<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, 1996
[ ] 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
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
7.97% Capital Securities, Series B
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 28, 1997 consisted of:
Common Stock ($7.50 par value) $14,950,812,315
(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 387,076,047 shares on February 28, 1997.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the 1996 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 1997 Annual Meeting of
Shareholders are incorporated by reference into Part III.
<PAGE> 2
PART I
- ------
ITEM 1. BUSINESS
- -----------------
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 1996 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.
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. In the fourth
quarter of 1996, The Bank of New York (NJ) and The Putnam Trust Company were
combined into The Bank of New York ("BNY"), a New York chartered banking
corporation. BNY is a member of the Federal Reserve System and consequently
is subject to regulation and supervision by the Federal Reserve Board. As a
bank insured by the FDIC, BNY is also subject to examination by that agency.
The Bank of New York (Delaware) ("BNY Del."), chartered in Delaware, is an
FDIC-insured non-member bank and is therefore subject to regulation and
supervision by the FDIC. BNY and BNY (Del.)are also subject to supervision
and examination by their respective state regulators, the New York Banking
Department and the Office of State Bank Commissioner of the State of
Delaware.
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 and certain off-balance sheet items ("Total Capital
Ratio") 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 most 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
<PAGE> 3
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 issued regulations, which become effective
in 1998, that 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 (Tier 1 Capital to risk-weighted assets and
certain off-balance sheet items) 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 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
<PAGE> 4
are subject to appointment of a receiver or conservator.
A discussion of the Company's capital position and capital adequacy is
incorporated by reference from "Capital Resources" in the "Management's
Discussion and Analysis" Section and Note 10 to the Consolidated Financial
Statements of Exhibit 13.
As of December 31, 1996 and 1995, capital ratios for the Company, the
Bank, and BNYDEL were categorized as well capitalized as set forth in the
table below.
December 31, 1996 December 31, 1995
---------------------- ------------------------ Well
BNY BNY Capitalized
Company Bank DEL Company Bank DEL Guidelines
------- ---- ---- ------- ---- ---- ----------
Tier I 8.34% 7.03% 9.35% 8.42% 7.84% 7.87% 6%
Total Capital 12.78 10.26 14.47 13.08 11.61 11.55 10
Leverage 8.87 6.89 9.28 8.46 7.63 8.48 5
Tangible Common
Equity 6.99 6.68 8.87 8.00 7.71 7.78
At December 31, 1996, 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.
(in millions) ------- --- ----
Tier 1 $1,293 $503 $181
Total Capital 1,541 129 242
Leverage 2,012 946 233
<PAGE> 5
The following table presents the components of the Company's risk-based
capital at December 31, 1996 and 1995:
(in millions) 1996 1995
---- ----
Common Stock $5,015 $5,119
Preferred Stock 112 113
Minority Interest 600 -
Adjustments: Intangibles (1,003) (672)
Securities Valuation Allowance (82) (58)
50% Investment in Section 20
Subsidiary (29) -
------ ------
Tier 1 Capital 4,613 4,502
Qualifying Long-term Debt 1,796 1,827
Qualifying Allowance for Loan Losses 695 670
Adjustment: 50% Investment in Section 20
Subsidiary (29) -
------ ------
Tier 2 Capital 2,462 2,497
------ ------
Total Risk-based Capital $7,075 $6,999
====== ======
The following table presents the components of the Company's risk
adjusted assets at December 31, 1996 and 1995:
1996 1995
------------------- -------------------
Balance Balance
(in millions) sheet/ Risk sheet/ Risk
notional adjusted notional adjusted
Assets amount balance amount balance
- ------ -------- -------- -------- --------
Cash, Due From Banks and Interest-
Bearing Deposits in Banks $ 7,419 $ 758 $ 5,693 $ 731
Securities 5,053 904 4,870 819
Trading Assets 1,547 67 816 60
Fed Funds Sold and Securities
Purchased Under Resale Agreements 562 65 936 17
Loans 37,006 33,518 37,687 34,826
Allowance for Loan Losses (901) - (756) -
Other Assets 5,079 3,600 4,474 3,441
------- ------- -------- -------
Total Assets $55,765 38,912 $ 53,720 39,894
======= ------- ======== -------
Off-Balance Sheet Exposures
- ---------------------------
Commitments to Extend Credit $ 47,111 11,612 $ 54,274 9,220
Securities Lending Indemnifications 23,881 - 15,068 -
Standby Letters of Credit and
Other Guarantees 6,447 4,610 6,081 4,228
Interest Rate Contracts 29,518 69 27,800 96
Foreign Exchange Contracts 101,527 401 28,005 140
-------- ------- -------- -------
Total Off-Balance Sheet Exposures $208,484 16,692 $131,228 13,684
======== ------- ======== -------
Gross Risk Adjusted Assets 55,604 53,578
Less: Allowance for Loan Losses not
Qualifying as Risk Based Capital 206 86
Investment in Section 20
Subsidiary 58 -
------- -------
Risk Adjusted Assets $55,340 $53,492
======= =======
<PAGE> 6
FDIC Insurance Assessments
BNY and BNY Del. 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. 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. In addition, the Deposit Insurance Funds Act provides
for assessments at all insured depository institutions to pay for the cost
of the Financing Corporation (a governmental agency) funding. The
assessment will be based on deposit levels and will be approximately .325
basis points.
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.
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). New York, New Jersey
and Connecticut have enacted 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
<PAGE> 7
and to the same extent as a bank having a branch in such state as a result of
an interstate merger.
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 depositors and to certain other indebtedness of its banks.
Restrictions on Transfer of Funds
Restrictions on the transfer of funds to the Company and subsidiary bank
dividend limitations are discussed in Note 10 to the Consolidated Financial
Statements included in Exhibit 13. Such discussion is incorporated herein by
reference.
Cross Guarantees
Under FDIA, a financial institution insured by the FDIC that is under
common control with a failed or failing FDIC-insured institution can be
required to indemnify the FDIC for losses resulting from the insolvency of
the failed institution, even if this causes the affiliated institution also
to become insolvent. Any obligation or liability owed by a subsidiary
depository institution to its parent company is subordinate to the
subsidiary's cross-guarantee liability with respect to commonly controlled
insured depository institutions and to the rights of depositors.
<PAGE> 8
ADDITIONAL FINANCIAL INFORMATION
- ------------------------------------------------------------------------------
Average Balances and Rates on a Taxable Equivalent Basis (dollars in millions)
1996 1995 1994
================================================================================
Aver- Aver- Aver-
Average Int- age Average Int- age Average Int- age
Balance erest Rate Balance erest Rate Balance erest Rate
-----------------------------------------------------------------
Assets
- ------
Interest-
Bearing
Deposits
in Banks
(Primarily
Foreign) $ 1,585 $ 91 5.71% $ 1,682 $ 106 6.28% $ 1,266 $ 68 5.33%
Federal Funds
Sold and
Securities
Purchased
Under Resale
Agreements 2,356 126 5.35 3,280 193 5.89 3,653 161 4.39
Loans
Domestic
Offices
Credit Card 6,905 886 12.83 7,637 989 12.96 5,830 646 11.08
Other
Consumer 3,567 362 10.16 3,514 392 11.14 3,719 369 9.91
Commercial 13,945 1,023 7.34 13,215 1,047 7.92 12,340 833 6.76
Foreign
Offices 12,281 810 6.59 11,055 805 7.28 10,140 564 5.56
------- ------ ------- ------ ------- ------
Total Loans 36,698 3,081* 8.40 35,421 3,233* 9.13 32,029 2,412* 7.53
------- ------ ------- ------ ------- ------
Securities
U.S.
Government
Obligations 3,365 197 5.84 3,301 191 5.78 3,516 197 5.61
Obligations
of States
and Political
Subdivisions 656 58 8.91 650 68 10.50 893 89 10.02
Other
Securities,
including
Trading
Securities
Domestic
Offices 811 37 4.56 1,076 65 6.10 1,341 70 5.25
Foreign
Offices 511 31 6.11 233 14 6.31 191 11 5.64
------- ------ ------- ------ ------- ------
Total Other
Securities 1,322 68 5.16 1,309 79 6.13 1,532 81 5.30
------- ------ ------- ------ ------- ------
Total
Securities 5,343 323 6.05 5,260 338 6.45 5,941 367 6.19
------- ------ ------- ------ ------- ------
Total Inter-
est Earning
Assets 45,982 $3,621 7.88% 45,643 $3,870 8.48% 42,889 $3,008 7.01%
====== ====== ======
Allowance for
Loan Losses (837) (739) (906)
Cash and Due
from Banks 2,805 2,971 2,827
Other Assets 5,699 5,178 5,470
------- ------- -------
Total Assets $53,649 $53,053 $50,280
======= ======= =======
Assets
Attributable
to Foreign
Offices 28.50% 25.73% 24.30%
===== ===== =====
*Includes fees of $139 million in 1996, $134 million in 1995, and $118 million
in 1994. 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 $38 million in 1996, $39 million in 1995,
and $46 million in 1994, and are based on the federal statutory tax rate (35%)
and applicable state and local taxes.
Continued on page 9
<PAGE> 9
Average Balances and Rates on a Taxable Equivalent Basis (dollars in millions)
1996 1995 1994
================================================================================
Aver- Aver- Aver-
Average Int- age Average Int- age Average Int- age
Balance erest Rate Balance erest Rate Balance erest Rate
--------------------------------------------------------------
Liabilities and
Shareholders'
Equity
- ---------------
Interest-Bearing
Deposits
Domestic
Offices
Money Market
Rate Accounts $ 3,855 $ 166 4.30% $ 3,451 $ 153 4.44% $ 3,593 $ 108 3.01%
Savings 8,188 223 2.72 7,909 243 3.07 8,166 190 2.32
Certificates
of Deposit
of $100,000
or More 895 48 5.32 1,673 95 5.68 1,041 42 4.03
Other Time
Deposits 2,547 121 4.75 2,560 143 5.60 2,296 97 4.24
------- ------ ------- ------ ------- ------
Total Domestic
Offices 15,485 558 3.60 15,593 634 4.07 15,096 437 2.90
------- ------ ------- ------ ------- ------
Foreign Offices
Banks in
Foreign
Countries 4,645 225 4.85 3,968 218 5.48 2,917 125 4.30
Government and
Official
Institutions 1,236 62 5.05 1,394 81 5.78 1,384 60 4.37
Other Time and
Savings 6,351 307 4.85 6,041 332 5.52 5,689 220 3.84
------- ------ ------- ------ ------- ------
Total Foreign
Offices 12,232 594 4.87 11,403 631 5.54 9,990 405 4.05
------- ------ ------- ------ ------- ------
Total Interest-
Bearing
Deposits 27,717 1,152 4.16 26,996 1,265 4.69 25,086 842 3.35
------- ------ ------- ------ ------- ------
Federal Funds
Purchased and
Securities Sold
Under Repurchase
Agreements 2,957 155 5.23 2,804 161 5.75 2,843 106 3.73
Other Borrowed
Funds 3,406 186 5.47 3,962 246 6.22 4,135 191 4.63
Long-Term Debt 1,870 129 6.90 1,773 130 7.30 1,530 106 6.93
------- ------ ------- ------ ------- ------
Total Interest-
Bearing
Liabilities 35,950 $1,622 4.51% 35,535 $1,802 5.07% 33,594 $1,245 3.71%
====== ====== ======
Noninterest-
Bearing Deposits
Domestic Offices 8,838 9,012 8,897
Foreign Offices 44 53 58
------- ------- -------
Total
Noninterest-
Bearing
Deposits 8,882 9,065 8,955
------- ------- -------
Other Liabilities 3,621 3,685 3,594
Minority Interest
- Preferred
Securities 26 - -
Preferred Stock 113 115 157
Common
Shareholders'
Equity 5,055 4,653 3,980
------- ------- -------
Total Liabilities
and Share-
holders' Equity $53,647 $53,053 $50,280
======= ======= =======
Net Interest
Earnings and
Interest
Rate Spread $1,999 3.37% $2,068 3.41% $1,763 3.30%
====== ====== ======
Net Yield on
Interest-Earning
Assets 4.35% 4.53% 4.11%
==== ==== ====
Liabilities
Attributable
to Foreign
Offices 26.69% 24.94% 22.79%
===== ===== =====
<PAGE> 10
Rate/Volume Analysis on a Taxable Equivalent Basis (in millions)
- ----------------------------------------------------------------
1996 vs. 1995 1995 vs. 1994
------------------------------------------------------
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 $ (6) $ (9) $ (15) $ 25 $ 13 $ 38
Federal Funds Sold
and Securities
Purchased Under
Resale Agreements (51) (16) (67) (18) 50 32
Loans
Domestic Offices
Credit Card (94) (9) (103) 222 121 343
Other Consumer 6 (36) (30) (21) 44 23
Commercial 56 (80) (24) 62 152 214
Foreign Offices 85 (80) 5 54 187 241
----- ----- ----- ----- ----- ------
Total Loans 53 (205) (152) 317 504 821
Securities
U.S. Government
Obligations 4 2 6 (12) 6 (6)
Obligations of
States and
Political
Subdivisions 1 (11) (10) (25) 4 (21)
Other Securities,
including Trading
Assets
Domestic Offices (14) (14) (28) (15) 10 (5)
Foreign Offices 17 - 17 2 1 3
----- ----- ----- ----- ----- ------
Total Other
Securities 3 (14) (11) (13) 11 (2)
----- ----- ----- ----- ----- ------
Total Securities 8 (23) (15) (50) 21 (29)
----- ----- ----- ----- ----- ------
Total Interest
Income 4 (253) (249) 274 588 862
----- ----- ----- ----- ----- ------
Interest Expense
- ----------------
Interest-Bearing
Deposits
Domestic Offices
Money Market Rate
Accounts 17 (4) 13 (4) 49 45
Savings 8 (28) (20) (6) 59 53
Certificate of
Deposits of
$100,000 or More (42) (5) (47) 32 21 53
Other Time Deposits (1) (21) (22) 12 34 46
----- ----- ----- ----- ----- -----
Total Domestic
Offices (18) (58) (76) 34 163 197
----- ----- ----- ----- ----- -----
Foreign Offices
Banks in Foreign
Countries 35 (28) 7 52 41 93
Government and
Official Institutions (9) (10) (19) - 21 21
Other Time and
Savings 17 (42) (25) 14 98 112
----- ----- ----- ----- ----- -----
Total Foreign
Offices 43 (80) (37) 66 160 226
----- ----- ----- ----- ----- -----
Total Interest-
Bearing
Deposits 25 (138) (113) 100 323 423
Federal Funds Purchased
and Securities
Sold Under
Repurchase
Agreements 9 (15) (6) (1) 56 55
Other Borrowed Funds (32) (28) (60) (8) 63 55
Long-Term Debt 7 (8) (1) 18 6 24
----- ----- ----- ----- ----- -----
Total Interest
Expense 9 (189) (180) 109 448 557
----- ----- ----- ----- ----- -----
Change in Net
Interest Income $ (5) $ (64) $ (69) $ 165 $ 140 $ 305
===== ===== ===== ===== ===== =====
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> 11
Market Risk Management
- ----------------------
Market risk is the risk of loss due to adverse changes in the financial
markets. Market risk arises from derivative financial instruments, such as
futures, forwards, swaps and options, and other financial instruments, such
as loans, securities, deposits and other borrowings. These instruments
expose the Company primarily to interest rate and foreign exchange risk, but
they also involve credit risk. Market risk associated with the Company's
trading activities and asset/liability management activities is managed and
controlled as discussed under "Trading Activities" and, "Asset/Liability
Management" in the Management's Discussion and Analysis section of Exhibit
13. Such discussion is incorporated herein by reference.
Interest-Rate Sensitivity
- -------------------------
A discussion of the Company's interest rate sensitivity management
activities is incorporated by reference from "Asset/Liability Management" in
the Management's Discussion and Analysis section of Exhibit 13.
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 under "Asset/Liability Management" in
the Managements' Discussion and Analysis section of Exhibit 13) 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 more 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> 12
December 31, 1996
-----------------------------------------------------
Within Within Within Within Greater
2-3 4-6 7-12 Than
1 Mo. Mos. Mos. Mos. 12 Mos. Total
------ ------ ------ ------ ------- -------
(in millions)
Interest-Earning Assets
- -----------------------
Foreign Offices $ 8,284 $ 4,781 $ 2,182 $ 331 $ 122 $15,700
Domestic Offices
Loans 16,353 793 414 571 5,304 23,435
Securities 127 184 134 503 2,981 3,929
Trading Assets 1,238 - - - - 1,238
Federal Funds Sold and
Securities Purchased
Under Resale Agreement 562 - - - - 562
------- ------- ------- ------ ------- -------
Total 26,564 5,758 2,730 1,405 8,407 $44,864
------- ------- ------- ------ ------- =======
Interest-Bearing
Liabilities
- ----------------
Foreign Offices 11,536 950 209 53 - 12,748
Domestic Offices
Interest-Bearing
Deposits
Money Market Rate
Accounts 4,167 - - - - 4,167
Savings 6,953 - - 13 1,221 8,187
Certificates of
Deposit of $100,000
or More 416 252 175 99 526 1,468
Other Time Deposits 325 244 331 263 284 1,447
------- ------- ------- ------ ------- -------
23,397 1,446 715 428 2,031 28,017
------- ------- ------- ------ ------- -------
Federal Funds Purchased
and Other Borrowed
Funds 3,817 980 505 41 53 5,396
Long-Term Debt - 9 54 - 1,753 1,816
Trust Preferred
Securities - - - - 600 600
------- ------- ------- ------ ------- -------
Noninterest-Bearing
Sources of Funds 3,722 146 219 438 4,510 9,035
- ------------------- ------- ------- ------- ------ ------- -------
Total 30,936 2,581 1,493 907 8,947 $44,864
=======
Effect of Financial
Futures and Swaps 385 (459) (164) 24 214
- ------------------- ------- ------- ------- ------ -------
Interest-Sensitive Gap $(3,987) $ 2,718 $ 1,073 $ 522 $ (326)
- ---------------------- ======= ======= ======= ====== =======
Cumulative Interest-
Sensitivity Gap $(3,987) $(1,269) $ (196) $ 326 $ -
- -------------------- ======= ======= ======= ====== =======
<PAGE> 13
CREDIT RISK MANAGEMENT
- ----------------------
Credit risk represents the possibility that the Company would suffer a
loss if a borrower or other counterparty were to default on its obligations
to the Company. Credit risk exposure arises primarily from lending
activities, as well as from interest rate, foreign exchange, and securities
processing products. For derivative financial instruments, total credit
exposure consists of current and potential exposure. Current credit exposure
represents the replacement cost of the transaction. Potential credit
exposure is a statistically based estimate of the future replacement cost of
the transaction. The Company has established policies and procedures to
manage the level and composition of its credit risk on both a transaction and
a portfolio basis. In managing the aggregate credit extension to individual
customers, the Company measures the amount at risk on derivative financial
instruments as the total of current and potential credit exposure.
The Credit Policy Committee is responsible for developing and
maintaining credit risk policies, as well as for overseeing and reviewing
credit guidelines. Through the use of a credit approval process and
established credit limits, the Company evaluates the credit quality of
counterparties, industries, products, and countries. The Company seeks to
reduce both on and off-balance-sheet credit risk through portfolio
diversification, loan participations, syndications, asset sales, credit
enhancements, risk reduction arrangements, and netting agreements.
LOANS AND PROVISION AND ALLOWANCE FOR LOAN LOSSES
- -------------------------------------------------
The provision for loan losses was $600 million in 1996, compared with
$330 million in 1995 and $162 million in 1994. The increase in the provision
compared with 1995 was principally related to the credit card portfolio. In
1996, the Company continued to experience improvement in the asset quality of
business loans as nonperforming loans dropped.
At December 31, 1996, the domestic commercial real estate portfolio had
approximately 80% of its loans in New York and New Jersey, 3% in
Pennsylvania, and 2% in both California and Connecticut; 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 37%
Offices 28
Retail 11
Mixed-Used 3
Hotels 6
Condominiums and cooperatives 5
Industrial/Warehouse 2
Land 1
Other 7
----
100%
====
At December 31, 1996 and 1995, the Company's nonperforming real estate
loans and real estate acquired in satisfaction of loans aggregated $61
million and $114 million, respectively. Net charge-offs of real estate loans
were $11 million in 1996 and $16 million in 1995. In addition, other real
estate charges were $1 million and $5 million in 1996 and 1995.
At December 31, 1996 the Company's LDC exposures consisted of $55
million in medium-term loans (and no material commitments), $721 million in
short-term loans, $8 million in accrued interest, and $148 million in equity
investments. In addition, the Company has $314 million of debt securities to
emerging market countries, including $267 million (book value) of bonds whose
principal payments are collateralized by U.S. Treasury zero coupon
obligations and whose interest payments are partially collateralized.
<PAGE> 14
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. A further discussion of the
Company's credit card portfolio is incorporated by reference from "Provision
and Allowance for Loan Losses" and "Sector Profitability" in the Management's
Discussion and Analysis Section of Exhibit 13.
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. There were no nonperforming loans to borrowers in this industry
at year-end 1996. Nonperforming loans to borrowers in the energy industry
amounted to $11 million at year-end 1995. Charge-offs in this industry were
$1 million in 1996 and zero in 1995.
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. At December 31, 1996 nonperforming loans in
these industries amounted to $23 million and represented loans to a single
borrower in the entertainment industry. There were no nonperforming loans in
these industries at December 31, 1995, and no charge-offs in 1996 and 1995.
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, 1996 and 1995, and no charge-offs in 1996 and 1995.
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:
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
Real Estate Loans 5% 7% 9% 8% 9%
Domestic Commercial and
Industrial Loans 40 36 40 40 40
Consumer Loans 1 2 - - 1
Credit Card Loans 29 23 16 10 8
Foreign Loans 4 11 19 18 18
Unallocated 21 21 16 24 24
---- ---- ---- ---- ----
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> 15
The following table details changes in the Company's allowance for loan
losses for the last five years.
(dollars in millions) 1996 1995 1994 1993 1992
---- ---- ---- ---- ----
Loans Outstanding, December 31, $37,006 $37,687 $33,083 $30,570 $29,497
Average Loans Outstanding 36,698 35,421 32,029 30,427 30,345
Allowance for Loan Losses
- -------------------------
Balance, January 1
Domestic $ 515 $ 509 $ 558 $ 624 $ 766
Foreign 82 155 176 194 195
Unallocated 159 128 236 254 123
----- ----- ----- ------ ------
Total, January 1 756 792 970 1,072 1,084
----- ----- ----- ------ ------
Acquisitions and Securitizations - 11 14 1 56
Charge-Offs
Domestic
Commercial and Industrial (46) (56) (158) (142) (311)
Real Estate & Construction (11) (19) (6) (71) (103)
Credit Card (503) (294) (169) (136) (131)
Other Consumer (16) (15) (22) (37) (50)
Foreign (4) (48) (56) (63) (33)
----- ----- ----- ------ ------
Total (580) (432) (411) (449) (628)
----- ----- ----- ------ ------
Recoveries
Domestic
Commercial and Industrial 15 14 14 28 66
Real Estate & Construction - 3 - 2 13
Credit Card 62 27 21 15 13
Other Consumer 7 10 14 14 13
Foreign 41 1 8 3 12
----- ----- ----- ------ ------
Total 125 55 57 62 117
Net Charge-Offs (455) (377) (354) (387) (511)
----- ----- ----- ------ ------
Provision
Domestic 600 356 135 242 423
Foreign - (26) 27 42 20
----- ----- ----- ------ ------
Total 600 330 162 284 443
----- ----- ----- ------ ------
Balance, December 31,
Domestic 670 515 509 558 624
Foreign 38 82 155 176 194
Unallocated 193 159 128 236 254
----- ----- ----- ------ ------
Total, December 31, $ 901 $ 756 $ 792 $ 970 $1,072
===== ===== ===== ====== ======
Ratios
- ------
Net Charge-Offs to Average Loans
Outstandings 1.24% 1.06% 1.11% 1.27% 1.68%
===== ===== ===== ===== =====
Net Charge-Offs to Total
Allowance 50.50% 49.87% 44.70% 39.90% 47.67%
===== ===== ===== ===== =====
Total Allowance to Year-End
Loans Outstanding 2.43% 2.01% 2.40% 3.17% 3.63%
===== ===== ===== ===== =====
<PAGE> 16
Nonperforming Assets
- --------------------
A summary of nonperforming assets is presented in the following table.
(in millions) December 31,
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
Nonaccrual
- ----------
Domestic $175 $184 $220 $408 $ 581
Foreign 38 41 77 130 198
---- ---- ---- ---- ------
213 225 297 538 779
Reduced Rate (Domestic) - - - 2 9
- ------------ ---- ---- ---- ---- ------
213 225 297 540 788
Real Estate Acquired in
Satisfaction of Loans 41 72 56 99 268
- --------------------- ---- ---- ---- ---- ------
$254 $297 $353 $639 $1,056
==== ==== ==== ==== ======
Past Due 90 Days or More
and Still Accruing Interest
- ---------------------------
Domestic
Credit Card $215 $214 $ 97 $ 65 $ 56
Other Consumer 2 5 2 3 9
Commercial 30 51 64 88 153
---- ---- ---- ---- ------
$247 $270 $163 $156 $ 218
==== ==== ==== ==== ======
<PAGE> 17
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, 1996.
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 $ 9 5.06% $ 18 5.57% $ 187 4.01%
Over 1 through 5 Years 2 5.64 157 5.59 59 5.66
Over 5 through 10 Years - - 2 7.24 46 6.35
Over 10 years - - - - 85 6.65
Mortgage-Backed Securities - - - - - -
------ ----- ------
$ 11 5.18% $ 177 5.60% $ 377 5.15%
====== ===== ======
Securities Available-
- --------------------
for-Sale
- ----------
One Year or Less $ 569 5.58% $ 50 5.21% $ 3 5.22%
Over 1 through 5 Years 1,288 5.36 3 6.01 39 6.57
Over 5 through 10 Years 920 5.96 - - 54 6.05
Over 10 years 7 8.05 - - 184 5.91
Equity Securities - - - - - -
------ ----- -----
$2,784 5.61% $ 53 5.26% $ 280 6.02%
====== ===== =====
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 $ 20 4.22% $ - -% $ 234
Over 1 through 5 Years 53 6.35 - - 271
Over 5 through 10 Years 57 3.94 - - 105
Over 10 years 273 5.77 - - 358
Mortgage-Backed Securities - - 202 7.32 202
---- ---- ------
$403 5.98% $202 7.32% $1,170
==== ==== ======
Securities Available-
- --------------------
for-Sale
- ----------
One Year or Less $ 35 4.92% $ - -% $ 657
Over 1 through 5 Years 2 6.23 - - 1,332
Over 5 through 10 Years 46 5.24 - - 1,020
Over 10 years 5 5.40 - - 196
Equity Securities - - 678 2.64 678
----- ---- ------
$ 88 5.15% $678 2.64% $3,883
===== ==== ======
Loans
- -----
The following table shows the maturity structure of the Company's commercial
loan portfolio at December 31, 1996.
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 $ 483 $1,386 $ 915 $ 2,784
Commercial and Industrial Loans 4,927 5,282 2,635 12,844
Other, Excluding Loans to
Individuals and those
Collateralized by 1-4 Family
Residential Properties 4,671 800 123 5,594
------- ------ ------ -------
10,081 7,468 3,673 21,222
Foreign 2,716 1,024 2,324 6,064
- ------- ------- ------ ------ -------
Total $12,797 $8,492 $5,997 $27,286
======= ====== ====== =======
Loans with:
Predetermined Interest Rates $ 990 $1,156 $2,276 $ 4,422
Floating Interest Rates 11,807 7,336 3,721 22,864
------- ------ ------ -------
Total $12,797 $8,492 $5,997 $27,286
======= ====== ====== =======
<PAGE> 18
Deposits
- --------
The aggregate amount of deposits by foreign customers in domestic
offices was $4.5 billion, $4.0 billion, and $3.2 billion at December 31,
1996, 1995, and 1994.
The following table shows the maturity breakdown of domestic time
deposits of $100,000 or more at December 31, 1996.
Time
(in millions) Certificates Deposits-
of Deposits Other Total
------------------------------------------------
3 Months or Less $ 598 $1,757 $2,355
Over 3 Through 6 Months 160 8 168
Over 6 Through 12 Months 102 8 110
Over 12 Months 567 19 586
------ ------ ------
Total $1,427 $1,792 $3,219
====== ====== ======
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 1996, 1995, and 1994 is
presented in the table below.
1996 1995 1994
--------------- --------------- ---------------
(dollars in millions)
Average Average Average
Amount Rate Amount Rate Amount Rate
------ ------- ------ ------- ------ -------
Federal Funds Purchased
and Securities Sold Under
Repurchase Agreements
- --------------------------
At December 31 $1,737 5.31% $3,933 4.61% $1,502 4.91%
Average During Year 2,957 5.23 2,804 5.75 2,843 3.73
Maximum Month-End Balance
During Year 4,460 4.85 3,991 5.96 6,415 3.36
Other*
- -----
At December 31 $2,707 5.34% $3,106 5.73% $4,176 5.79%
Average During Year 3,406 5.47 3,962 6.22 4,135 4.63
Maximum Month-End Balance
During Year 4,341 5.40 5,025 5.74 5,639 4.57
*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, 1996, the Company had assets in excess of 1% of year
end total assets in the United Kingdom, totaling $1,100 million; and
consisting of $529 million attributable to banks and other financial
institutions, and $571 million attributable to commercial, industrial and
other companies. At December 31, 1996, the Company had assets in excess of
.75% of year end total assets in Greece, South Korea and Brazil aggregating
$1,515 million. At December 31, 1995, the Company had assets in excess of
.75% of year end total assets in Greece and South Korea, aggregating $1,007
million.
<PAGE> 19
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; 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
- --------------------------
There are no material legal proceedings pending against the Company or
its subsidiaries.
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 1996.
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 24,014 common shareholders of record at
February 28, 1997.
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.
CAUTIONARY STATEMENT
The Company or its executive officers and directors on behalf of the
Company, may from time to time make forward looking statements. To the
extent that any forward looking statements are made, the Company is
necessarily unable to predict future changes in interest rates, economic
activity, consumer behavior, government monetary policy, legislation and
regulation, competition, and loan demand. In addition, the Company's future
results of operations and other forward looking statements contained in
Management's Discussion and Analysis and elsewhere in this Form 10-K involve
a number of risks and uncertainties. As a result of variations in such
factors, actual results may differ materially from any forward looking
statements. Some of these factors are described below. The Company
disclaims any obligation to update forward looking statements.
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
<PAGE> 20
investments and the level of interest rates and thus on the
earnings of the Company.
Legislation and Regulation
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. Regulatory changes could
increase the Company's overhead costs, restrict access to profitable markets
or force participation in unprofitable markets. 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.
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.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
- ----------------------------------------------------
Consolidated financial statements and notes and the independent
auditors' reports are incorporated herein by reference from Exhibits 13
and 99 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 report on the Company's financial statements
for the fiscal year ended December 31, 1995 did not contain an adverse
opinion or a disclaimer of opinion and was not qualified or modified as to
uncertainty, audit scope, or accounting principles. During the fiscal year
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.
There have been no other events which require disclosure under Item 304
of Regulation S-K.
<PAGE> 21
PART III
- --------
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
- ------------------------------------------------------------
The directors of the registrant are identified on pages 24 and 25 of
this report. Additional material responsive to this item is contained in the
Company's definitive Proxy Statement for its 1997 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 1995-1997 Chairman and Chief Executive 64 1975
Officer of the Company, Chairman
of the Bank
1992-1995 Chairman and Chief Executive
Officer of the Company and
the Bank
Thomas A. Renyi 1995-1997 President of the Company and 51 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
1992 Senior Executive Vice President
and Chief Credit Officer of
the Bank
Alan R. Griffith 1994-1997 Vice Chairman of the Company 55 1990
and the Bank
1992-1994 Senior Executive Vice President
of the Company, and President
and Chief Operating Officer of
the Bank
Deno D. Papageorge 1992-1997 Senior Executive Vice President 58 1980
of the Company, Senior Executive
Vice President and Chief
Financial Officer of the Bank
Richard D. Field 1992-1997 Executive Vice President of the 56 1987
Company, Senior Executive Vice
President of the Bank
Robert E. Keilman 1992-1997 Comptroller of the Company and 51 1984
the Bank, Senior Vice President
of the Bank
Phebe C. Miller 1995-1997 Secretary and Chief Legal 47 1995
Officer of the Company, Senior
Vice President and Chief Legal
Officer of the Bank
1994-1995 Senior Vice President of the Bank
1992-1994 Managing Director, General
Counsel and Secretary, Discount
Corporation of New York
Robert J. Goebert 1992-1997 Auditor of the Company, Senior 55 1982
Vice 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 1994-1997 Senior Executive Vice President 45 1990
and Chief Commercial Banking
Officer
1992-1994 Executive Vice President - Special
Industries Banking
Robert J. Mueller 1992-1997 Senior Executive Vice President - 55 1989
Chief Credit Policy Officer
1992 Executive Vice President - Mortgage
& Construction Lending
Newton P.S. Merrill 1994-1997 Senior Executive Vice President - 57 1994
Trust, Investment Management and
Private Banking
1992-1993 Senior Executive Vice President -
The Bank of Boston
Donald R. Monks 1996-1997 Senior Executive Vice President - 48 1996
Operations and Technology
1996 Executive Vice President -
Product Management, Bank
Operations, Banking Technology
1995-1996 Executive Vice President - Product
Management, Banking Technology
1993-1995 Executive Vice President - Product
Management, Stock Transfer
Business Unit
1992-1993 Executive Vice President - Product
Management
Richard A. Pace 1992-1997 Executive Vice President and Chief 51 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 1997 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 1997 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 1997 Annual Meeting of Shareholders is incorporated by
reference.
<PAGE> 23
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.
(a) 3 Listing of Exhibits:
A list of the exhibits filed or incorporated by reference appears
following page 25 of this Report, which information is incorporated by
reference.
(b) Reports on Form 8-K:
October 15, 1996: Unaudited interim financial information and
accompanying discussion for the third quarter of 1996.
December 10, 1996: Announcement of the approval by the Board of
Directors of a plan to buy back, through the end of 1997, up to
30 million common shares.
December 19, 1996: Pricing Agreement, a Certificate Representing
the Company's 7.97% Junior Subordinated Deferrable Interest
Debentures, Series B, and a Form of Certificate Representing BNY
Capital I's 7.97% Capital Securities, Series B; related to the
issuance by BNY Capital I of 300,000 of its 7.97% Capital
Securities, Series B.
January 16, 1997: Unaudited interim financial information and
accompanying discussion for the fourth quarter of 1996.
(c) Exhibits:
Submitted as a separate section of this report.
(d) Financial Statements Schedules:
None
<PAGE> 24
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 11th day of March, 1997.
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 11th day of March,
1997.
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
- ----------------------------------- and Director
(Deno D. Papageorge) (principal financial officer)
\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\ Ralph E. Gomory Director
- ------------------------------------
(Ralph E. Gomory)
\s\ Alan R. Griffith Vice Chairman
- ------------------------------------ and Director
(Alan R. Griffith)
<PAGE> 25
\s\ Edward L. Hennessy, Jr. Director
- ------------------------------------
(Edward L. Hennessy, Jr.)
\s\ Richard J. Kogan Director
- ------------------------------------
(Richard J. Kogan)
\s\ John A. Luke, Jr. Director
- ------------------------------------
(John A. Luke, Jr.)
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> 26
INDEX TO EXHIBITS
Exhibit No.
- ------------
The Bank of New York Company, Inc.'s Restated Certificicate of Incorporation,
as amended, By-Laws, Instruments Defining the Rights of Securities Holders,
and certain other material contracts, including employee benefit plans and
indentures and constituent instruments, have been previously filed with the
Securities and Exchange Commission as exhibits to various registration
statements and periodic reports of the Company.
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 instrument.
10 (a) Amendment to The Bank of New York Company, Inc. Supplemental
Executive Retirement Plan dated June 11, 1996.
(b) Amendment to The Bank of New York Company, Inc. Supplemental
Executive Retirement Plan dated November 12, 1996.
(c) Amendment dated January 31, 1997 to the Trust Agreement dated
April 19, 1988 related to executive compensation agreements.
(d) Amendment dated January 14, 1997 to the Trust Agreement dated
November 16, 1993 related to executive compensation agreements.
(e) Amendment dated January 31, 1997 to the Trust Agreement dated
November 16, 1993 related to executive compensation agreements.
(f) Amendment dated January 31, 1997 to the Trust Agreement dated
December 15, 1994 related to certain executive compensation plans
and agreements.
(g) Amendment to the 1993 Long-Term Incentive Plan of The Bank of New
York Company, Inc. dated December 10, 1996.
(h) Amendment to the 1993 Long-Term Incentive Plan of The Bank of New
York Company, Inc. dated January 14, 1997.
(i) Amendment to the 1993 Long-Term Incentive Plan of The Bank of New
York Company, Inc. dated March 11, 1997.
(j) Amendment to the Directors' Deferred Compensation Plan of The Bank
of New York Company, Inc. dated February 11, 1997.
11 Statement - Re: Computation of Per Common Share Earnings
12 Statement - Re: Computation of Earnings to Fixed Charges Ratios
13 Portions of the 1996 Annual Report to Shareholders
21 Subsidiaries of the Registrant
23.1 Consent of Ernst & Young LLP
23.2 Consent of Deloitte & Touche LLP
27 Financial Data Schedule
99 Opinion of Deloitte & Touche LLP
<PAGE> 1
Exhibit 10(a)
AMENDMENT TO
THE BANK OF NEW YORK COMPANY, INC.
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
WHEREAS, The Bank of New York Company, Inc.
Supplemental Executive Retirement Plan (the "Plan") was
adopted by the Board of Directors of The Bank of New York
Company, Inc., effective as of June 9, 1992; and
WHEREAS, Section 9 of the Plan provides that the
Compensation Committee of the Board of Directors may amend
the Plan at any time, except in certain respects not material
hereto; and
WHEREAS, the Compensation Committee desires to
amend the Plan;
NOW, THEREFORE, the Plan is hereby amended in the
following respects, effective as of July 1, 1996:
1. Section 3 of the Plan is amended by amending
the first sentence thereof to read as follows:
The Committee shall determine in its sole discretion
which employees of the Company who are members of the
Retirement Plan shall become Participants in the Plan.
2. Section 4 of the Plan is amended by amending
the second paragraph thereof to read as follows:
The spouse of a Participant whose death occurs
while an active employee of the Company shall be
entitled to the Benefit provided under the Plan if such
spouse is entitled to a benefit under the Retirement
Plan.
3. Section 5(b) of the Plan is amended by amending
the second sentence thereof to read as follows:
<PAGE> 2
If the Committee determines that any other Participant
whose employment terminates prior to attaining age 60,
other than by reason of death, is entitled to a Benefit
under the Plan, the amount thereof shall in the
discretion of the Committee be equal to:
(i) the amount provided in paragraph (a) of
this Section, subject to reduction (if any) in
accordance with the provisions of the Retirement
Plan for payment as of such date as determined by
the Committee; or
(ii) the difference between (x) the sum of
(1) 1.5% of the Participant's Average Final Salary
multiplied by his years of Credited Service prior
to January 1, 1976 and (2)(A) 1.65% of the
Participant's Average Final Salary multiplied by
his years of Credited Service after December 31,
1975, reduced by (B) an amount equal to 1.25% of
the Participant's Primary Social Security Benefit
multiplied by his years of Credited Service after
December 31, 1975 not in excess of 40 years and
(y) the sum of (1) the annual retirement benefit
payable to the Participant under the Retirement
Plan at age 60 and (2) the equivalent actuarial
value of the Participant's account under the
Employee Stock Ownership Plan of The Bank of New
York Company, Inc.; based on the date of payment
(or commencement of payment) pursuant to
paragraph of this Section, such difference
shall be subject to reduction (if any) in
accordance with the provisions of the Retirement
Plan as if the Participant had retired thereunder
on or after attaining age 55 and, if so determined
by the Committee, as if the Participant had
completed at least 20 years of Continuous Service.
4. Section 5(c) of the Plan is amended in its
entirety to read as follows:
(c) Payment of the Benefit to a Participant shall
be made in the form of a lump sum, unless the
Participant elects in writing in accordance with rules
established by the Committee to receive payment in
eleven annual installments. Unless the Committee, in
its discretion, directs payment at a different time,
payment shall be made or commenced within 30 days after:
<PAGE> 3
(i) the Participant's termination of
employment with the Company, if his employment
terminates on or after the date he attains age 60,
other than by reason of death,
(ii) the first day of the month coinciding
with or following the later of the date the
Participant attains age 55 or the date of the
Participant's termination of employment, if the
Participant is listed on Exhibit A and his
employment terminates prior to attaining age 60,
other than by reason of death, or
(iii) as of such date as determined by the
Committee, if the Committee determines that a
Participant who is not listed on Exhibit A and
whose employment terminates prior to attaining
age 60, other than by reason of death, is entitled
to a Benefit under the Plan.
A Participant's election must be made prior to the
beginning of the year before the year in which the
Participant's employment terminates, unless the election
is made no later than November 15, 1996. In the event
of the Participant's death after installment payments
have commenced, the remaining value of the Participant's
Benefit shall be paid in a lump sum to the beneficiary
or beneficiaries designated by him (or, if no
beneficiary is designated or survives the Participant,
to the Participant's estate) within 90 days after his
death.
In the event of the Participant's death while an
active employee of the Company, payment of a Benefit to
a Participant's spouse shall, unless the Committee, in
its discretion, directs payment in a different form or
at a different time, be made in a lump sum within
30 days after the latest of:
(i) the date of the Participant's death, or
(ii) the date on which benefits are payable to
the Participant's spouse under the Retirement Plan.
Lump sum payments under this paragraph (c) shall be
the actuarial equivalent of the Benefit, as determined
based on the actuarial assumptions in effect under the
Retirement Plan as of the date of payment. Installment
payments under this paragraph (c) shall be actuarially
equivalent to the lump sum payment of a Benefit, as
<PAGE> 4
determined based on the actuarial assumptions referred
to in the preceding sentence.
Notwithstanding anything contained herein to the
contrary, in the event of a change of control of the
Company (as defined below) (i) the Benefit to a
Participant (including any remaining installments) shall
be paid in a lump sum and the Committee may not direct
that payment be made at a different time and (ii) the
Committee may not direct payment of a Benefit to a
Participant's spouse in a different form or at a
different time. For purposes of this Section, a "change
of control" of the Company shall mean a change in
control of a nature that would be required to be
reported in response to Item 1(a) of the Current Report
on Form 8-K, as in effect on March 9, 1993, pursuant to
Sections 13 or 15(d) of the Securities Exchange Act of
1934; provided that, without limitation, such change of
control shall be deemed to occur if (A) any "person" (as
such term is defined in Section 3(a)(9) and as used in
Sections 13(d) and 14(d) of the Securities Exchange Act
of 1934, as amended (the "Exchange Act")), excluding The
Bank of New York Company, Inc. or any of its sub-
sidiaries, a trustee or any fiduciary holding securities
under an employee benefit plan of The Bank of New York
Company, Inc. or any of its subsidiaries, an underwriter
temporarily holding securities pursuant to an offering
of such securities or a corporation owned, directly or
indirectly, by stockholders of The Bank of New York
Company, Inc. in substantially the same proportion as
their ownership of The Bank of New York Company, Inc.,
is or becomes the "beneficial owner" (as defined in Rule
13d-3 under the Exchange Act), directly or indirectly,
of securities of The Bank of New York Company, Inc.
representing 25% or more of the combined voting power of
the then outstanding securities of The Bank of New York
Company, Inc. ("Voting Securities"); or (B) during any
period of not more than two years, individuals who
constitute the Board of Directors of The Bank of New
York Company, Inc. as of the beginning of the period and
any new director (other than a director designated by a
person who has entered into an agreement with The Bank
of New York Company, Inc. to effect a transaction
described in clause (A) or (C) of this sentence) whose
election by the Board of Directors of The Bank of New
York Company, Inc. or nomination for election by the
shareholders of The Bank of New York Company, Inc. was
approved by a vote of at least two-thirds (2/3) of the
directors then still in office who either were directors
at such time or whose election or nomination for
election was previously so approved, cease for any
<PAGE> 5
reason to constitute a majority thereof; or the
shareholders of The Bank of New York Company, Inc.
approve a merger or consolidation of The Bank of New
York Company, Inc. with any other corporation, other
than a merger or consolidation which would result in the
Voting Securities of The Bank of New York Company, Inc.
outstanding immediately prior thereto continuing to
represent (either by remaining outstanding or by being
converted into Voting Securities of the surviving
entity) at least 60% of the combined voting power of the
Voting Securities of The Bank of New York Company, Inc.
or such surviving entity outstanding immediately after
such merger or consolidation, or the shareholders of The
Bank of New York Company, Inc. approve a plan of
complete liquidation of The Bank of New York Company,
Inc. or any agreement for the sale or disposition by The
Bank of New York Company, Inc. or all or substantially
all of the assets of The Bank of New York Company, Inc.
IN WITNESS WHEREOF, The Bank of New York Company,
Inc. has caused this Amendment to be executed by its duly
authorized officers this 11th day of June, 1996.
---- ----
/s/ Thomas A. Renyi
-------------------
ATTEST:
/s/ Jacqueline R. McSwiggan
- ----------------------------
Assistant Secretary
<PAGE> 1
Exhibit 10(b)
AMENDMENT TO
THE BANK OF NEW YORK COMPANY, INC.
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
WHEREAS, The Bank of New York Company, Inc.
Supplemental Executive Retirement Plan (the "Plan") was
adopted by the Board of Directors of The Bank of New York
Company, Inc., effective as of June 9, 1992; and
WHEREAS, Section 9 of the Plan provides that the
Board of Directors may amend the Plan at any time, except in
certain respects not material hereto; and
WHEREAS, the Board of Directors desires to amend
the Plan;
NOW, THEREFORE, the Plan is hereby amended in the
following respects, effective as of November 12, 1996, except
as otherwise provided herein:
1. Sections 2(c) and (d) of the Plan are
redesignated as Sections 2(d) and (e), respectively, and a
new Section 2(c) is added to the Plan to read as follows:
(c) "Beneficiary" means the person or persons
designated by the Participant on a form approved by the
Committee which is filed with the Committee prior to the
Participant's death. Such designation may be revoked or
changed by the Participant by filing a new form with the
Committee prior to the Participant's death. In the
event of the death of a Participant who has not
designated a Beneficiary, or if no Beneficiary survives
the Participant, then the Participant's Beneficiary
shall be (I) the spouse of the Participant, if he is
married on the date of his death or (ii) the estate of
the Participant if he is not married on his death.
2. Section 4 of the Plan is amended by amending
the second and third paragraphs thereof to read as follows:
<PAGE> 2
The Beneficiary of a Participant whose death occurs
while an active employee of the Company shall be
entitled to the Benefit provided under the Plan.
The Benefit provided under this Plan is in addition
to any other retirement benefits provided by the Company
to a Participant or, if applicable, his Beneficiary.
3. Section 5(b) of the Plan is amended by deleting
the third sentence thereof in its entirety.
4. Section 5(c) of the Plan is amended by deleting
the last sentence of the first paragraph thereof and
substituting therefor the following:
In the event of the Participant's death after
installment payments have commenced, the remaining value
of the Participant's Benefit shall be paid in a lump
sum, within 90 days after the Participant's death, to
his Beneficiary.
5. Section 5(c) of the Plan is amended by amending
the second paragraph thereof to read as follows:
In the event of the Participant's death while an
active employee of the Company, payment of a Benefit to
the Participant's Beneficiary shall, unless the
Committee in its discretion directs payment in a
different form or a different time, be made in a lump
sum within 90 days after the Participant's death.
6. Exhibit A of the Plan is amended, effective as
of April 25, 1994, by adding the following Participant:
Newton P. S. Merrill
7. Exhibit A of the Plan is amended, effective as
of April 11, 1995, by adding the following Participant:
Gerald L. Hassell
<PAGE> 3
IN WITNESS WHEREOF, The Bank of New York Company,
Inc. has caused this Amendment to be executed by its duly
authorized officers this 12th day of November, 1996.
---- --------
/s/ Thomas A. Renyi
-------------------------
ATTEST:
/s/ Jacqueline R. McSwiggan
- ----------------------------
Assistant Secretary
<PAGE> 1
Exhibit 10(c)
AMENDMENT NUMBER TWO
TO
GRANTOR TRUST AGREEMENT
THIS AGREEMENT, made as the thirty-first of January, 1997,
by and between THE BANK OF NEW YORK, INC., a corporation
organized and existing under the laws of State of New York
(hereinafter referred to as the "Company"), and THE CHASE
MANHATTAN BANK (successor by merger to United States Trust
Company of New York), a corporation organized and existing under
the laws of the New York (hereinafter referred to as the
"Trustee"),
W I T N E S S E T H :
WHEREAS, the Company and the United States Trust Company of
New York entered into a Grantor Trust Agreement dated as of April
19, 1988 (as amended from time to time, the "Agreement");
WHEREAS, United States Trust Company of New York merged into
The Chase Manhattan Bank, N.A. on September 2, 1995 and assumed
by operation of law the obligations of United States Trust
Company of New York under the Agreement;
WHEREAS, The Chase Manhattan Bank, N.A. merged into Chemical
Bank on July 1, 1996 and Chemical Bank was renamed The Chase
Manhattan Bank and assumed by operation of law the obligations of
The Chase Manhattan Bank, N.A. under the Agreement;
WHEREAS, Article TWELFTH of the Agreement provides that the
Company may amend the Agreement; and
WHEREAS, the Company desires to amend the agreement;
NOW, THEREFORE, the Company and the Trustee agree as
follows, effective February 1, 1997:
1. The Agreement and exhibits thereto are amended by deleting
the name "United States Trust Company of New York" each time it
appears therein and substituting therefor the name "The Chase
Manhattan Bank".
2. Exhibit I to the Agreement is amended by deleting Exhibit I
in its entirety and substituting therefor Exhibit I in the form
attached hereto.
IN WITNESS WHEREOF, the parties hereto have caused this agreement
to be executed in their respective names by their duly
<PAGE> 2
authorized officers under their corporate seals as of the day and year first
above written.
ATTEST: THE BANK OF NEW YORK COMPANY, INC.
/s/ Thomas E. Angers By: /s/ Deno D. Papageorge
- ----------------------- --------------------------------
Deno D. Papageorge
Senior Executive Vice President
ATTEST: THE CHASE MANHATTAN BANK
By: /s/ Martha C. Dolan
--------------------------------
Name: MARTHA C. DOLAN
Title: VICE PRESIDENT
<PAGE> 3
EXHIBIT I
---------
1. The Bank of New York Company, Inc. Excess Benefit Plan
2. Severance Agreements between The Bank of New York
Company, Inc. and the following individuals:
Individual Date of Agreement
---------- -----------------
J. Carter Bacot May 17, 1982
Deno D. Papageorge May 17, 1982
<PAGE> 1
Exhibit 10(d)
AMENDMENT NUMBER FIVE
TO
GRANTOR TRUST AGREEMENT
THIS AGREEMENT, made as of the fourteenth of January, 1997,
by and between THE BANK OF NEW YORK COMPANY, INC., a
corporation organized under the laws of the State of New
York (hereinafter referred to as the "Company"), and THE
CHASE MANHATTAN BANK, a corporation organized and existing
under the laws of the New York (hereinafter referred to as
the "Trustee"),
W I T N E S S E T H:
WHEREAS, the Company and the Trustee entered into a
Grantor Trust Agreement dated as of November 16, 1993 (as
amended from time to time, the "Agreement");
WHEREAS, The Chase Manhattan Bank, N.A. has merged
into Chemical Bank which was renamed The Chase Manhattan
Bank and which has assumed The Chase Manhattan Bank, N.A.'s
obligations under the Agreement by operation of law;
WHEREAS, Article TWELFTH of the Agreement provides
that the Company may amend the Agreement; and
WHEREAS, the Company desires to amend Exhibit I to the
Agreement;
NOW, THEREFORE, the Company and the Trustee agree
that the Agreement is amended as follows, effective
January 14, 1997:
Exhibit I to the Agreement is hereby amended by
deleting Exhibit I in its entirety and substituting
therefor Exhibit I in the form attached hereto.
IN WITNESS WHEREOF, the parties hereto have caused
this agreement to be executed in their respective names by
their duly authorized officers under their corporate seals
as of the day and year first written above.
ATTEST: THE BANK OF NEW YORK COMPANY, INC.
\s\ Thomas E. Angers \s\ Deno D. Papageorge
- --------------------- -----------------------------------
Deno D. Papageorge
Senior Executive Vice President
<PAGE> 2
ATTEST: THE CHASE MANHATTAN BANK
\s\ Peter Coghill AVP By: \s\ Martha C. Dolan
- --------------------- -----------------------
Vice President
<PAGE> 3
EXHIBIT I
---------
1. The Bank of New York Company, Inc. Excess Benefit Plan
2. The Bank of New York Company, Inc. Supplemental
Executive Retirement Plan
3. Agreements between The Bank of New York Company, Inc.
and the following persons:
Individual Date of Agreement
---------- -----------------
Samuel F. Chevalier October 11, 1994
Richard D. Field October 11, 1994
Alan R. Griffith October 11, 1994
Joseph A. Grimaldi April 11, 1995
Gerald L. Hassell April 11, 1995
Newton P.S. Merrill October 11, 1994
Donald R. Monks January 14, 1997
Robert J. Mueller October 11, 1994
Richard A. Pace October 11, 1994
Thomas A. Renyi October, 11, 1994
<PAGE> 1
Exhibit 10(e)
AMENDMENT NUMBER SIX
TO
GRANTOR TRUST AGREEMENT
THIS AGREEMENT, made as the thirty-first of January, 1997,
by and between THE BANK OF NEW YORK, INC., a corporation
organized and existing under the laws of State of New York
(hereinafter referred to as the "Company"), and THE CHASE
MANHATTAN BANK (successor by merger to United States Trust
Company of New York), a corporation organized and existing under
the laws of the New York (hereinafter referred to as the
"Trustee"),
W I T N E S S E T H :
WHEREAS, the Company and the United States Trust Company of
New York entered into a Grantor Trust Agreement dated as of
November 16, 1993 (as amended from time to time, the
"Agreement");
WHEREAS, United States Trust Company of New York merged into
The Chase Manhattan Bank, N.A. on September 2, 1995 and assumed
by operation of law the obligations of United States Trust
Company of New York under the Agreement;
WHEREAS, The Chase Manhattan Bank, N.A. merged into Chemical
Bank on July 1, 1996 and Chemical Bank was renamed The Chase
Manhattan Bank and assumed by operation of law the obligations of
The Chase Manhattan Bank, N.A. under the Agreement;
WHEREAS, Article TWELFTH of the Agreement provides that the
Company may amend the Agreement; and
WHEREAS, the Company desires to amend the agreement;
NOW, THEREFORE, the Company and the Trustee agree as
follows, effective February 1, 1997:
1. The Agreement and exhibits thereto are amended by deleting
the name "United States Trust Company of New York" each time
it appears therein and substituting therefor the name "The
Chase Manhattan Bank".
2. Exhibit I to the Agreement is amended by deleting Exhibit I
in its entirety and substituting therefor Exhibit I in the
form attached hereto.
IN WITNESS WHEREOF, the parties hereto have caused this agreement
to be executed in their respective names by their duly
<PAGE> 2
authorized officers under their corporate seals as of the day and year first
above written.
ATTEST: THE BANK OF NEW YORK COMPANY, INC.
/s/ Thomas E. Angers By: /s/ Deno D. Papageorge
- ----------------------- --------------------------------
Deno D. Papageorge
Senior Executive Vice President
ATTEST: THE CHASE MANHATTAN BANK
By: /s/ Martha C. Dolan
--------------------------------
Name: MARTHA C. DOLAN
Title: VICE PRESIDENT
<PAGE> 3
EXHIBIT I
---------
1. The Bank of New York Company, Inc. Excess Benefit Plan
2. The Bank of New York Company, Inc. Supplemental
Executive Retirement Plan
3. Agreements between The Bank of New York Company, Inc.
and the following persons:
Individual Date of Agreement
---------- -----------------
Richard D. Field October 11, 1994
Alan R. Griffith October 11, 1994
Joseph A. Grimaldi April 11, 1995
Gerald L. Hassell April 11, 1995
Newton P.S. Merrill October 11, 1994
Donald R. Monks January 14, 1997
Robert J. Mueller October 11, 1994
Richard A. Pace October 11, 1994
Thomas A. Renyi October 11, 1994
<PAGE> 1
Exhibit 10(f)
AMENDMENT NUMBER ONE
TO
GRANTOR TRUST AGREEMENT
THIS AGREEMENT, made as of the thirty-first of
January, 1997, by and between THE BANK OF NEW YORK COMPANY,
INC., a corporation organized under the laws of the State
of New York (hereinafter referred to as the "Company"), and
THE CHASE MANHATTAN BANK (successor by merger to United
States Trust Company of New York), a corporation organized
and existing under the laws of the New York (hereinafter
referred to as the "Trustee"),
W I T N E S S E T H:
WHEREAS, the Company and the United States Trust
Company of New York entered into a Grantor Trust Agreement
dated as of December 15, 1994 (as amended from time to
time, the "Agreement");
WHEREAS, United States Trust Company of New York
merged into The Chase Manhattan Bank, N.A. on September 2,
1995 and assumed by operation of law the obligations of
United States Trust Company of New York under the
Agreement;
WHEREAS, The Chase Manhattan Bank, N.A. merged into
Chemical Bank on July 1, 1996 and Chemical Bank was renamed
The Chase Manhattan Bank and assumed by operation of law
the obligations of The Chase Manhattan Bank, N.A. under the
Agreement;
WHEREAS, Article TWELFTH of the Agreement provides
that the Company may amend the Agreement; and
WHEREAS, the Company desires to amend the Agreement;
NOW, THEREFORE, the Company and the Trustee agree as
follows, effective February 1, 1997:
1. The Agreement and the exhibits thereto are amended by
deleting the name"United States Trust Company of New
York" each time it appears therein and substituting
therefor the name "The Chase Manhattan Bank".
IN WITNESS WHEREOF, the parties hereto have caused
this agreement to be executed in their respective names by
their duly
<PAGE> 2
authorized officers under their corporate seals
as of the day and year first written above.
ATTEST: THE BANK OF NEW YORK COMPANY, INC
\s\ Thomas E. Angers By: \s\ Deno D. Papageorge
- --------------------- -------------------------------
Deno D. Papageorge
Senior Executive Vice President
ATTEST: THE CHASE MANHATTAN BANK
By: \s\ Martha C. Dolan
-----------------------
Name: Martha C. Dolan
Title: Vice President
Exhibit 10(g)
AMENDMENT TO THE 1993 LONG-TERM INCENTIVE PLAN OF
-------------------------------------------------
THE BANK OF NEW YORK COMPANY, INC.
----------------------------------
WHEREAS, the 1993 Long-Term Incentive Plan of The Bank of
New York Company, Inc. (the "Plan") was established, effective as
of January 1, 1993; and
WHEREAS, Section 17 of the Plan provides that the Board of
Directors of The Bank of New York Company, Inc. may amend the
Plan at any time; and
WHEREAS, the Board of Directors desires to amend the Plan.
NOW, THEREFORE, IT IS RESOLVED that the Plan is hereby
amended, effective as of December 10, 1996, by the addition of a
sentence at the end of Section 5 therein to read as follows:
In addition, the Committee may from time to time deem other
employees of the Company or its subsidiaries eligible to
participate in the Plan to receive awards of nonstatutory
stock options.
AND IT IS FURTHER RESOLVED, that the appropriate officers of
the Company are authorized and directed to deliver such documents
and to perform such other acts as may, in the opinion of the
officer or officers so acting, be deemed necessary or desirable
to carry out the foregoing resolution.
IN WITNESS WHEREOF, The Bank of New York Company, Inc.
has caused this Amendment to be executed by its duly authorized
officers this 10 day of December, 1996.
-- -------- -
/s/ Alan R. Griffith
ATTEST: --------------------
/s/ Jacqueline R. McSwiggan
- ----------------------------
Assistant Secretary
<PAGE> 1
Exhibit 10(h)
AMENDMENT TO THE 1993 LONG-TERM INCENTIVE PLAN OF
-------------------------------------------------
THE BANK OF NEW YORK COMPANY, INC.
----------------------------------
WHEREAS, the 1993 Long-Term Incentive Plan of The Bank of
New York Company, Inc. (the "Plan") was adopted by the Board of
Directors of The Bank of New York Company, Inc. (the "Company"),
effective as of January 1, 1993; and
WHEREAS, Section 17 of the Plan provides that the Board of
Directors of the Company may amend the Plan at any time; and
WHEREAS, the Board of Directors of the Company desires to
adopt an amendment to the Plan.
NOW, THEREFORE, IT IS RESOLVED that the Plan is hereby
amended in the following respects, effective as of January 14,
1997:
1. Section 2 of the Plan is amended by the addition of the
following prior to the definition of "Exchange Act":
"Covered Employee" means, at the time of an Award (or
such other time as required or permitted by Section
162(m) of the Internal Revenue Code) (i) the Company's
Chief Executive Officer (or an individual acting in such
capacity), (ii) any employee of the Company or its
subsidiaries who, in the discretion of the Committee for
purposes of determining those employees who are "covered
employees" under Section 162(m) of the Internal Revenue
Code, is likely to be among the four other highest
compensated officers of the Company for the year in which an
Award is made or payable, and (iii) any other employee of
the Company or its subsidiaries designated by the Committee
in its discretion.
2. Section 3 of the Plan is amended by amending the second
paragraph thereof to read as follows:
Shares of Stock subject to an Award that, in whole or in
part, expires unexercised or that is forfeited, terminated
or canceled or is paid in cash in lieu of Stock, and shares
of Common Stock owned by the Participant that are tendered
to pay for the exercise of a stock option in accordance with
Section 7 shall thereafter again be available for grant
under the Plan.
3. Section 6 of the Plan is amended by inserting the words
"stock awards," immediately preceding the words "stock options"
in the first sentence thereof.
<PAGE> 2
4. Sections 7 through 18 of the Plan are renumbered as Sections
8 through 19, respectively, and a new Section 7 is added to the
Plan to read as follows:
7. STOCK AWARDS. Awards of Stock may be granted in the
form of actual shares of Common Stock. At the discretion
of the Committee, a stock certificate may be issued in
respect of Stock Awards or a book entry of the Stock Award
may be made. If a certificate is issued, such certificate
shall be registered in the name of and be delivered to the
Participant. Full ownership of such shares, whether issued
in the form of a certificate or in book entry, including
the right to vote and receive dividends, shall immediately
vest in such Participant.
5. Section 8 (as renumbered) is amended by the addition of the
following at the end thereof:
In no event may any Participant receive stock options with
respect to more than 500,000 shares of Stock in any
calendar year beginning after December 31, 1996, increased
in each subsequent calendar year by the difference between
500,000 and the number of shares subject to stock options
granted to the Participant under the Plan in each calendar
year after December 31, 1996.
6. Section 10 (as renumbered) is amended by the addition of
the following at the end thereof:
Awards of performance shares to a Covered Employee
shall (unless the Committee determines otherwise) be
subject to performance conditions based on the achievement
(i) by the Company or a business unit of a specified target
operating or net income or return on assets, (ii) by the
Company or a business unit of specified target earnings per
share or return on equity, (iii) of a targeted total
shareholder return or (iv) any combination of the
conditions set forth in (i) and (ii) above. If an Award of
performance shares is made on such basis, the Committee
shall establish the relevant performance conditions within
90 days after the commencement of the performance period
(or such later date as may be required or permitted by
Section 162 (m) of the Internal Revenue Code). The
Committee may, in its discretion, reduce or eliminate the
amount of payment with respect to an Award of performance
shares to a Covered Employee, notwithstanding the
achievement of a specified performance condition. The
maximum number of performance shares subject to any Award
to a Covered Employee is 300,000 for each 12 months during
the performance period (or, to the extent the Award is paid
in cash, the maximum dollar amount of any such Award is the
equivalent cash value of such number of Shares at the
closing price on the last trading day of the performance
period). For purposes of the immediately preceding
sentence, "trading day" shall mean a day in which the
Shares are traded on the New York Stock Exchange. An Award
of performance shares to a Participant who is a Covered
Employee shall (unless the Committee determines otherwise)
provide that in the event of the Participant's termination
of employment prior to the end of
<PAGE> 3
the performance period for any reason, such Award will be
payable only (A) if the applicable performance conditions
are achieved and (B) to the extent, if any, as the
Committee shall determine.
7. Section 15 of the Plan (as renumbered) is amended by the
addition of the following at the end thereof:
Notwithstanding the immediately preceding sentence, the
Committee may, subject to the terms and conditions it may
specify, permit a Participant to transfer any nonstatutory
stock options granted to him pursuant to the Plan to one or
more of his immediate family members or to trusts
established in whole or in part for the benefit of the
Participant and/or one or more of such immediate family
members. During the lifetime of the Participant, a
nonstatutory stock option shall be exercisable only by the
Participant or by the immediate family member or trust to
whom such stock option has been transferred pursuant to the
immediately preceding sentence. For purposes of the Plan,
(i) the term "immediate family" shall mean the Participant's
spouse and issue (including adopted and step children) and
(ii) the phrase "immediate family members and trusts
established in whole or in part for the benefit of the
Participant and/or one or more of such immediate family
members" shall be further limited, if necessary, so that
neither the transfer of a nonstatutory stock option to such
immediate family member or trust, nor the ability of a
Participant to make such a transfer shall have adverse
consequences to the Company or the Participant by reason of
Section 162(m) of the Internal Revenue Code.
IN WITNESS WHEREOF, The Bank of New York Company, Inc. has
caused this Amendment to be executed by its duly authorized
officers this 14th day of January, 1997.
----- -------
/s/ Alan R. Griffith
---------------------
ATTEST:
/s/ Jacqueline R. McSwiggan
- ----------------------------
Assistant Secretary
Exhibit 10(i)
AMENDMENT TO THE 1993 LONG-TERM INCENTIVE PLAN OF
-------------------------------------------------
THE BANK OF NEW YORK COMPANY, INC.
----------------------------------
WHEREAS, the 1993 Long-Term Incentive Plan of The Bank of
New York Company, Inc. (the "Plan") was established, effective as
of January 1, 1993; and
WHEREAS, Section 17 of the Plan provides that the Board of
Directors of The Bank of New York Company, Inc. may amend the
Plan at any time; and
WHEREAS, the Board of Directors desires to amend the Plan.
NOW, THEREFORE, IT IS RESOLVED that the Plan is hereby
amended, effective as of March 11, 1997, by replacing the last
sentence of Section 8 therein with the following:
In no event may any Participant receive stock options with
respect to more than 750,000 shares of Stock in any calendar
year beginning after December 31, 1996.
AND IT IS FURTHER RESOLVED, that the appropriate officers of
the Company are authorized and directed to deliver such documents
and to perform such other acts as may, in the opinion of the
officer or officers so acting, be deemed necessary or desirable
to carry out the foregoing resolution.
IN WITNESS WHEREOF, The Bank of New York Company, Inc. has caused
this Amendment to be executed by its duly authorized officers
this 11 day of March, 1997.
--
/s/ Alan R. Griffith
---------------------
ATTEST:
/s/ Jacqueline R. McSwiggan
- ---------------------------
Assistant Secretary
<PAGE> 1
Exhibit 10(j)
AMENDMENT TO THE DIRECTORS'
DEFERRED COMPENSATION PLAN
OF THE BANK OF NEW YORK COMPANY, INC.
WHEREAS, the Deferred Compensation Plan for Non-
Employee Directors of The Bank of New York Company, Inc. (the
"Directors' Deferred Compensation Plan") was adopted by the
Board of Directors of The Bank of New York Company, Inc. (the
"Company"), effective as of December 1, 1993; and
WHEREAS, Section 7(a) of the Directors' Deferred
Compensation Plan provides that the Board of Directors of the
Company may amend the Plan at any time; and
WHEREAS, the Board of Directors of the Company
desires to adopt an amendment to the Directors' Deferred
Compensation Plan;
NOW, THEREFORE, the Directors' Deferred Compensation
Plan is hereby amended in the following respects:
1. Section 1(b) is amended in its entirety, effective as of
February 11, 1997, to read as follows:
(b) "Committee" means the Nominating Committee of the Board.
2. Section 5(a) of the Plan is amended in its entirety,
effective as of January 1, 1996, to read as follows:
(a) Payment of a Participant's Deferral Account shall be made or
commenced within 60 days after the Participant's retirement,
death, or other termination of service as a Director (other than
by reason of Disability), unless the Participant elects, prior to
the beginning of the year before the year in which such
retirement, death or termination of service occurs, that payment
shall be made during January of the year following the year of
such retirement, death or other termination of service. Payment
of the Deferral Account shall be made in a lump sum or in
substantially equal installments over a period not to exceed ten
years in accordance with the Participant's election made prior to
the beginning of the year before the year in which such
retirement or termination of service occurs.
IN WITNESS WHEREOF, The Bank of New York Company, Inc. has caused
this Amendment to be executed by its duly authorized officers
this 11 day of February, 1997.
/s/ Alan R. Griffith
---------------------
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,
1996 1995 1994
---- ---- ----
(in millions, except per share amounts)
Weighted Average Number of Shares 388 385 376
Shares Assumed to be Issued on Conversion:
Warrants 21 11 -
----- ----- -----
Weighted Average Number of Shares of
Common Stock for Primary Computation 409 396 376
Shares Assumed to be Issued on Conversion:
Debentures 7 18 24
Warrants 4 10 -
Cumulative Preferred Stock - - 4
----- ----- -----
Weighted Average Number of Shares of
Common Stock Assuming Full Dilution 420 424 404
===== ===== =====
Net Income $1,020 $ 914 $ 749
Dividend Requirements on Preferred Stock 10 10 13
------ ----- -----
Net Income Available to Common Shareholders 1,010 904 736
Interest On Convertible Debentures, Net of Tax 2 7 10
Dividends on Convertible Preferred Stock - - 2
------ ----- -----
Net Income Available to Common Shareholders,
Assuming Full Dilution $1,012 $ 911 $ 748
====== ===== =====
Earnings Per Share:
Primary $2.47 $2.29 $1.96
Fully Diluted 2.41 2.15 1.85
THE BANK OF NEW YORK COMPANY, INC.
Ratios of Earnings to Fixed Charges and Ratios
of Earnings to Combined Fixed Charges,
Distribution on Trust Preferred Securities,
and Preferred Stock Dividends
For The Years Ended December 31,
EARNINGS 1996 1995 1994 1993 1992
- -------- ---- ---- ---- ---- ----
(Dollars in millions)
Income Before Income Taxes $1,656 $1,482 $ 1,198 $ 886 $ 588
Fixed Charges, Excluding
Interest on Deposits 502 568 436 340 346
------ ------ ------ ------ ------
Income Before Income Taxes and
Fixed Charges Excluding
Interest on Deposits 2,158 2,050 1,634 1,226 934
Interest on Deposits 1,152 1,265 842 701 1,005
------ ------- ------ ------ ------
Income Before Income Taxes and
Fixed Charges, Including
Interest on Deposits $3,310 $3,315 $2,476 $1,927 $1,939
====== ======= ====== ====== ======
FIXED CHARGES
- -------------
Interest Expense, Excluding
Interest on Deposits $ 470 $ 537 $ 403 $ 305 $ 315
One-Third Net Rental Expense* 32 31 33 35 31
------ ------ ------ ------ ------
Total Fixed Charges, Excluding
Interest on Deposits 502 568 436 340 346
Interest on Deposits 1,152 1,265 842 701 1,005
------ ------ ------ ------ ------
Total Fixed Charges, Including
Interest on Deposits $1,654 $1,833 $1,278 $1,041 $1,351
====== ====== ====== ====== ======
DISTRIBUTION ON TRUST PREFERRED
SECURITIES, PRE-TAX BASIS $ 2 $ - $ - $ - $ -
- ------------------------------- ====== ====== ====== ====== ======
PREFERRED STOCK DIVIDENDS,
PRE-TAX BASIS $ 16 $ 16 $ 21 $ 40 $ 50
- -------------------------- ====== ====== ====== ====== ======
EARNINGS TO FIXED CHARGES RATIOS
- --------------------------------
Excluding Interest on Deposits 4.30x 3.61x 3.75x 3.61x 2.70x
Including Interest on Deposits 2.00 1.81 1.94 1.85 1.44
EARNINGS TO COMBINED FIXED CHARGES,
DISTRIBUTION ON TRUST PREFERRED
SECURITIES, & PREFERRED STOCK
DIVIDENDS RATIOS
- -----------------------------------
Excluding Interest on Deposits 4.15 3.51 3.58 3.23 2.36
Including Interest on Deposits 1.98 1.79 1.91 1.78 1.38
*The proportion deemed representative of the interest factor.
EXHIBIT 13
1996 Annual Report to Shareholders
<PAGE> 1
FINANCIAL HIGHLIGHTS
Dollars in millions,
except per share amounts 1996 1995 1994 1993 1992
Net Interest Income $ 1,961 $ 2,029 $ 1,717 $ 1,497 $ 1,367
Noninterest Income 2,130 1,491 1,289 1,319 1,183
Provision for Loan Losses 600 330 162 284 443
Noninterest Expense 1,835 1,708 1,646 1,646 1,519
Net Income 1,020 914 749 559 393
Net Income Available to
Common Shareholders 1,010 904 736 534 360
Return on Average Assets 1.90% 1.72% 1.49% 1.20% 0.85%
Return on Average Common
Shareholders' Equity 19.98 19.42 18.49 14.98 12.00
Common Dividend Payout Ratio 32.50 28.84 27.88 27.99 33.89
Per Common Share
Primary Earnings $ 2.47 $ 2.29 $ 1.96 $ 1.43 $ 1.05
Fully Diluted Earnings 2.41 2.15 1.85 1.36 1.00
Cash Dividends 0.84 0.68 0.55 0.43 0.38
Market Value at Year End 33.75 24.38 14.89 14.25 13.47
Averages
Securities $ 5,343 $ 5,260 $ 5,941 $ 6,352 $ 6,202
Loans 36,698 35,421 32,029 30,427 30,345
Total Assets 53,649 53,053 50,280 46,644 46,227
Deposits 36,599 36,061 34,041 32,837 33,237
Long-Term Debt 1,870 1,773 1,530 1,729 1,386
Shareholders' Equity:
Preferred 113 115 157 334 409
Common 5,055 4,653 3,980 3,563 2,996
At Year End
Allowance for Loan Losses
as a Percent of Loans 2.43% 2.01% 2.40% 3.17% 3.63%
Tier 1 Capital Ratio 8.34 8.42 8.45 8.87 7.59
Total Capital Ratio 12.78 13.08 13.43 13.65 12.30
Leverage Ratio 8.87 8.46 7.89 7.99 7.11
Common Equity to Assets Ratio 8.99 9.53 8.55 8.29 7.30
Total Equity to Assets Ratio 9.19 9.74 8.79 8.94 8.24
Common Shares Outstanding
(in millions) 385.272 394.956 373.870 374.456 364.262
Employees 16,158 15,810 15,477 15,621 16,167
The per common share amounts and common shares outstanding have been restated
to reflect the 2-for-1 common stock splits effective July 19, 1996 and April
22, 1994.
<PAGE> 2
Consolidated Balance Sheets
- ------------------------------------------------------------------------------
Dollars in millions, except per share amounts December 31, 1996 1995
- ------------------------------------------------------------------------------
Assets
Cash and Due from Banks $ 6,032 $ 4,711
Interest-Bearing Deposits in Banks 1,387 982
Securities:
Held-to-Maturity (fair value $1,127
in 1996 and $1,164 in 1995) 1,170 1,252
Available-for-Sale 3,883 3,618
------- -------
Total Securities 5,053 4,870
Trading Assets 1,547 816
Federal Funds Sold and Securities Purchased
Under Resale Agreements 562 936
Loans (less allowance for loan losses of $901 in
1996 and $756 in 1995) 36,105 36,931
Premises and Equipment 875 902
Due from Customers on Acceptances 985 918
Accrued Interest Receivable 315 270
Other Assets 2,904 2,384
------- -------
Total Assets $55,765 $53,720
======= =======
Liabilities and Shareholders' Equity
Deposits:
Noninterest-Bearing (principally domestic offices) $11,812 $10,465
Interest-Bearing
Domestic Offices 15,268 16,005
Foreign Offices 12,263 9,448
------- -------
Total Deposits 39,343 35,918
Federal Funds Purchased and Securities
Sold Under Repurchase Agreements 1,737 3,933
Other Borrowed Funds 4,144 3,737
Acceptances Outstanding 1,015 928
Accrued Taxes and Other Expenses 1,417 1,378
Accrued Interest Payable 167 190
Other Liabilities 399 556
Long-Term Debt 1,816 1,848
------- -------
Total Liabilities 50,038 48,488
------- -------
Guaranteed Preferred Beneficial Interests in the Company's
Junior Subordinated Deferrable Interest Debentures 600 -
------- -------
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 40,429
shares in 1996 and 49,504 shares in 1995 1 2
Common Stock-par value $7.50 per share, authorized
800,000,000 shares, issued 444,317,786 shares in 1996
and 408,324,810 shares in 1995 3,332 3,062
Additional Capital 344 125
Retained Earnings 2,798 2,120
Securities Valuation Allowance 82 58
------- -------
6,668 5,478
Less: Treasury Stock (57,849,845 shares in 1996
and 12,052,096 shares in 1995), at cost 1,524 228
Loan to ESOP (1,195,719 shares in 1996 and
1,317,060 shares in 1995), at cost 17 18
------- -------
Total Shareholders' Equity 5,127 5,232
------- -------
Total Liabilities and Shareholders' Equity $55,765 $53,720
======= =======
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, 1996 1995 1994
- ------------------------------------------------------------------------------
Interest Income
Loans $3,073 $3,226 $2,405
Securities
Taxable 240 235 227
Exempt from Federal Income Taxes 37 43 56
------ ------ ------
277 278 283
Deposits in Banks 90 106 68
Federal Funds Sold and Securities
Purchased Under Resale Agreements 126 193 161
Trading Assets 17 28 45
------ ------ ------
Total Interest Income 3,583 3,831 2,962
------ ------ ------
Interest Expense
Deposits 1,152 1,265 842
Federal Funds Purchased and Securities
Sold Under Repurchase Agreements 155 161 106
Other Borrowed Funds 186 246 191
Long-Term Debt 129 130 106
------ ------ ------
Total Interest Expense 1,622 1,802 1,245
------ ------ ------
Net Interest Income 1,961 2,029 1,717
Provision for Loan Losses 600 330 162
------ ------ ------
Net Interest Income After Provision
for Loan Losses 1,361 1,699 1,555
------ ------ ------
Noninterest Income
Processing Fees
Securities 655 411 359
Other 206 189 171
------ ------ ------
861 600 530
Trust and Investment Fees 161 136 126
Service Charges and Fees 424 423 465
Securities Gains 97 115 15
Other 587 217 153
------ ------ ------
Total Noninterest Income 2,130 1,491 1,289
------ ------ ------
Noninterest Expense
Salaries and Employee Benefits 1,014 913 852
Net Occupancy 167 175 178
Furniture and Equipment 93 87 88
Other 561 533 528
------ ------ ------
Total Noninterest Expense 1,835 1,708 1,646
------ ------ ------
Income Before Income Taxes 1,656 1,482 1,198
Income Taxes 634 568 449
Distribution on Trust Preferred Securities 2 - -
------ ------ ------
Net Income $1,020 $ 914 $ 749
====== ====== ======
Net Income Available to Common
Shareholders $1,010 $ 904 $ 736
====== ====== ======
Per Common Share:
Primary Earnings $ 2.47 $ 2.29 $ 1.96
Fully Diluted Earnings 2.41 2.15 1.85
Cash Dividends 0.84 0.68 0.55
Fully Diluted Shares Outstanding 420 424 404
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, 1996 1995 1994
- ------------------------------------------------------------------------------
Preferred Stock
Balance, January 1 $ 113 $ 119 $ 294
Redemption (shares: 3,464,100 in 1994) - - (156)
Conversion of Preferred Stock (shares: 9,075 in
1996, 272,600 in 1995, and 763,311 in 1994) (1) (6) (19)
------ ------ ------
Balance, December 31 112 113 119
------ ------ ------
Common Stock
Balance, January 1 3,062 2,854 2,812
Issuance in Acquisition (shares: 8,879,026 in 1995) - 66 -
Conversion of Debentures (shares: 11,643,011 in 1996,
13,876,640 in 1995, and 47,050 in 1994) 87 104 -
Conversion of Preferred Stock (shares: 33,566 in 1996,
1,008,874 in 1995, and 2,824,152 in 1994) 1 8 22
Exercise of Warrants (shares: 21,001,648 in 1996,
136,972 in 1995, and 8,024 in 1994) 157 1 -
Other Issuances (shares: 3,314,751 in 1996,
3,996,654 in 1995, and 2,745,494 in 1994) 25 29 20
------ ------ ------
Balance, December 31 3,332 3,062 2,854
------ ------ ------
Additional Capital
Balance, January 1 125 - -
Acquisition - 76 -
Conversion of Debentures 27 32 -
Exercise of Warrants 168 1 -
Other 24 16 -
------ ------ ------
Balance, December 31 344 125 -
------ ------ ------
Retained Earnings
Balance, January 1 2,120 1,479 967
Net Income 1,020 914 749
Cash Dividends
Common Stock (328) (261) (205)
Preferred Stock (10) (11) (14)
Redemption of Preferred Stock - - (17)
Change in Accumulated Foreign
Currency Translation Adjustment (4) (1) (1)
------ ------ ------
Balance, December 31 2,798 2,120 1,479
----- ------ ------
Securities Valuation Allowance
Balance, January 1 58 (58) 1
Net Change in Fair Value of Securities
Available-for-Sale 24 116 (59)
------ ------ ------
Balance, December 31 82 58 (58)
------ ------ ------
Less Treasury Stock
Balance, January 1 228 78 5
Issued (shares: 1,878,924 in 1996, 2,523,744 in
1995, and 2,663,468 in 1994) (36) (37) (39)
Acquired (shares: 47,676,673 in 1996, 9,443,698
in 1995, and 7,449,214 in 1994) 1,332 187 112
------ ------ ------
Balance, December 31 1,524 228 78
------ ------ ------
Less Loan to ESOP
Balance, January 1 18 20 -
New Loan (shares: 1,425,390 in 1994) - - 20
Released (shares: 121,341 in 1996 and 108,330 in 1995) (1) (2) -
------ ------ ------
Balance, December 31 17 18 20
------ ------ ------
Total Shareholders' Equity, December 31 $5,127 $5,232 $4,296
====== ====== ======
See accompanying Notes to Consolidated Financial Statements.
<PAGE> 5
Consolidated Statements of Cash Flows
- ------------------------------------------------------------------------------
In millions For the years ended December 31, 1996 1995 1994
- ------------------------------------------------------------------------------
Operating Activities
Net Income $1,020 $ 914 $ 749
Adjustments to Determine Net Cash Attributable to
Operating Activities:
Provision for Losses on Loans and Other Real Estate 611 334 169
Gain on Sale of Loans (400) - -
Depreciation and Amortization 237 198 200
Deferred Income Taxes 100 237 271
Securities Gains (97) (115) (15)
Change in Trading Activities 52 270 947
Change in Accruals and Other, Net (611) 82 (232)
------ ------ ------
Net Cash Provided by Operating Activities 912 1,920 2,089
------ ------ ------
Investing Activities
Change in Interest-Bearing Deposits in Banks (427) 18 (711)
Purchases of Securities Held-to-Maturity (284) (493) (367)
Maturities of Securities Held-to-Maturity 347 760 684
Purchases of Securities Available-for-Sale (1,377) (923) (1,177)
Sales of Securities Available-for-Sale 603 932 1,985
Maturities of Securities Available-for-Sale 597 48 8
Net Principal Disbursed on Loans to Customers (3,411) (5,174) (3,039)
Sales of Loans and Other Real Estate 4,136 438 356
Change in Federal Funds Sold and Securities
Purchased Under Resale Agreements 373 2,120 (2,983)
Purchases of Premises and Equipment (47) (54) (43)
Proceeds from the Sale of Premises and Equipment 3 3 11
Acquisitions, Net of Cash Acquired (400) (168) (161)
Partial Sale of Unconsolidated Subsidiary 45 - 37
Other, Net (91) 89 (30)
------ ------ ------
Net Cash Provided (Used) by Investing Activities 67 (2,404) (5,430)
------ ------ ------
Financing Activities
Change In Deposits 3,522 1,148 1,814
Change in Federal Funds Purchased and Securities
Sold Under Repurchase Agreements (2,196) 2,431 (1,209)
Change in Other Borrowed Funds (376) (1,104) 1,352
Proceeds from the Issuance of Trust
Preferred Securities 600 - -
Proceeds from the Issuance of Long-Term Debt 100 203 297
Repayments of Long-Term Debt (16) (16) (115)
Redemption and Repurchases of Preferred
Stock and Warrants - - (177)
Issuance of Common Stock 410 87 42
Treasury Stock Acquired (1,332) (180) (112)
Cash Dividends Paid (338) (272) (219)
------ ------ ------
Net Cash Provided by Financing Activities 374 2,297 1,673
------ ------ ------
Effect of Exchange Rate Changes on Cash (32) (5) 60
------ ------ ------
Change in Cash and Due From Banks 1,321 1,808 (1,608)
Cash and Due from Banks at Beginning of Year 4,711 2,903 4,511
------ ------ ------
Cash and Due from Banks at End of Year $6,032 $4,711 $2,903
====== ====== ======
Supplemental Disclosure of Cash Flow Information
Cash Paid During the Year for:
Interest $1,634 $1,825 $1,143
Income Taxes 628 338 155
Noncash Investing Activity (Primarily
Foreclosure of Real Estate) 53 58 43
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 business 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 loan 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 - Debt and equity securities classified as available-for-sale are
carried 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.
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. Realized gains and losses on the sale
of debt and equity securities are determined by the specific identification
and average cost methods, respectively.
Allowance for Loan Losses - The allowance for loan losses is maintained at a
level that, in management's judgment, is adequate to absorb probable 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.
The portion of the allowance for loan losses allocated to nonaccrual
commercial loans over $1 million (impaired loans) is 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.
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 based upon a schedule determined by product. 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 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 of the balance sheet item.
Deferral Accounting - This method relates principally to futures and
forwards. Deferred gains and losses are reported as adjustments to
the carrying value of the linked items. The amortization of
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
interest income or expense related to the linked item.
Mark-to-Market Accounting - This method relates to derivative
contracts linked to balance sheet items recorded at fair value. The
fair values of balance sheet and derivative items are reported in
shareholders' equity on a net-of-tax basis. Interest accruals for
derivative contracts are reported as interest income related to
balance sheet items. Fair value changes in derivative contracts are
recorded in earnings when the linked balance sheet item's fair value
changes are recorded in earnings.
Other - Certain prior year information has been reclassified to conform its
presentation with the 1996 financial statements.
2. Acquisitions and Dispositions
The Company has agreed to acquire the corporate and municipal trust business
of Wells Fargo & Company. The acquisition involves approximately 5,000 bond
trustee and agency appointments, representing more than $85 billion in
outstanding securities for municipal and corporate issuers primarily in the
western United States.
The Company made acquisitions related to its factoring and corporate trust
businesses during 1996 and 1994, and its unit investment trust business in
1996.
During 1995, the Company acquired several securities processing
businesses. The major acquisitions included 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.
On September 1, 1995, the Company purchased The Putnam Trust Company of
Greenwich, headquartered in Greenwich, Connecticut.
In 1996, the Company sold its AFL-CIO Union Privilege affinity credit card
portfolio to Household International, Inc. for $575 million. After settling
its obligations to its marketing agent and other transaction costs, the
Company recorded a pre-tax gain of $400 million. The transaction related to
approximately $3.4 billion in outstandings and included 2.2 million cards.
<PAGE> 8
In 1995, the Company sold its mortgage servicing portfolio, recording a
pre-tax gain of $58 million.
In 1996 and 1994, the Company sold portions of its interest in Wing Hang
Bank, Ltd. for pre-tax gains of $21 million and $22 million.
The pro forma effect of the above acquisitions and dispositions is not
material.
3. Securities
The following table sets forth the amortized cost and the fair values of
securities at the end of the last two years:
1996
--------------------------------------------
Gross Unrealized
In millions Amortized ---------------- Fair
Cost Gains Losses Value
--------- ------ ------ -----
Securities Held-to-
Maturity
U.S. Government
Obligations $ 11 $ - $ - $ 11
U.S. Government Agency
Obligations 379 - 2 377
Obligations of States and
Political Subdivisions 377 3 - 380
Emerging Markets 292 - 48 244
Other Debt Securities 111 4 - 115
------ ---- --- ------
Total Securities
Held-to-Maturity 1,170 7 50 1,127
------ ---- --- ------
Securities
Available-for-Sale
U.S. Government
Obligations 2,868 3 34 2,837
Obligations of States and
Political Subdivisions 268 12 - 280
Emerging Markets 22 - - 22
Other Debt Securities 65 1 - 66
Equity Securities 532 146 - 678
------ ---- --- ------
Total Securities
Available-for-Sale 3,755 162 34 3,883
------ ---- --- ------
Total Securities $4,925 $169 $84 $5,010
====== ==== === ======
<PAGE>9
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
====== === ==== ======
The amortized cost and fair values of securities at December 31, 1996, 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 $ 234 $ 234 $ 657 $ 657
Due After One Year Through
Five Years 271 273 1,343 1,332
Due After Five Years Through
Ten Years 105 107 1,037 1,020
Due After Ten Years 358 312 186 196
Mortgage-Backed Securities 202 201 - -
Equity Securities - - 532 678
------ ------ ------ ------
$1,170 $1,127 $3,755 $3,883
====== ====== ====== ======
Realized gross gains on the sale of securities available-for-sale were $59
million and $98 million in 1996 and 1995. There were no realized gross losses
in 1996 and 1995.
Assets, including securities sold under repurchase agreements, carried at
$2 billion, $3 billion, and $2 billion at December 31, 1996, 1995, and 1994
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, 1996 and 1995 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 $755 million, $720 million, and $663 million at December 31, 1996,
1995, and 1994. These loans are primarily with related entities under
revolving lines of credit. During 1996 these loans averaged $680 million, and
ranged from $605 million to $862 million. All loans were fully performing
during this period.
Transactions in the allowance for loan losses are summarized as follows:
- -------------------------------------------------------------
In millions 1996 1995 1994
- -------------------------------------------------------------
Balance, January 1 $ 756 $ 792 $ 970
Charge-Offs (580) (432) (411)
Recoveries 125 55 57
----- ------ ------
Net Charge-Offs (455) (377) (354)
Provision 600 330 162
Other - 11 14
----- ------ ------
Balance, December 31 $ 901 $ 756 $ 792
===== ====== ======
Nonaccrual and reduced rate loans outstanding at December 31, 1996, 1995,
and 1994 were $213 million, $225 million, and $297 million. At December 31,
1996, commitments to borrowers whose loans were classified as nonaccrual or
reduced rate were not material.
At December 31, 1996 and 1995, impaired loans aggregated $154 million and
$159 million, of which $122 million and $95 million exceeded their fair value
by $28 million and $22 million. For 1996 and 1995, the average amount of
impaired loans was $151 million and $182 million and interest income recognized
on them (limited to cash received) was $0.4 million and $0.7 million.
Interest income recognized on total nonaccrual and reduced rate loans
exceeded reversals by $3 million in 1996, $2 million in 1995, and $3 million in
1994. Interest income would have been increased by $11 million, $19 million,
and $17 million if loans on nonaccrual status at December 31, 1996, 1995, and
1994 had been performing for the entire year. At year end, foreign loans on
nonperforming status were $38 million in 1996, $41 million in 1995, and $77
million in 1994. Interest income received on foreign nonperforming loans
equaled reversals in 1996, 1995, and 1994. If foreign loans on nonaccrual
status at December 31, 1996, 1995, and 1994 had been performing for the entire
year, interest income would have been increased by $2 million for each year.
Other real estate was $41 million, $72 million, and $56 million at
December 31, 1996, 1995, and 1994. Writedowns of and expenses related to
other real estate included in noninterest expense were $1 million, $5 million,
and $11 million in 1996, 1995, and 1994.
<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, 1996 and totals for 1995:
1996 1995
------------------------------------------------ ------
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 $ 8 $1,465 $280 $1,756 $1,776
Variable - 24 36 - 60 72
-- --- ------ ---- ------ ------
Total $3 $32 $1,501 $280 $1,816 $1,848
== === ====== ==== ====== ======
Fixed-rate debt at December 31, 1996 had interest rates ranging from 6.50%
to 8.50%. The weighted average interest rates on fixed-rate debt at December
31, 1996 and 1995 were 7.60% and 7.61%. The weighted average interest rates
on variable-rate debt at December 31, 1996 and 1995 were 6.21% and 6.27%.
Exposure to interest rate movements is reduced by interest rate swap
agreements. As a result of these agreements, the effective interest rates
differ from those stated.
In 1996, $114 million of 7.50% convertible subordinated debentures due
2001 converted into 12 million shares of common stock.
6. Guaranteed Preferred Beneficial Interests in the Company's Junior
Subordinated Deferrable Interest Debentures
In December 1996, BNY Institutional Capital Trust A (7.78%) and BNY Capital I
(7.97%) (the "Trust(s)"), wholly-owned subsidiaries of the Company, each issued
$300 million of cumulative Capital Securities ("Capital Securities") due 2026.
The sole assets of each trust are $309 million of junior subordinated
deferrable interest debentures of the Company, whose maturities and interest
rates match the Capital Securities. The Company's obligations under the
agreements that relate to the Capital Securities, the Trusts and the debentures
constitute a full and unconditional guarantee by the Company of the Trusts'
obligations under the Capital Securities. The Capital Securities are callable
in 2006 at prices of 103.89 and 103.985, which decline ratably to par in the
year 2016.
<PAGE> 12
7. Shareholders' Equity
The Company's $111 million no par value 8.60% cumulative preferred stock has a
liquidation preference and stated value 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. Holders of cumulative preferred stock have
cumulative dividend rights in preference to holders of common stock.
At December 31, 1996, 8.4 million warrants expiring in 1998 (exercise
price $15.50 per share) to purchase 33.5 million shares of the Company's
common stock were outstanding. During 1996, warrant holders converted 5.3
million warrants into 21.0 million common shares, providing the Company with
$325 million in capital.
At December 31, 1996, the Company had reserved for issuance 58 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.
Warrants diluted earnings per share in 1996. Fully diluted earnings per
share also give effect to the assumed conversion of convertible debentures and
convertible preferred stock. In 1996, primary earnings per share would have
decreased by $.03 if the conversion of the 7.50% convertible debentures had
occurred at the beginning of the year.
During 1996, the Company bought back 48 million shares of its common stock
at a cost of $1,332 million. The Company plans to buy back through the end of
1997 up to 30 million additional shares.
<PAGE>13
8. Income Taxes
Income taxes included in the consolidated statements of income consist of the
following:
1996 1995 1994
In ---------------------- ---------------------- ----------------------
millions Current Deferred Total Current Deferred Total Current Deferred Total
------- -------- ----- ------- -------- ----- ------- -------- -----
Federal $431 $ 54 $485 $254 $169 $423 $146 $177 $323
Foreign 19 - 19 13 - 13 13 - 13
State and
Local 84 46 130 58 74 132 30 83 113
---- ---- ---- ---- ---- ---- ---- ---- ----
$534 $100 $634 $325 $243 $568 $189 $260 $449
==== ==== ==== ==== ==== ==== ==== ==== ====
The components of income before taxes for the computation of taxes are as
follows:
- ------------------------------------------
In millions 1996 1995 1994
- ------------------------------------------
Domestic $1,548 $1,390 $1,149
Foreign 108 92 49
------ ------ ------
$1,656 $1,482 $1,198
====== ====== ======
The Company's net deferred tax liability (included in accrued taxes) at
December 31 consisted of the following:
- ------------------------------------------------------------
In millions 1996 1995 1994
- ------------------------------------------------------------
Lease Financings $1,162 $1,027 $886
Depreciation and Amortization 221 309 303
Credit Losses on Loans (384) (318) (375)
Other Assets (42) (31) (93)
Other Liabilities 217 228 175
------ ------ ------
Net Deferred Tax Liability $1,174 $1,215 $896
====== ====== ======
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:
1996 1995 1994
---- ---- ----
Federal Rate 35.0% 35.0% 35.0%
Tax-Exempt Interest (0.7) (1.0) (1.6)
Foreign Operations (0.5) (1.1) (1.3)
State and Local Income
Taxes, Net of Federal
Income Tax Benefit 4.8 5.4 5.8
Nondeductible Expenses 0.9 1.0 1.3
Leveraged Lease Portfolio (0.2) (0.2) (0.5)
Other (1.0) (0.8) (1.2)
----- ----- -----
Effective Rate 38.3% 38.3% 37.5%
===== ===== =====
<PAGE> 14
9. Employee Benefit Plans
In 1996, for both pension and postretirement plans, the Company elected to
change the measurement date for plan assets and liabilities from December 31
to September 30. This change did not have a material effect on 1996 benefit
expense.
Pension Plans
- -------------
The Company has defined benefit retirement plans covering substantially all
full-time employees. The Company's Employee Stock Ownership Plan (ESOP) may
provide additional benefits. The Company's funding policy is to contribute
annually 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 1996 1995 1994
---- ---- ----
Service Cost - Benefits Earned $(18) $(13) $(17)
Interest Cost on Projected Benefit Obligation (26) (23) (23)
Actual Return on Plan Assets 74 177 (16)
Net Amortization and Deferral - (112) 82
---- ---- ----
Net Pension Income $ 30 $ 29 $ 26
==== ==== ====
The expected long-term rate of return on plan assets used in computing
pension income was 10.0% in both 1996 and 1995, and 10.5% in 1994. The ESOP
provision was $4 million, $3 million, and $1 million in 1996, 1995, and 1994.
The following table sets forth the retirement plans' funded status:
In millions December 31, 1996 1995
---- ----
Present Value of Accumulated Benefit Obligation, Including
Vested Benefits of $304 in 1996 and $309 in 1995 $322 $319
==== ====
Present Value of Projected Benefit Obligation $342 $328
Plan Assets at Fair Value, Primarily Short-Term
Investments, Fixed-Income and Equity Securities 788 737
---- ----
Excess of Plan Assets over the
Projected Benefit Obligation 446 409
Unrecognized Prior Service Cost (19) (22)
Unrecognized Net Gain from Past Differences and
Effects of Changes in Assumptions (45) (33)
Unrecognized Net Asset Being Amortized over 16.2 Years (18) (21)
---- ----
Prepaid Pension Cost Included in Other Assets $364 $333
==== ====
Assumptions Used in Computing the Benefit Obligation:
Weighted Average Discount Rate 8.25% 7.75%
Rate of Increase in Future Compensation Level 4.25 4.13
<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 1996 1995 1994
---- ---- ----
Service Cost - Benefits Earned $ 2 $ 2 $ 2
Accumulated Benefit Obligation:
Interest 9 10 10
Amortization 4 4 7
---- ---- ----
Total $ 15 $ 16 $ 19
==== ==== ====
The assumed health care cost trend rate used in determining benefit
expense for 1996 is 8%, decreasing to 5% in 2005 and thereafter. A change of
one percentage point in this rate for each year would change the benefit
obligation by 9% and benefit expense by 7%. The following table sets forth
the funded status of the Company's other postretirement benefit obligation:
In millions December 31, 1996 1995
----- ----
Accumulated Postretirement Benefit Obligation:
Retirees $ 74 $ 77
Fully Eligible Active Plan Participants 19 21
Other Active Plan Participants 21 34
----- -----
Total Obligation 114 132
Unrecognized Net Gain from Past Differences
and Effects of Changes in Assumptions 28 12
Unrecognized Net Liability Being Amortized
Over 20 Years (104) (110)
----- -----
Accrued Postretirement Benefit
Obligation Included in Other Liabilities $ 38 $ 34
===== =====
The assumed discount rates used in determining the accumulated benefit
obligation were 8.25% and 7.75% in 1996 and 1995.
<PAGE> 16
10. Company Financial Information
The Company's condensed financial statements are as follows:
Balance Sheets
In millions December 31, 1996 1995
- --------------------------------------------------------------------
Assets
Cash and Due from Banks $ 2 $ 4
Securities 19 12
Loans 402 319
Investment in and Advances to Subsidiaries
Banks 5,479 5,180
Other 2,655 2,370
------ ------
8,134 7,550
------ ------
Other Assets 59 143
------ ------
Total Assets $8,616 $8,028
====== ======
Liabilities and Shareholders' Equity
Other Borrowed Funds $ 510 $ 648
Due to Non-Bank Subsidiaries 378 124
Other Liabilities 187 197
Long-Term Debt 2,414 1,827
------ ------
Total Liabilities 3,489 2,796
------ ------
Shareholders' Equity*
Preferred 112 113
Common 5,015 5,119
------ ------
Total Liabilities and Shareholders' Equity $8,616 $8,028
====== ======
*See Consolidated Statements of Changes in Shareholders' Equity.
<PAGE> 17
Statements of Income
In millions For the years ended December 31, 1996 1995 1994
- -----------------------------------------------------------------------------
Operating Income
Dividends from Subsidiaries
Banks $ 545 $300 $238
Other 502 2 2
Interest from Subsidiaries
Banks 86 92 88
Other 9 17 10
Other 45 127 24
------ ---- ----
Total 1,187 538 362
------ ---- ----
Operating Expenses
Interest (including $14 in 1996 and $1 in each
of 1995 and 1994 to nonbank subsidiaries) 177 168 122
Other 17 35 15
------ ---- ----
Total 194 203 137
------ ---- ----
Income Before Income Taxes and Equity in
Undistributed Earnings of Subsidiaries 993 335 225
Income Tax Expense (Benefit) (49) 11 (8)
------ ---- ----
Income Before Equity in Undistributed
Earnings of Subsidiaries 1,042 324 233
------ ---- ----
Equity in Undistributed Earnings of Subsidiaries
Banks 147 315 275
Other (169) 275 241
------ ---- ----
Total (22) 590 516
------ ---- ----
Net Income $1,020 $914 $749
====== ==== ====
<PAGE> 18
Statements of Cash Flows
In millions For the years ended December 31, 1996 1995 1994
- -----------------------------------------------------------------------------
Operating Activities
Net Income $1,020 $ 914 $ 749
Adjustments to Determine Net Cash Attributable to
Operating Activities
Amortization 6 7 3
Equity in Undistributed Earnings
of Subsidiaries 22 (590) (517)
Securities Gains (4) (95) (13)
Change in Interest Receivable 1 (1) (4)
Change in Interest Payable (1) (3) 1
Change in Taxes Payable (23) 13 (78)
Other, Net 19 5 9
------ ----- -----
Net Cash Provided by Operating Activities 1,040 250 150
------ ----- -----
Investing Activities
Purchase of Securities (15) (277) (142)
Sales of Securities - 492 89
Maturities of Securities 12 9 1
Change in Loans (82) (123) (196)
Acquisition of, Investment in, and Advances to
Subsidiaries (501) (466) 367
Other, Net (11) - -
------ ----- -----
Net Cash Provided (Used) by Investing Activities (597) (365) 119
------ ----- -----
Financing Activities
Change in Other Borrowed Funds (138) 221 20
Proceeds from the Issuance of Long-Term Debt 716 203 297
Repayments of Long-Term Debt (17) (16) (115)
Change in Advances from Subsidiaries 254 76 (7)
Redemption and Repurchases of Preferred
Stock and Warrants - - (177)
Issuance of Common Stock 410 87 42
Treasury Stock Acquired (1,332) (180) (112)
Cash Dividends Paid (338) (272) (219)
------ ----- -----
Net Cash Provided (Used) by Financing
Activities (445) 119 (271)
------ ----- -----
Change in Cash and Due from Banks (2) 4 (2)
Cash and Due from Banks at Beginning of Year 4 - 2
------ ----- -----
Cash and Due from Banks at End of Year $ 2 $ 4 $ -
====== ===== =====
Supplemental Disclosure of Cash Flow Information
Cash Paid During the Year for:
Interest $ 178 $ 171 $ 122
Income Taxes 587 306 118
In 1995, the Company contributed $361 million of available-for-sale securities
to a subsidiary. Gains of $16 million and $79 million were recorded in 1996
and 1995.
<PAGE> 19
In the fourth quarter of 1996, the Company combined two of its banking
subsidiaries, The Bank of New York (NJ) and The Putnam Trust Co., into The Bank
of New York ("Bank"), a significant subsidiary.
The Bank is 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 the Bank's net profits for
such year combined with retained net profits for the prior two years. The Bank
is 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).
Under the first of these limitations, in 1997 the Bank could declare
dividends of $454 million plus net profits earned in 1997. The Bank is not
restrained from paying dividends under the second limitation. 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 the FDIC in
the case of BNYDEL) 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.
Quantitative measures established by regulation to ensure capital adequacy
require the maintenance of minimum amounts and ratios of Total and Tier I
capital (as defined in the regulations) to risk-weighted assets (as defined),
and of Tier I capital (as defined) to average assets (as defined).
As of December 31, 1996 and 1995, capital ratios for the Company, the
Bank, and BNYDEL were categorized as well capitalized as set forth in the table
below.
December 31, 1996 December 31, 1995
----------------------- ----------------------- Well
BNY BNY Capitalized
Company Bank DEL Company Bank DEL Guidelines
------- ---- ---- ------- ---- ---- -----------
Tier I 8.34% 7.03% 9.35% 8.42% 7.84% 7.87% 6%
Total Capital 12.78 10.26 14.47 13.08 11.61 11.55 10
Leverage 8.87 6.89 9.28 8.46 7.63 8.48 5
Tangible Common
Equity 6.99 6.68 8.87 8.00 7.71 7.78
The Federal Reserve Act limits and requires collateral for extensions of
credit by the Company's banks to the Company and certain of 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 the banks to each of the Company and such
affiliates are limited to 10% of such bank'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 $783 million and $770 million for
the years 1996 and 1995.
<PAGE> 20
11. Other Noninterest Income and Expense
Other noninterest income includes equity in earnings of unconsolidated
subsidiaries of $46 million, $62 million, and $34 million in 1996, 1995, and
1994. In 1996, other noninterest income also includes a $400 million pre-tax
gain on the sale of the Company's AFL-CIO Union Privilege affinity credit card
portfolio. Other noninterest expense includes deposit insurance premiums of
$2 million, $32 million, and $52 million in 1996, 1995, and 1994 and
amortization of intangibles of $105 million, $74 million, and $86 million in
1996, 1995, and 1994.
12. 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 9% at December 31, 1996 and 6% to 8% at December 31,
1995. 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. Fair value amounts
for derivative instruments, such as options, futures 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. Discounted
future cash flows and secondary market values are used to determine the fair
value of other types of loans. 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
- ----------------------
Fair value is assumed to equal carrying value for these assets 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 based upon 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:
December 31, 1996 1995
-------------------- -------------------
Carrying Fair Carrying Fair
In millions Amount Value Amount Value
-------- ----- -------- -------
Assets
Securities $ 5,206 $ 5,224 $ 5,003 $ 4,979
Trading Assets 1,547 1,547 816 816
Loans and Commitments 33,917 34,178 35,099 35,501
Derivatives Used for ALM 81 (27) 42 (61)
Other Financial Assets 8,250 8,250 6,815 6,815
------- ------- ------- -------
Total Financial Assets 49,001 $49,172 47,775 $48,050
======= =======
Non-Financial Assets 6,764 5,945
------- -------
Total Assets $55,765 $53,720
======= =======
Liabilities
Noninterest-Bearing Deposits $11,812 $11,812 $10,465 $10,465
Interest-Bearing Deposits 27,531 27,538 25,453 25,478
Borrowings 4,569 4,570 7,220 7,223
Long-Term Debt 1,816 1,832 1,848 2,145
Trading Liabilities 1,437 1,437 651 651
Derivatives Used for ALM 42 (69) 21 (72)
------- ------- ------- -------
Total Financial Liabilities 47,207 $47,120 45,658 $45,890
======= =======
Non-Financial Liabilities 2,831 2,830
------- -------
Total Liabilities $50,038 $48,488
======= =======
Commitments and contingent items reduced the fair value of loans and
commitments by $14 million in 1996 and $58 million in 1995.
A discussion of the credit, market, and liquidity risks inherent in
financial instruments is presented under "Liquidity", "Trading Activities", and
"Asset/Liability Management" in the Management's Discussion and Analysis
Section of this Report and Note 15 to the Consolidated Financial Statements.
<PAGE> 22
The table below summarizes the carrying amount of the financial
instruments and the related notional amount and estimated fair value
(unrealized gain/loss) of ALM interest rate swaps that were linked to these
items:
In millions
ALM Interest
Rate Swaps
Financial ------------
Instruments
- ----------- Carrying Notional Unrealized
Amount Amount Gain (Loss)
-------- -------- ---- ----
At December 31, 1996
- --------------------
Loans $1,610 $1,610 $ - $(27)
Deposits 1,930 1,930 68 (1)
Borrowings 250 250 3 -
Long-Term Debt 925 925 15 (16)
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)
The following table illustrates the notional amount, remaining contracts
outstanding, and weighted average rates for ALM interest rate contracts:
Remaining Contracts Outstanding
at December 31,
Total -----------------------------------
In millions 12/31/96 1997 1998 1999 2000 2001
- ------------------------------------------------------------------------------
Receive Fixed Interest Rate Swaps:
Notional Amount $2,795 $1,535 $1,302 $ 990 $ 955 $ 895
Weighted Average Rate 6.55% 7.18% 7.21% 7.27% 7.21% 7.21%
Pay Fixed Interest Rate Swaps:
Notional Amount $1,720 $1,357 $1,199 $1,028 $ 685 $ 378
Weighted Average Rate 6.77% 6.87% 6.99% 6.90% 6.78% 6.72%
Basis Interest Rate Swaps:
Notional Amount $ 200 $ 100 $ 75 $ 20 $ 20 $ 20
Forward LIBOR Rate (1) 5.79% 6.35% 6.68% 6.92% 7.10% 7.28%
(1) The forward LIBOR rate shown above reflects the implied forward yield
curve for that index at December 31, 1996. However, actual repricings
for ALM interest rate swaps are generally based on 3 month LIBOR.
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,
and long term debt to floating rates. Basis swaps are used to 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
<PAGE> 23
the cumulative translation adjustment included in shareholders' equity. At
December 31, 1996 and 1995, $228 million and $237 million in notional amount of
foreign exchange contracts, with fair values of $0.4 million and $0.9 million,
hedged corresponding amounts of foreign investments. These foreign exchange
contracts had a maturity of less than three months at December 31, 1996.
Deferred net gains on ALM derivative financial instruments amounted to
zero and $1 million at December 31, 1996 and 1995.
Net interest income increased by $17 million, $17 million, and $24 million
in 1996, 1995, and 1994 as a result of ALM derivative financial instruments.
13. Trading Activities
The fair value of the Company's financial instruments that are held for trading
purposes are:
In millions 1996 1995
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 $ 2 $ 5 $ 1 $ 1 $ 3 $ 4 $ 1 $ 2
Swaps 99 128 115 129 210 123 220 121
Written Options - - 6 6 - - 4 8
Purchased Options 5 5 - - 4 7 - -
Foreign Exchange
Contracts:
Swaps 3 4 1 3 6 9 2 6
Written Options - - 642 166 - - 72 70
Purchased Options 645 185 - - 111 91 - -
Commitments to
Purchase and Sell
Foreign Exchange 615 359 590 380 309 540 332 544
Debt Securities 73 193 82 117 14 229 20 -
Other Securities 105 103 - - 159 145 - -
------ ------ ------ ---- ---- ------ ---- ----
Total Trading
Account $1,547 $ 982 $1,437 $802 $816 $1,148 $651 $751
====== ====== ====== ==== ==== ====== ==== ====
Other noninterest income included the following income related to trading
activities:
In millions
- -------------------------------------------------------------------------------
1996 1995 1994
---- ---- ----
Foreign Exchange $57 $42 $27
Interest Rate Contracts 7 11 13
Debt and Other Securities 3 7 4
--- --- ---
$67 $60 $44
=== === ===
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> 24
14. 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:
In millions 1996
---------------------------------------
Income
Before
Total Income Net Total
Revenue Taxes Income Assets
------- ------ ------ -------
Europe $ 230 $ 66 $ 37 $ 3,413
Asia 239 76 43 2,835
Other Foreign 311 62 35 3,011
Domestic 4,933 1,452 905 46,506
------ ------ ------ -------
Total $5,713 $1,656 $1,020 $55,765
====== ====== ====== =======
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 4,696 1,377 855 46,047
------ ------ ---- -------
Total $5,322 $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
====== ====== ==== =======
<PAGE> 25
15. 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.
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 interest rate and foreign currency risks, and to provide
customers with the ability to meet credit and liquidity needs and to hedge
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.
A summary of the notional amount of the Company's off-balance-sheet credit
transactions, net of participations, at December 31, 1996 and 1995 follows:
Off-Balance-Sheet Credit Risks
In millions 1996 1995
- ------------------------------ ---- ----
Commercial Lending Commitments $31,604 $26,606
Credit Card Commitments 14,998 18,874
Standby Letters of Credit 4,664 4,257
Commercial Letters of Credit 1,711 1,728
Securities Lending Indemnifications 23,881 15,068
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. Since many of the commitments are expected to expire without
being drawn upon, the total amount does not necessarily represent future cash
requirements. 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
anytime. In securities lending transactions, the Company requires the borrower
to provide collateral, thus reducing credit risk.
The notional amounts for other off-balance-sheet risks express the dollar
volume of the transactions; however, 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.
Standby letters of credit principally support corporate obligations and
include $1.3 billion and $1.5 billion that were collateralized with cash and
securities at December 31, 1996 and 1995. At December 31, 1996 and 1995,
securities lending indemnifications were secured by collateral of $23.9 billion
and $15.1 billion. At December 31, 1996, approximately $3.5 billion of the
standbys will expire within one year, $1.1 billion between one to five years,
and the balance after five years.
At December 31, 1996, approximately $14.9 billion of interest rate
contracts will mature within one year, $12.7 billion between one and five
years, and the balance after five years. At December 31, 1996, approximately
$100.6 billion of foreign exchange contracts will mature within one year and
$0.9 billion between one and five years. There were no derivative financial
instruments on nonperforming status at year end 1996.
<PAGE> 26
A summary of the notional amount and credit exposure of the Company's
derivative financial instruments at December 31, 1996 and 1995 follows:
Derivative Financial Instruments
Notional Amount Credit Exposure
In millions 1996 1995 1996 1995
---- ---- ---- ----
Interest Rate Contracts:
Futures and Forward Contracts $ 6,451 $ 6,012 $ 1 $ 2
Swaps 9,318 8,728 180 234
Written Options 7,056 7,072 - -
Purchased Options 6,693 4,777 6 5
Foreign Exchange Contracts:
Swaps 126 308 3 6
Written Options 28,551 2,089 - -
Purchased Options 28,581 1,603 154 32
Commitments to Purchase and Sell
Foreign Exchange 44,269 24,005 893 463
---- ----
1,237 742
Effect of Master Netting Agreements (328) (223)
---- ----
Total Credit Exposure $909 $519
==== ====
Net rent expense for premises and equipment was $91 million in 1996, $94
million in 1995, and $96 million in 1994.
At December 31, 1996, 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, 1996 are as follows:
- ---------------------------------------------------------------------------
Year ending December 31, In millions
- ---------------------------------------------------------------------------
1997 $ 70
1998 57
1999 41
2000 33
2001 28
Subsequent to 2001 105
----
Total Minimum Lease Payments $334
====
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.
<PAGE> 27
16. Stock Option Plans
The Company's stock option plans (the Option Plans) provide for the issuance of
stock options at fair market value at the date of grant to officers and
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 19
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 ten years from the date of grant.
The Company accounts for its Option Plans under Accounting Principles
Board Opinion 25. As a result, compensation cost is not recorded. If
compensation cost for these plans had been based on fair value, net income
would have been reduced by $9 million in 1996 and $7 million in 1995. Also,
earnings per share would have been reduced by 2 cents per share in 1996 and
1995.
The assumptions used in determining the impact of accounting for the
Option Plans at fair value for 1996 are as follows: dividend yield of 3%;
expected volatility of 27%; risk free interest rate of 5.40%; and expected
option lives of 5 years.
A summary of the status of the Company's Option Plans as of December 31,
1996, 1995, and 1994, and changes during the years ending on those dates is
presented below:
1996 1995 1994
- -------------------------------------------------------------------------------
Weighted Weighted Weighted
-Average -Average -Average
Exercise Exercise Exercise
Options Shares Price Shares Price Shares Price
- -------------------------------------------------------------------------------
Outstanding
at beginning
of year 12,701,360 $11.87 13,433,492 $11.04 13,219,704 $10.43
Granted 2,592,700 22.57 2,618,608 14.30 2,025,600 13.03
Exercised (2,802,402) 11.23 (3,259,324) 10.38 (1,694,772) 8.52
Canceled (22,444) 18.83 (91,416) 13.25 (117,040) 12.29
---------- ---------- ----------
Outstanding
at end
of year 12,469,214 14.23 12,701,360 11.87 13,433,492 11.04
========== ========== ==========
Options
exercisable
at year-end 8,901,526 11.86 9,186,618 11.07 9,918,268 10.71
Weighted-
average fair
value of
options granted
during the year $5.24 $4.44 N/A
The following table summarizes information about stock options
outstanding at December 31, 1996:
Options Outstanding Options Exercisable
----------------------------------- ----------------------
Weighted
-Average Weighted Weighted
Number Remaining -Average Number -Average
Range of Outstanding Contractual Exercise Exercisable Exercise
Exercise Prices at 12/31/96 Life Price at 12/31/96 Price
- --------------- ----------- ----------- -------- ----------- --------
$ 5 to 7 833,800 4.2 years $ 6.66 823,192 $ 6.68
8 to 11 2,974,512 3.6 9.80 2,974,512 9.80
13 to 15 6,084,602 7.1 13.90 5,103,822 13.89
22 to 30 2,576,300 9.0 22.57 - -
----------- ----------
5 to 30 12,469,214 6.4 14.23 8,901,526 11.86
=========== ==========
<PAGE> 28
Report of Independent Auditors
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 sheet of The Bank of New
York Company, Inc. and subsidiaries (the "Company") as of December 31, 1996,
and the related consolidated statements of income, changes in shareholders'
equity, and cash flows for the year then ended. 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 audit. The
financial statements of the Company as of December 31, 1995 and for the two
years then ended, were audited by other auditors whose report dated February
26, 1996, expressed an unqualified opinion on those statements.
We conducted our audit in accordance with generally accepted auditing
standards. These 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 audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of The Bank of New
York Company, Inc. and subsidiaries at December 31, 1996, and the consolidated
results of their operations and their cash flows for the year then ended in
conformity with generally accepted accounting principles.
\s\ Ernst & Young LLP
New York, New York
January 27, 1997
<PAGE> 29
Management's Discussion and Analysis of the Company's Financial Condition and
Results of Operations
- -----------------------------------------------------------------------------
SUMMARY OF RESULTS
For 1996, The Bank of New York Company, Inc. (the "Company") reported record
net income of $1,020 million or a record $2.41 per fully diluted share,
compared with $914 million or $2.15 per fully diluted share in 1995 and $749
million or $1.85 per fully diluted share in 1994. For 1996, the net effect
of the conversion of warrants, the remaining outstanding warrants, and the
stock buyback was to dilute fully diluted earnings per share 10 cents.
Revenues from the Company's securities processing business continued their
strong advance, growing 59% for the full year to $655 million. This
significant increase reflected strong internal growth as well as the
acquisition of the corporate trust business of NationsBank and the custody
businesses of BankAmerica and J.P. Morgan. All areas of securities processing
contributed to an internal growth rate of 14% with ADRs, corporate trust, and
government securities clearance particularly strong. Fees from other
processing were up 9% for the year to $206 million. Trust and investment
management continued its strong performance in 1996 with fees growing 18% over
last year to $161 million reflecting new business and generally strong markets.
In 1996, net interest income on a taxable equivalent basis declined to $1,999
million reflecting the sale of the $3.4 billion AFL-CIO Union Privilege
affinity credit card portfolio. The provision for loan losses increased to
$600 million due largely to a deterioration in the Company's credit card
portfolio. Operating expenses continued to remain under good control.
In 1996, return on average common equity was a record 19.98% compared with
19.42% in 1995 and 18.49% in 1994, while return on average assets was a record
1.90% compared with 1.72% in 1995 and 1.49% in 1994.
Tangible fully diluted earnings per share (earnings before the
amortization of goodwill and intangibles) were $2.61 per share in 1996 compared
with $2.29 per share in 1995. Tangible return on average assets was 2.10% in
1996 and 1.86% in 1995; and tangible return on average common equity was 27.94%
in 1996 compared with 24.14% in 1995.
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. Other processing
fees grew 11% over the previous year led by increases in funds transfer and
trade finance revenues. The provision for loan losses increased to $330
million. Operating expenses were strictly controlled.
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.
<PAGE> 30
NET INTEREST INCOME
Dollars in millions 1996 1995 1994
---- ---- ----
Net Interest Income on a Taxable
Equivalent Basis $1,999 $2,068 $1,763
Net Interest Rate Spread 3.37% 3.41% 3.30%
Net Yield on Interest-Earning Assets 4.35% 4.53% 4.11%
On a taxable equivalent basis, net interest income was $1,999 million in
1996 compared with $2,068 million in 1995. Average loans grew to $36.7 billion
in 1996 up from $35.4 billion in 1995. Year end 1996 loans were $36.1 billion
down from $36.9 billion in 1995 reflecting the sale of $3.4 billion of credit
card receivables in the second quarter of 1996. The net interest rate spread
and yield were 3.37% and 4.35% in 1996 compared with 3.41% and 4.53% in 1995.
These declines are primarily attributable to the sale of credit card
receivables partially offset by the expiration of promotional rates on credit
cards, and the repricing of certain segments of the credit card portfolio.
The decline in the net yield also reflects the financing of the stock buyback
program.
Net interest income on a taxable equivalent basis increased 17% in 1995 to
$2,068 million. 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. 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 increase in the yield also reflected
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 5% to $32.0 billion in 1994. The net interest rate spread and net yield
on interest-earning assets increased by 6% and 7% in 1994.
The credit card securitizations reduced net interest income by $5 million
in 1995 and $87 million in 1994. Interest income would have been increased by
$11 million, $19 million, and $17 million if loans on nonaccrual status at
December 31, 1996, 1995, and 1994 had been performing for the entire year.
<PAGE> 31
NONINTEREST INCOME
Noninterest income is provided by a wide range of fiduciary and processing
services, other fee-based services, and trading activities. Revenues from
these activities were $2,130 million in 1996, compared with $1,491 million in
1995 and $1,289 million in 1994.
Securities processing fees were $655 million, $411 million, and $359
million in 1996, 1995, and 1994. Internal growth in all areas and acquisitions
contributed to the significant increase in revenue in 1996. Other processing
fees, principally funds transfer, deposit services, and trade finance, were
$206 million in 1996, $189 million in 1995, and $171 million in 1994. Trust
and investment management fees were $161 million in 1996, $136 million in 1995,
and $126 million in 1994. Service charges and fees were $424 million in 1996,
compared with $423 million in 1995 and $465 million in 1994. For further
discussion of fee revenue see Sector Profitability.
Securities gains totaled $97 million, $115 million, and $15 million in
1996, 1995, and 1994, including gains on equity securities of $87 million in
1996 and $97 million in 1995. There were no net equity security gains recorded
in 1994.
Other noninterest income was $587 million in 1996, $217 million in 1995,
and $153 million in 1994. A $400 million pre-tax gain was recorded in 1996 on
the sale of the Union credit card portfolio. Profits from foreign exchange and
other trading activities were $67 million, $60 million, and $44 million in
1996, 1995, and 1994. Other noninterest income for 1996 and 1994 included
gains of $21 million and $22 million related to the sale of portions of the
Company's interest in Wing Hang Bank, Ltd. A gain of $58 million on the sale
of the Company's mortgage servicing portfolio was recorded in 1995.
Noninterest income attributable to credit card securitizations decreased
to $3 million in 1995 from $38 million in 1994 primarily due to maturities.
NONINTEREST EXPENSE AND INCOME TAXES
Total noninterest expense was $1,835 million in 1996, $1,708 million in 1995,
and $1,646 in 1994. The rise in expenses in 1996 was principally due to salary
and other expenses related to acquisitions of securities processing businesses
from J.P. Morgan, BankAmerica, and NationsBank as well as the acquisition of
the Putnam Trust Company. Salaries and employee benefits increased 11% to
$1,014 million in 1996. Net occupancy and furniture and fixture expenses fell
by a combined $2 million to $260 million. Other expenses were up 5% in 1996 to
$561 million.
Total noninterest expense increased 4% in 1995 compared with 1994. In
1995, expenses related to the settlement of litigation with Northeast Bancorp
were $15 million. Net occupancy and furniture and fixture expenses fell by a
combined $4 million to $262 million in 1995. Salaries and employee benefits
increased 7% in 1995.
Deposit insurance premiums were $2 million in 1996 compared with $32
million and $52 million in 1995 and 1994. The FDIC substantially reduced the
assessment rate for deposit insurance premiums in 1996.
The efficiency ratio was 50.5% in 1996 compared with 50.0% in 1995 and
53.8% in 1994. The efficiency ratios exclude the gain on the sale of the
credit card portfolio in 1996, and the settlement with Northeast Bancorp and
the gain on the sale of the ARCS mortgage servicing in 1995.
The Company's consolidated effective tax rates for 1996, 1995, and 1994
were 38.3%, 38.3%, and 37.5%. The 1996 rate reflects higher taxes on foreign
operations offset by the reduced impact of state and local taxes. The 1995
rate increased primarily from the reduced impact of tax-exempt income partially
offset by the reduced impact of state and local taxes.
<PAGE> 32
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, retail
time, and trust deposits from processing businesses, 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.
Average savings, time, and noninterest-bearing deposits declined slightly
by $333 million in 1996. Medium-term notes declined $416 million and foreign
deposits increased by $829 million. More volatile sources of interest-bearing
deposits and borrowings decreased by $361 million.
In 1996, the Company's average commercial paper borrowings were $605
million compared with $656 million in 1995. 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 $0.9 billion
in 1996, compared with $1.9 billion and $2.1 billion in 1995 and 1994. The
decrease in 1996 is primarily attributable to changes in accruals and other.
The decrease in 1995 reflects a larger decline in trading activities in 1994
compared to 1995.
In 1996, cash provided by investing activities was $0.1 billion,
reflecting the sale of credit card loans which was offset by additions to
loans, securities and interest bearing deposits. The 1995 cash flows used by
investing activities were $2.4 billion, reflecting additions to loans and
securities partially offset by a decline in federal funds sold and securities
purchased under resale agreements. The 1994 cash flows used by investing
activities were $5.4 billion reflecting additions to loans and an increase in
federal funds sold and securities purchased under resale agreements. Cash
provided by financing activities was $0.4 billion, $2.3 billion, and $1.7
billion in 1996, 1995, and 1994 as the Company used deposits to finance its
investing activities. In 1996, financing activities used cash to buy back the
Company's common shares, and provided cash through the issuance of trust
preferred securities. Federal funds purchased and securities sold under
repurchase agreements were a source of funds in 1995 and a use of funds in
1996 and 1994.
Restrictions on the ability of the Company to obtain funds from its
subsidiaries are discussed in Note 10 to the Consolidated Financial Statements.
<PAGE> 33
CAPITAL RESOURCES
Shareholders' equity was $5,127 million at December 31, 1996, compared with
$5,232 million at December 31, 1995 and $4,296 million at December 31, 1994.
In January 1997, the Company increased its quarterly common stock dividend to
24 cents per share, up 20% from the beginning of 1996. During 1996, the
Company retained $682 million of earnings and issued $600 million of trust
preferred securities and $100 million of subordinated debt. Warrant holders
converted 5 million warrants into 21 million common shares, providing $325
million in capital, and $114 million of subordinated debentures converted into
common stock. In addition, 48 million common shares were repurchased for $1.3
billion. The Company plans to buy back through the end of 1997 up to 30
million additional shares.
In 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. Also in 1995, 9 million common shares were
repurchased.
In 1994, the Company increased its quarterly stock dividend to 16 cents
per share, a 42% increase. Seven million shares of common stock were
repurchased. 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.
The Company can issue up to $1.2 billion of debt and preferred stock
(including convertible preferred stock) and $400 million of trust preferred
securities pursuant to shelf registration statements.
PROVISION AND ALLOWANCE FOR LOAN LOSSES
The provision for loan losses was $600 million in 1996, compared with $330
million in 1995 and $162 million in 1994. The increase in the provision
compared with 1995 principally relates to a higher level of anticipated losses
on certain Consumers Edge (registered trademark) credit card accounts opened in
1994 and 1995, and on the credit card portfolio generally. The increased
provision also covered $78 million of net charge-offs of Union receivables that
were not sold. In 1996, the Company continued to experience improvement in the
asset quality of business loans as nonperforming loans declined.
Net charge-offs were $455 million in 1996, $377 million in 1995, and $354
million in 1994. In 1996 and 1995, net charge-offs were primarily attributable
to credit card loans while in 1994 net charge-offs primarily related to credit
card and other commercial loans. The total allowance for loan losses was $901
million and $756 million at year-end 1996 and 1995. The $145 million increase
in the allowance for loan losses in 1996 is mainly attributable to an increased
provision for credit card loans. The $36 million decrease in the allowance for
loan losses in 1995 resulted primarily from net charge-offs exceeding the
provision for loan losses and the decline in the level of nonaccrual loans.
The ratio of the total allowance for loan losses to year-end loans was 2.43%
and 2.01% at December 31, 1996 and 1995.
Credit card securitization reduced the provision for loan losses by
approximately $2 million and $32 million in 1995 and 1994.
<PAGE> 34
TRADING ACTIVITIES
The Company expanded its offering of foreign exchange risk management products
in 1996 as a result of an agreement it entered into with Susquehanna Trading,
a firm with significant expertise in foreign exchange options. Activity
related to this agreement is the primary reason for the increase in the
notional amounts and trading account balances for foreign exchange option
contracts and commitments to purchase and sell foreign exchange in 1996.
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. Earnings at risk is designed to measure with 95%
certainty the Company's exposure to changes in earnings resulting from price
fluctuations in the trading portfolio over a 24 hour period. The trading
portfolio's average pre-tax earnings at risk amounted to approximately $2.4
million and represented the combination of interest rate risk of $1.5 million
and foreign exchange risk of $0.9 million. During 1996, pre-tax earnings at
risk ranged from approximately $1.1 million to $4.5 million, consisting of a
range of $0.6 million to $2.9 million for the interest rate risk component and
a range of $0.2 million to $1.8 million for the foreign exchange risk
component. During 1996, daily trading revenue averaged approximately $0.3
million, and ranged from a gain of approximately $2.5 million to a loss of
approximately $1.9 million. During this period, daily trading revenue did not
exceed the Company's earnings at risk estimates on any given day.
ASSET/LIABILITY MANAGEMENT
The Company's activities other than trading include lending, investing in
securities, accepting deposits, raising money as needed to fund assets, and
processing securities and other transactions. The market risk that arises from
these activities is interest rate risk, and to a lesser degree foreign exchange
risk. The Company actively manages interest-rate sensitivity (the exposure of
net interest income to interest rate movements). The Company uses complex
simulation models to adjust the structure of its assets and liabilities in
response to interest rate exposures.
The Company considers base line, high rate, and low rate scenarios to
model interest rate sensitivity. The base line scenario is the estimated most
likely path for future short-term interest rates. The base line scenario
forecast in January 1997 assumes rates will rise. The "high rate" scenario
assumes a 77 basis point increase from the base line scenario. The "low rate"
scenario assumes the average rate declines 125 basis points under the base line
scenario. Other scenarios are also reviewed to examine the impact of various
interest rate shocks. 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 percent. Based upon the
January 1997 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 0.93 percent. If interest rates were to follow the
low rate scenario, then net interest income would be negatively affected by
2.75 percent (assuming management took no actions.)
To manage foreign exchange risk, the Company funds foreign currency-
denominated assets with liability instruments denominated in the same currency.
The Company utilizes various foreign exchange contracts if a liability
denominated in the same currency is not available or desired, and to minimize
the earnings impact of translation gains or losses created by investments in
overseas markets.
<PAGE> 35
LOANS
The following table shows the Company's loan distribution at the end of each of
the last five years:
1996 1995 1994 1993 1992
In millions ---- ---- ---- ---- ----
Domestic
Credit Card* $ 5,414 $ 8,727 $ 7,475 $ 5,024 $ 3,871
Other Consumer Loans 716 718 765 972 1,329
Commercial and Industrial Loans** 12,844 12,025 11,149 9,781 10,495
Real Estate Loans
Construction and Land
Development 139 118 125 160 188
Other, Principally Commercial
Mortgages 2,645 2,741 2,743 2,626 2,822
Collateralized by Residential
Properties 3,380 3,229 3,036 3,203 3,423
Banks and Other Financial
Institutions 1,650 1,953 1,289 1,893 1,521
Loans for Purchasing or Carrying
Securities 3,695 3,068 2,339 2,275 1,098
Lease Financings 1,688 1,503 1,308 1,038 1,033
Other 249 235 74 97 155
------- ------- ------- ------- -------
Total Domestic 32,420 34,317 30,303 27,069 25,935
------- ------- ------- ------- -------
Foreign
Commercial and Industrial Loans 2,594 1,906 1,605 1,775 1,928
Banks and Other Financial
Institutions 1,060 828 672 810 997
Government and Official
Institutions 414 227 212 565 535
Other 1,996 1,383 1,161 1,188 947
------- ------- ------- ------- -------
Total Foreign 6,064 4,344 3,650 4,338 4,407
------- ------- ------- ------- -------
Total Loans 38,484 38,661 33,953 31,407 30,342
Less: Unearned Income 1,478 974 870 837 845
Allowance for Loan Losses 901 756 792 970 1,072
------- ------- ------- ------- -------
Net Loans $36,105 $36,931 $32,291 $29,600 $28,425
======= ======= ======= ======= =======
* Includes $3,636 million for 1995, $3,813 million for 1994, $3,529 million
for 1993, and $2,737 million for 1992 related to the Union portfolio sold
in 1996.
** The commercial and industrial loan portfolio does not contain any
industry concentration which exceeds 10% of loans.
<PAGE> 36
NONPERFORMING ASSETS
The following table shows the distribution of nonperforming assets at December
31, 1996 and 1995:
Dollars in millions 1996 1995 Change
-----------------------------------
Category of Loans:
Commercial Real Estate $ 20 $ 42 (52)%
Other Commercial 90 75 20
Foreign 38 41 (7)
Community Banking 65 67 (3)
---- ----
Total Nonperforming Loans 213 225 (5)
Other Real Estate 41 72 (43)
---- ----
Total Nonperforming Assets $254 $297 (14)
==== ====
Nonperforming Asset Ratio 0.7% 0.8%
Allowance/Nonperforming Loans 423.7 336.0
Allowance/Nonperforming Assets 355.3 254.5
Nonperforming assets declined to $254 million at December 31, 1996. The
decrease in nonperforming assets during 1996 is attributable to charge-offs and
writedowns of $27 million and paydowns, sales, and returns to accrual status of
$175 million. The decrease was partially offset by $159 million of loans
placed on nonperforming status.
Credit card loans are not placed on nonperforming status, but are charged
off when they become past due for certain periods. Additional information
regarding the credit quality of the Company's credit card portfolio is provided
in the sections "Provision and Allowance for Loan Losses" and "Sector
Profitability".
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. Prior year results have been restated to
reflect the transfer of custom banking from the Retail Sector to the Trust,
and Securities and Other Processing Sector and middle market and certain real
estate lending from the Retail Sector to the Corporate Sector. Changes were
also made in the allocation of long-term debt and certain foreign branch costs.
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 and investment
management. Securities processing includes services to both institutional
issuers and investors.
The Retail Banking Sector includes credit card financing, consumer
lending, 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
<PAGE> 37
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 1996 1995 1994 1996 1995 1994 1996 1995 1994
------------------ -------------------- ----------------
Net Interest Income
on a Taxable
Equivalent Basis $ 218 $196 $178 $1,136 $1,212 $967 $521 $527 $438
Provision for Loan
Losses 1 1 1 461 290 202 (7) 62 126
Noninterest Income 1,148 849 760 170 163 214 251 266 240
Noninterest Expense 828 636 619 647 684 682 199 211 200
------------------ -------------------- ----------------
Income before Taxes $ 537 $408 $318 $ 198 $ 401 $297 $580 $520 $352
================== ==================== ================
Other Total
----------------- ----------------------
1996 1995 1994 1996 1995 1994
----------------- ----------------------
Net Interest Income
on a Taxable
Equivalent Basis $ 124 $133 $180 $1,999 $2,068 $1,763
Provision for Loan
Losses 145 (23) (167) 600 330 162
Noninterest Income 561 213 75 2,130 1,491 1,289
Noninterest Expense 161 177 145 1,835 1,708 1,646
----------------- ----------------------
Income before Taxes $ 379 $192 $277 $1,694 $1,521 $1,244
================= ======================
In the Trust, and Securities and Other Processing Sector, securities
processing fees increased 59% over last year to $655 million compared with $411
million in 1995 and $359 million in 1994. The increase in revenue reflects
continued internal growth as well as the acquisition of the corporate trust
business of NationsBank and the custody businesses of BankAmerica and J.P.
Morgan. Internally generated growth was 14% led by ADRs, corporate trust, and
government securities clearance. In 1996, fee revenue from issuer services,
custody, and securities industry products was $223 million, $240 million, and
$191 million compared with $154 million, $119 million, and $136 million in
1995. Fees from other processing increased 9% over last year to $206 million.
Fees from trust and investment management grew 18% to $161 million, reflecting
new business and generally strong markets. The rise in noninterest expense was
principally due to salary and other expenses related to the acquisitions from
J.P. Morgan, BankAmerica, and NationsBank.
In 1995, all areas of securities processing increased led by ADRs,
corporate trust, and master trust. 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.
The decrease in net interest income in the Retail Banking Sector
principally reflects the sale of approximately $3.4 billion in credit card
receivables in the second quarter of 1996. The decrease in net interest income
is also attributable to the decline in value of noninterest bearing sources of
funds in a declining rate environment. Lower FDIC insurance premiums
contributed to the decline in noninterest expense in the Retail Sector. The
provision for loan losses in the Retail Banking Sector reflects increased
charge-offs on Consumers Edge (registered trademark) accounts opened in 1994
and 1995. The 1996 provision also reflects $78 million of net charge-offs
related to past due and bankrupt Union credit card accounts not sold. The
table and discussion below provide information relating to the Company's credit
card portfolio based on managed outstandings and excluding the Union portfolio:
<PAGE> 38
1996 1995 1994
In millions ---- ---- ----
Number of Accounts 4.537 4.234 3.668
New Account Originations .658 1.124 1.071
Period End Balance $5,414 $5,078 $3,843
Loans Delinquent:
30-59 Days $ 93 $ 68 $ 48
60-89 Days 71 52 31
90 or More Days 214 145 61
---- ---- ----
Total Loans Delinquent $378 $265 $140
Net Charge-offs $311 $174 $109
As a Percent of Average
Loans Outstanding:
Net Charge-offs 5.89% 4.18% 3.44%
Accounts Delinquent
More Than 30 Days 7.16 6.36 4.42
As a Percent of Period
End Balances:
Net Charge-offs 5.75 3.43 2.84
Accounts Delinquent
More Than 30 Days 6.99 5.22 3.65
During 1996, the Company's credit card portfolio experienced rising
delinquencies and charge-offs. Loans delinquent more than 30 days increased to
$378 million from $265 million in 1995. Loans past due more than 90 days
increased to $214 million from $145 million in 1995. Credit card loans
delinquent more than 90 days have a significant risk of loss.
This adverse trend in credit quality reflects an industry-wide
deterioration in consumer credit performance as well as increased losses
attributable to bankruptcies resulting from a 1994 change in the bankruptcy
laws. Bankrupt accounts at December 31, 1996 were 78% higher than at December
31, 1995. At December 31, 1996 bankrupt accounts included $5 million that were
not yet 30 days past due, up more than 56% from 1995. As a result of rising
delinquencies related to its Consumers Edge (registered trademark) accounts,
the Company reduced Consumers Edge (registered trademark) new account
originations to 330 thousand in 1996 down from 851 thousand accounts in 1995
and 1.029 million accounts in 1994.
Future levels of charge-offs are difficult to predict because they depend
upon future economic trends, consumer behavior, growth in the portfolio,
competition, and other factors. Some of these factors are beyond the control
of the Company. The rising trend in credit card delinquencies and personal
bankruptcies may result in future charge-offs exceeding historic levels.
In 1995, the increase in net interest income in the Retail Sector
principally reflected growth in the credit card business and the higher value
of noninterest-bearing balances. Charge-offs increased in 1995 and net credit
card charge-offs as a percentage of average managed outstandings excluding the
Union portfolio increased to 4.18% from 3.44% in 1994. Maturities in the
credit card securitization program shifted revenue from noninterest income to
net interest income in 1995.
Net interest income declined in the Corporate Banking Sector in 1996. The
Special Industries and U.S. Commercial Banking sectors demonstrated growth with
average outstandings increasing 8% from last year. The decrease in the
provision reflects a net recovery primarily due to the settlement with the
Republics of Croatia and Slovenia related to Yugoslavian debt in 1996. Income
from the Company's offshore banking subsidiaries was lower in 1996 compared to
1995.
In 1995, the increase in net interest income in the Corporate Banking
Sector was attributable to increased loan demand, higher yields, and a decline
in nonperforming assets. Loan demand was strong in 1995, particularly in
corporate lending across the United States, in the middle market, and in all of
the special industry lending areas.
<PAGE> 39
The Other Sector reflects the difference between the total provision for
loan losses and that charged off by the sectors. Noninterest income for 1996
includes a $400 million pre-tax gain on the sale of credit card loans. Pre-tax
gains of $21 million and $22 million related to the sale of portions of the
Company's interest in Wing Hang Bank, Ltd. were included in noninterest income
in 1996 and 1994. Securities gains and foreign exchange and other trading
activities decreased $10 million from 1995.
In 1995, the Other Sector had an increase in revenues from trading and
investing. Included in noninterest income for 1995 was a pre-tax gain of $58
million on the sale of the ARCS mortgage servicing.
<PAGE> 40
QUARTERLY DATA UNAUDITED
1996 1995
--------------------------- ---------------------------
Dollars in millions, Fourth Third Second First Fourth Third Second First
except per share
amounts
Interest Income $ 883 $ 856 $ 910 $ 928 $ 969 $ 946 $ 981 $ 936
Interest Expense 393 389 422 419 446 435 477 445
----- ----- ----- ----- ----- ----- ----- -----
Net Interest Income 490 467 488 509 523 511 504 491
----- ----- ----- ----- ----- ----- ----- -----
Provision for Loan
Losses 45 40 425 90 105 113 62 50
Noninterest Income 441 432 846 420 419 405 349 318
Noninterest Expense 480 455 457 444 446 423 424 415
----- ----- ----- ----- ----- ----- ----- -----
Income Before
Income Taxes 406 404 452 395 391 380 367 344
Income Taxes 154 155 174 152 150 146 141 131
Distribution on Trust
Preferred Securities 2 - - - - - - -
----- ----- ----- ----- ----- ----- ----- -----
Net Income $ 250 $ 249 $ 278 $ 243 $ 241 $ 234 $ 226 $ 213
===== ===== ===== ===== ===== ===== ===== =====
Net Income
Available to
Common Shareholders $ 247 $ 246 $ 276 $ 241 $ 239 $ 232 $ 223 $ 210
===== ===== ===== ===== ===== ===== ===== =====
Per Common Share Data:
Primary Earnings $0.61 $0.60 $0.68 $0.58 $0.58 $0.58 $0.57 $0.56
Fully Diluted
Earnings 0.61 0.60 0.66 0.57 0.56 0.55 0.54 0.53
Cash Dividends 0.22 0.22 0.20 0.20 0.18 0.18 0.16 0.16
Stock Price
High 35.88 30.13 26.94 27.31 24.38 23.25 21.69 16.75
Low 29.00 24.56 23.31 22.00 20.94 19.00 15.94 14.50
Ratios:
Return on Average
Common
Shareholders'
Equity 19.48% 19.63% 21.97% 18.86% 18.87% 19.28% 19.85% 19.98%
Return on Average
Assets 1.84 1.92 2.05 1.79 1.77 1.78 1.68 1.65
<PAGE> 41
The Businesses of The Bank of New York
SECURITIES AND OTHER PROCESSING
The Bank of New York is the largest overall processor of securities
offering a complete range of processing and operating services.
These businesses are presented through nine securities processing product
lines within the broader categories of: shareholder services, custody and the
related securities lending activities, and broker/dealers and investment
companies. Record keeping and reporting are common functions to each of
these. Our other processing businesses include funds transfer, trade services
and cash management.
We have become a much larger global participant in both custody and
corporate trust and operate these businesses from a single platform around the
world with processing centers in New York, London, Brussels and Singapore.
We are the number one provider of American Depositary Receipts, corporate
trust and government securities clearance services and a market leader in our
remaining businesses, including stock transfer, domestic and international
custody, securities lending, unit investment trusts and mutual funds custody.
We experienced internal growth in 1996 in all of these products, most in
excess of 10%. High growth rates in these businesses are expected to
continue with American Depositary Receipts, stock transfer, corporate trust
and government securities clearance being particularly strong.
We have also grown through acquisitions. In 1996 we agreed to acquire the
corporate and municipal trust businesses of Riggs Bank and Wells Fargo &
Company. We also successfully completed the conversion process for our
acquisitions of the custody businesses of BankAmerica and J.P. Morgan, both
announced in 1995.
We have built the critical mass and invested in the technology that will
enable us to maintain growth in all of our processing businesses. As the
consolidation trend continues, we are well positioned to take advantage of
strategic acquisitions as opportunities arise.
SHAREHOLDER SERVICES
American Depositary Receipts:
Depositary receipts enable U.S. investors to invest in dollar-denominated
equity and debt securities of foreign companies and government agencies, and
provide the issuers of these securities access to the U.S. capital markets.
Growth in this business has been very strong, driven by the increased
globalization of the capital markets. Trading volume for listed depositary
receipts has been growing at a compound annual rate of 22% since 1990 and
this growth rate reached 24% in 1996. Trading volume on U.S. exchanges
totaled 10.8 billion depositary receipts in 1996, valued at
$341 billion.
We continue to lead the industry, establishing 161 sponsored programs for
companies in 35 countries in 1996, over 62% of all new public sponsored
depositary receipt programs. For the last five years our share of all new
programs has averaged over 60%. We now issue depositary receipts for
more than 1,000 non-U.S. companies in over 50 countries, representing 57%
of total sponsored programs.
We believe that our leadership position is the result of four strategies:
our ability to open and develop new markets, diversify our client base by
market and by industry, win business from competitors and focus on service
quality.
Fees increased over 20% in 1996 and, with our backlog at a record level,
we expect strong growth in the future.
<PAGE> 42
Corporate Trust:
As corporate trustee, the Bank provides registrar, custodial, escrow and
paying agent services to corporate and government issuers of debt securities.
Our corporate trust services include eight businesses providing a balanced
platform for growth. We are capable of serving any customer needs.
- -Asset-backed and mortgage-backed finance
- -International finance
- -Bankruptcy administration
- -Corporate and municipal finance
- -Derivative products
- -Escrow services
The Bank is a leading supplier of corporate trust services, handling
approximately 40,000 issues with over $500 billion in principal amount
outstanding. The number of issues increased 18% in 1996 while principal
grew 11%.
Growth in our existing book of business was strong with fees up over 20%
in 1996. We achieved a leading position among our competitors being named
trustee on over 1,600 corporate and municipal issues in 1996 amounting to
more than $150 billion.
In October we announced the acquisition of the corporate trust business of
Riggs Bank and in December the corporate and municipal trust business of
Wells Fargo & Company. These transactions will add 6,000 issues and $90
billion in principal. Overall fees grew 105% 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.
Demand for individual record keeping services is increasing with numerous
spin-offs creating new public equities. Also, many companies that had
performed these services in-house are turning to outsourcing. Add-on
services such as stock option plans, dividend reinvestment plans, employee
stock purchase plans, odd-lot buybacks, tenders, and exchange offers have
expanded and diversified our revenue stream.
Quality is now a key driver of revenue growth in stock transfer. In 1996
we incorporated image processing into our operations, a technology which
increased processing speed, improved service quality and added to our
capacity. We are the only transfer agent with three investor relations phone
centers, in New York, New Jersey and Texas. We also have the largest
mailing operation in the stock transfer industry, located in New Jersey.
Based upon customer surveys, an independent study ranked the quality of our
services number one among the leading stock transfer agents in 1996. This is
the second consecutive year that we have achieved this recognition.
During 1996 our client base grew 28% in both the number of companies and
the number of shareholder accounts. We now perform these services for
more than 450 companies with over 10 million shareholders. Fees grew 12%
in 1996 with the expanded customer base providing a solid platform for
future growth.
THE BANK IS AN INTERNATIONALLY RECOGNIZED SECURITIES CUSTODIAN
We offer a comprehensive array of services through a worldwide settlement
network. Our services for a diversified client base 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. In addition, we provide our custody
clients with securities lending, cash management, foreign exchange and credit
services.
<PAGE> 43
Custody:
We are a leading custodian, both in the U.S. and around the world, and
serve a variety of customers including insurance companies, central banks,
commercial banks and government agencies. We also provide custody and
trustee services to clients with multiple investment portfolios such as public
funds, corporate pension funds, Taft-Hartley funds, foundations and
endowments. Services for these clients include daily portfolio valuations,
enhanced regulatory compliance reporting and on-line portfolio performance
analysis.
In U.S. Custody, we serve our domestic clients from strategic locations
across the country. In 1996 we introduced a variety of custody related
functions to the Bank's Office Manager (registered trademark), an interactive
communications system that uses the latest technology to deliver integrated
trade communication, reporting and portfolio analytic capabilities. Early in
1996 we completed the conversion of the BankAmerica custody business which
was primarily domestic but included some global clients. This acquisition
added significantly to our size.
Already a leader in International Custody, we enhanced our capabilities
further through the acquisition of the custody business of J.P. Morgan, greatly
expanding our presence in Europe and Asia. The conversion of these clients
to our systems was completed ahead of schedule in December.
Through the J.P. Morgan transaction we acquired its Brussels operations
center which has become our primary point of operations in Europe. We
now service all the major international markets from processing centers in
New York, London, Brussels and Singapore and are one of the few
organizations that operates from a single processing system worldwide.
We have one of the largest networks of subcustodians in the world enabling
us to serve 81 markets; 15 of which were added in 1996. Total cross-border
assets now exceed $350 billion.
On a combined basis, internal growth in our custody businesses was strong
as we added 84 new clients in 1996 unrelated to acquisitions. At year end,
total assets under custody exceeded $3 trillion. Fees from these businesses
more than doubled in 1996, increasing 123%.
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 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 56% in
1996.
WE ARE A LEADING PROVIDER OF SERVICES TO
BROKER/DEALERS AND INVESTMENT COMPANIES
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. In tri-party repurchase programs, the Bank acts as an
intermediary between dealers and investors, 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.
In 1996 we processed 9,000 tri-party contracts, an increase of 12% over
1995. We continued to see significant growth in our global collateral
management service for international investors. On an average day we
cleared over 60,000 transactions representing approximately $600 billion of
securities and held $180 billion of tri-party collateral under management.
<PAGE> 44
Revenue growth in our core business continued strong at over 14%. With the
J.P. Morgan and BankAmerica acquisitions included, fees increased 68% in 1996.
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 unit-holder relations
services.
In March 1996 we acquired 580 unit investment trusts sponsored by Everen
Securities, Inc. Overall, at year end we were trustee for approximately 4,500
trusts with assets of over $32 billion. Fees rose 9% in 1996.
Mutual Funds Custody:
We are one of the largest custodians 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 well over
1,000 mutual funds for 83 management companies. 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 1996 we achieved 11 new fund manager appointments and increased
the number of portfolios by 279. Total assets under custody rose 18% to
$531 billion at year end. Fees increased 23% in 1996.
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.
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 80,000 transactions
with a dollar volume of $300 billion for domestic and foreign financial
institutions, corporations and individuals. Primarily an international
business, we interface with financial institutions throughout the world,
including our network of over 2,300 correspondent banks.
Our level of activity among U.S. commercial banks has risen steadily over
the past several years. We have become a leading funds transfer bank in the
United States. Fees increased 15% in 1996.
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. Asia, Latin America,
the Middle East and Europe are our primary foreign markets and are serviced
through ten processing centers around the world.
Traditionally, our involvement in trade finance transactions has been with
U.S. imports and exports. We now act as an intermediary for correspondents
in non-U.S. trade with over 40% of our 1996 revenues coming from trade
transactions between foreign countries.
Fees were down slightly in 1996 due to market conditions. We expect
improving conditions will lead to a rebound in fees in 1997.
<PAGE> 45
Cash Management:
We offer a full range of cash management services to corporate and
institutional customers, primarily located in the United States. This business
includes the receipt and disbursement of cash along with sophisticated
reporting. The Bank's position is particularly strong among 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.
We have seen strong growth in electronic payment and information
reporting. In 1996 we launched a series of new products employing the most
sophisticated technology available in the market today. The Bank of New
York Office Manager (registered trademark) is a Windows (registered trademark)
based family of services providing the customer with integrated access to the
Bank's electronic payment, information reporting, and check imaging services.
This product has proven to be highly popular. We also enhanced our electronic
data interchange capabilities and developed a PC-based remote banking product
designed to meet the needs of small businesses. Revenues increased 8% for the
year.
TRUST, INVESTMENT AND PRIVATE BANKING
The Bank of New York has provided private banking services since it was
founded. 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.
We are among the largest bank managers of discretionary assets in the
nation. Total assets under management grew by 17% during 1996 and now exceed
$54 billion, the result of a very successful investment strategy, generally
strong stock and bond markets, and an effective new business effort.
The Bank's Private Banking, International Private Banking, Personal Trust
and Personal Asset Management divisions provide 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.
We have also developed a family of customized mortgage products for these
clients.
A key strategy is the interaction within the Bank to leverage existing
relationships with other areas. For instance, we have private banking groups
that address the needs of executives of corporations we serve in our Special
Industries and U.S. Corporate Banking areas.
Our Tax-Exempt Bond Management service assists individuals and
corporations in maximizing 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 again reached a record level in 1996.
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 institutions. A highlight in 1996 was the outstanding
performance of the Bank's Collective Trust Emerging Growth Fund which
returned over 30%.
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 30% in 1996. Overall,
fees from our trust, investment and private banking activities were up a
strong 18%.
<PAGE> 46
CORPORATE BANKING
The Bank of New York serves the global banking needs of domestic and
multinational corporations and institutions. We focus on lending relationships
with companies where we can position ourselves as a lead bank. Our
leadership position in securities and other processing provides a unique niche
enabling us to meet our corporate customers' securities processing, cash
management, trade finance, foreign exchange, and other banking and
transactional needs.
CORPORATE BANKING TARGETS THESE MARKET SEGMENTS
Special Industries Banking:
The Bank of New York is a leading provider of credit and operating
services to the following industries.
- -Media and entertainment
- -Telecommunications
- -Securities
- -Energy and public utilities
- -Financial institutions
- -Insurance
- -Marine transportation
- -Real estate
- -Retailing
- -Mortgage banking
- -Government banking
We bring a depth of experience and expertise to these industries that
provides added value for our clients.
We are a primary lender, arranger and syndicator of bank loans to the
rapidly expanding media, entertainment and telecommunications industries.
Here, we experienced our highest volume ever in 1996, underwriting 29 credits
as agent totaling $24.5 billion. We currently act as agent or co-agent in
these areas on 92 transactions aggregating $100 billion. Our energy division
also performed well with average loan increasing by 15%. Overall, Special
Industries average loan volume grew a strong 9%.
U.S. Commercial Banking:
This area remains a key strategic focus of the Bank as we pursue a
targeted marketing effort to the nation's largest corporations, primarily
located in nine major urban markets. Credit is an important part of our
efforts here and did well in 1996 with average loan volume expanding by 8%.
Importantly, these corporations are major existing and future users of all of
our securities processing, funds transfer, trade finance, foreign exchange, and
cash management services. The establishment of broad ranging and integrated
relationships with this pool of customers is essential to our continued
overall success.
Middle Market Banking:
We offer middle market customers throughout the New York metropolitan
area, Connecticut and New Jersey a broad range of sophisticated banking
services including traditional lending, asset-based finance, cash management,
securities processing, trade finance, leasing and investment banking. Average
loan volume grew 7% in 1996.
International Banking:
The Bank of New York has a network of 29 branches and representative
offices in 26 foreign countries in addition to the network of over 2,300
foreign correspondent banks. This international franchise provides us with a
marketing platform for all our processing businesses including American
Depositary Receipts, global custody, funds transfer, trade finance, foreign
exchange and securities lending. We continue to benefit from the increased
globalization of the capital markets and are well positioned for a continuation
of this trend.
<PAGE> 47
Factoring:
BNY Financial Corporation is the second largest factor in the U.S. and
the largest in Canada. In addition to factoring, we provide accounts
receivable management and secured lending services. Major customer
diversification has been accomplished in this business in recent years. The
apparel industry, historically two-thirds of our volume, today accounts for
43% as a result of our diversifying into other industries. Operating from
offices in New York, Boston, Atlanta, Charlotte, Los Angeles, Toronto and
Montreal we have achieved a geographic diversification in our client base as
well. In March 1996 we acquired the factoring business of Midlantic Bank.
Factoring volume was $11.2 billion in 1996, similar to the volume in 1995.
Earnings from this operation continued the strong growth trend of the last
several years, rising 12%.
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. Net income in 1996 was down
slightly.
Capital Markets:
BNY Capital Markets, Inc., established in 1996 under Section 20 of the
Glass-Steagall Act, provides a wide array of financial services to corporate
clients. Services include the structuring and syndication of credit
facilities, private placement of debt and equity securities, merger,
acquisition and restructuring advisory services, fairness opinions and
valuations. In 1996 we ranked seventh among major banks in acting as agent
or co-agent on credit facilities. We currently act as administrative agent
on 182 broadly syndicated loans, of which 24 were new appointments in 1996.
In addition, the company has a Municipal Securities Group which
specializes in underwriting and dealing in investment grade tax-exempt
securities for both high net worth individuals and institutional investors.
RETAIL BANKING
The Bank of New York is the leading retail bank in the suburban New York
area and is a source of stable deposits for the Bank as a whole. Through our
extensive branch network we offer a broad range of products and services for
consumers and small businesses.
Our branch network comprises 375 offices serving 25 counties of New York,
New Jersey and Connecticut.
In 1996 the strongest segment of our consumer loan portfolio was
EquityLink, the Bank's home equity credit line. As a result of the highly
successful promotion of our Prime for Life pricing, sales of this product
increased sharply. This special pricing continues in 1997. Approximately 40%
of our personal checking households 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.
We continue to streamline our lending process for small businesses and
offer credit approvals on most applications in under three days. We have
increased our direct marketing efforts to small businesses both through the
branch system and a small business telephone sales unit.
In an effort to reach as many customers and prospects as possible and to
provide the convenient banking that consumers demand we will establish two
new alternative service delivery methods. Our first full service branches
located in supermarkets will open in the second quarter of 1997 with more in
the near future. In 1997 we will introduce Direct 24 PC banking enabling
consumers and small businesses to access account information, transfer balances
and pay bills through their personal computers. The Bank's 24 hour telephone
service will also provide the ability to pay bills by telephone.
In 1996 our Personal Investment Centers had increased sales volume of over
<PAGE> 48
50%, and the service was expanded into Connecticut. Each center is staffed
with licensed investment representatives and offers a wide variety of mutual
funds as well as fixed rate and variable rate annuities. Among their product
offerings are our own BNY Hamilton Funds.
BNY Mortgage Company provides financing for one to four family homes,
condominiums and cooperative apartments through ten loan production
offices in New York, New Jersey and Connecticut. The company offers a
broad range of programs serving all market segments from the first time home
buyer to the large mortgage borrower. 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.
CREDIT CARDS
The Bank of New York (Delaware) services over 4.5 million credit card
accounts with managed credit card receivables outstanding of $5.4 billion at
the end of 1996.
These balances were down from a year ago as in June the contract we had
to issue and manage the AFL-CIO Union Privilege Card was terminated and the
portfolio was sold. We received a gain of $400 million from the sale.
At the same time we established a loan loss reserve of $350 million as a
conservative measure to offset the rising delinquencies and charge-offs in the
remaining portfolio.
We continue to be pleased with the growth of our highly successful
co-branded cards issued in partnership with Toys-R-Us (registered trademark)
and Stop & Shop (registered trademark). The Toy-R-Us Visa (registered
trademark) card is a no annual fee credit card that rewards customers with free
toys and free clothes. Customers can also earn points toward discounted
cruises, airline tickets and hotel stays. The Stop & Shop (registered
trademark) SupeRewards Master Card (registered trademark), with no annual fee,
was the first credit card issued by a leading supermarket chain enabling
customers to earn free airline tickets and vacation rewards. We continue to
look for additional co-branding partnerships.
The MasterCard (registered trademark) 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.
The Consumers Edge (registered trademark) product line, our primary
offering, consists of a variety of cards, all with no annual fees and lower
interest rates.
FINANCIAL MARKET SERVICES
Financial Market Services represents the Bank's trading and investing
activities and our foreign exchange and interest-rate management products.
We conduct these activities for customers as well as for the Bank's own
account.
Global Risk Management Services:
In foreign exchange, we offer a broad array of services in over 80
currencies through our global network of trading rooms in New York, Europe,
and Asia. Revenues rose 36% in 1996.
In February we signed an agreement with Susquehanna Partners to provide a
variety of foreign exchange risk management products allowing us to offer a
multi-disciplinary approach to currency risk management. We provide a full
range of hedging and yield-enhancement strategies tailored to the needs of
clients. In 1997 we expanded the agreement to include interest rate hedging
products to help corporate treasurers and investment managers control and
reduce their exposure to interest rate risk. These products can be transacted
in U.S. dollars as well as selected foreign currencies.
Through BNY Overlay Associates we offer an effective hedging tool
assisting internationally-diversified portfolio managers in identifying and
managing currency risk as a separate asset class.
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 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in the following Registration
Statements, or most recent post-effective amendments thereto, filed prior to
March 26, 1997, of our report dated January 27, 1997, with respect to the
consolidated financial statements of The Bank of New York Company, Inc.
included in the 1996 Annual Report to Shareholders incorporated by reference
in this Annual Report (Form 10-K) for the year ended December 31, 1996.
On Form S-3: On Form S-8:
No. 33-50333 No. 33-56863
No. 33-61957 No. 33-57670
No. 333-03811 No. 33-62267
No. 333-15951 No. 2-95764
No. 333-15951-01 No. 33-20999
No. 333-15951-02 No. 33-33460
No. 333-15951-03
No. 333-15951-04
No. 333-15951-05
On Form S-4:
No. 33-59225
No. 33-25805
\s\ Ernst & Young LLP
New York, New York
March 26, 1997
EXHIBIT 23.2
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. 33-61957
No. 333-03811
No. 333-15951
No. 333-15951-01
No. 333-15951-02
No. 333-15951-03
No. 333-15951-04
No. 333-15951-05
On Form S-4:
No. 33-59225
No. 33-25805
On Form S-8:
No. 33-56863
No. 33-57670
No. 33-62267
No. 2-95764
No. 33-20999
No. 33-33460
\s\ Deloitte & Touche LLP
New York, New York
March 27, 1997
EXHIBIT 99
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 the related consolidated statements of income, changes in
shareholders' equity, and cash flows for each of the two years in the period
then ended. 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 the
results of their operations and their cash flows for each of the two years in
the period then ended in conformity with generally accepted accounting
principles.
\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, 1996 and is qualified entirely by reference to such Form 10-K.
</LEGEND>
<CIK> 0000009626
<NAME> THE BANK OF NEW YORK COMPANY, INC.
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 6,032
<INT-BEARING-DEPOSITS> 1,387
<FED-FUNDS-SOLD> 562
<TRADING-ASSETS> 1,547
<INVESTMENTS-HELD-FOR-SALE> 3,883
<INVESTMENTS-CARRYING> 1,170
<INVESTMENTS-MARKET> 1,127
<LOANS> 37,006
<ALLOWANCE> 901
<TOTAL-ASSETS> 55,765
<DEPOSITS> 39,343
<SHORT-TERM> 5,881
<LIABILITIES-OTHER> 1,983
<LONG-TERM> 1,816
0
112
<COMMON> 3,332
<OTHER-SE> 1,683
<TOTAL-LIABILITIES-AND-EQUITY> 55,765
<INTEREST-LOAN> 3,073
<INTEREST-INVEST> 277
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<INTEREST-TOTAL> 3,583
<INTEREST-DEPOSIT> 1,152
<INTEREST-EXPENSE> 1,622
<INTEREST-INCOME-NET> 1,961
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<SECURITIES-GAINS> 97
<EXPENSE-OTHER> 1,835
<INCOME-PRETAX> 1,656
<INCOME-PRE-EXTRAORDINARY> 1,020
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,020
<EPS-PRIMARY> 2.47<F1>
<EPS-DILUTED> 2.41<F1>
<YIELD-ACTUAL> 4.35
<LOANS-NON> 213
<LOANS-PAST> 247
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<FN>
<F1>Per common share data has been adjusted to reflect the effect of the 2-for-1
common stock split effective July 19, 1996. Prior Financial Data Schedules
have not been restated for this stock split.
</FN>
</TABLE>
