<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
For The Fiscal Year Ended December 31, 1997
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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
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
7.80% Trust Preferred Securities, Series C
7.05% Preferred Securities, Series D
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 27, 1998 consisted of:
Common Stock ($7.50 par value) $21,700,774,297
(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 370,557,512 shares on February 27, 1998
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the 1997 Annual Report to Shareholders are incorporated by
reference into Parts I, II, and IV.
<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 1997 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. The Bank of New York
("BNY"), a New York chartered banking corporation, is a member of the Federal
Reserve System and is subject to regulation, supervision and examination by
the Federal Reserve Board. BNY is also subject to regulation, supervision
and examination by the New York Banking Department.
Both federal and state laws extensively regulate various aspects of the
banking business, such as permissible types and amounts of loans and
investments, permissible activities, and reserve requirements. These
regulations are intended primarily for the protection of depositors rather
than the Company's stockholders.
Capital Adequacy
Bank regulators have adopted risk-based capital guidelines for bank
holding companies and banks. The minimum ratio of qualifying total capital
to risk-weighted assets 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, non-member
banks. The Federal Reserve Board's guidelines provide for a minimum Leverage
Ratio of 3% for bank holding companies and banks that meet certain specified
criteria, including those having the highest regulatory rating. All other
banking organizations will be required to maintain a Leverage Ratio of at
least 3% plus an additional cushion of 100 to 200 basis points. The
guidelines also provide that banking organizations experiencing internal
growth or making acquisitions will be expected to maintain strong capital
positions substantially above the minimum supervisory levels, without
significant reliance on intangible assets. The Federal Reserve Board has not
advised the Company of any specific minimum Leverage Ratio applicable to it.
See "FDICIA" below.
<PAGE> 3
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.
Depository institutions that are not well capitalized are subject to
restrictions on receipt of brokered deposits. In addition, bank regulators
can be expected to restrain acquisitions and new activities by bank holding
companies and banks that are not well capitalized. Undercapitalized
depository institutions are subject to growth limitations and are required to
submit capital restoration plans. For an undercapitalized depository
institution's capital restoration plan to be acceptable, its holding company
must guarantee the capital plan up to an amount equal to the lesser of 5% of
the depository institution's assets at the time it becomes undercapitalized
or the amount of the capital deficiency when the institution fails to comply
with the plan. In the event of the parent holding company's bankruptcy, such
guarantee would take priority over the parent's general unsecured creditors.
The federal banking agencies may not accept a capital plan without
determining, among other things, that the plan is based on realistic
assumptions and is likely to succeed in restoring the depository
institution's capital. If a depository institution fails to submit an
acceptable plan, it is treated as if it is significantly undercapitalized.
Significantly undercapitalized depository institutions may be subject to
a number of requirements and restrictions, including orders to sell
sufficient voting stock to become adequately capitalized, requirements to
reduce total assets and cessation of receipt of deposits from correspondent
banks. Critically undercapitalized depository institutions are subject to
appointment of a receiver or conservator.
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, 1997 and 1996, capital ratios for the Company and BNY
<PAGE> 4
were categorized as well capitalized as set forth in the table below.
December 31, 1997 December 31, 1996
-------------------- --------------------- Well
Capitalized
Company BNY Company BNY Guidelines
------- --- ------- --- ----------
Tier I 7.92% 7.70% 8.34% 7.03% 6%
Total Capital 11.97 10.38 12.78 10.26 10
Leverage 7.59 7.42 8.70 6.89 5
Tangible Common
Equity 6.47 7.57 6.99 6.68
At December 31, 1997, the amounts of capital by which the Company and
BNY exceed the well capitalized guidelines are as follows:
Company BNY
(in millions) ------- ---
Tier 1 $1,092 $ 920
Total Capital 1,118 206
Leverage 1,539 1,359
<PAGE> 5
The following table presents the components of the Company's risk-based
capital at December 31, 1997 and 1996:
(in millions) 1997 1996
---- ----
Common Stock $5,000 $5,015
Preferred Stock 1 112
Minority Interest 1,000 600
Adjustments: Intangibles (1,174) (1,003)
Securities Valuation Allowance (320) (82)
50% Investment in Section 20
Subsidiary - (29)
------ ------
Tier 1 Capital 4,507 4,613
Qualifying Long-term Debt 1,662 1,796
Qualifying Allowance for Loan Losses 641 695
Adjustment: 50% Investment in Section 20
Subsidiary - (29)
------ ------
Tier 2 Capital 2,303 2,462
------ ------
Total Risk-based Capital $6,810 $7,075
====== ======
The following table presents the components of the Company's risk
adjusted assets at December 31, 1997 and 1996:
1997 1996
------------------- --------------------
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 $ 7,895 $ 1,064 $ 7,419 $ 758
Securities 6,628 1,371 5,053 904
Trading Assets 2,616 142 1,547 67
Fed Funds Sold and Securities
Purchased Under Resale Agreements 2,820 439 562 65
Loans 35,127 30,952 37,006 33,518
Allowance for Loan Losses (641) - (901) -
Other Assets 5,516 3,469 5,079 3,600
-------- ------ -------- -------
Total Assets $ 59,961 37,437 $ 55,765 38,912
======== ------- ======== -------
Off-Balance Sheet Exposures
- ---------------------------
Commitments to Extend Credit $ 38,799 12,936 $ 47,111 11,612
Securities Lending Indemnifications 41,041 - 23,881 -
Standby Letters of Credit and
Other Guarantees 8,052 5,863 6,447 4,610
Interest Rate Contracts 61,523 118 29,518 69
Foreign Exchange Contracts 142,204 558 101,527 401
-------- ------- -------- -------
Total Off-Balance Sheet Exposures $291,619 19,475 $208,484 16,692
======== ------- ======== -------
Gross Risk Adjusted Assets 56,912 55,604
Less: Allowance for Loan Losses not
Qualifying as Risk Based Capital - 206
Investment in Section 20
Subsidiary - 58
------- -------
Risk Adjusted Assets $56,912 $55,340
======= =======
<PAGE> 6
FDIC Insurance Assessments
BNY is 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, 1997, 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 1.296 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.
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 national banks and state banks with
different home states are permitted to merge across state lines, with the
approval of the appropriate federal banking agency, unless the home state of
a participating bank passed legislation between the date of enactment of IBBEA
and May 31, 1997 expressly prohibiting interstate mergers. A bank may also
establish and operate a de novo branch in a state in which the bank does not
maintain a branch if that state expressly permits de novo branching. Once a
bank has established branches in a state through an interstate merger
transaction, the bank may establish and acquire additional branches at any
location in the state where any bank involved in the interstate merger
transaction could have established or acquired branches under applicable
federal or state law. A bank that has established a branch in a state
through de novo branching may establish and acquire additional branches in
such state in the same manner and to the same extent as a bank having a
branch in such state as a result of an interstate merger.
The merger of BNY with another bank would require the approval of the
<PAGE> 7
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)
1997 1996 1995
===============================================================================
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) $ 3,277 $ 188 5.75% $ 1,585 $ 91 5.71% $ 1,682 $ 106 6.28%
Federal Funds
Sold and
Securities
Purchased
Under Resale
Agreements 2,964 162 5.46 2,356 126 5.35 3,280 193 5.89
Loans
Domestic
Offices
Credit Card 3,329 472 14.17 6,905 886 12.83 7,637 989 12.96
Other
Consumer 3,503 291 8.31 3,567 362 10.16 3,514 392 11.14
Commercial 14,744 1,167 7.91 13,945 1,023 7.34 13,215 1,047 7.92
Foreign
Offices 15,001 984 6.56 12,281 810 6.59 11,055 805 7.28
------- ----- ------- ------ ------- ------
Total Loans 36,577 2,914* 7.97 36,698 3,081* 8.40 35,421 3,233* 9.13
------- ------ ------- ------ ------- ------
Securities
U.S.
Government
Obligations 3,225 189 5.86 3,365 197 5.84 3,301 191 5.78
Obligations
of States
and Political
Subdivisions 652 56 8.57 656 58 8.91 650 68 10.50
Other
Securities,
including
Trading
Securities
Domestic
Offices 1,360 52 3.81 811 37 4.56 1,076 65 6.10
Foreign
Offices 485 34 6.92 511 31 6.11 233 14 6.31
------- ------ ------- ------ ------- ------
Total Other
Securities 1,845 86 4.63 1,322 68 5.16 1,309 79 6.13
------- ------ ------- ------ ------- ------
Total
Securities 5,722 331 5.77 5,343 323 6.05 5,260 338 6.45
------- ------ ------- ------ ------- ------
Total Inter-
est-Earning
Assets 48,540 $3,595 7.40% 45,982 $3,621 7.88% 45,643 $3,870 8.48%
====== ====== ======
Allowance for
Loan Losses (784) (837) (739)
Cash and Due
from Banks 3,798 2,805 2,971
Other Assets 7,688 5,699 5,178
------- ------- -------
Total Assets $59,242 $53,649 $53,053
======= ======= =======
Assets
Attributable
to Foreign
Offices ** 33.35% 28.50% 25.73%
===== ===== =====
*Includes fees of $154 million in 1997, $139 million in 1996, and $134 million
in 1995. 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 $34 million in 1997, $38 million in 1996,
and $39 million in 1995 and are based on the federal statutory tax rate
(35%) and applicable state and local taxes.
**Includes Cayman Islands branch office.
Continued on page 9
<PAGE> 9
Average Balances and Rates on a Taxable Equivalent Basis (dollars in millions)
1997 1996 1995
===============================================================================
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 $ 4,326 $ 196 4.54% $ 3,855 $ 166 4.30% $ 3,451 $ 153 4.44%
Savings 7,921 202 2.55 8,188 223 2.72 7,909 243 3.07
Certificates
of Deposit
of $100,000
or More 675 37 5.48 895 48 5.32 1,673 95 5.68
Other Time
Deposits 2,514 124 4.92 2,547 121 4.75 2,560 143 5.60
------- ------ ------- ------ ------- ------
Total Domestic
Offices 15,436 559 3.62 15,485 558 3.60 15,593 634 4.07
------- ------ ------- ------ ------- ------
Foreign Offices
Banks in
Foreign
Countries 5,304 225 4.25 4,645 225 4.85 3,968 218 5.48
Government and
Official
Institutions 1,290 69 5.33 1,236 62 5.05 1,394 81 5.78
Other Time and
Savings 8,308 437 5.27 6,351 307 4.85 6,041 332 5.52
------- ------ ------- ------ ------- ------
Total Foreign
Offices 14,902 731 4.91 12,232 594 4.87 11,403 631 5.54
------- ------ ------- ------ ------- ------
Total Interest-
Bearing
Deposits 30,338 1,290 4.25 27,717 1,152 4.16 26,996 1,265 4.69
------- ------ ------- ------ ------- ------
Federal Funds
Purchased and
Securities Sold
Under Repurchase
Agreements 2,410 121 5.00 2,957 155 5.23 2,804 161 5.75
Other Borrowed
Funds 3,177 168 5.27 3,406 186 5.47 3,962 246 6.22
Long-Term Debt 1,815 126 6.92 1,870 129 6.90 1,773 130 7.30
------- ------ ------- ------ ------- ------
Total Interest-
Bearing
Liabilities 37,740 $1,705 4.52% 35,950 $1,622 4.51% 35,535 $1,802 5.07%
====== ====== ======
Noninterest-
Bearing Deposits
Domestic Offices 9,423 8,838 9,012
Foreign Offices 149 44 53
------- ------- -------
Total
Noninterest-
Bearing
Deposits 9,572 8,882 9,065
------- ------- -------
Other Liabilities 6,050 3,621 3,685
Minority Interest
- Preferred
Securities 830 26 -
Preferred Stock 103 113 115
Common
Shareholders'
Equity 4,947 5,055 4,653
------- ------- -------
Total Liabilities
and Share-
holders' Equity $59,242 $53,647 $53,053
======= ======= =======
Net Interest
Earnings and
Interest
Rate Spread $1,890 2.88% $1,999 3.37% $2,068 3.41%
====== ====== ======
Net Yield on
Interest-Earning
Assets 3.89% 4.35% 4.53%
==== ==== ====
Liabilities
Attributable
to Foreign
Offices 30.00% 26.69% 24.94%
===== ===== =====
<PAGE> 10
Rate/Volume Analysis on a Taxable Equivalent Basis (in millions)
- ----------------------------------------------------------------
1997 vs. 1996 1996 vs. 1995
-------------------------------------------------------
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 $ 96 $ 1 $ 97 $ (6) $ (9) $ (15)
Federal Funds Sold
and Securities
Purchased Under
Resale Agreements 33 3 36 (51) (16) (67)
Loans
Domestic Offices
Credit Card (498) 84 (414) (94) (9) (103)
Other Consumer (5) (66) (71) 6 (36) (30)
Commercial 61 83 144 56 (80) (24)
Foreign Offices 178 (4) 174 85 (80) 5
----- ----- ----- ----- ------ ------
Total Loans (264) 97 (167) 53 (205) (152)
Securities
U.S. Government
Obligations (9) 1 (8) 4 2 6
Obligations of
States and
Political
Subdivisions - (2) (2) 1 (11) (10)
Other Securities,
including Trading
Assets
Domestic Offices 22 (7) 15 (14) (14) (28)
Foreign Offices (2) 5 3 17 - 17
----- ----- ----- ----- ----- ------
Total Other
Securities 20 (2) 18 3 (14) (11)
----- ----- ----- ----- ----- ------
Total Securities 11 (3) 8 8 (23) (15)
----- ----- ----- ----- ----- ------
Total Interest
Income (124) 98 (26) 4 (253) (249)
----- ----- ----- ----- ----- ------
Interest Expense
- ----------------
Interest-Bearing
Deposits
Domestic Offices
Money Market Rate
Accounts 21 9 30 17 (4) 13
Savings (7) (14) (21) 8 (28) (20)
Certificate of
Deposits of
$100,000 or More (12) 1 (11) (42) (5) (47)
Other Time Deposits (2) 5 3 (1) (21) (22)
----- ----- ----- ----- ----- ------
Total Domestic
Offices - 1 1 (18) (58) (76)
----- ----- ----- ----- ----- ------
Foreign Offices
Banks in Foreign
Countries 30 (30) - 35 (28) 7
Government and
Official Institutions 3 4 7 (9) (10) (19)
Other Time and
Savings 99 31 130 17 (42) (25)
----- ----- ----- ----- ----- ------
Total Foreign
Offices 132 5 137 43 (80) (37)
----- ----- ----- ----- ----- ------
Total Interest-
Bearing
Deposits 132 6 138 25 (138) (113)
Federal Funds Purchased
and Securities
Sold Under
Repurchase
Agreements (28) (6) (34) 9 (15) (6)
Other Borrowed Funds (12) (6) (18) (32) (28) (60)
Long-Term Debt (4) 1 (3) 7 (8) (1)
----- ----- ----- ----- ----- ------
Total Interest
Expense 88 (5) 83 9 (189) (180)
----- ----- ----- ----- ----- ------
Change in Net
Interest Income $(212) $ 103 $ (109) $ (5) $ (64) $ (69)
===== ===== ===== ===== ===== ======
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 "Market Risk Management", "Trading Activities
and Risk Management" and, "Asset/Liability Management" in the Management's
Discussion and Analysis section of Exhibit 13. Such discussion is
incorporated herein by reference.
The information presented with respect to market risk is forward looking
information. As such it is subject to risks and uncertainties that could
cause actual results to differ materially from projected results discussed in
this Report. These include adverse changes in market conditions and the
actions that management could take in response to these changes.
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, 1997
------------------------------------------------------
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 $11,171 $ 5,112 $ 2,413 $ 559 $ 110 $19,365
Domestic Offices
Loans 11,015 692 321 442 6,130 18,600
Securities 120 259 307 628 3,428 4,742
Trading Assets 2,336 - - - - 2,336
Federal Funds Sold and
Securities Purchased
Under Resale Agreement 2,820 - - - - 2,820
------ ------- ------- ------ ------- -------
Total 27,462 6,063 3,041 1,629 9,668 $47,863
------- ------- ------- ------ ------- =======
Interest-Bearing
Liabilities
- ----------------
Foreign Offices 12,619 928 104 145 - 13,796
Domestic Offices
Interest-Bearing
Deposits
Money Market Rate
Accounts 4,955 - - - - 4,955
Savings 6,562 - - 13 1,092 7,667
Certificates of
Deposit of $100,000
or More 429 424 201 90 498 1,642
Other Time Deposits 267 232 305 280 259 1,343
------- ------- ------- ------ ------- -------
24,832 1,584 610 528 1,849 29,403
------- ------- ------- ------ ------- -------
Federal Funds
Purchased and
Other Borrowed Funds 4,517 1,121 545 160 53 6,396
Long-Term Debt - - 32 - 1,777 1,809
Trust Preferred
Securities - - - - 1,000 1,000
------- ------- ------- ------ ------- -------
Noninterest-Bearing
Sources of Funds 3,078 170 255 509 5,243 9,255
- ------------------- ------- ------- ------- ------ ------- -------
Total 32,427 2,875 1,442 1,197 9,922 $47,863
=======
Effect of Financial
Futures and Swaps 1,310 (1,016) (357) 38 25
------------------- ------- ------- ------- ------ -------
Interest-Sensitive Gap $(3,655) $ 2,172 $ 1,242 $ 470 $ (229)
- ---------------------- ======= ======= ======= ====== =======
Cumulative Interest-
Sensitivity Gap $(3,655) $(1,483) $ (241) $ 229 $ -
- -------------------- ======= ======= ======= ====== =======
<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 $280 million in 1997, compared with
$600 million in 1996 and $330 million in 1995. The decrease in the provision
compared with 1996 is primarily due to the sale of credit card receivables.
In 1997, the Company continued to experience improvement in the asset quality
of business loans as nonperforming loans dropped.
At December 31, 1997, the domestic commercial real estate portfolio had
approximately 81% of its loans in New York and New Jersey and 2% in each of
Pennsylvania, 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 38%
Offices 27
Retail 11
Mixed-Used 3
Hotels 4
Condominiums and cooperatives 6
Industrial/Warehouse 2
Other 9
----
100%
====
At December 31, 1997 and 1996, the Company's nonperforming real estate
loans and real estate acquired in satisfaction of loans aggregated $50
million and $61 million, respectively. Real estate loan net recoveries were
$3 million in 1997 and net charge-offs were $11 million in 1996. In addition,
other real estate charges were $11 million and $1 million in 1997 and 1996.
Other real estate charges in 1997 primarily relate to the sale of one
property in Florida.
At December 31, 1997 the Company's LDC exposures consisted of $44
million in medium-term loans (and no material commitments), $1,250 million in
short-term loans, $22 million in accrued interest, and $132 million in
investments. In addition, the Company has $310 million of debt securities
to emerging market countries, including $266 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 other
installment and residential loans. Residential and auto loans are
collateralized, thereby reducing the risk.
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 December 31, 1997 and 1996. Charge-offs in this industry were $2 million
in 1997 and $1 million in 1996.
The Company's loans to the media and telecommunications industries
primarily consist of credits with cable television operators, broadcasters,
magazine and newspaper publishers, motion picture theaters and regional
telephone companies. There were no nonperforming loans to borrowers in these
industries at December 31, 1997. At December 31, 1996 nonperforming loans
amounted to $23 million and represented loans to a single borrower in the
entertainment industry. Charge-offs in these industries were $6 million in
1997 and zero in 1996.
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, 1997 and 1996, and no charge-offs in 1997 and 1996.
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:
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
Real Estate Loans 4% 5% 7% 9% 8%
Domestic Commercial and
Industrial Loans 64 40 36 40 40
Consumer Loans 1 1 2 - -
Credit Card Loans - 29 23 16 10
Foreign Loans 7 4 11 19 18
Unallocated 24 21 21 16 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) 1997 1996 1995 1994 1993
---- ---- ---- ---- ----
Loans Outstanding, December 31, $35,127 $37,006 $37,687 $33,083 $30,570
Average Loans Outstanding 36,577 36,698 35,421 32,029 30,427
Allowance for Loan Losses
- -------------------------
Balance, January 1
Domestic $ 670 $ 515 $ 509 $ 558 $ 624
Foreign 38 82 155 176 194
Unallocated 193 159 128 236 254
----- ----- ----- ------ ------
Total, January 1 901 756 792 970 1,072
----- ----- ----- ------ ------
Allocations, Acquisitions and
Securitizations (1) (186) - 11 14 1
Charge-Offs
Domestic
Commercial and Industrial (89) (46) (56) (158) (142)
Real Estate & Construction - (11) (19) (6) (71)
Credit Card (298) (503) (294) (169) (136)
Other Consumer (13) (16) (15) (22) (37)
Foreign (3) (4) (48) (56) (63)
----- ----- ----- ------ ------
Total (403) (580) (432) (411) (449)
----- ----- ----- ------ ------
Recoveries
Domestic
Commercial and Industrial 9 15 14 14 28
Real Estate & Construction 3 - 3 - 2
Credit Card 23 62 27 21 15
Other Consumer 8 7 10 14 14
Foreign 6 41 1 8 3
----- ----- ----- ------ ------
Total 49 125 55 57 62
Net Charge-Offs (354) (455) (377) (354) (387)
----- ----- ----- ------ ------
Provision
Domestic 280 600 356 135 242
Foreign - - (26) 27 42
----- ----- ----- ------ ------
Total 280 600 330 162 284
----- ----- ----- ------ ------
Balance, December 31,
Domestic 441 670 515 509 558
Foreign 44 38 82 155 176
Unallocated 156 193 159 128 236
----- ----- ----- ------ ------
Total, December 31, $ 641 $ 901 $ 756 $ 792 $ 970
===== ===== ===== ====== ======
Ratios
- ------
Net Charge-Offs to Average Loans
Outstandings 0.97% 1.24% 1.06% 1.11% 1.27%
===== ===== ===== ===== =====
Net Charge-Offs to Total
Allowance 55.23% 50.50% 49.87% 44.70% 39.90%
===== ===== ===== ===== =====
Total Allowance to Year-End
Loans Outstanding 1.82% 2.44% 2.01% 2.40% 3.17%
===== ===== ===== ===== =====
(1) In 1997, $186 million of the allowance was allocated to credit card
loans sold in 1997.
<PAGE> 16
Nonperforming Assets
- --------------------
A summary of nonperforming assets is presented in the following table.
(in millions) December 31,
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
Nonaccrual
- ----------
Domestic $159 $175 $184 $220 $408
Foreign 34 38 41 77 130
---- ---- ---- ---- ----
193 213 225 297 538
Reduced Rate (Domestic) - - - - 2
- ------------ ---- ---- ---- ---- ----
193 213 225 297 540
Real Estate Acquired
in Satisfaction of Loans 15 41 72 56 99
- ------------------------ ---- ---- ---- ---- ----
$208 $254 $297 $353 $639
==== ==== ==== ==== ====
Past Due 90 Days or More
and Still Accruing Interest
- ---------------------------
Domestic
Credit Card $ 1 $215 $214 $ 97 $ 65
Other Consumer 2 2 5 2 3
Commercial 75 30 51 64 88
---- ---- ---- ---- ----
$ 78 $247 $270 $163 $156
==== ==== ==== ==== ====
<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, 1997.
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 $ 25 4.84% $ 131 5.35% $ 223 4.11%
Over 1 through 5 Years - - 26 6.14 64 5.70
Over 5 through 10 Years - - - - 33 6.31
Over 10 years - - - - 52 6.53
Mortgage-Backed Securities - - - - - -
------ ----- ------
$ 25 4.84% $ 157 5.48% $ 372 4.91%
====== ===== ======
Securities Available-
- --------------------
for-Sale
- ----------
One Year or Less $ 827 5.14% $ 3 6.01% $ 14 6.81%
Over 1 through 5 Years 1,636 5.87 - - 37 6.54
Over 5 through 10 Years 843 5.80 77 6.33 46 5.57
Over 10 years 70 6.01 202 6.55 206 5.62
Equity Securities - - - - - -
----- ----- ------
$3,376 5.68% $ 282 6.48% $ 303 5.78%
====== ===== ======
Other Bonds, Mortgage-Backed
Notes and and Equity
Debentures Securities
--------------- ---------------
Amount Yield Amount Yield Total
------ ----- ------ ----- -----
(dollars in millions)
Securities Held-
- ----------------
to-Maturity
-----------
One Year or Less $ 24 13.54% $ - -% $ 403
Over 1 through 5 Years 70 6.19 - - 160
Over 5 through 10 Years 23 5.84 - - 56
Over 10 years 274 6.47 - - 326
Mortgage-Backed Securities - - 182 7.18 182
------ ----- ------
$ 391 6.81% $ 182 7.18% $1,127
====== ====== ======
Securities Available-
- --------------------
for-Sale
- ----------
One Year or Less $ 26 6.23% $ - -% $ 870
Over 1 through 5 Years 24 10.28 - - 1,697
Over 5 through 10 Years 53 6.20 - - 1,019
Over 10 years 5 3.52 - - 483
Equity Securities - - 1,432 2.58 1,432
----- ------ ------
$ 108 6.97% $1,432 2.58% $5,501
====== ====== ======
Loans
- -----
The following table shows the maturity structure of the Company's commercial
loan portfolio at December 31, 1997.
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 $ 455 $ 1,498 $ 924 $ 2,877
Commercial and Industrial Loans 4,861 6,705 2,863 14,429
Other, Excluding Loans to
Individuals and those
Collateralized by 1-4 Family
Residential Properties 4,541 1,005 173 5,719
------- ------- ------ -------
9,857 9,208 3,960 23,025
Foreign 3,408 931 3,437 7,776
- ------- ------- ------- ------ -------
Total $13,265 $10,139 $7,397 $30,801
======= ======= ====== =======
Loans with:
Predetermined Interest Rates $ 1,874 $ 1,161 $3,008 $ 6,043
Floating Interest Rates 11,391 8,978 4,389 24,758
------- ------- ------ -------
Total $13,265 $10,139 $7,397 $30,801
======= ======= ====== =======
<PAGE> 18
Deposits
- --------
The aggregate amount of deposits by foreign customers in domestic offices
was $4.3 billion, $4.5 billion, and $4.0 billion at December 31, 1997, 1996,
and 1995.
The following table shows the maturity breakdown of domestic time
deposits of $100,000 or more at December 31, 1997.
Time
(in millions) Certificates Deposits-
of Deposits Other Total
-------------------------------------
3 Months or Less $ 663 $2,431 $3,094
Over 3 Through 6 Months 381 - 381
Over 6 Through 12 Months 90 - 90
Over 12 Months 455 53 508
------ ------ ------
Total $1,589 $2,484 $4,073
====== ====== ======
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 1997, 1996, and 1995 is presented
in the table below.
1997 1996 1995
---------------- --------------- ---------------
(dollars in millions)
Average Average Average
Amount Rate Amount Rate Amount Rate
------ ------- ------ ------- ------ -------
Federal Funds Purchased
and Securities Sold Under
Repurchase Agreements
- -------------------------
At December 31 $2,329 4.32% $1,737 5.31% $3,933 4.61%
Average During Year 2,410 5.00 2,957 5.23 2,804 5.75
Maximum Month-End Balance
During Year 3,805 5.45 4,460 4.85 3,991 5.96
Other*
- -----
At December 31 $2,960 5.69% $2,707 5.34% $3,106 5.73%
Average During Year 3,177 5.27 3,406 5.47 3,962 6.22
Maximum Month-End Balance
During Year 3,439 5.12 4,341 5.40 5,025 5.74
*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, 1997, the Company had assets in excess of 1% of year end
total assets in Brazil, totaling $778 million, and in Germany, totaling $641
million. Brazil's assets were all attributable to banks and other financial
institutions. Germany's assets consisted of $381 million attributable to
banks and other financial institutions, $126 million attributable to public
sector entities, and $134 million attributable to commercial, industrial and
other companies. 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, 1997, the Company had assets in excess of
.75% of year end total assets in the United Kingdom, Japan, and Greece
aggregating $1,544 million. At December 31, 1996, the Company had assets in
<PAGE> 19
excess of .75% of year end total assets in Greece, South Korea, and Brazil
aggregating $1,515 million.
Year 2000 Compliance
- --------------------
Noninterest expense for 1997 includes $18 million, approximately 3 cents
per share, related to making computer systems Year 2000 compliant. The
Company plans to have all applications compliant and certified for Year 2000
processing by December 1998. As of December 31, 1997, over 60% of the
Company's 80 million lines of application code has been processed through the
renovation stage. Wholesale systems with 10 million lines of application code
are currently in the final stages of compliance. The projected costs for
1998 and 1999 are $64 million with a majority to be spent in 1998.
The Company has also initiated discussions with its significant suppliers
and customers to attempt to obtain assurance that they have appropriate
plans to be Year 2000 compliant where their systems interact with the
Company. While the Company believes at this time that its efforts are
adequate to address its Year 2000 concerns, it cannot predict whether its
suppliers and customers will be successful in becoming Year 2000 compliant.
The information presented with respect to Year 2000 compliance is forward
looking information. As such it is subject to risks and uncertainties that
could cause actual results to differ materially from the projected results
discussed in this report. These include unforeseen events relating to the
necessary modifications to the Company's computer hardware or software.
Similarly, it is not possible to forecast how interfacing with a noncompliant
system, for example, one belonging to a correspondent bank, sub-custodian,
co-trustee or agent, may affect the Company's systems.
EXECUTIVE OFFICERS OF THE REGISTRANT AND BUSINESS EXPERIENCE DURING THE PAST
- ----------------------------------------------------------------------------
FIVE YEARS
----------
Company
Officer
Name Office and Experience Age Since
---- --------------------- --- -----
J. Carter Bacot 1997-1998 Chairman of the Company and 65 1975
the Bank, retired February 1998
1995-1997 Chairman and Chief Executive Officer
of the Company, Chairman of the Bank
1993-1995 Chairman and Chief Executive Officer
of the Company and the Bank
Thomas A. Renyi 1998 Chairman, President, and Chief 52 1992
Executive Officer of the Company and
the Bank
1997-1998 President and Chief Executive Officer
of the Company and the Bank
1996-1997 President of the Company and President
and Chief Executive Officer of the Bank
1994-1995 President of the Company and President
and Chief Operating Officer of the Bank
1993-1994 President of the Company and
Vice Chairman of the Bank
Alan R. Griffith 1994-1998 Vice Chairman of the Company and 56 1990
the Bank
1993-1994 Senior Executive Vice President of
the Company, and President and Chief
Operating Officer of the Bank
Deno D. Papageorge 1997-1998 Senior Executive Vice President of 59 1980
the Company and the Bank
1993-1997 Senior Executive Vice President of
the Company, Senior Executive Vice
President and Chief Financial
Officer of the Bank
<PAGE> 20
Robert E. Keilman 1993-1998 Comptroller of the Company and 52 1984
the Bank, Senior Vice President
of the Bank
Phebe C. Miller 1995-1998 Secretary and Chief Legal Officer 48 1995
of the Company, Senior Vice
President and Chief Legal Officer
of the Bank
1994-1995 Senior Vice President of the Bank
1993-1994 Managing Director, General Counsel
and Secretary, Discount Corporation
of New York
Robert J. Goebert 1993-1998 Auditor of the Company, Senior Vice 56 1982
President of the Bank
ITEM 2. PROPERTIES
- -------------------
At December 31, 1997, in New York City, the Company owned 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. Subsequent to December 31, 1997 the Company sold the
48 Wall Street property. 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 1997.
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 23,490 common shareholders of record at February 27,
1998.
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
<PAGE> 21
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 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. Such changes could, among other
things, increase the Company's overhead costs, restrict access to profitable
markets, increase competition for banks, 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
<PAGE> 22
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.
PART III
- --------
The material responsive to Items 10, 11, 12 and 13 is incorporated by
reference to the Company's definitive proxy statement for its 1998 Annual
Meeting, except for information as to Executive Officers set forth in Part I,
Item 1.
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 24 of this Report, which information is incorporated by
reference.
(b) Reports on Form 8-K:
October 21, 1997: Unaudited interim financial information and
accompanying discussion for the third quarter of 1997.
December 18, 1997: Announcement of the approval by the Board of
Directors of a plan to buy back, through the end of 1998, up to
15 million common shares.
January 20, 1998: Unaudited interim financial information and
accompanying discussion for the fourth quarter of 1997.
February 27, 1998: Restatement of selected financial data and
quarterly financial data that appeared in the Company's 1996 Form
10-K and restatement of the computation of earnings per share for
the years 1992-1996 and the quarters for 1995 and 1996 to be in
conformity with SFAS 128.
(c) Exhibits:
Submitted as a separate section of this report.
(d) Financial Statements Schedules:
None
<PAGE> 23
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 10th day of March, 1998.
THE BANK OF NEW YORK COMPANY, INC.
By: \s\ Robert E. Keilman
-------------------------------------
(Robert E. Keilman,
Comptroller)
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 10th day of March, 1998.
Signature Title
--------- -----
\s\ J. Carter Bacot Director
- ------------------------------------
(J. Carter Bacot)
\s\ Deno D. Papageorge Senior Executive Vice President
- ------------------------------------ and Director
(Deno D. Papageorge)
\s\ Robert E. Keilman Comptroller
- ------------------------------------ (principal accounting officer)
(Robert E. Keilman)
\s\ Richard Barth Director
- ------------------------------------
(Richard Barth)
\s\ Frank J. Biondi, Jr. Director
- ------------------------------------
(Frank J. Biondi, Jr.)
\s\ William R. Chaney Director
- ------------------------------------
(William R. Chaney)
\s\ Ralph E. Gomory Director
- ------------------------------------
(Ralph E. Gomory)
\s\ Alan R. Griffith Vice Chairman and Director
- ------------------------------------
(Alan R. Griffith)
<PAGE> 24
\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.)
\s\ John C. Malone Director
- ------------------------------------
(John C. Malone)
\s\ Donald L. Miller Director
- ------------------------------------
(Donald L. Miller)
\s\ H. Barclay Morley Director
- ------------------------------------
(H. Barclay Morley)
\s\ Catherine A. Rein Director
- ------------------------------------
(Catherine A. Rein)
\s\ Thomas A. Renyi Chairman, Chief Executive Officer,
- ------------------------------------ President, and Director
(Thomas A. Renyi) (principal executive officer)
\s\ Harold E. Sells Director
- ------------------------------------
(Harold E. Sells)
<PAGE> 25
INDEX TO EXHIBITS
Exhibit No.
- ------------
3 (a) The By-Laws of The Bank of New York Company, Inc. as amended through
October 13, 1987.*
(b) Restated Certificate of Incorporation of The Bank of New York
Company, Inc. dated July 20, 1994, as amended by a Certificate of
Amendment to Certificate of Incorporation - incorporated by
reference to the Company's Quarterly Reports on Form 10-Q for the
quarters ended September 30, 1994 and June 30, 1996.*
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.
(b) Rights Agreement, including form of Preferred Stock Purchase
Rights.*
(c) First Amendment, dated as of June 13, 1989, to the Rights Agreement,
including form of Preferred Stock Purchase Right, dated as of
December 10, 1985, between The Bank of New York Company, Inc. and
The Bank of New York, as Rights Agent.*
(d) Second Amendment, dated as of April 30, 1993, to the Rights
Agreement, including form of Preferred Stock Purchase Right, dated
as of December 10, 1985, between The Bank of New York Company, Inc.
and The Bank of New York, as Rights Agent.*
(e) Third Amendment, dated as of March 8, 1994, to the Rights
Agreement, dated as of December 10, 1985, between The Bank of New
York Company, Inc. and The Bank of New York, as Rights Agent.*
10 (a) Amendment dated October 1, 1997 to the Trust Agreement dated
November 16, 1993 related to executive compensation agreements.
(b) Enhanced Severance Agreement dated July 8, 1997.
(c) Enhanced Severance Agreement dated July 8, 1997.
(d) Enhanced Severance Agreement dated July 8, 1997.
(e) Enhanced Severance Agreement dated July 8, 1997.
(f) Consulting Agreement dated November 5, 1997.
(g) Compensation Agreement dated April 17, 1997.
(h) 1984 Stock Option Plan of The Bank of New York Company, Inc. as
amended through February 23, 1988.*
(i) Amendment dated October 11, 1994 to 1984 Stock Option Plan of The
Bank of New York Company, Inc.*
(j) The Bank of New York Company, Inc. Excess Contribution Plan as
amended through July 10, 1990.*
(k) Amendments to The Bank of New York Company, Inc. Excess
Contribution Plan dated February 23, 1994 and November 9, 1993.*
(l) Amendment to The Bank of New York Company, Inc. Excess Contribution
Plan dated November 14, 1995.*
<PAGE> 26
(m) The Bank of New York Company, Inc. Excess Benefit Plan as amended
through December 8, 1992.*
(n) Amendments to The Bank of New York Company, Inc. Excess Benefit
Plan dated February 23, 1994 and November 9, 1993.*
(o) Amendment dated May 10, 1994 to The Bank of New York Company, Inc.
Excess Benefit Plan.*
(p) Amendment to The Bank of New Company, Inc. Excess Benefit Plan dated
November 14, 1995.*
(q) 1994 Management Incentive Compensation Plan of The Bank of New York
Company, Inc.*
(r) 1988 Long-Term Incentive Plan as amended through December 8, 1992.*
(s) Amendment dated October 11, 1994 to the 1988 Long-Term Incentive
Plan of The Bank of New York Company, Inc.*
(t) The Bank of New York Company, Inc. 1993 Long-Term Incentive Plan.*
(u) Amendment dated October 11, 1994 to the 1993 Long-Term Incentive
Plan of The Bank of New York Company, Inc.*
(v) Amendment to the 1993 Long-Term Incentive Plan of The Bank of New
York Company, Inc. dated December 10, 1996.*
(w) Amendment to the 1993 Long-Term Incentive Plan of The Bank of New
York Company, Inc. dated January 14, 1997.*
(x) Amendment to the 1993 Long-Term Incentive Plan of The Bank of New
York Company, Inc. dated March 11, 1997.*
(y) The Bank of New York Company, Inc. Supplemental Executive
Retirement Plan.*
(z) Amendment to The Bank of New York Company, Inc. Supplemental
Executive Retirement Plan dated March 9, 1993.*
(aa) Amendment effective October 11, 1994 to The Bank of New York
Company, Inc. Supplemental Executive Retirement Plan.*
(bb) Amendment to The Bank of New York Company, Inc. Supplemental
Executive Retirement Plan dated June 11, 1996.*
(cc) Amendment to The Bank of New York Company, Inc. Supplemental
Executive Retirement Plan dated November 12, 1996.*
(dd) Trust Agreement dated April 19, 1988 related to certain executive
compensation plans and agreements.*
(ee) Trust Agreement dated November 16, 1993 related to certain executive
compensation plans and agreements.*
(ff) Amendment dated October 11, 1994 to Trust Agreement dated November
16, 1993, related to certain executive compensation plans and
agreements.*
(gg) Trust Agreement dated December 15, 1994 related to certain executive
compensation plans and agreements.*
(hh) Amendment dated January 31, 1997 to the Trust Agreement dated
April 19, 1988 related to executive compensation agreements.*
<PAGE> 27
(ii) Amendment dated January 14, 1997 to the Trust Agreement dated
November 16, 1993 related to executive compensation agreements.*
(jj) Amendment dated January 31, 1997 to the Trust Agreement dated
November 16, 1993 related to executive compensation agreements.*
(kk) Amendment dated January 31, 1997 to the Trust Agreement dated
December 15, 1994 related to certain executive compensation plans
and agreements.*
(ll) Form of Remuneration Agreement between the Company and one of the
five most highly compensated executive officers of the Company.*
(mm) Form of Tax Reimbursement Agreement dated as of July 13, 1994
between the Company and two of the five most highly compensated
executive officers of the Company.*
(nn) Form of Remuneration Agreement dated October 11, 1994 between the
Company and three of the five most highly compensated officers of
the Company.*
(oo) The Bank of New York Company, Inc. Retirement Plan for Non-Employee
Directors.*
(pp) Amendment dated November 8, 1994 to The Bank of New York Company,
Inc. Retirement Plan for Non-Employee Directors.*
(qq) Deferred Compensation Plan for Non-Employee Directors of The Bank
of New York Company, Inc.*
(rr) Amendment dated November 8, 1994 to Deferred Compensation Plan for
Non-Employee Directors of The Bank of New York Company, Inc.*
(ss) Amendment to the Directors' Deferred Compensation Plan for 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 1997 Annual Report to Shareholders
16 Letter re: Change in Certifying Accountant*
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
* Incorporated by reference
<PAGE> 1
Exhibit 10(a)
AMENDMENT NUMBER NINE
TO
GRANTOR TRUST AGREEMENT
THIS AGREEMENT, made as of the first day of October, 1997, by
and between THE BANK OF NEW YORK COMPANY, INC., a corporation organized and
existing 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, 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 October 1, 1997:
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 authorized
officers under their corporate seals as of the day and year first above
written.
ATTEST: THE BANK OF NEW YORK COMPANY, INC.
\s\ Patricia H. Brown By: \s\ Deno D. Papageorge
- ------------------------ -------------------------------
Deno D. Papageorge
Senior Executive Vice President
ATTEST: THE CHASE MANHATTAN BANK
By: \s\ Judith M. Trepanowski
-------------------------------
Name: Judith M. Trepanowski
Title: Vice President
PAGE <2>
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
---------- -----------------
Alan R. Griffith July 8, 1997
Joseph A. Grimaldi April 11, 1995
Gerald L. Hassell July 8, 1997
Newton P.S. Merrill October 11, 1994
Donald R. Monks January 14, 1997
Robert J. Mueller July 8, 1997
Richard A. Pace October 11, 1994
Thomas A. Renyi July 8, 1997
Bruce W. Van Saun July 8, 1997
<PAGE> 1
Exhibit 10(b)
THE BANK OF NEW YORK COMPANY, INC.
48 WALL STREET
NEW YORK, N.Y. 10286
July 8, 1997
Mr. Alan R. Griffith
The Bank of New York
48 Wall Street
New York, New York 10286
Dear Mr. Griffith:
The Bank of New York Company, Inc., a New York corporation (the
"Company"), considers the establishment and maintenance of a sound and vital
management to be essential to protecting and enhancing the best interests of
the Company and its shareholders. In this connection, the Company recognizes
that, as is the case with many publicly held corporations, the possibility of
a change in control may arise and that such possibility, and the uncertainty
and questions which it may raise among management of the Company and its
principal subsidiary, The Bank of New York (the "Bank"), may result in the
departure or distraction of management personnel to the detriment of the
Company and its shareholders. Accordingly, the Board of Directors of the
Company (the "Board") has determined that appropriate steps should be taken
to reinforce and encourage the continued attention and dedication of members
of management of the Company and the Bank to their assigned duties without
distraction in circumstances arising from the possibility of a change in
control of the Company. In particular, the Board believes it important,
should the Company or its shareholders receive a proposal for transfer of
control of the Company, that you be able to assess and advise the Board
whether such proposal would be in the best interests of the Company and its
shareholders and to take such other action regarding such proposal as the
Board might determine to be appropriate, without being influenced by the
uncertainties of your own situation.
In order to induce you to remain in the employ of the Company, this
letter agreement sets forth the severance benefits which the Company agrees
will be provided to you in the event your employment with the Company or the
Bank is terminated subsequent to a "change in control" of the Company under
the circumstances described below.
<PAGE> 2
1. Agreement to Provide Services; Right to Terminate.
(i) Except as otherwise provided in paragraph (ii) below, the
Company, the Bank or you may terminate your employment at any time, subject
to the Company's providing the benefits hereinafter specified in accordance
with the terms hereof.
(ii) In the event a tender offer or exchange offer is made by a
Person (as hereinafter defined) for more than 25% of the combined voting
power of the Company's outstanding securities ordinarily having the right to
vote at elections of directors ("Voting Securities"), including shares of the
common stock of the Company, you agree that you will not leave the employ of
the Company or the Bank (other than as a result of Disability or upon
Retirement, as such terms are hereinafter defined) and will render the
services contemplated in the recitals to this Agreement until such tender
offer or exchange offer has been abandoned or terminated or a change in
control of the Company, as defined in Section 3 hereof, has occurred. For
purposes of this Agreement, the term "Person" shall mean and include any
individual, corporation, partnership, group, association or other "person",
as such term is used in Section 14(d) of the Securities Exchange Act of 1934
(the "Exchange Act"), other than the Company, the Bank, any other subsidiary
of the Company or any employee benefit plan(s) sponsored by the Company, the
Bank or any other subsidiary of the Company.
2. Term of Agreement. This Agreement shall commence on the date
hereof and shall continue in effect until December 31, 1999; provided,
however, that commencing on January 1, 2000 and each January 1 thereafter,
the term of this Agreement shall automatically be extended for one additional
year unless at least 90 days prior to such January 1st date, the Company or
you shall have given notice that this Agreement shall not be extended; and
provided, further, that, notwithstanding the delivery of any such notice,
this Agreement shall continue in effect for a period of twenty-four (24)
months after a change in control of the Company, as defined in Section 3
hereof, if such change in control shall have occurred during the term of this
Agreement, as it may be extended by the first proviso set forth above.
Notwithstanding anything in this Section 2 to the contrary, this Agreement
shall terminate if you or the Company or the Bank terminate your employment
<PAGE> 3
prior to a change in control of the Company.
3. Change in Control. For purposes of this Agreement, a "change
in control" of the Company 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 Company or any of its subsidiaries, a trustee or any fiduciary
holding securities under an employee benefit plan of the Company 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 Company in substantially the same proportion as their
ownership of the Company, is or becomes the "beneficial owner" (as defined in
Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of
the Company representing 25% or more of the combined voting power of the
Company's then outstanding securities ("Voting Securities"); or (B) during
any period of not more than two years, individuals who constitute the Board
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 Company to
effect a transaction described in clause (A) or (C) of this sentence) whose
election by the Board or nomination for election by the Company's shareholders
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 reason to
constitute a majority thereof; or (C) the shareholders of the Company approve
a merger or consolidation of the Company with any other corporation, other
than a merger or consolidation which would result in the Voting Securities of
the Company 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 Company or such surviving entity outstanding
immediately after such merger or consolidation, or the shareholders of the
Company approve a plan of complete liquidation of the Company or any
agreement for the sale or disposition by the Company or all or substantially
all of the Company's assets.
<PAGE> 4
4. Termination Following Change in Control. If any of the events
described in Section 3 hereof constituting a change in control of the Company
shall have occurred, you shall be entitled to the benefits provided in
Section 5 hereof upon the termination of your employment with the Company or
the Bank within twenty-four (24) months after such event, unless such
termination is (a) because of your death or Retirement, (b) by the Company
for Cause or Disability or (c) by you other than for Good Reason (as all such
capitalized terms are hereinafter defined).
(i) Disability. Termination by the Company of your employment
based on "Disability" shall mean termination because of your absence from
your duties with the Company on a full time basis for one hundred eighty
(180) consecutive days as a result of your incapacity due to physical or
mental illness, unless within thirty (30) days after Notice of Termination
(as hereinafter defined) is given to you following such absence you shall
have returned to the full time performance of your duties.
(ii) Retirement. Termination by you or by the Company of your
employment based on "Retirement" shall mean termination on or after your
attainment of age sixty-five (65).
(iii) Cause. Termination by the Company or the Bank of your
employment for "Cause" shall mean termination upon (a) the willful and
continued failure by you to perform substantially your duties with the
Company or the Bank (other than any such failure resulting from your
incapacity due to physical or mental illness) after a demand for substantial
performance is delivered to you by the Chairman of the Board or President of
the Company or the Chief Executive Officer of the Bank, as appropriate, which
specifically identifies the manner in which such executive believes that you
have not substantially performed your duties, or (b) the willful engaging by
you in illegal conduct which is materially and demonstrably injurious to the
Company or the Bank. For purposes of this paragraph (iii), no act, or
failure to act, on your part shall be considered "willful" unless done,
or omitted to be done, by you in bad faith and without reasonable belief that
your action or omission was in, or not opposed to, the best interests of the
Company or the Bank. Any act, or failure to act, based upon authority given
pursuant to a resolution duly adopted by the Board or based upon the advice
of counsel for the Company or the Bank shall be conclusively presumed to be
<PAGE> 5
done, or omitted to be done, by you in good faith and in the best interests
of the Company and the Bank. It is also expressly understood that your
attention to matters not directly related to the business of the Company or
the Bank shall not provide a basis for termination for Cause so long as the
Board has approved your engagement in such activities. Notwithstanding the
foregoing, you shall not be deemed to have been terminated for Cause unless
and until there shall have been delivered to you a copy of a resolution duly
adopted by the affirmative vote of not less than three-quarters of the entire
membership of the Board at a meeting of the Board called and held for the
purpose (after reasonable notice to you and an opportunity for you, together
with your counsel, to be heard before the Board), finding that in the good
faith opinion of the Board you were guilty of the conduct set forth above in
(a) or (b) of this paragraph (iii) and specifying the particulars thereof in
detail.
(iv) Good Reason. Termination by you of your employment for "Good
Reason" shall mean termination based on:
(A) a determination by you, in your reasonable judgment, that there
has been an adverse change in your status or position(s) as an executive
officer of the Company or the Bank as in effect immediately prior to the
change in control, including, without limitation, any adverse change in your
status or position as a result of a diminution in your duties or
responsibilities (other than, if applicable, any such change directly
attributable to the fact that the Company is no longer publicly owned) or the
assignment to you of any duties or responsibilities which are inconsistent
with such status or position(s), or any removal of you from or any failure to
reappoint or reelect you to such position(s) (except in connection with the
termination of your employment for Cause, Disability or Retirement or as a
result of your death or by you other than for Good Reason);
(B) a reduction by the Company or the Bank in your base salary as
in effect immediately prior to the change in control;
(C) the failure by the Company or the Bank to continue in effect
any Plan (as hereinafter defined) in which you are participating at the time
<PAGE> 6
of the change in control of the Company (or Plans providing you with at least
substantially similar benefits) other than as a result of the normal
expiration of any such Plan in accordance with its terms as in effect at the
time of the change in control, or the taking of any action, or the failure to
act, by the Company or the Bank which would adversely affect your continued
participation in any of such Plans on at least as favorable a basis to you as
is the case on the date of the change in control or which would materially
reduce your benefits in the future under any of such Plans or deprive you of
any material benefit enjoyed by you at the time of the change in control;
(D) the failure by the Company or the Bank to provide and credit
you with the number of paid vacation days to which you are then entitled in
accordance with its normal vacation policy as in effect immediately prior to
the change in control;
(E) the requirement by the Company or the Bank that you be based
at an office that is greater than 35 miles from where your office is located
immediately prior to the change in control except for required travel on the
business of the Company or the Bank to an extent substantially consistent
with the business travel obligations which you undertook on behalf of the
Company or the Bank prior to the change in control;
(F) the failure by the Company to obtain from any Successor (as
hereinafter defined) the assent to this Agreement contemplated by Section 6
hereof;
(G) any purported termination by the Company or the Bank of your
employment which is not effected pursuant to a Notice of Termination
satisfying the requirements of paragraph (v) below (and, if applicable,
paragraph (iii) above); and for purposes of this Agreement, no such purported
termination shall be effective; or
(H) any refusal by the Company or the Bank to continue to allow
you to attend to matters or engage in activities not directly related to the
business of the Company or the Bank which, prior to the change in control,
you were permitted by the Board to attend to or engage in.
<PAGE> 7
For purposes of this Agreement, "Plan" shall mean any compensation plan such
as an incentive, stock option or restricted stock plan or any employee
benefit plan such as a thrift, pension, profit sharing, medical, disability,
accident, life insurance plan or a relocation plan or policy or any other
plan, program or policy of the Company or the Bank intended to benefit
employees.
(v) Notice of Termination. Any purported termination by the
Company or the Bank or by you following a change in control shall be
communicated by written Notice of Termination to the other party hereto. For
purposes of this Agreement, a "Notice of Termination" shall mean a notice
which shall indicate the specific termination provision in this Agreement
relied upon.
(vi) Date of Termination. "Date of Termination" following a change
in control shall mean (a) if your employment is to be terminated for
Disability, thirty (30) days after Notice of Termination is given (provided
that you shall not have returned to the performance of your duties on a
full-time basis during such thirty (30) day period), (b) if your employment
is to be terminated by the Company or the Bank for Cause or by you pursuant
to Sections 4(iv)(F) and 6 hereof or for any other Good Reason, the date
specified in the Notice of Termination, or (c) if your employment is to be
terminated by the Company or the Bank for any reason other than Cause, the
date specified in the Notice of Termination, which in no event shall be a
date earlier than ninety (90) days after the date on which a Notice of
Termination is given, unless an earlier date has been expressly agreed to by
you in writing either in advance of, or after, receiving such Notice of
Termination. In the case of termination by the Company or the Bank of your
employment for Cause, if you have not previously expressly agreed in writing
to the termination, then within thirty (30) days after receipt by you of the
Notice of Termination with respect thereto, you may notify the Company that a
dispute exists concerning the termination, in which event the Date of
Termination shall be the date set either by mutual written agreement of the
parties or by the arbitrators in a proceeding as provided in Section 13
hereof. During the pendency of any such dispute, the Company or the Bank
will continue to pay you your full compensation in effect just prior to the
time the Notice of Termination is given and until the dispute is resolved in
accordance with Section 13.
<PAGE> 8
5. Compensation Upon Termination or During Disability; Other
Agreements.
(i) During any period following a change in control of the Company
that you fail to perform your duties as a result of incapacity due to
physical or mental illness, you shall continue to receive your salary at the
rate then in effect and any benefits or awards under any Plans shall continue
to accrue during such period, to the extent not inconsistent with such Plans,
until your employment is terminated pursuant to and in accordance with
Sections 4(i) and 4(vi) hereof. Thereafter, your benefits shall be determined
in accordance with the Plans then in effect.
(ii) If your employment shall be terminated for Cause following a
change in control of the Company, the Company or the Bank shall pay you your
salary through the Date of Termination at the rate in effect just prior to
the time a Notice of Termination is given plus any benefits or awards
(including both the cash and stock components) which pursuant to the terms of
any Plans have been earned and are otherwise payable, but which have not yet
been paid to you. Thereupon the Company and the Bank shall have no further
obligations to you under this Agreement.
(iii) If, within twenty-four (24) months after a change in control
of the Company, as defined in Section 3 above, shall have occurred, your
employment by the Company or the Bank shall be terminated (a) by the Company
or the Bank other than for Cause, Disability or Retirement or (b) by you for
Good Reason, then the Company shall pay or cause the Bank to pay to you, no
later than the fifth business day following the Date of Termination, without
regard to any contrary provisions of any Plan, the following:
(A) your salary through the Date of Termination at the rate in
effect just prior to the time a Notice of Termination is given plus any
benefits or awards (including both the cash and stock components) which
pursuant to the terms of any Plans have been earned and otherwise payable,
but which have not yet been paid to you; and
(B) as severance pay a lump sum in cash equal to the sum of the
following amounts:
<PAGE> 9
(1) three times the average annual salary and bonus paid to you
during the 36 months immediately preceding the month in which the change in
control occurs; and
(2) the lump sum actuarial equivalent (utilizing actuarial
assumptions no less favorable to you than those in effect under the Company's
Retirement Plan immediately prior to the change in control) of the excess of
the (A) benefits under the Company's Retirement Plan, Excess Benefit Plan and
Supplemental Executive Retirement Plan (collectively, the "Defined Benefit
Plans") which you would receive if your employment continued for three years
after the Date of Termination, assuming for this purpose that (x) your
accrued benefits under the Defined Benefit Plans were fully vested, (y) in
each of the three years you received (a) salary at the annual rate in effect
immediately prior to the change in control and (b) bonus compensation equal
to the last bonus paid to you prior to the change in control and (z) there
were no reduction or offset under the Defined Benefit Plans for the actuarial
value of your account under the Employee Stock Ownership Plan of The Bank of
New York Company, Inc. (the "ESOP"), over (B) the vested accrued benefits
payable under the Defined Benefit Plans as of the Date of Termination if
there were no reduction or offset thereunder for the actuarial value of your
ESOP account.
(iv) If, within twenty-four (24) months after a change in control
of the Company, as defined in Section 3 above, shall have occurred, your
employment by the Company or the Bank shall be terminated (a) by the Company
or the Bank other than for Cause, Disability or Retirement or (b) by you for
Good Reason, then the Company shall maintain or cause the Bank to maintain in
full force and effect, for the continued benefit of you and your dependents
for a period terminating on the earliest of (a) three years after the Date of
Termination, (b) the commencement date of equivalent benefits from a new
employer or (c) your attainment of age sixty-five (65), all insured and
self-insured employee welfare benefit Plans in which you were entitled to
participate immediately prior to the Date of Termination, provided that your
continued participation is possible under the general terms and provisions of
such Plans (and any applicable funding media) and you continue to pay an
<PAGE> 10
amount equal to your regular contribution under such plans for such
participation. If, at the end of three years after the Termination Date, you
have not reached your sixty-fifth birthday and you have not previously
received or are not then receiving equivalent benefits from a new employer,
the Company shall or cause the Bank to arrange, at its sole cost and expense,
to enable you to convert your and your dependents' coverage under such Plans
to individual policies or programs upon the same terms as employees of the
Company and the Bank may apply for such conversions. In the event that your
participation in any such Plan is barred, the Company shall or cause the
Bank, at its sole cost and expense, to arrange to have issued for the benefit
of you and your dependents individual policies of insurance providing
benefits substantially similar (on an after-tax basis) to those which you
otherwise would have been entitled to receive under such Plans pursuant to
this paragraph (iv) or, if such insurance is not available at a reasonable
cost to the Company or the Bank, the Company shall or cause the Bank to
otherwise provide you and your dependents with equivalent benefits (on an
after-tax basis). You shall not be required to pay any premiums or other
charges in an amount greater than that which you would have paid in order to
participate in such Plans.
(v) In the event it shall be determined that any payment, award,
benefit or distribution (or any acceleration of any payment, award, benefit
or distribution) by the Company (or any of its affiliated entities) or any
entity which effectuates a change in control (or any of its affiliated
entities) to or for your benefit, whether pursuant to the terms of this
Agreement or otherwise, but determined without regard to any additional
payments required under this Section 5 (the "Payments"), would be subject to
the excise tax imposed by Section 4999 of the Internal Revenue Code of 1986,
as amended (the "Code"), or any interest or penalties are incurred by you
with respect to such excise tax (such excise tax, together with any such
interest and penalties, are hereinafter collectively referred to as the
"Excise Tax"), then the Company shall pay you an additional payment (a
"Gross-Up Payment") in an amount such that after payment by you of all taxes
(including any Excise Tax) imposed upon the Gross-Up Payment, you retain an
amount of the Gross-Up Payment equal to the sum of (x) the Excise Tax imposed
upon the Payments and (y) the product of any deductions disallowed because of
the inclusion of the Gross-up Payment in your adjusted gross income and the
<PAGE> 11
highest applicable marginal rate of federal income taxation for the calendar
year in which the Gross-up Payment is to be made. For purposes of determining
the amount of the Gross-up Payment, you shall be deemed to (i) pay federal
income taxes at the highest marginal rates of federal income taxation for the
calendar year in which the Gross-up Payment is to be made, (ii) pay
applicable state and local income taxes at the highest marginal rate of
taxation for the calendar year in which the Gross-up Payment is to be made,
net of the maximum reduction in federal income taxes which could be obtained
from deduction of such state and local taxes and (iii) have otherwise
allowable deductions for federal income tax purposes at least equal to those
which could be disallowed because of the inclusion of the Gross-up Payment in
the Executive's adjusted gross income. The Gross-up Payment under this
paragraph (v) with respect to any Payment shall be made no later than thirty
(30) days following such Payment.
As a result of the uncertainty in the application of Section 4999 of
the Code at the time of the Determination, it is possible that Gross-Up
Payments which will not have been made by the Company should have been made
("Underpayment") or Gross-up Payments are made by the Company which should
not have been made ("Overpayment"), consistent with the calculations required
to be made hereunder. In the event that you are thereafter required to make
payment of any Excise Tax or additional Excise Tax, the Accounting Firm shall
determine the amount of the Underpayment that has occurred and any such
Underpayment (together with interest at the rate provided in Section
1274(b)(2)(B) of the Code) shall be promptly paid by the Company to or for
your benefit. In the event the amount of the Gross-up Payment exceeds the
amount necessary to reimburse you for your Excise Tax, the Accounting Firm
shall determine the amount of the Overpayment that has been made and any such
Overpayment (together with interest at the rate provided in Section 1274(b)(2)
of the Code) shall be promptly paid by you (to the extent you have received a
refund if the applicable Excise Tax has been paid to the Internal Revenue
Service) to or for the benefit of the Company. You shall cooperate, to the
extent your expenses are reimbursed by the Company, with any reasonable
requests by the Company in connection with any contests or disputes with the
Internal Revenue Service in connection with the Excise Tax.
<PAGE> 12
(vi) Notwithstanding the provisions of paragraph (iii) of this
Section 5, you shall receive in lieu of the amounts provided by subparagraph
(B) thereof, the following amount if it is greater than the sum of the
amounts provided by such subparagraph: a lump sum in cash equal to 2.99
times your annualized includible compensation for the base period" (as such
term is defined in Section 280G(d)(1) of the Code), reduced, if applicable,
to the maximum amount that could be paid to you without giving rise to the
Excise Tax (the "Safe Harbor Cap"). The reduction of the amounts payable
under this Agreement, if applicable, shall be made first by reducing the lump
sum payment provided for in the preceding sentence unless an alternative
method of reduction is elected by you.
(vii) All determinations required to be made under paragraphs (v)
and (vi) of this Section, including whether and when a Gross-Up Payment is
required and the amount of such Gross-Up Payment or the reduction of the
Payments to the Safe Harbor Cap, as well as the assumptions to be utilized in
arriving at such determinations, shall be made by the public accounting firm
that is retained by the Company as of the date immediately prior to the
change in control (the "Accounting Firm") which shall provide detailed
supporting calculations both to the Company and you within fifteen (15)
business days of the receipt of notice from the Company or you that there has
been a Payment, or such earlier time as is requested by the Company
(collectively, the "Determination"). In the event that the Accounting Firm
is serving as accountant or auditor for the individual, entity or group
effecting the change in control, you may appoint another nationally
recognized public accounting firm to make the determinations required
hereunder (which accounting firm shall then be referred to as the Accounting
Firm hereunder). All fees and expenses of the Accounting Firm shall be borne
solely by the Company and the Company shall enter into any agreement requested
by the Accounting Firm in connection with the performance of the services
hereunder. If the Accounting Firm determines that no Excise Tax is payable
by you, it shall furnish you with a written opinion to such effect, and to
the effect that failure to report the Excise Tax, if any, on your applicable
federal income tax return will not result in the imposition of a negligence
or similar penalty. In the event the Accounting Firm determines that the
Payments shall be reduced to the Safe Harbor Cap, it shall furnish you with
a written opinion to such effect. The Determination by the Accounting Firm
shall be binding upon the Company and you.
<PAGE> 13
(viii) Except as specifically provided in paragraph (iv) above, the
amount of any payment provided for in this Section 5 shall not be reduced,
offset or subject to recovery by the Company or the Bank by reason of any
compensation earned by you as the result of employment by another employer
after the Date of Termination, or otherwise.
6. Successors; Binding Agreement.
(i) The Company will seek, by written request at least five
business days prior to the time a Person becomes a Successor (as hereinafter
defined), to have such Person by agreement in form and substance satisfactory
to you, assent to the fulfillment of the Company's obligations under this
Agreement. Failure of such Person to furnish such assent by the later of (A)
three business days prior to the time such Person becomes a Successor or (B)
two business days after such Person receives a written request to so assent
shall constitute Good Reason for termination by you of your employment if a
change in control of the Company occurs or has occurred. For purposes of
this Agreement, "Successor" shall mean any Person that succeeds to, or has
the practical ability to control (either immediately or with the passage of
time), the Company's business directly, by merger or consolidation, or
indirectly, by purchase of the Company's Voting Securities or otherwise.
(ii) This Agreement shall inure to the benefit of and be enforceable
by your personal or legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees. If you should die
while any amount would still be payable to you hereunder if you had continued
to live, all such amounts, unless otherwise provided herein, shall be paid in
accordance with the terms of this Agreement to your devisee, legatee or other
designee or, if there be no such designee, to your estate.
(iii) For purposes of this Agreement, the "Company" shall include
any corporation or other entity which is the surviving or continuing entity
in respect of any merger, consolidation or form of business combination in
which the Company ceases to exist.
<PAGE> 14
7. Fees, Expenses and Interest; Mitigation.
(i) The Company shall, or cause the Bank to, reimburse you, on a
current basis, for all reasonable legal fees and related expenses incurred by
you in connection with the Agreement following a change in control of the
Company, including, without limitation, (a) all such fees and expenses, if
any, incurred in contesting or disputing any termination of your employment
or incurred by you in seeking advice with respect to the matters set forth in
Section 8 hereof or (b) your seeking to obtain or enforce any right or benefit
provided by this Agreement, in each case, regardless of whether or not your
claim is upheld by a court of competent jurisdiction; provided, however, you
shall be required to repay any such amounts to the Company to the extent that
a court issues a final and non-appealable order setting forth the
determination that the position taken by you was frivolous or advanced by you
in bad faith. In addition to the fees and expenses provided herein, you
shall also be paid interest on any disputed amount ultimately paid to you at
the prime rate announced by the Bank from time to time from the date payment
should have been made until paid in full.
(ii) You shall not be required to mitigate the amount of any payment
the Company or the Bank becomes obligated to make to you in connection with
this Agreement, by seeking other employment or otherwise.
8. Taxes. All payments to be made to you under this Agreement
will be subject to required withholding of federal, state and local income
and employment taxes.
9. Survival. The respective obligations of, and benefits
afforded to, the Company and you as provided in Sections 5, 6(ii), 7, 8, 13
and 14 of this Agreement shall survive termination of this Agreement.
10. Notice. For the purposes of this Agreement, notices and all
other communications provided for in the Agreement shall be in writing and
shall be deemed to have been duly given when delivered or mailed by United
States registered mail, return receipt requested, postage prepaid and
addressed, in the case of the Company, to the address set forth on the first
page of this Agreement or, in the case of the undersigned employee, to the
address set forth below his signature, provided that all notices to the
Company shall be directed to the attention of the Chairman of the Board or
<PAGE> 15
President of the Company, with a copy to the Secretary of the Company, or to
such other address as either party may have furnished to the other in writing
in accordance herewith, except that notice of change of address shall be
effective only upon receipt.
11. Miscellaneous. No provision of this Agreement may be modified,
waived or discharged unless such modification, waiver or discharge is agreed
to in a writing signed by you and the Chairman of the Board or President of
the Company. No waiver by either party hereto at any time of any breach by
the other party hereto of, or of compliance with, any condition or provision
of this Agreement to be performed by such other party shall be deemed a
waiver of similar or dissimilar provisions or conditions at the same or at
any prior or subsequent time. No agreements or representations, oral or
otherwise, express or implied, with respect to the subject matter hereof have
been made by either party which are not expressly set forth in this Agreement.
The validity, interpretation, construction and performance of this Agreement
shall be governed by the laws of the State of New York applied without regard
to conflict of laws principles.
12. Validity. The invalidity or unenforceability of any provision
of this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, which shall remain in full force and effect.
13. Arbitration. Any dispute or controversy arising under or in
connection with this Agreement shall be settled exclusively by arbitration in
New York City by three arbitrators in accordance with the rules of the
American Arbitration Association then in effect. Judgment may be entered on
the arbitrators' award in any court having jurisdiction; provided, however,
that you shall be entitled to seek specific performance of your right to be
paid until the Date of Termination during the pendency of any dispute or
controversy arising under or in connection with this Agreement. The Company
shall bear all costs and expenses arising in connection with any arbitration
proceeding pursuant to this Section 13.
14. Employee's Commitment. You agree that subsequent to your
period of employment with the Company and the Bank, you will not at any time
communicate or disclose to any unauthorized person, without the written
consent of the Company, any proprietary processes of the Company or any
<PAGE> 16
subsidiary or other confidential information concerning their business,
affairs, products, suppliers or customers which, if disclosed, would have a
material adverse effect upon the business or operations of the Company and
its subsidiaries, taken as a whole; it being understood, however, that the
obligations of this Section 14 shall not apply to the extent that the
aforesaid matters (a) are disclosed in circumstances where you are legally
required to do so or (b) become generally known to and available for use by
the public otherwise than by your wrongful act or omission.
15. Related Agreements. To the extent that any provision of any
other agreement between the Company, the Bank or any of the Company's other
subsidiaries and you shall limit, qualify or be inconsistent with any
provision of this Agreement, then for purposes of this Agreement, while the
same shall remain in force, the provision of this Agreement shall control and
such provision of such other agreement shall be deemed to have been
superseded, and to be of no force or effect, as if such other agreement had
been formally amended to the extent necessary to accomplish such purpose.
16. Counterparts. This Agreement may be executed in several
counterparts, each of which shall be deemed to be an original but all of
which together will constitute one and the same instrument.
If this letter correctly sets forth our agreement on the subject
matter hereof, kindly sign and return to the Company the enclosed copy of
this letter which will then
<PAGE> 17
constitute our agreement on this subject and will supersede our previous
letter agreement dated October 11, 1994.
Sincerely,
THE BANK OF NEW YORK COMPANY, INC.
By \s\ Phebe C. Miller
-------------------------------
Name: Phebe C. Miller
Title: Chief Legal Officer and
Secretary
Agreed to this day
of , 1997.
\s\ Alan R. Griffith
- -----------------------
Alan R. Griffith
<PAGE> 1
Exhibit 10(c)
THE BANK OF NEW YORK COMPANY, INC.
48 WALL STREET
NEW YORK, N.Y. 10286
July 8, 1997
Mr. Gerald L. Hassell
The Bank of New York
48 Wall Street
New York, New York 10286
Dear Mr. Hassell:
The Bank of New York Company, Inc., a New York corporation (the
"Company"), considers the establishment and maintenance of a sound and vital
management to be essential to protecting and enhancing the best interests of
the Company and its shareholders. In this connection, the Company recognizes
that, as is the case with many publicly held corporations, the possibility of
a change in control may arise and that such possibility, and the uncertainty
and questions which it may raise among management of the Company and its
principal subsidiary, The Bank of New York (the "Bank"), may result in the
departure or distraction of management personnel to the detriment of the
Company and its shareholders. Accordingly, the Board of Directors of the
Company (the "Board") has determined that appropriate steps should be taken
to reinforce and encourage the continued attention and dedication of members
of management of the Company and the Bank to their assigned duties without
distraction in circumstances arising from the possibility of a change in
control of the Company. In particular, the Board believes it important,
should the Company or its shareholders receive a proposal for transfer of
control of the Company, that you be able to assess and advise the Board
whether such proposal would be in the best interests of the Company and its
shareholders and to take such other action regarding such proposal as the
Board might determine to be appropriate, without being influenced by the
uncertainties of your own situation.
In order to induce you to remain in the employ of the Company, this
letter agreement sets forth the severance benefits which the Company agrees
will be provided to you in the event your employment with the Company or the
Bank is terminated subsequent to a "change in control" of the Company under
the circumstances described below.
<PAGE> 2
1. Agreement to Provide Services; Right to Terminate.
(i) Except as otherwise provided in paragraph (ii) below, the
Company, the Bank or you may terminate your employment at any time, subject
to the Company's providing the benefits hereinafter specified in accordance
with the terms hereof.
(ii) In the event a tender offer or exchange offer is made by a
Person (as hereinafter defined) for more than 25% of the combined voting
power of the Company's outstanding securities ordinarily having the right to
vote at elections of directors ("Voting Securities"), including shares of the
common stock of the Company, you agree that you will not leave the employ of
the Company or the Bank (other than as a result of Disability or upon
Retirement, as such terms are hereinafter defined) and will render the
services contemplated in the recitals to this Agreement until such tender
offer or exchange offer has been abandoned or terminated or a change in
control of the Company, as defined in Section 3 hereof, has occurred. For
purposes of this Agreement, the term "Person" shall mean and include any
individual, corporation, partnership, group, association or other "person",
as such term is used in Section 14(d) of the Securities Exchange Act of 1934
(the "Exchange Act"), other than the Company, the Bank, any other subsidiary
of the Company or any employee benefit plan(s) sponsored by the Company, the
Bank or any other subsidiary of the Company.
2. Term of Agreement. This Agreement shall commence on the date
hereof and shall continue in effect until December 31, 1999; provided,
however, that commencing on January 1, 2000 and each January 1 thereafter,
the term of this Agreement shall automatically be extended for one additional
year unless at least 90 days prior to such January 1st date, the Company or
you shall have given notice that this Agreement shall not be extended; and
provided, further, that, notwithstanding the delivery of any such notice,
this Agreement shall continue in effect for a period of twenty-four (24)
months after a change in control of the Company, as defined in Section 3
hereof, if such change in control shall have occurred during the term of this
Agreement, as it may be extended by the first proviso set forth above.
Notwithstanding anything in this Section 2 to the contrary, this Agreement
<PAGE> 3
shall terminate if you or the Company or the Bank terminate your employment
prior to a change in control of the Company.
3. Change in Control. For purposes of this Agreement, a "change
in control" of the Company 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 Company or any of its subsidiaries, a trustee or any fiduciary
holding securities under an employee benefit plan of the Company 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 Company in substantially the same proportion as their
ownership of the Company, is or becomes the "beneficial owner" (as defined in
Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of
the Company representing 25% or more of the combined voting power of the
Company's then outstanding securities ("Voting Securities"); or (B) during
any period of not more than two years, individuals who constitute the Board
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 Company to
effect a transaction described in clause (A) or (C) of this sentence) whose
election by the Board or nomination for election by the Company's shareholders
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 reason to
constitute a majority thereof; or (C) the shareholders of the Company approve
a merger or consolidation of the Company with any other corporation, other
than a merger or consolidation which would result in the Voting Securities of
the Company 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 Company or such surviving entity outstanding
immediately after such merger or consolidation, or the shareholders of the
Company approve a plan of complete liquidation of the Company or any
agreement for the sale or disposition by the Company or all or substantially
all of the Company's assets.
<PAGE> 4
4. Termination Following Change in Control. If any of the events
described in Section 3 hereof constituting a change in control of the Company
shall have occurred, you shall be entitled to the benefits provided in
Section 5 hereof upon the termination of your employment with the Company or
the Bank within twenty-four (24) months after such event, unless such
termination is (a) because of your death or Retirement, (b) by the Company
for Cause or Disability or (c) by you other than for Good Reason (as all such
capitalized terms are hereinafter defined).
(i) Disability. Termination by the Company of your employment
based on "Disability" shall mean termination because of your absence from
your duties with the Company on a full time basis for one hundred eighty
(180) consecutive days as a result of your incapacity due to physical or
mental illness, unless within thirty (30) days after Notice of Termination
(as hereinafter defined) is given to you following such absence you shall
have returned to the full time performance of your duties.
(ii) Retirement. Termination by you or by the Company of your
employment based on "Retirement" shall mean termination on or after your
attainment of age sixty-five (65).
(iii) Cause. Termination by the Company or the Bank of your
employment for "Cause" shall mean termination upon (a) the willful and
continued failure by you to perform substantially your duties with the
Company or the Bank (other than any such failure resulting from your
incapacity due to physical or mental illness) after a demand for substantial
performance is delivered to you by the Chairman of the Board or President of
the Company or the Chief Executive Officer of the Bank, as appropriate, which
specifically identifies the manner in which such executive believes that you
have not substantially performed your duties, or (b) the willful engaging by
you in illegal conduct which is materially and demonstrably injurious to the
Company or the Bank. For purposes of this paragraph (iii), no act, or
failure to act, on your part shall be considered "willful" unless done,
or omitted to be done, by you in bad faith and without reasonable belief that
your action or omission was in, or not opposed to, the best interests of the
Company or the Bank. Any act, or failure to act, based upon authority given
pursuant to a resolution duly adopted by the Board or based upon the advice
of counsel for the Company or the Bank shall be conclusively presumed to be
<PAGE> 5
done, or omitted to be done, by you in good faith and in the best interests
of the Company and the Bank. It is also expressly understood that your
attention to matters not directly related to the business of the Company or
the Bank shall not provide a basis for termination for Cause so long as the
Board has approved your engagement in such activities. Notwithstanding the
foregoing, you shall not be deemed to have been terminated for Cause unless
and until there shall have been delivered to you a copy of a resolution duly
adopted by the affirmative vote of not less than three-quarters of the entire
membership of the Board at a meeting of the Board called and held for the
purpose (after reasonable notice to you and an opportunity for you, together
with your counsel, to be heard before the Board), finding that in the good
faith opinion of the Board you were guilty of the conduct set forth above in
(a) or (b) of this paragraph (iii) and specifying the particulars thereof in
detail.
(iv) Good Reason. Termination by you of your employment for "Good
Reason" shall mean termination based on:
(A) a determination by you, in your reasonable judgment, that there
has been an adverse change in your status or position(s) as an executive
officer of the Company or the Bank as in effect immediately prior to the
change in control, including, without limitation, any adverse change in your
status or position as a result of a diminution in your duties or
responsibilities (other than, if applicable, any such change directly
attributable to the fact that the Company is no longer publicly owned) or the
assignment to you of any duties or responsibilities which are inconsistent
with such status or position(s), or any removal of you from or any failure to
reappoint or reelect you to such position(s) (except in connection with the
termination of your employment for Cause, Disability or Retirement or as a
result of your death or by you other than for Good Reason);
(B) a reduction by the Company or the Bank in your base salary as
in effect immediately prior to the change in control;
(C) the failure by the Company or the Bank to continue in effect
any Plan (as hereinafter defined) in which you are participating at the time
<PAGE> 6
of the change in control of the Company (or Plans providing you with at least
substantially similar benefits) other than as a result of the normal
expiration of any such Plan in accordance with its terms as in effect at the
time of the change in control, or the taking of any action, or the failure to
act, by the Company or the Bank which would adversely affect your continued
participation in any of such Plans on at least as favorable a basis to you as
is the case on the date of the change in control or which would materially
reduce your benefits in the future under any of such Plans or deprive you of
any material benefit enjoyed by you at the time of the change in control;
(D) the failure by the Company or the Bank to provide and credit
you with the number of paid vacation days to which you are then entitled in
accordance with its normal vacation policy as in effect immediately prior to
the change in control;
(E) the requirement by the Company or the Bank that you be based
at an office that is greater than 35 miles from where your office is located
immediately prior to the change in control except for required travel on the
business of the Company or the Bank to an extent substantially consistent
with the business travel obligations which you undertook on behalf of the
Company or the Bank prior to the change in control;
(F) the failure by the Company to obtain from any Successor (as
hereinafter defined) the assent to this Agreement contemplated by Section 6
hereof;
(G) any purported termination by the Company or the Bank of your
employment which is not effected pursuant to a Notice of Termination
satisfying the requirements of paragraph (v) below (and, if applicable,
paragraph (iii) above); and for purposes of this Agreement, no such purported
termination shall be effective; or
(H) any refusal by the Company or the Bank to continue to allow
you to attend to matters or engage in activities not directly related to the
business of the Company or the Bank which, prior to the change in control,
you were permitted by the Board to attend to or engage in.
<PAGE> 7
For purposes of this Agreement, "Plan" shall mean any compensation plan such
as an incentive, stock option or restricted stock plan or any employee
benefit plan such as a thrift, pension, profit sharing, medical, disability,
accident, life insurance plan or a relocation plan or policy or any other
plan, program or policy of the Company or the Bank intended to benefit
employees.
(v) Notice of Termination. Any purported termination by the
Company or the Bank or by you following a change in control shall be
communicated by written Notice of Termination to the other party hereto. For
purposes of this Agreement, a "Notice of Termination" shall mean a notice
which shall indicate the specific termination provision in this Agreement
relied upon.
(vi) Date of Termination. "Date of Termination" following a change
in control shall mean (a) if your employment is to be terminated for
Disability, thirty (30) days after Notice of Termination is given (provided
that you shall not have returned to the performance of your duties on a
full-time basis during such thirty (30) day period), (b) if your employment
is to be terminated by the Company or the Bank for Cause or by you pursuant
to Sections 4(iv)(F) and 6 hereof or for any other Good Reason, the date
specified in the Notice of Termination, or (c) if your employment is to be
terminated by the Company or the Bank for any reason other than Cause, the
date specified in the Notice of Termination, which in no event shall be a
date earlier than ninety (90) days after the date on which a Notice of
Termination is given, unless an earlier date has been expressly agreed to by
you in writing either in advance of, or after, receiving such Notice of
Termination. In the case of termination by the Company or the Bank of your
employment for Cause, if you have not previously expressly agreed in writing
to the termination, then within thirty (30) days after receipt by you of the
Notice of Termination with respect thereto, you may notify the Company that a
dispute exists concerning the termination, in which event the Date of
Termination shall be the date set either by mutual written agreement of the
parties or by the arbitrators in a proceeding as provided in Section 13
hereof. During the pendency of any such dispute, the Company or the Bank
will continue to pay you your full compensation in effect just prior to the
time the Notice of Termination is given and until the dispute is resolved in
accordance with Section 13.
<PAGE> 8
5. Compensation Upon Termination or During Disability; Other
Agreements.
(i) During any period following a change in control of the Company
that you fail to perform your duties as a result of incapacity due to
physical or mental illness, you shall continue to receive your salary at the
rate then in effect and any benefits or awards under any Plans shall continue
to accrue during such period, to the extent not inconsistent with such Plans,
until your employment is terminated pursuant to and in accordance with
Sections 4(i) and 4(vi) hereof. Thereafter, your benefits shall be determined
in accordance with the Plans then in effect.
(ii) If your employment shall be terminated for Cause following a
change in control of the Company, the Company or the Bank shall pay you your
salary through the Date of Termination at the rate in effect just prior to
the time a Notice of Termination is given plus any benefits or awards
(including both the cash and stock components) which pursuant to the terms of
any Plans have been earned and are otherwise payable, but which have not yet
been paid to you. Thereupon the Company and the Bank shall have no further
obligations to you under this Agreement.
(iii) If, within twenty-four (24) months after a change in control
of the Company, as defined in Section 3 above, shall have occurred, your
employment by the Company or the Bank shall be terminated (a) by the Company
or the Bank other than for Cause, Disability or Retirement or (b) by you for
Good Reason, then the Company shall pay or cause the Bank to pay to you, no
later than the fifth business day following the Date of Termination, without
regard to any contrary provisions of any Plan, the following:
(A) your salary through the Date of Termination at the rate in
effect just prior to the time a Notice of Termination is given plus any
benefits or awards (including both the cash and stock components) which
pursuant to the terms of any Plans have been earned and otherwise payable,
but which have not yet been paid to you; and
(B) as severance pay a lump sum in cash equal to the sum of the
following amounts:
<PAGE> 9
(1) three times the average annual salary and bonus paid to you
during the 36 months immediately preceding the month in which the change in
control occurs; and
(2) the lump sum actuarial equivalent (utilizing actuarial
assumptions no less favorable to you than those in effect under the Company's
Retirement Plan immediately prior to the change in control) of the excess of
the (A) benefits under the Company's Retirement Plan, Excess Benefit Plan and
Supplemental Executive Retirement Plan (collectively, the "Defined Benefit
Plans") which you would receive if your employment continued for three years
after the Date of Termination, assuming for this purpose that (x) your
accrued benefits under the Defined Benefit Plans were fully vested, (y) in
each of the three years you received (a) salary at the annual rate in effect
immediately prior to the change in control and (b) bonus compensation equal
to the last bonus paid to you prior to the change in control and (z) there
were no reduction or offset under the Defined Benefit Plans for the actuarial
value of your account under the Employee Stock Ownership Plan of The Bank of
New York Company, Inc. (the "ESOP"), over (B) the vested accrued benefits
payable under the Defined Benefit Plans as of the Date of Termination if
there were no reduction or offset thereunder for the actuarial value of your
ESOP account.
(iv) If, within twenty-four (24) months after a change in control
of the Company, as defined in Section 3 above, shall have occurred, your
employment by the Company or the Bank shall be terminated (a) by the Company
or the Bank other than for Cause, Disability or Retirement or (b) by you for
Good Reason, then the Company shall maintain or cause the Bank to maintain in
full force and effect, for the continued benefit of you and your dependents
for a period terminating on the earliest of (a) three years after the Date of
Termination, (b) the commencement date of equivalent benefits from a new
employer or (c) your attainment of age sixty-five (65), all insured and
self-insured employee welfare benefit Plans in which you were entitled to
participate immediately prior to the Date of Termination, provided that your
continued participation is possible under the general terms and provisions of
<PAGE> 10
such Plans (and any applicable funding media) and you continue to pay an
amount equal to your regular contribution under such plans for such
participation. If, at the end of three years after the Termination Date, you
have not reached your sixty-fifth birthday and you have not previously
received or are not then receiving equivalent benefits from a new employer,
the Company shall or cause the Bank to arrange, at its sole cost and expense,
to enable you to convert your and your dependents' coverage under such Plans
to individual policies or programs upon the same terms as employees of the
Company and the Bank may apply for such conversions. In the event that your
participation in any such Plan is barred, the Company shall or cause the
Bank, at its sole cost and expense, to arrange to have issued for the benefit
of you and your dependents individual policies of insurance providing
benefits substantially similar (on an after-tax basis) to those which you
otherwise would have been entitled to receive under such Plans pursuant to
this paragraph (iv) or, if such insurance is not available at a reasonable
cost to the Company or the Bank, the Company shall or cause the Bank to
otherwise provide you and your dependents with equivalent benefits (on an
after-tax basis). You shall not be required to pay any premiums or other
charges in an amount greater than that which you would have paid in order to
participate in such Plans.
(v) In the event it shall be determined that any payment, award,
benefit or distribution (or any acceleration of any payment, award, benefit
or distribution) by the Company (or any of its affiliated entities) or any
entity which effectuates a change in control (or any of its affiliated
entities) to or for your benefit, whether pursuant to the terms of this
Agreement or otherwise, but determined without regard to any additional
payments required under this Section 5 (the "Payments"), would be subject to
the excise tax imposed by Section 4999 of the Internal Revenue Code of 1986,
as amended (the "Code"), or any interest or penalties are incurred by you
with respect to such excise tax (such excise tax, together with any such
interest and penalties, are hereinafter collectively referred to as the
"Excise Tax"), then the Company shall pay you an additional payment (a
"Gross-Up Payment") in an amount such that after payment by you of all taxes
(including any Excise Tax) imposed upon the Gross-Up Payment, you retain an
amount of the Gross-Up Payment equal to the sum of (x) the Excise Tax imposed
upon the Payments and (y) the product of any deductions disallowed because of
the inclusion of the Gross-up Payment in your adjusted gross income and the
<PAGE> 11
highest applicable marginal rate of federal income taxation for the calendar
year in which the Gross-up Payment is to be made. For purposes of determining
the amount of the Gross-up Payment, you shall be deemed to (i) pay federal
income taxes at the highest marginal rates of federal income taxation for the
calendar year in which the Gross-up Payment is to be made, (ii) pay
applicable state and local income taxes at the highest marginal rate of
taxation for the calendar year in which the Gross-up Payment is to be made,
net of the maximum reduction in federal income taxes which could be obtained
from deduction of such state and local taxes and (iii) have otherwise
allowable deductions for federal income tax purposes at least equal to those
which could be disallowed because of the inclusion of the Gross-up Payment in
the Executive's adjusted gross income. The Gross-up Payment under this
paragraph (v) with respect to any Payment shall be made no later than thirty
(30) days following such Payment.
As a result of the uncertainty in the application of Section 4999 of
the Code at the time of the Determination, it is possible that Gross-Up
Payments which will not have been made by the Company should have been made
("Underpayment") or Gross-up Payments are made by the Company which should
not have been made ("Overpayment"), consistent with the calculations required
to be made hereunder. In the event that you are thereafter required to make
payment of any Excise Tax or additional Excise Tax, the Accounting Firm shall
determine the amount of the Underpayment that has occurred and any such
Underpayment (together with interest at the rate provided in Section
1274(b)(2)(B) of the Code) shall be promptly paid by the Company to or for
your benefit. In the event the amount of the Gross-up Payment exceeds the
amount necessary to reimburse you for your Excise Tax, the Accounting Firm
shall determine the amount of the Overpayment that has been made and any such
Overpayment (together with interest at the rate provided in Section 1274(b)(2)
of the Code) shall be promptly paid by you (to the extent you have received a
refund if the applicable Excise Tax has been paid to the Internal Revenue
Service) to or for the benefit of the Company. You shall cooperate, to the
extent your expenses are reimbursed by the Company, with any reasonable
requests by the Company in connection with any contests or disputes with the
Internal Revenue Service in connection with the Excise Tax.
<PAGE> 12
(vi) Notwithstanding the provisions of paragraph (iii) of this
Section 5, you shall receive in lieu of the amounts provided by subparagraph
(B) thereof, the following amount if it is greater than the sum of the
amounts provided by such subparagraph: a lump sum in cash equal to 2.99
times your annualized includible compensation for the base period" (as such
term is defined in Section 280G(d)(1) of the Code), reduced, if applicable,
to the maximum amount that could be paid to you without giving rise to the
Excise Tax (the "Safe Harbor Cap"). The reduction of the amounts payable
under this Agreement, if applicable, shall be made first by reducing the lump
sum payment provided for in the preceding sentence unless an alternative
method of reduction is elected by you.
(vii) All determinations required to be made under paragraphs (v)
and (vi) of this Section, including whether and when a Gross-Up Payment is
required and the amount of such Gross-Up Payment or the reduction of the
Payments to the Safe Harbor Cap, as well as the assumptions to be utilized in
arriving at such determinations, shall be made by the public accounting firm
that is retained by the Company as of the date immediately prior to the
change in control (the "Accounting Firm") which shall provide detailed
supporting calculations both to the Company and you within fifteen (15)
business days of the receipt of notice from the Company or you that there has
been a Payment, or such earlier time as is requested by the Company
(collectively, the "Determination"). In the event that the Accounting Firm
is serving as accountant or auditor for the individual, entity or group
effecting the change in control, you may appoint another nationally
recognized public accounting firm to make the determinations required
hereunder (which accounting firm shall then be referred to as the Accounting
Firm hereunder). All fees and expenses of the Accounting Firm shall be borne
solely by the Company and the Company shall enter into any agreement requested
by the Accounting Firm in connection with the performance of the services
hereunder. If the Accounting Firm determines that no Excise Tax is payable
by you, it shall furnish you with a written opinion to such effect, and to
the effect that failure to report the Excise Tax, if any, on your applicable
federal income tax return will not result in the imposition of a negligence
or similar penalty. In the event the Accounting Firm determines that the
Payments shall be reduced to the Safe Harbor Cap, it shall furnish you with
a written opinion to such effect. The Determination by the Accounting Firm
shall be binding upon the Company and you.
<PAGE> 13
(viii) Except as specifically provided in paragraph (iv) above, the
amount of any payment provided for in this Section 5 shall not be reduced,
offset or subject to recovery by the Company or the Bank by reason of any
compensation earned by you as the result of employment by another employer
after the Date of Termination, or otherwise.
6. Successors; Binding Agreement.
(i) The Company will seek, by written request at least five
business days prior to the time a Person becomes a Successor (as hereinafter
defined), to have such Person by agreement in form and substance satisfactory
to you, assent to the fulfillment of the Company's obligations under this
Agreement. Failure of such Person to furnish such assent by the later of (A)
three business days prior to the time such Person becomes a Successor or (B)
two business days after such Person receives a written request to so assent
shall constitute Good Reason for termination by you of your employment if a
change in control of the Company occurs or has occurred. For purposes of
this Agreement, "Successor" shall mean any Person that succeeds to, or has
the practical ability to control (either immediately or with the passage of
time), the Company's business directly, by merger or consolidation, or
indirectly, by purchase of the Company's Voting Securities or otherwise.
(ii) This Agreement shall inure to the benefit of and be enforceable
by your personal or legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees. If you should die
while any amount would still be payable to you hereunder if you had continued
to live, all such amounts, unless otherwise provided herein, shall be paid in
accordance with the terms of this Agreement to your devisee, legatee or other
designee or, if there be no such designee, to your estate.
(iii) For purposes of this Agreement, the "Company" shall include
any corporation or other entity which is the surviving or continuing entity
in respect of any merger, consolidation or form of business combination in
which the Company ceases to exist.
<PAGE> 14
7. Fees, Expenses and Interest; Mitigation.
(i) The Company shall, or cause the Bank to, reimburse you, on a
current basis, for all reasonable legal fees and related expenses incurred by
you in connection with the Agreement following a change in control of the
Company, including, without limitation, (a) all such fees and expenses, if
any, incurred in contesting or disputing any termination of your employment
or incurred by you in seeking advice with respect to the matters set forth in
Section 8 hereof or (b) your seeking to obtain or enforce any right or benefit
provided by this Agreement, in each case, regardless of whether or not your
claim is upheld by a court of competent jurisdiction; provided, however, you
shall be required to repay any such amounts to the Company to the extent that
a court issues a final and non-appealable order setting forth the
determination that the position taken by you was frivolous or advanced by you
in bad faith. In addition to the fees and expenses provided herein, you
shall also be paid interest on any disputed amount ultimately paid to you at
the prime rate announced by the Bank from time to time from the date payment
should have been made until paid in full.
(ii) You shall not be required to mitigate the amount of any payment
the Company or the Bank becomes obligated to make to you in connection with
this Agreement, by seeking other employment or otherwise.
8. Taxes. All payments to be made to you under this Agreement
will be subject to required withholding of federal, state and local income
and employment taxes.
9. Survival. The respective obligations of, and benefits
afforded to, the Company and you as provided in Sections 5, 6(ii), 7, 8, 13
and 14 of this Agreement shall survive termination of this Agreement.
10. Notice. For the purposes of this Agreement, notices and all
other communications provided for in the Agreement shall be in writing and
shall be deemed to have been duly given when delivered or mailed by United
States registered mail, return receipt requested, postage prepaid and
addressed, in the case of the Company, to the address set forth on the first
page of this Agreement or, in the case of the undersigned employee, to the
address set forth below his signature, provided that all notices to the
Company shall be directed to the attention of the Chairman of the Board or
<PAGE> 15
President of the Company, with a copy to the Secretary of the Company, or to
such other address as either party may have furnished to the other in writing
in accordance herewith, except that notice of change of address shall be
effective only upon receipt.
11. Miscellaneous. No provision of this Agreement may be modified,
waived or discharged unless such modification, waiver or discharge is agreed
to in a writing signed by you and the Chairman of the Board or President of
the Company. No waiver by either party hereto at any time of any breach by
the other party hereto of, or of compliance with, any condition or provision
of this Agreement to be performed by such other party shall be deemed a
waiver of similar or dissimilar provisions or conditions at the same or at
any prior or subsequent time. No agreements or representations, oral or
otherwise, express or implied, with respect to the subject matter hereof have
been made by either party which are not expressly set forth in this Agreement.
The validity, interpretation, construction and performance of this Agreement
shall be governed by the laws of the State of New York applied without regard
to conflict of laws principles.
12. Validity. The invalidity or unenforceability of any provision
of this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, which shall remain in full force and effect.
13. Arbitration. Any dispute or controversy arising under or in
connection with this Agreement shall be settled exclusively by arbitration in
New York City by three arbitrators in accordance with the rules of the
American Arbitration Association then in effect. Judgment may be entered on
the arbitrators' award in any court having jurisdiction; provided, however,
that you shall be entitled to seek specific performance of your right to be
paid until the Date of Termination during the pendency of any dispute or
controversy arising under or in connection with this Agreement. The Company
shall bear all costs and expenses arising in connection with any arbitration
proceeding pursuant to this Section 13.
14. Employee's Commitment. You agree that subsequent to your
period of employment with the Company and the Bank, you will not at any time
communicate or disclose to any unauthorized person, without the written
consent of the Company, any proprietary processes of the Company or any
<PAGE> 16
subsidiary or other confidential information concerning their business,
affairs, products, suppliers or customers which, if disclosed, would have a
material adverse effect upon the business or operations of the Company and
its subsidiaries, taken as a whole; it being understood, however, that the
obligations of this Section 14 shall not apply to the extent that the
aforesaid matters (a) are disclosed in circumstances where you are legally
required to do so or (b) become generally known to and available for use by
the public otherwise than by your wrongful act or omission.
15. Related Agreements. To the extent that any provision of any
other agreement between the Company, the Bank or any of the Company's other
subsidiaries and you shall limit, qualify or be inconsistent with any
provision of this Agreement, then for purposes of this Agreement, while the
same shall remain in force, the provision of this Agreement shall control and
such provision of such other agreement shall be deemed to have been
superseded, and to be of no force or effect, as if such other agreement had
been formally amended to the extent necessary to accomplish such purpose.
16. Counterparts. This Agreement may be executed in several
counterparts, each of which shall be deemed to be an original but all of
which together will constitute one and the same instrument.
If this letter correctly sets forth our agreement on the subject
matter hereof, kindly sign and return to the Company the enclosed copy of
this letter which will then
<PAGE> 17
constitute our agreement on this subject and will supersede our previous
letter agreement dated April 11, 1995.
Sincerely,
THE BANK OF NEW YORK COMPANY, INC.
By \s\ Phebe C. Miller
------------------------------
Name: Phebe C. Miller
Title: Chief Legal Officer and
Secretary
Agreed to this 11 day
of September, 1997.
\s\ Gerald L. Hassell
- -----------------------
Gerald L. Hassell
<PAGE> 1
Exhibit 10(d)
THE BANK OF NEW YORK COMPANY, INC.
48 WALL STREET
NEW YORK, N.Y. 10286
July 8, 1997
Mr. Thomas A. Renyi
The Bank of New York
48 Wall Street
New York, New York 10286
Dear Mr. Renyi:
The Bank of New York Company, Inc., a New York corporation (the
"Company"), considers the establishment and maintenance of a sound and vital
management to be essential to protecting and enhancing the best interests of
the Company and its shareholders. In this connection, the Company recognizes
that, as is the case with many publicly held corporations, the possibility of
a change in control may arise and that such possibility, and the uncertainty
and questions which it may raise among management of the Company and its
principal subsidiary, The Bank of New York (the "Bank"), may result in the
departure or distraction of management personnel to the detriment of the
Company and its shareholders. Accordingly, the Board of Directors of the
Company (the "Board") has determined that appropriate steps should be taken
to reinforce and encourage the continued attention and dedication of members
of management of the Company and the Bank to their assigned duties without
distraction in circumstances arising from the possibility of a change in
control of the Company. In particular, the Board believes it important,
should the Company or its shareholders receive a proposal for transfer of
control of the Company, that you be able to assess and advise the Board
whether such proposal would be in the best interests of the Company and its
shareholders and to take such other action regarding such proposal as the
Board might determine to be appropriate, without being influenced by the
uncertainties of your own situation.
In order to induce you to remain in the employ of the Company, this
letter agreement sets forth the severance benefits which the Company agrees
will be provided to you in the event your employment with the Company or the
Bank is terminated subsequent to a "change in control" of the Company under
the circumstances described below.
<PAGE> 2
1. Agreement to Provide Services; Right to Terminate.
(i) Except as otherwise provided in paragraph (ii) below, the
Company, the Bank or you may terminate your employment at any time, subject
to the Company's providing the benefits hereinafter specified in accordance
with the terms hereof.
(ii) In the event a tender offer or exchange offer is made by a
Person (as hereinafter defined) for more than 25% of the combined voting
power of the Company's outstanding securities ordinarily having the right to
vote at elections of directors ("Voting Securities"), including shares of the
common stock of the Company, you agree that you will not leave the employ of
the Company or the Bank (other than as a result of Disability or upon
Retirement, as such terms are hereinafter defined) and will render the
services contemplated in the recitals to this Agreement until such tender
offer or exchange offer has been abandoned or terminated or a change in
control of the Company, as defined in Section 3 hereof, has occurred. For
purposes of this Agreement, the term "Person" shall mean and include any
individual, corporation, partnership, group, association or other "person",
as such term is used in Section 14(d) of the Securities Exchange Act of 1934
(the "Exchange Act"), other than the Company, the Bank, any other subsidiary
of the Company or any employee benefit plan(s) sponsored by the Company, the
Bank or any other subsidiary of the Company.
2. Term of Agreement. This Agreement shall commence on the date
hereof and shall continue in effect until December 31, 1999; provided,
however, that commencing on January 1, 2000 and each January 1 thereafter,
the term of this Agreement shall automatically be extended for one additional
year unless at least 90 days prior to such January 1st date, the Company or
you shall have given notice that this Agreement shall not be extended; and
provided, further, that, notwithstanding the delivery of any such notice,
this Agreement shall continue in effect for a period of twenty-four (24)
months after a change in control of the Company, as defined in Section 3
hereof, if such change in control shall have occurred during the term of this
Agreement, as it may be extended by the first proviso set forth above.
Notwithstanding anything in this Section 2 to the contrary, this Agreement
shall terminate if you or the Company or the Bank terminate your employment
<PAGE> 3
prior to a change in control of the Company.
3. Change in Control. For purposes of this Agreement, a "change
in control" of the Company 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 Company or any of its subsidiaries, a trustee or any fiduciary
holding securities under an employee benefit plan of the Company 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 Company in substantially the same proportion as their
ownership of the Company, is or becomes the "beneficial owner" (as defined in
Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of
the Company representing 25% or more of the combined voting power of the
Company's then outstanding securities ("Voting Securities"); or (B) during
any period of not more than two years, individuals who constitute the Board
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 Company to
effect a transaction described in clause (A) or (C) of this sentence) whose
election by the Board or nomination for election by the Company's shareholders
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 reason to
constitute a majority thereof; or (C) the shareholders of the Company approve
a merger or consolidation of the Company with any other corporation, other
than a merger or consolidation which would result in the Voting Securities of
the Company 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 Company or such surviving entity outstanding
immediately after such merger or consolidation, or the shareholders of the
Company approve a plan of complete liquidation of the Company or any
agreement for the sale or disposition by the Company or all or substantially
all of the Company's assets.
<PAGE> 4
4. Termination Following Change in Control. If any of the events
described in Section 3 hereof constituting a change in control of the Company
shall have occurred, you shall be entitled to the benefits provided in
Section 5 hereof upon the termination of your employment with the Company or
the Bank within twenty-four (24) months after such event, unless such
termination is (a) because of your death or Retirement, (b) by the Company
for Cause or Disability or (c) by you other than for Good Reason (as all such
capitalized terms are hereinafter defined).
(i) Disability. Termination by the Company of your employment
based on "Disability" shall mean termination because of your absence from
your duties with the Company on a full time basis for one hundred eighty
(180) consecutive days as a result of your incapacity due to physical or
mental illness, unless within thirty (30) days after Notice of Termination
(as hereinafter defined) is given to you following such absence you shall
have returned to the full time performance of your duties.
(ii) Retirement. Termination by you or by the Company of your
employment based on "Retirement" shall mean termination on or after your
attainment of age sixty-five (65).
(iii) Cause. Termination by the Company or the Bank of your
employment for "Cause" shall mean termination upon (a) the willful and
continued failure by you to perform substantially your duties with the
Company or the Bank (other than any such failure resulting from your
incapacity due to physical or mental illness) after a demand for substantial
performance is delivered to you by the Chairman of the Board or President of
the Company or the Chief Executive Officer of the Bank, as appropriate, which
specifically identifies the manner in which such executive believes that you
have not substantially performed your duties, or (b) the willful engaging by
you in illegal conduct which is materially and demonstrably injurious to the
Company or the Bank. For purposes of this paragraph (iii), no act, or
failure to act, on your part shall be considered "willful" unless done,
or omitted to be done, by you in bad faith and without reasonable belief that
your action or omission was in, or not opposed to, the best interests of the
Company or the Bank. Any act, or failure to act, based upon authority given
pursuant to a resolution duly adopted by the Board or based upon the advice
of counsel for the Company or the Bank shall be conclusively presumed to be
<PAGE> 5
done, or omitted to be done, by you in good faith and in the best interests
of the Company and the Bank. It is also expressly understood that your
attention to matters not directly related to the business of the Company or
the Bank shall not provide a basis for termination for Cause so long as the
Board has approved your engagement in such activities. Notwithstanding the
foregoing, you shall not be deemed to have been terminated for Cause unless
and until there shall have been delivered to you a copy of a resolution duly
adopted by the affirmative vote of not less than three-quarters of the entire
membership of the Board at a meeting of the Board called and held for the
purpose (after reasonable notice to you and an opportunity for you, together
with your counsel, to be heard before the Board), finding that in the good
faith opinion of the Board you were guilty of the conduct set forth above in
(a) or (b) of this paragraph (iii) and specifying the particulars thereof in
detail.
(iv) Good Reason. Termination by you of your employment for "Good
Reason" shall mean termination based on:
(v) Notice of Termination. Any purported termination by the
Company or the Bank or by you following a change in control shall be
communicated by written Notice of Termination to the other party hereto. For
purposes of this Agreement, a "Notice of Termination" shall mean a notice
which shall indicate the specific termination provision in this Agreement
relied upon.
(vi) Date of Termination. "Date of Termination" following a change
in control shall mean (a) if your employment is to be terminated for
Disability, thirty (30) days after Notice of Termination is given (provided
that you shall not have returned to the performance of your duties on a
full-time basis during such thirty (30) day period), (b) if your employment
is to be terminated by the Company or the Bank for Cause or by you pursuant
to Sections 4(iv)(F) and 6 hereof or for any other Good Reason, the date
specified in the Notice of Termination, or (c) if your employment is to be
terminated by the Company or the Bank for any reason other than Cause, the
date specified in the Notice of Termination, which in no event shall be a
date earlier than ninety (90) days after the date on which a Notice of
Termination is given, unless an earlier date has been expressly agreed to by
you in writing either in advance of, or after, receiving such Notice of
Termination. In the case of termination by the Company or the Bank of your
<PAGE> 6
employment for Cause, if you have not previously expressly agreed in writing
to the termination, then within thirty (30) days after receipt by you of the
Notice of Termination with respect thereto, you may notify the Company that a
dispute exists concerning the termination, in which event the Date of
Termination shall be the date set either by mutual written agreement of the
parties or by the arbitrators in a proceeding as provided in Section 13
hereof. During the pendency of any such dispute, the Company or the Bank
will continue to pay you your full compensation in effect just prior to the
time the Notice of Termination is given and until the dispute is resolved in
accordance with Section 13.
5. Compensation Upon Termination or During Disability; Other
Agreements.
(i) During any period following a change in control of the Company
that you fail to perform your duties as a result of incapacity due to
physical or mental illness, you shall continue to receive your salary at the
rate then in effect and any benefits or awards under any Plans shall continue
to accrue during such period, to the extent not inconsistent with such Plans,
until your employment is terminated pursuant to and in accordance with
Sections 4(i) and 4(vi) hereof. Thereafter, your benefits shall be determined
in accordance with the Plans then in effect. For purposes of this Agreement,
"Plan" shall mean any compensation plan such as an incentive, stock option
or restricted stock plan or any employee benefit plan such as a thrift,
pension, profit sharing, medical, disability, accident, life insurance plan
or a relocation plan or policy or any other plan, program or policy of the
Company or the Bank intended to benefit employees.
(ii) If your employment shall be terminated for Cause following a
change in control of the Company, the Company or the Bank shall pay you your
salary through the Date of Termination at the rate in effect just prior to
the time a Notice of Termination is given plus any benefits or awards
(including both the cash and stock components) which pursuant to the terms of
any Plans have been earned and are otherwise payable, but which have not yet
been paid to you. Thereupon the Company and the Bank shall have no further
obligations to you under this Agreement.
<PAGE> 7
(iii) If, within twenty-four (24) months after a change in control
of the Company, as defined in Section 3 above, shall have occurred, your
employment by the Company or the Bank shall be terminated (a) by the Company
or the Bank other than for Cause, Disability or Retirement or (b) by you for
Good Reason, then the Company shall pay or cause the Bank to pay to you, no
later than the fifth business day following the Date of Termination, without
regard to any contrary provisions of any Plan, the following:
(A) your salary through the Date of Termination at the rate in
effect just prior to the time a Notice of Termination is given plus any
benefits or awards (including both the cash and stock components) which
pursuant to the terms of any Plans have been earned and otherwise payable,
but which have not yet been paid to you; and
(B) as severance pay a lump sum in cash equal to the sum of the
following amounts:
(1) three times the average annual salary and bonus paid to you
during the 36 months immediately preceding the month in which the change in
control occurs; and
(2) the lump sum actuarial equivalent (utilizing actuarial
assumptions no less favorable to you than those in effect under the Company's
Retirement Plan immediately prior to the change in control) of the excess of
the (A) benefits under the Company's Retirement Plan, Excess Benefit Plan and
Supplemental Executive Retirement Plan (collectively, the "Defined Benefit
Plans") which you would receive if your employment continued for three years
after the Date of Termination, assuming for this purpose that (x) your
accrued benefits under the Defined Benefit Plans were fully vested, (y) in
each of the three years you received (a) salary at the annual rate in effect
immediately prior to the change in control and (b) bonus compensation equal
to the last bonus paid to you prior to the change in control and (z) there
were no reduction or offset under the Defined Benefit Plans for the actuarial
value of your account under the Employee Stock Ownership Plan of The Bank of
New York Company, Inc. (the "ESOP"), over (B) the vested accrued benefits
<PAGE> 8
payable under the Defined Benefit Plans as of the Date of Termination if
there were no reduction or offset thereunder for the actuarial value of your
ESOP account.
(iv) If, within twenty-four (24) months after a change in control
of the Company, as defined in Section 3 above, shall have occurred, your
employment by the Company or the Bank shall be terminated (a) by the Company
or the Bank other than for Cause, Disability or Retirement or (b) by you for
Good Reason, then the Company shall maintain or cause the Bank to maintain in
full force and effect, for the continued benefit of you and your dependents
for a period terminating on the earliest of (a) three years after the Date of
Termination, (b) the commencement date of equivalent benefits from a new
employer or (c) your attainment of age sixty-five (65), all insured and
self-insured employee welfare benefit Plans in which you were entitled to
participate immediately prior to the Date of Termination, provided that your
continued participation is possible under the general terms and provisions of
such Plans (and any applicable funding media) and you continue to pay an
amount equal to your regular contribution under such plans for such
participation. If, at the end of three years after the Termination Date, you
have not reached your sixty-fifth birthday and you have not previously
received or are not then receiving equivalent benefits from a new employer,
the Company shall or cause the Bank to arrange, at its sole cost and expense,
to enable you to convert your and your dependents' coverage under such Plans
to individual policies or programs upon the same terms as employees of the
Company and the Bank may apply for such conversions. In the event that your
participation in any such Plan is barred, the Company shall or cause the
Bank, at its sole cost and expense, to arrange to have issued for the benefit
of you and your dependents individual policies of insurance providing
benefits substantially similar (on an after-tax basis) to those which you
otherwise would have been entitled to receive under such Plans pursuant to
this paragraph (iv) or, if such insurance is not available at a reasonable
cost to the Company or the Bank, the Company shall or cause the Bank to
otherwise provide you and your dependents with equivalent benefits (on an
after-tax basis). You shall not be required to pay any premiums or other
charges in an amount greater than that which you would have paid in order to
participate in such Plans.
<PAGE> 9
(v) In the event it shall be determined that any payment, award,
benefit or distribution (or any acceleration of any payment, award, benefit
or distribution) by the Company (or any of its affiliated entities) or any
entity which effectuates a change in control (or any of its affiliated
entities) to or for your benefit, whether pursuant to the terms of this
Agreement or otherwise, but determined without regard to any additional
payments required under this Section 5 (the "Payments"), would be subject to
the excise tax imposed by Section 4999 of the Internal Revenue Code of 1986,
as amended (the "Code"), or any interest or penalties are incurred by you
with respect to such excise tax (such excise tax, together with any such
interest and penalties, are hereinafter collectively referred to as the
"Excise Tax"), then the Company shall pay you an additional payment (a
"Gross-Up Payment") in an amount such that after payment by you of all taxes
(including any Excise Tax) imposed upon the Gross-Up Payment, you retain an
amount of the Gross-Up Payment equal to the sum of (x) the Excise Tax imposed
upon the Payments and (y) the product of any deductions disallowed because of
the inclusion of the Gross-up Payment in your adjusted gross income and the
highest applicable marginal rate of federal income taxation for the calendar
year in which the Gross-up Payment is to be made. For purposes of determining
the amount of the Gross-up Payment, you shall be deemed to (i) pay federal
income taxes at the highest marginal rates of federal income taxation for the
calendar year in which the Gross-up Payment is to be made, (ii) pay
applicable state and local income taxes at the highest marginal rate of
taxation for the calendar year in which the Gross-up Payment is to be made,
net of the maximum reduction in federal income taxes which could be obtained
from deduction of such state and local taxes and (iii) have otherwise
allowable deductions for federal income tax purposes at least equal to those
which could be disallowed because of the inclusion of the Gross-up Payment in
the Executive's adjusted gross income. The Gross-up Payment under this
paragraph (v) with respect to any Payment shall be made no later than thirty
(30) days following such Payment.
As a result of the uncertainty in the application of Section 4999 of
the Code at the time of the Determination, it is possible that Gross-Up
Payments which will not have been made by the Company should have been made
("Underpayment") or Gross-up Payments are made by the Company which should
not have been made ("Overpayment"), consistent with the calculations required
<PAGE> 10
to be made hereunder. In the event that you are thereafter required to make
payment of any Excise Tax or additional Excise Tax, the Accounting Firm shall
determine the amount of the Underpayment that has occurred and any such
Underpayment (together with interest at the rate provided in Section
1274(b)(2)(B) of the Code) shall be promptly paid by the Company to or for
your benefit. In the event the amount of the Gross-up Payment exceeds the
amount necessary to reimburse you for your Excise Tax, the Accounting Firm
shall determine the amount of the Overpayment that has been made and any such
Overpayment (together with interest at the rate provided in Section 1274(b)(2)
of the Code) shall be promptly paid by you (to the extent you have received a
refund if the applicable Excise Tax has been paid to the Internal Revenue
Service) to or for the benefit of the Company. You shall cooperate, to the
extent your expenses are reimbursed by the Company, with any reasonable
requests by the Company in connection with any contests or disputes with the
Internal Revenue Service in connection with the Excise Tax.
(vi) Notwithstanding the provisions of paragraph (iii) of this
Section 5, you shall receive in lieu of the amounts provided by subparagraph
(B) thereof, the following amount if it is greater than the sum of the
amounts provided by such subparagraph: a lump sum in cash equal to 2.99
times your annualized includible compensation for the base period" (as such
term is defined in Section 280G(d)(1) of the Code), reduced, if applicable,
to the maximum amount that could be paid to you without giving rise to the
Excise Tax (the "Safe Harbor Cap"). The reduction of the amounts payable
under this Agreement, if applicable, shall be made first by reducing the lump
sum payment provided for in the preceding sentence unless an alternative
method of reduction is elected by you.
(vii) All determinations required to be made under paragraphs (v)
and (vi) of this Section, including whether and when a Gross-Up Payment is
required and the amount of such Gross-Up Payment or the reduction of the
Payments to the Safe Harbor Cap, as well as the assumptions to be utilized in
arriving at such determinations, shall be made by the public accounting firm
that is retained by the Company as of the date immediately prior to the
change in control (the "Accounting Firm") which shall provide detailed
supporting calculations both to the Company and you within fifteen (15)
business days of the receipt of notice from the Company or you that there has
been a Payment, or such earlier time as is requested by the Company
<PAGE> 11
(collectively, the "Determination"). In the event that the Accounting Firm
is serving as accountant or auditor for the individual, entity or group
effecting the change in control, you may appoint another nationally
recognized public accounting firm to make the determinations required
hereunder (which accounting firm shall then be referred to as the Accounting
Firm hereunder). All fees and expenses of the Accounting Firm shall be borne
solely by the Company and the Company shall enter into any agreement requested
by the Accounting Firm in connection with the performance of the services
hereunder. If the Accounting Firm determines that no Excise Tax is payable
by you, it shall furnish you with a written opinion to such effect, and to
the effect that failure to report the Excise Tax, if any, on your applicable
federal income tax return will not result in the imposition of a negligence
or similar penalty. In the event the Accounting Firm determines that the
Payments shall be reduced to the Safe Harbor Cap, it shall furnish you with
a written opinion to such effect. The Determination by the Accounting Firm
shall be binding upon the Company and you.
(viii) Except as specifically provided in paragraph (iv) above, the
amount of any payment provided for in this Section 5 shall not be reduced,
offset or subject to recovery by the Company or the Bank by reason of any
compensation earned by you as the result of employment by another employer
after the Date of Termination, or otherwise.
6. Successors; Binding Agreement.
(i) The Company will seek, by written request at least five
business days prior to the time a Person becomes a Successor (as hereinafter
defined), to have such Person by agreement in form and substance satisfactory
to you, assent to the fulfillment of the Company's obligations under this
Agreement. Failure of such Person to furnish such assent by the later of (A)
three business days prior to the time such Person becomes a Successor or (B)
two business days after such Person receives a written request to so assent
shall constitute Good Reason for termination by you of your employment if a
change in control of the Company occurs or has occurred. For purposes of
this Agreement, "Successor" shall mean any Person that succeeds to, or has
the practical ability to control (either immediately or with the passage of
time), the Company's business directly, by merger or consolidation, or
indirectly, by purchase of the Company's Voting Securities or otherwise.
<PAGE> 12
(ii) This Agreement shall inure to the benefit of and be enforceable
by your personal or legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees. If you should die
while any amount would still be payable to you hereunder if you had continued
to live, all such amounts, unless otherwise provided herein, shall be paid in
accordance with the terms of this Agreement to your devisee, legatee or other
designee or, if there be no such designee, to your estate.
(iii) For purposes of this Agreement, the "Company" shall include
any corporation or other entity which is the surviving or continuing entity
in respect of any merger, consolidation or form of business combination in
which the Company ceases to exist.
7. Fees, Expenses and Interest; Mitigation.
(i) The Company shall, or cause the Bank to, reimburse you, on a
current basis, for all reasonable legal fees and related expenses incurred by
you in connection with the Agreement following a change in control of the
Company, including, without limitation, (a) all such fees and expenses, if
any, incurred in contesting or disputing any termination of your employment
or incurred by you in seeking advice with respect to the matters set forth in
Section 8 hereof or (b) your seeking to obtain or enforce any right or benefit
provided by this Agreement, in each case, regardless of whether or not your
claim is upheld by a court of competent jurisdiction; provided, however, you
shall be required to repay any such amounts to the Company to the extent that
a court issues a final and non-appealable order setting forth the
determination that the position taken by you was frivolous or advanced by you
in bad faith. In addition to the fees and expenses provided herein, you
shall also be paid interest on any disputed amount ultimately paid to you at
the prime rate announced by the Bank from time to time from the date payment
should have been made until paid in full.
(ii) You shall not be required to mitigate the amount of any payment
the Company or the Bank becomes obligated to make to you in connection with
this Agreement, by seeking other employment or otherwise.
8. Taxes. All payments to be made to you under this Agreement
will be subject to required withholding of federal, state and local income
and employment taxes.
<PAGE> 13
9. Survival. The respective obligations of, and benefits
afforded to, the Company and you as provided in Sections 5, 6(ii), 7, 8, 13
and 14 of this Agreement shall survive termination of this Agreement.
10. Notice. For the purposes of this Agreement, notices and all
other communications provided for in the Agreement shall be in writing and
shall be deemed to have been duly given when delivered or mailed by United
States registered mail, return receipt requested, postage prepaid and
addressed, in the case of the Company, to the address set forth on the first
page of this Agreement or, in the case of the undersigned employee, to the
address set forth below his signature, provided that all notices to the
Company shall be directed to the attention of the Chairman of the Board or
President of the Company, with a copy to the Secretary of the Company, or to
such other address as either party may have furnished to the other in writing
in accordance herewith, except that notice of change of address shall be
effective only upon receipt.
11. Miscellaneous. No provision of this Agreement may be modified,
waived or discharged unless such modification, waiver or discharge is agreed
to in a writing signed by you and the Chairman of the Board or President of
the Company. No waiver by either party hereto at any time of any breach by
the other party hereto of, or of compliance with, any condition or provision
of this Agreement to be performed by such other party shall be deemed a
waiver of similar or dissimilar provisions or conditions at the same or at
any prior or subsequent time. No agreements or representations, oral or
otherwise, express or implied, with respect to the subject matter hereof have
been made by either party which are not expressly set forth in this Agreement.
The validity, interpretation, construction and performance of this Agreement
shall be governed by the laws of the State of New York applied without regard
to conflict of laws principles.
12. Validity. The invalidity or unenforceability of any provision
of this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, which shall remain in full force and effect.
13. Arbitration. Any dispute or controversy arising under or in
connection with this Agreement shall be settled exclusively by arbitration in
New York City by three arbitrators in accordance with the rules of the
<PAGE> 14
American Arbitration Association then in effect. Judgment may be entered on
the arbitrators' award in any court having jurisdiction; provided, however,
that you shall be entitled to seek specific performance of your right to be
paid until the Date of Termination during the pendency of any dispute or
controversy arising under or in connection with this Agreement. The Company
shall bear all costs and expenses arising in connection with any arbitration
proceeding pursuant to this Section 13.
14. Employee's Commitment. You agree that subsequent to your
period of employment with the Company and the Bank, you will not at any time
communicate or disclose to any unauthorized person, without the written
consent of the Company, any proprietary processes of the Company or any
subsidiary or other confidential information concerning their business,
affairs, products, suppliers or customers which, if disclosed, would have a
material adverse effect upon the business or operations of the Company and
its subsidiaries, taken as a whole; it being understood, however, that the
obligations of this Section 14 shall not apply to the extent that the
aforesaid matters (a) are disclosed in circumstances where you are legally
required to do so or (b) become generally known to and available for use by
the public otherwise than by your wrongful act or omission.
15. Related Agreements. To the extent that any provision of any
other agreement between the Company, the Bank or any of the Company's other
subsidiaries and you shall limit, qualify or be inconsistent with any
provision of this Agreement, then for purposes of this Agreement, while the
same shall remain in force, the provision of this Agreement shall control and
such provision of such other agreement shall be deemed to have been
superseded, and to be of no force or effect, as if such other agreement had
been formally amended to the extent necessary to accomplish such purpose.
16. Counterparts. This Agreement may be executed in several
counterparts, each of which shall be deemed to be an original but all of
which together will constitute one and the same instrument.
If this letter correctly sets forth our agreement on the subject
matter hereof, kindly sign and return to the Company the enclosed copy of
<PAGE> 15
this letter which will then constitute our agreement on this subject and will
supersede our previous letter agreement dated October 11, 1994.
Sincerely,
THE BANK OF NEW YORK COMPANY, INC.
By \s\ Phebe C. Miller
-------------------------------
Name: Phebe C. Miller
Title: Chief Legal Officer and
Secretary
Agreed to this day
of , 1997.
\s\ Thomas A. Renyi
- ----------------------
Thomas A. Renyi
<PAGE> 1
Exhibit 10(e)
THE BANK OF NEW YORK COMPANY, INC.
48 WALL STREET
NEW YORK, N.Y. 10286
July 8, 1997
Mr. Bruce Van Saun
The Bank of New York
48 Wall Street
New York, New York 10286
Dear Mr. Van Saun:
The Bank of New York Company, Inc., a New York corporation (the
"Company"), considers the establishment and maintenance of a sound and vital
management to be essential to protecting and enhancing the best interests of
the Company and its shareholders. In this connection, the Company recognizes
that, as is the case with many publicly held corporations, the possibility of
a change in control may arise and that such possibility, and the uncertainty
and questions which it may raise among management of the Company and its
principal subsidiary, The Bank of New York (the "Bank"), may result in the
departure or distraction of management personnel to the detriment of the
Company and its shareholders. Accordingly, the Board of Directors of the
Company (the "Board") has determined that appropriate steps should be taken
to reinforce and encourage the continued attention and dedication of members
of management of the Company and the Bank to their assigned duties without
distraction in circumstances arising from the possibility of a change in
control of the Company. In particular, the Board believes it important,
should the Company or its shareholders receive a proposal for transfer of
control of the Company, that you be able to assess and advise the Board
whether such proposal would be in the best interests of the Company and its
shareholders and to take such other action regarding such proposal as the
Board might determine to be appropriate, without being influenced by the
uncertainties of your own situation.
In order to induce you to remain in the employ of the Company, this
letter agreement sets forth the severance benefits which the Company agrees
will be provided to you in the event your employment with the Company or the
Bank is terminated subsequent to a "change in control" of the Company under
the circumstances described below.
<PAGE> 2
1. Agreement to Provide Services; Right to Terminate.
(i) Except as otherwise provided in paragraph (ii) below, the
Company, the Bank or you may terminate your employment at any time, subject
to the Company's providing the benefits hereinafter specified in accordance
with the terms hereof.
(ii) In the event a tender offer or exchange offer is made by a
Person (as hereinafter defined) for more than 25% of the combined voting
power of the Company's outstanding securities ordinarily having the right to
vote at elections of directors ("Voting Securities"), including shares of the
common stock of the Company, you agree that you will not leave the employ of
the Company or the Bank (other than as a result of Disability or upon
Retirement, as such terms are hereinafter defined) and will render the
services contemplated in the recitals to this Agreement until such tender
offer or exchange offer has been abandoned or terminated or a change in
control of the Company, as defined in Section 3 hereof, has occurred. For
purposes of this Agreement, the term "Person" shall mean and include any
individual, corporation, partnership, group, association or other "person",
as such term is used in Section 14(d) of the Securities Exchange Act of 1934
(the "Exchange Act"), other than the Company, the Bank, any other subsidiary
of the Company or any employee benefit plan(s) sponsored by the Company, the
Bank or any other subsidiary of the Company.
2. Term of Agreement. This Agreement shall commence on the date
hereof and shall continue in effect until December 31, 1999; provided,
however, that commencing on January 1, 2000 and each January 1 thereafter,
the term of this Agreement shall automatically be extended for one additional
year unless at least 90 days prior to such January 1st date, the Company or
you shall have given notice that this Agreement shall not be extended; and
provided, further, that, notwithstanding the delivery of any such notice,
this Agreement shall continue in effect for a period of twenty-four (24)
months after a change in control of the Company, as defined in Section 3
hereof, if such change in control shall have occurred during the term of this
Agreement, as it may be extended by the first proviso set forth above.
Notwithstanding anything in this Section 2 to the contrary, this Agreement
shall terminate if you or the Company or the Bank terminate your employment
<PAGE> 3
prior to a change in control of the Company.
3. Change in Control. For purposes of this Agreement, a "change
in control" of the Company 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 Company or any of its subsidiaries, a trustee or any fiduciary
holding securities under an employee benefit plan of the Company 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 Company in substantially the same proportion as their
ownership of the Company, is or becomes the "beneficial owner" (as defined in
Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of
the Company representing 25% or more of the combined voting power of the
Company's then outstanding securities ("Voting Securities"); or (B) during
any period of not more than two years, individuals who constitute the Board
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 Company to
effect a transaction described in clause (A) or (C) of this sentence) whose
election by the Board or nomination for election by the Company's shareholders
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 reason to
constitute a majority thereof; or (C) the shareholders of the Company approve
a merger or consolidation of the Company with any other corporation, other
than a merger or consolidation which would result in the Voting Securities of
the Company 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 Company or such surviving entity outstanding
immediately after such merger or consolidation, or the shareholders of the
Company approve a plan of complete liquidation of the Company or any
agreement for the sale or disposition by the Company or all or substantially
all of the Company's assets.
4. Termination Following Change in Control. If any of the events
<PAGE> 4
described in Section 3 hereof constituting a change in control of the Company
shall have occurred, you shall be entitled to the benefits provided in
Section 5 hereof upon the termination of your employment with the Company or
the Bank within twenty-four (24) months after such event, unless such
termination is (a) because of your death or Retirement, (b) by the Company
for Cause or Disability or (c) by you other than for Good Reason (as all such
capitalized terms are hereinafter defined).
(i) Disability. Termination by the Company of your employment
based on "Disability" shall mean termination because of your absence from
your duties with the Company on a full time basis for one hundred eighty
(180) consecutive days as a result of your incapacity due to physical or
mental illness, unless within thirty (30) days after Notice of Termination
(as hereinafter defined) is given to you following such absence you shall
have returned to the full time performance of your duties.
(ii) Retirement. Termination by you or by the Company of your
employment based on "Retirement" shall mean termination on or after your
attainment of age sixty-five (65).
(iii) Cause. Termination by the Company or the Bank of your
employment for "Cause" shall mean termination upon (a) the willful and
continued failure by you to perform substantially your duties with the
Company or the Bank (other than any such failure resulting from your
incapacity due to physical or mental illness) after a written demand
for substantial performance is delivered to you by the Chairman of the Board
or President of the Company or the Chief Executive Officer of the Bank, as
appropriate, which specifically identifies the manner in which such executive
believes that you have not substantially performed your duties, or (b) the
willful engaging by you in illegal conduct which is materially and
demonstrably injurious to the Company or the Bank. For purposes of this
paragraph (iii), no act, or failure to act, on your part shall be considered
"willful" unless done, or omitted to be done, by you in bad faith and without
reasonable belief that your action or omission was in, or not opposed to, the
best interests of the Company or the Bank. Any act, or failure to act, based
upon authority given pursuant to a resolution duly adopted by the Board or
based upon the advice of counsel for the Company or the Bank shall be
conclusively presumed to be done, or omitted to be done, by you in good faith
and in the best interests of the Company and the Bank. It is also expressly
<PAGE> 5
understood that your attention to matters not directly related to the
business of the Company or the Bank shall not provide a basis for termination
for Cause so long as the Board has approved your engagement in such activities.
Notwithstanding the foregoing, you shall not be deemed to have been terminated
for Cause unless and until there shall have been delivered to you a copy of a
resolution duly adopted by the affirmative vote of not less than three-quarters
of the entire membership of the Board at a meeting of the Board called and
held for the purpose (after reasonable notice to you and an opportunity for
you, together with your counsel, to be heard before the Board), finding that
in the good faith opinion of the Board you were guilty of the conduct set
forth above in (a) or (b) of this paragraph (iii) and specifying the
particulars thereof in detail.
(iv) Good Reason. Termination by you of your employment for "Good
Reason" shall mean termination based on:
(A) a determination by you, in your reasonable judgment, that there
has been an adverse change in your status or position(s) as an executive
officer of the Company or the Bank as in effect immediately prior to the
change in control, including, without limitation, any adverse change in your
status or position as a result of a diminution in your duties or
responsibilities (other than, if applicable, any such change directly
attributable to the fact that the Company is no longer publicly owned) or the
assignment to you of any duties or responsibilities which are inconsistent
with such status or position(s), or any removal of you from or any failure to
reappoint or reelect you to such position(s) (except in connection with the
termination of your employment for Cause, Disability or Retirement or as a
result of your death or by you other than for Good Reason);
(B) a reduction by the Company or the Bank in your base salary as
in effect immediately prior to the change in control;
(C) the failure by the Company or the Bank to continue in effect
any Plan (as hereinafter defined) in which you are participating at the time
of the change in control of the Company (or Plans providing you with at least
substantially similar benefits) other than as a result of the normal
<PAGE> 6
expiration of any such Plan in accordance with its terms as in effect at the
time of the change in control, or the taking of any action, or the failure to
act, by the Company or the Bank which would adversely affect your continued
participation in any of such Plans on at least as favorable a basis to you as
is the case on the date of the change in control or which would materially
reduce your benefits in the future under any of such Plans or deprive you of
any material benefit enjoyed by you at the time of the change in control;
(D) the failure by the Company or the Bank to provide and credit
you with the number of paid vacation days to which you are then entitled in
accordance with its normal vacation policy as in effect immediately prior to
the change in control;
(E) the requirement by the Company or the Bank that you be based
at an office that is greater than 35 miles from where your office is located
immediately prior to the change in control except for required travel on the
business of the Company or the Bank to an extent substantially consistent
with the business travel obligations which you undertook on behalf of the
Company or the Bank prior to the change in control;
(F) the failure by the Company to obtain from any Successor (as
hereinafter defined) the assent to this Agreement contemplated by Section 6
hereof;
(G) any purported termination by the Company or the Bank of your
employment which is not effected pursuant to a Notice of Termination
satisfying the requirements of paragraph (v) below (and, if applicable,
paragraph (iii) above); and for purposes of this Agreement, no such purported
termination shall be effective; or
(H) any refusal by the Company or the Bank to continue to allow
you to attend to matters or engage in activities not directly related to the
business of the Company or the Bank which, prior to the change in control,
you were permitted by the Board to attend to or engage in.
<PAGE> 7
For purposes of this Agreement, "Plan" shall mean any compensation plan such
as an incentive, stock option or restricted stock plan or any employee
benefit plan such as a thrift, pension, profit sharing, medical, disability,
accident, life insurance plan or a relocation plan or policy or any other
plan, program or policy of the Company or the Bank intended to benefit
employees.
(v) Notice of Termination. Any purported termination by the
Company or the Bank or by you following a change in control shall be
communicated by written Notice of Termination to the other party hereto. For
purposes of this Agreement, a "Notice of Termination" shall mean a notice
which shall indicate the specific termination provision in this Agreement
relied upon.
(vi) Date of Termination. "Date of Termination" following a change
in control shall mean (a) if your employment is to be terminated for
Disability, thirty (30) days after Notice of Termination is given (provided
that you shall not have returned to the performance of your duties on a
full-time basis during such thirty (30) day period), (b) if your employment
is to be terminated by the Company or the Bank for Cause or by you pursuant
to Sections 4(iv)(F) and 6 hereof or for any other Good Reason, the date
specified in the Notice of Termination, or (c) if your employment is to be
terminated by the Company or the Bank for any reason other than Cause, the
date specified in the Notice of Termination, which in no event shall be a
date earlier than ninety (90) days after the date on which a Notice of
Termination is given, unless an earlier date has been expressly agreed to by
you in writing either in advance of, or after, receiving such Notice of
Termination. In the case of termination by the Company or the Bank of your
employment for Cause, if you have not previously expressly agreed in writing
to the termination, then within thirty (30) days after receipt by you of the
Notice of Termination with respect thereto, you may notify the Company that a
dispute exists concerning the termination, in which event the Date of
Termination shall be the date set either by mutual written agreement of the
parties or by the arbitrators in a proceeding as provided in Section 13
hereof. During the pendency of any such dispute, the Company or the Bank
will continue to pay you your full compensation in effect just prior to the
time the Notice of Termination is given and until the dispute is resolved in
accordance with Section 13.
<PAGE> 8
5. Compensation Upon Termination or During Disability; Other
Agreements.
(i) During any period following a change in control of the Company
that you fail to perform your duties as a result of incapacity due to
physical or mental illness, you shall continue to receive your salary at the
rate then in effect and any benefits or awards under any Plans shall continue
to accrue during such period, to the extent not inconsistent with such Plans,
until your employment is terminated pursuant to and in accordance with
Sections 4(i) and 4(vi) hereof. Thereafter, your benefits shall be determined
in accordance with the Plans then in effect.
(ii) If your employment shall be terminated for Cause following a
change in control of the Company, the Company or the Bank shall pay you your
salary through the Date of Termination at the rate in effect just prior to
the time a Notice of Termination is given plus any benefits or awards
(including both the cash and stock components) which pursuant to the terms of
any Plans have been earned and are otherwise payable, but which have not yet
been paid to you. Thereupon the Company and the Bank shall have no further
obligations to you under this Agreement.
(iii) Subject to Section 8 hereof, if, within twenty-four (24) months
after a change in control of the Company, as defined in Section 3 above,
shall have occurred, your employment by the Company or the Bank shall be
terminated (a) by the Company or the Bank other than for Cause, Disability
or Retirement or (b) by you for Good Reason, then the Company shall pay or
cause the Bank to pay to you, no later than the fifth business day following
the Date of Termination, without regard to any contrary provisions of any
Plan, the following:
(A) your salary through the Date of Termination at the rate in
effect just prior to the time a Notice of Termination is given plus any
benefits or awards (including both the cash and stock components) which
pursuant to the terms of any Plans have been earned and otherwise payable,
but which have not yet been paid to you; and
(B) as severance pay and in lieu of any further salary for periods
subsequent to the Date of Termination, an amount in cash equal to 2.99 times
your "annualized includible compensation for the base period" (as defined
<PAGE> 9
in Section 280G(d)(1) of the Internal Revenue Code of 1986 (the "Code")).
(iv) If, within twenty-four (24) months after a change in control
of the Company, as defined in Section 3 above, shall have occurred, your
employment by the Company or the Bank shall be terminated (a) by the Company
or the Bank other than for Cause, Disability or Retirement or (b) by you for
Good Reason, then the Company shall maintain or cause the Bank to maintain in
full force and effect, for the continued benefit of you and your dependents
for a period terminating on the earliest of (a) three years after the Date of
Termination, (b) the commencement date of equivalent benefits from a new
employer or (c) your attainment of age sixty-five (65), all insured and
self-insured employee welfare benefit Plans in which you were entitled to
participate immediately prior to the Date of Termination, provided that your
continued participation is possible under the general terms and provisions of
such Plans (and any applicable funding media) and you continue to pay an
amount equal to your regular contribution under such plans for such
participation. If, at the end of three years after the Termination Date, you
have not reached your sixty-fifth birthday and you have not previously
received or are not then receiving equivalent benefits from a new employer,
the Company shall or cause the Bank to arrange, at its sole cost and expense,
to enable you to convert your and your dependents' coverage under such Plans
to individual policies or programs upon the same terms as employees of the
Company and the Bank may apply for such conversions. In the event that your
participation in any such Plan is barred, the Company shall or cause the
Bank, at its sole cost and expense, to arrange to have issued for the benefit
of you and your dependents individual policies of insurance providing
benefits substantially similar (on an after-tax basis) to those which you
otherwise would have been entitled to receive under such Plans pursuant to
this paragraph (iv) or, if such insurance is not available at a reasonable
cost to the Company or the Bank, the Company shall or cause the Bank to
otherwise provide you and your dependents with equivalent benefits (on an
after-tax basis). You shall not be required to pay any premiums or other
charges in an amount greater than that which you would have paid in order to
participate in such Plans.
(v) Except as specifically provided in paragraph (iv) above, the
amount of any payment provided for in this Section 5 shall not be reduced,
<PAGE> 10
offset or subject to recovery by the Company or the Bank by reason of any
compensation earned by you as the result of employment by another employer
after the Date of Termination, or otherwise.
6. Successors; Binding Agreement.
(i) The Company will seek, by written request at least five
business days prior to the time a Person becomes a Successor (as hereinafter
defined), to have such Person by agreement in form and substance satisfactory
to you, assent to the fulfillment of the Company's obligations under this
Agreement. Failure of such Person to furnish such assent by the later of (A)
three business days prior to the time such Person becomes a Successor or (B)
two business days after such Person receives a written request to so assent
shall constitute Good Reason for termination by you of your employment if a
change in control of the Company occurs or has occurred. For purposes of
this Agreement, "Successor" shall mean any Person that succeeds to, or has
the practical ability to control (either immediately or with the passage of
time), the Company's business directly, by merger or consolidation, or
indirectly, by purchase of the Company's Voting Securities or otherwise.
(ii) This Agreement shall inure to the benefit of and be enforceable
by your personal or legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees. If you should die
while any amount would still be payable to you hereunder if you had continued
to live, all such amounts, unless otherwise provided herein, shall be paid in
accordance with the terms of this Agreement to your devisee, legatee or other
designee or, if there be no such designee, to your estate.
(iii) For purposes of this Agreement, the "Company" shall include
any corporation or other entity which is the surviving or continuing entity
in respect of any merger, consolidation or form of business combination in
which the Company ceases to exist.
7. Fees, Expenses and Interest; Mitigation.
(i) The Company shall, or cause the Bank to, reimburse you, on a
current basis, for all reasonable legal fees and related expenses incurred by
you in connection with the Agreement following a change in control of the
<PAGE> 11
Company, including, without limitation, (a) all such fees and expenses, if
any, incurred in contesting or disputing any termination of your employment
or incurred by you in seeking advice with respect to the matters set forth in
Section 8 hereof or (b) your seeking to obtain or enforce any right or benefit
provided by this Agreement, in each case, regardless of whether or not your
claim is upheld by a court of competent jurisdiction; provided, however, you
shall be required to repay any such amounts to the Company to the extent that
a court issues a final and non-appealable order setting forth the
determination that the position taken by you was frivolous or advanced by you
in bad faith. In addition to the fees and expenses provided herein, you
shall also be paid interest on any disputed amount ultimately paid to you at
the prime rate announced by the Bank from time to time from the date payment
should have been made until paid in full.
(ii) You shall not be required to mitigate the amount of any payment
the Company or the Bank becomes obligated to make to you in connection with
this Agreement, by seeking other employment or otherwise.
8. Taxes.
(i) All payments to be made to you under this Agreement will be
subject to required withholding of federal, state and local income and
employment taxes.
(ii) Notwithstanding anything in the foregoing to the contrary, if
any of the payments provided for in this Agreement, together with any other
payments which you have the right to receive from the Company or any
corporation which is a member of an "affiliated group" (as defined in Section
1504(a) of the Code without regard to Section 1504(b) of the Code) of which
the Company is a member, would constitute a "parachute payment" (as defined
in Section 280G(b)(2) of the Code), the payments pursuant to this Agreement
shall be reduced (reducing first the payments under Section 5(iii)(B)) to the
largest amount as will result in no portion of such payments being subject to
the excise tax imposed by Section 4999 of the Code; provided, however, that
the determination as to whether any reduction in the payments under this
Agreement pursuant to this proviso is necessary shall be made by you in good
faith, and such determination shall be conslusive and binding on the Company
with respect to its treatment of the payment for tax reporting purposes.
<PAGE> 12
9. Survival. The respective obligations of, and benefits
afforded to, the Company and you as provided in Sections 5, 6(ii), 7, 8, 13
and 14 of this Agreement shall survive termination of this Agreement.
10. Notice. For the purposes of this Agreement, notices and all
other communications provided for in the Agreement shall be in writing and
shall be deemed to have been duly given when delivered or mailed by United
States registered mail, return receipt requested, postage prepaid and
addressed, in the case of the Company, to the address set forth on the first
page of this Agreement or, in the case of the undersigned employee, to the
address set forth below his signature, provided that all notices to the
Company shall be directed to the attention of the Chairman of the Board or
President of the Company, with a copy to the Secretary of the Company, or to
such other address as either party may have furnished to the other in writing
in accordance herewith, except that notice of change of address shall be
effective only upon receipt.
11. Miscellaneous. No provision of this Agreement may be modified,
waived or discharged unless such modification, waiver or discharge is agreed
to in a writing signed by you and the Chairman of the Board or President of
the Company. No waiver by either party hereto at any time of any breach by
the other party hereto of, or of compliance with, any condition or provision
of this Agreement to be performed by such other party shall be deemed a
waiver of similar or dissimilar provisions or conditions at the same or at
any prior or subsequent time. No agreements or representations, oral or
otherwise, express or implied, with respect to the subject matter hereof have
been made by either party which are not expressly set forth in this Agreement.
The validity, interpretation, construction and performance of this Agreement
shall be governed by the laws of the State of New York applied without regard
to conflict of laws principles.
12. Validity. The invalidity or unenforceability of any provision
of this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, which shall remain in full force and effect.
13. Arbitration. Any dispute or controversy arising under or in
connection with this Agreement shall be settled exclusively by arbitration in
New York City by three arbitrators in accordance with the rules of the
<PAGE> 13
American Arbitration Association then in effect. Judgment may be entered on
the arbitrators' award in any court having jurisdiction; provided, however,
that you shall be entitled to seek specific performance of your right to be
paid until the Date of Termination during the pendency of any dispute or
controversy arising under or in connection with this Agreement. The
Company shall bear all costs and expenses arising in connection with any
arbitration proceeding pursuant to this Section 13.
14. Employee's Commitment. You agree that subsequent to your
period of employment with the Company and the Bank, you will not at any time
communicate or disclose to any unauthorized person, without the written
consent of the Company, any proprietary processes of the Company or any
subsidiary or other confidential information concerning their business,
affairs, products, suppliers or customers which, if disclosed, would have a
material adverse effect upon the business or operations of the Company and
its subsidiaries, taken as a whole; it being understood, however, that the
obligations of this Section 14 shall not apply to the extent that the
aforesaid matters (a) are disclosed in circumstances where you are legally
required to do so or (b) become generally known to and available for use by
the public otherwise than by your wrongful act or omission.
15. Related Agreements. To the extent that any provision of any
other agreement between the Company, the Bank or any of the Company's other
subsidiaries and you shall limit, qualify or be inconsistent with any
provision of this Agreement, then for purposes of this Agreement, while the
same shall remain in force, the provision of this Agreement shall control and
such provision of such other agreement shall be deemed to have been
superseded, and to be of no force or effect, as if such other agreement had
been formally amended to the extent necessary to accomplish such purpose.
16. Counterparts. This Agreement may be executed in several
counterparts, each of which shall be deemed to be an original but all of
which together will constitute one and the same instrument.
<PAGE> 14
If this letter correctly sets forth our agreement on the subject
matter hereof, kindly sign and return to the Company the enclosed copy of
this letter which will then constitute our agreement on this subject.
Sincerely,
THE BANK OF NEW YORK COMPANY, INC.
By \s\ Phebe C. Miller
------------------------------
Name: Phebe C. Miller
Title: Secretary and Chief
Legal Officer
Agreed to this 22 day
of July , 1997.
\s\ Bruce Van Saun
- ----------------------
Bruce Van Saun
<PAGE> 1
Exhibit 10(f)
November 5, 1997
J. Carter Bacot
Re: Consulting Agreement
Dear Carter:
This letter confirms the terms and conditions of your engagement as a
consultant to assist The Bank of New York Company, Inc. ("BNY Co.") in tasks
assigned pursuant to this agreement. J. Carter Bacot is hereinafter referred
to as "Consultant".
1. Services. Consultant agrees to render such services to BNY Co.,
its subsidiaries or affiliates as the Chairman of BNY Co. shall from time to
time request (the "Services"). In rendering Services hereunder, Consultant
shall report to the Chairman of BNY Co. Consultant, however, shall not be
obligated to devote more than 25% of normal business hours throughout the
term of this agreement to the rendering of Services.
2. Term. This agreement shall be effective immediately after
Consultant separates from service as an employee of The Bank of New York
("BNY") (the "Effective Date") and, subject to Sections 9 and 10, shall
terminate five (5) years thereafter.
3. Consulting Fee. Consultant shall be entitled to a fee for
Services rendered during the term of this agreement in the amount of
USD$1,500,000 (the "Consulting Fee"), payable by BNY Co. in annual
installments pursuant to the following schedule:
Year 1 $500,000
Year 2 400,000
Year 3 300,000
Year 4 200,000
Year 5 100,000.
The installment for Year 1 shall be payable as soon as practicable after
the Effective Date. The installment for each of Years 2 through 5 shall
be payable at the beginning of such year (i.e., the anniversary of the
<PAGE> 2
Effective Date). Consultant shall be responsible for the payment of
applicable taxes levied or based upon any portion of the Consulting Fee
paid by BNY Co., including SECA and federal, state and local income taxes.
4. Facilities. BNY Co. shall provide Consultant with an executive
secretary, office, car and chauffeur as he shall from time to time deem
appropriate until the first to occur of Consultant's death or termination for
Cause (as defined in Section 9).
5. Reimbursement for Expenses. BNY Co. shall reimburse Consultant
for all reasonable costs and expenses incurred by Consultant in connection
with the rendering of Services hereunder. Consultant shall periodically
submit invoices to BNY Co. for reimbursement of costs and expenses incurred.
6. Confidential Information. Consultant shall hold all Confidential
Information (defined below) at all times in trust and confidence for BNY Co.,
its subsidiaries and affiliates from the time Consultant acquires such
Confidential Information. Consultant shall not use any such Confidential
Information for his own benefit or for the benefit of any other person and,
except as authorized by BNY Co. or its designee in writing, Consultant shall
not disclose to any person or entity any such Confidential Information. Upon
termination of this agreement, if requested by BNY Co. or its designee,
Consultant shall deliver to BNY Co. originals and copies of all reports,
notes and work papers, documents, correspondence, manuals, tapes and any and
all other materials in his possession or under his control which may contain
confidential information. As used herein, Confidential Information means any
and all information of a confidential or otherwise non-public nature obtained
by Consultant from, or disclosed to Consultant by BNY Co. or any of its
subsidiaries or affiliates or any of its or their directors, officers,
employees, agents or representatives relating in any way to past, present or
future business affairs, financial information, methods or processes of BNY
Co. or any of its subsidiaries or affiliates. Consultant's obligations under
this Section 6 shall survive any termination or expiration of this agreement.
7. Non-Competition. During the term of this agreement, Consultant
shall not, directly or indirectly, own, manage, operate, join, control or
otherwise carry on, participate in the management, operation or control of,
or be engaged in or concerned with, any commercial bank which is or is seeking
to become competitive with BNY Co., its subsidiaries or affiliates.
Notwithstanding the foregoing provisions of this Section, nothing shall
prevent Consultant from owning less than 5% of the outstanding shares of any
entity actively traded on a recognized securities exchange or NASDAQ.
8. Independent Contractor. Consultant shall act hereunder as an
independent contractor, shall not be subject to any formal schedule of duties
or hours, and shall in no event be deemed an employee of BNY Co., its
subsidiaries or affiliates for purposes of employee benefits or otherwise,
merely as a consequence of this agreement or his rendering of Services.
This agreement and the rendering of Services shall not in any way affect
Consultant's rights or benefits as a retired BNY employee or as a member of
the Board of Directors of BNY Co., including without limitation any employee
benefit (whether pension or otherwise) earned or accrued as a BNY employee
<PAGE> 3
prior to the Effective Date and any fees earned as a member of the Board of
Directors of BNY Co.
9. Termination. Upon written notice to Consultant, BNY Co. may at
any time terminate this agreement with or without Cause (defined below). If
BNY Co. terminates this agreement without Cause, it shall be obligated to pay
Consultant any unpaid portion of the Consulting Fee when otherwise due and
continue its obligations under Section 4. If BNY Co. terminates this
agreement with Cause, it shall only be obligated to pay Consultant that
portion of the Consulting Fee that has accrued through the last day Consultant
renders Services. In such instance, Consultant shall reimburse BNY Co. for
any portion of the Consulting Fee that has been paid but not accrued through
the last day Consultant renders Services.
Upon 30 days prior written notice to BNY Co., Consultant may at any
time terminate this agreement, in which case BNY Co. shall only be obligated
to pay Consultant that portion of the Consulting Fee that has accrued through
the last day Consultant renders Services but shall remain obligated to
continue its obligations under Section 4. In such instance, Consultant shall
reimburse BNY Co. for any portion of the Consulting Fee that has been paid
but not accrued through the last day Consultant renders Services.
In the event of Consultant's death or Disability (defined below), this
agreement shall terminate and BNY Co. shall have no further obligation to pay
any party, including Consultant's estate, any unpaid portion of the Consulting
Fee and Consultant or Consultant's estate shall have no obligation to
reimburse BNY Co. for any portion of the Consulting Fee which has been paid to
Consultant.
As used herein, Cause means Consultant has (i) materially breached
this agreement, (ii) failed, after being provided with notice and reasonable
opportunity to cure, to render any Services required under this agreement,
(iii) breached any of his fiduciary duties to BNY Co., its subsidiaries or
affiliates, or (iv) been convicted of any felony.
As used herein, Disability shall mean the inability of Consultant,
due to a physical or mental disability, for a period of 90 days, regardless
of whether consecutive, during any 360 day period to perform the services
contemplated under this agreement. A determination of Disability shall be
made by a physician satisfactory to both Consultant and BNY Co., provided
that if Consultant and BNY Co. do not agree on a physician, Consultant and
BNY Co. shall each select a physician and these two physicians together shall
select a third physician, whose determination as to Disability shall be
binding on Consultant and BNY Co.
10. Change of Control. At any time after a Change of Control
(defined below), at the election of Consultant, BNY Co. shall pay Consultant
in a lump sum any unpaid portion of the Consulting Fee, Consultant shall have
no further obligation to render Services and this agreement shall be deemed
terminated except for BNY Co.'s continuing obligations under Section 4.
Change of Control shall be as defined in the 1993 Long Term Incentive Plan of
The Bank of New York Company, Inc., as amended from time to time.
<PAGE> 4
11. Complete Agreement; Modification. This agreement contains the
entire agreement of the parties with respect to the subject matter hereof.
It may not be amended except in writing signed by both parties. In case any
one or more of the provisions contained herein shall be held to be invalid,
illegal or unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect the other provisions herein, and this
agreement shall be construed as if such invalid, illegal or unenforceable
provision had never been contained herein. If, moreover, any one or more of
the provisions contained herein shall for any reason be held to be excessively
broad as to duration, geographical scope, activity or subject, it shall be
construed by limiting and reducing it, so as to be enforceable to the extent
compatible with the applicable law as it shall then appear.
12. Binding Nature; Assignment. This agreement shall be binding on
and inure to the benefit of the parties hereto and may not be assigned by
either party. Notwithstanding the foregoing, BNY Co. may assign this
agreement to any entity controlled by, or under common control with, it
without Consultant's consent.
13. Limitation of Liability. Except as otherwise expressly provided
herein, Consultant assumes no responsibility under this agreement other than
to render the Services called for hereunder in good faith and shall not be
liable to BNY Co. except for his acts or omissions constituting bad faith,
willful misconduct, gross negligence or reckless disregard of his duties.
14. Applicable Law. Consultant will comply with all applicable laws
in rendering Services under this agreement. This agreement shall be governed
by and construed in accordance with the substantive laws, and not the choice
of law rules, of the State of New York.
If the foregoing reflects our understanding, please sign and return the
duplicate copy of this letter to the undersigned.
Very truly yours,
THE BANK OF NEW YORK ACCEPTED AND AGREED:
COMPANY, INC.
By: \s\ Thomas A. Renyi \s\ J. Carter Bacot
--------------------------- -----------------------------
Thomas A. Renyi J. Carter Bacot
President and
Chief Executive Officer
Dated: November 5, 1997
----------------------
<PAGE> 1
Exhibit 10(g)
THE BANK OF NEW YORK
48 WALL STREET
NEW YORK, N.Y. 10286
April 17, 1997
Mr. Bruce Van Saun
Dear Bruce:
I am very pleased to confirm our offer to you as Executive Vice
President and Chief Financial Officer reporting to Thomas A. Renyi, President.
You will also become a member of the Senior Policy Committee.
Your starting annual base salary will be $350,000 and we will
guarantee this base pay rate as a minimum through December 31, 1998. This
means that during this period should your employment be terminated for a
reason other than for Cause or you resign for Good Reason (as both terms are
defined in the attachment to this letter) you would receive the remaining
amount of base pay between your termination date and December 31, 1998 in a
lump sum, less taxes. Additionally, you will receive a guaranteed cash bonus
for 1997 of $525,000. This payment is subject to applicable withholding
taxes and will be paid in January 1998, unless prior to January 1998 you
resign for other than Good Reason or have been terminated for Cause. For
1998 and beyond, you will be eligible for bonus payments under the Management
Incentive Compensation Plan.
Subject to approval of the Compensation and Organization Committee of
the Board of Directors, in June 1997 you will be granted 25,500 restricted
shares of The Bank of New York Co., Inc. The Compensation and Organization
Committee will meet on June 10, 1997 and at that meeting the Committee will
approve this grant to you. These shares will vest and be paid to you as
follows: 12,500 in June 1998, 8,000 in June 1999, and 5,000 in January 2001.
During the period prior to vesting, you will be paid quarterly dividend
equivalents on those shares which, at the present dividend rate, amount to
$24,480 annually. Should the price of the shares be less than $38 on the
date the 12,500 shares vest in June 1998, the amount of difference between
the value of the shares at the closing price and $38 will be paid to you in a
lump sum, less taxes. With regard to the 12,500 shares that vest in June 1998,
if you resign for Good Reason or you are terminated for a reason other than
for Cause, these shares (and any guaranteed make-up cash payment as described
above) will continue to earn out at the scheduled vesting date. If on or
before December 31, 1998 you resign for Good Reason or are terminated for a
reason other than for Cause before final vesting of the remaining shares,
these shares will be accelerated to vest and earn out in June of 1998 if you
leave prior to June 30, 1998, otherwise, at the quarter-end of the quarter
in which you terminate.
<PAGE> 2
In June 1997, you will also be granted 15,000 Stock Options under the Long
Term Incentive Plan.
Our Profit Sharing Plan is paid on base salary and you will join the
Plan on the one year anniversary of your employment with the Bank. In the
interim, you will receive a cash payment in January 1998 equal to the pro-rata
1997 payout you would have received had you been a member of the Plan from
your hire date. Similarly, in January of 1999, you will receive a pro-rata
cash payout for the portion of 1998 that you are not a member of the Plan.
Both cash payments (less applicable withholdings) will be made provided you
are an active employee on the date that the payments are made. If you resign
prior to December 31, 1998 for Good Reason or you are terminated for a reason
other than for Cause, the Profit-Sharing equivalent payments for 1997 and 1998
will be paid to you in a lump sum, less taxes.
You will be a member of our Supplemental Executive Retirement Plan
(the "SERP"), and will have a vested benefit in the Plan one year after your
start date. This pension plan supplements our regular pension plan that you
will join after one year in which you will have a vested benefit after five
years of employment. The Plan's primary objective is to take into account
for calculation of your retirement benefits any Management Incentive
Compensation Plan (MICP) payments you receive. By including these payments,
your retirement benefit will be based on total cash compensation you receive,
not just your base salary.
As a member of our Senior Policy Committee, you will be covered under
a Severance Agreement in relation to change in control. This agreement
generally provides you with a payment in certain circumstances after a change
in control equal to 2.99 times your average Bank of New York W-2 earnings for
five calendar years immediately preceding a change in control, reduced by
accelerated payments under other Plans due to accelerated vesting caused by
the change in control (e.g. performance shares, stock options).
<PAGE> 3
This offer assumes the successful completion of the Bank's hiring
process which includes fingerprinting and a drug test.
Bruce, Messrs. Bacot, Renyi, Papageorge and Griffith are in strong
support of your joining us. We look forward to answering any questions you
may have and we want to arrange to get you started as soon as possible.
Sincerely,
\s\ Thomas E. Angers
Thomas E. Angers
Senior Vice President
Employment Offer Accepted:
\s\ Bruce Van Saun 4/17/97
- -----------------------------------------------
Name Date
Attachment
<PAGE> 4
Attachment
----------
BNY shall have the right to terminate your employment at any time for "Cause",
and, pay you upon termination in a single lump sum payment any unpaid base
salary and vacation due to you through the last day of work, as well as any
vested benefits.
"Cause" shall mean:
- Violation by you of The Bank of New York Company, Inc.'s ("BNY")
Code of Conduct or any material violation by you of other rules or
regulations governing the conduct of BNY's business.
- An act or omission on your part resulting or intended to result in
personal gain at the expense of BNY or any of its affiliates, or
an act or omission on your part causing material injury to the
property or business of BNY or any of its affiliates.
- cause shall not include bad judgment, or any act or
omission reasonably believed by you in good faith to
have been in or not opposed to the best interests of
BNY.
- The conviction of a felony or the conviction of a lesser crime or
offense that adversely impacts upon the business or reputation of
BNY in a material way.
- The willful and continued failure by you to perform substantially
your duties with BNY (other than such failure resulting from your
incapacity due to physical or mental illness) after a written
demand for substantial performance is delivered to you by the
Chairman of the Board or the Chief Executive Officer, as
appropriate, which specifically identifies the manner in which
such executive believes that you have not substantially performed
your duties.
"Good Reason" shall mean:
BNY shall be deemed to have given you "Good Reason" to terminate your
employment in case of any act or omission by BNY during the periods described
in this offer letter which constitutes a material breach of the letter
including:
- any default by BNY in its obligation to you with respect to the
payment of compensation and provision of benefits when, as and if
due, occurring 10 business days after you deliver a written notice
to the Personnel Division Head that such payment or benefit was
not made when due, or
- any material, unilateral reduction by BNY in your duties or
responsibilities or any unilateral diminution of title or
downgrading of your position, or reassignment out of the New York
Metropolitan region.
EXHIBIT 11
THE BANK OF NEW YORK COMPANY, INC.
Computation of Earnings Per Common Share
For the Years Ended December 31,
1997 1996 1995
---- ---- ----
(in millions, except per share amounts)
Net Income $1,104 $1,020 $ 914
Preferred Stock Dividends (9) (10) (10)
------ ----- -----
Net Income Available to Common Shareholders 1,095 1,010 904
Interest On Convertible Debentures, Net of Tax - 2 7
------ ----- -----
Diluted Net Income $1,095 $1,012 $ 911
====== ====== =====
Basic Weighted Average Shares Outstanding 380 388 385
Shares Issued on Conversion:
Debentures - 7 18
Warrants 17 21 11
Employee Stock Options 7 6 4
----- ----- -----
Diluted Weighted Average Shares Outstanding 404 422 418
===== ===== =====
Basic earnings per share $2.88 $2.60 $2.35
Diluted earnings per share $2.71 $2.40 $2.18
EXHIBIT 12
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 1997 1996 1995 1994 1993
- -------- ---- ---- ---- ---- ----
(Dollars in millions)
Income Before Income Taxes $1,838 $1,656 $1,482 $ 1,198 $ 886
Fixed Charges, Excluding
Interest on Deposits 446 502 568 436 340
------ ------ ------ ------ ------
Income Before Income Taxes and
Fixed Charges Excluding
Interest on Deposits 2,284 2,158 2,050 1,634 1,226
Interest on Deposits 1,290 1,152 1,265 842 701
------ ------- ------ ------ ------
Income Before Income Taxes and
Fixed Charges, Including
Interest on Deposits $3,574 $3,310 $3,315 $2,476 $1,927
====== ======= ====== ====== ======
FIXED CHARGES
- -------------
Interest Expense, Excluding
Interest on Deposits $ 415 $ 470 $ 537 $ 403 $ 305
One-Third Net Rental Expense* 31 32 31 33 35
------ ------ ------ ------ ------
Total Fixed Charges, Excluding
Interest on Deposits 446 502 568 436 340
Interest on Deposits 1,290 1,152 1,265 842 701
------ ------ ------ ------ ------
Total Fixed Charges, Including
Interest on Deposits $1,736 $1,654 $1,833 $1,278 $1,041
====== ====== ====== ====== ======
DISTRIBUTION ON TRUST PREFERRED
SECURITIES, PRE-TAX BASIS $ 65 $ 2 $ - $ - $ -
- ------------------------------- ====== ====== ====== ====== ======
PREFERRED STOCK DIVIDENDS,
PRE-TAX BASIS $ 14 $ 16 $ 16 $ 21 $ 40
- ------------------------------- ====== ====== ====== ====== ======
EARNINGS TO FIXED CHARGES RATIOS
- --------------------------------
Excluding Interest on Deposits 5.12x 4.30x 3.61x 3.75x 3.61x
Including Interest on Deposits 2.06 2.00 1.81 1.94 1.85
EARNINGS TO COMBINED FIXED CHARGES,
DISTRIBUTION ON TRUST PREFERRED
SECURITIES, & PREFERRED STOCK
DIVIDENDS RATIOS
- -----------------------------------
Excluding Interest on Deposits 4.35 4.15 3.51 3.58 3.23
Including Interest on Deposits 1.97 1.98 1.79 1.91 1.78
*The proportion deemed representative of the interest factor.
EXHIBIT 13
1997 Annual Report to Shareholders
<PAGE> 1
FINANCIAL HIGHLIGHTS
Dollars in millions,
except per share amounts 1997 1996 1995 1994 1993
Net Interest Income $ 1,855 $ 1,961 $ 2,029 $ 1,717 $ 1,497
Noninterest Income 2,137 2,130 1,491 1,289 1,319
Provision for Loan Losses 280 600 330 162 284
Noninterest Expense 1,874 1,835 1,708 1,646 1,646
Net Income 1,104 1,020 914 749 559
Net Income Available to
Common Shareholders 1,095 1,010 904 736 534
Return on Average Assets 1.86% 1.90% 1.72% 1.49% 1.20%
Return on Average Common
Shareholders' Equity 22.13 19.98 19.42 18.49 14.98
Common Dividend Payout Ratio 34.13 32.50 28.84 27.88 27.99
Per Common Share
Basic Earnings $ 2.88 $ 2.60 $ 2.35 $ 1.96 $ 1.43
Diluted Earnings 2.71 2.40 2.18 1.84 1.35
Cash Dividends Paid 0.98 0.84 0.68 0.55 0.43
Market Value at Year End 57.81 33.75 24.38 14.89 14.25
Averages
Securities $ 5,722 $ 5,343 $ 5,260 $ 5,941 $ 6,352
Loans 36,577 36,698 35,421 32,029 30,427
Total Assets 59,242 53,649 53,053 50,280 46,644
Deposits 39,910 36,599 36,061 34,041 32,837
Long-Term Debt 1,815 1,870 1,773 1,530 1,729
Minority Interest -
Preferred Securities 830 26 - - -
Shareholders' Equity:
Preferred 103 113 115 157 334
Common 4,947 5,055 4,653 3,980 3,563
At Year End
Allowance for Loan Losses
as a Percent of Loans 1.82% 2.44% 2.01% 2.40% 3.17%
Tier 1 Capital Ratio 7.92 8.34 8.42 8.45 8.87
Total Capital Ratio 11.97 12.78 13.08 13.43 13.65
Leverage Ratio 7.59 8.70 8.46 7.89 7.99
Common Equity to Assets Ratio 8.34 8.99 9.53 8.55 8.29
Total Equity to Assets Ratio 8.34 9.19 9.74 8.79 8.94
Common Shares Outstanding
(in millions) 373.835 385.272 394.956 373.870 374.456
Employees 16,494 16,158 15,810 15,477 15,621
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, 1997 1996
- ----------------------------------------------------------------------------
Assets
Cash and Due from Banks $ 5,769 $ 6,032
Interest-Bearing Deposits in Banks 2,126 1,387
Securities:
Held-to-Maturity (fair value of $1,106
in 1997 and $1,127 in 1996) 1,127 1,170
Available-for-Sale 5,501 3,883
------- -------
Total Securities 6,628 5,053
Trading Assets 2,616 1,547
Federal Funds Sold and Securities Purchased
Under Resale Agreements 2,820 562
Loans (less allowance for loan losses of $641 in
1997 and $901 in 1996) 34,486 36,105
Premises and Equipment 835 875
Due from Customers on Acceptances 1,187 985
Accrued Interest Receivable 356 315
Other Assets 3,138 2,904
------- -------
Total Assets $59,961 $55,765
======= =======
Liabilities and Shareholders' Equity
Deposits:
Noninterest-Bearing (principally domestic offices) $12,561 $11,812
Interest-Bearing
Domestic Offices 15,607 15,268
Foreign Offices 13,189 12,263
------- -------
Total Deposits 41,357 39,343
Federal Funds Purchased and Securities
Sold Under Repurchase Agreements 2,329 1,737
Other Borrowed Funds 4,673 4,144
Acceptances Outstanding 1,196 1,015
Accrued Taxes and Other Expenses 1,910 1,417
Accrued Interest Payable 182 167
Other Liabilities 503 399
Long-Term Debt 1,809 1,816
------- -------
Total Liabilities 53,959 50,038
------- -------
Guaranteed Preferred Beneficial Interests in the Company's
Junior Subordinated Deferrable Interest Debentures 1,000 600
------- -------
Shareholders' Equity
Preferred Stock-no par value, authorized 5,000,000
shares, outstanding 184,000 shares in 1996 - 111
Class A Preferred Stock-par value $2.00 per share,
authorized 5,000,000 shares, outstanding 23,844
shares in 1997 and 40,429 shares in 1996 1 1
Common Stock-par value $7.50 per share, authorized
800,000,000 shares, issued 460,212,619 shares in 1997
and 444,317,786 shares in 1996 3,452 3,332
Additional Capital 465 344
Retained Earnings 3,493 2,798
Securities Valuation Allowance 320 82
------- -------
7,731 6,668
Less: Treasury Stock (85,320,504 shares in 1997
and 57,849,845 shares in 1996), at cost 2,714 1,524
Loan to ESOP (1,056,829 shares in 1997 and
1,195,719 shares in 1996), at cost 15 17
------- -------
Total Shareholders' Equity 5,002 5,127
------- -------
Total Liabilities and Shareholders' Equity $59,961 $55,765
======= =======
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, 1997 1996 1995
- ------------------------------------------------------------------------------
Interest Income
Loans $2,910 $3,073 $3,226
Securities
Taxable 244 240 235
Exempt from Federal Income Taxes 35 37 43
------ ------ ------
279 277 278
Deposits in Banks 188 90 106
Federal Funds Sold and Securities
Purchased Under Resale Agreements 162 126 193
Trading Assets 21 17 28
------ ------ ------
Total Interest Income 3,560 3,583 3,831
------ ------ ------
Interest Expense
Deposits 1,290 1,152 1,265
Federal Funds Purchased and Securities
Sold Under Repurchase Agreements 121 155 161
Other Borrowed Funds 168 186 246
Long-Term Debt 126 129 130
------ ------ ------
Total Interest Expense 1,705 1,622 1,802
------ ------ ------
Net Interest Income 1,855 1,961 2,029
Provision for Loan Losses 280 600 330
------ ------ ------
Net Interest Income After Provision
for Loan Losses 1,575 1,361 1,699
------ ------ ------
Noninterest Income
Processing Fees
Securities 790 655 411
Cash 239 209 189
------ ------ ------
1,029 864 600
Trust and Investment Fees 181 161 136
Service Charges and Fees 354 421 423
Securities Gains 136 97 115
Other 437 587 217
------ ------ ------
Total Noninterest Income 2,137 2,130 1,491
------ ------ ------
Noninterest Expense
Salaries and Employee Benefits 1,066 1,014 913
Net Occupancy 166 167 175
Furniture and Equipment 95 93 87
Other 547 561 533
------ ------ ------
Total Noninterest Expense 1,874 1,835 1,708
------ ------ ------
Income Before Income Taxes 1,838 1,656 1,482
Income Taxes 669 634 568
Distribution on Trust Preferred Securities 65 2 -
------ ------ ------
Net Income $1,104 $1,020 $ 914
====== ====== ======
Net Income Available to Common
Shareholders $1,095 $1,010 $ 904
====== ====== ======
Per Common Share:
Basic Earnings $ 2.88 $ 2.60 $ 2.35
Diluted Earnings 2.71 2.40 2.18
Cash Dividends Paid 0.98 0.84 0.68
Diluted Shares Outstanding 404 422 418
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, 1997 1996 1995
- ------------------------------------------------------------------------------
Preferred Stock
Balance, January 1 $ 112 $ 113 $ 119
Redemption (shares: 184,000 in 1997) (111) - -
Conversion of Preferred Stock (shares: 16,585 in
1997, 9,075 in 1996, and 272,600 in 1995) - (1) (6)
------ ------ ------
Balance, December 31 1 112 113
------ ------ ------
Common Stock
Balance, January 1 3,332 3,062 2,854
Issuance in Acquisition (shares: 8,879,026 in 1995) - - 66
Conversion of Debentures (shares: 11,643,011 in 1996,
and 13,876,640 in 1995) - 87 104
Conversion of Preferred Stock (shares: 61,332 in 1997,
33,566 in 1996 and 1,008,874 in 1995) 1 1 8
Exercise of Warrants (shares: 10,922,628 in 1997,
21,001,648 in 1996, and 136,972 in 1995) 82 157 1
Other Issuances (shares: 4,910,873 in 1997,
3,314,751 in 1996, and 3,996,654 in 1995) 37 25 29
------ ------ ------
Balance, December 31 3,452 3,332 3,062
------ ------ ------
Additional Capital
Balance, January 1 344 125 -
Acquisition - - 76
Conversion of Debentures - 27 32
Exercise of Warrants 87 168 1
Redemption of Preferred Stock (4) - -
Other 38 24 16
------ ------ ------
Balance, December 31 465 344 125
------ ------ ------
Retained Earnings
Balance, January 1 2,798 2,120 1,479
Net Income 1,104 1,020 914
Cash Dividends
Common Stock (373) (328) (261)
Preferred Stock (10) (10) (11)
Change in Accumulated Foreign
Currency Translation Adjustment (26) (4) (1)
------ ------ ------
Balance, December 31 3,493 2,798 2,120
------ ------ ------
Securities Valuation Allowance
Balance, January 1 82 58 (58)
Net Change in Fair Value of Securities
Available-for-Sale 238 24 116
------ ------ ------
Balance, December 31 320 82 58
------ ------ ------
Less Treasury Stock
Balance, January 1 1,524 228 78
Issued (shares: 1,284,729 in 1997, 1,878,924 in
1996, and 2,523,744 in 1995) (34) (36) (37)
Acquired (shares: 28,755,388 in 1997, 47,676,673
in 1996, and 9,443,698 in 1995) 1,224 1,332 187
------ ------ ------
Balance, December 31 2,714 1,524 228
------ ------ ------
Less Loan to ESOP
Balance, January 1 17 18 20
Released (shares: 138,890 in 1997, 121,341 in 1996,
and 108,330 in 1995) (2) (1) (2)
------ ------ ------
Balance, December 31 15 17 18
------ ------ ------
Total Shareholders' Equity, December 31 $5,002 $5,127 $5,232
====== ====== ======
See accompanying Notes to Consolidated Financial Statements.
<PAGE> 5
Consolidated Statements of Cash Flows
- -----------------------------------------------------------------------------
In millions For the years ended December 31, 1997 1996 1995
- -----------------------------------------------------------------------------
Operating Activities
Net Income $1,104 $1,020 $ 914
Adjustments to Determine Net Cash Attributable to
Operating Activities:
Provision for Losses on Loans and Other Real Estate 292 611 334
Sale of Credit Card Loans (177) (400) -
Depreciation and Amortization 200 237 198
Deferred Income Taxes 257 100 237
Securities Gains (136) (97) (115)
Change in Trading Activities (786) 52 270
Change in Accruals and Other, Net 72 (611) 82
------ ------ ------
Net Cash Provided by Operating Activities 826 912 1,920
------ ------ ------
Investing Activities
Change in Interest-Bearing Deposits in Banks (833) (427) 18
Purchases of Securities Held-to-Maturity (318) (284) (493)
Maturities of Securities Held-to-Maturity 366 347 760
Purchases of Securities Available-for-Sale (2,550) (1,377) (923)
Sales of Securities Available-for-Sale 453 603 932
Maturities of Securities Available-for-Sale 954 597 48
Net Principal Disbursed on Loans to Customers (4,248) (3,411) (5,174)
Sales of Loans and Other Real Estate 5,680 4,136 438
Change in Federal Funds Sold and Securities
Purchased Under Resale Agreements (2,258) 373 2,120
Purchases of Premises and Equipment (45) (47) (54)
Proceeds from the Sale of Premises and Equipment 10 3 3
Acquisitions, Net of Cash Acquired (269) (400) (168)
Partial Sale of Unconsolidated Subsidiary - 45 -
Other, Net (93) (91) 89
------ ------ ------
Net Cash Provided (Used) by Investing Activities (3,151) 67 (2,404)
------ ------ ------
Financing Activities
Change In Deposits 2,204 3,522 1,148
Change in Federal Funds Purchased and Securities
Sold Under Repurchase Agreements 592 (2,196) 2,431
Change in Other Borrowed Funds 259 (376) (1,104)
Proceeds from the Issuance of Trust
Preferred Securities 400 600 -
Proceeds from the Issuance of Long-Term Debt 25 100 203
Repayments of Long-Term Debt (48) (16) (16)
Redemption and Repurchases of Preferred
Stock (115) - -
Issuance of Common Stock 278 410 87
Treasury Stock Acquired (1,224) (1,332) (180)
Cash Dividends Paid (383) (338) (272)
------ ------ ------
Net Cash Provided by Financing Activities 1,988 374 2,297
------ ------ ------
Effect of Exchange Rate Changes on Cash 74 (32) (5)
------ ------ ------
Change in Cash and Due From Banks (263) 1,321 1,808
Cash and Due from Banks at Beginning of Year 6,032 4,711 2,903
------ ------ ------
Cash and Due from Banks at End of Year $5,769 $6,032 $4,711
====== ====== ======
Supplemental Disclosure of Cash Flow Information
Cash Paid During the Year for:
Interest $1,701 $1,634 $1,825
Income Taxes 381 628 338
Noncash Investing Activity (Primarily
Foreclosure of Real Estate) 10 53 58
Reclassification of Assets to Securities
Available-for-Sale - - 1,599
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 Cash 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, the 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 and interest
accrued is suspended based upon an established delinquency 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 value changes 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 1997 financial statements.
2. Acquisitions and Dispositions
In January 1998, the Company acquired International Factors, Ltd., an asset
based lender located in England, which included assets of approximately $900
million.
During 1997, the Company made acquisitions related to its asset based
lending and its employee benefit recordkeeping businesses. Also in 1997, the
Company acquired the corporate trust businesses of Wells Fargo & Company and
Boatmen's Bancshares as well as those of several smaller banks. In addition,
the Company acquired certain assets of BondNet, an information technology
company. In November 1997, the Company also acquired ESI Securities Company
and its affiliate, B-Trade Services. These companies deliver trading services
to institutions.
The Company made acquisitions related to its asset based lending,
corporate trust, and unit investment trust businesses in 1996.
During 1995, the Company acquired the securities lending and custody
businesses of BankAmerica and 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,
Connecticut.
<PAGE> 8
In January 1997, the Company sold approximately $900 million in credit
card receivables. In November 1997, the Company sold its remaining credit card
operations ($4.4 billion in receivables) and recorded a pre-tax gain on this
sale of approximately $177 million. In 1996, the Company sold its AFL-CIO
Union Privilege affinity credit card portfolio ($3.4 billion in receivables)
for $575 million. The Company recorded a pre-tax gain of $400 million on this
transaction.
In 1997 and 1996, the Company sold portions of its interest in Wing Hang
Bank, Ltd. for pre-tax gains of $27 million and $21 million. In 1995, the
Company sold its mortgage servicing portfolio, recording a pre-tax gain of $58
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:
1997
--------------------------------------------
Gross Unrealized
In millions Amortized ---------------- Fair
Cost Gains Losses Value
--------- ----- ------ -----
Securities Held-to-
Maturity
U.S. Government
Obligations $ 25 $ - $ - $ 25
U.S. Government Agency
Obligations 339 3 - 342
Obligations of States and
Political Subdivisions 372 3 - 375
Emerging Markets 289 - 30 259
Other Debt Securities 102 3 - 105
------ ---- --- ------
Total Securities
Held-to-Maturity 1,127 9 30 1,106
------ ---- --- ------
Securities
Available-for-Sale
U.S. Government
Obligations 3,654 6 2 3,658
Obligations of States and
Political Subdivisions 287 16 - 303
Emerging Markets 22 1 1 22
Other Debt Securities 84 2 - 86
Equity Securities 954 478 - 1,432
------ ---- --- ------
Total Securities
Available-for-Sale 5,001 503 3 5,501
------ ---- --- ------
Total Securities $6,128 $512 $33 $6,607
====== ==== === ======
<PAGE> 9
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
====== ==== ==== ======
The amortized cost and fair values of securities at December 31, 1997, 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 $ 403 $ 403 $ 873 $ 870
Due After One Year Through
Five Years 160 164 1,693 1,697
Due After Five Years Through
Ten Years 56 55 1,011 1,019
Due After Ten Years 326 299 470 483
Mortgage-Backed Securities 182 185 - -
Equity Securities - - 954 1,432
------ ------ ------ ------
Total $1,127 $1,106 $5,001 $5,501
====== ====== ====== ======
Realized gross gains on the sale of securities available-for-sale were
$109 million and $59 million in 1997 and 1996. There were no realized gross
losses in 1997 and 1996.
Assets, including securities sold under repurchase agreements, carried at
$3 billion, $2 billion, and $3 billion at December 31, 1997, 1996, and 1995,
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, 1997 and 1996 are incorporated by reference from "Loans" in the
Management's Discussion and Analysis Section of this Report. The Company's
retail, community, and regional commercial 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 $767 million, $755 million, and $720 million at December 31, 1997,
1996, and 1995. These loans are primarily with related entities under revolving
lines of credit. During 1997 these loans averaged $697 million, and ranged
from $620 million to $778 million. All loans were fully performing during this
period.
Transactions in the allowance for loan losses are summarized as follows:
- -------------------------------------------------------------
In millions 1997 1996 1995
- -------------------------------------------------------------
Balance, January 1 $ 901 $ 756 $ 792
Charge-Offs (403) (580) (432)
Recoveries 49 125 55
----- ------ ------
Net Charge-Offs (354) (455) (377)
Provision 280 600 330
Other (1) (186) - 11
----- ------ ------
Balance, December 31 $ 641 $ 901 $ 756
===== ====== ======
(1) In 1997, $186 million was allocated to credit card loans sold during the
year.
Nonaccrual and reduced rate loans outstanding at December 31, 1997, 1996,
and 1995 were $193 million, $213 million, and $225 million. At December 31,
1997, commitments to borrowers whose loans were classified as nonaccrual or
reduced rate were not material.
At December 31, 1997 and 1996, impaired loans aggregated $151 million and
$154 million, of which $118 million and $122 million exceeded their fair value
by $25 million and $28 million. For 1997 and 1996, the average amount of
impaired loans was $149 million and $151 million and interest income recognized
on them (limited to cash received) was $1.0 million and $0.4 million.
Interest income recognized on total nonaccrual and reduced rate loans
exceeded reversals by $2 million in 1997, $3 million in 1996, and $2 million in
1995. Interest income would have been increased by $10 million, $11 million,
and $19 million if loans on nonaccrual status at December 31, 1997, 1996, and
1995 had been performing for the entire year. At year end, foreign loans on
nonperforming status were $34 million in 1997, $38 million in 1996, and $41
million in 1995. Interest income received on foreign nonperforming loans
equaled reversals in 1997, 1996, and 1995. If foreign loans on nonaccrual
status at December 31, 1997, 1996, and 1995 had been performing for the entire
year, interest income would have been increased by $3 million for 1997 and $2
million for 1996 and 1995.
Other real estate was $15 million, $41 million, and $72 million at
December 31, 1997, 1996, and 1995. Writedowns of and expenses related to other
real estate included in noninterest expense were $11 million, $1 million, and
$5 million in 1997, 1996, and 1995.
<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, 1997 and totals for 1996:
1997 1996
------------------------------------------------ ------
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 $2 $602 $895 $255 $1,754 $1,756
Variable - 26 29 - 55 60
-- ---- ---- ---- ------ ------
Total $2 $628 $924 $255 $1,809 $1,816
== ==== ==== ==== ====== ======
Fixed-rate debt at December 31, 1997 had interest rates ranging from 6.50%
to 8.50%. The weighted average interest rates on fixed-rate debt at December
31, 1997 and 1996 were 7.59% and 7.60%. The weighted average interest rates on
variable-rate debt at December 31, 1997 and 1996 were 6.23% and 6.21%.
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
Wholly-owned subsidiaries of the Company ("the Trusts") have issued cumulative
Capital Securities ("Capital Securities"). The sole assets of each trust are
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 following table sets forth a summary of the Capital Securities issued
by the Company:
Dollars in millions
Capital Interest Assets Due Call Call
Securities Issue Rate of Trust Date Date Price
- ------------- ----- -------- -------- ---- ---- -----
BNY Institutional
Capital Trust A $300 7.78% $309 2026 2006 103.89%
BNY Capital I 300 7.97 309 2026 2006 103.99
BNY Capital II 400 7.80 412 2027* 2002 Par
*The Company has the option to shorten or extend the maturity to 2012 and 2046,
respectively.
7. Shareholders' Equity
In December 1997, the Company redeemed its 8.60% cumulative preferred stock.
At December 31, 1997, 5.7 million warrants expiring in 1998 (exercise
price $15.50 per share) to purchase 22.6 million shares of the Company's common
stock were outstanding. During 1997, warrant holders converted 2.7 million
warrants into 10.9 million common shares, providing the Company with $169
million in capital.
<PAGE> 12
At December 31, 1997, the Company had reserved for issuance 42 million
common shares pursuant to the terms of securities and employee benefit plans.
The Company has a preferred stock purchase rights plan. The plan provides
that if any person or group becomes the beneficial owner of 20% or more of the
Company's common stock (an "acquiring person"), then on and after the tenth day
thereafter, each right would entitle the holder (other than the acquiring
person) to purchase $400 in market value of the Company's common stock for
$200. In addition, if there is a business combination between the Company and
an acquiring person, or in certain other circumstances, each right (if not
previously exercised) would entitle the holder (other than the acquiring
person) to purchase $200 in market value of the common stock of the acquiring
person for $100. The rights are redeemable by the Company at $0.05 per right
until they are exercisable, and will expire in 2004.
In 1997, the Company bought back 28.8 million shares of its common stock
at a cost of $1.2 billion. The Company plans to buy back through the end of
1998 up to 16.1 million additional shares. On January 2, 1998 the Company
bought back 9.1 million of its common shares through an accelerated share
repurchase program.
The Company has calculated earnings per share ("EPS") based on a new
accounting pronouncement. The presentation of "primary" and "fully diluted"
EPS is replaced with "basic" and "diluted" EPS. The effect of the new
accounting pronouncement is not material.
The following table illustrates the computations of basic and diluted EPS
for the years 1997, 1996, and 1995:
In millions, except per share amounts 1997 1996 1995
------ ------ ------
Net Income $1,104 $1,020 $ 914
Preferred Stock Dividends (9) (10) (10)
------ ------ ------
Net Income Available
to Common Shareholders 1,095 1,010 904
Interest on Convertible
Debentures, Net of Tax - 2 7
------ ------ ------
Diluted Net Income $1,095 $1,012 $ 911
====== ====== ======
Basic Weighted Average
Shares Outstanding 380 388 385
Shares Issued on Conversion:
Debentures - 7 18
Warrants 17 21 11
Employee Stock Options 7 6 4
------ ------ ------
Diluted Weighted Average
Shares Outstanding 404 422 418
====== ====== ======
Basic earnings per share $ 2.88 $ 2.60 $ 2.35
Diluted earnings per share $ 2.71 $ 2.40 $ 2.18
<PAGE> 13
8. Income Taxes
Income taxes included in the consolidated statements of income consist of the
following:
1997 1996 1995
In ---------------------- ---------------------- ----------------------
millions Current Deferred Total Current Deferred Total Current Deferred Total
------- -------- ----- ------- -------- ----- ------- -------- -----
Federal $298 $203 $501 $433 $ 52 $485 $255 $168 $423
Foreign 48 - 48 19 - 19 13 - 13
State and
Local 67 53 120 84 46 130 55 77 132
---- ---- ---- ---- ---- ---- ---- ---- ----
Income Taxes $413 $256 $669 $536 $ 98 $634 $323 $245 $568
==== ==== ==== ==== ==== ==== ==== ==== ====
The components of income before taxes for the computation of taxes are as
follows:
- ----------------------------------------------
In millions 1997 1996 1995
- ----------------------------------------------
Domestic $1,673 $1,548 $1,390
Foreign 165 108 92
------ ------ ------
Income Before Taxes $1,838 $1,656 $1,482
====== ====== ======
The Company's net deferred tax liability (included in accrued taxes) at
December 31 consisted of the following:
- ------------------------------------------------------------
In millions 1997 1996 1995
- ------------------------------------------------------------
Lease Financings $1,400 $1,170 $1,028
Depreciation and Amortization 220 227 308
Credit Losses on Loans (351) (389) (321)
Other Assets (80) (46) (32)
Other Liabilities 332 212 234
------ ------ ------
Net Deferred Tax Liability $1,521 $1,174 $1,217
====== ====== ======
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:
1997 1996 1995
---- ---- ----
Federal Rate 35.0% 35.0% 35.0%
Tax-Exempt Interest (0.6) (0.7) (1.0)
Foreign Operations (0.7) (0.5) (1.1)
State and Local Income
Taxes, Net of Federal
Income Tax Benefit 4.0 4.8 5.4
Nondeductible Expenses 0.9 0.9 1.0
Leveraged Lease Portfolio (0.2) (0.2) (0.2)
Preferred Securities (1.2) (0.1) -
Other (0.8) (0.9) (0.8)
----- ----- -----
Effective Rate 36.4% 38.3% 38.3%
===== ===== =====
<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 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 1997 1996 1995
---- ---- ----
Service Cost - Benefits Earned $(18) $(18) $(13)
Interest Cost on Projected Benefit Obligation (27) (26) (23)
Actual Return on Plan Assets 260 74 177
Net Amortization and Deferral (177) - (112)
---- ---- ----
Net Pension Income $ 38 $ 30 $ 29
==== ==== ====
The expected long-term rate of return on plan assets used in computing
pension income was 10.8% in 1997 and 10.0% in both 1996 and 1995.
The following table sets forth the retirement plans' funded status:
Dollars in millions December 31, 1997 1996
---- ----
Present Value of Accumulated Benefit Obligation, Including
Vested Benefits of $341 in 1997 and $304 in 1996 $ 348 $322
====== ====
Present Value of Projected Benefit Obligation $ 351 $342
Plan Assets at Fair Value, Primarily Short-Term
Investments, Fixed-Income and Equity Securities 1,027 788
------ ----
Excess of Plan Assets over the
Projected Benefit Obligation 676 446
Unrecognized Prior Service Cost (16) (19)
Unrecognized Net Gain from Past Differences and
Effects of Changes in Assumptions (243) (45)
Unrecognized Net Asset Being Amortized over 16.2 Years (16) (18)
------ ----
Prepaid Pension Cost Included in Other Assets $ 401 $364
====== ====
Assumptions Used in Computing the Benefit Obligation:
Weighted Average Discount Rate 7.75% 8.25%
Rate of Increase in Future Compensation Level 4.25 4.25
<PAGE> 15
Other Postretirement Benefits
- -----------------------------
The Company provides health care and life insurance benefits for certain
retired employees. The assumed health care cost trend rate used in
determining benefit expense for 1997 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 the benefit expense by 7%.
The cost of these benefits consisted of the following components:
In millions 1997 1996 1995
---- ---- ----
Service Cost - Benefits Earned $ 1 $ 2 $ 2
Accumulated Benefit Obligation:
Interest 9 9 10
Amortization 4 4 4
---- ---- ----
Total $ 14 $ 15 $ 16
==== ==== ====
The following table sets forth the funded status of the Company's other
postretirement benefit obligation:
In millions December 31, 1997 1996
---- ----
Accumulated Postretirement Benefit Obligation:
Retirees $ 78 $ 74
Fully Eligible Active Plan Participants 20 19
Other Active Plan Participants 22 21
---- ----
Total Obligation 120 114
Plan Assets at Fair Value 13 3
---- ----
Accumulated Postretirement Benefit Obligation
in Excess of Plan Assets 107 111
Unrecognized Net Gain from Past Differences
and Effects of Changes in Assumptions 21 28
Unrecognized Net Liability Being Amortized
over 20 Years (94) (101)
---- ----
Accrued Postretirement Benefit
Obligation Included in Other Liabilities $ 34 $ 38
==== ====
The assumed discount rates used in determining the accumulated benefit
obligation were 7.75% and 8.25% in 1997 and 1996.
<PAGE> 16
10. Company Financial Information
The Company's condensed financial statements are as follows:
Balance Sheets
In millions December 31, 1997 1996
- --------------------------------------------------------------------
Assets
Cash and Due from Banks $ 4 $ 2
Securities 20 19
Loans 323 402
Investment in and Advances to Subsidiaries
Banks 6,436 5,758
Other 3,187 2,177
------- ------
9,623 7,935
------- ------
Other Assets 51 58
------- ------
Total Assets $10,021 $8,416
======= ======
Liabilities and Shareholders' Equity
Other Borrowed Funds $ 882 $ 510
Due to Non-Bank Subsidiaries 1,170 205
Other Liabilities 155 160
Long-Term Debt 2,812 2,414
------- ------
Total Liabilities 5,019 3,289
------- ------
Shareholders' Equity*
Preferred 1 112
Common 5,001 5,015
------- ------
Total Liabilities and Shareholders' Equity $10,021 $8,416
======= ======
*See Consolidated Statements of Changes in Shareholders' Equity.
<PAGE> 17
Statements of Income
In millions For the years ended December 31, 1997 1996 1995
- ------------------------------------------------------------------------------
Operating Income
Dividends from Subsidiaries
Banks $ 76 $ 545 $300
Other 550 500 -
Interest from Subsidiaries
Banks 85 86 92
Other 13 9 17
Other 17 45 126
------ ------ ----
Total 741 1,185 535
------ ------ ----
Operating Expenses
Interest (including $23 in 1997, $14 in
1996, and $1 in 1995 to Non-Bank Subsidiaries) 248 170 168
Other 19 17 34
------ ------ ----
Total 267 187 202
------ ------ ----
Income Before Income Taxes and Equity in
Undistributed Earnings of Subsidiaries 474 998 333
Income Tax Expense (Benefit) (88) (44) 11
------ ------ ----
Income Before Equity in Undistributed
Earnings of Subsidiaries 562 1,042 322
------ ------ ----
Equity in Undistributed Earnings of Subsidiaries
Banks 698 149 396
Other (156) (171) 196
------ ------ ----
Total 542 (22) 592
------ ------ ----
Net Income $1,104 $1,020 $914
====== ====== ====
<PAGE> 18
Statements of Cash Flows
In millions For the years ended December 31, 1997 1996 1995
- -----------------------------------------------------------------------------
Operating Activities
Net Income $1,104 $1,020 $ 914
Adjustments to Determine Net Cash Attributable to
Operating Activities:
Amortization 5 6 7
Equity in Undistributed Earnings
of Subsidiaries (542) 22 (590)
Securities Gains 2 (4) (95)
Change in Interest Receivable (10) 1 (1)
Change in Interest Payable 4 (1) (3)
Change in Taxes Payable (33) (23) 13
Other, Net 23 19 5
------ ------ -----
Net Cash Provided by Operating Activities 553 1,040 250
------ ------ -----
Investing Activities
Purchases of Securities (14) (15) (277)
Sales of Securities - - 492
Maturities of Securities 17 12 9
Change in Loans 79 (82) (123)
Acquisition of, Investment in, and Advances to
Subsidiaries (925) (501) (466)
Other, Net 1 (11) -
------ ------ -----
Net Cash Used by Investing Activities (842) (597) (365)
------ ------ -----
Financing Activities
Change in Other Borrowed Funds 372 (138) 221
Proceeds from the Issuance of Long-Term Debt 412 716 203
Repayments of Long-Term Debt (17) (17) (16)
Change in Advances from Subsidiaries 968 254 76
Redemption and Repurchases of Preferred
Stock (115) - -
Issuance of Common Stock 278 410 87
Treasury Stock Acquired (1,224) (1,332) (180)
Cash Dividends Paid (383) (338) (272)
------ ------ -----
Net Cash Provided (Used) by Financing Activities 291 (445) 119
------ ------ -----
Change in Cash and Due from Banks 2 (2) 4
Cash and Due from Banks at Beginning of Year 2 4 -
------ ------ -----
Cash and Due from Banks at End of Year $ 4 $ 2 $ 4
====== ====== =====
Supplemental Disclosure of Cash Flow Information
Cash Paid During the Year for:
Interest $ 244 $ 178 $ 171
Income Taxes 333 587 306
In 1995, the Company contributed $361 million of available-for-sale
securities to a subsidiary. A loss of $1 million in 1997 and gains of $16
million and $64 million in 1996 and 1995 were recorded.
The Bank of New York (the "Bank"), the Company's primary banking
subsidiary 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).
<PAGE> 19
Under the first of these limitations, in 1998 the Bank could declare
dividends of $839 million plus net profits earned in 1998. The Bank is not
restrained from paying dividends under the second limitation.
In addition to these statutory tests, the Bank's primary federal
regulator, the Federal Reserve Board could prohibit a dividend if it determines
that the payment would constitute an unsafe or unsound banking practice. The
Federal Reserve Board has indicated that, generally, dividends should be paid
by a bank 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, 1997 and 1996, capital ratios for the Company and the
Bank were categorized as well capitalized as set forth in the table below.
December 31, 1997 December 31, 1996
---------------------- --------------------- Well
Capitalized
Company Bank Company Bank Guidelines
------- ----- ------- ---- -----------
Tier I 7.92% 7.70% 8.34% 7.03% 6%
Total Capital 11.97 10.38 12.78 10.26 10
Leverage 7.59 7.42 8.70 6.89 5
Tangible Common
Equity 6.47 7.57 6.99 6.68
The Federal Reserve Act limits and requires collateral for extensions of
credit by the Company's banks to the Company and certain of its non-bank
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 regulatory capital, 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 $535 million and $783 million for the
years 1997 and 1996.
11. Other Noninterest Income and Expense
Other noninterest income includes equity in earnings of unconsolidated
subsidiaries of $36 million, $46 million, and $62 million in 1997, 1996, and
1995. In 1997, other noninterest income includes a pre-tax gain of
approximately $177 million on the sale of the Company's credit card operations.
In 1996, other noninterest income 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 also includes deposit insurance premiums of $3
million, $2 million, and $32 million in 1997, 1996, and 1995 and amortization
of intangibles of $105 million in 1997 and 1996, and $74 million in 1995.
<PAGE> 20
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 8% at December 31, 1997 and 6% to 9% at December 31,
1996. 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, 1997 1996
-------------------- --------------------
Carrying Fair Carrying Fair
In millions Amount Value Amount Value
-------- ----- -------- -------
Assets
Securities $ 6,794 $ 6,856 $ 5,206 $ 5,224
Trading Assets 2,616 2,616 1,547 1,547
Loans and Commitments 31,894 32,054 33,917 34,178
Derivatives Used for ALM 73 (38) 81 (27)
Other Financial Assets 11,041 11,041 8,250 8,250
------- ------- ------- -------
Total Financial Assets 52,418 $52,529 49,001 $49,172
======= =======
Non-Financial Assets 7,543 6,764
------- -------
Total Assets $59,961 $55,765
======= =======
Liabilities
Noninterest-Bearing Deposits $12,561 $12,561 $11,812 $11,812
Interest-Bearing Deposits 28,796 28,825 27,531 27,538
Borrowings 5,430 5,434 4,569 4,570
Long-Term Debt 1,809 1,878 1,816 1,832
Trading Liabilities 1,713 1,713 1,437 1,437
Derivatives Used for ALM 41 (91) 42 (69)
------- ------- ------- -------
Total Financial Liabilities 50,350 $50,320 47,207 $47,120
======= =======
Non-Financial Liabilities 3,609 2,831
------- -------
Total Liabilities $53,959 $50,038
======= =======
Commitments and contingent items reduced the fair value of loans and
commitments by $14 million in 1997 and 1996.
<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
------------
Carrying Notional Unrealized
Amount Amount Gain (Loss)
-------- -------- ---- ----
At December 31, 1997
- --------------------
Loans $2,219 $2,219 $ 9 $(47)
Deposits 1,826 1,826 57 (3)
Borrowings 329 329 4 (1)
Long-Term Debt 925 925 36 (2)
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)
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 ------------------------------------
Dollars in millions 12/31/97 1998 1999 2000 2001 2002
- ------------------------------------------------------------------------------
Receive Fixed Interest Rate Swaps:
Notional Amount $2,710 $2,710 $1,427 $1,180 $ 842 $ 782
Weighted Average Rate 6.73% 6.73% 7.20% 7.27% 7.06% 7.05%
Pay Fixed Interest Rate Swaps:
Notional Amount $2,484 $2,484 $1,916 $1,447 $1,143 $ 803
Weighted Average Rate 6.71% 6.71% 6.66% 6.67% 6.70% 6.69%
Basis Interest Rate Swaps:
Notional Amount $ 105 $ 105 $ 60 $ - $ - $ -
Forward LIBOR Rate (1) 5.97% 6.07% 6.17% 6.23% 6.29% 6.34%
(1) The forward LIBOR rate shown above reflects the implied forward yield
curve for that index at December 31, 1997. 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.
<PAGE> 23
The Company uses forward foreign exchange contracts to protect the value
of its investments in foreign subsidiaries. The after-tax effects are shown
in the cumulative translation adjustment included in shareholders' equity. At
December 31, 1997 and 1996, $246 million and $228 million in notional amount
of foreign exchange contracts, with fair values of $0.8 million and $0.4
million, hedged corresponding amounts of foreign investments. These foreign
exchange contracts had a maturity of less than two months at December 31,
1997.
There were no deferred net gains on ALM derivative financial instruments
at December 31, 1997 and 1996.
Net interest income increased by $8 million in 1997 and 1996, and $17
million in 1995 as a result of ALM derivative financial instruments.
A discussion of the credit, market, and liquidity risks inherent in
financial instruments is presented under "Liquidity", "Market Risk
Management", "Trading Activities and Risk Management", and "Asset/Liability
Management" in the unaudited Management's Discussion and Analysis Section of
this Report and Note 15 to the Consolidated Financial Statements.
13. Trading Activities
The following table shows the fair value of the Company's financial
instruments that are held for trading purposes:
In millions 1997 1996
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 $ 8 $ 4 $ - $ - $ 2 $ 5 $ 1 $ 1
Swaps 204 95 206 94 99 128 115 129
Written Options - - 53 1 - - 6 6
Purchased Options 44 32 - - 5 5 - -
Foreign Exchange
Contracts:
Swaps - - - - 3 4 1 3
Written Options - - 783 936 - - 642 166
Purchased Options 645 909 - - 645 185 - -
Commitments to
Purchase and Sell
Foreign Exchange 649 831 653 827 615 359 590 380
Debt Securities 1,002 332 18 15 73 193 82 117
Other Securities 64 118 - - 105 103 - -
------ ------ ------ ----- ----- ---- ------ ----
Total Trading
Account $2,616 $2,321 $1,713 $1,873 $1,547 $982 $1,437 $802
====== ====== ====== ====== ====== ==== ====== ====
Other noninterest income included the following income related to trading
activities:
In millions
- -------------------------------------------------------------------------------
1997 1996 1995
---- ---- ----
Foreign Exchange $109 $57 $42
Interest Rate Contracts 9 7 11
Debt and Other Securities 7 3 7
---- --- ---
$125 $67 $60
==== === ===
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 1997
---------------------------------------
Income
Before
Total Income Net Total
Revenue Taxes Income Assets
------- ------ ------ -------
Europe $ 424 $ 35 $ 22 $ 3,554
Asia 311 81 51 3,614
Other Foreign 341 53 34 4,487
Domestic 4,621 1,669 997 48,306
------ ------ ------ -------
Total $5,697 $1,838 $1,104 $59,961
====== ====== ====== =======
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
====== ====== ====== =======
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
<PAGE> 25
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, 1997 and 1996 follows:
Off-Balance-Sheet Credit Risks
In millions 1997 1996
- ------------------------------ ---- ----
Commercial Lending Commitments $38,254 $31,604
Credit Card Commitments - 14,998
Standby Letters of Credit 6,056 4,664
Commercial Letters of Credit 1,945 1,711
Securities Lending Indemnifications 41,041 23,881
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. 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 $0.4 billion and $1.3 billion that were collateralized with cash and
securities at December 31, 1997 and 1996. At December 31, 1997 and 1996,
securities lending indemnifications were secured by collateral of $41.0 billion
and $23.9 billion. At December 31, 1997, approximately $2.6 billion of the
standbys will expire within one year, and the balance between one to five
years.
At December 31, 1997, approximately $27.9 billion of interest rate
contracts will mature within one year, $29.1 billion between one and five
years, and the balance after five years. At December 31, 1997, approximately
$141.3 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 1997.
Use of derivative financial instruments involves reliance on
counterparties. Failure of a counterparty to honor its obligation under a
derivative contract is a risk the Company assumes whenever it engages in a
derivative contract.
<PAGE> 26
A summary of the notional amount and credit exposure of the Company's
derivative financial instruments at December 31, 1997 and 1996 follows:
Derivative Financial Instruments
Notional Amount Credit Exposure
In millions 1997 1996 1997 1996
---- ---- ---- ----
Interest Rate Contracts:
Futures and Forward Contracts $ 5,173 $ 6,451 $ - $ 1
Swaps 12,751 9,318 143 180
Written Options 22,113 7,056 - -
Purchased Options 21,486 6,693 77 6
Foreign Exchange Contracts:
Swaps 69 126 4 3
Written Options 45,493 28,551 - -
Purchased Options 45,646 28,581 546 154
Commitments to Purchase and Sell
Foreign Exchange 50,996 44,269 866 893
------ ------
1,636 1,237
Effect of Master Netting Agreement (312) (328)
------ ------
Total Credit Exposure $1,324 $ 909
====== ======
Net rent expense for premises and equipment was $92 million in 1997, $91
million in 1996, and $94 million in 1995.
At December 31, 1997, 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, 1997 are as follows:
- ---------------------------------------------------------------------------
Year ending December 31, In millions
- ---------------------------------------------------------------------------
1998 $ 76
1999 64
2000 53
2001 46
2002 40
Subsequent to 2002 182
----
Total Minimum Lease Payments $461
====
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.
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 generally
exceed, on a cumulative basis, 1% of the outstanding shares of common stock per
year. 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
<PAGE> 27
cost for these plans had been based on fair value, net income would have been
reduced by $22 million in 1997, $9 million in 1996, and $7 million in 1995.
Also, diluted earnings per share would have been reduced by 5 cents per share
in 1997, and 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 1997 are as follows: dividend yield of 3%;
expected volatility of 22%; risk free interest rate of 6.24%; and expected
option lives of 5 years.
A summary of the status of the Company's Option Plans as of December 31,
1997, 1996, and 1995, and changes during the years ending on those dates is
presented below:
1997 1996 1995
- -------------------------------------------------------------------------------
Weighted Weighted Weighted
-Average -Average -Average
Exercise Exercise Exercise
Options Shares Price Shares Price Shares Price
- -------------------------------------------------------------------------------
Outstanding
at beginning
of year 12,469,214 $14.23 12,701,360 $11.87 13,433,492 $11.04
Granted 3,653,750 34.59 2,592,700 22.57 2,618,608 14.30
Exercised (3,673,310) 12.43 (2,802,402) 11.23 (3,259,324) 10.38
Canceled (118,436) 33.80 (22,444) 18.83 (91,416) 13.25
---------- ---------- ----------
Outstanding
at end
of year 12,331,218 20.61 12,469,214 14.23 12,701,360 11.87
========== ========== ==========
Options
exercisable
at year-end 7,885,326 14.66 8,901,526 11.86 9,186,618 11.07
Weighted-
average fair
value of
options granted
during the year $7.42 $5.24 $4.44
The following table summarizes information about stock options outstanding at
December 31, 1997:
Options Outstanding Options Exercisable
------------------------------------ ----------------------
Weighted
-Average Weighted Weighted
Number Remaining -Average Number -Average
Range of Outstanding Contractual Exercise Exercisable Exercise
Exercise Prices at 12/31/97 Life Price at 12/31/97 Price
- --------------- ----------- ----------- -------- ----------- --------
$ 5 to 7 473,544 3.2 years $ 6.67 473,544 $ 6.67
8 to 11 1,457,287 2.9 9.81 1,457,287 9.81
13 to 15 4,694,570 6.1 13.93 4,182,638 13.91
22 to 30 2,164,717 8.0 22.57 1,771,857 22.57
34 to 48 3,541,100 9.0 34.59 - -
----------- -----------
5 to 48 12,331,218 6.8 20.61 7,885,326 14.66
=========== ===========
<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, 1997
and 1996, and the related consolidated statements of income, changes in
shareholders' equity, and cash flows for each of the two years in the period
ended December 31, 1997. 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. The financial statements of the
Company for the year ended December 31, 1995 were audited by other auditors
whose report dated February 26, 1996, expressed an unqualified opinion on those
statements.
We conducted our audits 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 audits provide 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, 1997 and 1996, and the
consolidated results of their operations and their cash flows for each of the
two years in the period ended December 31, 1997, in conformity with generally
accepted accounting principles.
\s\ Ernst & Young LLP
New York, New York
January 30, 1998
<PAGE> 29
Management's Discussion and Analysis of the Company's Financial Condition and
Results of Operations
- ------------------------------------------------------------------------------
SUMMARY OF RESULTS
For 1997, The Bank of New York Company, Inc. (the "Company") reported record
net income of $1,104 million or a record $2.71 per diluted share, compared with
$1,020 million or $2.40 per diluted share in 1996 and $914 million or $2.18 per
diluted share in 1995. Diluted earnings per share have been restated to
include the effect of employee stock options. These reduced earnings per share
by 5 cents for 1997.
In 1997, revenues from the Company's securities processing business grew
21% in 1997 to $790 million. This reflects strong internal growth of 16%, with
increases in all businesses. ADRs, stock transfer, corporate trust, and mutual
funds were particularly strong. Fees from cash processing were up 14% in 1997
to $239 million. Trust and investment management continued its strong
performance in 1997 with fees growing 12% over last year to $181 million
reflecting new business and generally strong markets. In 1997, net interest
income on a taxable equivalent basis totaled $1,890 million compared with
$1,999 million in the prior year. The decline is primarily attributable to the
sale of the credit card operations and the stock buyback program, partially
offset by growth in corporate lending. The provision for loan losses decreased
to $280 million from $600 million due largely to the sale of credit card
receivables. Operating expenses continued to remain under good control.
In 1997, return on average common equity was a record 22.13% compared with
19.98% in 1996 and 19.42% in 1995, while return on average assets was 1.86%
compared with 1.90% in 1996 and 1.72% in 1995.
Tangible diluted earnings per share (earnings before the amortization of
goodwill and intangibles) were $2.91 per share in 1997 compared with $2.59 per
share in 1996. Tangible return on average assets was 2.04% in 1997 and 2.10%
in 1996; and tangible return on average common equity was 31.78% in 1997
compared with 27.94% in 1996.
In 1996, revenues from the Company's securities processing business grew
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 cash processing were up 9% for the year to $206
million. Trust and investment management fees grew 18% over the prior year to
$161 million. 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 in 1996 from $330 million in 1995 due largely to a
deterioration in the Company's credit card portfolio. Operating expenses were
strictly controlled.
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 Industries 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. Cash processing
fees grew 11% over the previous year led by increases in funds transfer and
trade finance revenues.
NET INTEREST INCOME
Dollars in millions 1997 1996 1995
---- ---- ----
Net Interest Income on a Taxable
Equivalent Basis $1,890 $1,999 $2,068
Net Interest Rate Spread 2.88% 3.37% 3.41%
Net Yield on Interest-Earning Assets 3.89 4.35 4.53
<PAGE> 30
For 1997, net interest income on a taxable equivalent basis amounted to $1,890
million compared with $1,999 million in 1996. Average loans were $36.6 billion
in 1997 compared with $36.7 billion in 1996. Year end 1997 loans were $34.5
billion down from $36.1 billion in 1996 reflecting the sale of $5.3 billion in
credit card receivables partially offset by increased corporate lending. The
net interest rate spread and yield were 2.88% and 3.89% in 1997 compared with
3.37% and 4.35% in 1996. These declines are primarily due to the sale of the
credit card portfolio. The decline in the yield also reflects the financing of
the stock buyback program.
On a taxable equivalent basis, net interest income was $1,999 million in
1996. 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 were 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
reflected 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. 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.
Interest income would have been increased by $10 million, $11 million, $19
million if loans on nonaccrual status at December 31, 1997, 1996, and 1995 had
been performing for the entire year.
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 $2,137 million in 1997, compared with $2,130 million in
1996 and $1,491 million in 1995.
Securities processing fees were $790 million, $655 million, and $411
million in 1997, 1996, and 1995. Internal growth in all areas and acquisitions
contributed to the significant increase in revenue in 1997. Cash processing
fees, principally funds transfer, deposit services, and trade finance, were
$239 million in 1997, $209 million in 1996, and $189 million in 1995. Funds
transfer fees were ahead a strong 17% and cash management fees were up by 15%,
while revenues from the trade finance business were up by 9% from 1996. Trust
and investment management fees were $181 million in 1997, $161 million in 1996,
and $136 million in 1995. Service charges and fees were $354 million in 1997,
compared with $421 million in 1996 and $423 million in 1995. For further
discussion of fee revenue see Sector Profitability.
Securities gains totaled $136 million, $97 million, and $115 million in
1997, 1996, and 1995, including gains on equity securities of $132 million in
1997, $87 million in 1996 and $97 million in 1995.
Other noninterest income was $437 million in 1997, $587 million in 1996,
and $217 million in 1995. In 1997 and 1996, other noninterest income included
pre-tax gains on the sale of credit card portfolios of $177 million and $400
million. Profits from foreign exchange and other trading activities were $125
million, $67 million, and $60 million in 1997, 1996, and 1995. Other non-
interest income also includes pre-tax gains of $27 million in 1997 and $21
million in 1996 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.
<PAGE> 31
NONINTEREST EXPENSE AND INCOME TAXES
Total noninterest expense was $1,874 million in 1997, $1,835 million in 1996,
and $1,708 million in 1995. Expenses in 1997 were affected by acquisitions of
securities processing and asset based lending businesses and the sale of the
credit card business. Salaries and employee benefits increased 5% to $1,066
million in 1997. Net occupancy and furniture and fixture expenses increased by
a combined $1 million to $261 million. Other expenses fell by 3% in 1997 to
$547 million.
Noninterest expense for 1997 includes $18 million, approximately 3 cents
per share, related to making computer systems Year 2000 compliant. The Company
plans to have all applications compliant and certified for Year 2000 processing
by December 1998. Wholesale systems with 10 million lines of application code
are currently in the final stages of compliance. As of December 31, 1997, over
60% of all application code has been renovated. The projected costs for 1998
and 1999 are $64 million with a majority to be spent in 1998. The Company has
also initiated discussions with its significant suppliers and customers to
attempt to obtain assurance that they have appropriate plans to be Year 2000
compliant where their systems interact with the Company. While the Company
believes at this time that its efforts are adequate to address its Year 2000
concerns, it cannot predict whether its suppliers and customers will be
successful in becoming Year 2000 compliant.
Total noninterest expense increased 7% in 1996 compared with 1995,
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. 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
$2 million to $260 million in 1996. Salaries and employee benefits increased
11% in 1996.
Deposit insurance premiums were $3 million in 1997 compared with
$2 million and $32 million in 1996 and 1995. The FDIC substantially reduced
the assessment rate for deposit insurance premiums in 1996.
The efficiency ratio was 50.2% in 1997 compared with 50.5% in 1996 and
50.0% in 1995. The efficiency ratios exclude the gains on the sale of the
credit card portfolios in 1997 and 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 1997, 1996, and 1995
were 36.4%, 38.3%, and 38.3%. The 1997 rate decreased due to larger deductions
for trust preferred securities in addition to the reduced impact of state and
local taxes. The 1996 rate reflects higher taxes on foreign operations offset
by the reduced impact of state and local taxes.
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 with limited 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 $309 million in 1997. Medium-term notes declined $699 million and foreign
deposits increased by $2.7 billion. The increase in foreign deposits primarily
relates to the Company's European based securities processing business. More
volatile sources of interest-bearing deposits and borrowings increased by $174
million.
<PAGE> 32
In 1997, the Company's average commercial paper borrowings were $602
million compared with $605 million in 1996. 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 $0.8 billion
in 1997, compared with $0.9 billion and $1.9 billion in 1996 and 1995. In 1997
cash flow from operations declined slightly as increased use of cash for
trading activities was offset by changes in accruals and other. The decrease
in 1996 compared with 1995 is primarily attributable to changes in accruals and
other.
In 1997, cash used by investing activities was $3.2 billion. This
reflects additions to commercial loans, securities and federal funds sold and
securities purchased under resale agreements, which was partially offset by the
sale of credit card loans. 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.
Cash provided by financing activities was $2.0 billion, $0.4 billion, and
$2.3 billion in 1997, 1996, and 1995 as the Company used deposits to finance
its investing activities. In 1997 and 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 1997 and 1995 and a use of
funds in 1996.
Restrictions on the ability of the Company to obtain funds from its
subsidiaries are discussed in Note 10 to the Consolidated Financial Statements.
CAPITAL RESOURCES
Shareholders' equity was $5,002 million at December 31, 1997, compared with
$5,127 million at December 31, 1996 and $5,232 million at December 31, 1995.
In January and October 1997, the Company increased its quarterly common stock
dividend to 24 cents per share and 26 cents per share, respectively, up 30%
from the beginning of 1996. During 1997, the Company retained $721 million of
earnings and issued $400 million of trust preferred securities. Warrant
holders converted 3 million warrants into 11 million common shares, providing
$169 million in capital. In addition, 29 million common shares were
repurchased for $1.2 billion and $111 million of preferred stock was redeemed.
In 1998, the Company plans to buy back 16 million shares.
In 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.
In 1995, the Company retained $642 million of earnings and issued $200
million of subordinated debt. Subordinated debentures totaling $136 million
were converted to common stock. Also, 9 million common shares were
repurchased.
The Company has filed shelf registration statements for up to $1.2 billion
of debt and preferred stock (including convertible preferred stock) and $500
million of trust preferred securities.
PROVISION AND ALLOWANCE FOR LOAN LOSSES
The provision for loan losses was $280 million in 1997, compared with $600
million in 1996 and $330 million in 1995. The decrease in the provision
compared with 1996 is primarily due to the sale of credit card receivables.
The increase in the provision in 1996 principally related to a higher level of
anticipated losses on certain Consumers Edge(registered trademark) credit
card accounts opened in 1995, and on the
<PAGE> 33
credit card portfolio generally. In 1997, the Company continued to experience
improvement in the asset quality of business loans as nonperforming loans
declined.
Net charge-offs were $354 million in 1997, $455 million in 1996, and $377
million in 1995. In 1997, 1996, and 1995, net charge-offs were primarily
attributable to credit card loans. The total allowance for loan losses was
$641 million and $901 million at year-end 1997 and 1996. The $260 million
decrease in the allowance for loan losses in 1997 is mainly attributable to the
sale of credit card receivables. The ratio of the total allowance for loan
losses to year-end loans was 1.82% and 2.44% at December 31, 1997 and 1996.
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. The market risks are
primarily interest rate and foreign exchange risk, as well as credit risk.
The Company's risk management process begins with oversight by the Board
of Directors, who periodically review risk management policies and controls and
approves aggregate levels of risk. The Company's market risk governance
structure includes two committees comprised of senior executives who review
market risk activities, risk measurement methodologies, and risk limits,
approve new products, and provide direction for the Company's market risk
profile. The Asset/Liability Management Committee oversees the market risk
management process for interest rate risk related to asset/liability management
activities. The Treasury Risk Management Committee oversees the market risk
management process for trading activities. Both committees are supported by a
comprehensive risk management process that is designed to identify, measure,
and manage market risk.
TRADING ACTIVITIES AND RISK MANAGEMENT
The Company expanded its offering of interest rate risk management products in
1997 as a result of agreements it entered into with Susquehanna Trading, a
firm with significant expertise in options. In 1996, the Company entered into
an agreement with Susquehanna Trading related to foreign exchange risk
management products. Activity related to Susquehanna Trading and expansion of
the Company's securities processing businesses are the primary reasons for the
increase in the notional amounts and trading account balances for foreign
exchange and interest rate option contracts and commitments to purchase and
sell foreign exchange in 1997.
The Company does not maintain large open trading positions, but enters
into value priced transactions that can be hedged through offsetting positions.
These positions present basis and correlation risk that are managed through
rebalancing the offsetting positions.
The Company manages trading risk through a system of position limits, a
value at risk (VAR) methodology, stop loss advisory triggers, and other market
sensitivity measures. Risk is monitored and reported to senior management by
an independent unit on a daily basis. The VAR methodology captures, based on
certain assumptions, the potential overnight pre-tax dollar loss from adverse
changes in fair values of all trading positions. The calculation assumes a one
day holding period for most instruments, utilizes a 95% confidence level, and
incorporates the non-linear characteristics of options.
<PAGE> 34
The following table indicates the calculated VAR amounts for the trading
portfolio for the year ending December 31, 1997:
($ in millions) 1997
Market Risk Average Minimum Maximum 12/31/97
--------------------------- --------
Interest Rate $2.1 $0.4 $8.9 $2.4
Foreign Exchange 1.3 0.5 2.8 1.2
Overall Portfolio 3.4 1.4 9.7 3.6
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 risks that arises
from these activities are interest rate risk, and to a lesser degree foreign
exchange risk. The Company's primary market risk exposure is to movements in
U.S. dollar interest rates. Exposure to movements in foreign currency interest
rates also exists, but at a significantly lower level. The Company actively
manages interest-rate sensitivity (the exposure of net interest income to
interest rate movements). In addition to gap analysis, the Company uses
earnings simulation and discounted cash flow models to identify interest rate
exposures.
An earnings simulation model is the primary tool used to assess changes in
pre-tax net interest income. The model incorporates management's assumptions
regarding interest rates, balance changes on core deposits, and changes in
prepayment behavior of loans. These assumptions have been developed through a
combination of historical analysis and future expected pricing behavior.
Derivative financial instruments used for asset/liability management purposes
are also included in this model.
The Company evaluates the effects on earnings of alternate interest rate
scenarios against earnings. A base line, high and low rate scenario are
considered to model interest rate sensitivity. Interest rate scenarios are
obtained from an independent third party. The base line scenario for January
1998 assumes rates remain flat until the third quarter of 1998 and then begin
to decline. The high rate scenario converges with the base line scenario for
the first four months of the forecast and then increases an average of 57 basis
points over the base line scenario. The low rate scenario assumes that average
rates decline 129 basis points under the base line scenario. Additionally,
200 basis point shock scenarios are reviewed to examine the impact of large
interest rate movements. Interest rate sensitivity is quantified by
calculating the change in pre-tax 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 ofinterest 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.
These scenarios do not include the strategies that management could employ as
rate expectations change.
The Company's policy limit for fluctuations in pre-tax net interest income
resulting from either the high rate or low rate scenario under the earnings
simulation model is 6%. Based on the January 1998 outlook, if interest rates
were to rise to follow the high rate scenario, then net interest income would
be positively affected by 0.53%. If interest rates were to follow the low rate
scenario, then net interest income would be negatively affected by 2.52%
(assuming management took no actions). Assuming a 200 basis point decline in
interest rates over the next twelve months net interest income would be
negatively affected by 1.85% from the base line scenario.
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
<PAGE> 35
earnings impact of translation gains or losses created by investments in over-
seas markets. The foreign exchange risk related to the interest rate spread on
foreign currency-denominated asset/liability positions is managed as part of
the Company's trading activities. The Company uses forward foreign exchange
contracts to protect the value of its net investment in foreign operations. At
December 31, 1997 net investments in foreign operations approximated $214
million and were spread across 11 foreign currencies.
The Company's equity investments of $1.8 billion at December 31, 1997
primarily consisted of venture capital investments, equity positions from debts
previously contracted, equity positions in other financial institutions, and
minority interests in various subsidiaries. The majority of these long-term
investments are of a long-term strategic nature and accordingly the Company
does not view fluctuations in the market prices of these securities as having a
material impact on the Company's operations. Changes in prices for marketable
equity securities are reflected in the Statement of Changes in Shareholders'
Equity. All equity investments are evaluated on a regular basis for permanent
impairment.
SECTOR PROFITABILITY
The Company has an internal information system used for management purposes
that produces sector performance data for Trust, and Securities and Cash
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 leasing operations from the Other Sector to the
Corporate Banking Sector. Changes were also made in the allocation of equity
to sectors and in the allocation of revenue related to deposit services.
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 Cash 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. Cash processing products primarily relate to funds
transfer, deposit services and trade finance. The Retail Banking Sector
includes consumer lending, residential mortgage lending, and retail deposit
services. The Retail Banking Sector ceased credit card lending during 1997.
The Corporate Banking Sector is divided into Special Industries Banking, U.S.
Commercial Banking, regional commercial banking, international banking,
leasing and asset based lending. The Other Sector includes trading and
investing activities, treasury services to other sectors, general
administration, and the difference between the recorded provision for loan
losses and that allocated to the other sectors.
<PAGE> 36
The sectors contributed to the Company's profitability as follows:
Trust, and
Securities and Corporate
Cash Processing Retail Banking Banking
------------------ ------------------ -----------------
In millions 1997 1996 1995 1997 1996 1995 1997 1996 1995
- ------------------------------------------------------------------------------
Net Interest
Income on a
Taxable
Equivalent Basis $ 319 $ 252 $232 $ 824 $1,097 $1,164 $709 $604 $597
Provision for Loan
Losses - 1 1 280 452 290 75 1 62
Noninterest Income 1,303 1,093 800 176 221 212 267 270 276
Noninterest Expense 951 802 607 501 639 689 237 226 238
----------------------------------------------------------
Income before Taxes $ 671 $ 542 $424 $ 219 $ 227 $ 397 $664 $647 $573
=========================================================
Other Total
----------------- ------------------
In millions 1997 1996 1995 1997 1996 1995
----------------------------------------
Net Interest Income
on a Taxable
Equivalent Basis $ 38 $ 46 $ 75 $1,890 $1,999 $2,068
Provision for Loan
Losses (75) 146 (23) 280 600 330
Noninterest Income 391 546 203 2,137 2,130 1,491
Noninterest Expense 185 168 174 1,874 1,835 1,708
----------------------------------------
Income before Taxes $319 $278 $127 $1,873 $1,694 $1,521
========================================
In the Trust, and Securities and Cash Processing Sector, securities
processing fees increased 21% over last year to $790 million compared with $655
million in 1996 and $411 million in 1995. Strong internal growth in all areas
drove the increase in revenue. Internally generated growth was 16% led by
ADRs, stock transfer, corporate trust, and mutual funds. In 1997, fee revenues
from issuer services, investment company services, and broker/dealer services
were $309 million, $268 million, and $213 million. Fees from cash processing
increased 14% over last year to $239 million. Fees from trust and investment
management grew 12% to $181 million, reflecting new business and generally
strong markets.
In 1996, securities processing fees increased reflecting 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 led by ADRs, corporate trust, and government
securities clearance. In 1996, fee revenue from issuer services, investment
company services, and broker/dealer services was $223 million, $240 million,
and $191 million. Fees from cash processing increased to $209 million. Fees
from trust and investment management grew 18% to $161 million, reflecting new
business and generally strong markets. The rise in noninterest expense from
1995 was principally due to salary and other expenses related to the
acquisitions from J.P. Morgan, BankAmerica, and NationsBank.
The decrease in net interest income, noninterest income, and noninterest
expense in the Retail Banking Sector principally reflects the sale of the
Company's credit card business in 1997. The provision for loan losses in the
Retail Sector principally reflects credit card charge-offs.
In 1996, the decrease in net interest income in the Retail Banking Sector
reflected the sale of approximately $3.4 billion in credit card receivables in
the second quarter of 1996. The decrease in net interest income was 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.
In 1997, net interest income increased in the Corporate Banking Sector due
to strong loan growth particularly in the U.S. Commercial Banking and Special
Industries Banking Groups. The increase in the provision primarily relates to
a large loan to a retailer that became nonperforming in 1997. The decline in
noninterest income reflects lower syndication fees, asset based lending
commissions, and income from the Company's offshore banking subsidiaries.
Net interest income increased in the Corporate Banking Sector in 1996.
The Special Industries and U.S. Commercial Banking Groups demonstrated growth
with
<PAGE> 37
average outstandings increasing 8% from 1995. 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. Income from the Company's
offshore banking subsidiaries was lower in 1996 compared with 1995.
The Other Sector reflects the difference between the total provision for
loan losses and that charged off by the sectors. Included in noninterest
income for 1997 was a pre-tax gain of $177 million on the sale of the Company's
remaining credit card operations. Trading revenues grew 52% in 1997, while
securities gains increased by 40%.
Included in noninterest income for 1996 was a pre-tax gain of $400 million
on the sale of credit card loans. Securities gains and foreign exchange and
other trading activities decreased $10 million from 1995.
Noninterest income for 1997 includes pre-tax gains of $27 million in 1997
and $21 million in 1996 on the sale of portions of the Company's interest in
Wing Hang Bank.
NONPERFORMING ASSETS
Nonperforming assets declined by 18% to $208 million at December 31, 1997. The
decrease in nonperforming assets during 1997 is attributable to charge-offs and
writedowns of $93 million and paydowns, sales, and returns to accrual status of
$173 million. The decrease was partially offset by $220 million of loans
placed on nonperforming status.
The following table shows the distribution of nonperforming assets at
December 31, 1997 and 1996:
Dollars in millions 1997 1996 Change
-----------------------------------
Category of Loans:
Commercial Real Estate $ 35 $ 20 75%
Other Commercial 65 90 (28)
Foreign 34 38 (11)
Community Banking 59 65 (9)
---- ----
Total Nonperforming Loans 193 213 (9)
Other Real Estate 15 41 (63)
---- ----
Total Nonperforming Assets $ 208 $ 254 (18)
==== ====
Nonperforming Asset Ratio 0.6% 0.7%
Allowance/Nonperforming Loans 331.4 423.7
Allowance/Nonperforming Assets 307.2 355.3
<PAGE> 38
LOANS
The following table shows the Company's loan distribution at the end of each of
the last five years:
1997 1996 1995 1994 1993
In millions ---- ---- ---- ---- ----
Domestic
Commercial and Industrial Loans* $14,429 $12,844 $12,025 $11,149 $ 9,781
Real Estate Loans
Construction and Land
Development 208 139 118 125 160
Other, Principally Commercial
Mortgages 2,669 2,645 2,741 2,743 2,626
Collateralized by Residential
Properties 3,618 3,380 3,229 3,036 3,203
Banks and Other Financial
Institutions 1,899 1,650 1,953 1,289 1,893
Loans for Purchasing or Carrying
Securities 3,479 3,695 3,068 2,339 2,275
Lease Financings 1,953 1,688 1,503 1,308 1,038
Credit Card - 5,414 8,727 7,475 5,024
Other Consumer Loans 670 716 718 765 972
Other 341 249 235 74 97
------- ------- ------- ------- -------
Total Domestic 29,266 32,420 34,317 30,303 27,069
------- ------- ------- ------- -------
Foreign
Commercial and Industrial Loans 3,325 2,594 1,906 1,605 1,775
Banks and Other Financial
Institutions 1,756 1,060 828 672 810
Government and Official
Institutions 110 414 227 212 565
Other 2,585 1,996 1,383 1,161 1,188
------- ------- ------- ------- -------
Total Foreign 7,776 6,064 4,344 3,650 4,338
------- ------- ------- ------- -------
Total Loans 37,042 38,484 38,661 33,953 31,407
Less: Unearned Income 1,915 1,478 974 870 837
Allowance for Loan Losses 641 901 756 792 970
------- ------- ------- ------- -------
Net Loans $34,486 $36,105 $36,931 $32,291 $29,600
======= ======= ======= ======= =======
* The commercial and industrial loan portfolio does not contain any
industry concentration which exceeds 10% of loans.
<PAGE> 39
QUARTERLY DATA UNAUDITED
1997 1996
---------------------------- ---------------------------
Dollars in millions, Fourth Third Second First Fourth Third Second First
except per share
amounts
Interest Income $ 839 $ 921 $ 912 $ 887 $ 883 $ 856 $ 913 $ 932
Interest Expense 439 435 431 399 393 389 422 419
----- ----- ----- ----- ----- ----- ----- -----
Net Interest Income 400 486 481 488 490 467 491 513
----- ----- ----- ----- ----- ----- ----- -----
Provision for Loan
Losses 100 60 60 60 45 40 425 90
Noninterest Income 689 504 489 455 441 432 842 415
Noninterest Expense 491 473 465 446 480 455 456 443
----- ----- ----- ----- ----- ----- ----- -----
Income Before
Income Taxes 498 457 445 437 406 404 452 395
Income Taxes 181 165 162 160 154 155 174 152
Distribution on Trust
Preferred Securities 19 19 14 12 2 - - -
----- ----- ----- ----- ----- ----- ----- -----
Net Income $ 298 $ 273 $ 269 $ 265 $ 250 $ 249 $ 278 $ 243
===== ===== ===== ===== ===== ===== ===== =====
Net Income
Available to
Common Shareholders $ 296 $ 270 $ 266 $ 263 $ 247 $ 246 $ 276 $ 241
===== ===== ===== ===== ===== ===== ===== =====
Per Common Share Data:
Basic Earnings $0.79 $0.72 $0.70 $0.68 $0.64 $0.64 $0.71 $0.61
Diluted Earnings 0.75 0.68 0.66 0.64 0.60 0.59 0.65 0.56
Cash Dividends 0.26 0.24 0.24 0.24 0.22 0.22 0.20 0.20
Stock Price
High 58.50 49.13 47.88 42.00 35.88 30.13 26.94 27.31
Low 46.00 44.31 33.88 33.13 29.00 24.56 23.31 22.00
Ratios:
Return on Average
Common
Shareholders'
Equity 23.73% 22.06% 21.84% 20.90% 19.48% 19.63% 21.97% 18.86%
Return on Average
Assets 1.95 1.81 1.83 1.86 1.84 1.92 2.05 1.79
<PAGE> 40
The Businesses of The Bank of New York
SECURITIES SERVICING AND CASH PROCESSING
----------------------------------------
"Solutions for Issuers and Investors Worldwide"
The Bank of New York is one of the largest global processors of
securities, offering the widest range of services in the industry. Our
success in this business is the result of our technological capabilities and a
strategic focus on delivering efficient and effective information management
tools for our clients. In short, we provide solutions for issuers and
investors worldwide.
We continue to enhance these businesses by investing the resources to
improve our competitive edge.
INFORM is a new, on-line client reporting system that provides a common
platform for customers and internal Bank users to retrieve information using
web browser technology. The system provides clients with the increased
processing power and performance to support their investment activities.
Our latest release of BNY Compliance(service mark), an on-line product,
allows users to continuously monitor portfolios for common elements of
investment risk.
We established Global BuyDIRECT(service mark), a direct purchase and
sale plan for investors in depositary receipts of non-U.S. companies.
We also launched MoneyFunds DIRECT(service mark), designed for
institutional clients that allows automatic daily investment of residual
cash balances through a variety of established money market mutual funds.
Our Securities Information Warehouse provides a common repository for
pricing and information details on over one million security issues that we
hold on behalf of our customers. The level of securities information
available to our customers is unmatched in the industry.
The continuous and highly disciplined investments that we have made over
the years in technology gave us the size and flexibility to work effectively
with our clients to develop these solutions, and others, for investors and
issuers worldwide.
Our securities servicing businesses are presented through nine product
lines within the broader categories of: Issuer Services, including American
depositary receipts, corporate trust and stock transfer; Investment Company
Services which includes custody and the related securities lending activities;
and Broker/Dealer services, including government securities clearance, unit
investment trust and mutual funds custody. Record keeping and reporting are
common functions to each of these. Our Cash Processing businesses include
funds transfer, trade services and cash management.
We have become one of the largest global participants in custody and
corporate trust and operate these businesses from a single worldwide platform
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
global custody, securities lending, unit investment trust and mutual funds
custody. We experienced solid internal growth in 1997 in all products.
<PAGE> 41
We have also grown through acquisitions. In 1997 we acquired the
corporate and municipal trust businesses of the former Boatmen s Bancshares
from NationsBank, Signet Trust Company, One Valley Bank, First American
National Bank, and the former Calcasieu Marine National Bank from Hibernia
Corporation. We also completed the purchase of the corporate and municipal
bond administration business of Wells Fargo & Company and in a separate
transaction purchased their institutional and Taft-Hartley custody business.
The acquisition of Stanwich Benefits Group, Inc. a premier provider of
employee benefit plan services enabled us to expand our 401(k) services and
greatly enhanced our VestedChoice(registered trademark) defined contribution
plan package. In acquiring the exclusive rights to BondNet's proprietary
electronic trading system we are now able to provide automated trade
matching and order routing, as well as real time pricing and other market
information on fixed income securities. In November we acquired ESI
Securities Company and its affiliate B-Trade Services. ESI is a recognized
leader in the development of customized trading technology. B-Trade
Services furnishes execution and clearing services for Bloomberg Trade Book,
an electronic communications network that provides information, pricing
data and analytics through its terminals.
ISSUER 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 of listed depositary
receipts has been growing at a compound annual rate of 22% since 1990. The
dollar value of that volume however grew 53% in 1997. Trading volume on U.S.
exchanges reached a record 15 billion depositary receipts in 1997, valued at
$555 billion.
We continue to lead the industry, establishing 165 sponsored programs
for companies in 43 countries in 1997, 67% of all new public sponsored
depositary receipt programs. During the year, we were appointed for a
majority of the privatizations, new listings and capital raising issues. We
now issue depositary receipts for more than 1,100 non-U.S. companies in 59
countries, representing 59% of total sponsored programs. Fees increased over
40% in 1997.
We believe that growth prospects in this business are excellent. For
example, approximately one-half of the companies in the major indices of the
United Kingdom, France and Germany do not yet have an ADR program. We also
expect a continuation of privatization transactions as governments sell state
owned enterprises.
In 1997 we introduced Global BuyDIRECT(service mark), a direct purchase
and sale plan that enables existing and first time investors to invest in
foreign companies through depositary receipts. Our leadership positions in
the depositary receipt market and in the stock transfer business combined
with our technological expertise produced a product with reduced brokerage
fees and a variety of plan benefits that opens this market to many more
investors.
<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.
Supported by eight regional service centers in the U.S. as well as in London
and Singapore, our technological capabilities in corporate trust enable us to
serve any customer needs.
Our corporate trust services include eight businesses providing a highly
balanced platform for growth: Asset-backed finance - Mortgage-backed finance -
International finance - Bankruptcy administration - Corporate finance -
Municipal finance - Derivative products - Escrow services
We are one of the largest corporate trust providers in the world and a
leading supplier of corporate trustee services in the United States with
clients in all 50 states. We service more than 60,000 issues with over $600
billion in principal amount outstanding. The number of issues increased 50%
in 1997 while the principal amount grew 20%.
We continue to focus aggressively on building our international business
as well and have expanded our corporate trust capabilities into Europe and
Asia. During the fourth quarter we were appointed common depositary by
Euroclear and Cedel. As a result, in January 1998, we implemented
comprehensive common depositary services for eurobonds, euro medium-term
notes, euro commercial paper, global depositary receipts and all other types
of Euroclear/Cedel-eligible debt.
Our strong relationships with investment banking companies, coupled with
issuers wanting one agent for both debt and equity services, will continue to
drive our corporate trust growth. We maintained a leading position in 1997
having been awarded more than 2,000 corporate and municipal issues
representing $185 billion in new securities.
During 1997, several specialized product areas including mortgage-backed,
asset-backed and international services grew by more than 20% and we
announced the acquisition of five portfolios, described earlier, that added
approximately 3,500 new clients to the Bank s customer base. Overall fees
grew 29% 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. Mergers and corporate
actions such as stock splits have added to the overall activity. 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 of service rather than pricing has become the key driver of
revenue growth in stock transfer. We are the only transfer agent with three
investor relations phone centers. We have the largest mailing operation in
the stock transfer industry. We expanded and improved our Interactive Voice
Response system in 1997, making it even easier for shareowners to conduct
business at their own convenience. Based upon customer surveys an independent
study performed by Group Five, a consulting and financial services research
company, ranked the quality of our services number one among the leading stock
transfer agents in 1997. This is the third consecutive year that we have
achieved this recognition.
<PAGE> 43
During 1997 our client base grew 12% in the number of companies and 10%
in the number of shareholder accounts. We now perform these services for more
than 500 companies with over 11 million shareholders. Fees grew 32% in 1997.
INVESTMENT COMPANY SERVICES
We offer a comprehensive array of services through a worldwide
settlement network. Our services include custody, trade settlement, 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 customers.
In addition, we provide our clients with securities lending, cash management,
foreign exchange and credit services.
Custody:
We are one of the largest custodian banks in the world and serve a
variety of customers including insurance companies, central banks, commercial
banks, government agencies and asset managers. We 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.
Our international network of branches and representative offices enables
us to understand the needs of regional markets. We provide tailored reporting
services as well as foreign exchange and cash management services in all the
major global markets from processing centers in New York, London, Brussels and
Singapore.
In the U.S., we serve our clients from strategic locations across the
country. In 1997, BNY Western Trust Company emerged as the largest trust
company in the western United States. With locations in Los Angeles, San
Francisco and Seattle, BNY Western Trust Company serves corporate trust and
custody clients in the institutional, Taft-Hartley and mutual funds areas. We
also provide strategic services for mid-west clients from our subsidiary in
Chicago, CTC Illinois Trust Company.
The outsourcing of custody services by asset managers is growing in
popularity. We work closely with clients to understand their needs and
develop a comprehensive outsourcing solution. In 1997, we provided this
service to Gartmore Investment Management in London, the largest ever
outsourcing in the United Kingdom to a single custodian.
We have the largest network of sub-custodians in the world enabling us
to serve 84 markets, three of which were added in 1997. Total cross-border
assets now exceed $815 billion, an increase of 230% over 1996. Of this total,
$141 billion in assets are held for U.S. domestic clients and $674 billion for
international clients.
On a combined basis, internal growth in our custody businesses was
strong as we added 190 new clients in 1997 unrelated to acquisitions. At year
end, total assets under custody exceeded $3.9 trillion.
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,
<PAGE> 44
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.
BROKER/DEALER SERVICES
Government Securities Clearance:
We continue to be the market leader in the clearance of U.S. government
and government agency securities as well as in the administration of tri-party
repurchase agreements. In the former role, we serve as agent for the movement
of securities from the U.S. Treasury and other government agencies to dealers
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.
In 1997 we added a record number of new tri-party contracts and
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
$220 billion of tri-party collateral under management. Revenue growth was
strong at 10%.
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. The equity assets held in unit investment trusts
at the Bank have increased over 60% in each of the past two years.
Mutual Funds Custody:
The Bank is the second largest custodian for the mutual funds industry,
providing worldwide custody, portfolio accounting and administration, stock
transfer for closed-end funds, and shareholder cash management services. We
are a mutual fund specialist and count among our clients more than half of the
top twenty management companies. In 1997 we experienced a 21% growth in fund
assets under custody reaching over $640 billion. We have offices in Dublin,
Ireland and Grand Cayman to serve non-U.S. registered mutual funds which are
sold to non-U.S. citizens. We are also a lead provider of credit facilities
and other services such as securities lending, foreign exchange and cash
management. During 1997 we achieved 23 new fund manager appointments and
increased the number of portfolios by 287. Fees increased 15%.
CASH PROCESSING
Our cash processing products serve financial institutions and
corporations around the world as well as mid-sized 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 100,000 transactions
with a dollar volume of $420 billion for domestic and foreign financial
<PAGE> 45
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 market share has increased steadily resulting in our becoming the
third largest funds transfer bank in the United States.
Revenues increased 17% in 1997.
Trade Services:
The Bank provides a broad range of trade services to financial
institutions and corporations throughout its global network of branches and
representative offices. Our major products are letters of credit, bankers
acceptances, reimbursements and government insurance programs. We serve our
customers through ten processing centers around the world. Revenues for 1997
were 9% ahead of 1996.
In 1997 we introduced Trade Workstation(registered trademark) for
Windows(registered trademark). This new product enables customers to
initiate trade transactions and receive reports in a Windows environment
and advances the Bank s trade environment away from paper processing.
Confirmation of letters of credit, automated payments and discrepancy
resolution make this a leading product in the industry. Innovation will
continue in 1998 with the implementation of imaging technology.
Cash Management:
We offer a full range of cash management services to corporate and
institutional customers, primarily 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 companies in the
securities, insurance and mutual fund industries. Mid-size companies and
small businesses in the New York metropolitan area, and large corporations for
which we serve as lead bank, are also important markets for our cash
management products.
We continue to experience strong growth in electronic payment and
information reporting. In 1997 we enhanced many of the features of The Bank
of New York Office Manager(registered trademark), our Windows(registered
trademark) based family of services providing customers with integrated
access to the Bank s electronic payment, information reporting, and check
imaging services. First introduced in 1996, the subscription rate for this
product increased sharply in 1997. Revenues increased 15% for the year.
TRUST, INVESTMENT MANAGEMENT AND PRIVATE BANKING
------------------------------------------------
The Bank of New York has provided private banking services since it was
founded. Today, we offer a broad range of investment management, custody,
financial planning, trust and estate settlement, and income tax preparation
services, through offices in New York, New Jersey, Connecticut and Florida.
We work with some of the nation s largest institutions and with individuals to
manage all aspects of their financial situations.
We are among the largest bank managers of discretionary assets in the
nation. Total assets under management grew 24% in 1997 and now exceed $42
billion, the result of a very successful investment strategy, generally strong
stock and bond markets, and an effective new business effort. Overall, fees
grew a strong 12%.
<PAGE> 46
Personal Trust Services:
We are flexible in designing products to meet our customers' needs.
During 1997 we introduced three initiatives that draw on our years of trust
experience.
Directed Trust Services - We develop joint marketing initiatives with
established money managers whose investment approach is consistent with ours.
In this service, we act as trustee for clients, while the outside investment
advisor manages the clients' trust assets.
Charitable Trust Donor Program - We form a partnership with non-profit
organizations in order to create, promote and administer charitable trusts for
donors to those organizations.
Agent for Fiduciary - We manage assets and handle the administrative
duties for trusts and estates while an individual acts as trustee or executor
and retains fiduciary responsibility.
Investment Management:
We offer a high level of expertise and innovation for individual
investors - whether it is in actually managing their assets or in providing
custody services. We have expanded our capability to provide customized
solutions to individuals and families who have low cost and concentrated stock
positions. To help clients in their wealth accumulation years, in 1997 we
introduced The Bank of New York Investment Focus Account, an asset allocation
service that delivers our expertise to investors with $100,000 or more to
invest.
Tax-Exempt Bond Management - We assist individuals and corporations in
maximizing after-tax returns on their municipal bond portfolios. This service
is delivered by a dedicated team who combine research, trading and portfolio
management to provide better returns by taking advantage of inefficiencies in
the tax-exempt bond market.
Custody Services - We provide self-directed investors with securities
safekeeping, prompt and accurate trade execution, a choice of cash management
vehicles and on-line access to their account information. Using sophisticated
processing and tracking systems we are able to keep clients' assets working
for them, thereby enhancing their overall yield.
Private Banking:
Our domestic and international private banking services provide high
net-worth individuals in the U.S. and around the world with a full range of
banking services including personal financial planning and customized mortgage
products. A key strategy is our focus on expanding existing relationships.
For instance, we have private banking groups that address the needs of
executives of corporations we serve in our Special Industries and U.S.
Commercial Banking areas. In 1997 we introduced CheckInvest, a sweep account
linking a checking account to a family of mutual funds, to provide liquidity
and favorable returns to depositors with large balances. Private Banking's
loan portfolio, driven by a 59% increase in residential mortgage loans, grew
to record levels in 1997.
Institutional Investment Management:
We have developed sophisticated product offerings to assist a broad
array of institutional investors in managing portfolio transitions, hedging
plan assets and providing cash equitization strategies. The full range of our
institutional investment services 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
<PAGE> 47
and other domestic and international institutions. Composite results for our
equity, fixed income and balanced portfolios all ranked in the top quartile of
major performance universes in 1997.
Short-Term Money Management:
We provide 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 derived
from this service rose 19% in 1997.
CORPORATE BANKING
-----------------
The Bank of New York provides global financing solutions for domestic
and multinational corporations and institutions. We focus on building
relationships with companies where we can be a key financial partner.
Additionally, as the leader in securities and other processing services we
have a unique ability to meet all the needs of our corporate customers with
sophisticated products whether in securities servicing, cash processing and
management, trade finance or foreign exchange.
MARKET SEGMENT EXPERTISE
Special Industries Banking:
The Bank of New York is a leading provider of credit and operating
services to the following industries: - Media and telecommunications -
Securities - Energy and public utilities - Financial institutions - Insurance
- - Marine transportation - Real estate - Retailing - Mortgage banking -
Government banking
Our depth of experience and expertise provides added value for our
clients and is endorsed by our agent or co-agent position on over 100 credits
totaling $94 billion.
We are a primary lender, arranger and syndicator of bank loans to the
media and telecommunications industries. This business continues its strong
growth as we experienced our largest transaction volume ever in 1997
underwriting 35 credits as agent totaling nearly $28 billion. Capitalizing on
our expanded Section 20 powers in the high yield debt area, we acted as a co-
manager for five transactions totaling approximately $2 billion. Three
special industry areas experienced very strong growth in average loans during
the year with mortgage banking up 24%, securities industry rising 17% and
energy up 16%.
US Commercial Banking:
This unit remains a key focus of the Bank as we pursue a targeted
marketing effort to the nation s largest public and private corporations.
Credit is an important part of our efforts here and we have developed a
diverse portfolio of borrowers. 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. Overall, U.S.
commercial banking and special industries loans grew an average of 13% over
1996.
<PAGE> 48
Regional Commercial Banking:
We offer mid-size commercial banking 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 outstandings grew 6% in 1997.
International Banking:
The Bank of New York has a network of 30 branches and representative
offices in 26 countries in Europe, Asia, Latin America, Australia and the
Middle East. In November we opened a representative office in Abu Dhabi,
United Arab Emirates. Additionally, we have a 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, securities lending, funds transfer, trade
finance and foreign exchange. We continue to benefit from the increased
globalization of the capital markets and are well positioned for a
continuation of this trend.
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, underwriting and distribution of corporate bonds, private
placement of debt securities, merger, acquisition and advisory services. The
acquisition of Mendham Capital Group, Inc. in January, 1998 added to our
corporate securities capabilities. In 1997 we ranked sixth among major banks
in acting as agent or co-agent on credit facilities. We currently act as
administrative agent on 196 broadly syndicated loans, of which 45 were new
appointments in 1997. 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.
ASSET BASED LENDING
-------------------
BNY Financial Corporation is the second largest factor in the U.S. and
the largest in Canada and the United Kingdom. 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. Operating from offices in New York, Boston, Atlanta, Charlotte, Los
Angeles, Chicago, Dallas (first quarter 1998), Toronto and Montreal we have
achieved a geographic diversification in our client base as well.
Two key acquisitions in 1997 propelled us to the number one position in
the United Kingdom. In July, we purchased UCB Invoice Discounting, Ltd. and
UCB Factoring, Ltd., located in Wallington, England, from Compagnie Bancaire
SA, Paris. In December, we acquired International Factors, Ltd. a subsidiary
of Lloyds TSB, headquartered in Brighton, England. The combination of these
two companies provides us an approximate 20% market share in the UK.
In 1997 we merged The Bank of New York Commercial Corporation, which
provided asset-based lending services to mid-size companies, into BNY
Financial Corporation. This merger of activities, combined with the
acquisitions, caused factoring volume to reach $16.7 billion and asset based
lending volume to reach $2.1 billion.
<PAGE> 49
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, comprising 363 offices serving 22 counties of New
York, New Jersey and Connecticut, we offer a broad range of products and
services for consumers and small businesses.
"The Bank of New York/The Bank of New Ideas"
In 1997 our strongest product line continued to be our consumer home
equity products. To supplement this continued growth, we introduced the New
Edge Line designed specifically for homeowners with smaller amounts of equity
in their homes. Our very successful "Prime for Life" EquityLink product
provides higher lines of credit to more established homeowners.
In an effort to reach as many customers and prospects as possible and to
provide the convenient banking that consumers demand we introduced both
supermarket banking and PC banking in 1997. During the year we opened eight
full service supermarket branches in New York and New Jersey with more planned
to open in 1998. In all cases, the branches are located near the check-out
counters, and each employee is trained to provide the full range of
traditional banking services including deposit accounts and loans. Each
branch has an ATM and in addition, investment services such as annuities and
mutual funds are offered by an unaffiliated investment sales representative.
We also introduced The Bank of New York DIRECT24 a new PC banking and bill
paying service delivered through the New York Cash Exchange secure ATM
network. Both consumers and small businesses can access account information,
transfer balances and pay bills through their personal computers. The Bank
also provides a 24 hour telephone service for account information and a
variety of other transactions including the ability to pay bills by telephone.
The Bank continues to focus on serving the needs of small business
customers. Our centralized lending area works in tandem with our newly formed
Small Business Development Team and the Business TeleSales Center to support
our increased direct marketing initiatives. In 1997, The TeleSales Center
began offering Small Business Administration products in addition to the
various loan products available directly from the Bank.
In 1997, the BNY Investment Centers, a service of Essex National
Securities, Inc. and The Annuity Agency of New York, Inc. New Jersey Inc. and
Connecticut Inc. increased their sales volume by over 16%. Each center is
staffed with licensed investment representatives who offer a wide variety of
mutual funds as well as fixed rate and variable annuities. Among their
product offerings are the 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. BNY Mortgage Company is also a leading provider of a
broad range of reverse mortgage products that enable seniors to either
maintain their current home or purchase a new one. The Company was the first
lender in the Northeast to close a loan under The Federal National Mortgage
Association s Home Keeper program and has made over $45 million in reverse
mortgage loans.
<PAGE> 50
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.
Foreign Exchange:
The Bank of New York offers a broad array of FX services in over 100
currencies through its global network of trading rooms in Europe, the Americas
and Asia.
Global Risk Management Services:
We employ a variety of factors to evaluate market conditions offering a
sophisticated and disciplined approach to currency and interest rate risk
management with a full range of hedging and yield-enhancement strategies
tailored to the needs of our clients. Foreign exchange products include spot
and forward contracts, as well as simple and exotic options and are available
in a wide range of currencies. Interest rate products include swaps and
simple and exotic options transacted in all G7 currencies. The Bank also
provides integrated hedging products designed to manage both interest rate and
currency risk.
BNY Overlay Associates is the Bank s specialist currency overlay
manager, providing investment advisory services to institutional investors.
Using proprietary techniques, we manage clients' existing currency exposures
with the twin objectives of managing risk and increasing overall portfolio
returns.
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
CONSENT OF ERNST & YOUNG LLP
INDEPENDENT AUDITORS
We consent to the incorporation by reference in this Annual Report (Form
10-K) of The Bank of New York Company, Inc. of our report dated January 30,
1998, included in the 1997 Annual Report to Shareholders' of The Bank of New
York Company, Inc.
We also consent to the incorporation by reference in the following
Registration Statements of The Bank of New York Company, Inc. of our report
dated January 30, 1998, with respect to the consolidated financial statements
of The Bank of New York Company, Inc. incorporated by reference in this
Annual Report (Form 10-K) for the year ended December 31, 1997:
Registration Statement Number Form Description
- ----------------------------- ---- -----------
No. 33-50333 S-3 Debt Securities and Preferred Stock
No. 33-61957 S-3 Debt Securities and Preferred Stock
No. 333-03811 S-3 Dividend Reinvestment and Stock
Purchase Plan
No. 333-15951 S-3 Trust Preferred Securities in the
No. 333-15951-01 amount of $700 million
No. 333-15951-02
No. 333-15951-03
No. 333-15951-04
No. 333-15951-05
No. 333-40837 S-3 Trust Preferred Securities in the
No. 333-40837-01 amount of $500 million
No. 333-40837-02
No. 333-40837-03
No. 33-59225 S-4 Proxy Statement related to merger
with National Community Banks, Inc.
No. 33-25805 S-4 Proxy Statement related to merger
with Putnam Trust Company of Greenwich
No. 33-56863 S-8 Employee Stock Purchase Plan,
Employee Preferred Stock Plan and
1993 Long-Term Incentive Plan
No. 33-57670 S-8 Employee Stock Purchase Plan,
Employee Preferred Stock Plan and
1993 Long-Term Incentive Plan
No. 33-62267 S-8 Putnam Profit Sharing Plan, Putnam
Stock Option Plan and Putnam Incentive
Stock Option Plan
No. 2-95764 S-8 1984 Stock Option Plan
No. 33-20999 S-8 1988 Long-Term Incentive Plan
No. 33-33460 S-8 Amendment to 1988 Long-Term Incentive
Plan
No. 33-49963 S-8 NCB Employee Incentive Savings Plan
\s\ Ernst & Young LLP
Ernst & Young LLP
New York, New York
March 25, 1998
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 this Annual Report on Form 10-K of The Bank of New York
Company, Inc. for the year ended December 31, 1997.
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
No. 33-40837
No. 33-40837-01
No. 33-40837-02
No. 33-40837-03
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
No. 33-49963
\s\ Deloitte & Touche LLP
New York, New York
March 24, 1998
<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, 1997 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-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 5,769
<INT-BEARING-DEPOSITS> 2,126
<FED-FUNDS-SOLD> 2,820
<TRADING-ASSETS> 2,616
<INVESTMENTS-HELD-FOR-SALE> 5,501
<INVESTMENTS-CARRYING> 1,127
<INVESTMENTS-MARKET> 1,106
<LOANS> 35,127
<ALLOWANCE> 641
<TOTAL-ASSETS> 59,961
<DEPOSITS> 41,357
<SHORT-TERM> 7,002
<LIABILITIES-OTHER> 2,595
<LONG-TERM> 1,809
0
1
<COMMON> 3,452
<OTHER-SE> 1,549
<TOTAL-LIABILITIES-AND-EQUITY> 59,961
<INTEREST-LOAN> 2,910
<INTEREST-INVEST> 279
<INTEREST-OTHER> 371
<INTEREST-TOTAL> 3,560
<INTEREST-DEPOSIT> 1,290
<INTEREST-EXPENSE> 1,705
<INTEREST-INCOME-NET> 1,855
<LOAN-LOSSES> 280
<SECURITIES-GAINS> 136
<EXPENSE-OTHER> 1,874
<INCOME-PRETAX> 1,838
<INCOME-PRE-EXTRAORDINARY> 1,104
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,104
<EPS-PRIMARY> 2.88
<EPS-DILUTED> 2.71
<YIELD-ACTUAL> 3.89
<LOANS-NON> 193
<LOANS-PAST> 78
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 901
<CHARGE-OFFS> 403
<RECOVERIES> 49
<ALLOWANCE-CLOSE> 641
<ALLOWANCE-DOMESTIC> 441
<ALLOWANCE-FOREIGN> 44
<ALLOWANCE-UNALLOCATED> 156
</TABLE>
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 consolidated statements of income, changes in
shareholders' equity and cash flows of The Bank of New York Company, Inc. and
subsidiaries (the "Company") for the year ended December 31, 1995. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit 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 audit provides a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the results of operations and cash
flows of The Bank of New York Company, Inc. for the year ended December 31,
1995 in conformity with generally accepted accounting principles.
\s\ Deloitte & Touche LLP
New York, New York
February 26, 1996
