-----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, Vkb7fSnCu5tFDlqWBdd5gaseq7iUwDvt8rQpcPt4GVcZaikDXY22DslOsdCO5bXP 55WMhEf3xkYdeIhiQPcv3A== 0000009749-97-000087.txt : 19970520 0000009749-97-000087.hdr.sgml : 19970520 ACCESSION NUMBER: 0000009749-97-000087 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19970331 FILED AS OF DATE: 19970515 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: 97609654 BUSINESS ADDRESS: STREET 1: 130 LIBERTY STREET CITY: NEW YORK STATE: NY ZIP: 10006 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, 1997 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.) 130 Liberty Street New York, New York 10006 (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, 1997: Common Stock, $1 par value, 77,607,691 shares. 1 BANKERS TRUST NEW YORK CORPORATION March 31, 1997 FORM 10-Q TABLE OF CONTENTS Page PART I. FINANCIAL INFORMATION Item 1. Financial Statements Consolidated Statement of Income Three Months Ended March 31, 1997 and 1996 2 Consolidated Balance Sheet At March 31, 1997 and December 31, 1996 3 Consolidated Statement of Changes in Stockholders' Equity Three Months Ended March 31, 1997 and 1996 4 Consolidated Statement of Cash Flows Three Months Ended March 31, 1997 and 1996 5 Consolidated Schedule of Net Interest Revenue Three Months Ended March 31, 1997 and 1996 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, 1997 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 1996 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, 1997 1996 (Decrease) NET INTEREST REVENUE Interest revenue $1,645 $1,590 $ 55 Interest expense 1,337 1,377 (40) Net interest revenue 308 213 95 Provision for credit losses - 5 (5) Net interest revenue after provision for credit losses 308 208 100 NONINTEREST REVENUE Trading 279 247 32 Fiduciary and funds management 208 183 25 Corporate finance fees 140 86 54 Other fees and commissions 79 87 (8) Net revenue from equity investment transactions 44 21 23 Securities available for sale gains 14 15 (1) Insurance premiums 63 62 1 Other 41 49 (8) Total noninterest revenue 868 750 118 NONINTEREST EXPENSES Salaries 237 201 36 Incentive compensation and employee benefits 322 227 95 Agency and other professional service fees 87 60 27 Communication and data services 45 46 (1) Occupancy, net 37 37 - Furniture and equipment 50 41 9 Travel and entertainment 25 18 7 Provision for policyholder benefits 68 72 (4) Other 64 59 5 Total noninterest expenses 935 761 174 Income before income taxes 241 197 44 Income taxes 72 59 13 NET INCOME $ 169 $ 138 $ 31 NET INCOME APPLICABLE TO COMMON STOCK $ 156 $ 123 $ 33 Cash dividends declared per common share $1.00 $1.00 $- EARNINGS PER COMMON SHARE: PRIMARY $1.89 $1.52 $.37 FULLY DILUTED $1.89 $1.51 $.38
3 BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET ($ in millions, except par value)
March 31,December 31, 1997* 1996 ASSETS Cash and due from banks $ 1,607 $ 1,543 Interest-bearing deposits with banks 2,581 2,210 Federal funds sold 1,195 1,599 Securities purchased under resale agreements 22,273 17,986 Securities borrowed 13,963 16,676 Trading assets: Government securities 11,686 16,745 Corporate debt securities 8,460 8,005 Equity securities 7,021 6,048 Swaps, options and other derivatives 11,222 11,410 Other trading assets 9,072 6,711 Total trading assets 47,461 48,919 Securities available for sale 7,986 7,920 Loans, net of allowance for credit losses of $758 at March 31, 1997 and $773 at December 31, 1996 17,221 15,053 Accounts receivable and accrued interest 3,227 3,003 Other assets 5,464 5,326 Total $122,978 $120,235 LIABILITIES Noninterest-bearing deposits Domestic offices $ 2,803 $ 2,600 Foreign offices 1,052 1,013 Interest-bearing deposits Domestic offices 12,365 9,928 Foreign offices 19,369 16,774 Total deposits 35,589 30,315 Trading liabilities: Securities sold, not yet purchased Government securities 3,943 7,652 Equity securities 4,935 4,151 Other trading liabilities 431 325 Swaps, options and other derivatives 11,177 11,585 Total trading liabilities 20,486 23,713 Securities sold under repurchase agreements 21,995 23,000 Other short-term borrowings 20,224 19,395 Accounts payable and accrued expenses 3,836 3,656 Other liabilities, including allowance for credit losses of $200 at both March 31, 1997 and December 31, 1996 3,179 2,833 Long-term debt not included in risk-based capital 7,955 8,533 Long-term debt included in risk-based capital 3,164 2,576 Mandatorily redeemable capital securities of subsidiary trusts holding solely junior subordinated deferrable interest debentures included in risk-based capital 1,469 730 Total liabilities 117,897 114,751 PREFERRED STOCK OF SUBSIDIARY - 250 STOCKHOLDERS' EQUITY Preferred stock 704 810 Common stock, $1 par value Authorized, 300,000,000 shares Issued, 83,678,973 shares 84 84 Capital surplus 1,349 1,339 Retained earnings 3,512 3,462 Common stock in treasury, at cost: 1997, 5,965,427 shares; 1996, 4,435,226 shares (527) (372) Other stockholders' equity (41) (89) Total stockholders' equity 5,081 5,234 Total $122,978 $120,235 * Unaudited
4 BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (in millions) (unaudited)
THREE MONTHS ENDED MARCH 31, 1997 1996 PREFERRED STOCK Balance, January 1 $ 810 $ 865 Preferred stock issued - 1 Preferred stock redeemed (100) - Preferred stock repurchased (6) - Balance, March 31 704 866 COMMON STOCK Balance, January 1 and March 31 84 84 CAPITAL SURPLUS Balance, January 1 1,339 1,302 Common stock distributed under employee benefit plans 10 2 Balance, March 31 1,349 1,304 RETAINED EARNINGS Balance, January 1 3,462 3,316 Net income 169 138 Cash dividends declared Preferred stock (14) (15) Common stock (78) (79) Treasury stock distributed under employee benefit plans (27) (9) Balance, March 31 3,512 3,351 COMMON STOCK IN TREASURY, AT COST Balance, January 1 (372) (336) Purchases of stock (244) (20) Restricted stock granted, net (14) 23 Treasury stock distributed under employee benefit plans 103 22 Balance, March 31 (527) (311) COMMON STOCK ISSUABLE - STOCK AWARDS Balance, January 1 526 233 Deferred stock awards granted, net 66 66 Deferred stock distributed (14) (1) Balance, March 31 578 298 DEFERRED COMPENSATION - STOCK AWARDS Balance, January 1 (308) (151) Deferred stock awards granted, net (66) (66) Restricted stock granted, net 14 (22) Amortization of deferred compensation, net 63 41 Balance, March 31 (297) (198) CUMULATIVE TRANSLATION ADJUSTMENTS Balance, January 1 (364) (348) Translation adjustments 11 (17) Income taxes applicable to translation adjustments (8) 16 Balance, March 31 (361) (349) SECURITIES VALUATION ALLOWANCE Balance, January 1 57 19 Change in unrealized net gains, after applicable income taxes and minority interest (18) (9) Balance, March 31 39 10 TOTAL STOCKHOLDERS' EQUITY, MARCH 31 $5,081 $5,055
5 BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS (in millions) (unaudited)
THREE MONTHS ENDED MARCH 31, 1997 1996 CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 169 $ 138 Adjustments to reconcile net income to net cash provided by operating activities: Provision for credit losses - 5 Provision for policyholder benefits 68 72 Deferred income taxes (39) 26 Depreciation and other amortization and accretion 61 61 Other, net 7 (14) Earnings adjusted for noncash charges and credits 266 288 Net change in: Trading assets 2,051 2,308 Trading liabilities (3,053) 700 Receivables and payables from securities transactions 297 29 Other operating assets and liabilities, net 337 639 Securities available for sale gains (14) (15) Net cash (used in) provided by operating activities (116) 3,949 CASH FLOWS FROM INVESTING ACTIVITIES Net change in: Interest-bearing deposits with banks (360) 624 Federal funds sold 404 (184) Securities purchased under resale agreements (4,287) (2,337) Securities borrowed 2,713 (4,439) Loans (2,359) (348) Securities available for sale: Purchases (1,786) (1,568) Maturities and other redemptions 593 892 Sales 73 135 Acquisitions of premises and equipment (60) (54) Other, net (2) 11 Net cash used in investing activities (5,071) (7,268) CASH FLOWS FROM FINANCING ACTIVITIES Net change in: Deposits 5,070 (3,250) Securities sold under repurchase agreements (997) 8,025 Other short-term borrowings 918 (3,393) Issuances of long-term debt* 2,500 1,050 Repayments of long-term debt (1,600) (187) Redemptions and repurchases of preferred stock (106) - Redemptions of preferred stock of subsidiary (250) - Purchases of treasury stock (244) (20) Cash dividends paid (93) (94) Other, net 61 15 Net cash provided by financing activities 5,259 2,146 Net effect of exchange rate changes on cash (8) 17 NET INCREASE (DECREASE) IN CASH AND DUE FROM BANKS 64 (1,156) Cash and due from banks, beginning of period 1,543 2,337 Cash and due from banks, end of period $ 1,607 $ 1,181 Interest paid $1,159 $1,433 Income taxes (refunded) paid, net $(3) $81 Noncash investing activities $46 $30 Noncash financing activities: Conversion of debt to preferred stock $- $1 * Includes $739 million related to mandatorily redeemable capital securities of subsidiary trusts holding solely junior subordinated deferrable interest debentures included in risk-based capital. 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 1997 1996 (Decrease) INTEREST REVENUE Interest-bearing deposits with banks $ 65 $ 43 $ 22 Federal funds sold 49 28 21 Securities purchased under resale agreements 330 194 136 Securities borrowed 182 225 (43) Trading assets 598 772 (174) Securities available for sale Taxable 106 90 16 Exempt from federal income taxes 14 7 7 Loans 301 231 70 Total interest revenue 1,645 1,590 55 INTEREST EXPENSE Interest-bearing deposits Domestic offices 146 88 58 Foreign offices 250 247 3 Trading liabilities 151 326 (175) Securities sold under repurchase agreements 333 308 25 Other short-term borrowings 288 271 17 Long-term debt 145 137 8 Mandatorily redeemable capital securities of subsidiary trusts holding solely junior subordinated deferrable interest debentures included in risk-based capital 24 - 24 Total interest expense 1,337 1,377 (40) NET INTEREST REVENUE $ 308 $ 213 $ 95
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 $169 million for the quarter ended March 31, 1997, or $1.89 primary earnings per share. In the first quarter of 1996, the Corporation earned $138 million, or $1.52 primary earnings per share. ORGANIZATIONAL UNIT RESULTS 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 diverse 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 judgments have been made to apportion revenue and expense items. In addition, certain revenue and expenses have been segregated and reported in Corporate/Other because, in the opinion of management, they could not be reasonably allocated or because their contributions to a particular organizational unit would be distortive. The internal management accounting process, unlike financial accounting in accordance with generally accepted accounting principles, is based on the way 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. 8 ORGANIZATIONAL UNIT RESULTS (continued) The following tables present the results by Organizational Units:
Total Non- Pretax Net Three Months Ended March 31, 1997 Total Net interest Income/ Income/ (in millions) Revenue Expenses (Loss) (Loss) Investment Banking $ 303 $165 $138 $ 96 Risk Management Services 105 89 16 11 Trading & Sales 134 73 61 43 Investment Management 85 72 13 9 Client Processing Services 196 178 18 13 Australia/New Zealand 129 81 48 34 Asia 40 29 11 8 Latin America 143 110 33 23 Corporate/Other 41 138 (97) (68) Total $1,176 $935 $241 $169
Total Non- Pretax Net Three Months Ended March 31, 1996 Total Net interest Income/ Income/ (in millions) Revenue Expenses (Loss) (Loss) Investment Banking $227 $109 $118 $ 82 Risk Management Services 63 69 (6) (4) Trading & Sales 90 56 34 24 Investment Management 73 69 4 3 Client Processing Services 182 156 26 18 Australia/New Zealand 98 64 34 24 Asia 33 26 7 5 Latin America 136 108 28 20 Corporate/Other 56 104 (48) (34) Total $958 $761 $197 $138
Changes in Organizational Structure To move risk management capabilities closer to clients, responsibility for the convertible debt business and for management of the metals and mining commodities book has been transferred from Risk Management Services to Investment Banking and Australia/New Zealand, respectively. In addition, the Emerging Europe, Middle East and Africa unit has been formed, combining people with risk management, trading, and investment banking expertise. For external reporting purposes this new unit is included in Risk Management Services. Prior period results have been restated for the changes in organizational structure except for the transfer of responsibility for managing the metals and mining commodities book in Australia/New Zealand which is reflected in 1997 results only. 9 ORGANIZATIONAL UNIT RESULTS (continued) The Investment Banking business contributed net income of $96 million in the first quarter of 1997, up from $82 million a year ago. The increase from the prior year period reflected higher corporate finance fees and net revenue from equity transactions. Risk Management Services recorded net income of $11 million in the first quarter of 1997, up $15 million from the first quarter of 1996. Revenues of $105 million were up $42 million from the first quarter of 1996. Compared to the prior year period, revenues from new derivatives transactions and from the Emerging Europe, Middle East and Africa unit improved. Net income from the Trading & Sales business, at $43 million, was up $19 million from the first quarter of 1996. The current quarter's improvement was largely due to higher revenues from trading and client- related business as compared to the prior year period. The Corporation's Investment Management business, which for reporting purposes does not include funds management activities in Australia/NZ, reported net income of $9 million for the current quarter, up $6 million from the 1996 comparable period due to an increase in assets under management. At March 31, 1997, assets under management in this organizational unit were approximately $206 billion, compared to $183 billion at March 31, 1996. Client Processing Services contributed $13 million of net income in the first quarter of 1997, down $5 million from the 1996 first quarter. Revenues of $196 million were up $14 million from the first quarter of 1996. The decline in net income from a year ago reflected higher operations costs and growth in staff expense. Net income of the Australia/NZ business was $34 million in the first quarter of 1997, up $10 million from the first quarter of 1996. The increase from the prior year period was primarily due to improved revenues from trading activities and fiduciary and funds management offset in part by increased salaries and incentive compensation and employee benefits as a result of higher staff levels. At March 31, 1997, assets under management in Australia/NZ's investment management business were approximately $27 billion, compared to $23 billion at March 31, 1996. Asia net income was $8 million in the first quarter of 1997, up $3 million from the first quarter of 1996. The current quarter's increase was primarily due to very strong results in North Asia. Offsetting the improved results in North Asia were losses incurred during the first quarter from the Corporation's investment in Thai Investment and Securities Co. in Thailand. Thailand is currently experiencing a significant reduction in its economic growth and the Thai stock market has experienced a steep decline. Latin America net income was $23 million in the first quarter of 1997, up $3 million from the first quarter of 1996. An increase in trading- related activities contributed to the current quarter's results. 10 ORGANIZATIONAL UNIT RESULTS (continued) Corporate/Other net loss was $68 million in the first quarter of 1997, compared with a net loss of $34 million in the first quarter of 1996. The current quarter included the effects of increased incentive compensation and employee benefits, a contribution to the BT Foundation, and consulting expenses associated with several strategic and infrastructure improvement projects. REVENUE Net Interest Revenue The table below presents 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 1997 1996 (Decrease) NET INTEREST REVENUE (in millions) Book basis $308 $213 $95 Tax equivalent adjustment 7 4 3 Fully taxable basis $315 $217 $98 AVERAGE BALANCES (in millions) Interest-earning assets $95,732 $85,576 $10,156 Interest-bearing liabilities 91,405 82,912 8,493 Earning assets financed by noninterest-bearing funds $ 4,327 $ 2,664 $ 1,663 AVERAGE RATES (fully taxable basis) Yield on interest-earning assets 7.00% 7.49% (.49)% Cost of interest-bearing liabilities 5.93 6.68 .75 Interest rate spread 1.07 .81 .26 Contribution of noninterest-bearing funds .26 .21 .05 Net interest margin 1.33% 1.02% .31%
Net interest revenue for the first quarter of 1997 totaled $308 million, up $95 million, or 45 percent, from the first quarter of 1996. The $95 million increase in net interest revenue was primarily due to a $104 million increase in trading-related net interest revenue, which totaled $134 million for the first quarter of 1997. Nontrading-related net interest revenue which is considered to be historically a more stable component of overall net interest revenue, totaled $174 million for the first quarter of 1997 versus $183 million for the comparable period in 1996. 11 REVENUE (continued) Trading Revenue The Firm's trading and risk management businesses include significant activities in interest rate instruments and related derivatives. These activities can periodically shift revenue 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 1997 totaled $413 million, up $136 million from the first quarter of 1996. The table below presents 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, 1997 Interest rate risk $171 $148 $319 Foreign exchange risk 38 - 38 Equity and commodity risk 70 (14) 56 Total $279 $134 $413 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
12 REVENUE (continued) Interest Rate Risk - The increase in revenue was due to increased flow of client trading services, strong results from proprietary trading activities, and increased revenue from bond trading activities attributable to increased capital inflows to the market. Also, contributing to the increase was improved performance from the Firm's trading activities in Asia and Latin America. Foreign Exchange Risk - Foreign exchange risk revenue increased from the first quarter of 1996 principally due to strong performance in the Firm's activities in Australia including both proprietary and customer related revenues. Equity and Commodity Risk - Total trading and trading-related net interest revenue increased compared to the same period last year primarily due to strong revenues from precious metals. Noninterest Revenue (Excluding Trading) Fiduciary and funds management revenue was $208 million in the first quarter of 1997, up $25 million, or 14 percent, from the comparable period last year. All activities within this category contributed to the year- over-year increase, especially global private banking commissions, funds management revenue and custodian fees. Corporate finance fees of $140 million increased $54 million, or 63 percent, from the same period last year, primarily due to higher private placement fees, merger and acquisition fees and loan syndication fees. 13 PROVISION AND ALLOWANCE FOR CREDIT LOSSES The provision for credit losses is determined based 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. No provision for credit losses was required for the first quarter of 1997 compared with $5 million for the prior year's first quarter. Net charge-offs for the first quarter were $15 million, compared with $10 million a year ago. In accordance with the American Institute of Certified Public Accountant's Banks and Savings Institutions Audit and Accounting Guide, the Corporation has allocated its total allowance for credit losses as follows: $758 million as a reduction of loans, and $200 million as other liabilities related to other credit-related items. The Corporation continues to believe that the total allowance for credit losses is available for credit losses in its entire portfolio, which is comprised of loans, credit-related commitments, derivatives and other financial instruments. Due to a multitude of complex and changing factors that are collectively weighed in determining the adequacy of the allowance for credit losses, management expects that the allocation of the total allowance for credit losses may be adjusted as risk factors change. Prior period amounts have not been restated. 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 1997 1996 Balance, beginning of period $973 $992 Net charge-offs Charge-offs 33 28 Recoveries 18 18 Total net charge-offs(1) 15 10 Provision for credit losses - 5 Balance, end of period(2) $958 $987 (1) Components of Net Charge-offs: Secured by real estate $(1) $ 1 Real estate related - 4 Highly leveraged 16 20 Other - (12) Refinancing country - (3) Total $15 $ 10 (2) Allocation: Loans $758 Other Liabilities 200 Balance, end of period $958
14 PROVISION AND ALLOWANCE FOR CREDIT LOSSES (continued) The allowance for credit losses that has been allocated to loans, was $758 million at March 31, 1997 compared to $773 million at December 31, 1996. The allowance was equal to 228 percent and 171 percent of total cash basis loans at March 31, 1997 and December 31, 1996, respectively. These ratios were computed using the amounts that were allocated to loans. Impaired loans under SFAS 114, which consisted of total cash basis loans and renegotiated loans, were $369 million and $489 million at March 31, 1997 and December 31, 1996, respectively. Included in these amounts were $152 million and $227 million of loans which required a valuation allowance of $30 million and $57 million at those same dates, respectively. EXPENSES Total noninterest expenses of $935 million increased by $174 million, or 23 percent, from the first quarter of 1996. Salaries expense increased $36 million, or 18 percent, principally due to an 8 percent increase in the average number of employees and to merit increases. Incentive compensation and employee benefits, the largest component of noninterest expenses, increased $95 million due to higher earnings, greater emphasis on performance-based compensation and the increase in the average number of employees. INCOME TAXES Income tax expense for the first quarter of 1997 amounted to $72 million, compared with $59 million for the first quarter of 1996. The effective tax rate was 30 percent for both the current and prior year quarter. 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, 1997 and 1996 did the Corporation have outstanding any securities which were convertible into 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, 1997 1996 Net income applicable to common stock $156 $123 Average number of common shares outstanding 77.018 77.495 Average common and common equivalent shares outstanding - primary 82.784 80.896 Average common and common equivalent shares outstanding assuming full dilution 82.898 81.560
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 1997 1996 (Decrease) ASSETS Interest-earning Interest-bearing deposits with banks $ 3,396 $ 3,545 $ (149) Federal funds sold 3,702 1,990 1,712 Securities purchased under resale agreements 22,120 22,380 (260) Securities borrowed 14,712 15,447 (735) Trading assets 28,022 31,427 (3,405) Securities available for sale Taxable 6,988 6,777 211 Exempt from federal income taxes 1,148 1,077 71 Total securities available for sale 8,136 7,854 282 Loans Domestic offices 8,207 8,172 35 Foreign offices 7,437 7,032 405 Total loans 15,644 15,204 440 Total interest-earning assets 95,732 97,847 (2,115) Noninterest-earning Cash and due from banks 1,302 1,378 (76) Noninterest-earning trading assets 18,960 17,700 1,260 All other assets 8,386 8,409 (23) Allowance for credit losses (802) (988) 186 Total $123,578 $124,346 $ (768) LIABILITIES Interest-bearing Interest-bearing deposits Domestic offices $ 11,748 $ 8,738 $ 3,010 Foreign offices 19,661 18,812 849 Total interest-bearing deposits 31,409 27,550 3,859 Trading liabilities 6,103 9,687 (3,584) Securities sold under repurchase agreements 22,341 25,750 (3,409) Other short-term borrowings 19,188 18,852 336 Long-term debt 11,169 11,173 (4) Mandatorily redeemable capital securities of subsidiary trusts holding solely junior subordinated deferrable interest debentures 1,195 165 1,030 Total interest-bearing liabilities 91,405 93,177 (1,772) Noninterest-bearing Noninterest-bearing deposits 3,152 3,518 (366) Noninterest-bearing trading liabilities 16,920 15,725 1,195 All other liabilities 6,715 6,352 363 Total liabilities 118,192 118,772 (580) PREFERRED STOCK OF SUBSIDIARY 182 250 (68) STOCKHOLDERS' EQUITY Preferred stock 773 815 (42) Common stockholders' equity 4,431 4,509 (78) Total stockholders' equity 5,204 5,324 (120) Total $123,578 $124,346 $ (768)
17 BALANCE SHEET ANALYSIS (continued) The Corporation's average total assets amounted to $123.6 billion for the first quarter of 1997, a decrease of $768 million, or 1 percent, from the fourth quarter of 1996. Average interest-earning assets decreased $2.1 billion, or 2 percent, and the proportion of interest-earning assets to total assets decreased from 79 percent to 77 percent. The decrease in interest-earning assets was primarily due to decreases in trading assets (down $3.4 billion or 11 percent) and securities borrowed (down $735 million, or 5 percent), offset in part by an increase in federal funds sold (up $1.7 billion, or 86 percent). Interest-earning trading assets, as a percentage of total assets declined from 25 percent to 23 percent. Noninterest-earning trading assets increased $1.3 billion, or 7 percent, from the fourth quarter of 1996. Average total liabilities decreased $580 million from the fourth quarter of 1996. Within interest-bearing liabilities, decreases in trading liabilities (down $3.6 billion, or 37 percent) and securities sold under repurchase agreements (down $3.4 billion, or 13 percent) were offset in part by increases in total interest-bearing deposits (up $3.9 billion or 14 percent) and mandatorily redeemable capital securities (up $1.0 billion, or 624 percent). Total short-term borrowings (securities sold under repurchase agreements and other short-term borrowings) as a percentage of total interest-bearing liabilities declined from 48 percent to 45 percent. 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). During the first quarter of 1997, the Corporation transferred approximately $1.1 billion of asset-backed securities from securities- available-for-sale to trading account assets. This transfer, which had no impact on the current quarter's income, was the result of a change in risk management strategies.
March 31, December 31, 1997 1996 Fair value $7,986 $7,920 Amortized cost 7,854 7,755 Excess of fair value over amortized cost * $ 132 $ 165 * Components: Unrealized gains $210 $245 Unrealized losses (78) (80) $132 $165
18 BALANCE SHEET ANALYSIS (continued) Long-term Debt The larger of long-term debt issuances and maturities/redemptions which occurred during the first quarter of 1997 are as follows (in millions):
Face Amount Maturities/ Issuances Redemptions Parent Company 8% Subordinated Debentures - $200 Floating Rate Notes due May 1998 $300 Floating Rate Notes due January 2002 $250 - Bankers Trust Company Floating Rate Notes due February 2002 $324 - Redeemable Preference Securities - $510 Redeemable Preference Securities due March 2004 (1) $651 - (1) At March 31, 1997, certain subsidiaries of Bankers Trust Company had outstanding ($3.0 billion) of mandatorily redeemable preference securities with maturities ranging from April 1997 to March 2004.
Trust Preferred Capital Securities During the first quarter of 1997, BT Capital Trust A ("Trust A"), BT Preferred Capital Trust I ("Trust I") and BT Preferred Capital Trust II ("Trust II"), wholly-owned subsidiaries of the Corporation issued $250 million 7.90% Capital Securities, Series A1, ("Series A1 Securities"), $250 million 8 1/8% Preferred Securities, Series I ("Series I Securities") and $250 million 7.875% Preferred Securities, Series II ("Series II Securities"), respectively. The Series A1 Securities and the Series II Securities have a liquidation value of $1,000 per Series A1 Security and Series II Security, respectively. The Series I Securities have a liquidation value of $25 per Series I Security. Series A1 Securities, Series I Securities and Series II Securities represent preferred undivided beneficial interests in the assets of Trust A, Trust I and Trust II, respectively. The Corporation is the holder of all of the beneficial interests represented by common securities of Trust A, Trust I and Trust II ("Common Securities" and, collectively with the Series A1 Securities, Series I Securities and Series II Securities, the "Trust Securities"). Trust A, Trust I and Trust II exist for the sole purpose of issuing the Trust Securities and investing the proceeds thereof in 7.90% Junior Subordinated Deferrable Interest Debentures, Series A1, 8 1/8% Junior Subordinated Deferrable Interest Debentures, Series I and 7.875% Junior Subordinated Deferrable Interest Debentures, Series II (the "Series A1 19 BALANCE SHEET ANALYSIS (continued) Debentures," the "Series I Debentures" and the "Series II Debentures" and collectively, the "Junior Subordinated Debentures") issued by the Corporation. The Junior Subordinated Debentures are unsecured and subordinated to all senior indebtedness of the Corporation and will be the sole assets of Trust A, Trust I and Trust II. Payments under the Junior Subordinated Debentures by the Corporation are the same as those for the Series A1 Securities, Series I Securities and Series II Securities described below, respectively. The obligations of the Corporation under the Junior Subordinated Debentures, the relevant indenture and trust agreement, the relevant guarantee by the Corporation of the obligations of Trust A, Trust I and Trust II and certain other related agreements, in the aggregate, constitute a full and unconditional guarantee of the relevant trust's obligations under the Series A1 Securities, Series I Securities and Series II Securities. Holders of the Series A1 Securities will be entitled to receive preferential cumulative cash distributions accumulating from January 16, 1997 and payable semi-annually in arrears on the fifteenth day of January and July of each year, commencing July 15, 1997, at the annual rate of 7.90% of the liquidation amount of $1,000 per Series A1 Security. The Series A1 Securities are subject to mandatory redemption upon repayment of the Series A1 Debentures at maturity on January 15, 2027. The maturity date may be shortened under certain circumstances to a date not earlier than January 15, 2017. In addition, the Series A1 Debentures may be redeemed at the option of the Corporation on or after January 15, 2007. On March 18, 1997, BT Capital Trust B, a wholly-owned subsidiary of the Corporation, offered to exchange $250 million of its 7.90% Capital Securities, Series B1 (the "Series B1 Securities"), which had been registered under the Securities Act of 1933, for any and all of the outstanding 7.90% Capital Securities, Series A1 of BT Capital Trust A. BT Capital Trust B exists for the sole purpose of issuing the Series B1 Securities and investing the proceeds thereof in 7.90% Junior Subordinated Deferrable Interest Debentures, Series B1 issued by the Corporation. The Series B1 Securities are identical in all material respects to the Series A1 Securities. On April 21, 1997, $250 million of the Series B1 Securities were exchanged for all of the Series A1 Securities. Holders of the Series I Securities will be entitled to receive preferential cumulative cash distributions accumulating from February 5, 1997 and payable quarterly in arrears on the last day of March, June, September and December of each year, commencing March 31, 1997, at the annual rate of 8 1/8% of the liquidation amount of $25 per Series I Security. The Series I Securities are subject to mandatory redemption upon repayment of the Series I Debentures at maturity on February 1, 2037. The maturity date may be shortened under certain circumstances to a date not earlier than February 1, 2002. In addition, the Series I Debentures may be redeemed at the option of the Corporation on or after February 1, 2002. Holders of the Series II Securities will be entitled to receive preferential cumulative cash distributions accumulating from February 25, 1997, and payable semi-annually in arrears on the twenty fifth day of February and August of each year, commencing August 25, 1997, at the annual rate of 7.875% of the liquidation amount of $1,000 per Series II Security. 20 BALANCE SHEET ANALYSIS (continued) The Series II Securities are subject to mandatory redemption upon repayment of the Series II Debentures at maturity on February 25, 2027. The maturity date may be shortened under certain circumstances to a date not earlier than February 25, 2012. In addition, the Series II Debentures may be redeemed at the option of the Corporation on or after February 25, 2007. 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 markets 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 1997 1st Qtr.1997 (Liabi- (Liabi- (in millions) Assets lities) Assets lities) OTC Financial Instruments Interest Rate and Currency Swap Contracts $ 15,502 $(13,981)$ 16,805 $(15,203) Interest Rate Contracts Forwards 40 (42) 73 (75) Options purchased 1,010 1,138 Options written (1,142) (1,211) Foreign Exchange Rate Contracts Spot and Forwards 12,889 (14,231) 13,663 (14,629) Options purchased 893 1,094 Options written (940) (1,100) Equity-related contracts 2,882 (2,877) 3,141 (3,328) Commodity-related and other contracts 594 (640) 614 (635) Exchange-Traded Options Interest Rate 12 (12) 18 (8) Equity 207 (119) 237 (130) Total Gross Fair Values 34,029 (33,984) 36,783 (36,319) Impact of Netting Agreements (22,807) 22,807 (24,071) 24,071 $ 11,222(1) $12,712 $(11,177)(1) $(12,248) (1) As reflected on the balance sheet in "Trading Assets" and "Trading Liabilities."
21 TRADING DERIVATIVES (continued)
At December 31, Average During 1996 4th Qtr. 1996 (Liabi- (Liabi- (in millions) Assets lities) Assets lities) OTC Financial Instruments Interest Rate and Currency Swap Contracts $ 16,582 $(15,394) $ 16,258 $(15,498) Interest Rate Contracts Forwards 84 (86) 53 (50) Options purchased 1,149 1,183 Options written (1,252) (1,313) Foreign Exchange Rate Contracts Spot and Forwards 9,855 (10,935) 8,642 (9,893) Options purchased 917 1,143 Options written (953) (1,104) Equity-related contracts 2,696 (2,941) 2,389 (2,426) Commodity-related and other contracts 679 (690) 747 (712) Exchange-Traded Options Interest Rate 10 (12) 11 (15) Foreign exchange - - - (6) Equity 251 (135) 244 (115) Total Gross Fair Values 32,223 (32,398) 30,670 (31,132) Impact of Netting Agreements (20,813) 20,813 (19,580) 19,580 $ 11,410(1) $ 11,090 $(11,585)(1) $(11,552) (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 securities available for sale, loans, 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 losses were $149 million at March 31, 1997 compared with an unrealized gain of $54 million at December 31, 1996. The $203 million decrease during the first quarter of 1997 was primarily due to increases in long-term interest rates. 22 END-USER DERIVATIVES (continued) The following tables provide the gross unrealized gains and losses for end-user derivatives. Gross unrealized gains and losses for hedges of securities available for sale are recognized in the financial statements with the offset as an adjustment to securities valuation allowance in stockholders' equity. Gross unrealized gains and losses for hedges of loans, other assets, interest-bearing deposits, other short-term borrowings, long-term debt, and net investments in foreign subsidiaries are not yet recognized in the financial statements.
Other Net invest- short- ments in Securities Interest- term Long- foreign (in millions)available Other bearing borrow- term subsi- March 31, 1997for sale Loans assets deposits ings debt(1)diaries Total Interest Rate Swaps Pay Variable Unrealized Gain$ - $ - $- $ 22 $ 8 $ 148 $- $ 178 Unrealized (Loss) - (10) - (80) (13) (184) - (287) Pay Variable Net - (10) - (58) (5) (36) - (109) Pay Fixed Unrealized Gain 12 - - 20 1 22 - 55 Unrealized (Loss)(21) - - (34) (3) (30) - (88) Pay Fixed Net (9) - - (14) (2) (8) - (33) Total Unrealized Gain 12 - - 42 9 170 - 233 Total Unrealized (Loss) (21) (10) - (114) (16) (214) - (375) Total Net $ (9) $(10) $- $ (72) $ (7)$ (44) $- $(142) Forward Rate Agreements Unrealized Gain $- $- $- $ 3 $- $- $- $ 3 Unrealized (Loss) - - - (1) - - - (1) Net $- $- $- $ 2 $- $- $- $ 2 Currency Swaps and Forwards Unrealized Gain $ 3 $ - $1 $- $ 3 $ 63 $ 37 $107 Unrealized (Loss)(3) (1) - (1) (4) (22) (44) (75) Net $ - $(1) $1 $(1) $(1) $ 41 $ (7) $ 32 Other Contracts (2) Unrealized Gain $ 1 $- $ - $- $- $- $- $ 1 Unrealized (Loss)(37) - (5) - - - - (42) Net $(36) $- $(5) $- $- $- $- $(41) Total Unrealized Gain $ 16 $ - $ 1 $ 45 $ 12 $233 $ 37 $ 344 Total Unrealized (Loss) (61) (11) (5) (116) (20) (236) (44) (493) Total Net $(45) $(11) $(4) $ (71) $ (8)$ (3) $ (7)$(149) (1) Includes trust preferred capital securities. (2) Other contracts are principally equity swaps and collars.
23 END-USER DERIVATIVES (continued)
Other Net invest- short- ments in Securities Interest- term Long- foreign (in millions)available Other bearing borrow- term subsi- Dec 31, 1996 for sale Loans assets deposits ings debt(1) diaries Total Interest Rate Swaps Pay Variable Unrealized Gain$ 1 $ - $- $ 62 $ 7 $198 $- $ 268 Unrealized (Loss) - (14) - (23) (6) (93) - (136) Pay Variable Net 1 (14) - 39 1 105 - 132 Pay Fixed Unrealized Gain 3 - - 13 - 1 - 17 Unrealized (Loss)(50) (9) - (45) (1) (28) - (133) Pay Fixed Net (47) (9) - (32) (1) (27) - (116) Total Unrealized Gain 4 - - 75 7 199 - 285 Total Unrealized (Loss) (50) (23) - (68) (7) (121) - (269) Total Net $(46) $(23) $- $ 7 $ - $ 78 $- $ 16 Forward Rate Agreements Unrealized Gain $- $- $- $ 1 $- $- $- $ 1 Unrealized (Loss) - - - (1) - - - (1) Net $- $- $- $ - $- $- $- $ - Currency Swaps and Forwards Unrealized Gain $- $- $1 $27 $- $ 53 $ 42 $123 Unrealized (Loss) - - - (3) - (18) (41) (62) Net $- $- $1 $24 $- $ 35 $ 1 $ 61 Other Contracts (2) Unrealized Gain $ - $- $ - $- $- $- $- $ - Unrealized (Loss)(19) - (4) - - - - (23) Net $(19) $- $(4) $- $- $- $- $(23) Total Unrealized Gain $ 4 $- $ 1 $103 $ 7 $252 $ 42 $ 409 Total Unrealized (Loss) (69) (23) (4) (72) (7) (139) (41) (355) Total Net $(65) $(23) $(3) $ 31 $ - $113 $ 1 $ 54 (1) Includes trust preferred capital securities. (2) Other contracts are principally equity swaps and collars.
24 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 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, 1997 Notional Amount Paying Variable Paying Fixed Maturing Notional Receive Pay Notional Receive Pay Total In: Amount Rate Rate Amount Rate Rate Notional 1997 $31,262 5.56% 5.68% $1,627 4.70% 5.46% $32,889 1998-1999 11,571 5.91 5.55 2,716 4.68 5.59 14,287 2000-2001 3,886 6.72 5.69 1,901 5.45 5.92 5,787 2002 and thereafter 7,877 6.98 5.67 1,181 5.81 7.25 9,058 Total $54,596 $7,425 $62,021 All rates were those in effect at March 31, 1997. Variable rates are primarily based on LIBOR and may change significantly, affecting future cash flows.
At December 31, 1996 Notional Amount Paying Variable Paying Fixed Maturing Notional Receive Pay Notional Receive Pay Total In: Amount Rate Rate Amount Rate Rate Notional 1997 $33,275 5.59% 5.52% $4,056 5.23% 5.71% $37,331 1998-1999 7,957 5.96 5.52 2,095 4.82 5.82 10,052 2000-2001 3,614 6.84 5.63 867 4.11 5.67 4,481 2002 and thereafter 5,579 6.79 5.65 932 5.61 7.14 6,511 Total $50,425 $7,950 $58,375 All rates were those in effect at December 31, 1996. Variable rates are primarily based on LIBOR and may change significantly, affecting future cash flows.
25 REGULATORY CAPITAL The Corporation and its banking subsidiaries are subject to various regulatory capital requirements administered by the federal banking agencies. The Federal Reserve Board's ("FRB") risk-based capital guidelines addressing the capital adequacy of bank holding companies and banks (collectively, "banking organizations") include a definition of capital and a framework for calculating risk-weighted assets. In addition, these guidelines specify minimum risk-based capital ratios to be maintained by banking organizations. The FRB also has a minimum Leverage ratio which is used as a supplement to the risk-based capital ratios in evaluating the capital adequacy of banking organizations. The Corporation's 1996 Annual Report on Form 10-K, on pages 45 and 82, provides a detailed discussion of these guidelines and regulations. In 1996, the FRB and the other U.S. federal banking agencies jointly issued an amendment to the capital adequacy guidelines to incorporate a measure for market risk ("the market risk amendment"). Essentially, this amendment changes the calculation of risk-weighted assets in the trading accounts, and includes the positions and capital of the "Section 20" securities subsidiary (BT Securities Corporation) in the combined credit risk and market risk capital calculation of the Corporation. In all other respects (including the exclusion of the positions and capital of the international insurance entities), the current capital adequacy guidelines remain unchanged. Compliance with the market risk amendment is mandatory by January 1, 1998 for those banking organizations that meet certain thresholds with regard to their trading activity. Banking organizations may choose to adopt early during 1997, with prior approval from their primary federal regulator. The Corporation's 1996 Annual Report on Form 10-K, on page 47, provides further detailed discussion on the market risk amendment. The Corporation adopted the market risk amendment as of March 31, 1997 and was the first banking organization to adopt such amendment. Based on their respective regulatory capital ratios as of March 31, 1997, both the Corporation and Bankers Trust Company ("BTCo") 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, as applicable. 26 REGULATORY CAPITAL (continued) The Corporation's and BTCo's ratios are presented in the table below. The ratios for December 31, 1996 have not been restated for the adoption of the market risk amendment.
FRB Minimum To Be Well Actual Actual for Capitalized as of as of Capital Under March 31, December 31, Adequacy Regulatory 1997 1996 Purposes Guidelines Tier 1 Capital Corporation 8.2% 8.7% 4.0% 6.0% BTCo 8.6% 9.3% 4.0% 6.0% Total Capital Corporation 14.8% 13.7% 8.0% 10.0% BTCo 12.1% 12.9% 8.0% 10.0% Leverage Corporation 4.5% 5.5% 3.0%(1) 3.0%(1) BTCo 5.4% 5.3% 3.0%(1) 5.0% (1) These minimum levels for the Leverage ratio may be set 100 to 200 basis points higher depending upon other regulatory criteria.
27 REGULATORY CAPITAL (continued) The following are the essential components of the Corporation's and BTCo's risk-based capital ratios. The December 31, 1996 balances have not been restated for the adoption of the market risk amendment.
Actual as of Actual as of March 31, December 31, (in millions) 1997 1996 Corporation Tier 1 Capital $5,438 $5,326 Tier 2 Capital 3,727 3,004 Tier 3 Capital 655 - Total Capital $9,820 $8,330 Total risk-weighted assets $66,489 $60,990 BTCo Tier 1 Capital $4,896 $4,869 Tier 2 Capital 1,949 1,900 Total Capital $6,845 $6,769 Total risk-weighted assets $56,815 $52,484
Comparing March 31, 1997 to December 31, 1996, the Corporation's Tier 1 Capital ratio declined 50 basis points due to an increase in risk- weighted assets. The Corporation's risk-weighted assets at March 31, 1997 were $5.5 billion higher than at year-end 1996. The Total Capital ratio of the Corporation increased 110 basis points due to the issuance of trust preferred capital securities and the addition of BT Securities Corporation's subordinated debt as a component of Total Capital (as Tier 3 Capital) in accordance with the market risk amendment. With the adoption of the market risk amendment, the Corporation's Leverage ratio decreased 100 basis points as BT Securities Corporation's average assets and capital were included in this calculation for the first time. BTCo's Tier 1 Capital and Total Capital ratios decreased by 70 basis points and 80 basis points, respectively, as a result of a $4.3 billion increase in risk-weighted assets. BTCo's Leverage ratio increased by 10 basis points. 28 PREFERRED STOCK During the first quarter of 1997, the Corporation redeemed all 1 million outstanding shares of its 8.55% Cumulative Preferred Stock, Series I at a price of $100 million. In addition, the Corporation repurchased approximately $6 million of its Adjustable Rate Cumulative Preferred Stock, Series Q and Series R. PREFERRED STOCK OF SUBSIDIARY During the first quarter of 1997, BT Overseas Finance N.V. ("BTOF"), an indirect wholly-owned subsidiary of the Corporation, redeemed all 2,500 shares of its BTOF Auction Rate cumulative Preferred Stock Series A-D at a price of $250 million. LIQUIDITY Liquidity is the ability to have funds available at all times to meet the commitments of the Corporation. The Corporation has a formal process for managing global liquidity for the Firm as a whole and 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 reasonably foreseeable circumstances. Management maintains appropriate asset liquidity and actively manages liability/capital levels, maturities and diversification. The fundamental objective 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 swaps, options and other derivative contracts, foreign government securities, corporate debt securities, U.S. government and agency securities, and equity securities. The Corporation's liquid assets amounted to $97.1 billion as of March 31, 1997 and $96.9 billion as of December 31, 1996, which equaled 78 percent, and 80 percent of gross total assets at those dates respectively. 29 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 remained constant during the first quarter of 1997, as the net cash provided by financing activities was offset by the sum of the net cash used in investing activities and the net cash used in operating activities. The $5.3 billion of net cash provided by financing activities was primarily the result of a positive net change in deposits ($5.1 billion) and issuances of long-term debt ($2.5 billion), offset in part by repayments of long-term debt ($1.6 billion). The $5.1 billion of net cash used in investing activities was primarily the result of cash outflows from the net changes in securities purchased under resale agreements ($4.3 billion) and loans ($2.4 billion), and purchases of securities available for sale ($1.8 billion), partially offset by cash inflows from the net change in securities borrowed ($2.7 billion), and maturities and other redemptions of securities available for sale ($593 million). The $116 million of net cash used in operating activities was primarily the result of a negative net change in trading liabilities ($3.1 billion) partially offset by a positive net changes in trading assets ($2.1 billion and other operating assets and liabilities ($337 million). 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 issuances of long-term debt ($1.1 billion), offset in part by cash outflows from a $3.4 billion net change in other short-term borrowings and a $3.3 billion net change in deposits. 30 LIQUIDITY (continued) Interest Rate Sensitivity Condensed interest rate sensitivity data for the Corporation at March 31, 1997 is presented in the table below. For purposes of this presentation, the interest-earning/bearing components of trading assets and trading liabilities are assumed to reprice within three months. The interest rate gaps reported in the table arise when assets are funded with liabilities having different repricing intervals, after considering the effect of off-balance sheet hedging instruments. Since these gaps are actively managed and change daily as adjustments are made in interest rate views and market outlook, positions at the end of any period may not be reflective of the Corporation's interest rate view in subsequent periods. Active management dictates that longer-term economic views are balanced against prospects of short-term interest rate changes in all repricing intervals.
By Repricing Interval Non- interest- Within 1 - 5 After bearing (in billions) March 31, 1997 1 year years 5 years funds Total Assets $ 87.1 $ 4.2 $ 3.4 $ 28.3 $ 123.0 Liabilities and preferred stock (80.6) (6.6) (4.4) (27.0) (118.6) Common stockholders' equity - - - (4.4) (4.4) Effect of off-balance sheet hedging instruments (13.1) 8.7 4.4 - - Interest rate sensitivity gap $ (6.6) $ 6.3 $ 3.4 $ (3.1) $ -
31 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, 1997 1996 CASH BASIS LOANS Domestic Commercial and industrial $106 $117 Secured by real estate 153 233 Total domestic 259 350 International Commercial and industrial 38 57 Secured by real estate 32 39 Financial institutions 1 4 Other 2 2 Total international 73 102 Total cash basis loans $332 $452 Ratio of cash basis loans to total gross loans 1.8% 2.9% Ratio of allowance for credit losses to cash basis loans (1) 228% 171% RENEGOTIATED LOANS Secured by real estate $37 $37 Total renegotiated loans $37 $37 OTHER REAL ESTATE $188 $213 OTHER NONPERFORMING ASSETS Assets acquired in credit workouts $8 $10 Total other nonperforming assets $8 $10 Loans 90 days or more past due and still accruing interest $- $- (1) Ratio was computed using the allowance for credit losses that has been allocated to loans of $758 million and $773 million at March 31, 1997 and December 31, 1996, respectively.
32 NONPERFORMING ASSETS (continued) An analysis of the changes in the Corporation's total cash basis loans during the first quarter of 1997 follows (in millions).
Balance, December 31, 1996 $452 Net transfers to cash basis loans 16 Net paydowns (69) Charge-offs (33) Transfers to other real estate (2) Other (32) Balance, March 31, 1997 $332
The Corporation's total cash basis loans amounted to $332 million at March 31, 1997, down $120 million, or 27 percent, from December 31, 1996. This decline is primarily attributable to decreases in loans secured by real estate ($87 million) and highly leveraged loans ($29 million). Within cash basis loans, loans secured by real estate were $185 million and $272 million at March 31, 1997 and December 31, 1996, respectively. Commercial and industrial loans to highly leveraged borrowers were $88 million and $117 million at March 31, 1997 and December 31, 1996, respectively. 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 which would have been recorded at the original rate were not necessarily representative of current market rates. 33 NONPERFORMING ASSETS (continued)
Three Months Ended March 31, (in millions) 1997 1996 Domestic Loans Gross amount of interest that would have been recorded at original rate $6 $14 Less, interest, net of reversals, recognized in interest revenue 1 1 Reduction of interest revenue 5 13 International Loans Gross amount of interest that would have been recorded at original rate 2 3 Less, interest, net of reversals, recognized in interest revenue - - Reduction of interest revenue 2 3 Total reduction of interest revenue $7 $16
HIGHLY LEVERAGED TRANSACTIONS Amounts included in the table and discussion which follow generally reflect the definition that the Corporation uses in order to monitor the extent of its exposure to highly leveraged transactions ("HLTs"). The Corporation's 1996 Annual Report on Form 10-K, on page 59, provides a detailed discussion of the definition.
Highly Leveraged Transactions March 31, December 31, (in millions) 1997 1996 Loans Senior debt $1,580 $1,587 Subordinated debt 70 76 Total loans $1,650 $1,663 Unfunded commitments Commitments to lend $ 904 $ 875 Letters of credit 148 128 Total unfunded commitments $1,052 $1,003 Equity investments $744 $665 Commitments to invest $443 $425
34 HIGHLY LEVERAGED TRANSACTIONS (continued) The Corporation's outstanding loans were to 130 separate borrowers in 43 separate industry groups at March 31, 1997, compared to 127 separate borrowers in 43 separate industry groups at December 31, 1996. The miscellaneous manufacturing and services group at 11 percent was the only industry concentration which exceeded 10 percent of total HLT loans outstanding at March 31, 1997. In addition to the amounts shown in the table above, at March 31, 1997, the Corporation had issued commitment letters which had been accepted, subject to documentation and certain other conditions, of $41 million (which were in various stages of syndication) and had additional HLTs in various stages of discussion and negotiation. During the first quarter of 1997, the Corporation originated $755 million 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 per borrower for the portfolio at March 31, 1997 was less than $13 million. However, at March 31, 1997, the Corporation had total exposure (loans outstanding plus unfunded commitments) in excess of $50 million to 10 separate highly leveraged borrowers. At March 31, 1997, $88 million of the HLT loan portfolio was on a cash basis. In addition, $4 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 $16 million of HLT loans were recorded in the first quarter of 1997. In addition, the Corporation recorded a net gain of $27.2 million in connection with the sales and/or write-offs of certain equity investments in highly leveraged companies during the first quarter of 1997. 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 $31 million during the first quarter of 1997 and that as of March 31, 1997, approximately $29 million of fees were deferred and will be recognized as future revenue. 35 ACCOUNTING DEVELOPMENTS In February, 1997, the FASB issued Statement of Financial Accounting Standards No. 128, "Earnings per Share" ("SFAS No. 128"). SFAS No. 128 establishes standards for computing and presenting earnings per share ("EPS"). SFAS No. 128 replaces the presentation of primary EPS with basic EPS and fully diluted EPS with diluted EPS. Basic EPS excludes dilution and is calculated by dividing income available to common shareholders by the weighted average number of common shares outstanding for the period. Diluted EPS is computed similarly to fully diluted EPS. SFAS No. 128 is effective for financial statement periods ending after December 15, 1997, and requires restatement of all prior period EPS data. The adoption of SFAS No. 128 is not expected to have a material impact on the Corporation's fully diluted EPS computations. MERGER On April 6, 1997, the Corporation and Alex. Brown Incorporated ("AB") entered into a definitive agreement to merge (the "Merger"). The merger agreement provides that each AB common share will be exchanged for 0.83 shares of the Corporation's common stock. The transaction is expected to be tax-free to shareholders and accounted for on a pooling-of-interests basis. In connection with the Merger, it is estimated that nonrecurring merger and related restructuring charges will be recognized upon consummation of the Merger. These charges are expected to result from severance expenses to be incurred in connection with anticipated staff reductions, other merger-related expenses, such as costs to eliminate redundant back office and other operations of the Corporation and AB, and direct costs of the Merger. The Merger, which is expected to be completed by the fourth quarter of 1997, is subject to customary closing conditions, including certain regulatory approvals and shareholder approvals. Unaudited Pro forma Combined Financial Statements as of March 31, 1997, for the three months ended March 31, 1997 and 1996, and for the three years ended December 31, 1996 are contained in Exhibit 99 to this document. 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 15, 1997. (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 70,927,063 365,476 Phillip A. Griffiths 70,932,695 359,844 William R. Howell 70,924,258 368,280 Vernon E. Jordan, Jr. 69,931,155 1,361,384 Hamish Maxwell 70,909,268 383,271 Frank N. Newman 70,934,349 358,189 N. J. Nicholas Jr. 70,923,638 368,900 Russell E. Palmer 70,927,606 364,933 Donald L. Staheli 70,918,072 374,467 Patricia C. Stewart 70,889,767 402,772 George J. Vojta 70,930,860 361,679 Paul A. Volcker 70,926,127 366,412 Resolutions . To ratify the appointment of KPMG Peat Marwick LLP as independent auditor for 1997. 70,974,638 119,731 198,169 . To approve the 1997 Stock Option and Stock Award Plan. 39,181,738 20,004,029 1,975,269 10,131,503 . To limit the term of service of outside directors to no more than six years. 3,262,580 56,816,791 850,693 10,362,474 . To provide for cumulative voting in the election of directors. 21,117,455 38,862,214 920,395 10,392,475 . To submit a plan of merger by BTNY or any of its subsidiaries to shareholders for approval prior to approval by the Board of Directors. 3,494,994 56,298,937 1,136,230 10,362,377
The text of the matters referred to under this Item 4 is set forth in the Proxy Statement dated March 10, 1997 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 security holders 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 (99) Additional Exhibits (b) Reports on Form 8-K - Bankers Trust New York Corporation filed two reports on Form 8-K during the quarter ended March 31, 1997. - The report dated January 23, 1997, filed the Corporation's Press Release dated January 23, 1997, which announced earnings for the quarter and year ended December 31, 1996. - The report dated March 6, 1997, provided an update of information previously reported on Form 8-K dated November 20, 1996, which announced that the Corporation had appointed KPMG Peat Marwick LLP as its independent auditors for the fiscal year ending December 31, 1997, and chose not to renew the engagement of Ernst & Young LLP, who served as the Corporation's independent auditors for the fiscal year ended December 31, 1996. 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, 1997. BANKERS TRUST NEW YORK CORPORATION BY: RICHARD H. DANIEL Richard H. Daniel Vice Chairman and Controller (Principal Financial Officer) BANKERS TRUST NEW YORK CORPORATION FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 1997 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) Severance agreement with B.J. Kingdon (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 (99) (i) Additional Exhibits (1) Pro Forma Combined Financial Statements as of March 31, 1997, for the three months ended March 31, 1997 and 1996 and for the three years ended December 31, 1996. [FN] (a) The Corporation hereby agrees to furnish to the Commission, upon request, a copy of any instruments defining the rights of holders of long- term debt issued by Bankers Trust New York Corporation or its subsidiaries. EX-12.A 2 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, 1992 1993 1994 1995 1996 1997 Earnings: 1. Income before income taxes and cumulative effects of accounting changes $ 906 $1,550 $ 869 $ 311 $ 872 $ 241 2. Add: Fixed charges excluding capitalized interest (Line 10) 3,099 3,148 3,884 5,095 5,426 1,345 3. Less: Equity in undistri- buted income of unconsolidated subsidiaries and affiliates 40 30 45 28 30 (5) 4. Earnings including interest on deposits 3,965 4,668 4,708 5,378 6,268 1,591 5. Less: Interest on deposits 1,119 1,013 965 1,360 1,355 396 6. Earnings excluding interest on deposits $2,846 $3,655 $3,743 $4,018 $4,913 $1,195 Fixed Charges: 7. Interest Expense $3,072 $3,122 $3,858 $5,069 $5,400 $1,337 8. Estimated interest component of net rental expense 27 26 26 26 26 7 9. Amortization of debt issuance expense - - - - - 1 10. Total fixed charges including interest on deposits and excluding capitalized interest 3,099 3,148 3,884 5,095 5,426 1,345 11. Add: Capitalized interest - - - - - - 12. Total fixed charges 3,099 3,148 3,884 5,095 5,426 1,345 13. Less: Interest on deposits (Line 5) 1,119 1,013 965 1,360 1,355 396 14. Fixed charges excluding interest on deposits $1,980 $2,135 $2,919 $3,735 $4,071 $ 949 Consolidated Ratios of Earnings to Fixed Charges: Including interest on deposits (Line 4/Line 12) 1.28 1.48 1.21 1.06 1.16 1.18 Excluding interest on deposits (Line 6/Line 14) 1.44 1.71 1.28 1.08 1.21 1.26
EX-12.B 3 EXHIBIT 12(b) BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES COMPUTATION OF CONSOLIDATED RATIOS OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDEND REQUIREMENTS (dollars in millions)
Three Months Ended Year Ended December 31, March 31, 1992 1993 1994 1995 1996 1997 Earnings: 1. Income before income taxes and cumulative effect of accounting changes $ 906 $1,550 $ 869 $ 311 $ 872 $ 241 2. Add: Fixed charges excluding capitalized interest (Line 13) 3,099 3,148 3,884 5,095 5,426 1,345 3. Less: Equity in undistri- buted income of unconsolidated subsidiaries and affiliates 40 30 45 28 30 (5) 4. Earnings including interest on deposits 3,965 4,668 4,708 5,378 6,268 1,591 5. Less: Interest on deposits 1,119 1,013 965 1,360 1,355 396 6. Earnings excluding interest on deposits$2,846 $3,655 $3,743 $4,018 $4,913 $ 1,195 Preferred Stock Dividend Requirements: 7. Preferred stock dividend requirements $ 30 $ 23 $ 28 $ 51 $ 51 $13 8. Ratio of income from continuing operations before income taxes to income from continuing operations after income taxes 142% 145% 141% 145% 142% 143% 9. Preferred stock dividend requirements on a pretax basis $ 43 $ 33 $ 39 $ 74 $ 72 $ 19 Fixed Charges: 10. Interest Expense $3,072 $3,122 $3,858 $5,069 $5,400 $1,337 11. Estimated interest component of net rental expense 27 26 26 26 26 7 12. Amortization of debt issuance expense - - - - - 1 13. Total fixed charges including interest on deposits and excluding capitalized interest 3,099 3,148 3,884 5,095 5,426 1,345 14. Add: Capitalized interest - - - - - - 15. Total fixed charges 3,099 3,148 3,884 5,095 5,426 1,345 16. Add: Preferred stock dividend require- ments - pretax (Line 9) 43 33 39 74 72 19 17. Total combined fixed charges and preferred stock dividend require- ments on a pretax basis 3,142 3,181 3,923 5,169 5,498 1,364 18. Less: Interest on deposits (Line 5) 1,119 1,013 965 1,360 1,355 396 19. Combined fixed charges and preferred stock dividend requirements on a pretax basis excluding interest on deposits $2,023 $2,168 $2,958 $3,809 $4,143 $968 Consolidated Ratios of Earnings to Combined Fixed Charges and Preferred Stock Dividend Requirements: Including interest on deposits (Line 4/Line 17) 1.26 1.47 1.20 1.04 1.14 1.17 Excluding interest on deposits (Line 6/Line 19) 1.41 1.69 1.27 1.05 1.19 1.23
EX-27 4
9 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CONDITION AT MARCH 31, 1997 AND THE CONSOLIDATED STATEMENT OF INCOME FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000,000 3-MOS DEC-31-1997 MAR-31-1997 1,607 2,581 1,195 47,461 7,986 0 0 17,979 758 122,978 35,589 42,219 6,397 12,588 0 704 84 4,293 122,978 301 120 626 1,645 396 1,337 308 0 14 935 241 241 0 0 169 1.89 1.89 1.33 332 0 37 0 973 33 18 958 136 143 479 Short-term borrowings include the following: Securities sold under repurchase agreements 21,995 Other short-term borrowings 20,224 Total 42,219 Other liabilities include the following: Accounts payable and accrued expenses 3,836 Other liabilities 2,561 Total 6,397 Other interest income includes the following: Interest-bearing deposits with banks 65 Federal funds sold 49 Securities repurchased under resale agreements 330 Securities borrowed 182 Total 626 The Corporation has allocated its total allowance for credit losses as follows: 758 as a reduction of loans and 200 as other liabilities related to all other credit-related items.
EX-99 5 EXHIBIT 99.1 BANKERS TRUST NEW YORK CORPORATION AND ALEX. BROWN INCORPORATED UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS (IN MILLIONS, EXCEPT PER SHARE DATA) The following Unaudited Pro Forma Combined Statements of Income for the three months ended March 31, 1997 and 1996, and for each of the three years ended December 31, 1996 and the Unaudited Pro Forma Combined Balance Sheet as of March 31, 1997 give effect to the pending merger (the "Merger") of Alex. Brown Incorporated ("Alex. Brown") into Bankers Trust New York Corporation ("BTNY") accounted for as a pooling of interests as if the Merger had occurred on the dates indicated. The pro forma information is based on the historical consolidated financial statements of BTNY and Alex. Brown and their subsidiaries after giving effect to the pro forma adjustments described in the Notes to the Pro Forma Combined Financial Statements. This information should be read in conjunction with the historical consolidated financial statements of Alex. Brown and the historical consolidated financial statements of BTNY. The effect of merger and related restructuring charges expected to be taken in connection with the Merger have not been reflected in the pro forma combined financial statements as efforts by BTNY and Alex. Brown continue to refine the actual amount of such charges (see Notes to Unaudited Pro Forma Combined Financial Statements). The pro forma financial data do not give effect to the anticipated cost savings and revenue enhancement opportunities that could result from the Merger. The pro forma financial data are not necessarily indicative of the results that actually would have occurred had the Merger been consummated on the dates indicated or that may be obtained in the future. BANKERS TRUST NEW YORK CORPORATION AND ALEX. BROWN INCORPORATED UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME (IN MILLIONS, EXCEPT PER SHARE DATA)
For the Three Months Ended March 31,1997 BTNY AB Pro Forma Pro Forma Historical Historical Adjustments Combined (a) (a, d) NET INTEREST REVENUE Interest revenue $1,645 $ 36 $- $1,681 Interest expense 1,337 12 1,349 NET INTEREST REVENUE 308 24 332 Provision for credit losses - - - NET INTEREST REVENUE AFTER PROVISION FOR CREDIT LOSSES 308 24 332 NONINTEREST REVENUE Trading 279 32 311 Fiduciary and funds management 208 23 231 Corporate finance fees 140 75 215 Other fees and commissions 79 60 139 Net revenue from equity investment transactions 44 3 47 Securities available for sale gains 14 - 14 Insurance premiums 63 - 63 Other 41 5 46 Total noninterest revenue 868 198 1,066 NONINTEREST EXPENSES Salaries and commissions 237 68 305 Incentive compensation and employee benefits 322 54 376 Agency and other professional service fees 87 3 90 Communication and data services 45 6 51 Occupancy, net 37 6 43 Furniture and equipment 50 4 54 Travel and entertainment 25 5 30 Provision for policyholder benefits 68 - 68 Other 64 25 89 Total noninterest expenses 935 171 1,106 Income before income taxes 241 51 292 Income taxes 72 20 92 NET INCOME $ 169 $ 31 $- $ 200 NET INCOME APPLICABLE TO COMMON STOCK $ 156 $ 31 $- $ 187 EARNINGS PER COMMON SHARE: PRIMARY $1.89 $1.23 $1.81(c) FULLY DILUTED $1.89 $1.10 $1.76(c) Cash dividends declared per common share $1.00 $.170 $1.00(c) Average common and common equivalent shares outstanding - primary 82.784 25.294 103.778(c) Average common and common equivalent shares outstanding assuming full dilution 82.898 29.079 107.034(c) See Notes to Unaudited Pro Forma Combined Financial Statements.
BANKERS TRUST NEW YORK CORPORATION AND ALEX. BROWN INCORPORATED UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME (IN MILLIONS, EXCEPT PER SHARE DATA)
For the Three Months Ended March 31, 1996 BTNY AB Pro Forma Pro Forma Historical Historical Adjustments Combined (a) (a, d) NET INTEREST REVENUE Interest revenue $1,590 $ 33 $- $1,623 Interest expense 1,377 12 1,389 NET INTEREST REVENUE 213 21 234 Provision for credit losses 5 - 5 NET INTEREST REVENUE AFTER PROVISION FOR CREDIT LOSSES 208 21 229 NONINTEREST REVENUE Trading 247 53 300 Fiduciary and funds management 183 17 200 Corporate finance fees 86 102 188 Other fees and commissions 87 53 140 Net revenue from equity investment transactions 21 6 27 Securities available for sale gains 15 - 15 Insurance premiums 62 - 62 Other 49 7 56 Total noninterest revenue 750 238 988 NONINTEREST EXPENSES Salaries and commissions 201 66 267 Incentive compensation and employee benefits 227 80 307 Agency and other professional service fees 60 3 63 Communication and data services 46 5 51 Occupancy, net 37 5 42 Furniture and equipment 41 4 45 Travel and entertainment 18 4 22 Provision for policyholder benefits 72 - 72 Other 59 25 84 Total noninterest expenses 761 192 953 Income before income taxes 197 67 264 Income taxes 59 26 85 NET INCOME $ 138 $ 41 $- $ 179 NET INCOME APPLICABLE TO COMMON STOCK $ 123 $ 41 $- $ 164 EARNINGS PER COMMON SHARE: PRIMARY $1.52 $1.67 $1.62(c) FULLY DILUTED $1.51 $1.48 $1.57(c) Cash dividends declared per common share $1.00 $.133 $1.00(c) Average common and common equivalent shares outstanding - primary 80.896 24.316 101.078(c) Average common and common equivalent shares outstanding assuming full dilution 81.560 28.009 104.808(c) See Notes to Unaudited Pro Forma Combined Financial Statements.
BANKERS TRUST NEW YORK CORPORATION AND ALEX. BROWN INCORPORATED UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME (IN MILLIONS, EXCEPT PER SHARE DATA)
For the Year Ended December 31,1996 BTNY AB Pro Forma Pro Forma Historical Historical Adjustments Combined (a) (a, d) NET INTEREST REVENUE Interest revenue $6,366 $142 $- $6,508 Interest expense 5,400 51 5,451 NET INTEREST REVENUE 966 91 1,057 Provision for credit losses 5 - 5 NET INTEREST REVENUE AFTER PROVISION FOR CREDIT LOSSES 961 91 1,052 NONINTEREST REVENUE Trading 846 168 1,014 Fiduciary and funds management 783 78 861 Corporate finance fees 507 415 922 Other fees and commissions 343 206 549 Net revenue from equity investment transactions 211 19 230 Securities available for sale gains 75 - 75 Insurance premiums 230 - 230 Other 204 32 236 Total noninterest revenue 3,199 918 4,117 NONINTEREST EXPENSES Salaries and commissions 867 288 1,155 Incentive compensation and employee benefits 951 264 1,215 Agency and other professional service fees 311 19 330 Communication and data services 193 21 214 Occupancy, net 150 22 172 Furniture and equipment 171 16 187 Travel and entertainment 97 19 116 Provision for policyholder benefits 280 - 280 Other 268 101 369 Total noninterest expenses 3,288 750 4,038 Income before income taxes 872 259 1,131 Income taxes 260 105 365 NET INCOME $ 612 $154 $- $ 766 NET INCOME APPLICABLE TO COMMON STOCK $ 561 $154 $- $ 715 EARNINGS PER COMMON SHARE: PRIMARY $6.78 $6.28 $6.93(c) FULLY DILUTED $6.74 $5.51 $6.71(c) Cash dividends declared per common share $4.00 $.637 $4.00(c) Average common and common equivalent shares outstanding - primary 82.766 24.563 103.153(c) Average common and common equivalent shares outstanding assuming full dilution 83.259 28.470 106.889(c) See Notes to Unaudited Pro Forma Combined Financial Statements.
BANKERS TRUST NEW YORK CORPORATION AND ALEX. BROWN INCORPORATED UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME (IN MILLIONS, EXCEPT PER SHARE DATA)
For the Year Ended December 31,1995 BTNY AB Pro Forma Pro Forma Historical Historical Adjustments Combined (a) (a, d) NET INTEREST REVENUE Interest revenue $5,886 $103 $- $5,989 Interest expense 5,069 36 5,105 NET INTEREST REVENUE 817 67 884 Provision for credit losses 31 - 31 NET INTEREST REVENUE AFTER PROVISION FOR CREDIT LOSSES 786 67 853 NONINTEREST REVENUE Trading 341 140 481 Fiduciary and funds management 697 55 752 Corporate finance fees 398 293 691 Other fees and commissions 314 177 491 Net revenue from equity investment transactions 146 7 153 Securities available for sale gains 180 - 180 Insurance premiums 234 - 234 Other 113 34 147 Total noninterest revenue 2,423 706 3,129 NONINTEREST EXPENSES Salaries and commissions 804 241 1,045 Incentive compensation and employee benefits 640 192 832 Agency and other professional service fees 318 17 335 Communication and data services 184 20 204 Occupancy, net 152 25 177 Furniture and equipment 162 15 177 Travel and entertainment 88 16 104 Provision for policyholder benefits 271 - 271 Other 229 89 318 Provision for severance -related costs 50 - 50 Total noninterest expenses 2,898 615 3,513 Income before income taxes 311 158 469 Income taxes 96 62 158 NET INCOME $ 215 $ 96 $- $ 311 NET INCOME APPLICABLE TO COMMON STOCK $ 164 $ 96 $- $ 260 EARNINGS PER COMMON SHARE: PRIMARY $2.03 $4.11 $2.59(c) FULLY DILUTED $2.02 $3.60 $2.53(c) Cash dividends declared per common share $4.00 $.516 $4.00(c) Average common and common equivalent shares outstanding - primary 80.923 23.267 100.135(c) Average common and common equivalent shares outstanding assuming full dilution 81.095 27.192 103.664(c) See Notes to Unaudited Pro Forma Combined Financial Statements.
BANKERS TRUST NEW YORK CORPORATION AND ALEX. BROWN INCORPORATED UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME (IN MILLIONS, EXCEPT PER SHARE DATA)
For the Year Ended December 31,1994 BTNY AB Pro Forma Pro Forma Historical Historical Adjustments Combined (a) (a, d) NET INTEREST REVENUE Interest revenue $5,030 $ 66 $- $5,096 Interest expense 3,858 22 3,880 NET INTEREST REVENUE 1,172 44 1,216 Provision for credit losses 25 - 25 NET INTEREST REVENUE AFTER PROVISION FOR CREDIT LOSSES 1,147 44 1,191 NONINTEREST REVENUE Trading 465 121 586 Fiduciary and funds management 740 43 783 Corporate finance fees 431 197 628 Other fees and commissions 325 143 468 Net revenue from equity investment transactions 109 19 128 Securities available for sale gains 72 - 72 Insurance premiums 183 - 183 Other 148 17 165 Total noninterest revenue 2,473 540 3,013 NONINTEREST EXPENSES Salaries and commissions 774 196 970 Incentive compensation and employee benefits 724 132 856 Agency and other professional service fees 268 8 276 Communication and data services 176 18 194 Occupancy, net 146 20 166 Furniture and equipment 163 12 175 Travel and entertainment 109 14 123 Provision for policyholder benefits 205 - 205 Other 186 66 252 Total noninterest expenses 2,751 466 3,217 Income before income taxes 869 118 987 Income taxes 254 47 301 NET INCOME $ 615 $ 71 $- $ 686 NET INCOME APPLICABLE TO COMMON STOCK $ 587 $ 71 $- $ 658 EARNINGS PER COMMON SHARE: PRIMARY $7.17 $3.06 $6.51(c) FULLY DILUTED $7.17 $2.70 $6.33(c) Cash dividends declared per common share $3.70 $.450 $3.70(c) Average common and common equivalent shares outstanding - primary 81.825 23.124 101.018(c) Average common and common equivalent shares outstanding assuming full dilution 81.865 26.982 104.260(c) See Notes to Unaudited Pro Forma Combined Financial Statements.
BANKERS TRUST NEW YORK CORPORATION AND ALEX. BROWN INCORPORATED UNAUDITED PRO FORMA COMBINED BALANCE SHEET (IN MILLIONS)
At March 31, 1997 BTNY AB Pro Forma Pro Forma Historical Historical Adjustments Combined (a) (a, d) ASSETS Cash and due from banks $ 1,607 $ 72 $ - $ 1,679 Interest-bearing deposits in banks 2,581 - 2,581 Federal funds sold 1,195 - 1,195 Sec. purch. under resale agreements 22,273 43 22,316 Securities borrowed 13,963 282 14,245 Trading assets: Government securities 11,686 135 11,821 Corporate debt securities 8,460 48 8,508 Equity securities 7,021 40 7,061 Swaps, options & other derivatives 11,222 - 11,222 Other trading assets 9,072 8 9,080 Total trading assets 47,461 231 47,692 Securities available for sale 7,986 - 7,986 Loans, net of allowance for credit losses of $758 17,221 61 17,282 Customer receivables 80 1,502 1,582 Accounts receivable & accrued interest 3,147 115 3,262 Other assets 5,464 247 5,711 Total $122,978 $2,553 $ - $125,531 LIABILITIES Noninterest-bearing deposits Domestic offices $ 2,803 $ - $ - $ 2,803 Foreign offices 1,052 - 1,052 Interest-bearing deposits Domestic offices 12,365 - 12,365 Foreign offices 19,369 - 19,369 Total deposits 35,589 - 35,589 Trading liabilities: Securities sold, not yet purchased Government securities 3,943 43 3,986 Equity securities 4,935 15 4,950 Other trading liabilities 431 12 443 Swaps, options & other derivatives 11,177 - 11,177 Total trading liabilities 20,486 70 20,556 Securities loaned and securities sold under repurchase agreements 21,995 581 22,576 Other short-term borrowings 20,224 96 20,320 Accounts payable and accrued expenses 3,836 259 4,095 Other liabilities, including allowance for credit losses of $200 3,179 636 3,815 Long-term debt not included in risk-based capital 7,955 209 8,164 Long-term debt included in risk-based capital 3,164 - 3,164 Mandatorily redeemable capital securities of subsidiary trusts holding solely junior subordinated deferrable interest debentures included in risk-based capital 1,469 - 1,469 Total liabilities 117,897 1,851 119,748 STOCKHOLDERS' EQUITY Preferred stock 704 - 704 Common stock 84 2 19(c) 105 Capital surplus 1,349 147 (19)(c) 1,477 Retained earnings 3,512 553 4,065 Common stock in treasury, at cost (527) - (527) Other stockholders' equity (41) - (41) Total stockholders' equity 5,081 702 - 5,783 Total $122,978 $2,553 $ - $125,531 See Notes to Unaudited Pro Forma Combined Financial Statements.
BANKERS TRUST NEW YORK CORPORATION AND ALEX. BROWN INCORPORATED NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS (a) Alex. Brown's and BTNY's historical financial statements have been reclassified to conform to the current presentation. (b) In connection with the Merger, it is estimated that nonrecurring merger and related restructuring charges will be recognized upon consummation of the Merger. These charges are expected to result from severance expenses to be incurred in connection with anticipated staff reductions, other merger-related expenses, such as costs to eliminate redundant back office and other operations of BTNY and Alex. Brown, and direct costs of the Merger. The effect of the proposed nonrecurring charges have not been reflected in the pro forma combined financial statements, as efforts by BTNY and Alex. Brown to refine the actual amount of such charges are ongoing. The pro forma combined financial statements do not reflect expected cost savings, nor do they reflect any estimates of revenue enhancements that could be realized as a result of the Merger. (c) It is assumed that the Merger will be accounted for on a pooling of interests accounting basis and the related pro forma adjustments to the common stock and capital surplus accounts at March 31, 1997 reflect an exchange of approximately 21 million shares of BTNY Common Stock,(using the Exchange Ratio of .83) for approximately 25 million outstanding shares of Alex. Brown Common Stock, at March 31, 1997. Pro forma combined cash dividends declared per common share represents BTNY's historical amounts. For the earnings per common share calculations, the pro forma combined average common and common equivalent shares outstanding (primary and assuming full dilution) reflects the exchange of BTNY Common Stock (using the Exchange Ratio of .83) for the outstanding shares of Alex. Brown Common Stock. (d) Transactions between BTNY and Alex. Brown are not material in relation to the pro forma combined financial statements and, therefore, intercompany balances have not been eliminated from the pro forma combined amounts. EX-10.III.A1 6 EXHIBIT 10(iii)(A)(1) Bankers Trust New York Corporation 130 Liberty Street, New York, New York 10006 CORPORATE HUMAN RESOURCES SETTLEMENT AND NON-DISCLOSURE AGREEMENT B.J. KINGDON, on his own behalf and on behalf of his heirs, executors, administrators, attorneys, successors and assigns (hereinafter collectively referred to as "Kingdon"), and BANKERS TRUST NEW YORK CORPORATION, on its own behalf and on behalf of its subsidiaries, divisions, affiliates, successors and assigns, and its and their respective officers, directors, agents, representatives and employees (hereinafter collectively referred to as "Bankers Trust" or the "Company"), have reached the within agreement ("Agreement") in settlement of any and all issues related to Kingdon's employment with, and separation from the employ of, Bankers Trust, such Agreement being reached on the following terms and conditions: 1. Kingdon will resign his position as Senior Managing Director of Bankers Trust effective February 14, 1997. 2. In full and complete satisfaction of all known and unknown claims against Bankers Trust, and in consideration for executing this Agreement, Kingdon will be entitled to the following: a. Bankers Trust shall provide Kingdon with base salary continuation, payable monthly through Kingdon's off- payroll date of July 25, 1997. b. On or about July 25, 1997, Bankers Trust will make a lump-sum payment to Kingdon of $544,656. c. Bankers Trust shall pay Kingdon a bonus for the 1996 performance year of $300,000, on or about the eighth day after Kingdon executes this Agreement. d. Kingdon's 50,000 outstanding Employee Stock options must be exercised by his off-payroll date of July 25, 1997, Kingdon's 1996 options granted at $76.4375 strike price will not vest until June 18, 1997. Any options remaining unexercised after Kingdon's July 25, 1997 off-payroll date will be forfeited. e. Bankers Trust acknowledges that Kingdon has a Restricted Stock award outstanding of 2,500 shares. Kingdon's shares award will vest and be distributed to him on July 25, 1997, his off-payroll date. f. Kingdon's shares awarded under the Partnership Equity Plan ("PEP") will continue to be deferred until the fifth anniversary following the end of each related performance year. That is, Kingdon's 1993, 1994, 1995 and 1996 Awards will be distributable to him in or about December of 1998, 1999, 2000 and 2001, respectively. Shares acquired by net EPS reinvestments through Kingdon's off-payroll date will immediately vest. For the remainder of their respective deferral periods, earnings on shares in Kingdon's PEP account will be limited to the related common stock dividend rate and will continue to pay out quarterly. The 75% floor protection on the original shares awarded to Kingdon (not shares acquired through reinvested net EPS credits) remains intact until distribution. g. Bankers Trust acknowledges that Kingdon's PartnerShare Account is fully vested effective February 14, 1997. h. Kingdon's ADCAP account will vest in full as of his July 25, 1997 off-payroll date, and will be distributed in cash at such time. i. Kingdon's 7,612.8725 shares in the Equity Participation Plan ("EPP"), to the extent unvested, will vest in full as of his July 25, 1997 off-payroll date. All shares will continue to be deferred as scheduled. In the event the Human Resources Committee approves the early distribution of EPP Share Awards, and an election is not made to receive early distributions of shares, shares would nonetheless be mandatorily distributed one-third per year starting February 1997. Floor protection remains intact for the remainder of the deferred period, however, EPS yield in excess of dividend, if any, is eliminated following the off-payroll date. j. All salary paid to Kingdon through his off- payroll date (subject to tax limits) will qualify under the formula to compute Kingdon's benefit under the terms of the Company's qualified Pension Plan. k. Kingdon's 70,000 POP units valued at $41.25 each ($2,887,500) will vest in full and be distributed in cash on or about July 25,1997, the off-payroll date, and further, Kingdon waives any further rights in this plan. l. Kingdon's coverage in the Company's group medical and dental plans shall continue through his off-payroll date. Thereafter, Kingdon may voluntarily continue coverage for himself and his eligible dependents at his own expense for a period of up to eighteen (18) months consistent with applicable federal law. m. On or about July 25, 1997, Kingdon's off-payroll date, he will receive the cash equivalent of 4.58 unused vacation days for the 1997 calendar year. Kingdon acknowledges that the payments and benefits set forth above shall be subject to applicable federal, state and local taxes, and all other deductions as required by law and Bankers Trust policy. Kingdon shall have no duty to seek other employment or to become self-employed to mitigate any payments or benefits to which he is entitled pursuant to this Agreement nor shall there be any offset against such payments or benefits in the event of such employment or self-employment. If Kingdon dies prior to the payment of any of the amounts set forth in this paragraph, Kingdon's estate or his designated beneficiary shall be paid such amounts. 3. Kingdon agrees that he will not publicly or privately disparage Bankers Trust or any of the Company's products, services, divisions, affiliates, related companies or current or former officers, directors, trustees, employees, agents, administrators, representatives or fiduciaries. The Company agrees that it will not publicly or privately disparage Kingdon. Notwithstanding the foregoing, neither Kingdon nor the Company will be restricted from providing information about the other as required by a court or governmental agency or by applicable law. Further, the Company shall not be restricted from reporting information regarding Kingdon's performance while employed by the Company to internal or external auditors, special counsel or investigators, any applicable enforcement agencies, regulatory agencies, insurance carriers or in litigation involving Kingdon or the Company. Kingdon hereby acknowledges and further agrees that the payments and benefits described herein will be forfeited (including the right to exercise any outstanding stock options), if he materially violates any material provisions of this Agreement. In any such instances, Kingdon also agrees to tender back all amounts he received from Bankers Trust pursuant to paragraph 2 of this Agreement which is over and above that to which he is normally entitled under standard Bankers Trust policy, within thirty days of his being advised by Bankers Trust of the conduct or behavior which the Company believes to be a material violation of a material provision of this Agreement. Should Kingdon not tender back such consideration as set forth above and, as a result, should Bankers Trust be forced to take legal action to recover such amounts and should Bankers Trust be the prevailing party in such litigation, Kingdon shall be responsible to Bankers Trust for all costs incurred in bringing such action, including but not limited to, its reasonable attorneys' fees. Nothing set forth herein should be construed as preventing Bankers Trust from seeking any additional rights or remedies it may have at law or in equity in the event of a material violation of a material provision of this Agreement. 4. In exchange for the consideration described in Paragraph 2, Kingdon hereby releases Bankers Trust from any and all liability arising from any and all acts or omissions including, but not limited to, those arising out of his employment relationship with the Company or under any contract, tort, federal, state, or local fair employment practices or civil rights law including, but not limited to, Title VII of the Civil Rights Act of 1964, the Civil Rights Act of 1991, the Age Discrimination in Employment Act of 1967, the Older Worker Benefits Protection Act of 1990, the Civil Rights Act of 1866, the Americans With Disabilities Act of 1990, the Employee Retirement Income Security Act of 1974, the New York State and New York City Civil Rights Laws, or any claim for physical or emotional distress or injuries, or any other duty or obligation of any kind or description. This release shall apply to all known, unknown, unsuspected and unanticipated claims, liens, injuries and damages including, but not limited to, claims of employment discrimination, indemnity for discharge, or claims sounding in tort or in contract, express or implied, as of the date of the execution of this Agreement. Notwithstanding the foregoing, Kingdon does not release his right to have the Company perform its obligations under this Agreement, including without limitation, his right to (i) indemnification pursuant to this paragraph 4, or any other right to indemnification by the Company, (ii) any compensation or benefits pursuant to any plan or program that is part of the subject matter of this Agreement, (iii) pension, health or similar benefits under the Company's retirement programs. Kingdon also agrees not to initiate any legal action, charges or complaints against Bankers Trust in any forum whatsoever, in connection with the claims released by him pursuant to this paragraph 4. In the event any such actions, charges or complaints are asserted in the future by or on behalf of Kingdon, a material violation of a material provision of this Agreement shall be deemed to have occurred, entitling Bankers Trust to the return of the consideration set forth in this Agreement which is over and above that to which Kingdon is normally entitled under standard Company policy, as well as the attorneys' fees incurred by Bankers Trust in defending such action, charge or complaint. Bankers Trust expressly denies that it has violated any law, statute, ordinance, contract, duty or obligation whatsoever, or that it committed any tort or engaged in any wrongful conduct with respect to Kingdon. Kingdon acknowledges that the consideration described in this Agreement is in excess of that to which he was otherwise entitled upon his termination under either applicable law, Company policy, or pursuant to any contractual agreement he may have with Bankers Trust. Bankers Trust agrees that Kingdon is entitled to indemnification to the fullest extent provided by the Company for Officers as set forth in the Company's bylaws as may exist from time to time, but in no event less favorable than available to other officers. Kingdon shall also be entitled to officers' liability insurance in accordance with the terms of the policy provided by the Company for its Officers as amended from time to time. 5. The terms of this Agreement, the claims that have been or could have been raised against Bankers Trust as of the date of this Agreement, and the facts and circumstances underlying any such claim shall not be admissible by Kingdon in any litigation or proceeding in any forum, except as required by law, for any purpose other than to secure enforcement of the terms and conditions of this Agreement. 6. Neither Kingdon nor the Company will publish, publicize, or disseminate or cause to be published, publicized or disseminated or permit to be published, publicized or disseminated, directly or indirectly, and will keep entirely confidential any information, data or documents (1) relating to Kingdon's employment with and separation from Bankers Trust, except that either party may discuss the fact that he was employed by Bankers Trust, his title, salary, compensation, responsibilities and that he resigned his position; or (2) relating to the terms of this Agreement or the fact that this Agreement exists, except for (a) the purpose of enforcing this Agreement should that ever become necessary; or (b) disclosures required by a court or governmental agency or by applicable law, or to any investigatory or regulatory agency with authority over the Company. Kingdon may disclose the terms of this Agreement to his spouse, accountants, attorneys or tax preparers, or prospective employers, provided that disclosures to prospective employers shall be limited to the provisions of paragraphs 6 and 7, and, the Company may disclose the terms of this Agreement to its accountants, attorneys, tax preparers, its employees who have a need to know such terms, and as otherwise set forth above. Kingdon further agrees that he will not publish, publicize or disseminate, or cause to be published, publicized or disseminated or permit to be published, publicized or disseminated, directly or indirectly, and will keep entirely confidential any confidential information, data or documents relating to the operations of the Company, including any trade secrets or other proprietary information, except as may be required by a court or governmental agency. Confidential information shall mean all information that is not known or available to the public concerning the business of the Company relating to its financial products, product development, trade secrets, customers, suppliers, finances, and business plans and strategies, including know-how, financial information concerning the Company and its customers and specifications, programs, documentation and manuals relating to all financial models, telecommunications and computer systems, software, hardware and applications developed or used by Bankers Trust. Confidential information shall include information that is, or becomes, known to the public as a result of a breach by Kingdon of the provisions of this paragraph 6. Bankers Trust reserves the right to seek appropriate damages, including attorneys' fees and injunctive relief, should Kingdon violate this Agreement. 7. Kingdon agrees that during the one-year period following the execution of this Agreement, he will not, directly or indirectly, personally solicit or induce or cause any third party to solicit or induce any Bankers Trust employees to work for him or any competitor of the Company, it being understood that if any such employee contacts Kingdon on his or her own initiative, Kingdon may thereafter discuss with such employee his or her working for him or a competitor, provided that in such situations, Kingdon agrees to notify the Chief Legal or Human Resources Officer of Bankers Trust and advise either executive of such contact and of the employee(s) making such contact, before extending any offer of employment to such individual(s). 8. The failure of either party to insist upon strict adherence to any term of this Agreement on any occasion shall not be considered a waiver thereof or deprive such party of the right thereafter to insist upon strict adherence to that term or any other term of the Agreement. Any waiver must be in writing and signed by Kingdon or any authorized officer of the Company, as the case may be. 9. This Agreement shall be governed by and construed in accordance with the laws of the State of New York, without giving effect to its conflicts of laws provisions. 10. If any of the provisions, terms, clauses, or waivers or releases of claims or rights contained in this Agreement are declared illegal, unenforceable, or ineffective in a legal forum, such provisions, terms, clauses, waivers, releases or claims or rights shall be deemed severable, such that all other provisions, terms, clauses, waivers, releases of claims and rights contained in this Agreement shall remain valid and binding upon both parties. 11. Kingdon agrees to voluntarily cooperate with the Company in connection with any threatened, actual or future litigation or investigations by federal, state, or local agencies involving the Company, whether administrative, civil or criminal in nature, in which and to the extent his cooperation is deemed necessary by the Company in its discretion. 12. Kingdon acknowledges that he has had up to twenty- one (21) days from the date he received this Agreement to consider the terms of this Agreement and further, acknowledges that he is fully aware of its contents and of its legal effects. Kingdon is also hereby advised in writing by Bankers Trust to consult with an attorney regarding this Agreement. 13. This Agreement has been executed freely, knowingly and voluntarily by Kingdon without duress, coercion, or undue influence, with a full and free understanding of its terms. This Agreement is revocable by either party for seven (7) days following its execution, after which time it shall become effective and enforceable. Notice of revocation must be sent in writing to the other party prior to the eighth day after this Agreement is signed by the party seeking revocation. If Kingdon wishes to revoke his agreement, his written notice of revocation must be received within the seven (7) day revocation period by Peter Gurney, Managing Director, at the following address: Bankers Trust New York Corporation, 130 Liberty Street, New York, New York. 14. This Agreement supersedes all prior oral and written agreements, if any, with respect to the subject matter hereof between the parties. This Agreement may not be changed except by a writing signed by Kingdon and an authorized management representative of Bankers Trust. AGREED: /S/B.J. KINGDON B.J. KINGDON February 11, 1997 Date On this 11TH day of FEBRUARY 1997, before me personally came B.J. KINGDON to me known to be the individual described in and who executed the foregoing Settlement and Non-disclosure Agreement, and duly acknowledged to me that he executed the same. /S/ PERRY V. CAPITANI Notary Public AGREED: BANKERS TRUST NEW YORK CORPORATION on behalf of Bankers Trust By: /S/ PERTER GURNEY PETER GURNEY FEBRUARY 11, 1997 Date On this 11TH day of FEBRUARY 1997, before me personally came PETER GURNEY, authorized representative for Bankers Trust New York Corporation, to me known to be the individual described in and who executed the foregoing Settlement and Non-disclosure Agreement, and duly acknowledged to me that he executed the same. /S/PERRY V. CAPITANI Notary Public PERRY V. CAPITANI NOTARY PUBLIC, STATE OF NEW YORK NO.4863442 QUALIFIED IN NASSAU COUNTY CERTIFICATE FILED IN NEW YORK COUNTY COMMISSION EXPIRES OCTOBER 27,1998 -----END PRIVACY-ENHANCED MESSAGE-----