<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
OR
[ ] 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 number)
48 Wall Street, New York, New York 10286
(Address of principal executive offices) (Zip code)
(212) 495-1784
(Registrant's telephone number, including area code)
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 such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
---- ----
The number of shares outstanding of the issuer's Common Stock,
$7.50 par value, was 375,904,213 shares as of April 30, 1998.
<PAGE> 2
THE BANK OF NEW YORK COMPANY, INC.
FORM 10-Q
TABLE OF CONTENTS
PART 1. FINANCIAL INFORMATION
- ------------------------------
Item 1. Financial Statements
Consolidated Balance Sheets
March 31, 1998 and December 31, 1997 3
Consolidated Statements of Income
For the Three Months Ended
March 31, 1998 and 1997 4
Consolidated Statement of Changes In
Shareholders' Equity For the Three
Months Ended March 31, 1998 5
Consolidated Statements of Cash Flows
For the Three Months Ended March 31,
1998 and 1997 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
PART 2. OTHER INFORMATION
- --------------------------
Item 6. Exhibits and Reports on Form 8-K 19
SIGNATURE 21
<PAGE> 3
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements
- ------------------------------------------------------------------------------
<TABLE>
THE BANK OF NEW YORK COMPANY, INC.
Consolidated Balance Sheets
(Dollars in millions, except per share amounts)
<CAPTION>
March 31, December 31,
1998 1997
---- ----
(Unaudited) (Note)
<S> <C> <C>
Assets
- ------
Cash and Due from Banks $ 6,442 $ 5,769
Interest-Bearing Deposits in Banks 1,615 2,126
Securities:
Held-to-Maturity (fair value of $1,071 in
1998 and $1,106 in 1997) 1,088 1,127
Available-for-Sale 5,771 5,501
------- -------
Total Securities 6,859 6,628
Trading Assets at Fair Value 2,225 2,616
Federal Funds Sold and Securities Purchased
Under Resale Agreements 507 2,820
Loans (less allowance for loan losses
of $645 in 1998 and $641 in 1997) 36,389 34,486
Premises and Equipment 838 835
Due From Customers on Acceptances 993 1,187
Accrued Interest Receivable 351 356
Other Assets 3,392 3,138
------- -------
Total Assets $59,611 $59,961
======= =======
Liabilities and Shareholders' Equity
- ------------------------------------
Deposits
Noninterest-Bearing (principally
domestic offices) $10,770 $12,561
Interest-Bearing
Domestic Offices 15,228 15,607
Foreign Offices 14,591 13,189
------- -------
Total Deposits 40,589 41,357
Federal Funds Purchased and Securities
Sold Under Repurchase Agreements 1,896 2,329
Other Borrowed Funds 5,066 4,673
Acceptances Outstanding 998 1,196
Accrued Taxes and Other Expenses 2,052 1,910
Accrued Interest Payable 170 182
Other Liabilities 769 503
Long-Term Debt 1,959 1,809
------- -------
Total Liabilities 53,499 53,959
------- -------
Guaranteed Preferred Beneficial Interests in
the Company's Junior Subordinated Deferrable
Interest Debentures 1,300 1,000
------- -------
Class A Preferred Stock - par value $2.00
per share, authorized 5,000,000 shares,
outstanding 23,615 shares in 1998 and
23,844 shares in 1997 1 1
Common Stock - par value $7.50 per share,
authorized 800,000,000 shares, issued
466,799,382 shares in 1998 and
460,212,619 shares in 1997 3,501 3,452
Additional Capital 533 465
Retained Earnings 3,716 3,528
Accumulated Other Comprehensive Income 332 285
------- -------
8,083 7,731
Less: Treasury Stock - 94,183,191 shares in
1998 and 85,320,504 shares in 1997, at cost 3,256 2,714
Loan to ESOP - 1,056,829 shares, at cost 15 15
------- -------
Total Shareholders' Equity 4,812 5,002
------- -------
Total Liabilities and Shareholders' Equity $59,611 $59,961
======= =======
- ------------------------------------------------------------------------------
<FN>
Note: The balance sheet at December 31, 1997 has been derived from the
audited financial statements at that date.
See accompanying Notes to Consolidated Financial Statements.
</FN>
</TABLE>
<PAGE> 4
<TABLE>
- ------------------------------------------------------------------------------
THE BANK OF NEW YORK COMPANY, INC.
Consolidated Statements of Income
(In millions, except per share amounts)
(Unaudited)
<CAPTION>
For the three months ended
March 31,
1998 1997
---- ----
<S> <C> <C>
Interest Income
- ---------------
Loans $ 670 $ 746
Securities
Taxable 79 61
Exempt from Federal Income Taxes 9 9
----- -----
88 70
Deposits in Banks 42 34
Federal Funds Sold and Securities
Purchased Under Resale Agreements 30 33
Trading Assets 4 4
----- -----
Total Interest Income 834 887
----- -----
Interest Expense
- ----------------
Deposits 325 301
Federal Funds Purchased and
Securities Sold Under Repurchase
Agreements 34 28
Other Borrowed Funds 48 39
Long-Term Debt 32 31
---- ----
Total Interest Expense 439 399
---- ----
Net Interest Income 395 488
- -------------------
Provision for Loan Losses 5 60
----- -----
Net Interest Income After
Provision for Loan Losses 390 428
----- -----
Noninterest Income
- ------------------
Processing Fees
Securities 230 185
Cash 63 55
----- -----
293 240
Trust and Investment Fees 50 43
Service Charges and Fees 81 94
Securities Gains 28 7
Other 101 71
----- -----
Total Noninterest Income 553 455
----- -----
Noninterest Expense
- -------------------
Salaries and Employee Benefits 283 257
Net Occupancy 41 41
Furniture and Equipment 20 24
Other 123 124
----- -----
Total Noninterest Expense 467 446
----- -----
Income Before Income Taxes 476 437
Income Taxes 172 160
Distribution on Trust Preferred
Securities 20 12
----- -----
Net Income $ 284 $ 265
- ---------- ===== =====
Net Income Available to
Common Shareholders $ 284 $ 263
- ----------------------- ===== =====
Per Common Share Data:
- ----------------------
Basic Earnings $0.77 $0.68
Diluted Earnings 0.73 0.64
Cash Dividends 0.26 0.24
Diluted Shares Outstanding 390 412
- ------------------------------------------------------------------------------
<FN>
See accompanying Notes to Consolidated Financial Statements.
</FN>
</TABLE>
<PAGE> 5
<TABLE>
- -------------------------------------------------------------------------------
THE BANK OF NEW YORK COMPANY, INC.
Consolidated Statement of Changes in Shareholders' Equity
(In millions)
(Unaudited)
<CAPTION>
For the three months
ended March 31, 1998
<S> <C>
Preferred Stock
Balance, January 1 $ 1
------
Balance, March 31 1
------
Common Stock
Balance, January 1 3,452
Exercise of Warrants 32
Other Issuances 17
------
Balance, March 31 3,501
------
Additional Capital
Balance, January 1 465
Exercise of Warrants 34
Other 34
------
Balance, March 31 533
------
Retained Earnings
Balance, January 1 3,528
Net Income 284
Cash Dividends
Common Stock (96)
------
Balance, March 31 3,716
------
Accumulated Other Comprehensive Income
Securities Valuation Allowance
Balance, January 1 320
Change in Fair Value of Securities
Available-for-Sale, Net of $40 Million
in Taxes 58
Reclassification Adjustment,
Net of $7 Million in Taxes (12)
------
Balance, March 31 366
------
Foreign Currency Items
Balance, January 1 (35)
Foreign Currency Translation Adjustment,
Net $0.2 Million in Taxes 1
------
Balance, March 31 (34)
------
Less: Treasury Stock
Balance, Janaury 1 2,714
Issued (43)
Acquired 585
------
Balance, March 31 3,256
------
Less Loan to ESOP
Balance, January 1 15
------
Balance, March 31 15
------
Total Shareholders' Equity, March 31 $4,812
======
- -------------------------------------------------------------------------------
<FN>
Comprehensive Income for the three months ended March 31, 1998 and 1997 was
$331 million and $237 million.
See accompanying Notes to Consolidated Financial Statements.
</FN>
</TABLE>
<PAGE> 6
<TABLE>
- -------------------------------------------------------------------------------
THE BANK OF NEW YORK COMPANY, INC.
Consolidated Statements of Cash Flows
(In millions)
(Unaudited)
<CAPTION>
For the three months ended
March 31,
1998 1997
---- ----
<S> <C> <C>
Operating Activities
Net Income $ 284 $ 265
Adjustments to Determine Net Cash Provided (Used)
by Operating Activities
Provision for Losses on Loans and Other Real Estate 6 60
Depreciation and Amortization 44 52
Deferred Income Taxes 87 50
Securities Gains (28) (7)
Change in Trading Activities 287 (216)
Change in Accruals and Other, Net (543) 234
------- -------
Net Cash Provided by Operating Activities 137 438
------- -------
Investing Activities
Change in Interest-Bearing Deposits in Banks 493 (304)
Purchases of Securities Held-to-Maturity (84) (77)
Maturities of Securities Held-to-Maturity 123 112
Purchases of Securities Available-for-Sale (903) (309)
Sales of Securities Available-for-Sale 382 100
Maturities of Securities Available-for-Sale 304 192
Net Principal Disbursed on Loans to Customers (1,048) (960)
Sales of Loans and Other Real Estate 85 965
Change in Federal Funds Sold and Securities
Purchased Under Resale Agreements 2,313 80
Purchases of Premises and Equipment (17) (9)
Proceeds from the Sale of Premises and Equipment 39 -
Acquisitions, Net of Cash Acquired (354) (85)
Other, Net (52) (110)
------- -------
Net Cash Provided (Used) by Investing Activities 1,281 (405)
------- -------
Financing Activities
Change in Deposits (748) 2,021
Change in Federal Funds Purchased and Securities
Sold Under Repurchase Agreements (433) 346
Change in Other Borrowed Funds 500 228
Proceeds from the Issuance of Trust
Preferred Securities 300 -
Proceeds from the Issuance of Long-Term Debt 150 -
Issuance of Common Stock 160 141
Treasury Stock Acquired (585) (390)
Cash Dividends Paid (96) (96)
------- -------
Net Cash Provided (Used) by Financing Activities (752) 2,250
------- -------
Effect of Exchange Rate Changes on Cash 7 (14)
------- -------
Change in Cash and Due From Banks 673 2,269
Cash and Due from Banks at Beginning of Period 5,769 6,032
------- -------
Cash and Due from Banks at End of Period $ 6,442 $ 8,301
======= =======
- -----------------------------------------------------------------------------
Supplemental Disclosure of Cash Flow Information
Cash Paid During the Period for:
Interest $ 451 $ 425
Income Taxes 16 28
Noncash Investing Activity (Primarily Foreclosure
of Real Estate) 2 4
- -----------------------------------------------------------------------------
<FN>
See accompanying Notes to Consolidated Financial Statements.
</FN>
</TABLE>
<PAGE> 7
THE BANK OF NEW YORK COMPANY, INC.
Notes to Consolidated Financial Statements
1. General
-------
The accounting and reporting policies of The Bank of New York
Company, Inc. (the Company), a bank holding company, and its
subsidiaries, conform with generally accepted accounting principles and
general practice within the banking industry. Such policies are
consistent with those applied in the preparation of the Company's annual
financial statements.
The accompanying financial statements are unaudited. In the
opinion of management, all adjustments necessary for a fair presentation
of financial position, results of operations and cash flows for the
interim periods have been made. Such adjustments are of a normal
recurring nature.
2. Acquisitions
------------
On April 22, 1998, the Company submitted a written proposal to
Mellon Bank Corporation (Mellon) for a tax-free merger of the two
companies to form a company to be called The Mellon Bank of New York
Company, Inc. (the Proposed Merger). In the Proposed Merger, which was
unanimously approved by the Company's Board of Directors on April 21,
1998, each outstanding share of common stock of Mellon would be
converted into 1.4 shares of The Bank of New York Company, Inc. common
stock. On April 26, 1998, Mellon announced that its Board of Directors
unanimously rejected the Proposed Merger. As of May 14, 1998, the
parties have not yet entered into any negotiations concerning the
Proposed Merger or any other business combination between the Company
and Mellon. Mellon is a multibank holding company incorporated under
the laws of Pennsylvania with total assets of approximately $45 billion,
deposits of approximately $31 billion and total shareholders' equity of
approximately $4 billion.
In January 1998, the Company acquired International Factors, Ltd.,
an asset based lender with headquarters in Brighton, England, which
included assets of approximately $900 million.
<PAGE> 8
3. Allowance for Loan Losses
-------------------------
Transactions in the allowance for loan losses are summarized as
follows:
Three months ended
March 31,
(In millions) 1998 1997
----- -----
Balance, Beginning of Period $ 641 $ 901
Charge-offs (10) (109)
Recoveries 5 17
----- -----
Net Charge-Offs (5) (92)
Acquisition 4 -
Provision 5 60
----- -----
Balance, End of Period $ 645 $ 869
===== =====
4. Capital Transactions
--------------------
As of March 31, 1998, the Company has 6 million shares remaining
to repurchase under its share buyback program. The Company has
suspended its stock repurchase program in connection with its proposal
to Mellon Bank Corporation.
In the first quarter of 1998, the Company issued $300 million of
7.05% trust preferred securities.
During the first quarter of 1998, warrant holders converted 1.1
million warrants into 4.2 million common shares, providing the Company
with $66 million in capital. In April 1998, warrant holders converted
an additional 1.1 million warrants into 4.3 million common shares,
providing the Company with $67 million in capital.
5. New Accounting Pronouncements
-----------------------------
As of January 1, 1998, a new accounting pronouncement related to
comprehensive income has been adopted. This has changed how certain
components of shareholders' equity are presented. This pronouncement
requires unrealized gains or losses on the Company's available-for-sale
securities and the foreign currency translation adjustments, which prior
to adoption were reported separately in shareholders' equity, to be
included in other comprehensive income. Prior periods have been
restated for these changes.
In the fourth quarter of 1997, the Company began calculating
earnings per share (EPS) based on a new accounting pronouncement. The
presentation of "primary" and "fully diluted" EPS has been replaced with
"basic" and "diluted" EPS. The effect of the new accounting
pronouncement is not material.
<PAGE> 9
The following table illustrates the computations of basic and
diluted EPS for the three months ended March 31, 1998 and 1997:
(In millions, except per share amounts) Three Months Ended
March 31,
1998 1997
----- -----
Net Income $284 $265
Preferred Stock Dividends - (2)
---- ----
Net Income Available to Common Shareholders $284 $263
==== ====
Basic Weighted Average Shares Outstanding 369 387
Shares Issued on Conversion:
Warrants 14 18
Employee Stock Options 7 7
---- ----
Diluted Weighted Average Shares Outstanding 390 412
==== ====
Basic earnings per share $ 0.77 $ 0.68
Diluted earnings per share $ 0.73 $ 0.64
6. Commitments and Contingent Liabilities
--------------------------------------
In the ordinary course of business, there are various claims
pending against the Company and its subsidiaries. In the opinion of
management, liabilities arising from such claims, if any, would not have
a material effect upon the Company's consolidated financial statements.
<PAGE> 10
Management's Discussion and Analysis of Financial Condition
- -----------------------------------------------------------
and Results of Operations
- -------------------------
The Company's reported first quarter diluted earnings per share
were 73 cents, up 14% from the 64 cents earned in the first quarter of
1997. First quarter net income was $284 million, up 7% from $265
million earned in the same period last year.
High levels of securities transaction volumes, combined with
expansion of the global client base and the cross-selling of new and
traditional products, led to 27% revenue growth in our securities
servicing, cash processing, and foreign exchange businesses. Net
interest margin and yield on assets rose from the fourth quarter of 1997
as a result of an improving asset mix and the recent U.K. asset based
lending acquisitions, but declined from the first quarter a year ago due
to the sale of the credit card business. Financial discipline remained
a hallmark for the Company as the efficiency ratio was 50.2% in spite of
the sale of the credit card operation and the impact of Year 2000
expenses.
All of the above contributed to a record return on average common
equity for the first quarter of 1998 of 24.99% compared with 23.73% in
the fourth quarter of 1997 and 20.90% in the first quarter of 1997.
Return on average assets for the first quarter of 1998 was 1.93%
compared with 1.95% in the fourth quarter of 1997 and 1.86% in the first
quarter of 1997.
Tangible diluted earnings per share (earnings before the
amortization of goodwill and intangibles) were $0.77 per share in the
first quarter of 1998, up 13% from $0.68 per share in the first quarter
of 1997. On the same basis, tangible return on average common equity
was 37.72% in the first quarter of 1998 compared with 29.61% in the
first quarter of 1997, and tangible return on average assets was 2.10%
in the first quarter of 1998 compared with 2.04% in the first quarter of
1997.
Revenues from the Company's securities servicing businesses
reached $230 million for the first quarter, growing by 25%. Strong
internal growth of 16% was spread over all of the Company's businesses
with ADR's, stock transfer, corporate trust, unit investment trust and
custody performing particularly well.
Overall, fees from cash processing were up 14% over last year's
first quarter to $63 million. Funds transfer fees were particularly
strong growing by 27%, with cash management fees ahead by 18%.
Notwithstanding uncertain economic conditions and the resultant reduced
trade flows in Southeast Asia, revenues in our trade finance business
grew modestly.
New business and generally strong markets resulted in trust and
investment fees growing 15% over last year, reaching $50 million.
Expansion of our global client base and high volumes of securities
transactions worldwide contributed to foreign exchange and other trading
<PAGE> 11
revenues increasing 70% from a year ago to $46 million.
Net interest income on a taxable equivalent basis totaled $404
million in the first quarter of 1998 compared with $496 million in the
first quarter of last 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 and acquisitions related
to the Company's asset based lending business.
Average diluted shares outstanding were 390 million for the
quarter, down from the 397 million in the fourth quarter of 1997 and
down significantly from the 412 million in the prior year period, as a
result of the Company's stock buyback program.
CAPITAL
- -------
The Company's Tier 1 capital and Total capital ratios
remained strong at 7.25% and 11.43% at March 31, 1998 compared with
7.92% and 11.97% at December 31, 1997, and 7.92% and 12.28% at March 31,
1997. Tangible common equity as a percent of total assets was 5.69% at
March 31, 1998 compared with 6.47% at December 31, 1997 and 6.39% one
year ago. The leverage ratio was 7.33% at March 31, 1998 compared with
7.59% at December 31, 1997 and 7.83% one year ago.
NET INTEREST INCOME
- -------------------
1st 4th 1st
Quarter Quarter Quarter
------- ------- -------
(In millions) 1998 1997 1997
---------------------------
Net Interest Income $404 $409 $496
Net Interest Rate
Spread 2.24% 2.19% 3.30%
Net Yield on Interest
Earning Assets 3.33 3.26 4.24
Net interest income on a taxable equivalent basis was $404 million
in the first quarter of 1998 compared with $409 million in the fourth
quarter of 1997 and $496 million in the first quarter of 1997. The net
interest rate spread was 2.24% in the first quarter of 1998, compared
with 2.19% in the fourth quarter of 1997 and 3.30% one year ago. The
net yield on interest-earning assets was 3.33% in the first quarter of
1998 compared with 3.26% in the fourth quarter of 1997 and 4.24% in last
year's first quarter. The increase in the spread and yield compared to
the fourth quarter reflects improvements in the mix of assets due to
corporate loan growth and the U.K. asset based lending acquisitions.
The decline from the first quarter of 1997 was the result of the sale of
the credit card business.
<PAGE> 12
Interest lost on loans on nonaccrual status at March 31, 1998 and
1997 reduced net interest income by $3 million and $4 million for the
three months ended March 31, 1998 and 1997.
NONINTEREST INCOME
- ------------------
1st 4th 1st
Quarter Quarter Quarter
------- ------- -------
(In millions) 1998 1997 1997
----------------------------
Processing Fees
Securities $230 $213 $185
Cash 63 61 55
---- ---- ----
293 274 240
Trust and Investment Fees 50 47 43
Service Charges and Fees 81 74 94
Foreign Exchange and
Other Trading Activities 46 39 27
Securities Gains 28 45 7
Sale of Credit Card Portfolio - 177 -
Other 55 33 44
---- ---- ----
Total Noninterest Income $553 $689 $455
==== ==== ====
Securities servicing fees increased 25% to $230 million compared
with $185 million in the first quarter of 1997. Strong internal growth
across all areas reached 16% with acquisitions made during 1997
contributing to the remainder. Service charges and fees of $81 million
were down from $94 million in the first quarter of 1997 primarily as a
result of the loss of fee income associated with the sale of the credit
card business, partially offset by growth in factoring commissions
related to U.K. asset based lending acquisitions. Revenues from foreign
exchange and other trading activities were $46 million in the first
quarter of 1998 compared with $39 million in the fourth quarter of 1997
and $27 million in the first quarter of 1997. The Company reported $28
million of securities gains in the first quarter of 1998 compared with
$45 million in the fourth quarter of 1997 and $7 million in the first
quarter of 1997. Included in other noninterest income in the first
quarter of 1998 was a $29 million pre-tax gain on the sale of the
Company's property at 48 Wall Street, and in the first quarter of 1997,
a $27 million pre-tax gain on the sale of a portion of the Company's
interest in Wing Hang Bank, Ltd.
<PAGE> 13
TRADING ACTIVITIES
- ------------------
The fair value and notional amounts of the Company's financial
instruments held for trading purposes at March 31, 1998 are as follows:
1st Quarter 1998
March 31, 1998 Average
--------------------------- ------------------
Trading Account Trading Account
Notional ------------------ ------------------
(In millions) Amount Assets Liabilities Assets Liabilities
-------- ------ ----------- ------ -----------
Interest Rate Contracts:
Futures and Forward
Contracts $ 6,141 $ 6 $ - $ 5 $ -
Swaps 20,306 100 86 123 213
Written Options 47,875 - 92 - 76
Purchased Options 27,180 43 - 54 -
Foreign Exchange Contracts:
Swaps 45 - - - -
Written Options 48,431 - 713 - 687
Purchased Options 51,672 673 - 588 -
Commitments to Purchase
and Sell Foreign Exchange 53,783 687 700 1,262 1,278
Securities 716 - 672 -
------ ------ ------ ------
Total Trading Account $2,225 $1,591 $2,704 $2,254
====== ====== ====== ======
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.
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 99% confidence level, and incorporates the
non-linear characteristics of options.
The following table indicates the calculated VAR amounts for the
trading portfolio for the quarter ended March 31, 1998.
(In millions) 1st Quarter 1998
------------------------------
Market Risk Average Minimum Maximum 3/31/98
- ----------- ------------------------------ -------
Interest Rate $4.4 $2.0 $6.0 $5.9
Foreign Exchange 2.3 1.2 4.0 2.7
Overall Portfolio 6.7 3.6 8.6 8.6
<PAGE> 14
NONINTEREST EXPENSE AND INCOME TAXES
- ------------------------------------
Total noninterest expense for the quarter was $467 million, up 5%
from $446 million in the same period last year. Noninterest expense for
the first quarter included $8 million, approximately 1 cent per share,
related to making computer systems year 2000 compliant.
The efficiency ratio for the first quarter was 50.2% compared with
47.3% one year ago. The upward move in the efficiency ratio is
primarily attributable to the sale of the Company's credit card
operations and Year 2000 systems expense.
The effective tax rates for the first quarter was 36.1% compared
with 36.7% last year.
NONPERFORMING ASSETS
- --------------------
Change
3/31/98 vs
(Dollars in millions) 3/31/98 12/31/97 12/31/97
-------------------------------
Loans:
Commercial Real Estate $ 37 $ 35 $ 2
Other Commercial 58 65 (7)
Foreign 38 34 4
Community Banking 53 59 (6)
---- ----
Total Loans 186 193 (7)
Other Real Estate 15 15 -
---- ----
Total $201 $208 (7)
==== ====
Nonperforming Assets Ratio 0.5% 0.6%
Allowance/Nonperforming Loans 347.4 331.4
Allowance/Nonperforming Assets 321.2 307.2
Nonperforming assets totaled $201 million at March 31, 1998,
compared with $208 million at December 31, 1997, a decrease of $7
million. This was the twenty-seventh consecutive quarter of
nonperforming asset decreases.
At March 31, 1998, impaired loans (nonaccrual loans over $1
million) aggregated $145 million, of which $115 million exceeded their
fair value by $19 million. Impaired loans at March 31, 1997, totaled
$150 million, of which $108 million exceeded their fair value by $22
million. For the first quarters of 1998 and 1997, the average amount of
impaired loans was $148 million and $152 million and interest income
(cash received) on them was $411 thousand and $378 thousand.
<PAGE> 15
LOAN LOSS PROVISION AND NET CHARGE-OFFS
- ---------------------------------------
1st 4th 1st
Quarter Quarter Quarter
------- ------- -------
(in millions) 1998 1997 1997
-----------------------
Provision $ 5 $100 $ 60
==== ==== ====
Net (Charge-offs) Recoveries:
Commercial Real Estate 1 1 1
Other Commercial (3) (39) (3)
Other Consumer (1) (2) (2)
Foreign (1) (1) 4
Other (1) (3) 1
Credit Card - - (93)
---- ---- ----
Total $ (5) $(44) $(92)
==== ==== ====
Other Real Estate Expense $ 1 $ 12 $ -
The allowance for loan losses was $645 million, or 1.74% of loans
at March 31, 1998, compared with $641 million, or 1.82% of loans at
December 31, 1997 and $869 million, or 2.36% of loans at March 31, 1997.
The ratio of the allowance to nonperforming assets was 321.2% at March
31, 1998 compared with 307.2% at December 31, 1997 and 350.2% at March
31, 1997.
SECTOR PROFITABILITY
- --------------------
The Company has an internal information system used for management
purposes that produces sector performance data for Trust, Securities
Servicing and Cash Processing; Retail Banking; Corporate Banking; and
Other Sectors. A set of measurement principles has been developed to
help insure 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.
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, Securities Servicing, and Cash Processing Sector
provides a broad array of fee based services. Trust includes personal
trust and investment management. Securities servicing includes services
to both institutional issuers and investors. Cash Processing products
relate primarily to funds transfer, deposit services and trade finance.
<PAGE> 16
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.
Based on this system, the sectors contributed to the Company's
profitability for the first quarter as follows:
Trust,
Securities
Servicing
and Cash Retail Corporate
(In millions) Processing Banking Banking Other Total
---------- ---------- ---------- ---------- ----------
1st Quarter 1998 1997 1998 1997 1998 1997 1998 1997 1998 1997
---------------------------------------------------------
Net Interest Income
on a Taxable
Equivalent Basis $ 73 $ 68 $127 $236 $194 $180 $10 $ 12 $404 $496
Provision for
Loan Losses - - 1 92 4 1 - (33) 5 60
Noninterest Income 374 304 19 47 75 62 85 42 553 455
Noninterest Expense 255 213 86 137 71 54 55 42 467 446
---------------------------------------------------------
Income Before Taxes $192 $159 $ 59 $ 54 $194 $187 $40 $ 45 $485 $445
=========================================================
Trust, Securities Servicing, and Cash Processing
- ------------------------------------------------
In the Trust, Securities Servicing, and Cash Processing Sector,
securities servicing fees increased 25% to $230 million compared with
$185 million in the first quarter of 1997. Strong internal growth
across all areas reached 16% with acquisitions made during 1997
contributing to the remainder. ADRs, stock transfer, corporate trust,
unit investment trust and custody performed particularly well. Fee
revenues from issuer services, investment company services, and
broker/dealer services were $87 million, $70 million, and $73 million in
the first quarter of 1998 compared with $69 million, $64 million, and
$52 million in 1997. Fees from cash processing increased 14% over the
first quarter of last year to $63 million. Funds transfer fees were
particularly strong growing by 27%, with cash management fees ahead by
18%. Notwithstanding uncertain economic conditions and the resultant
reduced trade flows in Southeast Asia, revenues in our trade finance
business grew modestly. Fees from trust and investment grew 15% in the
first quarter of 1998 reflecting new business and generally strong
markets. The rise in noninterest expense is primarily related to this
growth.
<PAGE> 17
Retail Banking
- --------------
The decrease in net interest income, provision for loan losses,
noninterest income, and noninterest expense in the Retail Banking Sector
principally reflects the sale of the Company's credit card business in
1997. Net interest income in the Retail Banking Sector's branch network
benefited from more favorable interest rate spreads in the first quarter
of 1998 as compared to the first quarter last year. Operating expenses
relating to branch banking decreased in part due to the sale of eleven
retail branches in November 1997.
Corporate Banking
- -----------------
Net interest income increased in the Corporate Banking Sector due
to strong loan growth and acquisitions related to the asset based
lending business. In the first quarter of 1998, average loans
outstanding in the Corporate Banking Sector increased 21% from the first
quarter of last year. The increase in noninterest income reflects higher
asset based lending revenue and syndication fees, offset by lower income
from the Company's offshore banking subsidiaries. The increase in
noninterest expense is partially due to acquisitions related to the
asset based lending business.
Other
- -----
The Other Sector reflects the difference between the total
provision for loan losses and that charged off by the sectors. The
Company reported $28 million of securities gains in the first quarter of
1998 compared with $7 million in the first quarter of 1997. Noninterest
income includes a pre-tax gain of $29 million on the sale of the
Company's property at 48 Wall Street, and in the first quarter of 1997,
a $27 million pre-tax gain on the sale of a portion of the Company's
interest in Wing Hang Bank, Ltd.
<PAGE> 18
<TABLE>
THE BANK OF NEW YORK COMPANY, INC.
Average Balances and Rates on a Taxable Equivalent Basis
(Dollars in millions)
<CAPTION>
For the three months For the three months
ended March 31, 1998 ended March 31, 1997
------------------------ ------------------------
Average Average Average Average
Balance Interest Rate Balance Interest Rate
------- -------- ------- ------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
- ------
Interest-Bearing
Deposits in Banks
(primarily foreign) $ 2,852 $ 42 6.05% $ 2,439 $ 34 5.64%
Federal Funds Sold and
Securities Purchased
Under Resale Agreements 2,318 30 5.25 2,550 33 5.32
Loans
Domestic Offices 19,022 371 7.91 22,752 524 9.30
Foreign Offices 17,623 300 6.89 14,296 223 6.33
------- ----- ------- -----
Total Loans 36,645 671 7.42 37,048 747 8.15
------- ----- ------- -----
Securities
U.S. Government
Obligations 3,424 48 5.76 2,754 39 5.79
U.S. Government Agency
Obligations 611 10 6.43 424 7 6.35
Obligations of States and
Political Subdivisions 663 14 8.23 643 14 8.64
Other Securities,
including Trading
Securities 2,727 28 4.15 1,522 21 5.56
------- ----- ------- -----
Total Securities 7,425 100 5.44 5,343 81 6.11
------- ----- ------- -----
Total Interest-Earning
Assets 49,240 843 6.94% 47,380 895 7.66%
----- -----
Allowance for Loan Losses (644) (870)
Cash and Due from Banks 3,541 4,047
Other Assets 7,467 7,294
------- -------
TOTAL ASSETS $59,604 $57,851
======= =======
LIABILITIES AND
- ---------------
SHAREHOLDERS' EQUITY
- -------------------
Interest-Bearing Deposits
Money Market Rate
Accounts $ 4,721 54 4.68% $ 3,886 41 4.23%
Savings 7,672 49 2.57 8,120 51 2.56
Certificates of Deposit
$100,000 & Over 668 9 5.51 697 9 5.29
Other Time Deposits 2,309 28 4.86 2,495 30 4.74
Foreign Offices 14,352 185 5.23 14,602 170 4.73
------- ----- ------- -----
Total Interest-Bearing
Deposits 29,722 325 4.43 29,800 301 4.09
Federal Funds Purchased
and Securities Sold
Under Repurchase
Agreements 2,954 34 4.63 2,266 28 5.10
Other Borrowed Funds 3,376 48 5.81 3,252 39 4.91
Long-Term Debt 1,840 32 6.93 1,817 31 6.84
------- ----- ------- -----
Total Interest-Bearing
Liabilities 37,892 439 4.70% 37,135 399 4.36%
----- -----
Noninterest-Bearing
Deposits 10,020 9,269
Other Liabilities 6,062 5,641
Minority Interest-
Preferred Securities 1,027 600
Preferred Stock 1 112
Common Shareholders'
Equity 4,602 5,094
------- -------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $59,604 $57,851
======= =======
Net Interest Earnings
and Interest Rate Spread $ 404 2.24% $ 496 3.30%
===== ==== ===== ====
Net Yield on Interest-
Earning Assets 3.33% 4.24%
==== ====
</TABLE>
<PAGE> 19
PART 2. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
- -----------------------------------------
(a) The exhibits filed as part of this report are as follows:
Exhibit 12 - Statement Re: Ratio of Earnings to Fixed Charges and
Ratio of Earnings to Combined Fixed Charges, Distribution on Trust
Preferred Securities, and Preferred Stock Dividends for the Three
Months Ended March 31, 1998 and 1997.
Exhibit 27 - Statement Re: Financial Data Schedule containing
selected financial data at March 31, 1998 and for the Three Months
Ended March 31, 1998.
(b) The Company filed the following reports on Form 8-K since
December 31, 1998:
On January 20, 1998, the Company filed a Form 8-K Current Report
(Items 5 and 7), which report included unaudited interim financial
information and accompanying discussion for the fourth quarter of
1997 contained in the Company's press release dated January 20, 1998.
On February 27, 1998, the Company filed a Form 8-K Current Report
(Items 5 and 7), which report included the 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.
On March 30, 1998, the Company filed a Form 8-K Current Report
(Items 5 and 7) related to the issuance by BNY Capital III, a
statutory business trust (the "Trust") of 12,000,000 of its 7.05%
Preferred Securities, Series D (Liquidation amount $25 per Preferred
Security)(the "Preferred Securities"), which represent beneficial
interests in the Trust, in a public offering (Registration Statement
Nos. 333-40837 and 333-408837-01 through 03). The following exhibits,
all relating to the issuance of the Preferred Securities were included
in the filing: a Pricing Agreement, Junior Subordinated Indenture,
Specimen of the 7.05% Junior Subordinated Deferrable Interest
Debentures, Series D, of the Company, Amended and Restated Trust
Agreement, Specimens of the 7.05% Preferred Securities, Series D, of the
Trust, Guarantee Agreement, and Agreement as to Expenses and Liabilities.
On April 20, 1998, the Company filed a Form 8-K Current Report (Items 5
and 7), which report included unaudited interim financial information and
accompanying discussion for the first quarter of 1998 contained in the
Company's press release dated April 20, 1998.
<PAGE> 20
On April 22, 1998, the Company filed a Form 8-K Current Report (Items 5
and 7), which report included the press release and presentation materials
for analyst meetings regarding the Company's merger proposal to Mellon
Bank Corporation.
On April 23, 1998, the Company filed a Form 8-K Current Report (Items 5
and 7), which report included the press release in response to inquiries
about the Company's merger proposal to Mellon Bank Corporation.
<PAGE> 21
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
THE BANK OF NEW YORK COMPANY, INC.
----------------------------------
(Registrant)
Date: May 15, 1998 By: \s\ Robert E. Keilman
-----------------------
Name: Robert E. Keilman
Title: Comptroller
<PAGE> 22
EXHIBIT INDEX
--------------
Exhibit Description
- ------- -----------
12 Ratio of Earnings to Fixed Charges and Ratio of
Earnings to Combined Fixed Charges, Distribution
on Trust Preferred Securities, and Preferred
Stock Dividends for the Three Months Ended
March 31, 1998 and 1997.
27 Financial Data Schedule containing selected
financial data at March 31, 1998 and for the
Three Months Ended March 31, 1998.
EXHIBIT 12
<TABLE>
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
(Dollars in millions)
<CAPTION>
Three Months Ended
March 31,
1998 1997
---- ----
<S> <C> <C>
EARNINGS
- --------
Income Before Income Taxes $476 $437
Fixed Charges, Excluding Interest
on Deposits 123 107
---- ----
Income Before Income Taxes and Fixed
Charges, Excluding Interest on Deposits 599 544
Interest on Deposits 325 301
---- ----
Income Before Income Taxes and Fixed
Charges, Including Interest on Deposits $924 $845
==== ====
FIXED CHARGES
- -------------
Interest Expense, Excluding Interest
on Deposits $114 $ 99
One-Third Net Rental Expense* 9 8
---- ----
Total Fixed Charges, Excluding Interest
on Deposits 123 107
Interest on Deposits 325 301
---- ----
Total Fixed Charges, Including Interest
on Deposits $448 $408
==== ====
DISTRIBUTION ON TRUST PREFERRED SECURITIES,
PRE-TAX BASIS $ 20 $ 12
==== ====
PREFERRED STOCK DIVIDENDS, PRE-TAX BASIS $ 0 $ 4
==== ====
EARNINGS TO FIXED CHARGES RATIOS
- --------------------------------
Excluding Interest on Deposits 4.87x 5.08x
Including Interest on Deposits 2.06 2.07
EARNINGS TO COMBINED FIXED CHARGES
& PREFERRED STOCK DIVIDENDS RATIOS
- ----------------------------------
Excluding Interest on Deposits 4.18 4.42
Including Interest on Deposits 1.97 1.99
* The proportion deemed representative of the interest factor.
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This schedule contains summary financial information which is qualified entirely
by reference to The Bank of New York Company, Inc.'s Form 10-Q for the period
ended March 31, 1998.
</LEGEND>
<CIK> 0000009626
<NAME> THE BANK OF NEW YORK COMPANY, INC.
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-1-1998
<PERIOD-END> MAR-31-1998
<CASH> 6,442
<INT-BEARING-DEPOSITS> 1,615
<FED-FUNDS-SOLD> 507
<TRADING-ASSETS> 2,225
<INVESTMENTS-HELD-FOR-SALE> 5,771
<INVESTMENTS-CARRYING> 1,088
<INVESTMENTS-MARKET> 1,071
<LOANS> 37,034
<ALLOWANCE> 645
<TOTAL-ASSETS> 59,611
<DEPOSITS> 40,589
<SHORT-TERM> 6,962
<LIABILITIES-OTHER> 2,991
<LONG-TERM> 1,959
0
1
<COMMON> 3,501
<OTHER-SE> 1,310
<TOTAL-LIABILITIES-AND-EQUITY> 59,611
<INTEREST-LOAN> 670
<INTEREST-INVEST> 88
<INTEREST-OTHER> 76
<INTEREST-TOTAL> 834
<INTEREST-DEPOSIT> 325
<INTEREST-EXPENSE> 439
<INTEREST-INCOME-NET> 395
<LOAN-LOSSES> 5
<SECURITIES-GAINS> 28
<EXPENSE-OTHER> 467
<INCOME-PRETAX> 476
<INCOME-PRE-EXTRAORDINARY> 284
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 284
<EPS-PRIMARY> $0.77
<EPS-DILUTED> $0.73
<YIELD-ACTUAL> 3.33
<LOANS-NON> 186
<LOANS-PAST> 40
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 641
<CHARGE-OFFS> 10
<RECOVERIES> 5
<ALLOWANCE-CLOSE> 645
<ALLOWANCE-DOMESTIC> 456
<ALLOWANCE-FOREIGN> 46
<ALLOWANCE-UNALLOCATED> 143
</TABLE>
