<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For The Fiscal Year Ended December 31, 1995
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
Commission file number 1-6152
THE BANK OF NEW YORK COMPANY, INC.
(Exact name of registrant as specified in its charter)
NEW YORK 13-2614959
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
48 Wall Street, New York, New York 10286
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code (212) 495-1784
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
------------------- -----------------------
Common Stock, $7.50 par value NEW YORK STOCK EXCHANGE
8.60% Cumulative Preferred Stock NEW YORK STOCK EXCHANGE
Preferred Stock Purchase Rights NEW YORK STOCK EXCHANGE
Convertible Subordinated Debentures due 2001 NEW YORK STOCK EXCHANGE
Securities registered pursuant to Section 12(g) of the Act:
Title of each class
-------------------
Warrants to Purchase Common Stock
Class A, 7.75% Cumulative Convertible Preferred Stock
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days
Yes X No
----- -----
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [ ]
The aggregate market value of voting stock held by nonaffiliates of the
registrant at February 29, 1996 consisted of:
Common Stock ($7.50 par value) $10,225,609,182
(based on closing price
on New York Stock Exchange)
The number of shares outstanding of the registrant's common Stock $7.50 par
value was 197,120,177 shares on February 29, 1996.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the 1995 Annual Report to Shareholders are incorporated by
reference into Parts I, II, and IV. Portions of the definitive Proxy
Statement pursuant to Regulation 14A for the 1996 Annual Meeting of
Shareholders are incorporated by reference into Part III.
<PAGE> 2
PART I
- ------
ITEM 1. BUSINESS
- -----------------
CAUTIONARY STATEMENT
To the extent that any forward looking statements are made, the Company
is necessarily unable to predict future changes in interest rates, economic
activity and loan demand. As a result of variations in such factors, actual
results may differ materially from any forward looking statements.
INTRODUCTION
The business of The Bank of New York Company, Inc. (the "Company") and
its subsidiaries is described in the "Business Review" section of the
Company's 1995 Annual Report to Shareholders which description is included in
Exhibit 13 to this report and incorporated herein by reference. Also, the
"Management's Discussion and Analysis" section included in Exhibit 13 contains
financial and statistical information on the operations of the Company. Such
information is herein incorporated by reference.
COMPETITION
The businesses in which the Company operates are very competitive.
Competition is provided by both unregulated and regulated financial services
organizations, whose products and services span the local, national, and
global markets in which the Company conducts operations.
Savings banks, savings and loan associations, and credit unions actively
compete for deposits, and money market funds and brokerage houses offer
deposit-like services. These institutions, as well as consumer and commercial
finance companies, national retail chains, factors, insurance companies and
pension trusts, are important competitors for various types of loans. Issuers
of commercial paper compete actively for funds and reduce demand for bank
loans. For personal and corporate trust services and investment counseling
services, insurance companies, investment counseling firms, and other business
firms and individuals offer active competition. A wide variety of domestic
and foreign companies compete for processing services.
CERTAIN REGULATORY CONSIDERATIONS
General
As a bank holding company, the Company is subject to the regulation and
supervision of the Federal Reserve Board under the Bank Holding Company Act
("BHC Act"). The Company is also subject to regulation by the New York State
Department of Banking. Under the BHC Act, bank holding companies may not
directly or indirectly acquire the ownership or control of more than 5% of the
voting shares or substantially all of the assets of any company, including a
bank, without the prior approval of the Federal Reserve Board. In addition,
bank holding companies are generally prohibited under the BHC Act from
engaging in nonbanking activities, subject to certain exceptions.
The Company's subsidiary banks are subject to supervision and examination
by applicable federal and state banking agencies. The Bank of New York
("BNY"), a New York chartered banking corporation and The Bank of New York
(NJ) ("BNYNJ"), a New Jersey chartered banking corporation are members of the
Federal Reserve System and are subject to regulation and supervision
principally by the Federal Reserve Board. As banks insured by the FDIC, BNY
and BNYNJ are also subject to examination by that agency. The Bank of New
York (Delaware) ("BNY Del."), chartered in Delaware, and The Putnam Trust
Company ("PTC"), chartered in Connecticut, are FDIC-insured non-member banks
and therefore subject to regulation and supervision principally by the FDIC.
BNY, BNYNJ, BNY (Del.), and PTC are also subject to supervision and
examination by their respective state regulators,
<PAGE> 3
the New York Banking Department, the New Jersey Banking Department, the Office
of State Bank Commissioner of the State of Delaware, and the Connecticut
Banking Department.
Both federal and state laws extensively regulate various aspects of the
banking business, such as permissible types and amounts of loans and
investments, permissible activities, and reserve requirements. These
regulations are intended primarily for the protection of depositors rather
than the Company's stockholders.
Capital Adequacy
Bank regulators have adopted risk-based capital guidelines for bank
holding companies and banks. The minimum ratio of qualifying total capital to
risk-weighted assets (including certain off-balance sheet items) is 8%. At
least half of the total capital is to be comprised of common stock, retained
earnings, noncumulative perpetual preferred stock, minority interests and for
bank holding companies, a limited amount of qualifying cumulative perpetual
preferred stock, less certain intangibles including goodwill ("Tier 1
capital"). The remainder ("Tier 2 capital") may consist of other preferred
stock, certain other instruments, and limited amounts of subordinated debt and
allowance for loan losses.
In addition, the Federal Reserve Board has established minimum Leverage
Ratio (Tier 1 capital to average total assets) guidelines for bank holding
companies and banks, and the FDIC has established substantially identical
minimum leverage requirements for state chartered FDIC-insured, nonmember
banks. The Federal Reserve Board's guidelines provide for a minimum Leverage
Ratio of 3% for bank holding companies and banks that meet certain specified
criteria, including those having the highest regulatory rating. All other
banking organizations will be required to maintain a Leverage Ratio of at
least 3% plus an additional cushion of 100 to 200 basis points. The
guidelines also provide that banking organizations experiencing internal
growth or making acquisitions will be expected to maintain strong capital
positions substantially above the minimum supervisory levels, without
significant reliance on intangible assets. Furthermore, the guidelines
indicate that the Federal Reserve Board will continue to consider a "Tangible
Tier 1 Leverage Ratio" in evaluating proposals for expansion or new
activities. The Tangible Tier 1 Leverage Ratio is the ratio of Tier 1
capital, less intangibles not deducted from Tier 1 capital, to average total
assets. The Federal Reserve Board has not advised the Company of any specific
minimum Leverage Ratio applicable to it. See "FDICIA" below.
Federal banking agencies have proposed or are considering regulations
that would modify existing rules related to capital ratios with respect to
various areas of risk including interest rate exposure and other market risk.
The Company does not believe that the aggregate impact of these modifications
would have a significant impact on its capital position.
FDICIA
The Federal Deposit Insurance Corporation Improvement Act of 1991
("FDICIA"), substantially revised the depository institution regulatory and
funding provisions of the Federal Deposit Insurance Act ("FDIA") and made
revisions to several other federal banking statutes.
Among other things, FDICIA requires the federal banking regulators to
take prompt corrective action in respect of FDIC-insured depository
institutions that do not meet minimum capital requirements. FDICIA
establishes five capital tiers: "well capitalized," "adequately capitalized,"
"undercapitalized," "significantly undercapitalized" and "critically
undercapitalized." Under applicable regulations, an FDIC-insured bank is
defined to be well capitalized if it maintains a Leverage Ratio of at least
5%, a Tier 1 Capital Ratio of at least 6% and a Total Capital Ratio of at
least 10% and is not otherwise in a "troubled condition" as specified by its
appropriate federal regulatory agency. A bank is generally considered to be
adequately capitalized if it is not defined to be well capitalized but meets
all of its minimum capital requirements, i.e., if it has a Total Capital Ratio
of 8% or greater, a Tier 1 Capital Ratio of 4% or greater and a Leverage Ratio
of 4% or greater. A bank will be considered undercapitalized if it fails to
meet any minimum required measure, significantly undercapitalized if it is
significantly below any such measure and critically undercapitalized if it
maintains a
<PAGE> 4
level of tangible equity capital equal to or less than 2% of total
assets. A bank may be deemed to be in a capitalization category that is lower
than is indicated by its actual capital position if it receives an
unsatisfactory examination rating.
FDICIA generally prohibits an FDIC-insured depository institution from
making any capital distribution (including payment of dividends) or paying any
management fee to its holding company if the depository institution would
thereafter be undercapitalized. Undercapitalized depository institutions are
subject to restrictions on borrowing from the Federal Reserve System. In
addition, undercapitalized depository institutions are subject to growth
limitations and are required to submit capital restoration plans. For an
undercapitalized depository institution's capital restoration plan to be
acceptable, its holding company must guarantee the capital plan up to an
amount equal to the lesser of 5% of the depository institution's assets at the
time it becomes undercapitalized or the amount of the capital deficiency when
the institution fails to comply with the plan. In the event of the parent
holding company's bankruptcy, such guarantee would take priority over the
parent's general unsecured creditors. The federal banking agencies may not
accept a capital plan without determining, among other things, that the plan
is based on realistic assumptions and is likely to succeed in restoring the
depository institution's capital. If a depository institution fails to submit
an acceptable plan, it is treated as if it is significantly undercapitalized.
Significantly undercapitalized depository institutions may be subject to
a number of requirements and restrictions, including orders to sell sufficient
voting stock to become adequately capitalized, requirements to reduce total
assets and cessation of receipt of deposits from correspondent banks.
Critically undercapitalized depository institutions are subject to appointment
of a receiver or conservator.
The Company's major banking subsidiaries are well capitalized.
The table below indicates capital ratios of the Company and its major
banking subsidiaries at December 31, 1995 and 1994 and the respective
guidelines for well capitalized institutions under FDICIA.
December 31, 1995 December 31, 1994
BNY BNY
Company BNY Del. BNYNJ Company BNY Del. BNYNJ
------- --- ---- ----- ------- --- ---- ----- Well
Capitalized
Guidelines
-----------
Tier 1 8.42% 7.84% 7.87% 15.27% 8.45% 8.26% 7.27% 18.04% 6%
Total
Capital 13.08 11.61 11.55 16.54 13.43 12.36 11.34 19.30 10
Leverage 8.46 7.63 8.48 7.85 7.89 7.28 7.72 8.58 5
Tangible
Common
Equity 8.00 7.71 7.78 7.89 7.39 7.66 7.28 8.76
At December 31, 1995, the amounts of capital by which the Company and its
major banking subsidiaries exceed the well capitalized guidelines are as
follows:
BNY
Company BNY Del. BNYNJ
(in millions) ------- --- ---- -----
Tier 1 $1,293 $767 $167 $200
Total Capital 1,650 669 138 141
Leverage 1,841 1,125 288 120
<PAGE> 5
The following table presents the components of the Company's risk-based
capital at December 31, 1995 and 1994:
(in millions)
1995 1994
---- ----
Common Stock $5,119 $4,177
Preferred Stock 113 119
Adjustments: Intangibles (672) (330)
Securities Valuation Allowance (58) 58
------ ------
Tier 1 Capital 4,502 4,024
Qualifying Long-term Debt 1,827 1,774
Qualifying Allowance for Loan Losses 670 597
------ ------
Tier 2 Capital 2,497 2,371
------ ------
Total Risk-based Capital $6,999 $6,395
====== ======
The following table presents the components of the Company's risk adjusted
assets at December 31, 1995 and 1994:
1995 1994
-------------------- --------------------
Balance Balance
sheet/ Risk sheet/ Risk
notional adjusted notional adjusted
(in millions) amount balance amount balance
-------- -------- -------- --------
Assets
- ------
Cash, Due From Banks and Interest-
Bearing Deposits in Banks $ 5,693 $ 731 $ 3,895 $ 567
Securities 4,870 819 4,651 671
Trading Assets 762 60 940 124
Fed Funds Sold and Securities
Purchased Under Resale Agreements 936 17 3,019 3
Loans 37,687 34,826 33,083 30,814
Allowance for Loan Losses (756) - (792) -
Other Assets 4,528 3,441 4,083 3,273
------- ------- -------- -------
Total Assets $53,720 39,894 $ 48,879 35,452
======= ------- ======== -------
Off-Balance Sheet Exposures
- ---------------------------
Commitments to Extend Credit $ 54,274 9,220 $ 37,771 7,520
Securities Lending Indemnifications 15,068 - 15,326 -
Standby Letters of Credit and
Other Guarantees 6,081 4,228 7,240 4,515
Interest Rate Contracts 27,800 96 28,632 81
Foreign Exchange Contracts 28,005 140 51,021 236
-------- ------- -------- -------
Total Off-Balance Sheet Exposures $131,228 13,684 $139,990 12,352
======== ------- ======== -------
Gross Risk Adjusted Assets 53,578 47,804
Less: Allowance for Loan Losses
not Qualifying as Risk
Based Capital 86 195
------- -------
Risk Adjusted Assets $53,492 $47,609
======= =======
<PAGE> 6
A discussion of the Company's capital position is incorporated by
reference from the caption "Capital Resources" in the "Management's Discussion
and Analysis" section of Exhibit 13.
Brokered Deposits
The FDIC has adopted regulations under FDICIA governing the receipt of
brokered deposits. Under the regulations, a bank cannot accept, rollover or
renew brokered deposits unless (i) it is well capitalized or (ii) it is
adequately capitalized and receives a waiver from the FDIC. A bank that
cannot receive brokered deposits also cannot offer "pass-through" insurance on
certain employee benefit accounts. Whether or not it has obtained such a
waiver, an adequately capitalized bank may not pay an interest rate on any
deposits in excess of 75 basis points over certain prevailing market rates
specified by regulation. There are no such restrictions on a bank that is
well capitalized. Because BNY and BNY Del. are well capitalized, the Company
believes the brokered deposits regulation will have no material effect on the
funding or liquidity of BNY and BNY Del. BNYNJ and PTC are well capitalized,
but have no brokered deposits.
FDIC Insurance Assessments
BNY, BNY Del., BNYNJ, and PTC are subject to FDIC deposit insurance
assessments. As required by FDICIA, the FDIC adopted a risk-based premium
schedule to determine the assessment rates for most FDIC-insured depository
institutions. Effective January 1, 1996, under the schedule, the premiums
range from zero to $.27 for every $100 of deposits compared to a range of $.04
to $.31 for every $100 of deposits from June 1, 1995 to December 31, 1995 and
a previous range of $.23 to $.31 for every $100 of deposits. Each financial
institution is assigned to one of nine categories based on the institutions
capital ratios and supervisory evaluations, and the premium paid by the
institution is based on the category. Under the present schedule institutions
in the highest of the three capital categories and the highest of three
supervisory categories pay no premium and institutions in the lowest of these
categories pay $.27 per $100 of deposits.
The FDIC is authorized to raise insurance premiums in certain
circumstances. Any increase in premiums would have an adverse effect on the
Company's earnings.
Under the FDIA, insurance of deposits may be terminated by the FDIC upon
a finding that the institution has engaged in unsafe and unsound practices, is
in an unsafe or unsound condition to continue operations or has violated any
applicable law, regulation, rule, order, or condition imposed by a bank's
federal regulatory agency.
Depositor Preference
The Omnibus Budget Reconciliation Act of 1993 provides for a national
depositor preference on amounts realized from the liquidation or other
resolution of any depository institution insured by the FDIC. That act
requires claims against insured depositary institutions to be paid in the
following order of priority: the receiver's administrative expenses; deposits;
other general or senior liabilities of the institution; obligations
subordinated to depositors or general creditors; and obligations to
shareholders. Under an FDIC interim rule, which became effective August 13,
1993, "administrative expenses of the receiver" are defined as those incurred
by the receiver in liquidating or resolving the affairs of a failed insured
depository institution.
<PAGE> 7
Acquisitions
The BHC Act generally limits acquisitions by the Company to commercial
banks and companies engaged in activities that the Federal Reserve Board has
determined to be so closely related to banking as to be a proper incident
thereto. The Company's direct activities are generally limited to furnishing
services to its subsidiaries and activities that qualify under the "closely
related" and "proper incident" tests. Prior Federal Reserve Board approval is
required under the BHC Act for new activities and acquisitions of most
nonbanking companies.
The BHC Act, the Federal Bank Merger Act, and the New York Banking Law
regulate the acquisition of commercial banks. The BHC Act requires the prior
approval of the Federal Reserve Board for the direct or indirect acquisition
of more than 5% of the voting shares of a commercial bank.
Effective September 29, 1995, The Riegle-Neal Interstate Banking and
Branching Efficiency Act of 1994 ("IBBEA") permits bank holding companies,
with Federal Reserve Board approval, to acquire banks located in states other
than the bank holding company's home state without regard to whether the
transaction is permitted under state law. In addition, IBBEA provides that,
commencing June 1, 1997, national banks and state banks with different home
states will be permitted to merge across state lines, with the approval of the
appropriate federal banking agency, unless the home state of a participating
bank passes legislation between the date of enactment of IBBEA and May 31,
1997 expressly prohibiting interstate mergers. IBBEA further provides that
states may enact laws permitting interstate bank merger transactions prior to
June 1, 1997 (opt-in statutes). A bank may also establish and operate a de
novo branch in a state in which the bank does not maintain a branch if that
state expressly permits de novo branching. Once a bank has established
branches in a state through an interstate merger transaction, the bank may
establish and acquire additional branches at any location in the state where
any bank involved in the interstate merger transaction could have established
or acquired branches under applicable federal or state law. A bank that has
established a branch in a state through de novo branching may establish and
acquire additional branches in such state in the same manner and to the same
extent as a bank having a branch in such state as a result of an interstate
merger. One effect of this legislation, will be to permit the Company to
merge two or more of its banking subsidiaries which, as a result, may create
greater efficiency in its operations. New York and Connecticut have enacted
opt-in statutes.
The merger of BNY with another bank would require the approval of the
Federal Reserve Board or other federal bank regulatory authority and, if the
surviving bank is a New York state bank, the New York Superintendent of Banks.
In reviewing bank acquisition and merger applications, the bank
regulatory authorities will consider, among other things, the competitive
effect of the transaction, financial and managerial issues including the
capital position of the combined organization, and convenience and needs
factors, including the applicant's record under the Community Reinvestment
Act.
Under Federal Reserve Board policy, the Company is expected to act as a
source of financial strength to its banks and to commit resources to support
such banks in circumstances where it might not do so absent such policy. In
addition, any loans by the Company to its banks would be subordinate in right
of payment to deposits and to certain other indebtedness of its banks.
<PAGE> 8
Restrictions on Transfer of Funds
Restrictions on the transfer of funds to the Company and subsidiary bank
dividend limitations are discussed in Note 9 to the Consolidated Financial
Statements included in Exhibit 13. Such discussion is incorporated herein by
reference.
FDIA
Under the FDIA, a depository institution insured by the FDIC can be held
liable for any loss incurred by, or reasonably expected to be incurred by, the
FDIC after August 9, 1989 in connection with (i) the default of a commonly
controlled FDIC-insured depository institution or (ii) any assistance provided
by the FDIC to a commonly controlled, FDIC-insured depository institution in
danger of default. "Default" is defined generally as the appointment of a
conservator or receiver, and "in danger of default" is defined generally as
the existence of certain conditions indicating that a "default" is likely to
occur in the absence of regulatory assistance.
Government Monetary Policies
The Federal Reserve Board has the primary responsibility for monetary
policy; accordingly, its actions have an important influence on the demand for
credit and investments and the level of interest rates and thus on the
earnings of the Company.
Proposed Legislation
Proposals to change the laws and regulations governing the banking
industry are frequently introduced in Congress, in the state legislatures and
before the various bank regulatory agencies. The likelihood and timing of any
such changes and the impact such changes might have on the Company and its
subsidiaries, however, cannot be determined at this time.
<PAGE> 9
ADDITIONAL FINANCIAL INFORMATION
- --------------------------------------------------------------------------------
Average Balances and Rates on a Taxable Equivalent Basis (dollars in millions)
1995 1994 1993
=================================================================
Aver- Aver- Aver-
Average Inter- age Average Inter- age Average Inter- age
Balance est Rate Balance est Rate Balance est Rate
-----------------------------------------------------------------
Assets
- ------
Interest
-Bearing
Deposits
in Banks
(Primarily
Foreign) $ 1,682 $ 106 6.28% $ 1,266 $ 68 5.33% $ 452 $ 24 5.42%
Federal Funds
Sold and
Securities
Purchased
Under Resale
Agreements 3,280 193 5.89 3,653 161 4.39 3,149 97 3.06
Loans
Domestic
Offices
Consumer 11,151 1,381 12.39 9,549 1,015 10.62 8,259 806 9.76
Commercial 13,215 1,047 7.92 12,340 833 6.76 11,998 741 6.18
Foreign
Offices 11,055 805 7.28 10,140 564 5.56 10,170 485 4.77
------- ------ ------- ------ ------- ------
Total Loans 35,421 3,233* 9.13 32,029 2,412* 7.53 30,427 2,032* 6.68
------- ------ ------- ------ ------- ------
Securities
U.S.
Government
Obligations 3,301 191 5.78 3,516 197 5.61 3,732 215 5.78
Obligations
of States
and
Political
Subdivisions 650 68 10.50 893 89 10.02 1,070 110 10.29
Other
Securities,
including
Trading
Securities
Domestic
Offices 1,076 65 6.10 1,341 70 5.25 1,358 64 4.74
Foreign
Offices 233 14 6.31 191 11 5.64 192 14 7.36
------- ------ ------- ------ ------- ------
Total Other
Securities 1,309 79 6.13 1,532 81 5.30 1,550 78 5.06
------- ------ ------- ------ ------- ------
Total
Securities 5,260 338 6.45 5,941 367 6.19 6,352 403 6.36
------- ------ ------- ------ ------- ------
Total
Interest-
Earning
Assets 45,643 $3,870 8.48% 42,889 $3,008 7.01% 40,380 $2,556 6.33%
====== ====== ======
Allowance
for Loan
Losses (739) (906) (1,045)
Cash and Due
from Banks 2,971 2,827 2,735
Other Assets 5,178 5,470 4,574
------- ------- -------
Total Assets $53,053 $50,280 $46,644
======= ======= =======
Assets
Attributable
to Foreign
Offices 25.73% 24.30% 24.37%
===== ===== =====
*Includes fees of $134 million in 1995, $118 million in 1994, and $103 million
in 1993.
Nonaccrual loans are included in the average loan balance; the associated
income, recognized on the cash basis, is included in interest.
Taxable equivalent adjustments were $40 million in 1995, $46 million in 1994,
and $54 million in 1993, and are based on the federal statutory tax rate
(35%) and applicable state and local taxes.
Continued on page 10
<PAGE> 10
Average Balances and Rates on a Taxable Equivalent Basis (dollars in millions)
1995 1994 1993
==============================================================
Aver- Aver- Aver-
Average Inter- age Average Inter- age Average Inter- age
Balance est Rate Balance est Rate Balance est Rate
--------------------------------------------------------------
Liabilities and
Shareholders'
Equity
- ---------------
Interest-Bearing
Deposits
Domestic Offices
Money Market
Rate Accounts $ 3,451 $ 153 4.44% $ 3,593 $ 108 3.01% $ 3,666 $ 91 2.48%
Savings 7,909 243 3.07 8,166 190 2.32 8,379 198 2.37
Certificates
of Deposit
of $100,000
or More 1,673 95 5.68 1,041 42 4.03 1,189 36 3.00
Other Time
Deposits 2,560 143 5.60 2,296 97 4.24 2,701 119 4.39
------- ------ ------- ------ ------- ------
Total Domestic
Offices 15,593 634 4.07 15,096 437 2.90 15,935 444 2.78
------- ------ ------- ------ ------- ------
Foreign Offices
Banks in
Foreign
Countries 3,968 218 5.48 2,917 125 4.30 2,829 93 3.28
Government and
Official
Institutions 1,394 81 5.78 1,384 60 4.37 1,306 57 4.34
Other Time and
Savings 6,041 332 5.52 5,689 220 3.84 3,752 107 2.87
------- ------ ------- ------ ------- ------
Total Foreign
Offices 11,403 631 5.54 9,990 405 4.05 7,887 257 3.26
------- ------ ------- ------ ------- ------
Total Interest-
Bearing
Deposits 26,996 1,265 4.69 25,086 842 3.35 23,822 701 2.94
------- ------ ------- ------ ------- ------
Federal Funds
Purchased and
Securities Sold
Under Repurchase
Agreements 2,804 161 5.75 2,843 106 3.73 3,467 102 2.94
Other Borrowed
Funds 3,962 246 6.22 4,135 191 4.63 2,348 86 3.66
Long-Term Debt 1,773 130 7.30 1,530 106 6.93 1,729 117 6.79
------- ------ ------- ------ ------- ------
Total Interest-
Bearing
Liabilities 35,535 $1,802 5.07% 33,594 $1,245 3.71% 31,366 $1,006 3.21%
====== ====== ======
Noninterest-
Bearing Deposits
Domestic Offices 9,012 8,897 8,946
Foreign Offices 53 58 69
------- ------- -------
Total
Noninterest-
Bearing
Deposits 9,065 8,955 9,015
------- ------- -------
Other Liabilities 3,685 3,594 2,366
Preferred Stock 115 157 334
Common
Shareholders'
Equity 4,653 3,980 3,563
------- ------- -------
Total Liabilities
and
Shareholders'
Equity $53,053 $50,280 $46,644
======= ======= =======
Net Interest
Earnings and
Interest Rate
Spread $2,068 3.41% $1,763 3.30% $1,550 3.12%
====== ====== ======
Net Yield on
Interest-Earnings
Assets 4.53% 4.11% 3.84%
==== ==== =====
Liabilities
Attributable
to Foreign
Offices 24.94% 22.79% 19.74%
===== ===== =====
<PAGE> 11
Rate/Volume Analysis on a Taxable Equivalent Basis (in millions)
- ----------------------------------------------------------------
1995 vs. 1994 1994 vs. 1993
--------------------------------------------------------
Increase (Decrease) Increase (Decrease)
due to change in: due to change in:
---------------- Total ----------------- Total
Average Average Increase Average Average Increase
Balance Rate (Decrease) Balance Rate (Decrease)
------- ------- ---------- ------- ------- ---------
Interest Income
- ---------------
Interest-Bearing
Deposits in Banks $ 25 $ 13 $ 38 $ 44 $ - $ 44
Federal Funds Sold
and Securities
Purchased Under
Resale Agreements (18) 50 32 17 47 64
Loans
Domestic Offices
Consumer 184 182 366 134 75 209
Commercial 62 152 214 22 70 92
Foreign Offices 54 187 241 (1) 80 79
----- ----- ----- ----- ----- -----
Total Loans 300 521 821 155 225 380
Securities
U.S. Government
Obligations (12) 6 (6) (12) (6) (18)
Obligations of
States and
Political
Subdivisions (25) 4 (21) (18) (3) (21)
Other Securities,
including
Trading Assets
Domestic Offices (15) 10 (5) (1) 7 6
Foreign Offices 2 1 3 - (3) (3)
----- ----- ----- ----- ----- -----
Total Other
Securities (13) 11 (2) (1) 4 3
----- ----- ----- ----- ----- -----
Total Securities (50) 21 (29) (31) (5) (36)
----- ----- ----- ----- ----- -----
Total Interest
Income 257 605 862 185 267 452
----- ----- ----- ----- ----- -----
Interest Expense
- ----------------
Interest-Bearing
Deposits
Domestic Offices
Money Market Rate
Accounts (4) 49 45 (2) 19 17
Savings (6) 59 53 (5) (3) (8)
Certificate of
Deposits of
$100,000 or More 32 21 53 (5) 11 6
Other Time Deposits 12 34 46 (18) (4) (22)
----- ----- ----- ----- ----- -----
Total Domestic
Offices 34 163 197 (30) 23 (7)
----- ----- ----- ----- ----- -----
Foreign Offices
Banks in Foreign
Countries 52 41 93 3 29 32
Government and
Official
Institutions - 21 21 3 - 3
Other Time and
Savings 14 98 112 67 46 113
----- ----- ----- ----- ----- -----
Total Foreign
Offices 66 160 226 73 75 148
----- ----- ----- ----- ----- -----
Total Interest-
Bearing
Deposits 100 323 423 43 98 141
Federal Funds
Purchased and
Securities Sold
Under Repurchase
Agreements (1) 56 55 (20) 24 4
Other Borrowed Funds (8) 63 55 77 28 105
Long-Term Debt 18 6 24 (13) 2 (11)
----- ----- ----- ----- ----- -----
Total Interest
Expense 109 448 557 87 152 239
----- ----- ----- ----- ----- -----
Change in Net
Interest Income $ 148 $ 157 $ 305 $ 98 $ 115 $ 213
===== ===== ===== ===== ===== =====
Changes which are not solely due to balance changes or rate changes are
allocated to such categories on the basis of the respective percentage changes
in average balances and average rates.
<PAGE> 12
Interest-Rate Sensitivity
- -------------------------
The Company actively manages interest-rate sensitivity (the exposure of
net interest income to interest rate movements). The relationship between
interest-earning assets and interest-bearing liabilities is closely monitored.
The Company attempts to develop and follow policies which are flexible enough
to capitalize on opportunities, while minimizing adverse effects on earnings
when changes in short-term and long-term interest rates occur. The Company
uses complex simulation models to adjust the structure of its assets and
liabilities in response to interest rate exposures.
The Company considers three basic scenarios to model interest rate
sensitivity; these are base line, high rate, and low rate. The base line
scenario is the Company's estimated most likely path for future short-term
interest rates. The base line scenario forecast in January 1996 assumes rates
will decline slightly during the first quarter of 1996 and then rise back to
year end 1995 levels during the fourth quarter of 1996. The "high rate"
scenario assumes a 153 basis point increase from the base line scenario. The
"low rate" scenario assumes the average rate declines 50 basis points under
the base line scenario. Additionally, other scenarios are reviewed to examine
the impact of other interest rate changes.
The Company quantifies interest rate sensitivity by calculating the
change in net interest income between the three scenarios over a 12 month
measurement period. Net interest income as calculated by the earnings
simulation model under the base line scenario becomes the standard. The
measurement of interest rate sensitivity is the percentage change in net
interest income calculated by the model under high rate versus base-line
scenario and under low rate versus base-line scenario. The scenarios do not
include the adjustments that management would make as rate expectations
change.
The Company's policy limit for fluctuations in net interest income
resulting from either the high rate or low rate scenario is 6.00 percent.
Based upon the January 1996 outlook, if interest rates were to rise to follow
the high rate scenario, then net interest income during the policy measurement
period would be positively affected by 2.26 percent. If interest rates were
to follow the low rate scenario, then net interest income would be negatively
affected by 0.22 percent (assuming management took no actions).
In addition to the policy limit discussed above, the Company also has a
global mismatch limit to control the impact of interest rate fluctuations on
the Company's earnings. The Company's global mismatch is defined as the
absolute value of the Company's asset repricings less liability repricings in
24 maturity bands ranging from one day to over 10 years. Off balance sheet
instruments, such as swaps and futures used to hedge balance sheet items are
included in the calculation of the global mismatch. Each year the Company's
Board of Directors approves both mismatch limits and earnings at risk limits.
The global mismatch is reviewed weekly by senior management. Estimated market
value changes under various interest rate scenarios are also monitored.
The following table reflects the year-end position of the Company's
interest-earning assets and interest-bearing liabilities that either reprice
or mature within the designated time periods. The interest sensitivity
indicated by this table is not necessarily indicative of the Company's
interest sensitivity models discussed above because within each time period,
assets and liabilities reprice on different dates and at different levels, and
interest sensitivity gaps change daily. A positive interest sensitivity gap,
for a particular time period, is one in which more assets reprice or mature
than liabilities. A negative interest sensitivity gap results from a greater
amount of liabilities repricing or maturing. A positive gap implies that
there are more rate sensitive assets than liabilities which suggests that as
interest rates rise, the return on assets will rise faster than the funding
costs. Conversely, a negative gap indicates a higher ratio of rate sensitive
liabilities than assets. In such case, if interest rates rise, then funding
costs will rise at a faster rate than the return on assets. The cumulative
gap is the sum of the dollar gap for sequential time periods.
<PAGE> 13
December 31, 1995
--------------------------------------------------
Within Within Within Greater
Within 2-3 4-6 7-12 Than
1 Mo. Mos. Mos. Mos. 12 Mos. Total
------ ------ ------ ------ ------- -------
(in millions)
Interest-Earning Assets
- -----------------------
Foreign Offices $ 6,512 $ 3,995 $ 2,021 $ 384 $ 172 $13,084
Domestic Offices
Loans 18,999 599 933 693 4,910 26,134
Securities 107 110 113 487 3,161 3,978
Trading Assets 629 - - - - 629
Federal Funds Sold and
Securities Purchased
Under Resale Agreement 933 - - - - 933
------- ------- ------- ------ ------- -------
Total 27,180 4,704 3,067 1,564 8,243 $44,758
------- ------- ------- ------ ------- =======
Interest-Bearing Liabilities
- ----------------------------
Foreign Offices 8,390 610 620 111 - 9,731
Domestic Offices
Interest-Bearing Deposits
Money Market Rate
Accounts 4,057 - - - - 4,057
Savings 6,962 - - 13 1,243 8,218
Certificates of Deposit
of $100,000 or More 617 552 213 164 568 2,114
Other Time Deposits 365 270 352 256 373 1,616
------- ------- ------- ------ ------- -------
20,391 1,432 1,185 544 2,184 25,736
------- ------- ------- ------ ------- -------
Federal Funds Purchased
and Other Borrowed
Funds 5,716 291 896 451 3 7,357
Long-Term Debt - - 57 - 1,791 1,848
------- ------- ------- ------ ------- -------
Noninterest-Bearing
Sources of Funds 4,065 158 237 474 4,883 9,817
- ------------------- ------- ------- ------- ------ ------- -------
Total 30,172 1,881 2,375 1,469 8,861 $44,758
=======
Effect of Financial
Futures and Swaps 827 (1,354) 112 173 242
- ------------------- ------- ------- ------- ------ -------
Interest-Sensitive Gap $(2,165) $ 1,469 $ 804 $ 268 $ (376)
- ---------------------- ======= ======= ======= ====== =======
Cumulative Interest-
Sensitivity Gap $(2,165) $ (696) $ 108 $ 376 $ -
- -------------------- ======= ======= ======= ====== =======
<PAGE> 14
LOANS AND PROVISION AND ALLOWANCE FOR LOAN LOSSES
- -------------------------------------------------
The provision for loan losses was $330 million in 1995, compared with
$162 million in 1994 and $284 million in 1993. The increase in the provision
compared with 1994 was principally related to charge-offs in the credit card
portfolio. In 1995, the Company continued to experience improvement in the
asset quality of business loans as nonperforming loans dropped.
At December 31, 1995, the domestic commercial real estate portfolio had
approximately 81% of its loans in New York and New Jersey, 4% in California,
3% in New England, and 2% in Pennsylvania; no other state accounts for more
than 1% of the portfolio. This portfolio consists of the following types of
properties:
Business loans secured by real estate 44%
Offices 26
Retail 9
Mixed-Used 5
Hotels 4
Condominiums and cooperatives 4
Industrial/Warehouse 2
Land 1
Other 5
----
100%
====
At December 31, 1995 and 1994, the Company's nonperforming real estate
loans and real estate acquired in satisfaction of loans aggregated $114
million and $119 million, respectively. Net charge-offs of real estate loans
were $16 million in 1995 and $6 million in 1994. In addition, other real
estate charges were $5 million and $11 million in 1995 and 1994.
At December 31, 1995 the Company's LDC exposures consisted of $49
million in medium-term loans (and no material commitments), $447 million in
short-term loans, $9 million in accrued interest, and $148 million in equity
investments. At December 31, 1995, the allowance for loan losses associated
with LDC loans was $74 million. In addition, the Company has $316 million of
debt securities to emerging market countries, including $280 million (book
value) of bonds whose principal payments are collateralized by U.S. Treasury
zero coupon obligations and whose interest payments are partially
collateralized.
The Company's consumer loan portfolio is comprised principally of credit
card, other installment, and residential loans. Residential and auto loans
are collateralized, thereby reducing the risk. Credit card delinquencies and
charge-offs increased compared to last year. Credit card accounts past due
over 30 days were 4.50% of managed outstandings at the end of 1995 compared
with 3.34% at the end of 1994. Credit card net charge-offs were $267 million
in 1995 compared to $149 million in 1994. The 1995 and 1994 amounts exclude
$2 million and $32 million in net charge-offs related to the portion of the
portfolio that was securitized. As a percentage of average credit card
outstandings, net charge-offs were 3.44% in 1995 compared to 2.47% in 1994.
On a managed receivables basis, net charge-offs as a percentage of average
outstandings were 3.44% in 1995 compared to 2.68% in 1994. Other consumer net
charge-offs were $5 million in 1995 and $7 million in 1994.
The Company's loans to the energy industry primarily consist of credits
with investor-owned electric and gas utilities, and oil, gas and mining
companies. Nonperforming loans in this industry amounted to $11 million at
year-end 1995 and 1994. There were no charge-offs in 1995 and 1994.
<PAGE> 15
The Company's loans to the communications, entertainment, and publishing
industries primarily consist of credits with cable television operators,
broadcasters, magazine and newspaper publishers, motion picture theaters and
regional telephone companies. There were no nonperforming communications
loans at December 31, 1995 and 1994, and there were no charge-offs in 1995 and
1994.
The Company's portfolio of loans for purchasing or carrying securities is
comprised largely of overnight loans which are fully collateralized, with
appropriate margins, by marketable securities. Throughout its many years of
experience in this area, the Company has rarely experienced a loss.
The Company makes short-term, collateralized loans to mortgage bankers
to fund mortgages sold to investors. There were no nonperforming loans at
December 31, 1995 and 1994, and there were no charge-offs in 1995 and 1994.
Based on an evaluation of individual credits, historical loan losses, and
global economic factors, the Company has allocated its allowance for loan
losses as follows:
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
Real Estate Loans 7% 9% 8% 9% 10%
Other Domestic Commercial
and Industrial Loans 57 56 64 64 62
Consumer Loans 25 16 10 9 10
Foreign Loans (excluding
medium-term LDC loans) 1 7 6 6 6
LDC Loans 10 12 12 12 12
---- ---- ---- ---- ----
100% 100% 100% 100% 100%
==== ==== ==== ==== ====
Such an allocation is inherently judgmental, and the entire allowance for
loan losses is available to absorb loan losses regardless of the nature of the
loan.
<PAGE> 16
The following table details changes in the Company's allowance for loan losses
for the last five years.
(dollars in millions) 1995 1994 1993 1992 1991
---- ---- ---- ---- ----
Loans Outstanding, December 31, $37,687 $33,083 $30,570 $29,497 $30,335
Average Loans Outstanding 35,421 32,029 30,427 30,345 32,719
Allowance for Loan Losses
- -------------------------
Balance, January 1
Regular
Domestic $ 637 $ 794 $ 878 $ 889 $ 831
Foreign 57 60 70 60 62
Less Developed Countries 98 116 124 135 218*
------- ------- ------- ------- -------
Total, January 1 792 970 1,072 1,084 1,111
------- ------- ------- ------- -------
Allowance of Acquired
Companies and Other Changes 8 - - 56 (10)
Credit Card Securitizations 3 14 1 - (18)
Charge-Offs
Domestic
Commercial and Industrial (56) (158) (142) (311) (358)
Real Estate & Construction (19) (6) (71) (103) (165)
Consumer Loans (309) (191) (173) (181) (226)
Foreign (24) (38) (54) (20) (32)
Less Developed Countries (24) (18) (9) (13) (39)
------- ------- ------- ------- -------
Total (432) (411) (449) (628) (820)
------- ------- ------- ------- -------
Recoveries
Domestic
Commercial and Industrial 14 14 28 66 11
Real Estate & Construction 3 - 2 13 1
Consumer Loans 37 35 29 26 21
Foreign 1 8 2 10 4
Less Developed Countries - - 1 2 6
------- ------- ------- ------- -------
Total 55 57 62 117 43
Net Charge-Offs (377) (354) (387) (511) (777)
------- ------- ------- ------- -------
Provision
Domestic 356 135 242 423 742
Foreign (26) 27 42 20 36
------- ------- ------- ------- -------
Total 330 162 284 443 778
------- ------- ------- ------- -------
Balance, December 31,
Regular
Domestic 674 637 794 878 889*
Foreign 8 57 60 70 60
Less Developed Countries 74 98 116 124 135*
------- ------- ------- ------- -------
Total, December 31, $ 756 $ 792 $ 970 $ 1,072 $ 1,084
======= ======= ======= ======= =======
Ratios
- ------
Net Charge-Offs to Average
Loans Outstandings 1.06% 1.11% 1.27% 1.68% 2.37%
======= ======= ======= ======= =======
Net Charge-Offs to Total
Allowance 49.87% 44.70% 39.90% 47.67% 71.68%
======= ======= ======= ======= =======
Total Allowance to Year-End
Loans Outstanding 2.01% 2.40% 3.17% 3.63% 3.57%
====== ======= ======= ======= =======
*Includes a $50 million transfer from the LDC Allowance for Loan Losses to the
Regular Allowance.
<PAGE> 17
Nonperforming Assets
- --------------------
A summary of nonperforming assets is presented in the following table.
(in millions) December 31,
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
Nonaccrual
- ----------
Domestic $ 184 $ 220 $ 408 $ 581 $1,014
Foreign (including
Medium-term LDC) 41 77 130 198 146
------ ------ ------ ------ ------
225 297 538 779 1,160
Reduced Rate (Domestic) - - 2 9 13
- ------------ ------ ------ ------ ------ ------
225 297 540 788 1,173
Real Estate Acquired in
- -----------------------
Satisfaction of Loans 72 56 99 268 369
- --------------------- ----- ------ ------ ------- ------
$ 297 $ 353 $ 639 $1,056 $1,542
===== ====== ====== ====== ======
Past Due 90 Days or More
- ------------------------
and Still Accruing Interest
- ---------------------------
Domestic $ 270 $ 163 $ 156 $ 218 $ 178
Foreign - - - - 66
------ ------ ------ ------ ------
$ 270 $ 163 $ 156 $ 218 $ 244
====== ====== ====== ====== ======
<PAGE> 18
Securities
- ----------
The following table shows the maturity distribution by carrying amount and
yield (not on a taxable equivalent basis) of the Company's securities
portfolio at December 31, 1995.
States and
U.S. Government Political
U.S. Government Agency Subdivisions
--------------- --------------- ------------
Amount Yield Amount Yield Amount Yield
------ ----- ------ ----- ------ -----
(dollars in millions)
Securities Held-
- ----------------
to-Maturity
-----------
One Year or Less $ 14 5.35% $ 40 4.60% $ 143 4.41%
Over 1 through 5 Years 2 5.21 179 5.55 62 5.69
Over 5 through 10 Years - - 2 7.00 65 6.44
Over 10 years - - - - 97 7.07
Mortgage-Backed Securities - - - - - -
------ ----- ------
$ 16 5.33% $ 221 5.39% $ 367 5.69%
====== ===== ======
Securities Available-
- --------------------
for-Sale
- ----------
One Year or Less $ 481 5.62% $ - -% $ 31 8.93%
Over 1 through 5 Years 1,512 5.33 - - 35 6.78
Over 5 through 10 Years 836 5.75 - - 42 6.32
Over 10 years 8 7.65 - - 153 6.40
Equity Securities - - - - - -
----- ----- -----
$2,837 5.51% $ - - $ 261 6.74%
====== ===== =====
Other Bonds, Mortgage-Backed
Notes and and Equity
Debentures Securities
------------- ------------
Amount Yield Amount Yield Total
------ ----- ------ ----- -----
(dollars in millions)
Securities Held-
- ----------------
to-Maturity
-----------
One Year or Less $ 24 3.43% $ - -% $ 221
Over 1 through 5 Years 67 6.40 - - 310
Over 5 through 10 Years 60 4.31 - - 127
Over 10 years 273 5.81 - - 370
Mortgage-Backed Securities - - 224 7.34 224
---- ---- ------
$424 5.56% $224 7.34% $1,252
==== ==== ======
Securities Available-
- --------------------
for-Sale
- ----------
One Year or Less $ 12 5.66% $ - -% $ 524
Over 1 through 5 Years 15 3.73 - - 1,562
Over 5 through 10 Years 12 0.08 - - 890
Over 10 years 11 6.07 - - 172
Equity Securities - - 470 3.39 470
----- ---- ------
$ 50 3.87% $470 3.39% $3,618
===== ==== ======
Loans
- -----
The following table shows the maturity structure of the Company's commercial
loan portfolio at December 31, 1995.
Over 1 Year
1 Year Through Over
or Less 5 Years 5 Years Total
------- ----------- ------- -----
(in millions)
Domestic
- --------
Real Estate, Excluding Loans
Collateralized by 1-4 Family
Residential Properties $ 454 $1,443 $ 962 $ 2,859
Commercial and Industrial Loans 3,803 5,139 3,083 12,025
Other, Excluding Loans to
Individuals and those
Collateralized by 1-4 Family
Residential Properties 4,268 750 202 5,220
------- ------ ------ -------
8,525 7,332 4,247 20,104
Foreign 1,731 902 1,711 4,344
- ------- ------- ------ ------ -------
Total $10,256 $8,234 $5,958 $24,448
======= ====== ====== =======
Loans with:
Predetermined Interest Rates $ 638 $ 384 $1,244 $ 2,266
Floating Interest Rates 9,618 7,850 4,714 22,182
------- ------ ------ -------
Total $10,256 $8,234 $5,958 $24,448
======= ====== ====== =======
<PAGE> 19
Deposits
- --------
The aggregate amount of deposits by foreign customers in domestic offices
was $4.0 billion, $3.2 billion, and $2.1 billion at December 31, 1995, 1994,
and 1993.
The following table shows the maturity breakdown of domestic time
deposits of $100,000 or more at December 31, 1995.
Time
(in millions) Certificates Deposits-
of Deposits Other Total
-----------------------------------------------
3 Months or Less $1,092 $2,104 $3,196
Over 3 Through 6 Months 219 6 225
Over 6 Through 12 Months 169 12 181
Over 12 Months 616 34 650
------ ------ ------
Total $2,096 $2,156 $4,252
====== ====== ======
The majority of deposits in foreign offices are time deposits in
denominations of $100,000 or more.
Other Borrowed Funds
- ---------------------
Information related to other borrowed funds in 1995, 1994, and 1993 is
presented in the table below.
1995 1994 1993
---------------- --------------- ---------------
(dollars in millions)
Average Average Average
Amount Rate Amount Rate Amount Rate
------ ------- ------ ------- ------ -------
Federal Funds Purchased
- -----------------------
and Securities Sold Under
-------------------------
Repurchase Agreements
---------------------
At December 31 $3,933 4.61% $1,502 4.91% $2,711 2.85%
Average During Year 2,804 5.75 2,843 3.73 3,467 2.94
Maximum Month-End Balance
During Year 3,991 5.96 6,415 3.36 4,894 2.80
Other*
- -----
At December 31 3,106 5.73% 4,176 5.79 2,781 3.61
Average During Year 3,962 6.22 4,135 4.63 2,348 3.66
Maximum Month-End Balance
During Year 5,025 5.74 5,639 4.57 3,161 3.60
*Other borrowings consist primarily of commercial paper, bank notes, extended
federal funds purchased, and amounts owed to the U.S. Treasury.
Foreign Assets
- --------------
At December 31, 1995, the Company had assets in excess of .75% of year
end total assets in Greece, totaling $527 million, and in South Korea,
totaling $480 million. There were no foreign countries in which the Company's
assets exceeded .75% of year end total assets in 1994.
ITEM 2. PROPERTIES
- -------------------
In New York City, the Company owns the thirty story building housing its
executive headquarters at 48 Wall Street, a forty-nine story office building
at One Wall Street, and an operations center at 101 Barclay Street. In
addition, the Company owns and/or leases administrative and operations
facilities in New York City; various locations in New Jersey and Connecticut;
Harrison, New York; Newark, Delaware; Brussels, Belgium; London, England;
<PAGE> 20
and Utica, New York. Other real properties owned or leased by the Company,
when considered in the aggregate, are not material to its operations.
ITEM 3. LEGAL PROCEEDINGS
- --------------------------
Litigation regarding Northeast Bancorp., Inc. is described in Note 12 to
the Consolidated Financial Statements included in Exhibit 13, and such
description is incorporated herein by reference.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- ------------------------------------------------------------
There were no matters submitted to a vote of security holders of the
registrant during the fourth quarter of 1995.
PART II
- -------
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
- ------------------------------------------------------------------------------
Information with respect to the market for the Company's common equity
and related stockholder matters is incorporated herein by reference from the
"Quarterly Data" section included in Exhibit 13. The Company's securities
that are listed on the New York Stock Exchange (NYSE), are indicated as such
on the front cover of this report. The NYSE symbol for the Company's Common
Stock is BK. The Warrants (to purchase the Company's Common Stock) are traded
over the counter. All of the Company's other securities are not currently
listed. The Company had 26,366 common shareholders of record at February 29,
1996.
ITEM 6. SELECTED FINANCIAL DATA
- --------------------------------
Selected financial data are incorporated herein by reference from the
"Financial Highlights" section included in Exhibit 13.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
- ----------------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS
-----------------------------------
Management's discussion and analysis of financial condition and results
of operations is incorporated herein by reference from the corresponding
section of Exhibit 13.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
- ----------------------------------------------------
Consolidated financial statements and notes and the independent auditors'
report are incorporated herein by reference from Exhibit 13 to this report.
Supplementary financial information is incorporated herein by reference
from the "Quarterly Data" section included in Exhibit 13.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
- ------------------------------------------------------------------------
On March 12, 1996, the Company's Board of Directors, acting upon the
recommendation of the Audit Committee of the Company's Board of Directors
dismissed Deloitte & Touche LLP as the Company's independent public
accountants and appointed Ernst & Young LLP to serve as the Company's
independent public accountants for the year 1996.
Deloitte & Touche LLP's reports on the Company's financial statements
for the last two years did not contain an adverse opinion or a disclaimer of
opinion and were not qualified or modified as to uncertainty, audit scope, or
accounting principles. During the two fiscal years ended December 31, 1995
and during the period from December 31, 1995 through March 12, 1996, there
were no disagreements between the Company and Deloitte & Touche LLP on any
matter of accounting principles or practices, financial statement disclosure,
or auditing scope or procedure, which disagreements would have caused Deloitte
& Touche LLP to make reference to the subject matter of such disagreements in
connection with its reports.
<PAGE> 21
PART III
- --------
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
- ------------------------------------------------------------
The directors of the registrant are identified on pages 28 and 29 of this
report. Additional material responsive to this item is contained in the
Company's definitive Proxy Statement for its 1996 Annual Meeting of
Shareholders, which information is incorporated herein by reference.
EXECUTIVE OFFICERS OF THE REGISTRANT AND BUSINESS EXPERIENCE DURING THE PAST
FIVE YEARS
- -----------------------------------------------------------------------------
Company
Officer
Name Office and Experience Age Since
---- --------------------- --- -----
J. Carter Bacot 1995-1996 Chairman and Chief Executive Officer
of the Company, Chairman of the Bank 63 1975
1991-1995 Chairman and Chief Executive Officer
of the Company and the Bank
Thomas A. Renyi 1995-1996 President of the Company and 50 1992
President and Chief Executive
Officer of the Bank
1994-1995 President of the Company and
President and Chief Operating
Officer of the Bank
1992-1994 President of the Company and
Vice Chairman of the Bank
1991-1992 Senior Executive Vice President and
Chief Credit Officer of the Bank
Alan R. Griffith 1994-1996 Vice Chairman of the Company 54 1990
and the Bank
1991-1994 Senior Executive Vice President of
the Company, and President and Chief
Operating Officer of the Bank
Samuel F. Chevalier 1991-1996 Vice Chairman of the Company 62 1989
and the Bank
Deno D. Papageorge 1991-1996 Senior Executive Vice President of 57 1980
the Company, Senior Executive Vice
President and Chief Financial
Officer of the Bank
Richard D. Field 1991-1996 Executive Vice President of the 55 1987
Company, Senior Executive Vice
President of the Bank
Robert E. Keilman 1991-1996 Comptroller of the Company and 50 1984
the Bank, Senior Vice President
of the Bank
Phebe C. Miller 1995-1996 Secretary and Chief Legal Officer 46 1995
of the Company, Senior Vice
President and Chief Legal Officer
of the Bank
1994-1995 Senior Vice President of the Bank
1991-1994 Managing Director, General Counsel
and Secretary, Discount Corporation
of New York
1991 Vice President and Counsel,
Discount Corporation of New York
Robert J. Goebert 1991-1996 Auditor of the Company, Senior Vice 54 1982
President of the Bank
<PAGE> 22
Officers of BNY who perform major policy making functions:
Bank
Executive
Officer
Name Office and Experience Age Since
---- --------------------- --- ------
Gerald L. Hassell 1994-1996 Senior Executive Vice President and 44 1990
Chief Commercial Banking Officer
1992-1994 Executive Vice President - Special
Industries Banking
1991 Executive Vice President -
Communications, Entertainment, and
Publishing Division
Robert J. Mueller 1992-1996 Senior Executive Vice President - 54 1989
Chief Credit Policy Officer
1991-1992 Executive Vice President - Mortgage
& Construction Lending
Newton P.S. Merrill 1994-1996 Senior Executive Vice President - 56 1994
Trust, Investment Management and
Private Banking
1991-1993 Senior Executive Vice President-
The Bank of Boston
Richard A. Pace 1991-1996 Executive Vice President and Chief 50 1989
Technologist
There are no family relationships between the executive officers of the
Company. The terms of office of the executive officers of the Company extend
until the annual organizational meeting of the Board of Directors.
ITEM 11. EXECUTIVE COMPENSATION
- --------------------------------
The material responsive to such item in the Company's definitive Proxy
Statement for its 1996 Annual Meeting of Shareholders is incorporated by
reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
- ------------------------------------------------------------------------
The material responsive to such item in the Company's definitive Proxy
Statement for its 1996 Annual Meeting of Shareholders is incorporated by
reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- --------------------------------------------------------
The material responsive to such item in the Company's definitive Proxy
Statement for its 1996 Annual Meeting of Shareholders is incorporated by
reference.
PART IV
- -------
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
- --------------------------------------------------------------------------
(a) 1 Financial Statements:
See Item 8.
(a) 2 Financial Statement Schedules:
Financial statement schedules are omitted since the required information
is either not applicable, not deemed material, or is shown in the respective
financial statements or in the notes thereto.
<PAGE> 23
(a) 3 Listing of Exhibits:
Exhibit No. Per
Regulation S-K Description
- -------------- -----------
3 (a) The By-Laws of The Bank of New York Company, Inc. as amended
through October 13, 1987.
(Filed as Exhibit 3(a) to the Company's 1987 Annual Report on
Form 10-K and incorporated herein by reference.)
(b) Restated Certificate of Incorporation of The Bank of New York
Company, Inc. dated July 20, 1994.
(Filed as Exhibit 4 to Form 10-Q filed by the Company
on November 10, 1994 and incorporated herein by reference.)
4 (a) None of the outstanding instruments defining the rights of holders
of long-term debt of the Company represent long-term debt in excess
of 10% of the total assets of the Company. The Company hereby
agrees to furnish to the Commission, upon request, a copy of any
of such instruments.
(b) Rights Agreement, including form of Preferred Stock Purchase
Rights, incorporated herein by reference to the Company's
Registration Statement on Form 8-A dated December 18, 1985.
(c) First Amendment, dated as of June 13, 1989, to the Rights
Agreement,including form of Preferred Stock Purchase Right, dated
as of December 10, 1985, between The Bank of New York Company, Inc.
and The Bank of New York, as Rights Agent, incorporated by
reference to the amendment on Form 8, dated June 14, 1989, to the
registrant's Registration Statement on Form 8-A, dated
December 18, 1985.
(d) Second Amendment, dated as of April 30, 1993, to the Rights
Agreement, including form of Preferred Stock Purchase Right, dated
as of December 10, 1985, between The Bank of New York Company, Inc.
and The Bank of New York, as Rights Agent, incorporated by
reference to the amendment on Form 8-A/A, dated April 30, 1993, to
the registrant's Registration Statement on Form 8-A dated
December 18, 1985.
(e) Third Amendment, dated as of March 8, 1994, to the Rights
Agreement, dated as of December 10, 1985, between The Bank of New
York Company, Inc. and The Bank of New York, as Rights Agent,
incorporated by reference to Exhibit 4(a) to the Company's Current
Report on Form 8-K for the Report Date March 8, 1994.
10 (a) 1984 Stock Option Plan of The Bank of New York Company, Inc. as
amended through February 23, 1988.
(Filed as Exhibit 10(a) to the Company's 1988 Annual Report on
Form 10-K and incorporated herein by reference.)*
(b) Amendment dated October 11, 1994 to 1984 Stock Option Plan of
The Bank of New York Company, Inc.
(Filed as Exhibit 10(b) to the Company's 1994 Annual Report on
Form 10-K and incorporated herein by reference.)*
(c) The Bank of New York Company, Inc. Excess Contribution Plan as
amended through July 10, 1990.
(Filed as Exhibit 10(b) to the Company's 1990 Annual Report on
Form 10-K and incorporated herein by reference.)*
<PAGE> 24
Exhibit No. Per
Regulation S-K Description
- -------------- -----------
10 (d) Amendments to The Bank of New York Company, Inc. Excess
Contribution Plan dated February 23, 1994 and November 9, 1993.
(Filed as Exhibit 10(c) to the Company's 1993 Annual Report on
Form 10-K and incorporated herein by reference.)*
(e) Amendment to The Bank of New York Company, Inc. Excess
Contribution Plan dated November 14, 1995.*
(f) The Bank of New York Company, Inc. Excess Benefit Plan as amended
through December 8, 1992.
(Filed as Exhibit 10(d) to the Company's 1992 Annual Report on
Form 10-K and incorporated herein by reference.)*
(g) Amendments to The Bank of New York Company, Inc. Excess Benefit
Plan dated February 23, 1994 and November 9, 1993.
(Filed as Exhibit 10(e) to the Company's 1993 Annual Report on
Form 10-K and incorporated herein by reference.)*
(h) Amendment dated May 10, 1994 to The Bank of New York Company, Inc.
Excess Benefit Plan.
(Filed as Exhibit 10(g) to the Company's 1994 Annual Report on
Form 10-K and incorporated herein by reference.)*
(i) Amendment to The Bank of New Company, Inc. Excess Benefit Plan
dated November 14, 1995.*
(j) 1994 Management Incentive Compensation Plan of The Bank of New York
Company, Inc.
(Filed as Exhibit 10(g) to the Company's 1993 Annual Report on
Form 10-K and incorporated herein by reference.)*
(k) 1988 Long-Term Incentive Plan as amended through December 8, 1992.
(Filed as Exhibit 10(f) to the Company's 1992 Annual Report on
Form 10-K and incorporated herein by reference.)*
(l) Amendment dated October 11, 1994 to the 1988 Long-Term Incentive
Plan of The Bank of New York Company, Inc.
(Filed as Exhibit 10(j) to the Company's 1994 Annual Report on
Form 10-K and incorporated herein by reference.)*
(m) The Bank of New York Company, Inc. 1993 Long-Term Incentive Plan.
(Filed as Exhibit 10(m) to the Company's 1992 Annual Report on
Form 10-K and incorporated herein by reference.)*
(n) Amendment dated October 11, 1994 to the 1993 Long-Term Incentive
Plan of The Bank of New York Company, Inc.
(Filed as Exhibit 10(l) to the Company's 1994 Annual Report on
Form 10-K and incorporated herein by reference.)*
(o) The Bank of New York Company, Inc. Supplemental Executive
Retirement Plan.
(Filed as Exhibit 10(n) to the Company's 1992 Annual Report on
Form 10-K and incorporated herein by reference.)*
(p) Amendment to The Bank of New York Company, Inc. Supplemental
Executive Retirement Plan dated March 9, 1993.
(Filed as Exhibit 10(k) to the Company's 1993 Annual Report on
Form 10-K and incorporated herein by reference.)*
<PAGE> 25
Exhibit No. Per
Regulation S-K Description
- --------------- ------------
10 (q) Amendment effective October 11, 1994 to The Bank of New York
Company, Inc. Supplemental Executive Retirement Plan.
(Filed as Exhibit 10(o) to the Company's 1994 Annual Report on
Form 10-K and incorporated herein by reference.)*
(r) Trust Agreement dated April 19, 1988 related to certain executive
compensation plans and agreements.
(Filed as Exhibit 10(h) to the Company's 1988 Annual Report on
Form 10-K and incorporated herein by reference.)*
(s) Trust Agreement dated November 16, 1993 related to certain
executive compensation plans and agreements.
(Filed as Exhibit 10(m) to the Company's 1993 Annual Report on
Form 10-K and incorporated herein by reference.)*
(t) Amendment dated October 11, 1994 to Trust Agreement dated
November 16, 1993, related to certain executive compensation plans
and agreements.*
(Filed as Exhibit 10(r) to the Company's 1994 Annual Report on
Form 10-K and incorporated herein by reference.)*
(u) Trust Agreement dated December 15, 1994 related to certain
executive compensation plans and agreements.*
(Filed as Exhibit 10(s) to the Company's 1994 Annual Report on
Form 10-K and incorporated herein by reference.)*
(v) Form of Remuneration Agreement between the Company and two of the
five most highly compensated executive officers of the Company.
(Filed as Exhibit 10 to the Company's 1982 Annual Report on
Form 10-K and incorporated herein by reference.)*
(w) Form of Tax Reimbursement Agreement dated as of July 13, 1994
between the Company and two of the five most highly compensated
executive officers of the Company.*
(Filed as Exhibit 10(u) to the Company's 1994 Annual Report on
Form 10-K and incorporated herein by reference.)*
(x) Form of Remuneration Agreement dated October 11, 1994 between the
Company and three of the five most highly compensated officers of
the Company.*
(Filed as Exhibit 10(v) to the Company's 1994 Annual Report on Form
10-K and incorporated herein by reference.)*
(y) The Bank of New York Company, Inc. Retirement Plan for Non-Employee
Directors.
(Filed as Exhibit 10(r) to the Company's 1993 Annual Report on
Form 10-K and incorporated herein by reference.)*
(z) Amendment dated November 8, 1994 to The Bank of New York Company,
Inc. Retirement Plan for Non-Employee Directors.*
(Filed as Exhibit 10(x) to the Company's 1994 Annual Report on
Form 10-K and incorporated herein by reference.)*
(aa) Deferred Compensation Plan for Non-Employee Directors of The Bank
of New York Company, Inc.
(Filed as Exhibit 10(s) to the Company's 1993 Annual Report on
Form 10-K and incorporated herein by reference.)*
<PAGE> 26
Exhibit No. Per
Regulation S-K Description
- -------------- -----------
(bb) Amendment dated November 8, 1994 to the Deferred Compensation Plan
for Non-Employee Directors of The Bank of New York Company, Inc.*
(Filed as Exhibit 10(z) to the Company's 1994 Annual Report on
Form 10-K and incorporated herein by reference.)*
11 Statement - Re: Computation of Per Common Share Earnings
12 Statement - Re: Computation of Earnings to Fixed Charges Ratios
13 Portions of the 1995 Annual Report to Shareholders
21 Subsidiaries of the Registrant
23 Consent of Deloitte & Touche LLP
27 Financial Data Schedule
- -------------------
* Indicates a management contract or compensatory plan or arrangement.
<PAGE> 27
(b) Reports on Form 8-K:
October 16, 1995: Unaudited interim financial information and
accompanying discussion for the third quarter of 1995.
November 14, 1995: A press release announcing the Company's plan
to buy back up to 16 million of its outstanding common shares.
January 16, 1996: Unaudited interim financial information and
accompanying discussion for the fourth quarter of 1995.
March 12, 1996: The Company's disclosure statement with respect to
dismissing Deloitte & Touche LLP and appointing Ernst & Young LLP
as the Company's independent accountants, and a letter to the
Securities and Exchange Commission from Deloitte & Touche LLP
agreeing with the Company's disclosure statement; as subsequently
amended on From 8-K/A.
(c) Exhibits:
Submitted as a separate section of this report.
(d) Financial Statements Schedules:
None
<PAGE> 28
SIGNATURES
- ----------
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized in New York, New York, on
the 12th day of March, 1996.
THE BANK OF NEW YORK COMPANY, INC.
By: \s\ Deno D. Papageorge
-------------------------------------
(Deno D. Papageorge,
Senior Executive Vice President)
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been duly signed below by the following persons on behalf of the
registrant and in the capacities indicated on the 12th day of March, 1996.
Signature Title
--------- -----
\s\J. Carter Bacot Chairman and
- ----------------------------------- Chief Executive Officer
(J. Carter Bacot) (principal executive officer)
\s\ Deno D. Papageorge Senior Executive Vice President
- ----------------------------------- (principal financial officer)
(Deno D. Papageorge)
\s\ Robert E. Keilman Comptroller
- ------------------------------------ (principal accounting officer)
(Robert E. Keilman)
\s\ Richard Barth Director
- ------------------------------------
(Richard Barth)
\s\ Frank J. Biondi, Jr. Director
- ------------------------------------
(Frank J. Biondi, Jr.)
\s\ William R. Chaney Director
- ------------------------------------
(William R. Chaney)
\s\ Samuel F. Chevalier Vice Chairman and Director
- ------------------------------------
(Samuel F. Chevalier)
\s\ Anthony P. Gammie Director
- ------------------------------------
(Anthony P. Gammie)
\s\ Ralph E. Gomory Director
- ------------------------------------
(Ralph E. Gomory)
<PAGE> 29
\s\ Alan R. Griffith Vice Chairman
- ------------------------------------ and Director
(Alan R. Griffith)
\s\ Edward L. Hennessy, Jr. Director
- ------------------------------------
(Edward L. Hennessy, Jr.)
\s\ John C. Malone Director
- ------------------------------------
(John C. Malone)
\s\ Donald L. Miller Director
- ------------------------------------
(Donald L. Miller)
\s\ H. Barclay Morley Director
- ------------------------------------
(H. Barclay Morley)
\s\ Martha T. Muse Director
- ------------------------------------
(Martha T. Muse)
\s\ Catherine A. Rein Director
- ------------------------------------
(Catherine A. Rein)
\s\ Thomas A. Renyi President and
- ------------------------------------ Director
(Thomas A. Renyi)
\s\ Harold E. Sells Director
- ------------------------------------
(Harold E. Sells)
\s\ W. S. White, Jr. Director
- ------------------------------------
(W. S. White, Jr.)
<PAGE> 30
INDEX TO EXHIBITS
Exhibit No.
- ------------
3 (a) The By-Laws of The Bank of New York Company, Inc. as amended through
October 13, 1987.*
(b) Restated Certificate of Incorporation of The Bank of New York
Company, Inc. dated July 20, 1994.*
4 (a) None of the outstanding instruments defining the rights of holders
of long-term debt of the Company represent long-term debt in excess
of 10% of the total assets of the Company. The Company hereby
agrees to furnish to the Commission, upon request, a copy of any of
such instruments.
(b) Rights Agreement, including form of Preferred Stock Purchase Rights.*
(c) First Amendment, dated as of June 13, 1989, to the Rights Agreement,
including form of Preferred Stock Purchase Right, dated as of
December 10, 1985, between The Bank of New York Company, Inc. and
The Bank of New York, as Rights Agent.*
(d) Second Amendment, dated as of April 30, 1993, to the Rights
Agreement, including form of Preferred Stock Purchase Right, dated
as of December 10, 1985, between The Bank of New York Company, Inc.
and The Bank of New York, as Rights Agent.*
(e) Third Amendment, dated as of March 8, 1994, to the Rights Agreement,
dated as of December 10, 1985, between The Bank of New York Company,
Inc. and The Bank of New York, as Rights Agent.*
10 (a) 1984 Stock Option Plan of The Bank of New York Company, Inc. as
amended through February 23, 1988.*
(b) Amendment dated October 11, 1994 to 1984 Stock Option Plan of The
Bank of New York Company, Inc.*
(c) The Bank of New York Company, Inc. Excess Contribution Plan as
amended through July 10, 1990.*
(d) Amendments to The Bank of New York Company, Inc. Excess Contribution
Plan dated February 23, 1994 and November 9, 1993.*
(e) Amendment to The Bank of New York Company, Inc. Excess Contribution
Plan dated November 14, 1995.
(f) The Bank of New York Company, Inc. Excess Benefit Plan as amended
through December 8, 1992.*
(g) Amendments to The Bank of New York Company, Inc. Excess Benefit Plan
dated February 23, 1994 and November 9, 1993.*
(h) Amendment dated May 10, 1994 to The Bank of New York Co., Inc.
Excess Benefit Plan.*
(i) Amendment to The Bank of New York Company, Inc. Excess Benefit Plan
dated November 14,1995.
(j) 1994 Management Incentive Compensation Plan of The Bank of New York
Company, Inc.*
(k) 1988 Long-Term Incentive Plan as amended through December 8, 1992.*
(l) Amendment dated October 11, 1994 to the 1988 Long-Term Incentive
Plan of The Bank of New York Company, Inc.*
<PAGE> 31
INDEX TO EXHIBITS
Exhibit No.
- -----------
10 (m) The Bank of New York Company, Inc. 1993 Long-Term Incentive Plan.*
(n) Amendment dated October 11, 1994 to the 1993 Long-Term Incentive
Plan of The Bank of New York Company, Inc.*
(o) The Bank of New York Company, Inc. Supplemental Executive Retirement
Plan.*
(p) Amendment to The Bank of New York Company, Inc. Supplemental
Executive Retirement Plan dated March 9, 1993.*
(q) Amendment effective October 11, 1994 to The Bank of New York
Company, Inc. Supplemental Executive Retirement Plan.*
(r) Trust Agreement dated April 19, 1988 related to executive
compensation agreements.*
(s) Trust Agreement dated November 16, 1993 related to deferred executive
compensation agreements.*
(t) Amendment dated October 11, 1994 to Trust Agreement dated November
16, 1993, related to executive compensation agreements.*
(u) Trust Agreement dated December 15, 1994 related to certain executive
compensation plans and agreements.*
(v) Form of Remuneration Agreement between the Company and two of the
five most highly compensated executive officers of the Company.*
(w) Form of Tax Reimbursement Agreement dated as of July 13, 1994
between the Company and two of the five most highly compensated
executive officers of the Company.*
(x) Form of Remuneration Agreement dated October 11, 1994 between the
Company and three of the five most highly compensated officers of
the Company.
(y) The Bank of New York Company, Inc. Retirement Plan for Non-Employee
Directors.*
(z) Amendment dated November 8, 1994 to The Bank of New York Company,
Inc. Retirement Plan for Non-Employee Directors.*
(aa) Deferred Compensation Plan for Non-Employee Directors of The Bank of
New York Company, Inc.*
(bb) Amendment dated November 8, 1994 to the Deferred Compensation Plan
for Non-Employee Directors of The Bank of New York Company, Inc.*
11 Statement - Re: Computation of Per Common Share Earnings
12 Statement - Re: Computation of Earnings to Fixed Charges Ratios
13 Portions of the 1995 Annual Report to Shareholders
21 Subsidiaries of the Registrant
23 Consent of Deloitte & Touche LLP
27 Financial Data Schedule
- -------------------
* Incorporated by reference
<PAGE> 1
EXHIBIT 10(e)
AMENDMENT TO
THE BANK OF NEW YORK COMPANY, INC.
EXCESS CONTRIBUTION PLAN
WHEREAS, The Bank of New York Company, Inc. Excess
Contribution Plan (the "Excess Contribution Plan") was
amended and restated, effective as of July 10, 1990; and
WHEREAS, Section 19 of the Excess Contribution Plan
provides that the Board of Directors of The Bank of New York
Company, Inc. may amend the Excess Contribution Plan at any
time, except in certain respects not material hereto; and
WHEREAS, the Board of Directors desires to amend
the Excess Contribution Plan;
NOW, THEREFORE, the Excess Contribution Plan is
hereby amended, effective as of November 1, 1995, by adding
the following Appendix to the Plan:
APPENDIX A
----------
Special Provisions for Employees
of The Putnam Trust Company of Greenwich
----------------------------------------
Notwithstanding any other provision of the Plan to
the contrary, effective as of January 1, 1996, the
provisions of this Appendix A shall be applicable to
certain current and former employees of The Putnam Trust
Company of Greenwich who were participants in The Putnam
Trust Company of Greenwich Contribution Restoration
Plan #2 ("Restoration Plan #2").
In addition to any other amounts payable under the
Plan to Michael Cassell, there shall be credited to his
Account under the Plan the amount provided for under the
last paragraph of Section 4.1(b) of Restoration Plan #2,
as adjusted for gains and losses through December 31,
1995 in accordance with the provisions of the
penultimate paragraph of Restoration Plan #2.
Furthermore, in addition to any other amounts payable
under the Plan to Michael Cassell and John Kuck, there
shall be credited to their Accounts under the Plan the
<PAGE> 2
amount provided for in Section 4.1(b) of Restoration
Plan #2 with respect to the 1995 taxable year. The
value of the Accounts referred to in the preceding
sentences of this paragraph shall be adjusted as if such
Accounts were invested in Fund A of the Profit-Sharing
Plan. When benefit payments under the Profit-Sharing
Plan commence to Michael Cassell and John Kuck, they
shall receive payment of the value of their Accounts as
determined pursuant to this paragraph in a lump sum in
cash.
IN WITNESS WHEREOF, The Bank of New York Company,
Inc. has caused this Amendment to be executed by its duly
authorized officers this 14 day of November, 1995.
\s\ Thomas A. Renyi
ATTEST: -----------------------
\s\ Jacqueline R. McSwiggan
---------------------------
Assistant Secretary
<PAGE> 1
EXHIBIT 10(i)
AMENDMENT TO
THE BANK OF NEW YORK COMPANY, INC.
EXCESS BENEFIT PLAN
WHEREAS, The Bank of New York Company, Inc. Excess
Benefit Plan (the "Excess Benefit Plan") was amended and
restated, effective as of July 10, 1990; and
WHEREAS, Section 17 of the Excess Benefit Plan
provides that the Board of Directors of The Bank of New York
Company, Inc. may amend the Excess Benefit Plan at any time,
except in certain respects not material hereto; and
WHEREAS, the Board of Directors desires to amend
the Excess Benefit Plan;
NOW, THEREFORE, the Excess Benefit Plan is hereby
amended, effective as of November 1, 1995, by adding the
following Appendix B to the Plan:
APPENDIX B
----------
Special Retirement Benefits for Employees
of The Putnam Trust Company of Greenwich
----------------------------------------
Notwithstanding any other provision of the Plan to
the contrary, effective as of November 1, 1995, the
provisions of this Appendix B shall be applicable to
certain current and former employees of The Putnam Trust
Company of Greenwich who were participants in the Putnam
Trust Company of Greenwich Benefit Restoration Plan (the
"Restoration Plan") or The Putnam Trust Company of
Greenwich Benefit Restoration Plan #2 ("Restoration
Plan #2").
Effective as of November 1, 1995, the Company shall
pay to each participant in the Restoration Plan who was
receiving benefit payments thereunder as of October 31,
1995, or to his beneficiary after his death, the benefit
to which such participant (or beneficiary) is entitled
pursuant to the terms of Section 4.1(a) of the
Restoration Plan as in effect on October 31, 1995. Such
<PAGE> 2
benefit shall be paid in accordance with the provisions
of the Restoration Plan.
In determining the benefits payable under the Plan
to Michael Cassell, in order to implement the provisions
of Section 4.1(a)(iv) of Restoration Plan #2, he shall
be assumed to have begun to participate in the
Retirement Plan and the Retirement Plan for Employees of
The Putnam Trust Company of Greenwich on January 1,
1994.
IN WITNESS WHEREOF, The Bank of New York Company,
Inc. has caused this Amendment to be executed by its duly
authorized officers this 14 day of November, 1995.
\s\ Thomas A. Renyi
ATTEST: -----------------------
\s\ Jacqueline R. McSwiggan
---------------------------
Assistant Secretary
EXHIBIT 11
THE BANK OF NEW YORK COMPANY, INC.
Computation of Earnings Per Common Share
For the Years Ended December 31,
1995 1994 1993
---- ---- ----
(in millions, except per share amounts)
Weighted Average Number of Shares of
Common Stock for Primary Computation 193 188 186
Shares Assumed to be Issued on Conversion:
Warrants 5 - -
----- ----- -----
Weighted Average Number of Shares of
Common Stock for Primary Computation 198 188 186
===== ===== =====
Shares Assumed to be Issued on Conversion:
Debentures 9 12 12
Cumulative Preferred Stock - 2 2
Warrants 5 - -
----- ----- -----
Weighted Average Number of Shares of
Common Stock Assuming Full Dilution 212 202 200
===== ===== =====
Net Income $ 914 $ 749 $ 559
Dividend Requirements on Preferred Stock 10 13 25
----- ----- -----
Net Income Available to Common Shareholders 904 736 534
Interest On Convertible Debentures, Net of Tax 7 10 10
Dividends on Convertible Preferred Stock - 2 3
----- ----- -----
Net Income Available to Common Shareholders,
Assuming Full Dilution $ 911 $ 748 $ 547
===== ===== =====
Earnings Per Share:
Primary $4.57 $3.92 $2.87
Fully Diluted 4.30 3.70 2.72
EXHIBIT 12
THE BANK OF NEW YORK COMPANY, INC.
Ratios of Earnings to Fixed Charges and Ratios
of Earnings to Combined Fixed Charges
and Preferred Stock Dividends
For The Years Ended December 31,
EARNINGS 1995 1994 1993 1992 1991
- -------- ---- ---- ---- ---- ----
(Dollars in millions)
Income Before Income Taxes $1,482 $1,198 $ 886 $ 588 $ 208
Fixed Charges, Excluding
Interest on Deposits 568 436 340 346 378
------ ------ ------ ------ ------
Income Before Income Taxes and
Fixed Charges Excluding
Interest on Deposits 2,050 1,634 1,226 934 586
Interest on Deposits 1,265 842 701 1,005 1,794
------ ------ ------ ------ ------
Income Before Income Taxes and
Fixed Charges, Including
Interest on Deposits $3,315 $2,476 $1,927 $1,939 $2,380
====== ====== ====== ====== ======
FIXED CHARGES
- -------------
Interest Expense, Excluding
Interest on Deposits $ 537 $ 403 $ 305 $ 315 $ 346
One-Third Net Rental Expense* 31 33 35 31 32
------ ------ ------ ------ ------
Total Fixed Charges, Excluding
Interest on Deposits 568 436 340 346 378
Interest on Deposits 1,265 842 701 1,005 1,794
------ ------ ------ ------ ------
Total Fixed Charges, Including
Interest on Deposits $1,833 $1,278 $1,041 $1,351 $2,172
====== ====== ====== ====== ======
PREFERRED STOCK DIVIDENDS,
PRE-TAX BASIS $ 16 $ 21 $ 40 $ 50 $ 51
- -------------------------- ====== ====== ====== ====== ======
EARNINGS TO FIXED CHARGES RATIOS
- --------------------------------
Excluding Interest on Deposits 3.61x 3.75x 3.61x 2.70x 1.55x
Including Interest on Deposits 1.81 1.94 1.85 1.44 1.10
EARNINGS TO COMBINED FIXED CHARGES
& PREFERRED STOCK DIVIDENDS RATIOS
- ----------------------------------
Excluding Interest on Deposits 3.51 3.58 3.23 2.36 1.37
Including Interest on Deposits 1.79 1.91 1.78 1.38 1.07
*The proportion deemed representative of the interest factor.
EXHIBIT 13
1995 Annual Report to Shareholders
<PAGE> 1
FINANCIAL HIGHLIGHTS
Dollars in millions,
except per share amounts 1995 1994 1993 1992 1991
Net Interest Income $ 2,029 $ 1,717 $ 1,497 $ 1,367 $ 1,350
Noninterest Income 1,496 1,289 1,319 1,183 1,094
Provision for Loan Losses 330 162 284 443 778
Noninterest Expense 1,713 1,646 1,646 1,519 1,458
Net Income 914 749 559 393 134
Net Income Available to
Common Shareholders 904 736 534 360 102
Return on Average Assets 1.72% 1.49% 1.20% 0.85% 0.29%
Return on Average Common
Shareholders' Equity 19.42 18.49 14.98 12.00 3.85
Common Dividend Payout Ratio 28.84 27.88 27.99 33.89 125.49
Per Common Share
Primary Earnings $ 4.57 $ 3.92 $ 2.87 $ 2.10 $ 0.64
Fully Diluted Earnings 4.30 3.70 2.72 2.00 -
Cash Dividends 1.36 1.10 0.86 0.76 0.84
Market Value at Year End 48.75 29.00 28.50 26.94 15.44
Average Securities $ 5,260 $ 5,941 $ 6,352 $ 6,202 $ 4,676
Average Loans 35,421 32,029 30,427 30,345 32,719
Average Total Assets 53,053 50,280 46,644 46,227 46,617
Average Deposits 36,061 34,041 32,837 33,237 35,669
Average Long-Term Debt 1,773 1,530 1,729 1,386 991
Average Preferred
Shareholders' Equity 115 157 334 409 395
Average Common
Shareholders' Equity 4,653 3,980 3,563 2,996 2,652
At Year End
Allowance for Loan Losses
as a Percent of Loans 2.01% 2.40% 3.17% 3.63% 3.57%
Tier 1 Capital Ratio 8.42 8.45 8.87 7.59 5.79
Total Capital Ratio 13.08 13.43 13.65 12.30 9.40
Leverage Ratio 8.46 7.89 7.99 7.11 5.77
Common Equity to Assets Ratio 9.53 8.55 8.29 7.30 6.14
Total Equity to Assets Ratio 9.74 8.79 8.94 8.24 7.04
Common Shares Outstanding
(in millions) 197.478 186.935 187.228 182.131 160.746
Employees 15,810 15,477 15,621 16,167 15,139
The per common share amounts and common shares outstanding have been restated
to reflect the 2-for-1 common stock split effective April 22, 1994.
<PAGE> 2
Consolidated Balance Sheets
- --------------------------------------------------------------------------------
Dollars in millions, except per share amounts December 31, 1995 1994
- --------------------------------------------------------------------------------
Assets
Cash and Due from Banks $ 4,711 $ 2,903
Interest-Bearing Deposits in Banks 982 992
Securities:
Held-to-Maturity (fair value of $1,164
in 1995 and $2,707 in 1994) 1,252 2,930
Available-for-Sale 3,618 1,721
------- -------
Total Securities 4,870 4,651
Trading Assets 762 940
Federal Funds Sold and Securities Purchased
Under Resale Agreements 936 3,019
Loans (less allowance for loan losses of $756 in
1995 and $792 in 1994) 36,931 32,291
Premises and Equipment 902 914
Due from Customers on Acceptances 918 810
Accrued Interest Receivable 270 290
Other Assets 2,438 2,069
------- -------
Total Assets $53,720 $48,879
======= =======
Liabilities and Shareholders' Equity
Deposits:
Noninterest-Bearing (principally domestic offices) $10,465 $ 8,579
Interest-Bearing
Domestic Offices 16,005 14,871
Foreign Offices 9,448 10,641
------- -------
Total Deposits 35,918 34,091
Federal Funds Purchased and Securities
Sold Under Repurchase Agreements 3,933 1,502
Other Borrowed Funds 3,706 4,738
Acceptances Outstanding 928 812
Accrued Taxes and Other Expenses 1,378 1,049
Accrued Interest Payable 190 213
Other Liabilities 587 404
Long-Term Debt 1,848 1,774
------- -------
Total Liabilities 48,488 44,583
------- -------
Shareholders' Equity
Preferred Stock-no par value, authorized 5,000,000
shares, outstanding 184,000 shares 111 111
Class A Preferred Stock-par value $2.00 per share,
authorized 5,000,000 shares, outstanding 49,504
shares in 1995 and 322,104 shares in 1994 2 8
Common Stock-par value $7.50 per share, authorized
350,000,000 shares, issued 204,162,405 shares in 1995
and 190,213,322 shares in 1994 1,531 1,427
Additional Capital 1,087 858
Retained Earnings 2,689 2,048
Securities Valuation Allowance 58 (58)
------- -------
5,478 4,394
Less: Treasury Stock (6,026,048 shares in 1995
and 2,566,071 shares in 1994), at cost 228 78
Loan to ESOP (658,530 shares in 1995 and
712,695 shares in 1994), at cost 18 20
------- -------
Total Shareholders' Equity 5,232 4,296
------- -------
Total Liabilities and Shareholders' Equity $53,720 $48,879
======= =======
See accompanying Notes to Consolidated Financial Statements.
<PAGE> 3
Consolidated Statements of Income
- -------------------------------------------------------------------------------
In millions, except per share amounts
For the years ended December 31, 1995 1994 1993
- -------------------------------------------------------------------------------
Interest Income
Loans $3,226 $2,405 $2,025
Securities
Taxable 235 227 235
Exempt from Federal Income Taxes 43 56 69
------ ------ ------
278 283 304
Deposits in Banks 106 68 24
Federal Funds Sold and Securities
Purchased Under Resale Agreements 193 161 97
Trading Assets 28 45 53
------ ------ ------
Total Interest Income 3,831 2,962 2,503
------ ------ ------
Interest Expense
Deposits 1,265 842 701
Federal Funds Purchased and Securities
Sold Under Repurchase Agreements 161 106 102
Other Borrowed Funds 246 191 86
Long-Term Debt 130 106 117
------ ------ ------
Total Interest Expense 1,802 1,245 1,006
------ ------ ------
Net Interest Income 2,029 1,717 1,497
Provision for Loan Losses 330 162 284
------ ------ ------
Net Interest Income After Provision
for Loan Losses 1,699 1,555 1,213
------ ------ ------
Noninterest Income
Processing Fees
Securities 411 359 309
Other 189 171 162
------ ------ ------
600 530 471
Trust and Investment Fees 136 126 134
Service Charges and Fees 428 465 454
Securities Gains 115 15 64
Other 217 153 196
------ ------ ------
Total Noninterest Income 1,496 1,289 1,319
------ ------ ------
Noninterest Expense
Salaries and Employee Benefits 913 852 813
Net Occupancy 175 178 178
Furniture and Equipment 87 88 95
Other 538 528 560
------ ------ ------
Total Noninterest Expense 1,713 1,646 1,646
------ ------ ------
Income Before Income Taxes 1,482 1,198 886
Income Taxes 568 449 327
------ ------ ------
Net Income $ 914 $ 749 $ 559
====== ====== ======
Net Income Available to Common
Shareholders $ 904 $ 736 $ 534
====== ====== ======
Per Common Share:
Primary Earnings $ 4.57 $ 3.92 $ 2.87
Fully Diluted Earnings 4.30 3.70 2.72
Cash Dividends 1.36 1.10 0.86
Fully Diluted Shares Outstanding 212 202 200
See accompanying Notes to Consolidated Financial Statements.
<PAGE> 4
Consolidated Statements of Changes in Shareholders' Equity
- ------------------------------------------------------------------------------
Dollars in millions For the years ended December 31, 1995 1994 1993
- ------------------------------------------------------------------------------
Preferred Stock
Balance, January 1 $ 119 $ 294 $ 428
Redemption (shares: 3,464,100 in 1994,
and 752,120 in 1993) - (156) (76)
Conversion of Preferred Stock (shares: 272,600 in
1995, 763,311 in 1994, and 65,157 in 1993) (6) (19) (58)
------ ------ ------
Balance, December 31 113 119 294
------ ------ ------
Common Stock
Balance, January 1 1,427 1,406 1,366
Issuance in Putnam Acquisition (shares: 4,439,513
in 1995) 33 - -
Conversion of Debentures (shares: 6,938,320 in
1995 and 23,525 in 1994) 52 - -
Conversion of Preferred Stock (shares: 504,437
in 1995, 1,412,076 in 1994, and 2,937,092 in 1993) 4 11 22
Other Issuances (shares: 2,066,813 in 1995,
1,376,759 in 1994, and 2,305,298 in 1993) 15 10 18
------ ------ ------
Balance, December 31 1,531 1,427 1,406
------ ------ ------
Additional Capital
Balance, January 1 858 841 784
Issuance in Putnam Acquisition 109 - -
Conversion of Debentures 84 - -
Other 36 17 57
------ ------ ------
Balance, December 31 1,087 858 841
------ ------ ------
Retained Earnings
Balance, January 1 2,048 1,536 1,153
Net Income 914 749 559
Cash Dividends
Common Stock (261) (205) (150)
Preferred Stock (11) (14) (27)
Redemption of Preferred Stock - (17) -
Change in Accumulated Foreign
Currency Translation Adjustment (1) (1) 1
------ ------ ------
Balance, December 31 2,689 2,048 1,536
------ ------ ------
Securities Valuation Allowance
Balance, January 1 (58) 1 -
Net Change in Fair Value of Securities
Available-for-Sale 116 (59) -
------ ------ ------
Balance, December 31 58 (58) -
------ ------ ------
Less Treasury Stock
Balance, January 1 78 5 1
Issued (shares: 1,261,872 in 1995, 1,331,734 in
1994, and 10,800 in 1993) (37) (39) -
Acquired (shares: 4,721,849 in 1995, 3,724,607
in 1994, and 156,330 in 1993) 187 112 4
------ ------ ------
Balance, December 31 228 78 5
------ ------ ------
Less Loan to ESOP
Balance, January 1 20 - -
New Loan (shares: 712,695 in 1994) - 20 -
Released (shares: 54,165 in 1995) (2) - -
------ ------ ------
Balance, December 31 18 20 -
------ ------ ------
Total Shareholders' Equity, December 31 $5,232 $4,296 $4,072
====== ====== ======
See accompanying Notes to Consolidated Financial Statements.
<PAGE> 5
Consolidated Statements of Cash Flows
- -------------------------------------------------------------------------------
In millions For the years ended December 31, 1995 1994 1993
- -------------------------------------------------------------------------------
Operating Activities
Net Income $ 914 $ 749 $ 559
Adjustments to Determine Net Cash Attributable to
Operating Activities:
Provision for Losses on Loans and Other Real Estate 334 169 338
Depreciation and Amortization 198 200 187
Deferred Income Taxes 237 271 193
Securities Gains (115) (15) (64)
Change in Trading Assets 177 1,309 (591)
Change in Accruals and Other, Net 82 (232) 88
------ ------ ------
Net Cash Provided by Operating Activities 1,827 2,451 710
------ ------ ------
Investing Activities
Change in Interest-Bearing Deposits in Banks 18 (711) 16
Purchases of Securities Held-to-Maturity (493) (367) (2,344)
Sales of Securities Held-to-Maturity - - 22
Maturities of Securities Held-to-Maturity 760 684 1,174
Purchases of Securities Available-for-Sale (923) (1,177) (2,104)
Sales of Securities Available-for-Sale 932 1,985 3,467
Maturities of Securities Available-for-Sale 48 8 31
Net Principal Disbursed on Loans to Customers (5,174) (3,039) (2,030)
Sales of Loans 407 323 494
Sales of Other Real Estate 31 33 80
Change in Federal Funds Sold and Securities
Purchased Under Resale Agreements 2,120 (2,983) 229
Purchases of Premises and Equipment (54) (43) (47)
Acquisitions, Net of Cash Acquired (168) (161) 58
Other, Net 92 18 (32)
------ ------ ------
Net Cash Used by Investing Activities (2,404) (5,430) (986)
------ ------ ------
Financing Activities
Change In Deposits 1,148 1,814 (1,048)
Change in Federal Funds Purchased and Securities
Sold Under Repurchase Agreements 2,431 (1,209) 938
Change in Other Borrowed Funds (1,011) 990 (248)
Proceeds from the Issuance of Long-Term Debt 203 297 546
Repayments of Long-Term Debt (16) (115) (655)
Redemption, Conversion, and Repurchases of Preferred
Stock and Warrants - (177) (90)
Issuance of Common Stock 87 42 53
Treasury Stock Acquired (180) (112) (4)
Cash Dividends Paid (272) (219) (179)
------ ------ ------
Net Cash Provided (Used) by Financing Activities 2,390 1,311 (687)
------ ------ ------
Effect of Exchange Rate Changes on Cash (5) 60 (32)
------ ------ ------
Change in Cash and Due From Banks 1,808 (1,608) (995)
Cash and Due from Banks at Beginning of Year 2,903 4,511 5,506
------ ------ ------
Cash and Due from Banks at End of Year $4,711 $2,903 $4,511
====== ====== ======
Supplemental Disclosure of Cash Flow Information
Cash Paid During the Year for:
Interest $1,825 $1,143 $1,047
Income Taxes 338 155 181
Noncash Investing Activity (Primarily
Foreclosure of Real Estate) 58 43 54
Reclassification of Assets to Securities
Available-for-Sale 1,599 1,390 -
See accompanying Notes to Consolidated Financial Statements.
<PAGE> 6
Notes to Consolidated Financial Statements
1. Summary of Significant Accounting and Reporting Policies
The Company provides a complete range of banking and other financial services
to corporations and individuals worldwide through its sectors: Trust, and
Securities and Other Processing; Retail Banking; Corporate Banking; and Other.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts in the consolidated financial
statements. Amounts subject to significant estimates and assumptions are
items such as the allowance for loans losses, pension and postretirement
obligations, and the fair value of financial instruments. Actual results
could differ from these estimates.
The following is a summary of the Company's more significant accounting
and reporting policies.
Securities - Effective January 1, 1994, the Company accounts for debt and
equity securities classified as available-for-sale at fair value, except for
those equity securities whose fair value cannot be readily determined. These
securities are carried at cost. Equity investments of less than a majority
but at least 20% ownership are accounted for by the equity method and
classified as other assets. For securities carried at fair value the after
tax effect of net unrealized gains and losses is reported as a separate
component of shareholders' equity. Previously such securities were stated at
the lower of aggregate cost or market value.
Securities classified as trading assets are carried at fair value, with
net unrealized holding gains and losses recognized currently in income. Debt
securities, which the Company has the ability and intent to hold until
maturity, are classified as held-to-maturity and stated at cost, adjusted for
discount accrued and premium amortized. Gains and losses on the sale of
securities are determined by the specific identification method.
Allowance for Loan Losses - The allowance for loan losses is maintained at a
level that, in management's judgment, is adequate to absorb future losses.
Management's judgment is based on an evaluation of existing risks of
individual credits; past loan loss experience; the volume, composition, and
growth of the loan portfolio; current and projected economic conditions; and
other relevant factors.
Effective January 1, 1995, the Company adopted a new accounting standard
which introduces the time value of money into the determination of the
allowance for loan losses. The portion of the allowance allocated to
nonaccrual commercial loans over $1 million is now measured by the difference
between their recorded value and fair value. Fair value is either the present
value of the expected future cash flows from borrowers, market value of the
loan, or the fair value of the collateral. The adoption of this accounting
standard did not have an impact on the Company's financial statements.
Nonperforming Assets - Commercial loans are placed on nonaccrual status when
collateral is insufficient and principal or interest is past due 90 days or
more, or when there is reasonable doubt that interest or principal will be
collected. Accrued interest is usually reversed when a loan is placed on
nonaccrual status. Interest payments received on nonaccrual loans may be
recognized as income or applied to principal depending upon management's
judgment. Nonaccrual loans are not restored to accruing status until
principal and interest are current or they become fully collateralized.
Consumer loans are not classified as nonperforming assets, but are charged off
based upon an established delinquency schedule determined by product.
Interest accrual on consumer loans is suspended when the loans are 120 days
past due. Real estate acquired in satisfaction of loans is carried in other
assets at the lower of the recorded investment in the property or fair value
minus estimated costs to sell.
<PAGE> 7
Derivative Financial Instruments - Derivative contracts, such as futures,
forwards, swaps, options, and similar products used in trading activities are
recorded at market value; gains and losses are included in other noninterest
income. Unrealized gains and losses are reported on a gross basis in trading
account assets and other borrowed funds, after taking into consideration
master netting agreements.
Derivative contracts are designated as an element of the Company's asset
and liability management (ALM) process when they alter the Company's interest
rate and foreign currency exposures. Contracts used in the ALM process are
linked to specific or groups of similar assets or liabilities where there is a
high correlation between the derivative contract and the item altered, both at
inception and throughout the contract period. ALM derivative contracts are
accounted for on the deferral, accrual, or mark-to-market basis, as noted
below. Under the deferral or accrual method, gains and losses on terminated
derivative contracts are deferred and amortized over the remaining life
(currently averaging less than one year) of the linked assets or liabilities.
Gains and losses on derivative contracts linked to assets or liabilities that
are sold are recognized as an adjustment to the gain or loss on the
disposition of the related asset or liability.
Deferral Accounting - This method relates to principally futures
and forwards. Deferred gains and losses are reported as
adjustments to the carrying value of the linked items. The
amortization of these deferred gains and losses is reported as
interest income or expense related to the linked item.
Accrual Accounting - Interest rate swap and purchased option
contracts are accounted for on an accrual basis as an adjustment
to the interest income or expense related to the linked item.
Mark-to-Market Accounting - This method relates to derivative
contracts linked to the securities available-for-sale portfolio.
Changes in market value are reported in shareholders' equity on a
net-of-tax basis. The accrual of interest on the derivative
contracts is reported in interest income related to securities
available-for-sale.
Other - Certain prior year information has been reclassified to conform its
presentation with the 1995 financial statements.
2. Acquisitions and Dispositions
During 1995, the Company agreed to acquire several securities processing
businesses. The major acquisitions include the securities lending, U.S. and
global custody, securities clearance, and master trust business of
BankAmerica, the securities lending and U.S. and global custody business of
J.P. Morgan, and the corporate trust business of NationsBank. Securities
processing revenues in 1995 did not include any revenue related to the J.P.
Morgan and BankAmerica acquisitions. These acquisitions require payment of
additional consideration contingent upon future revenues.
On September 1, 1995, the Company acquired The Putnam Trust Company of
Greenwich ("Putnam"), headquartered in Greenwich, Connecticut.
During 1994, the Company made acquisitions related to its corporate trust
and factoring businesses.
In the first quarter of 1996, the Company made an acquisition related to
its unit investment trust business.
The pro forma effect of the above acquisitions is not material.
In 1995, the Company sold its mortgage servicing portfolio, recording a
pre-tax gain of $58 million. The Company also completed the closing of its
mortgage origination offices on the West coast. The Company will continue to
originate residential mortgages through offices in New York, New Jersey and
Connecticut.
<PAGE> 8
On August 11, 1993, the 10,730,668 outstanding shares of National
Community Banks' ("NCB") common stock were exchanged for 20,602,882 shares of
the Company's common stock and the 1,149,750 outstanding shares of NCB's
preferred stock were exchanged for an equal number of shares of the Company's
Class A preferred stock. The merger was accounted for as a pooling of
interests.
3. Securities
The following table sets forth the amortized cost and the fair values of
securities at the end of the last two years:
1995
--------------------------------------------
Gross Unrealized
In millions Amortized ---------------- Fair
Cost Gains Losses Value
--------- ------ ------ -----
Securities Held-to-
Maturity
U. S. Government
Obligations $ 16 $ - $ - $ 16
U.S. Government Agency
Obligations 445 6 1 450
Obligations of States and
Political Subdivisions 367 1 6 362
Emerging Markets 293 - 92 201
Other Debt Securities 131 4 - 135
------ --- ----- ------
Total Securities
Held-to-Maturity 1,252 11 99 1,164
------ --- ----- ------
Securities
Available-for-Sale
U. S. Government
Obligations 2,814 27 4 2,837
Obligations of States and
Political Subdivisions 254 7 - 261
Emerging Markets 22 4 3 23
Other Debt Securities 27 - - 27
Equity Securities 421 49 - 470
------ --- ----- ------
Total Securities
Available-for-Sale 3,538 87 7 3,618
------ --- ----- ------
Total Securities $4,790 $98 $ 106 $4,782
====== === ===== ======
<PAGE> 9
1994
--------------------------------------------
Gross Unrealized
In millions Amortized ---------------- Fair
Cost Gains Losses Value
--------- ------ ------ -----
Securities Held-to-
Maturity
U. S. Government
Obligations $1,428 $ 1 $ 92 $1,337
U.S. Government Agency
Obligations 319 - 23 296
Obligations of States and
Political Subdivisions 769 5 7 767
Emerging Markets 294 - 104 190
Other Debt Securities 120 - 3 117
------ --- ----- ------
Total Securities
Held-to-Maturity 2,930 6 229 2,707
------ --- ----- ------
Securities
Available-for-Sale
U. S. Government
Obligations 1,520 2 96 1,426
Obligations of States and
Political Subdivisions 7 - - 7
Emerging Markets 24 3 5 22
Equity Securities 268 11 13 266
------ --- ----- ------
Total Securities
Available-for-Sale 1,819 16 114 1,721
------ --- ----- ------
Total Securities $4,749 $22 $ 343 $4,428
====== === ===== ======
The amortized cost and fair values of securities at December 31, 1995, by
contractual maturity, are as follows:
Held-to-Maturity Available-for-Sale
-------------------- -------------------
Amortized Fair Amortized Fair
In millions Cost Value Cost Value
--------- ------- --------- -------
Due in One Year or Less $ 221 $ 221 $ 522 $ 524
Due After One Year Through
Five Years 310 311 1,559 1,562
Due After Five Years Through
Ten Years 127 126 875 890
Due After Ten Years 370 277 161 172
Mortgage-Backed Securities 224 229 - -
Equity Securities - - 421 470
------ ------ ------ ------
$1,252 $1,164 $3,538 $3,618
====== ====== ====== ======
In December 1995, $1,353 million of U.S. government obligations and $246
million of obligations of state and political subdivisions classified as held-
to-maturity were transferred to available-for-sale, as permitted by the
implementation guidelines for a new accounting standard. The net unrealized
gains on these securities were $9 million at the time of transfer. Realized
gross gains and (losses) on the sale of securities available-for-sale were $98
million and zero in 1995 and $17 million and $(1) million in 1994.
Assets, including securities sold under repurchase agreements, carried at
$3 billion, $2 billion, and $3 billion at December 31, 1995, 1994, and 1993
were pledged for various purposes as required or permitted by law.
<PAGE> 10
4. Loans
The Company's loan distribution and industry concentrations of credit risk at
December 31, 1995 and 1994 are incorporated by reference from "Loans" in the
Management's Discussion and Analysis Section of this Report. The Company's
retail, community, and middle market banking operations in the New York
metropolitan area create a significant geographic concentration.
In the ordinary course of business, the Company and its banking
subsidiaries have made loans at prevailing interest rates and terms to
directors and executive officers of the Company and to certain entities to
which these individuals are related. The aggregate dollar amount of these
loans was $720 million, $663 million, and $237 million at December 31, 1995,
1994, and 1993. These loans are primarily with related entities under
revolving lines of credit. During 1995 these loans averaged $768 million, and
ranged from $629 million to $994 million. All loans were fully performing
during this period.
Transactions in the allowance for loan losses are summarized as follows:
- -------------------------------------------------------------
In millions 1995 1994 1993
- -------------------------------------------------------------
Balance, January 1 $ 792 $ 970 $1,072
Charge-Offs (432) (411) (449)
Recoveries 55 57 62
----- ------ ------
Net Charge-Offs (377) (354) (387)
Provision 330 162 284
Credit Card Securitization 3 14 1
Acquisitions 8 - -
----- ------ ------
Balance, December 31 $ 756 $ 792 $ 970
===== ====== ======
Nonaccrual and reduced rate loans outstanding at December 31, 1995, 1994,
and 1993 were $225 million, $297 million, and $540 million. At December 31,
1995, commitments to borrowers whose loans were classified as nonaccrual or
reduced rate were not material.
At December 31, 1995, impaired loans (nonaccrual commercial loans over $1
million) aggregated $159 million, of which $95 million exceeded their fair
value by $22 million. For 1995, the average amount of impaired loans was $182
million and interest income recognized on them (limited to cash received) was
$1 million.
Interest income recognized on total nonaccrual and reduced rate loans
exceeded reversals by $2 million in 1995, $3 million in 1994, and $4 million
in 1993. Interest income would have been increased by $19 million, $17
million, and $27 million if loans on nonaccrual status at December 31, 1995,
1994, and 1993 had been performing for the entire year. At year end, foreign
(including LDC) loans on nonperforming status were $41 million in 1995, $77
million in 1994, and $130 million in 1993. Interest income received on
foreign nonperforming loans equaled reversals in 1995, 1994, and 1993.
Interest income would have been increased by $2 million, $2 million, and $6
million if foreign loans on nonaccrual status at December 31, 1995, 1994, and
1993 had been performing for the entire year.
Other real estate was $72 million, $56 million, and $99 million at
December 31, 1995, 1994, and 1993. Writedowns of and expenses related to
other real estate included in noninterest expense were $5 million, $11
million, and $53 million (including operating expenses of $4 million, $4
million, and $8 million) in 1995, 1994, and 1993.
<PAGE> 11
5. Long-Term Debt
The following is a summary of the contractual maturity and sinking fund
requirements of long-term debt at December 31, 1995 and totals for 1994:
1995 1994
------------------------------------------------ ------
After After After
1 Year 5 Years 10 Years
Under Through Through Through
In millions 1 Year 5 Years 10 Years 20 Years Total Total
------ ------- -------- -------- ------ ------
Fixed $3 $ 3 $1,590 $180 $1,776 $1,715
Variable 4 24 44 - 72 59
-- --- ------ ---- ------ ------
Total $7 $27 $1,634 $180 $1,848 $1,774
== === ====== ==== ====== ======
Fixed-rate debt at December 31, 1995 had interest rates ranging from
6.50% to 8.50%. The weighted average interest rates on fixed-rate debt at
December 31, 1995 and 1994 were 7.61% and 7.64%. Exposure to interest rate
movements with respect to fixed rate debt is reduced by interest rate swap
agreements. As a result of these agreements, the effective interest rates
differ from those stated. The weighted average interest rates on variable-
rate debt at December 31, 1995 and 1994 were 6.27% and 6.25%.
The Company's $114 million of 7.50% subordinated debentures due 2001 are
convertible at the option of the holder into common stock of the Company at a
price of $19.55 per share, subject to adjustment in certain circumstances.
The debentures may be redeemed, at the option of the Company, on or after
August 15, 1996 at an initial redemption price of 103.75% of the principal
amount, declining by 0.75% per annum.
<PAGE> 12
6. Shareholders' Equity
The following is a summary of the Company's preferred stock outstanding:
Dollars in millions, except per share amounts December 31, 1995 1994
- -----------------------------------------------------------------------------
8.60% Cumulative, stated value $625 per share, issued
184,000 shares (4,600,000 depositary shares) $111 $111
Other 2 8
---- ----
Total $113 $119
==== ====
Holders of cumulative preferred stock have cumulative dividend rights in
preference to holders of common stock.
The 8.60% cumulative preferred stock has a liquidation preference of $625
per share and is redeemable at the option of the Company on and after December
1, 1997 at $625 per share, plus cumulative and unpaid dividends.
At December 31, 1995, 13,737,557 warrants expiring in 1998 (exercise
price $31 per share) to purchase 27,475,114 shares of the Company's common
stock were outstanding.
At December 31, 1995, the Company had reserved for issuance 48 million
common shares pursuant to the terms of securities and employee benefit plans.
The Company has a preferred stock purchase rights plan. The plan
provides that if any person or group becomes the beneficial owner of 20% or
more of the Company's common stock (an "acquiring person"), then on and after
the tenth day thereafter, each right would entitle the holder (other than the
acquiring person) to purchase $400 in market value of the Company's common
stock for $200. In addition, if there is a business combination between the
Company and an acquiring person, or in certain other circumstances, each right
(if not previously exercised) would entitle the holder (other than the
acquiring person) to purchase $200 in market value of the common stock of the
acquiring person for $100. The rights are redeemable by the Company at $0.05
per right until they are exercisable, and will expire in 2004.
In 1995, the effect of warrants on earnings per share is dilutive. Fully
diluted earnings per share also give effect to the assumed conversion of
convertible debentures and convertible preferred stock.
In 1995, the Company announced a plan to buy back through the end of 1996
up to 16 million shares of its common stock. Approximately 5 million shares
will be used in connection with the purchase of Putnam, and shares may be used
in connection with certain employee benefit plans. As of December 31, 1995,
2.2 million shares had been repurchased.
<PAGE> 13
7. Income Taxes
Income taxes included in the consolidated statements of income consist of the
following:
1995 1994 1993
In ---------------------- ---------------------- ----------------------
millions Current Deferred Total Current Deferred Total Current Deferred Total
------- -------- ----- ------- -------- ----- ------- -------- -----
Federal $260 $163 $423 $146 $177 $323 $ 90 $153 $243
Foreign 13 - 13 13 - 13 11 - 11
State and
Local 58 74 132 30 83 113 33 40 73
---- ---- ---- ---- ---- ---- ---- ---- ----
$331 $237 $568 $189 $260 $449 $134 $193 $327
==== ==== ==== ==== ==== ==== ==== ==== ====
The components of income before taxes for the computation of taxes are as
follows:
- ------------------------------------------
In millions 1995 1994 1993
- ------------------------------------------
Domestic $1,390 $1,149 $821
Foreign 92 49 65
------ ------ ----
$1,482 $1,198 $886
====== ====== ====
The Company's net deferred tax liability (included in accrued taxes) at
December 31 consisted of the following:
- ------------------------------------------------------------
In millions 1995 1994 1993
- ------------------------------------------------------------
Lease Financings $1,025 $ 886 $ 784
Depreciation and Amortization 313 303 285
Credit Losses on
Nonperforming Loans (320) (375) (508)
Other Assets (29) (93) (45)
Other Liabilities 220 175 151
------ ------ ------
Net Deferred Tax Liability $1,209 $ 896 $ 667
====== ====== ======
The Company has not recorded a valuation allowance because it expects to
realize all of its deferred tax assets.
A reconciliation of the statutory federal income tax rate to the
Company's effective income tax rate is shown in the following table:
1995 1994 1993
---- ---- ----
Federal Rate 35.0% 35.0% 35.0%
Tax-Exempt Interest (1.0) (1.6) (2.7)
Foreign Operations (1.1) (1.3) (0.2)
State and Local Income
Taxes, Net of Federal
Income Tax Benefit 5.4 5.8 4.6
Nondeductible Expenses 1.0 1.3 2.3
Leveraged Lease Portfolio (0.2) (0.5) 0.3
Other (0.8) (1.2) (2.4)
----- ----- -----
Effective Rate 38.3% 37.5% 36.9%
===== ===== =====
<PAGE> 14
8. Employee Benefit Plans
Pension Plans
- -------------
The Company has defined benefit retirement plans covering substantially all
full-time employees. The Company has an Employee Stock Ownership Plan (ESOP),
which may provide additional benefits. The Company's funding policy is to
annually contribute an amount necessary to satisfy the Internal Revenue
Service's funding standards.
The following table presents the income (expense) components included in
net pension income:
In millions 1995 1994 1993
---- ---- ----
Service Cost - Benefits Earned $(13) $(17) $(14)
Interest Cost on Projected Benefit Obligation (23) (23) (20)
Actual Return on Plan Assets 177 (16) 52
Net Amortization and Deferral (112) 82 9
---- ---- ----
Net Pension Income $ 29 $ 26 $ 27
==== ==== ====
The expected long-term rate of return on plan assets used in computing
pension income was 10.0% in 1995 and 10.5% in 1994 and 1993. The ESOP
provision was $3 million in 1995 and $1 million in 1994 and 1993.
The following table sets forth the retirement plans' funded status at
December 31, 1995 and 1994:
In millions 1995 1994
---- ----
Present Value of Accumulated Benefit Obligation, Including
Vested Benefits of $309 in 1995 and $220 in 1994 $319 $232
==== ====
Present Value of Projected Benefit Obligation $328 $257
Plan Assets at Fair Value, Primarily Short-Term
Investments, Fixed-Income and Equity Securities 737 561
---- ----
Excess of Plan Assets over the
Projected Benefit Obligation 409 304
Unrecognized Prior Service Cost (22) (24)
Unrecognized Net Gain (Loss) from Past Differences and
Effects of Changes in Assumptions (33) 43
Unrecognized Net Asset Being Amortized over 16.2 Years (21) (24)
---- ----
Prepaid Pension Cost Included in Other Assets $333 $299
==== ====
Assumptions Used in Computing the Benefit Obligation Were:
Weighted Average Discount Rate 7.75% 9.38%
Rate of Increase in Future Compensation Level 4.13 4.38
<PAGE> 15
Other Postretirement Benefits
- -----------------------------
The Company provides health care and life insurance benefits for certain
retired employees.
The cost of these benefits consisted of the following components:
In millions 1995 1994 1993
---- ---- ----
Service Cost - Benefits Earned $ 2 $ 2 $ 3
Accumulated Benefit Obligation:
Interest 10 10 11
Amortization 4 7 7
---- ---- ----
Total $ 16 $ 19 $ 21
==== ==== ====
The assumed health care cost trend rates to be used in determining the
cost of these benefits for 1995 is 9%, decreasing proportionately in each
successive year to 6% in 2004 and thereafter. A change of one percentage
point in this rate for each year would change the benefit obligation by 10%
and the cost of the benefits by 8%.
The following table sets forth the funded status of the Company's other
postretirement benefit obligation as of December 31:
In millions 1995 1994
----- ----
Accumulated Postretirement Benefit Obligation:
Retirees $ 77 $ 69
Fully Eligible Active Plan Participants 21 21
Other Active Plan Participants 34 29
----- -----
Total Obligation 132 119
Unrecognized Net Gain (Loss) from Past Differences
and Effects of Changes in Assumptions 12 20
Unrecognized Net Liability Being Amortized
Over 20 Years (110) (116)
----- -----
Accrued Postretirement Benefit
Obligation Included in Other Liabilities $ 34 $ 23
===== =====
The assumed discount rates used in determining the accumulated benefit
obligation were 7.75% and 9.38% in 1995 and 1994.
<PAGE> 16
9. Company Financial Information
The condensed financial statements of the Company are as follows:
Balance Sheets
In millions December 31, 1995 1994
- --------------------------------------------------------------------
Assets
Cash and Due from Banks $ 4 $ -
Securities 12 138
Loans 319 199
Investment in and Advances to Subsidiaries
Banks 5,180 4,616
Other 2,370 1,636
------ ------
7,550 6,252
------ ------
Other Assets 143 138
------ ------
Total Assets $8,028 $6,727
====== ======
Liabilities and Shareholders' Equity
Other Borrowed Funds $ 648 $ 427
Due to Subsidiaries
Banks - -
Other 124 48
------ ------
124 48
------ ------
Other Liabilities 197 183
Long-Term Debt 1,827 1,773
------ ------
Total Liabilities 2,796 2,431
------ ------
Shareholders' Equity*
Preferred 113 119
Common 5,119 4,177
------ ------
Total Liabilities and Shareholders' Equity $8,028 $6,727
====== ======
*See Consolidated Statements of Changes in Shareholders' Equity.
<PAGE> 17
Statements of Income
In millions For the years ended December 31, 1995 1994 1993
- -----------------------------------------------------------------------------
Operating Income
Dividends from Subsidiaries
Banks $300 $238 $164
Other 2 2 14
Interest from Subsidiaries
Banks 92 88 90
Other 17 10 10
Other 127 24 21
---- ---- ----
Total 538 362 299
---- ---- ----
Operating Expenses
Interest (including $1 in 1995, $1 in 1994,
and $8 in 1993 to nonbank subsidiaries) 168 122 128
Other 35 15 18
---- ---- ----
Total 203 137 146
---- ---- ----
Income Before Income Taxes and Equity in
Undistributed Earnings of Subsidiaries 335 225 153
Income Tax Expense (Benefit) 11 (8) (11)
---- ---- ----
Income Before Equity in Undistributed
Earnings of Subsidiaries 324 233 164
---- ---- ----
Equity in Undistributed Earnings of Subsidiaries
Banks 315 275 208
Other 275 241 187
---- ---- ----
Total 590 516 395
---- ---- ----
Net Income $914 $749 $559
==== ==== ====
<PAGE> 18
Statements of Cash Flows
In millions For the years ended December 31, 1995 1994 1993
- -----------------------------------------------------------------------------
Operating Activities
Net Income $ 914 $ 749 $ 559
Adjustments to Determine Net Cash Attributable to
Operating Activities
Amortization 7 3 4
Equity in Undistributed Earnings
of Subsidiaries (590) (517) (393)
Securities Gains (95) (13) (14)
Change in Interest Receivable (1) (4) (4)
Change in Interest Payable (3) 1 (1)
Change in Taxes Payable 13 (78) 31
Other, Net 5 9 3
----- ----- ------
Net Cash Provided by Operating Activities 250 150 185
----- ----- ------
Investing Activities
Purchase of Securities (277) (142) (57)
Sales of Securities 492 89 117
Maturities of Securities 9 1 37
Change in Loans (123) (196) 8
Acquisition of, Investment in, and Advances to
Subsidiaries (466) 367 154
----- ----- ------
Net Cash Provided (Used) by Investing Activities (365) 119 259
----- ----- ------
Financing Activities
Change in Other Borrowed Funds 221 20 32
Proceeds from the Issuance of Long-Term Debt 203 297 546
Repayments of Long-Term Debt (16) (115) (589)
Change in Advances from Subsidiaries 76 (7) (217)
Redemption, Conversion, and Repurchases of
Preferred Stock and Warrants - (177) (90)
Issuance of Common Stock 87 42 53
Treasury Stock Acquired (180) (112) (4)
Cash Dividends Paid (272) (219) (179)
----- ----- ------
Net Cash Provided (Used) by Financing
Activities 119 (271) (448)
----- ----- ------
Change in Cash and Due from Banks 4 (2) (4)
Cash and Due from Banks at Beginning of Year - 2 6
----- ----- ------
Cash and Due from Banks at End of Year $ 4 $ - $ 2
===== ===== ======
Supplemental Disclosure of Cash Flow Information
Cash Paid During the Year for:
Interest $ 171 $ 122 $ 129
Income Taxes 306 118 152
In 1995, the Company contributed $361 million of available-for-sale securities
to a subsidiary, recording a gain of $79 million, of which $16 million remains
unrealized at December 31, 1995.
<PAGE> 19
The Bank of New York ("Bank"), a significant subsidiary, and The Bank of
New York (NJ) ("BNYNJ"), are subject to dividend limitations under the Federal
Reserve Act and state banking laws. Under these statutes, prior regulatory
approval is required for dividends in any year that would exceed either bank's
net profits for such year combined with retained net profits for the prior two
years. Putnam is subject to a similar limitation under state banking laws.
The Bank and BNYNJ are also prohibited from paying a dividend in an amount
greater than "undivided profits then on hand" less "bad debts" (generally
loans six months or more past due). Putnam is also prohibited from declaring
a dividend in excess of current retained earnings.
Under the first of these limitations, in 1996 the Bank could declare
dividends of $893 million plus net profits earned in 1996, BNYNJ could declare
dividends of $53 million plus net profits earned in 1996, and Putnam could
declare dividends of $4 million plus net profits earned in 1996. None of
these banks are restrained from paying dividends under the additional
limitations. The dividend policy of The Bank of New York (Delaware)
("BNYDEL"), a significant subsidiary, is to declare dividends that, at a
minimum, allow it to meet capital guidelines established by the Federal
Deposit Insurance Corporation ("FDIC").
In addition to these statutory tests, the primary federal regulators of
the banks (the Federal Reserve Board in the case of the Bank and BNYNJ and the
FDIC in the case of BNYDEL and Putnam could prohibit a dividend if they
determined that the payment would constitute an unsafe or unsound banking
practice. Bank regulators have indicated that, generally, dividends should be
paid by banks only to the extent of earnings from continuing operations.
The Company, the Bank, BNYNJ, BNYDEL, and Putnam each must comply with
risk based capital and leverage ratio guidelines established by bank
regulators for bank holding companies and banks. In addition, the Federal
Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA") restricts
dividend payments that would cause certain capital ratios to fall below
"adequate" capital ratio standards. Each of the Company, the Bank, BNYNJ,
BNYDEL and Putnam is in compliance with the capital and leverage ratio
standards applicable to it.
Consistent with its policy regarding bank holding companies serving as a
source of financial strength for their subsidiary banks, the Federal Reserve
Board has stated that, as a matter of prudent banking, a bank holding company
generally should not maintain a rate of cash dividends unless its net income
available to common stockholders has been sufficient to fully fund the
dividends, and the prospective rate of earnings retention appears consistent
with the bank holding company's capital needs, asset quality, and overall
financial condition.
The Federal Reserve Act limits amounts of, and requires collateral for,
extensions of credit by the Company's insured bank subsidiaries to the Company
and, with certain exceptions, its nonbank affiliates; also, there are
restrictions on the amounts of investments by such banks in stock and other
securities of the Company and such affiliates, and restrictions on the
acceptance of their securities as collateral for loans by such banks.
Extensions of credit by insured bank subsidiaries to each of the Company and
such affiliates are limited to 10% of such bank subsidiary's capital and
surplus, and in the aggregate for the Company and all such affiliates to 20%.
The subsidiary banks of the Company are required to maintain reserve
balances with Federal Reserve Banks under the Federal Reserve Act and
Regulation D. Required balances averaged $770 million and $789 million for
the years 1995 and 1994.
<PAGE> 20
10. Fair Value of Financial Instruments
The carrying amounts of the Company's financial instruments (i.e., monetary
assets and liabilities) are determined under different accounting methods-see
Note 1. The following disclosure discusses these instruments on a uniform
basis - fair value. However, active markets do not exist for a significant
portion of these instruments, principally loans and commitments. As a result,
fair value determinations require significant subjective judgments regarding
future cash flows. Other judgments would result in different fair values.
Among the assumptions used by the Company are discount rates ranging
principally from 6% to 8% at December 31, 1995 and 7% to 11% at December 31,
1994. The fair value information supplements the basic financial statements
and other traditional financial data presented throughout this Report.
A summary of the practices used for determining fair value is as follows:
Securities, Trading Activities, and Derivatives Used for ALM
- ------------------------------------------------------------
The fair value of securities and trading assets and liabilities is based on
quoted market prices, dealer quotes, or pricing models. The fair value of
derivative instruments such as options, future and forward rate contracts,
commitments to purchase and sell foreign exchange, and foreign currency swaps,
are similarly determined. The fair value of interest rate swaps is the amount
that would be received or paid to terminate the agreement.
Loans and Commitments
- ---------------------
For certain categories of consumer loans, fair value includes consideration of
the quoted market prices for securities backed by similar loans. The fair
value of other types of loans is determined by discounting the future cash
flows and using secondary market values. The fair value of commitments to
extend credit, standby letters of credit, and commercial letters of credit is
based upon the cost to settle the commitment.
Other Financial Assets
- ----------------------
The fair value of these assets is assumed to equal their carrying value due to
their short maturity.
Deposits, Borrowings, and Long-Term Debt
- ----------------------------------------
The fair value of noninterest-bearing deposits is assumed to be their carrying
amount. The fair value of interest-bearing deposits, borrowings, and long-
term debt is estimated based upon the current rates for instruments of the
same remaining maturity or quoted market prices for the same or similar
issues.
<PAGE> 21
The carrying amount and estimated fair value of the Company's financial
instruments are as follows:
In millions December 31, 1995 1994
-------------------- -------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
-------- ----- -------- -------
Assets:
Securities $ 5,003 $ 4,979 $ 4,780 $ 4,623
Trading Assets 762 762 940 940
Loans and Commitments 35,099 35,501 30,739 30,944
Derivatives Used for ALM 42 (61) 19 15
Other Financial Assets 6,869 6,869 7,211 7,211
------- ------- ------- -------
Total Financial Assets 47,775 $48,050 43,689 $43,733
======= =======
Non-Financial Assets 5,945 5,190
------- -------
Total Assets $53,720 $48,879
======= =======
Liabilities:
Noninterest-Bearing Deposits $10,465 $10,465 $ 8,579 $ 8,579
Interest-Bearing Deposits 25,453 25,478 25,512 25,477
Borrowings 7,189 7,192 5,888 5,886
Long-Term Debt 1,848 2,145 1,774 1,812
Trading Liabilities 620 620 562 562
Derivatives Used for ALM 21 (72) 14 45
------- ------- ------- -------
Total Financial Liabilities 45,596 $45,828 42,329 $42,361
======= =======
Non-Financial Liabilities 2,892 2,254
------- -------
Total Liabilities $48,488 $44,583
======= =======
Commitments and contingent items reduced the fair value of loans and
commitments by $58 million in 1995 and $79 million in 1994.
<PAGE> 22
The table below summarizes the carrying amount of the financial
instruments and the related notional amount and fair value (unrealized
gain/loss) of interest rate swaps and futures contracts that were linked to
these items for ALM purposes:
In millions
Interest Futures
Rate Swaps Contracts*
Financial ------------ ----------
Instruments
- ----------- Carrying Notional Unrealized Notional Unrealized
Amount Amount Gain (Loss) Amount Gain (Loss)
-------- -------- ---- ---- ------ ---- ----
At December 31, 1995
- --------------------
Loans $1,480 $1,480 $ - $(62) - - -
Deposits 2,212 2,212 32 (1) - - -
Borrowings 590 590 1 - - - -
Long-Term Debt 825 825 41 (1) - - -
At December 31, 1994
- --------------------
Loans $1,383 $ 705 $22 $( 8) $1,319 $1 $ -
Deposits 2,779 1,030 14 (15) 2,325 - (7)
Borrowings 1,907 1,777 7 (3) 1,040 - (2)
Long-Term Debt 400 400 - (39) - - -
Credit Card
Securitization 200 200 - - - - -
* Including forward rate agreements
A discussion of the credit, interest rate, and foreign exchange risks
inherent in off-balance-sheet financial transactions is presented under
"Liquidity" and "Trading and Off-Balance-Sheet Risks" in the Management's
Discussion and Analysis Section of this Report.
The Company's financial assets and liabilities are primarily variable rate
instruments. Fixed rate loans and deposits are issued to satisfy customer and
investor needs. Derivative financial instruments are utilized to manage
exposure to the effect of interest rate changes on fixed rate assets and
liabilities, and to enhance liquidity. The Company matches the duration of
derivatives to that of the assets and liabilities being hedged, so that
changes in fair value resulting from changes in interest rates will be offset.
The Company uses receive fixed and pay fixed interest rate swaps, futures
contracts, and forward rate agreements to convert fixed rate loans, deposits,
borrowings, long term debt, and securitized credit card receivables to
floating rates. The aggregate notional amount of the futures contracts in
1994 is greater than the amount of assets and liabilities hedged because the
three-month duration of the futures contract is shorter than the duration of
the assets hedged. The basis swaps convert various variable rate borrowings
to LIBOR which better matches the assets funded by the borrowings.
The Company uses forward foreign exchange contracts to protect the value
of its investments in foreign subsidiaries. The after-tax effects are shown
in the cumulative translation adjustment included in shareholders' equity. At
December 31, 1995 and 1994, $237 million and $202 million in notional amount
of foreign exchange contracts, with fair values of $1 million and zero, hedged
corresponding amounts of foreign investments. These foreign exchange
contracts had a maturity of approximately one month at December 31, 1995.
Deferred net gains on derivative financial instruments used for ALM
amounted to $1 million and $4 million at December 31, 1995 and 1994.
<PAGE> 23
Net interest income increased by $17 million, $24 million, and $39
million in 1995, 1994, and 1993 as a result of derivative financial
instruments used for ALM.
The following table illustrates the notional amount, remaining contracts
outstanding, and weighted average rates for interest rate contracts that were
used for ALM:
Remaining Contracts Outstanding
at December 31,
Total -----------------------------------
In millions 12/31/95 1996 1997 1998 1999 2000
- ------------------------------------------------------------------------------
Receive Fixed Interest Rate Swaps:
Notional Amount $2,729 $1,405 $1,298 $1,138 $ 874 $697
Weighted Average Receive Rate 7.09% 7.32% 7.33% 7.26% 7.32% 7.09%
Pay Fixed Interest Rate Swaps:
Notional Amount $2,303 $1,308 $1,117 $ 840 $ 663 $393
Weighted Average Pay Rate 6.55% 7.01% 6.91% 7.24% 7.15% 7.13%
Basis Interest Rate Swaps:
Notional Amount $ 75 $ 75 $ 75 $ 75 $ 20 $ 20
Forward LIBOR Rate (1) 5.63% 5.11% 5.52% 5.83% 6.06% 6.25%
(1) The foward LIBOR rate shown above reflects the implied forward yield
curve for that index at December 31, 1995. However, actual
repricings for ALM interest rate swaps are generally based on 3
month LIBOR.
<PAGE> 24
11. Trading Activities
The fair value of the Company's financial instruments that are held for
trading purposes are:
In millions 1995 1994
Assets Liabilities Assets Liabilities
------------- ------------- ------------- -------------
Trading Account 12/31 Average 12/31 Average 12/31 Average 12/31 Average
- --------------- --------------------------- ---------------------------
Interest Rate
Contracts:
Futures and Forward
Contracts $ 3 $ 4 $ 1 $ 2 $ 7 $ 18 $ 2 $ 14
Swaps 210 123 220 121 58 144 41 117
Written Options - - 4 8 - - 26 14
Purchased Options 4 7 - - 26 14 - -
Foreign Exchange
Contracts:
Swaps 6 9 2 6 31 45 38 52
Written Options - - 41 40 - - 28 35
Purchased Options 64 51 - - 33 33 - -
Commitments to
Purchase and Sell
Foreign Exchange 302 535 332 544 367 711 427 705
Debt Securities 14 229 20 - 162 582 - -
Other Securities 159 145 - - 256 336 - -
---- ------ ---- ---- ---- ------ ---- ----
Total Trading Account $762 $1,103 $620 $721 $940 $1,883 $562 $937
==== ====== ==== ==== ==== ====== ==== ====
Other noninterest income included the following income related to trading
activities:
In millions
- --------------------------------------------------------------------
1995 1994 1993
---- ---- ----
Foreign Exchange $42 $27 $54
Interest Rate Contracts 11 13 18
Debt and Other Securities 7 4 7
--- --- ---
$60 $44 $79
=== === ===
Foreign exchange includes income from trading commitments to purchase and
sell foreign exchange, futures, and options. Interest rate contracts reflect
the results of trading futures and forward contracts, interest rate swaps,
foreign currency swaps, and options. Debt and other securities primarily
reflect income from trading debt and equity securities.
<PAGE> 25
12. Commitments and Contingent Liabilities
In the normal course of business, various commitments and contingent
liabilities are outstanding which are not reflected in the accompanying
consolidated balance sheets. Management does not expect any material losses
to result from these matters.
A summary of the notional amount of the Company's off-balance-sheet
credit transactions, net of participations, at December 31, 1995 and 1994
follows:
In millions
Off-Balance-Sheet Credit Risks 1995 1994
- ------------------------------ ---- ----
Commercial Lending Commitments $26,606 $21,931
Credit Card Commitments 18,874 15,512
Standby Letters of Credit 4,257 4,085
Commercial Letters of Credit 1,728 2,070
Securities Lending Indemnifications 15,068 15,326
The total potential loss on undrawn commitments, standby and commercial
letters of credit, and securities lending indemnifications is equal to the
total notional amount if drawn upon, which does not consider the value of any
collateral. The Company does not anticipate the use of all of its unused
credit lines available to credit card holders by individual customers at one
time. These credit lines are contingent upon customers maintaining specific
credit standards, and the Company has the right to reduce or cancel them at
any time.
Standby letters of credit principally support corporate obligations and
include $1.5 billion and $1.6 billion that were collateralized with cash and
securities at December 31, 1995 and 1994. At December 31, 1995 and 1994,
securities lending indemnifications were secured by collateral of $15.1
billion and $15.3 billion. At December 31, 1995, approximately $3.3 billion
of the standbys will expire within one year, $0.9 billion between one to five
years, and the balance after five years.
At December 31, 1995 and 1994, the Company has recourse obligations
related to the sale of $79 million of mortgages and $1,251 million of
mortgages and credit card receivables. The Company has recorded liabilities
for these obligations of zero and $7 million at December 31, 1995 and 1994.
A summary of the notional amount and credit exposure of the Company's
derivative financial instruments at December 31, 1995 and 1994 follows:
In millions
Notional Amount Credit Exposure
Derivative Financial Instruments 1995 1994 1995 1994
---- ---- ---- ----
Interest Rate Contracts:
Futures and Forward Contracts $ 6,012 $ 6,680 $ 2 $ 8
Swaps 8,728 10,641 234 155
Written Options 7,072 5,497 - -
Purchased Options 4,777 5,685 5 26
Foreign Exchange Contracts:
Swaps 308 549 6 31
Written Options 2,089 2,161 - -
Purchased Options 1,603 2,451 32 3
Commitments to Purchase and Sell
Foreign Exchange $24,005 45,860 463 588
---- ----
742 811
Effect of Master Netting Agreements (223) (284)
---- ----
Total Credit Exposure $519 $527
==== ====
<PAGE> 26
The Company's exposure to credit loss for lending commitments, letters of
credit, and securities lending indemnification is represented by the
contractual amount of those transactions. Since many of the commitments are
expected to expire without being drawn upon, the total amount does not
necessarily represent future cash requirements. In securities lending
transactions, the Company requires the borrower to provide collateral, thus
reducing the credit risk.
The notional amounts for other off-balance-sheet risks express the dollar
volume of the transactions; however, the credit risk is much smaller. The
Company performs credit reviews and enters into netting agreements to minimize
the credit risk of foreign currency and interest rate risk management
products. Exposure to foreign exchange and interest rate risk is reduced by
entering into offsetting positions.
At December 31, 1995 approximately $13.1 billion of interest rate
contracts will mature within one year, $11.0 billion between one and five
years, and the balance after five years. Substantially all foreign exchange
contracts mature within one year. At December 31, 1995 there were no
derivative financial instruments on nonperforming status.
Net rent expense for premises and equipment was $94 million in 1995, $96
million in 1994, and $99 million in 1993.
At December 31, 1995, the Company and its subsidiaries were obligated
under various noncancelable lease agreements, certain of which provide for
additional rents based upon real estate taxes, insurance, and maintenance and
for various renewal options. The minimum rental commitments under
noncancelable operating leases for premises and equipment having a term of
more than one year from December 31, 1995 are as follows:
- ---------------------------------------------------------------------------
Year ending December 31, In millions
- ---------------------------------------------------------------------------
1996 $ 70
1997 62
1998 47
1999 32
2000 26
Subsequent to 2000 88
----
Total Minimum Lease Payments $325
====
In 1990, Northeast Bancorp., Inc. brought suit against the Company
seeking money damages of $350 million related to a terminated merger
agreement. The suit was settled in November 1995 for $13 million.
In the ordinary course of business, there are various claims pending
against the Company and its subsidiaries. In the opinion of management,
liabilities arising from such claims, if any, would not have a material effect
upon the Company's consolidated financial statements.
13. Other Noninterest Income and Expense
Other noninterest income includes equity in earnings of unconsolidated
subsidiaries of $62 million, $34 million, and $46 million in 1995, 1994, and
1993. Other noninterest expense includes deposit insurance premiums of $32
million, $52 million, and $57 million in 1995, 1994, and 1993 and amortization
of intangibles of $74 million, $86 million, and $81 million in 1995, 1994, and
1993.
<PAGE> 27
14. Stock Option Plans
The Company has stock option plans (the Option Plans) which provide for the
issuance of stock options at fair market value at the date of grant to
officers and key employees of the Company and its subsidiaries. Under the
Company's 1993 Plan, options to acquire common stock may be granted in amounts
that do not exceed, on a cumulative basis, 1% of the outstanding shares of
common stock per year, and, subject to adjustment, options covering no more
than approximately 9.5 million shares in the aggregate may be granted during
the first five years. Generally, each option granted under the Option Plans
is exercisable between one and 10 years from the date of grant. The following
is a summary of activity under the Option Plans for the years 1995, 1994, and
1993:
1995 1994 1993
- -------------------------------------------------------------------------------
Option Option Option
Price Price Price
Shares Per share Shares Per Share Shares Per share
- -------------------------------------------------------------------------------
Outstanding,
January 1 6,716,746 $10.71 to 6,609,852 $ 9.38 to 6,089,188 $5.56 to
31.88 27.38 22
Granted 1,309,304 11.08 to 1,012,800 26 to 2,054,300 27.38
29.75 31.88
Exercised (1,629,662) 10.71 to (847,386) 9.38 to (1,417,608) 5.56 to
27.38 27.38 22
Canceled (45,708) 12.79 to (58,520) 9.38 to (116,028) 9.38 to
29.75 27.38 27.38
--------- --------- --------- --------- --------- --------
Outstanding, $10.71 to $10.71 to $9.38 to
December 31 6,350,680 31.88 6,716,746 31.88 6,609,852 27.38
========= ========= ========= ========= ========== ========
Exercisable $10.71 to $10.71 to $9.38 to
December 31 4,593,309 31.88 4,959,134 27.38 3,863,358 22
========= ========= ========= ========= ========= ========
Available
for Grant,
December 31 3,764,113 4,346,130 5,607,850
========= ========= =========
In 1996, a new accounting standard will allow the Company to continue to
account for its Option Plans under Accounting Principles Board Opinion 25
("APB 25") or switch to fair value. The Company plans to continue using APB
25 and as a result no compensation cost will be recorded related to the
granting of options. If fair value accounting had been used to account for
stock options in 1995, the Company estimates earnings per share would have
been reduced by 3 cents.
<PAGE> 28
15. Foreign Operations
The Company's foreign activities consist of banking, trust, and processing
services provided to customers domiciled outside of the United States,
principally in Europe and Asia. The following financial information
concerning such activities reflects direct attributions and charges for funds
employed, based upon average costs of interest-bearing funds:
1995
---------------------------------------
Income
Before
Total Income Net Total
Revenue Taxes Income Assets
------- ------ ------ -------
Europe $ 148 $ 11 $ 6 $ 1,918
Asia 226 73 41 2,913
Other Foreign 252 21 12 2,842
Domestic 4,701 1,377 855 46,047
------ ------ ---- -------
Total $5,327 $1,482 $914 $53,720
====== ====== ==== =======
1994
---------------------------------------
Income
Before
Total Income Net Total
Revenue Taxes Income Assets
------- ------ ------ -------
Europe $ 124 $ 6 $ 3 $ 1,939
Asia 211 94 53 2,179
Other Foreign 181 9 5 2,785
Domestic 3,735 1,089 688 41,976
------ ------ ---- -------
Total $4,251 $1,198 $749 $48,879
====== ====== ==== =======
1993
---------------------------------------
Income
Before
Total Income Net Total
Revenue Taxes Income Assets
------- ------ ------ -------
Europe $ 138 $ 18 $ 10 $ 1,375
Asia 201 78 44 2,079
Other Foreign 190 9 5 2,355
Domestic 3,293 781 500 39,737
------ ---- ---- -------
Total $3,822 $886 $559 $45,546
====== ==== ==== =======
<PAGE> 29
Independent Auditors' Report
To the Board of Directors and Shareholders of
The Bank of New York Company, Inc.
New York, New York
We have audited the accompanying consolidated balance sheets of The Bank of
New York Company, Inc. and subsidiaries (the "Company") as of December 31,
1995 and 1994, and the related consolidated statements of income, changes in
shareholders' equity, and cash flows for each of the three years in the period
ended December 31, 1995. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of The Bank
of New York Company, Inc. and subsidiaries as of December 31, 1995 and 1994,
and the results of their operations and their cash flows for each of the three
years in the period ended December 31, 1995 in conformity with generally
accepted accounting principles.
\s\ Deloitte & Touche LLP
New York, New York
February 26, 1996
<PAGE> 30
Management's Discussion and Analysis of the Company's Financial Condition and
Results of Operations
- ------------------------------------------------------------------------------
SUMMARY OF RESULTS
For the year 1995, The Bank of New York Company, Inc. (the "Company") reported
record net income of $914 million or a record $4.30 per fully diluted share,
compared with $749 million or $3.70 per fully diluted share in 1994 and $559
million or $2.72 per fully diluted share in 1993. Earnings per share for 1995
were reduced by 21 cents for the dilutive effect of the Company's warrants.
In 1995, net interest income, the net interest rate spread, and net yield
on interest earning assets reached record levels. Loan demand was strong in
1995, particularly in corporate lending across the United States, and in all
of the special industry lending areas. Revenues from the Company's securities
processing business grew 14% in 1995. All areas of securities processing
increased, led by ADRs, corporate trust, and master trust. In 1995, other
processing fees grew 11% over last year led by increases in funds transfer and
trade finance revenues. The provision for loan losses increased to $330
million. Operating expenses remained under tight control.
In 1995, returns on average common equity and on average assets
established all-time highs. Return on average common equity was 19.42% in
1995 compared with 18.49% in 1994 and 14.98% in 1993, while return on average
assets for 1995 was 1.72% compared with 1.49% in 1994 and 1.20% in 1993.
Nonperforming assets declined by $56 million, or 16%, to $297 million in
1995. December 31, 1995 marked the eighteenth consecutive quarter that
nonperforming assets declined.
In 1994, net interest income on a taxable equivalent basis increased to
$1,763 million as the net interest spread increased to 3.30% and the net yield
on interest earning assets was 4.11%. These increases reflect a continued
shift in the asset mix toward higher yielding assets, including strong growth
in credit cards. A reduction in nonperforming assets also contributed to the
increase in net interest income. Revenues from the Company's securities and
other processing businesses remained strong. A lower provision for loan
losses and continued control of operating expenses contributed to higher
earnings.
In 1993, spreads widened reflecting a continuing shift in asset mix
toward higher yielding assets and a lower level of nonperforming assets. Fee
income was strong, especially from credit cards and securities and other
processing. A lower provision for loan losses, continued control of operating
expenses, and the acquisition of 62 branches of Barclays Bank of New York,
N.A. ("Barclays") on December 11, 1992, also helped to increase earnings.
Earnings at The Bank of New York (NJ) ("BNYNJ") increased significantly in
1993.
<PAGE> 31
NET INTEREST INCOME
Dollars in millions 1995 1994 1993
---- ---- ----
Net Interest Income on a Taxable
Equivalent Basis $2,068 $1,763 $1,550
Net Interest Rate Spread 3.41% 3.30% 3.12%
Net Yield on Interest-Earning Assets 4.53% 4.11% 3.84%
Net interest income on a taxable equivalent basis increased 17% in 1995
to $2.1 billion. Continuing growth in the loan portfolio and wider interest
rate spreads contributed to the increase during 1995. Average loans grew 11%
to $35.4 billion in 1995 from $32.0 billion in 1994. Managed credit card
outstandings were up 13% to $8.7 billion from $7.7 billion and the number of
card accounts increased to 6.4 million from 6.0 million. Other loan growth
was attributable to strong demand in corporate lending across the United
States and in all of the special industries lending areas. The acquisition of
Putnam added $105 million to average loan outstandings. The increase in the
yield also reflects an increase in the volume of interest-free sources of
funds by $813 million (a portion attributable to compensating balances in lieu
of servicing fees), and higher returns on these funds.
On a taxable equivalent basis, net interest income increased 14% in 1994.
Credit card growth, the large decline in nonperforming loans, and wider
interest rate spreads contributed to this growth during 1994. Average loans
grew to $32.0 billion in 1994 from $30.4 billion in 1993. Managed credit card
outstandings were up by 24% to $7.7 billion at December 31, 1994. Large
corporate lending in the U.S. also showed strong growth. The net interest
rate spread and net yield on interest-earning assets increased by 6% and 7% in
1994. The spread and yield benefitted from the return of most of the
Company's credit card securitization to its balance sheet. The increase in
the yield also reflects an increase in the volume of interest-free sources of
funds by $281 million (a portion attributable to compensating balances in lieu
of servicing fees), and higher returns on these funds in a rising interest
rate environment.
Net interest income increased 8%, the spread by 7%, and the yield by 6%
in 1993. Contributing to these increases were a $0.7 billion rise in the
level of average interest-earning assets, the Company being liability
sensitive in a declining rate environment, and the large decline in
nonperforming loans. The increase in yield also reflects a higher volume of
interest-free sources of funds, partially offset by lower returns on these
funds in a low interest rate environment.
The credit card securitizations reduced net interest income by $5 million
in 1995, $87 million in 1994, and $162 million in 1993.
Interest income would have been increased by $19 million, $17 million,
and $27 million if loans on nonaccrual status at December 31, 1995, 1994, and
1993 had been performing for the entire year.
<PAGE> 32
NONINTEREST INCOME
Noninterest income is provided by a wide range of fiduciary and processing
services, other fee-based services, and trading activities. These revenues
were $1,496 million in 1995, compared with $1,289 million in 1994 and $1,319
million in 1993.
Securities processing fees were $411 million, $359 million, and $309
million in 1995, 1994, and 1993. Other processing fees, principally funds
transfer, deposit services, and trade finance, were $189 million in 1995, $171
million in 1994, and $162 million in 1993. Trust and investment fees were
$136 million in 1995, $126 million in 1994, and $134 million in 1993. Service
charges and fees, excluding those associated with the credit card
securitization, were $425 million in 1995, compared with $427 million in 1994
and $390 million in 1993. For further discussion of fee revenue see Sector
Profitability.
The credit card securitizations increased noninterest income by $3
million in 1995, $38 million in 1994, and $64 million in 1993. Most of the
decreases in noninterest income from securitizations were due to maturities.
Securities gains totaled $115 million, $15 million, and $64 million in
1995, 1994, and 1993, including gains on equity securities of $97 million in
1995 and $28 million in 1993. There were no net equity securities gains
recorded in 1994.
Other noninterest income was $217 million in 1995, $153 million in 1994,
and $196 million in 1993. Profits from foreign exchange and other trading
activities were $60 million, $44 million, and $79 million in 1995, 1994, and
1993. Other noninterest income includes a pre-tax gain of $58 million in 1995
related to the sale of the Company's mortgage servicing portfolio. Other
noninterest income for 1994 and 1993 included pre-tax gains of $22 million and
$24 million related to the sale of portions of the Company's interest in Wing
Hang Bank, Ltd.
NONINTEREST EXPENSE AND INCOME TAXES
Expenses remained under good control in 1995. Total noninterest expense was
$1,713 million in 1995 and $1,646 million in 1994 and 1993. The efficiency
ratio has steadily declined to 50.0% in 1995 from 53.8% in 1994 and 56.8% in
1993. The efficiency ratio for 1995 excludes the expenses related to the
settlement of litigation related to Northeast Bancorp.
Securities processing acquisitions and the purchase of Putnam
contributed to the rise in expenses in 1995. Net occupancy and furniture and
fixture expenses fell by a combined $4 million, or 2%, to $262 million.
Salaries and employee benefits increased 7% to $913 million in 1995. In 1995,
expenses related to the settlement of litigation with NEB were $15 million.
Total noninterest expense was unchanged in 1994 compared with 1993. Net
occupancy and furniture and fixture expenses fell by a combined $7 million, or
3%, to $266 million. Salary expense increased by 4% in 1994, and profit
sharing and incentive compensation also increased. Medical insurance expense
was $59 million in 1994, a decline of 5% from $62 million in 1993.
Deposit insurance premiums were $32 million in 1995 compared with $52
million and $57 million in 1994 and 1993. The FDIC substantially reduced the
assessment rate for deposit insurance premiums in 1995. The initial
assessment rate for 1996 is zero.
Other real estate charges were $5 million, $11 million, and $53 million
in 1995, 1994, and 1993. Operating expenses related to other real estate
owned were approximately $4 million in 1995 and 1994, down from $8 million in
1993.
The Company's consolidated effective tax rates for 1995, 1994, and 1993
were 38.3%, 37.5%, and 36.9%. The 1995 rate increased primarily from the
reduced impact of tax-exempt income partially offset by the reduced impact of
state and local taxes. The 1994 rate reflects the reduced impact of tax-
exempt income and state and local taxes, offset by lower taxes on foreign
operations and the effect of nondeductible expenses to total income.
<PAGE> 33
LIQUIDITY
The Company maintains its liquidity through the management of its assets and
liabilities, utilizing worldwide financial markets. The diversification of
liabilities reflects the flexibility of the Company's funding sources under
changing market conditions. Stable core deposits, including demand and retail
time, are generated through the Company's diversified network and managed with
the use of trend studies and deposit pricing. The use of derivative products
such as interest rate swaps and financial futures enhances liquidity through
the issue of long-term liabilities without exposure to interest rate risk.
Liquidity also results from the maintenance of a portfolio of assets which can
be easily reduced and the monitoring of unfunded loan commitments, thereby
reducing unanticipated funding requirements.
The Company actively manages interest rate sensitivity (the exposure of
net interest income to interest rate movements). The relationship of
interest-earning assets and interest-bearing liabilities between repricing
dates is closely monitored, yet the Company's policies are flexible enough to
capitalize on profit opportunities, while minimizing adverse effects on
earnings when changes in short-term and long-term interest rates occur. The
Company uses complex simulation models to adjust the structure of its assets
and liabilities in response to interest rate exposures.
Average savings, time, and noninterest-bearing deposits increased by $0.1
billion during 1995. Medium-term notes declined $0.3 billion and foreign
deposits increased by $1.4 billion. More volatile sources of interest-bearing
deposits and borrowings increased by $0.7 billion.
In 1995, the Company's average commercial paper borrowings were $656
million compared with $361 million in 1994. The Company has backup lines of
credit of $350 million at financial institutions supporting these borrowings.
The following comments relate to the information disclosed in the
Consolidated Statements of Cash Flows.
Cash flows from earnings and other operating activities were $1.8 billion
in 1995, compared with $2.5 billion and $0.7 billion in 1994 and 1993. The
decrease in 1995 reflects only a small decline in trading assets while in 1994
the increase is attributable to a significant decline in trading assets.
In 1995, cash used by investing activities was $2.4 billion, reflecting
additions to loans partially offset by a decline in federal funds sold and
securities purchased under resale agreements. The 1994 and 1993 cash flows
used by investing activities were $5.4 billion and $1.0 billion, reflecting
additions to loans and securities. Cash provided by financing activities was
$2.4 billion and $1.3 billion in 1995 and 1994 as the Company used deposits to
finance its investing activities. Federal funds purchased and securities sold
under repurchase agreements in 1995 and other borrowings in 1994 were also
sources of funds. Cash used by financing activities was $0.7 billion in 1993
as the Company reduced its deposit borrowings.
Restrictions on the ability of the Company to obtain funds from its
subsidiaries are discussed in Note 9 to the Consolidated Financial Statements.
CAPITAL RESOURCES
December 31,
Capital Ratios 1995 1994
- -------------- ---- ----
Common Equity 9.53% 8.55%
Tangible Common Equity 8.00 7.39
Tier 1 Capital 8.42 8.45
Total Capital 13.08 13.43
Leverage 8.46 7.89
The Company's common equity ratio is one of the highest among money
center banks. The Company's banks' capital ratios exceed "well capitalized,"
the highest of five regulatory capital categories.
Shareholders' equity was $5,232 million at December 31, 1995, compared
with $4,296 million at December 31, 1994 and $4,072 million at December 31,
1993. In January 1996, the Company increased its quarterly common stock
dividend to 40 cents per share, up 25% from the beginning of 1995. The
Company retained $641 million of earnings and issued $200 million of
subordinated debt. Subordinated debentures totaling $136 million were
converted to common stock. In addition, the Company repurchased 4.7 million
shares of common stock in 1995. The Company's plans to repurchase its common
stock are discussed in Note 6 to the Consolidated Financial Statements.
<PAGE> 34
In 1994, the Company increased its quarterly stock dividend to 32 cents
per share, a 42% increase. The Company also declared a 2-for-1 common stock
split. In addition, the Company repurchased 3.7 million shares of common
stock. The Company retained $512 million of earnings and issued $300 million
of subordinated debt. Two issues of preferred stock were redeemed in 1994,
reducing preferred stock by $156 million and retained earnings by $17 million.
During 1993, the Company strengthened its capital position. The Company
retained $383 million of earnings and issued $550 million of subordinated debt
while $655 million of long-term debt matured or was redeemed and $75 million
of preferred stock was redeemed. In addition, $58 million of preferred stock
was converted into $46 million of common stock.
The Company can issue up to $1.3 billion of debt and preferred stock
(including convertible preferred stock) pursuant to a shelf registration
statement.
CREDIT CARD SECURITIZATION
The Company securitized $1,350 million of credit card receivables in 1991.
All securitized receivables matured prior to December 31, 1995. The impact of
the securitizations on the Company's financial statements, assuming the funds
received from the securitizations were used to replace short-term borrowings,
is summarized below:
In millions 1995 1994 1993
---- ---- ----
Lower Net Interest Income $5 $87 $162
Lower Provision for Loan Losses 2 32 56
Higher Noninterest Income 3 38 64
PROVISION AND ALLOWANCE FOR LOAN LOSSES
The provision for loan losses was $330 million in 1995, compared with $162
million in 1994 and $284 million in 1993. The increase in the provision
compared with 1994 was principally related to charge-offs in the credit card
portfolio. In 1995, the Company continued to experience improvement in the
asset quality of business loans as nonperforming loans dropped.
Net charge-offs were $377 million in 1995, $354 million in 1994, and $387
million in 1993. In these years, net charge-offs were primarily attributable
to real estate, other commercial, and consumer loans. The total allowance for
loan losses was $756 million and $792 million at year-end 1995 and 1994. The
decrease in the allowance for loan losses ($36 million in 1995 and $178
million in 1994) resulted primarily from net charge-offs exceeding the
provision for loan losses and the decline in the level of nonaccrual loans.
Maturities in the Company's credit card securitization program enabled it to
transfer $3 million in 1995 and $14 million in 1994 of its recourse obligation
from other liabilities to the allowance. The ratio of the total allowance for
loan losses to year-end loans was 2.01% and 2.40% at December 31, 1995 and
1994.
<PAGE> 35
LOANS
The following table shows the Company's loan distribution at the end of each
of the last five years:
1995 1994 1993 1992 1991
In millions ---- ---- ---- ---- ----
Domestic
Credit Card $ 8,727 $ 7,475 $5,024 $ 3,871 $ 2,887
Other Consumer Loans 753 790 1,004 1,358 1,428
Commercial and Industrial Loans* 12,025 11,149 9,781 10,495 12,398
Real Estate Loans
Construction and Land
Development 118 125 160 188 322
Other, Principally Commercial
Mortgages 2,741 2,743 2,626 2,822 2,340
Collateralized by Residential
Properties 3,229 3,036 3,203 3,423 2,820
Banks and Other Financial
Institutions** 1,953 1,289 1,893 1,521 35
Loans for Purchasing or Carrying
Securities 3,068 2,339 2,275 1,098 1,417
Lease Financings 1,503 1,308 1,038 1,033 1,063
Other** 200 49 65 126 1,222
------- ------- ------- ------- -------
Total Domestic 34,317 30,303 27,069 25,935 25,932
------- ------- ------- ------- -------
Foreign
Commercial and Industrial Loans 1,906 1,605 1,775 1,928 2,773
Banks and Other Financial
Institutions 828 672 810 997 1,122
Government and Official
Institutions*** 227 212 565 535 546
Other 1,383 1,161 1,188 947 795
------- ------- ------- ------- -------
Total Foreign 4,344 3,650 4,338 4,407 5,236
------- ------- ------- ------- -------
Total Loans 38,661 33,953 31,407 30,342 31,168
Less: Unearned Income 974 870 837 845 833
Allowance for Loan Losses 756 792 970 1,072 1,084
------- ------- ------- ------- -------
Net Loans $36,931 $32,291 $29,600 $28,425 $29,251
======= ======= ======= ======= =======
* The commercial and industrial loan portfolio does not contain any industry
concentration which exceeds 10% of loans.
** Prior to 1992, certain loans to the securities and mortgage banking
industries were classified as Other Loans.
*** During 1994, $292 million of loans were reclassified to securities.
<PAGE> 36
NONPERFORMING ASSETS
The following table shows the distribution of nonperforming assets at December
31, 1995 and 1994:
Dollars in millions 1995 1994 Change
-----------------------------------
Category of Loans:
Commercial Real Estate $ 42 $ 63 (33)%
Other Commercial 75 74 1
Foreign 20 32 (38)
LDC 21 45 (53)
Community Banking 67 83 (19)
---- ----
Total Nonperforming Loans 225 297 (24)
Other Real Estate 72 56 29
---- ----
Total Nonperforming Assets $297 $353 (16)
==== ====
Nonperforming Asset Ratio 0.8% 1.1%
Allowance/Nonperforming Loans 336.0 266.7
Allowance/Nonperforming Assets 254.5 224.4
Nonperforming assets declined for the eighteenth consecutive quarter to
$297 million at December 31, 1995.
The decrease in nonperforming assets during 1995 is attributable to
charge-offs and writedowns of $74 million and paydowns, sales, and returns to
accrual status of $137 million. The decrease was partially offset by $155
million of loans placed on nonperforming status.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of the Company's financial instruments are disclosed in Note 10
to the Consolidated Financial Statements. The fair values, if realized, would
improve the Company's capital resources and results of operations because the
excess of fair value over the carrying amount for its assets is greater than
the corresponding excess for liabilities. The fair values would not affect
liquidity.
In 1995, declining interest rates produced unrecognized fair value gains
in the securities portfolios. Rising interest rates in 1994 resulted in
unrecognized fair value losses in the securities portfolio. Higher values
attributable to consumer loans more than offset the declines in value
associated with credit-impaired commercial loans in both 1995 and 1994. The
increase in fair value of long-term debt primarily reflects the influence of
the Company's stock price on the fair value of its convertible subordinated
debentures.
TRADING AND OFF-BALANCE SHEET RISKS
The Company's significant trading and off-balance-sheet risks are securities,
foreign currency and interest rate risk management products, commercial
lending commitments, letters of credit, and securities lending
indemnifications. The Company assumes these risks to trade for its own
account, to reduce its own interest rate and foreign currency risks, and to
enable its customers to meet their credit and liquidity needs and hedge their
foreign currency and interest rate risks. These items involve, to varying
degrees, credit, foreign exchange, and interest rate risk not recognized in
the balance sheet. The Company's off-balance-sheet risks are managed and
monitored in manners similar to those used for on-balance-sheet risks. There
are no significant industry concentrations of such risks. The Company manages
trading risk through a system of position limits, an earnings at risk
methodology, stop loss advisory limits, and other market sensitivity measures.
Position limits restrict by instrument and currency the size of positions the
Company can take. Earnings at risk is designed to measure with 95% certainty
the Company's exposure to change in earnings resulting from price fluctuations
in the Company's trading portfolio over a 24-hour period. The trading
portfolio's pre-tax earnings at risk averaged approximately $1.5 million for
the fourth quarter of 1995, and ranged from approximately $0.8 million to $2.4
million. During the fourth quarter of 1995 daily trading revenue
<PAGE> 37
averaged approximately $0.2 million, and ranged from approximately a gain of
$1.2 million to a loss of $0.5 million. During this period, trading revenue
did not exceed the Company's earnings at risk estimates on any given trading
day. Stop loss advisory limits require a trading desk's open positions and
trading strategy to be reviewed by senior management when a predetermined loss
amount has been reached by that trading desk. Market price risk is also
managed by monitoring a trading position's price sensitivity to changes in
interest rates. This sensitivity analysis is used to establish trading limits
for certain products.
The amounts associated with off-balance-sheet risks are disclosed in
Notes 10 and 12 to the Consolidated Financial Statements.
SECTOR PROFITABILITY
The Company has an internal information system used for management purposes
that produces sector performance data for Trust, and Securities and Other
Processing, Retail Banking, Corporate Banking, and Other sectors. A set of
measurement principles has been developed to help ensure that reported results
of the sectors track their economic performance. Sector results are subject
to restatement whenever improvements are made in the measurement principles or
organizational changes are made. In 1995, the data was restated to reflect
the transfer from the Corporate Banking Sector to the Other Sector gains and
losses associated with foreign investments and subsidiaries. The methodology
used for match funding of assets and liabilities was also adjusted.
Net interest income is computed on a taxable equivalent basis. Support
and other indirect expenses are allocated to sectors based on general
guidelines. The provision for loan losses is based on net charge-offs
incurred by each sector. Assets and liabilities are match funded.
The Trust, and Securities and Other Processing Sector provides a broad
array of fee based services. Trust includes personal trust, personal asset
management and institutional investment. Securities processing includes
American depositary receipts, corporate trust, securities lending, government
securities clearance, mutual fund custody, unit investment trust, stock
transfer, and institutional custody. Trade finance, funds transfer, and
deposit services are included in other processing.
The Retail Banking Sector includes credit card financing, consumer
lending, custom banking, and residential mortgage lending.
The Corporate Banking Sector is divided into special industries banking,
U.S. commercial banking, middle market banking, international banking, and
factoring.
The Other Sector includes trading and investing activities, treasury
services to other sectors, general administration, and the difference between
the recorded provision for loan losses and that allocated to the other
sectors.
The sectors contributed to the Company's profitability as follows:
Trust, and
Securities and Corporate
Other Processing Retail Banking Banking
-------------- ------------------ --------------
In millions 1995 1994 1993 1995 1994 1993 1995 1994 1993
---- ---- ---- ---- ---- ---- ---- ---- ----
Net Interest Income
on a Taxable
Equivalent Basis $153 $129 $107 $1,279 $1,034 $826 $522 $452 $443
Provision for Loan
Losses - - - 291 203 184 62 126 203
Noninterest Income 847 757 706 165 217 239 272 244 213
Noninterest Expense 611 582 539 699 702 709 233 223 250
------------------------------------------------
Income before Taxes $389 $304 $274 $ 454 $ 346 $172 $499 $347 $203
================================================
Other Total
----------------- -------------------
In millions 1995 1994 1993 1995 1994 1993
---- ---- ---- ---- ---- ----
Net Interest Income
on a Taxable
Equivalent Basis $114 $148 $174 $2,068 $1,763 $1,550
Provision for Loan
Losses (23) (167) (103) 330 162 284
Noninterest Income 212 71 161 1,496 1,289 1,319
Noninterest Expense 170 139 148 1,713 1,646 1,646
-------------------------------------
Income before Taxes $179 $247 $290 $1,521 $1,244 $ 939
=====================================
<PAGE> 38
In the Trust, and Securities and Other Processing Sector, securities
processing fees increased 14% over last year to $411 million compared to $359
million in 1994 and $309 million in 1993. All areas of securities processing
increased led by ADRs, corporate trust and master trust. Securities
processing revenues did not include any revenue from the acquisition of the
custody business of J.P. Morgan or BankAmerica. Transition activities
associated with these acquisitions will continue throughout 1996. Fees from
the acquisition of NationsBank's corporate trust business were included in
securities processing revenue for the month of December. In other processing,
fees grew by 11% led by increases in funds transfer and trade finance
revenues. Trust and investment management fees increased to $136 million in
1995 from $126 million in 1994 primarily due to higher market valuation of
assets under management and the acquisition of Putnam.
In 1994, American depositary receipts and corporate trust showed
exceptional growth. Other areas of strength included mutual fund custody and
government securities clearance. In other processing, trade finance increased
by 15% over 1993. Overall volume and total revenue in funds transfer were up
20% and 18% from 1993. However, service fees in the funds transfer and
deposit services area were lower due to customers' increasing use of
compensating balances in a rising interest rate environment. Trust and
investment management reported lower revenue due primarily to lower market
valuations of assets under management.
The increase in net interest income in the Retail Sector principally
reflects growth in the Company's credit card business and the higher value of
noninterest-bearing balances. Charge-offs increased compared to last year.
Credit card accounts past due over 30 days were 4.50% of managed outstandings
at the end of 1995 compared with 3.34% and 3.30% at the end of 1994 and 1993.
Net credit card charge-offs as a percentage of average managed outstandings
were 3.44% in 1995, compared with 2.68% and 3.19% in 1994 and 1993.
Maturities in the credit card securitization program shifted revenue from
noninterest income to net interest income. Credit card interchange income for
managed outstandings was $85 million, $81 million, and $68 million in 1995,
1994, and 1993.
The Company is currently negotiating with an affinity group to renew a
contract related to a credit card portfolio with $3.6 billion of outstandings
at December 31, 1995. The contract expires in 1997 and entitles the Company
to sell the portfolio at fair market value if it is not renewed.
The increase in net interest income in the Corporate Banking Sector in
1995 is attributable to increased loan demand, higher yields, and a decline in
nonperforming assets. Loan demand continued to strengthen, particularly in
corporate lending across the United States, in the middle market, and in all
of the special industry lending areas. In 1994, the increase in net interest
income in the Corporate Banking Sector was attributable to higher yields as
well as a decline in nonperforming assets. The sector also benefitted from a
reduction in the provision for loan losses. In addition, increased earnings
in the Company's factoring business contributed to the sector's results. The
decrease in noninterest expense was partially attributable to a reduction in
other real estate expense.
The Other Sector reflects the difference between the recorded provision
for loan losses and that allocated to the sectors. Noninterest income for
1995 includes $58 million for the pre-tax gain on the sale of the ARCS
Mortgage portfolio. Also included in noninterest income for 1994 and 1993 are
pre-tax gains of $22 million and $24 million on the sale of portions of the
Company's interest in Wing Hang Bank, Ltd. Securities gains and foreign
exchange and other trading activity increased $116 million from 1994. In
1994, the Other Sector had a decline in revenues from trading and investing
activities.
<PAGE> 39
QUARTERLY DATA UNAUDITED
1995 1994
--------------------------- ---------------------------
Dollars in millions, Fourth Third Second First Fourth Third Second First
except per share
amounts
Interest Income $ 967 $ 947 $ 981 $ 936 $ 853 $ 783 $ 698 $ 626
Interest Expense 446 435 477 445 378 335 289 243
----- ----- ----- ----- ----- ----- ----- -----
Net Interest Income 521 512 504 491 475 448 409 383
----- ----- ----- ----- ----- ----- ----- -----
Provision for Loan
Losses 105 113 62 50 39 39 39 45
Noninterest Income 422 405 350 319 298 321 321 350
Noninterest Expense 447 424 425 416 413 420 410 403
----- ----- ----- ----- ----- ----- ----- -----
Income Before
Income Taxes 391 380 367 344 321 310 281 285
Income Taxes 150 146 141 131 120 116 105 107
----- ----- ----- ----- ----- ----- ----- -----
Net Income $ 241 $ 234 $ 226 $ 213 $ 201 $ 194 $ 176 $ 178
===== ===== ===== ===== ===== ===== ===== =====
Net Income
Available to
Common Shareholders $ 239 $ 232 $ 223 $ 210 $ 198 $ 191 $ 173 $ 174
===== ===== ===== ===== ===== ===== ===== =====
Per Common Share Data:
Primary Earnings $1.15 $1.16 $1.14 $1.12 $1.06 $1.01 $0.92 $0.93
Fully Diluted
Earnings 1.12 1.11 1.09 1.06 1.00 0.96 0.87 0.87
Cash Dividends 0.36 0.36 0.32 0.32 0.32 0.275 0.275 0.225
Stock Price
High 48.75 46.50 43.38 33.50 31.88 32.62 32.00 29.69
Low 41.88 38.00 31.88 29.00 26.75 28.62 25.06 25.50
Ratios:
Return on Average
Common
Shareholders'
Equity 18.87% 19.28% 19.85% 19.98% 19.03% 18.68% 17.67% 18.55%
Return on Average
Assets 1.77 1.78 1.68 1.65 1.55 1.49 1.42 1.50
<PAGE> 40
Business Review
Securities And Other Processing
The Bank of New York offers a more complete range of processing and
operating services than any other bank. We are the largest overall processor
of securities in the U.S. and one of the largest in the world. We offer
customers experience, scale and technological resources to fulfill virtually
all requirements.
Securities Processing:
We offer nine distinct product lines: three for issuers of debt and
equity securities, three for institutional investors, and three for the
securities and mutual fund management industries. Record keeping and
reporting are common functions for all product lines.
We are the market leader in American and global depositary receipts and
government securities clearance. We hold the number two market position for
corporate trust, institutional custody, mutual funds custody, securities
lending and unit investment trust servicing. We rank among the top three
providers of master trust/master custody and among the top four in stock
transfer. Each of our nine product lines experienced internal growth in 1995,
most in excess of 10%.
Several banking institutions decided to exit the securities processing
services industry in 1995. Because we have consistently invested in the
resources and technology necessary to improve our operating efficiency and
accommodate additional business, the Bank was able to take advantage of this
consolidation trend. We made 11 strategic acquisitions during 1995, including
the custody businesses of BankAmerica and J.P. Morgan, which represented
combined assets of approximately $1.2 trillion. These acquisitions give both
our new and existing clients enhanced service capabilities and access to an
expanded
<PAGE> 41
domestic and global operations network. The conversion of acquired
accounts to the Bank's processing systems is on schedule and proceeding as
expected.
Services provided to issuers of securities are comprised of the following
product lines:
American Depositary Receipts: Depositary receipts enable U.S. investors
to invest in dollar-denominated equity and debt securities of foreign
companies and government agencies, providing them access to the U.S. capital
markets.
In total, the Bank issues depositary receipts for more than 800 non-U.S.
companies representing 50 countries and accounting for over 55% of all
sponsored public depositary receipt programs.
We continued to lead this industry in 1995. We acted as depositary for
62% of all new public sponsored depositary receipt programs for companies
based in 28 countries. For the last five years our share of all new programs
has averaged over 60%. Among our achievements were the establishment of
the first 144A depositary receipt programs for the Czech Republic, Slovakia,
Poland and Russia and the first depositary receipt program for Bolivia. We
have diversified our client base by establishing new depositary receipt
programs in nearly every foreign market. This enables us to benefit from
changes in investment flows.
Industry share trading volume for listed depositary receipts increased
almost 40% during 1995. It comprised only 5.3% of total U.S. share trading
volume, indicating that there is still considerable room for depositary
receipt growth in the future.
Fees increased over 30% for the year.
Corporate Trust: As corporate trustee, the Bank provides registrar,
custodial, escrow and paying agent services to corporate and government
issuers of debt securities.
<PAGE> 42
The Bank is the second largest supplier of corporate trust services,
handling approximately 34,000 issues with over $450 billion in principal
amount outstanding.
We acquired seven corporate trust books of business which added over
14,000 trust appointments to our portfolio. We have already completed the
successful conversion of the NationsBank, CoreStates Financial, Frost National
Bank, Hibernia National Bank, Meridian Trust and First Hawaiian Bank
portfolios. The Wachovia Corp. acquisition will be converted in 1996. The
NationsBank acquisition was particularly significant as it greatly enhanced
the Bank's market share in several fast-growing markets in the U.S.
Our existing book of business also grew substantially in 1995.
Excluding acquisitions, we achieved more new trustee appointments than any of
our competitors during the year in both the number and the principal amount of
debt issues: 162 issues amounting to more than $53 billion. We ranked among
the top five in new appointments in every product we service.
Overall fees increased 24% for the year.
Stock Transfer: As stock transfer agent, we provide shareholder record
keeping, dividend paying and reinvestment, proxy tabulation, and exchange
services to corporate issuers of equity securities.
We perform these services for more than 400 public companies with over 8
million shareholders. Based upon customer surveys, an independent study
ranked the quality of our services number one among the leading stock transfer
agents in 1995.
In 1996 we will begin to incorporate image processing into our
operations, a technology which will increase processing speed, improve service
quality and add to our capacity.
We added 36 companies to our customer list during the year, an increment
of over 500,000 shareholders. Fees were modestly higher for the year.
<PAGE> 43
The Bank is an internationally recognized securities custodian for
institutional investors: We offer a comprehensive array of services through a
worldwide settlement network encompassing 80 markets. Our services for a
diversified base of clients include custody, settlement of trades, income
collection, corporate action processing, proxy management, pricing and
performance analysis for securities portfolios. Our reporting systems allow
us to tailor information to meet the specific requirements of our custody
customers such as insurance companies. In addition, we provide our custody
clients with securities lending, cash management, foreign exchange and credit
services.
Worldwide custody services for institutional investors include the
following:
Master Trust/Master Custody: We are a leading provider of custody and
trustee services to clients with multiple investment portfolios. Our clients
include public funds, corporate pension funds, Taft-Hartley funds, foundations
and endowments. In addition to our regular custodial service, we provide
these clients with daily portfolio valuation, enhanced regulatory compliance
reporting and on-line portfolio performance analysis.
Excluding acquisitions, our client base grew by 57 clients in 1995 with
particular strength exhibited by the corporate pension fund segment. Fees
advanced 14%.
Institutional Custody: The Bank is a leading custodian for insurance
companies, central banks, commercial banks and government agencies.
In 1995 we added 91 new institutional clients unrelated to our
acquisitions, representing a 23% increase over 1994. Our strong emphasis on
the insurance industry enabled us to double our custody assets for that market
segment. Fees increased modestly.
Securities Lending: In conjunction with its custody businesses the Bank
operates one of the largest securities lending programs in the world. Lending
securities that are held in custody, or that are otherwise available to us,
increases the yield on customers' portfolios by investing the cash collateral
<PAGE> 44
exchanged for those securities. Our services include loan solicitation,
negotiation of terms, transaction settlement, loan administration, credit
analysis of borrowers, and receipt and investment of cash collateral. We
operate this business through our offices in New York, London and Hong Kong.
Fees increased 7% for the year.
We also offer custodian services to the securities and mutual fund management
industries.
Mutual Funds Custody: We are the second largest custodian for mutual
fund management companies, providing domestic and global custody, portfolio
accounting and pricing, and fund administration services. In total, we act as
custodian for over 800 mutual funds for 72 management companies, including 11
of the industry's 20 largest firms. We have an office in Dublin, Ireland for
servicing non-U.S. registered mutual funds which are sold to non-U.S.
citizens. We also provide our stock transfer service for closed end mutual
funds.
During 1995 we achieved 17 new mutual fund manager appointments and
increased the total number of mutual fund portfolios by over 125. Total
assets under custody rose 35% to $450 billion at year end. Fees increased 7%
in 1995.
Unit Investment Trust: We are the second largest provider of trustee
services for unit investment trusts, which are passive securities portfolios
created by broker/dealer sponsors. Our role as trustee is to provide
portfolio custody, accounting and administration services as well as transfer
agency and unitholder relations services.
In March 1995 we acquired about 500 unit investment trusts from
Investors Bank & Trust Company. Overall, at year end we were trustee for
approximately 4,100 trusts with assets of over $26 billion.
Fees rose 9% for the year.
<PAGE> 45
Government Securities Clearance: We continue to be the market leader in
the clearance of U.S. government and certain other government agency
securities as well as in the administration of tri-party repurchase
agreements. In the former role we serve as the agent for the movement of
securities from the U.S. Treasury and other government agency issuers to the
dealer community and for the movement of securities among dealers. Under the
latter program the Bank acts as an intermediary between a dealer and an
investor, holding the securities in custody until the termination of the
repurchase agreement. We provide valuation and segregation services as long
as the securities held as collateral are under our custody management.
We added 18 new tri-party relationships in 1995. Significant growth was
realized from the establishment of a global collateral management service for
international investors. On an average day, we cleared over 55,000
transactions representing approximately $600 billion of securities, and held
$125 billion of tri-party collateral under management during 1995. Fees were
modestly higher for the year.
Other Processing:
Our Other Processing products serve financial institutions and corporations
around the world as well as middle market companies and small businesses
located in the greater New York metropolitan area. All three of our other
processing businesses experienced revenue growth in 1995. The businesses are:
Funds Transfer: This service involves the electronic payment of U.S.
dollars within the U.S. and around the world on behalf of our customers for
the settlement of financial transactions. On an average day we clear over
60,000 transactions worth $220 billion for domestic and foreign financial
institutions, corporations and individuals. Primarily an international
business, we interface with a network of over 2,000 correspondent financial
institutions throughout the world.
<PAGE> 46
Our market share among U.S. commercial banks has been improving steadily
over the past four years.
Revenues increased 18% in 1995.
Trade Services: The Bank provides a broad range of trade services for
financial institutions and corporations through its global network of branches
and representative offices. Our major product is letters of credit, which
expedite payment for customers' imports and exports around the world. Asia,
Latin America and the Middle East are our primary foreign markets.
We are in the midst of an automation program to upgrade the electronic
linkages among our Asian offices and New York, which should enhance service
quality significantly.
Trade services fees increased 13% in 1995.
Cash Management: We offer a full range of cash management services to
corporate and institutional customers, primarily located in the U.S. The
product line involves the receipt and disbursement of cash along with
sophisticated reporting. Markets of particular strength for the Bank include
middle market companies and small businesses in the greater New York
metropolitan area, financial institutions of all types and large corporations
for which we serve as a lead bank.
Two major new products were introduced in 1995. The WINDOWS (registered
trademark) based workstation enables customers to initiate wire transfer and
automated clearing house transactions and provides them with access to a wide
array of information regarding their cash movements. The check imaging
service allows corporations to electronically retrieve copies of their checks
onto their personal computers, reducing opportunities for fraud and providing
fast information to respond to inquiries.
Revenues increased 5% for the year.
<PAGE> 47
Corporate Banking
The Bank of New York serves the global banking needs of domestic and
multi-national corporations and institutions. We focus on companies where we
can position ourselves as a lead bank. Our strategy is to not only arrange
their corporate credits, but also assist them with their securities
processing, cash management, trade finance and other banking and transactional
requirements.
Our Capital Markets division provides loan structuring and syndication
services to our customers as well as corporate advisory services and private
placements. Gains in this area have been significant over the last few years.
In 1995 we ranked eighth among major banks in acting as agent or co-agent on
credit facilities. Four years ago, we ranked 21st. The Bank of New York
currently acts as administrative agent on 180 broadly syndicated loans, of
which 44 were new appointments in 1995.
Corporate Banking is divided into the following areas:
Special Industries Banking: The Bank of New York is a leading provider
of credit and operating services to the media and entertainment,
telecommunications, securities, energy and public utility, marine
transportation, real estate, retailing, mortgage banking and insurance
industries. We bring a depth of experience and expertise to these industries
that provides added value for our clients. A 12% increase in average loan
volume was achieved during 1995.
We are a leading lender and arranger of bank loans to the rapidly
expanding media and telecommunications industries. Our media division
currently acts as lead agent or co-agent for 83 transactions representing over
$74 billion in bank facilities.
U.S. Commercial Banking: This area serves the banking needs of large
corporations primarily located in nine major urban markets. Our targeted
<PAGE> 48
marketing emphasis resulted in strong loan growth with average outstandings
increasing 16% in 1995.
Middle Market Banking: The Bank has emphasized this market segment in
recent years. We offer middle market customers throughout the greater New
York metropolitan area, Connecticut and New Jersey a broad range of
sophisticated banking services including asset-based finance, cash management,
securities processing, trade finance, leasing and investment banking. Average
loan volume grew 15% in 1995.
International Banking: Our international banking operations focus on
promoting the processing businesses of the Bank with major emphasis on
American depositary receipts, global custody, securities lending, funds
transfer and trade finance. Our customers include U.S. corporations and
foreign commercial banks, governments and corporations. We operate in 26
foreign countries through our network of 29 branches and representative
offices. In 1995 we opened offices in Jakarta and Mexico City.
Factoring: BNY Financial Corporation is the second-largest factoring
operation in the United States and the largest in Canada. We have
accomplished major customer diversification in this business over the last
five years. The apparel industry, historically two-thirds of our volume,
today accounts for 40% as a result of our expanded business with the utility,
service, industrial security, shipping, airline, freight, food processing and
beverage industries. We have also diversified geographically. BNY Financial
now operates through offices located in New York, Boston, Atlanta, Charlotte,
Los Angeles, Toronto and Montreal. A 20% net income gain was achieved in
1995, our 14th consecutive year of record earnings. Our factoring volume was
$11.1 billion for the year.
Asset Based Lending: The Bank of New York Commercial Corporation
provides secured lending to mid-size companies. Our customers include
retailers, distributors, manufacturers and service companies. BNY Commercial
had a particularly strong year in 1995 with net income rising 21%.
<PAGE> 49
Credit Cards
The Bank of New York (Delaware) is the 14th largest issuer of credit
cards in the U.S. We market nationally a wide array of credit cards targeted
to serve various consumer market segments. We are a leading provider of low
rate, no annual fee credit cards. At the end of 1995 we served 6.4 million
credit card accounts. Our managed credit card receivables outstanding
totaled $8.7 billion, a 13% increase over 1994.
We continue to make substantial investments in portfolio monitoring,
customer service, and pricing and marketing capabilities. In August we
converted our entire credit card portfolio to the computer systems of First
Data Resources. This conversion reduces our costs, increases our processing
capacity, strengthens our protection against fraud, and enables us to apply
the disciplines of sophisticated credit scoring and risk-based pricing to new
and existing cardholder accounts.
The Consumers Edge product line, our primary offering, consists of a
variety of cards, all with no annual fees and low interest rates. Consumers
Edge appeals to customers who maintain outstanding credit balances. In 1995
we purposely controlled the growth of these cards to maintain credit quality
at a time when we and the industry were experiencing rising credit
delinquencies.
The Union Privilege MasterCard is offered on an exclusive basis to
members of the AFL-CIO. With more than 75 affiliated unions participating, it
is the largest single affinity card program in the country.
In 1995 we introduced our first co-branded credit cards, in partnership
with two retailing companies.
In September we introduced the Toys-R-Us (registered trademark) Visa
card, a no annual fee credit card. It is the first co-branded credit card
to reward customers with free toys and free clothes, provided through
Toys-R-Us (registered trademark) and Kids-R-Us (registered trademark) stores.
Customers can also earn points toward discounted cruises, airline tickets and
hotel stays. Applications for this card and the number of cards issued have
significantly
<PAGE> 50
exceeded our expectations. The initial response to this program
has been well above industry norms.
A month later we launched the Stop & Shop (registered trademark)
SupeRewards MasterCard, also a no annual fee credit card. It is the first
credit card co-branded in conjunction with a leading supermarket chain that
offers travel rewards. The card enables customers to earn free airline
tickets and vacation rewards on every purchase. Applications and issuances
for this card have also surpassed our projections.
The MasterCard Business Card provides small businesses with a valuable
cash management tool. This card affords managers greater control over
purchasing by allowing them to pre-authorize employee spending limits and
to pre-approve vendors.
<PAGE> 51
Retail Banking
The Bank of New York is the leading retail bank in the suburban New York
area, with an extensive branch network and a broad range of products and
services for consumers and small businesses.
Our branch network comprises 384 offices serving 25 counties of New
York, New Jersey and Connecticut. In March 1995 we acquired three branches of
the Carteret Savings FSB in New Jersey with $113 million in deposits. In
September we acquired The Putnam Trust Company of Greenwich, which brought us
eight branches and over $700 million in assets in affluent Fairfield County,
Connecticut.
The strongest segment of our consumer loan portfolio was Homeowner's
Edge, a product that combines the features of an installment loan with the tax
deductibility of a home equity loan. Average loan outstandings increased 32%
in 1995. More than 30% of our depositors now take advantage of our Priority
Value Banking service which, by linking accounts, enables them to receive our
most favorable loan and savings rates and offset account service charges.
In October we introduced a new advertising campaign. Its theme "The
Bank of New York, The Bank of New Ideas" builds on our reputation for product
and service innovation.
Our Group Banking Program reflects the Bank's expertise in
simultaneously serving our consumer and business markets. This program
provides the employees of our business customers with a preferred banking
package that includes free checking and consumer loan rate discounts. This
integrated effort deepens relationships with both business customers and their
employees. An additional 150 companies participated in this program during
1995.
We streamlined our lending process and can now offer small businesses
credit approvals in three days or less. We are realizing additional cost
savings and competitive advantages through technology-driven credit scoring
which helps us to manage risk and achieve approvals quickly, consistently and
accurately.
<PAGE> 52
Our new process provides automated document preparation and
disbursement through any branch location.
We also introduced Business CreditLink, a check-accessed revolving
credit product for small businesses.
During the year we opened 15 Personal Investment Centers in New Jersey.
This brings the region-wide total to 69, each staffed with licensed
Investment Representatives. These centers offer a wide variety of mutual
funds, including our own BNY Hamilton Funds, as well as fixed and variable
rate annuities.
BNY Mortgage Company offers a wide variety of fixed and variable rate
mortgage loans. We are the leading originator of New York State-backed loans
for first-time home buyers and we provide other affordable lending products to
meet housing finance needs within the New York metropolitan region.
<PAGE> 53
Personal Trust, Investment Management and Private Banking
The Bank of New York has provided private banking services since its
founding in 1784 and trust services since banks were given those powers in the
1830's. Today, we offer individuals and institutions a broad range of
investment management, custody, estate and financial planning, trust and
estate settlement, and income tax preparation services, provided through
offices in New York, New Jersey, Connecticut and Florida. We work with some
of the nation's largest corporations to manage liquidity and with their senior
executives to manage their personal financial situations. Total assets under
management exceed $30 billion. We are among the largest bank managers of
discretionary assets in the nation.
The Bank's Private Banking, International Private Banking, Personal
Trust and Personal Asset Management divisions provide high income and high net
worth individuals in the U.S. and around the world with a full range of
services in banking, investment management, trust and estate, and personal
financial planning. Three private banking groups address the needs of
executives of corporations we serve in the real estate, media and marine
transportation industries.
Our Tax-Exempt Bond Management service helps high income and high net
worth individuals and corporations maximize after-tax returns on their
municipal bond portfolios. This service is delivered by a dedicated team who
combine the disciplines of municipal bond research, trading and portfolio
management to provide better returns by taking advantage of inefficiencies
that exist in the tax-exempt bond market. Fees reached a record level in
1995.
The full range of Institutional Investment services we provide includes
active management for fixed income, equity and balanced accounts, passive
investment products, commingled funds for ERISA accounts and short-term money
management. Our customers include corporations, public funds, Taft-Hartley
clients, foundations and endowments and other domestic and international
<PAGE> 54
institutions. A highlight in 1995 was our top quartile performance for fixed
income accounts.
Our Short-Term Money Management service provides institutional clients
with a liquidity management vehicle that maximizes returns on short-term funds
on a cost effective basis. We customize this product to meet each client's
specific needs. Fees from this service rose 36% in 1995.
<PAGE> 55
Financial Market Services
Financial Market Services represents the Bank's trading and investing
activities in foreign exchange products, municipal securities and interest-
rate management products. We conduct these activities for customers as well
as for the Bank's own account.
In Foreign Exchange, we are a market maker in all the world's major
trading currencies and provide 24-hour, full-service trading capabilities
through our offices in New York, London, Frankfurt, Tokyo, Hong Kong, Seoul
and Taipei. Revenues rose 55% in 1995.
We introduced Currency Overlay during 1995. This product provides
management strategies that are intended to protect a portfolio against losses
from unfavorable currency moves while retaining most of the benefit from
currency gains. The demand for this product arises from the increasing
importance of international diversification in institutional investment
portfolios.
The Bank is a full-service Municipal Securities Dealer and underwriter
of investment grade, general obligation tax-exempt securities, issued
principally in New York, New Jersey and Connecticut. Our customers for these
securities are mutual funds, financial institutions, corporations and
individual investors. The remarketing of short-term tax-exempt notes to
institutional investors has become an important part of our business. This
business grew substantially in 1995.
EXHIBIT 21
Subsidiaries Of The Registrant
Significant subsidiaries of The Bank of New York Company, Inc. are as
follows:
The Bank of New York, a New York State Chartered Bank
BNY Holdings (Delaware) Corporation, a Delaware Corporation
The Bank of New York (Delaware)*, a Delaware State Chartered Bank
- -------------------------------
* Subsidiary of BNY Holdings (Delaware) Corporation
EXHIBIT 23
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in the Registration
Statements of The Bank of New York Company, Inc. listed below of
our report dated February 26, 1996, appearing in the 1995 Annual
Report to Shareholders which is incorporated by reference in this
Annual Report on Form 10-K of The Bank of New York Company, Inc.
for the year ended December 31, 1995.
On Form S-3:
No. 33-50333
No. 33-51984
No. 33-61957
On Form S-4:
No. 33-25805
On Form S-8:
No. 33-57670
No. 33-62267
Post Effective Amendment No. 2 to Registration Statement
No. 2-95764
Post Effective Amendment No. 5 to Registration Statement
No. 2-95765
Pre Effective Amendment No. 1 to Registration Statement
No. 33-20999
Pre Effective Amendment No. 1 to Registration Statement
No. 33-33460
Pre Effective Amendment No. 1 to Registration Statement
No. 33-61957
\s\ Deloitte & Touche LLP
New York, New York
February 26, 1996
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This schedule contains summary financial information extracted from the Bank of
New York Company, Inc.'s Form 10-K for the period ended December 31, 1995 and
is qualified entirely by reference to such Form 10-K.
</LEGEND>
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<NAME> THE BANK OF NEW YORK COMPANY, INC.
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