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These excerpts taken from the C 10-Q filed May 4, 2007. Regional Net Income Mexico income declined, driven by the absence of tax benefits related to APB 23 in the 2006 first quarter, partially offset by lower expenses that included a decrease in profit sharing, higher fee revenues, and gain on the sale of MasterCard shares. Latin America income declined primarily due to higher expenses associated with growth in Brazil and the absence of 2006 first quarter tax benefits, partially offset by strong growth in loans and deposits, up 55% and 21%, respectively. EMEA income declined primarily due to higher expenses driven by increased business volume and investment spending tied to retail bank branch expansion, a reserve build to reflect a change in estimate of loan losses inherent in the initial tenor portion of the portfolio, and lower recoveries. Partially offsetting the decline was strong growth in loans and deposits, up 16% and 9%, respectively, stronger investment product sales, and the impact of foreign currency translation. Japan income declined due to lower average loans, higher loan loss reserve, and the absence of 2006 first quarter benefit related to the resolution of the Federal Tax Audit. Asia income declined primarily due to the absence of a 2006 first quarter loan loss reserve release in Korea, and increased loan loss reserves to reflect a change in estimate of loan losses inherent in the initial tenor portion of the portfolio, and increased investment spending related to retail bank branch expansion. Partially offsetting the decline was strong growth in loans and deposits, up 14% and 10%, respectively, and an increase in investment product sales of 46%. 29 Regional Net Income Net income in the U.S. increased, driven by double-digit revenue growth in Fixed Income Markets and Underwriting and Equity Markets and Underwriting as well as Advisory. Compensation expenses were almost flat to last year due to the absence of the 2006 initial adoption of SFAS 123(R). Mexico net income increased, driven by double-digit revenue growth in Fixed Income Markets and equity underwriting. Latin America net income increased, driven by double-digit revenue growth in Fixed Income and Equity Markets. Revenue growth was partially offset by higher taxes due to the absence of prior-year tax benefits from the resolution of the Federal Tax Audit. EMEA net income increased, driven by strong double-digit revenue growth across all major product lines and geographies on higher volumes and growth in customer activity. Results also include a $171 million pre-tax increase to loan loss reserves due to portfolio growth, which includes higher commitments to leveraged transactions and an increase in average loan tenor. Net income in Japan declined primarily due to lower results in Fixed Income Markets and Equity Underwriting. Net income in Asia increased, driven by double-digit revenue growth in Investment Banking and Lending. 33 Regional Net Income Net income in the U.S. increased, primarily due to growth in liability balances and rising interest rates. Mexico net income increased primarily due to growth in liability balances and rising interest rates. Latin America net income increased primarily due to increased revenues from new sales, growth in liability balances and rising interest rates. EMEA net income increased primarily due to increased revenue from new sales, growth in liability balances and assets under custody, rising interest rates and strong volumes, which drove growth in Cash Management, SFS, and Trade Services. Asia net income increased primarily due to increased revenue from new sales, higher customer volumes, and growth in liability balances and assets under custody and rising interest rates. Japan net income increased primarily due to increased revenue from new sales, growth in liability balances and assets under custody, and rising interest rates. 35 These excerpts taken from the C 10-K filed Feb 23, 2007. Regional Net Income Mexico income declined primarily due to lower levels of tax benefits and higher expenses, partially offset by higher sales volumes and average loans from portfolio growth and target market expansion (which increased both revenues and the provision for loan losses), and a gain from the MasterCard IPO. Latin America income increased, primarily due to volume and purchase sales growth. EMEA income declined, reflecting absence of the prior-year gain on the sale of a merchant-acquiring business of $57 million and higher net credit losses, partially offset by higher purchase sales, volume growth, and higher tax benefits. Asia income declined due to an increase in credit costs related to credit conditions in Taiwan and costs associated with a Korea labor settlement, partially offset by higher purchase sales and loan growth.
Regional Net Income Mexico income increased due to higher sales volumes and average loans, as well as a tax benefit related to the Homeland Investment Act and the VAT refund. Latin America income declined primarily due to the 2004 gain on the sale of Orbitall and the absence of 2004 credit reserve releases. EMEA income increased primarily due to the gain on the sale of a merchant-acquiring business, partially offset by increased expense related to business expansion and customer acquisition initiatives. Japan income declined primarily due to tax credits received in 2004. Asia income increased due to strong sales, loan balance increases, and improved net credit loss experience.
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Regional Net Income Mexico income growth was driven by a 2006 fourth quarter $145 million after-tax gain on the sale of Avantel, utilization in 2006 of APB 23 tax benefits totaling $288 million, and growth in average loans and deposits. Partially offsetting the income growth was the absence of both a $79 million prior- year value added tax refund and a $50 million gain from the favorable impact of restructuring Mexican government bonds, net interest margin compression, and higher expenses from increased investment spending. Latin America income declined primarily due to increased expenses associated with new branches in Brazil, partly offset by strong growth in loans and deposits, up 46% and 7%, respectively. EMEA income increased, driven primarily by the absence of the 2005 third quarter $323 million after-tax change to standardize the loan write-off policy, the absence of an $81 million loan loss reserve build in the 2005 second quarter, strong growth in customer deposits and investment product sales, and higher Germany asset sales. Partially offsetting the increased income were higher expenses from increased business volumes and investment spending tied to retail bank branch expansion. Japan income declined due to lower deposits and higher expenses, mainly due to the consolidation and compliance activities related to the shutdown of Japan Private Bank and the impact of foreign currency translation. Asia income increased, benefiting from higher deposit revenues and investment product sales and loan loss reserve releases in Korea and Australia; this was partly offset by increased investment spending tied to retail bank branch expansion and the costs associated with the Korea labor settlement.
Regional Net Income Mexico income increased on strong sales and customer balance growth, as well as the VAT refund of $79 million and tax benefits from the Homeland Investment Act. Latin America income declined, driven by repositioning expenses in 2005, and the impact of investment initiatives, primarily in Brazil. EMEA income declined, driven by the impact of the write-off policy standardization, increases in credit loss reserves in Germany, and repositioning expenses reflected in the first quarter of 2005. Japan income declined due primarily to expense growth associated with the consolidation and compliance activities related to the shutdown of the Japan Private Bank. Asia income increased, benefiting primarily from strongly improved revenues due to increased business volumes, the impact of the KorAm acquisition, and benefits from foreign currency translation.
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Regional Net Income Net income in the U.S. declined, primarily due to higher compensation expenses (the impact from SFAS 123(R) charges) as well as lower revenues in Commodities and Lending, partially offset by higher Fixed Income and Equity Markets revenues and tax benefits from the resolution of the Federal Tax Audit and the New York Tax Audits. Mexico net income was down, as growth in Fixed Income Markets revenues was offset by lower equity underwriting and lending revenues. Lower net income also reflected the absence of a $39 million tax benefit from provisions of the Homeland Investment Act, as well as higher compensation expense and the absence of loan loss recoveries recorded in the prior-year period. Latin America net income declined on an increase in credit costs due to the absence of loan loss recoveries recorded in the prior-year period, higher investment spending, and the impact of SFAS 123(R) charges. These declines were partially offset by strong revenue growth in Equity and Fixed Income Markets in Brazil Investment Banking and by the tax benefits from the resolution of the Federal Tax Audit. EMEA net income increased on double-digit growth across all major product lines in the region from higher volumes and growth in customer activity and tax benefits from the resolution of the Federal Tax Audit. The increase in net income was partially offset by higher compensation expense due to staff additions and the impact from SFAS 123(R) charges, and higher credit costs on growth in loans and unfunded loan commitments. Net income in Japan declined as strong growth in Fixed Income was offset by a decrease in equities, the absence of a $248 million after-tax gain on the sale of Nikko Cordial shares in the 2005 fourth quarter, and higher expenses. Net income in Asia increased, driven by broad-based double-digit growth across several products, including Fixed Income and Equity Markets and Advisory. Continued benign credit conditions and incremental tax benefits from APB 23 in Australia, and globally the resolution of the Federal Tax Audit, further bolstered full-year results.
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Regional Net Income Net income in the U.S. declined, primarily due to continued investment spending, offset by growth in liability balances, and rising interest rates. Mexico net income decreased primarily due to the absence of an $8 million tax benefit from provisions of the Homeland Investment Act, as well as a $2 million VAT refund and higher expenses, offset by growth in liability balances and rising interest rates. Latin America net income increased primarily due to increased revenues from new sales, growth in liability balances, and rising interest rates. EMEA net income increased primarily on increased revenue from new sales, growth in liability balances and assets under custody, rising interest rates and strong volumes. Asia net income increased primarily from increased revenue from new sales, higher customer volumes, and growth in liability balances and assets under custody, and rising interest rates. Japan net income increased primarily due to increased revenue from new sales, growth in liability balances and assets under custody, and rising interest rates.
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These excerpts taken from the C 10-Q filed May 5, 2006. Regional Net Income Mexico income increased due to higher sales volumes and average loans, as well as tax benefits of $6 million. Latin America income increased primarily due to volume growth and the benefit of foreign currency translation. Japan income increased primarily due to tax credits of $2 million and the benefit of foreign currency translation. Asia income declined due to an increase in loan loss reserves related to Taiwan and costs associated with a Korea labor settlement, partially offset by higher purchase sales and loan growth. EMEA income remained unchanged as higher purchase sales and volume growth were offset by higher net credit losses and higher expenses. 25 Regional Net Income Asia income increased, benefiting from higher deposit and investment product sales, a $59 million loan loss reserve release in Korea, and tax benefits of $27 million related to the resolution of the Federal Tax Audit, partially offset by costs associated with the labor settlement. Mexico income increased primarily due to increased APB 23 benefits, partially offset by higher expenses, including an increase in profit sharing. EMEA income increased on stronger investment product sales and lending revenues and a decline in expenses, reflecting the absence of repositioning expenses in the 2005 first quarter of $36 million after-tax. Latin America income declined, primarily due to the impact of foreign currency translation. Japan income declined due to lower deposit revenues; higher expenses, mainly due to the consolidation and compliance activities related to the shutdown of the Japan Private Bank; and the impact of foreign currency translation. 29 Regional Net Income Net income in the U.S. decreased primarily due to higher compensation expenses (higher production-driven incentive compensation and the impact of SFAS 123(R) charges), as well as lower Lending and Fixed Income Markets revenues; these were partially offset by higher Equities Markets revenues and tax benefits from the resolution of the Federal Tax Audit. Mexico net income was unchanged as the absence of a loan loss recovery recorded in the prior-year period was offset by strong revenue growth in Fixed Income and Equity Markets. Credit conditions remained stable. Latin America net income increased primarily due to strong revenue growth in Equity and Fixed Income Markets activities in Brazil, as well as tax benefits from the resolution of the Federal Tax Audit; these were partially offset by the absence of prior year loan loss reserve releases and the impact from SFAS 123(R) charges. Credit conditions remained favorable. EMEA net income increased, driven by double-digit revenue growth across all major product lines and geographies on higher volumes and growth in customer activity, the absence of prior year repositioning expenses, and tax benefits from the resolution of the Federal Tax Audit. Results also include the impact from SFAS 123(R) charges. Net income in Japan increased strongly due to growth in Fixed Income Markets, partially offset by higher expenses. Net income in Asia increased, driven by double-digit revenue growth in Equity and Fixed Income Markets, as well as tax benefits from the resolution of the Federal Tax Audit, partially offset by the impact from SFAS 123(R) charges. Credit conditions remained favorable. 33
Transaction Services is composed of Cash Management, Trade Services & Finance (Trade) and Securities & Funds Services (SFS). Cash Management and Trade Services provide comprehensive cash management and trade finance for corporations and financial institutions worldwide. SFS provides custody and fund services to investors such as insurance companies and pension funds, clearing services to intermediaries such as broker/dealers, and depository and agency/trust services to multinational corporations and governments globally. Revenue is generated from fees for transaction processing, net interest revenue on Trade, loans and deposits in Cash Management and SFS, and fees on assets under custody in SFS.
NM Not meaningful. 34 1Q06 vs. 1Q05 Revenues, net of interest expense, increased, reflecting growth in liability balances, assets under custody, and rising interest rates in Cash Management and SFS. Average liability balances grew 14% to $158 billion primarily due to increases in EMEA and the U.S., reflecting positive flow from new and existing customers. Cash Management revenue increased, reflecting growth across all regions except Mexico from higher liability balances, higher interest rates, and increased revenues from new sales. Securities & Funds Services revenue increased, reflecting growth across all regions, higher assets under custody, and the impact of acquisitions. Assets under custody reached $8.8 trillion, an increase of $0.8 trillion, or 10%, driven by strong sales momentum, higher equity market values, and the inclusion of ABN Amro and UNISEN assets under custody. Trade Services & Finance revenue increased primarily due to double-digit revenue growth in EMEA and the U.S., partially offset by Mexico and Latin America. The change in the provision for credit losses of $18 million was primarily attributable to a reserve build of $5 million in 2006, compared to reserve releases of $13 million in 2005. Operating expenses increased due to organic business growth, acquisitions, and investment spending. Cash-basis loans, which are primarily trade finance receivables, were $76 million and $77 million at March 31, 2006 and 2005, respectively. Regional Net Income Net income in the U.S. decreased primarily due to higher expenses from acquisitions and continued investment spending, which was partially offset by growth in liability balances, higher interest rates, and the resolution of the Federal Tax Audit. Mexico net income decreased primarily due to higher expenses, and declining interest rates. Latin America net income increased on liability balance growth and the resolution of the Federal Tax Audit. EMEA net income increased primarily due to increases in liability balances, assets under custody and higher interest rates. Results also included the benefit of the resolution of the Federal Tax Audit. Asia net income increased primarily due to higher customer volumes, growth in liability balances and assets under custody, higher interest rates, and the resolution of the Federal Tax Audit. Japan net income increased due to higher liability balances and assets under custody. 35 | EXCERPTS ON THIS PAGE:
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