW YORK, NEW YORK 10017 Geoffrey M. Fletcher Senior Vice President and Principal Accounting Officer March 15, 1996 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 March 31, 1996 (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 6
9 THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CONDITION AT MARCH 31, 1996 AND THE CONSOLIDATED STATEMENT OF INCOME FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000,000 3-MOS DEC-31-1996 MAR-31-1996 1,181 1,377 1,038 45,505 6,880 0 0 13,088 987 108,144 22,556 35,702 7,407 10,125 0 866 84 4,105 108,144 231 97 490 1,590 335 1,377 213 5 15 761 197 197 0 0 138 1.52 1.51 1.02 715 0 89 0 992 28 18 987 272 219 496 Short-term borrowings include the following: Securities sold under repurchase agreements 23,209 Other short-term borrowings 14,493 Total 35,702 Other liabilities include the following: Accounts payable and accrued expenses 4,665 Other liabilities 2,742 Total 7,407 Other interest income includes the following: Interest-bearing deposits with banks 43 Federal funds sold 28 Securities sold under resale agreements 194 Securities borrowed 225 Total 490
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