-----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, FETRzzWQpOCtBuOT46rK4JRjXPY0qzI4btTicSzyV+jYOuk6euEwG+tj4+TJHatc +oxlGKmnuu1+PNHu7Exw9Q== 0000891554-02-003302.txt : 20020515 0000891554-02-003302.hdr.sgml : 20020515 20020515151353 ACCESSION NUMBER: 0000891554-02-003302 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20020331 FILED AS OF DATE: 20020515 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: 1934 Act SEC FILE NUMBER: 001-05920 FILM NUMBER: 02651525 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: BT NEW YORK CORP DATE OF NAME CHANGE: 19671107 FORMER COMPANY: FORMER CONFORMED NAME: BANKERS TRUST NEW YORK CORP DATE OF NAME CHANGE: 19920703 10-Q 1 d50676_10-q.txt QUARTERLY REPORT 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, 2002 or |_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File Number 1-5920 DEUTSCHE BANK TRUST CORPORATION (Exact name of registrant as specified in its charter) New York 13-6180473 (State or other jurisdiction of (IRS employer incorporation or organization) identification no.) 130 Liberty Street New York, New York (currently operating out of an alternate location at 31 W 52nd Street, New York, NY 10019) 10006 (Address of principal executive offices) (Zip code) (212) 469-8000 (Registrant's telephone number, including area code) Bankers Trust Corporation (Former name, former address, and former fiscal year, if changed since last report) 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 |_| The registrant meets the conditions set forth in General Instruction H (1)(a) and (b) of Form 10-Q and is therefore filing this Form with the reduced disclosure format. The registrant is a wholly-owned subsidiary of Deutsche Bank AG. As of the date hereof, 1 share of the registrant's Common Stock par value $1 per share, was issued and outstanding. DEUTSCHE BANK TRUST CORPORATION March 31, 2002 FORM 10-Q TABLE OF CONTENTS PART I. FINANCIAL INFORMATION Page ---- Item 1. Financial Statements Condensed Consolidated Statement of Income Three Months Ended March 31, 2002 and 2001 2 Condensed Consolidated Statement of Comprehensive Income Three Months Ended March 31, 2002 and 2001 3 Condensed Consolidated Balance Sheet At March 31, 2002 and December 31, 2001 4 Condensed Consolidated Statement of Changes in Stockholder's Equity Three Months Ended March 31, 2002 and 2001 5 Condensed Consolidated Statement of Cash Flows Three Months Ended March 31, 2002 and 2001 6 Condensed Consolidated Schedule of Net Interest Revenue Three Months Ended March 31, 2002 and 2001 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, 2002 are not necessarily indicative of the results of operations for the full year or any other interim period. On January 24, 2002, the Board of Directors of the Corporation approved the change of the Corporation's name from "Bankers Trust Corporation" to "Deutsche Bank Trust Corporation" and an amendment to the Corporation's Certificate of Incorporation effecting the change was filed with the Department of State of the State of New York on April 15, 2002. The financial statements included in this Form 10-Q should be read with reference to the Deutsche Bank Trust Corporation's Annual Report on Form 10-K for the year ended December 31, 2001. 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 19 SIGNATURE 20 2 PART I. FINANCIAL INFORMATION DEUTSCHE BANK TRUST CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENT OF INCOME (in millions) (unaudited)
Increase THREE MONTHS ENDED MARCH 31, 2002 2001 (Decrease) ---- ---- ---------- NET INTEREST REVENUE Interest revenue $326 $828 (502) Interest expense 234 640 (406) ---- ---- ---- Net interest revenue 92 188 (96) Provision for credit losses-loans 58 50 8 ---- ---- ---- Net interest revenue after provision for credit losses-loans 34 138 (104) ---- ---- ---- NONINTEREST REVENUE Trading 75 53 22 Fiduciary and funds management 171 189 (18) Corporate finance fees 17 22 (5) Other fees and commissions 57 55 2 Other 121 91 30 ---- ---- ---- Total noninterest revenue 441 410 31 ---- ---- ---- NONINTEREST EXPENSES Salaries and commissions 107 111 (4) Incentive compensation and employee benefits 99 91 8 Agency and other professional service fees 32 50 (18) Communication and data services 17 16 1 Occupancy, net 23 26 (3) Furniture and equipment 35 32 3 Other 111 94 17 ---- ---- ---- Total noninterest expenses 424 420 4 ---- ---- ---- Income before income taxes 51 128 (77) Income taxes 33 18 15 ---- ---- ---- NET INCOME $ 18 $110 (92) ==== ==== ====
Certain prior period amounts have been reclassified to conform to the current presentation. 3 DEUTSCHE BANK TRUST CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (in millions) (unaudited) THREE MONTHS ENDED MARCH 31, 2002 2001 ---- ---- NET INCOME $ 18 $110 ---- ---- Other comprehensive income (loss), net of tax: Foreign currency translation adjustments: Unrealized foreign currency translation losses arising during period (a) (3) (54) Reclassification adjustment for realized foreign currency translation losses (b) 22 1 ---- ---- Total other comprehensive income (loss) 19 (53) ---- ---- COMPREHENSIVE INCOME $ 37 $ 57 ==== ==== (a) Amounts are net of income tax benefits of $3 million and $29 million for the three months ended March 31, 2002 and 2001, respectively. (b) Amounts are net of income tax benefits of $13 million and $1 million for the three months ended March 31, 2002 and 2001, respectively. 4 DEUTSCHE BANK TRUST CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEET ($ in millions, except par value)
March 31, December 31, 2002* 2001 --------- ------------ ASSETS Cash and due from banks $ 1,767 $ 1,110 Interest-bearing deposits with banks 4,723 4,667 Federal funds sold 20 2 Securities purchased under resale agreements 5,260 8,752 Trading assets: Government securities 120 112 Corporate debt securities 207 231 Equity securities 9,775 9,832 Swaps, options and other derivatives 1,182 2,288 Other trading assets 1,485 1,055 -------- -------- Total trading assets 12,769 13,518 Securities available for sale 254 256 Loans, net of allowance for credit losses 25,459 23,075 Accounts receivable and accrued interest 1,261 1,174 Other assets 7,300 7,579 -------- -------- Total $ 58,813 $ 60,133 ======== ======== LIABILITIES Noninterest-bearing deposits Domestic offices $ 3,105 $ 2,487 Foreign offices 1,010 1,194 Interest-bearing deposits Domestic offices 10,431 10,350 Foreign offices 1,412 3,195 -------- -------- Total deposits 15,958 17,226 Trading liabilities: Securities sold, not yet purchased Government securities 47 47 Swaps, options and other derivatives 832 1,178 Other trading liabilities 1,125 1,125 -------- -------- Total trading liabilities 2,004 2,350 Short-term borrowings 20,220 19,131 Accounts payable and accrued expenses 986 1,216 Other liabilities 4,768 4,812 Long-term debt 9,178 9,487 Trust preferred securities 1,040 1,289 -------- -------- Total liabilities 54,154 55,511 -------- -------- STOCKHOLDER'S EQUITY Common stock, $1 par value Authorized: 200 shares; Issued: 1 share -- -- Capital surplus 2,319 2,319 Retained earnings 2,472 2,454 Accumulated other comprehensive income (loss): Net unrealized gains on securities available for sale, net of taxes 4 4 Foreign currency translation, net of taxes (136) (155) -------- -------- Total stockholder's equity 4,659 4,622 -------- -------- Total $ 58,813 $ 60,133 ======== ========
* Unaudited. Certain prior period amounts have been reclassified to conform to the current presentation. 5 DEUTSCHE BANK TRUST CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDER'S EQUITY (in millions, except par value) (unaudited) THREE MONTHS ENDED MARCH 31, 2002 2001 ------- ------- COMMON STOCK Balance, January 1 and March 31 $ --* $ --* ------- ------- CAPITAL SURPLUS Balance, January 1 and March 31 2,319 2,319 ------- ------- RETAINED EARNINGS Balance, January 1 2,454 2,179 Net income 18 110 ------- ------- Balance, March 31 2,472 2,289 ------- ------- CUMULATIVE TRANSLATION ADJUSTMENTS Balance, January 1 (155) (116) Translation adjustments/entity transfers and sales 29 (81) Income taxes (10) 28 ------- ------- Balance, March 31 (136) (169) ------- ------- SECURITIES VALUATION ALLOWANCE Balance, January 1 and March 31 4 -- ------- ------- TOTAL STOCKHOLDER'S EQUITY, MARCH 31 $ 4,659 $ 4,439 ======= ======= * 1 share, $1 par value. 6 DEUTSCHE BANK TRUST CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (in millions) (unaudited) THREE MONTHS ENDED MARCH 31, 2002 2001 ------- ------- CASH FLOWS FROM OPERATING ACTIVITIES Net cash used in operating activities $ (718) $(5,176) ------- ------- CASH FLOWS FROM INVESTING ACTIVITIES Net change in: Interest-bearing deposits with banks (55) 746 Federal funds sold (18) (20) Securities purchased under resale agreements 3,505 5,638 Loans (1,391) (274) Securities available for sale: Purchases -- (19) Maturities and other redemptions 1 16 Sales -- 12 Other, net (41) (8) ------- ------- Net cash provided by investing activities 2,001 6,091 ------- ------- CASH FLOWS FROM FINANCING ACTIVITIES Net change in: Deposits (1,255) 165 Short-term borrowings 1,154 (313) Issuances of long-term debt 336 113 Repayments of long-term debt (830) (401) Other, net (5) -- ------- ------- Net cash used in financing activities (600) (436) ------- ------- Net effect of exchange rate changes on cash (26) (1) ------- ------- Net increase in cash and due from banks 657 478 Cash and due from banks, beginning of period 1,110 1,921 ------- ------- Cash and due from banks, end of period $ 1,767 $ 2,399 ======= ======= Interest paid $ 300 $ 861 ======= ======= Income taxes paid, net $ 2 $ 2 ======= ======= Certain prior period amounts have been reclassified to conform to the current presentation. 7 DEUTSCHE BANK TRUST CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED SCHEDULE OF NET INTEREST REVENUE (in millions) (unaudited) Three months ended March 31, ------------------ Increase 2002 2001 (Decrease) ---- ---- ---------- INTEREST REVENUE Interest-bearing deposits with banks $ 28 $190 (162) Federal funds sold 17 25 (8) Securities purchased under resale agreements 10 12 (2) Trading assets 50 186 (136) Loans 216 404 (188) Other 5 11 (6) ---- ---- ---- Total interest revenue 326 828 (502) ---- ---- ---- INTEREST EXPENSE Interest-bearing deposits Domestic offices 53 123 (70) Foreign offices 54 51 3 Trading liabilities 3 2 1 Short-term borrowings 85 279 (194) Long-term debt 17 156 (139) Trust preferred securities 22 29 (7) ---- ---- ---- Total interest expense 234 640 (406) ---- ---- ---- NET INTEREST REVENUE $ 92 $188 (96) ==== ==== ==== 8 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS BUSINESS CHANGES On January 24, 2002, the Board of Directors of Deutsche Bank Trust Corporation (the "Corporation") approved the change of the Corporation's name from "Bankers Trust Corporation" to "Deutsche Bank Trust Corporation." An amendment to the Corporation's Certificate of Incorporation effecting the change was filed with the Department of State of the State of New York on April 15, 2002. TERRORIST ATTACKS IN THE UNITED STATES As a result of the terrorist attacks in the United States on September 11, 2001, the Corporation's office buildings located at 130 Liberty Street and 4 Albany Street in New York were damaged. The Corporation's employees located at these office buildings, in addition to employees located in leased properties at 4 World Trade Center and 14-16 Wall Street were relocated to contingency premises. The Corporation is continuing to evaluate the future plans for the building located at 130 Liberty Street, which remains severely damaged due to the destruction of the World Trade Center. The Corporation's building at 4 Albany Street, which was less severely damaged, is being renovated, although no timetable for reoccupation has been established. The Corporation continues to evaluate the costs that it will incur and the adverse impact of the terrorist attacks on its results of operations. Such costs will include, but are not limited to, write-offs of fixed assets, costs to repair the buildings, expenses incurred to replace fixed assets that were damaged, relocation expenses, and the abatement of the contamination of its buildings adjacent to the World Trade Center site. The Corporation expects to make a claim for these costs, including those related to business interruption, through its insurance policies. The Corporation believes that it will recover substantially all of these costs under its insurance policies, but there can be no assurance that all of the costs incurred, losses from business interruption, losses from service interruption or extra expenses will be paid by the insurance carriers, as they may dispute portions of the Corporation's claims. At March 31, 2002, no losses have been recorded by the Corporation. RESULTS OF OPERATIONS The Corporation reported net income of $18 million for the three months ended March 30, 2002 as compared to $110 million for the first three months of 2001. Certain prior period amounts have been reclassified to conform to the current presentation. 9 BUSINESS SEGMENT RESULTS Business segment results, which are presented in accordance with accounting principles generally accepted in the United States of America, are derived from internal management reports. Corporate and Investment Bank Group includes Corporate Banking and Securities and Global Transaction Banking. Corporate Banking and Securities includes sales, trading and corporate finance activities. Global Transaction Banking consists of trade services, cash management, custody and corporate trust and agency services. Private Clients and Asset Management Group includes Private Banking and Asset Management. Private Banking consists of banking services to private clients, self-employed individuals as well as to smaller business clients, and offers a wide variety of banking products to these clients including financial planning services and market research and investment strategies for high net-worth individuals. Asset Management consists of the institutional asset management and retail investment fund businesses. Corporate Investments includes the winding down of most principal investment activities by the Corporation. The following tables present results by Business Segment:
Three months ended March 31, 2002 -------------------------------------- Total Total Net Noninterest Pretax (in millions) Revenue* Expenses Income(Loss) --------- ----------- ------------ Corporate and Investment Bank Corporate Banking and Securities 98 41 $ 57 Global Transaction Banking 161 190 (29) ----- ----- ---- Total Corporate and Investment Bank 259 231 28 Private Clients and Asset Management Private Banking 34 41 (7) Asset Management 57 65 (8) ----- ----- ---- Total Private Clients and Asset Management 91 106 (15) Corporate Investments (1) 1 (2) ----- ----- ---- Total Business Segments 349 338 11 ----- ---- ---- Other 126 86 40 ----- ----- ---- Total $ 475 $ 424 $ 51 ===== ===== ====
* There were no material intersegment revenues among the business segments. 10 BUSINESS SEGMENT RESULTS (continued)
Three months ended March 31, 2001 -------------------------------------- Total Total Net Noninterest Pretax (in millions) Revenue* Expenses Income(Loss) --------- ----------- ------------ Corporate and Investment Bank Corporate Banking and Securities $ 175 $ 66 $ 109 Global Transaction Banking 212 226 (14) ----- ----- ----- Total Corporate and Investment Bank 387 292 95 Private Clients and Asset Management Private Banking 46 37 9 Asset Management 71 86 (15) ----- ----- ----- Total Private Clients and Asset Management 117 123 (6) Corporate Investments 5 7 (2) ----- ----- ----- Total Business Segments 509 422 87 ---- ----- ----- Other 39 (2) 41 ----- ----- ----- Total $ 548 $ 420 $ 128 ===== ===== =====
* There were no material intersegment revenues among the business segments. The Corporate and Investment Bank Group recorded pretax income of $28 million in the first quarter of 2002, compared to pretax income of $95 million in the prior year quarter. Corporate Banking and Securities recorded pretax income of $57 million in the first quarter of 2002, compared to pretax income of $109 million in the prior year quarter. The decrease in total net revenue from the prior year quarter is mainly due to lower net interest revenue. The decrease in total noninterest expenses is mainly due to lower accruals for performance-based pay in the current period due to the decline in results from the prior year quarter. Global Transaction Banking recorded a pretax loss of $29 million in the first quarter of 2002, compared to a pretax loss of $14 million in the prior year quarter. The current quarter included lower net interest revenue, as well as lower revenue from fiduciary and funds management activities. The decrease in total noninterest expenses is partially due to lower personnel-related costs. The Private Clients and Asset Management Group recorded a pretax loss of $15 million in the first quarter of 2002, compared to pretax loss of $6 million in the 2001 first quarter. Private Banking recorded a pretax loss of $7 million in the first quarter of 2002, compared to pretax income of $9 million in the prior year quarter. The decrease in pretax income from the prior year period is primarily due to lower commissions income and lower net interest revenue. Asset Management recorded a pretax loss of $8 million in the first quarter of 2002, compared to pretax loss of $15 million in the prior year quarter. The decrease in total net revenue from the prior year period is mainly due to lower performance and management fees due to recent market weakness. The decrease in total noninterest expenses from the prior year period is mainly due to lower personnel-related costs. Corporate Investments recorded a pretax loss of $2 million in the first quarter of 2002, unchanged from the prior year quarter. Other generally includes revenue and expenses that have not been allocated to business segments and the results of smaller businesses that are not included in the main business segments. 11 BUSINESS SEGMENT RESULTS (continued) The following table reconciles total pretax income for business segments to consolidated pretax income (in millions): THREE MONTHS ENDED MARCH 31, 2002 2001 ---- ---- Total pretax income reported for business segments $ 11 $ 87 Earnings associated with unassigned capital 17 52 Realized foreign currency translation losses (6) (18) Equity income not allocated to business segments 6 26 SFAS 133 transition adjustment -- 13 Other unallocated amounts 23 (32) ---- ----- Consolidated pretax income $ 51 $ 128 ==== ===== REVENUE Net Interest Revenue The table below presents net interest revenue, average balances and average rates.
Three Months Ended March 31, ------------------------ Increase 2002 2001 (Decrease) ---------- ---------- ---------- NET INTEREST REVENUE (in millions) $ 92 $ 188 $ (96) ========== ========== ========== AVERAGE BALANCES (in millions) Interest-earning assets $ 46,733 $ 45,367 $ 1,366 Interest-bearing liabilities 41,523 41,454 69 ---------- ---------- ---------- Earning assets financed by noninterest-bearing funds $ 5,210 $ 3,913 $ 1,297 ========== ========== ========== AVERAGE RATES Yield on interest-earning assets 2.83% 7.41% (4.58)% Cost of interest-bearing liabilities 2.28 6.26 (3.98) ---------- ---------- ---------- Interest rate spread 0.55 1.15 (0.60) Contribution of noninterest-bearing funds 0.25 0.53 (0.28) ---------- ---------- ---------- Net interest margin 0.80% 1.68% (0.88)% ========== ========== ==========
Net interest revenue for the first quarter of 2002 totaled $92 million, down $96 million, or 51 percent, from the first quarter of 2001. In the first quarter of 2002, the interest rate spread was 0.55 percent compared to 1.15 percent in the prior year period. Net interest margin decreased to 0.80 percent from 1.68 percent. The yield on interest-earning assets decreased by 458 basis points and the cost of interest-bearing liabilities decreased by 398 basis points. Average interest-earning assets totaled $46.7 billion for the first quarter of 2002, up $1.4 billion from the same period in 2001. The increase was primarily attributable to an increase in loans. Average interest-bearing liabilities totaled $41.5 billion for the first quarter of 2002, up slightly from the same period in 2001. 12 REVENUE (continued) Noninterest Revenue Trading revenue was up $22 million from the first quarter of 2001. The increase is primarily attributable to increased gains in emerging markets activity. Fiduciary and funds management revenue decreased $18 million, or 10 percent, from the $189 million earned in the first quarter of 2001. The decrease is primarily attributable to lower revenues from custodian fees and fund administrative fees due principally to declining asset prices and reduced levels of market activity. Corporate finance fees of $17 million decreased $5 million from the $22 million earned in the first quarter of 2001. The decline is primarily attributable to lower revenue for syndication and financial advisory fees reflecting lower levels of market activity. Other noninterest revenue totaled $121 million compared to $91 million in the prior year period. Prior to May 2001, the Corporation accounted for servicing agreements with its affiliates on a net basis and included the net amount in other noninterest expenses in the condensed consolidated statement of income. Beginning in May 2001, revenues from services provided to affiliates are included in other noninterest revenue while expenses incurred from services provided by affiliates are included in other noninterest expenses. As a result, the current quarter includes revenue from these servicing agreements. Business segment results, as discussed on pages 9 to 11 will continue to reflect charges for servicing agreements on a net basis. PROVISIONS AND ALLOWANCES FOR CREDIT LOSSES The allowances for credit losses represents management's estimate of probable losses that have occurred as of the date of the financial statements. The allowance for credit losses-loans is reported as a reduction of loans and the allowance for credit losses for other credit-related items is reported in other liabilities. The provisions for credit losses and the other changes in the allowances for credit losses are shown below (in millions). Three Months Ended March 31, ------------------ Total allowances for credit losses 2002 2001 ----- ----- LOANS Balance, beginning of period $ 539 $ 424 Provision for credit losses 58 50 Allowance related to entities sold/transferred(a) -- (23) Net charge-offs Charge-offs 44 5 Recoveries 1 -- ----- ----- Total net charge-offs 43 5 ----- ----- Balance, end of period(b) $ 554 $ 446 ===== ===== 13 OTHER LIABILITIES Balance, beginning of period $ 15 $ 22 Provision for credit losses (3) (4) ----- ----- Balance, end of period $ 12 $ 18 ===== ===== (a) Reflects the allowance for credit losses-loans of certain legal entities transferred to Deutsche Bank on the date of transfer and of legal entities sold on the date of sale. (b) Comprised of the following components: Specific allowance $ 473 $ 356 Inherent loss* 81 90 $ 554 $ 446 ===== ===== *Includes country risk. NONPERFORMING ASSETS The components of cash basis loans and other real estate are shown below ($ in millions).
March 31, December 31, 2002 2001 --------- ------------ CASH BASIS LOANS Domestic Commercial and industrial $1,374 $1,408 Secured by real estate 26 27 Financial institutions 17 17 ------ ------ Total domestic 1,417 1,452 ------ ------ International Commercial and industrial 189 132 ------ ------ Total international 189 132 ------ ------ Total cash basis loans $1,606 $1,584 ====== ====== Ratio of cash basis loans to total gross loans 6.2% 6.7% ====== ====== Ratio of allowance for credit losses-loans to cash basis loans 34% 34% ====== ====== OTHER REAL ESTATE $ 98 $ 99 ====== ======
All loans 90 days or more past due with respect to interest or principal at March 31, 2002 and December 31, 2001 are reclassified as cash basis loans. An analysis of the changes in the Corporation's total cash basis loans during the first three months of 2002 follows (in millions): Balance, December 31, 2001 $ 1,584 Net transfers to cash basis loans 158 Net paydowns (39) Charge-offs (44) Loan sales (51) Other (2) ======= Balance, March 31, 2002 $ 1,606 ======= Impaired loans under SFAS 114 were $1,606 million and $1,584 million at March 31, 2002 and December 31, 2001, respectively. Included in these amounts were $1,394 million and $1,244 million of loans that required a specific allowance of $473 million and $453 million at those same dates, respectively. 14 NONPERFORMING ASSETS (continued) The following table sets forth the approximate effect on interest revenue of cash basis loans. This disclosure reflects the interest on loans that were carried on the balance sheet and classified as cash basis 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) 2002 2001 ---- ---- Domestic Loans Gross amount of interest that would have been recorded at original rate $ 26 $ 22 Less, interest, net of reversals, recognized in interest revenue 11 4 ---- ---- Reduction of interest revenue 15 18 ---- ---- International Loans Gross amount of interest that would have been recorded at original rate 4 -- Less, interest, net of reversals, recognized in interest revenue (1) -- ---- ---- Reduction of interest revenue 5 -- ---- ---- Total reduction of interest revenue $ 20 $ 18 ==== ====
EXPENSES Agency and other professional service fees decreased $18 million, or 36 percent from the prior year quarter, due to decreases in fees paid to outside personnel agencies as part of cost controlling initiatives. Other noninterest expense increased $17 million from the prior year period. The increase was primarily attributable to the Corporation's servicing agreements with its affiliates. Prior to May 2001, the Corporation accounted for servicing agreements with its affiliates on a net basis and included the net amount in other noninterest expenses in the condensed consolidated statement of income. Beginning in May 2001, revenue from services provided to affiliates are included in other noninterest revenue while expenses incurred from services provided by affiliates are included in other noninterest expenses. Business segment results, as discussed on pages 9 to 11, will continue to reflect charges for servicing agreements on a net basis. INCOME TAXES Income tax expense for the first quarter of 2002 amounted to $33 million, compared to income tax expense of $18 million in the first quarter of 2001. The effective tax rate was 65 percent for the current quarter and 14 percent for the prior year quarter. The increase in the effective tax rate is primarily due to foreign tax expense. 15 REGULATORY CAPITAL The Corporation's 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 for a bank. These guidelines include a definition of capital, a framework for calculating risk-weighted assets, and minimum risk-based capital ratios to be maintained by a bank. A bank's risk-based capital ratios are calculated by dividing its qualifying capital by its risk-weighted assets. The FRB also has a minimum Leverage ratio that is used as a supplement to the risk-based capital ratios in evaluating the capital adequacy of a bank. The Leverage ratio is calculated by dividing Tier 1 Capital by adjusted quarterly average assets. Based on its respective regulatory capital ratios at March 31, 2002, the Corporation's principal banking subsidiary, Deutsche Bank Trust Company Americas (formerly named Bankers Trust Company) ("DBTCA"), is well capitalized, as defined in the applicable regulations. DBTCA's ratios are presented in the table below.
FRB To Be Well Minimum for Capitalized Actual as of Actual as of Capital Adequacy Under Regulatory March 31, 2002 December 31, 2001 Purposes Guidelines -------------- ----------------- ---------------- ---------------- Risk-based capital ratios Tier 1 capital 26.4% 27.1% 4.0% 6.0% Total capital 28.8% 29.5% 8.0% 10.0% Leverage ratio 16.0% 14.8% 3.0% 5.0%
The following are the essential components used in calculating DBTCA's risk-based capital ratios: Actual as of Actual as of (in millions) March 31, 2002 December 31, 2001 - ------------- -------------- ----------------- Tier 1 Capital $ 6,345 $ 6,252 Tier 2 Capital 569 556 ------- ------- Total Capital $ 6,914 $ 6,808 ======= ======= Total risk-weighted assets $24,048 $23,096 ======= ======= Both DBTCA's Tier 1 and Total Capital ratios decreased by 70 basis points because of an increase in risk-weighted assets of $952 million. The Leverage ratio increased by 120 basis points primarily due to a decrease of $2.7 billion in quarterly average assets. As permitted by the FRB's Supervisory Letter SR 01-1, the Corporation is no longer required to comply with the FRB's capital adequacy guidelines since it is owned and controlled by a foreign bank that is a financial holding company that the FRB has determined to be well capitalized and well managed. 16 LIQUIDITY Liquidity is the ability to have funds available at all times to meet the commitments of the Corporation. The Corporation's liquidity process has become an integral part of Deutsche Bank's global liquidity process. Management's policy is designed to maintain Deutsche Bank's ability to fund assets and meet any contractual financial obligations on a timely basis at a fair market cost under any market conditions. While Deutsche Bank and the Corporation manage their liquidity positions on a day-to-day basis to meet ongoing funding needs, the planning and management process also encompasses contingency planning to address even the most severe liquidity events. Short-term unsecured financing for the Corporation is available under an uncommitted credit line with its parent, Deutsche Bank. At March 31, 2002, this credit line totaled approximately $4.4 billion. Of this amount, approximately $3.2 billion was drawn. In addition, the Corporation has received unsecured financing from Deutsche Bank via its indirect subsidiaries in the amount of $4.8 billion. RELATED PARTY TRANSACTIONS In conjunction with the Acquisition and subsequent integration of the Corporation into Deutsche Bank's management structure, the Corporation has entered into various related party transactions with Deutsche Bank and its affiliated entities. For further discussion, see page 45 of the Corporation's 2001 Annual Report on Form 10-K. The Corporation also has related party balances with Deutsche Bank or affiliated companies as the result of transactions entered into in the ordinary course of business. These balances generally include interest-bearing deposits with banks, securities purchased under resale agreements, short-term borrowings, and derivative contracts. In addition to specific operating expenses incurred by the Corporation and charged directly to operations, certain management, accounting and other costs are incurred in common for the Corporation and its affiliates. The Corporation is allocated a share of these costs, proportionately based on an appropriate methodology for each type of expense. In the normal course of business, the Corporation may provide services to affiliates, the costs for which are allocated to such affiliates and are reflected in the accompanying condensed consolidated statement of income in other noninterest revenue beginning in May 2001. Prior to May 2001, the net amount of costs incurred and costs allocated was reflected in other noninterest expenses. Management believes the allocation methods used are reasonable and appropriate in the circumstances. The Corporation's results from operations may not necessarily be indicative of results that would have existed had the Corporation operated as an unaffiliated entity. 17 RELATE PARTY TRANSACTIONS (continued) Included in the Corporation's financial statements were the following balances with such affiliates. (in millions) March 31, 2002 December 31, 2001 -------------- ----------------- Interest-earning assets $21,778 $23,569 Noninterest-earning assets 1,255 2,640 Interest-bearing liabilities 21,472 19,403 Noninterest-bearing liabilities 4,093 4,501 Accounting developments In October 2001, the FASB issued SFAS 144, "Accounting for the Impairment or Disposal of Long-lived Assets." This statement is effective for fiscal years beginning after December 15, 2001. SFAS 144 includes a requirement that all long-lived assets to be disposed of and discontinued operations are to be measured at the lower of carrying amount or fair value less cost to sell. The adoption of SFAS 144 did not have a material impact on the Corporation's condensed consolidated financial statements. In July 2001, the FASB issued SFAS 141, "Business Combinations" and SFAS 142, "Goodwill and Other Intangible Assets." SFAS 141 requires that all business combinations initiated after June 30, 2001 be accounted for by the purchase method and eliminates the use of the pooling-of-interests method. This requirement will have no impact on the Corporation since, as a subsidiary, it could not meet the requirements for the pooling-of-interests method. Other provisions of SFAS 141 and SFAS 142 require that, as of January 1, 2002, goodwill no longer be amortized, reclassifications between goodwill and other intangible assets be made based upon certain criteria, and that tests for impairment of goodwill be performed on an ongoing basis. Upon adoption of SFAS 142 in January 2002, the Corporation discontinued the amortization of goodwill with a net carrying amount of $64 million and annual amortization of $6 million that resulted from business combinations prior to the adoption of SFAS 141. The Corporation continues to evaluate the additional effects, if any, that the adoption of SFAS 141 and SFAS 142 will have on the Corporation's condensed consolidated financial statements. LITIGATION On September 25, 2000, litigation was commenced in the District Court in Geneva, Switzerland (Torras Hostench London Limited and Grupo Torras S.A. v. Bonsai Investment S.A. (formerly Bankers Trust AG) and the Corporation), against the Corporation and one of its subsidiaries. The litigation alleges the Corporation and its subsidiary are liable to the plaintiffs for breach of contract, breach of fiduciary duty and fraud in connection with a number of financial transactions occurring during 1990 and 1991. The plaintiffs seek damages of approximately $1 billion. The Corporation believes it and its subsidiary have meritorious defenses and intends to vigorously defend this matter. 18 LITIGATION (continued) Since January 2001, DBTCA has been named as one of numerous defendants in more than a dozen actions (certain of which are brought as class actions) filed in the Superior Court of the State of California, County of Los Angeles, all of which have been consolidated and assigned to a single judge. Pursuant to the Court's orders, plaintiffs have served two amended model complaints, one denominated as a class action and the other denominated as an individual action. The actions arise out of the default of Stanwich Financial Services Corporation in connection with certain structured settlement agreements entered into principally in the early 1980s. Stanwich is presently in reorganization proceedings under the United States Bankruptcy Code. DBTCA is alleged to have served as "trustee" under certain trust agreements in the mid 1990s. On July 17, 2001, the California Court sustained demurrers by DBTCA to the model class and individual complaints in these actions. Plaintiffs have filed second amended model complaints alleging claims of breach of contract, breach of trust, breach of fiduciary duty, tortious breach of the implied covenant of good faith and fair dealing, intentional interference with contract, negligence, bad faith denial of contract, constructive fraud, reformation, unfair business practices and declaratory relief, and seeking unspecified compensatory and punitive damages and certain other relief. The Superior Court of the State of California denied the demurrers of DBTCA's second amended model complaints and certified the class in the second amended model class action complaint. Two other individual actions brought on behalf of other structured settlement payees are pending in Montana. The court in those cases denied DBTCA's motion to dismiss the complaints. The Corporation believes that DBTCA has meritorious defenses in these actions and intends to defend these matters vigorously. In addition to the matters described above, various legal actions and proceedings involving the Corporation and various of its subsidiaries are currently pending. Management, after discussions with counsel, does not anticipate that losses, if any, resulting from such actions and proceedings would be material to the financial condition of the Corporation. 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. 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. 19 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 instruments defining the rights of security holders issued by Deutsche Bank Trust Corporation or its subsidiaries. (12) Statement re Computation of Ratios (b) Reports on Form 8-K - The Corporation did not file any reports on Form 8-K for the quarter ended March 31, 2002. 20 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned; thereunto duly authorized, on May 15, 2002. Deutsche Bank Trust Corporation By:/s/ MARY E. FISHER -------------- MARY E. FISHER Senior Vice President and Controller (Principal Accounting Officer) 21 DEUTSCHE BANK TRUST CORPORATION FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 2002 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 (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 Deutsche Bank Trust Corporation or its subsidiaries. EX-12 3 d50676_ex-12.txt COMPUTATION OF RATIOS EXHIBIT 12 DEUTSCHE BANK TRUST CORPORATION AND SUBSIDIARIES COMPUTATION OF CONSOLIDATED RATIOS OF EARNINGS TO FIXED CHARGES (dollars in millions)
Three Months Ended Year Ended December 31, March 31, -------------------------------------------------------- Earnings: 1997 1998 1999 2000 2001 2002 ---- ---- ---- ---- ---- ---- 1. Income (loss) before income taxes $ 1,239 $ (77) $(1,415) $ 900 $ 333 $ 51 2. Add: Fixed charges excluding capitalized interest (Line 10) 5,959 6,954 3,654 3,027 1,928 236 3. Less: Equity in undistri- buted income of unconsolidated subsidiaries and affiliates (117) 15 75 42 264 36 ------- ------- ------- ------- ------- ------- 4. Earnings including interest on deposits 7,315 6,862 2,164 3,885 1,997 251 5. Less: Interest on deposits 2,076 2,195 1,424 998 641 107 ------- ------- ------- ------- ------- ------- 6. Earnings excluding interest on deposits $ 5,239 $ 4,667 $ 740 $ 2,887 $ 1,356 $ 144 ======= ======= ======= ======= ======= ======= Fixed Charges: 7. Interest Expense $ 5,926 $ 6,919 $ 3,612 $ 2,988 $ 1,912 $ 234 8. Estimated interest component of net rental expense 33 35 42 39 16 2 9. Amortization of debt issuance expense -- -- -- -- -- -- ------- ------- ------- ------- ------- ------- 10. Total fixed charges including interest on deposits and excluding capitalized interest 5,959 6,954 3,654 3,027 1,928 236 11. Add: Capitalized interest -- -- -- -- -- -- ------- ------- ------- ------- ------- ------- 12. Total fixed charges 5,959 6,954 3,654 3,027 1,928 236 13. Less: Interest on deposits (Line 5) 2,076 2,195 1,424 998 641 107 ------- ------- ------- ------- ------- ------- 14. Fixed charges excluding interest on deposits $ 3,883 $ 4,759 $ 2,230 $ 2,029 $ 1,287 $ 129 ======= ======= ======= ======= ======= ======= Consolidated Ratios of Earnings to Fixed Charges: Including interest on deposits (Line 4/Line 12) 1.23 .99 N/A 1.28 1.04 1.06 ======= ======= ======= ======= ======= ======= Excluding interest on deposits (Line 6/Line 14) 1.35 .98 N/A 1.42 1.05 1.12 ======= ======= ======= ======= ======= =======
For the years ended December 31, 1999 and 1998, earnings, as defined, did not cover fixed charges, including and excluding interest on deposits by $1,490 million and $92 million, respectively, as a result of a net loss recorded during the period. N/A - Not Applicable -----END PRIVACY-ENHANCED MESSAGE-----