[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITES
EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1994.
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the fiscal year ended December 31, 1994 Commission File No. 1-7436
REPUBLIC NEW YORK CORPORATION
(Exact Name of Registrant as Specified in its Charter)
Maryland 13-2764867
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
452 Fifth Avenue, New York, N.Y. 10018
(Address of Principal (Zip Code)
Executive Offices)
Registrant's Telephone Number, Including Area Code (212) 525-6100
-------------
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 Share New York Stock Exchange
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
$3.375 Cumulative Convertible
Preferred Stock New York Stock Exchange
$1.9375 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 March 8, 1995 was $1,769,651,104.375 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 March 8, 1995: 52,260,388.
Documents Incorporated by Reference:
Document Location in Form 10-K
1994 Annual Report to Stockholders,
to the extent indicated Parts I, II, III and IV
Proxy Statement for 1995 Annual
Meeting, to the extent indicated Parts I and III
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, 1994, the Corporation had consolidated
total assets of $41.1 billion and stockholders' equity of $2.6 billion.
Its principal asset is the capital stock of Republic National Bank of
New York (the "Bank"). At December 31, 1994, the Bank accounted for
approximately 80% of the consolidated assets and, for the year ended
December 31, 1994, accounted for approximately 75% of consolidated
revenues and 85% of consolidated net income of the Corporation. The
Corporation's other significant banking subsidiary is Republic Bank for
Savings ("RBS"). See "Republic Bank for Savings". Republic Factors
Corp. ("Factors"), which commenced operations in 1977, is the other
significant subsidiary of the Corporation. See "Republic Factors Corp."
Another of the Corporation's subsidiaries is Republic New York
Securities Corporation, a full service broker-dealer, which commenced
operations in 1992. See "Republic New York Securities Corporation".
Based on total assets, at December 31, 1994, the Corporation was
the twenty-second 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).
As used herein, the term "Corporation" includes the subsidiaries of
the Corporation and the terms "Bank" and "RBS" include the subsidiaries
of the Bank and RBS, respectively, 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. At December 31, 1994,
the Bank had total assets of $32.4 billion, total deposits of $19.4
billion and stockholder's equity of $2.1 billion.
The Bank's headquarters and principal banking office is located at
452 Fifth Avenue, New York, New York. The Bank has 34 domestic branch
banking offices in New York City and the suburban counties of
Westchester and Rockland. 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, Montevideo, and the Cayman Islands; and an
Edge Act subsidiary in Miami, Florida. The Bank also has foreign
representative offices in Beijing, Beirut, Buenos Aires, Caracas,
Copenhagen, Jakarta, Manila, Mexico City, 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.
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, 1994, approximately 80% 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
1
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 financial services to
individuals who are citizens or residents of countries other than the
United States, including accepting deposits, 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.
An analysis of the Corporation's international operations for each
of the years in the three years ended December 31, 1994 is contained in
the following sections of its 1994 Annual Report to Stockholders filed
as an Exhibit to this Report which is hereby incorporated herein by
reference: (a) Note 14 of the Notes to Consolidated Financial
Statements on page 75 in such report for allocation of the Corporation's
total assets, total operating revenue, income (loss) before income taxes
and net income (loss) among geographic areas for each of the years in
the three years ended December 31, 1994; and (b) "Management's
Discussion and Analysis - Liability and Asset Management" on pages 35
through 48 in such report for other relevant information on
international operations.
During 1994, the Corporation received permission to establish a
Mexican banking subsidiary to be known as Republic National Bank of New
York (Mexico), S.A. and headquartered in Mexico City. The subsidiary
will have an initial capitalization of 340 million pesos (approximately
$60 million at recent rates) and will engage in activities consistent
with those of Mexican "multiple banks", including accepting deposits
from the public and granting commercial and individual loans. It is
anticipated that the subsidiary will commence operations in the second
quarter of 1995.
For information concerning the Corporation's outstandings in
certain foreign countries, see "Management's Discussion and Analysis -
Liability and Asset Management - Asset Management - Cross-border
Outstandings" on pages 47 and 48 and "Allowance for Possible Loan
Losses" on pages 45 and 46 in the 1994 Annual Report to Stockholders
which is hereby incorporated herein by reference.
Safra Republic Holdings S.A.
Safra Republic Holdings S.A. ("Safra Republic"), a Luxembourg
holding company, is 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, 1994, the Bank owned approximately 48.8%, Saban S.A., the
Corporation's principal stockholder, owned approximately 20.7% and
international investors owned approximately 30.5% of the outstanding
shares of Safra Republic. At December 31, 1994, Safra Republic had
total assets of $12.5 billion, total deposits of $9.4 billion and total
shareholders' equity of approximately $1.2 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.
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
2
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. Information
concerning the composition of the Corporation's domestic and
international loan portfolio is presented in the section "Loan
Portfolio" under "Operating Information" found on page 6 of this report.
The Corporation also engages in factoring activities through Factors.
See "Republic Factors Corp."
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.
The Bank has expanded its services to include domestic private
banking. 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.
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.
<TABLE>
<CAPTION>
ASSETS LIABILITIES
-------------------------- ------------------------------
Domestic International Domestic International
-------- ------------- -------- -------------
<S> <C> <C> <C> <C>
1994. . . . 61.1% 38.9% 64.4% 35.6%
1993. . . . 68.1 31.9 59.7 40.3
1992. . . . 59.2 40.8 65.2 34.8
</TABLE>
Precious Metals, Foreign Exchange, Securities and Derivative
Transactions
For a description of the Bank's precious metals activities and
income derived therefrom see "Management's Discussion and Analysis -
Liability and Asset Management - Asset Management - Precious Metals" on
page 44 and "Management's Discussion and Analysis - Results of
Operations - Other Operating Income" on page 32 of the 1994 Annual
Report to Stockholders which is hereby incorporated herein by reference.
Information concerning the Bank's foreign currency trading and
income derived therefrom may be found on page 32 of the 1994 Annual
Report to Stockholders in the section entitled"Management's Discussion
and Analysis - Results of Operations - Other Operating Income" which
3
is hereby incorporated herein by reference.
Republic Forex Options Corporation ("RFOC"), an operating
subsidiary of the Bank, is a foreign currency options participant on the
Philadelphia Stock Exchange. RFOC is a market-maker in foreign currency
options and trades for its own account.
Information relating to the composition of the Corporation's
trading account is contained in the sections of Management's Discussion
and Analysis entitled "Results of Operations - Other Operating Income on
page 32, "Liability and Asset Management - Liability Management -
Trading Account Liabilities" on page 39, "Asset Management - Trading
Account Assets" on page 43, and Note 1E on page 58 and Note 4 on pages
62 and 63 of the Notes to Consolidated Financial Statements in the 1994
Annual Report to Stockholders which is hereby incorporated herein by
reference.
Information concerning activities involving derivative instruments
is contained in the 1994 Annual Report to Stockholders in Note 1G and
Notes 4, 16 and 17 of the Notes to Consolidated Financial Statements on
pages 59 and 60, pages 62 and 63, and pages 76 through 81, respectively,
and in the section of Management's Discussion and Analysis entitled
"Liability and Asset Management" on page 37 in such report which is
hereby incorporated herein by reference.
REPUBLIC BANK FOR SAVINGS
RBS, a wholly-owned New York State chartered savings bank
subsidiary of the Corporation, is engaged in the granting of mortgages
on residential real property located primarily in New York State,
including one to four family dwellings, units within condominium
projects or units within cooperative housing projects.
RBS' deposit activities include accepting savings, demand, money
market, fixed-rate individual retirement, Keogh and NOW accounts. RBS
also provides consumer credit. At December 31, 1994, RBS had total
assets of $5.8 billion, total deposits of $4.6 billion and total
stockholder's equity of $440 million.
RBS' headquarters and principal banking office is located at 415
Madison Avenue, New York, New York. RBS has 24 full service branch
banking offices in New York City and Nassau, Suffolk and Westchester
counties and 8 additional branches in Broward and Dade counties,
Florida.
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 over
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, 1994, Factors factored
approximately $5.4 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. In addition, Factors has offices located in
Los Angeles, California and Charlotte, North Carolina.
OTHER FINANCIAL SERVICES
Republic New York Securities Corporation. Republic New York
Securities Corporation ("RNYSC"), a wholly-owned subsidiary of the
Corporation, commenced operations on November 2, 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 Securities and Exchange
Commission and is a member of the National Association of Securities
Dealers, Inc. and the New York Stock Exchange, Inc. In addition, it is
an associate member of the American Stock Exchange and the Philadelphia
Stock Exchange.
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
4
contracts for the Bank's account. RNYSC's authority to trade in
financial and precious metals commodities was expanded in 1994 when, on
December 20, the FRB granted approval for RNYSC to trade 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 and Philadelphia Board of Trade.
Republic New York Securities International Limited. Republic New
York Securities International Limited ("RNYSIL"), the Corporation's
wholly-owned London based subsidiary, is a member of the Securities and
Futures Authority and commenced operations in the second quarter of
1994. RNYSIL's activities consist primarily of introducing customers to
RNYSC.
Republic Asset Management Corporation. The activities of Republic
Asset Management Corporation, the Corporation's wholly-owned investment
advisor subsidiary, are being combined with the Bank's Domestic Private
Banking Group in order to eliminate an overlap of services.
OPERATING INFORMATION
This section provides, on a consolidated basis, certain statistical
data concerning the Corporation and supplements information contained in
the 1994 Annual Report to Stockholders which is incorporated hereinbelow
by reference.
Distribution of Assets, Liabilities and Stockholders' Equity;
Interest Rates and Interest Differential
Information on the Corporation's consolidated average balances of
assets, liabilities and stockholders' equity, computed principally on
the basis of daily averages, and the interest income earned and the
interest expense paid and the average rates earned and paid for each of
the years in the five years ended December 31, 1994 is found in the
table entitled "Average Balances, Net Interest Differential, Average
Rates Earned and Paid" on pages 92 and 93 in the Corporation's 1994
Annual Report to Stockholders which is incorporated herein by reference.
Interest income on certain tax-exempt obligations included in such table
has been adjusted to a fully-taxable equivalent basis using the tax rate
of 44% in 1994 and 1993 and 42% for all other periods. Information on
the approximate effect on net interest income of changes in volume of
interest-earning assets and interest-bearing liabilities and the rates
earned or paid thereon for the three years ended December 31, 1994 is
found on pages 29 through 31 in "Management's Discussion and Analysis -
Results of Operations - Net Interest Income" in such report which is
also incorporated herein by reference.
Information concerning the Corporation's interest rate sensitivity
gap position at December 31, 1994 is found on pages 35 through 37 in
"Management's Discussion and Analysis - Liability and Asset Management"
in the Corporation's 1994 Annual Report to Stockholders which is hereby
incorporated herein by reference.
Deposits
Information concerning the Corporation's deposits, classified by
major categories, at December 31 in each of the last three years is
contained in the 1994 Annual Report to Stockholders in the section
entitled "Management's Discussion and Analysis - Liability and Asset
Management - Liability Management - Deposits" on pages 37 through 39 in
such report which is hereby incorporated herein by reference.
Information on the interest rates paid by deposit type is contained on
page 92 and 93 of the 1994 Annual Report to Stockholders which is hereby
incorporated herein by reference.
5
Investment Portfolio
Investment securities represent a significant portion of the
Corporation's interest-earning assets. A description of the
Corporation's investment portfolio is contained in the sections entitled
"Management's Discussion and Analysis - Liability and Asset Management -
Asset Management - Investment Portfolio" and "Management's Discussion
and Analysis - Results of Operations - Other Operating Income" on pages
41 through 43 and page 33, respectively, and Note 1D on page 58, and
Note 3 on pages 61 and 62 of the Notes to Consolidated Financial
Statements in the 1994 Annual Report to Stockholders which is hereby
incorporated herein by reference.
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.
<TABLE>
<CAPTION>
December 31,
----------------------------------------------------------
1994 1993 1992 1991 1990
---- ---- ---- ---- ----
(In thousands)
<S> <C> <C> <C> <C> <C>
Domestic:
Real estate-residential mortgage. . . . . $1,245,500 $1,310,718 $1,454,416 $1,313,793 $1,166,779
Real estate-commercial. . . . . . . . . . 1,813,878 1,854,377 2,107,112 2,222,714 2,377,126
Banks and other financial institutions. . 83,010 7,384 14,841 18,434 78,177
Broker loans. . . . . . . . . . . . . . . 559,019 678,490 307,018 250,000 306,002
Commercial and industrial . . . . . . . . 2,242,124 2,152,691 1,859,595 1,848,587 1,968,525
Individuals . . . . . . . . . . . . . . . 106,195 90,218 51,305 71,286 320,349
All other . . . . . . . . . . . . . . . . 11,810 16,915 59,852 51,008 43,977
--------- --------- --------- --------- ---------
6,061,536 6,110,793 5,854,139 5,775,822 6,260,935
--------- --------- --------- --------- ---------
Foreign:
Broker loans. . . . . . . . . . . . . . . 23,762 732,812 -- -- --
Government and government agencies. . . . 89,625 429,232 341,320 453,639 450,359
Banks and other financial institutions. . 297,801 68,416 288,682 279,587 353,275
Commercial and all other. . . . . . . . . 2,487,875 2,262,130 1,672,038 2,271,625 2,167,939
--------- --------- --------- --------- ---------
2,899,063 3,492,590 2,302,040 3,004,851 2,971,573
--------- --------- --------- --------- ---------
Total loans. . . . . . . . . . . . . . . . 8,960,599 9,603,383 8,156,179 8,780,673 9,232,508
Less unearned income . . . . . . . . . . (47,109) (94,825) (148,722) (211,715) (227,649)
--------- --------- --------- --------- ---------
Loans, net of unearned income. . . . . . . $8,913,490 $9,508,558 $8,007,457 $8,568,958 $9,004,859
========== ========== ========== ========== ==========
</TABLE>
Maturity Distribution and Interest Sensitivity of Loans
Information presenting the maturity distribution of the
Corporation's domestic and foreign loan portfolios at December 31, 1994
and an analysis of the interest sensitivity of such portfolios at such
date is contained in the section entitled "Management's Discussion and
Analysis - Liability and Asset Management - Asset Management - Loan
Portfolio" on pages 44 and 45 in the 1994 Annual Report to Stockholders
which is hereby incorporated herein by reference.
Risk Elements
Information presenting the risk elements of the Corporation's
domestic and foreign loan portfolios and foreign outstandings at
December 31, 1994, 1993 and 1992, including past due, non-accrual and
other nonperforming assets, and recent accounting pronouncements related
to recognition criteria and measurement methods for certain impaired
loans, is contained in the section entitled "Management's Discussion and
Analysis - Liability and Asset Management - Asset Management -
Cross-border
6
Outstandings" on pages 47 and 48 and "Allowance for Possible Loan
Losses" on pages 45 and 46 in the 1994 Annual Report to Stockholders
which is hereby incorporated herein by reference.
For information presenting off-balance sheet risk of financial
instruments together with related risk concentrations, see Note 17 of
the Notes to Consolidated Financial Statements on pages 79 through 81 in
the 1994 Annual Report to Stockholders which is hereby incorporated
herein by reference.
For information relating to the effect on the Corporation's 1994
income of loans classified as non-accrual and restructured and other
information on outstandings in certain debtor countries, see Note 6 of
the Notes to the Consolidated Financial Statements on pages 64 and 65
and "Management's Discussion and Analysis - Liability and Asset
Management - Asset Management - Cross-border Outstandings" on pages 47
and 48 and "Allowance for Possible Loan Losses" on pages 45 and 46 in
the 1994 Annual Report to Stockholders which is hereby incorporated
herein by reference.
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) on which payment of principal or interest is 90
days or more 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 or more 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 lastly to income. Interest
is included in income thereafter only to the extent received in cash.
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 or more.
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. Loans past due 90 days or more and still on accrual
status,primarily residential mortgage loans, amounted to $9.6 million,
$5.6 million, $8.8 million, $9.1 million, and $8.0 million at year end
1994, 1993, 1992, 1991, and 1990, respectively.
Risk Assessment, Credit Risk Management and Allowance for Possible Loan
Losses
The Risk Assessment Committee of the Corporation's Board of
Directors was established in 1993 to oversee identification, measurement
and limitation of the risks relating to all activities of, and products
offered by, the Corporation. The Committee's activities include review
of risk management methodologies employed by management. Also in 1993,
the Bank established the Risk Assessment and Control Department, whose
task is to develop and implement consolidated and integrated risk
quantification and reporting mechanisms. The Department also monitors
market-related risk exposure on a daily basis, reporting to management.
7
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 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 procedures are set
to monitor adherence to the established criteria and to ensure that on
a continuing basis such standards are enforced and maintained.
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 and
currency swaps designed to protect against rate and currency
fluctuations.
The Corporation's loan portfolios are regularly reviewed and
monitored by the Credit Review Department, which, each quarter, prepares
a report containing recommendations as to the amount of loans to be
charged-off. The report is then submitted for consideration to certain
members of Executive Management who determine the amount of loans to be
charged-off. The Credit Policy 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.
The allocation of the allowance for possible loan losses between
the Corporation's domestic and foreign components is contained in Note
6 of the Notes to the Consolidated Financial Statements found on pages
64 and 65 of the 1994 Annual Report to Stockholders which is hereby
incorporated herein by reference. Extensive foreign charge-offs related
to restructuring countries debt were taken in 1990. In 1991 and 1992,
as the value of foreign obligations stabilized, the previously provided
foreign provision was reallocated to domestic obligations as the
domestic economy continued to deteriorate. Domestic charge-offs
exceeded foreign charge-offs in 1991, 1992, 1993, and 1994.
Information presenting the Corporation's allowance for possible
loan losses, amounts of domestic loans by loan category and total
foreign loans charged-off and recoveries of such loans previously
charged-off, loans, net of unearned income, and related ratios is
contained in the section entitled "Management's Discussion and Analysis
- Liability and Asset Management - Asset Management - Allowance for
Possible Loan Losses" on pages 45 and 46 in the 1994 Annual Report to
Stockholders which is hereby incorporated herein by reference.
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, 1994. 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.
8
<TABLE>
<CAPTION>
December 31, 1994
------------------------------------------------------
Allocation of the Allowance for
Possible Loan Losses by Category
------------------------------------------------------
Domestic Foreign Total
--------------- --------------- ---------------
Percent Amount Percent Amount Percent Amount
------- ------ ------- ------ ------- ------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
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
=== ======== === ======== === ========
<CAPTION>
December 31, 1993
------------------------------------------------------
Allocation of the Allowance for
Possible Loan Losses by Category
------------------------------------------------------
Domestic Foreign Total
--------------- --------------- ---------------
Percent Amount Percent Amount Percent Amount
------- ------ ------- ------ ------- ------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
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
=== ======== === ======== === ========
<CAPTION>
December 31, 1992
------------------------------------------------------
Allocation of the Allowance for
Possible Loan Losses by Category
------------------------------------------------------
Domestic Foreign Total
--------------- --------------- ---------------
Percent Amount Percent Amount Percent Amount
------- ------ ------- ------ ------- ------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
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
=== ======== === ======= === ========
<CAPTION>
December 31, 1991
------------------------------------------------------
Allocation of the Allowance for
Possible Loan Losses by Category
------------------------------------------------------
Domestic Foreign Total
--------------- --------------- ---------------
Percent Amount Percent Amount Percent Amount
------- ------ ------- ------ ------- ------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
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
=== ======== === ======== === ========
9
<CAPTION>
December 31, 1990
------------------------------------------------------
Allocation of the Allowance for
Possible Loan Losses by Category
------------------------------------------------------
Domestic Foreign Total
--------------- --------------- ---------------
Percent Amount Percent Amount Percent Amount
------- ------ ------- ------ ------- ------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Real estate loans. . . . . . . . . 85% $35,000 1% $ 1,000 15% $ 36,000
Commercial and industrial loans. . 12 5,000 2 3,000 3 8,000
Other loans. . . . . . . . . . . . 2 1,000 74 146,000 62 147,000
Unallocated. . . . . . . . . . . . 1 310 23 45,324 20 45,634
--- ------- --- -------- --- --------
Total. . . . . . . . . . . . . . . 100% $41,310 100% $195,324 100% $236,634
=== ======= === ======== === ========
</TABLE>
At December 31, in each of the years 1994 through 1990, the
Corporation's allowance for possible loan losses represented
approximately 369%, 198%, 128%, 145% and 159%, 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.
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 credit portfolios, including off-balance sheet credit
instruments. 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. Future
events are expected to confirm these losses, at which time 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 the portfolio. Management
analyzes its 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 the 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.
10
Financial Ratios
The following table presents average total stockholders' equity as
a percentage of average assets and the Corporation's returns on average
total stockholders' equity and average total assets (based on net
income), the return on average common stockholders' equity (based on net
income applicable to common stock), and its dividend payout ratio (based
on dividends declared per common share divided by fully diluted earnings
per common share) for each of the years in the three years ended
December 31, 1994.
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Average stockholders' equity as a percentage of average assets. . . . . 6.38% 6.33% 6.43%
Return on average total stockholders' equity. . . . . . . . . . . . . . 12.87 12.73 11.95
Return on average common stockholders' equity . . . . . . . . . . . . . 15.20 15.08 14.18
Return on average total assets. . . . . . . . . . . . . . . . . . . . . .82 .81 .77
Dividend payout ratio . . . . . . . . . . . . . . . . . . . . . . . . . 23.53 21.39 23.15
</TABLE>
The rate of the quarterly dividend payable on the Corporation's
Common Stock was increased to $.22 per share commencing with the
dividend payment on April 1, 1990, to $.233 per share commencing with
the dividend payment on April 1, 1991, to $.25 per share commencing with
the dividend payment on January 1, 1992, to $.27 per share commencing
with the dividend payment on April 1, 1993, to $.33 commencing with the
dividend payment on April 1, 1994, and will be increased to $.36
commencing with the dividend payable on April 1, 1995.
Competition
All of the Corporation's banking activities are highly competitive.
The Bank and RBS compete actively with other commercial banks, savings
and loan associations, financing companies, credit unions and other
financial institutions located throughout the United States and, in some
of their activities, with government agencies. For international
business, the Bank competes with other United States banks which have
foreign installations and with other major foreign banks located
throughout the world.
Employees
As of December 31, 1994, the Corporation had approximately 5,500
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.
For information concerning transactions with persons related to the
Corporation and its management see Item 13 in Part III of this Report
and the section entitled "Transactions with Management and Related
Persons" found on pages 17 and 18 under "Election of Directors" in the
Corporation's definitive Proxy Statement dated March 15, 1995 for its
1995 Annual Meeting of Stockholders filed pursuant to Section 14 of the
Securities Exchange Act of 1934, which is hereby incorporated herein by
reference.
11
SUPERVISION AND REGULATION
General
As a bank holding company registered under the Bank Holding 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 and state
bank regulatory agencies, including the Office of the Comptroller of the
Currency, the Federal Deposit Insurance Corporation ("FDIC") and the New
York State Banking Department. Federal banking and other laws impose a
number of requirements and restrictions on the operations and activities
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, bank holding companies may engage directly,
or indirectly through subsidiaries, in activities which the FRB
determines to be so closely related to banking or managing banks as to
be a proper incident thereto. However, FRB approval is required before
a bank holding company may acquire an existing company or engage in
activities which the FRB has not determined to be permissible for bank
holding companies. Specifically, the prior approval of the FRB is
required for the acquisition by a bank holding company of more than 5%
of the voting stock or substantially all of the assets of any bank or
bank holding company as well as, with certain exceptions, the
acquisition of more than 5% of the voting stock of any company engaging
in activities other than banking or managing or controlling banks or
furnishing services to or performing services for their subsidiaries.
Further, a bank holding company, as well as certain of its
subsidiaries, is prohibited from engaging in certain tie-in arrangements
in connection with any extension of credit, lease or provision of any
property or services.
In September 1994, the Interstate Banking and Branching Efficiency
Act of 1994 ("IBBEA") was signed into law. Generally, IBBEA will ease
the current federal and state restrictions placed on bank holding
company activities relating to interstate banking and full interstate
branching. The IBBEA provides for interstate banking within one year
and full interstate banking within three years of the legislation's
enactment. It is anticipated that IBBEA will result in expanded business
opportunities and economies of scale available to the banking industry.
The Federal Reserve Act imposes restrictions on extensions of
credit by subsidiary banks of a bank holding company to the bank holding
company or certain of its subsidiaries, on investments in the stock or
other securities thereof, and on the taking of such stock or securities
as collateral for loans to any borrower.
RNYSC is subject to supervision and regulation by the FRB, the
Securities and Exchange Commission, the New York Stock Exchange, the
National Association of Securities Dealers, the National Futures
Association, and the Commodity Futures Trading Commission. RNYSC is
also subject to the rules and regulations applicable to broker-dealers
in each state in which it operates. RNYSIL is a member of and
supervised by the Securities and Futures Authority in the United
Kingdom.
Capital Requirements
The Corporation and its bank subsidiaries are subject to risk-
based capital requirements for bank holding companies. The requirements
provide that the minimum ratio of total capital to risk-weighted assets
(including certain off-balance sheet activities, such as standby letters
of credit and derivative instruments) be equal to 8.0% of risk-weighted
assets. Of this amount, at least half must be composed of common
equity, minority interest, noncumulative perpetual preferred stock and
a limited amount of cumulative perpetual preferred stock, less goodwill
and intangible assets subject to certain minimums ("Tier 1 capital").
The remainder may consist of certain amounts of subordinated debt and
12
cumulative preferred stock and a limited amount of the allowance for
loan losses ("Tier 2 capital").
On March 15, 1993, a revised rule altering the method of
computation of Tier 1 capital of bank holding companies became
effective. Subject to certain exceptions, when calculating Tier 1
capital under the revised rule, bank holding companies are required to
deduct all intangible assets other than purchased mortgage servicing
rights and purchased credit card relationships. These assets are valued
at least quarterly at the lesser of 90% of their fair market value or
100% of their book value, in an aggregate amount not to exceed 50% of
Tier 1 capital.
On April 1, 1995, a new rule will become effective that will alter
the treatment of deferred tax assets for capital adequacy purposes.
Pursuant to the new rule, the amount of deferred tax assets that are
dependent on future taxable income that may be included in regulatory
capital will be limited to (i) the amount of deferred taxes the
Corporation expects to realize within one year, based on its projection
of future taxable income (exclusive of tax carryforwards and reversal of
existing temporary differences for such year), or (ii) 10% of Tier 1
capital as defined above. The Corporation does not believe the new rule
will have a material effect on its capital adequacy ratios.
In September 1994, the Comptroller of the Currency proposed to
amend its risk-based capital rules to refine the treatment of derivative
financial instruments for capital computation purposes. The proposed
rule would revise and expand the set of off-balance sheet credit
conversion factors used to calculate the potential future exposure of
derivative contracts and permit banks to net multiple derivative
contracts that are subject to a qualifying bilateral netting contract
when calculating the potential future credit exposure. The Corporation
does not believe that the proposed rule, if adopted, would have a
material effect on its risk-based capital adequacy ratios.
In addition to the risk-based capital requirements described above,
the Corporation must maintain a minimum leverage ratio of 3% (defined as
Tier 1 capital divided by consolidated quarterly average total assets).
Bank holding companies that are experiencing significant growth or are
actively seeking acquisitions are expected to maintain a leverage ratio
of 4% to 5%. Information concerning the Corporation's risk-based
capital ratios may be found in "Management's Discussion and Analysis -
Risk-Based Capital/Leverage Guidelines" on pages 50 and 51 of the 1994
Annual Report to Stockholders which is hereby incorporated herein by
reference.
The Federal Deposit Insurance Corporation Improvement Act of 1991
("FDICIA"), further requires the federal bank regulatory agencies bi-
annually to review risk-based capital standards to ensure that they
adequately address interest rate risk, concentration of credit risk and
risks from non-traditional activities. FDICIA also revised bank
regulatory structures embodied in several other federal banking
statutes, required the federal banking regulators to set five capital
levels ranging from "well capitalized" to "critically undercapitalized",
authorized federal banking regulators to intervene in connection with
the deterioration of a bank's capital level, placed limits on real
estate lending and tightened audit requirements.
The federal International Lending Supervision Act of 1983 (the
"Act") requires banking institutions to maintain a special reserve out
of current income against certain international assets. A special
reserve will be required if the relevant bank regulatory agency
determines that the quality of the assets has been impaired by a
protracted inability of public or private borrowers in a foreign country
to make payments on their external indebtedness or that no definite
prospects exist for orderly restoration of debt service. To date, the
foregoing provisions of the Act have not affected the reserves
maintained by the Corporation. It is not possible to predict the extent
to which the provisions of the Act requiring the establishment of
special reserves will affect the Corporation's earnings in the future.
13
Holding Company and Bank Liability
Under longstanding policy of the FRB, a bank holding company is
expected to act as a source of financial strength for its subsidiary
banks and to commit resources to support such 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.
A bank holding company could be liable under certain provisions of
FDICIA for the capital deficiencies of a subsidiary bank that does not
satisfy applicable minimum regulatory capital requirements. In such a
case, banking regulators will require the subsidiary bank to develop a
capital restoration plan approved by the appropriate bank regulators
and the bank's compliance with such plan must be guaranteed by its
parent holding company. The liability of the parent holding company
under any such guarantee is limited to the lesser of 5% of the bank's
assets at the time it became "undercapitalized" or the amount needed to
comply with the capital plan and is accorded a priority, in the event of
the bankruptcy of the parent holding company, over the parent's general
unsecured creditors.
It should be noted that the Financial Institutions Reform, Recovery
and Enforcement Act of 1989 ("FIRREA") provides for cross-guarantees of
the liabilities of insured depository institutions pursuant to which any
bank or savings association subsidiary of a bank holding company may be
required to reimburse the FDIC for any loss or anticipated loss to the
FDIC that arises from a default of any of such holding company's
subsidiary banks or savings associations or for assistance provided by
the FDIC to such an institution in danger of default. The domestic
banking subsidiaries of the Corporation are subject to such a
cross-guarantee.
Finally, legislation enacted as part of the Omnibus Budget
Reconciliation Act of 1993 provides for a preference in right of payment
of certain claims realized in the "liquidation or other resolution" of
any depository institution insured by the FDIC. That statute requires
claims to be paid in the following order of priority: (i) administrative
expenses of the receiver; (ii) any deposit liability of the institution;
(iii) any other general or senior liability of the institution (which is
not an obligation described in clause (iv) or (v) below); (iv) any
obligation subordinated to depositors or general creditors (which is not
an obligation described in clause (v) below); and (v) any obligation to
shareholders or members (including any depository institution holding
company or any shareholder or creditor of such company). For purposes of
the statute, deposit liabilities would include any deposit payable at an
office of the insured depository institution located in the United
States, but would not include any deposit payable at an office outside
the United States or any international banking facility deposit.
Deposit Insurance
FDICIA also revised sections of the Federal Deposit Insurance Act
affecting bank regulation, deposit insurance and funding of the Bank
Insurance Fund ("BIF") administered by the FDIC. Among the significant
revisions that could have an impact on the Corporation is the authority
granted the FDIC to impose special assessments on insured depository
institutions to repay FDIC borrowings from the United States Treasury or
other sources and to establish semiannual assessments on BIF member
banks so as to maintain the BIF at the designated reserve ratio defined
in FDICIA.
Commencing January 1, 1993, the FDIC implemented regulations which
increased the deposit insurance assessment for certain members of the
BIF and adopted a transitional risk-based deposit insurance assessment
system. Currently, each insured depository institution pays an FDIC
assessment based on such depository institution's assessment risk
classification. The assessment risk classification is dependant on
whether a depository institution is considered "well capitalized",
"adequately capitalized" or "undercapitalized" and on certain
supervisory evaluations of the institution as "healthy", cause for
"supervisory concern" and cause for "substantial supervisory concern"
(designated as
14
supervisory subgroups "A", "B" and "C", respectively, for reference
purposes). For purposes of the FDIC's deposit insurance assessment
rules, an institution will be considered "well capitalized" if it has a
total risk-based capital ratio of at least 10%, a Tier 1 risk-based
capital ratio of at least 6% and a Tier 1 leverage ratio of at least 5%;
"adequately capitalized" if it has a total risk-based capital ratio of
at least 8%, a Tier 1 risk-based capital ratio of at least 4% and a Tier
1 leverage ratio of at least 4%; and "undercapitalized" if it does not
meet either of the foregoing standards. Under the current assessment
rate schedule , a well capitalized bank in subgroup "A"is assessed at
the rate of 23 cents per $100 of domestic deposits. In early 1995, the
FDIC proposed to reduce the assessment paid by "well capitalized" banks
in subgroup A to 4 cents per $100 of domestic deposits. It is expected
that this reduction, if approved, will be effective in the second-half
of 1995.
FDICIA generally limits the FDIC's ability to protect all deposits,
including those exceeding the $100,000 insurance limit and foreign
deposits. The legislation also provides that only "well capitalized
banks" and "adequately capitalized banks" can use brokered deposits.
"Adequately capitalized banks" can accept brokered deposits only if they
first obtain waivers from the FDIC and they cannot pay above-market
rates on such deposits. "Well capitalized banks" and "adequately
capitalized banks" can insure accounts on a pass-through basis
established under certain qualified employee benefit plans.
Miscellaneous
To date, the banking regulators have issued proposed guidelines and
regulations and in some cases adopted final regulations under FDICIA
covering (i) real estate lending standards, requiring depository
institutions to develop and implement internal procedures, including
setting specific loan-to-value ratios for various types of real estate
loans; (ii) revisions to the risk-based capital rules to account for
interest rate risk, concentration of credit risk, and the risks posed by
"non-traditional activities"; (iii) rules requiring depository
institutions to develop and implement internal procedures to evaluate
and control credit and settlement exposure to their correspondent banks;
(iv) risk-based FDIC insurance premiums; (v) rules prohibiting, with
certain exceptions, state banks from making equity investments of the
types and amount not permissible for national banks; and (vi) guidelines
addressing various "safety and soundness" issues, including operations
and managerial standards, standards for asset quality, earnings and
stock valuations, and compensation standards for the officers,
directors, employees and principal shareholders of the depository
institution. It is anticipated that such rules and regulations and
other provisions of FDICIA will result in increased costs for the
banking industry and in more limitations on activities by all but the
most well capitalized depository institutions.
Dividends
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 Comptroller of the Currency 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 Comptroller of the Currency also has authority
under the Financial Institutions Supervisory Act to prohibit a national
bank from engaging in what, in his 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. Similarly, in respect of
RBS, the approval of the Superintendent of Banks is required if the
total of all dividends declared exceeds net profits, as defined. In
addition, the agreement pursuant to which the Corporation acquired RBS
provides that dividends may not be paid by RBS if its primary or total
capital is, or as a result of any such dividend payment would be, below
the minimum amounts required by applicable regulations.
15
Based on the Bank's and RBS' financial position at December 31,
1994, the Bank may declare dividends in 1995, and RBS may declare
aggregate dividends in 1995, without regulatory approval, of
approximately $308 million and $24 million, respectively, plus an
additional amount equal to their respective net profits for 1995 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, RNYSC may
not pay cash dividends if doing so would reduce the company's net
capital to less than 5 percent of its aggregate debits.
EFFECT OF GOVERNMENTAL POLICIES
The earnings of the Corporation, the Bank and RBS are affected not
only by general economic conditions, both domestic and foreign, but also
by legislative and regulatory changes which, among other things, affect
lending rates and costs and by the monetary and fiscal policies of the
United States government, its agencies, including the FRB, and of
foreign governments and international agencies.
The policies of the various governmental authorities influence to
a significant extent the growth of bank loans, investments and
deposits. The nature and impact of future changes in such monetary
and fiscal policies on the Corporation's, the Bank's and RBS' future
business and earnings are not predictable.
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 or
will house the Bank's or its subsidiaries' offices in those locations.
The Bank and RBS also own 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 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 1994.
16
Item 10. Directors and Executive Officers of the Corporation
(a) Names, Ages and Positions
The names, ages and positions of the executive officers of the
Corporation are as follows:
<TABLE>
<CAPTION>
Position with Position with
Name Age the Corporation* the Bank*
---- --- --------------- -------------
<S> <C> <C> <C>
Walter H. Weiner 64 Chairman of the Board and Chairman of the Board and
Chief Executive Officer Chief Executive Officer
Jeffrey C. Keil 51 President Vice Chairman of the Board
Cyril S. Dwek 58 Vice Chairman Vice Chairman of the Board
Ernest Ginsberg 64 Vice Chairman Vice Chairman of the Board
Peter J. Mansbach 54 Chairman of the Executive Chairman of the Executive
Committee Committee
Vito S. Portera 52 Vice Chairman Vice Chairman of the Board
Dov C. Schlein 47 Vice Chairman President
Nathan Hasson 49 Vice Chairman Vice Chairman of the Board
and Treasurer
------------------------
* Each of the above-named officers is a director of both the Corporation and the Bank.
</TABLE>
Each of the above executive officers is a member of the respective
Management Executive Committees of the Corporation and the Bank. The
term of each such 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,
owning approximately 28.9% of the Corporation's outstanding Common
Stock, as of March 8, 1995, through his ownership of all the outstanding
shares of Saban S.A., which owns directly and indirectly 15,124,662
shares of the Corporation's Common Stock (including shares held through
its wholly-owned subsidiary, RNYC Holdings Limited, a Gibraltar bank
holding company), and of another corporation which owns 29,776 shares
of the Corporation. Mr. Safra has received the approval of the FRB,
which expires on April 28, 1995, unless extended, to purchase through
Saban and RNYC Holdings Limited, up to an additional two million shares
of the Corporation's Common Stock. The number of shares owned by Mr.
Safra as of March 8, 1995, includes 91,850 shares purchased pursuant to
the FRB approval. The advice of Mr. Safra, as the principal
stockholder, is often sought by the Corporation with respect to major
policy decisions and other significant matters.
(b) Biographies of Corporation's Executive Officers
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 and a director of RBS for over five years.
Mr. Weiner also serves as a member of RBS' Compensation and Benefits,
Credit Review and Executive Committees.
17
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
and a director of RBS for over five years. Mr. Keil also serves as a
member of RBS' Executive Committee.
Cyril S. Dwek has been a director of the Corporation and the Bank
and a Vice Chairman of the Corporation and a Vice Chairman of the Board
of the Bank for over five years. Mr. Dwek has been a director of RBS
since April 1990.
Ernest Ginsberg 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. Until July 1990, he was General Counsel of the
Bank for over five years and until April 1994, he was General Counsel
of the Corporation for over five years. Mr. Ginsberg has been a
director of RBS and a member of its Executive Committee 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.
Vito S. Portera has been a director and a Vice Chairman of the
Corporation for over five years. He has been a director and a Vice
Chairman of the Board of the Bank and RBS 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.
Dov C. Schlein has been a director and a Vice Chairman of the
Corporation and a director and President of the Bank and a director of
RBS for over five years. Mr. Schlein also serves as a member of RBS'
Compensation and Benefits and Executive Committees.
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 of the Bank for over five years. He also serves
as Treasurer of the Bank and RBS. Mr. Hasson has been a director of RBS
since April 1990.
PART II
Item 5. Market for the Registrant's Common Equity and Related
Stockholder Matters
Information on the market prices of the Corporation's Common Stock,
dividend payments on the Common Stock, the number of stockholders of
record and related matters may be found in the section entitled
"Security Market Information" on page 52 in the Corporation's 1994
Annual Report to Stockholders which is hereby incorporated herein by
reference.
Item 6. Selected Financial Data
Data for each of the years in the five year period ended December
31, 1994 on the Corporation's operating income, net income, including
earnings per share data, assets, long-term debt, dividends and other
relevant matters are presented in the section entitled "Selected
Financial Data" on pages 90 and 91 in the Corporation's 1994 Annual
Report to Stockholders which is hereby incorporated herein by reference.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The section entitled "Management's Discussion and Analysis" on
pages 28 through 52 in the 1994 Annual Report to Stockholders is hereby
incorporated herein by reference.
18
Item 8. Financial Statements and Supplementary Data
The financial statements of the Corporation as of December 31, 1994
and 1993 and for each of the years in the three year period ended
December 31, 1994 are found on pages 53 through 56 in the 1994 Annual
Report to Stockholders and, together with the accompanying notes thereto
found on pages 58 through 84 and the Independent Auditors' Report on
Financial Statements found on page 85 in such report, are hereby
incorporated herein by reference. Selected quarterly data presented on
page 88 in such Annual Report in the section entitled "Selected
Financial Data" are also hereby incorporated herein by reference.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
PART III
Item 10. Directors and Executive Officers of the Registrant
See Item 10 in Part I of this Report for information on executive
officers of the Corporation. Information concerning the directors of
the Corporation and nominees for election as directors thereof is
presented on pages 2 through 5 in the section entitled "Election of
Directors" in the Corporation's definitive Proxy Statement dated March
15, 1995 for its 1995 Annual Meeting of Stockholders filed pursuant to
Section 14 of the Securities Exchange Act of 1934, which is hereby
incorporated herein by reference.
Item 11. Executive Compensation
Information concerning compensation of executive officers of the
Corporation is presented in the section "Compensation of Directors and
Executive Officers - Executive Officers" found on pages 7 through 16
under "Election of Directors" in the Corporation's definitive Proxy
Statement dated March 15, 1995 for its 1995 Annual Meeting of
Stockholders filed pursuant to Section 14 of the Securities Exchange Act
of 1934, which is hereby incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management
Information concerning the number of shares of Common Stock of the
Corporation beneficially owned by certain owners and management is
presented on pages 2 through 5 in the section "Election of Directors"
and page 19 in the section entitled "Ownership of Voting Securities" in
the Corporation's definitive Proxy Statement dated March 15, 1995 for
its 1995 Annual Meeting of Stockholders filed pursuant to Section 14 of
the Securities Exchange Act of 1934, which is hereby incorporated herein
by reference.
Item 13. Certain Relationships and Related Transactions
Information concerning transactions between the Corporation and
executive officers and directors and certain related persons is
presented in the section "Transactions with Management and Related
Persons" found on pages 17 and 18 under "Election of Directors" in the
Corporation's definitive Proxy Statement dated March 15, 1995 for its
1995 Annual Meeting of Stockholders filed pursuant to Section 14 of the
Securities Exchange Act of 1934 and in Note 18 of the Notes to
Consolidated Financial Statements found on page 81 of the 1994 Annual
Report to Stockholders, both of which are hereby incorporated herein by
reference.
19
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form
8-K
<TABLE>
<CAPTION>
(a) Financial Statements, Financial Statement Schedules and Exhibits
(i) Financial Statements of Republic New York Corporation and Subsidiaries, included in the Annual Report to
Stockholders for the year 1994 (on pages indicated below) and incorporated herein by reference:
Page
<S> <C>
Consolidated Statements of Condition, December 31, 1994 and 1993. . . . . . . . 53
Consolidated Statements of Income, Years ended December 31, 1994, 1993
and 1992. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
Consolidated Statements of Changes in Stockholders' Equity, Years ended
December 31, 1994, 1993 and 1992. . . . . . . . . . . . . . . . . . . . . . . 55
Consolidated Statements of Cash Flows, Years ended December 31, 1994,
1993 and 1992 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
Notes to Consolidated Financial Statements. . . . . . . . . . . . . . . . . . . 58
Independent Auditors' Report on Financial Statements. . . . . . . . . . . . . . 85
(ii) Financial Statement Schedules of Republic New York Corporation (Parent Company Only) are shown in the notes to
the respective financial statements. See Note 20 of the Notes to Consolidated Financial Statements on pages 83 and 84 in
the 1994 Annual Report to Stockholders which is hereby incorporated herein by reference.
</TABLE>
(iii) Exhibits
3(a) Articles of Incorporation as amended through April 21, 1993.
(b) By-Laws of the Corporation as amended through July 20, 1988.
(1)
4(a) Articles Supplementary creating a series of Cumulative
Preferred Stock, Floating Rate Series B dated
March 7, 1984. (2)
(b) Articles Supplementary creating a series of Dutch
Auction Rate Transferable Securities, Preferred Stock, Series
A and Series B, dated March 27, 1986. (2)
(c) Articles Supplementary creating a series of Money
Market Cumulative Preferred Stock, dated July 22, 1987. (2)
(d) Articles Supplementary creating a series of Remarketed
Preferred Stock, dated July 29, 1987. (2)
(e) Articles Supplementary creating a series of $3.375
Cumulative Convertible Preferred Stock, dated May 14,
1991. (2)
(f) Articles Supplementary creating a series of $1.9375
Cumulative Preferred Stock, dated February 26, 1992. (2)
(g) Articles Supplementary creating a series of Adjustable
Rate Cumulative Preferred Stock, Series D, dated
May 23, 1994. (13)
(h) Indenture, dated as of May 1, 1986, between Republic
New York Corporation and Manufacturers Hanover
Trust Company, as Trustee, for the issuance of the
Corporation's 8 3/8% Notes Due 1996. (3)
(i) Indenture dated January 15, 1987 between Republic
New York Corporation and Bankers Trust Company,
as Trustee, for the issuance of the Corporation's
Putable Capital Notes. (4)
(j) Standard Multiple - Series Indenture Provisions,
dated as of May 15, 1986. (5)
(k) Senior Indenture, dated as of May 15, 1986, between
Republic New York Corporation and Manufacturers
Hanover Trust Company, as Trustee. (5)
(l) First Supplemental Indenture to Senior Indenture,
dated as of May 15, 1991. (6)
(m) Second Supplemental Indenture to Senior Indenture,
dated as of April 15, 1993. (7)
20
(n) Subordinated Indenture dated as of May 15, 1986, between
Republic New York Corporation and Bankers Trust
Company, as Trustee. (8)
(o) First Supplemental Indenture to Subordinated Indenture,
dated as of May 15, 1991. (6)
(p) Second Supplemental Indenture to Subordinated Indenture,
dated as of April 15, 1993. (7)
(q) Subordinated Indenture, dated as of October 15, 1992,
between Republic New York Corporation and
Citibank, N.A., as Trustee. (9)
(r) First Supplemental Indenture to 1992 Subordinated Indenture,
dated as of April 15, 1993. (7)
(s) Form of Senior Security. (10)
(t) Form of Subordinated Security. (10)
10(a) Copy of agreement dated May 27, 1988 among Vito S.
Portera and Republic New York Corporation and
Republic National Bank of New York. * (11)
(b) Amended and Restated Deferral Agreement dated
December 31, 1993 between Walter H. Weiner and
Republic New York Corporation. * (14)
(c) Form of Amended and Restated Deferral Agreement. * (14)
(d) Form of Deferral Agreement. * (14)
(e) Performance Based Incentive Compensation Plan. (12)
11 Computation of Earnings Per Share of Common Stock.
12 Calculation of Ratios of Earnings to Fixed
Charges - Consolidated.
13 Annual Report to Stockholders for year 1994
(to the extent incorporated herein by reference).
21 Subsidiaries of the Corporation.
23 Consents of Experts and Counsel.
27 Financial Data Schedule.
* Compensation Agreement.
21
(1) Incorporated herein by reference to such Exhibit filed with the
Corporation's Annual Report on Form 10-K for its fiscal year
ended December 31, 1988 (Exhibit 3(b)).
(2) Included in Exhibit 3(a).
(3) Incorporated herein by reference to such Exhibit filed with the
Corporation's Registration Statement on Form S-3, No. 33-5074
(Exhibit 4.2).
(4) Incorporated herein by reference to such Exhibit filed with the
Corporation's Annual Report on Form 10-K for its fiscal year
ended December 31, 1987 (Exhibit 4(y)).
(5) Incorporated herein by reference to such Exhibits filed with the
Corporation's Registration Statement on Form S-3, No. 33-5804
(Exhibits 4(a) and 4(b), respectively).
(6) Incorporated herein by reference to such Exhibits filed with the
Corporation's Registration Statement on Form S-3,
No. 33-40703 (Exhibits 4(c) and 4(e), respectively).
(7) Incorporated herein by reference to such Exhibits filed with the
Corporation's Registration Statement on Form S-3, No. 33-49507,
Amendment No. 1 (Exhibits 4(d), 4(g) and 4(i), respectively).
(8) Incorporated herein by reference to such Exhibit filed with the
Corporation's Current Report on Form 8-K dated February
8, 1989 (Exhibit 4(c)).
(9) Incorporated herein by reference to such Exhibit filed with the
Corporation's Registration Statement on Form S-3, No. 33-48651,
Post-Effective Amendment No. 2 (Exhibit 4(f)).
(10) Incorporated herein by reference to such Exhibits filed with the
Corporation's Current Report on Form 8-K dated August 6, 1992
(Exhibits 4(h) and 4(i), respectively).
(11) Incorporated herein by reference to such Exhibits filed with the
Corporation's Annual Report on Form 10-K for its fiscal
year ended December 31, 1991 (Exhibit 10(b)).
(12) Incorporated herein by reference to such Exhibit filed with the
Corporation's definitive Proxy Statement dated March 16, 1994
(Exhibit 99).
(13) Incorporated herein by reference to such Exhibit filed with the
Corporation's Current Report on Form 8-K dated May 23, 1994
(Exhibit 4(u)).
(14) Incorporated herein by reference to such Exhibits filed with the
Corporation's Annual Report on Form 10-K for its fiscal
year ended December 31, 1993 (Exhibits 10(b), 10(c)
and 10(d), respectively).
(b) No reports on Form 8-K were filed during the last quarter of
the annual period covered by this Report.
22
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 31, 1995 REPUBLIC NEW YORK CORPORATION
By: 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
Director and Chairman
of the Board
WALTER H. WEINER (Principal Executive
------------------------- Officer) March 31, 1995
Executive Vice President
and Comptroller
(Principal Financial and
JOHN D. KABERLE, JR. Accounting Officer) March 31, 1995
-------------------------
KURT ANDERSEN Director March 31, 1995
-------------------------
ALBERT S. CORWEN Director March 31, 1995
-------------------------
CYRIL S. DWEK Director March 31, 1995
-------------------------
ERNEST GINSBERG Director March 31, 1995
-------------------------
NATHAN HASSON Director March 31, 1995
-------------------------
MORRIS HIRSCH Director March 31, 1995
-------------------------
JEFFREY C. KEIL Director March 31, 1995
-------------------------
PETER KIMMELMAN Director March 31, 1995
-------------------------
LEONARD LIEBERMAN Director March 31, 1995
-------------------------
PETER J. MANSBACH Director March 31, 1995
-------------------------
WILLIAM C. MACMILLEN, JR. Director March 31, 1995
-------------------------
MARTIN F. MERTZ Director March 31, 1995
-------------------------
JAMES L. MORICE Director March 31, 1995
-------------------------
23
------------------------- Director
(E. Daniel Morris)
JANET L. NORWOOD Director March 31, 1995
-------------------------
JOHN A. PANCETTI Director March 31, 1995
-------------------------
------------------------- Director
(Javier Perez de Cuellar)
VITO S. PORTERA Director March 31, 1995
-------------------------
WILBUR M. RABINOWITZ Director March 31, 1995
-------------------------
WILLIAM P. ROGERS Director March 31, 1995
-------------------------
DOV C. SCHLEIN Director March 31, 1995
-------------------------
------------------------- Director
(Jacques Tawil)
------------------------- Director
(Peter White)
24
EXHIBIT INDEX
EX NO. DESCRIPTION
------ -----------
11 Computation of Earnings Per Share of Common Stock
12 Calculation of Ratios of Earnings to Fixed
Charges - Consolidated
13 Annual Report to Stockholders for the 1994 (to the
extent incorporated herein by reference)
21 Subsidiaries of the Corporation
23 Consent of Experts and Counsel
27 Financial Data Schedule
<TABLE>
EXHIBIT 11
REPUBLIC NEW YORK CORPORATION AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE OF COMMON STOCK
(In thousands except per share amounts)
<CAPTION>
Year Ended December 31,
------------------------------------------------------
1994 1993 1992 1991 1990
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Primary:
Earnings:
Net income....................... $340,008 $301,205 $258,883 $227,360 $201,220
Less preferred stock dividends... (34,410) 28,415 28,386 22,733 21,043
-------- -------- -------- -------- --------
Net income applicable to
common stock................... $305,598 $272,790 $230,497 $204,627 $180,177
======== ======== ======== ======== ========
Shares:
Average number of common shares
outstanding.................... 52,736 52,466 52,204 51,852 49,726
-------- -------- -------- -------- --------
Per share of common stock:
Net income....................... $ 5.79 $ 5.20 $ 4.42 $ 3.95 $ 3.62
======== ======== ======== ======== ========
Fully Diluted:
Earnings:
Net income applicable to
common stock................... $305,598 $272,790 $230,497 $204,627 $180,177
Add dividends applicable to
convertible preferred stock.... 11,643 11,643 11,643 7,277 -
-------- -------- -------- -------- --------
Net income applicable to
common stock as adjusted...... $317,241 $284,433 $242,140 $211,904 $180,177
======== ======== ======== ======== ========
Shares:
Average number of common shares
outstanding................... 52,736 52,466 52,204 51,852 49,726
Add shares assumed issued upon
exercise of stock options..... 229 286 247 181 -
Add shares assumed issued upon
conversion of preferred stock. 3,569 3,569 3,569 2,259 -
-------- -------- -------- -------- --------
Average number of common shares
outstanding as adjusted....... 56,534 56,321 56,020 54,292 49,726
======== ======== ======== ======== ========
Per share of common stock:
Net income ...................... $ 5.61 $ 5.05 $ 4.32 $ 3.90 $ 3.62
======== ======== ======== ======== ========
<PAGE>
</TABLE>
<TABLE>
EXHIBIT 12
CALCULATION OF RATIOS OF EARNINGS TO
FIXED CHARGES -- CONSOLIDATED
<CAPTION>
Year Ended December 31,
----------------------------------------------------------
1994 1993 1992 1991 1990
---- ---- ---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Excluding Interest on Deposits
Fixed Charges:
Interest on long-term debt and
short-term borrowings............... $ 499,065 $ 467,841 $ 513,322 $ 476,672 $ 586,627
One-third of rent expense............. 14,177 10,859 10,252 6,581 8,241
---------- ---------- ---------- ---------- ----------
Total fixed charges............... $ 513,242 $ 478,700 $ 523,574 $ 483,253 $ 594,868
========== ========== ========== ========== ==========
Earnings:
Income before income taxes............ $ 492,366 $ 451,358 $ 347,269 $ 287,746 $ 223,325
Fixed charges......................... 513,242 478,700 523,574 483,253 594,868
---------- ---------- ---------- ---------- ----------
Total earnings.................... $1,005,608 $ 930,058 $ 870,843 $ 770,999 $ 818,193
========== ========== ========== ========== ==========
Ratio of earnings to fixed charges ex-
cluding interest on deposits.......... 1.96x 1.94x 1.66x 1.60x 1.38x
========== ========== ========== ========== ==========
Including Interest on Deposits
Fixed Charges:
Interest on long-term debt,
short-term borrowings and deposits.. $1,326,855 $1,157,075 $1,318,228 $1,682,661 $2,044,227
One-third of rent expense............. 14,177 10,859 10,252 6,581 8,241
---------- ---------- ---------- ---------- ----------
Total fixed charges.............. $1,341,032 $1,167,934 $1,328,480 $1,689,242 $2,052,468
========== ========== ========== ========== ==========
Earnings:
Income before income taxes............ $ 492,366 $ 451,358 $ 347,269 $ 287,746 $ 223,325
Fixed charges......................... 1,341,032 1,167,934 1,328,480 1,689,242 2,052,468
---------- ---------- ---------- ---------- ----------
Total earnings................... $1,833,398 $1,619,292 $1,675,749 $1,976,988 $2,275,793
========== ========== ========== ========== ==========
Ratio of earnings to fixed charges in-
cluding interest on deposits.......... 1.37x 1.39x 1.26x 1.17x 1.11x
========== ========== ========== ========== ==========
</TABLE>
EXHIBIT 13
[LOGO]
REPUBLIC NEW YORK CORPORATION
Annual Report
1994
Republic New York Corporation
---------------------------------------------------------------------
Financial Section
<TABLE>
<CAPTION>
Contents
-------------------------------------------------------------------------------------------------
<S> <C>
Republic New York Corporation Introduction to Management's Discussion and Analysis 28
Republic New York Corporation Management's Discussion and Analysis 29
Republic New York Corporation Consolidated Statements of Condition 53
Republic New York Corporation Consolidated Statements of Income 54
Republic New York Corporation Consolidated Statements of Changes in Stockholders' Equity 55
Republic New York Corporation Consolidated Statements of Cash Flows 56
Republic National Bank of New York Consolidated Statements of Condition 57
Republic New York Corporation Notes to Consolidated Financial Statements 58
Republic New York Corporation Independent Auditors' Report on Financial Statements 85
Republic New York Corporation Report of Management 86
Republic New York Corporation Independent Auditors' Report on Management's Assertions
Related to Internal Controls Over Financial Reporting 87
Republic New York Corporation Selected Financial Data 88
27
Republic New York Corporation
---------------------------------------------------------------------
Introduction to Management's Discussion and Analysis
The following summary of Management's Discussion and Analysis
highlights the principal activities of Republic New York Corporation (the
"Corporation") during 1994. The Corporation had another record year in
1994, reporting net income and earnings per share that were the highest
in its history.
Net income was $340.0 million in 1994 compared to $301.2 million and
$258.9 million in 1993 and 1992, respectively. Fully diluted earnings
per share increased to $5.61 in 1994, or 11.1%, above the $5.05 earned
in 1993.
The Corporation's risk-based capital ratios, which include the
risk-weighted assets and capital of Safra Republic Holdings S.A. ("Safra
Republic"), were 16.17% for Tier 1 capital and 27.49% for total capital
at December 31, 1994. 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 $33.4 billion in 1994, with
approximately 50% invested in securities of the United States 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 1994. Average loans in foreign
offices increased to $3.3 billion, representing approximately 10% of
total average interest-earning assets in 1994.
Non-accrual loans declined to $58.1 million at year end 1994, or 0.65%
of total loans outstanding, as the credit quality of the loan portfolio
improved. Non-accrual loans declined to the lowest year end level since
1986. At December 31, 1994, the allowance for possible loan losses was
$319.2 million, or 3.58% of loans outstanding and 549% of non-performing
loans.
Income from trading activities was $169.3 million in 1994, compared to
$228.2 million in 1993. A decline in derivative products activity and
foreign exchange trading income was partially offset by higher levels
of precious metals income, including the contribution from Republic Mase
Limited ("Republic Mase").
Earnings from Safra Republic, the Corporation's 48.8% owned
European-based international private banking group, were $77.4 million
in 1994, an increase of 30.1% over 1993.
The Corporation's returns on average total assets and average common
stockholders' equity, based on net income applicable to common stock,
were .74% and 15.20%, respectively in 1994.
28
Republic New York Corporation
---------------------------------------------------------------------
Management's Discussion and Analysis
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, 1994. The results of Republic Mase, which was acquired on
December 31, 1993 and accounted for as a purchase, are included from the
date of acquisition. 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 rates used for this adjustment,
which is reflected throughout this section, are 44% in 1994 and 1993 and
42% in 1992.
</TABLE>
<TABLE>
<CAPTION>
Increase (Decrease) Increase (Decrease)
------------------- -------------------
(Dollars in thousands) 1994 Amount % 1993 Amount % 1992
--------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Interest income $2,208,821 $244,415 12.4 $1,964,406 $(106,629) (5.1) $2,071,035
Interest expense 1,326,855 169,780 14.7 1,157,075 (161,153) (12.2) 1,318,228
-------------------------------------------------- ----------------------- ----------
Net interest income 881,966 74,635 9.2 807,331 54,524 7.2 752,807
Provision for loan losses 19,000 (66,000) (77.6) 85,000 (35,000) (29.2) 120,000
-------------------------------------------------- ----------------------- ----------
Net interest income after
provision for loan
losses 862,966 140,635 19.5 722,331 89,524 14.1 632,807
Other operating income 386,368 (9,104) (2.3) 395,472 93,225 30.8 302,247
Other operating expenses 721,476 86,511 13.6 634,965 79,623 14.3 555,342
-------------------------------------------------- --------------------- ---------
Income before income
taxes 527,858 45,020 9.3 482,838 103,126 27.2 379,712
-------------------------------------------------- --------------------- ---------
Income taxes 152,358 2,205 1.5 150,153 61,767 69.9 88,386
Tax equivalent
adjustment 35,492 4,012 12.7 31,480 (963) (3.0) 32,443
-------------------------------------------------- --------------------- ---------
Total applicable income
taxes 187,850 6,217 3.4 181,633 60,804 50.3 120,829
-------------------------------------------------- --------------------- ---------
Net income $ 340,008 $ 38,803 12.9 $ 301,205 $ 42,322 16.3 $ 258,883
--------------------------------------------------------------------------------------------------------------
Net income applicable to
common stock $ 305,598 $ 32,808 12.0 $ 272,790 $ 42,293 18.3 $ 230,497
--------------------------------------------------------------------------------------------------------------
</TABLE>
Net Interest Income
[Graph omitted]
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.
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 purchasing pay-fixed swaps and caps with a notional value of
$3.4 billion and final maturities ranging from 1996 to 1999.
Interest-bearing liabilities with longer term maturities were also
raised. A portion of the long-term U.S. Government securities portfo-
lio with a face value of $3.4 billion was sold, primarily during the
second quarter, and replaced with shorter term interest-earning assets.
29
[Graph omitted]
The reduction in net interest margin resulting from this program has
been partially offset by earnings attributable to the increased margin
from retail funds that have not increased in cost as rapidly as market
rates have risen. The Corporation believes that as a result of the
actions taken, net interest income is substantially insulated against
changes in the level of interest rates.
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 and contributed approximately 2.0% of interest
income for the year. The Brazilian economy has been extremely volatile
over the past decade. Currently, the underlying fundamentals of the
Brazilian economy appear sound. However, problems facing other
developing countries may have a detrimental effect on the Brazilian
economy. If the Corporation were to decrease its exposure to Brazil,
similar spreads probably could not be realized 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"
in this section.
At year end 1994 and 1993, the gross notional amount of
off-balance-sheet contracts used in asset and liability management was
approximately $9.5 billion and $8.7 billion, respectively. The market
value of these off-balance-sheet contracts was a gain of approximately
$63 million at year end 1994. At December 31, 1994, the net effect of
these hedging transactions was to decrease the net interest rate dif-
ferential by 2 basis points, compared to a decrease of 18 basis points
at year end 1993.
Net interest income increased $54.5 million, or 7%, to $807.3 million
in 1993, compared to $752.8 million in 1992. Average interest-earning
assets rose to $32.6 billion, or 9% above the $30.0 billion in 1992. The
increase in average interest-earning assets was primarily in investment
securities of U.S. Government agencies and trading account assets.
During 1993, the Corporation invested in U.S. Government agency
mortgage-backed securities, which represented 29% of average
interest-earning assets, compared to 24% in 1992. Total average
interest-bearing funds in 1993 included a $2.1 billion increase in
interest-bearing deposits in foreign offices.
The net interest rate differential was 2.48% in 1993 and 2.51% in 1992.
The primary factors that affected the rate differential in 1993 were
the Corporation's actions to fix the rates on a portion of its lia-
bilities that extended into 1994 and 1995, the addition of higher levels
of matched maturity deposits and assets at narrower spreads and the
declining yields obtained on reinvestment of scheduled and unscheduled
principal payments on mortgage loans and mortgage-backed securities.
The "Selected Financial Data" section of this Report contains
information on the Corporation's average asset and liability structure
and rates earned and paid in each of the years in the five-year period
ended December 31, 1994.
30
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.
<TABLE>
<CAPTION>
Increase (Decrease)
---------------------------------------------------------------------
1994 vs. 1993 1993 vs. 1992
-------------------------------- ----------------------------------
Average Average Average Average
(In thousands) Volume Rate Total Volume Rate Total
--------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Interest income from:
Interest-bearing deposits with
banks $ 22,288 $ 96,135 $118,423 $ (13,838) $ (75,590) $ (89,428)
Taxable securities (89,997) 114,760 24,763 130,819 (91,408) 39,411
Securities exempt from federal
income taxes 19,332 (3,949) 15,383 20,231 (18,812) 1,419
Trading account assets 2,530 (1,261) 1,269 26,988 4,551 31,539
Federal funds sold and securities
purchased under resale
agreement 14,290 9,302 23,592 1,556 (4,693) (3,137)
Loans, net of unearned income:
Domestic offices 13,942 2,569 16,511 8,783 (54,879) (46,096)
Foreign offices 48,917 (4,443) 44,474 2,819 (43,156) (40,337)
--------------------------------------------------------------------------------------------------------
Total interest on loans 62,859 (1,874) 60,985 11,602 (98,035) (86,433)
--------------------------------------------------------------------------------------------------------
Total interest income 31,302 213,113 244,415 177,358 (283,987) (106,629)
--------------------------------------------------------------------------------------------------------
Interest expense on:
Consumer and other time
deposits (10,189) 3,310 (6,879) 3,766 (80,658) (76,892)
Certificates of deposit (3,694) 7,196 3,502 (6,391) (6,338) (12,729)
Deposits in foreign offices 63,968 77,965 141,933 83,135 (109,186) (26,051)
Trading account liabilities (4,662) 6,699 2,037 5,621 (456) 5,165
Short-term borrowings 12,963 5,760 18,723 (11,178) (30,467) (41,645)
Total long-term debt 16,029 (5,565) 10,464 28,750 (37,751) (9,001)
--------------------------------------------------------------------------------------------------------
Total interest expense 74,415 95,365 169,780 103,703 (264,856) (161,153)
--------------------------------------------------------------------------------------------------------
Change in net interest income $(43,113) $117,748 $ 74,635 $ 73,655 $ (19,131) $ 54,524
--------------------------------------------------------------------------------------------------------
</TABLE>
Provision for Loan Losses
[Graph omitted]
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 contracts which create potential credit exposure and
prevailing worldwide economic conditions. The provision for loan losses
declined to $19 million in 1994, compared to $85 million in 1993 and
$120 million in 1992. Continued economic improvement in domestic and
foreign markets contributed to an enhancement in the credit quality of
the loan portfolio and a declining level of non-performing loans and
net charge-offs.
Net charge-offs were $11.4 million in 1994, compared to $13.3 million in
1993. The allowance for possible loan losses was $319.2 million at year
end 1994, or 3.58% of loans outstanding, net of unearned income, an
increase of $7.3 million from the $311.9 million at year end 1993. The
allowance for possible loan losses was $241.0 million at year end 1992.
31
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, 1994.
<TABLE>
<CAPTION>
Increase (Decrease) Increase (Decrease)
------------------- -------------------
(Dollars in thousands) 1994 Amount % 1993 Amount % 1992
-------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Trading income:
Income from precious metals $ 50,930 $ 13,020 34.3 $ 37,910 $ 15,273 67.5 $ 22,637
Foreign exchange trading income 91,028 (20,544) (18.4) 111,572 9,001 8.8 102,571
Trading account profits and
commissions 27,357 (51,385) (65.3) 78,742 66,423 * 12,319
------------------------------------------------------- ------------------- --------
Total trading income 169,315 (58,909) (25.8) 228,224 90,697 65.9 137,527
Investment securities gains, net 14,971 13,676 * 1,295 (9,937) (88.5) 11,232
Net gain (loss) on loans sold or
held for sale 1,763 2,606 * (843) (17,932) (104.9) 17,089
Commission income 57,297 6,341 12.4 50,956 13,364 35.6 37,592
Equity in earnings of affiliate 77,376 17,913 30.1 59,463 14,243 31.5 45,220
Other income 65,646 9,269 16.4 56,377 2,790 5.2 53,587
------------------------------------------------------- ------------------- --------
Total other operating income $386,368 $ (9,104) (2.3) $395,472 $ 93,225 30.8 $302,247
*Exceeds 200
</TABLE>
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 increased to $50.9 million in 1994 as compared to $37.9
million in 1993 and $22.6 million in 1992. The improvement in each of
the last three years reflects increased price volatility and volume in
the precious metals markets. In addition, arbitrage activity, as
opposed to trading, contributed a substantial portion of income from
precious metals. Precious metals results in 1994 also reflect the
contribution made from a full year of operations attributable to
Republic Mase and its expanded customer base.
Republic Mase has operations in London, Sydney and Hong Kong that engage
in global wholesale trading in gold, silver, platinum and palladium
and also engages in production and inventory financing. Republic is one
of the five members of the London Gold Fixing.
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
was $91.0 million in 1994, which declined from the record level of $111.6
million experienced 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 1994; however, this
improvement was offset by lower levels of income from market-making
activities.
Trading account profits and commissions consist of income from trading
derivative products and dealing in international debt securities. 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, London and Hong Kong. The group's activities in
1994 generated trading revenues of $14.9 million, compared to $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 1994 than in 1993. This
decline was 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 1994. For additional information
related to derivative instruments see Notes 4,16 and 17 of "Notes to
Consolidated Statements".
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.
32
The Corporation realized net investment securities gains of $15.0 million in
1994, $1.3 million in 1993 and $11.2 million in 1992. Included in 1994
earnings were gains of $52.0 million realized on the sale of Argentine
equities acquired in a 1990 debt-for-equity swap and gains of $26.9 million
realized on the sale of all of the securities received in connection with
Brazil's debt restructuring. Also included in 1994 were net losses of $63.9
million, which were incurred primarily as a result of the disposition of
securities sold as part of the Corporation's asset-liability management
program. The net gains in 1992 were attributable to maturities, calls and
mandatory redemptions as well as sales made as a result of changes in the
credit worthiness of the obligor during the year. The proceeds from
securities sold were reinvested in other high quality interest-earning
assets.
Net gains on loans sold or held for sale were $1.8 million in 1994, compared
to net losses of $.8 million in 1993 and net gains of $17.1 million in 1992.
The net gains in 1994 resulted from the sale of loans of domestic, foreign
and restructuring country obligors. The net gains in 1992 were attributable
primarily to the sale of foreign currency denominated Argentine loans which
had been designated as held for sale due to the inability to exchange these
obligations for foreign currency denominated bonds.
Commission income amounted to $57.3 million in 1994, compared to $51.0
million in 1993 and $37.6 million in 1992. Commission income included fees
for the issuance of letters of credit and the creation of acceptances of
$18.9 million in 1994, $18.0 million in 1993 and $19.0 million in 1992.
Higher levels of commissions and other fee income were earned from increased
business activities in the securities brokerage subsidiary and amounted to
$6.2 million in 1994, compared to $4.6 million in 1993. Commission income
also includes fees for the collection and transfer of funds.
Fees earned from the newly-established full-service brokerage and investment
management activities contributed to a significant portion of the increase
in commission income between 1993 and 1992. Fees for the issuance of letters
of credit and the creation of acceptances were also a major source of this
income in 1993 and 1992 but with the additional revenues generated during
1993 by newly-established activities, these fees represented a smaller
percentage of total commission income in 1993 than in 1992.
Equity in earnings of affiliate was $77.4 million in 1994, compared to
$59.5 million in 1993 and $45.2 million in 1992. This income represents the
Corporation's share of the earnings of Safra Republic.
The following table presents summary information for Safra Republic for each
of the last three years.
<TABLE>
<CAPTION>
(In thousands except per share data) 1994 1993 1992
----------------------------------------------------------------------------------------------
At December 31:
<S> <C> <C> <C>
Total assets $12,510,242 $11,349,966 $10,351,859
Interest-bearing deposits with banks 5,232,408 3,660,414 3,759,581
Loans, net of unearned income 1,306,545 1,128,746 1,101,451
Allowance for possible loan losses 124,774 102,204 52,376
Non-performing loans 13,454 23,190 48,777
Total deposits 9,363,840 7,344,562 6,897,172
Total shareholders' equity 1,246,353 1,280,755 1,131,747
For the year:
Net interest income $ 224,478 $ 221,188 $ 189,268
Provision for loan losses 12,000 80,987 62,325
Other operating income 91,376 114,400 84,776
Other operating expenses 136,044 124,887 116,635
Net income 158,575 121,595 92,466
Earnings per common share 8.94 6.87 5.22
Average common shares outstanding 17,738 17,703 17,709
----------------------------------------------------------------------------------------------
</TABLE>
For additional information on Safra Republic and its relationship with
the Corporation see Note 7 of "Notes to Consolidated Financial Statements".
Other income in 1994 was $65.6 million, 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, after deducting a $4.0 million loss
on the early extinguishment of $234 million principal amount of long-term
debt. Excluding the effect of the debt extinguishments, other income
increased 5% in 1994 and 13% in 1993 over the respective prior year. Other
income consists of service charges on deposit accounts, trust department
income, other income from factoring activities, fees for precious metals
33
storage and correspondent securities clearing fees. Included in 1992 are
penalty fees charged on the prepayment of commercial mortgages and the
receipt of a one-time fee of $3.2 million related to a lease termination
payment.
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,
1994.
<TABLE>
<CAPTION>
Increase (Decrease) Increase (Decrease)
------------------- -------------------
(Dollars in thousands) 1994 Amount % 1993 Amount % 1992
------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Salaries and employee benefits $395,533 $48,026 13.8 $347,507 $53,376 18.1 $294,131
Occupancy, net 55,425 7,264 15.1 48,161 2,860 6.3 45,301
Other expenses 270,518 31,221 13.0 239,297 23,387 10.8 215,910
-------------------------------------------------------- ------------------- --------
Total other operating expenses $721,476 $86,511 13.6 $634,965 $79,623 14.3 $555,342
------------------------------------------------------------------------------------------------------------
</TABLE>
Total operating expenses in 1994 were $721.5 million and included a one-time
restructuring charge of $17.0 million. The restructuring charge was the
result of a management decision to de-emphasize certain business activities
including activities of Republic New York Securities Corporation, the
Corporation's securities subsidiary. In addition, in the fourth quarter of
1994, the Corporation converted its financial reporting in Hong Kong and
Singapore to a current basis. The conversion resulted in a one-time increase
to 1994 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 Republic Mase, SafraCorp
California and Bank Leumi Le Israel (Canada), as well as the addition of
staff in trading, domestic private banking and various support areas.
Total operating expenses increased to $635.0 million in 1993 from $555.3
million in 1992. Of this increase, approximately $50.0 million was associated
with investments in new businesses, including full service brokerage,
derivative products, investment management and retail branch expansion in the
New York metropolitan area, Florida and California, as well as growth in
consumer lending, primarily residential mortgages and credit card
operations.
Salaries and employee benefits were $395.5 million in 1994, $347.5 million
in 1993 and $294.1 million in 1992. Excluding $14.8 million of salaries and
employee benefits related to the 1994 restructuring charge, year to year,
these expenses increased 10% in 1994 and 18% in 1993. 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. The 1993 increase in staff expense was attributable to
additions to staff in the trading and investment management areas and to
higher levels of incentive-based compensation resulting primarily from
increased revenues earned in trading areas.
Occupancy costs were $55.4 million in 1994, compared to $48.2 million in 1993
and $45.3 million in 1992. The 1994 increase is primarily attributable to the
new business areas mentioned above and additional costs incurred for home
office expansion. The increase in 1993 was primarily due to the additional
costs of occupying newly-acquired retail branches, as well as general
increases in operating existing premises.
All other expenses were $270.5 million in 1994, $239.3 million in 1993 and
$215.9 million in 1992. Communication and equipment expenses represent a
substantial portion of other expenses and amounted to $76.1 million, $61.2
million and $54.7 million in 1994,1993 and 1992, respectively. Also,
professional fees, consisting of consulting, legal and audit fees, rose to
$35.7 million in 1994 from $31.9 million in 1993 and $23.1 million in 1992.
All other expenses include premiums for deposit insurance paid to the Federal
Deposit Insurance Corporation. This expense has been relatively stable in
each of the last three years and was $22.6 million in 1994, $23.1 million in
1993 and $22.8 million in 1992. The Federal Deposit Insurance Corporation has
issued for comment a proposed reduction in bank deposit insurance premiums
from 23 cents to 4 cents per $100 of insured deposits for well capitalized
institutions. It is expected that this reduction if approved, will be
effective in the second-half of 1995. For the period covering the first six
months of 1995, there will be no change in the rate paid by the Corporation's
subsidiary banks for deposit insurance.
34
Costs applicable to other real estate owned were $2.7 million in 1994,
compared to $2.1 million in 1993 and $7.7 million in 1992. 1992 reflected
an accounting standard requirement in the valuation of other real estate owned
to include the estimated costs of disposition. Those selling expenses
were partially reduced by gains from the sale of properties during the year.
In January 1995, the Corporation launched an intensive review of its
operations with a view to increasing its productivity. The objective is
to improve the efficiency of the Corporation's operations. The evaluation
process will not be completed until the second quarter of 1995 when
implementation of the review's recommendations will begin. Accordingly,
determination of the anticipated cost savings, additional revenues and any
related restucturing charges cannot be made until the second quarter of 1995.
In l994, the Corporation was granted a license to establish a Mexican banking
subsidiary that will be headquartered in Mexico City. This subsidiary will
operate as Republic National Bank of New York (Mexico), S.A., with an
initial capitalization of 340 million pesos, equivalent to approximately U.S.
$60 million at recent rates. This subsidiary will engage in activities
consistent with those of "Mexican multiple banks", including deposit gathering
from the public and granting commercial and individual loans. It is
anticipated that this subsidiary will commence operations in the second
quarter of 1995.
SFAS No. 116, "Accounting for Contributions Received and Contributions Made",
is effective for fiscal years beginning after December 15, 1994. The SFAS
requires that promises to make charitable contributions be recognized in
the period that the funds are unconditionally pledged. The Corporation
adopted this FSAS, effective January 1, 1995, which resulted in a charge to
earnings of $7.5 million.
Total Applicable Income Taxes
[Graph omitted]
Total applicable income taxes, which give effect to the taxable equivalent
adjustment, increased $6.2 million to $187.9 million in 1994, following an
increase of $60.8 million between 1993 and 1992. The ratio of total
applicable income taxes to income before taxes was 36% in 1994, 38% in 1993
and 32% in 1992. The lower effective income tax rate in 1994 was
attributable to the fluctuations in the level of income subject to federal,
state and local income taxes. The 1993 effective income tax rate increase,
when compared to 1992, was a result of the higher level of income subject to
income taxes, the adoption of SFAS No. 109, "Accounting for Income Taxes",
on January l, 1993, and the effect of applying a higher U.S. statutory rate
in accordance with the Omnibus Budget Reconciliation Act of 1993.
Net Income Applicable to Common Stock
Net income applicable to common stock was a record $305.6 million in 1994,
compared to $272.8 million in 1993 and $230.5 million in 1992. On a fully
diluted basis, earnings per common share were $5.61 in 1994, $5.05 in 1993
and $4.32 in 1992. Dividends declared on the Corporation's issues of
preferred stock and the average annual rates paid were as follows: $34.4
million at 5.46% in 1994; $28.4 million at 5.11% in 1993 and $28.4 million
at 5.25% in 1992.
Liability and Asset Management
Changes in the level of interest rates and the relationship between rates
can effect 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 both 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.
35
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 to the funding base.
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 swaps, caps, options and forwards in managing 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 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. The model's output projects the variance in net
interest income over the next year, given the assumptions used. 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 presented to the
Management Asset and Liability Committee and to the Board of Directors at
least monthly.
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, 1994 and 1993. 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.
<TABLE>
<CAPTION>
Repricing Period at December 31, 1994
-------------------------------------------------------------
After one After three After seven
Within year but years but years but After
one within within within ten
(In millions) year three years seven years ten years years
------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
ASSET/(LIABILITY)
Interest rate sensitivity gap $ (584) $ 889 $(1,258) $ 1,630 $(677)
------------------------------------------------------------------------------------------------------------
ASSET/(LIABILITY)
Cumulative interest rate sensitivity gap $ (584) $ 305 $ (953) $ 677 $ -
------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------
<CAPTION>
Repricing Period at December 31, 1993
-------------------------------------------------------------
After one After three After seven
Within year but years but years but After
one within within within ten
(In millions) year three years seven years ten years years
------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
ASSET/(LIABILITY)
Interest rate sensitivity gap $(1,025) $(1,461) $ 1,712 $ 1,397 $(623)
------------------------------------------------------------------------------------------------------------
ASSET/(LIABILITY)
Cumulative interest rate sensitivity gap $(1,025) $(2,486) $ (774) $ 623 $ -
------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------
</TABLE>
36
Changes in interest sensitivity gap positions from 1993 to 1994 are
reflective of the Corporation's program to fix its liability costs over
a five-year time horizon. As a result, the 4-7 year repricing period gap
position has decreased by approximately $3.0 billion. The effect of the sale
of $3.4 billion of long-term U.S. Government agency securities on the
long-term gap position, was counteracted by sharp decreases in
mortgage-backed security prepayment patterns.
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 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.
<TABLE>
<CAPTION>
Due in less Due in one Due after
(Dollars in millions) than one year thru five years five years Total
----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Receive fixed swaps:
Notional amount $ 250 $ 61 $1,175 $1,486
Weighted average receive rate 6.17% 10.47% 7.34% 7.27%
Weighted average pay rate 5.79% 9.19% 5.81% 5.95%
Pay fixed swaps:
Notional amount $1,761 $1,640 $ 118 $3,519
Weighted average receive rate 5.89% 6.15% 7.83% 6.08%
Weighted average pay rate 5.50% 7.55% 8.16% 6.54%
Forward contracts:
Notional amount $ - $ 975 $ 155 $1,130
Interest rate caps purchased:
Notional amount $ 111 $2,542 $ 250 $2,903
Other interest rate swaps:
Notional amount $ 25 $ 77 $ 108 $ 210
Cross-currency swaps:
Notional amount $ 204 $ 84 $ - $ 288
----------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------
</TABLE>
Liability Management
[Graph ommitted]
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 comprises metropolitan New York City, Florida and California
branch systems of Republic National Bank of New York (the "Bank"),
Republic Bank for Savings ("RBS") and Republic Bank California N.A.("RBC").
In addition to its New York City branches, RBS also has a retail operation
in south central Florida with eight branches. RBC is an independent
banking subsidiary that services the California market with three banking
offices in Los Angeles County that focus on domestic private banking and
mortgage banking. These customers invest in a diverse mix of retail time
and savings deposits of both short-term and long-term maturities. The
institutional area represents deposits from 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.
During 1994, the Corporation invested 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.
In 1993, the Corporation expanded its presence in Canada with the
acquisition of Bank Leumi Le Israel (Canada) by Republic National Bank of
New York (Canada). This transaction provided entry into the Toronto market
with a new branch and increased existing operations in Montreal from two
branches to three.
37
The following table sets forth the Corporation's deposit structure at
December 31, in each of the last three years.
<TABLE>
<CAPTION>
(In thousands) 1994 1993 1992
---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Domestic offices:
Noninterest-bearing deposits:
Individuals, partnerships and corporations $ 1,445,545 $ 1,188,773 $ 993,244
Foreign governments and official institutions 1,085 912 1,996
U.S. Government and states and political subdivisions 18,602 21,540 8,583
Banks 115,542 86,030 l07,749
Certified and official checks 120,893 130,263 124,879
---------------------------------------------------------------------------------------------------------------
Total noninterest-bearing deposits 1,701,667 1,427,518 1,236,451
---------------------------------------------------------------------------------------------------------------
Interest-bearing deposits:
Individuals, partnerships and corporations 3,857,533 3,653,O47 4,190,729
Savings and NOW accounts 2,684,499 2,823,010 2,687,43l
Money market accounts 1,940,605 2,192,113 2,228,807
Deposit notes 50,000 50,000 50,000
All other 1,925 6,627 7,737
---------------------------------------------------------------------------------------------------------------
Total interest-bearing deposits 8,534,562 8,724,797 9,164,704
---------------------------------------------------------------------------------------------------------------
Total deposits in domestic offices 10,236,229 10,152,315 10,401,155
---------------------------------------------------------------------------------------------------------------
Foreign offices:
Noninterest-bearing deposits 114,503 135,251 79,262
---------------------------------------------------------------------------------------------------------------
Interest-bearing deposits:
Deposits of individuals, partnerships and corporations 7,179,880 6,253,798 7,839,792
Banks located in foreign countries 4,702,972 6,142,823 2,661,277
Foreign governments and official institutions 492,418 l17,063 120,70l
---------------------------------------------------------------------------------------------------------------
Total interest-bearing deposits 12,375,270 12,513,684 10,621,770
---------------------------------------------------------------------------------------------------------------
Total deposits in foreign offices 12,489,773 12,648,935 10,701,032
---------------------------------------------------------------------------------------------------------------
Total deposits $22,726,002 $22,801,250 $21,102,187
---------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------
</TABLE>
The following table presents the maturity distribution at December 31, 1994,
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 table
above.
<TABLE>
<CAPTION>
Certificates of Deposit
and Deposit Notes Other Time Deposits
----------------------- -------------------
(Dollars in thousands) Amount % Amount %
------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Due in 90 days and less $ 546,987 51 $907,732 100
Due in 91-180 days 117,839 11 - -
Due in 181-360 days 89,645 8 - -
Due in over 360 days 321,904 30 - -
------------------------------------------------------------------------------------
Total $1,076,375 100 $907,732 100
------------------------------------------------------------------------------------
</TABLE>
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 cross-border deposits placed by over 25,000
individuals and foreign banks, in both domestic and foreign branch offices
and foreign banking subsidiaries. This customer base is a stable source of
funding for the Corporation. Total average deposits in foreign offices rose
to $12.2 billion in 1994, after increasing to $10.8 billion in 1993 from $8.6
billion in 1992. As a percentage of total average deposits, including both
interest-bearing and non-interest bearing accounts, this source of funds
increased to 55% in 1994 from 51% in 1993 and 46% in 1992. In each of the
last two years the Corporation relied more on foreign office deposits as a
source of funds.
38
The following table distributes, by type, the Corporation's
foreign deposits at December 3l, 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.
<TABLE>
<CAPTION>
(In thousands) 1994 1993 1992
-----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Foreign deposits:
Deposits of individuals, partnerships and corporations $ 7,725,714 $ 6,755,821 $ 8,344,276
Banks and other financial institutions 4,824,135 6,281,266 2,751,181
Foreign governments and official institutions 493,860 118,387 122,257
Other deposits 84,584 170,230 362,302
-----------------------------------------------------------------------------------------------------------
Total foreign deposits $13,128,293 $13,325,704 $11,580,016
-----------------------------------------------------------------------------------------------------------
</TABLE>
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 unrealized losses related
to interest rate swaps, options and other derivative financial instrument
contracts and related premiums received that are utilized in trading
activities.
Trading account liabilities were $2.1 billion at year end 1994, compared to
$177 million in 1993. This increase is attributable primarily to the adoption
on January 1, 1994, of Financial Accounting Standards Board Interpretation
No. 39, "Offsetting of Amounts Related to Certain Contracts", ("FIN No. 39").
This interpretation requires, among other things, that unrealized gains and
losses on forward, swap, option and other financial instruments contracts,
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, issuing commercial paper,
local borrowing in overseas operations and interest-bearing precious metals
balances. The Bank, from time to time, also issues short-term securities in
public offerings. In 1994, the Bank sold an issue of $1 billion principal
amount of 4.30% Notes due in 1995 to the public. The proceeds from this issue
are being used for general banking business. Short-term borrowings have been
an important source of funds in each of the last three years, averaging $5.6
billion in 1994, $5.2 billion in 1993 and $5.5 billion in 1992.
The Corporation's commercial paper is rated A-l+, F-1+ and P-l by Standard
& Poor's Corporation, Fitch Investors Service and Moody's Investor Service,
respectively. Commercial paper proceeds are used principally to finance the
current operations of Republic Factors Corp. and Republic New York Securities
Corporation. The Corporation has $170 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 of such borrowings.
39
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.
<TABLE>
<CAPTION>
(Dollars in thousands) 1994 1993 1992
---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Federal funds purchased and securities sold under repurchase agreements:
Average interest rate:
At year end 4.92% 2.94% 3.25%
For the year 3.97% 3.03% 3.12%
Average amount outstanding during the year $1,442,585 $3,403,240 $2,558,208
Maximum amount outstanding at any month end 2,404,354 5,315,974 6,610,534
Amount outstanding at year end 987,110 999,149 2,266,004
Commercial paper:
Average interest rate:
At year end 5.71% 3.29% 3.40%
For the year 4.24% 3.32% 3.90%
Average amount outstanding during the year $ 876,677 $ 606,088 $ 562,634
Maximum amount outstanding at any month end 1,047,678 897,672 741,329
Amount outstanding at year end 979,390 881,741 720,308
Other borrowings:
Average interest rate:
At year end 4.07% 4.35% 4.80%
For the year 3.55% 5.54% 5.52%
Average amount outstanding during the year 3,254,895 $1,227,375 $2,378,024
Maximum amount outstanding at any month end 3,884,558 2,283,529 2,897,957
Amount outstanding at year end 3,002,894 2,283,529 2,749,900
---------------------------------------------------------------------------------------------------------------
</TABLE>
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 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.
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 in this section.
40
<TABLE>
<CAPTION>
(In thousands) 1994 1993 1992
----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest-bearing deposits with banks $10,242,061 $ 5,346,647 $10,562,885
Total investment securities 11,439,728 14,949,793 12,331,471
Trading account assets 2,543,637 1,194,629 742,236
Federal finds sold and securities purchased under resale agreements 1,123,925 2,322,465 1,505,274
Loans:
Real estate 3,220,981 3,310,585 3,711,428
Government and official institutions 89,625 429,232 341,320
Broker loans 582,781 1,411,302 307,018
Banks and other financial institutions 380,811 75,800 303,523
Commercial and other 4,686,401 4,376,464 3,492,890
----------------------------------------------------------------------------------------------------------------
Total loans 8,960,599 9,603,383 8,156,179
Less unearned income (47,109) (94,825) (148,722)
---------------------------------------------------------------------------------------------------------------
Loans, net of unearned income 8,913,490 9,508,558 8,007,457
---------------------------------------------------------------------------------------------------------------
Interest-earning assets $34,262,841 $33,322,092 $33,149,323
---------------------------------------------------------------------------------------------------------------
</TABLE>
Interest-Bearing Deposits with Banks
[Graph omitted]
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. Average 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 tables provide information on the composition and maturity
distribution of the Corporation's interest-bearing deposits with banks at
December 31, 1994.
<TABLE>
<CAPTION>
Maturity
(Dollars in millions) Composition % (Dollars in millions) Distribution %
------------------------------------------------------- ---------------------------------------------------------
<S> <C> <C> <S> <C> <C>
United States financial institutions $ 466.5 5 Due within one month $ 4,257.0 42
Branches and agencies of foreign
banks located in the United States 1,418.9 14 Due after one but within six months 4,703.5 46
Foreign government banks and
official institutions 872.0 9 Due after six but within twelve months 936.0 9
Banks located in the United Kingdom 1,629.7 16
Other foreign banks 5,855.0 56 Due after one year 345.6 3
------------------------------------------------------- ---------------------------------------------------------
$10,242.1 100 $10,242.1 100
------------------------------------------------------- ---------------------------------------------------------
</TABLE>
Investment Portfolio
The Corporation adopted SFAS No. 115, "Accounting for Certain Investments
in Debt and Equity Securities," on December 31, 1993. SFAS No. 115 requires
that securities designated as available for sale be carried at fair value
with any unrealized appreciation or depreciation in the fair value of the
securities reflected in stockholders' equity, net of taxes. Securities
designated as held to maturity are carried at amortized cost. Prior to the
adoption of SFAS No. 115, securities available for sale were carried at the
lower of cost or market value in the aggregate, with adjustments to the
carrying value recorded as investment securities losses. 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 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.
41
Government agency securities, that were sold as part of the
Corporation's asset-liability management program. For additional information
on asset-liability management see "Liability and Asset Management".
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.
<TABLE>
<CAPTION>
(In thousands) 1994 1993 1992
--------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. Government obligations $ 100,592 $ 425,352 $ 726,997
Obligations of U.S. Government agencies 7,417,287 10,713,977 8,327,119
Obligations of states and political subdivisions 624,033 584,302 543,005
Other investment securities 3,297,816 3,226,162 2,734,350
--------------------------------------------------------------------------------------------------
$11,439,728 $14,949,793 $12,331,471
--------------------------------------------------------------------------------------------------
</TABLE>
The following tables present, by maturity distribution, the book value
and the estimated market value and the amortized cost and the book/estimated
market value of the Corporation's portfolio of securities held to maturity
and available for sale at December 31, 1994. The Corporation has designated
certain derivative instruments, primarily in the form of interest rate swaps,
used 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 current market conditions, mortgage-backed
securities included in U.S. Government agencies held to maturity and
available for sale have estimated average lives of approximately 10.1 years
and 7.0 years, respectively. 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%.
<TABLE>
<CAPTION>
Held to Maturity
-----------------------------------
Estimated Weighted
Book Market Average
(Dollars in thousands) Value Value Yield
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Obligations of U.S. Government agencies:
Mortgage-backed securities <F1>(1) $5,263,639 $4,950,030 7.57%
Interest rate swaps - 37,951
---------------------------------------------------------------------------------------------
Total 5,263,639 4,987,981
---------------------------------------------------------------------------------------------
Obligations of states and political subdivisions:
Due within 1 year 5,339 5,408 13.99%
Due after 1 year but within 5 years 13,976 15,088 13.62
Due after 5 years but within 10 years 114,845 122,578 12.30
Due after 10 years 489,873 483,193 9.64
---------------------------------------------------------------------------------------------
Total 624,033 626,267
---------------------------------------------------------------------------------------------
Total held to maturity $5,887,672 $5,614,248
---------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------
<FN>
<F1> (1) The book value includes a mark-to-market writedown of $93,629,000 related to securities that were
transferred from available for sale.
</FN>
</TABLE>
42
[Graph omitted]
<TABLE>
<CAPTION>
Available for Sale
-----------------------------------
Book/
Estimated Weighted
Amortized Market Average
(Dollars in thousands) Cost Value Yield
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. Government obligations:
Due within 1 year 2,128 2,126 4.55%
Due after 1 year but within 5 years 84,360 83,217 6.77
Due after 10 years 17,752 15,249 5.30
---------------------------------------------------------------------------------------------
Total 104,240 100,592
---------------------------------------------------------------------------------------------
Obligations of U.S. Government agencies:
Due after 1 year but within 5 years 57,413 57,409 6.08%
Due after 10 years 5,072 5,255 9.51
Mortgage-backed securities 2,110,239 2,020,135 7.76
Interest rare swaps - 70,849
---------------------------------------------------------------------------------------------
Total 2,172,724 2,153,648
---------------------------------------------------------------------------------------------
Other investment securities:
Due within 1 year 1,003,697 1,002,810 8.27%
Due after 1 year but within 5 years 971,210 974,901 8.87
Due after 5 years but within 10 years 267,622 262,974 10.27
Due after 10 years 1,156,678 1,074,876 10.57
Interest rate swaps - (17,745)
---------------------------------------------------------------------------------------------
Total 3,399,207 3,297,816
---------------------------------------------------------------------------------------------
Total available for sale $5,676,171 $5,552,056
---------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------
</TABLE>
The following table presents the amortized cost and book value/estimated
market value of the Corporation's other investment securities by type at
December 31, 1994.
<TABLE>
<CAPTION>
Available for Sale
-----------------------------------
Amortized Book/Estimated
(In thousands) Cost Market Value
----------------------------------------------------------------------------------------------
<S> <C> <C>
Bonds, debentures and other securities of:
Foreign banks $ 839,754 $ 810,061
Foreign governments and government agencies 1,080,138 1,068,128
Foreign companies 487,785 480,176
Domestic companies 372,753 378,202
U.S. financial organizations 571,629 531,846
Federal Reserve Bank stock 47,148 47,148
Interest rate swaps - (17,745)
----------------------------------------------------------------------------------------------
$3,399,207 $3,297,816
----------------------------------------------------------------------------------------------
</TABLE>
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 instrument contracts 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,
43
In considering where to invest funds from deposits and other liabilities
maturing within one year, precious metals arbitrage frequently offers an
attractive investment alternative for the Corporation. The Corporation trades
gold and silver bullion, both for immediate delivery and for delivery in the
future and also buys and sells options on precious metals. The Corporation
is a dealer in gold and silver bullion and coins that are sold to commercial
and industrial users and investors. In this activity, the Corporation also
receives or delivers gold on consignment and maintains its own inventory.
The Corporation generally hedges its inventory against price fluctuations.
At December 31, 1994 and 1993, approximately $8.8 million and $24.8 million,
respectively, of the Corporation's inventory in precious metals was unhedged.
As a result of the Republic Mase acquisition, the Corporation has expanded
its precious metals capabilities in global wholesale trading of gold,
silver, platinum and palladium, in its spot, forward and options dealing as
well as providing financial services in gold loans to central banks,
international financial institutions and institutional investors. The
Corporation also offers production and inventory financing to mining
companies, industrial manufacturers and end-users.
Loan Portfolio
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 of $3.3 billion in
1994, increased $.8 billion over 1993 which was essentially unchanged from
1992. At year end 1994, the domestic loan portfolio included $1.2 billion
of one-four family residential mortgages and $1.8 billion of commercial real
estate loans in addition to its commercial and other loans.
The following tables present loan portfolio information before the deduction
of unearned income, excluding consumer loans and residential mortgage loans
totaling $1.4 billion, related to maturity distribution and interest rate
sensitivity, based on scheduled repayments at December 31, 1994.
<TABLE>
<CAPTION>
Due After One
Due in One Year Through Due After
(In thousands) Year Or Less Five Years Five Years Total
------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Domestic:
Commercial and other $1,961,075 $ 292,302 $ 24,063 $2,277,440
Real estate - commercial 236,118 647,343 930,417 1,813,878
Banks and other financial institutions 74,170 8,840 - 83,010
Broker loans 559,019 - - 559,019
------------------------------------------------------------------------------------------------------------
Total domestic loans 2,830,382 948,485 954,480 4,733,347
------------------------------------------------------------------------------------------------------------
Foreign:
Commercial and other 2,166,536 125,940 32,540 2,325,016
Real estate - commercial 68,814 41,402 782 110,998
Banks and other financial institutions 284,526 13,275 - 297,801
Foreign governments and government agencies 11,973 17,869 59,783 89,625
Broker loans 23,762 - - 23,762
------------------------------------------------------------------------------------------------------------
Total foreign loans 2,555,611 198,486 93,105 2,847,202
------------------------------------------------------------------------------------------------------------
Total loans $5,385,993 $1,146,971 $l,047,585 $7,580,549
------------------------------------------------------------------------------------------------------------
</TABLE>
At December 31, 1994, 71% of the loan portfolio presented above was due in
one year or less compared to 72% in 1993. Of the total loan portfolio due in
one year or less, 53% were domestic loans and 47% were foreign loans.
44
The following table is an analysis, at December 31, 1994, 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.
<TABLE>
<CAPTION>
(In thousands) Fixed Rate Variable Rate Total
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Loans due after one year:
Domestic loans $1,125,862 $777,103 $1,902,965
Foreign loans 131,441 160,150 291,591
-------------------------------------------------------------------------------------------------
$1,257,303 $937,253 $2,194,556
-------------------------------------------------------------------------------------------------
</TABLE>
Allowance for Possible Loan Losses
[Graph omitted]
The allowance for possible loan losses increased $7.3 million to $319.2
million at year end 1994, representing 3.28% of loans outstanding, net of
unearned income, compared to $311.9 million, or 3.28%, at year end 1993. In
1994, the provision for loan losses was $19,0 million and net loan
charge-offs were $11.4 million, after $6.9 million of recoveries related to
restructuring country debt. In 1993, the Corporation had $21.2 million of net
recoveries related to restructuring country debt, primarily from the sale of
Argentine Interest Bonds received in connection with its debt restructuring.
The Corporation adopted SFAS No, 114. "Accounting by Creditors for Impairment
of a Loan" and SFAS No. 118 "Accounting by Creditors for Impairment of a
Loan-Income Recognition and Disclosures" on January 1, 1995. These SFAS'
prescribe the recognition criteria and measurement methods for certain
impaired loans and loans modified in troubled debt restructurings. These
standards will require that the Corporation measure its impaired loans based
on either an estimate of the discounted value of expected future cash flows
at a loan's effective market interest rate at the time of impairment or the
fair value of collateral if the loan is collateral dependent. The amount of
impairment will result in a portion of the existing allowance for loan losses
being specifically allocated to impaired loans. The adoption of these SFAS',
based on the current level of non-performing loans, will not have a material
impact on the Corporation's results of operations.
The following table presents data related to the Corporation's allowance for
possible loan losses for each of the years in the five-year period ended
December 31, 1994.
<TABLE>
<CAPTION>
(Dollars in thousands) 1994 1993 1992 1991 1990
--------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at beginning of year $311,855 $241,020 $227,454 $236,634 $287,501
Charge-offs:
Domestic:
Commercial and industrial 14,287 11,947 51,956 65,363 42,548
Installment loans to individuals 1,730 1,757 2,396 3,028 1,987
Secured by real estate 11,183 32,466 36,022 6,310 7,066
Foreign 17,355 12,731 20,257 6,603 2,127
Losses on sale, swap and charge-off of
restructuring countries' debt - 9,729 18,477 4,304 63,939
--------------------------------------------------------------------------------------------------------------
Total charge-offs 44,555 68,630 129,108 85,608 117,667
--------------------------------------------------------------------------------------------------------------
Recoveries:
Domestic:
Commercial and industrial 6,201 15,281 9,498 8,505 1,329
Installment loans to individuals 724 661 680 690 812
Secured by real estate 6,663 2,731 289 38 254
Foreign* <F1> 19,538 36,693 12,849 5,761 3,251
--------------------------------------------------------------------------------------------------------------
Total recoveries 33,126 55,366 23,316 14,994 5,646
--------------------------------------------------------------------------------------------------------------
Net charge-offs (11,429) (13,264) (105,792) (70,614) (112,021)
Provision charged to operating expense 19,000 85,000 120,000 62,000 40,000
Allowance of acquired companies - 297 764 - 21,887
Translation adjustment (206) (1,198) (1,406) (566) (733)
--------------------------------------------------------------------------------------------------------------
Balance at end of year $319,220 $311,855 $ 241,020 $227,454 $236,634
--------------------------------------------------------------------------------------------------------------
<FN>
<F1> *Primarily restructuring countries' debt in 1991-1993.
</FN>
</TABLE>
45
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, 1994.
<TABLE>
<CAPTION>
(Dollars in millions) 1994 1993 1992 1991 1990
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Loans
Loans outstanding, net of unearned income, at end of year $8,913 $9,509 $8,007 $8,569 $ 9,005
Average loans outstanding, net of unearned income,
during the year $9,894 $8,891 $8,732 $9,623 $10,603
Ratios
Allowance for possible loan losses to loans outstanding, net of
unearned income, at end of year 3.58% 3.28% 3.01% 2.65% 2.63%
Net charge-offs to average loans outstanding, net of unearned
income, during the year:
Including restructuring countries' charge-offs .12% .15% 1.21% .73% 1.06%
Excluding restructuring countries' charge-offs .19% .39% 1.14% .73% .45%
Net charge-off coverage (1)<F1> :
Including restructuring countries' charge-offs 44.74x 40.44x 4.42x 4.95x 2.35x
Excluding restructuring countries' charge-offs 27.90x 15.55x 4.71x 5.01x 5.48x
---------------------------------------------------------------------------------------------------------------------
<FN>
<F1> (1) Calculated by dividing net charge-offs into income before income taxes plus the provision for loan losses.
</FN>
</TABLE>
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.
<TABLE>
<CAPTION>
(In thousands) 1994 1993 1992 1991 1990
-------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Non-accrual loans:
Domestic $43,392 $ 48,084 $ 49,929 $ 68,571 $113,492
Foreign-restructuring countries - 33,853 42,123 42,836 33,776
Foreign - other 14,734 12,956 38,276 18,054 1,588
-------------------------------------------------------------------------------------------------------
Total non-accrual loans 58,126 94,893 130,328 129,461 148,856
-------------------------------------------------------------------------------------------------------
Other non-performing assets:
Other real estate owned 23,479 23,338 55,551 41,401 7,661
Other non-accrual assets - - 4,572 3,125 7,904
-------------------------------------------------------------------------------------------------------
Total other non-performing assets 23,479 23,338 60,123 44,526 15,565
-------------------------------------------------------------------------------------------------------
Total non-accrual loans and other
non-performing assets $81,605 $118,231 $190,451 $173,987 $164,421
-------------------------------------------------------------------------------------------------------
</TABLE>
The above table excludes domestic restructured performing loans which
amounted to $28.3 million, $63.0 million, $58.5 million and $27.0 million in
1994, 1993, 1992 and 1991, respectively.
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.
46
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 $41.1 billion, $39.5 billion and $37.1
billion at December 31, 1994, 1993 and 1992, respectively, were as follows:
<TABLE>
<CAPTION>
Commercial
Banks and Other Government and and
(In millions) Financial Institutions Official Institutions Industrial (1)<F1> 1994 1993 1992
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
France $1,264 $1,241 $ 84 $ 2,589 $2,267 $ 3,309
Japan 1,986 - 143 2,129 1,805 2,711
Canada 1,393 29 344 1,766 930 1,941
United Kingdom 1,011 - 481 1,492 638 1,370
Germany 1,216 - 33 1,249 623 1,059
Belgium/Luxembourg 511 - 620 1,131 880 913
Netherlands 794 - 6 800 641 1,129
Brazil 188 355 26 569 - -
Italy 119 162 224 505 - 506
---------------------------------------------------------------------------------------------------------------------
$8,482 $1,787 $1,961 $12,230 $7,784 $12,938
---------------------------------------------------------------------------------------------------------------------
<FN>
<F1> (1) Includes excess of local currency outstandings over local currency liabilities.
</FN>
</TABLE>
The only other country with cross-border net outstandings exceeding 1.0% of
consolidated total assets which is excluded from the table above was Taiwan
with $416 million in 1992.
At December 31, in each of the last three years, countries with cross-border
net outstandings representing between .75% and 1.0% of consolidated total
assets were: Spain with $349 million in 1994, $326 million in 1993 and $358
million in 1992; Taiwan with $331 million in 1994 and $384 million in 1993;
and Italy with $364 million in 1993.
Brazil
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 are 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.
47
The following table presents an analysis of the changes during 1994, in
aggregate cross-border net outstandings discussed above.
<TABLE>
<CAPTION>
(In millions)
--------------------------------------------------------------------------------
<S> <C>
Aggregate outstandings at December 31, 1993 $ 226
Purchases of Brazilian Government securities and bank placements 516
Sales of Brazilian Government securities and repayments at maturity (215)
Other changes:
Interest income accrued
Collections of accrued interest (35)
--------------------------------------------------------------------------------
Aggregate outstandings at December 31,1994 $ 569
--------------------------------------------------------------------------------
</TABLE>
The following table presents the distribution of the Corporation's total
cross-border net outstandings at December 31, in each of the last two
years, based on the annual gross national product per capita of the
borrower's or guarantor's country of residence. Classifications
of countries are derived, for each year, from data available from the
International Bank for Reconstruction and Development.
<TABLE>
<CAPTION>
1994 1993
-------------- --------------
(Dollars in millions) Amount % Amount %
------------------------------------------------------------------------
<S> <C> <C> <C> <C>
High Income:
OECD countries $13,179 83 $ 9,320 81
Non-OECD countries 968 6 854 7
Middle Income:
Upper 1,186 7 919 8
Lower 601 4 432 4
Low Income 7 - 21 -
------------------------------------------------------------------------
Total $15,941 100 $11,546 100
------------------------------------------------------------------------
</TABLE>
Risk Management and Control
Many risks arise in the ordinary conduct of banking business. The
Corporation manages several types of risks, principally credit and
market risks, in the interest of reducing uncertainty as to the level
of future earnings and as to the book value of the Corporation. Credit
risk arises whenever the Corporation owns a commitment of another party
which if not completed would result in a loss. Market risk is the danger
of the fall in value of the Corporation's assets acquired in the course
of its trading activities and asset-liability management. 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 Corporation has a Risk Assessment Committee of the Board of
Directors and a Risk Assessment and Control Department that reports
directly to the Board's committee. It is the task of this department to
establish and manage effective methods and processes for defining,
measuring, monitoring and limiting risk within the Corporation.
The processes and procedures by which the Corporation manages its risk
profile continually evolves 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.
These functions are subject to periodic review by regulators and
internal auditors.
48
Credit Risk
The Credit Review Committee of the Board of Directors establishes
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 pre-established limits. Any customer credit, currency or
transaction exposure that exceeds established limits must be approved
by senior management.
The Credit Review Department provides an independent evaluation of the
loan portfolio 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 Bank policy as stated in the
Corporation's Credit Policy Manual. The Credit Review Department also
prepares monthly and quarterly portfolio review summaries for executive
management and the Board of Directors. In addition, the adequacy of the
Corporation's allowance for loan losses, on both a consolidated and
stand-alone entity basis, is assessed quarterly using historical loss
analysis and a variety of other measurement techniques.
Market Risk
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 Management Asset and Liability 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 Management
Asset and Liability 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. 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.
49
Capital Transactions
[Graph omitted]
The Corporation was active in the capital markets during 1994, 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.
On May 23, 1994, the Corporation sold, in a public offering, 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) (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.
On October 31, 1994, the Bank established a $5.0 billion Global Bank
Note Program (the "Program") authorizing the periodic sale,
globally, of notes by the Bank, including through its overseas branches.
A group of major international securities dealers will 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 are subject to certain minimum
denominations. 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.
In 1993, the Corporation filed a shelf registration statement to offer
publicly, separately or together, in one or more series, from time to
time, debt securities, warrants on debt securities, currency warrants,
stock-index warrants, other warrants, preferred stock, depositary shares
representing preferred stock and preferred or common stock warrants up
to an aggregate of initial offering prices of $ 1.0 billion. At December
31, 1994, an aggregate of $600 million principal amount of outstanding
securities had been issued pursuant to such registration statement.
In 1993, the Corporation sold, in a public offering, $250 million principal
amount of 5 7/8% Subordinated Notes due 2008 under the above shelf
registration statement. The Notes are not redeemable prior to maturity
and are direct unsecured general obligations of the Corporation,
subordinated to all of its present and future senior indebtedness.
The net proceeds received by the Corporation from the sale of the Notes
were used to redeem, prior to maturity, all of its outstanding issues
of Floating Rate Notes due 2004 and Floating Rate Subordinated Notes due
2009 and 2010 in the aggregate principal amount of $224.8 million.
The Corporation measures how effectively it utilizes capital by two
widely used performance ratios (based on net income applicable to common
stock), return on average total assets and return on average common
stockholders' equity. In 1994, return on average total assets was .74%
and return on average common stockholders' equity was 15.20%, compared
to .73% and 15.08%, respectively. in 1993. In 1992, average total
assets returned .68% and average common stockholders' equity returned
14.18%.
Risk-Based Capital/Leverage Guidelines
The Board of Governors of the Federal Reserve System (the "Federal
Reserve Board") 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").
50
As a supplement to its risk-based capital ratios, the Federal Reserve Board
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 complies with the requirements of FIN No. 39,
that requires unrealized gains and losses on certain off-balance-sheet
financial instruments to be reported on a gross basis except
when a legally enforceable netting agreement with a counterparty exists.
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 Federal Reserve Board specifically
applied to the Corporation. These ratios do not reflect the effect on
stockholders' equity related to the Corporation's portfolio of securities
available for sale. In accordance with regulatory guidelines, the Corporation
excludes Republic New York Securities Corporation's assets and one-half of its
investment in this subsidiary from each of Tier 1 and Tier 2 capital.
The Federal Reserve Board recently issued regulatory proposals to amend
risk-based capital guidelines to incorporate potential future exposure of
derivative contracts. The Corporation has determined that the proposals, if
issued in their current form, would not have a material effect on its capital
ratios.
The Federal Reserve Board has issued amendments to its capital adequacy
guidelines that are effective April 1, 1995. Such amendments establish a
limitation on the amount of certain deferred tax assets that may be included
in Tier 1 capital for risk-based capital purposes. It is expected that these
amendments will not have a material effect on the Corporation's capital
ratios.
The Corporation's core capital was $3.1 billion and total qualifying capital
was $5.3 billion at year end 1994, compared to $2.7 billion and $4.7 billion
in 1993. At December 31, 1994, the Corporation's ratios of Tier 1 capital and
total qualifying capital to risk-weighted assets were 16.17% and 27.49%
respectively, compared to 15.16% and 26.20%, respectively, in 1993. The
Corporation's leverage ratio was 5.87% at year end 1994 compared to 5.61% at
year end 1993. These ratios substantially exceed the minimums in effect for
bank holding companies.
The following table presents the components of the Corporation's risk-based
capital at December 31, in each of the last three years.
<TABLE>
<CAPTION>
(In thousands) 1994 1993 1992
----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Tier 1:
Common stockholders' equity* <F1> $2,129,166 $1,928,047 $1,707,004
Preferred stock 422,500 306,425 306,425
Equity of Safra Republic** <F2> 688,018 609,384 578,432
Other net goodwill, minority interest and intangible assets (88,792) (98,252) (8,930)
Less:
50% of investment in unconsolidated subsidiaries (3,274) (2,926) (2,739)
50% of investment in securities affiliate (44,586)
----------------------------------------------------------------------------------------------------------
Total tier 1 3,103,032 2,742,678 2,580,192
----------------------------------------------------------------------------------------------------------
Tier 2:
Qualifying preferred stock and perpetual capital notes 400,000 400,000 400,000
Qualifying long-term debt 1,575,446 1,372,802 1,291,466
Allowance for possible loan losses 243,433 228,531 195,974
Less:
50% of investment in subsidiaries (3,273) (2,925) (2,738)
50% of investment in securities affiliate (44,586) -- --
----------------------------------------------------------------------------------------------------------
Total tier 2 2,171,020 1,998,408 1,884,702
----------------------------------------------------------------------------------------------------------
Total risk-based capital $5,274,052 $4,741,086 $4,464,894
----------------------------------------------------------------------------------------------------------
<FN>
<F1> *Excluding the net unrealized appreciation (depreciation) on securities available for sale, net of taxes of
$(l91.5) million in 1994 and $262.8 million in 1993. Includes net unrealized(depreciation) on marketable equity
securities of $(25.9) million in 1994.
<F2> **Excluding the Corporation's investment in Safra Republic of $654.9 million in 1994, $581.4 million in 1993
and $553.3 million in 1992, after elimination of the net unrealized appreciation (depreciation) on securities
available for sale, net of taxes.
</FN>
</TABLE>
51
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 world wide network, 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 of funds are short-term
borrowings, including the sale of commercial paper, and long-term
liabilities in the form of notes and debentures. Liquidity
requirements can also 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 thirty percent
of average total assets in each of the last three years.
Security Market Information
[Graph omitted]
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, 1994, there were 3,027 stockholders of record of out-
standing Common Stock of the Corporation.
The following table presents the range of high and low sale prices
reported on the New York Stock Exchange Composite Tape and cash
dividends declared for each quarter during the past two years.
<TABLE>
<CAPTION>
1994 1993
-------------------------------------- -------------------------------------
Fourth Third Second First Fourth Third Second First
Qtr. Qtr. Qtr. Qtr. Qtr. Qtr. Qtr. Qtr.
------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Common stock sale price:
High $46-1/4 $46-3/4 $50-1/4 $52-1/4 $53-3/8 $53-3/4 $52-3/4 $53-3/8
Low 41-7/8 43-1/2 45 45-7/8 44-7/8 50-3/4 46-1/4 44-3/8
Cash dividends declared .33 .33 .33 .33 .27 .27 .27 .27
------------------------------------------------------------------------------------------------------------------
</TABLE>
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.
<TABLE>
<CAPTION>
1994 1993 1992 1991 1990
------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Dividends declared per common share $1.32 $1.08 $1.00 $.95 $.88
Dividend payout ratio 23.53% 21.39% 23.15% 24.36% 24.31%
------------------------------------------------------------------------------------------------------------
</TABLE>
The Quarterly dividend rate on Common Stock has been
increased to $.36 per share commencing with the dividend
payable April 1, 1995.
52
<TABLE>
Republic New York Corporation
Consolidated Statements of Condition
<CAPTION>
December 31,
-------------------------
(Dollars in thousands) 1994 1993
------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Cash and due from banks $ 867,242 $ 636,633
Interest-bearing deposits with banks (note 18) 10,242,061 5,346,647
Precious metals (note 4) 1,456,269 1,117,610
Securities held to maturity (approximate market value of $5,614,248
in 1994 and $2,088,805 in 1993) 5,887,672 1,992,847
Securities available for sale (at approximate market value) (note 18) 5,552,056 12,956,946
------------------------------------------------------------------------------------------------------------
Total investment securities (note 3) 11,439,728 14,949,793
Trading account assets (note 4) 2,543,637 1,194,629
Federal funds sold and securities purchased under resale agreements 1,123,925 2,322,465
Loans (net of unearned income of $47,109 in 1994 and $94,825 in
1993) (notes 5, 6 and 18) 8,913,490 9,508,558
Allowance for possible loan losses (note 6) (319,220) (311,855)
------------------------------------------------------------------------------------------------------------
Loans, net 8,594,270 9,196,703
Customers' liability on acceptances 1,514,461 1,134,294
Accounts receivable and accrued interest 1,797,491 2,117,879
Investment in affiliate (note 7) 607,818 625,333
Premises and equipment (note 8) 428,017 399,626
Other assets 452,986 451,860
------------------------------------------------------------------------------------------------------------
Total assets $41,067,905 $39,493,472
------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------
Liabilities and Stockholders' Equity
Noninterest-bearing deposits:
In domestic offices $ 1,701,667 $ 1,427,518
In foreign offices 114,503 135,251
Interest-bearing deposits:
In domestic offices 8,534,562 8,724,797
In foreign offices 12,375,270 12,513,684
------------------------------------------------------------------------------------------------------------
Total deposits (note 18) 22,726,002 22,801,250
Trading account liabilities (note 4) 2,087,594 177,475
Short-term borrowings (note 9) 4,969,394 4,164,419
Acceptances outstanding 1,517,675 1,137,636
Accounts payable and accrued expenses 1,325,953 2,873,903
Due to factored clients 680,010 614,549
Other liabilities 134,792 122,203
Long-term debt (notes 10 and 18) 2,580,831 2,582,875
Subordinated long-term debt and perpetual capital notes (note 10) 2,406,266 2,271,940
Commitments and contingent liabilities (note 15)
Stockholders' equity (notes 11 and 13):
Cumulative preferred stock, no par value 8,952,500 shares
outstanding in 1994 and 8,131,000 in 1993 672,500 556,425
Common stock, $5 par value 150,000,000 shares
authorized; 52,621,155 shares outstanding in 1994 and
52,703,271 in 1993 263,106 263,516
Surplus 437,653 459,713
Retained earnings 1,457,609 1,204,818
Net unrealized appreciation (depreciation) on securities
available for sale, net of taxes (l91,480) 262,750
------------------------------------------------------------------------------------------------------------
Total stockholders' equity 2,639,388 2,747,222
------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $41,067,905 $39,493,472
------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------
<FN>
<F1> See accompanying notes to consolidated financial statements.
</FN>
</TABLE>
53
<TABLE>
Republic New York Corporation
Consolidated Statements of Income
<CAPTION>
(In thousands except per share data) 1994 1993 1992
--------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest income:
Interest and fees on loans $ 696,816 $ 635,484 $ 721,909
Interest on deposits with banks 414,294 295,871 385,299
Interest and dividends on investment securities:
Taxable 871,785 847,022 807,611
Exempt from federal income taxes 76,783 65,759 63,385
Interest on trading account assets 55,736 54,467 22,928
Interest on federal funds sold and securities purchased
under resale agreements 57,915 34,323 37,460
--------------------------------------------------------------------------------------------------------------
Total interest income 2,173,329 1,932,926 2,038,592
--------------------------------------------------------------------------------------------------------------
Interest expense:
Interest on deposits 827,790 689,234 804,906
Interest on short-term borrowings 218,529 197,769 234,249
Interest on long-term debt 280,536 270,072 279,073
--------------------------------------------------------------------------------------------------------------
Total interest expense 1,326,855 1,157,075 1,318,228
--------------------------------------------------------------------------------------------------------------
Net interest income 846,474 775,851 720,364
Provision for loan losses (note 6) 19,000 85,000 120,000
--------------------------------------------------------------------------------------------------------------
Net interest income after provision for loan losses 827,474 690,851 600,364
--------------------------------------------------------------------------------------------------------------
Other operating income:
Income from precious metals (note 4) 50,930 37,910 22,637
Foreign exchange trading income (note 4) 91,028 111,572 102,571
Trading account profits and commissions (note 4) 27,357 78,742 12,319
Investment securities gains, net (note 3) 14,971 1,295 11,232
Net gain (loss) on loans sold or held for sale 1,763 (843) 17,089
Commission income 57,297 50,956 37,592
Equity in earnings of affiliate (note 7) 77,376 59,463 45,220
Other income 65,646 56,377 53,587
--------------------------------------------------------------------------------------------------------------
Total other operating income 386,368 395,472 302,247
--------------------------------------------------------------------------------------------------------------
Other operating expenses:
Salaries 253,175 203,759 180,318
Employee benefits (note 13) 142,358 143,748 113,813
Occupancy, net (notes 8 and 15) 55,425 48,161 45,301
Other expenses 270,518 239,297 215,910
--------------------------------------------------------------------------------------------------------------
Total other operating expenses 721,476 634,965 555,342
--------------------------------------------------------------------------------------------------------------
Income before income taxes 492,366 451,358 347,269
Income taxes (note 12) 152,358 150,153 88,386
--------------------------------------------------------------------------------------------------------------
Net income $ 340,008 $ 301,205 $ 258,883
--------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------
Net income applicable to common stock $ 305,598 $ 272,790 $ 230,497
--------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------
Net income per common share:
Primary $5.79 $5.20 $4.42
Fully diluted 5.61 5.05 4.32
Average common shares outstanding:
Primary 52,736 52,466 52,204
Fully diluted 56,534 56,321 56,020
--------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------
<FN>
<F1> See accompanying notes to consolidated financial statements.
</FN>
</TABLE>
54
<TABLE>
Republic New York Corporation
Consolidated Statements of Changes in Stockholders' Equity
<CAPTION>
(Dollars in thousands) 1994 1993 1992
--------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cumulative Preferred Stock:
Balance at beginning of year $ 556,425 $ 556,425 $ 456,925
Issuance of 1,500,000 shares of adjustable rate cumulative
preferred stock, series D in 1994 and 4,000,000 shares
of $1.9375 cumulative preferred stock in 1992 150,000 -- 100,000
Redemption of 678,500 shares of floating rate series B
preferred stock in 1994 and repurchase of 10,000 shares
in 1992 (33,925) -- (500)
---------------------------------------------------------------------------------------------------------------
Balance at end of year $ 672,500 $ 556,425 $ 556,425
---------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------
Common Stock:
Balance at beginning of year $ 263,516 $ 260,951 $ 260,227
Net issuance under stock option, restricted stock and
restricted stock election plans of 775,825 shares in 1994,
513,028 shares in 1993 and 353,957 shares in 1992 3,879 2,565 1,770
Retirement of 857,941 shares in 1994 and 209,083 shares
in 1992 (4,289) - (1,046)
---------------------------------------------------------------------------------------------------------------
Balance at end of year $ 263,106 $ 263,516 $ 260,951
---------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------
Surplus:
Balance at beginning of year $ 459,713 $ 447,691 $ 448,303
Cost of issuing preferred stock (3,983) - (3,340)
Net issuance of common stock under stock option,
restricted stock and restricted stock election plans
of 775,825 shares in 1994, 513,028 shares in 1993
and 353,957 shares in 1992 17,700 12,247 11,013
Treasury stock transactions of affiliate (326) (225) 441
Retirement of 857,941 common shares in 1994 and
209,083 common shares in 1992 (35,451) - (8,726)
---------------------------------------------------------------------------------------------------------------
Balance at end of year $ 437,653 $ 459,713 $ 447,691
---------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------
Retained Earnings:
Balance at beginning of year $1,204,818 $ 998,362 $ 832,140
Net income 340,008 301,205 258,883
Foreign currency translation, net of taxes 16,812 (9,588) (21,014)
Dividends declared on common stock (69,619) (56,746) (52,256)
Dividends declared on issues of preferred stock (34,410) (28,415) (28,386)
Allowance for unrealized loss on marketable equity
securities - - 8,995
---------------------------------------------------------------------------------------------------------------
Balance at end of year $1,457,609 $1,204,818 $ 998,362
---------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------
Net Unrealized Appreciation (Depreciation) on
Securities Available for Sale, Net of Taxes:
Balance at beginning of year $ 262,750 $ - $ -
Unrealized appreciation (depreciation) (735,276) 437,845 -
Income tax (expense) benefit 281,046 (175,095) -
---------------------------------------------------------------------------------------------------------------
Balance at end of year $ (191,480) $ 262,750 $ -
---------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------
Total Stockholders' Equity:
Balance at beginning of year $2,747,222 $2,263,429 $1,997,595
Net changes during year (107,834) 483,793 265,834
Balance at end of year $2,639,388 $2,747,222 $2,263,429
---------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------
<FN>
<F1> See accompanying notes to consolidated financial statements.
</FN>
</TABLE>
55
<TABLE>
Republic New York Corporation
Consolidated Statements of Cash Flows
<CAPTION>
(In thousands) 1994 1993 1992
---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash Flows From Operating Activities:
Net income $ 340,008 $ 301,205 $ 258,883
Adjustments to reconcile net income to net cash provided
(used) by operating activities:
Depreciation and amortization, net 58,120 48,337 30,829
Provision for loan losses 19,000 85,000 120,000
Investment securities gains, net (14,971) (1,295) (11,232)
Net (gain) loss on loans sold or held for sale (1,763) 843 (17,089)
Equity in earnings of affiliate (77,376) (59,463) (45,220)
Net (increase) decrease in trading accounts 561,111 (479,614) (414,097)
Net (increase) decrease in accounts receivable
and accrued interest 329,716 (1,494,586) (46,121)
Net increase (decrease) in accounts payable
and accrued expenses (1,102,251) 1,390,159 244,611
Other, net (14,666) (272,253) (109,433)
---------------------------------------------------------------------------------------------------------------
Net cash provided (used) by operating activities 96,928 (481,667) 11,131
---------------------------------------------------------------------------------------------------------------
Cash Flows From Investing Activities:
Net (increase) decrease in interest-hearing deposits with banks (4,895,414) 5,948,015 (1,786,307)
Net increase in precious metals (338,659) (386,014) (130,417)
Net (increase) decrease in federal funds sold and securities
purchased under resale agreements 1,198,540 (817,191) (1,494,728)
Net increase in short-term investments (157,230) (289,355) (150,128)
Purchases of securities available for sale (3,803,755) (665,347) (323,013)
Proceeds from sales of securities available for sale 3,883,180 346,909 -
Proceeds from maturities of securities available for sale 3,058,742 - -
Purchases of securities held to maturity (130,840) (3,740,678) (5,066,901)
Proceeds from sales of securities held to maturity - 89,150 609,538
Proceeds from maturities of securities held to maturity 261,107 2,828,748 2,042,597
Net (increase) decrease in loans 119,360 (1,983,538) 109,710
Payment for purchase of Mase Westpac Limited,
net of cash received - (144,596) -
Investment in affiliate 3,805 19,477 17,312
---------------------------------------------------------------------------------------------------------------
Net cash provided (used) by investing activities (781,164) 1,205,580 (6,172,337)
---------------------------------------------------------------------------------------------------------------
Cash Flows From Financing Activities:
Net increase (decrease) in deposits (74,821) 893,418 719,253
Net increase (decrease) in short-term borrowings 804,975 (1,663,448) 3,933,468
Net increase in due to factored clients 65,461 55,338 65,567
Proceeds from issuance of long-term debt 490,933 654,470 1,504,600
Repayment of long-term debt (492,003) (580,071) (712,781)
Proceeds from issuance of subordinated long-term debt 200,000 250,000 750,000
Repayment of subordinated long-term debt (66,000) (108,750) (20,000)
Net proceeds from issuance of cumulative preferred stock 146,017 - 96,660
Repurchase of cumulative preferred stock (33,925) - (500)
Repurchase of common stock (39,740) - (9,772)
Cash dividends paid (98,856) (83,945) (78,952)
Other, net 32,892 3,783 (485)
---------------------------------------------------------------------------------------------------------------
Net cash provided (used) by financing activities 934,933 (579,205) 6,247,058
Effect of exchange rate changes on cash and due from banks (20,088) 1,214 (7,167)
Net increase in cash and due from banks 230,609 145,922 78,685
Cash and due from banks at beginning of year 636,633 490,711 412,026
Cash and due from banks at end of year $ 867,242 $ 636,633 $ 490,711
---------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ 1,268,041 $ 1,210,546 $ 1,265,460
Income taxes 105,364 157,252 55,376
Transfers from securities available for sale to
securities held to maturity 3,862,350 - -
Transfers from securities held to maturity to
securities available for sale - 12,318,395 -
---------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------
<FN>
<F1> See accompanying notes to consolidated financial statements.
</FN>
</TABLE>
56
<TABLE>
Republic National Bank of New York
Consolidated Statements of Condition
<CAPTION>
December 31,
-------------------------
(Dollars in thousands) 1994 1993
------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Cash and due from banks $ 761,463 $ 591,112
Interest-bearing deposits with banks 9,905,448 5,174,561
Precious metals 1,412,178 1,109,840
Securities held to maturity (approximate market value of $3,375,558
in 1994, and $965,293 in 1993) 3,497,573 902,903
Securities available for sale (at approximate market value) 4,232,483 9,857,210
------------------------------------------------------------------------------------------------------------
Total investment securities 7,730,056 10,760,113
Trading account assets 2,532,409 l,151,296
Federal funds sold and securities purchased under resale agreements 1,658,925 2,743,692
Loans (net of unearned income of $6,983 in 1994 and $45,249
in 1993) 5,025,925 5,425,719
Allowance for possible loan losses (234,520) (233,124)
------------------------------------------------------------------------------------------------------------
Loans, net 4,791,405 5,192,595
Customers' liability on acceptances 1,514,129 1,134,294
Accounts receivable and accrued interest 858,491 614,501
Investment in affiliate (note 7) 607,818 625,333
Premises and equipment 324,928 300,246
Other assets 314,011 328,455
------------------------------------------------------------------------------------------------------------
Total assets $32,411,261 $29,726,038
------------------------------------------------------------------------------------------------------------
Liabilities and Stockholder's Equity
Noninterest-bearing deposits:
In domestic offices $ 1,318,865 $ 1,069,325
In foreign offices 114,503 146,431
Interest-bearing deposits:
In domestic offices 4,106,384 4,255,497
In foreign offices 13,895,726 13,694,638
------------------------------------------------------------------------------------------------------------
Total deposits 19,435,478 19,165,891
Trading account liabilities 2,058,815 177,475
Short-term borrowings 3,674,935 2,759,270
Acceptances outstanding 1,517,342 1,137,636
Accounts payable and accrued expenses 527,817 1,321,915
Other liabilities 63,181 86,193
Long-term debt 2,380,831 2,257,847
Subordinated long-term debt, primarily with parent 681,266 580,940
Stockholder's equity (note 19):
Common stock, $100 par value 4,800,000 shares authorized;
3,550,000 shares outstanding 355,000 355,000
Surplus 1,161,423 1,160,436
Retained earnings 709,579 511,851
Net unrealized appreciation (depreciation) on securities available
for sale, net of taxes (154,406) 211,584
------------------------------------------------------------------------------------------------------------
Total stockholder's equity 2,071,596 2,238,871
------------------------------------------------------------------------------------------------------------
Total liabilities and stockholder's equity $32,411,261 $29,726,038
------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------
<FN>
<F1> See accompanying notes to consolidated financial statements.
</FN>
</TABLE>
57
Republic New York Corporation
Notes to Consolidated Financial Statements
1. Summary of Significant Accounting Policies
The accounting and reporting policies of Republic New York Corporation and
its subsidiaries (the "Corporation") reflect banking industry practices and
conform to generally accepted accounting principles. 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 Bank for Savings ("RBS"),
Republic New York Securities Corporation and Republic Factors Corp. Invest-
ments in affiliates which are less than majority-owned but more than 20%
owned are accounted for by the equity method. 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/purchased under fixed forward contracts at
prices which differ from cost. Such differences, which are considered pan
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 designates an investment security
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
equity securities which are carried at 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 the securities
continues to be reported as a separate component of stockholders' equity and
amortized to interest income over the life of the security.
Prior to the adoption of SFAS No. 115, "Accounting for Certain Investments
in Debt and Equity Securities", on December 3l, 1993, debt securities
available for sale were carried at the lower of cost or market value in the
aggregate with adjustments to the carrying value recorded as investment
securities losses, net. Marketable equity securities were carried at the
lower of cost or market value in the aggregate. The aggregate unrealized
losses on marketable equity securities were included in a valuation allowance
account and shown as a reduction of retained earnings.
E. Trading Account Assets/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. 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.
58
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.
Non-accrual loans are those loans (other than factor 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 or more. 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 or more.
G. Derivative Products. The Corporation's use of derivatives includes
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.
On January l, 1994, the Corporation adopted Financial Accounting Standards
Board Interpretation No. 39, "Offsetting of Amounts Related to Certain
Contracts", ("FIN No. 39"). FIN No. 39 requires, among other things, that
unrealized gains and losses on forward, swap, option and other conditional
or exchange contracts be reported on a gross basis except when a legally
enforceable netting agreement with a counterparty exists. Prior to the
adoption of FIN No. 39, the Corporation followed the industry practice of
netting gains and losses. The Corporation has elected not to restate prior
years under this interpretation because the resulting impact is not
considered to be material.
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 contract.
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 agreements. Gains or losses on terminated derivative
contracts used as hedges of non-trading assets or liabilities are deferred
and amortized into interest income or interest expense over the life of the
original hedge.
59
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. Income Taxes. The Corporation files a consolidated Federal income tax
return and records income taxes in accordance with SFAS No. 109, "Accounting
for Income Taxes". Under the asset and liability method of SFAS No. 109,
deferred tax assets and liabilities are recognized for the future tax conse-
quences 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 taxes have been provided on such
undistributed earnings.
J. 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 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.
K. Reclassification. Certain amounts from prior years have been reclassified
to conform with 1994 classifications.
2. Acquisition of Mase Westpac Limited
On December 31, 1993, the Corporation's wholly-owned subsidiary, the Bank,
completed the acquisition of Mase Westpac Limited, now known as Republic
Mase Limited ("Republic Mase"). The transaction was accounted for as a
purchase and, as such, the assets and liabilities of Republic Mase were
recorded at their estimated fair values. The excess of cost over the net
assets acquired, goodwill, amounted to approximately $54 million at December
31, 1994 and is being amortized to expense on a straight-line basis over a
period of 15 years. Republic Mase's assets of approximately $1.4 billion are
included in the Corporation's statement of condition at December 31, 1993.
The purchase of Republic Mase had no effect on the Corporation's results of
operations for 1993.
Significant assets and liabilities acquired from Republic Mase at December
31, 1993, were as follows:
<TABLE>
<CAPTION>
December 31,
(In thousands) 1993
--------------------------------------------------------------------------
<S> <C>
Assets:
Interest-bearing deposits with banks $388,852
Precious metals 312,315
Securities available for sale 339,409
Loans 266,775
Liabilities:
Deposits 809,077
Short-term borrowings 200,065
--------------------------------------------------------------------------
--------------------------------------------------------------------------
</TABLE>
60
3. 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.
<TABLE>
<CAPTION>
1994
------------------------------------------------
Estimated
Book Gross Unrealized Market
--------------------
(In thousands) Value Gains (Losses) Value
-----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Securities held to maturity:
U.S. Government and federal agency obligations $5,263,639 $11,323 $(324,932) $4,950,030
Obligations of U.S. states and political 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
-----------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------
<CAPTION>
1994
-------------------------------------------------
Amortized Gross Unrealized Book/Market
---------------------
(In thousands) Cost Gains (Losses) Value
-----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Securities available for sale:
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
-----------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------
<CAPTION>
1993
------------------------------------------------
Estimated
Book Gross Unrealized Market
--------------------
(In thousands) Value Gains (Losses) Value
-----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Securities held to maturity:
U.S. Government and federal agency obligations $1,357,279 $35,309 $(2,969) $1,389,619
Obligations of U.S. states and political subdivisions 584,302 64,161 (378) 648,085
Other 51,266 - (165) 51,101
-----------------------------------------------------------------------------------------------------------------
$1,992,847 $99,470 $(3,512) $2,088,805
-----------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------
<CAPTION>
1993
--------------------------------------------------
Amortized Gross Unrealized Book/Market
---------------------
(In thousands) Cost Gains (Losses) Value
-----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Securities available for sale:
U.S. Government and federal agency obligations $ 9,515,080 $316,706 $ (6,457) $89,825,329
Other bonds, debentures and redeemable preferred stocks 2,676,306 172,390 (30,496) 2,818,200
Equity securities 371,639 15,879 (330) 387,188
Interest rate swaps - - (73,771) (73,77)
-----------------------------------------------------------------------------------------------------------------
$12,563,025 $504,975 $(111,054) $12,956,946
-----------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------
</TABLE>
The following table presents information for investments in
securities held to maturity and securities available for sale
at December 31, 1994, based on scheduled maturities. Actual
maturities can be expected to differ from scheduled maturities
due to prepayment or early call privileges of the issuer.
<TABLE>
<CAPTION>
Held To Maturity Available For Sale
------------------------- ------------------------
Book Estimated Amortized Book/Market
(In thousands) Value Market Value Cost Value
----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Due in one year or less $ 5,339 $ 5,408 $1,005,825 $1,004,936
Due after one years through five years 13,976 15,088 1,112,983 1,115,527
Due after five years through ten years 114,845 122,578 267,622 262,974
Due after ten years 489,873 483,193 1,179,502 1,095,380
Mortgage-backed securities 5,263,639 4,950,030 2,110,239 2,020,135
Interest rate swaps - 37,951 - 53,104
----------------------------------------------------------------------------------------------------------------------
$5,887,672 $5,614,248 $5,676,171 $5,552,056
----------------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------------
</TABLE>
61
Mortgage-backed securities included in the table above in held
to maturity and available for sale have estimated average lives,
based on current market conditions, of approximately 10.1 years
and 7.0 years, respectively. Mortgage-backed securities held to
maturity includes a mark-to-market writedown of $93,629,000 that
is reported in the separate component of stockholders' equity
related to securities that were transferred from available for
sale.
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 1994.
<TABLE>
<CAPTION>
1994
---------------------------------------
Gross Gross Net
(In thousands) Gains (Losses) Gains
---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Securities held to maturity:
Maturities, calls and mandatory redemptions $ 3,294 $ (222) 3,072
Sales of securities -- -- --
Securities available for sale:
Sales of securities 129,074 (1l7,846) 11,228
Maturities, calls and mandatory redemptions 716 (45) 671
---------------------------------------------------------------------------------------------------------------
$133,084 $(118,113) $14,971
---------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------
</TABLE>
The following table presents the components of net investment security
gains and losses for 1993 and 1992.
<TABLE>
<CAPTION>
(In thousands) 1993 1992
---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Gross gains on:
Sales of securities $ 5,646 $ 28,577
Maturities, calls and mandatory redemptions 8,124 3,196
Gross losses on:
Sales of securities (11,042) (18,284)
Maturities, calls and mandatory redemptions (1,433) (2,257)
---------------------------------------------------------------------------------------------------------------
$ 1,295 $ 11,232
---------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------
</TABLE>
Investment securities having a carrying value of approximately $1.5 billion
at December 31, 1994, were pledged to secure public deposits, short-term
borrowings and for other purposes required or permitted by law.
4. 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.
<TABLE>
<CAPTION>
(In thousands) 1994 1993
--------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Precious metals $1,456,269 $1,117,610
--------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------
Trading account assets:
U.S. Government obligations $ 556,980 $ 642,662
U.S. Government agency obligations 100,472 154,794
Other, primarily foreign bonds 279,967 384,637
Unrealized gains on derivative financial instruments 1,606,218 12,536
--------------------------------------------------------------------------------------------------------------
$2,543,637 $1,194,629
--------------------------------------------------------------------------------------------------------------
Trading account liabilities:
Securities sold, not yet purchased $ 29,000 $ 111,020
Payables for precious metals 433,162 -
Unrealized losses on derivative financial instruments 1,625,432 66,455
--------------------------------------------------------------------------------------------------------------
$2,087,594 $ 177,475
--------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------
</TABLE>
62
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.
<TABLE>
<CAPTION>
(In thousands) 1994 1993 1992
-------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Income from precious metals $ 50,930 $ 37,910 $ 22,637
Foreign exchange trading income 91,028 111,572 102,571
Trading account profits and commissions:
Debt securities and loans (10,276) 20,021 11,978
Interest rate futures, forwards and swaps, and
commodity and equity contracts 37,633 58,721 341
-------------------------------------------------------------------------------------------------------
27,357 78,742 12,319
-------------------------------------------------------------------------------------------------------
Total trading income $169,315 $228,224 $137,527
-------------------------------------------------------------------------------------------------------
</TABLE>
The following table presents 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.
<TABLE>
Average Fair Fair Value
Value During at
1994 December 31, 1994
-----------------------------------------
Assets
(In thousands) (Liabilities) Assets Liabilities
-----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
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
-----------------------------------------------------------------------------------------------------------
<FN>
<F1>
For additional information on derivative instruments see Notes 16 and 17.
</FN>
</TABLE>
63
5. Loans
The following table sets forth the composition of the Corporation's loan
portfolio at respective year ends.
<TABLE>
<CAPTION>
(In thousands) 1994 1993
--------------------------------------------------------------------------------------------------
<S> <C> <C>
Domestic:
Real estate - residential mortgage $l,245,500 $1,310,718
Real estate - commercial 1,813,878 l,854,377
Banks and other financial institutions 83,010 7,384
Broker loans 559,019 678,490
Commercial and industrial 2,242,124 2,152,691
Individuals 106,195 90,218
All other 11,810 16,915
Foreign 2,899,063 3,492,590
--------------------------------------------------------------------------------------------------
8,960,599 9,603,383
Less unearned income (47,109) (94,825)
--------------------------------------------------------------------------------------------------
Loans, net of unearned income $8,913,490 $9,508,558
--------------------------------------------------------------------------------------------------
</TABLE>
6. 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 chargeoffs 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, 1994 were as follows:
<TABLE>
<CAPTION>
1994 1993 1992
---------------------------- ---------------------------- ----------------------------
(In thousands) Domestic Foreign Total Domestic Foreign Total Domestic Foreign Total
----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, Jan. 1 $189,499 $122,356 $311,855 $161,699 $ 79,321 $241,020 $100,842 $126,612 $227,454
Provision 16,000 3,000 19,000 55,000 30,000 85,000 140,000 (20,000) 120,000
----------------------------------------------------------------------------------------------------------------
205,499 125,356 330,855 216,699 109,321 326,020 240,842 106,612 347,454
----------------------------------------------------------------------------------------------------------------
Charge-offs (27,200) (17,355) (44,555) (46,170) (12,731) (58,901) (90,374) (20,257) (110,631)
Recoveries 13,588 12,639 26,227 18,673 5,726 24,399 10,467 1,014 11,481
Net (charge-offs)
recoveries of
restructuring
countries debt -- 6,899 6,899 -- 21,238 21,238 -- (6,642) (6,642)
----------------------------------------------------------------------------------------------------------------
Net (charge-offs)
recoveries (13,612) 2,183 (11,429) (27,497) 14,233 (13,264) (79,907) (25,885) (105,792)
Allowance of acquired
companies -- -- -- 297 -- 297 764 -- 764
Translation
adjustment -- (206) (206) -- (1,198) (1,198) -- (1,406) (1,406)
----------------------------------------------------------------------------------------------------------------
Balance, Dec. 31 $191,887 $127,333 $319,220 $189,499 $122,356 $311,855 $161,699 $ 79,321 $241,020
----------------------------------------------------------------------------------------------------------------
</TABLE>
64
The following table presents the book balances of the Corporation's
non-accrual and restructured loans (excluding consumer installment loans) at
respective year ends.
<TABLE>
<CAPTION>
(In thousands) 1994 1993 1992
-------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Domestic $43,392 $ 48,084 $ 49,929
Foreign restructuring countries -- 33,853 42,123
Foreign - other 14,734 12,956 38,276
-------------------------------------------------------------------------------------------------------
Non-accrual loans 58,126 94,893 130,328
Restructured loans 28,330 63,008 58,458
-------------------------------------------------------------------------------------------------------
$86,456 $157,901 $188,786
</TABLE>
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, 1994.
<TABLE>
<CAPTION>
(In thousands) 1994 1993 1992
----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Gross amount of interest that would have been earned at original contract rates:
Domestic $ 7,430 $11,321 $ 4,810
Foreign 2,713 6,685 8,863
----------------------------------------------------------------------------------------------------------------
$10,143 $18,006 $13,673
----------------------------------------------------------------------------------------------------------------
Actual amount recorded as interest income:
Domestic $ 3,318 $ 7,368 $ 1,672
Foreign 318 1,654 2,226
----------------------------------------------------------------------------------------------------------------
$ 3,636 $ 9,022 $ 3,898
----------------------------------------------------------------------------------------------------------------
Foregone interest income:
Domestic $ 4,112 $ 3,953 $ 3,138
Foreign 2,395 5,031 6,637
----------------------------------------------------------------------------------------------------------------
$ 6,507 $ 8,984 $ 9,775
----------------------------------------------------------------------------------------------------------------
</TABLE>
7. 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 own approximately 48.8%, 20.7% and 30.5%, respectively, of the
outstanding common shares of Safra Republic at December 31, 1994.
The following table presents summary financial data for Safra Republic at
December 31, 1994 and 1993 and for each of the years then ended.
<TABLE>
<CAPTION>
(In thousands) 1994 1993
---------------------------------------------------------------------------------------------------------
<S> <C> <C>
Total assets $12,510,242 $11,349,966
Total deposits 9,363,840 7,344,562
Total shareholders' equity 1,246,353 1,280,755
Operating revenue 816,887 789,490
Net income 158,575 121,595
---------------------------------------------------------------------------------------------------------
</TABLE
8. Promises and Equipment
A summary of the Corporation's premises and equipment at respective year ends
follows.
</TABLE>
<TABLE>
<CAPTION>
(In thousands) 1994 1993
---------------------------------------------------------------------------------------------------------
<S> <C> <C>
Premises $ 464,412 $ 434,264
Equipment 146,122 127,268
---------------------------------------------------------------------------------------------------------
610,534 561,532
Less accumulated depreciation and amortization (182,517) (161,906)
---------------------------------------------------------------------------------------------------------
$ 428,017 $ 399,626
</TABLE>
65
Other operating expenses included depreciation and amortization of $37.2
million in 1994, $32.5 million in 1993 and $27.6 million in 1992. The
estimated useful lives are 10 to 50 years for premises and 3 to 10 years for
equipment.
9. Short-Term Borrowings
The following table presents the Corporation's short-term borrowings at
respective year ends.
<TABLE>
<CAPTION>
(In thousands) 1994 1993
--------------------------------------------------------------------------------------------------------
<S> <C> <C>
Federal funds purchased and securities sold under repurchase agreements $ 987,110 $ 999,149
Commercial paper 979,390 881,74l
Other borrowings 3,002,894 2,283,529
--------------------------------------------------------------------------------------------------------
$4,969,394 $4,164,4l9
</TABLE>
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.
On March 8, 1994, the Bank received the net proceeds from the public sale,
on March 1, 1994, of $1.0 billion principal amount of 4.30% Notes due March
8, 1995. The Notes are not redeemable prior to maturity and are unsecured
and, except with respect to domestic deposits, are unsubordinated debt
obligations of the Bank. The net proceeds from the sale have been used for
the general banking business of the Bank and are included in the table above
as other borrowings.
The Corporation has $170 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.
10. 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.
<TABLE>
<CAPTION>
Long-Term Debt:
(In thousands) 1994 1993
---------------------------------------------------------------------------------------------------------
<S> <C> <C>
Republic New York Corporation:
8 3/8% Notes due May l, 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:
Floating Rate Notes due March 21, 1994 -- 100,000
5.20% Notes due January 17, 1995 250,000 250,000
5 3/4% Notes due February 1, 1995 500,000 500,000
6.40% Notes due April 15, 1995 200,000 200,000
4.90% Notes due July 27, 1995 100,000 100,000
New Zealand Dollar Floating Rate Notes due August 4, 1995 (5.33%) <F1> 54,600 54,600
4 3/4% Notes due October 15,1995 191,000 191,000
LIBOR Accrual Notes due February 2, 1996 (0%) (F1> 20,100 --
Other long-term debt 17,911 18,885
---------------------------------------------------------------------------------------------------------
1,333,611 1,414,485
---------------------------------------------------------------------------------------------------------
Collateralized repurchase agreements:
Republic National Bank of New York 1,047,220 843,362
Republic Bank for Savings -- 125,028
---------------------------------------------------------------------------------------------------------
Total collateralized repurchase agreements 1,047,220 968,390
---------------------------------------------------------------------------------------------------------
$2,580,831 $2,582,875
---------------------------------------------------------------------------------------------------------
<FN>
<F1> The rates in effect at December 31, 1994 for floating rate issues are shown in parentheses.
</FN>
</TABLE>
66
On January 20, 1994, the Bank sold, in a public offering, $100 million
principal amount of LIBOR Accrual Notes due February 2, 1996. The notes are
unsecured obligations of the Bank and are subordinate in right of payment
to deposits. Interest on the notes is payable quarterly in arrears and is
determined by a formula based on certain benchmark money market rates. The
interest rate on the notes for any interest period; will not be less than
0% per annum. In a privately negotiated transaction in May 1994, the Bank
repurchased $79.9 million principal amount of the notes at par and recorded
a gain of $2.4 million on the termination of a designated interest rate swap.
The New Zealand Dollar Floating Rate Notes were sold in a public offering in
1992 and are not redeemable prior to maturity. The applicable interest rate
is determined semi-annually by reference to the relevant rate of certain
six-month instruments. Under certain conditions, holders of the notes may
elect to convert irrevocably to a fixed interest rate. The Bank entered into
an interest rate and currency exchange agreement that converted the Bank's
payment obligations on such notes into U.S. dollars.
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
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.
On October 31, 1994, the Bank 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 will 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
$150,000 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, 1994, no Notes had been issued under this Program.
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: $1.447 billion in 1995, $340 million in 1996, $184
million in 1997, $56 million in 1998 and $1.7 million in 1999.
67
<TABLE>
<CAPTION>
Subordinated Long-Term Debt and Perpetual Capital Notes:
(In thousands) 1994 1993
-----------------------------------------------------------------------------------------------------------
<S> <C> <C>
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 l50,000
8 7/8% Subordinated Notes due 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 (5.6665%)<F2> 100,000 l00,000
Floating Rate Subordinated Notes due October 2002 (5.6275%)<F2> 150,000 150,000
Subordinated Floating Rate Yield Curve Notes due 2002 (7.0875%)<F2> 100,000 100,000
5 7/8% Subordinated Notes due 2008 250,000 250,000
7 3/4% Subordinated Notes due 2009 200,000 --
9.70% Subordinated Notes due February 1.2009 150,000 150,000
Floating Rate Subordinated Notes due July 2010 -- 66,000
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 l00,000
Perpetual Capital Notes (5.50%)* <F2><F1> 150,000 150,000
-----------------------------------------------------------------------------------------------------------
2,400,000 2,266,000
Republic National Bank of New York:
Other subordinated long-term debt 6,266 5,940
-----------------------------------------------------------------------------------------------------------
$2,406,266 $2,271,940
-----------------------------------------------------------------------------------------------------------
<FN>
<F1> *These notes are redeemable prior to maturity.
<F2> The rates in effect at December 31, 1994 for floating rate issues are shown in parentheses.
</FN>
</TABLE>
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 are subject
to minimum rates of 5% per annum for the Floating Rate Subordinated Notes
due 2002.
The Corporation redeemed all of the outstanding Floating Rate Subordinated
Notes due 2010 on January 22, 1994. In connection with the early
extinguishment of this instrument, the Corporation provided for a loss of
$422,000 in 1993 when the retirement was announced.
On May 7, 1993, a shelf registration statement became effective pursuant to
which the Corporation 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, 1994, an aggregate of $600 million principal amount of
outstanding debt securities and preferred stock had been issued pursuant to
such registration statement.
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. The Notes are direct unsecured general
obligations of the Corporation and are subordinated to all present and future
senior indebtedness of the Corporation. 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
68
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.
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 is obligated with respect to the above
subordinated long-term debt to make principal payments of $6.3 million within
the next five years.
11. 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.
<TABLE>
<CAPTION>
Dividend
Shares Rate at Amount
Outstanding December 31, Outstanding
----------- ----------- ----------------------
Dollars in thousands) 1994 1994 1994 1993
----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
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 6.20% $150,000 $ --
$1.9375 Cumulative Preferred Stock ($25 stated value) 4,000,000 7.75% 100,000 100,000
$3.375 Cumulative Convertible Preferred Stock
($50 stated value) 3,450,000 6.75% 172,500 172,500
Cumulative Floating Rate Series B
($50 stated value) -- -- -- 33,925
Dutch Auction Rate Transferable Securities Preferred
Stock ("DARTS (TM)")
Series A ($100,000 stated value) 625 5.09% 62,500 62,500
Series B ($100,000 stated value) 625 4.40% 62,500 62,500
Remarketed Preferred ("RP")
($100,000 per share liquidation preference) 750 4.35-5.25% 75,000 75,000
Money Market Cumulative Preferred ("MMP")
($100,000 per share liquidation preference) 500 4.59% 50,000 50,000
----------------------------------------------------------------------------------------------------------------
8,952,500 $672,500 $56,425
----------------------------------------------------------------------------------------------------------------
</TABLE>
For the purpose of regulatory risk-based capital requirements, all of the
Adjustable Rate Cumulative Preferred Stock, Series D, the Cumulative
Preferred Stock and the Cumulative Convertible Preferred Stock qualify
as Tier 1 capital.
On May 23, 1994, under an existing shelf registration statement, the
Corporation sold in a public offering 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) (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, 1994, was 6.20%.
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 including the redemption by the Corporation of all 678,500
outstanding shares of its Cumulative Floating Rate Series B Preferred Stock
at the stated value of $50.00 per share.
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.
The shares of the $3.375 Cumulative Convertible Preferred Stock,
stated value of $50 per share are convertible at the option of the
holder into shares of the Corporation's Common Stock at a
conversion price
69
of $48.33 per share. The Convertible Preferred
Stock may be redeemed at the option of the Corporation, in whole or in part,
at any time, on or after May 15, 1995, at $52.025 per share through May 14,
1996 and thereafter at prices which decline annually to May 15, 2001, to the
stated value of $50 per share plus, in all cases, accrued and unpaid
dividends.
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.
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 preceeding such dividend payment date
equals or exceeds the 60-day "AA" composite commercial paper rate on the date
of determination of such applicable rate.
12. Income Taxes
The Corporation adopted SFAS No. 109 on January 1, 1993. The Corporation had
previously accounted for income taxes under SFAS No. 96. The cumulative
effect of this change in accounting, determined as of January 1, 1993, was
immaterial to the consolidated financial statements. Prior years financial
statements have not been restated to apply the provisions of SFAS No. 109.
Total income tax expense (benefit) for the years ended December 31, 1994 and
1993 was allocated as follows:
<TABLE>
<CAPTION>
(In thousands) 1994 1993
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Income from operations $ 152,358 $150,153
Stockholders' equity:
Net unrealized appreciation (depreciation) on securities available for sale, net of taxes (281,046) 175,095
Foreign currency translation, net 1,067 (8,653)
--------------------------------------------------------------------------------------------------------------------
$(127,621) $316,595
--------------------------------------------------------------------------------------------------------------------
</TABLE>
The components of the Corporation's consolidated income tax
expense from operations were as follows:
<TABLE>
<CAPTION>
(In thousands) 1994 1993 1992
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Current Tax Expense:
Federal $ 53,093 $129,856 $58,524
Foreign 21,138 27,980 13,524
State and other 8,837 34,085 17,848
------------------------------------------------------------------------------------------------------
83,068 191,921 89,896
------------------------------------------------------------------------------------------------------
Deferred Tax Expense (Benefit):
Federal 62,194 (29,312) 2,790
State and other 7,096 (12,456) (4,300)
------------------------------------------------------------------------------------------------------
69,290 (41,768) (1,510)
------------------------------------------------------------------------------------------------------
$152,358 $150,153 $88,386
------------------------------------------------------------------------------------------------------
</TABLE>
70
The principal sources of deferred income taxes attributable to income from
operations in 1992 and the effects of each on the amount of taxes were as
follows:
<TABLE>
<CAPTION>
(In thousands) 1992
------------------------------------------------------------------------------------------------------
<S> <C>
Unrealized net gains on trading activities $ (5,728)
Provision for loan losses (20,279)
Interest and discount income 1,316
Employee benefits 888
Depreciation 1,735
Non-accrued interest 1,610
Domestic tax on overseas earnings, net of foreign tax credits 19,792
Other, net (844)
------------------------------------------------------------------------------------------------------
$ (1,510)
------------------------------------------------------------------------------------------------------
</TABLE>
Income tax expense on operations amounted to $152.4 million for 1994, $150.2
million for 1993 and $88.4 million for 1992, representing effective tax rates
of 30.9%, 33.3% and 25.5%, respectively. Total tax expense differs from the
amounts computed by applying the statutory' U.S. Federal income tax rate
because of the following:
<TABLE>
<CAPTION>
% of Pretax Income
------------------
1994 1993 1992
----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Federal tax expense at statutory rates 35.0% 35.0% 34.0%
State and local income tax, net of federal tax benefit 2.1 2.6 2.6
Interest and dividend income exempt from federal tax (4.6) (4.4) (5.6)
Deferred tax benefits recognized -- -- (1.4)
Exempt income through acquisition of subsidiary -- -- (4.0)
Other, net (1.6) .1 (.1)
----------------------------------------------------------------------------------------------
Income tax expense as reported 30.9% 33.3% 25.5%
----------------------------------------------------------------------------------------------
</TABLE>
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, 1994 and 1993 are presented below.
<TABLE>
<CAPTION>
(In thousands) 1994 1993
------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Provision for loan losses $119,545 $127,752
Interest and discount income -- 16,349
Exempt income from subsidiary acquisition 33,260 37,074
Unrealized losses on trading account assets and securities available for sale 106,087 --
Employee benefits 15,494 --
Other 7,047 10,006
------------------------------------------------------------------------------------------------------------
281,433 191,181
------------------------------------------------------------------------------------------------------------
Deferred tax liabilities:
Depreciation 46,516 44,884
Unrealized profits on trading account assets and securities available for sale -- 178,615
Domestic tax on overseas income 63,721 58,047
Interest and discount income 47,513 --
------------------------------------------------------------------------------------------------------------
157,750 281,546
------------------------------------------------------------------------------------------------------------
Net deferred tax asset (liability) $123,683 $(90,365)
------------------------------------------------------------------------------------------------------------
</TABLE>
There was no valuation adjustment at December 31, 1994, and 1993
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 unremitted earnings to reverse and become taxable to the
Corporation in the foreseeable future. As of December 31, 1994, the
undistributed earnings of these foreign subsidiaries were approximately
$365.0 million. Cumulative foreign tax credits of approximately $28.5 million
at December 31, 1994 are available for utilization by the Corporation against
U.S. income taxes that would arise upon a dividend distribution by its
foreign subsidiaries.
71
The following table distributes the Corporation's
income before income taxes between its domestic and foreign offices for each
of the last three years.
<TABLE>
<CAPTION>
(In thousands) 1994 1993 1992
-------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Foreign $220,377 $230,523 $125,697
Domestic 271,989 220,835 221,572
------------------------------------------------------------------------------------------------------
$492,366 $451,358 $347,269
-------------------------------------------------------------------------------------------------------
</TABLE>
13. Benefits
Retirement Plan
The Bank's retirement plan (the "U.S. Plan") covers substantially all U.S.
employees of the Bank, RBS, and the Corporation and their subsidiaries.
Benefits are based on years of service and the employee's compensation during
the highest consecutive five years of 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.
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.
<TABLE>
<CAPTION>
(In thousands) 1994 1993
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Actuarial present value of benefit obligations:
Accumulated benefit obligation, including vested benefits of $(90,843) in 1994 and
$(9l,834)in 1993 $(102,687) $(l00,307)
--------------------------------------------------------------------------------------------------------------------
Plan assets at fair value, primarily mutual funds and the balance in listed stocks and bonds $ 146,138 $ 151,105
Projected benefit obligation for service rendered to date (132,574) (132,695)
--------------------------------------------------------------------------------------------------------------------
Excess of plan assets over projected benefit obligation 13,564 18,410
Unrecognized net (gain) from past experience different from that assumed and effects of
changes in assumptions (2,113) (3,760)
Prior service cost not yet recognized in net periodic pension cost 1,211 4,371
Unrecognized net asset being recognized over 16 years (7,041) (8,047)
--------------------------------------------------------------------------------------------------------------------
Prepaid pension expense included in other assets $ 5,621 $ 10,974
--------------------------------------------------------------------------------------------------------------------
</TABLE>
Net pension expense in each of the last three years consisted of the following:
<TABLE>
<CAPTION>
(In thousands) 1994 1993 1992
--------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost-benefits earned during the period $ 6,250 $ 5,754 $ 4,423
Interest cost on projected benefit obligation 9,575 8,825 8,266
Actual return on plan assets (66) (14,105) (12,293)
Net amortization and deferral (10,406) 4,469 980
--------------------------------------------------------------------------------------------------------------
Net periodic pension expense $ 5,353 $ 4,943 $ 1,376
--------------------------------------------------------------------------------------------------------------
</TABLE>
The following table presents the economic assumptions used to calculate the
projected benefit obligation and pension expense in each of the last three
years.
<TABLE>
<CAPTION>
1994 l993 1992
-----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Discount rate 8.0% 7.0% 8 1/2%
Rate of compensation increase 6.0 5.0 6 1/2
Expected long-term rate of return on plan assets 8.0 7.0 8 3/4
-----------------------------------------------------------------------------------------------------
</TABLE>
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 of a certain banking
subsidiary. The expense related to these plans amounted to $2.1 million in
1994, $2.0 million in 1993 and $2.1 million in 1992. The unfunded liability
for this plan was $10.0 million and $9.5 million at December 31,1994 and
1993, respectively.
72
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 1994, $3.7 million in 1993 and $3.6
million in 1992.
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
obligation is unfunded.
The following table sets forth information related to the Corporation's
postretirement benefit obligation at respective year ends.
<TABLE>
<CAPTION>
(In thousands) 1994 1993
--------------------------------------------------------------------------------------------------------
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees incLuding covered dependents and beneficiaries $(21,991) $(26,979)
Fully eligible actives (834) (934)
Other actives (362) (581)
--------------------------------------------------------------------------------------------------------
(23,187) (28,494)
Unrecognized net gain (9,735) (2,445)
Unrecognized transition obligation being recognized over 20 years 16,228 17,181
--------------------------------------------------------------------------------------------------------
Postretirement benefit obligation included in other liabilities $(16,694) $(13,758)
--------------------------------------------------------------------------------------------------------
</TABLE>
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% and in 1992, 8 1/2% and 6 1/2%, respectively. The effect of
raising health care gross eligible charges by 1% would increase the aggregate
of service cost and interest cost by approximately $209,000 and the
accumulated postretirement benefit obligation by approximately $2.2
million.
The health care trend rate used to measure the expected costs of benefits for
1995 is projected to be 12.0% for those under age 65 and 10.0% 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 .4% 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:
<TABLE>
<CAPTION>
(In thousands) 1994 1993 1992
----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost $ 92 $ 92 $ 104
Interest cost on accumulated postretirement benefit obligation 1,744 1,910 2,345
Amortization of transitional accumulated postretirement benefit obligation 953 953 953
Amortization of net gain (178) -- --
----------------------------------------------------------------------------------------------------------------
Net periodic expense $2,611 $2,955 $3,402
----------------------------------------------------------------------------------------------------------------
</TABLE>
On January 1, 1994, the Corporation adopted SFAS No. 112, "Employers'
Accounting for Postemployment Benefits". SFAS No. 112 requires the
recognition of 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. The effect of
initially adopting this SFAS was not material to the Corporation's results
of operations.
Executive Compensation
The Corporation has a Restricted Stock Plan (the
"Plan") for selected employees of the Corporation and its subsidiaries. At
December 31, 1994, an aggregate of 227,340 shares of Restricted Stock were
available to be awarded. The Plan will terminate on December 31, 1995
unless extended by the Board of Directors with stockholder approval, which,
along with revisions and additions to other stock-based plans, has been
proposed for the Annual Meeting of Stockholders in May, 1995. During 1994,
1993 and 1992, the Corporation issued, net of cancellations, 694,207,
470,824, and 309,186 shares of Common Stock, respectively, with an approximate
market value as of the date of issue of $33.2 million, $23.7 million and
$13.5 million, respectively. Such market value is amortized as an expense
over the period for which such shares are restricted.
73
The Corporation's Restricted Stock Election Plan allows
certain officers who have earned deferred compensation to elect to receive
payment in the form of Restricted Stock of the Corporation. At December 31,
1994, an aggregate of 310,558 shares of Restricted Stock were available to
be awarded. The plan will terminate on December 31, 1997, unless extended by
the Board of Directors with stockholder approval. During 1994, 1993, and
1992, 768 shares, 604 shares and 672 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
$37,000, $30,000 and $28,000, respectively.
The Corporation has an incentive stock option plan and a non-qualified stock
option plan for certain officers and other key employees of the Corporation
and its subsidiaries.
There remains reserved for issuance Pursuant to the stock option plans
412,283 shares of Common Stock for the incentive stock option plan and
365,092 shares of Common Stock for the non.qualified stock option plan. Both
plans are substantially identical, except that the incentive stock option
plan has certain limitations or requirements in order that the holders of
such options can receive certain beneficial tax treatment in the
disposition of shares acquired on the exercise of an option. Options may be
granted under the plans at any time prior to July, 1995, but they cannot
exceed ten years in duration. Exercise prices under the incentive stock
option plan must be equal to the fair market value of the Common Stock on the
date of grant; exercise prices under the non-qualified stock option plan are
determined by the Compensation and Benefits Committee (the "Compensation
Committee") of the Board of Directors. Options become exercisable at the
times and in the amounts determined by the Compensation Committee in
connection with awarding grants.
At the discretion of the Compensation Committee, option grants may be
accompanied by stock appreciation rights ("SARs"). SARs entitle the holder
of the related option to surrender the option and receive a payment equal to
an amount by which the fair market value, at the time of exercise, of the
shares of Common Stock subject to the option exceeds the exercise price. On
the exercise of an option, an employee may elect to make payment either in
cash, by delivering previously owned shares of the Corporation's Common
Stock, or any combination thereof. SARs are exercisable in lieu of
acquiring shares of Common Stock. Compensation expense, if any, resulting
from the difference between the fair market value of the Common Stock on the
date of grant and the current market value of the Common Stock will be
accrued over the vesting period adjusted for subsequent forfeitures and
exercises.
The following is a summary of options transactions in each of the last three
years.
<TABLE>
<CAPTION>
Option Price
Options Per Share
-------------------------------------------------------------------------------------------------------
<S> <C> <C>
Balance, December 31, 1991 643,086 $23.61-$40.79
Granted 12,000 39.38
Exercised (42,599) 23.61- 32.92
Cancelled (9,750)
-------------------------------------------------------------------------------------------------------
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 $23.6l-$50.l3
Granted --
Exercised (80,850) 23.61- 29.12
Cancelled (3,750)
-------------------------------------------------------------------------------------------------------
Balance, December 31,1994 479,537 $23.61-$50.13
-------------------------------------------------------------------------------------------------------
</TABLE>
At December 31, 1994, options for 404,537 shares are currently exercisable
at prices ranging from $23.61 to $32.50 per share.
74
The Corporation has a Performance Based Incentive Compensation
Plan, (the "Compensation Plan") which was approved by stockholders
at the 1994 annual stockholders' meeting. The Compensation 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 Compensation 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 Compensation 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. Awards were granted in 1994 pursuant to the plan; amounts
payable pursuant to such awards have not yet been certified by the
Compensation Committee in accordance with the plan.
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, 1994.
<TABLE>
<CAPTION>
Total Total Operating Income (Loss) Before Net Income
(In millions) Assets Revenue Income Taxes Loss)
-----------------------------------------------------------------------------------------------------
<S> <S> <C> <C> <C> <C>
United Kingdom 1994 $ 2,434.2 $ 171.0 $ 19.2 $ 14.1
1993 1,271.6 156.3 40.8 27.2
1992 1,861.8 153.5 27.2 20.3
-----------------------------------------------------------------------------------------------------
Europe 1994 $ 4,578.5 $ 252.2 $ 48.0 $ 35.1
1993 3,407.5 232.5 15.8 10.6
1992 4,674.9 260.4 1.7 1.3
-----------------------------------------------------------------------------------------------------
Canada 1994 $ 1,549.6 $ 81.6 $ 13.0 $ 9.5
1993 1,043.5 64.0 1.9 1.3
1992 1,530.4 65.9 6.1 4.6
-----------------------------------------------------------------------------------------------------
Far East and Australia 1994 $ 4,392.3 $ 227.6 $ 17.8 $ 13.0
1993 3,555.4 181.7 23.0 15.4
1992 3,830.0 22l.0 24.8 18.5
-----------------------------------------------------------------------------------------------------
Caribbean money center 1994 $ 2,741.5 $ 331.9 $161.9 $ 98.4
locations, Central 1993 3,104.0 157.1 38.7 25.8
and South America 1992 3,078.9 163.8 46.1 34.3
-----------------------------------------------------------------------------------------------------
Middle East and 1994 $ 289.1 $ 6.2 $ (.2) $ (.2)
Africa 1993 204.2 6.0 (.7) .5)
1992 178.2 8.3 (.7) (.6)
-----------------------------------------------------------------------------------------------------
United States 1994 $25,082.7 $1,489.2 $232.7 $170.l
1993 26,907.3 1,530.8 331.9 221.4
1992 21,992.0 1,467.9 242.1 180.5
-----------------------------------------------------------------------------------------------------
Total 1994 $41,067.9 $2,559.7 $492.4 $340.0
1993 39,493.5 2,328.4 451.4 301.2
1992 37,146.4 2,340.8 347.3 258.9
-----------------------------------------------------------------------------------------------------
</TABLE>
75
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 2014. The minimum rental commitments on
noncancellable leases for premises are $23.7 million in 1995, $21.3 mil-
lion in 1996, $18.5 million in 1997, $17.5 million in 1998, $17.0
million in 1999, and an aggregate of $67.0 million thereafter until the
expiration of the leases. The minimum rental commitments have not been
reduced by aggregate minimum sublease rentals of $15.1 million. Actual
net rental expense in 1994,1993 and 1992, aggregated $28.0 million,
$23.6 million, and $20.5 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 $24 million during 1994.
16. Fair Value of Financial Instruments
SFAS No. 107, "Disclosures About Fair Value of Financial Instruments",
requires the Corporation to disclose, in addition to the carrying value
of certain financial instruments, the fair value of financial
instruments, both assets and liabilities recorded on and off the
statement of condition, for which it is practicable to estimate fair
value. SFAS No. 107 was amended in October, 1994 by SFAS No. 119,
"Disclosure about Derivative Financial Instruments and Fair Value of
Financial Instruments". SFAS No. 119 requires, among other things, that
a distinction be made between the fair value of financial instruments
held or issued for trading purposes and those held for purposes other
than trading. It also expands the scope of derivative financial
instruments disclosure. 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 instrument 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.
SFAS No. 107 requires deposit liabilities with no stated
maturity to be reported at their carrying value and does
not allow for the recognition of the inherent funding
value of these instruments. Additionally, in estimating the fair value
of deposit liabilities, the values of franchises or of other business
units and entities of the Corporation, which are not financial
instruments as defined, are not permitted to be included in the fair
value of financial instruments. The Corporation believes that
significant value exists in this type of deposit and in its franchises
and individual business units.
The following summary presents the methodologies and assumptions used
to estimate the fair value of the Corporation's financial instruments
presented below. 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 sub-
jective 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 under 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.
76
Financial Assets
Interests-bearing deposits with banks, amounting to $9.0 billion in
1994 and $4.7 billion in 1993, 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.
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 the Corporation's portfolio of loans to restructuring
foreign governments are based upon prices for similar securities quoted
in the secondary market. 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 $6.4
billion in 1994 and $6.1 billion in 1993 and, in accordance with SFAS
No. 107, are reported at their carrying value. No value has been
assigned to the franchise value of these deposits. Certificates of
deposit maturing within six months aggregated $.6 billion in 1994 and
$1.4 billion in 1993, and their fair value is considered to equal their
carrying value. The fair value of deposits maturing in over 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, noninterest-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 $4.9 billion and $3.1 billion at year end 1994 and
1993, 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.
77
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 con-
tracts 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.
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.
<TABLE>
<CAPTION>
December 31,
-----------------------------------------------
1994 1995
--------------------- ---------------------
Carrying Estimated Carrying Estimated
(In millions) Value Fair Value Value Fair Value
--------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Financial Assets, Including Hedges:
Interest-bearing deposits with banks $10,242 $10,233 $ 5,347 $ 5,354
Derivative related -- 9 -- 20
Securities held to maturity 5,888 5,576 1,993 2,089
Derivative related -- 38 -- (14)
Securities available for sale 5,499 5,499 13,031 13,031
Derivative related 53 53 (74) (74)
Trading account assets 938 938 1,182 1,182
Derivative related 1,606 1,606 13 13
Loans, net 8,594 8,678 9,197 9,642
Derivative related -- 1 -- (5)
Other financial assets 5,232 5,232 6,230 6,230
--------------------------------------------------------------------------------------------------------------
38,052 37,863 36,919 37,468
--------------------------------------------------------------------------------------------------------------
Financial Liabilities, Including Hedges:
Deposits with no stated maturity and
deposits maturing within six months $20,240 $20,240 $20,130 $20,130
Deposits maturing in over six months 2,486 2,436 2,671 2,696
Derivative related -- (64) -- --
Trading account liabilities 462 462 111 111
Derivative related 1,625 1,625 66 66
Short-term borrowings 4,969 4,969 4,164 4
Derivative related -- (1) -- --
Long-term debt, subordinated long-term debt
and perpetual capital notes 4,987 4,863 4,855 5,136
Derivative related -- 70 -- (78)
Other financial liabilities 3,210 3,210 3,721 3,721
--------------------------------------------------------------------------------------------------------------
37,979 37,810 35,718 35,953
--------------------------------------------------------------------------------------------------------------
Net financial assets $ 73 $ 53 $ 1,201 $ 1,515
--------------------------------------------------------------------------------------------------------------
Estimated net fair value-more than (less than) carrying value $ (20) $ 314
--------------------------------------------------------------------------------------------------------------
</TABLE>
78
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 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 a greed 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 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 rou-
tinely 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 deal-
ing 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.
79
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.
<TABLE>
<CAPTION>
December 31,1994 December 31,1993
-------------------------- ----------------
Contractual/Notional
Amounts Contractual/
--------------------------
Asset/Liability Notional
(In millions) Trading Management Amounts(1)<F1>
--------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest rate:
Futures and Forwards $ 35,499 $1,130 $ 9,513
Swaps 26,044 5,215 25,921
Options, caps, floors and collars written 8,624 -- 5,718
Options, caps, floors and collars purchased 6,619 2,903 5,419
--------------------------------------------------------------------------------------------------------
$ 76,786 $9,248 $46,571
Foreign exchange:
Spot, futures and forwards $ 67,293 $ -- $48,909
Cross-currency swaps 44,955 288 30,812
Options written 15,944 -- 9,591
Options purchased 14,714 -- 9,915
--------------------------------------------------------------------------------------------------------
$142,906 $ 288 $99,227
--------------------------------------------------------------------------------------------------------
Other-principally precious metals:
Swaps, futures and forwards $ 7,280 $ -- $ 7,922
Options written 1,034 -- 946
Options purchased 1,059 -- 1,786
--------------------------------------------------------------------------------------------------------
$ 9,373 $ -- $10,654
--------------------------------------------------------------------------------------------------------
<FN>
<F1> (1) Contractual/notional amounts at December 31, 1993, include trading and asset-liability management amounts.
</FN>
</TABLE>
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
1994 and 1993 was $1.043 billion and $528 million, respectively, on
interest rate contracts, and $1.388 billion and $992 million,
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 expo-
sure across all products are established for each counterparty and are
monitored and reviewed regularly.
80
A summary of the contractual amount of credit-related instruments
at December 31, is as follows:
<TABLE>
<CAPTION>
December 31,
(In millions) 1994 1993
--------------------------------------------------------------------------------------------------
<S> <C> <C>
Commitments to extend credit $3,302 $1,622
Standby letters of credit and foreign office guarantees 958 1,089
Commercial letters of credit 590 432
--------------------------------------------------------------------------------------------------
</TABLE>
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 35%
and 30% of the Corporation's on-balance-sheet financial instruments at
December 31, 1994 and 1993, respectively This exposure included
approximately 70% and 40% at year end 1994 and 1993, 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 20% and 30% of respective year end 1994 and
1993 on-balance-sheet financial instruments. The Corporation's real
estate loan portfolio represented approximately 8% and 10%
of on-balance.sheet financial instruments at year end 1994 and 1993,
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 included in the Corporation's
Consolidated Statements of Condition at respective year ends.
<TABLE>
<CAPTION>
(In thousands) 1994 1993
--------------------------------------------------------------------------------------------------
<S> <C> <C>
Interest-bearing deposits with banks $ 86,952 $129,862
Securities available for sale 78,159 30,098
Loans 95,722 14,357
--------------------------------------------------------------------------------------------------
Liabilities:
Deposits $262,079 $395,418
Long-term debt 7,911 8,885
--------------------------------------------------------------------------------------------------
</TABLE>
At December 31, 1994, Mr. Edmond J. Safra, through Saban S.A. and two
other entities, owned approximately 28.6% of the Corporation's
outstanding Common Stock and, through Saban S.A., owned approximately
20.7% 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, 1995, 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, 1994, Mr. Safra
had acquired 43,600 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 32.3% of the Corporation's
outstanding Common Stock.
81
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:
<TABLE>
<CAPTION>
(In thousands) 1994 1993
--------------------------------------------------------------------------------------------------
<S> <C> <C>
Common Stock:
Balance at beginning and end of year $ 355,000 $ 355,003
--------------------------------------------------------------------------------------------------
Surplus:
Balance at beginning of year $1,160,436 $1,160,661
Capital contribution by parent 1,313 --
Treasury stock transactions of affiliate (326) (225)
--------------------------------------------------------------------------------------------------
Balance at end of year $1,161,423 $1,160,436
--------------------------------------------------------------------------------------------------
Retained Earnings:
Balance at beginning of year $ 511,851 $ 390,918
Net income 295,232 255,716
Dividends declared (115,637) (126,502)
Foreign currency translation, net of taxes 18,133 (9,586)
Allowance for unrealized loss on marketable equity securities -- 1,305
--------------------------------------------------------------------------------------------------
Balance at end of year $ 709,579 $ 511,851
--------------------------------------------------------------------------------------------------
Net Unrealized Appreciation (Depreciation) on Securities
Available for Sale, Net of Taxes:
Balance at beginning of year $ 211,584 $ --
Unrealized appreciation (depreciation) (584,335) 348,335
Income tax (expense) benefit 218,345 (136,751)
--------------------------------------------------------------------------------------------------
Balance at end of year $ (154,406) $ 211,584
--------------------------------------------------------------------------------------------------
Total Stockholder's Equity:
Balance at beginning of year $2,238,871 $1,906,579
Net changes during the year (167,275) 332,292
--------------------------------------------------------------------------------------------------
Balance at end of year $2,071,596 $2,238,871
--------------------------------------------------------------------------------------------------
</TABLE>
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,
1994, the Bank may declare dividends without the prior approval of the
Comptroller of the Currency of up to $308 million plus an additional
amount equal to the Bank's retained net profits for 1995 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 $231 million to the Corporation.
82
20. Republic New York Corporation (parent company only)
Condensed Balance Sheets
<TABLE>
<CAPTION>
December 31,
-----------------------
(In thousands) 1994 1993
-----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Deposits with subsidiary bank, principally interest-bearing $ 819,490 $ 979,579
Investment in bank subsidiaries 2,576,231 2,737,702
Investment in non-bank subsidiaries 906,198 656,624
Securities held to maturity 60,504 60,315
Securities available for sale 765,122 634,706
Investment in subordinated debt of subsidiary bank 675,000 575,000
Advances to non-bank subsidiaries 381,715 369,275
Loans, net of unearned income 8,293 7,445
Dividends receivable from subsidiaries 20,000 65,000
Other assets 115,143 82,639
-----------------------------------------------------------------------------------------------------------------------
Total assets $6,327,696 $6,168,288
-----------------------------------------------------------------------------------------------------------------------
Liabilities and Stockholders' Equity
Commercial paper $ 979,390 $ 881,741
Other liabilities 108,918 73,325
Long-term debt (note 10) 200,000 200,000
Subordinated long-term debt and perpetual capital notes (note 10) 2,400,000 2,266,000
Stockholders' equity (notes 11 and 13):
Cumulative preferred stock, no par value 672,500 556,425
Common stock, $5 par value 263,106 263,516
Surplus 437,653 459,713
Retained earnings 1,457,609 1,204,818
Net unrealized appreciation (depreciation) on securities available for sale, net of taxes (191,480) 262,750
-----------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 2,639,388 2,747,222
-----------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $6,327,696 $6,168,288
-----------------------------------------------------------------------------------------------------------------------
</TABLE>
Condensed Statements of Income
<TABLE>
<CAPTION>
(In thousands) 1994 1993 1992
-----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Income:
Dividends from bank subsidiaries $ 195,637 $ 189,502 $ 328,000
Dividends from non-bank subsidiaries 24,315 15,650 13,500
Interest from subsidiaries 87,042 64,588 41,608
Interest and dividend income 47,907 49,511 59,212
Investment securities gains (losses), net (6,669) (3,853) 9,399
Other income (expense) 371 (5,347) 160
-----------------------------------------------------------------------------------------------------------------------
Total income 348,603 310,051 451,879
-----------------------------------------------------------------------------------------------------------------------
Expenses:
Salaries and employee benefits 36,660 20,352 13,938
Interest on long-term debt and commercial paper 199,535 176,857 170,510
Other expenses 18,898 17,594 12,139
-----------------------------------------------------------------------------------------------------------------------
Total expenses 255,093 214,803 196,587
-----------------------------------------------------------------------------------------------------------------------
Income before income tax benefit and equity in undistributed net income
of subsidiaries 93,510 95,248 255,292
Applicable income tax benefit - current 62,758 62,327 47,344
-----------------------------------------------------------------------------------------------------------------------
Income before equity in undistributed net income of subsidiaries 156,268 157,575 302,636
Equity in undistributed net income of subsidiaries* <F1> 183,740 143,630 (43,753)
-----------------------------------------------------------------------------------------------------------------------
Net income $ 340,008 $ 301,205 $ 258,883
-----------------------------------------------------------------------------------------------------------------------
<FN>
<F1> *Represents excess of dividends over net income in 1992.
</FN>
</TABLE>
83
Condensed Statements of Cash Flows
<TABLE>
<CAPTION>
(In thousands) 1994 1993 1992
-----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash Flows From Operating Activities:
Net Income $ 340,008 $ 301,205 $ 258,883
Adjustments to reconcile net income to net cash provided by
operating activities:
Equity in undistributed net income of subsidiaries* <F1> (183,740) (143,630) 43,753
Net (increase) decrease in dividends receivable from subsidiaries 45,000 (27,000) 40,500
Other, net 3,090 16,902 (55,903)
-----------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 204,358 147,477 287,233
-----------------------------------------------------------------------------------------------------------------------
Cash Flows From Investing Activities:
Net decrease in interest-bearing deposits with banks -- -- 385
Net (increase) decrease in deposits with subsidiary bank 160,089 645,376 (156,997)
Cash contributions to bank and non-bank subsidiaries (315,146) (591,800) (200,100)
Net increase in short-term investments (130,605) (281,659) (169,760)
Net increase in advances to subsidiaries (12,440) (105,220) (100,415)
Net increase in loans (845) (1,773) (589)
Investment in subordinated debt of subsidiary bank (100,000) -- (525,000)
Other, net (43,448) 15,078 (18,615)
-----------------------------------------------------------------------------------------------------------------------
Net cash used by investing activities (442,395) (319,998) (1,171,091)
-----------------------------------------------------------------------------------------------------------------------
Cash Flows From Financing Activities:
Net increase in commercial paper 97,649 161,433 196,261
Proceeds from issuance of subordinated long-term debt 200,000 250,000 750,000
Repayment of subordinated long-term debt (66,000) (108,750) (20,000)
Repayment of long-term debt -- (50,000) (49,354)
Net proceeds from issuance of cumulative preferred stock 146,017 -- 96,660
Repurchase of cumulative preferred stock (33,925) -- (500)
Repurchase of common stock (39,740) -- (9,772)
Cash dividends paid (98,856) (83,945) (78,952)
Other, net 32,892 3,783 (485)
-----------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 238,037 172,521 883,858
-----------------------------------------------------------------------------------------------------------------------
Cash at beginning and end of year $ -- $ -- $ --
-----------------------------------------------------------------------------------------------------------------------
<FN>
<F1> *Represents excess of dividends over net income in 1992.
</FN>
</TABLE>
84
Republic New York Corporation
---------------------------------------------------------------------
Independent Auditors' Report on Financial Statements
[LOGO] KPMG Peat Marwick LLP Certified Public Accountants
345 Park Avenue
New York, NY 10154
The Board of Directors and Stockholders
Republic New York Corporation:
We have audited the accompanying consolidated statements of condition
of Republic New York Corporation as of December 31, 1994 and 1993, 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, 1994, and the consolidated statements of condition
of Republic National Bank of New York as of December 31, 1994 and 1993.
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, 1994 and 1993, and the
results of their operations, and their cash flows for each of the years
in the three year period ended December 31, 1994, and the consolidated
financial position of Republic National Bank of New York at December 31,
1994 and 1993 in conformity with generally accepted accounting
principles,
As discussed in Note 1 to the consolidated financial statements, the
Corporation adopted the provisions of the Financial Accounting Standards
Board's Interpretation No. 39, Offsetting of Amount Related to Certain
Contracts, effective January l, 1994. As discussed in Note 1 the
Corporation changed its method of accounting for investments to adopt
the provisions of Statement of Financial Accounting Standards (SFAS) No.
115, Accounting for Certain Investments in Debt and Equity Securities,
at December 31,1993. As discussed in Notes 1 and 12, the Corporation
changed its method of accounting for income taxes effective January 1,
1993 to adopt the provisions of SFAS No. 109, Accounting for Income
Taxes.
KPMG Peat Marwick LLP
January 17, 1995
85
Republic New York Corporation
---------------------------------------------------------------------
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 judgements 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 the
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, 1994. 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, 1994,
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 subsidiaries, Republic National Bank
of New York and Republic Bank for Savings, complied, in all material
respects, with such laws and regulations during the year ended December
31, 1994.
Walter H. Weiner John D. Kaberle, Jr.
Chairman of the Board Executive Vice President and Comptroller
New York, New York
January 17, 1995
86
Republic New York Corporation
---------------------------------------------------------------------
Independent Auditors' Report on Management's Assertions Related to
Internal Controls Over Financial Reporting
[LOGO] KPMG Peat Marwick LLP Certified Public Accountants
345 Park Avenue
New York, NY 10154
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, 1994, Republic New York
Corporation maintained an effective system of internal control 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 circumstance. 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.
KPMG Peat Marwick LLP
January 17, 1995
87
<TABLE>
Republic New York Corporation
Selected Financial Data - Summary of Unaudited Quarterly Financial Information
<CAPTION>
1994 1993
--------------------------------------------------------------------------------- -----------------------------------------
(In thousands except per share data) Fourth Third Second First Fourth Third Second First
-----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest income $617,124 $555,560 $516,316 $484,329 $487,921 $481,572 $471,954 $491,479
Interest expense 399,069 337,363 304,280 286,143 294,854 288,549 273,678 299,994
-----------------------------------------------------------------------------------------------------------------------------
Net interest income 218,055 218,197 212,036 198,186 193,067 193,023 198,276 191,485
Provision for loan losses 3,000 3,000 3,000 10,000 15,000 20,000 25,000 25,000
-----------------------------------------------------------------------------------------------------------------------------
Net interest income after provision
for loan losses 215,055 215,197 209,036 188,186 178,067 173,023 173,276 166,485
Other operating income 91,144 97,272 93,407 104,545 111,338 108,200 94,958 80,976
Other operating expenses 181,599 172,789 191,160 175,928 174,409 156,969 156,722 146,865
Income before income taxes 124,600 139,680 111,283 116,803 114,996 124,254 111,512 100,596
Income taxes 35,216 48,263 31,855 37,024 35,069 46,649 36,584 31,851
Net income $ 89,384 $ 91,417 $ 79,428 $ 79,779 $ 79,927 $ 77,605 $ 74,928 $ 68,745
-----------------------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------------
Net income applicable to common
stock $ 79,665 $ 82,143 $ 71,095 $ 72,695 $ 72,792 $ 70,545 $ 67,873 $ 61,580
-----------------------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------------
Net income per common share:
Primary $1.51 $1.55 $1.35 $1.38 $1.38 $1.34 $1.30 $1.18
Fully diluted 1.46 1.50 1.31 1.34 1.34 1.30 1.26 1.15
Average common shares outstanding:
Primary 52,732 53,018 52,633 52,557 52,690 52,634 52,336 52,196
Fully diluted 56,508 56,797 56,432 56,396 56,525 56,506 56,201 56,052
-----------------------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------------
</TABLE>
88
<TABLE>
Republic Bank for Savings
Consolidated Statements of Condition
<CAPTION>
December 31,
-----------------------
(Dollars in thousands) 1994 1993
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Cash and due from banks $ 74,077 $ 33,562
Interest-bearing deposits with banks 271,984 256,377
Securities held to maturity (approximate market value of $2,084,646 in 1994 and $947,972 in 1993) 2,225,987 921,741
Securities available for sale (at approximate market value) 413,560 1,896,063
---------------------------------------------------------------------------------------------------------------------------
Total investment securities 2,639,547 2,817,804
Loans, net of unearned income 2,760,792 2,895,555
Allowance for possible loan losses (59,872) (57,362)
---------------------------------------------------------------------------------------------------------------------------
Loans, net 2,700,920 2,838,193
Accounts receivable and accrued interest 53,169 68,580
Premises and equipment 35,194 33,465
Other assets 62,247 101,482
---------------------------------------------------------------------------------------------------------------------------
Total assets $5,837,138 $6,149,463
---------------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------------
Liabilities and Stockholder's Equity
Noninterest-bearing deposits $ 341,234 $ 345,807
Interest-bearing deposits 4,249,282 4,392,980
Mortgage escrow deposits 39,111 37,676
---------------------------------------------------------------------------------------------------------------------------
Total deposits 4,629,627 4,776,463
Securities sold under repurchase agreements 585,847 579,376
Accounts payable and accrued expenses 169,956 303,797
Other liabilities 11,558 12,154
Stockholder's equity:
Common stock, $100 par value, 750,000 shares authorized and outstanding 75,000 75,000
Surplus 255,423 255,423
Retained earnings 120,642 106,812
Net unrealized appreciation (depreciation) on securities available for sale, net of taxes (10,915) 40,438
---------------------------------------------------------------------------------------------------------------------------
Total stockholder's equity 440,150 477,673
---------------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders equity $5,837,138 $6,149,463
---------------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------------
</TABLE>
89
<TABLE>
Republic New York Corporation
Consolidated Statements of Condition
<CAPTION>
December 31,
-----------------------------------------------------------------
(In thousands) 1994 1993 1992 1991 1990
--------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Assets
Cash and due from banks $ 867,242 $ 636,633 $ 490,711 $ 412,026 $ 424,899
Interest-bearing deposits with banks 10,242,061 5,346,647 10,562,885 8,776,578 7,129,174
Precious metals 1,456,269 1,117,610 419,132 288,715 466,270
Securities held to maturity 5,887,672 1,992,847 12,011,338 9,666,692 7,642,680
Securities available for sale 5,552,056 12,956,946 320,113 -- --
--------------------------------------------------------------------------------------------------------------------------------
Total investment securities 11,439,728 14,949,793 12,331,471 9,666,692 7,624,680
Trading account assets 2,543,637 1,194,629 742,236 326,594 134,946
Federal funds sold and securities purchased under resale
agreements 1,123,925 2,322,465 1,505,274 10,546 1,081,719
Loans, net of unearned income 8,913,490 9,508,558 8,007,457 8,568,958 9,004,859
Allowance for possible loan losses (319,220) (311,855) (241,020) (227,454) (236,634)
--------------------------------------------------------------------------------------------------------------------------------
Loans, net 8,594,270 9,196,703 7,766,437 8,341,504 8,768,225
Customers' liability on acceptances 1,514,461 1,134,294 1,611,531 1,699,667 2,378,658
Accounts receivable and accrued interest 1,797,491 2,117,879 571,648 607,520 568,210
Investment in affiliate 607,818 625,333 553,315 534,744 505,918
Premises and equipment 428,017 399,626 385,557 383,460 391,837
Other assets 452,986 451,860 206,191 172,759 104,465
--------------------------------------------------------------------------------------------------------------------------------
Total assets $41,067,905 $39,493,472 $37,146,388 $31,220,805 $29,597,001
--------------------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------------------------
Liabilities and Stockholders' Equity
Noninterest-bearing deposits:
In domestic offices $ 1,701,667 $ 1,427,518 $ 1,236,451 $ 953,321 $ 959,906
In foreign offices 114,503 135,251 79,262 95,446 151,409
Interest-bearing deposits:
In domestic offices 8,534,562 8,724,797 9,164,704 8,971,780 9,572,343
In foreign offices 12,375,270 12,513,684 10,621,770 10,362,355 9,303,156
--------------------------------------------------------------------------------------------------------------------------------
Total deposits 22,726,002 22,801,250 21,102,187 20,382,902 19,968,814
Trading account liabilities 2,087,594 177,475 62,064 60,519 14,742
Short-term borrowings 4,969,394 4,164,419 5,736,212 1,802,744 1,963,018
Acceptances outstanding 1,517,675 1,137,636 1,616,964 1,718,266 2,390,400
Accounts payable and accrued expenses 1,325,953 2,873,903 1,096,163 1,546,412 601,303
Due to factored clients 680,010 614,549 559,211 493,644 499,454
Other liabilities 134,792 122,203 76,737 98,298 42,107
Long-term debt 2,580,831 2,582,875 2,502,497 1,718,882 1,511,687
Subordinated long-term debt and perpetual capital notes 2,406,266 2,271,940 2,130,924 1,402,543 864,526
Stockholders' equity:
Preferred stock, no par value 672,500 556,425 556,425 456,925 309,425
Common stock, $5 par value 263,106 263,516 260,951 260,227 172,027
Surplus 437,653 459,713 447,691 448,303 531,156
Retained earnings 1,457,609 1,204,818 998,362 832,140 670,342
Net unrealized appreciation (depreciation) on securities
available for sale, net of taxes (191,480) 262,750 -- -- --
--------------------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 2,639,388 2,747,222 2,263,429 1,997,595 1,682,950
--------------------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $41,067,905 $39,493,472 $37,146,388 $31,220,805 $29,597,001
--------------------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------------------------
</TABLE>
90
<TABLE>
Republic New York Corporation
Consolidated Statements of Income
<CAPTION>
(In thousands except Per share data) 1994 1993 1992 1991 1990 <F1>
-----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Interest income:
Interest and fees on loans $ 696,816 $ 635,484 $ 721,909 $ 919,342 $1,115,943
Interest on deposits with banks 414,294 295,871 385,299 591,046 686,526
Interest and dividends on investment securities:
Taxable 871,785 847,022 807,611 637,919 511,769
Exempt from federal income taxes 76,783 65,759 63,385 60,261 79,297
Interest on trading account assets 55,736 54,467 22,928 6,280 7,372
Interest on federal funds sold and securities purchased under
resale agreements 57,915 34,323 37,460 49,059 100,644
-----------------------------------------------------------------------------------------------------------------------------
Total interest income 2,173,329 1,932,926 2,038,592 2,263,907 2,501,551
-----------------------------------------------------------------------------------------------------------------------------
Interest expense:
Interest on deposits 827,790 689,234 804,906 1,205,989 1,457,600
Interest on short-term borrowings 218,529 197,769 234,249 258,010 366,748
Interest on long-term debt 280,536 270,072 279,073 218,662 219,879
-----------------------------------------------------------------------------------------------------------------------------
Total interest expense 1,326,855 1,157,075 1,318,228 1,682,661 2,044,227
-----------------------------------------------------------------------------------------------------------------------------
Net interest income 846,474 775,851 720,364 581,246 457,324
Provision for loan losses 19,000 85,000 120,000 62,000 40,000
-----------------------------------------------------------------------------------------------------------------------------
Net interest income after provision for loan losses 827,474 690,851 600,364 519,246 417,324
-----------------------------------------------------------------------------------------------------------------------------
Other operating income:
Income from precious metals 50,930 37,910 22,637 39,449 45,476
Foreign exchange trading income 91,028 111,572 102,571 81,351 77,347
Trading account profits and commissions 27,357 78,742 12,319 22,444 16,481
Investment securities gains, net 14,971 1,295 11,232 4,264 6,613
Net gain (loss) on loans sold or held for sale 1,763 (843) 17,089 3,031 12,457
Commission income 57,297 50,956 37,592 34,628 35,388
Equity in earnings of affiliate 77,376 59,463 45,220 41,083 34,703
Other income 65,646 56,377 53,587 45,183 42,139
-----------------------------------------------------------------------------------------------------------------------------
Total other operating income 386,368 395,472 302,247 271,433 270,584
-----------------------------------------------------------------------------------------------------------------------------
Other operating expenses:
Salaries 253,175 203,759 180,318 166,107 158,605
Employee benefits 142,358 143,748 113,813 97,568 87,476
Occupancy, net 55,425 48,161 45,301 38,048 44,937
Other expenses 270,518 239,297 215,910 201,210 173,565
-----------------------------------------------------------------------------------------------------------------------------
Total other operating expenses 721,476 634,965 555,342 502,933 464,483
-----------------------------------------------------------------------------------------------------------------------------
Income before income taxes 492,366 451,358 347,269 287,746 223,325
Income taxes 152,358 150,153 88,386 60,386 22,105
-----------------------------------------------------------------------------------------------------------------------------
Net income $ 340,008 $ 301,205 $ 258,883 $ 227,360 $ 201,220
-----------------------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------------
Net income applicable to common stock $ 305,598 $ 272,790 $ 230,497 $ 204,627 $ 180,177
-----------------------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------------
Net income per common share:
Primary $5.79 $5.20 $4.42 $3.95 $3.62
Fully diluted 5.61 5.05 4.32 3.90 3.62
Cash dividends declared per common share 1.32 1.08 1.00 .95 .88
Average common shares outstanding:
Primary 52,736 52,466 52,204 51,852 49,726
Fully diluted 56,534 56,321 56,020 54,292 49,726
-----------------------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------------
<FN>
<F1> (1) Includes the results of operations of Republic Bank for Savings, which was accounted for as a purchase,
from May 2, 1990, the date of acquisition
</FN>
</TABLE>
91
<TABLE>
Republic New York Corporation
Average Balances, Net Interest Differential, Average Rates Earned and Paid
<CAPTION>
Year Ended December 31, 1994 1993
---------------------------------------------------------------------------------- ----------------------------------
Average Average
Interest Rates Interest Rates
Average Income/ Earned/ Average Income/ Earned/
(Dollars in thousands) Balance Expense Paid Balance Expense Paid
--------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Interest-earning Assets:
Interest-bearing deposits with banks $ 7,878,149 $ 414,294 5.26% $ 7,452,339 $ 295,871 3.97%
Investment securities(1)<F1>:
Taxable 11,965,375 871,785 7.29 13,190,788 847,022 6.42
Exempt from federal income taxes(2)<F2> 1,191,303 112,275 9.42 987,139 96,892 9.82
------------------------ ------------------------
Total investment securities 13,156,678 984,060 7.48 14,177,927 943,914 6.66
Trading account assets(3)<F3> 1,014,942 55,736 5.49 969,986 54,467 5.62
Federal funds sold and securities purchased
under resale agreements 1,418,607 57,915 4.08 1,069,247 34,323 3.21
Loans, net of unearned income(4)<F4>:
Domestic offices(2)<F2> 6,606,904 499,985 7.57 6,422,421 483,474 7.53
Foreign offices 3,287,291 196,831 5.99 2,468,138 152,357 6.17
------------------------ ------------------------
Total loans, net of unearned income 9,894,195 696,816 7.04 8,890,559 635,831 7.15
------------------------ ------------------------
Total interest-earning assets 33,362,571 $2,208,821 6.62% 32,560,058 $1,964,406 6.03%
-------------------- --------------------
-------------------- --------------------
Cash and due from banks 664,665 587,551
Other assets(5)<F5> 7,394,711 4,223,717
----------- -----------
Total assets $41,421,947 $37,371,326
----------- -----------
----------- -----------
Interest-bearing funds:
Consumer and other time deposits $ 7,933,799 246,133 3.10% $ 8,274,344 $ 253,012 3.06%
Certificates of deposit 619,916 26,325 4.25 705,536 22,823 3.23
Deposits in foreign offices 12,064,790 555,332 4.60 10,680,094 413,399 3.87
------------------------ ------------------------
Total interest-bearing deposits 20,618,505 827,790 4.01 19,659,974 689,234 3.51
Trading account liabilities(3)<F3> 145,993 8,736 5.98 143,756 6,699 4.66
Short-term borrowings 5,574,157 209,793 3.76 5,236,703 191,070 3.65
Total long-term debt 4,924,002 280,536 5.70 4,637,595 270,072 5.82
------------------------ ------------------------
Total interest-bearing funds 31,262,657 $1,326,855 4.24% 29,678,028 $1,157,075 3.90%
-------------------- --------------------
-------------------- --------------------
Noninterest-bearing deposits:
In domestic offices 1,368,838 1,189,192
In foreign offices 109,490 101,908
Other liabilities 6,039,394 4,036,916
Stockholders' equity:
Preferred stock 630,592 556,425
Common stockholders' equity 2,010,976 1,808,857
----------- -----------
Total stockholders' equity 2,641,568 2,365,282
----------- -----------
Total liabilities and stockholders' equity $41,421,947 $37,371,326
----------- -----------
----------- -----------
Interest income/earning assets $2,208,821 6.62% $1,964,406 6.03%
Interest expense/earning assets 1,326,855 3.98 1,157,075 3.55
-------------------- --------------------
Net interest differential $ 881,966 2.64% $ 807,331 2.48%
-------------------- --------------------
-------------------- --------------------
92
<CAPTION>
Year Ended December 31, 1992 1991
---------------------------------------------------------------------------------- ----------------------------------
Average Average
Interest Rates Interest Rates
Average Income/ Earned/ Average Income/ Earned/
(Dollars in thousands) Balance Expense Paid Balance Expense Paid
--------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Interest-earning Assets:
Interest-bearing deposits with banks $ 7,792,737 $ 385,299 4.94% $ 8,558,149 $ 591,046 6.91%
Investment securities(1)<F1>:
Taxable 11,147,315 807,611 7.24 7,178,784 637,919 8.89
Exempt from federal income taxes(2)<F2> 780,597 95,473 12.23 713,579 91,904 12.88
------------------------ ------------------------
Total investment securities 11,927,912 903,084 7.57 7,892,363 729,823 9.25
Trading account assets(3)<F3> 489,312 22,928 4.69 132,122 6,280 4.75
Federal funds sold and securities purchased
under resale agreements 1,020,232 37,460 3.67 819,697 49,059 5.99
Loans, net of unearned income(4)(F4>:
Domestic offices(2)<F2> 6,307,949 529,570 8.40 6,906,899 653,183 9.46
Foreign offices 2,424,483 192,694 7.95 2,716,498 266,564 9.81
------------------------ ------------------------
Total loans, net of unearned income 8,732,432 722,264 8.27 9,623,397 919,747 9.56
------------------------ ------------------------
Total interest-earning assets 29,962,625 $2,071,035 6.91% 27,025,728 $2,295,955 8.50%
-------------------- --------------------
-------------------- --------------------
Cash and due from banks 393,992 339,478
Other assets(5)<F5> 3,310,653 3,749,075
----------- -----------
Total assets $33,667,270 $31,114,281
----------- -----------
----------- -----------
Interest-bearing funds:
Consumer and other time deposits $ 8,147,281 $ 329,904 4.05% $ 7,883,143 $ 481,274 6.11%
Certificates of deposit 905,423 35,552 3.93 1,443,330 88,589 6.14
Deposits in foreign offices 8,530,175 439,450 5.15 9,095,280 636,126 6.99
------------------------ ------------------------
Total interest-bearing deposits 17,582,879 804,906 4.58 18,421,753 1,205,989 6.55
Trading account liabilities(3)<F3> 23,147 1,534 6.63 17,718 1,521 8.58
Short-term borrowings 5,498,866 232,715 4.23 4,062,514 256,489 6.31
Total long-term debt 4,148,477 279,073 6.73 2,562,166 218,662 8.53
------------------------ ------------------------
Total interest-bearing funds 27,253,369 $1,318,228 4.84% 25,064,151 $1,682,661 6.71%
-------------------- --------------------
-------------------- --------------------
Noninterest-bearing deposits:
In domestic offices 962,183 867,493
In foreign offices 88,974 124,640
Other liabilities 3,196,603 3,213,840
Stockholders' equity:
Preferred stock 540,984 403,260
Common stockholders' equity 1,625,157 1,440,897
----------- -----------
Total stockholders' equity 2,166,141 1,844,157
----------- -----------
Total liabilities and stockholders' equity $33,667,270 $31,114,281
----------- -----------
----------- -----------
Interest income/earning assets $2,071,035 6.91% $2,295,955 8.50%
Interest expense/earning assets 1,318,228 4.40 1,682,661 6.23
-------------------- --------------------
Net interest differential $ 752,807 2.51% $ 613,294 2.27%
-------------------- --------------------
-------------------- --------------------
93
<CAPTION>
Year Ended December 31, 1990
----------------------------------------------------------------------------------
Average
Interest Rates
Average Income/ Earned/
(Dollars in thousands) Balance Expense Paid
----------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest-earning Assets:
Interest-bearing deposits with banks $ 8,030,285 $ 686,526 8.55%
Investment securities(1)<F1>:
Taxable 5,435,151 511,769 9.42
Exempt from federal income taxes(2)<F2> 959,569 119,782 12.48
------------------------
Total investment securities 6,394,720 631,551 9.88
Trading account assets(3)<F3> 94,978 7,372 7.76
Federal funds sold and securities purchased
under resale agreements 1,246,926 100,644 8.07
Loans, net of unearned income(4)(F4>:
Domestic offices(2)<F2> 7,782,696 790,271 10.15
Foreign offices 2,820,683 326,116 11.56
------------------------
Total loans, net of unearned income 10,603,379 1,116,387 10.53
------------------------
Total interest-earning assets 26,370,288 $2,542,480 9.64%
--------------------
--------------------
Cash and due from banks 349,304
Other assets(5)<F5> 4,138,431
-----------
Total assets $30,858,023
-----------
-----------
Interest-bearing funds:
Consumer and other time deposits $ 6,905,784 $ 498,923 7.22%
Certificates of deposit 1,991,784 153,980 7.73
Deposits in foreign offices 9,583,018 804,697 8.40
------------------------
Total interest-bearing deposits 18,480,586 1,457,600 7.89
Trading account liabilities(3)<F3> 11,181 1,027 9.19
Short-term borrowings 4,073,704 365,721 8.98
Total long-term debt 2,389,401 219,879 9.20
------------------------
Total interest-bearing funds 24,954,872 $2,044,227 8.19%
--------------------
--------------------
Noninterest-bearing deposits:
In domestic offices 834,812
In foreign offices 94,559
Other liabilities 3,421,980
Stockholders' equity:
Preferred stock 309,425
Common stockholders' equity 1,242,375
-----------
Total stockholders' equity 1,551,800
-----------
Total liabilities and stockholders' equity $30,858,023
-----------
-----------
Interest income/earning assets $2,542,480 9.64%
Interest expense/earning assets 2,044,227 7.75
--------------------
Net interest differential $ 498,253 1.89%
--------------------
--------------------
--------------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------------------
<FN>
<F1> (1) Based on amortized or historic cost with the mark-to-market adjustment on securities available
for sale included in other assets.
<F2> (2) Income has been adjusted to a fully-taxable equivalent basis. The rate used for this adjustment
was approximately 44% in 1994 and 1993 and 42% in prior years.
<F3> (3) Excludes non-interest bearing balances which are included in other assets or other liabilities,
respectively.
<F4> (4) Including non-accrual loans.
</FN>
</TABLE>
93
Appendix A
REPUBLIC NEW YORK CORPORATION
1994 Annual Report to Stockholders
Graphic and Image Material Cross-Reference Index
Information Conveyed by
Omitted Graphic Image Omitted Graphic Image
--------------------- -----------------------
Graphs:
------
Net Interest Income See "Average Balances, Net
(Interest Income; Interest Interest Rate Differential,
Expense; Net Interest Income). Average Rates Earned and Paid"
Omitted from page 29. on pages 92 and 93.
Net Interest Rate Differential See "Average Balances, Net
(Rate on Interest-Earning Interest Rate Differential,
Assets; Rate on Interest- Average Rates Earned and Paid"
Bearing Funds; Net Interest on pages 92 and 93.
Differential). Omitted
from page 30.
Loan Loss Recoveries. See "Allowances for Possible
Omitted from page 31. Loan Losses" on pages 45 and 46.
Net Income Applicable to See "Consolidated Statements of
Common Stock. Omitted Income" on page 91.
from page 35.
Average Deposits See "Average Balances, Net Interest
(Consumer and Other Time Rate Differential, Average Rates
Deposits; Certificates of Earned and Paid" on pages 92 and 93.
Deposit; Interest-Bearing
Deposits in Foreign Offices;
Noninterest-Bearing Deposits).
Omitted from page 37.
Average Interest-Earning See "Average Balances, Net Interest
Assets (Loans Net of Rate Differential, Average Rates
Unearned Income; Federal Earned and Paid" on pages 92 and 93.
Funds Sold; Investment
Securities/Trading Account
Assets; Interest-Bearing
Deposits with Banks).
Omitted from page 41.
Average Interest-Earning See "Average Balances, Net Interest
Assets. Omitted from Rate Differential, Average Rates
page 43. Earned and Paid" on pages 92 and 93.
Allowance for Possible Loan See "Allowance for Possible Loan Losses"
Losses (Allowance for on pages 45 and 46.
Possible Loan Losses as a
Percentage of Year End Loans,
Net of Unearned Income; Year
End Allowance for Possible
Loan Losses). Omitted from
page 45.
Earnings and Dividends Per See "Consolidated Statements of Income"
Common Share (Net Income on page 91.
Per Common Share Fully
Diluted; Cash Dividends
Declared Per Common Share).
Omitted from page 50.
Book Value Per Common Share The book value per common share at
at Year End. Omitted from year end was $26.61 for 1990,
page 52. $29.60 for 1991, $32.71 for 1992,
$41.57 for 1993, and $37.38 for
1994.
Exhibit 21
REPUBLIC NEW YORK CORPORATION
Subsidiaries
Approximate
Percentage
Jurisdiction of Voting
Name of Entity Incorporation Securities
-------------- ------------- -----------
Delaware Securities Processing Corp. Delaware 100%
R/CLIP Corp. Delaware 100%
Republic Asset Management Corporation New York 100%
Republic Bank California
National Association United States 100%
Republic International Bank of
New York (California) United States 100%
Republic Factors Corp. Maryland 100%
Republic Funds Services Limited B.V.I. 100%
Republic Investments (Canada) Limited Canada 100%
Republic Services Corporation Maryland 100%
RICS NJ, Inc. New Jersey 100%
Republic New York Mortgage Corporation Maryland 100%
Republic New York Securities Corporation Maryland 100%
Republic New York Securities
International Limited England 100%
Republic New York Trust Company
of Florida, National Association United States 100%
RNYC Liquid Portfolio Corporation Delaware 100%
RNYC Liquid Portfolio Company Limited Guernsey 100%
RNYC-NJ Realty Corp. New Jersey 100%
Republic Bank for Savings New York 100%
Brandywine Mortgage Investors
Corporation Delaware 100%
Delaware Mortgage Investors Corporation Delaware 100%
Nevada Asset Management Corporation Nevada 100%
Williamsburgh Financial Corporation Delaware 100%
Republic National Bank of New York United States 100%
Annie Sonnenblick Scholarship
Fund, Inc. New York 100%
Finalfa S.p.A. Italy 100%
Republic Bullion Corporation New York 100%
Republic Forex Options Corporation Maryland 100%
Republic International Bank of New York United States 100%
Republic Leasing (Chile) S.A. Chile 100%
RIBNY Overseas Investments Holding
Corporation Delaware 100%
Republic Bullion (Far East) Limited Hong Kong 100%
Republic International Management
Company S.A.M. 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%
RNYOIC Limited Guernsey 100%
Republic New York Investment Corporation Delaware 100%
Republic Overseas Banks Holding
Corporation Delaware 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%
Imarui, Importacao, Exportacao,
e Servicos Ltda. Brazil 100%
Republic Leasing Do Brazil S.A.
Arrendamento Mercantil Brazil 100%
Republic New York Holdings (UK) Limited England 100%
Republic Mase Bank Limited 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 48.8%
Republic Advisory Services Limited Bermuda 100%
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 New York International Trust
Company 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 Management Services Guernsey 100%
SR Transportation Services S.A. Switzerland 33.3%
Safra Republic Investments Limited Guernsey 100%
Safra Republic Investments (UK)
Limited England 100%
Republic Premises Corporation Maryland 100%
RNB Services Limited England 99.5%
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 17, 1995, relating to the consolidated
statements of condition of Republic New York Corporation as of
December 31, 1994 and 1993, 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, 1994, and
the consolidated statements of condition of Republic National Bank
of New York as of December 31, 1994 and 1993, which report appears
on page 85 of the 1994 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
Financial Accounting Standards Board's Interpretation No. 39,
Offsetting of Amounts Related to Certain Contracts, effective January
1, 1994, and to changes in accounting for investments and income taxes
to adopt the provisions of Statement of Financial Accounting
Standards (SFAS) No. 115, Accounting for Certain Investments in
Debt and Equity Securities at December 31,1993, and SFAS No. 109,
Accounting for Income Taxes, effective January 1, 1993,
respectively.
KPMG PEAT MARWICK LLP
New York, New York
March 31, 1995
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
<CASH> 867,242
<INT-BEARING-DEPOSITS> 10,242,061
<FED-FUNDS-SOLD> 1,123,925
<TRADING-ASSETS> 2,543,637
<INVESTMENTS-HELD-FOR-SALE> 5,552,056
<INVESTMENTS-CARRYING> 5,887,672
<INVESTMENTS-MARKET> 5,614,248
<LOANS> 8,913,490
<ALLOWANCE> 319,220
<TOTAL-ASSETS> 41,067,905
<DEPOSITS> 22,726,002
<SHORT-TERM> 4,969,394
<LIABILITIES-OTHER> 134,792
<LONG-TERM> 4,987,097
<COMMON> 263,106
0
672,500
<OTHER-SE> 1,703,782
<TOTAL-LIABILITIES-AND-EQUITY> 41,067,905
<INTEREST-LOAN> 696,816
<INTEREST-INVEST> 948,568
<INTEREST-OTHER> 527,945
<INTEREST-TOTAL> 2,173,329
<INTEREST-DEPOSIT> 827,790
<INTEREST-EXPENSE> 1,326,855
<INTEREST-INCOME-NET> 846,474
<LOAN-LOSSES> 19,000
<SECURITIES-GAINS> 14,971
<EXPENSE-OTHER> 721,476
<INCOME-PRETAX> 492,366
<INCOME-PRE-EXTRAORDINARY> 340,008
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 340,008
<EPS-PRIMARY> 5.79
<EPS-DILUTED> 5.61
<YIELD-ACTUAL> 2.64
<LOANS-NON> 58,126
<LOANS-PAST> 9,635
<LOANS-TROUBLED> 28,330
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 311,855
<CHARGE-OFFS> 44,555
<RECOVERIES> 33,126
<ALLOWANCE-CLOSE> 319,220
<ALLOWANCE-DOMESTIC> 191,887
<ALLOWANCE-FOREIGN> 127,333
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
