SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly Period Ended June 30, 1999.
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File No. 1-7436
REPUBLIC NEW YORK CORPORATION
(Exact name of registrant specified in its charter)
MARYLAND 13-2764867
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
452 FIFTH AVENUE, NEW YORK, NEW YORK 10018
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (212) 525-6100
NOT APPLICABLE
Former name, former address and former fiscal year, if changed since last report
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No __
- --------------------------------------------------------------------------------
The number of shares outstanding of the registrant's common stock, was
104,793,308 at July 30, 1999.
<PAGE>
REPUBLIC NEW YORK CORPORATION AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION
PAGE NO.
Item 1. Financial Statements:
Consolidated Statements of Condition - Unaudited
June 30, 1999 and December 31, 1998 2
Consolidated Statements of Income - Unaudited
Six Months and Three Months Ended June 30,
1999 and 1998 3
Consolidated Statements of Cash Flows - Unaudited
Six Months Ended June 30, 1999 and 1998 4
Consolidated Statements of Changes in Stockholders' Equity -
Unaudited Six Months Ended June 30, 1999 and 1998 5
Notes to Consolidated Financial Statements 6-9
Item 2. Management's Discussion and Analysis 10-26
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 27
Item 6. Exhibits and Reports on Form 8-K 28
The information contained in the financial statements furnished in
this report is unaudited. However, in the opinion of management, all
adjustments, consisting of normal recurring accruals, necessary for a fair
presentation of the results of operations for the interim periods presented,
have been included.
-1-
<TABLE>
<CAPTION>
ITEM 1. FINANCIAL STATEMENTS
REPUBLIC NEW YORK CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CONDITION
UNAUDITED
(Dollars in thousands)
June 30, December 31,
Assets 1999 1998
------------ ------------
<S> <C> <C>
Cash and due from banks $ 901,766 $ 1,040,290
Interest-bearing deposits with banks 5,654,600 4,218,893
Precious metals 785,048 977,783
Securities held to maturity (approximate market
value of $5,659,535 in 1999 and $6,882,926 in 1998) 5,618,919 6,731,714
Securities available for sale (at approximate market value) 16,546,090 16,434,523
------------ ------------
Total investment securities 22,165,009 23,166,237
Trading account assets (note 2) 2,966,059 3,397,110
Federal funds sold and securities purchased
under resale agreements 1,495,985 689,335
Loans (net of unearned income of $5,730
in 1999 and $14,138 in 1998) 14,193,813 13,648,837
Allowance for credit losses (note 2) (290,669) (293,952)
Customers' liability on acceptances 44,128 36,287
Accounts receivable and accrued interest 998,684 1,352,619
Investment in affiliate 821,093 849,677
Premises and equipment 430,170 467,651
Other assets 1,013,967 873,387
------------ ------------
Total assets $ 51,179,653 $ 50,424,154
============ ============
Liabilities and Stockholders' Equity
Noninterest-bearing deposits:
In domestic offices $ 2,971,844 $ 2,882,572
In foreign offices 223,130 179,709
Interest-bearing deposits:
In domestic offices 10,613,420 10,904,022
In foreign offices 18,621,045 19,253,456
------------ ------------
Total deposits 32,429,439 33,219,759
Trading account liabilities 2,741,941 3,350,456
Short-term borrowings 6,525,422 4,441,210
Acceptances outstanding 45,391 37,465
Accounts payable and accrued expenses 919,772 940,129
Due to factored clients 669,222 589,263
Other liabilities (note 2) 156,222 166,649
Long-term debt 1,449,337 1,542,773
Subordinated long-term debt and perpetual
capital notes 2,624,700 2,645,700
Company-obligated mandatorily redeemable preferred securities of
subsidiary trusts holding solely junior subordinated debt securities 350,000 350,000
Stockholders' equity (notes 1 and 3):
Cumulative preferred stock, no par value
7,501,250 shares outstanding in 1999 and 1998 500,000 500,000
Common stock, $5 par value
150,000,000 shares authorized; 104,798,914
shares issued in 1999 and 107,322,157 in 1998 523,995 536,611
Surplus 118,037 96,487
Retained earnings 2,496,221 2,373,147
Accumulated other comprehensive loss,
net of taxes (282,977) (361,872)
Common stock in treasury, at cost 1,788,706 shares in 1999 and -
55,905 shares in 1998 (87,069) (3,623)
------------ ------------
Total stockholders' equity 3,268,207 3,140,750
------------ ------------
Total liabilities and stockholders' equity $ 51,179,653 $ 50,424,154
============ ============
<FN>
See accompanying notes to consolidated financial statements
</FN>
</TABLE>
-2-
<PAGE>
<TABLE>
REPUBLIC NEW YORK CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
UNAUDITED
(In thousands except per share data)
<CAPTION>
Six Months Ended Three Months Ended
June 30, June 30,
----------------------- -----------------------
1999 1998 1999 1998
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Interest Income:
Interest and fees on loans $ 509,888 $ 548,894 $ 261,695 $ 289,354
Interest on deposits with banks 74,931 146,310 32,663 77,785
Interest and dividends on investment securities:
Taxable 689,175 785,322 343,185 386,210
Exempt from federal income taxes 36,509 42,816 17,994 20,030
Interest on trading account assets 35,173 44,147 18,250 25,380
Interest on federal funds sold and securities
purchased under resale agreements 46,831 91,697 24,959 52,380
---------- ---------- ---------- ----------
Total interest income 1,392,507 1,659,186 698,746 851,139
---------- ---------- ---------- ----------
Interest Expense:
Interest on deposits 581,490 749,258 286,304 368,459
Interest on short-term borrowings 150,813 228,740 76,014 137,618
Interest on long-term debt 131,685 152,552 65,208 76,708
---------- ---------- ---------- ----------
Total interest expense 863,988 1,130,550 427,526 582,785
---------- ---------- ---------- ----------
Net Interest Income 528,519 528,636 271,220 268,354
Provision for credit losses 8,000 8,000 4,000 4,000
---------- ---------- ---------- ----------
Net interest income after provision for
credit losses 520,519 520,636 267,220 264,354
---------- ---------- ---------- ----------
Other Operating Income:
Trading revenue (note 4) 109,728 83,601 37,425 43,463
Investment securities transactions, net 17,321 3,949 11,038 12,430
Loans sold or held for sale, net 82 3,504 239 (161)
Commission income 50,432 48,168 24,647 24,210
Equity in earnings of affiliate 72,403 72,726 41,887 36,780
Other income (note 6) 109,813 54,964 90,062 27,594
---------- ---------- ---------- ----------
Total other operating income 359,779 266,912 205,298 144,316
---------- ---------- ---------- ----------
Other Operating Expenses:
Salaries and employee benefits 303,099 266,649 157,554 133,818
Occupancy, net 36,660 37,007 17,810 18,115
Restructuring charge (note 5) 97,000 - - -
Other expenses 187,763 191,472 96,309 91,453
---------- ---------- ---------- ----------
Total other operating expenses 624,522 495,128 271,673 243,386
---------- ---------- ---------- ----------
Income Before Income Taxes 255,776 292,420 200,845 165,284
Income taxes 66,148 56,109 57,719 46,447
---------- ---------- ---------- ----------
Net Income $ 189,628 $ 236,311 $ 143,126 $ 118,837
========== ========== ========== ==========
Net Income Applicable to Common Stock - Diluted $ 176,780 $ 222,272 $ 136,669 $ 111,852
========== ========== ========== ==========
Net income per common share:
Basic $ 1.71 $ 2.11 $ 1.33 $ 1.06
Diluted 1.69 2.08 1.31 1.05
Average common shares outstanding:
Basic 102,929 104,795 102,541 104,691
Diluted 104,564 106,694 104,086 106,652
<FN>
See accompanying notes to consolidated financial statements.
</FN>
</TABLE>
-3-
<PAGE>
<TABLE>
REPUBLIC NEW YORK CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
UNAUDITED
(In thousands)
<CAPTION>
Six Months Ended
June 30,
--------------------------
1999 1998
----------- -----------
<S> <C> <C>
Cash Flows From Operating Activities:
Net income $ 189,628 $ 236,311
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization, net 56,578 54,220
Provision for trading and credit losses 12,000 8,000
Investment securities transactions, net (17,321) (3,949)
Loans sold or held for sale, net (82) (3,504)
Equity in earnings of affiliate (72,403) (72,726)
Net change in precious metals 192,735 459,690
Net change in trading accounts (181,464) (846,518)
Net change in accounts receivable and accrued interest 348,293 (5,945)
Net change in accounts payable and accrued expenses (74,882) 123,613
Other, net (note 6) (194,807) (162,841)
----------- -----------
Net cash provided by (used in) operating activities 258,275 (213,649)
----------- -----------
Cash Flows From Investing Activities:
Interest-bearing deposits with banks (1,435,707) (3,870,099)
Federal funds sold and securities purchased under resale agreements (806,650) (49,106)
Short-term investments 125,835 137,098
Purchases of securities held to maturity (34,899) (11,780)
Proceeds from maturities of securities held to maturity 1,147,694 1,269,739
Purchases of securities available for sale (3,764,679) (5,193,725)
Proceeds from sales of securities available for sale 1,454,195 1,498,454
Proceeds from maturities of securities available for sale 3,475,255 3,238,318
Loans (1,693,776) (2,117,366)
Investment in affiliate 56,437 56,439
----------- -----------
Net cash used in investing activities (1,476,295) (5,042,028)
----------- -----------
Cash Flows From Financing Activities:
Deposits (789,852) 832,031
Short-term borrowings 2,084,212 4,600,800
Due to factored clients 79,959 45,350
Proceeds from issuance of long-term debt 346,127 508,683
Repayment of long-term debt (439,563) (439,986)
Repurchase of subordinated long-term debt and perpetual capital notes (21,000) -
Repurchase of common stock (39,495) (51,810)
Purchase of treasury stock at cost (83,446) (3,576)
Cash dividends paid (66,932) (65,827)
Other, net 13,993 6,446
----------- -----------
Net cash provided by financing activities 1,084,003 5,432,111
----------- -----------
Effect of exchange rate changes on cash and due from banks (4,507) (11,374)
----------- -----------
Net (decrease) increase in cash and due from banks (138,524) 165,060
Cash and due from banks at beginning of period 1,040,290 901,783
----------- -----------
Cash and due from banks at end of period $ 901,766 $ 1,066,843
=========== ===========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 842,694 $ 1,097,700
Income taxes 69,817 56,374
Transfers from securities available for sale to trading account assets - 222,890
<FN>
See accompanying notes to consolidated financial statements.
</FN>
</TABLE>
-4-
<TABLE>
REPUBLIC NEW YORK CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
UNAUDITED
(Dollars in thousands)
<CAPTION>
Six Months Ended
June 30,
--------------------------
1999 1998
----------- -----------
<S> <C> <C>
Cumulative Preferred Stock:
Balance at beginning and end of period $ 500,000 $ 500,000
=========== ===========
Common Stock:
Balance at beginning of period $ 536,611 $ 543,543
Net issuance (cancellation) under stock option, restricted stock
and restricted stock election plans of (1,654,940)
shares in 1999 and 292,996 shares in 1998 (8,275) 1,465
Retirement of 868,303 shares in 1999 and 913,702 shares in 1998 (4,341) (4,569)
----------- -----------
Balance at end of period $ 523,995 $ 540,439
=========== ===========
Surplus:
Balance at beginning of period $ 96,487 $ 149,763
Net issuance (cancellation) of common stock under stock option,
restricted stock and restricted stock election plans of
(1,654,940) shares in 1999 and 292,996 shares in 1998 49,976 15,048
Treasury stock transactions of affiliate (505) 937
Deferred compensation 7,233 3,576
Retirement of 868,303 common shares in 1999
and 913,702 common shares in 1998 (35,154) (47,241)
----------- -----------
Balance at end of period $ 118,037 $ 122,083
=========== ===========
Retained Earnings:
Balance at beginning of period $ 2,373,147 $ 2,259,172
Net income 189,628 236,311
Dividends declared on common stock (53,823) (54,105)
Dividends declared on issues of preferred stock (12,731) (13,175)
----------- -----------
Balance at end of period $ 2,496,221 $ 2,428,203
=========== ===========
Accumulated Other Comprehensive Loss,
Net of Taxes:
Balance at beginning of period $ (361,872) $ (14,498)
Net appreciation (depreciation) on securities available for sale 126,610 (71,232)
Less: reclassification adjustment for gains included in net income 12,901 2,461
----------- -----------
Net unrealized (depreciation) appreciation on securities available for sale 113,709 (73,693)
Foreign currency translation (34,814) (13,127)
----------- -----------
Other comprehensive income (loss) 78,895 (86,820)
----------- -----------
Balance at end of period $ (282,977) $ (101,318)
=========== ===========
Common Stock in Treasury, at Cost:
Balance at beginning of period $ (3,623) $ -
Purchases of treasury stock at cost, 1,732,801 shares
in 1999 and 54,970 shares in 1998 (83,446) (3,576)
----------- -----------
Balance at end of period $ (87,069) $ (3,576)
=========== ===========
Total Stockholders' Equity:
Balance at beginning of period $ 3,140,750 $ 3,437,980
Net changes during the period 127,457 47,851
----------- -----------
Balance at end of period $ 3,268,207 $ 3,485,831
=========== ===========
Total Comprehensive Income, Net of Taxes:
Net income $ 189,628 $ 236,311
Other comprehensive income (loss) 78,895 (86,820)
----------- -----------
Total comprehensive income, net of taxes $ 268,523 $ 149,491
=========== ===========
<FN>
See accompanying notes to consolidated financial statements
</FN>
</TABLE>
-5-
<PAGE>
REPUBLIC NEW YORK CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
COVERING THE SIX MONTHS ENDED JUNE 30, 1999 AND 1998
1. On May 10, 1999, the Corporation and Safra Republic Holdings S.A. ("SRH ")
entered into a definitive agreement providing for (1) the merger of the
Corporation with a wholly-owned subsidiary of HSBC Holdings plc ("HSBC") in
which each outstanding share of the Corporation's common stock would be
converted into the right to receive $72 in cash and (2) a tender offer for the
outstanding common shares of SRH (other than those owned by the Corporation) at
$72 in cash per common share or, at the shareholder's option, for all or any
common shares tendered, an interest-bearing note of HSBC due 2010, equal to $72
per common share. Saban S.A., the principal stockholder of the Corporation,
which is controlled by the Corporation's founder, Edmond J. Safra, has
irrevocably undertaken to vote its 29% stockholding in the Corporation in favor
of the merger and, in addition, to accept the cash tender offer in respect of
its 20.8% stockholding in SRH. All outstanding preferred shares and public debt
securities of each company will remain outstanding after these transactions.
The consummation of the transactions are subject to a number of conditions,
including approval by the Corporation's stockholders and regulatory approvals in
various jurisdictions. The merger and tender offer are to close at the same
time, which is expected to be in the fourth quarter of 1999.
In connection with the merger, the Corporation has issued an option to HSBC,
which would allow HSBC to purchase up to 19.9% of the outstanding common shares
of the Corporation at $72 per common share in limited circumstances.
2. The following table sets forth the components of the aggregate allowance for
credit losses at the dates indicated.
June 30, December 31, June 30,
(In thousands) 1999 1998 1998
-------- -------- --------
Credit losses $290,669 $293,952 $326,776
Trading accounts 17,485 13,516 14,857
Off balance-sheet credit commitments 7,216 5,818 10,000
-------- -------- --------
Aggregate allowance for credit losses $315,370 $313,286 $351,633
======== ======== ========
The following table presents data related to the Corporation's aggregate
allowance for credit losses for the six-month periods ended June 30, 1999 and
1998.
1999 1998
----------- -----------
(In thousands)
Aggregate balance at beginning of period $ 313,286 $ 353,481
Charge-offs (14,078) (13,841)
Recoveries 5,387 4,475
----------- -----------
Net charge-offs (8,691) (9,366)
Provision for trading and credit losses 12,000 8,000
Translation adjustment (1,225) (482)
----------- -----------
Aggregate balance at end of period $ 315,370 $ 351,633
=========== ===========
-6-
<PAGE>
REPUBLIC NEW YORK CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
COVERING THE SIX MONTHS ENDED JUNE 30, 1999 AND 1998
3. Common stock in treasury consists of the cost of shares of common stock of
the Corporation which are held by a trust, established in connection with the
Corporation's 1998 Long-Term Incentive Compensation Plan (the "Plan"), for the
benefit of certain employees who have elected to invest a portion of their
deferred restricted cash compensation in common stock of the Corporation.
Pursuant to the Plan, at the end of the deferral period, the common stock will
be delivered by the trust to the employee. See Footnote 1 for a discussion of
the transaction described therein, as a result of which the common stock held by
the Plan will be converted into cash at $72 per share. During the first six
months of 1999, there was a net increase in shares held in treasury of 1,733,000
shares at a cost of approximately $83.4 million.
4. The following table presents information related to trading revenue for the
periods indicated.
<TABLE>
<CAPTION>
Six Months Ended Three Months Ended
June 30, June 30,
---------------------- ----------------------
1999 1998 1999 1998
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
(In thousands)
Precious metals $ 2,054 $ 3,620 $ (2,239) $ 254
Foreign exchange 91,268 72,222 28,586 41,979
Trading account profits and commissions 20,406 7,759 11,078 1,230
Provision for trading credit losses (4,000) - - -
--------- --------- --------- ---------
Total trading revenue $ 109,728 $ 83,601 $ 37,425 $ 43,463
========= ========= ========= =========
</TABLE>
5. In the first quarter of 1999, the Corporation recorded a $97 million pre-tax
restructuring charge, resulting from the Corporation's lines-of-business review
and its plan to grow its core private banking and special niche businesses. The
restructuring charge is related to workforce reductions, branch consolidations,
outsourcing certain data processing functions and related network and
communication operations and the decision to exit certain activities. The
migration of the Corporation's data centers has been delayed at the
recommendation of the outsourcer due to telecommunication constraints and will
not occur until 2000. In addition to unfilled open positions being closed,
approximately 450 employees, of which 270 are officer level employees, have been
notified of their termination under the restructuring plan.
The components of this charge are as follows:
(In thousands)
Salaries and employee benefits $ 53,800
Occupancy, net 7,900
Other expenses 35,300
---------------
Total restructuring charge $ 97,000
===============
The occupancy and other expenses in the table above include an aggregate of
approximately $32 million related to outsourcing certain data processing
functions and related network and communication operations.
-7-
REPUBLIC NEW YORK CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
COVERING THE SIX MONTHS ENDED JUNE 30, 1999 AND 1998
5. Continued
The following table summarizes the accruals in the restructuring charge for the
six-month period ended June 30, 1999:
(In thousands)
Restructuring charge $ 97,000
Payments (31,400)
Non-cash writedowns (11,200)
--------------
Ending accrual at June 30, 1999 $ 54,400
==============
6. In the second quarter of 1999, the Corporation recorded a gain of $69.8
million, pre-tax, relating to its investment in the Canary Wharf Group and the
completion of the Canary Wharf initial public offering in April 1999. The
non-cash portion of this gain was $64.3 million.
7. The Corporation has strategically aligned its operations into five major
business segments based on the needs of its clients and trading partners. The
five major business segments are Private Banking, Consumer Financial Services,
Lending, Global Treasury and Global Markets. As a result of the restructuring
("Reduction in Force") announced in the first quarter of 1999, the five major
business segments were realigned and historical results have been adjusted to
reflect this realignment. The Corporation manages these business segments using
an internal profitability reporting system to measure independently each of the
major segments by its net income. The information generated is not necessarily
comparable with similar information for any other financial institution.
The following tables present the summary results by segment for the three-month
and six-month periods ended June 30, 1999 and 1998, respectively.
<TABLE>
<CAPTION>
Three Months Ended June 30, 1999
--------------------------------------------------------------------------------
Consumer
Private Financial Global Global
(In millions) Banking Services Lending Treasury Markets Other Total
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net interest income $ 16.5 $ 91.7 $ 70.0 $ 86.5 $ 10.3 $ (3.8) $ 271.2
Other income 59.7 13.3 9.7 77.3 44.0 1.3 205.3
Revenue sharing 3.8 4.3 0.2 (5.0) (5.0) 1.7 -
Income taxes 9.6 10.2 8.4 34.7 3.5 (8.7) 57.7
Net income (loss) 32.2 18.8 15.6 86.2 6.4 (16.1) 143.1
Average assets $ 2,681 $ 955 $ 10,038 $ 32,751 $ 4,469 $ (3,338) $ 47,556
================================================================================
</TABLE>
-8-
<PAGE>
<TABLE>
REPUBLIC NEW YORK CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
COVERING THE SIX MONTHS ENDED JUNE 30, 1999 AND 1998
7. Continued
<CAPTION>
Three Months Ended June 30, 1998
--------------------------------------------------------------------------------
Consumer
Private Financial Global Global
(In millions) Banking Services Lending Treasury Markets Other Total
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net interest income $ 16.1 $ 88.5 $ 61.4 $ 73.4 $ 16.3 $ 12.7 $ 268.4
Other income 55.2 13.5 16.8 15.1 42.5 1.2 144.3
Revenue sharing 3.0 2.1 0.1 (3.6) (1.6) - -
Income taxes 10.3 12.7 8.7 11.1 8.3 (4.7) 46.4
Net income 29.6 15.4 16.2 38.4 15.4 3.8 118.8
Average assets $ 2,684 $ 845 $ 11,036 $ 38,103 $ 8,724 $ (4,962) $ 56,430
================================================================================
Six Months Ended June 30, 1999
-------------------------------------------------------------------------------
Consumer
Private Financial Global Global
(In millions) Banking Services Lending Treasury Markets Other Total
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net interest income $ 35.8 $182.5 $ 133.4 $ 182.4 $ 33.7 $ (39.3) $ 528.5
Other income 106.9 27.6 22.7 88.0 111.8 2.8 359.8
Revenue sharing 7.2 8.2 0.2 (9.4) (8.0) 1.8 -
Restructuring charge - - - - - 97.0 97.0
Income taxes 18.7 17.8 14.5 49.1 15.7 (49.7) 66.1
Net income (loss) 56.5 41.7 27.1 128.6 27.4 (91.7) 189.6
Average assets $ 2,719 $ 942 $ 9,952 $ 32,674 $ 4,816 $ (3,373) $ 47,730
===============================================================================
Six Months Ended June 30, 1998
--------------------------------------------------------------------------------
Consumer
Private Financial Global Global
(In millions) Banking Services Lending Treasury Markets Other Total
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net interest income $ 29.1 $170.4 $ 119.3 $ 148.0 $ 38.3 $ 23.5 $ 528.6
Other income 115.4 25.7 33.4 13.9 77.7 0.8 266.9
Revenue sharing 5.4 4.0 0.2 (5.4) (4.2) - -
Income taxes 21.8 22.6 16.2 (7.2) 13.9 (11.2) 56.1
Net income 59.5 28.4 30.1 91.0 25.8 1.5 236.3
Average assets $ 2,766 $ 834 $ 10,600 $ 37,769 $ 8,668 $ (4,954) $ 55,683
================================================================================
</TABLE>
8. Certain amounts from the prior year have been reclassified to conform with
1999 classifications.
-9-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Management's discussion and analysis of the summary of operations should be read
in conjunction with the consolidated financial statements (unaudited) and notes
shown elsewhere in this Report. In the following discussion, the interest income
earned on tax exempt obligations has been adjusted (increased) to a
fully-taxable equivalent basis. The rate used for this adjustment was
approximately 43% in 1999 and 1998. This tax equivalent adjustment permits all
interest income and net interest income to be analyzed on a comparable basis.
The following tables present a comparative summary of the results of operations
for the three months and six months ended June 30, 1999, compared to the
corresponding periods in 1998 and the increases (decreases) in income and
expense between such periods.
Increase (Decrease)
-------------------
Three Months Ended 2nd Qtr. 1999 vs.
June 30, 2nd Qtr. 1998
--------------------- -------------------
1999 1998 Amount Percent
--------- --------- --------- -------
(Dollars in thousands)
Interest income $ 704,857 $ 857,900 $(153,043) (17.8)
Interest expense 427,526 582,785 (155,259) (26.6)
--------- --------- --------
Net interest income 277,331 275,115 2,216 0.8
Provision for credit losses 4,000 4,000 - -
--------- --------- --------
Net interest income after
provision for credit losses 273,331 271,115 2,216 0.8
Other operating income 205,298 144,316 60,982 42.3
Other operating expenses 271,673 243,386 28,287 11.6
--------- --------- --------
Income before income taxes 206,956 172,045 34,911 20.3
--------- --------- --------
Applicable income taxes 57,719 46,447 11,272 24.3
Tax equivalent adjustment 6,111 6,761 (650) (9.6)
--------- --------- --------
Total applicable income taxes 63,830 53,208 10,622 20.0
--------- --------- --------
Net income $ 143,126 $ 118,837 $ 24,289 20.4
========= ========= ========= ====
Net income applicable to
common stock - diluted $ 136,669 $ 111,852 $ 24,817 22.2
========= ========= ========= ====
-10-
Increase (Decrease)
-------------------
Six Months Ended Six Months 1999 vs.
June 30, Six Months 1998
----------------------- -------------------
1999 1998 Amount Percent
----------- ---------- ----------- -------
(Dollars in thousands)
Interest income $ 1,404,940 $1,673,892 $ (268,952) (16.1)
Interest expense 863,988 1,130,550 (266,562) (23.6)
----------- ---------- -----------
Net interest income 540,952 543,342 (2,390) (0.4)
Provision for credit losses 8,000 8,000 - -
----------- ---------- -----------
Net interest income after
provision for credit losses 532,952 535,342 (2,390) (0.4)
Other operating income 359,779 266,912 92,867 34.8
Other operating expenses 624,522 495,128 129,394 26.1
----------- ---------- -----------
Income before income taxes 268,209 307,126 (38,917) (12.7)
----------- ---------- -----------
Applicable income taxes 66,148 56,109 10,039 17.9
Tax equivalent adjustment 12,433 14,706 (2,273) (15.5)
----------- ---------- -----------
Total applicable income taxes 78,581 70,815 7,766 11.0
----------- ---------- -----------
Net income $ 189,628 $ 236,311 $ (46,683) (19.8)
=========== ========== =========== ====
Net income applicable to
common stock - diluted $ 176,780 $ 222,272 $ (45,492) 20.5)
=========== ========== =========== ====
NET INTEREST INCOME - on a fully-taxable equivalent basis was $277.3 million in
the second quarter of 1999, compared to $275.1 million in the second quarter of
1998. As shown in the table on page 12, the net interest rate differential rose
to 2.60% in the second quarter of 1999 compared to 2.30% in the second quarter
of 1998, which reflected reductions in higher cost short-term liabilities and a
corresponding decline in interest-bearing deposits with banks, investment
securities and federal funds. Average interest-earning assets were $42.7 billion
in the second quarter of 1999, compared to $48.0 billion in the second quarter
of 1998. In the second quarter of 1999, $3.0 million of past-due interest was
received on previously written down Russian obligations and $5.2 million of
mortgage prepayment penalty income was recorded. The second quarter of 1998
reflected $8.9 million of additional earnings on the repayment of an
international loan. Premium amortization attributable to prepayments on
mortgage-backed securities was $17.2 million in the second quarter of 1999,
compared to $25.7 million in the second quarter of 1998.
Net interest income on a fully-taxable equivalent basis was $541.0 million in
the first six months of 1999, compared to $543.3 million in the comparable
period of 1998. As shown in the table on page 13, the net interest rate
differential was 2.56% for the first six months of 1999, compared to 2.33% in
the six-month period of 1998. Average interest-earning assets were $42.6 billion
for the first six months of 1999, compared to $47.0 billion for the
corresponding period of 1998. The decline in average interest-earning assets and
the increase in net interest rate differential for the six month period of 1999
compared to the six month period of 1998, were attributable to the same factors
that contributed to these changes in the second quarter of 1999.
-11-
<TABLE>
AVERAGE BALANCES, NET INTEREST DIFFERENTIAL,
AVERAGE RATES EARNED AND PAID
UNAUDITED
(Fully taxable equivalent basis)
(Dollars in thousands)
<CAPTION>
Three Months Ended June 30,
------------------------------------------------------------------------------------------
1999 1998
------------------------------------------- --------------------------------------------
Average Average
Interest Rates Interest Rates
Average Income/ Earned/ Average Income/ Earned/
Balance Expense Paid % Balance Expense Paid %
------------ --------- ---------- ----------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Interest-bearing deposits with banks $2,894,968 $ 32,663 4.53 $ 4,900,070 $ 77,785 6.37
Investment securities (1):
Taxable 20,996,437 343,185 6.56 23,061,629 386,210 6.72
Exempt from federal income taxes 1,330,929 24,105 7.26 1,359,317 26,791 7.91
------------ --------- ----------- ---------
Total investment securities 22,327,366 367,290 6.60 24,420,946 413,001 6.78
Trading account assets (2) 1,241,788 18,250 5.89 1,256,439 25,380 8.10
Federal funds sold and securities
purchased under resale agreements 2,057,333 24,959 4.87 3,789,488 52,380 5.54
Loans, net of unearned income:
Domestic offices 10,461,297 189,887 7.28 9,683,560 200,490 8.30
Foreign offices 3,755,721 71,808 7.67 3,989,617 88,864 8.93
------------ --------- ----------- ---------
Total loans, net of unearned income 14,217,018 261,695 7.38 13,673,177 289,354 8.49
------------ --------- ----------- ---------
Total interest-earning assets 42,738,473 $ 704,857 6.61 48,040,120 $ 857,900 7.16
========= ==== ========= ====
Cash and due from banks 918,170 896,245
Other assets 3,898,983 7,493,606
------------ -----------
Total assets $ 47,555,626 $56,429,971
============ ===========
Interest-bearing funds:
Consumer and other time deposits $9,982,356 $ 80,164 3.22 $10,507,775 $ 99,927 3.81
Certificates of deposit 654,344 6,564 4.02 1,281,931 16,293 5.10
Deposits in foreign offices 15,858,709 199,576 5.05 17,211,301 252,239 5.88
------------ --------- ----------- ---------
Total interest-bearing deposits 26,495,409 286,304 4.33 29,001,007 368,459 5.10
Trading account liabilities (2) 318,465 594 0.75 408,373 5,918 5.81
Short-term borrowings 6,596,960 75,420 4.59 10,114,149 131,700 5.22
Total long-term debt 4,345,990 65,208 6.02 4,764,732 76,708 6.46
------------ --------- ----------- ---------
Total interest-bearing funds 37,756,824 $ 427,526 4.54 44,288,261 $ 582,785 5.28
========= ==== ========= ====
Noninterest-bearing deposits:
In domestic offices 2,918,842 2,613,450
In foreign offices 204,607 246,061
Other liabilities 3,388,111 5,745,263
Stockholders' equity:
Preferred stock 500,000 500,000
Common stockholders' equity 2,787,242 3,036,936
------------ ------------
Total stockholders' equity 3,287,242 3,536,936
------------ ------------
Total liabilities and stockholders'
equity $ 47,555,626 $ 56,429,971
============ ============
Interest income/earning assets $ 704,857 6.61 $ 857,900 7.16
Interest expense/earning assets 427,526 4.01 582,785 4.86
--------- ---- --------- ----
Net interest differential $ 277,331 2.60 $ 275,115 2.30
========= ==== ========= ====
(1) Based on amortized or historic cost with the mark-to-market adjustment on
securities available for sale included in other assets.
(2) Excludes noninterest-bearing balances, which are included in other assets or
other liabilities, respectively.
</TABLE>
-12-
<TABLE>
AVERAGE BALANCES, NET INTEREST DIFFERENTIAL,
AVERAGE RATES EARNED AND PAID
UNAUDITED
(Fully taxable equivalent basis)
(Dollars in thousands)
<CAPTION>
Six Months Ended June 30,
--------------------------------------------------------------------------------
1999 1998
--------------------------------------- --------------------------------------
Average Average
Interest Rates Interest Rates
Average Income/ Earned/ Average Income/ Earned/
Balance Expense Paid % Balance Expense Paid %
------------ ----------- -------- ----------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Interest-bearing deposits with banks $ 2,934,883 $ 74,931 5.15 $ 4,552,310 $ 146,310 6.48
Investment securities (1):
Taxable 21,254,349 689,175 6.54 23,217,833 785,322 6.82
Exempt from federal income taxes 1,332,045 48,942 7.41 1,457,550 57,522 7.96
------------ ---------- ----------- ----------
Total investment securities 22,586,394 738,117 6.59 24,675,383 842,844 6.89
Trading account assets (2) 1,239,247 35,173 5.72 1,133,182 44,147 7.86
Federal funds sold and securities
purchased under resale agreements 1,949,443 46,831 4.84 3,328,292 91,697 5.56
Loans, net of unearned income:
Domestic offices 10,253,328 374,291 7.36 9,286,899 383,880 8.34
Foreign offices 3,652,525 135,597 7.49 3,975,497 165,014 8.37
------------ ---------- ----------- ----------
Total loans, net of unearned income 13,905,853 509,888 7.39 13,262,396 548,894 8.35
------------ ---------- ----------- ----------
Total interest-earning assets 42,615,820 $1,404,940 6.65 46,951,563 $1,673,892 7.19
========== ==== ========== ====
Cash and due from banks 931,733 847,726
Other assets 4,182,264 7,883,968
------------ -----------
Total assets $ 47,729,817 $55,683,257
============ ===========
Interest-bearing funds:
Consumer and other time deposits $ 10,041,231 $ 162,446 3.26 $10,532,463 $ 203,623 3.90
Certificates of deposit 710,861 14,861 4.22 1,410,929 35,926 5.13
Deposits in foreign offices 15,881,737 404,183 5.13 17,546,361 509,709 5.86
------------ ---------- ----------- ----------
Total interest-bearing deposits 26,633,829 581,490 4.40 29,489,753 749,258 5.12
Trading account liabilities (2) 350,710 1,489 0.86 394,711 8,850 4.52
Short-term borrowings 6,501,575 149,324 4.63 8,469,768 219,890 5.24
Total long-term debt 4,404,588 131,685 6.03 4,753,623 152,552 6.47
------------ ---------- ----------- ----------
Total interest-bearing funds 37,890,702 $ 863,988 4.60 43,107,855 $1,130,550 5.29
========== ==== ========== ====
Noninterest-bearing deposits:
In domestic offices 2,881,364 2,602,652
In foreign offices 217,183 257,654
Other liabilities 3,559,557 6,219,883
Stockholders' equity:
Preferred stock 500,000 500,000
Common stockholders' equity 2,681,011 2,995,213
------------ -----------
Total stockholders' equity 3,181,011 3,495,213
------------ -----------
Total liabilities and stockholders'
equity $ 47,729,817 $55,683,257
============ ===========
Interest income/earning assets $1,404,940 6.65 $1,673,892 7.19
Interest expense/earning assets 863,988 4.09 1,130,550 4.86
---------- ---- ---------- ----
Net interest differential $ 540,952 2.56 $ 543,342 2.33
========== ==== ========== ====
(1) Based on amortized or historic cost with the mark-to-market adjustment on
securities available for sale included in other assets.
(2) Excludes noninterest-bearing balances, which are included in other assets or
other liabilities, respectively.
</TABLE>
-13-
PROVISION FOR TRADING AND CREDIT LOSSES - The aggregate provisions of $4.0
million in the second quarters of 1999 and 1998 were related to credit losses.
The aggregate provision for the first six months of 1999 was $12.0 million which
consisted of $8.0 million related to credit losses and $4.0 million related to
trading credit losses which is reflected in trading revenue. The aggregate
provision of $8.0 million in the six-month period in 1998, related to credit
losses.
Net charge-offs were $4.6 million in the second quarter of 1999, compared to
$3.9 million in the second quarter of 1998. For the first six months of 1999,
net charge-offs were $8.7 million compared to net charge-offs of $9.4 million
for the six-month period of 1998. See Note 2 of notes to consolidated financial
statements for additional information related to the aggregate allowance for
credit losses and net charge-offs.
The following table presents summary data related to non-accrual loans and other
non-performing assets at periods ended:
June 30, March 31, Dec. 31,
(in thousands) 1999 1999 1998
------- ------- -------
Non-accrual loans:
Domestic $49,832 $78,378 $73,257
Foreign 8,162 8,211 7,597
------- ------- -------
Total non-accrual loans 57,994 86,589 80,854
Other assets and real estate owned 10,785 7,374 12,297
------- ------- -------
Total non-performing assets $68,779 $93,963 $93,151
======= ======= =======
Non-accrual loans as a percentage of
loans outstanding at period end 0.41% 0.62% 0.59%
======= ======= =======
Total non-performing assets as a
percentage of period end total assets 0.13% 0.19% 0.18%
======= ======= =======
OTHER OPERATING INCOME - was $205.3 million in the second quarter of 1999, which
included a gain on a real estate investment of $69.8 million discussed below,
compared to $144.3 million in the second quarter of 1998. For the first six
months of 1999, such income was $359.8 million, compared to $266.9 million in
the corresponding period of 1998.
Total trading revenue, including associated net interest income, which is
reported as net interest income, was $56.5 million in the second quarter of
1999, compared to $63.7 million in the second quarter of 1998. The second
quarter to second quarter change reflected increased trading account profits and
commissions which were more than offset by declines in precious metals and
foreign exchange trading income. For the six-month period ended June 30, 1999,
such revenue amounted to $146.5 million, compared to $129.6 million in the
corresponding period of 1998. Trading net interest income, which was primarily
attributable to precious metals and trading account activities, was $19.1
million and $36.8 million, respectively, in the second quarter and first six
months of 1999 compared to $20.2 million and $46.0 million in the corresponding
periods of 1998. The items of net interest income/(expense) in the following
table represent the net interest earned or paid on instruments held for trading,
as well as an allocation by management to reflect the funding benefit or cost
associated with the trading positions.
-14
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
---------------------- ----------------------
1999 1998 1999 1998
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
(In thousands)
Precious metals:
Trading revenue (loss) $ (2,239) $ 254 $ 2,054 $ 3,620
Net interest income 15,096 16,516 30,552 35,438
--------- --------- --------- ---------
Total 12,857 16,770 32,606 39,058
--------- --------- --------- ---------
Foreign exchange:
Trading revenue 28,586 41,979 91,268 72,222
Net interest expense (1,268) (2,213) (2,507) (2,831)
--------- ---------- --------- ---------
Total 27,318 39,766 88,761 69,391
--------- ---------- --------- ---------
Trading account profits and
commissions:
Trading revenue 11,078 1,230 20,406 7,759
Net interest income 5,282 5,903 8,767 13,422
--------- --------- --------- ---------
Total 16,360 7,133 29,173 21,181
--------- --------- --------- ---------
Provision for trading credit losses - - (4,000) -
--------- --------- --------- ---------
Total:
Trading revenue 37,425 43,463 109,728 83,601
Net interest income 19,110 20,206 36,812 46,029
--------- --------- --------- ---------
Total $ 56,535 $ 63,669 $ 146,540 $ 129,630
========= ========= ========= =========
</TABLE>
Investment securities transactions resulted in net gains of $11.0 million in the
second quarter of 1999, compared to net gains of $12.4 million in the second
quarter of 1998. The net gains in the second quarter of 1999 were realized from
the repayment and sales of Russian securities. For the first six months of 1999,
net gains were $17.3 million compared to $3.9 million in the first six months of
1998. The net gains for the first six months of 1999 were primarily from the
repayment and sales of Russian securities and sales of Brazilian securities.
Loans sold or held for sale, net resulted in gains of $0.2 million in the second
quarter of 1999, compared to a loss of $0.2 million in the second quarter of
1998. For the six-month period of 1999, such gain amounted to $0.1 million
compared to $3.5 million in the corresponding period of 1998.
Commission income consists primarily of securities brokerage commissions, fees
for the issuance of banker acceptances and letters of credit and retail
services. Such income was $24.6 million in the second quarter of 1999, compared
to $24.2 million in the second quarter of 1998. For the first six months of
1999, commission income amounted to $50.4 million compared to $48.2 million for
the six-month period of 1998.
-15-
Equity in the earnings of affiliate was $41.9 million in the second quarter of
1999, compared to $36.8 million in the second quarter of 1998. This income
represents the Corporation's share of the earnings of Safra Republic Holdings
S.A. ("SRH"), a European international private banking group of which the
Corporation owns approximately 49%. The second quarter to second quarter
increase reflects a $34.8 million pre-tax gain related to SRH's investment in
the Canary Wharf Group and the completion of the Canary Wharf initial public
offering in April 1999. The effect of the gain was partially offset by $4.0
million of merger-related expenses and $4.5 million for professional fees and
employee benefits. SRH's total client account assets, both on-and off-balance
sheet, increased to $33.9 billion at June 30, 1999 from $32.1 billion at June
30, 1998. This change consisted of increases of $1.4 billion in client portfolio
assets and $0.4 billion in client deposits. For the six-month period of 1999,
equity in the earnings of SRH was $72.4 million, compared to $72.7 million for
the six-month period of last year.
Other income was $90.1 million in the second quarter of 1999, which included the
$69.8 million gain relating to an investment in the Canary Wharf Group and the
completion of the Canary Wharf initial public offering, compared to $27.6
million in the second quarter of 1998, which included a gain of $4.4 million
related to sales of real estate. The consumer financial services group and the
private banking group generate fee income through service charges to clients for
deposit accounts and trust and securities activities. Other income included
revenues from these activities of $17.0 million in the second quarter of 1999,
compared to $16.4 million in the second quarter of 1998 and $33.4 million for
the six months of 1999, compared to $32.0 million for the six months of 1998.
Other income for the six-month periods ended June 30, 1999 and 1998 was $109.8
million and $55.0 million, respectively.
OTHER OPERATING EXPENSES - were $251.4 million in the second quarter of 1999,
excluding merger related executive pension and incentive accruals and certain
other merger-related expenses in the aggregate amount of $20.3 million further
discussed below, compared to $243.4 in the second quarter of 1998. For the first
six months of 1999, other operating expenses were $500.2 million, excluding
restructuring and one-time special charges of $104.0 million discussed below and
the $20.3 million mentioned above, compared to $495.1 million in the
corresponding period of 1998. Year 2000 expenses for the second quarter and
first six months of 1999 were $3.5 million and $8.2 million, respectively,
compared to $8.6 million and $27.5 million, respectively, for the corresponding
periods of 1998.
Salaries and employee benefits were $141.1 million in the second quarter of
1999, excluding a charge of $16.5 million related to the implementation of a
Supplemental Executive Retirement Plan to retain the services of certain
executive officers, compared to $133.8 million in the second quarter of 1998.
For the six months of 1999, salaries and employee benefits were $280.8 million,
excluding $22.3 million of executive pension and incentive accruals, and
one-time special charges, compared to $266.6 million for the six months of 1998.
The increases for both the second quarter and six-month periods of 1999, when
compared to 1998 were due to higher levels of incentive compensation accruals.
Occupancy expense was $17.8 million in the second quarter of 1999 and $36.7
million for the six-month period of 1999, compared to $18.1 million and $37.0
million in the corresponding periods of 1998.
-16-
All other expenses were $89.0 million in the second quarter and $175.2 million
in the first six months of 1999, compared to $83.9 million and $166.0 million in
the corresponding periods of 1998. The respective totals exclude $7.3 million in
the second quarter of 1999, $7.6 million in the second quarter of 1998, $12.6
million in the first six months of 1999 and $25.5 million in the first six
months of 1998 of merger-related professional fees, one-time special charges and
Year 2000 expenses. Amortization of goodwill and other intangible assets was
$6.8 million in the second quarter of 1999, compared to $6.7 million in the
second quarter of last year.
TOTAL APPLICABLE INCOME TAXES - have been adjusted (increased) to reflect the
inclusion of interest income on tax exempt obligations as if they were subject
to federal, state and local taxes, after giving effect to the deductibility of
state and local taxes for federal income tax purposes. Total applicable income
taxes increased $10.6 million in the second quarter of 1999 and $7.8 million
during the first six months of 1999 when compared to the corresponding periods
of 1998. The effective tax rates, total applicable income taxes as a percentage
of income before income taxes, were 31% for the second quarter and 29% for the
six-month period of 1999, compared to 31% and 23%, respectively, in the
corresponding periods of last year. The effective tax rate for the six-month
period of 1998 reflected the reversal of certain tax liabilities accrued in
prior years.
Lines-of-Business
The Corporation's operation's are organized into five major business segments:
Private Banking, Consumer Financial Services, Lending, Global Treasury and
Global Markets. As a result of the Reduction in Force announced in the first
quarter of 1999, the five major business segments were realigned and historical
results have been adjusted to reflect this realignment. The following table
presents the results by segment for the three-month periods ended June 30, 1999
and 1998.
<TABLE>
<CAPTION>
Three Months Ended June 30, 1999
----------------------------------------------------------------------------------------
Consumer
Private Financial Global Global
Banking Services Lending Treasury Markets Other Total
---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
(Dollars in millions)
Net income (loss) $ 32.2 $ 18.8 $ 15.6 $ 86.2 $ 6.4 $ (16.1) $ 143.1
Average assets 2,681 955 10,038 32,751 4,469 (3,338) 47,556
Average liabilities and
preferred stock 8,552 11,167 8,120 12,278 5,614 (963) 44,768
Average risk-adjusted equity 571 411 341 1,246 215 3 2,787
Efficiency ratio 47% 72% 58% 21% 81% - 57%
Return on average risk-
adjusted equity 22.6% 18.3% 18.4% 25.7% 12.0% - 19.7%
Three Months Ended June 30, 1998
----------------------------------------------------------------------------------------
Consumer
Private Financial Global Global
Banking Services Lending Treasury Markets Other Total
---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
(Dollars in millions)
Net income $ 29.6 $ 15.4 $ 16.2 $ 38.4 $ 15.4 $ 3.8 $ 118.8
Average assets 2,684 845 11,036 38,103 8,724 (4,962) 56,430
Average liabilities and
preferred stock 10,955 11,607 8,513 17,014 11,842 (6,538) 53,393
Average risk-adjusted equity 563 428 368 1,403 275 - 3,037
Efficiency ratio 45% 72% 58% 40% 57% - 59%
Return on average risk-
adjusted equity 21.1% 14.4% 17.7% 9.0% 22.4% - 14.8%
</TABLE>
-17-
The variances in net income between the second quarter of 1999 and the same
quarter in 1998 are described below.
Private Banking had net income of $32.2 million in the second quarter of 1999,
compared to $29.6 million in the second quarter of 1998. The increase in net
income of $2.6 million related to an increase in the equity earnings of SRH,
which included a gain related to SRH's investment in the Canary Wharf Group that
was partially offset by merger-related expenses, professional fees and employee
benefits and decreases in income from the Asian Private Banking group
attributable to higher levels of expenses related to new staff hirings and lower
earnings. The Private Banking segment had an increase in total private client
account assets, both on-and-off balance sheet, to $25.3 billion at June 30, 1999
from $20.9 billion at June 30, 1998.
Consumer Financial Services had net income of $18.8 million for the second
quarter of 1999, compared to $15.4 million for the second quarter of 1998. The
$3.4 million increase in net income resulted from higher fees and commissions,
earnings on funds employed and improvement in consumer lending.
Lending had net income of $15.6 million for the second quarter of 1999, compared
to $16.2 million in the second quarter of 1998. The markets where the
Corporation's lending units compete continue to be highly competitive with
respect to transactions that meet our credit risk requirements with the proper
returns.
Global Treasury had net income of $86.2 million for the second quarter of 1999,
compared to $38.4 million in the second quarter of 1998, an increase of $47.8
million. This increase resulted primarily from the gain of $69.8 million on the
Corporation's investment in the Canary Wharf Group. Interest totaling $3.0
million was received on previously written down Russian obligations in the
second quarter of 1999.
Global Markets had net income of $6.4 million in the second quarter of 1999,
compared to $15.4 million in the second quarter of 1998. The decrease of $9.0
million is attributable to foreign exchange and precious metals trading
activities, which was partially offset by an increase in trading account profits
and commissions.
Other had a net loss of ($16.1) million in the second quarter of 1999, compared
to net income of $3.8 million in the second quarter of 1998. This decline
includes intercompany eliminations in 1999 that are being segregated from the
lines of business and the residual effects of unallocated administrative
expenses, such as merger-related expenses, which amounted to $20.3 million. The
decline was partially offset by a reduction in Year 2000 expenses which amounted
to $4.0 million in the second quarter of 1999, compared to $9.9 million in the
second quarter of 1998.
-18-
The following table presents the results by segment for the six-month periods
ended June 30, 1999 and 1998.
<TABLE>
<CAPTION>
Six Months Ended June 30, 1999
----------------------------------------------------------------------------------------
Consumer
Private Financial Global Global
Banking Services Lending Treasury Markets Other Total
---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
(Dollars in millions)
Net income $ 56.5 $ 41.7 $ 27.1 $ 128.6 $ 27.4 $ (91.7) $ 189.6
Average assets 2,719 942 9,952 32,674 4,816 (3,373) 47,730
Average liabilities and
preferred stock 8,627 11,260 8,144 12,500 6,049 (1,531) 45,049
Average risk-adjusted equity 560 412 345 1,142 220 2 2,681
Efficiency ratio 49% 71% 62% 30% 69% - 70%
Return on average risk-
adjusted equity 20.4% 20.4% 15.9% 20.4% 25.2% - 13.3%
Six Months Ended June 30, 1998
----------------------------------------------------------------------------------------
Consumer
Private Financial Global Global
Banking Services Lending Treasury Markets Other Total
---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
(Dollars in millions)
Net income $ 59.5 $ 28.4 $ 30.1 $ 91.0 $ 25.8 $ 1.5 $ 236.3
Average assets 2,766 834 10,600 37,769 8,668 (4,954) 55,683
Average liabilities and
preferred stock 10,963 11,622 8,487 16,597 11,729 (6,710) 52,688
Average risk-adjusted equity 557 424 376 1,370 268 - 2,995
Efficiency ratio 45% 74% 59% 45% 63% - 62%
Return on average risk-
adjusted equity 21.6% 13.5% 16.2% 11.3% 19.4% - 15.0%
</TABLE>
The variances in net income between the six months ended June 30, 1999 and the
same period in 1998 are described below.
Private Banking had net income of $56.5 million for the six months ended June
30, 1999, compared to $59.5 million in 1998. The decrease of $3.1 million
reflects $7.8 million of one-time incentive management fees which were included
in the first six months of 1998 from Safra Republic Investments Limited and by
decreases in Asian Private Banking income due to expenses related to new staff
hirings and lower earnings. Total private client account assets, both on-and-off
balance sheet, for the Private Banking segment increased to $25.3 billion at
June 30, 1999 from $20.9 billion at June 30, 1998.
Consumer Financial Services had net income of $41.7 million for the six months
ended June 30, 1999, compared to $28.4 million in the corresponding period of
1998. The increase of $13.3 million for the six months of 1999, resulted from
higher fees and commissions, particularly from Republic Financial Services,
earnings on funds employed and improvement in consumer lending. Republic
launched its Internet Banking product during the first quarter of 1999. This
product offers customers the same account access, funds transfer, and bill
payment capabilities already offered in the PC Banking product, but now allows
them access to these services from any computer connected to the internet. In
the second quarter of 1999, Republic successfully introduced Webloan, a
innovative new internet-based system that allows its mortgage brokers, sales
executives and retail outlets to prequalify quickly a prospect for a mortgage
loan from the point of sale, significantly reducing loan origination time.
-19-
Lending had net income of $27.1 million for the six months ended June 30, 1999,
compared to $30.1 million for the six months ended June 30, 1998. This decrease
of $3.0 million reflects a decline in commercial real estate due to one-time
prepayment penalties and OREO sales in 1998, partially offset by improvements in
RNB Mexico.
Global Treasury had net income of $128.6 for the six months ended June 30, 1999,
compared to $91.0 million for the six-month period of 1998. This increase of
$37.6 million primarily reflects a gain of $69.8 million on the Republic's
investment in the Canary Wharf Group in the second quarter of 1999. Interest
totaling $6.1 million for previously written down Russian obligations was
received during the six months ended June 30, 1999. These increases were
partially offset by the effects of reducing the Corporation's exposure to
emerging markets and competitive market conditions.
Global Markets had net income of $27.4 million for the six months ended June 30,
1999, compared to $25.8 million in the six-month period of 1998.
Other had a net (loss) of ($91.7) million for the six months ended June 30,
1999, compared to net income of $1.4 million for the six-month period in 1998.
The decrease of $93.1 million reflects the restructuring charge of $97 million
in the first quarter of 1999, and intercompany eliminations being segregated
from the lines of business in 1999 and the residual effects of unallocated
activities, including merger-related costs of $20.3 million offset by a decline
in Year 2000 costs which were $9.3 million for the six-month period of 1999 and
$20.0 million for the six-month period of 1998.
STATEMENT OF CONDITION
CAPITAL RATIOS
The Corporation's leverage ratio, Tier 1 capital to quarterly average assets,
and its risk-based capital ratios, Tier 1 and total qualifying capital to
risk-weighted assets, include the assets and capital of Safra Republic on a
consolidated basis in accordance with the requirements of the Federal Reserve
Board (the "FRB") specifically applied to the Corporation. These ratios do not
reflect the effect on stockholders' equity related to the FASB 115 valuation of
the Corporation's portfolio of securities available for sale which is included
in accumulated other comprehensive loss, net of taxes.
The following table presents the Corporation's risk-based capital ratios:
June 30, Dec. 31,
1999 1998
-------- -------
Risk-based capital ratios:
Tier 1 risk-based capital ratio 13.27% 13.95%
Total risk-based capital ratio 21.61% 22.99%
Leverage ratio 6.73% 6.51%
Common stockholders'
equity/total assets 5.41% 5.24%
CROSS-BORDER EXPOSURE
The following table presents information on the Corporation's cross-border
exposure to Latin American countries at the dates indicated:
-20-
Net Cross-border Outstandings at (1)
-----------------------------------
(In millions) June 30, 1999 Dec. 31, 1998
---------------- ----------------
Brazil $459(2) $720(2)
Mexico 264 350
Argentina 257 279
Venezuela 93 153
Chile 67 65
(1) Net cross-border outstandings include foreign office local country claims on
local residents less local country liabilities.
(2) Net outstandings before the FASB 115 appreciation adjustment of $3 million
at June 30, 1999 and depreciation adjustment of $17 million at December 31,
1998, exclude $636 million at June 30, 1999 and $653 million at December 31,
1998 of sovereign risk assets, funded with U.S. dollars where the providers of
funds agree that, in the event their claims cannot be repaid in the designated
currency due to sovereign default or currency exchange restrictions in a given
country, they will wait to receive the non-local currency until such time as
such default is cured or the currency restrictions are removed or such currency
becomes available in the local market; under limited circumstances, the
providers may receive either local currency or local market debt instruments.
Also excluded are net outstandings of approximately $150 million at June 30,
1999 and $147 million at December 31, 1998, which represent the Corporation's
share of SRH's net exposure.
The Corporation's Latin American exposure consists primarily of sovereign
securities. The mark-to-market value of these securities is fully reflected,
after tax benefit, as an adjustment to stockholders' equity through accumulated
other comprehensive loss.
RISK ELEMENTS
Year 2000 Risk
STATE OF READINESS
SCOPE OF PROGRAM - The Corporation continues to manage the risks arising from
the Year 2000 date change ("Year 2000 Risk") through its Ready 2000 Program
Management Office ("PMO"). The Ready 2000 Program covers both information
technology ("IT") applications and non-information technology ("non-IT")
applications.
PROGRAM DESCRIPTION - As the process of certifying its various applications is
essentially complete, the Corporation is focusing its attention on other aspects
of its Ready 2000 program. These include the continued monitoring of Year 2000
Risk posed by third parties, managing its "clean management" program and testing
its business resumption contingency plans. The Corporation is also finalizing
the procedures that will enable it to monitor the Corporation's operations on a
centralized basis on and after January 1, 2000 and thereby quickly recognize and
address any issues which may arise, commonly known as "event planning".
-21-
When the PMO certifies an application, it has been subjected to such standards
as are appropriate for that type of application and a reasonable belief was
reached that the application will perform in a Year 2000 ready manner. The
Corporation's internal certification of an application does not mean that it is
warranting or guaranteeing to any customer or other third party that the
application will perform in a Year 2000 ready manner. The Corporation is,
however, confident that its certification process will be effective.
Once an application is certified, it becomes subject to the PMO's "clean
management" procedures. Clean management means that if a certified application
is modified subsequently in a way that affects date recognition or processing,
the modified application may not be returned to production without first being
re-tested in order to confirm that the modified application remains Year 2000
ready.
PROGRAM STATUS - As of June 30, 1999, the Corporation certified 96 percent of
all its IT and non-IT applications, including 99 percent of its mission-critical
applications. A small number of applications are not yet certified because doing
so requires the participation of a third party, which has not yet occurred, or
because the application was recently added to inventory. The Corporation expects
to complete certifying all remaining applications that will be implemented this
year. The table below illustrates the overall progress of the Corporation's
Ready 2000 effort as of this date as reflected in the percentages of total
milestones completed and applications certified.
% of Total Milestones % of Total Applications
Completed at June 30, 1999 Certified at June 30, 1999
--------------------------- --------------------------
IT Non-IT IT Non-IT
---------- ----------- ----------- -----------
Mission critical 100 100 99 100
Medium 97 99 91 97
Low 99 100 98 99
In addition to conducting its own Ready 2000 program, the Corporation is
reviewing the results of the progress of SRH's Year 2000 readiness program. As
of June 30, 1999, SRH has completed remediating and testing 95% of its
approximately 400 applications, including 97% of its mission-critical business
applications. SRH expects to complete certifying its remaining applications
shortly. SRH is finalizing its business resumption contingency plans for its
core business processes and will be validating, testing and refining such plans
during the remainder of this year.
COSTS
The Corporation estimates that total incremental costs associated with its Year
2000 readiness efforts through the end of the first quarter of 2000, which are
being funded through general operating funds, will be approximately $60 million.
At the inception of the Ready 2000 program, the Corporation did not institute a
formal system for tracking all internal IT resource costs, which would consist
principally of the time of IT personnel and certain personnel from other
business units spent on Year 2000 activities. However, management believes that
these internal resources devoted to Year 2000 readiness are not a significant
portion of the overall IT budget.
The incremental expenses incurred by the Corporation in connection with its
Ready 2000 program above are not expected to include a material amount of
expenses pertaining to the accelerated replacement of any software or hardware
systems. In addition, the Corporation's Year 2000 readiness program has not
resulted in the deferral or cancellation of any material IT projects.
-22-
YEAR 2000 RISK
The Corporation is addressing Year 2000 risk with respect to business activities
conducted through its own applications and systems and those that require
reliance upon or interaction with a third party. In either case, a partial
malfunction or total failure could cause the Corporation to suffer a business
slowdown or interruption, resulting in financial loss, legal liability or action
by its regulators that could have a material adverse affect on the Corporation's
financial condition and operations.
Business activities conducted using applications that the Corporation owns or
whose use is licensed from a vendor include trading with counterparties, buying
and selling securities on public exchanges and in over-the-counter markets,
managing customer deposits and transactions and maintaining accurate accounting
records. The malfunction or failure of its own systems could result in a
financial loss to the Corporation and legal liability to customers and
counterparties for whom transactions could not be initiated or completed.
The Corporation also faces Year 2000 Risk arising from numerous third parties
whose services or relationships are significant to its operations. Even if the
Corporation completes its Ready 2000 program successfully, failures by such
third parties to address their Year 2000 Risk may disrupt the Corporation's
operations and cause it to incur financial losses. These third parties include
major trading counterparties, securities exchanges, clearing organizations,
service bureaus, vendors, generating utilities, telecommunication companies and
borrowers. Accordingly, the Corporation is assessing the readiness of such third
parties in order to confirm that they are evaluating their own Year 2000 Risk
and, as necessary, remediating or replacing their hardware and software systems,
as well as developing contingency plans addressing unexpected disruptions caused
by the Year 2000 date change.
On May 10, 1999, the Corporation announced that it had agreed to be acquired by
HSBC. This acquisition is expected to be consummated during the fourth quarter
of 1999. The HSBC acquisition will result in the Corporation's various business
units being consolidated into complementary HSBC operations. The Corporation and
HSBC plan to delay the operational consolidation of the two companies until
after January 1, 2000 in order to avoid adversely affecting the Year 2000
readiness preparations that have been made by each party.
The Corporation reported previously that a third party provider has assumed
responsibility for the operations of the Corporation's data centers and related
network and communication operations and the measures it was taking to mitigate
Year 2000 Risk pertaining to such arrangement.
While the Corporation believes it is well-prepared for the Year 2000 date
change, if an unexpected problem arises in one of its own applications or one
for which it relies on a third party provider the Corporation has prepared
contingency plans addressing Year 2000 Risk, as more fully described below.
CONTINGENCY PLANNING
While the Corporation is confident that its Ready 2000 program will be
successful, the possibility remains that the Corporation may experience Year
2000-related disruptions in its own applications or in those supplied by third
parties. The Corporation has evaluated this type of Year 2000 Risk and developed
contingency plans addressing it. During 1998 the Corporation developed
remediation contingency plans that provided an alternative means for certifying
its mission-critical business applications to be Year 2000 ready in a timely
manner. The Corporation has recently completed developing business resumption
contingency plans for these same applications.
-23-
Business resumption contingency planning addresses the risks of a failure by
each core business process as a result of the Year 2000 date change, including
the failure of systems maintained by third parties. The Corporation has revised
its existing business resumption contingency plans in order to address these
special risks, including developing a methodology for validating each plan. The
Corporation will be testing and refining its business resumption contingency
plans for the remainder of this year.
RISK MANAGEMENT
ON- AND OFF-BALANCE-SHEET MARKET RISK SENSITIVITY
One of the Corporation's most significant risks is to U.S. interest rate
fluctuations in its investing, lending and borrowing activities. The extent of
this risk will fluctuate when the level and interest sensitivity characteristics
of its interest-earning assets differs from its interest-bearing liabilities.
Based on the Corporation's asset and liability positions, including associated
off-balance-sheet interest rate hedges, primarily swaps and caps, the
Corporation has simulated the effect of an immediate 10% parallel upward shift
in the base yield curve and the impact of this shift on the fair value of its
financial assets and liabilities and on net interest income at June 30, 1999 and
December 31, 1998.
Based on the results of this simulation, the Corporation estimated that this
change in interest rates would reduce the value of net financial assets by
approximately $373 million and $131 million at June 30, 1999 and December 31,
1998, respectively. The change in value in financial assets was primarily due to
a lengthening of the average maturities in the Corporation's mortgage-backed
securities portfolio during the six-month period. Net interest income would
increase by approximately $12 million and $20 million over the twelve months
from the respective simulation dates.
-24-
TRADING-MARKET RISK SENSITIVITY
The Corporation uses Value at Risk ("VaR") analysis which attempts to determine
the potential U.S. dollar loss resulting from unfavorable market developments
within a given time horizon (typically one day) and given a certain confidence
level (99%) across all global trading positions.
The following tables present the calculated VaR amounts based on stress
projections given a 99% confidence level across all global trading positions,
for the periods indicated in 1999 and 1998 and the VaR components by risk
category at June 30, 1999 and December 31, 1998, after considering correlation.
6 Mos. Ended June 30, 1999 1-day VaR at
- ----------------------------------- ---------------------
Average Minimum Maximum June 30, Dec. 31,
- --------- ----------- ----------- Risk Asset Class 1999 1998
(In millions) ------------------- ---------- ---------
$4.9 $3.0 $8.9 (In millions)
6 Mos. Ended June 30, 1998 Foreign exchange $2.2 $0.5
- ----------------------------------- Interest rate 7.6 3.8
Average Minimum Maximum Commodity 2.6 1.5
- --------- ----------- ----------- Equity 0.1 -
(In millions) Optionality 1.8 1.3
$11.1 $6.2 $17.4 Correlation effects (6.3) (2.9)
---------- ---------
$8.0 $4.2
2nd Qtr 1999 ========== =========
- -----------------------------------
Average Minimum Maximum
- --------- ----------- -----------
(In millions)
$5.4 $3.6 $8.9
2nd Qtr 1998
- -----------------------------------
Average Minimum Maximum
- --------- ----------- -----------
(In millions)
$11.6 $9.8 $17.4
-25-
FORWARD-LOOKING INFORMATION
IN CONNECTION WITH THE INFORMATION RELATING TO NET INTEREST INCOME, THE VALUE AT
RISK ANALYSIS, THE YEAR 2000 AND THE ANTICIPATED SAVINGS FROM THE
LINE-OF-BUSINESS REVIEW, THIS REPORT CONTAINS STATEMENTS THAT CONSTITUTE
FORWARD-LOOKING STATEMENTS AND ARE SUBJECT TO CERTAIN RISKS AND UNCERTAINTIES
THAT COULD CAUSE THE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE CONTAINED IN
THIS REPORT. WITH RESPECT TO NET INTEREST INCOME AND THE VALUE AT RISK ANALYSIS,
THE ACTUAL RESULTS MIGHT BE AFFECTED BY SUCH UNCERTAINTIES AS DEFAULTS IN
CERTAIN EMERGING MARKET COUNTRIES AND CHANGES IN CONDITIONS IN THOSE MARKETS,
CHANGES IN INTEREST RATES, CHANGES IN THE GLOBAL SECURITIES MARKETS AND THE
GENERAL ECONOMIC ENVIRONMENT AND THE ACTIONS THAT THE CORPORATION MIGHT TAKE IN
LIGHT OF SUCH CHANGES. WITH RESPECT TO THE YEAR 2000, UNCERTAINTIES COULD
INCLUDE UNANTICIPATED EVENTS RELATING TO WORK ON THE DEVELOPMENTS OR
MODIFICATIONS TO COMPUTER SYSTEMS AND TO SOFTWARE, INCLUDING WORK PERFORMED BY
SUPPLIERS OR VENDORS TO THE CORPORATION, AND THE SATISFACTORY RESOLUTION OF SUCH
EVENTS MAY BE BEYOND THE CORPORATION'S CONTROL IN RESPONDING TO SUCH EVENTS.
WITH RESPECT TO THE CONTEMPLATED SAVINGS IN OPERATING EXPENSES, THE ACTUAL
RESULTS MAY BE AFFECTED BY, AMONG OTHER THINGS, THE INABILITY TO REALIZE FULLY
THE EXPECTED COST SAVINGS WITHIN THE EXPECTED TIME FRAME, COMPETITIVE PRESSURES
AMONG FINANCIAL INSTITUTIONS MAY INCREASE SIGNIFICANTLY, UNANTICIPATED CHANGES
IN THE REGULATORY ENVIRONMENT MAY BE ENACTED AND TECHNOLOGICAL CHANGES MAY BE
MORE DIFFICULT OR EXPENSIVE THAN ANTICIPATED.
READERS ARE CAUTIONED NOT TO PLACE UNDUE RELIANCE ON THESE FORWARD-LOOKING
STATEMENTS, WHICH SPEAK ONLY TO THE DATE OF THIS REPORT.
-26-
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders.
(a) The Corporation's Annual Meeting of Stockholders was held on
April 21, 1999.
(c) The following matters were voted upon at such meeting:
(i) Election of the following twenty persons as directors of the Corporation,
with shares voted for and withheld indicated.
NOMINEE SHARES FOR SHARES WITHHELD
Cyril S. Dwek 91,874,085 1,025,452
Ernest Ginsberg 91,878,704 1,020,833
Nathan Hasson 91,879,777 1,019,760
Peter Kimmelman 92,031,918 867,619
Leonard Lieberman 92,029,668 869,869
William C. MacMillen, Jr. 92,003,492 896,045
Peter J. Mansbach 92,030,533 869,004
Martin F. Mertz 92,003,083 896,453
James L. Morice 92,031,918 867,619
E. Daniel Morris 91,482,304 1,417,233
Janet L. Norwood 91,850,009 1,049,529
John A. Pancetti 92,031,514 868,022
Vito S. Portera 92,031,718 867,819
William P. Rogers 92,002,355 897,183
Elias Saal 92,027,655 871,882
Steven J. Saali 91,949,993 949,544
Dov C. Schlein 91,950,866 948,671
Rodney G. Ward 92,031,918 867,619
Walter H. Weiner 92,003,799 895,738
George T. Wendler 92,031,918 867,619
(ii) Approval of selection of KPMG LLP, as the Corporation's auditors for 1999.
The number of votes cast for or against, as well as the number of
abstentions as to such matter, were as follows:
FOR AGAINST ABSTAIN
--- ------- -------
92,488,741 189,284 221,510
(iii) Reapproval of the 1994 Performance Based Incentive Compensation Plan. The
number of votes cast for or against, as well as the number of abstentions
as to such matter, were as follows:
FOR AGAINST ABSTAIN
--- ------- -------
89,864,019 2,690,188 345,323
-27-
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
11. Computation of Earnings Per Common Share
27. Financial Data Schedule
(b) Reports on Form 8-K
(i) On May 10, 1999 a report on Form 8-K was filed to report that the
Corporation and SRH had entered into a definitive agreement providing for
(1) the merger of the Corporation with a wholly owned subsidiary of HSBC
Holdings plc ("HSBC") in which each outstanding common share of the
Corporation would be converted into the right to receive $72.00 in cash and
(2) a tender offer for the outstanding ordinary shares of SRH (other than
those owned by the Corporation) at $72.00 per share. Saban S.A., the
principal stockholder of the Corporation, which is controlled by the
Corporation's founder, Edmond J. Safra, had irrevocably undertaken to vote
its 29% stockholding in the Corporation in favor of the merger and, in
addition, to accept the tender offer in respect of its 20.8% stockholding
in SRH.
The consummation of the transactions are subject to a number of conditions,
including the Corporation's stockholder approval and regulatory approvals
in various jurisdictions. The merger and tender offer are to close at the
same time, which is expected to be during the last quarter of 1999.
In connection with the merger, the Corporation has issued an option to
HSBC, which would allow HSBC to purchase up to 19.9% of the outstanding
shares of RNYC at $72.00 per share in limited circumstances.
(ii) On May 13, 1999 an amended report on Form 8-K/A was filed in connection
with the Corporation's current report on Form 8-K, dated May 10, 1999. In
connection with the merger, the Corporation had issued an option to HSBC to
purchase up to 19.9% of the outstanding shares of the Corporation at $72.00
per share in limited circumstances. Also in connection with the merger,
Edmond J. Safra, RNYC Holdings Limited, Congregation Beit Yaakov and Saban
S.A. entered into a Stockholder Agreement to vote in favor of the merger.
This amended Current Report on Form 8-K included the (i) Transaction
Agreement and Plan of Merger by and among HSBC, the Corporation and SRH
dated as of May 10, 1999; (ii) Stock Option Agreement, dated May 10, 1999
between the Corporation and HSBC; and (iii) Stockholder Agreement, dated as
of May 10, 1999 by and among RNYC Holdings Limited, Congregation Beit
Yaakov, Saban S.A. and Edmond J. Safra.
-28-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
REPUBLIC NEW YORK CORPORATION
Dated: August 13, 1999 BY /S/DOV C. SCHLEIN
--------------------
Dov C. Schlein
Chairman of the Board
Dated: August 13, 1999 BY /S/STAN MARTIN
-----------------
Stan Martin
Executive Vice President and
Chief Financial Officer
-29-
<PAGE>
FORM 10-Q
QUARTERLY REPORT
For the fiscal quarter ended June 30, 1999
REPUBLIC NEW YORK CORPORATION
EXHIBIT INDEX
NO. EXHIBIT DESCRIPTION
11 Computation of Earnings Per Common Share
27 Financial Data Schedule
<TABLE>
<CAPTION>
REPUBLIC NEW YORK CORPORATION AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER COMMON SHARE
UNAUDITED
(In thousands except per share data)
Six Months Ended Three Months Ended
June 30, June 30,
---------------------- ----------------------
1999 1998 1999 1998
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Basic earnings:
Net income $ 189,628 $ 236,311 $ 143,126 $ 118,837
Less preferred stock dividends (12,731) (13,175) (6,355) (6,573)
Less dividends on restricted stock plan shares (574) (1,747) (225) (882)
--------- --------- --------- ---------
Net income applicable to common stock - basic $ 176,323 $ 221,389 $ 136,546 $ 111,382
========= ========= ========= =========
Average common shares outstanding - excluding restricted
stock plan shares 102,929 104,795 102,541 104,691
========= ========= ========= =========
Basic earnings per common share $ 1.71 $ 2.11 $ 1.33 $ 1.06
========= ========= ========= =========
Diluted earnings:
Net income applicable to common stock - basic $ 176,323 $ 221,389 $ 136,546 $ 111,382
Dividend adjustment on restricted stock plan
shares to reflect shares assumed issued 457 883 123 470
--------- --------- --------- ---------
Net income applicable to common stock - diluted $ 176,780 $ 222,272 $ 136,669 $ 111,852
========= ========= ========= =========
Shares:
Average common shares outstanding - excluding
restricted stock plan shares 102,929 104,795 102,541 104,691
Net shares assumed issued under compensation stock plans 1,576 1,816 1,489 1,883
Shares assumed issued on exercise of stock options 59 83 56 78
--------- --------- --------- ---------
Average common shares outstanding 104,564 106,694 104,086 106,652
========= ========= ========= =========
Diluted earnings per common share $ 1.69 $ 2.08 $ 1.31 $ 1.05
========= ========= ========= =========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 901,766
<INT-BEARING-DEPOSITS> 5,654,600
<FED-FUNDS-SOLD> 1,495,985
<TRADING-ASSETS> 2,966,059
<INVESTMENTS-HELD-FOR-SALE> 16,546,090
<INVESTMENTS-CARRYING> 5,589,260
<INVESTMENTS-MARKET> 5,634,744
<LOANS> 14,193,813
<ALLOWANCE> 290,669
<TOTAL-ASSETS> 51,179,653
<DEPOSITS> 32,429,439
<SHORT-TERM> 6,525,422
<LIABILITIES-OTHER> 156,222
<LONG-TERM> 4,074,037
<COMMON> 523,995
0
500,000
<OTHER-SE> 2,244,212
<TOTAL-LIABILITIES-AND-EQUITY> 51,179,653
<INTEREST-LOAN> 509,888
<INTEREST-INVEST> 725,684
<INTEREST-OTHER> 156,935
<INTEREST-TOTAL> 1,392,507
<INTEREST-DEPOSIT> 581,490
<INTEREST-EXPENSE> 863,988
<INTEREST-INCOME-NET> 528,519
<LOAN-LOSSES> 8,000
<SECURITIES-GAINS> 17,321
<EXPENSE-OTHER> 624,522
<INCOME-PRETAX> 255,776
<INCOME-PRE-EXTRAORDINARY> 189,628
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 189,628
<EPS-BASIC> 1.71
<EPS-DILUTED> 1.69
<YIELD-ACTUAL> 0
<LOANS-NON> 0
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 0
<CHARGE-OFFS> 0
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 0
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
