-----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, Vdfmft0L6OL5e60OnVNqBvsRLo2unZUztzTVPMw1ktDIWKIEPHfTYTgSzIwlbzVE wK31k4Eqn3w9PEp9E2cXLA== 0000009749-97-000098.txt : 19970815 0000009749-97-000098.hdr.sgml : 19970815 ACCESSION NUMBER: 0000009749-97-000098 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19970630 FILED AS OF DATE: 19970814 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: 97664011 BUSINESS ADDRESS: STREET 1: 130 LIBERTY STREET CITY: NEW YORK STATE: NY ZIP: 10006 BUSINESS PHONE: 2122502500 MAIL ADDRESS: STREET 1: 130 LIBERTY STREET CITY: NEW YORK STATE: NY ZIP: 10006 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 June 30, 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 July 31, 1997: Common Stock, $1 par value, 78,395,130 shares. 1 BANKERS TRUST NEW YORK CORPORATION June 30, 1997 FORM 10-Q TABLE OF CONTENTS Page PART I. FINANCIAL INFORMATION Item 1. Financial Statements Consolidated Statement of Income Three Months Ended June 30, 1997 and 1996 2 Six Months Ended June 30, 1997 and 1996 3 Consolidated Balance Sheet At June 30, 1997 and December 31, 1996 4 Consolidated Statement of Changes in Stockholders' Equity Six Months Ended June 30, 1997 and 1996 5 Consolidated Statement of Cash Flows Six Months Ended June 30, 1997 and 1996 6 Consolidated Schedule of Net Interest Revenue Three Months and Six Months Ended June 30, 1997 and 1996 7 In the opinion of management, all material adjustments necessary for a fair presentation of the financial position and results of operations for the interim periods presented have been made. All such adjustments were of a normal recurring nature. The results of operations for the three months and six months ended June 30, 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 as supplemented by the first quarter 1997 Form 10-Q. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 8 PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K 38 SIGNATURE 40 2 PART I. FINANCIAL INFORMATION BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF INCOME (in millions, except per share data) (unaudited)
Increase THREE MONTHS ENDED JUNE 30, 1997 1996 (Decrease) NET INTEREST REVENUE Interest revenue $1,694 $1,459 $ 235 Interest expense 1,379 1,216 163 Net interest revenue 315 243 72 Provision for credit losses - - - Net interest revenue after provision for credit losses 315 243 72 NONINTEREST REVENUE Trading 282 146 136 Fiduciary and funds management 234 198 36 Corporate finance fees 174 136 38 Other fees and commissions 91 82 9 Net revenue from equity investment transactions 3 72 (69) Securities available for sale gains 68 25 43 Insurance premiums 64 63 1 Other 54 76 (22) Total noninterest revenue 970 798 172 NONINTEREST EXPENSES Salaries 232 202 30 Incentive compensation and employee benefits 377 235 142 Agency and other professional service fees 99 98 1 Communication and data services 45 47 (2) Occupancy, net 38 36 2 Furniture and equipment 49 41 8 Travel and entertainment 31 24 7 Provision for policyholder benefits 72 78 (6) Other 85 64 21 Total noninterest expenses 1,028 825 203 Income before income taxes 257 216 41 Income taxes 76 65 11 NET INCOME $ 181 $ 151 $ 30 NET INCOME APPLICABLE TO COMMON STOCK $ 169 $ 137 $ 32 Cash dividends declared per common share $1.00 $1.00 $- EARNINGS PER COMMON SHARE: PRIMARY $2.07 $1.67 $.40 FULLY DILUTED $2.05 $1.66 $.39
3 BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF INCOME (in millions, except per share data) (unaudited)
Increase SIX MONTHS ENDED JUNE 30, 1997 1996 (Decrease) NET INTEREST REVENUE Interest revenue $3,339 $3,049 $290 Interest expense 2,716 2,593 123 Net interest revenue 623 456 167 Provision for credit losses - 5 (5) Net interest revenue after provision for credit losses 623 451 172 NONINTEREST REVENUE Trading 561 393 168 Fiduciary and funds management 442 381 61 Corporate finance fees 314 222 92 Other fees and commissions 170 169 1 Net revenue from equity investment transactions 47 93 (46) Securities available for sale gains 82 40 42 Insurance premiums 127 125 2 Other 95 125 (30) Total noninterest revenue 1,838 1,548 290 NONINTEREST EXPENSES Salaries 469 403 66 Incentive compensation and employee benefits 699 462 237 Agency and other professional service fees 186 158 28 Communication and data services 90 93 (3) Occupancy, net 75 73 2 Furniture and equipment 99 82 17 Travel and entertainment 56 42 14 Provision for policyholder benefits 140 150 (10) Other 149 123 26 Total noninterest expenses 1,963 1,586 377 Income before income taxes 498 413 85 Income taxes 148 124 24 NET INCOME $350 $ 289 $61 NET INCOME APPLICABLE TO COMMON STOCK $325 $ 260 $65 Cash dividends declared per common share $2.00 $2.00 $- EARNINGS PER COMMON SHARE: PRIMARY $3.95 $3.19 $.76 FULLY DILUTED $3.93 $3.17 $.76
4 BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET ($ in millions, except par value)
June 30,December 31, 1997* 1996 ASSETS Cash and due from banks $ 1,730 $ 1,543 Interest-bearing deposits with banks 2,334 2,210 Federal funds sold 1,305 1,599 Securities purchased under resale agreements 25,754 17,986 Securities borrowed 12,794 16,676 Trading assets: Government securities 12,270 16,745 Corporate debt securities 9,642 8,005 Equity securities 8,018 6,048 Swaps, options and other derivatives 10,824 11,410 Other trading assets 8,328 6,711 Total trading assets 49,082 48,919 Securities available for sale 7,478 7,920 Loans, net of allowance for credit losses of $767 at June 30, 1997 and $773 at December 31, 1996 18,939 15,053 Accounts receivable and accrued interest 3,431 3,003 Other assets 6,101 5,326 Total $128,948 $120,235 LIABILITIES Noninterest-bearing deposits Domestic offices $ 3,046 $ 2,600 Foreign offices 1,439 1,013 Interest-bearing deposits Domestic offices 15,618 9,928 Foreign offices 18,327 16,774 Total deposits 38,430 30,315 Trading liabilities: Securities sold, not yet purchased Government securities 4,949 7,652 Equity securities 4,973 4,151 Other trading liabilities 401 325 Swaps, options and other derivatives 11,064 11,585 Total trading liabilities 21,387 23,713 Securities sold under repurchase agreements 22,550 23,000 Other short-term borrowings 19,398 19,395 Accounts payable and accrued expenses 5,088 3,656 Other liabilities, including allowance for credit losses of $206 at June 30, 1997 and $200 at December 31, 1996 4,192 2,833 Long-term debt not included in risk-based capital 8,268 8,533 Long-term debt included in risk-based capital 2,939 2,576 Mandatorily redeemable capital securities of subsidiary trusts holding solely junior subordinated deferrable interest debentures included in risk-based capital 1,470 730 Total liabilities 123,722 114,751 PREFERRED STOCK OF SUBSIDIARY - 250 STOCKHOLDERS' EQUITY Preferred stock 703 810 Common stock, $1 par value Authorized, 300,000,000 shares Issued, 83,678,973 shares 84 84 Capital surplus 1,352 1,339 Retained earnings 3,588 3,462 Common stock in treasury, at cost: 1997, 6,011,773 shares; 1996, 4,435,226 shares (513) (372) Other stockholders' equity 12 (89) Total stockholders' equity 5,226 5,234 Total $128,948 $120,235 * Unaudited
5 BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (in millions) (unaudited)
SIX MONTHS ENDED JUNE 30, 1997 1996 PREFERRED STOCK Balance, January 1 $ 810 $ 865 Preferred stock issued - 1 Preferred stock redeemed (100) - Preferred stock repurchased (7) - Balance, June 30 703 866 COMMON STOCK Balance, January 1 and June 30 84 84 CAPITAL SURPLUS Balance, January 1 1,339 1,302 Common stock distributed under employee benefit plans 13 6 Balance, June 30 1,352 1,308 RETAINED EARNINGS Balance, January 1 3,462 3,316 Net income 350 289 Cash dividends declared Preferred stock (26) (29) Common stock (156) (159) Treasury stock distributed under employee benefit plans (42) (24) Balance, June 30 3,588 3,393 COMMON STOCK IN TREASURY, AT COST Balance, January 1 (372) (336) Purchases of stock (274) (38) Restricted stock granted (cancelled), net (17) 19 Treasury stock distributed under employee benefit plans 150 82 Balance, June 30 (513) (273) COMMON STOCK ISSUABLE - STOCK AWARDS Balance, January 1 526 233 Deferred stock awards granted (cancelled), net 61 63 Deferred stock distributed (18) (1) Balance, June 30 569 295 DEFERRED COMPENSATION - STOCK AWARDS Balance, January 1 (308) (151) Deferred stock awards (granted) cancelled, net (61) (62) Restricted stock (granted) cancelled, net 16 (19) Amortization of deferred compensation, net 125 82 Balance, June 30 (228) (150) CUMULATIVE TRANSLATION ADJUSTMENTS Balance, January 1 (364) (348) Translation adjustments 26 (27) Income taxes applicable to translation adjustments (23) 18 Balance, June 30 (361) (357) SECURITIES VALUATION ALLOWANCE Balance, January 1 57 19 Change in unrealized net gains, after applicable income taxes and minority interest (25) (18) Balance, June 30 32 1 TOTAL STOCKHOLDERS' EQUITY, JUNE 30 $5,226 $5,167
6 BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS (in millions) (unaudited)
SIX MONTHS ENDED JUNE 30, 1997 1996 CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 350 $ 289 Adjustments to reconcile net income to net cash provided by operating activities: Provision for credit losses - 5 Provision for policyholder benefits 140 150 Deferred income taxes (58) 100 Depreciation and other amortization and accretion 177 125 Other, net 77 (56) Earnings adjusted for noncash charges and credits 686 613 Net change in: Trading assets 439 3,776 Trading liabilities (2,117) (248) Receivables and payables from securities transactions 741 1,287 Other operating assets and liabilities, net 995 356 Securities available for sale gains (82) (40) Net cash provided by operating activities 662 5,744 CASH FLOWS FROM INVESTING ACTIVITIES Net change in: Interest-bearing deposits with banks (136) (79) Federal funds sold 294 489 Securities purchased under resale agreements (7,768) (11,972) Securities borrowed 3,882 (2,422) Loans (3,982) (1,504) Securities available for sale: Purchases (2,836) (2,918) Maturities and other redemptions 1,897 1,823 Sales 237 260 Acquisitions of premises and equipment (116) (86) Other, net 140 106 Net cash used in investing activities (8,388) (16,303) CASH FLOWS FROM FINANCING ACTIVITIES Net change in: Deposits 7,916 (517) Securities sold under repurchase agreements (423) 9,024 Other short-term borrowings 254 (126) Issuances of long-term debt* 3,221 2,018 Repayments of long-term debt (2,311) (363) Redemptions of preferred stock of subsidiary (250) - Redemptions and repurchases of preferred stock (107) - Purchases of treasury stock (274) (38) Cash dividends paid (183) (188) Other, net 89 63 Net cash provided by financing activities 7,932 9,873 Net effect of exchange rate changes on cash (19) 12 NET INCREASE (DECREASE) IN CASH AND DUE FROM BANKS 187 (674) Cash and due from banks, beginning of period 1,543 2,337 Cash and due from banks, end of period $ 1,730 $ 1,663 Interest paid $2,515 $2,624 Income taxes paid, net $47 $133 Noncash investing activities $86 $50 Noncash financing activities: Conversion of debt to preferred stock $- $1 * Includes $740 million at June 30, 1997, 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.
7 BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES CONSOLIDATED SCHEDULE OF NET INTEREST REVENUE (in millions) (unaudited)
Three Months Ended Six Months Ended June 30, June 30, 1997 1996 1997 1996 INTEREST REVENUE Interest-bearing deposits with banks $ 82 $ 40 $ 147 $ 83 Federal funds sold 61 31 110 59 Securities purchased under resale agreements 314 275 644 469 Securities borrowed 175 241 357 466 Trading assets 647 517 1,245 1,289 Securities available for sale Taxable 96 110 206 200 Exempt from federal income taxes 6 5 16 12 Loans 313 240 614 471 Total interest revenue 1,694 1,459 3,339 3,049 INTEREST EXPENSE Interest-bearing deposits Domestic offices 200 84 346 172 Foreign offices 259 216 509 463 Trading liabilities 125 135 276 461 Securities sold under repurchase agreements 328 400 661 708 Other short-term borrowings 275 237 563 508 Long-term debt 162 144 307 281 Mandatorily redeemable capital securities of subsidiary trusts holding solely junior subordinated deferrable interest debentures included in risk-based capital 30 - 54 - Total interest expense 1,379 1,216 2,716 2,593 NET INTEREST REVENUE $ 315 $ 243 $ 623 $ 456
8 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Bankers Trust New York Corporation (the "Parent Company") and subsidiaries (collectively, the "Corporation", or the "Firm") earned $181 million for the three months ended June 30, 1997, or $2.05 fully diluted earnings per share. In the second quarter of 1996, the Corporation earned $151 million, or $1.66 fully diluted earnings per share. For the first six months of 1997, the Corporation earned $350 million, or $3.93 fully diluted earnings per share. For the first six months of 1996, the Corporation earned $289 million, or $3.17 fully diluted 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 generally restate this analysis to conform with material changes in the allocation process and/or significant changes in organizational structure. 9 ORGANIZATIONAL UNIT RESULTS (continued) The following tables present the results by Organizational Units:
Total Non- Pretax Net Three Months Ended June 30, 1997 Total Net interest Income/ Income/ (in millions) Revenue Expenses (Loss) (Loss) Investment Banking $ 353 $ 193 $160 $113 Risk Management Services 107 97 10 7 Trading & Sales 168 84 84 59 Investment Management 87 75 12 8 Client Processing Services 208 182 26 18 Australia/New Zealand 132 99 33 23 Asia 11 31 (20) (14) Latin America 172 117 55 39 Corporate/Other 47 150 (103) (72) Total $1,285 $1,028 $257 $181
Total Non- Pretax Net Three Months Ended June 30, 1996 Total Net interest Income/ Income/ (in millions) Revenue Expenses (Loss) (Loss) Investment Banking $281 $132 $149 $104 Risk Management Services 38 64 (26) (18) Trading & Sales 84 59 25 17 Investment Management 75 70 5 4 Client Processing Services 197 169 28 20 Australia/New Zealand 114 67 47 33 Asia 36 26 10 7 Latin America 166 118 48 33 Corporate/Other 50 120 (70) (49) Total $1,041 $825 $216 $151
Total Non- Pretax Net Six Months Ended June 30, 1997 Total Net interest Income/ Income/ (in millions) Revenue Expenses (Loss) (Loss) Investment Banking $ 656 $ 358 $298 $209 Risk Management Services 212 186 26 18 Trading & Sales 302 157 145 102 Investment Management 172 147 25 17 Client Processing Services 404 360 44 31 Australia/New Zealand 261 180 81 57 Asia 51 60 (9) (6) Latin America 315 227 88 62 Corporate/Other 88 288 (200) (140) Total $2,461 $1,963 $498 $350
10 ORGANIZATIONAL UNIT RESULTS (continued) Total Non- Pretax Net Six Months Ended June 30, 1996 Total Net interest Income/ Income/ (in millions) Revenue Expenses (Loss) (Loss) Investment Banking $ 508 $ 241 $ 267 $186 Risk Management Services 101 133 (32) (22) Trading & Sales 174 115 59 41 Investment Management 148 139 9 7 Client Processing Services 379 325 54 38 Australia/New Zealand 212 131 81 57 Asia 69 52 17 12 Latin America 302 226 76 53 Corporate/Other 106 224 (118) (83) Total $1,999 $1,586 $ 413 $289
The Investment Banking business contributed net income of $113 million in the second quarter, up from $104 million a year ago. The increase from the prior year period reflected higher corporate finance income offset partly by higher personnel-related costs. Revenue from private equity investments declined from the high level of the second quarter of 1996. For the first six months of 1997, net income was $209 million versus $186 million for the first six months of 1996. The year-over-year increase resulted primarily from higher corporate finance income. Risk Management Services recorded net income of $7 million in the second quarter of 1997, up $25 million from the second quarter of 1996. Net income was $18 million in the first half of 1997 compared to a net loss of $22 million in the first half of 1996. The prior year periods reflected losses incurred in the commodity derivatives books when copper prices dropped sharply. Beginning in 1997, the responsibility for managing the metals and mining commodities book was transferred to Australia/NZ. Net income from the Trading & Sales business, at $59 million, was up $42 million from the second quarter of 1996. Net income was $102 million for the first six months of 1997 compared to $41 million for the prior year period. The current quarter and year-to-date improvement was largely due to strong arbitrage activities as compared to the prior year periods. The Corporation's Investment Management business, which for reporting purposes does not include funds management activities in Australia/NZ, reported net income of $8 million for the current quarter, up $4 million from the 1996 comparable period. Net income was $17 million in the first half of 1997, up $10 million from the first half of 1996. Improved performance fees contributed to the increase from the prior year quarter and the first six months of 1996. At June 30, 1997, assets under management in this organizational unit were approximately $242 billion, compared to $191 billion at June 30, 1996. 11 ORGANIZATIONAL UNIT RESULTS (continued) Client Processing Services contributed $18 million of net income in the second quarter of 1997, down $2 million from the 1996 second quarter. Revenues of $208 million were up $11 million from the second quarter of 1996. The decline in net income from the year ago quarter reflected higher personnel-related costs and technology costs. Net income was $31 million in the first half of 1997 compared with $38 million in the first half of 1996. Net income of the Australia/NZ business was $23 million in the second quarter of 1997, down $10 million from the second quarter of 1996. The decrease from the prior year quarter was primarily due to higher personnel- related costs as a result of increased staff levels offset in part by improved revenues from trading activities and fiduciary and funds management. At June 30, 1997, assets under management in Australia/NZ's investment management business were approximately $28 billion, compared to $24 billion at June 30, 1996. Net income for the first six months of 1997 was $57 million, even with the first six months of 1996. Asia net loss was $14 million in the second quarter of 1997 compared to net income of $7 million in the second quarter of 1996. Thailand is currently experiencing a significant reduction in its economic growth and the Thai stock market has experienced a steep decline. As a result, the Corporation recognized a decline in value of its unconsolidated investment in a Thai finance company. Partially offsetting this decline, the Corporation recognized trading gains from favorable Thai baht currency positions. The combined effect of these factors in Thailand resulted in a pre-tax net loss of $22 million. For the first six months of 1997, the Asia organizational unit incurred a net loss of $6 million compared to net income of $12 million in the prior year period. The decrease from the prior year period resulted from the losses incurred in Thailand as previously mentioned. Latin America net income was $39 million in the second quarter of 1997, up $6 million from the second quarter of 1996. A pre-tax gain of $22 million ($15 million after-tax) was recorded during the current quarter resulting from the completion of the first stage of the sale of 50% of the Corporation's stake in Consorcio, the largest life insurance and annuity firm in Chile. The prior year's quarter included a $31 million pre-tax gain on the sale of Compensa, which was the smaller of the Corporation's Chilean insurance subsidiaries. Net income for the first half of 1997 was $62 million compared to $53 million in the first half of 1996. Corporate/Other net loss was $72 million in the second quarter of 1997, compared with a net loss of $49 million in the second quarter of 1996. For the first six months of 1997, this unit incurred a net loss of $140 million versus a net loss of $83 million in the prior year period. The first half of 1997 included the effects of increased incentive compensation and employee benefits and consulting expenses associated with several strategic and infrastructure improvement projects. The prior year period included higher levels of legal and professional fees. 12 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 Six Months Ended June 30, June 30, 1997 1996 1997 1996 NET INTEREST REVENUE (in millions) Book basis $315 $243 $623 $456 Tax equivalent adjustment 6 4 13 8 Fully taxable basis $321 $247 $636 $464 AVERAGE BALANCES (in millions) Interest-earning assets $99,985 $91,002 $97,870 $88,289 Interest-bearing liabilities 97,883 86,702 94,662 84,807 Earning assets financed by noninterest-bearing funds $ 2,102 $ 4,300 $ 3,208 $ 3,482 AVERAGE RATES (fully taxable basis) Yield on interest-earning assets 6.82% 6.47% 6.91% 6.96% Cost of interest-bearing liabilities 5.65 5.64 5.79 6.15 Interest rate spread 1.17 .83 1.12 .81 Contribution of noninterest-bearing funds .12 .26 .19 .25 Net interest margin 1.29% 1.09% 1.31% 1.06%
Net interest revenue for the second quarter of 1997 totaled $315 million, up $72 million, or 30 percent, from the second quarter of 1996. The $72 million increase in net interest revenue was primarily due to an $84 million increase in trading-related net interest revenue, which totaled $148 million for the second quarter of 1997. Nontrading-related net interest revenue totaled $167 million for the second quarter of 1997 versus $179 million for the comparable period in 1996. Net interest revenue was $623 million for the first six months of 1997, up $167 million, or 37 percent from the first half of 1996. Nontrading-related net interest revenue totaled $341 million for the first six months of 1997 versus $362 million for the comparable period in 1996. 13 REVENUE (continued) In the second quarter of 1997, the interest rate spread was 1.17 percent compared to .83 percent in the prior year period. Net interest margin increased to 1.29 percent from 1.09 percent. The yield on interest earning assets rose by 35 basis points and the cost of interest-bearing liabilities was essentially flat. Average interest-earning assets totaled $100.0 billion for the second quarter of 1997, up $9.0 billion from the same period in 1996. The increase was primarily attributable to growth in the loan portfolio. 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 second quarter of 1997 totaled $430 million, up $220 million from the second quarter of 1996. Combined trading revenue and trading-related net interest revenue for the first six months of 1997 was $843 million, up $356 million from the $487 million reported in the first half of 1996. 14 REVENUE (continued) 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 June 30, 1997 Interest rate risk $168 $154 $322 Foreign exchange risk 48 - 48 Equity and commodity risk 66 (6) 60 Total $282 $148 $430 Quarter ended June 30, 1996 Interest rate risk $ 75 $59 $134 Foreign exchange risk 63 - 63 Equity and commodity risk 8 5 13 Total $146 $64 $210 Six Months ended June 30, 1997 Interest rate risk $339 $302 $641 Foreign exchange risk 86 - 86 Equity and commodity risk 136 (20) 116 Total $561 $282 $843 Six Months ended June 30, 1996 Interest rate risk $233 $111 $344 Foreign exchange risk 80 - 80 Equity and commodity risk 80 (17) 63 Total $393 $ 94 $487
Second Quarter 1997 vs. Second Quarter 1996 Interest Rate Risk - The increase in revenue was primarily due to strong results in the bond market and increased activity in foreign markets including Europe, Australia and New Zealand. Foreign Exchange Risk - Foreign exchange revenue decreased from the same period last year principally due to a decline in revenue from activities in Australia. Equity and Commodity Risk - Total trading and trading-related net interest revenue increased from the same period last year. The prior year period reflected losses incurred in the commodity derivatives books when copper prices dropped sharply. 15 REVENUE (continued) Six Months 1997 vs. Six Months 1996 Interest Rate Risk - The increase in revenue was principally due to strong results in the bond market, increased flow of client trading services and increased revenue from proprietary trading activities. Improved performance in Asia, Australia and New Zealand also contributed to the increase. Foreign Exchange Risk - Foreign exchange risk revenue increased compared to the same period last year principally due to improved revenues from proprietary and customer activities. Equity and Commodity Risk - The increase in total trading and trading related revenue as compared to the same period last year is principally due to strong revenue from precious metals in the first half of 1997 and nonrecurring losses in commodity derivatives in first half of 1996. Noninterest Revenue (Excluding Trading) Second Quarter 1997 vs. Second Quarter 1996 Fiduciary and funds management revenue was $234 million in the second quarter of 1997 up $36 million from the prior year period. Client processing services, funds management and global private banking commissions contributed to this increase. Corporate finance fees increased 28 percent from the $136 million earned in the second quarter of 1996 primarily due to higher fees for arranging financings, merger and acquisition fees and loan syndication fees. The Corporation's private equity investment activities largely contributed to the changes in securities available for sale gains (up $43 million) and net revenue from equity investment transactions (down $69 million). 16 REVENUE (continued) Six Months 1997 vs. Six Months 1996 Fiduciary and funds management fees of $442 million increased $61 million from the first six months of 1996. Higher revenue from funds management, client processing services and global private banking commissions were the primary contributors to this increase. Corporate finance fees totaled $314 million for the first half of 1997, up $92 million from the prior year period, primarily due to higher fees for arranging financings, merger and acquisition fees and loan syndication fees. The Corporation's private equity investment activities largely contributed to the changes in securities available for sale gains (up $42 million) and net revenue from equity investment transactions (down $46 million). 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 current or prior year's second quarter. Net charge-offs for the second quarter were $2 million, compared with $15 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: $767 million as a reduction of loans, and $206 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. 17 PROVISION AND ALLOWANCE FOR CREDIT LOSSES (continued) The provision for credit losses and the other changes in the allowance for credit losses are shown below (in millions).
Quarter Ended Six Months Ended June 30, June 30, Allowance for credit losses 1997 1996 1997 1996 Balance, beginning of period $958 $987 $973 $992 Net charge-offs Charge-offs 3 21 36 49 Recoveries 1 6 19 24 Total net charge-offs(1) 2 15 17 25 Provision for credit losses - - - 5 Allowance related to acquisition of an affiliate 17 - 17 - Balance, end of period(2) $973 $972 $973 $972 (1) Components of Net Charge-offs: Secured by real estate $ 2 $ - $ 1 $ 1 Real estate related - - - 4 Highly leveraged - 3 16 23 Other 1 13 1 1 Refinancing country (1) (1) (1) (4) Total $ 2 $15 $ 17 $25 (2) Allocation: Loans $767 Other Liabilities 206 Balance, end of period $973
The allowance for credit losses that has been allocated to loans, was $767 million at June 30, 1997 compared to $773 million at December 31, 1996. The allowance was equal to 251 percent and 171 percent of total cash basis loans at June 30, 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 $342 million and $489 million at June 30, 1997 and December 31, 1996, respectively. Included in these amounts were $128 million and $227 million of loans which required a valuation allowance of $31 million and $57 million at those same dates, respectively. 18 EXPENSES Second Quarter 1997 vs. Second Quarter 1996 Total noninterest expenses of $1.028 billion increased by $203 million, or 25 percent, from the second quarter of 1996. Salaries expense increased $30 million, or 15 percent, principally due to a 7 percent increase in the average number of employees and to annual pay increases. Incentive compensation and employee benefits, the largest component of noninterest expenses, increased $142 million due to higher profitability and the increase in the average number of employees. Six Months 1997 vs. Six Months 1996 Total noninterest expenses of $1.963 billion increased by $377 million for the first six months of 1997. Salaries expense increased $66 million, or 16 percent, due to an increase in the average number of employees and to annual pay increases. Incentive compensation and employee benefits increased $237 million due to higher profitability and an increase in the average number of employees. INCOME TAXES Income tax expense for the second quarter of 1997 amounted to $76 million, compared with $65 million for the second quarter of 1996. For the first six months of 1997, income tax expense was $148 million compared with $124 million in the first half of 1996. The effective tax rate was 30 percent for both the current quarter and six months ended June 30, 1997 as well as the prior year quarter and six months ended June 30, 1996. 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 19 EARNINGS PER COMMON SHARE (continued) the average market price. At no time during the three month and six month periods ended June 30, 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 Six Months Ended June 30, June 30, 1997 1996 1997 1996 Net income applicable to common stock $169 $137 $325 $260 Average number of common shares outstanding 76.136 77.832 76.574 77.664 Average common and common equivalent shares outstanding - primary 81.585 81.900 82.181 81.398 Average common and common equivalent shares outstanding assuming full dilution 82.403 82.351 82.647 81.956
20 BALANCE SHEET ANALYSIS The following table highlights the changes in the balance sheet. Since quarter-end balances can be distorted by one-day fluctuations, an analysis of changes in the quarterly averages is provided to give a better indication of balance sheet trends.
CONDENSED AVERAGE BALANCE SHEETS (in millions) 2nd Qtr 1st Qtr 4th Qtr 1997 1997 1996 ASSETS Interest-earning Interest-bearing deposits with banks $ 4,330 $ 3,396 $ 3,545 Federal funds sold 4,313 3,702 1,990 Securities purchased under resale agreements 23,395 22,120 22,380 Securities borrowed 14,092 14,712 15,447 Trading assets 27,955 28,022 31,427 Securities available for sale Taxable 6,571 6,988 6,777 Exempt from federal income taxes 1,136 1,148 1,077 Total securities available for sale 7,707 8,136 7,854 Loans Domestic offices 8,891 8,207 8,172 Foreign offices 9,302 7,437 7,032 Total loans 18,193 15,644 15,204 Total interest-earning assets 99,985 95,732 97,847 Noninterest-earning Cash and due from banks 1,573 1,302 1,378 Noninterest-earning trading assets 20,151 18,960 17,700 All other assets 8,940 8,386 8,409 Allowance for credit losses (770) (802) (988) Total $129,879 $123,578 $124,346 LIABILITIES Interest-bearing Interest-bearing deposits Domestic offices $ 14,690 $ 11,748 $ 8,738 Foreign offices 20,218 19,661 18,812 Total interest-bearing deposits 34,908 31,409 27,550 Trading liabilities 4,616 6,103 9,687 Securities sold under repurchase agreements 25,035 22,341 25,750 Other short-term borrowings 20,790 19,188 18,852 Long-term debt 11,064 11,169 11,173 Mandatorily redeemable capital securities of subsidiary trusts holding solely junior subordinated deferrable interest debentures 1,470 1,195 165 Total interest-bearing liabilities 97,883 91,405 93,177 Noninterest-bearing Noninterest-bearing deposits 3,003 3,152 3,518 Noninterest-bearing trading liabilities 16,230 16,920 15,725 All other liabilities 7,604 6,715 6,352 Total liabilities 124,720 118,192 118,772 PREFERRED STOCK OF SUBSIDIARY - 182 250 STOCKHOLDERS' EQUITY Preferred stock 704 773 815 Common stockholders' equity 4,455 4,431 4,509 Total stockholders' equity 5,159 5,204 5,324 Total $129,879 $123,578 $124,346
21 BALANCE SHEET ANALYSIS (continued) Securities Available for Sale The fair value, amortized cost and gross unrealized holding gains and losses for the Corporation's securities available for sale are as follows.
June 30, March 31, December 31, (in millions) 1997 1997 1996 Fair value $7,478 $7,986 $7,920 Amortized cost 7,334 7,854 7,755 Excess of fair value over amortized cost * $ 144 $ 132 $ 165 * Components: Unrealized gains $195 $210 $245 Unrealized losses (51) (78) (80) $144 $132 $165
Long-term Debt The larger of long-term debt issuances and maturities/redemptions which occurred during the second quarter of 1997 are as follows (in millions):
Face Amount Maturities/ Issuances Redemptions Parent Company Floating Rate Notes due March 2000 $250 Bankers Trust Company Redeemable Preference Securities due April 1997 and April 2000 $333 Floating Rate Notes due May 2002 $239 Floating Rate Notes due June 2007 $118
22 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 June 30, Average During 1997 2nd Qtr.1997 (Liabi- (Liabi- (in millions) Assets lities) Assets lities) OTC Financial Instruments Interest Rate and Currency Swap Contracts $ 15,039 $(14,075)$ 15,215 $(13,923) Interest Rate Contracts Forwards 54 (64) 43 (47) Options purchased 1,098 1,056 Options written (1,201) (1,183) Foreign Exchange Rate Contracts Spot and Forwards 10,850 (11,061) 12,863 (14,021) Options purchased 977 921 Options written (965) (950) Equity-related contracts 3,108 (4,092) 2,925 (3,311) Commodity-related and other contracts 570 (606) 588 (648) Exchange-Traded Options Interest Rate 6 (3) 18 (13) Equity 276 (151) 246 (133) Total Gross Fair Values 31,978 (32,218) 33,875 (34,229) Impact of Netting Agreements (21,154) 21,154 (22,246) 22,246 $ 10,824(1) $11,629 $(11,064)(1) $(11,983) (1) As reflected on the balance sheet in "Trading Assets" and "Trading Liabilities."
23 TRADING DERIVATIVES (continued)
At December 31, AverageDuring 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 $108 million at June 30, 1997 compared with an unrealized gain of $54 million at December 31, 1996. The $162 million decrease during the first half of 1997 was primarily due to increases in long-term interest rates. 24 END-USER DERIVATIVES (continued) The following tables provide the gross unrealized gains and losses for end-user derivatives. Gross unrealized gains and losses for hedges of securities available for sale are recognized in the financial statements with the offset as an adjustment to securities valuation allowance in stockholders' equity. Gross unrealized gains and losses for hedges of loans, other assets, interest-bearing deposits, other short-term borrowings, long-term debt, and net investments in foreign subsidiaries are not yet recognized in the financial statements.
Other Net invest- short- ments in Securities Interest- term Long- foreign (in millions)available Other bearing borrow- term subsi- June 30, 1997 for sale Loans assets deposits ings debt(1)diaries Total Interest Rate Swaps Pay Variable Unrealized Gain$ 1 $ - $- $ 44 $ 11 $ 193 $- $ 249 Unrealized (Loss) - (26) - (41) (16) (96) - (179) Pay Variable Net 1 (26) - 3 (5) 97 - 70 Pay Fixed Unrealized Gain 4 - - 17 - 8 - 29 Unrealized (Loss) (28) - - (42) (1) (56) - (127) Pay Fixed Net (24) - - (25) (1) (48) - (98) Total Unrealized Gain 5 - - 61 11 201 - 278 Total Unrealized (Loss) (28) (26) - (83) (17) (152) - (306) Total Net $(23) $(26) $- $(22) $ (6)$ 49 $- $ (28) Forward Rate Agreements Unrealized Gain $- $- $- $ 1 $- $- $- $ 1 Unrealized (Loss) - - - (1) - - - (1) Net $- $- $- $ - $- $- $- $ - Currency Swaps and Forwards Unrealized Gain $ - $- $1 $ - $ 4 $ 54 $ 40 $ 99 Unrealized (Loss)(5) - - (1) (6) (109) (46) (167) Net $(5) $- $1 $(1) $(2)$ (55) $ (6)_$ (68) Other Contracts (2) Unrealized Gain$ 4 $- $ - $- $- $- $- $ 4 Unrealized (Loss) (10) - (6) - - - - (16) Net $ (6) $- $(6) $- $- $- $- $(12) Total Unrealized Gain $ 9 $ - $ 1 $ 62 $15 $ 255 $ 40 $ 382 Total Unrealized (Loss) (43) (26) (6) (85) (23) (261) (46) (490) Total Net $(34) $(26) $(5) $(23) $ (8)$ (6) $ (6)$(108) (1) Includes trust preferred capital securities. (2) Other contracts are principally equity swaps and collars.
25 END-USER DERIVATIVES (continued)
Other Net invest- short- ments in Securities Interest- term Long- foreign (in millions)available Other bearing borrow- term subsi- Dec 31, 1996for sale Loans assets deposits ings debt(1) diaries Total Interest Rate Swaps Pay Variable Unrealized Gain$ 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.
26 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 June 30, 1997 Notional Amount Paying Variable Paying Fixed Maturing Notional Receive Pay Notional Receive Pay Total In: Amount Rate Rate Amount Rate Rate Notional 1997 $22,963 5.68% 5.67% $1,552 5.46% 5.82% $24,515 1998-1999 17,026 5.98 5.75 4,199 4.95 5.82 21,225 2000-2001 5,350 6.76 5.93 1,176 3.61 4.94 6,526 2002 and thereafter 8,506 6.85 5.78 1,253 6.10 7.09 9,759 Total $53,845 $8,180 $62,025 All rates were those in effect at June 30, 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.
27 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 June 30, 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. 28 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 June 30, December 31,Adequacy Regulatory 1997 1996 Purposes Guidelines Tier 1 Capital Corporation 8.2% 8.7% 4.0% 6.0% BTCo 9.0% 9.3% 4.0% 6.0% Total Capital Corporation 14.4% 13.7% 8.0% 10.0% BTCo 12.4% 12.9% 8.0% 10.0% Leverage Corporation 4.4% 5.5% 3.0%(1) 3.0%(1) BTCo 5.3% 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.
29 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 June 30, December 31, (in millions) 1997 1996 Corporation Tier 1 Capital $5,618 $5,326 Tier 2 Capital 3,730 3,004 Tier 3 Capital 517 - Total Capital $9,865 $8,330 Total risk-weighted assets $68,730 $60,990 BTCo Tier 1 Capital $5,247 $4,869 Tier 2 Capital 2,031 1,900 Total Capital $7,278 $6,769 Total risk-weighted assets $58,591 $52,484
Comparing June 30, 1997 to December 31, 1996, the Corporation's Tier 1 Capital ratio declined 50 basis points due to an increase in risk-weighted assets partially offset by an increase in Tier 1 Capital. The Corporation's risk-weighted assets at June 30, 1997 were $7.7 billion higher than at year-end 1996 while its Tier 1 Capital was $292 million higher. The Total Capital ratio of the Corporation increased 70 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), offset by the $7.7 billion increase in risk-weighted assets. With the adoption of the market risk amendment as of March 31, 1997, the Corporation's Leverage ratio decreased 110 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 30 basis points and 50 basis points, respectively, as a result of a $6.1 billion increase in risk-weighted assets, partially offset by an increase to Tier 1 and Total Capital of $378 million and $509 million, respectively. BTCo's Leverage ratio was unchanged as the increase in the quarterly average assets was offset by the increase in Tier 1 Capital. 30 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 $100.5 billion as of June 30, 1997, $97.1 billion as of March 31, 1997 and $96.9 billion as of December 31, 1996, which equaled 77 percent, 78 percent, and 80 percent of gross total assets at those dates respectively. 31 LIQUIDITY (continued) Cash Flows The following comments apply to the consolidated statement of cash flows, which appears on page 6. Cash and due from banks increased by $187 million during the first six months of 1997 as the sum of the net cash provided by financing activities and operating activities exceeded the net cash used in investing activities. The increase in cash provided by financing activities was primarily due to the net changes in deposits ($7.9 billion) and the issuance of long-term debt ($3.2 billion), partially offset by repayments of long-term debt ($2.3 billion). Within net cash provided by operating activities, cash inflows from other operating assets and liabilities, net ($1.0 billion), net changes in receivables and payables from securities transactions ($741 million) and net changes in trading assets ($439 million), was mostly offset by cash outflows from net changes in trading liabilities ($2.1 billion). The $8.4 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 ($7.8 billion) and loans ($4.0 billion) and from purchases of securities available for sale ($2.8 billion), partially offset by cash inflows from the net change in securities borrowed ($3.9 billion) and maturities and other redemptions of securities available for sale ($1.9 billion). Cash and due from banks decreased $674 million during the first six months of 1996, as the net cash used in investing activities exceeded the sum of the net cash provided by financing and operating activities. The $16.3 billion of net cash used in investing activities was largely the result of cash outflows from net changes in securities purchased under resale agreements ($12.0 billion), purchases of securities available for sale ($2.9 billion) and net changes in securities borrowed ($2.4 billion) partially offset by cash inflows from maturities and other redemptions of securities available for sale ($1.8 billion). The $9.9 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 ($9.0 billion) and from issuances of long-term debt ($2.0 billion), offset in part by a decrease in the net change in deposits ($517 million) and repayments of long-term debt ($363 million). The increase in net cash provided by operating activities was mostly due to an increase in net changes in trading assets ($3.8 billion) and net changes in receivables and payables from securities transactions ($1.3 billion). 32 LIQUIDITY (continued) Interest Rate Sensitivity Condensed interest rate sensitivity data for the Corporation at June 30, 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) June 30, 1997 1 year years 5 years funds Total Assets $ 92.0 $ 4.0 $ 3.1 $ 29.8 $ 128.9 Liabilities and preferred stock (82.2) (7.6) (4.8) (29.8) (124.4) Common stockholders' equity - - - (4.5) (4.5) Effect of off-balance sheet hedging instruments (15.5) 10.7 4.8 - - Interest rate sensitivity gap $ (5.7) $ 7.1 $ 3.1 $ (4.5) $ -
33 NONPERFORMING ASSETS The components of cash basis loans, renegotiated loans, other real estate and other nonperforming assets are shown below ($ in millions).
June 30,December 31, 1997 1996 CASH BASIS LOANS Domestic Commercial and industrial $105 $117 Secured by real estate 124 233 Total domestic 229 350 International Commercial and industrial 37 57 Secured by real estate 32 39 Financial institutions 2 4 Other 5 2 Total international 76 102 Total cash basis loans $305 $452 Ratio of cash basis loans to total gross loans 1.5% 2.9% Ratio of allowance for credit losses to cash basis loans (1) 251% 171% RENEGOTIATED LOANS Secured by real estate $37 $37 Total renegotiated loans $37 $37 OTHER REAL ESTATE $196 $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 $767 million and $773 million at June 30, 1997 and December 31, 1996, respectively.
34 NONPERFORMING ASSETS (continued) An analysis of the changes in the Corporation's total cash basis loans during the first six months of 1997 follows (in millions).
Balance, December 31, 1996 $452 Net transfers to cash basis loans 18 Net paydowns (87) Charge-offs (36) Transfers to other real estate (10) Other (32) Balance, June 30, 1997 $305
The Corporation's total cash basis loans amounted to $305 million at June 30, 1997, down $147 million, or 33 percent, from December 31, 1996. This decline is primarily attributable to decreases in loans secured by real estate ($116 million) and highly leveraged loans ($41 million). Within cash basis loans, loans secured by real estate were $156 million and $272 million at June 30, 1997 and December 31, 1996, respectively. Commercial and industrial loans to highly leveraged borrowers were $76 million and $117 million at June 30, 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 June 30 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. 35 NONPERFORMING ASSETS (continued)
Six Months Ended June 30, (in millions) 1997 1996 Domestic Loans Gross amount of interest that would have been recorded at original rate $12 $24 Less, interest, net of reversals, recognized in interest revenue 2 4 Reduction of interest revenue 10 20 International Loans Gross amount of interest that would have been recorded at original rate 4 6 Less, interest, net of reversals, recognized in interest revenue - - Reduction of interest revenue 4 6 Total reduction of interest revenue $14 $26
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 June 30, December 31, (in millions) 1997 1996 Loans Senior debt $1,894 $1,587 Subordinated debt 59 76 Total loans $1,953 $1,663 Unfunded commitments Commitments to lend $ 900 $ 875 Letters of credit 239 128 Total unfunded commitments $1,139 $1,003 Equity investments $801 $665 Commitments to invest $604 $425
36 HIGHLY LEVERAGED TRANSACTIONS (continued) The Corporation's outstanding loans were to 156 separate borrowers in 44 separate industry groups at June 30, 1997, compared to 127 separate borrowers in 43 separate industry groups at December 31, 1996. There were no industry concentrations which exceeded 10 percent of total HLT loans outstanding at June 30, 1997. In addition to the amounts shown in the table above, at June 30, 1997, the Corporation had issued commitment letters which had been accepted, subject to documentation and certain other conditions, of $1.77 billion (which were in various stages of syndication) and had additional HLTs in various stages of discussion and negotiation. During the first half of 1997, the Corporation originated $2.2 billion of HLT commitments. It should be noted that the Corporation's loans and commitments in connection with HLTs fluctuate as new loans and commitments are made and as loans and commitments are syndicated, participated or paid. All loans and commitments to finance HLTs are reviewed and approved by senior credit officers of the Corporation. In addition to a strict transactional and credit approval process, the portfolio of leveraged loans and commitments is actively monitored and managed to minimize risk through diversification among borrowers and industries. As part of this strategy, sell and hold targets are regularly updated in connection with market opportunities and the addition of new HLTs. Retention by the Corporation after syndication and sales of loan participations has typically been less than $50 million, and the average outstanding per borrower for the portfolio at June 30, 1997 was less than $13 million. However, at June 30, 1997, the Corporation had total exposure (loans outstanding plus unfunded commitments) in excess of $50 million to 11 separate highly leveraged borrowers. At June 30, 1997, $76 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 half of 1997. In addition, the Corporation recorded a net gain of $26.5 million in connection with the sales and/or write-offs of certain equity investments in highly leveraged companies during the first six months 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 $77 million during the first half of 1997 and that as of June 30, 1997, approximately $19 million of fees were deferred and will be recognized as future revenue. 37 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, its wholly-owned subsidiary Voyager Merger Corporation and Alex. Brown Incorporated ("Alex. Brown") entered into a definitive agreement to merge (the "Merger"). The merger agreement provides that each Alex. Brown common share will be exchanged for 0.83 shares of the Corporation's common stock on a tax free basis. In connection with the Merger, it is estimated that a nonrecurring merger and related restructuring charge up to $80 million (pre-tax) 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 operations of the Corporation and Alex. Brown, and direct costs of the Merger. On August 13, 1997, the shareholders of the common stock of the Corporation approved the issuance of the shares of common stock of the Corporation called for by the Merger and the shareholders of the common stock of Alex. Brown approved the Merger at their respective special shareholder meetings. The Board of Governors of the Federal Reserve System has approved the applications for the Merger. The Merger is expected to close on September 1, 1997 and will be accounted for as a pooling-of-interests. The effects of the Merger have not been reflected in the financial statements herein. Unaudited Pro Forma Combined Financial Statements as of June 30, 1997 and for the six months ended June 30, 1997 and 1996 are contained in Exhibit 99 to this document. 38 PART II. OTHER INFORMATION Item 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits (4) Instruments Defining the Rights of Security Holders, Including Indentures (v) - The Corporation hereby agrees to furnish to the Commission, upon request, a copy of any instru- ments defining the rights of 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 five reports on Form 8-K during the quarter ended June 30, 1997. - The report dated April 7, 1997, filed the Corporation's Press Release dated April 6, 1997, which announced that Bankers Trust New York Corporation and Alex. Brown Incorporated have signed a definitive agreement to merge. The report also filed additional financial information relating to the merger. - The report dated April 17, 1997, filed the Corporation's Press Release dated April 17, 1997, which announced earnings for the quarter ended March 30, 1997. - The report dated May 1, 1997, filed the Corporation's opinion of counsel delivered in connection with the issuance of the Corporation's 7.75% Subordinated Notes due May 1, 2012. - The report dated June 13, 1997, filed the Corporation's Press Release dated June 12, 1997, which announced that it had entered into a strategic alliance with two firms who will each purchase a 25% stake in a Bankers Trust holding company whose principal asset is Consorcio Nacional de Seguros S.A. In addition, the report also indicated that due to a steep decline in the Thai stock market, it would recognize a decline in the value of its unconsolidated investment in a Thai affiliate. 39 PART II. OTHER INFORMATION (continued) - The Current Report on Form 8-K/A dated March 6 and filed June 18, 1997, provided an update of information previously reported on Form 8-K dated March 6, 1997, and filed March 14, 1997 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 auditors for the fiscal year ended December 31, 1996 40 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on August 14, 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 JUNE 30, 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) Employment agreement with Mary Cirillo (2) Partnership for One-hundred Plan II (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 June 30, 1997, for the six months ended June 30, 1997 and 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. 41 EX-10.III.A2 2 Exhibit 10iii(a) 2 Bankers Trust New York Corporation Partnership for One-hundred Plan II Plan Document I. Purpose of the Plan The purpose of the Partnership for One hundred Plan II (the "Plan") is to provide key employees of Bankers Trust New York Corporation and its subsidiaries (the "Corporation") an incentive to exert their efforts to increase the price of Bankers Trust New York Corporation common stock (the "Stock"). II. Administration of the Plan The Plan is to be administered by the Human Resources Committee of the Corporatio's Board of Directors (the "Committee"). The Committee also shall interpret the provisions of the Plan. III. Eligible Employees Participants in the Plan will include approximately 35 senior executives of the Corporation as selected by the Committee. IV. Unit Awards of the Plan Under the Plan, participants are to receive Unit Awards whose values, subject to Section VI, will be based on the value of the Stock at the end of the performance period. For the purpose of this Section, the value of the Stock is the average of the mean high and low trading prices of the Stock, as reported on the New York Stock Exchange Composite tape for each business day during the three month period ending December 31, 2000 ("Stock Value"). Each Unit is first valued at $6.53 when Stock Value is $92 and increases by $6.53 for each $1 increase in Stock Value over $92 until units reach their maximum value of $58.75 each, at a Stock Value of $100. Fractional share prices will be valued proportionately. V. Vesting and Distribution Provisions Subject to Sections VIII and IX, Units vest one-third per year each on December 31st of 1998, 1999 and 2000. Subject to Sections VI, VIII and X, the cash value of Unit Awards will be distributed on or about December 31, 2000. VI. Special Incentive In the event the Stock trades at $100 on three consecutive days or five days in total, as reported on the New York Stock Exchange Composite tape during the period January 1, 1998 and December 31, 2000, inclusive, the value of each unit will be fixed ("Lock-In") at $58.75. In addition, within five days following Lock-In, participants will receive the value of their Unit Awards in cash to the extent vested. The balance of each participants Unit Award will be distributed proportionately as it subsequently vests. VII. Transferability Restrictions Unit Awards may not be assigned, pledged or otherwise transferred. VIII. Change of Control In the event of a Change of Control (as defined in the Corporation's 1997 Stock Option and Stock Award Plan), the value of all Unit Awards, will be immediately paid to the respective participants. For the purpose of this Section, the value of Unit Awards will be based on the average of the reported New York Stock Exchange Composite tape's high and low trading prices of the Stock on the date the Change of Control occurs. IX. Termination Provisions a) Retirement, Death and Total Disability - Units vest in full on the off-payroll date. Unless otherwise determined by the Committee, with respect to Executive Officers of the Corporation or otherwise determined by the CEO, with respect to non-Executive Officers, Unit Awards will be valued and distributed according to Sections IV and VI. b) Resignation - Unvested Units are forfeited upon the off-payroll date. The value of the vested Units will correspond to the lower of the Stock Value on the resignation date or the end of the five year period and will be distributed on or about December 31, 2000. For the purpose of determining the Stock Value under this Subsection, the off-payroll date is substituted for December 31, 2000. c) Termination for Disciplinary Reasons ("Cause") as defined in the Corporation's Policies section of the Employee Handbook - All Units, vested and unvested, are forfeited. d) Other Terminations - Units will be valued based on Stock Value and paid out on the off-payroll date. For the purpose of determining the Stock Value under this Subsection, the off-payroll date is substituted for December 31, 2000. X. Employee Taxes All distributions from the Plan are subject to all tax withholding as required. XI. Plan Amendments, Termination The Committee reserves the right to rescind the Plan and replace it with a different plan that is determined by the Committee to be of equal value (not necessarily based on stock price) if deemed by the Committee to be in the best interests of the Corporation. XII. Effective Date The plan is to be effective upon approval by the Committee. EX-12.A 3 EXHIBIT 12(a) BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES COMPUTATION OF CONSOLIDATED RATIOS OF EARNINGS TO FIXED CHARGES (dollars in millions)
Six MonthsEnded Year Ended December 31, June 30, 1992 1993 1994 1995 1996 1997 Earnings: 1. Income before income taxes and cumulative effects of accounting changes $ 906 $1,550 $ 869 $ 311 $ 872 $ 498 2. Add: Fixed charges excluding capitalized interest (Line 10) 3,099 3,148 3,884 5,095 5,426 2,732 3. Less: Equity in undistri- buted income of unconsolidated subsidiaries and affiliates 40 30 45 28 30_____(54) 4. Earnings including interest on deposits 3,965 4,668 4,708 5,378 6,268 3,284 5. Less: Interest on deposits 1,119 1,013 965 1,360 1,355 ___855 6. Earnings excluding interest on deposits $2,846 $3,655 $3,743 $4,018 $4,913 $2,429 Fixed Charges: 7. Interest Expense $3,072 $3,122 $3,858 $5,069 $5,400 $2,716 8. Estimated interest component of net rental expense 27 26 26 26 26 14 9. Amortization of debt issuance expense - - - - - ____2 10. Total fixed charges including interest on deposits and excluding capitalized interest 3,099 3,148 3,884 5,095 5,426 2,732 11. Add: Capitalized interest - - - - - _____- 12. Total fixed charges 3,099 3,148 3,884 5,095 5,426 2,732 13. Less: Interest on deposits (Line 5) 1,119 1,013 965 1,360 1,355 ___855 14. Fixed charges excluding interest on deposits $1,980 $2,135 $2,919 $3,735 $4,071 $ 1,877 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 1.20 Excluding interest on deposits (Line 6/Line 14) 1.44 1.71 1.28 1.08 1.21 1.29
EX-12.B 4 EXHIBIT 12(b) BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES COMPUTATION OF CONSOLIDATED RATIOS OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDEND REQUIREMENTS (dollars in millions)
Six Months Ended Year Ended December 31, June 30, 1992 1993 1994 1995 1996 1997 Earnings: 1. Income before income taxes and cumulative effect of accounting changes $ 906 $1,550 $ 869 $ 311 $ 872 $ 498 2. Add: Fixed charges excluding capitalized interest (Line 13) 3,099 3,148 3,884 5,095 5,426 2,732 3. Less: Equity in undistri- buted income of unconsolidated subsidiaries and affiliates 40 30 45 28 30 ___(54) 4. Earnings including interest on deposits 3,965 4,668 4,708 5,378 6,268 3,284 5. Less: Interest on deposits 1,119 1,013 965 1,360 1,355 ___855 6. Earnings excluding interest on deposits$2,846 $3,655 $3,743 $4,018 $4,913 $2,429 Preferred Stock Dividend Requirements: 7. Preferred stock dividend requirements $ 30 $ 23 $ 28 $ 51 $ 51 $25 8. Ratio of income from continuing operations before income taxes to income from continuing operations after income taxes 142% 145% 141% 145% 142% 142% 9. Preferred stock dividend requirements on a pretax basis $ 43 $ 33 $ 39 $ 74 $ 72 $ 36 Fixed Charges: 10. Interest Expense $3,072 $3,122 $3,858 $5,069 $5,400 $2,716 11. Estimated interest component of net rental expense 27 26 26 26 26 14 12. Amortization of debt issuance expense - - - - - 2 13. Total fixed charges including interest on deposits and excluding capitalized interest 3,099 3,148 3,884 5,095 5,426 2,732 14. Add: Capitalized interest - - - - - - 15. Total fixed charges 3,099 3,148 3,884 5,095 5,426 2,732 16. Add: Preferred stock dividend require- ments - pretax (Line 9) 43 33 39 74 72 36 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 2,768 18. Less: Interest on deposits (Line 5) 1,119 1,013 965 1,360 1,355 855 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 $1,913 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 1.19 Excluding interest on deposits (Line 6/Line 19) 1.41 1.69 1.27 1.05 1.19 1.27
EX-27 5
9 THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CONDITION AT JUNE 30, 1997 AND THE CONSOLIDATED STATEMENT OF INCOME FOR THE SIX MONTHS ENDED JUNE 30, 1997, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000,000 6-MOS DEC-31-1997 JUN-30-1997 1,730 2,334 1,305 49,082 7,478 0 0 19,706 767 128,948 38,430 41,948 8,589 12,677 0 703 84 4,439 128,948 614 222 1,258 3,339 855 2,716 623 0 82 1,963 498 498 0 0 350 3.95 3.93 1.31 305 0 37 0 973 36 19 973 134 208 425 Short-term borrowings include the following: Securities sold under repurchase agreements 22,550 Other short-term borrowings 19,398 Total 41,948 Other liabilities inclue the following: Accounts payable and accrued expenses 5,088 Other liabilities 3,501 Total 8,589 Other interest income includes the following: Interest-bearing deposits with banks 147 Federal funds sold 110 Securities purchased under resale agreement 644 Securities borrowed 357 Total 1,258 The Corporation has allocated its total allowance for credit losses as follows: 767 as a reduction of loans and 206 as other liabilities related to all other credit-related items.
EX-99 6 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 six months ended June 30, 1997 and 1996 and the Unaudited Pro Forma Combined Balance Sheet as of June 30, 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 up to $80 million (pre-tax) of merger and related restructuring charges and other associated costs expected to be taken in connection with the Merger has 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 (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 Six Months Ended June 30,1997 BTNY Alex. Brown Pro Forma Pro Forma Historical Historical Adjustments Combined (a) (a, d) NET INTEREST REVENUE Interest revenue $3,339 $ 72 $- $3,411 Interest expense 2,716 24 2,740 NET INTEREST REVENUE 623 48 671 Provision for credit losses - - - NET INTEREST REVENUE AFTER PROVISION FOR CREDIT LOSSES 623 48 671 NONINTEREST REVENUE Trading 561 65 626 Fiduciary and funds management 442 53 495 Corporate finance fees 314 170 484 Other fees and commissions 170 113 283 Net revenue from equity investment transactions 47 9 56 Securities available for sale gains 82 - 82 Insurance premiums 127 - 127 Other 95 12 107 Total noninterest revenue 1,838 422 2,260 NONINTEREST EXPENSES Salaries and commissions 469 139 608 Incentive compensation and employee benefits 699 120 819 Agency and other professional service fees 186 6 192 Communication and data services 90 13 103 Occupancy, net 75 12 87 Furniture and equipment 99 9 108 Travel and entertainment 56 10 66 Provision for policyholder benefits 140 - 140 Other 149 57 206 Total noninterest expenses 1,963 366 2,329 Income before income taxes 498 104 602 Income taxes 148 41 189 NET INCOME $ 350 $ 63 $- $ 413 NET INCOME APPLICABLE TO COMMON STOCK $ 325 $ 63 $- $ 388 EARNINGS PER COMMON SHARE: PRIMARY $3.95 $2.46 $3.75(c) FULLY DILUTED $3.93 $2.19 $3.64(c) Cash dividends declared per common share $2.00 $.340 $2.00(c) Average common and common equivalent shares outstanding - primary 82.181 25.523 103.365(c) Average common and common equivalent shares outstanding assuming full dilution 82.647 29.396 107.046(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 Six Months Ended June 30,1996 BTNY Alex. Brown Pro Forma Pro Forma Historical Historical Adjustments Combined (a) (a, d) NET INTEREST REVENUE Interest revenue $3,049 $ 69 $- $3,118 Interest expense 2,593 25 2,618 NET INTEREST REVENUE 456 44 500 Provision for credit losses 5 - 5 NET INTEREST REVENUE AFTER PROVISION FOR CREDIT LOSSES 451 44 495 NONINTEREST REVENUE Trading 393 102 495 Fiduciary and funds management 381 39 420 Corporate finance fees 222 236 458 Other fees and commissions 169 105 274 Net revenue from equity investment transactions 93 10 103 Securities available for sale gains 40 - 40 Insurance premiums 125 - 125 Other 125 20 145 Total noninterest revenue 1,548 512 2,060 NONINTEREST EXPENSES Salaries and commissions 403 144 547 Incentive compensation and employee benefits 462 163 625 Agency and other professional service fees 158 9 167 Communication and data services 93 10 103 Occupancy, net 73 10 83 Furniture and equipment 82 8 90 Travel and entertainment 42 8 50 Provision for policyholder benefits 150 - 150 Other 123 53 176 Total noninterest expenses 1,586 405 1,991 Income before income taxes 413 151 564 Income taxes 124 60 184 NET INCOME $ 289 $ 91 $- $ 380 NET INCOME APPLICABLE TO COMMON STOCK $ 260 $ 91 $- $ 351 EARNINGS PER COMMON SHARE: PRIMARY $3.19 $3.69 $3.44(c) FULLY DILUTED $3.17 $3.25 $3.33(c) Cash dividends declared per common share $2.00 $.300 $2.00(c) Average common and common equivalent shares outstanding - primary 81.398 24.549 101.774(c) Average common and common equivalent shares outstanding assuming full dilution 81.956 28.285 105.433(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 June 30, 1997 BTNY Alex. Brown Pro Forma Pro Forma Historical Historical Adjustments Combined (a) (a, d) ASSETS Cash and due from banks $ 1,730 $ 26 $ - $ 1,756 Interest-bearing deposits in banks 2,334 - 2,334 Federal funds sold 1,305 - 1,305 Sec. purch. under resale agreements25,754 4 25,758 Securities borrowed 12,794 491 13,285 Trading assets: Government securities 12,270 68 12,338 Corporate debt securities 9,642 2 9,644 Equity securities 8,018 48 8,066 Swaps, options & other derivatives10,824 - 10,824 Other trading assets 8,328 1 8,329 Total trading assets 49,082 119 49,201 Securities available for sale 7,478 - 7,478 Loans, net of allowance for credit losses of $767 18,939 61 19,000 Customer receivables 127 1,503 1,630 Accounts receivable & accrued interest 3,304 144 3,448 Other assets 6,101 267 6,368 Total $128,948 $2,615 $ - $131,563 LIABILITIES Noninterest-bearing deposits Domestic offices $ 3,046 $ - $ - $ 3,046 Foreign offices 1,439 - 1,439 Interest-bearing deposits Domestic offices 15,618 - 15,618 Foreign offices 18,327 - 18,327 Total deposits 38,430 - 38,430 Trading liabilities: Securities sold, not yet purchased Government securities 4,949 9 4,958 Equity securities 4,973 29 5,002 Other trading liabilities 401 - 401 Swaps, options & other derivatives11,064 - 11,064 Total trading liabilities 21,387 38 21,425 Securities loaned and securities sold under repurchase agreements 22,550 423 22,973 Other short-term borrowings 19,398 129 19,527 Accounts payable and accrued expenses 5,085 351 5,436 Other liabilities, including allowance for credit losses of $206 4,195 734 4,929 Long-term debt not included in risk-based capital 8,268 200 8,468 Long-term debt included in risk-based capital 2,939 - 2,939 Mandatorily redeemable capital securities of subsidiary trusts holding solely junior subordinated deferrable interest debentures included in risk-based capital 1,470 - 1,470 Total liabilities 123,722 1,875 125,597 STOCKHOLDERS' EQUITY Preferred stock 703 - 703 Common stock 84 3 18(c) 105 Capital surplus 1,352 157 (18)(c) 1,491 Retained earnings 3,588 580 4,168 Common stock in treasury, at cost (513) - (513) Other stockholders' equity 12 - 12 Total stockholders' equity 5,226 740 - 5,966 Total $128,948 $2,615 $ - $131,563 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 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 these proposed nonrecurring charges, as well as other associated costs expected to be taken in connection with the Merger, has 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 effect of these nonrecurring charges and other associated costs is not expected to be material in relation to the combined stockholders' equity of BTNY and Alex. Brown. 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 June 30, 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 June 30, 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.IIIA1 7 Exhibit 10iii(a) 1 May 30, 1997 By Messenger Ms. Mary Cirillo The Dakota One West 72nd Street New York, NY 10023 Dear Mary: It gives me great pleasure to extend to you the following offer of employment. You will be responsible for the firm's Client Processing Services and will be a member of the Management Committee. For the term of this agreement, you will directly report to the Chief Executive Officer of Bankers Trust New York Corporation ("the Parent") and Bankers Trust Company (the "Company"). Your services shall be principally performed, and your office shall be located, in New York City. Subject to approval by the Board, your corporate title for the Parent will be Executive Vice President, and Senior Managing Director for the Company. Your functional title for both the Parent and Company will be Head of Client Processing Services. Your annual base salary will be US$350,000 paid monthly in equal installments. Your annual base salary will be subject to annual review by the Parent's compensation committee in accordance with the Parent's practice and may be increased from time to time at the sole discretion of the compensation committee. On your start date, on or about June 15, 1997, but not later than July 1, 1997, hereinafter the "Commencement Date", you will receive: - 50,000 units from the Partnership Equity Plan for 1997, - 50,000-share stock option award, and, - 10,000 shares of three-year restricted stock. - A US$700,000 contribution to your ADCAP (retirement) account. The above restricted stock and stock options, as well as the options granted to you in respect of services for 1998 as described below, are to be awarded under the terms and conditions of the Parent"s Stock Option and Stock Award Plan. The exercise price of stock options will be based on the average of the high and low trading prices of the Parent"s common stock on the respective grant dates. In addition, stock options have a term of 10 years from the date of grant and vest on the first anniversary of the date of each such grant. Your ADCAP account is subject to the terms and conditions of the ADCAP Plan. For your services in 1997, you will also receive a guaranteed minimum bonus of $550,000 (less mandatory deductions). Payment of the net after-tax cash amount will be paid on the date that the firm normally pays bonus awards to senior management (usually, in the following January). In addition, your ADCAP account will be credited with $65,000 at year end. For your services in 1998, you will receive the following in addition to your base salary: - A guaranteed minimum bonus of US$550,000 (less mandatory deductions) on the day that performances bonuses are normally paid to senior management. - A 50,000-share stock option award to be granted on the normal award date. - 50,000 units in the Partnership Equity Plan for 1998. - A US$65,000 contribution to your ADCAP account. Bonus awards to officials of the firm are payable in cash and equity of the firm, under the Equity Participation Plan. Actual proportions will be determined at the end of the year and will be consistent with other officers at Bankers Trust at your level. During the term of your employment with either the Company or Parent you will be entitled to participate in all employee benefit plans, programs and arrangements of the Parent or any of its affiliates now or hereinafter made available to any senior executives of the Company or Parent on a basis no less favorable than is made available to any other such senior executives (including, without limitation, each plan, program or arrangement providing for retirement benefits, supplemental and excess retirement benefits, annual and long-term incentive compensation, stock options, group life insurance, accident and death insurance, medical and dental insurance, sick leave, disability benefits and fringe benefits and perquisites). In addition, you will be entitled to at least five (5) weeks paid vacation per calendar year and you shall receive prompt reimbursement from the Company or Parent for all reasonable out- of-pocket expenses incurred by you in performing your duties for the Company or Parent. You will be afforded the same indemnification protection regarding directors and officers liability that the Company and Parent provide to their senior executive officers and directors. In addition, you will be covered by any directors and officers liability policy generally in force for the Company's and Parent's senior executive officers and directors. Our offer is contingent upon your completing our standard employment package. The package includes an employment application, a security data sheet, a personal information form, and confirmation of employment authorization (which will include completing the Immigration and Naturalization Service's Form I- 9). You will also have to read and sign the Substance Abuse Policy Employee Acknowledgment Form which is enclosed in the envelope marked "Medical Evaluation." In addition, it will be necessary for you to successfully complete a medical evaluation, a background investigation, including, but not limited to, a credit investigation, and all other components of the Company's and Parent's pre-employment screening process to the Company's and Parent's satisfaction. You may schedule an appointment for your medical evaluation by calling Peter Gurney of Human Resources at (212) 250-2219. Please complete and bring the forms in the envelope marked "Medical Evaluation" to you appointment. You will be eligible to start employment once you have received notification of the successful completion of you medical evaluation and credit investigation which we estimate will take 48 hours. The Parent recently reviewed its policies and procedures as they relate to the handling of information of a proprietary or confidential nature. Included in this policy is a requirement that all employee and related accounts be maintained in designated accounts from Bankers Trust, Fleet Corporation or Smith Barney, Inc. Additional information pertaining to this policy can be found in the Bankers Trust employee booklet entitled, "Confidential Information, Insider Trading and Related Matters." Pursuant to new SEC rules pertaining to equity-based compensation plans, all equity awards included in this letter are subject to approval of the Human Resources Committee of the Parent. In the event that before the second anniversary of the Commencement date, the term of this agreement, or, in the case of restricted stock, before the third anniversary of the Commencement date, your employment is terminated by the Parent and Company other than for Cause (as defined in the Parent"s Separation Policy), the following will occur: - All sums due you from your annual base salary and guaranteed bonuses as provided in this agreement, to the extent not previously paid will be immediately paid out to you as a lump- sum, net of applicable withholding taxes; - Your restricted stock grant will be immediately vested and distributed to you; - All PEP units provided by this agreement, to the extent not yet converted into book-entry shares of stock under the terms of the plan, will have a guaranteed cash-value of $21.00 per unit and be immediately distributed to you; and, - All stock options as provided in this agreement which had been granted to you prior to the off-payroll date, which have not vested on the off-payroll date, will vest and become immediately exercisable. Following the term of this agreement, you will be subject to the provisions of the Parent's standard separation policy. Upon a Change of Control, all guaranteed bonuses, restricted shares, PEP shares/units, stock options, and POP units will vest and be distributed in accordance with the provisions of the Parent's Change of Control Policy. Needless to say, we are all very enthusiastic at the prospect of your joining Bankers Trust. Please sign and return one copy of this letter upon your acceptance of our offer. Call me if you have any questions regarding our offer. Sincerely, /S/ Mark Bieler Mark Bieler Agreed to: /s/ Mary Cirillo Mary Cirillo ____June 3, 1997 Date -----END PRIVACY-ENHANCED MESSAGE-----