-----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, LRuzG10zkHg2/eOlGdKE+wN/2WbBGsyOQnjJzYOIPEZgHXDJV7bg7hLn7WmPMpQd 4XorzCoGITpI7bzLgJFk+A== 0000009749-99-000043.txt : 19990518 0000009749-99-000043.hdr.sgml : 19990518 ACCESSION NUMBER: 0000009749-99-000043 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19990331 FILED AS OF DATE: 19990517 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BANKERS TRUST 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: SEC FILE NUMBER: 001-05920 FILM NUMBER: 99625010 BUSINESS ADDRESS: STREET 1: 130 LIBERTY ST 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: BANKERS TRUST NEW YORK CORP DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: BT NEW YORK CORP DATE OF NAME CHANGE: 19671107 10-Q 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 1999 or [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File Number 1-5920 BANKERS TRUST CORPORATION (Exact name of registrant as specified in its charter) New York 13-6180473 (State or other jurisdiction of (I.R.S. employer incorporation or organization) identification no.) 130 Liberty Street New York, New York 10006 (Address of principal executive offices) (Zip code) (212) 250-2500 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No _______ Indicate the number of shares outstanding of each of the registrant's classes of common stock as of April 30, 1999: Common Stock, $1 par value, 97,683,115 shares. 1 BANKERS TRUST CORPORATION MARCH 31, 1999 FORM 10-Q TABLE OF CONTENTS Page PART I. FINANCIAL INFORMATION Item 1. Financial Statements Consolidated Statement of Income Three Months Ended March 31, 1999 and 1998 2 Consolidated Statement of Comprehensive Income Three Months Ended March 31, 1999 and 1998 3 Consolidated Balance Sheet At March 31, 1999 and December 31, 1998 4 Consolidated Statement of Changes in Stockholders' Equity Three Months Ended March 31, 1999 and 1998 5 Consolidated Statement of Cash Flows Three Months Ended March 31, 1999 and 1998 6 Consolidated Schedule of Net Interest Revenue Three Months Ended March 31, 1999 and 1998 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 ended March 31, 1999 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 Bankers Trust Corporation's Annual Report on Form 10-K for the fiscal year ended December 31, 1998. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 8 Item 3. Quantitative and Qualitative Disclosures about Market Risk 33 PART II. OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders 35 Item 6. Exhibits and Reports on Form 8-K 36 SIGNATURE 37 2 PART I. FINANCIAL INFORMATION BANKERS TRUST CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF INCOME (in millions, except per share data) (unaudited)
Increase THREE MONTHS ENDED MARCH 31, 1999 1998 (Decrease) NET INTEREST REVENUE Interest revenue $1,511 $1,989 $ (478) Interest expense 1,250 1,587 (337) Net interest revenue 261 402 (141) Provision for credit losses-loans - - - Net interest revenue after provision for credit losses-loans 261 402 (141) NONINTEREST REVENUE Trading 340 191 149 Fiduciary and funds management 271 261 10 Corporate finance fees 197 331 (134) Other fees and commissions 211 160 51 Net revenue from equity investments 99 131 (32) Securities available for sale gains (losses) (4) (6) 2 Insurance premiums 48 69 (21) Other 87 94 (7) Total noninterest revenue 1,249 1,231 18 NONINTEREST EXPENSES Salaries and commissions 373 336 37 Incentive compensation and employee benefits 432 497 (65) Agency and other professional service fees 91 105 (14) Communication and data services 66 54 12 Occupancy, net 58 46 12 Furniture and equipment 69 54 15 Travel and entertainment 30 37 (7) Provision for policyholder benefits 63 85 (22) Other 119 111 8 Total noninterest expenses 1,301 1,325 (24) Income before income taxes 209 308 (99) Income taxes 69 86 (17) NET INCOME $ 140 $ 222 $ (82) NET INCOME APPLICABLE TO COMMON STOCK $ 134 $ 211 $ (77) Cash dividends declared per common share $1.00 $1.00 $- EARNINGS PER COMMON SHARE: BASIC $1.33 $2.08 $(0.75) DILUTED $1.30 $2.01 $(0.71) Certain prior period amounts have been reclassified to conform to the current presentation.
3 BANKERS TRUST CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (in millions) (unaudited)
THREE MONTHS ENDED MARCH 31, 1999 1998 NET INCOME $ 140 $222 Other comprehensive income (loss), net of tax: Foreign currency translation adjustments, net of tax* (30) (9) Unrealized gains (losses) on securities: Unrealized holding gains (losses) arising during period, net of tax** - (20) Reclassification adjustment for realized (gains) losses, net of tax*** - - Total other comprehensive income (loss) (30) (29) COMPREHENSIVE INCOME $110 $193 * Amounts are net of an income tax benefit of $23 million and $9 million for the three months ended March 31, 1999 and March 31, 1998, respectively. ** Amounts are net of income tax expense (benefit) of $16 million and $(16) million for the three months ended March 31, 1999 and March 31, 1998, respectively. *** Amounts are net of an income tax benefit of $4 million and $6 million for the three months ended March 31, 1999 and March 31, 1998, respectively.
4 BANKERS TRUST CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET ($ in millions, except par value)
March 31, December 31, 1999* 1998 ASSETS Cash and due from banks $ 1,753 $ 2,837 Interest-bearing deposits with banks 1,187 2,382 Federal funds sold 2,475 2,484 Securities purchased under resale agreements 21,249 17,053 Securities borrowed 18,487 14,709 Trading assets: Government securities 6,064 5,731 Corporate debt securities 4,415 5,519 Equity securities 5,657 5,810 Swaps, options and other derivatives 11,223 17,376 Other trading assets 11,820 11,734 Total trading assets 39,179 46,170 Securities available for sale 10,371 12,748 Loans, net of allowance for credit losses of $603 at March 31, 1999 and $652 at December 31, 1998 19,690 22,633 Customer receivables 1,854 1,524 Accounts receivable and accrued interest 3,677 3,815 Other assets 7,184 6,760 Total $127,106 $133,115 LIABILITIES Noninterest-bearing deposits Domestic offices $ 2,521 $ 2,784 Foreign offices 1,790 1,689 Interest-bearing deposits Domestic offices 15,871 18,259 Foreign offices 16,155 14,602 Total deposits 36,337 37,334 Trading liabilities: Securities sold, not yet purchased Government securities 5,567 4,149 Equity securities 6,066 6,458 Other trading liabilities 426 789 Swaps, options and other derivatives 10,536 15,857 Total trading liabilities 22,595 27,253 Securities loaned and securities sold under repurchase agreements 15,889 17,420 Other short-term borrowings 18,438 16,313 Accounts payable and accrued expenses 5,277 5,210 Other liabilities, including allowance for credit losses of $18 at March 31, 1999 and December 31, 1998 5,351 5,466 Long-term debt not included in risk-based capital 13,939 14,890 Long-term debt included in risk-based capital 3,122 3,113 Mandatorily redeemable capital securities of subsidiary trusts holding solely junior subordinated deferrable interest debentures included in risk-based capital 1,421 1,420 Total liabilities 122,369 128,419 STOCKHOLDERS' EQUITY Preferred stock 394 394 Common stock, $1 par value Authorized, 300,000,000 shares Issued, 105,380,175 shares at March 31, 1999 and at December 31, 1998 105 105 Capital surplus 1,617 1,613 Retained earnings 3,452 3,504 Common stock in treasury, at cost: 1999, 7,726,558 shares; 1998, 9,666,055 shares (828) (1,056) Other stockholders' equity 490 599 Accumulated other comprehensive income: Net unrealized gains (losses) on securities available for sale, net of taxes (65) (65) Foreign currency translation, net of taxes (428) (398) Total stockholders' equity 4,737 4,696 Total $127,106 $133,115 * Unaudited Certain prior period amounts have been reclassified to conform to the current presentation.
5 BANKERS TRUST CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (in millions) (unaudited)
THREE MONTHS ENDED MARCH 31, 1999 1998 PREFERRED STOCK Balance, January 1 and March 31 $ 394 $ 658 COMMON STOCK Balance, January 1 and March 31 105 105 CAPITAL SURPLUS Balance, January 1 1,613 1,563 Common stock distributed under employee benefit plans 4 29 Balance, March 31 1,617 1,592 RETAINED EARNINGS Balance, January 1 3,504 4,202 Net income 140 222 Cash dividends declared Preferred stock (5) (11) Common stock (98) (98) Treasury stock distributed under employee benefit plans (89) (90) Balance, March 31 3,452 4,225 COMMON STOCK IN TREASURY, AT COST Balance, January 1 (1,056) (889) Purchases of stock (66) (143) Treasury stock distributed under employee benefit plans 294 229 Balance, March 31 (828) (803) COMMON STOCK ISSUABLE - STOCK AWARDS Balance, January 1 817 901 Deferred stock awards granted, net 560 77 Deferred stock distributed (207) (89) Balance, March 31 1,170 889 DEFERRED COMPENSATION - STOCK AWARDS Balance, January 1 (218) (438) Deferred stock awards granted, net (559) (80) Amortization of deferred compensation, net 97 87 Balance, March 31 (680) (431) CUMULATIVE TRANSLATION ADJUSTMENTS Balance, January 1 (398) (362) Translation adjustments (53) (18) Income taxes applicable to translation adjustments 23 9 Balance, March 31 (428) (371) SECURITIES VALUATION ALLOWANCE Balance, January 1 (65) (32) Change in unrealized net gains (losses), after applicable income taxes and minority interest - (20) Balance, March 31 (65) (52) TOTAL STOCKHOLDERS' EQUITY, MARCH 31 $4,737 $5,812
6 BANKERS TRUST CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS (in millions) (unaudited)
THREE MONTHS ENDED MARCH 31, 1999 1998 CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 140 $ 222 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Provision for policyholder benefits 63 85 Deferred income taxes, net 51 (23) Depreciation and other amortization and accretion 183 102 Other, net 6 17 Earnings adjusted for noncash charges and credits 443 403 Net change in: Trading assets 9,804 (3,159) Trading liabilities (4,519) 1,805 Receivables and payables from securities transactions 355 (109) Customer receivables (330) (25) Other operating assets and liabilities, net (1,455) (87) Securities available for sale losses 4 6 Net cash provided by (used in) operating activities 4,302 (1,166) CASH FLOWS FROM INVESTING ACTIVITIES Net change in: Interest-bearing deposits with banks 1,204 2,195 Federal funds sold 9 (248) Securities purchased under resale agreements (4,200) (3,679) Securities borrowed (3,778) (6,081) Loans 2,892 (2,059) Securities available for sale: Purchases (3,354) (6,373) Maturities and other redemptions 476 441 Sales 2,770 424 Acquisitions of premises and equipment (40) (72) Other, net (290) 1,466 Net cash used in investing activities (4,311) (13,986) CASH FLOWS FROM FINANCING ACTIVITIES Net change in: Deposits (965) 3,567 Securities loaned and securities sold under repurchase agreements (1,576) 4,035 Other short-term borrowings 2,148 5,299 Issuances of long-term debt 411 1,983 Repayments of long-term debt (935) (510) Issuance of preferred stock of subsidiary - 304 Purchases of treasury stock (66) (143) Cash dividends paid (101) (108) Other, net 12 44 Net cash (used in) provided by financing activities (1,072) 14,471 Net effect of exchange rate changes on cash (3) (3) NET DECREASE IN CASH AND DUE FROM BANKS (1,084) (684) Cash and due from banks, beginning of period 2,837 2,188 Cash and due from banks, end of period $ 1,753 $ 1,504 Interest paid $ 1,167 $ 1,372 Income taxes paid, net $14 $165 Noncash investing activities $16 $(15) Noncash financing activities: Conversion of debt to equity $- $9 Certain prior period amounts have been reclassified to conform to the current presentation.
7 BANKERS TRUST CORPORATION AND SUBSIDIARIES CONSOLIDATED SCHEDULE OF NET INTEREST REVENUE (in millions) (unaudited)
Three Months Ended March 31, Increase 1999 1998 (Decrease) INTEREST REVENUE Interest-bearing deposits with banks $ 60 $ 98 $ (38) Federal funds sold 26 52 (26) Securities purchased under resale agreements 294 330 (36) Securities borrowed 223 275 (52) Trading assets 329 634 (305) Securities available for sale Taxable 142 137 5 Exempt from federal income taxes 12 10 2 Loans 394 418 (24) Customer receivables 31 35 (4) Total interest revenue 1,511 1,989 (478) INTEREST EXPENSE Interest-bearing deposits Domestic offices 193 312 (119) Foreign offices 229 259 (30) Trading liabilities 68 99 (31) Securities loaned and securities sold under repurchase agreements 343 386 (43) Other short-term borrowings 228 286 (58) Long-term debt 161 215 (54) Trust preferred capital securities 28 30 (2) Total interest expense 1,250 1,587 (337) NET INTEREST REVENUE $ 261 $ 402 $ (141)
8 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS PROPOSED MERGER WITH DEUTSCHE BANK On April 27, 1999, the shareholders of Bankers Trust Corporation voted to approve the Corporation's merger with Deutsche Bank. On May 6, 1999, the New York State Banking Board approved the merger. The merger, which is expected to be completed in the second quarter of 1999, is subject to the approval of regulatory authorities in a variety of other jurisdictions. On the day of the closing of the merger, the change-in-control ("COC") date, all employee deferred compensation amounts to the extent unvested will be vested in full. Bankers Trust Corporation will recognize such amounts, which are estimated to be approximately $500 million after-tax, as compensation expense on the COC date in the Consolidated Statement of Income. Employer contributions to individual employee retirement accounts will also vest, to the extent unvested, and remain in the employees' accounts. In addition, all bonus-eligible employees who are active employees of the Corporation on the date of COC will be eligible to receive a pro rata bonus paid in cash for that portion of the 1999 performance year ending on the COC date. The pro rata bonus will be based on the greater of an employee's total (cash and deferred stock) 1998 performance bonus or the employee's average total 1996, 1997 and 1998 performance bonus awards. Any 1999 performance bonus (which is awarded in the year 2000) will be reduced by the amount of such pro rata bonus. It is estimated that this pro rata payout will result in an after-tax charge of approximately $130 million to recognize the cash payment of bonuses that otherwise would have been awarded as deferred stock and amortized over a three-year vesting period. RESULTS OF OPERATIONS Bankers Trust Corporation (the "Parent Company") and subsidiaries (collectively, the "Corporation", or the "Firm") earned $140 million for the three months ended March 31, 1999, or $1.30 diluted earnings per share. In the first quarter of 1998, the Corporation earned $222 million, or $2.01 diluted earnings per share. BUSINESS SEGMENT RESULTS During the first quarter of 1999, the Corporation reorganized its business segments. Businesses previously included in the Emerging Markets Group have been transferred to other segments, primarily the Restructuring Portfolio. The Restructuring Portfolio business segment was formed in the first quarter of 1999 and includes the Corporation's exposures (loans, securities, derivatives) that require special monitoring. These exposures are virtually all in emerging markets. The Corporation intends to continue to reduce exposure in the Restructuring Portfolio over a reasonable timeframe. In addition, the securities brokerage and portfolio management activities for high net worth individuals, previously included in the Private Client Services Group, have been transferred to Investment Banking. Traditional banking services for high net worth individuals, previously included in Private Client Services Group, are included in Other Business Segments. Prior period results have been restated for changes in organizational structure. 9 BUSINESS SEGMENT RESULTS (continued) The following tables present results by Business Segment:
Total Non- Pretax Net Three Months Ended March 31, 1999 Total Net interest Income/ Income/ (in millions) Revenue* Expenses (Loss) (Loss) Investment Banking $ 655 $ 548 $ 107 $ 72 Trading & Sales 292 164 128 86 Global Institutional Services 258 223 35 24 Australia/New Zealand/Int'l Funds Mgmt 161 120 41 27 Restructuring Portfolio 18 141 (123) (82) Other Business Segments 65 60 5 3 Total Business Segments 1,449 1,256 193 130 Corporate Items 61 45 16 10 Total $1,510 $1,301 $ 209 $140 * There were no material intersegment revenues among the business segments.
Total Non- Pretax Net Three Months Ended March 31, 1998 Total Net interest Income/ Income/ (in millions) Revenue* Expenses (Loss) (Loss) Investment Banking $ 816 $ 567 $249 $180 Trading & Sales 226 137 89 64 Global Institutional Services 255 227 28 20 Australia/New Zealand/Int'l Funds Mgmt 145 107 38 27 Restructuring Portfolio 134 190 (56) (40) Other Business Segments 72 68 4 2 Total Business Segments 1,648 1,296 352 253 Corporate Items (15) 29 (44) (31) Total $1,633 $1,325 $308 $222 * There were no material intersegment revenues among the business segments.
The Investment Banking business recorded net income of $72 million in the first quarter of 1999 compared to net income of $180 million in the prior year quarter. The current quarter reflected lower revenue from corporate finance activities and private equity investments as compared to the prior year quarter. The year-over-year decrease was partially offset by higher fees for brokerage services. Trading & Sales recorded net income of $86 million in the first quarter of 1999, compared to net income of $64 million in the 1998 first quarter. The year-over-year increase was primarily attributable to equity earnings in the Corporation's investment in Long-Term Capital Management, L.P. Excluding this equity pick-up, Trading & Sales results declined reflecting significant reductions in the Corporation's risk positions. Global Institutional Services contributed $24 million of net income in the first quarter of 1999, up $4 million from the 1998 first quarter. Net income of the Australia/New Zealand/International Funds Management business was $27 million in the first quarter of 1999, unchanged from the first quarter of 1998. 10 BUSINESS SEGMENT RESULTS (continued) Restructuring Portfolio net loss in the first quarter of 1999 was $82 million, compared with a net loss of $40 million in the first quarter of 1998. The current quarter reflected the Corporation's reductions in risk in emerging markets. Other business segments include the income and expenses of smaller businesses that are not included in the main business segments. Corporate Items include revenue and expenses that have not been allocated to business segments. The following table reconciles total net income for business segments to consolidated net income (in millions):
THREE MONTHS ENDED MARCH 31, 1999 1998 Total net income reported for business segments $130 $253 Earnings associated with unassigned capital 3 13 Loan net charge-offs in excess of the total provision for credit losses-loans 32 3 Unallocated costs of corporate staff (9) (15) Other unallocated amounts (16) (32) Consolidated net income $140 $222
REVENUE Net Interest Revenue The table below presents net interest revenue, average balances and average rates. The tax equivalent adjustment is made to present the revenue and yields on certain assets, primarily tax-exempt securities and loans, as if such revenue were taxable.
Three Months Ended March 31, Increase 1999 1998 (Decrease) NET INTEREST REVENUE (in millions) Book basis $ 261 $ 402 $ (141) Tax equivalent adjustment 9 9 - Fully taxable basis $ 270 $ 411 $ (141) AVERAGE BALANCES (in millions) Interest-earning assets $100,160 $113,044 $(12,884) Interest-bearing liabilities 97,016 110,259 (13,243) Earning assets financed by noninterest-bearing funds $ 3,144 $ 2,785 $ 359 AVERAGE RATES (fully taxable basis) Yield on interest-earning assets 6.15% 7.17% (1.02)% Cost of interest-bearing liabilities 5.23 5.84 (.61) Interest rate spread .92 1.33 (.41) Contribution of noninterest-bearing funds .17 .14 .03 Net interest margin 1.09% 1.47% (.38)%
11 REVENUE (continued) Net interest revenue for the first quarter of 1999 totaled $261 million, down $141 million, or 35 percent, from the first quarter of 1998. The $141 million decrease in net interest revenue was primarily due to a $122 million decrease in trading-related net interest revenue, which totaled $77 million for the first quarter of 1999. Nontrading-related net interest revenue totaled $184 million for the first quarter of 1999 versus $203 million for the comparable period in 1998. In the first quarter of 1999, the interest rate spread was 0.92 percent compared to 1.33 percent in the prior year period. Net interest margin decreased to 1.09 percent from 1.47 percent. The yield on interest- earning assets decreased by 102 basis points and the cost of interest- bearing liabilities declined by 61 basis points. Average interest-earning assets totaled $100.2 billion for the first quarter of 1999, down $12.9 billion from the same period in 1998. The decrease was primarily attributable to declines in trading assets and securities borrowed. Average interest-bearing liabilities totaled $97.0 billion for the first quarter of 1999, down $13.2 billion from the same period in 1998. The decrease was primarily attributable to a decline in interest-bearing deposits. Trading Revenue The Firm's trading and risk management activities include significant transactions in interest rate instruments and related derivatives. These activities can periodically shift revenue between trading and net interest, depending on a variety of factors, including risk management strategies. Therefore, the Corporation views trading revenue and trading-related net interest revenue together. Combined trading revenue and trading-related net interest revenue for the first quarter of 1999 totaled $417 million, up $27 million from the first quarter of 1998. 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 Three months ended March 31, 1999 Interest rate risk $135 $104 $239 Foreign exchange risk 106 - 106 Equity and commodity risk 99 (27) 72 Total $340 $ 77 $417 Three months ended March 31, 1998 Interest rate risk $ 3 $180 $183 Foreign exchange risk 117 - 117 Equity and commodity risk 71 19 90 Total $191 $199 $390
12 REVENUE (continued) Interest Rate Risk - The increase is primarily due to mark-to-mark valuation adjustments to trading assets for widening counterparty credit spreads in Asia recorded in the first quarter of 1998. Foreign Exchange Risk - The decrease in foreign exchange revenue is primarily related to losses incurred in the Asian foreign exchange markets. Equity and Commodity Risk - The decrease resulted as the first quarter of 1998 contained stronger revenue from equity arbitrage activities. Noninterest Revenue (Excluding Trading) Fiduciary and funds management revenue was $271 million in the first quarter of 1999, up $10 million from the prior year period. The increase was primarily due to higher client processing fees and improved funds management revenue. At March 31, 1999, assets under management were $378 billion compared to $334 billion at March 31, 1998. Corporate finance fees of $197 million decreased $134 million from the $331 million earned in the first quarter of 1998. The decline is primarily attributable to lower revenue from underwriting and loan syndication activities. Other fees and commissions of $211 million increased $51 million from the prior year quarter. Increased customer trading activity primarily due to the acquisition of NatWest Markets' European equities business in the second quarter of 1998 resulted in higher fees for brokerage services. Net revenue from equity investments decreased $32 million from the prior year quarter. The current quarter reflected lower gains on direct equity investments. Insurance premium revenue decreased $21 million from the prior year quarter. The decrease reflects the general decline in the Chilean annuities market. 13 PROVISION AND ALLOWANCES FOR CREDIT LOSSES The allowance for credit losses-loans represents management's estimate of probable loan losses that have occurred as of the date of the financial statements. For a more detailed discussion of this topic, refer to page 31 of the Corporation's 1998 Annual Report on Form 10-K. The Corporation is in receipt of a letter from the Securities and Exchange Commission's Office of the Chief Accountant related to the Corporation's policies and procedures for determining the allowance for credit losses-loans. As a result, the Corporation is undertaking a comprehensive review of its accounting policies and procedures related to the determination of the allowance for credit losses-loans to ensure that they are appropriate within the framework of generally accepted accounting principles. These policies and procedures will be revised, as necessary, to improve and ensure a systematic, consistently applied and adequately documented process. More specifically, the Corporation intends to revise certain procedures and enhance its documentation governing the estimation of credit losses and related charge-offs. In November 1998, the Securities and Exchange Commission, Federal Deposit Insurance Corporation, Federal Reserve Board, Office of the Comptroller of the Currency, and Office of Thrift Supervision (the "Agencies") issued a Joint Interagency Statement which underscored the requirement that depository institutions record and report their allowance for loan and lease losses in accordance with generally accepted accounting principles. In March 1999, the Agencies announced the establishment of a Joint Working Group to gain a better understanding of the procedures and processes, including sound practices, used by banking organizations to determine the allowance for credit losses with the objective of issuing parallel guidelines on the appropriate methodologies and supporting documentation and enhanced disclosures regarding the allowance for credit losses. In April 1999, the FASB staff issued a Viewpoints article, "Application of FASB Statements 5 and 114 to a Loan Portfolio". The article describes the requirements of these Statements and how they relate to each other and responds to questions about the detailed application of those Statements to a loan portfolio. The Corporation will continue to keep abreast of developments in this area and will revise its procedures accordingly. The provisions for credit losses and the other changes in the allowances for credit losses are shown below (in millions).
Quarter Ended March 31, Allowances for credit losses 1999 1998 Loans Balance, beginning of quarter $652 $699 Provision for credit losses - - Net charge-offs Charge-offs 60 7 Recoveries 11 3 Total net charge-offs 49 4 Balance, end of quarter $603 $695 Other liabilities Balance, beginning of quarter $18 $13 Provision for credit losses - - Balance, end of quarter $18 $13
14 PROVISION AND ALLOWANCES FOR CREDIT LOSSES (continued) Impaired loans under SFAS 114, were $375 million and $418 million at March 31, 1999 and December 31, 1998, respectively. Included in these amounts were $304 million and $295 million of loans which required a valuation allowance of $97 million and $61 million at those same dates, respectively. EXPENSES As compared to the first quarter of 1998, salaries and commissions expense increased $37 million, or 11 percent, primarily due to an increase in the average number of employees and higher annual salaries. Incentive compensation and employee benefits decreased $65 million, or 13 percent, from the prior year quarter due to lower performance-based pay partially offset by the amortization of employee stock awards granted in 1999 for 1998 performance. The provision for policyholder benefits expense decreased $22 million from the prior year quarter. The decrease reflects the general decline in the Chilean annuities market. INCOME TAXES Income tax expense for the first quarter of 1999 amounted to $69 million, compared to $86 million in the first quarter of 1998. The effective tax rate was 33 percent for the current quarter and 28 percent for the prior year quarter. YEAR 2000 READINESS DISCLOSURE As discussed on page 18 in the Corporation's 1998 Annual Report on Form 10-K, the Corporation maintains a firm-wide program (the "Year 2000 Program") to prepare its computer systems, applications and infrastructure for properly processing dates after December 31, 1999. The Corporation's Year 2000 Program is proceeding on schedule in accordance with regulatory guidelines. Based on the Federal Financial Institutions Examination Council ("FFIEC") guidelines, the Corporation's Year 2000 Program consists of the following phases related to technology: 1) Awareness Phase - A strategic approach was developed to address the Year 2000 problem in mid 1996. 2) Assessment Phase - Detailed plans and target dates were developed. 3) Renovation Phase - This phase includes code enhancements, hardware and software upgrades, system replacements, vendor certification, and other associated changes. 4) Validation Phase - This phase includes testing and conversion of system applications. 5) Implementation Phase - This phase includes a review of Year 2000 compliance and user acceptance. The Awareness, Assessment and Renovation Phases have been completed. The Validation Phase is substantially complete. The Corporation expects the Validation and Implementation phases to continue through the second quarter of 1999. The remainder of 1999 will focus on the completion of firm-wide risk mitigation and contingency planning. Although the priority given to Year 2000 issues may cause other technology projects to be deferred, the deferral of these other projects is not expected to have a material impact on the Corporation's business or operational controls. 15 YEAR 2000 READINESS DISCLOSURE (continued) The Corporation's Year 2000 Program includes a Business Support Group that addresses Year 2000 issues not directly related to technology. This group, which includes representatives from various areas of the Corporation, has subgroups and task forces working on the following programs. Facilities Compliance Program - The Year 2000 problem could affect building management systems and other systems critical to the Corporation's business operations. The Corporation's Facilities Year 2000 Compliance Program deals with infrastructure components, including all applicable embedded systems, that are used in a facility (e.g., elevators, HVAC, generators, security systems, etc.) and third- party-provided facilities or services (utilities, landlord services, etc.). The facilities assessment and inventory phases were completed in 1997. Third-party service provider assessment and independent assessment verification began in mid 1998. The Facilities Year 2000 Compliance Program was completed at the end of the first quarter of 1999. Any new locations and/or issues will be addressed as they arise prior to the millennium changeover. Counterparty Assessment Program - This program addresses the Year 2000 readiness of counterparties. Counterparty Year 2000 assessment has been incorporated into the standard credit process. At March 31, 1999, the Corporation had substantially completed its assessment of the Year 2000 readiness of its material customers in accordance with FFIEC guidelines. The counterparty assessment program is an ongoing process, which will continue throughout 1999, and for as long as necessary thereafter. Critical Vendor/Service Provider Program - This program assesses the Year 2000 readiness of the Corporation's critical vendors and service providers, as well as dealing with related contractual issues. These third parties are providers in such areas as telecommunications, hardware and software, office equipment and market data as well as correspondent financial services. Risk mitigation actions are in the process of being identified for any critical vendor/service provider deficient in its Year 2000 readiness. The Corporation is continuing to communicate with its significant obligors, counterparties, other credit clients, vendors and entities in which the Corporation holds a significant interest to determine the likely extent to which the Corporation may be affected by third parties' Year 2000 plans and target dates. In this regard, while the Corporation does not currently expect a material loss as a result of the Year 2000 problem, there can be no guarantee that the systems of other companies and counterparties on which the Corporation relies will be remediated on a timely basis, or that a failure to remediate by another party, or a remediation or conversion that is incompatible with the Corporation's systems, would not have a material adverse effect on the Corporation. The Corporation's Year 2000 Program considers crisis management efforts for Year 2000 as part of its overall Year 2000 Risk Mitigation and Contingency Planning Program. As with Year 2000 contingency planning generally, the Corporation anticipates that any crisis management structure would leverage off of its pre-existing Business Continuity Planning (BCP) framework. As the basis for the Corporation's existing BCP process primarily focuses on outages and loss of facilities, data centers and applications, it is anticipated that, for Year 2000 purposes, contingency planning, and thus crisis management efforts, will be supplemented for those risks unique to Year 2000. 16 YEAR 2000 READINESS DISCLOSURE (continued) Existing BCPs are maintained by each operating unit throughout the firm. Business-aligned BCP Coordinators are responsible for administering these plans. In those instances where a single business is predominant in an office, the business-aligned BCP coordinator from that particular business also serves as the crisis manager. In addition, alternate sites that might be needed due to a Year 2000 related problem will likely be the same sites included and utilized in existing BCPs. All businesses are required to ensure that these sites are Year 2000 compliant. As mentioned above, the existing BCP plans will be expanded to include other Year 2000 specific categories, creating a Year 2000 contingency plan for each core business. In many cases, the plans have already been drafted. The Corporation's goal is to have such plans "complete" by June 30, 1999 in accordance with FFIEC guidelines. The Corporation recognizes that, since there are multiple external factors not within the Corporation's direct control, that will influence the focus of any one contingency plan, the Corporation will endeavor to update plans after June 30, 1999 and up through the end of 1999, and for as long as necessary thereafter. The Corporation envisions that a Year 2000 specific crisis management structure will be in place by the end of the third quarter of 1999. As noted above, the Corporation will leverage off of its existing BCP process, which already includes concepts such as Business Recovery Intersect During General Emergencies (BRIDGE) teams, employee notification efforts measures, command centers and recovery efforts. The Corporation anticipates that information on significant outages will be communicated to designated command centers in a similar manner as during the EMU conversion. This group will likely be composed of representation from the Corporation's Year 2000 Program Management Office (PMO), business management, and corporate resource areas. The Corporation anticipates that Year 2000 specific contingency plans for core businesses will be validated in accordance with the guidelines of the FFIEC by June 30, 1999. The Corporation will consider such plans to be validated by one or more of the following: 1) large-scale physical testing (in addition to business compliance testing); 2) business walk- throughs of contingency plans; and, 3) peer reviews by internal business management, including those independent from the actual creation of the plan. In addition, the Corporation actively participates in industry wide tests and reviews its progress against industry benchmarks through participation in Global 2000 and other forums. The Corporation incurred approximately $16 million for the first quarter of 1999 for Year 2000 expenditures. Based on information currently available, the Corporation expects its Year 2000 expenditures for 1999 and over the next year to be approximately $90 million to $130 million. A significant portion of these expenditures are not likely to be incremental costs to the Corporation, but rather will represent the redeployment of existing information technology resources. The costs of the Year 2000 Program and the dates on which the Corporation plans to complete the various stages of the Year 2000 Program are based on management's current estimates, which were derived utilizing numerous assumptions of future events including the continued availability of certain resources, third-party modification plans and other factors. However, there can be no guarantee that these estimates will be achieved and actual results could differ materially from those plans. The Corporation is currently evaluating its systems needs in connection with the proposed merger with Deutsche Bank. As a result of the merger, the Corporation's Year 2000 expenditures for the remainder of 1999 and 2000 could differ from current estimates. <17> EARNINGS PER COMMON SHARE Basic earnings per common share amounts were computed by subtracting from net income the dividend requirements on preferred stock to arrive at net income applicable to common stockholders and dividing this amount by the average number of common shares outstanding during the period. The average number of common shares outstanding was the sum of the average number of shares of common stock outstanding and undistributed vested shares awarded under deferred stock plans. Diluted earnings per share amounts were calculated by adding back to net income applicable to common stockholders the interest expense on the convertible subordinated debentures and dividing this amount by the average number of common shares and dilutive potential common shares outstanding during the period. Diluted earnings per share assumes the conversion into common stock of outstanding stock options, deferred stock awards and convertible subordinated debentures, as computed under the treasury stock method, if dilutive. Under the treasury stock method, the number of incremental shares is determined by assuming the issuance of the outstanding stock options, deferred stock awards, and shares from convertible subordinated debentures, reduced by the number of shares assumed to be repurchased from the issuance proceeds, using the average market price for the period of the Parent Company's common stock. The following table sets forth the computation of basic and diluted earnings per share (in millions, except per share amounts):
Three Months Ended March 31, 1999 1998 Numerator Net income $140 $ 222 Preferred stock dividends (6) (11) Numerator for basic and diluted earnings per share - net income applicable to common stockholders 134 211 Denominator Denominator for basic earnings per share - Weighted-average shares outstanding 100.658 101.357 Effect of dilutive securities Options .589 1.811 Convertible subordinated debentures .259 .463 Deferred stock 1.451 1.492 Dilutive potential common shares 2.299 3.766 Denominator for diluted earnings per share - adjusted weighted-average shares after assumed conversions 102.957 105.123 Basic earnings per share $1.33 $2.08 Diluted earnings per share $1.30 $2.01
18 BALANCE SHEET ANALYSIS The following table highlights the changes in the balance sheet. Since quarter-end balances can be distorted by one-day fluctuations, an analysis of changes in the quarterly averages is provided to give a better indication of balance sheet trends.
CONDENSED AVERAGE BALANCE SHEETS (in millions) 1st Qtr 4th Qtr Increase 1999 1998 (Decrease) ASSETS Interest-earning Interest-bearing deposits with banks $ 2,878 $ 2,370 $ 508 Federal funds sold 2,182 3,445 (1,263) Securities purchased under resale agreements 19,165 19,316 (151) Securities borrowed 18,516 17,903 613 Trading assets 21,402 25,206 (3,804) Securities available for sale Taxable 9,573 10,038 (465) Exempt from federal income taxes 1,645 1,692 (47) Total securities available for sale 11,218 11,730 (512) Loans Domestic offices 12,953 12,847 106 Foreign offices 10,094 10,417 (323) Total loans 23,047 23,264 (217) Customer receivables 1,752 1,622 130 Total interest-earning assets 100,160 104,856 (4,696) Noninterest-earning Cash and due from banks 3,053 2,721 332 Noninterest-earning trading assets 23,224 29,650 (6,426) All other assets 11,390 11,853 (463) Less: Allowance for credit losses-loans 647 665 (18) Total $137,180 $148,415 $(11,235) LIABILITIES Interest-bearing Interest-bearing deposits Domestic offices $ 16,854 $ 18,891 $ (2,037) Foreign offices 17,988 16,650 1,338 Total interest-bearing deposits 34,842 35,541 (699) Trading liabilities 5,211 5,918 (707) Securities loaned and securities sold under repurchase agreements 21,032 20,650 382 Other short-term borrowings 17,006 19,247 (2,241) Long-term debt 17,505 18,645 (1,140) Trust preferred capital securities 1,420 1,419 1 Total interest-bearing liabilities 97,016 101,420 (4,404) Noninterest-bearing Noninterest-bearing deposits 4,253 4,362 (109) Noninterest-bearing trading liabilities 19,962 26,454 (6,492) All other liabilities 11,182 11,271 (89) Total liabilities 132,413 143,507 (11,094) PREFERRED STOCK OF SUBSIDIARY - 144 (144) STOCKHOLDERS' EQUITY Preferred stock 394 394 - Common stockholders' equity 4,373 4,370 3 Total stockholders' equity 4,767 4,764 3 Total $137,180 $148,415 $(11,235)
19 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:
March 31, December 31, (in millions) 1999 1998 Fair value $10,371 $12,748 Amortized cost 10,472 12,903 Excess of amortized cost over fair value* $ (101) $ (155) * Components: Unrealized gains $ 205 $ 264 Unrealized losses (306) (419) $(101) $(155)
TRADING DERIVATIVES The Corporation actively manages trading positions in a variety of derivative contracts. Many of the Corporation's trading positions are established as a result of providing derivative products to meet customers' demands. To anticipate customer demand for such transactions, the Corporation also carries an inventory of capital markets instruments and maintains its access to market liquidity by quoting bid and offer prices to, and trading with, other market makers. These two activities are essential to provide customers with capital market products at competitive prices. All positions are reported at fair value and changes in fair values are reflected in trading revenue as they occur. The following tables reflect the gross fair values and balance sheet amounts of trading derivative financial instruments:
At March 31, Average During 1999 1st Qtr. 1999 (Liabi- (Liabi- (in millions) Assets lities) Assets lities) OTC Financial Instruments Interest Rate and Currency Swap Contracts $ 25,077 $(24,897) $ 26,420 $(26,008) Interest Rate Contracts Forwards 188 (189) 271 (270) Options purchased 1,741 2,082 Options written (1,760) (1,994) Foreign Exchange Rate Contracts Spot and Forwards 9,785 (9,504) 14,130 (13,555) Options purchased 1,146 1,171 Options written (913) (968) Equity-related contracts 6,318 (6,304) 7,328 (7,422) Commodity-related and other contracts 783 (851) 974 (1,012) Exchange-Traded Options Interest Rate 5 (4) 11 (4) Foreign exchange 2 (2) 11 (21) Commodity 8 (17) 8 (12) Equity 224 (149) 380 (253) Total Gross Fair Values 45,277 (44,590) 52,786 (51,519) Impact of Netting Agreements (34,054) 34,054 (36,553) 36,553 $ 11,223(1) $16,233 $(10,536)(1) $(14,966) (1) As reflected on the balance sheet in "Trading Assets" and "Trading Liabilities."
20 TRADING DERIVATIVES (continued)
At December 31, Average During 1998 4th Qtr. 1998 (Liabi- (Liabi- (in millions) Assets lities) Assets lities) OTC Financial Instruments Interest Rate and Currency Swap Contracts $ 26,923 $(26,401) $29,422 $(27,742) Interest Rate Contracts Forwards 188 (193) 326 (319) Options purchased 2,236 2,156 Options written (2,111) (2,155) Foreign Exchange Rate Contracts Spot and Forwards 17,851 (17,169) 18,364 (18,097) Options purchased 1,254 1,350 Options written (1,048) (1,152) Equity-related contracts 5,508 (5,672) 4,956 (5,424) Commodity-related and other contracts 966 (970) 824 (808) Exchange-Traded Options Interest Rate 12 (4) 9 (7) Foreign exchange 30 (39) 33 (32) Commodity 8 (9) 2 (5) Equity 531 (372) 652 (421) Total Gross Fair Values 55,507 (53,988) 58,094 (56,162) Impact of Netting Agreements (38,131) 38,131 (36,835) 36,835 $17,376(1) $21,259 $(15,857)(1) $(19,327) (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 and currency 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 gains were $71 million at March 31, 1999 compared with unrealized gains of $264 million at December 31, 1998. The $193 million decrease was primarily due to an increase in interest rates. 21 END-USER DERIVATIVES (continued) The following tables provide the gross unrealized gains and losses for end-user derivatives. Gross unrealized gains and losses for hedges of securities available for sale are recognized in the financial statements with the offset as an adjustment to securities valuation allowance in stockholders' equity. Gross unrealized gains and losses for hedges of loans, other assets, interest-bearing deposits, other short-term borrowings, long-term debt, and net investments in foreign subsidiaries are not yet recognized in the financial statements.
Other Net invest- short- ments in Securities Interest- term Long- foreign (in millions) available Other bearing borrow- term subsi- March 31, 1999 for sale Loans assets deposits ings debt(1) diaries Total Interest Rate Swaps(2) Pay Variable Unrealized Gain $ 16 $ 8 $ - $ 127 $ 14 $323 $ - $ 488 Unrealized (Loss) (3) (8) - (71) (9) (58) - (149) Pay Variable Net 13 - - 56 5 265 - 339 Pay Fixed Unrealized Gain 2 - - 6 - 4 - 12 Unrealized (Loss) (69) (71) - (61) (13) (27) - (241) Pay Fixed Net (67) (71) - (55) (13) (23) - (229) Total Unrealized Gain 18 8 - 133 14 327 - 500 Total Unrealized (Loss) (72) (79) - (132) (22) (85) - (390) Total Net $(54) $(71) $ - $ 1 $ (8) $242 $ - $ 110 Forward Rate Agreements Unrealized Gain $ - $ - $ - $ - $ - $ - $ - $ - Unrealized (Loss) - - - - - - - - Net $ - $ - $ - $ - $ - $ - $ - $ - Currency Swaps and Forwards Unrealized Gain $ - $ - $ - $ 5 $ 1 $ 43 $ 14 $ 63 Unrealized (Loss) (5) - - - (1) (63) (30) (99) Net $(5) $ - $ - $ 5 $ - $(20) $(16) $(36) Other Contracts Unrealized Gain $ - $- $ - $ - $ - $ - $ - $ - Unrealized (Loss) (3) - - - - - - (3) Net $(3) $- $ - $ - $ - $ - $ - $(3) Total Unrealized Gain $ 18 $ 8 $ - $ 138 $ 15 $ 370 $ 14 $ 563 Total Unrealized (Loss) (80) (79) - (132) (23) (148) (30) (492) Total Net $(62) $(71) $ - $ 6 $ (8) $ 222 $(16) $ 71 (1) Includes trust preferred capital securities. (2) Includes swaps with embedded options to cancel.
22 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, 1998 for sale Loans assets deposits ings debt(1) diaries Total Interest Rate Swaps(2) Pay Variable Unrealized Gain $ 64 $ 8 $ - $149 $ 17 $471 $ - $ 709 Unrealized (Loss) (3) (7) - (13) (14) (55) - (92) Pay Variable Net 61 1 - 136 3 416 - 617 Pay Fixed Unrealized Gain 6 - - 3 - 7 - 16 Unrealized (Loss) (129) (76) (13) (70) (16) (30) - (334) Pay Fixed Net (123) (76) (13) (67) (16) (23) - (318) Total Unrealized Gain 70 8 - 152 17 478 - 725 Total Unrealized (Loss) (132) (83) (13) (83) (30) (85) - (426) Total Net $(62) $(75) $(13) $ 69 $ (13) $393 $ - $ 299 Forward Rate Agreements Unrealized Gain $ - $ - $ - $ - $ - $ - $ - $ - Unrealized (Loss) - - - - - - - - Net $ - $ - $ - $ - $ - $ - $ - $ - Currency Swaps and Forwards Unrealized Gain $ 6 $ - $ - $ 5 $ 1 $ 76 $ 19 $ 107 Unrealized (Loss) (7) (3) (1) (4) (1) (89) (34) (139) Net $(1) $(3) $(1) $ 1 $ - $(13) $(15) $ (32) Other Contracts Unrealized Gain $ - $ - $ - $ - $ - $ - $ - $ - Unrealized (Loss) (3) - - - - - - (3) Net $(3) $ - $ - $ - $ - $ - $ - $ (3) Total Unrealized Gain $ 76 $ 8 $ - $157 $18 $ 554 $ 19 $ 832 Total Unrealized (Loss) (142) (86) (14) (87) (31) (174) (34) (568) Total Net $ (66) $(78) $(14) $ 70 $(13) $ 380 $(15) $ 264 (1) Includes trust preferred capital securities. (2) Includes swaps with embedded options to cancel.
23 END-USER DERIVATIVES (continued) For pay variable and pay fixed interest rate swaps entered into as an end user, the weighted average receive rate and pay rate (interest rates were based on the weighted averages of both U.S. and non-U.S. currencies) by maturity and corresponding notional amounts were as follows ($ in millions):
At March 31, 1999 Notional Amount Paying Variable Paying Fixed Maturing Notional Receive Pay Notional Receive Pay Total In: Amount Rate Rate Amount Rate Rate Notional 1999 $47,093 5.71% 4.98% $6,700 5.21% 5.14% $53,793 2000-2001 15,691 5.34 4.93 4,120 4.88 6.10 19,811 2002-2003 5,404 4.72 4.21 973 4.28 4.74 6,377 2004 and thereafter 7,400 5.70 5.11 1,598 5.31 5.68 8,998 Total $75,588 $13,391 $88,979
All rates were those in effect at March 31, 1999. Variable rates are primarily based on LIBOR and may change significantly, affecting future cash flows.
At December 31, 1998 Notional Amount Paying Variable Paying Fixed Maturing Notional Receive Pay Notional Receive Pay Total In: Amount Rate Rate Amount Rate Rate Notional 1999 $55,494 5.37% 5.18% $8,704 5.34% 5.54% $64,198 2000-2001 9,802 5.63 5.32 3,266 4.94 6.49 13,068 2002-2003 5,601 5.48 4.51 983 4.15 5.04 6,584 2004 and thereafter 8,071 6.49 4.90 2,120 5.28 6.34 10,191 Total $78,968 $15,073 $94,041
All rates were those in effect at December 31, 1998. Variable rates are primarily based on LIBOR and may change significantly, affecting future cash flows. 24 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 address the capital adequacy of bank holding companies and banks (collectively, "banking organizations"). These guidelines include: a definition of capital, a framework for calculating risk-weighted assets, and minimum risk-based capital ratios to be maintained by banking organizations. A banking organization's risk-based capital ratios are calculated by dividing its qualified capital by its risk-weighted assets. 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 banks and bank holding companies. The Leverage ratio is calculated by dividing Tier 1 Capital by adjusted quarterly average assets. The Corporation's 1998 Annual Report on Form 10-K, on pages 22 and 62, provides a detailed discussion of these guidelines and regulations. Based on their respective regulatory capital ratios as of March 31, 1999, both the Corporation and Bankers Trust Company ("BTCo") are well capitalized, as defined in the applicable regulations. The Corporation's and BTCo's ratios are presented in the table below.
FRB Minimum To Be Well Actual Actual for Capitalized as of as of Capital Under March 31, December 31, Adequacy Regulatory 1999 1998 Purposes Guidelines Corporation Risk-Based Capital Ratios Tier 1 Capital 8.1% 7.5% 4.0% 6.0% Total Capital 14.5% 13.6% 8.0% 10.0% Leverage Ratio 3.8% 3.5% 3.0% N/A BTCo Risk-Based Capital Ratios Tier 1 Capital 11.8% 10.5% 4.0% 6.0% Total Capital 13.7% 13.4% 8.0% 10.0% Leverage Ratio 6.4% 5.7% 3.0% 5.0% N/A Not Applicable
25 REGULATORY CAPITAL (continued) The following are the essential components used in calculating the Corporation's and BTCo's risk-based capital ratios:
Actual as of Actual as of March 31, December 31, (in millions) 1999 1998 Corporation Tier 1 Capital $5,073 $5,069 Tier 2 Capital 3,587 3,812 Tier 3 Capital 400 400 Total Capital $9,060 $9,281 Total risk-weighted assets $62,567 $67,980 BTCo Tier 1 Capital $6,785 $ 6,682 Tier 2 Capital 1,097 1,858 Total Capital $7,882 $ 8,540 Total risk-weighted assets $57,556 $63,748
Comparing March 31, 1999 to December 31, 1998, the Corporation's Tier 1 Capital ratio increased 60 basis points due to the decrease in risk- weighted assets of $5.4 billion, primarily related to lower balances for loans and trading derivatives at March 31, 1999. The Total Capital ratio increased 90 basis points because of the decrease in risk-weighted assets, offset by a decrease in Total Capital of $221 million. The Leverage ratio increased by 30 basis points due to a decrease in the quarterly average assets. BTCo's Tier 1 Capital ratio increased 130 basis points as a result of an increase in Tier 1 Capital of $103 million and a decrease in risk- weighted assets of $6.2 billion, primarily related to lower balances for loans and trading derivatives at March 31, 1999. The Total Capital ratio increased 30 basis points due to the decrease in risk-weighted assets being offset by the decrease in Tier 2 Capital of $761 million, primarily caused by the retirement of qualifying subordinated debt. The Leverage ratio increased by 70 basis points due to the increase in Tier 1 Capital and a decrease in the quarterly average assets. 26 RISK MANAGEMENT Market risk is the risk of losses in the value of the Corporation's portfolio due to movements in market prices and rates. Market risk arises from the Corporation's investment, trading, and client activities. This section discusses changes in the Corporation's market-risk profile as characterized by the quantitative information presented on pages 23 to 28 of the Corporation's Annual Report on Form 10-K for the fiscal year ended December 31, 1998 ("Annual Report"). The management of market risk continues to be a key focus for the Firm. The Firm employs regular stress testing, scenario analyses and statistical measures of potential loss in order to identify and control market risk. Table 1 below shows the results of the statistical measures of loss in the first quarter of 1999 and all of 1998 for the set of financial assets and liabilities whose values are functions of market traded variables irrespective of accounting intention. This measure shows the 99th percentile loss potential of the Firm assuming the Firm's positions are held unchanged for 10 days. This measure is commonly known as Value-at-Risk (VaR) and is computed according to standards set by the Federal Reserve for determining regulatory capital required for market risk. Table 2 shows the same information for the subset of these positions that appear as Trading Assets on the Corporation's balance sheet. Table 1 BT Corporation Total Ten-Day Value at Risk (in millions)
Three Months 1998 1999 December 31, March 31, Risk Class Average Average 1998 1999 Interest Rate $101.4 $73.2 $ 77.4 $ 66.6 Currency 35.5 16.3 26.0 9.5 Equity 88.0 99.4 105.0 86.4 Commodity 4.2 4.2 3.9 4.1 Diversification (67.9) (59.5) (64.7) (52.0) Overall Portfolio $161.2 $133.6 $147.6 $114.6
27 RISK MANAGEMENT (continued) Table 2 BT Corporation Trading Ten-Day Value at Risk (in millions)
Three Months 1998 1999 December 31, March 31, Risk Class Average Average 1998 1999 Interest Rate $ 61.1 $ 41.5 $ 52.2 $ 38.3 Currency 34.8 16.2 22.0 9.5 Equity 57.0 46.5 51.2 35.8 Commodity 4.2 4.2 3.9 4.1 Diversification (53.7) (37.9) (47.5) (30.9) Overall Portfolio 103.4 $70.5 $81.8 $ 56.8
Table 1 shows that the Corporation's overall market-risk exposure declined during the first quarter of 1999 on an average and spot basis by 17 percent and 22 percent, respectively. The overall decline was driven by declines in interest rate and currency risk. Although average equity risk rose by 13 percent during the quarter in comparison with the 1998 average, the quarterly average declined by 5 percent from the December 31 level. On a spot basis, equity risk declined by 18 percent as of March 31 in comparison with the December 31 level. These reductions represent a continuation of the overall decline in risk levels that began in the third quarter of 1998, when the Corporation sharply reduced its risk exposures in response to market turbulence experienced during the period. Table 2 shows that the Corporation's risk levels from Trading Assets declined even more sharply during this period than the risk levels reported in Table 1, declining on an average and spot basis by 32 percent and 31 percent, respectively. The decline was evident across all significant risk areas. Furthermore, on no occasion during the quarter did the Corporation exceed its one-day, one-percent, value-at-risk statistic for trading account positions. 28 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 policy is to maintain conservative levels of liquidity designed to ensure that the Firm has the ability to meet its obligations under reasonably foreseeable circumstances. The fundamental objective is to ensure that, even in the event of a complete loss of market access, the Corporation will be able to fund those assets that cannot be liquidated on a timely basis. While the Corporation manages its liquidity position on a day-to-day basis to meet its ongoing funding needs at the lowest possible cost, the Firm's planning and management process also encompasses contingency planning to address even the most severe liquidity events. One of the Corporation's principal liquidity strengths is its stock of highly liquid assets. An important component of these liquid assets is the "liquidity warehouse" and the aggregate warehouse size relative to maturing liabilities. The "liquidity warehouse" is defined as liquid assets which are under the direct control of the Treasury/Funding area and which can be liquidated at current market value on a timely basis. Interest Rate Sensitivity Condensed interest rate sensitivity data for the Corporation at March 31, 1999 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- (in billions) Within 1 - 5 After bearing March 31, 1999 1 year years 5 years funds Total Assets $ 85.2 $ 6.5 $ 4.9 $ 30.5 $ 127.1 Liabilities and preferred stock (78.9) (4.9) (7.5) (31.5) (122.8) Common stockholders' equity - - - (4.3) (4.3) Effect of off-balance sheet hedging instruments (5.0) 3.4 1.6 - - Interest rate sensitivity gap $ 1.3 $ 5.0 $(1.0) $ (5.3) -
29 NONPERFORMING ASSETS The components of cash basis loans, renegotiated loans, other real estate and other nonperforming assets are shown below ($ in millions).
March 31, December 31, 1999 1998 CASH BASIS LOANS Domestic Commercial and industrial $ 74 $ 91 Secured by real estate 77 86 Financial institutions 15 15 Other 1 - Total domestic 167 192 International Commercial and industrial 106 135 Secured by real estate 14 18 Foreign governments 15 23 Lease financings 7 7 Other 18 17 Total international 160 200 Total cash basis loans $327 $392 Ratio of cash basis loans to total gross loans 1.6% 1.7% Ratio of allowance for credit losses-loans to cash basis loans 184% 166% RENEGOTIATED LOANS Secured by real estate $25 $25 Other - 1 Total renegotiated loans $25 26 OTHER REAL ESTATE $92 $87 OTHER NONPERFORMING ASSETS $8 $8
There were no loans 90 days or more past due and still accruing interest at March 31, 1999 and December 31, 1998. 30 NONPERFORMING ASSETS (continued) An analysis of the changes in the Corporation's total cash basis loans during the first three months of 1999 follows (in millions):
Balance, December 31, 1998 $ 392 Net transfers to cash basis loans 23 Net transfers to other real estate (11) Net paydowns (16) Charge-offs (60) Other (1) Balance, March 31, 1999 $ 327
The Corporation's total cash basis loans amounted to $327 million at March 31, 1999, down $65 million, or 17 percent, from December 31, 1998. Within cash basis loans, loans secured by real estate were $91 million and $104 million at March 31, 1999 and December 31, 1998, respectively. Commercial and industrial loans to highly leveraged borrowers were $55 million and $66 million at March 31, 1999 and December 31, 1998, respectively. The following table sets forth the approximate effect on interest revenue of cash basis loans and renegotiated loans. This disclosure reflects the interest on loans which were carried on the balance sheet and classified as either cash basis or renegotiated at March 31 of each year. The rates used in determining the gross amount of interest which would have been recorded at the original rate were not necessarily representative of current market rates.
Three Months Ended March 31, (in millions) 1999 1998 Domestic Loans Gross amount of interest that would have been recorded at original rate $4 $3 Less, interest, net of reversals, recognized in interest revenue 2 2 Reduction of interest revenue 2 1 International Loans Gross amount of interest that would have been recorded at original rate 5 2 Less, interest, net of reversals, recognized in interest revenue 4 1 Reduction of interest revenue 1 1 Total reduction of interest revenue $3 $2
31 EMERGING MARKETS CROSS-BORDER EXPOSURES(1)
% Change from March 31, December 31, December 31, ($ in billions) 1999 1998 1998 Korea, Republic of $0.9 $0.8 13% Indonesia 0.4 0.4 -% Hong Kong 0.3 0.4 (25)% Thailand 0.2 0.2 -% Malaysia 0.1 0.1 -% Other(2) 0.6 0.8 (25)% Total Emerging Asia $2.5 $2.7 (7)% Brazil $0.6 $0.7 (14)% Mexico 0.5 0.6 (17)% Argentina 0.4 0.5 (20)% Venezuela - 0.1 (100)% Other(3) 0.6 0.6 -% Total Latin America $2.1 $2.5 (16)% Russian Federation $0.2 $0.2 -% Total $4.8 $5.4 (11)% As a % of Total Assets 3.8% 4.1% (1) Based on FFIEC instructions. Shown by country of ultimate risk. Excludes local country claims on local residents. (2) Includes Peoples Republic of China, Republic of Taiwan, India, Philippines, Singapore and Sri Lanka. (3) Includes Chile, Colombia, Peru, Ecuador, Nicaragua, Panama and Uruguay.
32 ACCOUNTING DEVELOPMENTS In March 1998, the Accounting Standards Executive Committee of the AICPA issued Statement of Position 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use" (SOP 98-1), which provides guidance as to when it is or is not appropriate to capitalize the cost of software developed or obtained for internal use. SOP 98-1 is effective for financial statements for fiscal years beginning after December 15, 1998. The adoption as of January 1, 1999 of SOP 98-1 did not have a material impact on the Corporation's net income, stockholders' equity or total assets. In June 1998, the FASB issued SFAS 133, "Accounting for Derivative Instruments and Hedging Activities." This statement establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. It requires companies to recognize all derivatives on the balance sheet as assets or liabilities measured at fair value. SFAS 133 is effective on January 1, 2000 for calendar year companies. Depending on the underlying risk management strategy, the accounting for these products under the new standard could affect reported earnings and balance sheet accounts. The Corporation continues to evaluate the potential impact of the new standard as plans for implementation proceed. 33 SUBSEQUENT EVENTS An appeal was recently argued in the Arizona State court action against the Corporation arising from the 1986 leveraged buyout of the Kroy Company. In January of 1998, a jury awarded the plaintiffs in this action $18.3 million in compensatory damages and punitive damages of $30 million. Plaintiffs assert that any compensatory damages in this matter are subject to trebling, and seek interest on any judgment. The Corporation's post- trial motion for reduction of the jury's award was granted in part, giving plaintiffs the option of either accepting a judgment for $15 million or a new trial on damages if they declined that amount. The plaintiffs did not accept the reduced judgment and appealed the judge's ruling. The Corporation filed a cross appeal. On April 20, 1999, the Arizona Court of Appeals granted the plaintiffs' appeal in part and denied it in part, reinstating the jury award of $18.3 million in compensatory damages, plus any prejudgment interest, trebling and attorney's fees and costs. The court upheld the lower court's reduction of punitive damages to $5 million and gave the plaintiffs the option of a new trial on punitive damages alone if they decline that amount. The Corporation's cross appeal was denied. The Corporation has filed a petition for rehearing with the Arizona Court of Appeals. On April 26, 1999, BT (Pacific) Limited ("BT Pacific"), a wholly-owned subsidiary of the Corporation, entered into a Sale and Purchase Agreement with Banvida S.A. and P&S S.A. (together, the "Purchasers") under which BT Pacific has agreed, subject to the terms and conditions thereof, to sell its 50 percent ownership interest in BT (Pacific) Limited y Compania Limitada ("Limitada") to the Purchasers. Limitada owns over 99 percent of the shares of Compania de Seguros de Vida - Consorcio Nacional de Seguros S.A. and 100 percent of the shares of Compania de Seguros de Vida Vitalis S.A., Chilean life insurance companies, and indirectly owns 50 percent of the shares of Interseguros Compania de Seguros S.A., a Peruvian life insurance company. The total consideration to be paid to BT Pacific in respect of the sale is $153 million. The sale is scheduled to close in the second quarter of 1999. The Corporation expects the impact on its results of operations to be nominal. Item 3. Quantitative and Qualitative Disclosures About Market Risk See "Management's Discussion and Analysis of Financial Condition and Results of Operations - Risk Management" on page 26 for Quantitative and Qualitative Disclosures About Market Risk. 34 FORWARD-LOOKING STATEMENTS Certain sections of this report contain forward-looking statements and can be identified by the use of such words as "anticipates," "expects," and "estimates," and similar expressions. See "Year 2000 Readiness Disclosure". These statements are subject to certain risks and uncertainties. These risks and uncertainties could cause actual results to differ materially from the current statements. See also "Important Factors Relating to Forward-Looking Statements" contained in the Corporation's Annual Report. 35 PART II. OTHER INFORMATION Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS (a) A Special Meeting of Shareholders was held on April 27, 1999 to vote on the Corporation's proposed merger with a subsidiary of Deutsche Bank A.G. (c) The following are the voting results on the matter which was submitted to the shareholders:
Unvoted For Against Abstain Shares Resolutions Adoption of Merger Agreement 68,647,881 1,280,154 253,863 27,466,302 The text of the matters referred to under this Item 4 is set forth in the Proxy Statement dated March 23, 1999 previously filed with the Commission. 36 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 Corporation or its subsidiaries. (12) Statement re Computation of Ratios (27) Financial Data Schedule (b) Reports on Form 8-K - Bankers Trust Corporation filed three reports on Form 8-K during the quarter ended March 31, 1999. - The report filed January 22, 1999, filed the Corporation's Press Release dated January 21, 1999, which announced earnings for the quarter ended December 31, 1998. - The report dated March 11, 1999 and filed March 12, 1999 announced that the Corporation had reached an agreement with the United States Attorney's Office in the Southern District of New York to resolve an investigation concerning inappropriate transfers of unclaimed funds and related record keeping problems that occurred between 1994 and early 1996. - The report dated March 18, 1999 and filed March 19, 1999 announced that a decision had been made to sell BT Funds Management, the asset management arm of the Registrant in Australia. 37 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on May 14, 1999. BANKERS TRUST CORPORATION BY: /S/ DAVID C. FISHER DAVID C. FISHER Controller and Principal Accounting Officer BANKERS TRUST CORPORATION FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 1999 EXHIBIT INDEX (4) Instruments Defining the Rights of Security Holders, Including Indentures (v) - Long-Term Debt Indentures (a) (12) Statement re Computation of Ratios (a) - Computation of Consolidated Ratios of Earnings to Fixed Charges (b) - Computation of Consolidated Ratios of Earnings to Combined Fixed Charges and Preferred Stock Dividend Requirements (27) Financial Data Schedule (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 Corporation or its subsidiaries.
EX-12.A 2 EXHIBIT 12(a) BANKERS TRUST CORPORATION AND SUBSIDIARIES COMPUTATION OF CONSOLIDATED RATIOS OF EARNINGS TO FIXED CHARGES (dollars in millions) [CAPTION] Three Months Ended Year Ended December 31, March 31, 1994 1995 1996 1997 1998 1999 Earnings: 1. Income (loss) before income taxes $ 987 $ 469 $1,131 $1,239 $ (77) $ 209 2. Add: Fixed charges excluding capitalized interest (Line 10) 3,911 5,138 5,483 5,959 6,954 1,261 3. Less: Equity in undistri- buted income of unconsolidated subsidiaries and affiliates 45 28 30 (117) 15 60 4. Earnings including interest on deposits 4,853 5,579 6,584 7,315 6,862 1,410 5. Less: Interest on deposits 965 1,360 1,355 2,076 2,195 422 6. Earnings excluding interest on deposits $3,888 $4,219 $5,229 $5,239 $4,667 $ 988 Fixed Charges: 7. Interest Expense $3,880 $5,105 $5,451 $5,926 $6,919 $1,250 8. Estimated interest component of net rental expense 31 33 32 33 35 11 9. Amortization of debt issuance expense - - - - - - 10. Total fixed charges including interest on deposits and excluding capitalized interest 3,911 5,138 5,483 5,959 6,954 1,261 11. Add: Capitalized interest - - - - - - 12. Total fixed charges 3,911 5,138 5,483 5,959 6,954 1,261 13. Less: Interest on deposits (Line 5) 965 1,360 1,355 2,076 2,195 422 14. Fixed charges excluding interest on deposits $2,946 $3,778 $4,128 $3,883 $4,759 $ 839 Consolidated Ratios of Earnings to Fixed Charges: Including interest on deposits (Line 4/Line 12) 1.24 1.09 1.20 1.23 .99 1.12 Excluding interest on deposits (Line 6/Line 14) 1.32 1.12 1.27 1.35 .98 1.18 For the year ended December 31, 1998, earnings, as defined, did not cover fixed charges, including and excluding interest on deposits by $92 million, as a result of a net loss recorded during the period.
EX-12.B 3 EXHIBIT 12(b) BANKERS TRUST CORPORATION AND SUBSIDIARIES COMPUTATION OF CONSOLIDATED RATIOS OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDEND REQUIREMENTS (dollars in millions) [CAPTION] Three Months Ended Year Ended December 31, March 31, 1994 1995 1996 1997 1998 1999 Earnings: 1. Income (loss) before income taxes $ 987 $ 469 $1,131 $1,239 $ (77) $ 209 2. Add: Fixed charges excluding capitalized interest (Line 13) 3,911 5,138 5,483 5,959 6,954 1,261 3. Less: Equity in undistri- buted income of unconsolidated subsidiaries and affiliates 45 28 30 (117) 15 60 4. Earnings including interest on deposits 4,853 5,579 6,584 7,315 6,862 1,410 5. Less: Interest on deposits 965 1,360 1,355 2,076 2,195 422 6. Earnings excluding interest on deposits $3,888 $4,219 $5,229 $5,239 $4,667 $ 988 Preferred Stock Dividend Requirements: 7. Preferred stock dividend requirements $ 28 $ 51 $ 51 $ 49 $ 32 $ 6 8. Ratio of income (loss) from continuing operations before income taxes to income (loss) from continuing operations after income taxes 144% 151% 148% 143% 105% 149% 9. Preferred stock dividend requirements on a pretax basis $ 40 $ 77 $ 75 $ 70 $ 34 $ 9 Fixed Charges: 10. Interest Expense $3,880 $5,105 $5,451 $5,926 $6,919 $1,250 11. Estimated interest component of net rental expense 31 33 32 33 35 11 12. Amortization of debt issuance expense - - - - - - 13. Total fixed charges including interest on deposits and excluding capitalized interest 3,911 5,138 5,483 5,959 6,954 1,261 14. Add: Capitalized interest - - - - - - 15. Total fixed charges 3,911 5,138 5,483 5,959 6,954 1,261 16. Add: Preferred stock dividend require- ments - pretax (Line 9) 40 77 75 70 34 9 17. Total combined fixed charges and preferred stock dividend require- ments on a pretax basis 3,951 5,215 5,558 6,029 6,988 1,270 18. Less: Interest on deposits (Line 5) 965 1,360 1,355 2,076 2,195 422 19. Combined fixed charges and preferred stock dividend requirements on a pretax basis excluding interest on deposits $2,986 $3,855 $4,203 $3,953 $4,793 $ 848 Consolidated Ratios of Earnings to Combined Fixed Charges and Preferred Stock Dividend Requirements: Including interest on deposits (Line 4/Line 17) 1.23 1.07 1.18 1.21 .98 1.11 Excluding interest on deposits (Line 6/Line 19) 1.30 1.09 1.24 1.32 .97 1.17 For the year ended December 31, 1998, earnings, as defined, did not cover fixed charges, and preferred stock dividend requirements, including and excluding interest on deposits, by $126 million, as a result of a net loss recorded during the period.
EX-27 4
9 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BANKERS TRUST CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CONDITION AT MARCH 31, 1999 AND THE CONSOLIDATED STATEMENT OF INCOME FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000,000 3-MOS DEC-31-1999 MAR-31-1999 1,753 1,187 23,724 39,179 10,371 0 0 20,293 603 127,106 36,337 34,327 10,628 18,482 0 394 105 4,238 127,106 394 154 634 1,511 422 1,250 261 0 (4) 1,301 209 209 0 0 140 1.33 1.30 1.09 327 0 25 0 652 60 11 603 260 343 0 Short-term borrowings include the following: Securities loaned and securities sold under repurchase agreements 15,889 Other short-term borrowings 18,438 Total 34,327 Other liabilities include the following: Accounts payable and accrued expenses 5,277 Other liabilities 5,066 Acceptances outstanding 285 Total 10,628 Other interest income includes the following: Interest-bearing deposits with banks 60 Federal funds sold 26 Securities purchased under resale agreements 294 Securities borrowed 223 Customer receivables 31 Total 634 Amount pertains to the allowance for credit losses loans.
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