-----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, Uc3h+m8BmaW0lt3j2Z50f7De9zk/obFQLBbLVvu4kM4v2Htm9Gwg9l4ruJBz3mgF XYfySfPs2mZI+t03w4klpw== 0000950130-96-000906.txt : 19960322 0000950130-96-000906.hdr.sgml : 19960322 ACCESSION NUMBER: 0000950130-96-000906 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19951231 FILED AS OF DATE: 19960321 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: REPUBLIC NEW YORK CORP CENTRAL INDEX KEY: 0000083246 STANDARD INDUSTRIAL CLASSIFICATION: NATIONAL COMMERCIAL BANKS [6021] IRS NUMBER: 132764867 STATE OF INCORPORATION: MD FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-07436 FILM NUMBER: 96536772 BUSINESS ADDRESS: STREET 1: 452 FIFTH AVE CITY: NEW YORK STATE: NY ZIP: 10018 BUSINESS PHONE: 2125256100 10-K 1 FORM 10-K - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 -------------- FORM 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1995. [_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 COMMISSION FILE NO. 1-7436 -------------- REPUBLIC NEW YORK CORPORATION (EXACT NAME OF REGISTRANT SPECIFIED IN ITS CHARTER) -------------- MARYLAND 13-2764867 (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.) 452 FIFTH AVENUE, NEW YORK, NEW YORK 10018 (ADDRESS OF PRINCIPAL EXECUTIVE (ZIP CODE) OFFICES) (212) 525-6100 REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE Securities registered pursuant to Section 12(b) of the Act:
NAME OF EACH EXCHANGE TITLE OF EACH CLASS ON WHICH REGISTERED ------------------- --------------------- Common Stock, Par Value $5.00 Per New York Stock Exchange Share The International Stock Exchange of the United Kingdom & The Republic of Ireland Ltd. Depositary Shares, each representing a one-fourth interest in a share of Adjustable Rate Cumulative Preferred Stock, Series D New York Stock Exchange $1.9375 Cumulative Preferred Stock New York Stock Exchange $1.8125 Cumulative Preferred Stock New York Stock Exchange 8 3/8% Notes Due 1996 New York Stock Exchange 8 3/8% Debentures Due 2007 New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: NONE. 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 by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. The aggregate market value of Common Stock of the registrant held by non- affiliates at January 31, 1996 was $2,346,800,331 based on the closing price on the New York Stock Exchange Composite Tape on such date. The number of shares outstanding of each of the registrant's classes of common stock, as of January 31, 1996: 56,032,694. Documents Incorporated by Reference: DOCUMENT LOCATION IN FORM 10-K -------- --------------------- Proxy Statement for 1996 Annual Meeting, to the extent indicated Part III - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- CONTENTS PART I
PAGE ---- Item 1. Business........................................................ 1 Republic New York Corporation....................................... 1 Republic National Bank of New York.................................. 1 Other Financial Services............................................ 3 Competition......................................................... 3 Employees........................................................... 4 Customers........................................................... 4 Supervision and Regulation.......................................... 4 Item 2. Properties...................................................... 4 Item 3. Legal Proceedings............................................... 4 Item 4. Submission of Matters to a Vote of Security Holders............. 5 PART II Item 5. Market for Registrant's Common Equity and Related Shareholder Matters................................................................. 5 Item 6. Selected Financial Data......................................... 5 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations................................................... 5 Introduction........................................................ 5 Results of Operations............................................... 6 Liability and Asset Management...................................... 11 Risk Management and Control......................................... 23 Capital Resources and Liquidity..................................... 24 Item 8. Financial Statements and Supplementary Data..................... 27 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.................................................... 83 PART III Item 10. Directors and Executive Officers of the Registrant.............. 83 Item 11. Executive Compensation.......................................... 84 Item 12. Security Ownership of Certain Beneficial Owners and Management.. 84 Item 13. Certain Relationships and Related Transactions.................. 84 PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8- K....................................................................... 84
PART I ITEM 1. BUSINESS REPUBLIC NEW YORK CORPORATION Republic New York Corporation (the "Corporation"), incorporated in Maryland in 1973, is a bank holding company that commenced operations in July, 1974. At December 31, 1995, the Corporation had consolidated total assets of $43.9 billion and stockholders' equity of $3.0 billion. Its principal asset is the capital stock of Republic National Bank of New York (the "Bank"). At December 31, 1995, the Bank accounted for approximately 90% of the consolidated assets and, for the year ended December 31, 1995, accounted for approximately 90% of consolidated revenues and more than 100% of consolidated net income of the Corporation. The Corporation's other significant subsidiary is Republic Factors Corp. ("Factors"). The Corporation's other subsidiaries include Republic New York Securities Corporation ("RNYSC"), a full service broker- dealer, and Republic Bank California N.A. ("RBC"), a commercial bank operation in southern California. Based on total assets, at December 31, 1995, the Corporation was the twenty- first largest bank holding company in the United States. The executive offices of the Corporation are located at 452 Fifth Avenue, New York, New York 10018 (telephone 212-525-6100). During the first quarter of 1996, the Corporation will complete the acquisition of Brooklyn Bancorp, Inc. ("BBI"), parent of CrossLand Federal Savings Bank, for approximately $531 million in an all cash transaction. At December 31, 1995, BBI had total assets of $4.1 billion, total deposits of $3.7 billion and total stockholders' equity of $388 million. BBI had approximately 385,000 accounts in 33 branches in the New York metropolitan area. As used herein, the term "Corporation" includes the subsidiaries of the Corporation and the term "Bank" includes the subsidiaries of the Bank, unless the context indicates otherwise. REPUBLIC NATIONAL BANK OF NEW YORK The Bank, a national banking association organized in 1965, commenced operations in January, 1966. The Bank provides a variety of banking and financial services worldwide to corporations, financial institutions, governmental units and individuals. On January 2, 1996, the operations of Republic Bank for Savings ("RBS"), a wholly-owned subsidiary of the Corporation, were merged into the Bank. The merger was accounted for similar to a pooling of interests and has been reflected in the Bank's 1995 financial statements and in other information in this Report. At December 31, 1995, the Bank had total assets of $39.8 billion, total deposits of $25.3 billion and stockholder's equity of $2.8 billion. The Bank's headquarters and principal banking office is located at 452 Fifth Avenue, New York, New York 10018. At December 31, 1995, the Bank had 64 domestic branch banking offices in New York City and the suburban counties of Westchester, Rockland, Nassau, Suffolk and southern Florida. The Bank maintains foreign branch offices in London, Milan, Buenos Aires, Santiago, Hong Kong, Singapore, Tokyo and the Cayman Islands; wholly-owned foreign banking subsidiaries in Montreal, Nassau, Singapore, Mexico City, Montevideo, and the Cayman Islands; and Edge Act subsidiaries in Miami, Florida and Wilmington, Delaware which are authorized to engage in off-shore banking activities with non-resident customers. The Bank also has foreign representative offices in Beijing, Beirut, Buenos Aires, Copenhagen, Jakarta, Manila, Montevideo, Moscow, Punta del Este, Rio de Janeiro and Taipei. The Bank's facilities are supplemented by a network of correspondent banks throughout the world. The Bank is in the process of establishing foreign banking subsidiaries in Brazil and Russia and a foreign branch office in Taiwan. INTERNATIONAL BANKING The Bank is active in international banking where it operates principally as a wholesale bank. It has been its policy to deal primarily with foreign governments, their agencies, foreign central banks and foreign commercial banks as borrowers or guarantors. At December 31, 1995, approximately 70% of the Bank's cross-border net outstandings were to or guaranteed by such entities. The Bank's international banking services include accepting deposits, extending credit, forfait financing, buying and selling foreign exchange, buying and selling banknotes denominated in various currencies, issuing letters of credit and bankers' acceptances and handling the collection and transfer of money. The Bank's Banknote Services business ships U.S. dollars to and from financial institutions in nearly 40 countries. Through its International Private Banking Department, headquartered in New York City, the Bank offers a full range of private banking services to individuals who are citizens or residents of countries other than the United States, including deposit, lending and investment management products, custody services, buying and selling foreign exchange, banknotes denominated in various currencies, precious metals and financial instruments, issuing letters of credit and handling the collection and transfer of money. In August 1995, the Corporation began operations in its Mexican banking subsidiary known as Republic National Bank of New York (Mexico), S.A. headquartered in Mexico City. The subsidiary engages in activities consistent with those of Mexican "multiple banks," including accepting deposits from the public and granting commercial and individual loans. 1 DOMESTIC BANKING The Bank provides a full range of domestic banking services, including commercial, consumer installment and mortgage loans to individuals and businesses. It also accepts deposits, including time and savings deposits and regular and special checking accounts, and issues large denomination negotiable certificates of deposit of $100,000 or more. Through its Domestic Corporate Lending Department, the Bank services the financing requirements of large national companies, middle-market companies and other businesses in the New York metropolitan area and selected markets outside of New York. Other banking facilities usually associated with a full- service commercial bank are offered, among which are safe deposit boxes, safekeeping and custodial services, collections and remittances, letters of credit and foreign exchange. The Bank's Trust Department provides a broad range of fiduciary services to both individual and corporate accounts. Through its Domestic Private Banking operation, the Bank offers an array of private banking services, including deposit, lending and investment management products, custody services and trust and estate planning to high-net-worth individuals. The Bank's domestic private banking clients are served from locations in New York, Los Angeles and Miami. In the third quarter of 1995, Republic Financial Services Corporation ("RFSC"), a wholly-owned subsidiary of the Bank, commenced business as a broker-dealer registered with the Securities and Exchange Commission (the "SEC") and the National Association of Securities Dealers, Inc. (the "NASD"). Through its brokerage services, RFSC makes available mutual funds, stocks and fixed income instruments to Bank customers. During 1995 and the first quarter of 1996, the Bank entered into agreements with Bank Leumi Trust Company of New York to acquire six branches with deposits totaling approximately $320 million. Two of these branches, with deposits totaling approximately $100 million, were acquired in the fourth quarter of 1995. The acquisition of the remaining four branches is expected to close in the second quarter of 1996. The Bank also expects to complete the purchase of three First Nationwide Bank FSB branches, which have deposits of approximately $280 million, in the first quarter of 1996. The following table sets forth the percentages of the Corporation's domestic and international assets and liabilities, based upon the location of the obligor or customer, at December 31 in each of the last three years.
ASSETS LIABILITIES ---------------------- ---------------------- DOMESTIC INTERNATIONAL DOMESTIC INTERNATIONAL -------- ------------- -------- ------------- 1995............ 69.6% 30.4% 61.1% 38.9% 1994............ 61.1 38.9 64.4 35.6 1993............ 68.1 31.9 59.7 40.3
TRADING The Bank trades gold and silver bullion, both for immediate delivery and for delivery in the future, buys and sells options on precious metals and engages in various arbitrage activities in the precious metals markets. The Bank is a dealer in gold and silver bullion and coins that are sold to commercial and industrial users and investors. The Bank generally hedges its inventory against price fluctuations. At December 31, 1995 and 1994, approximately $22.4 million and $8.8 million, respectively, of the Bank's inventory in precious metals was unhedged. The Bank's precious metals capabilities include global wholesale trading in gold, silver, platinum and palladium, including spot, forward and options dealing, as well as providing financial services in gold loans to central banks, international financial institutions and institutional investors. The Bank also offers production and inventory financing to mining companies, industrial manufacturers and end-users. The Bank's bullion banking operations in Sydney and Hong Kong also engage in global wholesale trading in gold, silver, platinum and palladium, as well as production and inventory financing. Precious metals operations are also conducted in London by the Bank which is one of the five members of the London Gold Fixing. The Bank is also an active participant in the foreign exchange markets where it engages in trading and market-making activities, as well as dealing in banknotes. Republic Forex Options Corporation, an operating subsidiary of the Bank, is a foreign currency options participant on the Philadelphia Stock Exchange, a market-maker in foreign currency options and trades for its own account. Trading account profits and commissions consist of income from trading derivative products and dealing in international debt securities and securities of the U.S. Government and its agencies. The Bank's derivative products group acts as principal in trading interest rate and currency swaps and options on these products as well as products related to the performance of various indices. The Bank intends to expand its emerging market trading activities in 1996 to include acting as a dealer in certain financial instruments, such as certificates of deposit issued by foreign banks, situated primarily in Mexico, Brazil and Argentina, Brady Bonds, including forward sales and options on such bonds, local currency instruments, eurobonds, syndicated bank loans and certain other products. The Bank's customers for these products include financial institutions, multinational corporations, other institutional investors and high-net-worth individuals. 2 OTHER FINANCIAL SERVICES REPUBLIC FACTORS CORP. Factors is a wholly-owned subsidiary of the Corporation. Factors purchases, without recourse, accounts receivable from approximately 450 clients. These receivables are due on average in 60 days from more than 55,000 customers primarily in the retail apparel industry throughout the United States. In addition, certain clients receive payment for these receivables prior to their maturity date. From time to time, Factors makes advances in excess of the receivables purchased. These advances are seasonal in nature and may be either secured or unsecured. Letters of credit accommodations are also provided. For these services, Factors earns commissions, interest and service fees. For the year ended December 31, 1995, Factors factored approximately $5.3 billion of sales, making it the fifth largest factoring concern in the United States based on such sales volume. Factors' headquarters and principal office is located at 452 Fifth Avenue, New York, New York 10018. In addition, Factors has offices located in Los Angeles, California and Charlotte, North Carolina. REPUBLIC NEW YORK SECURITIES CORPORATION RNYSC, a wholly-owned subsidiary of the Corporation, commenced operations in 1992 as a full-service securities broker primarily serving institutional investors and high-net-worth individuals. On January 10, 1994, the Board of Governors of the Federal Reserve System (the "FRB") granted approval to RNYSC to underwrite and deal in all forms of debt and equity securities. RNYSC is a registered broker-dealer with the SEC and is a member of the NASD and the New York Stock Exchange, Inc. In addition, it is an associate member of the American Stock Exchange and the Philadelphia Stock Exchange. In 1995, RNYSC opened branch offices in Chicago, Illinois and Philadelphia, Pennsylvania. RNYSC is also registered with the Commodity Futures Trading Commission and the National Futures Association as a futures commission merchant and a commodity trading advisor. As such, RNYSC acts primarily as a commodities broker to the Bank, executing futures contracts and options on futures contracts for the Bank's account. RNYSC trades in futures and options on futures in non-financial commodities, including contracts on energy products, agricultural products and non-precious metals. RNYSC facilitates the Bank's activities as a dealer in precious metals, financial instruments and foreign exchange. In addition, RNYSC acts as a futures commission merchant and commodity trading advisor for the general public. RNYSC is a clearing member of the Chicago Mercantile Exchange, Chicago Board of Trade and New York Mercantile Exchange, including its Comex Division. RNYSC is a non-clearing member of the New York Futures Exchange, the Coffee, Sugar and Cocoa Exchange and Philadelphia Board of Trade. SAFRA REPUBLIC HOLDINGS S.A. The Bank has a 49.2% investment in Safra Republic Holdings, S.A ("Safra Republic"), a Luxembourg holding company, principally engaged, through wholly- owned banking subsidiaries in Switzerland, Luxembourg, France, Guernsey and Gibraltar, in international private banking and commercial banking, offering a range of private banking services primarily to wealthy individuals. At December 31, 1995, Saban S.A., the Corporation's principal stockholder, owned approximately 20.9%, and international investors owned approximately 29.9% of the outstanding shares of Safra Republic. The shares of Safra Republic are listed on the Geneva, Zurich and Luxembourg Stock Exchanges, pre-market traded on the Basle Stock Exchange and traded over-the-counter in London on the SEAQ. At December 31, 1995, Safra Republic had total assets of $15.7 billion, total deposits of $11.3 billion and total shareholders' equity of approximately $1.5 billion. Safra Republic's client services include the accepting of a wide variety of deposits and the execution of transactions in foreign exchange, precious metals, securities and banknotes. Safra Republic also provides credit facilities, portfolio management and investment advisory services and safekeeping and other fiduciary services. In addition, Safra Republic offers commercial banking services to governments, government agencies, banks and corporations. Safra Republic's headquarters and principal office is located at 32, Boulevard Royal, 2449 Luxembourg. Safra Republic's subsidiary banks are headquartered or have branches in Geneva, Lugano and Zurich, Switzerland; Paris, France; and Monaco, Luxembourg, Gibraltar and Guernsey. For the year ended December 31, 1995, Safra Republic met the significant subsidiary test under SEC Regulation S-X. This regulation requires that separate financial statements of subsidiaries not consolidated and 50% or less owned entities must be presented when the significant subsidiary test is met. The financial statements of Safra Republic are included in "Affiliate Financial Statements" in "Financial Statements and Supplementary Data" elsewhere in this Report. COMPETITION All of the Corporation's financial activities are highly competitive. It competes actively with other commercial banks, savings and loan associations, financing companies, credit unions and other financial service providers located throughout the United States and, in some of its activities, with government agencies. It is too early to assess the impact, if any, of the Interstate Banking and Branching Efficiency Act of 1994 on the Corporation. For international business, the Corporation competes with other United States financial service providers which have foreign installations and with other major foreign financial service providers located throughout the world. 3 EMPLOYEES As of December 31, 1995, the Corporation had approximately 4,900 full-time employees. CUSTOMERS It is the opinion of management that there is no single customer or affiliated group of customers whose deposits, if withdrawn, would have a material adverse effect on the business of the Corporation. SUPERVISION AND REGULATION As a bank holding company registered under the Bank Holding Company Act of 1956, as amended (the "BHCA"), the Corporation is subject to substantial regulation and supervision by the FRB. The Corporation's subsidiary banks are subject to regulation and supervision by federal bank regulatory agencies, including the Office of the Comptroller of the Currency (the "OCC") and the Federal Deposit Insurance Corporation (the "FDIC"). Federal banking and other laws impose a number of requirements and restrictions on the operations of depository institutions. In addition, the Corporation and certain of its banking subsidiaries and branches located outside the United States are subject to the requirements of and supervision by the regulatory authorities in the countries in which they operate. Pursuant to the BHCA, the Corporation and its subsidiaries are generally precluded from engaging in nonbanking activities, or from acquiring more than 5% of the voting securities of any company engaged in activities other than banking, managing or controlling banks or furnishing services to the Corporation or its subsidiaries, unless the FRB determines that such activities are closely related to banking. Under a long-standing policy of the FRB, the Corporation is expected to act as a source of financial strength for its subsidiary banks. As a result of such policy, the Corporation may be required to commit resources to its subsidiary banks in circumstances where it might not do so absent such policy. The Corporation and its subsidiary banks are subject to certain regulatory capital requirements. Under certain provisions, the Corporation could be held liable for capital deficiencies of its bank subsidiaries. In such a case, banking regulations would require the subsidiary bank to develop a capital restoration plan, and compliance with such plan must be guaranteed by the parent corporation. The FRB and the OCC exercise overall regulatory control over Safra Republic. In addition, the Luxembourg Monetary Institute (the "IML"), by virtue of the European Directive on consolidated supervision, exercises prudential consolidated supervisory responsibilities and oversees the local subsidiaries' compliance with local laws, regulations and banking practices. RNYSC is subject to the supervision and regulation of the FRB, the SEC, the New York Stock Exchange, the NASD, the National Futures Association, the Commodity Futures Trading Commission, and other stock and commodity exchanges and clearinghouses of which it is a member. Both RNYSC and RFSC are subject to the rules and regulations applicable to broker-dealers in each state in which they operate. RFSC is also subject to the regulations of the SEC and the NASD. The Corporation's ability to pay dividends is dependent upon its receipt of dividends from its subsidiaries and on its earnings from investments. National banks may use only capital surplus that represents earnings, not paid-in capital, when calculating permissible dividends. The approval of the OCC is required if the total of all dividends declared or proposed to be declared by the Bank in any calendar year exceeds the Bank's net profits, as defined, for that year, combined with its retained net profits for the preceding two calendar years. The OCC also has authority to prohibit a national bank from engaging in what, in its opinion, constitutes an unsafe or unsound practice in conducting its business. The payment of dividends could, depending upon the financial condition of the Bank, be deemed to constitute such an unsafe or unsound practice. Based on the Bank's financial position at December 31, 1995, the Bank may declare dividends in 1996, without regulatory approval, of approximately $335 million plus an additional amount equal to its net profits for 1996 up to the date of any dividend declaration. There are no regulatory or contractual restrictions on Factors' ability to pay dividends to the Corporation. Pursuant to the SEC's Uniform Net Capital Rule, neither RNYSC nor RFSC may pay cash dividends if doing so would reduce the company's net capital ratio to less than 5 percent. ITEM 2. PROPERTIES The Corporation has its principal offices in its world headquarters building at 452 Fifth Avenue, New York, New York 10018, which is owned and occupied principally by the Bank, and also owns properties in Miami, Florida; Buenos Aires, Argentina; Santiago, Chile; Montevideo, Uruguay; Mexico City, Mexico; Milan, Italy, and London, England, which house the Bank's or its subsidiaries' offices in those locations. The Bank also owns other properties in New York City, which are principally occupied by branches. All of the remainder of the Corporation's offices and other facilities throughout the world are leased. ITEM 3. LEGAL PROCEEDINGS The nature of its business generates a certain amount of litigation against the Corporation involving matters arising in the ordinary course of the Corporation's business. None of the legal proceedings currently pending or threatened to which the Corporation 4 or its subsidiaries is a party or to which any of their properties are subject will have, in the opinion of management of the Corporation, a material effect on the business or financial condition of the Corporation or its subsidiaries. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No meetings of security holders were held during the fourth quarter of 1995. PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The Common Stock of the Corporation is listed on the New York Stock Exchange (ticker symbol RNB) and the London Stock Exchange. At December 31, 1995, there were 2,869 stockholders of record of outstanding Common Stock of the Corporation. The following table presents the range of high, low and closing sale prices reported on the New York Stock Exchange Composite Tape and cash dividends declared for each quarter during the past two years.
1995 1994 -------------------------------- ---------------------------------- FOURTH THIRD SECOND FIRST FOURTH THIRD SECOND FIRST QTR. QTR. QTR. QTR. QTR. QTR. QTR. QTR. ------ ----- ------ ----- ------ ----- ------ ----- Common stock sale price: High................... $ 65 $ 60 1/2 $ 56 $ 49 7/8 $ 46 1/4 $ 46 3/4 $ 50 1/4 $ 52 1/4 Low.................... 57 7/8 53 7/8 46 7/8 44 3/4 41 7/8 43 1/2 45 45 7/8 Close.................. 62 1/8 58 1/2 56 49 1/8 45 1/4 43 1/2 46 1/8 48 1/8 Cash dividends declared............... .36 .36 .36 .36 .33 .33 .33 .33
The dividend rate on Common Stock has been increased annually since such payments began in 1975. The table below shows the annual dividend rate and dividend payout ratio, (dividends declared per common share divided by fully diluted earnings per common share) in each of the last five years adjusted for a three-for-two stock split in 1991.
1995 1994 1993 1992 1991 ----- ----- ----- ----- ----- Dividends declared per common share.......... $1.44 $1.32 $1.08 $1.00 $0.95 Dividend payout ratio........................ 31.37% 23.53% 21.39% 23.15% 24.36%
The quarterly dividend rate on Common Stock has been increased to $.38 per share commencing with the dividend payable April 1, 1996. ITEM 6. SELECTED FINANCIAL DATA For information regarding selected financial highlights, see "Supplementary Data" in "Financial Statements and Supplementary Data" elsewhere in this Report. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS INTRODUCTION During 1995, the Corporation implemented Project Excellence Plus, a company- wide project to improve operating efficiencies and to reduce costs. As a result, the Corporation recorded a pre-tax provision for restructuring and related charges of $120.0 million in the second quarter of the year which reduced earnings by approximately $1.44 per fully diluted common share. The Corporation is continuing to focus on improving operating efficiencies and reducing costs. Net income was $288.6 million in 1995, compared to $340.0 million and $301.2 million in 1994 and 1993, respectively. Fully diluted earnings per share were $4.59 in 1995, $5.61 in 1994 and $5.05 in 1993. The Corporation's risk-based capital ratios, which include the risk-weighted assets and capital of Safra Republic, were 14.72% for Tier 1 capital and 24.96% for total capital at December 31, 1995. These ratios substantially exceed the regulatory minimums for bank holding companies of 4% for Tier 1 capital and 8% for total capital. Total average interest-earning assets were $32.7 billion in 1995, with approximately 50% invested in securities of the U.S. Government and its agencies, and interest-bearing deposits with banks. Average loans in domestic offices of $6.6 billion represented approximately 20% of average interest- earning assets in 1995. Average loans in foreign offices of $2.9 billion represented less than 10% of total average interest-earning assets in 1995. Non-accrual loans were $67.9 million at year end 1995, or 0.69% of total loans outstanding, compared to 0.65% at year end 1994. At December 31, 1995, the allowance for possible loan losses was $300.6 million, or 3.05% of loans outstanding and 443% of non-performing loans. 5 Income from trading activities was $175.8 million in 1995, compared to $169.3 million in 1994. Declines in income from derivative products and precious metals activities were offset by higher levels of income from foreign exchange trading. Earnings from Safra Republic rose to $79.5 million in 1995 from $77.4 million in 1994. The Corporation's returns on average total assets and average common stockholders' equity, based on net income applicable to common stock, were 0.61% and 11.73%, respectively in 1995. The book value per common share rose to $43.24 at year end 1995 from $37.38 at year end 1994. RESULTS OF OPERATIONS The following table presents condensed consolidated statements of income for the Corporation for each of the years in the three-year period ended December 31, 1995. These statements differ from the Corporation's consolidated financial statements presented elsewhere in this Report in that net interest income is presented on a fully-taxable equivalent basis. The tax equivalent adjustment, related to certain tax exempt instruments, permits all interest income and net interest income to be analyzed on a comparable basis. The rate used for this adjustment, which is reflected throughout this section, is 44%.
INCREASE (DECREASE) INCREASE (DECREASE) -------------------- -------------------- 1995 AMOUNT % 1994 AMOUNT % 1993 ---------- ------------ ------- ---------- ------------ ------- ---------- (DOLLARS IN THOUSANDS) Interest income......... $2,481,959 $ 273,138 12.4 $2,208,821 $ 244,415 12.4 $1,964,406 Interest expense........ 1,627,772 300,917 22.7 1,326,855 169,780 14.7 1,157,075 ---------- ----------- ---------- ----------- ---------- Net interest income..... 854,187 (27,779) (3.1) 881,966 74,635 9.2 807,331 Provision for loan losses................. 12,000 (7,000) (36.8) 19,000 (66,000) (77.6) 85,000 ---------- ----------- ---------- ----------- ---------- Net interest income after provision for loan losses............ 842,187 (20,779) (2.4) 862,966 140,635 19.5 722,331 Other operating income.. 412,881 26,513 6.9 386,368 (9,104) (2.3) 395,472 Other operating expenses............... 821,665 100,189 13.9 721,476 86,511 13.6 634,965 ---------- ----------- ---------- ----------- ---------- Income before income taxes.................. 433,403 (94,455) (17.9) 527,858 45,020 9.3 482,838 ---------- ----------- ---------- ----------- ---------- Income taxes............ 109,466 (42,892) (28.2) 152,358 2,205 1.5 150,153 Tax equivalent adjustment............. 35,288 (204) (0.6) 35,492 4,012 12.7 31,480 ---------- ----------- ---------- ----------- ---------- Total applicable income taxes.................. 144,754 (43,096) (22.9) 187,850 6,217 3.4 181,633 ---------- ----------- ---------- ----------- ---------- Net income.............. $ 288,649 $ (51,359) (15.1) $ 340,008 $ 38,803 12.9 $ 301,205 ========== =========== ======= ========== =========== ======= ========== Net income applicable to common stock........... $ 252,182 $ (53,416) (17.5) $ 305,598 $ 32,808 12.0 $ 272,790 ========== =========== ======= ========== =========== ======= ==========
NET INTEREST INCOME The following table contains information on the Corporation's average asset and liability structure and rates earned and paid in each of the years in the three-year period ended December 31, 1995, which are discussed throughout this section.
YEAR ENDED DECEMBER 31, -------------------------------------------------------------------------------------------- 1995 1994 1993 ------------------------------ ------------------------------ ------------------------------ AVERAGE AVERAGE AVERAGE INTEREST RATES INTEREST RATES INTEREST RATES AVERAGE INCOME/ EARNED/ AVERAGE INCOME/ EARNED/ AVERAGE INCOME/ EARNED/ BALANCE EXPENSE PAID BALANCE EXPENSE PAID BALANCE EXPENSE PAID ----------- ---------- ------- ----------- ---------- ------- ----------- ---------- ------- (DOLLARS IN THOUSANDS) Interest-earning as- sets: Interest-bearing de- posits with banks.... $ 7,627,905 $ 526,185 6.90% $ 7,878,149 $ 414,294 5.26% $ 7,452,339 $ 295,871 3.97% Investment securi- ties(1): Taxable............... 11,687,830 927,740 7.94 11,965,375 871,785 7.29 13,190,788 847,022 6.42 Exempt from federal income taxes(2)...... 1,320,208 125,032 9.47 1,191,303 112,275 9.42 987,139 96,892 9.82 ----------- ---------- ----------- ---------- ----------- ---------- Total investment se- curities............ 13,008,038 1,052,772 8.09 13,156,678 984,060 7.48 14,177,927 943,914 6.66 Trading account as- sets(3).............. 966,483 55,736 5.77 1,014,942 55,736 5.49 969,986 54,467 5.62 Federal funds sold and securities purchased under resale agreements........... 1,567,809 97,547 6.22 1,418,607 57,915 4.08 1,069,247 34,323 3.21 Loans, net of unearned income(4): Domestic offices...... 6,637,384 551,579 8.31 6,606,904 499,985 7.57 6,422,421 483,474 7.53 Foreign offices....... 2,890,341 198,140 6.86 3,287,291 196,831 5.99 2,468,138 152,357 6.17 ----------- ---------- ----------- ---------- ----------- ---------- Total loans, net of unearned income..... 9,527,725 749,719 7.87 9,894,195 696,816 7.04 8,890,559 635,831 7.15 ----------- ---------- ----------- ---------- ----------- ---------- Total interest-earn- ing assets.......... 32,697,960 $2,481,959 7.59% 33,362,571 $2,208,821 6.62% 32,560,058 $1,964,406 6.03% ========== ==== ========== ==== ========== ==== Cash and due from banks................. 607,169 664,665 587,551 Other assets(5)........ 8,209,707 7,394,711 4,223,717 ----------- ----------- ----------- Total assets......... $41,514,836 $41,421,947 $37,371,326 =========== =========== ===========
6
YEAR ENDED DECEMBER 31, -------------------------------------------------------------------------------------------- 1995 1994 1993 ------------------------------ ------------------------------ ------------------------------ AVERAGE AVERAGE AVERAGE INTEREST RATES INTEREST RATES INTEREST RATES AVERAGE INCOME/ EARNED/ AVERAGE INCOME/ EARNED/ AVERAGE INCOME/ EARNED/ BALANCE EXPENSE PAID BALANCE EXPENSE PAID BALANCE EXPENSE PAID ----------- ---------- ------- ----------- ---------- ------- ----------- ---------- ------- (DOLLARS IN THOUSANDS) Interest-bearing funds: Consumer and other time deposits................ $ 7,650,443 $ 318,874 4.17% $ 7,933,799 $ 246,133 3.10% $ 8,274,344 $ 253,012 3.06% Certificates of deposit.. 871,289 48,573 5.57 619,916 26,325 4.25 705,536 22,823 3.23 Deposits in foreign of- fices................... 12,769,411 770,628 6.03 12,064,790 555,332 4.60 10,680,094 413,399 3.87 ----------- ---------- ----------- ---------- ----------- ---------- Total interest-bearing deposits............... 21,291,143 1,138,075 5.35 20,618,505 827,790 4.01 19,659,974 689,234 3.51 Trading account liabili- ties(3)................. 37,117 2,561 6.90 145,993 8,736 5.98 143,756 6,699 4.66 Short-term borrowings.... 4,609,403 216,243 4.69 5,574,157 209,793 3.76 5,236,703 191,070 3.65 Total long-term debt..... 4,120,206 270,893 6.57 4,924,002 280,536 5.70 4,637,595 270,072 5.82 ----------- ---------- ----------- ---------- ----------- ---------- Total interest-bearing funds.................. 30,057,869 $1,627,772 5.42% 31,262,657 $1,326,855 4.24% 29,678,028 $1,157,075 3.90% ========== ==== ========== ==== ========== ==== Noninterest-bearing depos- its: In domestic offices...... 1,514,908 1,368,838 1,189,192 In foreign offices....... 116,881 109,490 101,908 Other liabilities......... 7,039,751 6,039,394 4,036,916 Stockholders' equity: Preferred stock.......... 635,457 630,592 556,425 Common stockholders' eq- uity.................... 2,149,970 2,010,976 1,808,857 ----------- ----------- ----------- Total stockholders' eq- uity................... 2,785,427 2,641,568 2,365,282 ----------- ----------- ----------- Total liabilities and stockholders' equity... $41,514,836 $41,421,947 $37,371,326 =========== =========== =========== Interest income/earning assets................... $2,481,959 7.59% $2,208,821 6.62% $1,964,406 6.03% Interest expense/earning assets................... 1,627,772 4.98 1,326,855 3.98 1,157,075 3.55 ---------- ---- ---------- ---- ---------- ---- Net interest differen- tial..................... $ 854,187 2.61% $ 881,966 2.64% $ 807,331 2.48% ========== ==== ========== ==== ========== ====
- ------- (1) Based on amortized or historic cost with the mark-to-market adjustment on securities available for sale included in other assets. (2) Income has been fully adjusted to a fully-taxable equivalent basis. The rate used for this adjustment was approximately 44%. (3) Excludes non-interest bearing balances which are included in other assets or other liabilities, respectively. (4) Including non-accrual loans. (5) Including allowance for possible loan losses. Net interest income declined $27.8 million, or 3.1%, to $854.2 million in 1995, compared to $882.0 in 1994. This decline was due to narrower spreads, as the cost of interest-bearing funds rose more than the yields on interest- earning assets. Average interest-earning assets declined 2.0% to $32.7 billion in 1995 from $33.4 billion in 1994. Net interest rate differential declined to 2.61% in 1995, compared to 2.64% in 1994. Net interest income in 1995 included a one-time increase of $5.9 million attributable to converting financial reporting of Factors and the Corporation's operations in Chile and Uruguay to a current basis in the fourth quarter. In the fourth quarter of 1994, net interest income included a similar addition amounting to $6.3 million attributable to the Corporation's operations in Hong Kong and Singapore. The Corporation's short-term incremental investments in Brazil averaged approximately $250 million during 1995. During the first quarter of 1995, temporary investments in short-term assets in Brazil contributed approximately 6.0% of interest income. For the year 1995, these investments contributed approximately 2.6% of interest income. During the second half of 1994, the Corporation benefited from the improving economic trends in Brazil by increasing the level of short-term investments in its financial markets. This incremental investment averaged approximately $120 million for 1994 and $300 million in the fourth quarter of such year and contributed approximately 2.0% of interest income for the year 1994. The Brazilian economy has been extremely volatile over the past decade. Currently, the underlying fundamentals of the Brazilian economy appear sound. If the Corporation were to decrease its exposure to Brazil, similar spreads might not be available elsewhere. In addition, if the overall credit outlook for Brazil continues to improve, the spreads available on the Corporation's investments may decrease. For additional information related to the Corporation's cross-border net outstandings to Brazil, see "Asset Management-- Cross-border Outstandings--Brazil" in this section of this Report. At year ends 1995 and 1994, the gross notional amount of off-balance-sheet contracts used in asset and liability management was approximately $9.8 billion and $9.5 billion, respectively. The market value of these off-balance- sheet contracts was a loss of approximately $121 million at year end 1995 and a gain of $63 million at year end 1994. At December 31, 1995, the net effect of these hedging transactions decreased the net interest rate differential by 3 basis points, compared to a decrease of 2 basis points at year end 1994. Net interest income increased $74.7 million, or 9.2%, to $882.0 million in 1994, compared to $807.3 million in 1993. This increase was due to yields on interest-earning assets rising faster than the cost of interest-bearing funds during the year. Average interest-earning assets rose to $33.4 billion from $32.6 billion in 1993. The net interest rate differential rose to 2.64% in 1994, compared to 2.48% in 1993. Net interest income in 1994 included $6.3 million attributable to converting the financial reporting of the Corporation's Hong Kong and Singapore operations to a current basis in the fourth quarter. These operations had been reporting on a one-month delay basis. Also included in 1994 net interest income is $5.0 million of prepayment penalties resulting from the refinancing of certain commercial loans. 7 The Corporation also took significant steps during 1994 to fix the cost of its liabilities over a five-year time horizon through a program which included entering into pay-fixed swaps and purchasing caps with a notional value of $3.4 billion and final maturities ranging from 1996 to 1999. A portion of the long-term U.S. Government securities portfolio with a face value of $3.4 billion was sold, primarily during the second quarter, and replaced with shorter term interest-earning assets. The reduction in net interest margin resulting from this program was partially offset by earnings attributable to the increased margin from retail funds that have not increased in cost as rapidly as the rise in market rates. The following table presents changes in the levels of interest income and interest expense attributable to changes in volume or rate. Changes not solely due to volume or rate are allocated to volume.
INCREASE (DECREASE) ---------------------------------------------------------- 1995 VS. 1994 1994 VS. 1993 ---------------------------- ---------------------------- AVERAGE AVERAGE AVERAGE AVERAGE VOLUME RATE TOTAL VOLUME RATE TOTAL -------- -------- -------- -------- -------- -------- (IN THOUSANDS) Interest income from: Interest-bearing de- posits with banks.... $(17,311) $129,202 $111,891 $ 22,288 $ 96,135 $118,423 Taxable securities.... (21,820) 77,775 55,955 (89,997) 114,760 24,763 Securities exempt from federal income tax- es................... 12,161 596 12,757 19,332 (3,949) 15,383 Trading account as- sets................. (2,842) 2,842 -- 2,530 (1,261) 1,269 Federal funds sold and securities purchased under resale agreements........... 9,274 30,358 39,632 14,290 9,302 23,592 Loans, net of unearned income: Domestic offices.... 2,703 48,891 51,594 13,942 2,569 16,511 Foreign offices..... (27,290) 28,599 1,309 48,917 (4,443) 44,474 -------- -------- -------- -------- -------- -------- Total interest on loans............ (24,587) 77,490 52,903 62,859 (1,874) 60,985 -------- -------- -------- -------- -------- -------- Total interest in- come............. (45,125) 318,263 273,138 31,302 213,113 244,415 -------- -------- -------- -------- -------- -------- Interest expense on: Consumer and other time deposits........ (12,151) 84,892 72,741 (10,189) 3,310 (6,879) Certificates of depos- it................... 14,065 8,183 22,248 (3,694) 7,196 3,502 Deposits in foreign offices.............. 42,770 172,526 215,296 63,968 77,965 141,933 Trading account lia- bilities............. (7,518) 1,343 (6,175) (4,662) 6,699 2,037 Short-term borrrowings.......... (45,390) 51,840 6,450 12,963 5,760 18,723 Total long-term debt.. (52,482) 42,839 (9,643) 16,029 (5,565) 10,464 -------- -------- -------- -------- -------- -------- Total interest ex- pense............ (60,706) 361,623 300,917 74,415 95,365 169,780 -------- -------- -------- -------- -------- -------- Change in net interest income................. $ 15,581 $(43,360) $(27,779) $(43,113) $117,748 $ 74,635 ======== ======== ======== ======== ======== ========
PROVISION FOR LOAN LOSSES The Corporation determines its provision for loan losses based on factors such as past loan loss experience, the composition of the loan portfolio and other potential credit exposures and prevailing worldwide economic conditions. The provision for loan losses declined to $12 million in 1995, compared to $19 million in 1994 and $85 million in 1993. In 1995, a weakening in the domestic chain store sector contributed to higher levels of domestic charge-offs that were partially offset by recoveries from foreign debtors in foreign restructuring countries. For additional information on loan charge-offs and recoveries, see "Asset Management--Allowance for Possible Loan Losses" in this section of this Report. Net charge-offs were $31.3 million in 1995, compared to $11.4 million in 1994. The allowance for possible loan losses was $300.6 million at year end 1995, or 3.05% of loans outstanding, net of unearned income, a decline of $18.6 million from the $319.2 million at year end 1994. The allowance for possible loan losses was $311.9 million at year end 1993. OTHER OPERATING INCOME The following table presents the principal categories of other operating income and the increase (decrease) for each of the years in the three-year period ended December 31, 1995.
INCREASE (DECREASE) INCREASE (DECREASE) ------------------------ ------------------------ 1995 AMOUNT % 1994 AMOUNT % 1993 -------- -------- ----- -------- -------- ----- -------- (DOLLARS IN THOUSANDS) Trading income: Income from precious metals................. $ 38,049 $(12,881) (25.3) $ 50,930 $ 13,020 34.3 $ 37,910 Foreign exchange trading income................. 113,051 22,023 24.2 91,028 (20,544) (18.4) 111,572 Trading account profits and commissions........ 24,746 (2,611) (9.5) 27,357 (51,385) (65.3) 78,742 -------- -------- -------- -------- -------- Total trading income.. 175,846 6,531 3.9 169,315 (58,909) (25.8) 228,224 Investment securities gains, net............. 25,663 10,692 71.4 14,971 13,676 * 1,295 Net gain (loss) on loans sold or held for sale.. 6,765 5,002 * 1,763 2,606 * (843) Commission income....... 56,935 (362) (0.6) 57,297 6,341 12.4 50,956 Equity in earnings of affiliate.............. 79,481 2,105 2.7 77,376 17,913 30.1 59,463 Other income............ 68,191 2,545 3.9 65,646 9,269 16.4 56,377 -------- -------- -------- -------- -------- $412,881 $ 26,513 6.9 $386,368 $ (9,104) (2.3) $395,472 ======== ======== ===== ======== ======== ===== ========
- ------- * Exceeds 200% 8 Precious Metals Income from precious metals is derived from the Corporation's activities as a dealer in gold and silver bullion and coins sold to commercial and industrial users and investors, as well as its trading and arbitrage activities in the precious metals markets. Income from precious metals was $38.0 million in 1995, as compared to $50.9 million in 1994 and $37.9 million in 1993. During 1995, certain arbitrage and straddle opportunities normally available in the precious metals markets were significantly reduced and contributed to the decline in income from 1994. The increase in precious metals income in 1994, compared to 1993, reflects the contribution made from a full year of operations attributable to the bullion banking operations acquired at the end of 1993. In addition, arbitrage activity, as opposed to trading, contributed a substantial portion of income from precious metals. The fluctuations in this income in each of the last three years reflects volatility in price and volume in the precious metals markets. Foreign Exchange Foreign exchange trading income is derived from trading and market-making activities in foreign currencies, transactions that service the needs of the Corporation's customers, including other banks and corporations, and dealings in banknotes, principally in New York, London and locations in the Far East. Foreign exchange trading income rose to $113.1 million from $91.0 million in 1994, which declined from $111.6 million in 1993. The growth in the global demand for banknotes and turbulence in European and Latin American currency markets had a favorable impact on this income in 1995 and 1994. In addition, 1995 also benefited from higher levels of income from market-making activities. Trading Account Trading account profits and commissions consist of income from trading derivative products and dealing in international debt securities and securities of the U.S. Government and its agencies. The Corporation's derivative products group acts as principal in trading interest rate and currency swaps and options on these products, as well as products related to the performance of various indices. This group operates in New York and London. The group's activities in 1995 generated trading revenues of $10.3 million, compared to $14.9 million in 1994 and $48.8 million in 1993 when the group began operations. The Corporation's strategy includes providing financial services to meet the changing needs of its customers. The level of activity and revenues related to off-balance-sheet activities was lower in 1995 than in 1994. The declines in each of the last two years, when compared to the respective prior year, were attributable primarily to lower levels of customer activity in foreign exchange and derivative products reflecting generally reduced activity in global markets due to the high level of market uncertainty that existed during this period. For additional information related to derivative instruments, see Notes 3, 16 and 17 of "Notes to Consolidated Financial Statements" in "Financial Statements and Supplementary Data" elsewhere in this Report. Trading account profits and commissions also includes the results of dealing in fixed and variable rate debt securities denominated in all major currencies with large financial institutions, including investment banks, multinational organizations and high-net-worth individuals, as well as dealing in other financial market instruments such as forward rate agreements, principally through the Corporation's London eurobond trading subsidiary. During the first quarter of 1996, the Corporation will expand its emerging markets customers sales desk to a full trading and sales desk incorporating its South and Central American offices. Investment Securities Gains The Corporation realized net investment securities gains of $25.7 million in 1995, $15.0 million in 1994 and $1.3 million in 1993. In 1995, sales of emerging market securities and securities which were redeemed by the issuer prior to their scheduled maturity, resulted in gains of $9.8 and $7.2 million, respectively. In 1994, gains of $52.0 million were realized on the sale of Argentine equities acquired in a 1990 debt-for-equity swap, and gains of $26.9 million were realized on the sale of all of the securities received in connection with Brazil's debt restructuring. Also in 1994, net losses of $63.9 million were incurred primarily as a result of the disposition of securities sold as part of the Corporation's asset-liability management program. The proceeds from securities sold were reinvested in other high-quality, interest- earning assets. Loans Sold or Held for Sale Net gains on loans sold or held for sale were $6.8 million in 1995 and $1.8 million in 1994, compared to net losses of $0.8 million in 1993. The net gains in 1995 resulted primarily from the sale of originated mortgage loans. The Corporation has retained the servicing rights on the loans sold. The net gains in 1994 resulted from the sale of loans of domestic, foreign and restructuring country obligors. Commission Income Commission income includes fees for the collection and transfer of funds and asset management activities. Commission income amounted to $56.9 million in 1995, compared to $57.3 million in 1994 and $51.0 million in 1993. Commission income included fees for the issuance of letters of credit and the creation of acceptances of $18.9 million in both 1995 and 1994 and $18.0 million in 1993. Commission income from the broker dealer business in the securities subsidiary amounted to $4.4 million in 1995, compared to $6.2 million in 1994 and $4.6 million in 1993. Affiliate Earnings Equity in earnings of affiliate, representing the Corporation's share of the earnings of Safra Republic, was $79.5 million in 1995, compared to $77.4 million in 1994 and $59.5 million in 1993. 9 The following table presents summary information for Safra Republic for each of the last three years.
1995 1994 1993 ------------ ------------ ------------ (IN THOUSANDS EXCEPT PER SHARE DATA) At December 31: Total assets............................ $ 15,660,544 $ 12,487,010 $ 11,349,966 Interest-bearing deposits with banks.... 6,058,483 5,232,408 3,660,414 Loans, net of unearned income........... 1,443,803 1,306,545 1,128,746 Allowance for possible loan losses...... 130,300 124,774 102,204 Non-performing loans.................... 19,697 13,454 23,190 Total deposits.......................... 11,347,601 9,363,840 7,344,562 Total shareholders' equity.............. $ 1,467,807 $ 1,246,353 $ 1,280,755 For the year: Net interest income..................... $ 235,402 $ 224,478 $ 221,188 Provision for loan losses............... 1,000 12,000 80,987 Other operating income.................. 95,508 91,376 114,400 Other operating expenses................ 157,635 136,044 124,887 Net income.............................. 162,104 158,575 121,595 Earnings per common share............... $ 9.16 $ 8.94 $ 6.87 Average common shares outstanding....... 17,692 17,738 17,703
For additional information on Safra Republic and its relationship with the Corporation, see Note 6 of "Notes to Consolidated Financial Statements" and "Affiliate Financial Statements" in "Financial Statements and Supplementary Data" elsewhere in this Report. Other Income Other income consists of service charges on deposit accounts, trust department income, other income from factoring activities, fees for precious metals storage and correspondent securities clearing fees. Other income in 1995 was $68.2 million and included gains of $1.3 million on the sale of a New York retail branch and $2.4 million from the sale of an equipment lease. Other income was $65.6 million in 1994, including a $2.4 million gain on the early extinguishment of $79.9 million principal amount of long-term debt. Other income in 1993 was $56.4 million, which included a $4.0 million loss on the early extinguishment of $234 million principal amount of the Corporation's long-term debt. Excluding the effect of the debt extinguishments, other income increased 5% in 1994 over the respective prior year. OTHER OPERATING EXPENSES The following table presents the principal categories of other operating expenses for each of the years in the three-year period ended December 31, 1995.
INCREASE (DECREASE) INCREASE (DECREASE) ----------------------- ------------------------------ 1995 AMOUNT % 1994 AMOUNT % 1993 -------- -------- ---- -------- ------- ---- -------- (DOLLARS IN THOUSANDS) Salaries and employee benefits............... $381,616 $ 433 0.1 $381,183 $33,676 9.7 $347,507 Occupancy, net.......... 57,975 2,550 4.6 55,425 7,264 15.1 48,161 Other expenses.......... 262,074 (5,794) (2.2) 267,868 28,571 11.9 239,297 -------- -------- -------- ------- -------- 701,665 (2,811) (0.4) 704,476 69,511 10.9 634,965 Restructuring and re- lated charges.......... 120,000 103,000 * 17,000 17,000 * -- -------- -------- -------- ------- -------- Total other operating expenses............. $821,665 $100,189 13.9 $721,476 $86,511 13.6 $634,965 ======== ======== ==== ======== ======= ==== ========
- ------- * Exceeds 200% In the second quarter of 1995, the Corporation recorded a $120.0 million pre-tax provision for restructuring and related charges as a result of the implementation of Project Excellence Plus. The restructuring and related charges in 1994 resulted from a management decision to de-emphasize certain business activities, including those of RNYSC. Total operating expenses before restructuring and related charges were $701.7 million in 1995, $704.5 million in 1994 and $635.0 million in 1993. In addition, the Corporation converted the financial reporting of Factors and its operations in Chile and Uruguay to a current basis in the fourth quarter of 1995. The conversion resulted in a one-time increase to expense of $3.4 million for the year. In 1994, a similar conversion of financial reporting of the Corporation's Hong Kong and Singapore operations resulted in a one-time increase to expenses of $3.0 million. Other increases in total operating expenses in 1994 are attributable primarily to the Corporation's expansion into new business areas during the year. This expansion reflects a full year of operating expenses related to the acquisitions of bullion banking operations, SafraCorp California and Bank Leumi Le Israel (Canada), as well as the addition of staff in trading, domestic private banking and various support areas. 10 Salaries and Employee Benefits Salaries and employee benefits were $381.6 million in 1995, $381.2 million in 1994 and $347.5 million in 1993. The level of salaries and benefits was virtually unchanged between 1995 and 1994, due to the implementation of Project Excellence Plus, with resultant staff reductions throughout the Corporation and lower provisions for employee benefits. Increased levels of staff in new businesses contributed to higher salary expense in 1994. Employee benefits expenses declined in 1994 from 1993, as increased costs for medical, pension and payroll taxes were offset by lower incentive-based compensation. Occupancy Occupancy costs were $58.0 million in 1995, $55.4 million in 1994 and $48.2 million in 1993. The increase in 1995 is primarily attributable to increased rent expense. The 1994 increase is primarily attributable to the new business areas mentioned above and additional costs incurred for home office expansion. Other Expenses All other expenses were $262.1 million in 1995, $267.9 million in 1994 and $239.3 million in 1993. Communication and equipment expenses represent a substantial portion of other expenses and amounted to $73.0 million, $76.1 million and $61.2 million in 1995, 1994 and 1993, respectively. Also, professional fees, consisting of consulting, external legal and audit fees, declined to $30.7 million in 1995 from $35.7 million in 1994 and $31.9 million in 1993. All other expenses include premiums for deposit insurance paid to the FDIC, which were $11.7 million in 1995, compared to $22.6 million in 1994 and $23.1 million in 1993. The decline in this expense in 1995 was the result of a reduction of the premium rate paid for FDIC insurance. Other expenses in 1995 also included the effect of adopting Statement of Financial Accounting Standards ("SFAS") No. 116, which requires that pledges to make charitable contributions be recognized in the period that the funds are unconditionally pledged. This change in the method of accounting for charitable contributions resulted in a $7.5 million, one-time charge. Costs applicable to other real estate in 1995 declined by $2.9 million from the $2.7 million recorded in 1994, following an increase from $2.1 million in 1993. SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," is effective for fiscal years beginning after December 15, 1995. This SFAS establishes the recognition and measurement criteria for impairment losses on long-lived assets, certain identifiable intangibles and goodwill related to those assets to be held and used and for long-lived assets and certain identifiable intangibles to be disposed of. Assets to be held and used are reduced to their estimated fair value if the carrying amount is not expected to be recovered. Assets to be disposed of are reduced to the lower of their carrying amount or fair value less cost to sell. The adoption of this SFAS is not expected to have a material effect on the Corporation's results of operations. TOTAL APPLICABLE INCOME TAXES Total applicable income taxes, which give effect to the taxable equivalent adjustment, declined $43.1 million in 1995 to $144.8 million, following an increase of $6.2 million between 1994 and 1993. The ratio of total applicable income taxes to income before taxes was 33% in 1995, 36% in 1994 and 38% in 1993. The decline in total applicable income taxes and the lower effective income tax rate in 1995 was attributable to lower earnings caused by the provision for restructuring charges and fluctuations in the level of income subject to federal, state and local income taxes. NET INCOME APPLICABLE TO COMMON STOCK Net income applicable to common stock was $252.2 million in 1995, compared to the record $305.6 million in 1994 and $272.8 million in 1993. On a fully diluted basis, earnings per common share were $4.59 in 1995, $5.61 in 1994 and $5.05 in 1993. Dividends declared on the Corporation's issues of preferred stock and the average annual rates paid were as follows: $36.5 million in 1995 at 5.74%, $34.4 million in 1994 at 5.46% and $28.4 million in 1993 at 5.11%. LIABILITY AND ASSET MANAGEMENT Changes in the level of interest rates and the relationship between rates can affect net interest income. In general, the Corporation's on- and off- balance-sheet assets are selected to match both the maturity and interest rate sensitivity of the Corporation's on- and off-balance-sheet liabilities. The structure of the Corporation's liabilities determines the structure of its assets. This practice has two important implications. First, liquidity requirements can be met more readily because a large proportion of assets mature when liabilities mature. Second, the impact of changes in the levels of interest rates on the Corporation is reduced because assets and liabilities have approximately the same interest rate sensitivity. Diversification is another principle employed in the management of liabilities and assets. The Corporation is active in international banking and, in managing this activity, diversifies risks among many countries and counterparties throughout the world. Liabilities, which are mostly interest- bearing deposits and other purchased funds, are obtained from both domestic and international sources. These sources of funds represent a wide range of depositors, mostly individuals, and various types of deposits. The Corporation also raises funds from institutional and individual investors with a variety of marketable instruments. The diversification of the Corporation's funding sources provides stability of the funding base. 11 From time to time, the Corporation's management may decide deliberately to mismatch on- and off-balance-sheet liabilities and assets in a strategic gap position as a means of managing net interest income. Interest rate sensitivity gaps occur when interest-bearing liabilities and interest-earning assets differ in repricing dates and anticipated maturities. Such decisions reflect management's views on the direction of interest rates and general market conditions. The gap position is established with marketable securities of high credit quality in liquid markets and is carefully monitored by management. The Corporation uses off-balance-sheet interest rate derivatives such as interest rate swaps, caps, options and forwards in managing its exposure to interest rate sensitivity resulting from its gap position. The Corporation monitors the near-term interest rate sensitivity of its liability and asset positions by quantifying the earnings at risk to simulated changes in interest rates. A net interest income simulation model measures this sensitivity. This model utilizes Monte Carlo simulation, a statistical technique that allows the Corporation to build variability around current market conditions. Inputs include the maturity and repricing characteristics of the Corporation's on- and off-balance-sheet liability and asset positions as well as assumptions on interest rates, asset prepayments, inter-bank spreads and deposit growth. Given the assumptions used, the model's output projects the variance in net interest income over the next year. The Board of Directors adopted a limit of 5% of annual net interest income at risk, based on this measured interest rate sensitivity. Results are periodically presented to the Asset and Liability Management Committee and to the Board of Directors. Simulation modeling gives a broader view of net interest income variability than does traditional gap analysis, allowing the Corporation to capture more variables that are interest rate sensitive and to explore interrelationships between variables. To complement the simulation model, the Corporation employs traditional gap analysis to provide information on longer term interest rate sensitivity. The table below illustrates the Corporation's interest rate sensitivity gap position at December 31, 1995 and 1994. The interest rate sensitivity gap, which is the difference between interest-earning assets and liabilities, is presented by repricing period, based upon maturity or first repricing opportunity, along with a cumulative interest rate sensitivity gap. Factors considered are the contractual terms of the underlying obligations, including off-balance-sheet items such as interest rate swaps and caps, as well as management's estimates of prepayment patterns of mortgage-backed securities and interest sensitivity of core deposits. It is important to note that the table indicates a position at a specific point in time and may not be reflective of positions at other times during the year or in subsequent periods. Major changes in the gap position can be, and are, made promptly as market outlooks change. In addition, significant variations in interest rate sensitivity may exist within the repricing periods presented in which the Corporation has interest rate positions.
REPRICING PERIOD AT DECEMBER 31, 1995 -------------------------------------------------------------------- AFTER ONE AFTER THREE AFTER SEVEN WITHIN YEAR BUT WITHIN YEARS BUT WITHIN YEARS BUT WITHIN AFTER ONE YEAR THREE YEARS SEVEN YEARS TEN YEARS TEN YEARS -------- --------------- ---------------- ---------------- --------- (IN MILLIONS) ASSET/(LIABILITY) Interest rate sensitiv- ity gap................ $(611) $ (567) $ 243 $1,721 $(786) ----- ------- ------- ------ ----- ASSET/(LIABILITY) Cumulative interest rate sensitivity gap........ $(611) $(1,178) $ (935) $ 786 $ -- ===== ======= ======= ====== ===== REPRICING PERIOD AT DECEMBER 31, 1994 -------------------------------------------------------------------- AFTER ONE AFTER THREE AFTER SEVEN WITHIN YEAR BUT WITHIN YEARS BUT WITHIN YEARS BUT WITHIN AFTER ONE YEAR THREE YEARS SEVEN YEARS TEN YEARS TEN YEARS -------- --------------- ---------------- ---------------- --------- (IN MILLIONS) ASSET/(LIABILITY) Interest rate sensitiv- ity gap................ $(584) $ 889 $(1,258) $1,630 $(677) ----- ------- ------- ------ ----- ASSET/(LIABILITY) Cumulative interest rate sensitivity gap........ $(584) $ 305 $ (953) $ 677 $ -- ===== ======= ======= ====== =====
In 1994, the Corporation undertook a program to fix its liability costs over a five-year time horizon. Changes in interest sensitivity gap positions from 1994 to 1995 are reflective of the aging of these liability positions, with some balances moving from the 4-7 year repricing period into the 2-3 year period. In addition, towards the end of 1995, the Corporation purchased long- term assets in order to hedge the anticipated addition of long-term deposits in connection with the acquisition of BBI. This resulted in an increase in the balances, principally in the 4-7 year repricing period. 12 The following table presents information related to the expected maturities and weighted average interest rates to be received or paid on the interest rate swap portfolio and other instruments used in asset-liability management. Asset-liability management swaps are designated as hedges of an underlying asset or liability at the inception of the contract.
DECEMBER 31, 1995 DECEMBER 31, 1994 ------------------------------------------------- ----------------------------------------------- DUE IN LESS DUE IN ONE DUE AFTER DUE IN LESS DUE IN ONE DUE AFTER THAN ONE YEAR THRU FIVE YEARS FIVE YEARS TOTAL THAN ONE YEAR THRU FIVE YEARS FIVE YEARS TOTAL ------------- ----------------- ---------- ------ ------------- --------------- ---------- ------ (DOLLARS IN MILLIONS) Receive fixed swaps: Notional amount...... $ 195 $ 797 $ 675 $1,667 $ 250 $ 61 $1,175 $1,486 Weighted average re- ceive rate.......... 8.43% 7.67% 7.49% 7.69% 6.17% 10.47% 7.34% 7.27% Weighted average pay rate................ 7.56% 6.23% 5.86% 6.24% 5.79% 9.19% 5.81% 5.95% Pay fixed swaps: Notional amount...... $ 216 $3,131 $ 259 $3,606 $1,761 $1,640 $ 118 $3,519 Weighted average re- ceive rate.......... 8.07% 6.15% 9.94% 6.54% 5.89% 6.15% 7.83% 6.08% Weighted average pay rate................ 8.13% 7.48% 9.87% 7.69% 5.50% 7.55% 8.16% 6.54% Forward contracts: Notional amount...... $ -- $ 300 $ 150 $ 450 $ -- $ 975 $ 155 $1,130 Interest rate caps pur- chased: Notional amount...... $ 30 $2,312 $ 250 $2,592 $ 111 $2,542 $ 250 $2,903 Other interest rate swaps: Notional amount...... $ 70 $ 368 $1,011 $1,449 $ 25 $ 77 $ 108 $ 210 Cross-currency swaps: Notional amount...... $ 77 $ 7 $ -- $ 84 $ 204 $ 84 $ -- $ 288
LIABILITY MANAGEMENT DEPOSITS The Corporation's primary liability products are interest-bearing deposits provided to customers in three basic areas. The International Private Banking Group establishes relationships with high-net-worth individuals, on a worldwide basis, who value safety for their funds. The retail area's customers are from the New York City metropolitan area and Florida branch systems of the Bank and the California branches of RBC. In addition to its New York City branches, the Bank also has a retail operation in southern Florida with eight branches. RBC is an independent banking subsidiary, servicing the California market with three banking offices in Los Angeles County, that focuses on domestic private banking and mortgage banking. Its customers invest in a diverse mix of retail time and savings deposits of both short-term and long- term maturities. The institutional area's customers are pension funds, money market funds and corporate cash accounts. The Corporation has been successful in selling long-term deposits to institutional and corporate investors, thereby generating a source of long-term funds. The Corporation continues to invest substantial resources in staff and product development for its Domestic Private Banking group that was formed in the latter part of 1993. It is the Corporation's view that this specialized group will provide a fourth area with a focus on general banking and lending, trusts and estates, custody and investment management relationships for high- net-worth individuals. 13 The following table sets forth the Corporation's deposit structure at December 31, in each of the last three years.
1995 1994 1993 ----------- ----------- ----------- (IN THOUSANDS) DOMESTIC OFFICES: Noninterest-bearing deposits: Individuals, partnerships and corpora- tions................................... $ 1,494,015 $ 1,445,545 $ 1,188,773 Foreign governments and official institu- tions................................... 3,196 1,085 912 U.S. Government and states and political subdivisions............................ 16,629 18,602 21,540 Banks.................................... 123,133 115,542 86,030 Certified and official checks............ 103,062 120,893 130,263 ----------- ----------- ----------- Total noninterest-bearing deposits..... 1,740,035 1,701,667 1,427,518 ----------- ----------- ----------- Interest-bearing deposits: Individuals, partnerships and corpora- tions................................... 3,989,593 3,857,533 3,653,047 Savings and NOW accounts................. 2,428,295 2,684,499 2,823,010 Money market accounts.................... 2,001,830 1,940,605 2,192,113 Deposit notes............................ 50,000 50,000 50,000 All other................................ 1,734 1,925 6,627 ----------- ----------- ----------- Total interest-bearing deposits........ 8,471,452 8,534,562 8,724,797 ----------- ----------- ----------- Total deposits in domestic offices..... 10,211,487 10,236,229 10,152,315 ----------- ----------- ----------- FOREIGN OFFICES: Noninterest-bearing deposits............... 160,133 114,503 135,251 ----------- ----------- ----------- Interest-bearing deposits: Deposits of individuals, partnerships and corporations............................ 7,404,510 7,179,880 6,253,798 Banks located in foreign countries....... 5,947,085 4,702,972 6,142,823 Foreign governments and official institu- tions................................... 1,196,418 492,418 117,063 ----------- ----------- ----------- Total interest-bearing deposits........ 14,548,013 12,375,270 12,513,684 ----------- ----------- ----------- Total deposits in foreign offices...... 14,708,146 12,489,773 12,648,935 ----------- ----------- ----------- Total deposits....................... $24,919,633 $22,726,002 $22,801,250 =========== =========== ===========
The following table presents the maturity distribution at December 31, 1995, of certificates of deposit, deposit notes and other time deposits of $100,000 or more included in interest-bearing deposits in domestic offices in the previous table.
CERTIFICATES OF DEPOSITS AND DEPOSIT NOTES OTHER TIME DEPOSITS ------------------------ --------------------- AMOUNT % AMOUNT % -------------- --------- ------------- ------- (DOLLARS IN THOUSANDS) Due in 90 days and less........... $ 637,621 66 $ 1,052,239 91 Due in 91-180 days................ 144,114 15 35,703 3 Due in 181-360 days............... 23,334 2 19,732 2 Due in over 360 days.............. 169,297 17 42,492 4 -------------- --------- ------------- ------ Total............................. $ 974,366 100 $ 1,150,166 100 ============== ========= ============= ======
FOREIGN DEPOSITS The Corporation's International Private Banking Group, headquartered in New York City, generates a substantial portion of foreign deposits by establishing relationships with clients throughout the world. Deposits from foreign sources are deposits placed by over 20,000 individuals and foreign banks in both domestic and foreign branch offices and in foreign banking subsidiaries. This customer base is a stable source of funding for the Corporation. Total average deposits in foreign offices rose to $12.9 billion in 1995, after increasing to $12.2 billion in 1994 from $10.8 billion in 1993. The following table presents information on the distribution, by type, of the Corporation's foreign deposits at December 31 in each of the last three years. The majority of the deposits in each category at the indicated dates were in amounts in excess of $100,000.
1995 1994 1993 ----------- ----------- ----------- (IN THOUSANDS) Foreign deposits: Time deposits of individuals, partner- ships and corporations.................. $ 7,979,187 $ 7,725,714 $ 6,755,821 Banks and other financial institutions... 6,075,247 4,824,135 6,281,266 Foreign governments and official institu- tions................................... 1,197,995 493,860 118,387 Other deposits........................... 111,132 84,584 170,230 ----------- ----------- ----------- Total foreign deposits................. $15,363,561 $13,128,293 $13,325,704 =========== =========== ===========
14 TRADING ACCOUNT LIABILITIES Trading account liabilities include the market value of securities sold that the Corporation does not own but must deliver at a future date. The Corporation seeks to benefit from favorable movements in the market price of "short-sales" by purchasing the required security at a lower price in the future. Trading account liabilities also include payables for precious metals and unrealized losses related to interest rate swaps, options and other derivative financial instruments, and related premiums received, which are utilized in trading activities. Trading account liabilities were $3.7 billion at year end 1995, $2.1 billion at year end 1994 and $177 million in 1993. In each of the last two years unrealized losses represent a substantial portion of these liabilities in accordance with the reporting requirements of accounting interpretation FIN No. 39. This interpretation requires, among other things, that unrealized gains and losses on forward, swap, option and other financial instruments, resulting primarily from the marking to estimated market value of trading instruments, be reported on a gross basis, except when right of set-off criteria are met or a legally enforceable netting agreement with a counterparty exists. The adoption of this interpretation has resulted in the Corporation reporting increased levels of average total assets and total liabilities to reflect the gross-up effect of reporting these balances. SHORT-TERM BORROWINGS The Corporation's short-term funding sources include federal funds purchased and securities sold under repurchase agreements, commercial paper issuances, local borrowings in overseas operations and interest-bearing precious metals balances. The Bank, from time to time, also issues short-term securities in public offerings. Average short-term borrowings declined by $1.0 billion in 1995 to $4.6 billion from $5.6 billion in 1994 and $5.2 billion in 1993, primarily from the maturity, in March 1995, of $1.0 billion principal amount of 4.30% Notes that were not replaced. Short-term borrowings as a percentage of total interest bearing funds were 15% in 1995 and 18% in 1994 and 1993. The Corporation's commercial paper is rated A-1+, F-1+ and P-1 by Standard & Poor's Corporation, Fitch Investors Service and Moody's Investors Service, respectively. Commercial paper proceeds are used principally to finance the current operations of Factors and RNYSC. The Corporation has $180 million of lines of credit outstanding to provide support for its commercial paper program under which it is authorized to issue up to $2.5 billion. The following table is a summary of short-term borrowings for each of the last three years. Other borrowings reflect rates paid for local borrowings in certain overseas locations.
1995 1994 1993 ---------- ---------- ---------- (DOLLARS IN THOUSANDS) Federal funds purchased and securities sold under repurchase agreements: Average interest rate: At year end........................... 5.47% 4.92% 2.94% For the year.......................... 5.75% 3.97% 3.03% Average amount outstanding during the year................................... $1,474,225 $1,442,585 $3,403,240 Maximum amount outstanding at any month end.................................... 2,951,484 2,404,354 5,315,974 Amount outstanding at year end.......... 1,231,744 987,110 999,149 Commercial paper: Average interest rate: At year end........................... 5.58% 5.71% 3.29% For the year.......................... 5.91% 4.24% 3.32% Average amount outstanding during the year................................... $ 640,368 $ 876,677 $ 606,088 Maximum amount outstanding at any month end.................................... 820,258 1,047,678 897,672 Amount outstanding at year end.......... 667,563 979,390 881,741 Other borrowings: Average interest rate: At year end........................... 4.34% 4.07% 4.35% For the year.......................... 3.75% 3.55% 5.44% Average amount outstanding during the year................................... $2,494,810 $3,254,895 $1,227,375 Maximum amount outstanding at any month end.................................... 3,164,334 3,884,558 2,283,529 Amount outstanding at year end.......... 1,991,461 3,002,894 2,283,529
ASSET MANAGEMENT The management of the Corporation's assets is based on three principal criteria: creditworthiness, diversification and structural characteristics, including maturity and interest rate sensitivity. A significant portion of the Corporation's interest-earning assets are invested in U.S. Government agency securities, including mortgage-backed and other asset-backed securities. International banking activities also comprise a substantial portion of the Corporation's business and involve factors other than the normal credit risk associated with domestic lending. In determining the creditworthiness of international borrowers, the economic, political and social conditions that affect the borrower's ability to repay obligations must be taken into account. Through country and political analysis and diversification of activities across a wide geographic distribution and within exposure limits set on a country-by-country basis, the Corporation reduces the unique risks of extending international credit. The Corporation endeavors to reflect risk in its pricing policy. 15 The following table sets forth the Corporation's principal assets, which are primarily interest-earning, by category, at year end for each of the last three years. Additional details related to maturity distribution, interest rate sensitivity and creditworthiness are provided elsewhere in this section.
1995 1994 1993 ----------- ----------- ----------- (IN THOUSANDS) Interest-bearing deposits with banks... $ 6,094,495 $10,242,061 $ 5,346,647 Total investment securities............ 16,238,545 11,439,728 14,949,793 Trading account assets................. 4,035,606 2,543,637 1,194,629 Federal funds sold and securities pur- chased under resale agreements........ 1,749,268 1,123,925 2,322,465 Loans: Real estate.......................... 3,148,147 3,220,981 3,310,585 Government and official institu- tions............................... 80,038 89,625 429,232 Broker loans......................... 1,114,466 582,781 1,411,302 Banks and other financial institu- tions............................... 419,444 380,811 75,800 Commercial and other................. 5,116,853 4,686,401 4,376,464 ----------- ----------- ----------- Total loans.......................... 9,878,948 8,960,599 9,603,383 Less unearned income............... (34,988) (47,109) (94,825) ----------- ----------- ----------- Loans, net of unearned income........ 9,843,960 8,913,490 9,508,558 ----------- ----------- ----------- $37,961,874 $34,262,841 $33,322,092 =========== =========== ===========
INTEREST-BEARING DEPOSITS WITH BANKS Interest-bearing deposits with banks are placed with major international and domestic banking organizations on a short-term basis, thereby insuring liquidity while reducing credit risk. Investments in interest-bearing deposits with banks have represented approximately 25% of average interest-earning assets in each of the last three years. The following table provides information on the maturity distribution of the Corporation's interest-bearing deposits with banks at December 31, 1995.
MATURITY DISTRIBUTION % ------------------------ (DOLLARS IN MILLIONS) Due within one month............. $3,447.2 56 Due after one but within six months.......................... 2,170.1 36 Due after six months but within twelve months................... 227.7 4 Due after one year............... 249.5 4 ------------- -------- $6,094.5 100 ============= ========
INVESTMENT PORTFOLIO The Corporation's total investment securities portfolio increased 42% at year end 1995 to $16.2 billion from $11.4 billion at year end 1994. All of this increase was in securities classified as available for sale, primarily U.S. Government agency and other asset backed securities. In December 1995, the Corporation reassessed the appropriateness of its investment securities portfolio classifications under a one-time provision granted in a Special Report issued by the Financial Accounting Standards Board ("FASB"). As a result of this portfolio reassessment, the Corporation transferred certain securities with a book value of approximately $1.4 billion from held to maturity to available for sale. The securities and hedges transferred had a carrying value in excess of market value of approximately $11.2 million. During 1994, the Corporation sold $3.4 billion face value of long-term U.S. Government agency securities that had been classified as available for sale. In addition, the Corporation reviewed its intent to hold certain U.S. Government agency securities that had been designated as available for sale and, as a result, transferred securities with a carrying value of approximately $3.9 billion to the held to maturity classification. The unrealized depreciation, before tax effect, on this transfer was $93.6 million at year end 1994 and is included in the separate component of stockholders' equity. Net investment securities gains of $15.0 million in 1994 included gains of $52.0 million from the sale of Argentine equities acquired in a 1990 debt-for-equity swap and $26.9 million from the sale of securities received in connection with Brazil's debt restructuring. These gains were partially offset by losses of $63.9 million that were realized in connection with the disposition of securities, primarily from the sale of U.S. Government agency securities, that were sold as part of the Corporation's asset-liability management program. The following table presents the composition of the book/carrying value of the Corporation's total investment securities portfolio at December 31, in each of the last three years.
1995 1994 1993 ----------- ----------- ----------- (IN THOUSANDS) U.S. Government obligations............... $ 85,345 $ 100,592 $ 425,352 Obligations of U.S. Government agencies... 9,410,057 7,417,287 10,713,977 Obligations of U.S. states and political subdivisions............................. 703,449 624,033 584,302 Other investment securities............... 6,039,694 3,297,816 3,226,162 ----------- ----------- ----------- $16,238,545 $11,439,728 $14,949,793 =========== =========== ===========
16 The following tables present, by maturity distribution, the book value/amortized cost and the book value/estimated market value of the Corporation's portfolio of securities held to maturity and available for sale at December 31, 1995. The Corporation has designated certain derivative instruments, primarily in the form of interest rate swaps, as hedges against the interest rate risks of the available for sale and held to maturity portfolios. Such derivatives are shown separately in the following tables. The swaps used to hedge the available for sale portfolio are carried on the statement of condition at their estimated market values. The weighted average yields on these instruments are presented based on their scheduled maturities. Based on year end market conditions, mortgage-backed securities included in U.S. Government agencies held to maturity and available for sale had estimated average lives of approximately 10.3 years and 10.6 years, respectively. Such securities are subject to the risk that average lives will extend as interest rates rise. It is not anticipated that such shifts would have a significant impact upon the Corporation's gap and net interest income. Yields on obligations of states and political subdivisions and investments in certain preferred stock issues are adjusted to a fully-taxable equivalent basis using a tax rate of 44%.
HELD TO MATURITY DECEMBER 31, 1995 ----------------------------------- ESTIMATED WEIGHTED BOOK MARKET AVERAGE VALUE VALUE YIELD ----------- -------------- -------- (DOLLARS IN THOUSANDS) Obligations of U.S. Government agencies: Mortgage-backed securities.............. $ 3,783,573 $ 3,926,319 7.37% Interest rate swaps..................... -- (85,463) ----------- ----------- 3,783,573 3,840,856 ----------- ----------- Obligations of U.S. states and political subdivisions: Due within 1 year....................... 1,632 1,642 8.63% Due after 1 year but within 5 years..... 18,394 19,882 13.65 Due after 5 years but within 10 years... 98,404 111,912 10.82 Due after 10 years...................... 585,019 621,162 8.04 ----------- ----------- 703,449 754,598 ----------- ----------- Total held to maturity.................... $ 4,487,022 $ 4,595,454 =========== =========== AVAILABLE FOR SALE DECEMBER 31, 1995 ----------------------------------- WEIGHTED AMORTIZED BOOK/ESTIMATED AVERAGE COST MARKET VALUE YIELD ----------- -------------- -------- (DOLLARS IN THOUSANDS) U.S. Government obligations: Due within 1 year....................... $ 84,982 $ 85,345 5.89% ----------- ----------- 84,982 85,345 ----------- ----------- Obligations of U.S. Government agencies: Due within 1 year....................... 10,540 10,621 6.74% Due after 1 year but within 5 years..... 207,978 210,010 6.16 Due after 5 years but within 10 years... 59,769 60,206 5.92 Due after 10 years...................... 808,422 814,467 6.17 Mortgage-backed securities.............. 4,597,054 4,630,317 7.11 Interest rate swaps..................... -- (99,137) ----------- ----------- 5,683,763 5,626,484 ----------- ----------- Other investment securities: Due within 1 year....................... 1,013,591 1,014,756 15.59% Due after 1 year but within 5 years..... 1,358,786 1,370,157 7.12 Due after 5 years but within 10 years... 1,857,662 1,873,810 8.24 Due after 10 years...................... 1,819,639 1,818,705 8.77 Interest rate swaps..................... -- (37,734) ----------- ----------- 6,049,678 6,039,694 ----------- ----------- Total available for sale.................. $11,818,423 $11,751,523 =========== ===========
The following table presents, by type, the amortized cost and the book/estimated market value of the Corporation's other investment securities, all of which are classified as available for sale.
AVAILABLE FOR SALE DECEMBER 31, 1995 ------------------------- AMORTIZED BOOK/ESTIMATED COST MARKET VALUE ---------- -------------- (IN THOUSANDS) Bonds, debentures and other securities of: Foreign banks....................................... $1,151,639 $1,182,817 Foreign governments and government agencies......... 1,539,414 1,526,772 Foreign companies................................... 256,770 265,137 Domestic companies.................................. 380,041 383,781 U.S. financial organizations........................ 645,915 641,597 Federal Reserve Bank stock.......................... 54,087 54,087 Other, asset-backed securities...................... 2,021,812 2,023,237 Interest rate swaps................................. -- (37,734) ---------- ---------- Total other investment securities..................... $6,049,678 $6,039,694 ========== ==========
17 TRADING ACCOUNT ASSETS Trading account assets consist of securities of the U.S. Government, foreign governments, restructuring countries and corporations. Such securities are carried at their estimated market value with the resultant gains and losses recorded as trading account profits and commissions. Trading account assets also include unrealized gains related to interest rate swaps, options and other derivative financial instruments, and related premiums paid, that are utilized in trading activities. In addition, trading account assets also include loans to borrowers in restructuring countries. Such loans are carried at their estimated market value, with the resultant gains or losses included in gain or loss on loans sold or held for sale. LOAN PORTFOLIO The following table sets forth the composition of the Corporation's domestic and foreign loan portfolios at December 31 in each of the past five years.
1995 1994 1993 1992 1991 ---------- ---------- ---------- ---------- ---------- (IN THOUSANDS) Domestic: Real estate--residen- tial mortgage........ $1,171,158 $1,245,500 $1,310,718 $1,454,416 $1,313,793 Real estate--commer- cial................. 1,791,693 1,813,878 1,854,377 2,107,112 2,222,714 Banks and other finan- cial institutions.... 28,291 83,010 7,384 14,841 18,434 Broker loans.......... 1,086,530 559,019 678,490 307,018 250,000 Commercial and indus- trial................ 2,004,783 2,242,124 2,152,691 1,859,595 1,848,587 Individuals........... 389,520 106,195 90,218 51,305 71,286 All other............. 187,360 11,810 16,915 59,852 51,008 ---------- ---------- ---------- ---------- ---------- 6,659,335 6,061,536 6,110,793 5,854,139 5,775,822 ---------- ---------- ---------- ---------- ---------- Foreign: Broker loans.......... 27,936 23,762 732,812 -- -- Government and govern- ment agencies........ 80,038 89,625 429,232 341,320 453,639 Banks and other finan- cial institutions.... 391,153 297,801 68,416 288,682 279,587 Commercial and all other................ 2,720,486 2,487,875 2,262,130 1,672,038 2,271,625 ---------- ---------- ---------- ---------- ---------- 3,219,613 2,899,063 3,492,590 2,302,040 3,004,851 ---------- ---------- ---------- ---------- ---------- Total loans............. 9,878,948 8,960,599 9,603,383 8,156,179 8,780,673 Less unearned income.. (34,988) (47,109) (94,825) (148,722) (211,715) ---------- ---------- ---------- ---------- ---------- Loans, net of unearned income................. $9,843,960 $8,913,490 $9,508,558 $8,007,457 $8,568,958 ========== ========== ========== ========== ==========
Average loans in domestic offices for each of the last three years have remained relatively stable, representing approximately 20% of interest-earning assets. Average loans in foreign offices declined to $2.9 billion in 1995, from $3.3 billion in 1994 which was an increase of $0.8 billion over 1993. At year end 1995, the domestic loan portfolio consisted of $1.2 billion of one- four family residential mortgages and $1.8 billion of commercial real estate loans. The following tables present loan portfolio information, excluding consumer loans and residential mortgage loans totaling $1.3 billion, related to maturity distribution and interest rate sensitivity, based on scheduled repayments at December 31, 1995.
DUE AFTER ONE DUE IN ONE YEAR THROUGH DUE AFTER YEAR OR LESS FIVE YEARS FIVE YEARS TOTAL ------------ ------------- ---------- ---------- (IN THOUSANDS) Domestic: Commercial and other........ $2,198,026 $ 250,626 $ 44,369 $2,493,021 Real estate-commercial...... 213,877 632,647 945,169 1,791,693 Banks and other financial institutions............... 28,291 -- -- 28,291 Broker loans................ 1,086,530 -- -- 1,086,530 ---------- ---------- ---------- ---------- Total domestic loans...... 3,526,724 883,273 989,538 5,399,535 ---------- ---------- ---------- ---------- Foreign: Commercial and other........ 2,338,311 176,414 19,211 2,533,936 Real estate-commercial...... 96,183 29,153 1,694 127,030 Banks and other financial institutions............... 345,954 29,262 15,937 391,153 Governments and government agencies................... 11,507 43,129 25,402 80,038 Broker loans................ 27,936 -- -- 27,936 ---------- ---------- ---------- ---------- Total foreign loans....... 2,819,891 277,958 62,244 3,160,093 ---------- ---------- ---------- ---------- Total loans............... $6,346,615 $1,161,231 $1,051,782 $8,559,628 ========== ========== ========== ==========
At December 31, 1995, 74% of the loan portfolio presented above was due in one year or less, compared to 71% in 1994. Of the total loan portfolio due in one year or less, 56% were domestic loans and 44% were foreign loans. 18 The following table is an analysis, at December 31, 1995, of loans due after one year which have fixed interest rates and those with interest rates that vary directly in relation to the Corporation's reference rate, an international money market rate or some other similar variable base rate. Loans with variable rates amounting to $0.8 billion are due after one year.
FIXED RATE VARIABLE RATE TOTAL ---------- ------------- ---------- (IN THOUSANDS) Loans due after one year: Domestic loans............................ $1,336,199 $536,612 $1,872,811 Foreign loans............................. 126,091 214,111 340,202 ---------- -------- ---------- $1,462,290 $750,723 $2,213,013 ========== ======== ==========
ALLOWANCE FOR POSSIBLE LOAN LOSSES The Corporation's policy is to maintain an allowance for loan losses that is adequate to absorb all inherent credit losses in the Corporation's loan portfolio and other potential credit exposures. Inherent losses are unconfirmed losses that probably exist, based upon known information regarding the credit quality and portfolio characteristics prevailing as of the date of the evaluation. If future events confirm these losses, these amounts will be charged off against the allowance for loan losses. The Corporation performs a comprehensive and consistently applied analysis of the various factors that affect collectibility that is in accordance with regulatory guidance. The process is complex and includes several different analyses of credit exposures. Management analyzes its loan portfolio by three main components: individually significant loans, homogeneous groups or pools of loans and other segmentations of the portfolio into pools of loans with similar risk characteristics, such as risk classification, type of loan, industry group, collateral, size and maturity and country risk characteristics. The individually significant loans represent larger, more problematic loans which are individually assessed as to collectibility. For homogeneous portfolios, principally the consumer retail portfolio, the Corporation utilizes the prior year's loss experience to estimate an amount necessary to provide for the upcoming twelve months of expected losses. For the other segmentations of the portfolio, historical loss rates are calculated for loans with similar characteristics. These loss rates are updated quarterly and are based upon the loss experience incurred for more than the last five years. While historical loss rates provide a starting point for the Corporation's analysis, historical losses are not by themselves a sufficient basis to determine the appropriate level of the allowance for loan losses. The actual rate selected for the analysis may differ from the calculated loss rate as the historical rate may be adjusted upward or downward to reflect current and anticipated business and economic conditions and other factors which are likely to cause the current portfolio to differ from historical experience. The Corporation's allowance also reflects a margin for the imprecision in the estimates of expected credit losses. The resultant allowance for loan losses is viewed by management as a single, unallocated allowance available for all credit losses and any segmentation thereof is done only for compliance with reporting requirements. The following table presents data related to the allowance for possible loan losses and net charge-offs for each of the years in the five-year period ended December 31, 1995.
1995 1994 1993 1992 1991 -------- -------- -------- -------- -------- (IN THOUSANDS) Balance at beginning of year........................ $319,220 $311,855 $241,020 $227,454 $236,634 Charge-offs: Domestic: Commercial and industri- al...................... 35,315 14,287 11,947 51,956 65,363 Installment loans to in- dividuals............... 2,825 1,730 1,757 2,396 3,028 Secured by real estate... 9,995 11,183 32,466 36,022 6,310 Foreign.................... 3,356 17,355 12,731 20,257 6,603 Losses on sale, swap and charge-off of restructur- ing countries' debt....... -- -- 9,729 18,477 4,304 -------- -------- -------- -------- -------- Total charge-offs........ 51,491 44,555 68,630 129,108 85,608 -------- -------- -------- -------- -------- Recoveries: Domestic: Commercial and industri- al...................... 5,165 6,201 15,281 9,498 8,505 Installment loans to in- dividuals............... 599 724 661 680 690 Secured by real estate... 5,217 6,663 2,731 289 38 Foreign*................... 9,234 19,538 36,693 12,849 5,761 -------- -------- -------- -------- -------- Total recoveries......... 20,215 33,126 55,366 23,316 14,994 -------- -------- -------- -------- -------- Net charge-offs............ (31,276) (11,429) (13,264) (105,792) (70,614) Provision charged to oper- ating expense............. 12,000 19,000 85,000 120,000 62,000 Allowance of acquired com- panies.................... -- -- 297 764 -- Translation adjustment..... 649 (206) (1,198) (1,406) (566) -------- -------- -------- -------- -------- Balance at end of year....... $300,593 $319,220 $311,855 $241,020 $227,454 ======== ======== ======== ======== ========
- ------- * Primarily restructuring countries' debt in 1991-1993. 19 The allowance for possible loan losses at year end 1995 represented 3.05% of loans outstanding, net of unearned income, and 3.58%, at year end 1994. The increase in net charge-offs in 1995 compared to 1994 was primarily attributable to a weakness in the domestic chain store sector. The following table presents loan data and ratios related to the allowance for possible loan losses and net charge-offs for each of the years in the five-year period ended December 31, 1995.
1995 1994 1993 1992 1991 ------ ------ ------ ------ ------ (DOLLARS IN MILLIONS) Loans: Loans outstanding, net of unearned income, at end of year.............. $9,844 $8,913 $9,509 $8,007 $8,569 Average loans outstanding, net of un- earned income, during the year...... $9,528 $9,894 $8,891 $8,732 $9,623 Ratios: Allowance for possible loan losses to loans outstanding, net of unearned income, at end of year.............. 3.05% 3.58% 3.28% 3.01% 2.65% Net charge-offs to average loans out- standing, net of unearned income during the year..................... 0.33% 0.12% 0.15% 1.21% 0.73% Net charge-off coverage(1)........... 13.11x 44.74x 40.44x 4.42x 4.95x
- ------- (1) Calculated by dividing net charge-offs into income before income taxes plus the provision for loan losses. The following table presents information related to the Corporation's non- accrual loans and other non-performing assets at December 31, in each of the last five years.
1995 1994 1993 1992 1991 ------- ------- -------- -------- -------- (IN THOUSANDS) Non-accrual loans: Domestic.......................... $49,311 $43,392 $ 48,084 $ 49,929 $ 68,571 Foreign--other.................... 18,561 14,734 12,956 38,276 18,054 Foreign--restructuring countries.. -- -- 33,853 42,123 42,836 ------- ------- -------- -------- -------- Total non-accrual loans......... 67,872 58,126 94,893 130,328 129,461 ------- ------- -------- -------- -------- Other non-performing assets: Other real estate owned........... 31,329 23,479 23,338 55,551 41,401 Other non-accrual assets.......... -- -- -- 4,572 3,125 ------- ------- -------- -------- -------- Total other non-performing as- sets........................... 31,329 23,479 23,338 60,123 44,526 ------- ------- -------- -------- -------- Total non-accrual loans and other non-performing assets.... $99,201 $81,605 $118,231 $190,451 $173,987 ======= ======= ======== ======== ========
The above table excludes restructured performing loans which amounted to $14.4 million, $28.3 million, $63.0 million, $58.5 million and $27.0 million in 1995, 1994, 1993, 1992 and 1991, respectively. Also excluded from the above table are loans past due 90 days and still on accrual status, primarily residential mortgage loans, which amounted to $6.3 million, $9.6 million, $5.6 million, $8.8 million and $9.1 million at year end 1995, 1994, 1993, 1992 and 1991, respectively. At December 31, in each of the years 1995 through 1991, the Corporation's allowance for possible loan losses represented approximately 365%, 369%, 198%, 128% and 145%, respectively, of total non-accrual and restructured loans. The coverage of the allowance for loan losses to non-accrual and restructured loans is only one subjective measure of the adequacy of the allowance for loan losses that management utilizes. Non-accrual domestic loans increased to $49.3 million in 1995 from $43.4 million in 1994. This change was primarily the result of increases in the chain store sector and reductions in the commercial real estate portfolio that were charged off or transferred to the other real estate owned classification. The decline in total non-performing assets between 1994 and 1993 was primarily attributable to the Brazilian debt restructuring settlement that reduced non-accrual loans by $33.4 million. Under this settlement, the Corporation received bonds in exchange for substantially all of its non- performing outstandings to Brazil. In the second quarter of 1994, the Corporation sold all of the Brazilian bonds received and realized a gain on the sale of securities of $26.9 million. 20 In order to comply with certain regulatory reporting requirements, management has prepared the following allocation of the Corporation's allowance for possible loan losses among various categories of the loan portfolio for each of the years in the five-year period ended December 31, 1995. In management's opinion, such allocation has, at best, a limited utility. It is based on management's assessment as of a given point in time of the risk characteristics of each of the component parts of the total loan portfolio and is subject to changes as and when the risk factors of each such component part change. Such allocation is not indicative of either the specific amounts or the loan categories in which future charge-offs may be taken, nor should it be taken as an indicator of future loss trends. In addition, by presenting such allocation, management does not mean to imply that the allocation is exact or that the allowance has been precisely determined from such allocation.
DECEMBER 31, 1995 -------------------------------------- ALLOCATION OF THE ALLOWANCE FOR POSSIBLE LOAN LOSSES BY CATEGORY -------------------------------------- DOMESTIC FOREIGN TOTAL ------------ ------------ ------------ % AMOUNT % AMOUNT % AMOUNT --- -------- --- -------- --- -------- (DOLLARS IN THOUSANDS) Real estate loans....................... 42 $ 70,000 8 $ 10,000 27 $ 80,000 Commercial and industrial loans......... 42 70,000 22 30,000 33 100,000 Other loans............................. 3 5,000 37 50,000 18 55,000 Unallocated............................. 13 21,733 33 43,860 22 65,593 --- -------- --- -------- --- -------- Total................................. 100 $166,733 100 $133,860 100 $300,593 === ======== === ======== === ======== DECEMBER 31, 1994 -------------------------------------- ALLOCATION OF THE ALLOWANCE FOR POSSIBLE LOAN LOSSES BY CATEGORY -------------------------------------- DOMESTIC FOREIGN TOTAL ------------ ------------ ------------ % AMOUNT % AMOUNT % AMOUNT --- -------- --- -------- --- -------- (DOLLARS IN THOUSANDS) ..................................... Real estate loans....................... 42 $ 80,000 8 $ 10,000 28 $ 90,000 Commercial and industrial loans......... 39 75,000 24 30,000 33 105,000 Other loans............................. 3 5,000 47 60,000 20 65,000 Unallocated............................. 16 31,887 21 27,333 19 59,220 --- -------- --- -------- --- -------- Total................................. 100 $191,887 100 $127,333 100 $319,220 === ======== === ======== === ======== DECEMBER 31, 1993 -------------------------------------- ALLOCATION OF THE ALLOWANCE FOR POSSIBLE LOAN LOSSES BY CATEGORY -------------------------------------- DOMESTIC FOREIGN TOTAL ------------ ------------ ------------ % AMOUNT % AMOUNT % AMOUNT --- -------- --- -------- --- -------- (DOLLARS IN THOUSANDS) ..................................... Real estate loans....................... 42 $ 80,000 8 $ 10,000 29 $ 90,000 Commercial and industrial loans......... 40 75,000 25 30,000 34 105,000 Other loans............................. 3 5,000 41 50,000 17 55,000 Unallocated............................. 15 29,499 26 32,356 20 61,855 --- -------- --- -------- --- -------- Total................................. 100 $189,499 100 $122,356 100 $311,855 === ======== === ======== === ======== DECEMBER 31, 1992 -------------------------------------- ALLOCATION OF THE ALLOWANCE FOR POSSIBLE LOAN LOSSES BY CATEGORY -------------------------------------- DOMESTIC FOREIGN TOTAL ------------ ------------ ------------ % AMOUNT % AMOUNT % AMOUNT --- -------- --- -------- --- -------- (DOLLARS IN THOUSANDS) ..................................... Real estate loans....................... 37 $ 60,000 13 $ 10,000 29 $ 70,000 Commercial and industrial loans......... 34 55,000 25 20,000 31 75,000 Other loans............................. 1 1,000 50 40,000 17 41,000 Unallocated............................. 28 45,699 12 9,321 23 55,020 --- -------- --- -------- --- -------- Total................................. 100 $161,699 100 $ 79,321 100 $241,020 === ======== === ======== === ======== DECEMBER 31, 1991 -------------------------------------- ALLOCATION OF THE ALLOWANCE FOR POSSIBLE LOAN LOSSES BY CATEGORY -------------------------------------- DOMESTIC FOREIGN TOTAL ------------ ------------ ------------ % AMOUNT % AMOUNT % AMOUNT --- -------- --- -------- --- -------- (DOLLARS IN THOUSANDS) ..................................... Real estate loans....................... 45 $ 45,000 4 $ 5,000 22 $ 50,000 Commercial and industrial loans......... 25 25,000 4 5,000 13 30,000 Other loans............................. 1 1,000 43 55,000 25 56,000 Unallocated............................. 29 29,842 49 61,612 40 91,454 --- -------- --- -------- --- -------- Total................................. 100 $100,842 100 $126,612 100 $227,454 === ======== === ======== === ========
21 CROSS-BORDER OUTSTANDINGS The following tables present information related to the Corporation's cross- border net outstandings denominated in dollars or other non-local currencies, including the excess of local currency outstandings over local currency liabilities. Outstandings are classified by type of borrower, based on ultimate risk, and are defined as loans, acceptances, interest-bearing deposits with banks, investment securities and accrued interest receivable, after deducting cash collateral. Countries where such outstandings exceeded 1.0% of consolidated total assets of $43.9 billion, $41.1 billion and $39.5 billion at December 31, 1995, 1994 and 1993, respectively, were as follows:
BANKS AND OTHER GOVERNMENT COMMERCIAL FINANCIAL AND OFFICIAL AND INSTITUTIONS INSTITUTIONS INDUSTRIAL (1) 1995 1994 1993 --------------- ------------ -------------- ------ ------- ------ (IN MILLIONS) Japan................... $1,290 $ -- $ 131 $1,421 $ 2,129 $1,805 France.................. 616 495 81 1,192 2,589 2,267 Canada.................. 865 8 308 1,181 1,766 930 Belgium/Luxembourg...... 426 -- 742 1,168 1,131 880 United Kingdom.......... 486 -- 558 1,044 1,492 638 Italy................... 93 202 558 853 505 -- Germany................. 751 -- 58 809 1,249 623 Brazil.................. 45 603 33 681 569 -- Australia............... 126 -- 463 589 -- -- ------ ------ ------ ------ ------- ------ $4,698 $1,308 $2,932 $8,938 $11,430 $7,143 ====== ====== ====== ====== ======= ======
- ------- (1) Includes excess of local currency outstandings over local currency liabilities. The only country with cross-border net outstandings exceeding 1.0% of consolidated total assets which is excluded from the table above was the Netherlands with $800 million in 1994 and $641 million in 1993. At December 31, in each of the last three years, countries with cross-border net outstandings representing between 0.75% and 1.0% of consolidated total assets were: the Netherlands with $426 million; Switzerland with $417 million and Singapore with $415 million, respectively, in 1995; Spain with $349 million in 1994 and $326 million in 1993; Taiwan with $331 million in 1994 and $384 million in 1993, and Italy with $364 million in 1993. BRAZIL During 1995, the Corporation continued to invest in the local Brazilian financial markets, principally short-term floating rate Brazilian Central Bank and Treasury debt issuances as well as short-term certificates of deposits issued by prime Brazilian banks. When necessary, the Corporation utilized interest rate and foreign currency futures to hedge its local currency position against short-term changes. At December 31, 1995, total cross-border net outstandings in Brazil investments amounted to approximately $681 million, or 1.55% of total assets, all of which are on a performing basis. Cross-border net outstandings in Brazil at December 31, 1995, consisted of approximately $603 million to the public sector, $45 million to the private bank sector and $33 million to the private non-bank sector. During 1994, the Corporation increased its investment in cross-border outstandings in Brazil to capitalize on the spreads available through investments in local currency assets. Additional outstandings were invested in short-term fixed income placements with other banks and floating rate government securities. At December 31, 1994, total cross-border net outstandings in Brazil consisted primarily of Brady bonds and short-term investments amounting to approximately $569 million, or 1.39% of total assets, all of which were on a performing basis. Cross-border net outstandings in Brazil at December 31, 1994, consisted of approximately $355 million to the public sector, $188 million to the private bank sector and $26 million to the private non-bank sector, respectively. On April 15, 1994, the government of Brazil concluded a debt restructuring of its medium- and long-term debt. Under this settlement the Corporation received bonds in exchange for substantially all of its non-performing outstandings that had a carrying value of $33.4 million. The bonds received were sold in the second quarter of 1994, and the Corporation realized a gain of $26.9 million. The following table presents an analysis of the changes in aggregate cross- border net outstandings discussed above.
YEAR ENDED DECEMBER 31, ------------------------ 1995 1994 ----------- ----------- (IN MILLIONS) Aggregate outstandings at beginning of year......... $ 569 $ 226 Purchases of Brazilian Government securities and bank placements.................................... 367 516 Sales of Brazilian Government securities and repay- ments at maturity.................................. (252) (215) Other changes: Interest income accrued........................... 45 77 Collections of accrued interest................... (48) (35) ----------- ----------- Aggregate outstandings at end of year............... $ 681 $ 569 =========== ===========
22 RISK MANAGEMENT AND CONTROL In the interest of reducing uncertainty as to the level of future earnings and its book value, the Corporation manages several types of risks, principally credit and market risks. The Corporation seeks to control these risks by diversifying its exposures and activities among many instruments, markets, clients and geographic regions and by limiting risk positions. The processes and procedures by which the Corporation manages its risk profile continually evolve as the Corporation's business activities change in response to market and product developments. The Corporation routinely reviews its procedures in order to ensure that they are comprehensive with respect to all major risks and that a consistent approach is followed throughout the organization. To enhance the environment for the Corporation's risk management activities and assist in decision making, significant investments have been made in the training of personnel and in the development of information technology. Proprietary and analytical trading systems have been developed for the Corporation's existing and future business. This control environment is subject to periodic review by management, internal auditors and regulators. The Risk Assessment Committee of the Corporation's Board of Directors, established in 1993, oversees the identification, measurement and limitation of the risks relating to all activities of, and products offered by, the Corporation. Such committee's activities include review of risk management methodologies employed by management. The committee is supported by the Risk Assessment and Control Department, also established in 1993, whose task is to develop and implement risk quantification and reporting mechanisms. The Department also monitors market-related risk exposure on a daily basis, reporting to management. CREDIT RISK Credit risk arises whenever the Corporation owns a commitment of another party, which, if not completed, would result in a loss. Credit risk and exposure to loss are inherent parts of the banking business. Management seeks to manage and minimize these risks through its loan and investment policies, including obtaining collateral, and credit review procedures. Senior management establishes and continually reviews lending and investment criteria and approval procedures that it believes reflect the risk averse nature of the Corporation. The Credit Review Committee of the Board of Directors periodically reviews and approves the Corporation's policies and procedures to define, quantify and monitor the credit and settlement risks arising from the Corporation's diverse activities. Global limits are established to control these risks, and it is the responsibility of each operating unit to conduct its business activity within these pre-established limits. Any customer credit, currency or transaction exposure that exceeds established limits must be approved by senior management. Management's objective in establishing lending and investment standards is to minimize the risk of loss and provide for income generation through pricing policies. In the case of foreign investments and loans, management emphasizes investments and loans to, or with guarantees of, governments, government agencies or banks. In addition, the Corporation places particular emphasis on the matching of the maturity and interest rate sensitivity of assets and liabilities. By this policy, the Corporation seeks to minimize the effect of rate changes, largely externally influenced and difficult to control, on the portfolio and to limit its exposure largely to credit risks over which it has more direct control. One technique which the Corporation utilizes to achieve these goals is to enter into interest rate contracts including swaps, caps and collars and currency swaps, each of which is designed to protect against interest rate or currency fluctuations. Management periodically reviews the loan portfolio, particularly non-accrual and restructured loans. The review may result in a determination that a loan should be placed on a non-accrual status for income recognition. In addition, to the extent that management identifies potential losses in the loan portfolio, it reduces the book value of such loans, through charge-offs, to their estimated collectible value. The Corporation's policy is to classify as non-accrual any loan (other than factored trade accounts receivable, consumer installment and residential mortgage loans) on which payment of principal or interest is 90 days past due. In addition, a loan will be classified as non- accrual if, in the opinion of management, based upon a review of the borrower's or guarantor's financial condition, collateral value and other factors, payment is questionable, even though payments are not 90 days past due. When a loan, other than a well secured residential mortgage loan, is classified as non-accrual, any unpaid interest is reversed against current income. The loan remains in a non-accrual classification until such time as the loan is brought current, when it may be returned to accrual classification. When principal and interest on a non-accrual loan are brought current, if in management's opinion future payments are questionable, the loan would remain classified as non-accrual. Subsequent payments of either interest or principal received on a partially charged-off non-accrual or restructured loan are first applied to any remaining balance outstanding, until the loan is reduced to its net realizable value, then to recoveries and finally to income. Interest is included in income thereafter only to the extent received in cash. Factored trade accounts receivable that are past due 90 days remain on an accrual basis because the past due interest usually will be charged to and collected from the factoring client. The large number of consumer installment loans and the relatively small dollar amount of each makes an individual review impracticable. The Corporation charges off any consumer installment loan which is past due 90 days. 23 Residential mortgage loans are placed on non-accrual status when the mortgagor is in bankruptcy or foreclosure proceedings are instituted, at which time the loan ceases to accrue interest. Any accrued interest receivable remains in interest income as an obligation of the borrower. The Credit Review Department provides an independent evaluation of the Corporation's credit exposures and assures ongoing credit quality by reviewing individual credits and concentrations, with a focus on operating units where risk is at a higher level, and monitoring of corrective action where necessary. Additionally, the Credit Review Department evaluates adherence to laws and regulations and to policies and established criteria as stated in the Corporation's Credit Policy Manual to assure compliance with such standards. The Credit Review Department also periodically prepares portfolio summaries for review by executive management and the Board of Directors. These reports are then submitted for consideration to certain members of executive management who determine the amount of loans to be charged off. The Executive Credit Committee subsequently reviews the loans to be charged off and ratifies executive management's decision. Rules and formulae relative to the adequacy of the allowance, although useful as guidelines to management, are not final determinants. In addition, any loan or portion thereof which is classified as a "loss" by regulatory examiners is charged off. Consistent with its policy of maintaining an adequate allowance for possible loan losses, management generally charges off a loan, or a portion thereof, when a loss is probable. MARKET RISK Market risk is the possibility of a decline in value of the Corporation's assets (net of hedges) acquired in the course of its trading activities and asset-liability management. To manage market risk, the Corporation establishes limits for interest rate, foreign currency and other market exposures. An important tool in monitoring exposures and establishing limits for substantially all products offered is the estimation of the potential loss of current and future earnings on existing positions under a range of assumptions within the markets being measured. The Asset and Liability Management Committee provides a forum for reviewing the Corporation's liquidity profile and the market risk in its asset and liability management and trading positions. The Asset and Liability Management Committee regularly reviews the Corporation's market exposures and analyzes the effects of actual or projected changes in rates, prices or market liquidity on the value of these positions. Such committee also reviews the Corporation's liquidity profile by monitoring the differences in maturities between assets and liabilities and by analyzing the future level of funds required based on various assumptions, including its ability to liquidate investment and trading positions and its ability to access the markets for funds. CAPITAL RESOURCES AND LIQUIDITY CAPITAL FINANCING POLICY The Corporation's policy is to obtain capital externally when opportunities arise, if the cost of such capital is reasonable and the form is appropriate for the Corporation's needs and overall capital structure. In keeping with this policy, capital has been obtained externally on several occasions, although, at such times, the Corporation, relative to other major bank holding companies, was considered to be well capitalized. The Corporation conducts its business through its bank and non-bank subsidiaries. Thus, the Corporation frequently provides capital and financing to these subsidiaries to support their operations and to permit expansion. In formulating its dividend policy, the Corporation's Board of Directors considers historical financial results, future prospects and anticipated needs for capital. The current policy, which is reviewed annually, is to pay out approximately 25% to 30% of the prior year's earnings on a normalized basis. This policy is intended to provide stockholders with increasing dividend income while allowing the Corporation to maintain its desired internal capital generation rate. Future dividends are dependent upon the Corporation's financial results, capital requirements and economic conditions in general. CAPITAL TRANSACTIONS On June 26, 1995, the Corporation sold, in a public offering, 3 million shares of $1.8125 Cumulative Preferred Stock ($25 Stated Value) (the "Preferred Stock") with an aggregate stated value of $75 million. The Preferred Stock may be redeemed, at the option of the Corporation, in whole or in part, at any time or from time to time, on or after July 1, 2000 at $25 per share, plus, in each case, dividends accrued and unpaid to the redemption date. The net proceeds received have been used for general corporate purposes, including payment to holders of the $3.375 Cumulative Convertible Preferred Stock who, in connection with the Corporation's call for redemption described below, elected to redeem. On July 24, 1995, the Corporation redeemed all of the outstanding shares of its $3.375 Cumulative Convertible Preferred Stock. Holders of such preferred stock tendered an aggregate of 42,596 shares at the redemption price of $52.025 plus accrued and unpaid dividends of $0.21563 per share. Holders of 3,406,093 shares of such preferred stock elected to convert, at the conversion ratio of 1.03448, into an aggregate of 3,523,369 shares of common stock. During 1994, the Corporation's capital markets activities included obtaining capital with varying characteristics. On May 12, 1994, the Corporation sold, in a public offering, $200 million principal amount of 7 3/4% Subordinated Notes due 2009. The Notes are not redeemable prior to maturity and are direct unsecured general obligations of the Corporation subordinated to all present and future senior indebtedness of the Corporation. The net proceeds were used for general corporate purposes. 24 In 1994, the Corporation also sold, in a public offering, 6 million depositary shares, each representing a one-fourth interest in a share of Adjustable Rate Cumulative Preferred Stock Series D ($100 Stated Value) (the "Series D Stock"). The dividend rate on the Series D Stock is determined quarterly, by reference to a formula based on certain benchmark market rates, but will not be less than 4 1/2% or more than 10 1/2% per annum for any applicable dividend period. The Series D Stock will be redeemable, in whole or in part, at the option of the Corporation on or after July 1, 1999 at $25 per depositary share plus accrued and unpaid dividends. The net proceeds were used for general corporate purposes including the redemption by the Corporation of all 678,500 shares outstanding of its Cumulative Floating Rate Series B Preferred Stock at its stated value of $50.00 per share. In 1994, the Bank established a $5.0 billion Global Bank Note Program (the "Program") authorizing the periodic sale of notes, including through its overseas branches. A group of major international securities dealers is participating in the Program. Notes may be issued for any maturity of 30 days or more, subject to regulatory compliance. Notes can be denominated in various currencies. Any notes issued will be direct, unconditional and unsecured general obligations of the Bank and are not deposits insured by the FDIC. Any notes to be issued as part of the Program have been accepted for listing on the Luxembourg Stock Exchange. The Program has been rated F1+ and AA+ by Fitch Investors Service, Inc., A1+ and AA+ by I.B.C.A., Prime-1 and Aa1 by Moody's Investors Service, Inc. and A1+ and AA by Standard & Poor's Ratings Group. FINANCIAL RATIOS The following table presents financial ratios for each of the years in the five years ended December 31, 1995.
YEAR ENDED DECEMBER 31, --------------------------------- 1995 1994 1993 1992 1991 ----- ----- ----- ----- ----- Average stockholders' equity as a percentage of average assets.............. 6.71% 6.38% 6.33% 6.43% 5.93% Returns based on net income: Average total stockholders' equity....... 10.36 12.87 12.73 11.95 12.33 Average total assets..................... 0.70 0.82 0.81 0.77 0.73 Returns based on net income applicable to common stock: Average total common stockholders' equity.................................. 11.73 15.20 15.08 14.18 14.20 Average total assets..................... 0.61 0.74 0.73 0.68 0.66
The returns on average stockholders' equity, based on net income and net income applicable to common stock, declined to 10.36% and 11.73% in 1995 from 12.87% and 15.20% in the prior year, respectively, primarily due to the $120.0 million restructuring charge taken in 1995. RISK-BASED CAPITAL/LEVERAGE GUIDELINES The FRB has established guidelines that mandate risk-based capital requirements for bank holding companies. The guidelines require a minimum ratio of capital to risk-weighted assets (including certain off-balance-sheet activities, such as standby letters of credit and derivative instruments) of 8.0%. At least half of the total capital ratio is to be composed of common equity, noncumulative perpetual preferred stock and a limited amount of cumulative perpetual preferred stock, less goodwill and intangible assets subject to certain minimums ("Tier 1" or "core capital"). The remainder may consist of limited amounts of subordinated debt, the balance of cumulative preferred stock and the allowance for loan losses ("Tier 2 capital"). As a supplement to its risk-based capital ratios, the FRB established a minimum leverage ratio of 3.0% (Tier 1 capital to average total assets, with Tier 1 capital being determined for this purpose in a manner consistent with the risk-based capital guidelines). Each of the Corporation's banking subsidiaries complies with all applicable regulatory capital requirements. The Corporation's leverage ratio and its risk-based capital ratios include the assets and capital of Safra Republic on a consolidated basis in accordance with the requirements of the FRB specifically applied to the Corporation. These ratios do not include the effect on stockholders' equity related to the Corporation's portfolio of securities available for sale. In accordance with regulatory guidelines, the Corporation excludes RNYSC's assets and off- balance-sheet contracts from the Corporation's capital calculations. The guidelines also require the Corporation to deduct one-half of its investment in this subsidiary from each of Tier 1 and Tier 2 capital. 25 The following table presents the components of the Corporation's risk-based capital and related ratios at December 31, in each of the last three years.
1995 1994 1993 ---------- ---------- ---------- (IN THOUSANDS) Tier 1: Common stockholders' equity.............. $2,507,570 $2,129,166 $1,928,047 Preferred stock.......................... 325,000 422,500 306,425 Equity of Safra Republic................. 738,643 688,018 609,384 Other net-goodwill, minority interest and intangible assets....................... (87,328) (88,792) (98,252) Less: 50% of investment in unconsolidated subsidiaries.......................... (2,411) (3,274) (2,926) 50% of investment in securities affiliate............................. (41,774) (44,586) -- ---------- ---------- ---------- Total tier 1......................... 3,439,700 3,103,032 2,742,678 ---------- ---------- ---------- Tier 2: Qualifying preferred stock and perpetual capital notes........................... 400,000 400,000 400,000 Qualifying long-term debt................ 1,741,943 1,575,446 1,372,802 Allowance for possible loan losses....... 294,879 243,433 228,531 Less: 50% of investment in unconsolidated subsidiaries.......................... (2,411) (3,273) (2,925) 50% of investment in securities affiliate............................. (41,773) (44,586) -- ---------- ---------- ---------- Total tier 2......................... 2,392,638 2,171,020 1,998,408 ---------- ---------- ---------- Total risk-based capital........... $5,832,338 $5,274,052 $4,741,086 ========== ========== ========== Risk-based Capital Ratios: Tier 1 risk-based capital ratio.......... 14.72% 16.17% 15.16% Total risk-based capital ratio........... 24.96% 27.49% 26.20% Leverage ratio........................... 6.24% 5.87% 5.61%
LIQUIDITY Of primary importance to depositors, creditors and regulators is the ability of the Corporation to have sufficient funds readily available to repay liabilities as they mature. In order to insure that funds are available at all times, the Corporation devotes substantial resources to projecting the amount of funds which will be required on a daily basis and maintains relationships with a diversity of sources so that funds are available on a global basis. Through its worldwide network, the Corporation obtains funds from a large and varied customer base that provides a stable source of domestic demand and consumer deposits and foreign office deposits. Other sources provide short- term borrowings, including the sale of commercial paper and long-term liabilities in the form of notes and debentures. Liquidity requirements also can be met through the disposition of short-term assets that are generally matched to the maturity of liabilities. Liquid assets include cash and due from banks, interest-bearing deposits with banks, federal funds sold and securities purchased under resale agreements, trading account assets and precious metals. Average total liquid assets have equaled approximately 30% of average total assets in each of the last three years. 26 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA FINANCIAL STATEMENTS The following audited consolidated financial statements of the Corporation and related documents are set forth in this Report on the following pages:
PAGE ---- Consolidated Statements of Condition, December 31, 1995 and 1994.......... 28 Consolidated Statements of Income, Years ended December 31, 1995, 1994 and 1993..................................................................... 29 Consolidated Statements of Changes in Stockholders' Equity, Years ended December 31, 1995, 1994 and 1993......................................... 30 Consolidated Statements of Cash Flows, Years ended December 31, 1995, 1994 and 1993................................................................. 31 Bank Consolidated Statements of Condition, December 31, 1995 and 1994..... 32 Notes to Consolidated Financial Statements................................ 33 Independent Auditors' Report on Financial Statements...................... 57 Report of Management...................................................... 58 Independent Accountants' Report on Management's Assertions Related to Internal Controls Over Financial Reporting............................... 59 SUPPLEMENTARY DATA The following supplementary data for the Corporation are set forth in this Report on the following pages: Five Year Consolidated Statements of Condition............................ 60 Five Year Consolidated Statements of Income............................... 61 Summary of Unaudited Quarterly Financial Information...................... 62 AFFILIATE FINANCIAL STATEMENTS The following audited financial statements of Safra Republic are set forth in this Report on the following pages: Consolidated Statements of Condition, December 31, 1995 and 1994.......... 63 Consolidated Statements of Income, Years ended December 31, 1995, 1994 and 1993..................................................................... 64 Consolidated Statements of Changes in Shareholders' Equity, Years ended December 31, 1995, 1994 and 1993......................................... 65 Consolidated Statements of Cash Flows, Years ended December 31, 1995, 1994 and 1993................................................................. 66 Notes to Consolidated Financial Statements................................ 67 Independent Auditors' Report.............................................. 82
27 REPUBLIC NEW YORK CORPORATION CONSOLIDATED STATEMENTS OF CONDITION
DECEMBER 31, ------------------------ 1995 1994 ----------- ----------- (DOLLARS IN THOUSANDS) ASSETS Cash and due from banks............................. $ 675,683 $ 867,242 Interest-bearing deposits with banks (note 18)...... 6,094,495 10,242,061 Precious metals (note 3)............................ 1,250,038 1,456,269 Securities held to maturity (approximate market value of $4,595,454 in 1995 and $5,614,248 in 1994).............................................. 4,487,022 5,887,672 Securities available for sale (at approximate market value) (note 18)................................... 11,751,523 5,552,056 ----------- ----------- Total investment securities (note 2)............ 16,238,545 11,439,728 Trading account assets (note 3)..................... 4,035,606 2,543,637 Federal funds sold and securities purchased under resale agreements.................................. 1,749,268 1,123,925 Loans (net of unearned income of $34,988 in 1995 and $47,109 in 1994) (notes 4, 5 and 18)............... 9,843,960 8,913,490 Allowance for possible loan losses (note 5)....... (300,593) (319,220) ----------- ----------- Loans, net...................................... 9,543,367 8,594,270 Customers' liability on acceptances................. 818,007 1,514,461 Accounts receivable and accrued interest............ 1,946,077 1,797,491 Investment in affiliate (note 6).................... 722,466 607,818 Premises and equipment (note 7)..................... 436,771 428,017 Other assets (note 11).............................. 371,231 452,986 ----------- ----------- Total assets.................................... $43,881,554 $41,067,905 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY Noninterest-bearing deposits: In domestic offices............................... $ 1,740,035 $ 1,701,667 In foreign offices................................ 160,133 114,503 Interest-bearing deposits: In domestic offices............................... 8,471,452 8,534,562 In foreign offices................................ 14,548,013 12,375,270 ----------- ----------- Total deposits (note 18)........................ 24,919,633 22,726,002 Trading account liabilities (notes 3 and 18)........ 3,719,651 2,087,594 Short-term borrowings (note 8)...................... 3,890,768 4,969,394 Acceptances outstanding............................. 819,766 1,517,675 Accounts payable and accrued expenses............... 2,840,048 1,325,953 Due to factored clients............................. 528,684 680,010 Other liabilities................................... 193,645 134,792 Long-term debt (notes 9 and 18)..................... 1,555,111 2,580,831 Subordinated long-term debt and perpetual capital notes (note 9)..................................... 2,406,440 2,406,266 Commitments and contingent liabilities (note 15) Stockholders' equity (notes 10 and 13): Cumulative preferred stock, no par value 8,502,500 shares outstanding in 1995 and 8,952,500 in 1994............................................. 575,000 672,500 Common stock, $5 par value 150,000,000 shares authorized; 56,259,563 shares outstanding in 1995 and 52,621,155 in 1994........................... 281,298 263,106 Surplus........................................... 590,008 437,653 Retained earnings................................. 1,636,264 1,457,609 Net unrealized depreciation on securities avail- able for sale, net of taxes...................... (74,762) (191,480) ----------- ----------- Total stockholders' equity...................... 3,007,808 2,639,388 ----------- ----------- Total liabilities and stockholders' equity...... $43,881,554 $41,067,905 =========== ===========
See accompanying notes to consolidated financial statements. 28 REPUBLIC NEW YORK CORPORATION CONSOLIDATED STATEMENTS OF INCOME
1995 1994 1993 ------------ ------------ ------------ (IN THOUSANDS EXCEPT PER SHARE DATA) INTEREST INCOME: Interest and fees on loans............ $ 749,719 $ 696,816 $ 635,484 Interest on deposits with banks....... 526,185 414,294 295,871 Interest and dividends on investment securities: Taxable............................. 927,740 871,785 847,022 Exempt from federal income taxes.... 89,744 76,783 65,759 Interest on trading account assets.... 55,736 55,736 54,467 Interest on federal funds sold and securities purchased under resale agreements........................... 97,547 57,915 34,323 ------------ ------------ ------------ Total interest income............. 2,446,671 2,173,329 1,932,926 ------------ ------------ ------------ INTEREST EXPENSE: Interest on deposits.................. 1,138,075 827,790 689,234 Interest on short-term borrowings..... 218,804 218,529 197,769 Interest on long-term debt............ 270,893 280,536 270,072 ------------ ------------ ------------ Total interest expense............ 1,627,772 1,326,855 1,157,075 ------------ ------------ ------------ NET INTEREST INCOME................... 818,899 846,474 775,851 Provision for loan losses (note 5).... 12,000 19,000 85,000 ------------ ------------ ------------ Net interest income after provision for loan losses...................... 806,899 827,474 690,851 ------------ ------------ ------------ OTHER OPERATING INCOME: Income from precious metals (note 3).. 38,049 50,930 37,910 Foreign exchange trading income (note 3)................................... 113,051 91,028 111,572 Trading account profits and commissions (note 3)................. 24,746 27,357 78,742 Investment securities gains, net (note 2)................................... 25,663 14,971 1,295 Net gain (loss) on loans sold or held for sale............................. 6,765 1,763 (843) Commission income..................... 56,935 57,297 50,956 Equity in earnings of affiliate (note 6)................................... 79,481 77,376 59,463 Other income.......................... 68,191 65,646 56,377 ------------ ------------ ------------ Total other operating income...... 412,881 386,368 395,472 ------------ ------------ ------------ OTHER OPERATING EXPENSES: Salaries.............................. 237,414 238,825 203,759 Employee benefits (note 13)........... 144,202 142,358 143,748 Occupancy, net (notes 7 and 15)....... 57,975 55,425 48,161 Restructuring and related charges (note 12)............................ 120,000 17,000 -- Other expenses........................ 262,074 267,868 239,297 ------------ ------------ ------------ Total other operating expenses.... 821,665 721,476 634,965 ------------ ------------ ------------ INCOME BEFORE INCOME TAXES............ 398,115 492,366 451,358 Income taxes (note 11)................ 109,466 152,358 150,153 ------------ ------------ ------------ NET INCOME............................ $ 288,649 $ 340,008 $ 301,205 ============ ============ ============ NET INCOME APPLICABLE TO COMMON STOCK................................ $ 252,182 $ 305,598 $ 272,790 ============ ============ ============ Net income per common share: Primary............................. $4.66 $5.79 $5.20 Fully diluted....................... 4.59 5.61 5.05 Average common shares outstanding: Primary............................. 54,060 52,736 52,466 Fully diluted....................... 56,199 56,534 56,321
See accompanying notes to consolidated financial statements. 29 REPUBLIC NEW YORK CORPORATION CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
1995 1994 1993 ---------- ---------- ---------- (DOLLARS IN THOUSANDS) CUMULATIVE PREFERRED STOCK: Balance at beginning of year............... $ 672,500 $ 556,425 $ 556,425 Issuance of 3,000,000 shares of $1.8125 cumulative preferred stock in 1995 and 1,500,000 shares of adjustable rate cumulative preferred stock, series D in 1994...................................... 75,000 150,000 -- Redemption of 3,450,000 shares of $3.375 cumulative convertible preferred stock in 1995 and 678,500 shares of floating rate series B preferred stock in 1994.......... (172,500) (33,925) -- ---------- ---------- ---------- Balance at end of year..................... $ 575,000 $ 672,500 $ 556,425 ========== ========== ========== COMMON STOCK: Balance at beginning of year............... $ 263,106 $ 263,516 $ 260,951 Net issuance under stock option, restricted stock and restricted stock election plans of 497,975 shares in 1995, 775,825 shares in 1994 and 513,028 shares in 1993........ 2,490 3,879 2,565 Retirement of 382,936 shares in 1995 and 857,941 shares in 1994.................... (1,915) (4,289) -- Issuance of 3,523,369 shares upon conversion of $3.375 cumulative convertible preferred stock............... 17,617 -- -- ---------- ---------- ---------- Balance at end of year..................... $ 281,298 $ 263,106 $ 263,516 ========== ========== ========== SURPLUS: Balance at beginning of year............... $ 437,653 $ 459,713 $ 447,691 Net issuance of common stock under stock option, restricted stock and restricted stock election plans of 497,975 shares in 1995, 775,825 shares in 1994 and 513,028 shares in 1993................................... 20,276 17,700 12,247 Cost of issuing preferred stock............ (2,437) (3,983) -- Treasury stock transactions of affiliate... (1,568) (326) (225) Retirement of 382,936 common shares in 1995 and 857,941 shares in 1994................ (16,506) (35,451) -- Issuance of 3,523,369 shares upon conversion of $3.375 cumulative convertible preferred stock............... 152,590 -- -- ---------- ---------- ---------- Balance at end of year..................... $ 590,008 $ 437,653 $ 459,713 ========== ========== ========== RETAINED EARNINGS: Balance at beginning of year............... $1,457,609 $1,204,818 $ 998,362 Net income................................. 288,649 340,008 301,205 Foreign currency translation, net of taxes..................................... 4,578 16,812 (9,588) Dividends declared on common stock......... (78,193) (69,619) (56,746) Dividends declared on issues of preferred stock..................................... (36,379) (34,410) (28,415) ---------- ---------- ---------- Balance at end of year..................... $1,636,264 $1,457,609 $1,204,818 ========== ========== ========== NET UNREALIZED APPRECIATION (DEPRECIATION) ON SECURITIES AVAILABLE FOR SALE, NET OF TAXES: Balance at beginning of year............... $ (191,480) $ 262,750 $ -- Unrealized appreciation (depreciation)..... 172,093 (735,276) 437,845 Income tax (expense) benefit............... (55,375) 281,046 (175,095) ---------- ---------- ---------- Balance at end of year..................... $ (74,762) $ (191,480) $ 262,750 ========== ========== ========== TOTAL STOCKHOLDERS' EQUITY: Balance at beginning of year............... $2,639,388 $2,747,222 $2,263,429 Net changes during the year................ 368,420 (107,834) 483,793 ---------- ---------- ---------- Balance at end of year..................... $3,007,808 $2,639,388 $2,747,222 ========== ========== ==========
See accompanying notes to consolidated financial statements. 30 REPUBLIC NEW YORK CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS
1995 1994 1993 ----------- ----------- ----------- (IN THOUSANDS) CASH FLOWS FROM OPERATING ACTIVITIES: Net income............................. $ 288,649 $ 340,008 $ 301,205 Adjustments to reconcile net income to net cash provided by (used) in operat- ing activities: Depreciation and amortization, net... 73,428 58,120 48,337 Provision for loan losses............ 12,000 19,000 85,000 Investment securities gains, net..... (25,663) (14,971) (1,295) Net (gain) loss on loans sold or held for sale............................ (6,765) (1,763) 843 Restructuring and related charges.... 73,821 16,395 -- Equity in earnings of affiliate...... (79,481) (77,376) (59,463) Net change in trading accounts....... 140,088 561,111 (479,614) Net change in accounts receivable and accrued interest.................... 180,605 329,716 (1,494,586) Net change in accounts payable and accrued expenses.................... 276,760 (1,102,251) 1,390,159 Other, net........................... (85,115) (31,061) (272,253) ----------- ----------- ----------- Net cash provided by (used) in operat- ing activities........................ 848,327 96,928 (481,667) ----------- ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Interest-bearing deposits with banks... 4,147,566 (4,895,414) 5,948,015 Precious metals........................ 206,231 (338,659) (386,014) Federal funds sold and securities pur- chased under resale agreements........ (625,343) 1,198,540 (817,191) Short-term investments................. (111,925) (157,230) (289,355) Purchases of securities held to maturi- ty.................................... (236,646) (130,840) (3,740,678) Proceeds from maturities of securities held to maturity...................... 406,711 261,107 2,828,748 Purchases of securities available for sale.................................. (6,752,227) (3,803,755) (665,347) Proceeds from sales of securities available for sale.................... 1,461,195 3,883,180 346,909 Proceeds from sales of securities held to maturity........................... -- -- 89,150 Proceeds from maturities of securities available for sale.................... 1,664,475 3,058,742 -- Loans.................................. (1,125,115) 119,360 (1,983,538) Investment in affiliate................ 28,133 23,805 19,477 Payment for purchase of Mase Westpac Limited, net of cash received......... -- -- (144,596) ----------- ----------- ----------- Net cash provided by (used) in invest- ing activities........................ (936,945) (781,164) 1,205,580 ----------- ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Deposits............................... 2,193,950 (74,821) 893,418 Short-term borrowings.................. (1,078,626) 804,975 (1,663,448) Due to factored clients................ (151,326) 65,461 55,338 Proceeds from issuance of long-term debt.................................. 270,970 490,933 654,470 Repayment of long-term debt............ (1,295,600) (492,003) (580,071) Proceeds from issuance of subordinated long-term debt........................ -- 200,000 250,000 Repayment of subordinated long-term debt.................................. -- (66,000) (108,750) Net proceeds from issuance of cumula- tive preferred stock.................. 72,563 146,017 -- Repurchase of cumulative preferred stock................................. -- (33,925) -- Repurchase of common stock............. (18,421) (39,740) -- Cash dividends paid.................... (113,431) (98,856) (83,945) Other, net............................. 22,342 32,892 3,783 ----------- ----------- ----------- Net cash provided by (used) in financ- ing activities........................ (97,579) 934,933 (579,205) Effect of exchange rate changes on cash and due from banks.................... (5,362) (20,088) 1,214 ----------- ----------- ----------- Net (decrease) increase in cash and due from banks............................ (191,559) 230,609 145,922 Cash and due from banks at beginning of year.................................. 867,242 636,633 490,711 ----------- ----------- ----------- Cash and due from banks at end of year.................................. $ 675,683 $ 867,242 $ 636,633 =========== =========== =========== Supplemental disclosures of cash flow information: Cash paid during the year for: Interest........................... $ 1,632,989 $ 1,268,041 $ 1,210,546 Income taxes....................... 88,347 105,364 157,252 Transfers from securities available for sale to securities held to matu- rity................................ -- 3,862,350 -- Transfers from securities held to ma- turity to securities available for sale................................ 1,391,750 -- 12,318,395
See accompanying notes to consolidated financial statements. 31 REPUBLIC NATIONAL BANK OF NEW YORK CONSOLIDATED STATEMENTS OF CONDITION
DECEMBER 31, ------------------------ 1995 1994 ----------- ----------- (DOLLARS IN THOUSANDS) ASSETS Cash and due from banks............................. $ 633,621 $ 812,180 Interest-bearing deposits with banks................ 5,962,065 10,063,458 Precious metals..................................... 1,250,038 1,412,178 Securities held to maturity (approximate market value of $4,395,472 in 1995 and $5,406,204 in 1994).............................................. 4,292,649 5,723,560 Securities available for sale (at approximate market value)............................................. 10,034,627 4,642,033 ----------- ----------- Total investment securities..................... 14,327,276 10,365,593 Trading account assets.............................. 3,947,294 2,532,409 Federal funds sold and securities purchased under resale agreements.................................. 1,679,268 1,108,925 Loans (net of unearned income of $34,988 in 1995 and $38,154 in 1994)................................... 8,999,601 7,778,336 Allowance for possible loan losses................ (274,109) (294,392) ----------- ----------- Loans, net...................................... 8,725,492 7,483,944 Customers' liability on acceptances................. 816,683 1,514,129 Accounts receivable and accrued interest............ 1,051,711 883,244 Investment in affiliate (note 6).................... 722,466 607,818 Premises and equipment.............................. 387,346 383,380 Other assets........................................ 319,426 375,837 ----------- ----------- Total assets...................................... $39,822,686 $37,543,095 =========== =========== LIABILITIES AND STOCKHOLDER'S EQUITY Noninterest-bearing deposits: In domestic offices............................... $ 1,662,970 $ 1,638,359 In foreign offices................................ 162,085 114,503 Interest-bearing deposits: In domestic offices............................... 8,304,174 8,358,476 In foreign offices................................ 15,198,314 13,813,071 ----------- ----------- Total deposits.................................. 25,327,543 23,924,409 Trading account liabilities......................... 3,719,639 2,058,815 Short-term borrowings............................... 2,873,499 3,710,782 Acceptances outstanding............................. 818,441 1,517,342 Accounts payable and accrued expenses............... 2,161,664 672,437 Other liabilities................................... 127,341 74,739 Long-term debt...................................... 1,355,111 2,380,831 Subordinated long-term debt, primarily with parent.. 681,440 681,266 Stockholder's equity (note 19) Common stock, $100 par value 4,800,000 shares au- thorized; 3,550,000 shares outstanding........... 355,000 355,000 Surplus........................................... 1,490,278 1,491,846 Retained earnings................................. 988,799 841,300 Net unrealized depreciation on securities avail- able for sale, net of taxes...................... (76,069) (165,672) ----------- ----------- Total stockholder's equity........................ 2,758,008 2,522,474 ----------- ----------- Total liabilities and stockholder's equity........ $39,822,686 $37,543,095 =========== ===========
See accompanying notes to consolidated financial statements. 32 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Republic New York Corporation (the "Corporation") is a United States based bank holding company that provides a variety of banking and financial services worldwide to corporations, financial institutions, governmental units and individuals. In addition to its domestic business, the Corporation is active in international banking where it operates principally as a wholesale bank. The Corporation conducts its business activities in many countries and regions throughout the world and is not dependent on any one market, geographic area, customer or industry segment. However, the negative effects of economic and political events outside the United States cannot be predicted. The accounting and reporting policies of the Corporation reflect banking industry practices and conform to generally accepted accounting principles. The preparation of financial statements requires that management make estimates and assumptions that affect the reported amount of assets and liabilities at the date of the financial statements and the reported amounts of income and expenses for the reporting period. Such estimates are subject to change in the future as additional information becomes available or previously existing circumstances are modified. A summary of the significant accounting policies followed by the Corporation in the preparation of the accompanying consolidated financial statements is set forth below. A. Basis of Consolidation. The consolidated financial statements include the accounts of the Corporation and its subsidiaries, principally Republic National Bank of New York (the "Bank"), Republic New York Securities Corporation ("RNYSC") and Republic Factors Corp. ("Factors"). Investments in affiliates which are less than majority-owned but more than 20% owned are accounted for by the equity method. On January 2, 1996, the operations of Republic Bank for Savings ("RBS"), a wholly-owned subsidiary of the Corporation, was merged into the Bank and accounted for similar to a pooling of interests, effective for financial reporting as of December 31, 1995. Previously reported financial statements of the Bank have been restated to reflect this transaction. Significant intercompany transactions are eliminated in consolidation. B. Foreign Operations. Foreign currency assets and liabilities are translated into their U.S. dollar equivalents based on rates of exchange generally prevailing at year end. Revenue and expense accounts are generally translated at average exchange rates for the year. Net translation gains or losses on foreign currency financial statements of operations whose functional currency is the U.S. dollar, including those financial statements of operations in highly inflationary economies, are included in other income or other expenses together with net gains or losses from related hedges. Net translation gains or losses on foreign currency financial statements of operations whose functional currency is not the U.S. dollar are a component of retained earnings, net of related hedging results, after tax effect. Foreign currency amounts of foreign currency denominated assets and liabilities are generally sold or purchased under fixed forward contracts at prices which differ from cost. Such differences, which are considered part of the interest yields, are reflected in net interest income ratably over the life of the contracts. C. Statement of Cash Flows. For purposes of the Statement of Cash Flows, the Corporation defines cash and cash equivalents as the Statement of Condition caption cash and due from banks. D. Investment Securities. The Corporation accounts for investment securities in accordance with Statement of Financial Accounting Standards ("SFAS") No. 115, "Accounting for Certain Investments in Debt and Equity Securities", which was adopted on December 31, 1993. The Corporation designates an investment security and any related hedge as held to maturity or available for sale at the time of acquisition. The held to maturity classification includes debt securities, which are carried at amortized cost, that the Corporation has the positive intent and ability to hold to maturity. The available for sale classification includes debt and marketable equity securities which are carried at estimated fair value. Unrealized gains or losses on securities available for sale and derivative instruments used to hedge these securities are included as a separate component of stockholders' equity, net of tax effect. Gains or losses on sales of securities are recognized by the specific identification method and are recorded in investment securities gains, net. The Corporation periodically reviews its intent with respect to securities available for sale and may redesignate these securities and related derivative instruments used as hedges as held to maturity. At the time of redesignation, such securities are recorded at market value, and any unrealized appreciation or depreciation existing with respect to such securities and related hedges continues to be reported as a separate component of stockholders' equity and amortized to interest income over the life of the security. E. Trading Account Assets and Liabilities. Securities included as trading account assets are held to benefit from short-term changes in market prices. Trading account securities and liabilities incurred in short-sale transactions are carried at market value. Such liabilities are included in trading account liabilities. Premiums paid or received related to contracts that are marked to market are included in trading account assets or trading account liabilities, respectively. Gains and losses on trading account activities, including market value adjustments, are reported as trading account profits and commissions. Trading account loans are marked to market with the resultant gains or losses included in net gain (loss) on loans sold or held for sale. Interest income and interest expense on trading account assets and liabilities are included in net interest income. F. Loans. Loans are carried at their principal amount outstanding, net of unearned income. Unearned income on discounted loans is accreted monthly into interest income. 33 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) Non-accrual loans are those loans (other than factored trade accounts receivable, consumer installment and residential mortgage loans) on which the accrual of interest ceases when principal or interest payments are past due 90 days. A loan may be placed on a non-accrual status prior to the 90-day period if, in management's opinion, conditions warrant. When a loan is placed on a non-accrual basis, all accrued interest receivable is reversed and charged against current interest income. Thereafter, interest income on non-accrual loans is recorded only when received in cash. Residential mortgage loans are placed on non-accrual status when the mortgagor is in bankruptcy or foreclosure proceedings are instituted. Any accrued interest receivable remains in interest income as an obligation of the borrower. The Corporation charges off any consumer installment loan which is past due 90 days. On January 1, 1995, the Corporation adopted SFAS No 114, "Accounting by Creditors for Impairment of a Loan" as amended by SFAS No. 118, "Accounting by Creditors for Impairment of a Loan--Income Recognition and Disclosures." SFAS No. 114 applies to all loans except large groups of small-balance homogeneous loans that are collectively evaluated for impairment and certain other loans. The Corporation's impaired loans under SFAS No. 114 include loans with principal balances of $500,000 or more. A loan is considered impaired if it is probable that the creditor will be unable to collect all contractual amounts due (principal and interest) as scheduled in the loan agreement. Such loans have been placed on non-accrual status either because interest or principal are past due or, based on management's judgment, the Corporation does not expect to receive all principal and interest in accordance with the terms of the loan agreements. Impaired loans are measured based on either an estimate of the present value of expected future cash flows at a loan's effective interest rate, the loan's market value or the fair value of collateral if the loan is collateral dependent. Interest income on an impaired loan is recorded on a cash basis when the outstanding principal is brought current. G. Derivative Products. Derivatives used by the Corporation include futures, forwards, swaps, caps, floors and options in the interest rate, foreign exchange, equity and precious metals commodity markets. The Corporation uses these instruments for trading and to assist in its asset and liability management activities which include hedging. The Corporation records unrealized gains and losses on forward, swap, option and other conditional or exchange contracts on a gross basis except when a legally enforceable netting agreement with a counterparty exists. Derivatives that are used for trading or to hedge other trading instruments are carried on a mark-to-market basis with resultant gains and losses included in trading account profits and commissions, foreign exchange trading income and income from precious metals. Unrealized gains and option premiums paid are included in trading account assets. Unrealized losses and option premiums received are included in trading account liabilities. In valuing such contracts, the Corporation considers potential credit costs, tenor, future servicing costs, future capital costs and transaction hedging costs which are recognized over the life of the contracts. Foreign exchange trading positions are revalued monthly by pricing spot foreign exchange and forward contracts for foreign exchange at prevailing market rates. Precious metals activities include arbitrage, purchases and sales of precious metals for forward delivery, options on precious metals and precious metals lending and borrowing. Precious metals, outstanding open positions in contracts for forward delivery, option contracts and precious metals loans and borrowings are revalued monthly at prevailing market rates. Precious metals interest arbitrage balances are recorded at cost, with the difference of the fixed forward contract price over cost accreted into income from precious metals ratably over the life of the contracts. The Corporation enters into interest rate and foreign currency swap and option transactions as part of its asset and liability management activities, including hedging activities. Derivative transactions executed as part of the Corporation's asset-liability management are accounted for on an accrual basis in the interest income or expense of the related asset or liability. The notional amount of contracts used in asset and liability management are recorded as off-balance-sheet transactions. The net settlements on such transactions are accrued as an adjustment to interest income or expense over the lives of the related agreements. Gains or losses on terminated derivative contracts used as hedges of non-trading assets or liabilities, where the underlying asset or liability has not been settled, are deferred and amortized into interest income or interest expense over the life of the original hedge. Additionally, the Bank is a licensed depository for the storage of gold and silver bullion and coins traded on various commodity exchanges. Fees derived from such storage are included in other income. The Corporation substantially hedges its total investments in precious metals by forward sales. H. Allowance for Possible Loan Losses. The allowance for possible loan losses is increased by provisions charged to operating expense and decreased by charge-offs, net of recoveries. The provision for loan losses is based on the Corporation's past loan loss experience and other factors which, in management's judgment, deserve current recognition in estimating possible loan losses. Such other factors considered by management include the composition of the loan portfolio and worldwide economic conditions. I. Mortgage Servicing Rights. On July 1, 1995, the Corporation adopted SFAS No. 122, "Accounting for Mortgage Servicing Rights an amendment of FASB Statement No. 65." SFAS No. 122 eliminates the distinction made in SFAS No. 65 in accounting for mortgage servicing rights which depended on whether the loans were originated by the servicer or purchased. Under SFAS No. 122, mortgage servicers are required to recognize, as separate assets, rights to service loans regardless of how the rights were acquired. The statement also requires, among other things, mortgage servicers who sell or securitize loans on which the servicing rights are retained to allocate the total cost of the loans to the servicing rights and loans if it is practicable to estimate those fair values. Mortgage 34 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) servicing rights must be assessed periodically for impairment and written down to fair value through a valuation allowance. The effects of initially adopting this SFAS were not material to the Corporation's results of operations. J. Income Taxes. The Corporation files a consolidated federal income tax return. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of changes in tax rates is recognized in income in the period the change occurs. The earnings of the Corporation's foreign subsidiaries were not subject to U.S. income taxes for taxable years beginning prior to 1987, except to the extent that they were remitted as dividends. The undistributed earnings prior to 1987 of the Corporation's foreign subsidiaries are expected to be reinvested indefinitely in the subsidiaries' operations; accordingly, no provision has been made for such undistributed earnings. K. Earnings Per Common Share. Primary earnings per common share are computed by dividing net income, less preferred stock dividend requirements, by the average number of common shares outstanding during each of the years. Fully diluted earnings per share are based on the average number of common shares outstanding adjusted for the assumed conversion of outstanding convertible preferred stock from the date of issuance to the actual date of conversion and the additional shares assumed to be issued under stock option plans, if dilutive. Net income applicable to common stock is adjusted by adding back the dividends on the convertible preferred stock. L. Reclassification. Certain amounts from prior years have been reclassified to conform with 1995 classifications. 2. INVESTMENT SECURITIES The following table presents information related to the Corporation's portfolio of securities held to maturity and available for sale at respective year ends.
SECURITIES HELD TO MATURITY ---------------------------------------- 1995 ---------------------------------------- GROSS UNREALIZED ESTIMATED BOOK ----------------- MARKET VALUE GAINS (LOSSES) VALUE ---------- -------- -------- ---------- (IN THOUSANDS) U.S. Government and federal agency obligations......... $3,783,573 $150,879 $ (8,133) $3,926,319 Obligations of U.S. states and political subdivi- sions...................... 703,449 52,169 (1,020) 754,598 Interest rate swaps......... -- -- (85,463) (85,463) ---------- -------- -------- ---------- $4,487,022 $203,048 $(94,616) $4,595,454 ========== ======== ======== ==========
SECURITIES AVAILABLE FOR SALE ---------------------------------------- 1995 ---------------------------------------- GROSS UNREALIZED BOOK/ AMORTIZED ----------------- MARKET COST GAINS (LOSSES) VALUE ---------- -------- -------- ---------- (IN THOUSANDS) U.S. Government and federal agency obligations........ $5,768,745 $ 56,788 $(14,567) $ 5,810,966 Domestic debt securities... 2,483,246 11,595 (3,846) 2,490,995 Foreign debt securities.... 2,930,613 80,108 (58,322) 2,952,399 Equity securities.......... 635,819 21,851 (23,636) 634,034 Interest rate swaps........ -- - (136,871) (136,871) ---------- ------- --------- ----------- $11,818,423 $170,342 $(237,242) $11,751,523 ========== ======= ========= ===========
35 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) In December 1995, the Corporation reassessed the appropriateness of its investment securities portfolio classifications under a one-time provision granted in a Special Report issued by the Financial Accounting Standards Board. As a result of this portfolio reassessment, the Corporation transferred certain securities with a book value of approximately $1.4 billion from held to maturity to available for sale. The securities transferred had a net unrealized depreciation, including associated hedges, of $11.2 million before tax effect.
SECURITIES HELD TO MATURITY ---------------------------------------- 1994 ---------------------------------------- GROSS UNREALIZED ESTIMATED BOOK ----------------- MARKET VALUE GAINS (LOSSES) VALUE ---------- ------- --------- ---------- (IN THOUSANDS) U.S. Government and federal agency obligations......................... $5,263,639 $11,323 $(324,932) $4,950,030 Obligations of U.S. states and polit- ical subdivisions................... 624,033 24,624 (22,390) 626,267 Interest rate swaps.................. -- 37,951 -- 37,951 ---------- ------- --------- ---------- $5,887,672 $73,898 $(347,322) $5,614,248 ========== ======= ========= ==========
SECURITIES AVAILABLE FOR SALE ----------------------------------------- 1994 ----------------------------------------- GROSS UNREALIZED BOOK/ AMORTIZED ------------------ MARKET COST GAINS (LOSSES) VALUE ---------- -------- --------- ---------- (IN THOUSANDS) U.S. Government and federal agency obligations........................ $2,276,964 $ 6,367 $ (99,940) $2,183,391 Domestic debt securities............ 516,608 6,835 (4,237) 519,206 Foreign debt securities............. 2,300,666 35,314 (82,138) 2,253,842 Equity securities................... 581,933 8,331 (47,751) 542,513 Interest rate swaps................. -- 53,104 -- 53,104 ---------- -------- --------- ---------- $5,676,171 $109,951 $(234,066) $5,552,056 ========== ======== ========= ==========
The following table presents information for investments in securities held to maturity and securities available for sale at December 31, 1995, based on scheduled maturities. Actual maturities can be expected to differ from scheduled maturities due to prepayment or early call privileges of the issuer.
SECURITIES HELD TO MATURITY SECURITIES AVAILABLE FOR SALE ------------------------------------------------------------ BOOK ESTIMATED AMORTIZED BOOK/MARKET VALUE MARKET VALUE COST VALUE ------------- ------------------------------ --------------- (IN THOUSANDS) Due in one year or less................... $ 1,632 $ 1,642 $ 1,109,113 $ 1,110,722 Due after one year through five years..... 18,394 19,882 1,566,764 1,580,167 Due after five years through ten years...... 98,404 111,912 1,917,431 1,934,016 Due after ten years..... 585,019 621,162 2,628,061 2,633,172 Mortgage-backed securi- ties................... 3,783,573 3,926,319 4,597,054 4,630,317 Interest rate swaps..... -- (85,463) -- (136,871) ------------- ------------- -------------- -------------- $ 4,487,022 $ 4,595,454 $ 11,818,423 $ 11,751,523 ============= ============= ============== ==============
Mortgage-backed securities included in the tables above in held to maturity and available for sale have estimated average lives, based on year end market conditions, of approximately 10.3 years and 10.6 years, respectively. Mortgage-backed securities held to maturity includes a mark-to-market writedown of $64.9 million that is reported in the separate component of stockholders' equity related to securities that were transferred from available for sale in 1994. The following table presents the components of net investment security gains and losses attributable to securities held to maturity and securities available for sale in 1995 and 1994.
1995 1994 ------------------------- --------------------------- GROSS GROSS NET GROSS GROSS NET GAINS (LOSSES) GAINS GAINS (LOSSES) GAINS ------- -------- ------- -------- --------- ------- (IN THOUSANDS) Securities held to matu- rity: Maturities, calls and mandatory redemp- tions................. $ 3,912 $ (747) $ 3,165 $ 3,294 $ (222) $ 3,072 Securities available for sale: Sales of securities.... 31,445 (12,131) 19,314 129,074 (117,846) 11,228 Maturities, calls and mandatory redemp- tions................. 3,722 (538) 3,184 716 (45) 671 ------- -------- ------- -------- --------- ------- $39,079 $(13,416) $25,663 $133,084 $(118,113) $14,971 ======= ======== ======= ======== ========= =======
36 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) The following table presents the components of net investment security gains and losses for 1993.
1993 -------------- (IN THOUSANDS) Gross gains on: Sales of securities........................................ $ 5,646 Maturities, calls and mandatory redemptions................ 8,124 Gross losses on: Sales of securities........................................ (11,042) Maturities, calls and mandatory redemptions................ (1,433) -------- $ 1,295 ========
Investment securities having a carrying value of approximately $2.0 billion at December 31, 1995, were pledged to secure public deposits, short-term borrowings and for other purposes required or permitted by law. 3. PRECIOUS METALS, TRADING ACCOUNT ASSETS AND TRADING ACCOUNT LIABILITIES The following table sets forth the Corporation's precious metals trading account and the composition of trading account assets and trading account liabilities at respective year ends.
1995 1994 ---------- ---------- (IN THOUSANDS) Precious metals........................................... $1,250,038 $1,456,269 ========== ========== Trading account assets: U.S. Government obligations............................. $ 534,258 $ 556,980 U.S. Government agency obligations...................... 68,218 100,472 Other, primarily foreign bonds.......................... 301,255 279,967 Unrealized gains on derivative financial instruments.... 3,131,875 1,606,218 ---------- ---------- $4,035,606 $2,543,637 ========== ========== Trading account liabilities: Securities sold, not yet purchased...................... $ 12,243 $ 29,000 Payables for precious metals............................ 500,889 433,162 Unrealized losses on derivative financial instruments... 3,206,519 1,625,432 ---------- ---------- $3,719,651 $2,087,594 ========== ==========
Trading income is generated from the Corporation's participation in the foreign exchange and precious metals markets and by its activities as an international dealer in other derivative contracts, including interest rate swaps, and from trading securities. The Corporation reports the net trading income from each of these activities, which includes mark-to-market adjustments and any related direct trading expenses, on the statement of income as foreign exchange trading income, income from precious metals and trading account profits and commissions, respectively. The following table presents net trading income related to the Corporation's trading activities for each of the last three years.
1995 1994 1993 -------- -------- -------- (IN THOUSANDS) Income from precious metals....................... $ 38,049 $ 50,930 $ 37,910 Foreign exchange trading income................... 113,051 91,028 111,572 Trading account profits and commissions: Debt securities and loans....................... 25,546 (10,276) 20,021 Interest rate futures, forwards and swaps, and commodity, equity and other derivative contracts...................................... (800) 37,633 58,721 -------- -------- -------- 24,746 27,357 78,742 -------- -------- -------- Total trading income.............................. $175,846 $169,315 $228,224 ======== ======== ========
37 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) The following tables present information related to the fair value, after the effect of netting agreements, which is also the carrying value, of derivative instruments held for trading purposes.
AVERAGE FAIR VALUE DURING FAIR VALUE AT 1995 DECEMBER 31, 1995 ------------- ---------------------- ASSETS (LIABILITIES) ASSETS LIABILITIES ------------- ---------- ----------- (IN THOUSANDS) INTEREST RATE: Futures and forwards..................... $ 24,768 $ 7,078 $ 36,719 Swaps.................................... 104,339 742,583 784,671 Options written.......................... (275,127) -- 200,397 Options purchased........................ 329,858 302,035 -- --------- ---------- ---------- $ 183,838 $1,051,696 $1,021,787 ========= ========== ========== FOREIGN EXCHANGE: Spot, swaps, futures and forwards........ $ 27,506 $1,405,691 $1,332,608 Options written.......................... (476,767) -- 638,400 Options purchased........................ 479,881 658,307 -- --------- ---------- ---------- $ 30,620 $2,063,998 $1,971,008 ========= ========== ========== OTHER-PRINCIPALLY PRECIOUS METALS: Swaps, futures and forwards.............. $ 4,674 $ 97,548 $ 142,051 Options written.......................... (50,147) -- 71,673 Options purchased........................ 46,550 71,565 -- --------- ---------- ---------- $ 1,077 $ 169,113 $ 213,724 ========= ========== ========== AVERAGE FAIR VALUE DURING FAIR VALUE AT 1994 DECEMBER 31, 1994 ------------- ---------------------- ASSETS (LIABILITIES) ASSETS LIABILITIES ------------- ---------- ----------- (IN THOUSANDS) INTEREST RATE: Futures and forwards..................... $ 19,602 $ 33,153 $ 29,839 Swaps.................................... 161,197 354,431 202,253 Options written.......................... (408,343) -- 241,455 Options purchased........................ 308,838 231,123 -- --------- ---------- ---------- $ 81,294 $ 618,707 $ 473,547 ========= ========== ========== FOREIGN EXCHANGE: Spot, swaps, futures and forwards........ $ 12,733 $ 619,641 $ 664,125 Options written.......................... (225,563) -- 378,238 Options purchased........................ 232,848 367,870 -- --------- ---------- ---------- $ 20,018 $ 987,511 $1,042,363 ========= ========== ========== OTHER-PRINCIPALLY PRECIOUS METALS: Swaps, futures and forwards.............. $ (1,037) $ 45,662 $ 71,064 Options written.......................... (56,592) -- 38,458 Options purchased........................ 58,885 45,990 -- --------- ---------- ---------- $ 1,256 $ 91,652 $ 109,522 ========= ========== ==========
38 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 4. LOANS The following table sets forth the composition of the Corporation's loan portfolio at respective year ends.
1995 1994 ---------- ---------- (IN THOUSANDS) Domestic: Real estate--residential mortgage..................... $1,171,158 $1,245,500 Real estate--commercial............................... 1,791,693 1,813,878 Banks and other financial institutions................ 28,291 83,010 Broker loans.......................................... 1,086,530 559,019 Commercial and industrial............................. 2,004,783 2,242,124 Individuals........................................... 389,520 106,195 All other............................................. 187,360 11,810 Foreign................................................. 3,219,613 2,899,063 ---------- ---------- 9,878,948 8,960,599 Less unearned income.................................. (34,988) (47,109) ---------- ---------- Loans, net of unearned income........................... $9,843,960 $8,913,490 ========== ==========
5. ALLOWANCE FOR POSSIBLE LOAN LOSSES The Corporation's allowance for possible loan losses is determined by management, based on previous loan loss experience, prevailing and anticipated economic conditions and the composition of the loan portfolio, all of which are continuously reviewed. The allowance is viewed by management to be an adequate, single, unallocated reserve, available for potential loan losses. To comply with regulatory reporting requirements, management has allocated the allowance for possible loan losses between domestic and foreign components. By such allocation, management does not intend to imply that future charge-offs will necessarily follow the same pattern or that any portion of such allowance is restricted in any way. Changes in the Corporation's allowance for possible loan losses applicable to domestic and foreign operations for each of the years in the three-year period ended December 31, 1995 were as follows:
1995 1994 1993 ---------------------------- ---------------------------- ---------------------------- DOMESTIC FOREIGN TOTAL DOMESTIC FOREIGN TOTAL DOMESTIC FOREIGN TOTAL -------- -------- -------- -------- -------- -------- -------- -------- -------- (IN THOUSANDS) Balance, January 1...... $191,887 $127,333 $319,220 $189,499 $122,356 $311,855 $161,699 $ 79,321 $241,020 Provision............... 12,000 -- 12,000 16,000 3,000 19,000 55,000 30,000 85,000 -------- -------- -------- -------- -------- -------- -------- -------- -------- 203,887 127,333 331,220 205,499 125,356 330,855 216,699 109,321 326,020 -------- -------- -------- -------- -------- -------- -------- -------- -------- Charge-offs............. (48,135) (3,356) (51,491) (27,200) (17,355) (44,555) (46,170) (12,731) (58,901) Recoveries.............. 10,981 5,007 15,988 13,588 12,639 26,227 18,673 5,726 24,399 Net recoveries of restructuring countries debt................... -- 4,227 4,227 -- 6,899 6,899 -- 21,238 21,238 -------- -------- -------- -------- -------- -------- -------- -------- -------- Net (charge-offs) recoveries........... (37,154) 5,878 (31,276) (13,612) 2,183 (11,429) (27,497) 14,233 (13,264) Allowance of acquired companies.............. -- -- -- -- -- -- 297 -- 297 Translation adjustment.. -- 649 649 -- (206) (206) -- (1,198) (1,198) -------- -------- -------- -------- -------- -------- -------- -------- -------- Balance, December 31.... $166,733 $133,860 $300,593 $191,887 $127,333 $319,220 $189,499 $122,356 $311,855 ======== ======== ======== ======== ======== ======== ======== ======== ========
The following table presents the book balances of the Corporation's non- accrual and restructured loans (excluding consumer installment loans) at respective year ends.
1995 1994 1993 ------- ------- -------- (IN THOUSANDS) Domestic............................................... $49,311 $43,392 $ 48,084 Foreign................................................ 18,561 14,734 46,809 ------- ------- -------- Non-accrual loans...................................... 67,872 58,126 94,893 Restructured loans..................................... 14,383 28,330 63,008 ------- ------- -------- $82,255 $86,456 $157,901 ======= ======= ========
Included in the above table at December 31, 1995 are impaired loans with a book value of $46.0 million. At December 31, 1995, the Corporation's recorded investment in impaired loans included $35.6 million of impaired loans with a related allowance for loan losses of $9.7 million and $10.4 million of impaired loans with no related allowance for loan losses. The average recorded investment in impaired loans, net of charge-offs, for the year 1995 was $39.6 million. 39 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) The following table presents the effect of non-accrual and restructured loans on interest income for each of the years in the three-year period ended December 31, 1995.
1995 1994 1993 ------ ------- ------- (IN THOUSANDS) Gross amount of interest that would have been earned at original contract rates: Domestic............................................. $4,349 $ 7,430 $11,321 Foreign.............................................. 2,478 2,713 6,685 ------ ------- ------- $6,827 $10,143 $18,006 ====== ======= ======= Actual amount recorded as interest income: Domestic............................................. $2,319 $ 3,318 $ 7,368 Foreign.............................................. 449 318 1,654 ------ ------- ------- $2,768 $ 3,636 $ 9,022 ====== ======= ======= Foregone interest income: Domestic............................................. $2,030 $ 4,112 $ 3,953 Foreign.............................................. 2,029 2,395 5,031 ------ ------- ------- $4,059 $ 6,507 $ 8,984 ====== ======= =======
Included in the above table in 1995 is $151,000 of recorded interest income on impaired loans. 6. INVESTMENT IN AFFILIATE In 1988, the Corporation established Safra Republic Holdings S.A. ("Safra Republic"), a Luxembourg holding company, to which the Bank contributed its European banking subsidiaries in Switzerland, Luxembourg, France, Guernsey and Gibraltar. The Corporation, Saban S.A. (see Note 18), a Panamanian holding company wholly-owned by Mr. Edmond J. Safra, and international investors owned approximately 49.2%, 20.9% and 29.9%, respectively, of the outstanding common shares of Safra Republic at December 31, 1995. Summary financial information for Safra Republic for the last two years is as follows:
1995 1994 ----------- ----------- (IN THOUSANDS) Total assets....................................... $15,660,544 $12,487,010 Total deposits..................................... 11,347,601 9,363,840 Total shareholders' equity......................... 1,467,807 1,246,353 Operating revenue.................................. 1,009,255 816,887 Net income......................................... 162,104 158,575
For additional information on Safra Republic, see the accompanying financial statements in "Affiliate Financial Statements" in "Financial Statements and Supplementary Data" elsewhere in this Report. 7. PREMISES AND EQUIPMENT A summary of the Corporation's premises and equipment at respective year ends follows.
1995 1994 -------- -------- (IN THOUSANDS) Premises................................................ $475,428 $464,412 Equipment............................................... 170,808 146,122 -------- -------- 646,236 610,534 Less accumulated depreciation and amortization.......... (209,465) (182,517) -------- -------- $436,771 $428,017 ======== ========
Other operating expenses included depreciation and amortization of $44.1 million in 1995, $37.2 million in 1994 and $32.5 million in 1993. The estimated useful lives are 10 to 50 years for premises and 3 to 10 years for equipment. 40 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 8. SHORT-TERM BORROWINGS The following table presents the Corporation's short-term borrowings at respective year ends.
1995 1994 ---------- ---------- (IN THOUSANDS) Federal funds purchased and securities sold under repurchase agreements............................. $1,231,744 $ 987,110 Commercial paper................................... 667,563 979,390 Other borrowings................................... 1,991,461 3,002,894 ---------- ---------- $3,890,768 $4,969,394 ========== ==========
Federal funds purchased generally mature one business day following the sale date. Securities sold under repurchase agreements and commercial paper generally mature within 30 days and 90 days, respectively, from the related dates of sale. Other borrowings generally mature within twelve months. Included in other borrowings at December 31, 1994, was $1.0 billion of 4.30% Notes due March 8, 1995 that were repaid at maturity. The Corporation has $180 million of lines of credit outstanding to support its commercial paper program, for which it has authority to issue up to $2.5 billion of such borrowings. 9. LONG-TERM DEBT The following tables present a summary of long-term debt and subordinated long-term debt and perpetual capital notes at respective year ends. Long-Term Debt:
1995 1994 ---------- ---------- (IN THOUSANDS) Republic New York Corporation: 8 3/8% Notes due May 1, 1996........................... $ 100,000 $ 100,000 8 3/8% Debentures due February 15, 2007................ 100,000 100,000 ---------- ---------- 200,000 200,000 ---------- ---------- Republic National Bank of New York: 5.20% Notes due January 17, 1995....................... -- 250,000 5 3/4% Notes due February 1, 1995...................... -- 500,000 6.40% Notes due April 15, 1995......................... -- 200,000 4.90% Notes due July 27, 1995.......................... -- 100,000 New Zealand Dollar Floating Rate Notes due August 4, 1995.................................................. -- 54,600 4 3/4% Notes due October 15, 1995...................... -- 191,000 LIBOR Accrual Notes due February 2, 1996 (0%).......... 20,100 20,100 S&P 500 Index Notes due August 4, 2000................. 20,000 -- Other long-term debt................................... 16,821 17,911 Collateralized repurchase agreements................... 1,298,190 1,047,220 ---------- ---------- 1,355,111 2,380,831 ---------- ---------- $1,555,111 $2,580,831 ========== ==========
The rate in effect at December 31, 1995 for the floating rate issue is shown in parentheses. The Bank has established a $5.0 billion Global Bank Note Program (the "Program") authorizing the periodic sale, globally, of notes (the "Notes") by the Bank, including through its overseas branches. A group of major international securities dealers are eligible to participate in the offerings pursuant to the Program. Notes may be issued for any maturity of 30 days or more, subject to regulatory compliance. Notes may be denominated in various currencies, may pay a fixed or floating rate based on one or more indices and, unless otherwise specified, will be issued only in minimum denominations of $250,000 and integral multiples of $1,000 in excess thereof. The Notes are direct, unconditional and unsecured general obligations of the Bank, do not evidence deposits and are not insured by the FDIC. Notes to be issued as part of the program have been accepted for listing on the Luxembourg Stock Exchange. At December 31, 1995, $20 million of Notes were outstanding pursuant to this Program. All other outstanding notes of the Bank were issued under an authorization by its Board of Directors which allows for an aggregate of up to $7 billion of such obligations to be outstanding at any time. All such outstanding notes of the Bank are unsecured debt obligations and are not subject to redemption prior to maturity. Collateralized repurchase agreements consist of securities repurchase agreements with initial maturities exceeding one year. 41 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) All of the outstanding long-term notes and debentures of the Corporation are direct unsecured obligations and are not subordinated in right of payment to any other unsecured indebtedness of the Corporation. The Corporation and the Bank are obligated with respect to the above long- term debt to make aggregate principal payments in each of the next five years as follows: $351 million in 1996, $292 million in 1997, $32 million in 1998, $1.7 million in 1999 and $270 million in 2000. Subordinated Long-Term Debt and Perpetual Capital Notes:
1995 1994 ---------- ---------- (IN THOUSANDS) Republic New York Corporation: 9 1/2% Subordinated Notes due July 1, 2000............. $ 100,000 $ 100,000 9 3/4% Subordinated Notes due December 1, 2000......... 100,000 100,000 7 7/8% Subordinated Notes due 2001..................... 100,000 100,000 8.25% Subordinated Notes due 2001...................... 150,000 150,000 8 7/8% Subordinated Notes 2001......................... 100,000 100,000 7 3/4% Subordinated Notes due May 15, 2002............. 150,000 150,000 7 1/4% Subordinated Notes due July 15, 2002............ 250,000 250,000 Floating Rate Subordinated Notes due August 2002 ( 5.8931%).............................................. 100,000 100,000 Floating Rate Subordinated Notes due October 2002 (5.9713%)............................................. 150,000 150,000 Subordinated Floating Rate Yield Curve Notes due 2002 (5.4625%)............................................. 100,000 100,000 5 7/8% Subordinated Notes due 2008..................... 250,000 250,000 7 3/4% Subordinated Notes due 2009..................... 200,000 200,000 9.70% Subordinated Notes due February 1, 2009.......... 150,000 150,000 9 1/2% Subordinated Debentures due April 15, 2014...... 150,000 150,000 9 1/8% Subordinated Notes due 2021..................... 100,000 100,000 9.30% Subordinated Notes due 2021...................... 100,000 100,000 Perpetual Capital Notes (6.1875%)*..................... 150,000 150,000 ---------- ---------- 2,400,000 2,400,000 Republic National Bank of New York: Other subordinated long-term debt...................... 6,440 6,266 ---------- ---------- $2,406,440 $2,406,266 ========== ==========
* These notes are redeemable prior to maturity. The rates in effect at December 31, 1995 for floating rate issues are shown in parentheses. The Corporation's outstanding issues of subordinated notes and debentures are all direct unsecured obligations of the Corporation. Interest rates on subordinated floating rate note issues are determined quarterly or semi- annually by formulas based on certain money market rates and, in the case of the issues of the Floating Rate Subordinated Notes due 2002, are subject to minimum rates of 5% per annum. The Corporation has an outstanding shelf registration statement pursuant to which it may issue, from time to time in public offerings, debt securities, warrants on debt securities, currency warrants, stock-index warrants, other warrants, preferred stock, depositary shares representing preferred stock, preferred stock warrants or common stock warrants. Such securities may be offered separately or together, in one or more series, up to an aggregate of initial public offering prices of $1.0 billion. At December 31, 1995, an aggregate of $675 million principal amount of outstanding debt securities and preferred stock had been issued pursuant to such registration statement. The Corporation's $200 million principal amount of 7 3/4% Subordinated Notes due 2009 are direct unsecured general obligations of the Corporation and are subordinated to all present and future senior indebtedness of the Corporation. The Notes are not redeemable prior to maturity. The net proceeds received by the Corporation from the sale of the Notes were used for general corporate purposes. The Corporation's $150 million principal amount of Putable (or Perpetual) Capital Notes (the "PCNs") are a component of total qualifying capital under applicable risk-based capital rules. The principal amount of each PCN will be payable as follows: (1) at the option of the holder on the put date in each year commencing in 2012, PCNs may be exchanged for securities that constitute permanent primary capital securities (the "capital securities") for regulatory purposes, (2) at the option of the Corporation on 90 days prior notice, the PCNs may be either (i) redeemed on the specified redemption date, in whole, for cash and at par, but only with the proceeds of a substantially concurrent sale of capital securities issued for the purpose of such redemption or (ii) exchanged, in whole, for capital securities having a market value equal to the principal amount of the PCNs, and, in each case, the payment of accrued interest in cash or (3) in the event that the sum of the Corporation's consolidated retained earnings and surplus accounts becomes less than zero, the PCNs will automatically be exchanged, in whole, for capital securities having a market value equal to the principal amount of the PCNs and the payment of accrued interest in cash. 42 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) The PCNs are unsecured and subordinated in right of payment to all senior indebtedness of the Corporation. The interest rate for each six-month interest period is determined by a formula based on certain money market rates. The Corporation and the Bank are obligated with respect to the above subordinated long-term debt to make principal payments within the next five years as follows: $6.4 million in 1999 and $200 million in 2000. 10. PREFERRED STOCK The Corporation's authorized preferred stock is 20 million shares. The following table presents information related to the Corporation's issues of preferred stock outstanding at respective year ends.
DIVIDEND SHARES RATE AT AMOUNT OUTSTANDING DECEMBER 31, OUTSTANDING ----------- ------------ ----------------------- 1995 1995 1995 1994 ----------- ------------ ----------- ----------- (DOLLARS IN THOUSANDS) $1.8125 Cumulative Preferred Stock ($25 stated value)..... 3,000,000 7.25% $ 75,000 $ -- 6,000,000 Depositary shares each representing a one- fourth interest in a share of adjustable rate Cumulative Preferred Stock, Series D ($100 stated value).......... 1,500,000 5.31% 150,000 150,000 $1.9375 Cumulative Preferred Stock ($25 stated value)..... 4,000,000 7.75% 100,000 100,000 Dutch Auction Rate Transfer- able Securities Preferred Stock ("DARTS(TM)") Series A ($100,000 stated value)..................... 625 4.40% 62,500 62,500 Series B ($100,000 stated value)..................... 625 4.41% 62,500 62,500 Remarketed Preferred ("RP") ($100,000 per share liquida- tion preference)............. 750 4.30-4.68% 75,000 75,000 Money Market Cumulative Pre- ferred ("MMP") ($100,000 per share liquidation prefer- ence)........................ 500 4.42% 50,000 50,000 $3.375 Cumulative Convertible Preferred Stock ($50 stated value)....................... -- -- -- 172,500 --------- ----------- ----------- 8,502,500 $ 575,000 $ 672,500 ========= =========== ===========
On June 26, 1995, the Corporation sold, in a public offering, 3 million shares of $1.8125 Cumulative Preferred Stock ($25 Stated Value) (the "Preferred Stock") with an aggregate stated value of $75 million. The Preferred Stock may be redeemed, at the option of the Corporation, in whole or in part, at any time or from time to time, on or after July 1, 2000 at $25 per share, plus, in each case, dividends accrued and unpaid to the redemption date. The net proceeds received have been used for general corporate purposes, including payment to holders of the $3.375 Cumulative Convertible Preferred Stock who, in connection with the Corporation's call for redemption described below, elected to redeem. On July 24, 1995, the Corporation redeemed all of the outstanding shares of its $3.375 Cumulative Convertible Preferred Stock. Holders of the preferred stock tendered an aggregate of 42,596 shares at the redemption price of $52.025 plus accrued and unpaid dividends of $0.21563 per share. Holders of 3,406,093 shares of preferred stock elected to convert, at the conversion ratio of 1.03448, into an aggregate of 3,523,369 shares of common stock. Fractional shares of common stock and shares not tendered received cash. The 6 million depositary shares outstanding each represent a one-fourth interest in a share of Adjustable Rate Cumulative Preferred Stock, Series D ($100 Stated Value) (the "Series D Stock"). The dividend rate on the Series D Stock is determined quarterly, by reference to a formula based on certain benchmark market rates, but will not be less than 4 1/2% or more than 10 1/2% per annum for any applicable dividend period. The dividend rate in effect for the period ended December 31, 1995, was 5.31%. The Series D Stock will be redeemable, in whole or in part, at the option of the Corporation on or after July 1, 1999, at $100 per share (which is equivalent to $25 per depositary share), plus accrued and unpaid dividends to the redemption date. The net proceeds were used for general corporate purposes. The shares of $1.9375 Cumulative Preferred Stock with a stated value of $25 per share may be redeemed on or after February 27, 1997, at the option of the Corporation, in whole or in part, at $25 per share, plus, in all cases, accrued and unpaid dividends to the redemption date. Dividend rates for each dividend period are set pursuant to an auction procedure for the DARTS(TM) and the MMP, and by a remarketing through the remarketing agent for the RP. The maximum applicable dividend rates on the shares of DARTS(TM), RP and MMP range from 110% to 175% of the 60-day "AA" composite commercial paper rate. DARTS(TM) of each series are redeemable in whole or in part, at the option of the Corporation, at $100,000 per share, plus accrued and unpaid dividends to the redemption date. DARTS(TM) are also redeemable, at the option of the Corporation, on any dividend payment date for such series, in whole but not in part, at a redemption price of $100,000 per share plus the payment of accrued and unpaid dividends, if the applicable rate for such series fixed with respect to the dividend period for such series ending on such dividend payment date equals or exceeds the 60-day "AA" composite commercial paper rate on the date of determination of such applicable rate. The shares of RP are redeemable, in whole or in part, at the option of the Corporation, at a redemption price of $100,000 per share, plus the payment of accrued and unpaid dividends to the date fixed for redemption. 43 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) The shares of MMP are redeemable, in whole or in part, at the option of the Corporation, at a redemption price of $100,000 per share, plus the payment of accrued and unpaid dividends to the redemption date. The shares of MMP are also redeemable, at the option of the Corporation, on any dividend payment date, in whole but not in part, at a redemption price of $100,000 per share, plus accrued and unpaid dividends, if the applicable rate fixed for the dividend period ending on the day preceding such dividend payment date equals or exceeds the 60-day "AA" composite commercial paper rate on the date of determination of such applicable rate. 11. INCOME TAXES Total income tax expense (benefit) for each of the years in the three-year period ended December 31, 1995 was allocated as follows:
1995 1994 1993 -------- --------- -------- (IN THOUSANDS) Income from operations........................... $109,466 $ 152,358 $150,153 Stockholders' equity: Net unrealized appreciation (depreciation) on securities available for sale, net of taxes... 55,375 (281,046) 175,095 Foreign currency translation, net.............. 3,456 1,067 (8,653) -------- --------- -------- $168,297 $(127,621) $316,595 ======== ========= ========
The components of the Corporation's consolidated income tax expense from operations were as follows:
1995 1994 1993 -------- -------- -------- (IN THOUSANDS) Current Tax Expense: Federal......................................... $ 59,312 $ 53,093 $129,856 Foreign......................................... 19,150 21,138 27,980 State and other................................. 6,700 8,837 34,085 -------- -------- -------- 85,162 83,068 191,921 -------- -------- -------- Deferred Tax Expense (Benefit): Federal......................................... 24,304 62,194 (29,312) State and other................................. -- 7,096 (12,456) -------- -------- -------- 24,304 69,290 (41,768) -------- -------- -------- $109,466 $152,358 $150,153 ======== ======== ========
Income tax expense on operations amounted to $109.5 million for 1995, $152.4 million for 1994 and $150.2 million for 1993, representing effective tax rates of 27.5%, 30.9% and 33.3%, respectively. Total tax expense differs from the amounts computed by applying the statutory U.S. Federal income tax rate because of the following:
% OF PRETAX INCOME ---------------------- 1995 1994 1993 ------ ------ ------ Federal tax expense at statutory rates............... 35.0 35.0 35.0 State and local income tax, net of federal tax bene- fit................................................. 1.1 2.1 2.6 Interest and dividend income exempt from federal tax................................................. (6.4) (4.6) (4.4) Other, net........................................... (2.2) (1.6) 0.1 ------ ------ ------ Income tax expense as reported....................... 27.5 30.9 33.3 ====== ====== ======
The tax effects of temporary differences that gave rise to the deferred tax assets and deferred tax liabilities at December 31, 1995 and 1994 are presented below.
1995 1994 -------- -------- (IN THOUSANDS) Deferred tax assets: Provision for loan losses.................................. $125,149 $119,545 Exempt income from subsidiary acquisition.................. 23,564 33,260 Unrealized losses on trading account assets and securities available for sale........................................ 15,499 106,087 Employee benefits.......................................... 20,407 15,494 Restructuring and related charges.......................... 28,282 -- Other...................................................... 7,950 7,047 -------- -------- 220,851 281,433 -------- -------- Deferred tax liabilities: Depreciation............................................... 48,555 46,516 Domestic tax on overseas income............................ 87,411 63,721 Interest and discount income............................... 38,833 47,513 -------- -------- 174,799 157,750 -------- -------- Net deferred tax asset....................................... $ 46,052 $123,683 ======== ========
44 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) There was no valuation adjustment at December 31, 1995, and 1994 respectively. The Corporation has not recognized a deferred tax liability of approximately $100.0 million for undistributed earnings of foreign subsidiaries for taxable years beginning prior to 1987 because the Corporation does not expect those earnings to be distributed and become taxable to the Corporation in the foreseeable future. As of December 31, 1995, the undistributed earnings of these foreign subsidiaries were approximately $365.0 million. Cumulative foreign tax credits of approximately $28.5 million at December 31, 1995 are available for utilization by the Corporation against U.S. income taxes that would arise upon a dividend distribution by its foreign subsidiaries. The following table distributes the Corporation's income before income taxes between its domestic and foreign offices for each of the last three years.
1995 1994 1993 -------- -------- -------- (IN THOUSANDS) Foreign.............................................. $286,576 $220,377 $230,523 Domestic............................................. 111,539 271,989 220,835 -------- -------- -------- $398,115 $492,366 $451,358 ======== ======== ========
12. RESTRUCTURING AND RELATED CHARGES In the second quarter of 1995, the Corporation recorded a $120.0 million pre-tax provision for restructuring and related charges in connection with the implementation of Project Excellence Plus, the Corporation's company-wide project to improve operating efficiencies and reduce costs. The implementation stage of this project began in the second quarter of 1995 and is anticipated to be completed in the second quarter of 1996. Approximately 800 employees will be terminated under the restructuring plan, of which two-thirds are non- officer level employees. Approximately 650 employees were terminated during 1995 with the remainder to be terminated by the end of the second quarter of 1996. The components of the restructuring charge taken during 1995 were as follows:
(IN THOUSANDS) Salaries and employee benefits.......................... $ 71,000 Occupancy, net.......................................... 10,000 Other expenses.......................................... 39,000 -------- $120,000 ========
Salaries and employee benefits charges include the cost of terminations and other benefits. The charge to occupancy consists of lease termination costs for space that is expected to be vacated, space consolidation and anticipated losses to be incurred on the sale of properties to be vacated. Other expenses include project-related implementation costs. Cash expenditures relating to the restructuring program have been made from the Corporation's operating activities and have not had an adverse impact on its liquidity. The following table presents a summary of activity in the accrual of restructuring and related charges.
1995 -------------- (IN THOUSANDS) Provision for restructuring and related charges........ $120,000 Payments............................................... (46,179) Non-cash writedowns.................................... (9,858) -------- Balance December 31, 1995............................ $ 63,963 ========
The payments made during 1995 relate primarily to severance costs and project-related expenses. Non-cash writedowns relate primarily to vacated facilities and write-offs of equipment and leasehold improvements. 13. BENEFITS Retirement Benefits The Bank has a Retirement Plan (the "U.S. Plan") which covers substantially all U.S. employees of the Corporation, the Bank and their respective subsidiaries. Benefits are based on an employee's years of creditable service and average base salary for the highest paid five consecutive years during the last ten years of employment. The Corporation's funding policy is to contribute annually an amount necessary to satisfy the Employee Retirement Income Security Act ("ERISA") funding standards. 45 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) The following table sets forth the U.S. Plan's funded status and amounts recognized in the Corporation's Statement of Condition at respective year ends.
1995 1994 --------- --------- (IN THOUSANDS) Actuarial present value of benefit obligations: Accumulated benefit obligations, including vested benefits of $(106,019 ) in 1995 and $(90,843) in 1994............................................... $(117,545) $(102,687) ========= ========= Plan assets at fair value, primarily mutual funds and the balance in listed stocks and bonds............... $ 175,943 $ 146,138 Projected benefit obligation for service rendered to date................................................. (155,466) (132,574) --------- --------- Excess of plan assets over projected benefit obliga- tion................................................. 20,477 13,564 Unrecognized net (gain) from past experience different from that assumed and effects of changes in assump- tions................................................ (12,317) (2,113) Prior service cost not yet recognized in net periodic pension cost......................................... 904 1,211 Unrecognized net asset being recognized over 16 years................................................ (6,035) (7,041) --------- --------- Prepaid pension expense included in other assets.... $ 3,029 $ 5,621 ========= =========
Net pension expense in each of the last three years consisted of the following:
1995 1994 1993 -------- -------- -------- (IN THOUSANDS) Service cost-benefits earned during the period... $ 6,295 $ 6,250 $ 5,754 Interest cost on projected benefit obligation.... 10,824 9,575 8,825 Actual return on plan assets..................... (29,893) (66) (14,105) Net amortization and deferral.................... 17,471 (10,406) 4,469 -------- -------- -------- Net periodic pension expense................... $ 4,697 $ 5,353 $ 4,943 ======== ======== ========
The following table presents the economic assumptions used to calculate the projected benefit obligation and pension expense in each of the last three years.
1995 1994 1993 ---- ---- ---- Discount rate............................................. 7.0% 8.0% 7.0% Rate of compensation increase............................. 5.0 6.0 5.0 Expected long-term rate of return on plan assets.......... 8.0 8.0 7.0
In addition to the above funded U.S. Plan, the Corporation established an unfunded benefit maintenance plan and a supplemental pension plan for certain employees, executive officers and directors. The expense related to these plans amounted to $2.2 million in 1995, $2.1 million in 1994 and $2.0 million in 1993. The unfunded liability for these plans was $12.0 million and $10.0 million at December 31,1995 and 1994, respectively. Retirement benefits in foreign locations generally are covered by local plans based on length of service, compensation levels and, where applicable, employee contributions, with the funding of these plans based on local legal requirements. The aggregate pension expense for such plans was approximately $3.6 million in 1995 and 1994 and $3.7 million in 1993. Postretirement Benefits The Corporation provides postretirement life insurance benefits to its current employees and provides certain retired employees with health care and life insurance benefits. The Corporation's plan for its postretirement benefit obligation is unfunded. The following table sets forth information related to the Corporation's postretirement benefit obligation at respective year ends.
1995 1994 -------- -------- (IN THOUSANDS) Accumulated postretirement benefit obligation: Retirees including covered dependents and beneficia- ries............................................... $(24,932) $(21,991) Fully eligible actives.............................. (1,067) (834) Other actives....................................... (691) (362) -------- -------- (26,690) (23,187) Unrecognized net gain................................. (8,289) (9,735) Unrecognized transition obligation being recognized over 20 years........................................ 15,275 16,228 -------- -------- Postretirement benefit obligation included in other liabilities........................................ $(19,704) $(16,694) ======== ========
46 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) A discount rate of 7% and a 5% compensation increase were used to measure the accumulated postretirement benefit obligation in 1995. A discount rate of 8% and a 6% compensation increase were used to measure the accumulated postretirement benefit obligation in 1994. In 1993, the rates used were 7% and 5%. The effect of raising health care gross eligible charges by 1% would increase the aggregate of service cost and interest cost by approximately $222,000 and the accumulated postretirement benefit obligation by approximately $2.5 million. The health care trend rate used to measure the expected costs of benefits for 1996 is projected to be 11.0% for those under age 65 and 9.6% for those 65 and older. The rates for those under age 65 and for those 65 and older are assumed to decrease by 1% and 0.4%-0.5% per year, respectively, until they reach 6.0% and stabilize at that rate. Net postretirement benefit expense for each of the last three years was as follows:
1995 1994 1993 ------ ------ ------ (IN THOUSANDS) Service cost........................................... $ 76 $ 92 $ 92 Interest cost on accumulated postretirement benefit ob- ligation.............................................. 1,848 1,744 1,910 Amortization of transitional accumulated postretirement benefit obligation.................................... 953 953 953 Amortization of net gain............................... (436) (178) -- ------ ------ ------ Net periodic expense................................. $2,441 $2,611 $2,955 ====== ====== ======
Postemployment Benefits The Corporation accounts for postemployment benefits by recognizing an obligation for the estimated cost of postemployment benefits. Postemployment is defined as the period after employment but before retirement if certain conditions are met. Postemployment benefits include, but are not limited to, salary continuation, severance benefits, job training and counseling, health care and life insurance coverage. Stock-Based Compensation With the approval of the stockholders at their 1995 Annual Meeting, the Corporation established the 1995 Long-Term Incentive Stock Plan (the "1995 Plan"). The 1995 Plan was designed to consolidate the Corporation's 1985 Incentive Stock Option Plan, 1985 Non-Qualified Stock Option Plan, and 1985 Restricted Stock Plan (together, the "Prior Plans") and provides for the award of Incentive Stock Options, Non-Qualified Stock Options, Stock Appreciation Rights, Restricted Stock and other stock-based awards (each, an "Award"), which may be granted individually or in combination to eligible persons. The 1995 Plan provides that it shall terminate on the tenth anniversary of its effective date. At the time the 1995 Plan was established, 1,140,800 shares of the Corporation's Common Stock were set aside for Awards pursuant to the Plan, representing the number of shares authorized for awards, but not presently awarded, under the Prior Plans. At December 31, 1995, an aggregate of 699,885 shares of Common Stock remained available to be awarded under the 1995 Plan. The Prior Plans expired by their terms in 1995 and no new awards may be granted thereunder. However, awards previously granted under the Prior Plans that remain outstanding will continue to be administered in compliance with the terms and conditions of the applicable Prior Plan. During 1995, 1994 and 1993, the Corporation issued, net of cancellations, 190,365 shares, 694,207 shares and 470,824 shares of Common Stock, respectively, with an approximate market value as of the date of issue of $11.2 million, $33.2 million and $23.7 million, respectively, in accordance with the terms of Restricted Stock Awards granted under the 1995 Plan and the 1985 Restricted Stock Plan. Such market value is amortized as an expense over the period for which such shares are restricted. The Corporation also issues stock pursuant to the terms of the Restricted Stock Election Plan, which allows certain officers who have earned deferred compensation to elect to receive payment in the form of Restricted Stock of the Corporation. During 1995, 1994 and 1993, 760 shares, 768 shares and 604 shares, respectively, of the Corporation's Common Stock were issued in lieu of cash dividends pursuant to such Plan, with approximate market values as of the dates of issue of $38,000, $37,000 and $30,000, respectively. Options to purchase Common Stock, which may be non-qualified or incentive stock options, may be granted at an exercise price determined at the time the option is granted by the Employee Compensation and Benefits Committee of the Corporation's Board of Directors (the "Compensation Committee"); provided, however, that in the case of an incentive stock option, the exercise price must be at least 100% of the fair market value of a share of the Common Stock on the date of grant. Incentive stock options must comply with certain requirements in order that the holders of such options may receive certain beneficial tax treatment in the disposition of shares acquired on the exercise of such an option. Options become exercisable at the times and in the amounts determined by the Compensation Committee in connection with awarding grants. 47 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) The following is a summary of options transactions in each of the last three years. All of such options were granted pursuant to the 1985 Incentive Stock Option Plan or the 1985 Non-Qualified Stock Option Plan. As of December 31, 1995, no options had been granted under the 1995 Plan.
OPTION PRICE OPTIONS PER SHARE -------- ------------- Balance, December 31, 1992............................. 602,737 $23.61-$40.79 Granted.............................................. 4,500 50.13 Exercised............................................ (43,100) 23.61-32.50 Cancelled............................................ -- -------- ------------- Balance, December 31, 1993............................. 564,137 $23.61-$50.13 Granted.............................................. -- Exercised............................................ (80,850) 23.61-29.12 Cancelled............................................ (3,750) -------- ------------- Balance, December 31, 1994............................. 479,537 $23.61-$50.13 Granted.............................................. -- Exercised............................................ (306,850) 23.61-32.50 Cancelled............................................ (3,000) -------- ------------- Balance, December 31, 1995............................. 169,687 $23.61-$50.13 ======== =============
At December 31, 1995, options for 148,687 shares were exercisable at prices ranging from $23.61 to $33.21 per share. In October 1995, SFAS No. 123, "Accounting for Stock-Based Compensation," was issued effective for transactions entered into for years beginning after December 15, 1995. This SFAS establishes financial accounting and reporting standards for employee stock-based compensation plans and applies to all arrangements whereby an employee receives shares of stock or other equity instruments of an employer or a liability is incurred based on the price of the employer's stock. These arrangements include restricted stock, stock options and stock appreciation rights. The Corporation currently expenses the fair value of restricted stock, as determined at the grant date, over the restricted period of such shares. The SFAS allows an entity to continue to account for stock-based compensation plans under Accounting Principles Board Opinion No. 25, the current method followed by the Corporation, which it expects to continue. By electing to continue accounting under Opinion No. 25, pro forma footnote disclosures of net income and earnings per share are required to quantify the effect of the fair value based method for stock options and stock appreciation rights issued after December 15, 1994, as defined in SFAS No. 123. In 1994, the Corporation adopted a Performance Based Incentive Compensation Plan (the "Performance Based Plan") in order to comply with the requirements of Section 162(m) of the Internal Revenue Code governing the deductibility of executive officer compensation over $1 million. The Performance Based Plan is designed to provide an incentive to officers who serve on the Management Executive Committee of the Corporation and are in a position to make a material contribution to the successful operation of the Corporation. The Performance Based Plan is administered by the Compensation Committee, which has the exclusive power to designate recipients of awards, to establish the basis for the amount to be paid pursuant to the awards and to administer the Performance Based Plan in all other respects. The amount, if any, to be paid pursuant to any award granted for any plan year shall be equal to the lesser of a formula with respect to increases in earnings per share over a base year or a specified percentage of net income of the Corporation. For the 1994 Plan Year, the Compensation Committee certified awards in the aggregate amount of $4.2 million, a portion of which were paid out in the form of Restricted Stock under the 1985 Restricted Stock Plan. Awards have been granted for the 1995 Plan Year pursuant to the Performance Based Plan but amounts payable pursuant to such awards have not yet been certified by the Compensation Committee in accordance with the Plan. 48 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 14. GEOGRAPHIC DISTRIBUTION OF REVENUE, EARNINGS AND ASSETS The following geographic analysis of total assets, total operating revenue, income (loss) before income taxes and net income (loss) is based on the location of the customer. Charges and credits for funds employed or supplied by domestic and international operations are based on the average internal cost of funds. Inasmuch as the Corporation conducts a significant portion of its international activities from its domestic offices, certain other items of revenue and expense, including the provision for loan losses and applicable income taxes, have been subjectively allocated, and, therefore, the data presented may not be meaningful. Based on the above, the following table summarizes the results of the Corporation's international and domestic operations by geographic area for each of the years in the three-year period ended December 31, 1995.
TOTAL INCOME (LOSS) TOTAL OPERATING BEFORE NET INCOME ASSETS REVENUE INCOME TAXES (LOSS) --------- --------- ------------- ---------- (IN MILLIONS) United Kingdom.............. 1995 $ 1,134.8 $ 130.8 $ 17.9 $ 13.0 1994 2,434.2 171.0 19.2 14.1 1993 1,271.6 156.3 40.8 27.2 Europe...................... 1995 $ 3,449.7 $ 293.5 $ 32.6 $ 23.6 1994 4,578.5 252.2 48.0 35.1 1993 3,407.5 232.5 15.8 10.6 Canada...................... 1995 $ 1,162.7 $ 92.7 $ 9.2 $ 6.7 1994 1,549.6 81.6 13.0 9.5 1993 1,043.5 64.0 1.9 1.3 Far East and Australia...... 1995 $ 3,873.6 $ 288.4 $ 17.7 $ 12.8 1994 4,392.3 227.6 17.8 13.0 1993 3,555.4 181.7 23.0 15.4 Caribbean money center loca- tions, Central and South America.................... 1995 $ 3,233.0 $ 304.5 $106.6 $ 77.2 1994 2,741.5 331.9 161.9 98.4 1993 3,104.0 157.1 38.7 25.8 Middle East and Africa...... 1995 $ 481.5 $ 10.5 $ (0.8) $ (0.6) 1994 289.1 6.2 (0.2) (0.2) 1993 204.2 6.0 (0.7) (0.5) United States............... 1995 $30,546.3 $1,739.2 $214.9 $155.9 1994 25,082.7 1,489.2 232.7 170.1 1993 26,907.3 1,530.8 331.9 221.4 Total..................... 1995 $43,881.6 $2,859.6 $398.1 $288.6 1994 41,067.9 2,559.7 492.4 340.0 1993 39,493.5 2,328.4 451.4 301.2
15. COMMITMENTS AND CONTINGENT LIABILITIES In the ordinary course of its business, the Corporation is a defendant in various legal proceedings. Management, after reviewing with counsel all such actions and proceedings pending against the Corporation, considers that the aggregate liability or loss, if any, resulting from an adverse determination would not have a material effect on the consolidated financial position of the Corporation. The Corporation is obligated under noncancellable leases that expire at various times through 2016. The minimum rental commitments on noncancellable leases for premises are $24.9 million in 1996, $21.9 million in 1997, $20.1 million in 1998, $19.5 million in 1999, $15.0 million in 2000 and an aggregate of $72.5 million thereafter until the expiration of the leases. The minimum rental commitments have not been reduced by aggregate minimum sublease rentals of $14.0 million. Actual net rental expense in 1995, 1994 and 1993 aggregated $30.3 million, $28.0 million and $23.6 million, respectively. The subsidiary banks of the Corporation are required to maintain reserves with the Federal Reserve Bank against certain balances. The average required reserves maintained totaled $20 million during 1995. 49 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 16. FAIR VALUE OF FINANCIAL INSTRUMENTS The following table presents the carrying values and estimated fair values of the Corporation's financial instruments. The estimated fair values of derivative financial instruments used as hedges are presented with the related on-balance-sheet asset or liability.
DECEMBER 31, --------------------------------------- 1995 1994 ------------------- ------------------- CARRYING ESTIMATED CARRYING ESTIMATED VALUE FAIR VALUE VALUE FAIR VALUE -------- ---------- -------- ---------- (IN MILLIONS) FINANCIAL ASSETS, INCLUDING HEDGES: Interest-bearing deposits with banks.. $6,094 $6,111 $10,242 $10,233 Derivative related................... -- 2 -- 9 Securities held to maturity........... 4,487 4,680 5,888 5,576 Derivative related................... -- (85) -- 38 Securities available for sale......... 11,889 11,889 5,499 5,499 Derivative related................... (137) (137) 53 53 Trading account assets................ 904 904 938 938 Derivative related................... 3,132 3,132 1,606 1,606 Loans, net............................ 9,543 9,902 8,594 8,678 Derivative related................... -- -- -- 1 Other financial assets................ 5,168 5,168 5,232 5,232 ------ ------ ------- ------- 41,080 41,566 38,052 37,863 ------ ------ ------- ------- FINANCIAL LIABILITIES, INCLUDING HEDGES: Deposits with no stated maturity and deposits maturing within six months.. 22,277 22,277 20,240 20,240 Deposits maturing in over six months.. 2,642 2,649 2,486 2,436 Derivative related................... -- 19 -- (64) Trading account liabilities........... 513 513 462 462 Derivative related................... 3,207 3,207 1,625 1,625 Short-term borrowings................. 3,891 3,891 4,969 4,969 Derivative related................... -- 1 -- (1) Long-term debt, subordinated long-term debt and perpetual capital notes..... 3,962 4,263 4,987 4,863 Derivative related................... -- (117) -- 70 Other financial liabilities........... 3,870 3,870 3,210 3,210 ------ ------ ------- ------- 40,362 40,573 37,979 37,810 ------ ------ ------- ------- Net financial assets.................. $ 718 $ 993 $ 73 $ 53 ====== ====== ======= ======= Estimated net fair value--more than (less than) carrying value........... $ 275 $ (20) ====== =======
The following presents the methodologies and assumptions used to estimate the fair value of the Corporation's financial instruments. Financial instruments are defined as cash, evidence of an ownership in an entity, a contract that conveys or imposes on an entity the contractual right or obligation to either receive or deliver cash or another financial instrument, a derivative financial instrument, such as a futures, forward, swap or option contract or other financial instruments with similar characteristics. Fair value is defined as the amount at which such financial instruments could be exchanged in a current transaction between willing parties, other than in a forced sale or liquidation, and is best evidenced by a quoted market price, if one exists. The Corporation operates as a going concern, and, except for its investment securities portfolio, trading account assets and liabilities and off-balance-sheet instruments that trade on an organized exchange or in an active secondary market, no active market exists for its financial instruments. The application of the information used to determine fair value is highly subjective and judgmental in nature, and, therefore, such valuation may not be precise. The subjective factors include, among other things, estimates of cash flows, risk characteristics, credit quality and interest rates, all of which are subject to change. Since the fair value is estimated as of the statement of condition date, the amounts which will actually be realized or paid upon settlement or maturity of the various financial instruments could be significantly different. The Corporation has a significant portion of its assets and liabilities in financial instruments that have remaining maturities of less than six months. These short-term financial instruments, except for those financial instruments for which an active market exists, are valued without regard to maturity and are considered to have fair values equivalent to their carrying value. Financial Assets Interest-bearing deposits with banks, amounting to $5.6 billion in 1995 and $9.0 billion in 1994, mature within six months and are considered to have a fair value equivalent to their carrying value. The fair value of interest- bearing deposits with banks maturing in more than six months is estimated using a discounted cash flow model based on current market rates for comparable instruments with similar maturities. 50 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) The fair value of investment securities and trading account assets is based on quoted market prices or dealer quotes. Unrealized gains and losses and option premium values on derivative financial instruments related to trading account assets are recorded as part of the on-balance-sheet value. Performing residential mortgages and consumer installment loans, which have similar characteristics, have been valued on a pooled basis by using market prices for securities backed by loans with similar terms. The fair value of all other loans, which are principally to commercial and industrial entities and foreign governments, has been determined by discounting the estimated future cash flows of such loans to their present value using an assigned discount rate which may or may not be the contractual rate in effect with the obligor. This discount rate is the rate at which a loan with similar credit risk and remaining maturity would be entered into at the balance sheet date and was determined based on the Corporation's internal credit quality and pricing systems. Cash, and because of their short-term nature, due from banks, federal funds sold and securities purchased under resale agreements, accounts receivable and accrued interest, customers' liability on acceptances and certain other assets, which meet the definition of financial instruments, have been valued at their respective carrying values. These instruments are presented in the table below as other financial assets. Financial Liabilities Deposits without a stated maturity include demand, savings and money market accounts. These deposits amounted to $6.2 billion in 1995 and $6.4 billion in 1994 and are reported at their carrying value. No value has been assigned to the franchise value of these deposits. The Corporation believes, however, that significant value exists in this type of deposit and in its franchises and individual business units. Certificates of deposit maturing within six months aggregated $0.7 billion in 1995 and $0.6 billion in 1994, and their fair value is considered to equal their carrying value. The fair value of deposits maturing in more than six months is based on rates offered for deposits with similar remaining maturities. Trading account liabilities are carried at market value and include securities sold short, non-interest-bearing precious metals payables and unrealized losses and premiums received on off-balance-sheet contracts. Short-term borrowings that mature within six months have fair values equal to their carrying value. The fair value of long-term debt, subordinated long- term debt and perpetual capital notes are based on market quotes obtained from independent investment bankers. Because of their short-term nature, acceptances outstanding, accounts payable and accrued expenses, due to factored clients and certain other liabilities, are considered to have fair values equal to their carrying values. These instruments are presented in the table below as other financial liabilities. Off-Balance-Sheet Financial Instruments Commitments to extend credit, standby letters of credit and foreign office guarantees and commercial letters of credit aggregated $5.7 billion and $4.9 billion at year end 1995 and 1994, respectively. If ultimately funded, these commitments are priced at current market rates. Interest rate and foreign exchange contracts entered into for hedging purposes have fair values equivalent to the amount that would be received or paid to terminate the contract at the reporting date. Asset-liability management contracts, primarily interest rate swaps, are recorded on an accrual basis as an adjustment to the interest income or expense of the related asset or liability. These derivative contracts are used to limit the Corporation's sensitivity to changes in interest rates, currency exchange rates or market risks related to the corresponding on-balance-sheet financial instrument. The Corporation's portfolio of securities available for sale is reported on the balance sheet at estimated fair value including unrealized gains and losses on related hedge contracts in accordance with SFAS No. 115. 17. DERIVATIVE FINANCIAL INSTRUMENTS AND OFF-BALANCE-SHEET RISK Nature and Terms of Interest Rate, Foreign Exchange, Precious Metals and Other Financial Instruments The Corporation uses various derivative financial instruments as an end user to manage its asset and liability exposure to interest rate and currency fluctuations and as a dealer to meet similar needs of its customers, as well as in trading for its own account. Derivative instruments are contracts whose value is derived from the value of an underlying financial instrument, currency or physical commodity or an index thereon. Derivative instruments, with the exception of cross-currency foreign exchange contracts, do not generally involve exchange of principal amounts but may involve the payment of a fee or receipt of a premium at the inception of a contract. Certain instruments, including futures and forward contracts, commit the Corporation to buy or sell, at a future date, a specified financial instrument, currency or precious metal or other commodity at an agreed-to price. When traded on an organized exchange, futures contracts require daily settlement with the exchange acting as the counterparty to each contract. Forward contracts are customized transactions that require no cash settlement until the end of the contract. Other contracts involve commitments to 51 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) settle in cash, on a periodic basis, differentials between specified indices which are applied to a notional principal amount. Purchased option contracts give the holder the right, but not the obligation, to acquire or sell for a limited time period a financial instrument, currency, precious metal or other commodity at a designated price upon payment of a fee at the commencement of the contract. The writer of an option receives a premium at the outset of a contract as payment for assuming the risk of unfavorable changes in the price of the underlying instrument. The Corporation is an international dealer in such instruments, denominated in U.S. dollars and other currencies, and include futures, forwards, swaps and options related to interest rates, foreign exchange rates, equity indices and commodity prices. The Corporation focuses especially on the structuring of customized transactions to meet client needs. Counterparties with the Corporation are generally financial institutions, including banks, central banks, other government agencies, both foreign and domestic, and insurance companies. Asset-liability management activities are conducted principally through the use of interest rate contracts in the form of swaps. Interest rate swap contracts obligate the Corporation to exchange the difference between fixed rate and floating rate interest amounts based on an agreed notional amount. These contracts are intended to reduce the impact on net interest margin of interest rate fluctuations as assets and liabilities may reprice at different times. Interest rate caps and floors are purchased to limit exposure to unfavorable interest rate changes. By paying a premium to the writer, the Corporation receives the difference between a specified market interest rate and the fixed cap rate. The market risk of derivatives arises principally from the potential for changes in the prices of underlying securities, commodities or indices, or the volatility of such prices or rates. The Corporation routinely reduces or eliminates exposure to market risks by entering into hedging transactions. In order to control risk, limits for all elements of market risk affecting value are established, monitored and reviewed regularly. The credit risk of derivatives arises principally from the potential for a counterparty to fail to meet its obligation to settle a contract on a timely basis. The Corporation attempts to limit credit risk by dealing with investment grade counterparties, obtaining collateral where appropriate, as well as using netting agreements where obtainable. The Corporation also manages credit risk by limiting positions and using strict credit controls when considering a counterparty. The following table summarizes the notional or contractual amounts of derivative instruments used in trading or asset-liability management. These amounts serve as volume indicators to denote the level of activity by instrument class and include contracts that have both favorable and unfavorable value to the Corporation. These notional amounts do not represent the amounts to be exchanged by the Corporation, nor do they measure the exposure to credit or market risk. Contractual/notional amounts of asset- liability management positions include intercompany transactions that are established between independent trading departments of the Corporation that act as counterparties. Classification of the amounts shown below as trading or asset-liability management are based on management's intent at the inception of the individual contract. Credit risk related to the notional or contractual amounts represent the estimated cost to replace all contracts in a gain position, assuming all counterparties fail to settle their contracts on a timely basis and ignoring the value of collateral held. This exposure may be limited by offsetting asset or liability positions held by the Corporation or by the use of master netting agreements.
DECEMBER 31, 1995 DECEMBER 31, 1994 ------------------------ ------------------------ CONTRACTUAL/NOTIONAL AMOUNTS ------------------------------------------------- ASSET/LIABILITY ASSET/LIABILITY TRADING MANAGEMENT TRADING MANAGEMENT -------- --------------- -------- --------------- (IN MILLIONS) INTEREST RATE: Futures and forwards....... $ 32,391 $ 450 $ 35,499 $1,130 Swaps...................... 33,094 6,722 26,044 5,215 Options written............ 13,691 -- 8,624 -- Options purchased.......... 12,341 2,592 6,619 2,903 -------- ------ -------- ------ $ 91,517 $9,764 $ 76,786 $9,248 ======== ====== ======== ====== FOREIGN EXCHANGE: Spot, futures, forwards and swaps..................... $102,365 $ 84 $112,248 $ 288 Options written............ 22,619 -- 15,944 -- Options purchased.......... 22,343 -- 14,714 -- -------- ------ -------- ------ $147,327 $ 84 $142,906 $ 288 ======== ====== ======== ====== OTHER-PRINCIPALLY PRECIOUS METALS: Swaps, futures and for- wards..................... $ 15,245 $ -- $ 7,280 $ -- Options written............ 1,780 -- 1,034 -- Options purchased.......... 1,920 -- 1,059 -- -------- ------ -------- ------ $ 18,945 $ -- $ 9,373 $ -- ======== ====== ======== ======
52 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) Using replacement cost at the prevailing market rate on all contracts in a gain position, the Corporation's estimated risk of loss at year end 1995 and 1994 was $1.153 billion and $1.043 billion, respectively, on interest rate contracts, and $1.863 billion and $1.388 billion, respectively, on foreign exchange and precious metals contracts. Credit Related Instruments In the normal course of its business, there are various outstanding commitments and contingent liabilities of the Corporation that are not reflected in the consolidated financial statements. The Corporation enters into various types of agreements with its customers which enhance the customer's credit standing, guarantee performance to third parties or commit to advance funds in the form of loans. These commitments usually have fixed expiration dates and may require the customer to pay a fee. The aggregate of such commitments and contingent obligations represents the maximum principal amount which the Corporation may be required to disburse and the maximum potential exposure if all such obligations were ultimately to become worthless. To control risk of loss, global credit limits which cover total exposure across all products are established for each counterparty and are monitored and reviewed regularly. A summary of the contractual amount of credit-related instruments at December 31, is as follows:
1995 1994 ------ ------ (IN MILLIONS) Commitments to extend credit................................. $3,892 $3,302 Standby letters of credit and foreign office guarantees...... 1,216 958 Commercial letters of credit................................. 568 590 ====== ======
Credit Related Risk Concentrations In the normal course of its business, the Corporation's activities include significant amounts of credit risk in its relationships with domestic and international financial institutions. Such obligations aggregated approximately 25% and 35% of the Corporation's on-balance-sheet financial instruments at December 31, 1995 and 1994, respectively. This exposure included approximately 50% and 70% at year end 1995 and 1994, respectively, in the form of interest-bearing deposits with foreign banks and branches and agencies of foreign banks located in the United States. The Corporation's credit exposure to the U.S. federal government and its agencies was approximately 23% and 20% of respective year end 1995 and 1994 on-balance- sheet financial instruments. The Corporation's real estate loan portfolio represented approximately 7% and 8% of on-balance-sheet financial instruments at year end 1995 and 1994, respectively. Credit exposure in the real estate loan portfolio is concentrated in loans in the New York metropolitan area, secured by multi-family and commercial real estate properties and, to a lesser degree, residential properties. The Corporation transacts a substantial portion of its off-balance-sheet activities with other financial institutions, including major international and domestic banks, insurance companies, securities dealers and government agencies, both foreign and domestic. The diversity of the customer base allows the Corporation to minimize credit risk. 18. TRANSACTIONS WITH RELATED PARTIES The following is a summary of significant balances, in the aggregate, of transactions with related parties, primarily Safra Republic and Banco Safra Brazil, included in the Corporation's Consolidated Statements of Condition at respective year ends.
1995 1994 -------- -------- (IN THOUSANDS) ASSETS: Interest-bearing deposits with banks................... $144,161 $ 86,952 Securities available for sale.......................... 30,612 78,159 Loans.................................................. 12,034 95,722 ======== ======== LIABILITIES: Deposits............................................... $214,360 $262,079 Trading account liabilities............................ 12,890 -- Long-term debt......................................... 6,821 7,911 ======== ========
At December 31, 1995, Mr. Edmond J. Safra, through Saban S.A. and two other entities, owned approximately 27.1% of the Corporation's outstanding Common Stock and, through Saban S.A., owned approximately 20.9% of Safra Republic's outstanding common shares. Mr. Safra, through Saban S.A. and a subsidiary thereof, has received approval, which expires on April 28, 1996, from the Board of Governors of the Federal Reserve System to acquire up to 2 million additional shares of Common Stock of the Corporation in the open market and through privately negotiated transactions. Through December 31, 1995, Mr. Safra had acquired 269,600 shares of Common Stock of the Corporation under this approval. If all such shares of Common Stock were acquired, Mr. Safra would increase his ownership to approximately 30.2% of the Corporation's outstanding Common Stock. 53 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 19. STOCKHOLDER'S EQUITY OF REPUBLIC NATIONAL BANK OF NEW YORK A summary of changes in the stockholder's equity accounts of the Bank is as follows:
1995 1994 ---------- ---------- (IN THOUSANDS) COMMON STOCK: Balance at beginning and end of year.................. $ 355,000 $ 355,000 ========== ========== SURPLUS: Balance at beginning of year.......................... $1,491,846 $1,490,859 Capital contribution by parent...................... -- 1,313 Treasury stock transactions of affiliate............ (1,568) (326) ---------- ---------- Balance at end of year................................ $1,490,278 $1,491,846 ========== ========== RETAINED EARNINGS: Balance at beginning of year.......................... $ 841,300 $ 630,046 Net income.......................................... 326,921 388,758 Dividends declared.................................. (184,000) (195,637) Foreign currency translation, net of taxes.......... 4,578 18,133 ---------- ---------- Balance at end of year................................ $ 988,799 $ 841,300 ========== ========== NET UNREALIZED APPRECIATION (DEPRECIATION) ON SECURI- TIES AVAILABLE FOR SALE, NET OF TAXES: Balance at beginning of year.......................... $ (165,672) $ 252,022 Unrealized appreciation (depreciation).............. 125,596 (670,003) Income tax (expense) benefit........................ (35,993) 252,309 ---------- ---------- Balance at end of year................................ $ (76,069) $ (165,672) ========== ========== TOTAL STOCKHOLDER'S EQUITY: Balance at beginning of year.......................... $2,522,474 $2,727,927 Net changes during the year......................... 235,534 (205,453) ---------- ---------- Balance at end of year................................ $2,758,008 $2,522,474 ========== ==========
The Bank, as a national banking association, is subject to legal limitations on the amount of dividends that may be paid to the Corporation, the Bank's sole shareholder. The prior approval of the Comptroller of the Currency is required to the extent the total of all dividends to be declared and paid by a national bank in any calendar year exceeds net profits (as defined) for that year combined with its retained net profits for the two preceding calendar years, less any required transfers to surplus. Under this limitation, at December 31, 1995, the Bank may declare dividends without the prior approval of the Comptroller of the Currency of up to $335 million plus an additional amount equal to the Bank's retained net profits for 1996 to the date of any dividend declaration. The Federal Reserve Act limits extensions of credit to, or guarantees, acceptances or letters of credit issued on behalf of, affiliates by member banks and also requires that such transactions be secured by specific obligations. Such transactions, aggregated with certain other transactions with affiliates, are limited to 10% of the Bank's capital and surplus, as defined, to any one affiliate and to 20% of such amount in the aggregate to all such affiliates. Based upon these requirements, the Bank could have advanced, assuming adequate qualifying collateral was available, up to $303 million to the Corporation. In connection with a previous acquisition, the Bank had established a liquidation account for the benefit of all eligible deposit account holders who continue to maintain their deposits at the Bank, as required by the General Regulations of the New York State Banking Board. In the event of a complete liquidation of the Bank (and only in such event), each eligible account holder would be entitled to his interest in the liquidation account after payment of all creditors but before any distribution to the Corporation. At December 31, 1995, the balance of the liquidation account was less than $20 million. The assumption and maintenance of the liquidation account does not restrict the use or application of any of the net worth of the Bank, except that the Bank may not declare or pay a cash dividend on any of its capital stock if the effect of such dividend would be to cause the net worth of the Bank to be reduced below the aggregate amount then required to be maintained in the liquidation account. 54 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 20. REPUBLIC NEW YORK CORPORATION (PARENT COMPANY ONLY) CONDENSED BALANCE SHEETS
DECEMBER 31, ---------------------- 1995 1994 ---------- ---------- (IN THOUSANDS) ASSETS Deposits with subsidiary bank, principally interest- bearing............................................... $ 475,542 $ 819,490 Investment in bank subsidiaries........................ 2,813,864 2,576,231 Investment in non-bank subsidiaries.................... 969,964 906,198 Securities held to maturity............................ 96,108 60,504 Securities available for sale.......................... 811,920 765,122 Investment in subordinated debt of subsidiary bank..... 675,000 675,000 Advances to non-bank subsidiaries...................... 304,368 381,715 Loans, net of unearned income.......................... 15,492 8,293 Dividends receivable from subsidiaries................. 84,000 20,000 Other assets........................................... 178,825 115,143 ---------- ---------- Total assets......................................... $6,425,083 $6,327,696 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY Commercial paper....................................... $ 667,563 $ 979,390 Other liabilities...................................... 149,712 108,918 Long-term debt (note 9)................................ 200,000 200,000 Subordinated long-term debt and perpetual capital notes (note 9).............................................. 2,400,000 2,400,000 Stockholders' equity (notes 10 and 13): Cumulative preferred stock, no par value............. 575,000 672,500 Common stock, $5 par value........................... 281,298 263,106 Surplus.............................................. 590,008 437,653 Retained earnings.................................... 1,636,264 1,457,609 Net unrealized depreciation on securities available for sale, net of taxes.............................. (74,762) (191,480) ---------- ---------- Total stockholders' equity........................... 3,007,808 2,639,388 ---------- ---------- Total liabilities and stockholders' equity........... $6,425,083 $6,327,696 ========== ==========
CONDENSED STATEMENTS OF INCOME
1995 1994 1993 -------- -------- -------- (IN THOUSANDS) INCOME: Dividends from bank subsidiaries.............. $204,000 $195,637 $189,502 Dividends from non-bank subsidiaries.......... 5,000 24,315 15,650 Interest from subsidiaries.................... 99,937 87,042 64,588 Interest and dividend income.................. 55,572 47,907 49,511 Investment securities (losses), net........... (110) (6,669) (3,853) Other income (expense)........................ 1,431 371 (5,347) -------- -------- -------- Total income................................ 365,830 348,603 310,051 -------- -------- -------- EXPENSES: Salaries and employee benefits................ 35,654 30,840 20,352 Interest on long-term debt and commercial pa- per.......................................... 226,996 199,535 176,857 Restructuring and related charges............. 42,103 5,978 -- Other expenses................................ 17,428 18,740 17,594 -------- -------- -------- Total expenses.............................. 322,181 255,093 214,803 -------- -------- -------- Income before income tax benefit and equity in undistributed net income of subsidiaries....... 43,649 93,510 95,248 Applicable income tax benefit-current........... 73,271 62,758 62,327 -------- -------- -------- INCOME BEFORE EQUITY IN UNDISTRIBUTED NET INCOME OF SUBSIDIARIES................................ 116,920 156,268 157,575 Equity in undistributed net income of subsidiar- ies............................................ 171,729 183,740 143,630 -------- -------- -------- NET INCOME...................................... $288,649 $340,008 $301,205 ======== ======== ========
55 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) CONDENSED STATEMENTS OF CASH FLOWS
1995 1994 1993 --------- --------- --------- (IN THOUSANDS) CASH FLOWS FROM OPERATING ACTIVITIES: Net income................................... $ 288,649 $ 340,008 $ 301,205 Adjustments to reconcile net income to net cash provided by operating activities: Equity in undistributed net income of sub- sidiaries................................. (171,729) (183,740) (143,630) Net change in dividends receivable from subsidiaries.............................. (64,000) 45,000 (27,000) Other, net................................. (22,888) 3,090 16,902 --------- --------- --------- Net cash provided by operating activities.... 30,032 204,358 147,477 --------- --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES: Deposits with subsidiary bank................ 343,948 160,089 645,376 Cash contribution to bank and non-bank sub- sidiaries................................... (102,300) (315,146) (591,800) Short-term investments....................... (82,402) (130,605) (281,659) Advances to subsidiaries..................... 77,347 (12,440) (105,220) Loans........................................ (7,199) (845) (1,773) Investment in subordinated debt of subsidiary bank........................................ -- (100,000) -- Other, net................................... 89,348 (43,448) 15,078 --------- --------- --------- Net cash provided by (used) in investing ac- tivities.................................... 318,742 (442,395) (319,998) --------- --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES: Commercial paper............................. (311,827) 97,649 161,433 Proceeds from issuance of subordinated long- term debt................................... -- 200,000 250,000 Repayment of subordinated long-term debt..... -- (66,000) (108,750) Repayment of long-term debt.................. -- -- (50,000) Net proceeds from issuance of cumulative pre- ferred stock................................ 72,563 146,017 -- Repurchase of cumulative preferred stock..... -- (33,925) -- Repurchase of common stock................... (18,421) (39,740) -- Cash dividends paid.......................... (113,431) (98,856) (83,945) Other, net................................... 22,342 32,892 3,783 --------- --------- --------- Net cash provided by (used) in financing ac- tivities.................................... (348,774) 238,037 172,521 --------- --------- --------- Cash and due from banks at beginning and end of year..................................... $ -- $ -- $ -- ========= ========= =========
21. SUBSEQUENT EVENT--ACQUISITION OF BROOKLYN BANCORP, INC. (UNAUDITED) During the first quarter of 1996, the Corporation completed the acquisition of Brooklyn Bancorp, Inc. ("BBI"), parent of CrossLand Federal Savings Bank, for approximately $531 million in an all cash transaction at $41.50 per share for all shares of common stock and common stock equivalents of BBI. At December 31, 1995, BBI had total assets of $4.1 billion, total deposits of $3.7 billion and total stockholders' equity of $388 million. BBI has approximately 385,000 accounts in 33 branches in the New York metropolitan area. The Corporation's acquisition of BBI has been accounted for as a purchase with BBI's assets and liabilities being recorded at estimated fair values. 56 INDEPENDENT AUDITORS' REPORT ON FINANCIAL STATEMENTS [LETTERHEAD OF KPMG PEAT MARWICK LLP APPEARS HERE] The Board of Directors and Stockholders Republic New York Corporation: We have audited the accompanying consolidated statements of condition of Republic New York Corporation (the "Corporation") as of December 31, 1995 and 1994, and the related consolidated statements of income, changes in stockholders' equity, and cash flows for each of the years in the three year period ended December 31, 1995, and the consolidated statements of condition of Republic National Bank of New York as of December 31, 1995 and 1994. These consolidated financial statements are the responsibility of the Corporation's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Republic New York Corporation at December 31, 1995 and 1994, and the results of their operations, and their cash flows for each of the years in the three year period ended December 31, 1995, and the consolidated financial position of Republic National Bank of New York at December 31, 1995 and 1994 in conformity with generally accepted accounting principles. As discussed in the summary of significant accounting policies and the Notes to the consolidated financial statements, the Corporation adopted Statement of Financial Accounting Standards Nos. 114, 118 and 122 in 1995 and No. 115 in 1993. /s/ KPMG Peat Marwick LLP January 16, 1996 [ ][ ][ ][ ] Member Firm of Klynveld Peat Marwick Goerdeler 57 REPORT OF MANAGEMENT Financial Statements The accompanying consolidated financial statements and the related notes thereto have been prepared by the management of Republic New York Corporation (the "Corporation") in accordance with generally accepted accounting principles and, as such, include amounts, some of which are based on judgments and estimates by management. Management's Discussion and Analysis appearing elsewhere in this Annual Report is consistent with the content of the financial statements. KPMG Peat Marwick LLP, the Corporation's independent auditors, have audited the accompanying consolidated financial statements of the Corporation and their report thereon is presented herein. Such report represents that the Corporation's consolidated financial statements, provided in this Annual Report, present fairly, in all material respects, its financial position and results of operations in conformity with generally accepted accounting principles. Internal Control System Over Financial Reporting Management of the Corporation is responsible for establishing and maintaining an effective internal control system over financial reporting presented in conformity with generally accepted accounting principles. The system contains monitoring mechanisms, and actions are taken to correct deficiencies identified. The Audit Committee of the Board of Directors is composed of directors who are not officers or employees of the Corporation. The Audit Committee of the Board of Directors is responsible for ascertaining that the accounting policies employed by management are reasonable and that internal control systems are adequate. The Director of Internal Audit of the Corporation conducts audits and reviews of the Corporation's worldwide operations and reports directly to the Audit Committee of the Board of Directors. In addition, KPMG Peat Marwick LLP has direct, private access to the Audit Committee of the Board of Directors to discuss the results of their audits as well as other auditing and financial reporting matters as it deems necessary. There are inherent limitations in the effectiveness of any internal control system, including the possibility of human error and the possible circumvention or overriding of controls. Accordingly, even an effective internal control system can provide only reasonable assurance with respect to financial statement preparation. Further, because of changes in conditions, the effectiveness of an internal control system may vary over time. Management assessed the Corporation's internal control system over financial reporting presented in conformity with generally accepted accounting principles as of December 31, 1995. This assessment was based on criteria for effective internal control over financial reporting described in Internal Control--Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this assessment, management believes that, as of December 31, 1995, the Corporation maintained an effective internal control system over financial reporting presented in conformity with generally accepted accounting principles. Compliance With Laws And Regulations Management is also responsible for maintaining an effective system of internal controls over compliance with federal and state laws and regulations concerning dividend restrictions and federal laws and regulations concerning loans to insiders. Management has assessed its compliance with the aforementioned laws and regulations. Based on this assessment, management believes that the Corporation's insured depository subsidiary, Republic National Bank of New York, complied, in all material respects, with such laws and regulations during the year ended December 31, 1995. /s/ Walter H. Weiner /s/ Kenneth F. Cooper Walter H. Weiner Kenneth F. Cooper Chairman of the Board Executive Vice President and Chief Financial Officer New York, New York January 16, 1996 58 INDEPENDENT ACCOUNTANTS' REPORT ON MANAGEMENT'S ASSERTIONS RELATED TO INTERNAL CONTROLS OVER FINANCIAL REPORTING [LETTERHEAD OF KPMG PEAT MARWICK LLP APPEARS HERE] The Board of Directors Republic New York Corporation: We have examined management's assertion, included in the accompanying Report of Management, that as of December 31, 1995, Republic New York Corporation maintained an effective internal control system over financial reporting presented in conformity with generally accepted accounting principles. Our examination was made in accordance with standards established by the American Institute of Certified Public Accountants and, accordingly, included obtaining an understanding of the internal control system over financial reporting, testing and evaluating the design and operating effectiveness of the internal control system, and such other procedures as we considered necessary in the circumstances. We believe that our examination provides a reasonable basis for our opinion. Because of inherent limitations in any internal control system, errors or irregularities may occur and not be detected. Also, projections of any evaluation of the internal control system over financial reporting to future periods are subject to the risk that the internal control system may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. In our opinion, management's assertion referred to above is fairly stated, in all material respects, based on the criteria described in Internal Control--Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. /s/ KPMG Peat Marwick LLP January 16, 1996 [ ][ ][ ][ ]Member Firm of Klynveld Peat Marwick Goerdeler 59 SUPPLEMENTARY DATA REPUBLIC NEW YORK CORPORATION CONSOLIDATED STATEMENTS OF CONDITION
DECEMBER 31, --------------------------------------------------------------- 1995 1994 1993 1992 1991 ----------- ----------- ----------- ----------- ----------- (IN THOUSANDS) ASSETS Cash and due from banks.................. $ 675,683 $ 867,242 $ 636,633 $ 490,711 $ 412,026 Interest-bearing deposits with banks.... 6,094,495 10,242,061 5,346,647 10,562,885 8,776,578 Precious metals......... 1,250,038 1,456,269 1,117,610 419,132 288,715 Securities held to maturity............... 4,487,022 5,887,672 1,992,847 12,011,358 9,666,692 Securities available for sale................... 11,751,523 5,552,056 12,956,946 320,113 -- ----------- ----------- ----------- ----------- ----------- Total investment securities......... 16,238,545 11,439,728 14,949,793 12,331,471 9,666,692 Trading account assets.. 4,035,606 2,543,637 1,194,629 742,236 326,594 Federal funds sold and securities purchased under resale agreements............. 1,749,268 1,123,925 2,322,465 1,505,274 10,546 Loans, net of unearned income................. 9,843,960 8,913,490 9,508,558 8,007,457 8,568,958 Allowance for possible loan losses.......... (300,593) (319,220) (311,855) (241,020) (227,454) ----------- ----------- ----------- ----------- ----------- Loans, net.......... 9,543,367 8,594,270 9,196,703 7,766,437 8,341,504 Customers' liability on acceptances............ 818,007 1,514,461 1,134,294 1,611,531 1,699,667 Accounts receivable and accrued interest....... 1,946,077 1,797,491 2,117,879 571,648 607,520 Investment in affiliate.............. 722,466 607,818 625,333 553,315 534,744 Premises and equipment.. 436,771 428,017 399,626 385,557 383,460 Other assets............ 371,231 452,986 451,860 206,191 172,759 ----------- ----------- ----------- ----------- ----------- Total assets........ $43,881,554 $41,067,905 $39,493,472 $37,146,388 $31,220,805 =========== =========== =========== =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY Noninterest-bearing deposits: In domestic offices... $ 1,740,035 $ 1,701,667 $ 1,427,518 $ 1,236,451 $ 953,321 In foreign offices.... 160,133 114,503 135,251 79,262 95,446 Interest-bearing deposits: In domestic offices... 8,471,452 8,534,562 8,724,797 9,164,704 8,971,780 In foreign offices.... 14,548,013 12,375,270 12,513,684 10,621,770 10,362,355 ----------- ----------- ----------- ----------- ----------- Total deposits...... 24,919,633 22,726,002 22,801,250 21,102,187 20,382,902 Trading account liabilities............ 3,719,651 2,087,594 177,475 62,064 60,519 Short-term borrowings... 3,890,768 4,969,394 4,164,419 5,736,212 1,802,744 Acceptances outstanding............ 819,766 1,517,675 1,137,636 1,616,964 1,718,266 Accounts payable and accrued expenses....... 2,840,048 1,325,953 2,873,903 1,096,163 1,546,412 Due to factored clients................ 528,684 680,010 614,549 559,211 493,644 Other liabilities....... 193,645 134,792 122,203 76,737 98,298 Long-term debt.......... 1,555,111 2,580,831 2,582,875 2,502,497 1,718,882 Subordinated long-term debt and perpetual capital notes.......... 2,406,440 2,406,266 2,271,940 2,130,924 1,401,543 Stockholders' equity: Preferred stock, no par value............ 575,000 672,500 556,425 556,425 456,925 Common stock, $5 par value................ 281,298 263,106 263,516 260,951 260,227 Surplus............... 590,008 437,653 459,713 447,691 448,303 Retained earnings..... 1,636,264 1,457,609 1,204,818 998,362 832,140 Net unrealized appreciation (depreciation) on securities available for sale, net of taxes................ (74,762) (191,480) 262,750 -- -- ----------- ----------- ----------- ----------- ----------- Total stockholders' equity............. 3,007,808 2,639,388 2,747,222 2,263,429 1,997,595 ----------- ----------- ----------- ----------- ----------- Total liabilities and stockholders' equity............. $43,881,554 $41,067,905 $39,493,472 $37,146,388 $31,220,805 =========== =========== =========== =========== ===========
60 REPUBLIC NEW YORK CORPORATION CONSOLIDATED STATEMENTS OF INCOME
1995 1994 1993 1992 1991 ---------- ---------- ---------- ---------- ---------- (IN THOUSANDS EXCEPT PER SHARE DATA) INTEREST INCOME: Interest and fees on loans.................. $ 749,719 $ 696,816 $ 635,484 $ 721,909 $ 919,342 Interest on deposits with banks............. 526,185 414,294 295,871 385,299 591,046 Interest and dividends on investment securities: Taxable............... 927,740 871,785 847,022 807,611 637,919 Exempt from federal income taxes......... 89,744 76,783 65,759 63,385 60,261 Interest on trading account assets......... 55,736 55,736 54,467 22,928 6,280 Interest on federal funds sold and securities purchased under resale agreements............. 97,547 57,915 34,323 37,460 49,059 ---------- ---------- ---------- ---------- ---------- Total interest income............. 2,446,671 2,173,329 1,932,926 2,038,592 2,263,907 ---------- ---------- ---------- ---------- ---------- INTEREST EXPENSE: Interest on deposits.... 1,138,075 827,790 689,234 804,906 1,205,989 Interest on short-term borrowings............. 218,804 218,529 197,769 234,249 258,010 Interest on long-term debt................... 270,893 280,536 270,072 279,073 218,662 ---------- ---------- ---------- ---------- ---------- Total interest expense............ 1,627,772 1,326,855 1,157,075 1,318,228 1,682,661 ---------- ---------- ---------- ---------- ---------- NET INTEREST INCOME..... 818,899 846,474 775,851 720,364 581,246 Provision for loan losses................. 12,000 19,000 85,000 120,000 62,000 ---------- ---------- ---------- ---------- ---------- Net interest income after provision for loan losses............ 806,899 827,474 690,851 600,364 519,246 ---------- ---------- ---------- ---------- ---------- OTHER OPERATING INCOME: Income from precious metals................. 38,049 50,930 37,910 22,637 39,449 Foreign exchange trading income................. 113,051 91,028 111,572 102,571 81,351 Trading account profits and commissions........ 24,746 27,357 78,742 12,319 22,444 Investment securities gains, net............. 25,663 14,971 1,295 11,232 4,264 Net gain (loss) on loans sold or held for sale.. 6,765 1,763 (843) 17,089 3,031 Commission income....... 56,935 57,297 50,956 37,592 34,628 Equity in earnings of affiliate.............. 79,481 77,376 59,463 45,220 41,083 Other income............ 68,191 65,646 56,377 53,587 45,183 ---------- ---------- ---------- ---------- ---------- Total other operating income... 412,881 386,368 395,472 302,247 271,433 ---------- ---------- ---------- ---------- ---------- OTHER OPERATING EXPENSES: Salaries................ 237,414 238,825 203,759 180,318 166,107 Employee benefits....... 144,202 142,358 143,748 113,813 97,568 Occupancy, net.......... 57,975 55,425 48,161 45,301 38,048 Restructuring and related charges........ 120,000 17,000 -- -- -- Other expenses.......... 262,074 267,868 239,297 215,910 201,210 ---------- ---------- ---------- ---------- ---------- Total other operating expenses........... 821,665 721,476 634,965 555,342 502,933 ---------- ---------- ---------- ---------- ---------- INCOME BEFORE INCOME TAXES.................. 398,115 492,366 451,358 347,269 287,746 Income taxes............ 109,466 152,358 150,153 88,386 60,386 ---------- ---------- ---------- ---------- ---------- NET INCOME.............. $ 288,649 $ 340,008 $ 301,205 $ 258,883 $ 227,360 ========== ========== ========== ========== ========== NET INCOME APPLICABLE TO COMMON STOCK........... $ 252,182 $ 305,598 $ 272,790 $ 230,497 $ 204,627 ========== ========== ========== ========== ========== Net income per common share: Primary............... $ 4.66 $ 5.79 $ 5.20 $ 4.42 $ 3.95 Fully diluted......... 4.59 5.61 5.05 4.32 3.90 Cash dividends declared per common share....... 1.44 1.32 1.08 1.00 0.95 Average common shares outstanding: Primary............... 54,060 52,736 52,466 52,204 51,852 Fully diluted......... 56,199 56,534 56,321 56,020 54,292
61 REPUBLIC NEW YORK CORPORATION SELECTED FINANCIAL DATA--SUMMARY OF UNAUDITED QUARTERLY FINANCIAL INFORMATION
1995 1994 ------------------------------------ ----------------------------------- FOURTH THIRD SECOND FIRST FOURTH THIRD SECOND FIRST -------- -------- -------- -------- -------- -------- -------- -------- (IN THOUSANDS EXCEPT PER SHARE DATA) Interest income......... $638,299 $613,037 $583,507 $611,828 $617,124 $555,560 $516,316 $484,329 Interest expense........ 428,205 409,421 394,281 395,865 399,069 337,363 304,280 286,143 -------- -------- -------- -------- -------- -------- -------- -------- Net interest income..... 210,094 203,616 189,226 215,963 218,055 218,197 212,036 198,186 Provision for loan losses................. 3,000 3,000 3,000 3,000 3,000 3,000 3,000 10,000 -------- -------- -------- -------- -------- -------- -------- -------- Net interest income after provision for loan losses............ 207,094 200,616 186,226 212,963 215,055 215,197 209,036 188,186 Other operating income.. 97,001 96,798 119,939 99,143 91,144 97,272 93,407 104,545 Other operating expenses (1).................... 169,228 162,175 297,661 192,601 181,599 172,789 191,160 175,928 -------- -------- -------- -------- -------- -------- -------- -------- Income before income taxes.................. 134,867 135,239 8,504 119,505 124,600 139,680 111,283 116,803 Income tax expense (benefit).............. 40,010 40,051 (2,587) 31,992 35,216 48,263 31,855 37,024 -------- -------- -------- -------- -------- -------- -------- -------- Net income.............. $ 94,857 $ 95,188 $ 11,091 $ 87,513 $ 89,384 $ 91,417 $ 79,428 $ 79,779 ======== ======== ======== ======== ======== ======== ======== ======== Net income applicable to common stock........... $ 86,792 $ 87,011 $ 1,036 $ 77,343 $ 79,665 $ 82,143 $ 71,095 $ 72,695 ======== ======== ======== ======== ======== ======== ======== ======== - -------
(1)Includes a provision for restructuring and related charges of $120.0 million in the second quarter of 1995.
Net income per common share: Primary............... $ 1.54 $ 1.57 $ 0.02 $ 1.48 $ 1.51 $ 1.55 $ 1.35 $ 1.38 Fully diluted......... 1.54 1.55 0.02 1.43 1.46 1.50 1.31 1.34 Average common shares outstanding: Primary............... 56,214 55,316 52,352 52,302 52,732 53,018 52,633 52,557 Fully diluted......... 56,319 56,292 56,114 56,073 56,508 56,797 56,432 56,396
62 AFFILIATE FINANCIAL STATEMENTS SAFRA REPUBLIC HOLDINGS S.A. CONSOLIDATED STATEMENTS OF CONDITION
DECEMBER 31, ---------------------- NOTES 1995 1994 ------ ---------- ---------- (IN THOUSANDS OF US$) ASSETS: Cash and due from banks......................... 54,458 59,537 Interest-bearing deposits with banks............ 3 6,058,483 5,232,408 Investment securities: 4 Available for sale, at approximate market value........................................ 5,203,181 2,289,479 Held to maturity (approximate market value of US$2,151,602 in 1995 and US$3,026,178 in 1994)........................ 2,147,919 3,201,133 Trading account assets.......................... 5 155,172 74,577 Loans, net of unearned income................... 6 1,443,803 1,306,545 Allowance for possible loan losses............ 7 (130,300) (124,774) ---------- ---------- Loans (net)................................... 1,313,503 1,181,771 Premises and equipment.......................... 129,226 96,173 Accrued interest receivable..................... 237,883 129,839 Other assets.................................... 360,719 222,093 ---------- ---------- Total assets................................ 15,660,544 12,487,010 ========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY: Client deposits................................. 9,961,958 8,130,147 Bank deposits................................... 1,385,643 1,233,693 ---------- ---------- Total deposits.............................. 8 11,347,601 9,363,840 ---------- ---------- Trading account liabilities..................... 5 79,245 53,554 Short-term borrowings........................... 9 1,587,300 1,017,500 Accrued interest payable........................ 152,476 116,806 Due to brokers.................................. 685,053 15,913 Other liabilities............................... 166,062 113,044 Long-term repurchase agreements................. 400,000 Long-term debt.................................. 10 175,000 160,000 Commitments and contingent liabilities.......... 17 SHAREHOLDERS' EQUITY: 12, 13 Common stock, US$5 par value, 200,000,000 shares authorised; 17,831,012 shares issued; 17,586,926 shares outstanding in 1995 and 17,751,277 in 1994............................. 89,155 89,155 Surplus......................................... 820,119 820,038 Retained earnings............................... 530,655 426,298 Cumulative translation adjustment............... 35,637 12,183 Less: 244,086 shares held in treasury, at cost, in 1995 and 79,735 in 1994..................... (20,981) (4,743) Net unrealised appreciation (depreciation) on investment securities available for sale, net of taxes....................................... 13,222 (96,578) ---------- ---------- Total shareholders' equity.................. 1,467,807 1,246,353 ---------- ---------- Total liabilities and shareholders' equity.. 15,660,544 12,487,010 ========== ==========
See accompanying notes to consolidated financial statements. 63 SAFRA REPUBLIC HOLDINGS S.A. CONSOLIDATED STATEMENTS OF INCOME
YEAR ENDED DECEMBER 31, ------------------------------------- NOTES 1995 1994 1993 --------------------- ----------- ----------- (IN THOUSANDS OF US$ EXCEPT PER SHARE DATA) INTEREST INCOME (INCLUDING FEES AND DIVIDENDS): Loans....................... 90,911 80,934 83,532 Deposits with banks......... 374,381 244,721 223,791 Investment securities....... 444,494 397,365 363,838 Trading account assets...... 3,961 2,491 3,929 ----------- ----------- ----------- Total interest income... 913,747 725,511 675,090 ----------- ----------- ----------- INTEREST EXPENSE: Deposits.................... 604,629 409,221 362,559 Short-term borrowings....... 57,792 56,250 51,587 Long-term repurchase agreements................. 3,909 28,476 38,325 Long-term debt.............. 12,015 7,086 1,431 ----------- ----------- ----------- Total interest expense.. 678,345 501,033 453,902 ----------- ----------- ----------- NET INTEREST INCOME......... 235,402 224,478 221,188 Provision for loan losses... 7 1,000 12,000 80,987 ----------- ----------- ----------- Net interest income after provision for loan losses.. 234,402 212,478 140,201 OTHER OPERATING INCOME: Foreign exchange and precious metals trading.... 5 19,807 14,337 18,653 Trading account income (loss), net................ 5 7,638 (4,913) 8,652 Investment securities (losses) gains, net........ (4,140) 2,276 27,093 Commission income, net of expense of US$ 7,413, US$ 11,496 and US$ 10,706, respectively............... 69,764 78,476 58,830 Other income................ 2,439 1,200 1,172 ----------- ----------- ----------- Total other operating income................. 95,508 91,376 114,400 ----------- ----------- ----------- OPERATING EXPENSES: Salaries.................... 60,056 51,439 43,194 Employee benefits........... 13 26,792 25,036 25,709 Occupancy, net.............. 17 19,264 15,606 14,519 Other expenses.............. 51,523 43,963 41,465 ----------- ----------- ----------- Total operating expenses............... 157,635 136,044 124,887 ----------- ----------- ----------- INCOME BEFORE INCOME TAXES.. 172,275 167,810 129,714 Income taxes................ 11 10,171 9,235 8,119 ----------- ----------- ----------- NET INCOME.................. 162,104 158,575 121,595 =========== =========== =========== Net income per common share...................... 9.16 8.94 6.87 Average common shares outstanding (in thousands)................. 17,692 17,738 17,703
See accompanying notes to consolidated financial statements. 64 SAFRA REPUBLIC HOLDINGS S.A. CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
YEAR ENDED DECEMBER 31, ------------------------------- 1995 1994 1993 --------- --------- --------- (IN THOUSANDS OF US$) COMMON STOCK.................................. 89,155 89,155 89,155 ========= ========= ========= SURPLUS: Balance at beginning of year................ 820,038 819,902 819,680 Reissuance of shares held in treasury....... 81 136 222 --------- --------- --------- Balance at end of year.................... 820,119 820,038 819,902 ========= ========= ========= RETAINED EARNINGS: Balance at beginning of year................ 426,298 316,512 234,739 Net income.................................. 162,104 158,575 121,595 Dividends paid.............................. (57,747) (48,789) (39,822) --------- --------- --------- Balance at end of year.................... 530,655 426,298 316,512 ========= ========= ========= CUMULATIVE TRANSLATION ADJUSTMENT: Balance at beginning of year................ 12,183 (29,333) (5,482) Increase (decrease) during year............. 23,454 41,516 (23,851) --------- --------- --------- Balance at end of year.................... 35,637 12,183 (29,333) ========= ========= ========= SHARES HELD IN TREASURY: Balance at beginning of year................ (4,743) (5,444) (6,345) Purchases................................... (19,832) (1,049) (927) Reissuances................................. 3,594 1,750 1,828 --------- --------- --------- Balance at end of year.................... (20,981) (4,743) (5,444) ========= ========= ========= NET UNREALISED APPRECIATION (DEPRECIATION) ON INVESTMENT SECURITIES AVAILABLE FOR SALE, NET OF TAXES: Balance at beginning of year................ (96,578) 89,963 -- Change attributable to the one time transfer of securities held to maturity to the available for sale classification.......... 38,199 -- -- Change attributable to transfers of securities available for sale to the held to maturity classification................. -- (46,656) -- Net unrealised appreciation on securities designated as of December 31, 1993 as available for sale......................... -- -- 89,963 Other changes during year, net of taxes..... 71,601 (139,885) -- --------- --------- --------- Balance at end of year.................... 13,222 (96,578) 89,963 ========= ========= ========= TOTAL SHAREHOLDERS' EQUITY: Balance at beginning of year................ 1,246,353 1,280,755 1,131,747 Net changes during year..................... 221,454 (34,402) 149,008 --------- --------- --------- Balance at end of year.................... 1,467,807 1,246,353 1,280,755 ========= ========= =========
See accompanying notes to consolidated financial statements. 65 SAFRA REPUBLIC HOLDINGS S.A. CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31, ---------------------------------- 1995 1994 1993 ---------- ---------- ---------- (IN THOUSANDS OF US$) CASH FLOWS FROM OPERATING ACTIVITIES: Net income................................. 162,104 158,575 121,595 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortisation............ 13,481 9,171 8,215 Provision for loan losses................ 1,000 12,000 80,987 Investment securities gains.............. (17,511) (8,779) (29,150) Investment securities losses............. 21,651 6,503 2,057 Net changes in trading account assets and liabilities............................. (56,116) 51,658 (37,673) Net (increase) decrease in accrued interest receivable..................... (94,425) (3,575) 4,979 Net increase (decrease) in accrued interest payable........................ 25,543 (16,451) (27,003) Other, net............................... (14,160) 26,756 (63,362) ---------- ---------- ---------- Net cash provided by operating activities.............................. 41,567 235,858 60,645 ---------- ---------- ---------- CASH FLOWS FROM INVESTING ACTIVITIES: Net (increase) decrease in interest-bearing deposits with banks....................... (613,290) (1,404,591) 6,168 Purchases of investment securities......... (3,946,374) (1,076,786) (2,855,107) Proceeds from sales of investment securities available for sale............. 1,587,339 894,558 -- Proceeds from sales of investment securities held to maturity............... -- -- 1,456,583 Proceeds from maturities of investment securities................................ 1,204,043 775,376 517,362 Net increase in loans...................... (107,738) (43,112) (95,735) Other, net................................. (37,026) (3,226) (13,243) ---------- ---------- ---------- Net cash used by investing activities...... (1,913,046) (857,781) (983,972) ---------- ---------- ---------- CASH FLOWS FROM FINANCING ACTIVITIES: Net increase (decrease) in client deposits.................................. 1,636,693 1,994,515 (270,927) Net increase (decrease) in bank deposits... 111,114 (418,147) 865,554 Net increase (decrease) in short-term borrowings................................ 566,254 (703,068) 171,309 Proceeds from long-term repurchase agreements................................ -- -- 450,000 Repayment of long-term repurchase agreements................................ (400,000) (200,000) (397,600) Proceeds from issuance of long-term debt... 15,000 10,000 147,984 Dividends paid............................. (57,747) (48,789) (39,822) Purchase of treasury shares................ (19,832) (1,049) (927) ---------- ---------- ---------- Net cash provided by financing activities.. 1,851,482 633,462 925,571 Effect of exchange rate changes on cash and due from banks............................ 14,918 15,916 (5,077) ---------- ---------- ---------- Net (decrease) increase in cash and due from banks................................ (5,079) 27,455 (2,833) Cash and due from banks at beginning of year...................................... 59,537 32,082 34,915 ---------- ---------- ---------- Cash and due from banks at end of year..... 54,458 59,537 32,082 ========== ========== ========== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid during the year for income taxes..................................... 8,732 5,231 665 Cash paid during the year for interest..... 640,314 497,478 484,659 Transfer (from) to investments held to maturity (to) from investments available for sale.................................. (1,487,556) 1,804,562 (4,776,855)
See accompanying notes to consolidated financial statements. 66 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. ORGANISATION Safra Republic Holdings S.A. ("Safra Republic"), incorporated in the Grand Duchy of Luxembourg in May 1988, is the holding company of five European banking subsidiaries: Republic National Bank of New York (Suisse) S.A., Republic National Bank of New York (Luxembourg) S.A., Republic National Bank of New York (France), Republic National Bank of New York (Guernsey) Limited, and Republic National Bank of New York (Gibraltar) Limited. The Board of Directors of Safra Republic has adopted a resolution that Safra Republic shall serve as a source of financial strength to each of its banking subsidiaries and, for the benefit of depositors and other creditors, Safra Republic stands ready to use its available resources to provide adequate capital funds to enable those subsidiary banks to meet their commitments in the normal course of business. At December 31, 1995, Republic New York Corporation ("RNYC") owned approximately 49.2% and Saban S.A. owned approximately 20.9% of Safra Republic's outstanding common stock. By virtue of these ownership interests in Safra Republic, the supervisory responsibilities of the Board of Governors of the Federal Reserve System ("the Federal Reserve") and the United States Comptroller of the Currency ("the OCC") extend to Safra Republic. It is the understanding of the bank regulators of the countries in which Safra Republic has subsidiaries that the Federal Reserve and the OCC exercise overall consolidated supervisory oversight responsibilities in respect of Safra Republic and its subsidiaries, and that the Luxembourg Monetary Institute, by virtue of the European Directive on consolidated supervision, exercises prudential consolidated supervisory responsibilities, while they themselves oversee the local subsidiaries' compliance with local laws, regulations and banking practice. 2. SUMMARY OF SIGNIFICANT ACCOUNTING AND REPORTING POLICIES The accounting and reporting policies of Safra Republic and its subsidiaries ("the Company") generally reflect United States banking industry practices and conform to United States generally accepted accounting principles ("U.S. GAAP"). The Company adopted U.S. GAAP for its financial reporting to RNYC and Saban S.A. and their regulatory supervisors due to the reasons set out in Note 1. A reconciliation of total assets, shareholders' equity and net income as of and for the years ended December 31, 1995 and 1994 prepared under both U.S. GAAP and Luxembourg generally accepted accounting principles ("Luxembourg GAAP") is included in Note 20. A summary of the significant accounting policies followed by the Company in the preparation of the accompanying consolidated financial statements is set forth below: A. Basis of Presentation: The consolidated financial statements include the accounts of Safra Republic and its banking and non-banking subsidiaries. Significant intercompany transactions are eliminated in consolidation. Assets and liabilities are translated into their U.S. dollar equivalents based on rates of exchange prevailing at the respective year ends. Revenue and expenses are translated at average exchange rates for the year. Net translation gains or losses on subsidiaries' financial statements whose functional currency is not the U.S. dollar, net of related hedging results, are a component of the cumulative translation adjustment in shareholders' equity. Certain of the following footnotes have been prepared on a geographical ultimate risk basis. Geographical ultimate risk is defined as the domicile of the guarantor or the domicile of the counterparty or the head office of the guarantor or counterparty if it is a branch. Certain prior year amounts have been reclassified to conform with the 1995 presentation. B. Securities: The Company designates a security as held to maturity or available for sale at the time of acquisition. The Company periodically reviews its intent with respect to securities available for sale and may redesignate these securities and related off-balance sheet financial instruments used as hedges as held to maturity. At the time of redesignation such securities are recorded at market value and any unrealised appreciation (depreciation) existing with respect to the securities is continued to be reported as a separate component of shareholders' equity and amortised to interest income over the lives of the securities. At December 31, 1993, the Company adopted the provisions of Statement of Financial Accounting Standards ("SFAS") No. 115, "Accounting for Certain Investments in Debt and Equity Securities" and immediately recognised a credit of US$ 89,962,500 to shareholders' equity for the net difference between the net market value and the carrying amount of investments securities classified as available for sale. Debt investment securities: Debt securities classified as investment securities are held to maximise total return over the longer term. Investment securities that may be sold in response to or in anticipation of changes in interest rates and prepayment risk, liquidity considerations, and other factors are recorded in the available for sale caption at approximate market value. Investment securities that the Company has the intent and ability to hold to maturity are carried at cost in the held to maturity caption, adjusted for amortisation of premiums and accretion of discounts. Realised gains and losses on investment securities, which are generally computed by the specific identification method, are included in investment securities gains. Aggregate unrealised net valuation adjustments on securities available for sale and financial instruments used to hedge these securities, if any, are recorded as a component of shareholders' equity, net of tax effect. Equity investment securities: Equity securities of companies in which the percentage of investment in voting stock is less than 20% and which are held for long-term appreciation are included in investment securities. Marketable equity investment securities are recorded at fair value. Nonmarketable equity investment securities are carried at cost. The carrying value of both 67 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) marketable and nonmarketable equity investment securities recorded in the available for sale caption is reduced to reflect other-than-temporary impairments in value. Realised gains and losses, which are generally computed by the specific identification method, and unrealised impairments in value are included in investment securities gains. Aggregate unrealised net valuation adjustments on these securities, if any, are recorded as a component of shareholders' equity, net of tax effect. Trading account securities: Trading securities are carried at market value and are recorded as of their trade dates. Short trading positions are classified as liabilities. Gains and losses on trading positions are recognised currently as trading account income (loss). C. Loans: Loans are carried at their principal amount outstanding, net of unearned income. Unearned income on discounted loans is accreted rateably into income. Nonaccrual loans are those loans on which the accrual of interest ceases when principal or interest payments are past due 90 days. A loan may be placed on a nonaccrual status prior to the 90 day period if, in management's opinion, conditions warrant. When a loan is placed on a nonaccrual basis all accrued interest receivable is reversed and charged against current interest income. Interest received on nonaccrual loans is either applied against principal or credited to income, according to management's judgment as to the collectibility of principal. Generally, a loan may be restored to accrual status only after all delinquent interest and principal are brought current, and, in the case of loans where interest has been interrupted for a substantial period, a regular payment performance is established. An allowance for possible loan losses is maintained that is considered adequate to absorb losses inherent in the existing portfolios of loans and other undertakings to extend credit, such as irrevocable unused loan commitments, or to make payments to others for which a client is ultimately liable, such as standby letters of credit and guarantees, commercial letters of credit and acceptances, and other credit related exposures. A judgment as to the adequacy of the allowance is made at the end of each quarterly reporting period. Should the allowance be judged to be inadequate either because of reductions due to charge-offs or because of changes in the size or risk characteristics of the portfolios, the allowance is increased through a provision for loan losses that is charged to income in the quarterly reporting period. D. Premises and equipment: Premises and equipment, including leasehold improvements, are carried at cost less accumulated depreciation and amortisation. Depreciation and amortisation are computed on a straight-line basis and are charged to other operating expenses over the lesser of the estimated useful lives of the assets or lease terms. The estimated useful lives for premises and equipment are 25 to 40 years and 3 to 10 years, respectively. Maintenance and repairs are expensed as incurred and improvements are capitalised. E. Securities financing arrangements: Securities sold under agreements to repurchase ("repurchase agreements") are generally treated as borrowing transactions and are carried in short-term borrowings or long-term repurchase agreements at the amounts at which the securities were initially sold. Interest expense recognised under these agreements is recorded as interest expense on short-term borrowings or long-term repurchase agreements. Interest income on the related securities is recorded as interest income on investment securities. F. Financial instruments: Off-balance sheet financial instruments include futures, forwards, swaps and options in interest rate, foreign exchange, equity, and commodity markets. The Company uses these instruments in conjunction with its overall risk management and trading activities. Risk management: Net settlements related to contracts that are designated and effective as hedges or used to modify the interest rate characteristics of a specific asset or liability are generally deferred and recognised over the expected remaining life of the underlying asset or liability in net interest revenue if the underlying asset or liability is carried at amortised cost, or are carried at fair value, with aggregate unrealised adjustments, if any, recorded as a component of shareholders' equity if the underlying asset is carried at fair value. The market values of such open or unsettled contracts are taken into consideration in reporting the fair value of the related asset or liability carried at amortised cost. Upon contract settlement, the cumulative change in market value is recognised as an adjustment to the carrying amount of the asset or liability being hedged. Revenue or expense associated with interest rate swaps and caps entered into to meet longer-term interest rate management objectives, including maximisation of net interest revenue, is accrued over the life of the agreements in net interest income. Realised and unrealised gains and losses on currency contracts designated and effective as hedges of investments in certain subsidiaries denominated in foreign currencies are recorded in the cumulative translation adjustment component of shareholders' equity. Trading: Those financial instruments that are entered into for trading purposes or used as hedges of other trading instruments are carried at market value on a gross basis in trading assets and trading liabilities, with resultant gains and losses reported currently in foreign exchange and precious metals trading for foreign exchange related contracts and in trading account income (loss) for all other contracts. That portion of the initial market value associated with currency swaps that reflects credit considerations, ongoing servicing, and transaction hedging costs is deferred and recognised over the life of the contract in foreign exchange and precious metals trading. G. Income taxes: The earnings of the Company are subject to the local income tax regulations of the respective countries in which the subsidiaries operate. Income tax expense in the accompanying consolidated financial statements represents the aggregate of the subsidiaries' income taxes for the respective years. Deferred tax assets and liabilities are recognised for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their tax bases. 68 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) H. Transactions with affiliates: Amounts due to and from the Company's affiliates (primarily RNYC and its subsidiaries, principally Republic National Bank of New York, New York) arise from transactions conducted in the ordinary course of business. Such transactions are made upon substantially the same terms as those prevailing at the time for comparable transactions with third parties. Such amounts are included in the consolidated financial statements on a line-by-line basis. I. Retirement plans: The employees of the Company are covered by retirement plans which are based upon the social laws of the respective countries in which each subsidiary operates. J. Net income per common share: Net income per common share is computed by dividing net income by the average number of common shares outstanding during the year. K. Statements of cash flows: For purposes of presenting cash flow information, the Company defines cash and cash equivalents as the Consolidated Statements of Condition caption cash and due from banks. 3. INTEREST-BEARING DEPOSITS WITH BANKS The following tables provide information on the composition by ultimate risk and maturity distribution of the Company's interest-bearing deposits with banks at December 31:
1995 1994 ---------- ---------- (IN THOUSANDS OF US$) Ultimate risk: United States...................................... 341,616 406,788 United Kingdom and Channel Islands................. 1,197,709 1,120,691 Continental Europe................................. 3,957,453 2,881,198 Japan and Southeast Asia........................... 192,725 576,069 Central and South America.......................... 42,527 194,009 Canada............................................. 264,430 44,612 Other.............................................. 62,023 9,041 ---------- ---------- 6,058,483 5,232,408 ========== ========== Maturity distribution: Due within one month............................... 3,780,581 2,872,042 Due after one month but within six months.......... 2,143,511 2,061,115 Due after six months but within twelve months...... 134,391 299,251 ---------- ---------- 6,058,483 5,232,408 ========== ==========
4. INVESTMENT SECURITIES Available for sale: The following tables present the amortised cost and approximate market values of the Company's available for sale investment securities by type of security at December 31:
1995 ------------------------------------- GROSS UNREALISED AMORTISED ---------------- BOOK/ COST GAINS (LOSSES) MARKET --------- ------- -------- --------- (IN THOUSANDS OF US$) Banks................................... 843,803 24,729 (2,868) 865,664 Governments and government agencies..... 3,300,206 79,365 (38,201) 3,341,370 Companies............................... 1,040,933 19,859 (11,445) 1,049,347 Interest rate and currency swaps........ -- 34,954 (88,154) (53,200) --------- ------- -------- --------- 5,184,942 158,907 (140,668) 5,203,181 ========= ======= ======== =========
1994 -------------------------------------- GROSS UNREALISED AMORTISED ----------------- BOOK/ COST GAINS (LOSSES) MARKET --------- ------- --------- --------- (IN THOUSANDS OF US$) Banks................................... 528,610 2,352 (8,249) 522,713 Governments and government agencies..... 1,330,431 7,761 (69,461) 1,268,731 Companies............................... 490,671 3,288 (5,496) 488,463 Interest rate and currency swaps........ -- 15,245 (5,673) 9,572 --------- ------- -------- --------- 2,349,712 28,646 (88,879) 2,289,479 ========= ======= ======== =========
69 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) Held to maturity: The following tables present the book and approximate market values of the Company's held to maturity investment securities by type of security at December 31:
1995 ---------------------------------------- BOOK/ GROSS UNREALISED AMORTISED ----------------- APPROXIMATE COST GAINS (LOSSES) MARKET --------- ------- --------- ----------- (IN THOUSANDS OF US$) Banks................................. 68,111 2,313 (1,634) 68,790 Governments and government agencies... 1,987,635 38,938 (326) 2,026,247 Companies............................. 92,173 9,425 -- 101,598 Interest rate and currency swaps...... -- 4,822 (49,855) (45,033) --------- ------- -------- --------- 2,147,919 55,498 (51,815) 2,151,602 ========= ======= ======== =========
1994 ---------------------------------------- BOOK/ GROSS UNREALISED AMORTISED ----------------- APPROXIMATE COST GAINS (LOSSES) MARKET --------- ------- --------- ----------- (IN THOUSANDS OF US$) Banks................................. 91,189 245 (827) 90,607 Governments and government agencies... 2,981,845 2,195 (210,089) 2,773,951 Companies............................. 128,099 4,539 (2,424) 130,214 Interest rate and currency swaps...... -- 36,051 (4,645) 31,406 --------- ------- --------- --------- 3,201,133 43,030 (217,985) 3,026,178 ========= ======= ========= =========
Total securities: The following table presents the book or amortised cost and approximate market values of all investment securities at December 31, 1995, based on scheduled maturities. Actual maturities can be expected to differ from scheduled maturities due to prepayment and early call privileges of the borrower.
AVAILABLE FOR SALE HELD TO MATURITY ------------------- -------------------------- AMORTISED BOOK/ BOOK/ APPROXIMATE COST MARKET AMORTISED COST MARKET --------- --------- -------------- ----------- (IN THOUSANDS OF US$) Due in one year or less........ 258,977 267,919 18 18 Due after one year but within five years.................... 1,358,442 1,377,946 76,178 80,804 Due after five years but within ten years..................... 801,622 808,980 146,950 160,074 Due after ten years............ 324,891 324,636 5,083 5,701 Mortgage-backed securities..... 2,441,010 2,423,700 1,919,690 1,905,005 --------- --------- --------- --------- 5,184,942 5,203,181 2,147,919 2,151,602 ========= ========= ========= =========
In November 1995, the Financial Accounting Standards Board issued a Special Report regarding the implementation of SFAS 115. The Company had an opportunity to reassess the appropriateness of the classifications of its investment securities concurrent with the adoption of this Special Report. As a result of this reassessment, the Company repositioned its securities portfolio in order to lower the volatility inherent therein by transferring investment securities classified as held to maturity to the available for sale classification. The securities transferred had a total book value of approximately US$ 1.5 billion and a market value of approximately US$ 1.5 billion as of the transfer date. The unrealised holding gain at the date of transfer was US$ 38.2 million. During the year ended December 31, 1994, the Company transferred investment securities from the available for sale classification to the held to maturity classification. The market value of the securities transferred was US$ 1.8 billion. The unrealised holding loss at the date of transfer was US$ 53.0 million. The unrealised holding loss is included as a component of shareholders equity and is amortised over the average life of the securities that were transferred. Investment securities having a book value of approximately US$ 1.6 billion at December 31, 1995 were pledged to secure short-term borrowings, long-term repurchase agreements and a security lending program. The following table provides information on the composition by ultimate risk of the Company's total investment securities portfolio as of December 31:
1995 1994 --------------------- --------------------- APPROXIMATE APPROXIMATE BOOK MARKET BOOK MARKET --------- ----------- --------- ----------- (IN THOUSANDS OF US$) United States..................... 4,962,198 4,962,324 3,841,378 3,652,705 United Kingdom and Channel Islands.......................... 235,867 244,221 64,729 64,747 Continental Europe................ 1,481,431 1,482,000 1,029,099 1,042,151 Japan and Southeast Asia.......... 101,684 101,684 170,867 171,515 Central and South America......... 429,319 429,319 278,085 278,085 Canada............................ 68,612 68,612 56,509 56,509 Other............................. 71,989 66,623 49,945 49,945 --------- --------- --------- --------- 7,351,100 7,354,783 5,490,612 5,315,657 ========= ========= ========= =========
70 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 5. TRADING ACCOUNT ASSETS AND TRADING ACCOUNT LIABILITIES The following table presents the composition of trading account assets and trading account liabilities at December 31:
1995 1994 ----------- ---------- (IN THOUSANDS OF US$) Trading account assets: Mutual funds and equity securities................. 51,889 28,661 Debt securities.................................... 233 813 Unrealized gains on swaps and options.............. 103,050 45,103 ----------- ---------- 155,172 74,577 =========== ========== Trading account liabilities: Unrealized losses on swaps and options............. 79,245 53,554 =========== ==========
The Company's trading activities consist primarily of offsetting foreign exchange and precious metals swaps and options entered into to accommodate clients corresponding transactions. The Company also trades in the futures markets and debt and equity securities in emerging markets. The following table presents the results of the Company's trading activities for each of the years in the three-year period ended December 31, 1995:
1995 1994 1993 ------- ------- ------- (IN THOUSANDS OF US$) Foreign exchange and precious metals trading.......... 19,807 14,337 18,653 ======= ======= ======= Trading account income (loss), net: Debt securities..................................... (697) (42) 3,475 Mutual funds and equity securities.................. 5,852 (3,031) 2,799 Interest rate swaps and futures..................... 2,483 (1,840) 2,378 ------- ------- ------- 7,638 (4,913) 8,652 ======= ======= =======
The following tables present information related to the fair value, which is also the carrying value, of swaps and options held for trading purposes.
AVERAGE FAIR FAIR VALUE AT VALUE DURING 1995 DECEMBER 31, 1995 ------------------ ------------------- ASSETS LIABILITIES ASSETS LIABILITIES ------ ----------- ------- ----------- (IN THOUSANDS OF US$) Interest rate swaps..................... 1,235 62 3,293 -- ------ ------ ------- ------ Foreign exchange and precious metals: Spot, swaps and forwards.............. 86,350 71,849 92,038 71,624 Options written....................... -- 12,250 -- 5,781 Options purchased..................... 12,638 -- 5,879 -- ------ ------ ------- ------ 98,988 84,099 97,917 77,405 ------ ------ ------- ------ Debt and equity securities: Options written....................... -- 5,521 -- 1,840 Options purchased..................... 5,524 -- 1,840 -- ------ ------ ------- ------ 5,524 5,521 1,840 1,840 ------ ------ ------- ------ Total............................... 103,050 79,245 ======= ======
AVERAGE FAIR FAIR VALUE AT VALUE DURING 1994 DECEMBER 31, 1994 ------------------ ------------------ ASSETS LIABILITIES ASSETS LIABILITIES ------ ----------- ------ ----------- (IN THOUSANDS OF US$) Interest rate swaps...................... 491 -- 291 -- ------ ------ ------ ------ Foreign exchange and precious metals: Spot, swaps and forwards............... 52,907 50,675 32,122 41,012 Options written........................ -- 5,250 -- 10,740 Options purchased...................... 5,470 -- 10,888 -- ------ ------ ------ ------ 58,377 55,925 43,010 51,752 ------ ------ ------ ------ Debt and equity securities: Options written........................ -- 3,866 -- 1,802 Options purchased...................... 3,866 -- 1,802 -- ------ ------ ------ ------ 3,866 3,866 1,802 1,802 ------ ------ ------ ------ Total................................ 45,103 53,554 ====== ======
71 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 6. LOANS The following table presents the composition of the Company's loan portfolio at December 31:
1995 1994 ---------- ---------- (IN THOUSANDS OF US$) Real estate............................................. 89,115 56,222 Commercial and other.................................... 1,248,537 1,056,347 Banks and other financial institutions.................. 24,055 111,527 Governments and government agencies..................... 82,161 82,516 ---------- ---------- 1,443,868 1,306,612 Less unearned income.................................... (65) (67) ---------- ---------- Loans, net of unearned income........................... 1,443,803 1,306,545 ========== ==========
The Company grants loans in the ordinary course of business, on normal credit terms. The Company's policy for requiring collateral is based on management's evaluation of the counterparty; collateral may include real estate, deposits, marketable securities, accounts receivable and inventory. 7. ALLOWANCE FOR POSSIBLE LOAN LOSSES Changes in the Company's allowance for possible loan losses applicable to the operations for each of the years in the three-year period ended December 31, 1995 were as follows:
1995 1994 1993 ------- ------- ------- (IN THOUSANDS OF US$) Balance at beginning of year......................... 124,774 102,204 52,376 Provision............................................ 1,000 12,000 80,987 ------- ------- ------- 125,774 114,204 133,363 ------- ------- ------- Loans charged-off.................................... (8,647) (3,874) (34,184) Recoveries........................................... 5,400 5,112 3,785 ------- ------- ------- Net recoveries (charge-offs)......................... (3,247) 1,238 (30,399) Translation adjustment............................... 7,773 9,332 (760) ------- ------- ------- Balance at end of year............................... 130,300 124,774 102,204 ======= ======= =======
The principal balances of the Company's non-performing loans at December 31, 1995, 1994 and 1993 were US$19,697,000, US$13,454,000 and US$23,190,000 respectively, all of which were impaired. The Company has established an allowance for possible loan losses totaling US$6,966,000 related to these impaired loans. The average amount of impaired loans, net of charge-offs, during 1995 was US$18,543,000. At December 31, 1995 and 1994, there were US$12,676,000 and US$3,569,000, respectively, of restructured loans considered as non-performing. The Company recognises interest income on impaired loans on a cash basis. The following table presents the effect of impaired loans on interest income for each of the years in the three-year period ended December 31, 1995:
1995 1994 1993 ------- ------- ------- (IN THOUSANDS OF US$) Gross amount of interest that would have been earned at original contract rates.......................... 927 509 2,279 Actual amount recorded as interest income............ (772) (304) (323) ------ ------ ------- Foregone interest income............................. 155 205 1,956 ====== ====== =======
8. DEPOSITS Included in total deposits at December 31, 1995 and 1994 were US$325 million and US$323 million of non-interest-bearing deposits, respectively. 9. SHORT-TERM BORROWINGS The following table presents the Company's short-term borrowings at December 31:
1995 1994 ---------- ---------- (IN THOUSANDS OF US$) Securities sold under repurchase agreements............... 1,580,479 996,974 Other borrowings.......................................... 6,821 20,526 ---------- ---------- 1,587,300 1,017,500 ========== ==========
Short-term borrowings mature within one to twelve months. 72 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 10. LONG-TERM DEBT The Company's long-term debt at December 31, 1995 consists primarily of US$150,000,000 floating rate notes due in September 1998. The notes may be repaid in whole at the option of the Company on any interest payment date after September 1, 1996. The interest rate on the notes is 3-month Libor plus 28 basis points, currently 5.9% at December 31, 1995. Long-term debt also includes US$25,000,000 issued under the Euro Deposit Note Programme. These issues mature between December 22, 1999 and July 18, 2005 and bear interest rates ranging between 8.4% to 8.5%. 11. INCOME TAXES Total income tax expense for each of the years in the three-year period ended December 31, 1995 was allocated as follows:
1995 1994 1993 ------- ------- ------- (IN THOUSANDS OF US$) Income from operations.................................. 10,171 9,235 8,119 Shareholders' equity: Net unrealised appreciation (depreciation) on securities available for sale........................ 6,810 (3,852) 2,263
The components of the Company's consolidated income tax expense from operations for each of the years in the three-year period ended December 31, 1995, were as follows:
1995 1994 1993 ------- -------------- (IN THOUSANDS OF US$) Current tax expense....................................... 6,653 7,129 2,760 Deferred tax expense...................................... 3,518 2,106 5,359 ------- ------ ------ 10,171 9,235 8,119 ======= ====== ======
The principal sources of deferred income taxes attributable to operations in 1995, 1994 and 1993 and the effects of each on the amount of taxes were as follows:
1995 1994 1993 ------- ------- ------- (IN THOUSANDS OF US$) Statutory provisions for loan losses................ 2,109 2,177 5,101 Unrealised gains on securities available for sale... (660) 176 (161) Other, net.......................................... 2,069 (247) 419 ------- ------- ------- 3,518 2,106 5,359 ======= ======= =======
The tax effects of temporary differences that gave rise to a significant portion of the deferred tax assets and deferred tax liabilities at December 31, 1995 and 1994 are presented below:
1995 1994 ---------- ---------- (IN THOUSANDS OF US$) Deferred tax assets: Net unrealised depreciation on securities available for sale............................................ -- 1,589 Allowance for loan losses............................ 20,336 17,457 Other................................................ 254 205 ---------- ---------- 20,590 19,251 Less valuation allowance adjustment.................... (20,543) (17,632) ---------- ---------- 47 1,619 ========== ========== Deferred tax liabilities: Net unrealised appreciation on securities available for sale............................................ 5,221 -- Unrealised gains on securities....................... 613 1,273 Statutory allowance for loan losses.................. 5,129 3,020 Other................................................ 2,571 485 ---------- ---------- 13,534 4,778 ========== ==========
At December 31, 1995, the Company's subsidiaries had undistributed earnings of approximately US$117 million which would be subject to a withholding tax of US$40 million upon distribution. This withholding tax liability has not been provided for as the Company intends indefinitely to reinvest these earnings. 12. SHAREHOLDERS' EQUITY At December 31, 1995 and 1994, Safra Republic had US$465 million and US$205 million, respectively, in foreign exchange contracts entered into to hedge its investments in subsidiaries whose functional currencies are other than U.S. dollar. At December 31, 1995 and 1994, Safra Republic's total net unhedged equity investment in subsidiaries denominated in European currencies was approximately 15% and 25%, respectively, of the Company's total shareholders' equity. 73 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) Safra Republic owns all of the outstanding stock of its various consolidated subsidiaries. Safra Republic and its subsidiaries are limited under laws in effect in their respective countries, as to the amount of dividends which may be distributed to Safra Republic and its shareholders. As of December 31, 1995, approximately US$56 million of consolidated retained earnings, net of cumulative translation adjustment, were not available for distribution due to these legal restrictions. The Board of Directors of Safra Republic has authorised the purchase of up to 10% of its issued shares of common stock in open market transactions. The Company had accumulated purchases of 394,059 at December 31, 1995. 13. EXECUTIVE COMPENSATION AND RETIREMENT BENEFITS Safra Republic is authorised by its Board of Directors to award under the 1989 Stock Award and the 1989 Stock Option Plans up to 10% of its issued shares of common stock to key employees of the Company. The terms of the Stock Award Plan restrict the use of the grants for a specified time period generally ranging from three to five years for each individual employee. Under the Stock Option Plan, the options are exercisable within five years following the date of grant. Upon exercising the option the holders are entitled to take ownership of the shares of common stock after a specified amount of time of continued employment. The following shares have been granted under the 1989 Stock Award Plan:
NUMBER AGGREGATE OF SHARES COST ---------- ---------- (IN THOUSANDS OF US$ EXCEPT SHARE DATA) Balance at December 31, 1992.......................... 174,640 9,094 Granted............................................. 42,290 3,451 Exercised........................................... (37,475) (1,980) Cancelled........................................... (9,565) (497) ---------- --------- Balance at December 31, 1993.......................... 169,890 10,068 Granted............................................. 56,260 3,737 Exercised........................................... (34,300) (1,820) Cancelled........................................... (2,150) (36) ---------- --------- Balance at December 31, 1994.......................... 189,700 11,949 Granted............................................. 44,667 3,809 Exercised........................................... (65,752) (3,610) Cancelled........................................... (10,360) (169) ---------- --------- Balance at December 31, 1995.......................... 158,255 11,979 ========== =========
The aggregate cost of common stock awarded under the 1989 Stock Award Plan is amortised to expense over the period under which such shares are restricted. Included in employee benefits for 1995 is US$3,067,000 (1994: US$2,225,000; 1993: US$3,289,000) related to this plan. At December 31, 1995, there were 250 exercisable options outstanding under the terms of the 1989 Stock Option Plan at an option price of US$57.00 per share. Retirement benefits generally are covered by local plans based on length of service, compensation levels and, where applicable, employee contributions, with the funding of these plans based on local legal requirements. The aggregate expense for such plans was approximately US$5,400,000, US$5,120,000 and US$5,022,000 in 1995, 1994 and 1993, respectively. 74 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 14. GEOGRAPHIC DISTRIBUTION OF REVENUE, EARNINGS AND ASSETS The following geographic analysis of total assets, total operating revenue, income before income taxes and net income is based on the location of the customer. Charges and credits for funds employed or supplied by domestic and international operations are based on the average internal cost of funds. Certain items of revenue and expense, including the provision for loan losses and applicable income taxes, have been subjectively allocated and, therefore, the data presented may not be meaningful. Based on the above, the following table summarises total assets and the results of the Company's operations by geographic area as of and for each of the years in the three-year period ended December 31, 1995.
TOTAL INCOME (LOSS) NET TOTAL OPERATING BEFORE INCOME ASSETS REVENUE INCOME TAXES (LOSS) ---------- --------- ------------- ------- (IN THOUSANDS OF US$) United Kingdom and Channel Islands...................... 1995 2,405,549 120,090 17,353 16,538 1994 1,219,134 70,443 21,179 20,336 1993 1,425,990 81,427 12,195 11,282 Continental Europe............ 1995 4,751,947 367,877 (31,397) (37,785) 1994 4,551,051 293,747 (9,300) (17,692) 1993 3,291,252 289,099 (83,909) (91,115) Canada........................ 1995 173,363 12,008 3,208 3,208 1994 301,650 11,747 3,023 3,023 1993 93,296 4,263 1,423 1,423 Far East...................... 1995 464,501 37,011 6,063 6,063 1994 665,300 31,954 2,933 2,933 1993 410,119 29,337 3,516 3,516 Caribbean Money Centre Locations, Central and South America................ 1995 1,422,094 102,779 25,636 22,668 1994 1,077,607 68,487 6,919 6,919 1993 874,711 43,824 17,829 17,829 Middle East and Africa........ 1995 177,747 14,580 2,947 2,947 1994 206,143 12,105 (20,215) (20,215) 1993 158,875 7,458 1,883 1,883 United States................. 1995 6,265,343 354,910 148,465 148,465 1994 4,466,125 328,404 163,271 163,271 1993 5,095,723 334,082 176,777 176,777 Total......................... 1995 15,660,544 1,009,255 172,275 162,104 1994 12,487,010 816,887 167,810 158,575 1993 11,349,966 789,490 129,714 121,595
15. OFF-BALANCE SHEET RISK Trading and risk management financial instruments The Company's principal objective in holding or issuing off-balance sheet securities and certain other financial instruments is the management of interest rate and foreign exchange risks arising out of the underlying investment securities and to meet similar needs of its customers. To achieve its risk management objective, the Company uses a combination of financial instruments, particularly interest rate swaps and options, as well as other contracts. Interest rate swap contracts obligate the Company to exchange the difference between fixed rate and floating rate interest amounts based on an agreed notional amount. Forward contracts commit the company to buy or sell, at a future date, a specified financial instrument, currency or precious metal or other commodity at an agreed price. Forward contracts are customised transactions that require no cash settlement until the end of the contract. Foreign exchange, precious metals or other commodity swaps represent the amounts to be received from and paid to counterparties. Purchased option contracts give the holder the right, but not the obligation, to acquire or sell for a limited time period a financial instrument, currency, precious metal or other commodity at a designated price upon payment of a fee at the commencement of the contract. The writer of an option receives a premium at the outset of a contract as payment for assuming the risk of unfavorable changes in the price of the underlying instrument. The market risk of off-balance sheet transactions arises from the potential for changes in value due to fluctuations in foreign exchange rates and in prices of debt securities, equities, or commodities. The Company generally reduces its exposure to market risks 75 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) by entering into off-setting transactions. The credit and settlement risk of off-balance sheet transactions arises from the potential for a counterparty to default on its contractual obligations. The effect of such defaults varies as the market value of these contracts changes. Credit exposure exists at a particular point in time when an off-balance sheet contract has a positive market value. The Company attempts to limit its credit and settlement risk by dealing with highly creditworthy counterparties rated "AA" or better, limiting individual positions, and obtaining collateral where appropriate. The following table summarises the notional amounts of forward, swap and option instruments used in trading and risk management activities and credit exposure on instruments used in risk management activities at December 31. These amounts serve as volume indicators to denote the level of activity by instrument class and include contracts that have both favorable and unfavorable value to the Company. These notional amounts do not represent the amounts to be exchanged by the Company nor do they measure the exposure to credit or market risk.
DECEMBER 31, 1995 -------------------------------- ASSET/LIABILITY TRADING MANAGEMENT ----------- -------------------- CONTRACTUAL CONTRACTUAL NOTIONAL NOTIONAL CREDIT AMOUNTS AMOUNTS EXPOSURE ----------- ----------- -------- (IN THOUSANDS OF US$) Interest rate: Swaps........................................ 115,373 2,775,872 34,163 Caps purchased............................... -- 2,018,496 5,759 Foreign exchange and precious metals: Spot, forwards and swaps..................... 7,242,931 985,591 17,439 Options written.............................. 730,968 -- -- Options purchased............................ 766,355 -- -- Debt and equity securities: Options written.............................. 101,211 -- -- Options purchased............................ 101,211 -- --
DECEMBER 31, 1994 -------------------------------- ASSET/LIABILITY TRADING MANAGEMENT ----------- -------------------- CONTRACTUAL CONTRACTUAL NOTIONAL NOTIONAL CREDIT AMOUNTS AMOUNTS EXPOSURE ----------- ----------- -------- (IN THOUSANDS OF US$) Interest rate: Swaps........................................ 9,345 2,846,915 54,543 Caps purchased............................... -- 2,081,390 76,203 Foreign exchange and precious metals: Spot, forwards and swaps..................... 2,412,890 512,183 5,308 Options written.............................. 614,186 -- -- Options purchased............................ 614,186 225,000 1,718 Debt and equity securities: Options written.............................. 256,464 -- -- Options purchased............................ 256,464 -- --
At December 31, 1995, approximately 87% of the foreign exchange contracts relate to major foreign currencies such as Deutschmarks, French Francs, Japanese Yen, Pounds Sterling and Swiss Francs, and precious metals such as gold and silver. The remaining contracts comprise a broad range of other currencies. Credit related instruments Credit related instruments include commitments to extend credit, commercial and standby letters of credit and financial guarantees. The contractual amounts of these instruments represent the amounts at risk should the contracts be fully drawn upon, the client default, and the value of any existing collateral become worthless. The total contractual amount of credit related financial instruments does not represent the expected future liquidity requirements since a significant amount of commitments to extend credit and standby letters of credit and guarantees are expected to expire or mature without being drawn. The credit risk associated with these instruments varies depending on the creditworthiness of the client and the value of any collateral held. Commitments to extend credit generally require the client to meet certain credit related terms and conditions before draw-down. An allowance for possible loan losses is maintained that is considered adequate to absorb losses in the existing portfolios of loans and other credit related undertakings. 76 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) A summary of the contractual amount of credit related instruments at December 31 is presented in the following table:
1995 1994 NOTIONAL NOTIONAL AMOUNT AMOUNT ---------- ---------- (IN THOUSANDS OF US$) Commitments to extend credit........................... 93,778 52,674 Standby letters of credit and financial guarantees..... 628,335 566,732 Commercial and other letters of credit................. 126,850 103,358 Commitments to purchase securities..................... 425,000 -- Securities lent........................................ 82,496 113,000
16. CREDIT RELATED RISK CONCENTRATIONS In the normal course of its business, the Company's activities include significant amounts of credit risk to depository institutions. Such concentrations aggregated approximately 46% and 49% of the Company's on- balance sheet financial instruments at December 31, 1995 and 1994, respectively. This exposure included approximately 84% and 86% in the form of interest-bearing deposits with banks, respectively. The Company's credit exposure to the United States Federal Government and its agencies, principally in the form of securities, was approximately 29% of respective year-end on- balance sheet financial instruments. 17. COMMITMENTS AND CONTINGENT LIABILITIES In the normal course of business, there are various outstanding commitments and contingent liabilities of the Company that are not reflected in the consolidated statements of condition. The Company's minimum rental commitments for noncancelable operating leases for premises and equipment at December 31, 1995 were US$ 18,292,000 in 1996, US$ 13,367,000 in 1997, US$ 12,341,000 in 1998, US$ 9,466,000 in 1999, US$ 9,008,000 in 2000 and US$ 11,403,000 thereafter in the aggregate. Actual net rental expense for premises in 1995, 1994 and 1993 was US $12,462,000, US$ 10,508,000 and US$ 9,879,000, respectively. 18. TRANSACTIONS WITH AFFILIATES The following is a summary of significant aggregate balances and transactions with affiliates included in the Company's consolidated financial statements for the three years ended December 31:
1995 1994 1993 --------- --------- --------- (IN THOUSANDS OF US$) Assets: Cash and due from banks..................... 14,232 22,053 13,312 Interest-bearing deposits with banks........ 216,795 247,769 277,400 Accrued interest receivable................. 12,759 15,561 3,383 Liabilities: Bank deposits............................... 183,707 148,137 187,060 Short-term borrowings....................... 2,253 10,760 6,134 Accrued interest payable.................... 17,156 9,367 3,834 Interest income: Deposits with banks......................... 19,829 37,919 24,595 Investment securities....................... -- -- 882 Interest expense: Deposits and short-term borrowings.......... 13,215 17,318 16,964 Other operating items: Commission income (expense)................. 151 (5,966) (3,787) Occupancy, net.............................. (8,225) (7,109) (7,005) Off-balance sheet: Trading and risk management financial instruments................................ 1,983,415 1,242,530 1,410,816 Credit related instruments.................. 210,820 256,761 11,097 Lease commitments........................... 54,496 47,124 56,325
77 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 19. FAIR VALUE OF FINANCIAL INSTRUMENTS The following table summarises the estimated fair value of the Company's financial instruments recorded on and off the consolidated statements of condition as of December 31, 1995 and 1994. Because the Company operates as a going concern and since all fair value calculations are estimated as of a point in time and are subject to change with market conditions, the amounts ultimately realised could be different from those indicated in the table below. For some activities, principally lending, there is no active market and, therefore, much of the fair value information in respect of loans is judgmental in nature. Details for financial instruments issued or held for trading purposes are provided in Note 5.
1995 1994 ---------------------- --------------------- BOOK ESTIMATED BOOK ESTIMATED VALUE FAIR VALUE VALUE FAIR VALUE ---------- ---------- --------- ---------- (IN THOUSANDS OF US$) Non-trading activities: Assets: Cash and due from banks........ 54,458 54,458 59,537 59,537 Interest-bearing deposits with banks......................... 6,058,483 6,058,483 5,232,408 5,232,408 Investment securities.......... 7,351,100 7,354,783 5,490,612 5,315,657 Loans, (net)................... 1,313,503 1,435,022 1,181,771 1,298,604 Other financial assets......... 576,552 551,995 316,077 316,077 Liabilities: Deposits....................... 11,347,601 11,347,743 9,363,840 9,363,840 Short-term borrowings.......... 1,587,300 1,587,300 1,017,500 1,017,500 Long-term repurchase agreements.................... -- -- 400,000 397,126 Long-term debt................. 175,000 175,876 160,000 158,409 Other financial liabilities.... 812,222 812,222 163,018 163,018 Trading activities: Assets.......................... 155,172 155,172 74,577 74,577 Liabilities..................... (79,245) (79,245) (53,554) (53,554) ---------- ---------- --------- --------- Net............................. 75,927 75,927 21,023 21,023 ========== ========== ========= =========
1995 1994 ESTIMATED ESTIMATED POSITIVE (NEGATIVE) POSITIVE (NEGATIVE) FAIR VALUE FAIR VALUE ------------------- ------------------- (IN THOUSANDS OF US$) Off-balance sheet financial instruments: Swap agreements, principally interest rate swaps................ (94,298) 43,419 Interest rate caps.................. 5,753 76,203 ------- ------- (88,545) 119,622 Amount included with securities available for sale and trading....... 49,907 (9,863) ------- ------- (38,638) 109,759 ======= =======
Basis of presentation: The above table comprises financial instruments, which are defined as cash, evidence of an ownership in an entity, or a contract that requires either the receipt or delivery of cash or another financial instrument. Fair value is defined as the amount at which a financial instrument could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale, and is best evidenced by a quoted market price, if one exists. Financial instruments with remaining maturities of one year or less, with the exception of investment securities, are valued at their net carrying amount at December 31, 1995 and 1994. The carrying amounts in the table are included in the consolidated statements of condition under the indicated captions, except for off-balance sheet amounts that would otherwise reduce the recorded amounts. Those amounts are recognised as follows: liability amounts related to investment securities are included in other liabilities, and asset amounts related to deposits and debt are included in other assets. The "other financial assets" and "other financial liabilities" lines do not include amounts arising from off-balance sheet transactions that are shown under other captions. Other assets that are not financial instruments are excluded from the table. Estimation of fair values: The following notes summarise the major methods and assumptions used in estimating the fair values of financial instruments. Short-term financial instruments: Short-term financial instruments are valued at the carrying amounts in the consolidated statements of condition. The carrying amounts are reasonable estimates of fair value due to the short period to maturity. This approach applies to cash and due from banks, interest-bearing deposits with banks, deposits, short-term borrowings and the majority of other financial assets and liabilities. Investment securities: The fair value of investment securities is based on quoted market prices or dealer quotes. Loans: The fair value of loans is estimated by discounting estimated future cash flows at current market rates for which similar loans would be made. Non- performing loans are valued individually, based on an estimate of ultimate collectibility. Commitments to 78 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) extend credit are valued utilising the fees currently charged to enter into similar agreements, taking into account the terms of the commitment and the risk characteristics of the borrower. Standby letters of credit, guarantees and commercial letters of credit are valued based on the fees currently charged for similar agreements or on the cost to terminate or settle the agreement at the reporting date. Long-term debt: Long-term repurchase agreements and long-term debt are valued based upon rates currently available to the Company for debt with similar terms and remaining maturities. Off-balance sheet financial instruments: The fair value of off-balance sheet financial instruments is estimated as the amounts that the Company would receive or pay to terminate the contracts at the reporting date, taking into account the current unrealised gains or losses of open contracts. Market or dealer quotes are available for many contracts; otherwise, pricing or valuation models are applied to current market information to estimate fair value. 20. RECONCILIATION WITH LUXEMBOURG GAAP Safra Republic, as a Luxembourg holding company, should prepare consolidated accounts in accordance with the Luxembourg law of August 10, 1915 (as subsequently amended). As its subsidiaries are mainly banks, Safra Republic uses the derogation of Article 319 (5) of this law and prepares consolidated accounts which take into account specific banking operations. As indicated under note 2, the Company reports under U.S. GAAP. The consolidated financial statements prepared under U.S. GAAP are equivalent to the format prescribed by the Luxembourg law of June 17, 1992 relating to the annual accounts and consolidated accounts of credit institutions. Application of accounting principles generally accepted in Luxembourg would have had the following approximate effect on total assets, shareholders' equity and net income as of and for the years ended December 31:
1995 --------------------------------- TOTAL SHAREHOLDERS' NET ASSETS EQUITY INCOME ---------- ------------- ------- (IN THOUSANDS OF US$) U.S. GAAP................................... 15,660,544 1,467,807 162,104 Differences of accounting recognition for unrealised (depreciation) appreciation on investment securities available for sale, net of taxes............................... (84,629) (84,629) 45,714 Reversal of unrealised gains in the trading account assets, net of taxes............... (8,975) (8,975) (6,760) Differences of accounting for treasury share transactions............................... 20,981 20,981 79 ---------- --------- ------- Luxembourg GAAP............................. 15,587,921 1,395,184 201,137 ========== ========= =======
1994 --------------------------------- TOTAL SHAREHOLDERS' NET ASSETS EQUITY INCOME ---------- ------------- ------- (IN THOUSANDS OF US$) U.S. GAAP.................................. 12,487,010 1,246,353 158,575 Differences of accounting recognition for unrealised depreciation on investment se- curities available for sale, net of tax- es........................................ (20,542) (20,542) (35,665) Reversal of unrealised gains in the trading account assets, net of taxes.............. (2,214) (2,214) (1,928) Differences of accounting for treasury share transactions........................ 4,743 4,743 (1,220) U.S. GAAP 1994 asset reclassification...... 23,232 -- -- ---------- --------- ------- Luxembourg GAAP............................ 12,492,229 1,228,340 119,762 ========== ========= =======
79 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 21. SAFRA REPUBLIC HOLDINGS S.A. (PARENT COMPANY ONLY) CONDENSED BALANCE SHEETS
DECEMBER 31, ---------------------- 1995 1994 ---------- ---------- (IN THOUSANDS OF US$) ASSETS: Cash and due from banks................................. 400 59 Interest-bearing deposits with banks.................... 14,562 -- Deposits with subsidiaries.............................. 52,880 59,792 Investment securities: Available for sale.................................... 228,576 158,950 Held to maturity...................................... 77,795 90,904 Trading account assets.................................. 23,374 14,532 Investments in subsidiaries............................. 963,389 745,193 Loans to subsidiaries................................... 319,073 303,383 Other assets............................................ 68,877 71,875 ---------- ---------- Total assets........................................ 1,748,926 1,444,688 ========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY: Due to brokers.......................................... 77,795 -- Other liabilities....................................... 53,324 48,335 Long-term debt.......................................... 150,000 150,000 SHAREHOLDERS' EQUITY (NOTES 12 AND 13): Common stock, US$5 par value............................ 89,155 89,155 Surplus................................................. 820,119 820,038 Retained earnings....................................... 579,514 341,903 Less shares held in treasury, at cost................... (20,981) (4,743) ---------- ---------- Total shareholders' equity.......................... 1,467,807 1,246,353 ---------- ---------- Total liabilities and shareholders' equity.......... 1,748,926 1,444,688 ========== ==========
Included in retained earnings at December 31, 1995 were net unrealised appreciation on investment securities available for sale of US$11,953,000 (1994: US$91,858,000 unrealised depreciation) and US$1,269,000 (1994: US$4,720,000 unrealised depreciation), attributable to the banking subsidiaries and parent company only, respectively. CONDENSED STATEMENTS OF INCOME
YEAR ENDED DECEMBER 31, ------------------------ 1995 1994 1993 ------- ------- ------- (IN THOUSANDS OF US$) INCOME: Dividends from subsidiaries......................... 82,000 88,900 161,788 Interest from subsidiaries.......................... 28,822 20,203 19,931 Other interest...................................... 19,663 15,613 7,194 Other............................................... 5,245 (984) 1,771 ------- ------- ------- Total income.................................... 135,730 123,732 190,684 ------- ------- ------- EXPENSES: Salaries and other employee benefits................ 8,336 11,400 11,052 Restricted stock expense............................ 3,150 2,728 3,822 Interest expense.................................... 9,723 7,086 1,431 Other expenses and provisions....................... 5,191 15,342 12,241 ------- ------- ------- Total expenses.................................. 26,400 36,556 28,546 ------- ------- ------- Income before equity in undistributed net income (loss) of subsidiaries............................. 109,330 87,176 162,138 Equity in undistributed net income (loss) of subsid- iaries............................................. 52,774 71,399 (40,543) ------- ------- ------- Net income...................................... 162,104 158,575 121,595 ======= ======= =======
The equity in undistributed net loss of subsidiaries in 1993 represents the excess of dividends over aggregate subsidiaries' net income. 80 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) CONDENSED STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31, ---------------------------- 1995 1994 1993 ------- --------- -------- (IN THOUSANDS OF US$) OPERATING ACTIVITIES: Net income...................................... 162,104 158,575 121,595 Adjustments to reconcile net income to net cash provided by operating activities: Equity in undistributed net (income) loss of subsidiaries................................... (52,774) (71,399) 40,543 (Increase) decrease in trading account securi- ties........................................... (8,842) 753 (15,285) Other, net...................................... 3,329 (31,304) (5,280) ------- --------- -------- Net cash provided by operating activities... 103,817 56,625 141,573 ------- --------- -------- INVESTING ACTIVITIES: Net decrease in deposits with subsidiaries...... 6,912 110,616 4,094 Increase in deposits with banks................. (14,562) -- -- Sales (purchases) of investment securities, net............................................ 27,266 (20,769) (232,824) Cash contributions to subsidiaries.............. (1,131) (10,811) (10,775) Net increase of loans to subsidiaries........... (12,256) (103,000) -- Other, net...................................... (32,126) 17,198 (9,354) ------- --------- -------- Net cash used by investing activities....... (25,897) (6,766) (248,859) ------- --------- -------- FINANCING ACTIVITIES: Issuance of long-term debt...................... -- -- 147,984 Cash dividends paid............................. (57,747) (48,789) (39,822) Purchase of treasury shares..................... (19,832) (1,049) (927) ------- --------- -------- Net cash (used) provided by financing activ- ities...................................... (77,579) (49,838) 107,235 ------- --------- -------- Net increase (decrease) in cash and due from banks.......................................... 341 21 (51) Cash and due from banks at beginning of year.... 59 38 89 ------- --------- -------- Cash and due from banks at end of year...... 400 59 38 ======= ========= ======== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMA- TION: Transfer from investments held to maturity to investments available for sale................. 81,962 -- 134,814 ======= ========= ========
During 1995 and 1994, the Company increased its capital investment in its banking subsidiaries by US$6,383,000 and US$10,811,000 respectively. During 1995, the Company received cash refunds of US$5,253,000 of previously forgiven subordinated loans from one of its banking subsidiaries. During 1994, the Company forgave a portion of the subordinated loan to the same banking subsidiary in the amount of US$10,811,000. 81 INDEPENDENT AUDITORS' REPORT TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF SAFRA REPUBLIC HOLDINGS S.A. We have audited the accompanying consolidated statements of condition of Safra Republic Holdings S.A. as of December 31, 1995 and 1994, and the related consolidated statements of income, changes in shareholders' equity and cash flows for each of the years in the three-year period ended December 31, 1995. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with United States generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Safra Republic Holdings S.A. at December 31, 1995 and 1994, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 1995, in conformity with United States generally accepted accounting principles. As discussed in Note 2 to the consolidated financial statements, the Company changed its method of accounting for investments to adopt the provisions of the Financial Accounting Standards Board's Statement of Financial Accounting Standards No. 115, Accounting for Certain Investments in Debt and Equity Securities at December 31, 1993. Generally accepted accounting principles in the United States vary in certain significant respects from generally accepted accounting principles in Luxembourg. Application of generally accepted accounting principles in Luxembourg would have affected results of operations for the two-year period ended December 31, 1995 and shareholders' equity and total assets as of December 31, 1995 and 1994, to the extent summarised in Note 20 to the consolidated financial statements. Luxembourg, January 15, 1996 KPMG AUDIT Reviseurs d'entreprises C. Nicolet D.G. Robertson 82 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE CORPORATION Information concerning directors of the Corporation and nominees for election as directors is contained in the section "Election of Directors" in the Corporation's definitive Proxy Statement for its 1996 Annual Meeting of Stockholders to be filed pursuant to Section 14 of the Securities Exchange Act of 1934 and is hereby incorporated herein by reference. Such definitive Proxy Statement will be filed with the SEC on or about March 20, 1996. The names, ages and positions of the executive officers of the Corporation are as follows:
POSITION WITH POSITION WITH NAME AGE THE CORPORATION THE BANK - ---- --- ---------------------------- -------------------------- Walter H. Weiner *...... 65 Chairman of the Board and Chairman of the Board and Chief Executive Officer Chief Executive Officer Jeffrey C. Keil*........ 52 President Vice Chairman of the Board Peter J. Mansbach*...... 58 Chairman of the Chairman of the Executive Committee Executive Committee Cyril S. Dwek*.......... 59 Vice Chairman Vice Chairman of the Board Ernest Ginsberg*........ 65 Vice Chairman Vice Chairman of the Board Nathan Hasson*.......... 50 Vice Chairman Vice Chairman of the Board and Treasurer Vito S. Portera*........ 53 Vice Chairman Vice Chairman of the Board Elias Saal*............. 43 Vice Chairman Vice Chairman of the Board Dov C. Schlein*......... 48 Vice Chairman President Paul L. Lee**........... 49 Executive Vice President and Executive Vice President General Counsel George T. Wendler*...... 51 Executive Vice President Vice Chairman of the Board Richard C. Spikerman.... 55 International Credit Officer Executive Vice President
- ------- * Member of the Management Executive Committees of both the Corporation and the Bank. ** Member of the Management Executive Committee of the Bank. Each of the above-named officers is a director of both the Corporation and the Bank, except for Messrs. Lee, Wendler, and Spikerman who are not directors of the Corporation. The term of each officer is for a year, which runs from the annual meeting of the Board of Directors of the Corporation and the Bank, respectively, following the Annual Meeting of Stockholders of each, until the next such Annual Meeting or until removed by the respective Board of Directors. Each of the above officers' service in his current position is indicated in his biography below. Mr. Edmond J. Safra is the Honorary Chairman of the Board of Directors of the Corporation and the Bank. Mr. Safra is Chairman of the Board of Safra Republic Holdings S.A. and Republic National Bank of New York (Suisse) S.A., the Bank's affiliate in Geneva, Switzerland. In addition, Mr. Safra is a principal stockholder of the Corporation. The biographical information for the past five years for the above named executive officers of the Corporation is as follows: Walter H. Weiner has been a director and Chairman of the Board of the Corporation and the Bank for over five years. Jeffrey C. Keil has been a director and President of the Corporation and a director and a Vice Chairman of the Board of the Bank for over five years. Peter J. Mansbach has been a director and Chairman of the Executive Committee of the Bank since June 1994 and of the Corporation since July 1994. For over five years prior thereto, Mr. Mansbach was a partner of Kronish, Lieb, Weiner & Hellman, attorneys. Cyril S. Dwek has been a director and Vice Chairman of the Corporation and director and a Vice Chairman of the Board of the Bank for over five years. Ernest Ginsberg has been a director and a Vice Chairman of the Corporation (and was General Counsel until April 1994) and a director and a Vice Chairman of the Board of the Bank for over five years. Vito S. Portera has been a director and a Vice Chairman of the Corporation and a director and a Vice Chairman of the Board of the Bank for over five years. Mr. Portera also has been Chairman of the Board of Republic International Bank of New York, the Miami, Florida Edge Act subsidiary of the Bank, for over five years. Elias Saal has been a director and a Vice Chairman of the Corporation since July 1995. He has been a director and Vice Chairman of the Board of the Bank since October and June 1995, respectively. Mr. Saal was an Executive Vice President of the Bank for over five years prior to 1995. 83 Dov C. Schlein has been a director and a Vice Chairman of the Corporation and a director and President of the Bank for over five years. Paul L. Lee has been an Executive Vice President and General Counsel of the Corporation and a director and Executive Vice President of the Bank since April 1994. For over five years prior thereto, Mr. Lee was a partner of Shearman & Sterling, attorneys. Nathan Hasson has been a director and a Vice Chairman of the Corporation since January 1993. He has been a director and a Vice Chairman of the Board and Treasurer of the Bank for over five years. George T. Wendler has been an Executive Vice President and Chairman of the Credit Committee of the Corporation since October 1994 and a director and Vice Chairman of the Board of the Bank since June 1995. Prior thereto, Mr. Wendler was an Executive Vice President of the Bank for over five years. Richard C. Spikerman has been the International Credit Officer of the Corporation since January 1995. Mr. Spikerman has been an Executive Vice President of the Bank for over five years and a director of the Bank since June 1995. ITEM 11. EXECUTIVE COMPENSATION Information required by this item is contained in the section "Compensation of Directors and Executive Officers--Executive Officers" in the Corporation's definitive Proxy Statement for its 1996 Annual Meeting of Stockholders to be filed pursuant to Section 14 of the Securities Exchange Act of 1934 and is hereby incorporated herein by reference. Such definitive Proxy Statement will be filed with the SEC on or about March 20, 1996. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Information required by this item is contained in the sections entitled "Election of Directors" and "Ownership of Voting Securities" in the Corporation's definitive Proxy Statement for its 1996 Annual Meeting of Stockholders to be filed pursuant to Section 14 of the Securities Exchange Act of 1934 and is hereby incorporated herein by reference. Such definitive Proxy Statement will be filed with the SEC on or about March 20, 1996. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Information required by this item is contained in the section entitled "Transactions with Management and Related Persons" in the Corporation's definitive Proxy Statement for its 1996 Annual Meeting of Stockholders to be filed pursuant to Section 14 of the Securities Exchange Act of 1934 and is hereby incorporated herein by reference. Such definitive Proxy Statement will be filed with the SEC on or about March 20, 1996. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K FINANCIAL STATEMENTS Financial statements and supplementary financial data are listed in the index set forth in Item 8 of this Report. EXHIBITS 2 Agreement and Plan of Merger dated as of September 23, 1995 by and among Republic New York Corporation, LRNY Incorporated and Brooklyn Bancorp, Inc. (Incorporated herein by reference to such exhibit filed with the Corporation's filing on Schedule 13D dated October 2, 1995). 3a. Articles of Incorporation as amended through April 21, 1993 and as supplemented by Articles Supplementary. (Incorporated herein by reference to such exhibits filed with the Corporation's Annual Report on Form 10-K for the year ended December 31, 1993 and Current Reports on Form 8-K dated May 23, 1994 and June 26, 1995). 3b. By-Laws of the Corporation as amended through January 18, 1995. 4 Instruments defining the rights of security holders, including indentures.* 10a. Form of Amended and Restated Deferral Agreement. ** (Incorporated herein by reference to such exhibit filed with the Corporation's Annual Report on Form 10-K for the year ended December 31, 1993). 10b. Form of Deferral Agreement. ** (Incorporated herein by reference to such exhibit filed with the Corporation's Annual Report on Form 10-K for the year ended December 31, 1993). 10c. Performance Based Incentive Compensation Plan. ** (Incorporated herein by reference to such exhibit filed with the Corporation's definitive Proxy Statement dated March 16, 1994). 11 Computation of Earnings Per Share of Common Stock. 12 Calculation of Ratios of Earnings to Fixed Charges--Consolidated. 21 Subsidiaries of the Corporation. 23 Consents of Experts and Counsel. 27 Financial Data Schedule.
- ------- * Republic New York Corporation hereby agrees to furnish to the Commission, upon request, a copy of any unfiled agreements defining the rights of holders of the long-term debt of Republic New York Corporation and of all subsidiaries of Republic New York Corporation for which consolidated or unconsolidated financial statements are required to be filed. ** Compensation Agreement. REPORTS ON FORM 8-K No reports on Form 8-K were filed during the last quarter of the annual period covered by this Report. 84 SIGNATURES PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) 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. Dated: March 1, 1996 Republic New York Corporation By: Walter H. Weiner ------------------------ WALTER H. WEINER (CHAIRMAN OF THE BOARD) PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE REGISTRANT AND IN THE CAPACITIES AND ON THE DATES INDICATED. SIGNATURE TITLE DATE --------- ----- ---- Walter H. Weiner Director and March 1, 1996 - ------------------------------- Chairman of the WALTER H. WEINER Board (Principal Executive Officer) Kenneth F. Cooper Executive Vice March 1, 1996 - ------------------------------- President and KENNETH F. COOPER Chief Financial Officer (Principal Financial and Accounting Officer) Director - ------------------------------- (KURT ANDERSEN) Cyril S. Dwek Director March 1, 1996 - ------------------------------- CYRIL S. DWEK Ernest Ginsberg Director March 1, 1996 - ------------------------------- ERNEST GINSBERG Nathan Hasson Director March 1, 1996 - ------------------------------- NATHAN HASSON Jeffrey C. Keil Director March 1, 1996 - ------------------------------- JEFFREY C. KEIL Peter Kimmelman Director March 1, 1996 - ------------------------------- PETER KIMMELMAN Leonard Lieberman Director March 1, 1996 - ------------------------------- LEONARD LIEBERMAN 85 SIGNATURE TITLE DATE --------- ----- ---- William C. MacMillen, Jr. Director March 1, 1996 - -------------------------------- WILLIAM C. MACMILLEN, JR. Peter J. Mansbach Director March 1, 1996 - -------------------------------- PETER J. MANSBACH Martin F. Mertz Director March 1, 1996 - -------------------------------- MARTIN F. MERTZ James L. Morice Director March 1, 1996 - -------------------------------- JAMES L. MORICE Director - -------------------------------- (E. DANIEL MORRIS) Janet L. Norwood Director March 1, 1996 - -------------------------------- JANET L. NORWOOD John A. Pancetti Director March 1, 1996 - -------------------------------- JOHN A. PANCETTI Vito S. Portera Director March 1, 1996 - -------------------------------- VITO S. PORTERA Director - -------------------------------- (WILLIAM P. ROGERS) Elias Saal Director March 1, 1996 - -------------------------------- ELIAS SAAL Dov C. Schlein Director March 1, 1996 - -------------------------------- DOV C. SCHLEIN Director - -------------------------------- (PETER WHITE) 86 EX-3.B 2 REPUBLIC NEW YORK BY-LAWS EXHIBIT 3b REPUBLIC NEW YORK CORPORATION BY-LAWS (As amended through January 18, 1995) BY - LAWS OF REPUBLIC NEW YORK CORPORATION ARTICLE I OFFICES Section 1.1 The principal office of Republic New York Corporation (the "Corporation") in the State of Maryland shall be in the City of Baltimore, State of Maryland. Section 1.2 The Corporation may also have offices at such other place or places, both within and without the State of Maryland, as the Board of Directors, or the President of the Corporation acting under delegated authority, may from time to time determine. ARTICLE II MEETING OF STOCKHOLDERS Section 2.1 Each meeting of the corporation's stockholders may be held at such place within the United States of America, either within or without the State of Maryland, as the Corporation's Board of Directors shall determine. Section 2.2 An Annual Meeting of the Corporation's stockholders shall be held on such day during the month of May in each year as shall be designated by the Board of Directors. At each Annual Meeting, the Corporation's stockholders shall elect, by a plurality vote, a Board of Directors and transact such other business as may properly be brought before the meeting. Failure to hold an Annual Meeting at the designated time shall not, however, invalidate the Corporation's corporate existence or affect otherwise valid corporate acts of the Corporation. Section 2.3 A Special Meeting of the Corporation's stockholders may be held for any purpose or purposes, unless otherwise prescribed by statute or by the Articles of Incorporation. Each Special Meeting shall be called by order of the President, or by resolution of the majority of the Corporation's Board of Directors, or at the request of stockholders of the Corporation owning not less than 25% in amount of the Corporation's stock outstanding and entitled to vote. Each such request shall be in writing and shall state the matters proposed to be acted upon at the meeting. Section 2.4 Not less than ten (10) days nor more than ninety (90) days before the date of every stockholders' meeting, the vote at such meeting, written or printed notice stating the time and place of the meeting and, in the case of a Special Meeting, the purpose or purposes for which the meeting is called, either by mail or by presenting it to him personally or by leaving it at his residence or usual place of business. If mailed, such notice shall be deemed to be given when deposited in the United States mail addressed to the stockholder at his post office address as it appears on the records of the Corporation, with postage thereon prepaid. Notwithstanding the foregoing provisions, a waiver of notice in writing, signed by the person or persons entitled to such notice and filed with the records of the meeting, whether before or after the holding thereof, or actual attendance at the meeting in person or by proxy, shall be deemed equivalent to the giving of such notice to such persons. Any meeting of stockholders, Annual or Special, may adjourn from time to time to reconvene at the same or some other place, and no notice need be given of any such adjourned meeting other than by announcement. Section 2.5 Business transacted at any Special Meeting of stockholders shall, without the unanimous consent of all the stockholders entitled to vote thereat, be limited to the purpose stated in the notice of said meeting. Section 2.6 At each meeting of the Corporation's stockholders, a quorum for the transaction of business shall be the holders of a majority of the Corporation's issued and outstanding stock entitled to vote thereat, present in person or represented by proxy, except as otherwise provided by statute or by the Articles of Incorporation. If, however, such quorum shall not be present or represented at any meeting of stockholders, the stockholders entitled to vote thereat, present in person or represented at any meeting of stockholders, the stockholders entitled to vote thereat, present in person or represented by proxy, shall have power to adjourn the meeting from time to time, without notice, until a quorum shall be present or represented. At each adjourned meeting at which a quorum shall be present or represented, any business may be transacted which might have been transacted at the meeting as originally notified. If any adjournment is for more than thirty days, or if, after the adjournment, a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting. If, at any meeting, a quorum exists for the transaction of other business, the business as to which a quorum is present may be transacted by holder of stock present in person or by proxy who are entitled to vote thereon. Section 2.7 When a quorum is present at any meeting of the Corporation's stockholders, the vote of the holders of a majority of the stock having voting power present in person or represented by proxy shall decide any question properly brought before such meeting, except that when the question is one upon which by express provision of the statutes or of the Articles of the Incorporation, a different vote is required, such express provision shall govern and control the decision. Section 2.8 Unless the Articles of Incorporation provides for a greater or lesser number of votes per share or limits or denies voting rights, each stockholder shall at each meeting of the Corporation's stockholders be entitled to one vote in person or by proxy for each share of the Corporation's capital stock having voting power held by such stockholder. However, no proxy shall be voted after eleven months after the date thereof, unless the proxy provides for a longer period. In all elections of directors each stockholder shall have the right to vote, in person or by proxy, the shares owned of record by him, for as many persons as there are directors to be elected and for whose election he has a right to vote. Section 2.9 Except as otherwise provided by law, each election of directors by vote by ballot at a meeting of the Corporation's stockholders shall be conducted by one or more Inspectors of Election appointed for that purpose by the Chairman of the meeting. Each Inspector of Election, before entering upon the discharge of his duties, shall be duly sworn faithfully to execute the duties of his office at such meeting with strict impartiality and according to the best of his ability. If any such Inspector of Election appointed to act at any meeting shall not be present or shall fail to act, the Chairman of the meeting, shall appoint some other person present to act as an Inspector of Election. The Inspector(s) of Election, at the request of the Chairman of the meeting, shall conduct any other vote by ballot taken at such meeting. Inspector(s) of Election may also be appointed to act at meetings of the Corporation's stockholders at which directors are not to be elected and, at the request of the Chairman of the meeting shall conduct, by ballot, any vote at such meeting. Section 2.10 Whenever, by any provision of the statutes, the vote of stockholders is required or permitted to be taken at a meeting thereof for, or in connection with, any corporate action, the meeting and vote of stockholders may be dispensed with if all of the stockholders who would have been entitled to vote upon the action of such meeting were held, shall consent, in writing, to such corporation action being taken. ARTICLE III DIRECTORS Section 3.1 The number of directors of the Corporation which shall constitute the whole of the Corporation's Board of Directors (the "Board") shall not be less than three nor more than thirty. Within the limits above specified, the number of directors constituting the Board shall be determined by resolution of the Board or by the Corporation's stockholders at the Annual Meeting, but the tenure of office of a director shall not be affected by any decrease in the number of directors so made by the Board. The directors shall be elected at the Annual Meeting of stockholders, except as provided in Section 3.2 of this Article, and each director elected shall hold office until the succeeding Annual Meeting of stockholders or until his successor is elected and qualified. Directors need not be stockholders. Section 3.2 Vacancies and newly created directorships resulting from any increase in the authorized number of directors may be filled by a majority of the directors then in office, though less than a quorum, or by a sole remaining director, and the directors so chosen shall hold office until the next Annual Meeting and until their successors are duly elected and shall qualify, unless sooner displaced. Section 3.3 The business of the Corporation shall be managed by its Board, which may exercise all such powers of the Corporation and do all such lawful acts and things as are not by statute or by the Articles of Incorporation or by these By-Laws directed or required to be exercised or done by the stockholders. The directors shall choose from among their number, a Chairman of the Board and a Vice Chairman of the Board. Section 3.4 At any meeting of stockholders, duly called and at which a quorum is present, the stockholders may, by the affirmative vote of the holders of a majority of the votes entitled to be cast on the election or removal of such director, remove any director or directors from office and may elect a successor or successors to fill any resulting vacancies for the unexpired terms of removed directors. In case such a removal occurs but the stockholders entitled to vote thereon fail to fill any resulting vacancies, such vacancies may be filled by the Board of Directors pursuant to Section 3.2. MEETING OF THE BOARD OF DIRECTORS Section 3.5 The Board may hold meetings, both regular and special, either within or without the State of Maryland. Section 3.6 After each meeting of stockholders at which a Board of Directors shall have been elected, the Board of Directors so elected shall meet, as soon as practicable, for the purpose of organization and the transaction of other business; and, in the event that no other time is designated by the stockholders, the Board of Directors shall meet one hour after the time for such stockholders' meeting or immediately following the close of such meeting whichever is later, on the day of such meeting. No notice of such meeting shall be necessary if held as hereinabove provided. Section 3.7 Regular meetings of the Board may be held, without notice, at 452 Fifth Avenue, New York, New York at 12:30 P.M. on the third Wednesday of January, April, July and October of each year, unless another time and place shall be specified in a notice of meeting given by the Secretary. Section 3.8 Special Meetings of the Board may be called by the Chairman or the President upon notice to each director, either personally, by mail, by telex or by telegram. Special Meetings shall be called by the President or Secretary in like manner and on like notice upon the written request of two or more directors. Notice of the place, day and hour of every Special Meeting shall be given to each director at least twenty-four (24) hours before the time of the meeting, by delivering the same to him personally, by telephone, by telex, by telegraph, or by delivering the same at his residence or usual place of business, or, in the alternative, by mailing such notice at least seventy-two (72) hours before the time of the meeting, postage paid, and addressed to him at his last known post office address, according to the records of the Corporation. Unless required by the By-Laws or by resolution of the Board of Directors, no notice of any meeting of the Board of Directors need state the business to be transacted thereat. No notice of any meeting of the Board of Directors need be given to any director who attends, or to any director who, in writing executed and filed with the records of the meeting either before or after the holding thereof, waives such notice. Any meeting of the Board of Directors, Annual or Special, may adjourn from time to time to reconvene at the same or some other place, and no notice need be given of any such adjourned meeting other than by announcement. Section 3.9 At all meetings of the Board one-third of the number of directors, but not less than two directors, shall constitute a quorum for the transaction of business and the act of a majority of the directors present at any meeting at which there is a quorum shall be the act of the Board of Directors, except as may be otherwise specifically provided by statute or by the Articles of Incorporation. If a quorum shall not be present at any meeting of the Board, the directors present thereat may adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present. Members of the Board or any committee designated thereby may participate in a meeting of the Board or any such committee by means of a conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other at the same time and participation by such means shall constitute presence in person at such meeting. Section 3.10 Unless otherwise restricted by the Articles of Incorporation or these By-Laws, any action required or permitted to be taken at any meeting of the Board or of any committee thereof may be taken without a meeting, if all members of the Board or committee, as the case may be, consent thereto, in writing or writings and the writing or writings are filed with the minutes of the proceedings of the Board or committee. Section 3.11 On any question on which the Board of Directors shall vote, the names of those voting and their votes shall be entered in the minutes of the meeting when any member of the Board so requests. COMMITTEES OF DIRECTORS Section 3.12 Executive Committee. The Board of Directors shall appoint from among its members an Executive Committee of not less than three directors and a Chairman of the Executive Committee. When the Board of Directors is not in session, the Executive Committee shall have and may exercise, in the absence of or subject to any restrictions which the Board of Directors may from time to time impose, all of the powers of the Board of Directors in the management of the business and affairs of the Corporation, except the power to declare dividends or other distributions on stock, elect directors, issue stock other than as provided in the next sentence, recommend to the stockholders any action which requires stockholder approval, amend the By-Laws, or approve any merger or share exchange which does not require stockholder approval. If the Board of Directors has given general authorization for the issuance of stock, a committee of the Board, in accordance with a general formula or method specified by the Board by resolution or by adoption of a stock option or other plan, may fix the terms of stock subject to classification or reclassification and the terms on which any stock may be issued, including all terms and conditions required or permitted to be established or authorized by the Board of Directors. Section 3.13 Other Committees. The Board of Directors may appoint any other committees, each of which shall be composed of three or more directors, as determined by the Board from time to time. Such other committees shall have such powers, subject to the same limitations as are applicable to the Executive Committee under Section 3.12, as shall be designated by the Board from time to time. Section 3.14 Committee Procedure. Each committee shall keep minutes of its proceedings when exercising powers of the Board of Directors and may fix rules of procedure for its business. A majority of the members of a committee shall constitute a quorum for the transaction of business and the act of a majority of those present at a meeting at which a quorum is present shall be the act of the committee. The members of a committee present at any meeting, whether or not they constitute a quorum, may appoint an eligible director to act in the place of an absent member. Any action required or permitted to be taken at a meeting of a committee may be taken without a meeting, if an unanimous written consent which sets forth the action is signed by each member of the committee and filed with the minutes of the committee. The members of a committee may conduct any meeting thereof by conference telephone in accordance with the provisions of Section 3.9. COMPENSATION OF DIRECTORS Section 3.15 Each director may be paid his expenses, if any, of attendance at each meeting of the Board and may be paid a sum for attendance at each meeting of the Board and also for his services as director. Nothing herein shall preclude any director from serving the Corporation in any other capacity and receiving compensation therefor. Members of Special or standing committees may be allowed like payments for attending committee meetings. RESIGNATION OF DIRECTORS Section 3.16 Any director may resign at any time either by oral tender of such resignation at any meeting of the Board or to the Chairman or President or by giving written notice thereof to the Corporation. Any resignation shall be effective immediately, unless a date certain is specified for it to take effect. ARTICLE IV OFFICERS Section 4.1 Executive and Other Officers. The Corporation shall have a President, who shall be a director, and a Corporate Secretary and a Treasurer, who need not be directors. The Corporation shall also have a Chairman of the Board and a Chairman of the Executive Committee, and may have one or more Vice Chairmen, all of whom shall be directors. The Board shall designate who shall serve as chief executive officer, who shall have general supervision of the business and affairs of the Corporation. In the absence of any designation, the Chairman of the Board, if there be one, shall serve as chief executive officer. In the absence of the Chairman of the Board, or if there be none, the President shall serve as the chief executive officer. The Corporation may also have one or more Vice-Presidents, assistant and subordinate officers, other officers not designated by these By-Laws, and agents as it shall deem necessary, none of whom need be a director. A person may hold more than one office in the Corporation except that no person may serve concurrently as both President and Vice- President of the Corporation. Section 4.2 Chairman of the Board. The Chairman of the Board shall be a director and shall preside at all meetings of the Board and of the Stockholders at which he shall be present. Unless otherwise specified by the Board, he shall serve as the chief executive officer of the Corporation. In general, he shall perform such duties as are customarily performed by the chief executive officer of a corporation, and may also perform any duties of the President, and shall perform such other duties and may have such other powers as are, from time to time, assigned to him by the Board. Section 4.3 Chairman of the Executive Committee. The Chairman of the Executive Committee shall be a director and shall chair meetings of the Executive Committee, supervise and carry out policies adopted or approved by the Board and exercise such further powers and duties as are, from time to time, conferred upon or assigned to him by the Board. Section 4.4 Vice Chairman. Each Vice Chairman, if one or more be elected, shall be a director and shall perform such duties and may have such other powers as are, from time to time, assigned to him by the Board. Section 4.5 President. The President shall be a director and, unless otherwise provided by resolution of the Board, shall, in the absence of the Chairman of the Board, preside at all meetings of the Board and of the Stockholders at which he shall be present. In the absence of the Chairman of the Board, or if there be none, the President shall serve as the chief executive officer. The President may execute, in the name of the Corporation, all authorized deeds, mortgages, bonds, contracts or other instruments, except in cases in which the execution thereof shall have been expressly delegated to some other officer or agent of the Corporation. In general, he shall perform such duties usually performed by a president of a corporation and shall perform such other duties and may have such other powers as are from time to time assigned to him by the Board. Section 4.6 Vice-Presidents. The Vice-President or Vice-Presidents, at the request of the chief executive officer or the President, or in the absence of the President or during his inability or refusal to act, shall, in order of seniority of appointment, unless otherwise designated by the Board, the chief executive officer, or the President, perform the duties of the President, and when so acting, shall have all the powers of and be subject to all the restrictions upon the President. Each Vice-President shall perform such other duties and have such other powers, and have such additional descriptive designations in their titles (if any), as are from time to time assigned to them by the Board, the chief executive officer, or the President. Section 4.7 Corporate Secretary. The Corporate Secretary shall attend all meetings of the stockholders and all meetings of the Board and record, or cause to be recorded, all the procedures of the meetings of the stockholders and the Board in books to be kept for that purpose. The Corporate Secretary may perform like duties for the standing committees when required. He shall, as required, give, or cause to be given, notice of all meetings of the stockholders and meetings of the Board. He shall have custody of the corporate seal of the Corporation and he, or a Deputy or Associate or Assistant Corporate Secretary, shall affix the same to any instrument which is required or desired to be under its seal and when so affixed, it may be attested by his signature or by the signature of such Deputy or Associate or Assistant Corporate Secretary. The Board may give general authority to any other officer to affix the seal of the Corporation and to attest the affixing by his signature. In general, the Corporate Secretary shall perform all duties incident to the office of a secretary of a corporation, and shall perform such other duties and may have such other powers as are from time to time assigned to him by the Board, the chief executive officer or the President. Section 4.8 Deputy Corporate Secretary, Associate Corporate Secretary and Assistant Corporate Secretary. The Deputy Corporate Secretary or the Associate Corporate Secretary, or the Assistant Corporate Secretary, or if there be more than one, each of them, may, in the absence of the Corporate Secretary or during his inability or refusal to act, perform the duties and exercise the powers of the Corporate Secretary and shall perform such other duties and have such other powers as are from time to time assigned to each of them by the Board, the chief executive officer, the President or the Corporate Secretary. Section 4.9 Treasurer. The Treasurer shall have charge of and be responsible for all corporate funds and securities and shall keep, or cause to be kept, full and accurate accounts of receipts and disbursements in books belonging to the Corporation and shall deposit, or cause to be deposited, all moneys and other valuable effects, in the name and to the credit of the Corporation, in such depositories as may from time to time be designated. He shall render to the Board, the chief executive officer or the President, when so required, an account of the financial condition of the Corporation. In general, the Treasurer shall perform all the duties incident to the office of a treasurer of a corporation, and shall perform such other duties and may have such other powers as are from time to time assigned to him by the Board, the chief executive officer or the President. Section 4.10 Assistant Treasurers. The Assistant Treasurer, or if there shall be more than one, each of them, may, in the absence of the Treasurer or during his inability or refusal to act, perform the duties and exercise the powers of the Treasurer and shall perform such other duties and have such other powers as are from time to time assigned to each of them by the Board, the chief executive officer, the President or the Treasurer. Section 4.11 Assistant and Subordinate Officers, Other Officers and Agents. The assistant and subordinate officers of the Corporation are all officers below the office of Vice-President, Corporate Secretary or Treasurer. Assistant officers, subordinate officers, other officers not designated by these By-Laws, and agents shall perform such duties and have such powers as are from time to time assigned to them by the Board, the chief executive officer, the President, or any management committee or officer authorized by the Board or these By-Laws. Section 4.12 Election, Tenure and Removal of Officers. The Board shall elect all officers but may authorize any management committee or officer to appoint any assistant or subordinate officer, other officer not designated by these By- Laws, or agent. Election or appointment of any officer, employee or agent shall not of itself create contract rights. All officers shall be appointed to hold their respective offices during the pleasure of the Board. The Board may remove any officer at any time but may authorize any management committee or officer to remove any assistant or subordinate officer, other officer not designated by these By-Laws, or agent. The removal of an officer does not prejudice any of his contract rights. Any officer may resign at any time, either by oral tender of such resignation to the Chairman of the Board or the President or by giving written notice thereof to the Corporation. Any resignation shall be effective immediately, unless a date certain is specified for it to take effect. The Board may fill a vacancy which occurs in any office but may authorize any management committee or officer to fill any vacancy caused by the removal or resignation of any assistant or subordinate officer, other officer not designated by these By-Laws, or agent. Section 4.13 Compensation. The Board shall have power to fix the salaries and other compensation and remuneration, of whatever kind, of all officers of the Corporation. No officer shall be prevented from receiving such salary by reason of the fact that he is also a director of the Corporation. The Board may authorize any management committee or officer to fix the salaries, compensation and remuneration of any officers, employees and agents other than those who are members of the Management Executive Committee of the Corporation. ARTICLE V CERTIFICATES OF STOCK Section 5.1 Every holder of stock in the Corporation shall be entitled to have a certificate, signed by, or in the name of the Corporation by the Chairman of the Board or President or a Vice President and the Treasurer or an Assistant Treasurer, or the Secretary or a Deputy or Associate or Assistant Secretary of the Corporation, certifying the number of shares owned by him in the Corporation. Section 5.2 Where a certificate is manually countersigned (1) by a transfer agent, other than the Corporation or its employee, or, (2) by a registrar, other than the Corporation or its employee, any other signature on the certificate may be facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is signed, it may be issued by the Corporation with the same effect as if he were such officer, transfer agent or registrar at the date of issue. LOST CERTIFICATES Section 5.3 The Board may authorize a new certificate or certificates to be issued in place of any certificate or certificates theretofore issued by the Corporation alleged to have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the person claiming the certificate of stock to be lost, stolen or destroyed. When authorizing such issue of a new certificate or certificates, the Board may, in its discretion and as a condition precedent to the issuance thereof, require the owner of such lost, stolen or destroyed certificate or certificates, or his legal representative, to advertise the same in such manner as it shall require and/or to give the Corporation a bond in such sum as it may direct as indemnity against any claim that may be made against the Corporation with respect to the certificate alleged to have been lost, stolen or destroyed. TRANSFER OF STOCK Section 5.4 Upon surrender to the Corporation or the transfer agent of the Corporation of a certificate for shares duly endorsed or accompanied by proper evidence of succession, assignment or authority to transfer, it shall be the duty of the Corporation to issue a new certificate to the person entitled thereto, cancel the old certificate and record the transaction upon its books. Section 5.5 The Board may, at its discretion, appoint one or more banks or trust companies in New York City, and in such other city or cities as the Board may deem advisable, including any banking subsidiary of the Corporation, from time to time, to act as transfer agent(s) and registrar(s) of the stock of the Corporation. FIXING RECORD DATE Section 5.6 The Board is hereby empowered to fix, in advance, a date as the record date for the purpose of determining stockholders, or stockholders entitled to receive payment of any dividend or the allotment of any rights, or in order to make determination of stockholders for any other proper purpose. Such date in any case shall be not more than ninety (90) days, and in case of a meeting of stockholders, not less than ten (10) days, prior to the date of which the particular action, requiring such determination of stockholders is to be taken. In lieu of fixing a record date, the Board may provide that the stock transfer books shall be closed for a stated period but not to exceed, in any case, twenty (20) days. If the stock transfer books are closed for the purpose of determining stockholders entitled to notice of or to vote at a meeting of stockholders, such books shall be closed for at least ten (10) days immediately preceding such meeting. STOCK LEDGER Section 5.7 Original or duplicate stock ledgers, containing the name and addresses of the stockholders of the Corporation and the number of shares of each class held by them respectively, shall be kept at the offices of a transfer agent for the particular class of stock, within or without the State of Maryland, or, if none, at the principal office or the principal executive offices of the Corporation in the State of Maryland. REGISTERED STOCKHOLDERS Section 5.8 The Corporation shall be entitled to recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends, and to vote as such owner, and to hold liable for calls and assessments a person registered on its books as the owner of shares, and shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of Maryland. ARTICLE VI GENERAL PROVISIONS DIVIDENDS Section 6.1 Dividends upon the capital stock of the Corporation, subject to the provisions of the Articles of Incorporation, if any, may be declared by the Board at any Annual or Special Meeting, pursuant to the law. Dividends may be paid in cash, in property, or in shares of the capital stock, subject to the provisions of the Articles of Incorporation. CHECKS Section 6.2 All checks or demand for money and notes of the Corporation shall be signed by such officer or officers or such other person or persons as the Board may from time to time designate. FISCAL YEAR Section 6.3 The fiscal year of the Corporation shall be the calendar year. SEAL Section 6.4 The Corporation's seal shall have inscribed thereon the name of the Corporation, the year of its organization and the words "Corporate Seal, Maryland". The seal may be used by causing it or a facsimile thereof to be impressed or affixed or reproduced or otherwise. ANNUAL REPORT Section 6.5 There shall be prepared annually a full and correct statement of the affairs of the Corporation, including a balance sheet and a financial statement of operations for the preceding fiscal year, which shall be submitted at the Annual Meeting of the stockholders and filed within twenty (20) days thereafter at the principal office of the Corporation in the State of Maryland. Such statement shall be prepared or caused to be prepared by such executive officer of the Corporation as may be designated in an additional or supplementary by-law adopted by the Board. If no other executive officer is so designated, it shall be the duty of the President to prepare or cause to be prepared such statement. SHARES OF OTHER CORPORATIONS Section 6.6 The Chairman of the Board, the President, any Vice President, and the Secretary is each authorized to vote, represent and exercise on behalf of the Corporation, all rights incident to any and all shares of any other corporation or corporations standing in the name of the Corporation. The authority herein granted to said officer to vote or represent on behalf of the Corporation any and all shares held by the Corporation in any other corporation or corporations may be exercised either buy said officer in person or by any other person authorized so to do by proxy or power of attorney duly executed by said officers. Notwithstanding the above, however, the Board, in its discretion, may designate by resolution the person to vote or represent said shares of other corporation. ARTICLE VII AMENDMENTS Section 7.1 Subject to the special provisions of Section 3.1, (a) any and all provisions of these By-Laws may be altered or repealed and new by-laws may be adopted at any Annual Meeting of the stockholders, or at any Special Meeting called for that purpose, and (b) the Board shall have the power, at any regular or Special Meeting thereof, to make and adopt new by-laws, or to amend, alter or repeal any of the By-Laws of the Corporation. EX-11 3 COMPUTATIONS OF EARNINGS PER SHARE EXHIBIT 11 REPUBLIC NEW YORK CORPORATION AND SUBSIDIARIES COMPUTATION OF EARNINGS PER SHARE OF COMMON STOCK (In thousands except per share data)
Year Ended December 31, ------------------------------------------------ 1995 1994 1993 1992 1991 -------- -------- -------- -------- -------- Primary: Earnings: Net Income....................... $288,649 $340,008 $301,205 $258,883 $227,360 Less Preferred stock dividends... 36,467 34,410 28,415 28,386 22,733 -------- -------- -------- -------- -------- Net income applicable to common stock................... $252,182 $305,598 $272,790 $230,497 $204,627 ======== ======== ======== ======== ======== Shares: Average number of common shares outstanding.................... 54,060 52,736 52,466 52,204 51,852 -------- -------- -------- -------- -------- Per share of common stock: Net income . . . . . . . . . . . . $ 4.66 $ 5.79 $ 5.20 $ 4.42 $ 3.95 ======== ======== ======== ======== ======= Fully Diluted: Earnings: Net income applicable to common stock................... $252,182 $305,598 $272,790 $230,497 $204,627 Add dividends applicable to convertible preferred stock.... 5,920 11,643 11,643 11,643 7,277 -------- -------- -------- -------- -------- Net income applicable to common stock as adjusted....... $258,102 $317,241 $284,433 $242,140 $211,904 ======== ======== ======== ======== ======== Shares: Average number of common shares outstanding.................... 54,060 52,736 52,466 52,204 51,852 Add shares assumed issued upon exercise of stock options...... 161 229 286 247 181 Add shares assumed issued upon conversion of preferred stock.. 1,978 3,569 3,569 3,569 2,259 -------- -------- -------- -------- -------- Average number of common shares outstanding as adjusted........ 56,199 56,534 56,321 56,020 54,292 ======== ======== ======== ======== ======== Per share of common stock: Net income . . . . . . . . . . . . $ 4.59 $ 5.61 $ 5.05 $ 4.32 $ 3.90 ======== ======== ======== ======== =======
EX-12 4 CALCULATIONS OF RATIOS OF EARNINGS EXHIBIT 12 CALCULTAION OF RATIOS OF EARNINGS TO FIXED CHARGES -- CONSOLIDATED (In thousands except per share data)
Year Ended December 31, ---------------------------------------------------------- 1995 1994 1993 1992 1991 ---------- ---------- ---------- ---------- ---------- Excluding Interest on Deposits Fixed Charges: Interest on long-term debt and short-term borrowings................... $ 489,697 $ 499,065 $ 467,841 $ 513,322 $ 476,672 One-third of rent expense................. 13,651 14,177 10,859 10,252 6,581 ---------- ---------- ---------- ---------- ---------- Total fixed charges................... $ 503,348 $ 513,242 $ 478,700 $ 523,574 $ 483,253 ========== ========== ========== ========== ========== Earnings: Income before income taxes................ $ 398,115 $ 492,366 $ 451,358 $ 347,269 $ 287,746 Fixed charges............................. 503,348 513,242 478,700 523,574 483,253 ---------- ---------- ---------- ---------- ---------- Total earnings........................ $ 901,463 $1,005,608 $ 930,058 $ 870,843 $ 770,999 ========== ========== ========== ========== ========== Ratio of earnings to fixed charges excluding interest on deposits............ 1.79x 1.96x 1.94x 1.66x 1.60x ========== ========== ========== ========== ========== Including Interest on Deposits Fixed Charges: Interest on long-term debt, short- term borrowings and deposits............ $1,627,772 $1,326,855 $1,157,075 $1,318,228 $1,682,661 One-third of rent expense................. 13,651 14,177 10,859 10,252 6,581 ---------- ---------- ---------- ---------- ---------- Total fixed charges................... $1,641,423 $1,341,032 $1,167,934 $1,328,480 $1,689,242 ========== ========== ========== ========== ========== Earnings: Income before income taxes................ $ 398,115 $ 492,366 $ 451,358 $ 347,269 $ 287,746 Fixed charges............................. 1,641,423 1,341,032 1,167,934 1,328,480 1,689,242 ---------- ---------- ---------- ---------- ---------- Total earnings........................ $2,039,538 $1,833,398 $1,619,292 $1,675,749 $1,976,988 ========== ========== ========== ========== ========== Ratio of earnings to fixed charges including interest on deposits............ 1.24x 1.37x 1.39x 1.26x 1.17x ========== ========== ========== ========== ==========
EX-21 5 REPUBLIC OF NEW YORK SUBSIDIARIES EXHIBIT 21 REPUBLIC NEW YORK CORPORATION Subsidiaries
Approximate % Jurisdiction of of Voting Name of Entity Incorporation Securities - ---------------------------------------------------------------------------------- Delaware Securities Processing Corp. DE 100 R/Clip Corp. DE 100 Republic Bank California National Association US 100 Republic Factors Corp. NY 100 Republic Funds Services Limited BVI 100 Republic Investments (Canada) Limited Canada 100 Republic New York Mortgage Corporation MD 100 Republic New York Securities Corporation MD 100 Republic New York Securities International Limited England 100 Republic Services Corporation MD 100 RICS NJ, Inc. NJ 100 Republic New York Trust Company of Florida, National Association US 100 RNYC Liquid Portfolio Corporation DE 100 RNYC Liquid Portfolio Company Limited Guernsey 100 RNYC-NJ Realty Corp. NJ 100 Republic National Bank of New York US 100 Annie Sonnenblick Scholarship Fund, Inc. NY 100 Brandywine Mortgage Investors Corporation DE 100 Delaware Mortgage Investors Corporation DE 100 Finalfa S.p.A. Italy 100 Nevada Asset Management Corporation NV 100 Republic Bullion Corporation NY 100 Republic Consumer Lending Group, Inc. NY 100 Republic Financial Services Corporation NY 100 Republic Forex Options Corporation NY 100 Republic International Bank of New York (Miami) US 100 Republic Leasing (Chile) S.A. Chile 100 RIBNY Overseas Investments Holding Corporation DE 100 Republic Bullion (Far East) Limited Hong Kong 100 Republic International Management SAM Monaco 100 Republic Leasing (Uruguay) S.A. Uruguay 100 Republic National Bank of New York (Singapore) Limited Singapore 100 RNB Futures (Singapore) Ltd. Singapore 100 Republic National Bank of New York (Uruguay) S.A. Uruguay 100 Republic New York Finanziaria S.p.A. Italy 100 RNB Finance (Hong Kong)Limited Hong Kong 100 RNB Hong Kong (Nominees) Limited Hong Kong 100 RNYIOC Limited Guernsey 100 Republic National Bank of New York (Mexico) S.A. Mexico 100 Republic New York Investment Corporation DE 100 Republic Overseas Banks Holding Corporation DE 100 Republic International Bank of New York (Delaware) US 100 Republic National Bank of New York (Canada) Canada 100 Republic National Bank of New York (Cayman) Limited Cayman Islands 100 Republic National Bank of New York (International) Limited Bahamas 100 Republic Leasing do Brazil Brazil 70 Republic New York Holdings (UK) England 100
Republic Mase England 100 Republic Mase Australia Limited Australia 100 Republic Mase Australia (NZ) Limited Australia 100 Republic Mase Hong Kong Limited Hong Kong 100 Republic New York (UK) Limited England 100 Safra Republic Holdings S.A. Luxembourg 49.2 Republic National Bank of New York (France) S.A. France 100 Republic National Bank of New York (Gibraltar) Limited Gibraltar 100 Republic National Bank of New York (Guernsey) Limited Guernsey 100 Republic National Bank of New York (Luxembourg) S.A. Luxembourg 100 Republic National Bank of New York (Suisse) S.A. Switzerland 100 Safra Republic Investments Limited Guernsey 100 Republic Premises Corporation MD 100 RNB Services Limited England 100 Tower Holding New York Corp. NY 100 Williamsburgh Financial Corporation DE 100
EX-23 6 CONSENT OF ACCOUNTANTS Exhibit 23 CONSENT OF INDEPENDENT ACCOUNTANTS The Board of Directors Republic New York Corporation We consent to incorporation by reference in Registration Statements (No. 33- 49507 and No. 33-42582) on Form S-3 and in Registration Statements (No. 33- 57351, No. 33-38789 and No. 33-49639) on Form S-8 of Republic New York Corporation of our report dated January 16, 1996, relating to the consolidated statements of condition of Republic New York Corporation as of December 31, 1995 and 1994, and the related consolidated statements of income, changes in stockholders' equity and cash flows for each of the years in the three-year period ended December 31, 1995, and the consolidated statements of condition of Republic National Bank of New York as of December 31, 1995 and 1994, which report appears on page 57 of the 1995 Republic New York Corporation Annual Report to Stockholders, in the Republic New York Corporation Annual Report on Form 10-K. Our report refers to the adoption of the provisions of the Statement of Financial Accounting Standards Nos. 114, 118 and 122 in 1995 and No. 115 in 1993. New York, New York March 20, 1996 EX-27 7 ART. 9 FDS FOR YEAR END 10-K
9 1,000 YEAR DEC-31-1995 DEC-31-1995 675683 6094495 1749268 4035606 11751523 4487022 4595454 9843960 300593 43881554 24919633 3890768 193645 3961551 0 575000 281298 2151510 43881554 749719 1017484 679468 2446671 1138075 1627772 818899 12000 25663 821665 398115 288649 0 0 288649 4.66 4.59 2.61 67872 6316 14383 0 319220 51491 20215 300593 166733 133860 0
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