<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 June 30, 1999
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)
One 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 735,290,016 shares as of July 31, 1999
<PAGE> 2
THE BANK OF NEW YORK COMPANY, INC.
FORM 10-Q
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
- ------------------------------
Item 1. Financial Statements
Consolidated Balance Sheets
June 30, 1999 and December 31, 1998 3
Consolidated Statements of Income
For the Three Months and Six Months
Ended June 30, 1999 and 1998 4
Consolidated Statement of Changes In
Shareholders' Equity For the Six
Months Ended June 30, 1999 5
Consolidated Statements of Cash Flows
For the Six Months Ended June 30,
1999 and 1998 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
Item 3. Quantitative and Qualitative Disclosures about Market
Risk. (See "Trading Activities") 12
PART II. OTHER INFORMATION
- --------------------------
Item 2. Sales of Unregistered Common Stock 23
Item 4. Submission of Matters to Vote of Security Holders 23
Item 6. Exhibits and Reports on Form 8-K 23
SIGNATURE 25
<PAGE> 3
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
- -----------------------------
THE BANK OF NEW YORK COMPANY, INC.
Consolidated Balance Sheets
(Dollars in millions, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
---- ----
<S> <C> <C>
Assets
- ------
Cash and Due from Banks $ 5,619 $ 3,999
Interest-Bearing Deposits in Banks 4,499 4,504
Securities:
Held-to-Maturity (fair value of $774 in 1999
and $923 in 1998) 817 964
Available-for-Sale 5,205 5,451
------- -------
Total Securities 6,022 6,415
Trading Assets at Fair Value 1,699 1,637
Federal Funds Sold and Securities Purchased Under Resale
Agreements 2,583 3,281
Loans (less allowance for credit losses of $595 in 1999
and $636 in 1998) 37,792 37,750
Premises and Equipment 854 856
Due from Customers on Acceptances 853 946
Accrued Interest Receivable 295 355
Other Assets 7,555 3,760
------- -------
Total Assets $67,771 $63,503
======= =======
Liabilities and Shareholders' Equity
- ------------------------------------
Deposits
Noninterest-Bearing (principally domestic offices) $10,895 $11,480
Interest-Bearing
Domestic 16,120 16,091
Foreign Offices 20,462 17,061
------- -------
Total Deposits 47,477 44,632
Federal Funds Purchased and Securities
Sold Under Repurchase Agreements 3,639 1,571
Other Borrowed Funds 3,703 4,536
Acceptances Outstanding 864 951
Accrued Taxes and Other Expenses 2,165 2,183
Accrued Interest Payable 126 188
Other Liabilities 740 608
Long-Term Debt 2,277 2,086
------- -------
Total Liabilities 60,991 56,755
------- -------
Guaranteed Preferred Beneficial Interests in the Company's
Junior Subordinated Deferrable Interest Debentures 1,500 1,300
------- -------
Shareholders' Equity
Class A Preferred Stock - par value $2.00 per share,
authorized 5,000,000 shares, outstanding 16,887
shares in 1999 and 22,820 shares in 1998 1 1
Common Stock-par value $7.50 per share, authorized
1,600,000,000 shares, issued 974,810,001 shares in
1999 and 970,767,767 shares in 1998 7,311 7,281
Additional Capital 242 142
Retained Earnings 1,744 1,318
Accumulated Other Comprehensive Income 217 312
------- -------
9,515 9,054
Less: Treasury Stock (212,980,823 shares in 1999
and 197,648,459 shares in 1998), at cost 4,222 3,593
Loan to ESOP (1,801,003 shares in 1999
and 1998), at cost 13 13
------- -------
Total Shareholders' Equity 5,280 5,448
------- -------
Total Liabilities and Shareholders' Equity $67,771 $63,503
======= =======
<FN>
- ----------------------------------------------------------------------------------------
Note: The balance sheet at December 31, 1998 has been derived from the audited financial
statements at that date.
See accompanying Notes to Financial Statements.
</FN>
</TABLE>
<PAGE> 4
THE BANK OF NEW YORK COMPANY, INC.
Consolidated Statements of Income
(In millions, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
For the three For the six
months ended months ended
June 30, June 30,
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Interest Income
- ---------------
Loans $ 659 $ 695 $1,319 $1,364
Securities
Taxable 63 72 128 146
Exempt from Federal Income Taxes 12 16 22 30
----- ----- ------ ------
75 88 150 176
Deposits in Banks 54 40 118 83
Federal Funds Sold and Securities Purchased
Under Resale Agreements 46 42 99 72
Trading Assets 5 5 10 9
---- ----- ----- ------
Total Interest Income 839 870 1,696 1,704
----- ----- ----- ------
Interest Expense
- ----------------
Deposits 324 343 641 667
Federal Funds Purchased and Securities Sold
Under Repurchase Agreements 36 31 67 65
Other Borrowed Funds 28 54 75 103
Long-Term Debt 35 34 70 66
----- ----- ----- ------
Total Interest Expense 423 462 853 901
----- ----- ----- ------
Net Interest Income 416 408 843 803
- -------------------
Provision for Credit Losses 15 5 30 10
----- ----- ----- ------
Net Interest Income After Provision for
Credit Losses 401 403 813 793
----- ----- ----- ------
Noninterest Income
- ------------------
Processing Fees
Securities 302 239 593 469
Cash 70 64 139 127
----- ----- ----- ------
372 303 732 596
Trust and Investment Fees 60 51 118 101
Service Charges and Fees 91 85 176 166
Securities Gains 50 46 100 74
Other 78 76 150 176
----- ----- ----- ------
Total Noninterest Income 651 561 1,276 1,113
----- ----- ----- ------
Noninterest Expense
- -------------------
Salaries and Employee Benefits 311 287 622 570
Net Occupancy 40 43 81 84
Furniture and Equipment 21 21 45 41
Other 141 121 274 244
----- ----- ----- ------
Total Noninterest Expense 513 472 1,022 939
----- ----- ----- ------
Income Before Income Taxes 539 492 1,067 967
Income Taxes 188 172 372 344
Distribution on Trust Preferred Securities 28 25 56 45
----- ----- ----- ------
Net Income $ 323 $ 295 $ 639 $ 578
- ---------- ===== ===== ===== ======
Net Income Available to Common Shareholders $ 323 $ 295 $ 639 $ 578
- ------------------------------------------- ===== ===== ===== ======
Per Common Share Data:
- ----------------------
Basic Earnings $0.42 $0.39 $0.84 $ 0.78
Diluted Earnings 0.42 0.38 0.82 0.74
Cash Dividends Paid 0.14 0.13 0.28 0.26
Diluted Shares Outstanding 773 783 776 782
<FN>
- ------------------------------------------------------------------------------------------------
See accompanying Notes to Financial Statements
</FN>
</TABLE>
<PAGE> 5
<TABLE>
<CAPTION>
THE BANK OF NEW YORK COMPANY, INC.
Consolidated Statement of Changes in Shareholders' Equity
For the six months ended June 30, 1999
(In millions)
(Unaudited)
<S> <C>
Preferred Stock
Balance, January 1 $ 1
-------
Balance, June 30 1
-------
Common Stock
Balance, January 1 7,281
Issuances in Connection with Employee Benefit Plans 30
-------
Balance, June 30 7,311
-------
Additional Capital
Balance, January 1 142
Common Stock Issuances in Connection with Employee Benefit Plans 100
-------
Balance, June 30 242
-------
Retained Earnings
Balance, January 1 1,318
Net Income 639
Cash Dividends (213)
-------
Balance, June 30 1,744
-------
Accumulated Other Comprehensive Income
Securities Valuation Allowance
Balance, January 1 340
Change in Fair Value of Securities Available-for-Sale,
Net of $29 Million in Taxes (29)
Reclassification Adjustment, Net of $36 Million in Taxes (65)
-------
Balance, June 30 246
-------
Foreign Currency Items
Balance, January 1 (28)
Foreign Currency Translation Adjustment,
Net of $1 Million in Tax Benefits (1)
-------
Balance, June 30 (29)
-------
Less Treasury Stock
Balance, January 1 3,593
Issued (46)
Acquired 675
-------
Balance, June 30 4,222
-------
Less Loan to ESOP
Balance, January 1 13
-------
Balance, June 30 13
-------
Total Shareholders' Equity, June 30 $ 5,280
=======
<FN>
- ------------------------------------------------------------------------------------
Comprehensive Income for the three months ended June 30, 1999 and 1998 was $286
million and $316 million.
Comprehensive income for the six months ended June 30, 1999 and 1998 was $544 million
and $647 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 six months
Ended June 30,
1999 1998
---- ----
<S> <C> <C>
Operating Activities
Net Income $ 639 $ 578
Adjustments to Determine Net Cash Provided (Used) by
Operating Activities:
Provision for Losses on Loans and Other Real Estate 30 11
Depreciation and Amortization 106 90
Deferred Income Taxes 221 102
Securities Gains (100) (74)
Change in Trading Activities (227) 702
Change in Accruals and Other, Net (182) (1,085)
------ ------
Net Cash Provided by Operating Activities 487 324
------ ------
Investing Activities
Change in Interest-Bearing Deposits in Banks (118) 200
Purchases of Securities Held-to-Maturity (189) (259)
Maturities of Securities Held-to-Maturity 289 375
Purchases of Securities Available-for-Sale (1,178) (1,477)
Sales of Securities Available-for-Sale 450 745
Maturities of Securities Available-for-Sale 236 517
Net Principal Disbursed on Loans to Customers (3,560) (3,190)
Sales of Loans and Other Real Estate 107 159
Change in Federal Funds Sold and Securities
Purchased Under Resale Agreements 698 1,653
Purchases of Premises and Equipment (33) (38)
Acquisitions, Net of Cash Acquired (56) (419)
Proceeds from the Sale of Premises and Equipment 2 41
Other, Net 12 (51)
------ ------
Net Cash Provided (Used) by Investing Activities (3,340) (1,744)
------ ------
Financing Activities
Change in Deposits 3,171 2,092
Change in Federal Funds Purchased and Securities
Sold Under Repurchase Agreements 2,068 (333)
Change in Other Borrowed Funds (381) 1,441
Proceeds from the Issuance of Trust Preferred Securities 200 300
Proceeds from the Issuance of Long-Term Debt 206 210
Repayments of Long-Term Debt (21) (16)
Issuance of Common Stock 177 251
Treasury Stock Acquired (675) (759)
Cash Dividends Paid (213) (194)
------ ------
Net Cash Provided (Used) by Financing Activities 4,532 2,992
------ ------
Effect of Exchange Rate Changes on Cash (59) (12)
------ ------
Change in Cash and Due From Banks 1,620 1,560
Cash and Due from Banks at Beginning of Period 3,999 5,769
------ ------
Cash and Due from Banks at End of Period $5,619 $7,329
====== ======
- ----------------------------------------------------------------------------
Supplemental Disclosure of Cash Flow Information
Cash Paid During the Period for:
Interest $ 915 $ 931
Income Taxes 148 194
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 and Dispositions
-----------------------------
On July 22, 1999 the Company completed the sale of BNY Factoring LLC
(Factor) to General Motors Acceptance Corporation for $1.8 billion in cash.
The sale included related Canadian and UK factoring and asset-based lending
operations. The Company recorded a gain in excess of $1 billion on the sale.
The June 30, 1999 balance sheet includes related assets of $3.8 billion (net
of a $37 million allowance for credit losses) as part of other assets that
were classified as held for sale. The decision to sell the Factor was based on
the Company's desire to focus on expanding its higher growth, less asset-
sensitive core activities in securities servicing, cash processing, and trust
and investment services.
On March 23, 1999, the Company announced its agreement to purchase RBS
Trust Bank Ltd. from the Royal Bank of Scotland plc. In addition, the Company
will acquire a 30% equity ownership in RBSI Security Services (Holdings) Ltd.,
headquartered on the island of Jersey. The proposed transaction is subject to
final regulatory approvals, which are expected in September 1999. RBS Trust
Bank Ltd. has over $640 billion of assets under administration and over $11
billion in total assets as of June 30, 1999.
3. Allowance for Credit Losses
---------------------------
Transactions in the allowance for credit losses are summarized as
follows:
Six months ended
June 30,
(In millions) 1999 1998
---- ----
Balance, Beginning of Period $ 636 $ 641
Charge-Offs (42) (19)
Recoveries 8 10
----- -----
Net Charge-Offs (34) (9)
Acquisition/(Disposition) (37) 4
Provision 30 10
----- -----
Balance, End of Period $ 595 $ 646
===== =====
<PAGE> 8
4. Capital Transactions
--------------------
The Company has completed its previously authorized 18 million share buy
back. The Company has approved a new plan to buy back an additional 30 million
of its common shares. As of July 31, 1999, approximately 5 million shares
remain to be purchased under this new plan.
5. New Accounting Pronouncements
-----------------------------
Effective January 1, 2001, a new accounting standard will require the
Company to record all derivatives on the balance sheet at fair value and apply
new accounting practices for hedging activities. The Company has not yet
determined the impact of the new accounting standard.
6. Earnings Per Share
------------------
The following table illustrates the computations of basic and diluted
earnings per share for the three and six months ended June 30, 1999 and 1998:
Three Months Ended Six Months Ended
June 30, June 30,
(In millions, except per share amounts)
1999 1998 1999 1998
---- ---- ---- ----
Net Income $323 $295 $639 $578
==== ==== ==== ====
Diluted Net Income $323 $295 $639 $578
==== ==== ==== ====
Basic Weighted Average
Shares Outstanding 761 749 763 744
Shares Issued on Conversion:
Warrants - 22 - 25
Employee Stock Options 12 12 13 13
---- ---- ---- ----
Diluted Weighted Average
Shares Outstanding 773 783 776 782
==== ==== ==== ====
Basic Earnings Per Share: $ 0.42 $ 0.39 $ 0.84 $ 0.78
Diluted Earnings Per Share: 0.42 0.38 0.82 0.74
7. 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> 9
Item 2. Management's Discussion and Analysis of Financial Condition and
- ------------------------------------------------------------------------
Results of Operations
- ---------------------
The Company's actual results of future operations may differ from those
set forth in certain forward-looking statements contained herein. Refer to
further discussion under the heading "Forward Looking Statements".
The Company's reported second quarter diluted earnings per share were 42
cents, up 11% from the 38 cents earned in the second quarter of 1998. Net
income for the second quarter was a record $323 million, up 10% from the $295
million earned in the same period last year. Diluted earnings per share were
82 cents for the first half of 1999, up 11% from the 74 cents earned last
year. Net income for the first six months was a record $639 million, an
increase of 11% over last year's $578 million.
Continued strong revenue growth in the Company's fee based businesses
combined with the benefits of the ongoing emphasis on cost control and capital
management produced another record performance. Substantial new business wins
coupled with strong and active securities markets worldwide drove securities
servicing revenues up 27% from the second quarter of 1998, matching the first
quarter's superior performance. Trust and investment fees once again grew 16%
led by strong investment performance, new customers, and record levels in U.S.
equity markets. Overall, noninterest income contributed 61% of revenues for
the quarter, demonstrating continued momentum in fee generating businesses.
In securities servicing, all areas did well with global custody, mutual
funds, securities lending, ADRs and execution services particularly strong.
Domestic and global custody continued to gain market share from new business
wins as assets under custody grew by 20% from a year ago reaching $5.3
trillion at quarter end. Trust and investment's results were due to strong
investment performance which continues to attract new customers. Focus on cost
control was evident, as noninterest expense for the quarter was flat compared
with the first quarter of 1999 and the efficiency ratio improved to 49.9%. As
part of its capital management program, the Company has repurchased all of the
18 million shares authorized under its buyback program. The Company has
approved a new plan to buy back an additional 30 million of its common shares.
Return on average common equity for the second quarter of 1999 was 24.82%
compared with 24.03% in the second quarter of 1998. Return on average assets
for the second quarter of 1999 was 1.95% compared with 1.90% in the second
quarter of 1998. For the first six months of 1999, return on average common
equity totaled 24.65% compared with 24.49% in 1998. Return on average assets
was 1.94% for the first six months of 1999 compared with 1.91% in 1998.
Net interest income on a taxable equivalent basis for the second quarter
decreased to $427 million from $436 million in the first quarter of 1999. For
the first six months of 1999, net interest income on a taxable equivalent
basis was $863 million compared with $828 million in the first half of 1998.
Fees from the Company's securities servicing businesses reached $302
million for the second quarter compared with $239 million last year. For the
first six months of 1999 fees from the Company's securities servicing
businesses totaled $593 million, growing by 27% compared with the
corresponding period of the prior year. All areas contributed to strong
internal growth of 16%.
In cash processing, revenues from cash management were up 11% driven by
continued cross selling to the Company's securities servicing customers.
Fees from funds transfer grew by 10% from the previous year, the result of
continued market share gains and the firming global economy. Also benefiting
from the recovery in world markets were trade finance revenues which were up
<PAGE> 10
8% from a year ago. Overall, cash processing fees grew by 10% reaching $70
million for the quarter.
Trust and investment fees were $60 million for the quarter, an increase
of 16% over last year driven by strong results from personal trust, personal
asset management and retail investment products. Foreign exchange and other
trading revenues were $46 million this quarter compared with $42 million in
the second quarter last year.
Tangible diluted earnings per share (earnings before the amortization of
goodwill and intangibles) were 44 cents per share in the second quarter of
1999, up from 40 cents per share in the second quarter of 1998. On the same
basis, tangible return on average common equity was 37.79% in 1999 compared
with 37.13% in 1998; and tangible return on average assets was 2.11% in 1999
compared with 2.07% in 1998. Tangible diluted earnings per share were 87 cents
per share for the first six months of 1999, compared with 79 cents per share
in 1998. Tangible return on average common equity was 37.53% in the first six
months of 1999 compared with 37.41% in 1998; and tangible return on average
assets was 2.11% in the first six months of 1999 compared with 2.09% last
year. Amortization of intangibles for the second quarter and the first six
months of 1999 was $27 million and $53 million compared with $25 million and
$49 million last year.
Average diluted shares outstanding were 773 million for the quarter, down
from the 779 million in the first quarter of 1999 and 783 million in the prior
year period as a result of the Company's stock buyback programs.
CAPITAL
The Company's estimated Tier 1 capital and Total capital ratios remained
strong at 7.61% and 11.49% at June 30, 1999 compared with 7.84% and 11.86% at
March 31, 1999, and 7.25% and 11.24% at June 30, 1998. Tangible common equity
as a percent of total assets was 5.59% at June 30, 1999 compared with 5.88% at
March 31, 1999 and 5.55% one year ago. The leverage ratio was 7.65% at June
30, 1999 compared with 7.69% at March 31, 1999 and 7.17% one year ago.
NET INTEREST INCOME
<TABLE>
<CAPTION>
2nd 1st 2nd
Quarter Quarter Quarter Year to Date
------- ------- ------- --------------
(In millions) 1999 1999 1998 1999 1998
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net Interest Income $427 $436 $424 $863 $828
Net Interest Rate
Spread 2.18% 2.29% 2.27% 2.24% 2.25%
Net Yield on Interest-
Earning Assets 3.07 3.18 3.28 3.13 3.30
</TABLE>
Net interest income on a taxable equivalent basis was $427 million in the
second quarter of 1999 compared with $436 million in the first quarter of 1999
and $424 million in the second quarter of 1998. The net interest rate spread
was 2.18% in the second quarter of 1999, compared with 2.29% in the first
quarter of 1999 and 2.27% one year ago. The net yield on interest-earning
assets was 3.07% compared with 3.18% in the first quarter of 1999 and 3.28% in
last year's second quarter.
For the first six months of 1999, net interest income on a taxable
equivalent basis, amounted to $863 million compared with $828 million in the
first half of 1998. The year-to-date net interest rate spread was 2.24% in
1999 compared with 2.25% in 1998, while the net yield on interest-earning
assets was 3.13% in 1999 and 3.30% in 1998.
<PAGE> 11
The declines in net interest income, interest rate spread and yield from
the first quarter were primarily the result of continued growth in loans that
support our securities servicing activities. These loans are lower yielding
and short term in nature.
Interest income would have been increased by $4 million and $3 million
for the second quarters of 1999 and 1998 and $6 million for the first six
months of 1999 and 1998 if loans on nonaccrual status at June 30, 1999 and
1998 had been performing for the entire quarter.
NONINTEREST INCOME
<TABLE>
<CAPTION>
2nd 1st 2nd
Quarter Quarter Quarter Year-to-Date
------- ------- ------- ------------
(In millions) 1999 1999 1998 1999 1998
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Processing Fees
Securities $302 $291 $239 $ 593 $ 469
Cash 70 69 64 139 127
---- ---- ---- ------ ------
372 360 303 732 596
Trust and Investment Fees 60 58 51 118 101
Service Charges and Fees 91 85 85 176 166
Foreign Exchange and
Other Trading Activities 46 42 42 88 88
Securities Gains 50 50 46 100 74
Other 32 30 34 62 88
---- ---- ---- ------ ------
Total Noninterest Income $651 $625 $561 $1,276 $1,113
==== ==== ==== ====== ======
</TABLE>
Total noninterest income reached $651 million increasing 4% from the
first quarter of 1999 and 16% from the prior year period. Securities servicing
fees grew 4% on a linked quarter basis reaching $302 million and 27% from a
year ago. Fees from trust and investment were up $2 million from the first
quarter reaching $60 million, and $9 million or 16% from the second quarter of
1998. Service charges and fees benefited from improved capital markets
activity and rose 7% from the first quarter and the prior year period reaching
$91 million. Securities gains of $50 million were level with the first quarter
of 1999 and up slightly from the $46 million in the second quarter of 1998.
<PAGE> 12
TRADING ACTIVITIES
The fair value and notional amounts of the Company's financial
instruments held for trading purposes at June 30, 1999 are as follows:
2nd Quarter 1999
June 30, 1999 Average
---------------------------- -------------------
(In millions) Fair Value Fair Value
------------------ -------------------
Notional
Trading Account Amount Assets Liabilities Assets Liabilities
- --------------- -------- ------ ----------- ------ -----------
Interest Rate Contracts:
Futures and Forward
Contracts $28,968 $ 8 $ - $ 9 $ -
Swaps 62,382 633 495 679 606
Written Options 67,854 - 601 - 524
Purchased Options 32,032 66 - 73 -
Foreign Exchange Contracts:
Written Options 41,101 - 224 - 201
Purchased Options 44,305 242 - 209 -
Commitments to Purchase
and Sell Foreign Exchange 53,971 453 417 494 460
Securities 297 274 881 169
------ ------ ------ ------
Total Trading Account $1,699 $2,011 $2,345 $1,960
====== ====== ====== ======
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. This methodology does
not attempt to evaluate risk created from extraordinary financial, economic or
other occurrences, and any risk evaluation system has judgmental aspects.
The following table indicates the calculated VAR amounts for the trading
portfolio for the periods indicated. During these periods, the daily trading
loss did not exceed the calculated VAR amounts on any given day.
<TABLE>
<CAPTION>
(In millions) 2nd Quarter 1999 Year-to-date 1999
------------------------- -------------------------
Market Risk Average Minimum Maximum Average Minimum Maximum 06/30/99
- ----------- ------- ------- ------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Interest Rate $ 4.7 $ 3.3 $ 7.1 $ 4.8 $ 2.1 $10.9 $ 4.5
Foreign Exchange 1.4 0.7 3.5 1.5 0.7 4.0 1.1
Overall Portfolio 6.1 4.5 8.7 6.3 3.7 12.1 5.6
</TABLE>
<TABLE>
<CAPTION>
(In millions) 2nd Quarter 1998 Year-to-date 1998
------------------------- -------------------------
Market Risk Average Minimum Maximum Average Minimum Maximum 06/30/98
- ----------- ------- ------- ------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Interest Rate $ 4.5 $ 2.1 $ 7.0 $ 4.8 $ 2.1 $ 7.0 $ 3.9
Foreign Exchange 2.1 0.8 3.5 2.2 0.8 4.0 1.4
Overall Portfolio 6.6 4.0 9.0 7.0 4.0 9.7 5.3
</TABLE>
NONINTEREST EXPENSE AND INCOME TAXES
Continued adherence to expense control resulted in total noninterest
expense for the quarter of $513 million, compared with $509 million in the
first quarter of 1999. The increase of 9% from $472 million in the same period
last year was principally due to acquisitions. Noninterest expense for the
<PAGE> 13
second quarter included $5 million related to making computer systems Year
2000 compliant compared with $8 million in the prior year. For the first six
months of 1999, Year 2000 expenses were $11 million compared with $16 million
for the first six months of 1998.
The efficiency ratio for the second quarter of 1999 was 49.9% compared
with 50.3% in both the first quarter of 1999 and the second quarter of 1998.
For the first half of 1999, the efficiency ratio was 50.1% compared with 50.2%
last year.
The effective tax rate for the second quarter and the first six months of
1999 was 34.9% in both periods compared with 35.0% and 35.6% last year.
NONPERFORMING ASSETS
<TABLE>
<CAPTION>
Change
6/30/99 vs.
(Dollars in millions) 6/30/99 3/31/99 3/31/99
-------- -------- --------
<S> <C> <C> <C>
Loans:
Commercial Real Estate $ 1 $ 4 $ (3)
Other Commercial 103 103 -
Foreign 68 66 2
Regional Commercial 33 35 (2)
----- ----- -----
Total Loans 205 208 (3)
Other Real Estate 15 14 1
----- ----- -----
Total $ 220 $ 222 $ (2)
===== ===== =====
Nonperforming Assets Ratio 0.6% 0.5%
Allowance/Nonperforming Loans 290.2 303.6
Allowance/Nonperforming Assets 271.0 284.3
</TABLE>
The June 30, 1999 nonperforming assets exclude $21 million classified as
assets held for sale related to the BNY Financial Corporation transaction.
At June 30, 1999, impaired loans (nonaccrual loans over $1 million)
aggregated $173 million, of which $148 million exceeded their fair value by
$72 million. Impaired loans at June 30, 1998, totaled $141 million, of which
$105 million exceeded their fair value by $38 million. For the second quarters
of 1999 and 1998, the average amounts of impaired loans were $174 million and
$146 million. Interest income (cash received) of $60 thousand was received on
the impaired loans in the second quarter of 1999, while $436 thousand was
received during the second quarter of 1998.
<PAGE> 14
CREDIT LOSS PROVISION AND NET CHARGE-OFFS
<TABLE>
<CAPTION>
2nd 1st 2nd
Quarter Quarter Quarter Year-to-date
------- ------- ------- -------------
(In millions) 1999 1999 1998 1999 1998
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Provision $ 15 $ 15 $ 5 $ 30 $ 10
==== ==== ==== ==== ====
Net(Charge-offs)Recoveries:
Commercial Real Estate 1 (2) 1 (1) 2
Other Commercial (13) (7) (3) (20) (6)
Consumer (1) (1) (1) (2) (2)
Foreign (2) (9) - (11) (1)
Other - - (1) - (2)
---- ---- ---- ---- ----
Total $(15) $(19) $ (4) (34) (9)
==== ==== ==== ==== ====
Other Real Estate Expenses $ - $ - $ - $ - $ 1
</TABLE>
The allowance for credit losses was $595 million, or 1.55% of loans at
June 30, 1999 compared with $632 million, or 1.59% of loans at March 31, 1999
and $646 million, or 1.65% of loans at June 30, 1998. The ratio of the
allowance to nonperforming assets was 271.0% at June 30, 1999 compared with
284.3% at March 31, 1999 and 324.9% at June 30, 1998.
Based on an evaluation of individual credits, historical credit losses,
and global economic factors, the Company has allocated its allowance for
credit losses as follows:
6/30/99 3/31/99 12/31/98
------- -------- --------
Real Estate 4% 2% 3%
Domestic Commercial and Industrial 80 82 74
Consumer - - 1
Foreign 13 13 11
Unallocated 3 3 11
--- --- ---
100% 100% 100%
Such an allocation is inherently judgmental, and the entire allowance for
credit losses is available to absorb credit losses regardless of the nature of
the loss. The increase in the allowance allocated to domestic commercial and
industrial loans in 1999 reflects the increase in nonperforming loans in 1999
and other economic factors.
The discussion below contains certain forward looking statements. These
statements are qualified by the discussion of "Forward Looking Statements" on
page 20.
The Company continues to emphasize growth in its fee based businesses and
regularly reviews its credit portfolio, to reduce its exposure to potential
credit losses and to ensure that its relationships justify the risks
associated with credit extension. During the third quarter, the Company has
been reviewing its portfolio to determine the need to accelerate the
disposition of some of its loans. Depending on the results of this review the
Company may record a liquidity charge to noninterest income, an increase in
its provision and charge-offs and a related decrease in nonperforming loans in
the third quarter of 1999. The ultimate size of the accelerated disposition
program is dependent on economic, credit, and business events in the third
quarter.
<PAGE> 15
SEGMENT PROFITABILITY
Segment Data
Effective January 1, 1999, the Company adopted a new accounting
pronouncement requiring disclosure about the Company's segments based on a
management approach. The Company has an internal information system that
produces performance data for its four segments along product and service
lines.
The Trust, and Securities and Cash Processing segment 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 primarily relate to funds
transfer, deposit services and trade finance.
The Corporate Banking segment provides lending services, including asset
based financing, to domestic and international commercial enterprises.
The Retail Banking segment includes consumer lending, residential
mortgage lending, and retail deposit services.
The Financial Markets segment includes trading, investing and leasing
activities, and treasury services to other segments.
The Company's segment data has been determined on an internal management
basis of accounting, other than the generally accepted accounting principles
used for consolidated financial reporting. These measurement principles are
designed to ensure that reported results of the segments track their economic
performance. Segment results are subject to restatement when improvements are
made in the measurement principles or organizational changes are made. In
1999, net interest income for the Corporate Banking and Financial Markets
segments has been restated to reflect adjustments to deposit balances
allocated to these sectors.
The measure of revenues and profit or loss by operating segment has been
adjusted to present segment data on a taxable equivalent basis. The provision
for credit losses allocated to each reportable segment is based on
management's judgment as to average credit losses that will be incurred in the
operations of the segment over a credit cycle of a period of years.
Management's judgment includes the following factors among others: historical
charge-off experience and the volume, composition and growth of the loan
portfolio. This method is different from that required under generally
accepted accounting principles as it anticipates future losses which are not
yet probable and therefore not recognizable under generally accepted
accounting principles. Assets and liabilities are match funded. Support and
other indirect expenses are allocated to segments based on general guidelines.
The segments contributed to the Company's profitability as follows:
<TABLE>
<CAPTION>
In Millions Trust, and
Securities
For the Quarter Ended and Cash Corporate Retail Financial Reconciling Consolidated
June 30, 1999 Processing Banking Banking Markets Items* Total
- --------------------- ---------- --------- ------- --------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Net Interest Income $ 100 $ 167 $ 120 $ 23 $ 6 $ 416
Provision for
Credit Losses - 32 - (2) (15) 15
Noninterest Income 465 92 23 60 11 651
Noninterest Expense 278 79 72 18 66 513
------ ------- ------ ------- ------ -------
Income Before Taxes $ 287 $ 148 $ 71 $ 67 $ (34) $ 539
====== ======= ====== ======= ====== =======
Average Assets $5,315 $34,847 $3,962 $20,822 $1,591 $66,537
====== ======= ====== ======= ====== =======
</TABLE>
<PAGE> 16
<TABLE>
<CAPTION>
In Millions Trust, and
Securities
For the Quarter Ended and Cash Corporate Retail Financial Reconciling Consolidated
June 30, 1998 Processing Banking Banking Markets Items* Total
- --------------------- ---------- --------- ------- --------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Net Interest Income $ 110 $ 150 $ 129 $ 20 $ (1) $ 408
Provision for
Credit Losses - 28 6 - (29) 5
Noninterest Income 377 87 20 63 14 561
Noninterest Expense 249 67 73 14 69 472
------ ------- ------ ------- ------ -------
Income Before Taxes $ 238 $ 142 $ 70 $ 69 $ (27) $ 492
====== ======= ====== ======= ====== =======
Average Assets $5,723 $33,774 $4,727 $16,490 $1,520 $62,234
====== ======= ====== ======= ====== =======
</TABLE>
<TABLE>
<CAPTION>
In Millions Trust, and
Securities
For the Half Ended and Cash Corporate Retail Financial Reconciling Consolidated
June 30, 1999 Processing Banking Banking Markets Items* Total
- --------------------- ---------- --------- ------- --------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Net Interest Income $ 206 $ 336 $ 234 $ 52 $ 15 $ 843
Provision for
Credit Losses - 61 2 (2) (31) 30
Noninterest Income 912 178 44 109 33 1,276
Noninterest Expense 566 144 147 35 130 1,022
------ ------- ------ ------- ------ -------
Income Before Taxes $ 552 $ 309 $ 129 $ 128 $ (51) $ 1,067
====== ======= ====== ======= ====== =======
Average Assets $6,355 $33,090 $4,246 $21,004 $1,580 $66,275
====== ======= ====== ======= ====== =======
</TABLE>
<TABLE>
<CAPTION>
In Millions Trust, and
Securities
For the Half Ended and Cash Corporate Retail Financial Reconciling Consolidated
June 30, 1998 Processing Banking Banking Markets Items* Total
- --------------------- ---------- --------- ------- --------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Net Interest Income $ 197 $ 314 $ 255 $ 40 $ (3) $ 803
Provision for
Credit Losses - 56 7 - (53) 10
Noninterest Income 751 161 39 120 42 1,113
Noninterest Expense 489 130 152 32 136 939
------ ------- ------ ------- ------ -------
Income Before Taxes $ 459 $ 289 $ 135 $ 128 $ (44) $ 967
====== ======= ====== ======= ====== =======
Average Assets $5,676 $32,697 $4,727 $16,322 $1,504 $60,926
====== ======= ====== ======= ====== =======
<FN>
* - Reconciling items for net interest income primarily relate to the
recording of interest income on a taxable equivalent basis, reallocation of
capital and the funding of goodwill. Reconciling items for noninterest income
primarily relate to the sale of a building in 1998. Reconciling items for
noninterest expense include $27 million and $53 million of goodwill
amortization for the second quarter and year-to-date for 1999 and $25 million
and $49 million of goodwill amortization for the second quarter and year-to-
date for 1998, Year 2000 expenses, and corporate overhead. The adjustment to
the provision for credit losses reflects the difference between the aggregate
of the credit provision over a credit cycle for the reportable segments and
the Company's recorded provision. The reconciling items for average assets
consist of goodwill and other intangible assets.
</FN>
</TABLE>
<PAGE> 17
Segment Highlights
Trust, and Securities and Cash Processing
- -----------------------------------------
In the Trust, and Securities and Cash Processing segment, noninterest
income in the second quarter of 1999 increased to $465 million from $377
million in the second quarter of 1998. All of the Company's businesses have
shown strong internal growth with global custody, mutual funds, securities
lending, ADRs, and execution services performing particularly well. Strong
internal growth across all areas reached 16%, with remaining growth coming
from acquisitions. Domestic and global custody continued to gain market share
from new business wins as assets under custody grew by 20% from a year ago
reaching $5.3 trillion at quarter end. Securities servicing fees increased to
$302 million as compared with $239 million in the second quarter of 1998. Fee
revenues from issuer services grew to $116 million in the second quarter of
1999, up from $98 million in the prior year's period. Investment company
services increased to $99 million in the second quarter of 1999, as compared
to $80 million in the second quarter of 1998. Broker/dealer services in the
second quarter of 1999 were $87 million, up from $60 million last year.
Fees from cash processing in the second quarter of 1999 increased to $70
million from $64 million in last year's second quarter. Revenues from cash
management were up 11% driven by continued cross selling to the Company's
securities servicing customers. Trade finance revenues were up 8% from a year
ago as recovery in world markets continues. Fees from funds transfer grew by
10% from the previous year, the result of continued markets share gains and
the firming global economy. Fees from trust and investment management grew to
$60 million in the second quarter of 1999, as compared to $51 million in the
second quarter of 1998, driven by strong results from personal trust, personal
asset management and retail investment products.
Net charge-offs in the Trust, and Securities and Cash Processing segment
were zero in the second quarters of 1999 and 1998. The rise in noninterest
expense is consistent with the increase in growth as well as the added salary
and other expenses from acquisitions.
Corporate Banking
- -----------------
The Corporate Banking segment's net interest income was $167 million in
the second quarter of 1999, an 11% increase from last year's $150 million. In
the second quarter of 1999, average loans outstanding in the Corporate Banking
segment increased 4% from the second quarter of last year.
The second quarter of 1999 provision for credit losses was $32 million
compared with $28 million last year. Net charge-offs in the Corporate Banking
segment were $16 million and $3 million in the second quarters of 1999 and
1998. The 6% increase in noninterest income to $92 million in the current
quarter reflects higher revenues associated with capital markets activities,
offset by lower asset based lending revenue and lower income from the
Company's offshore banking subsidiaries. Noninterest expense increased to $79
million from $67 million.
Retail Banking
- --------------
In the Retail Banking segment, net interest income in the second quarter
of 1999 was $120 million as compared with $129 million in the second quarter
of 1998. Net interest income in the branch banking network has been negatively
impacted by the decline in the value of noninterest bearing sources of funds
in a declining rate environment. Noninterest income increased in this same
period to $23 million from $20 million. Noninterest expense in the second
quarter of 1999 was $72 million as compared with $73 in the previous year's
period. Net charge-offs were $1 million in both the second quarter of 1999 and
1998.
<PAGE> 18
Financial Markets
- -----------------
In the Financial Markets segment, net interest income for the quarter
increased to $23 million from 1998's $20 million primarily due to increased
leasing activities. Noninterest income decreased to $60 million in the second
quarter of 1999 from $63 million in the second quarter of 1998, a 5% decrease
reflecting decreases in foreign exchange and other trading revenue. Net
recoveries were $2 million in the second quarters of 1999 and zero in the
second quarter of 1998.
YEAR 2000 READINESS DISCLOSURE
The Year 2000 information in this document is provided without warranty
or guarantee of any kind, and is not intended to supplement or amend any
agreements between the Company and its customers or suppliers. The Company
does not warrant or represent that its computer systems or those of its
suppliers or business partners are or will be Year 2000 compliant. The Year
2000 information in this letter is subject to the Year 2000 Information and
Readiness Disclosure Act, and supersedes any previous information provided by
the Company concerning its Year 2000 efforts.
The Company's Year 2000 compliance program consists of updating major
Company-owned application systems, business-area supported systems, and the
Company's proprietary customer software and evaluating the Year 2000
compliance efforts of vendors of major vendor-supplied systems. The Company's
compliance efforts have also considered the Year 2000 readiness of its global
sub-custodians, major service providers, correspondents, business partners,
and borrowers. The current focus is to monitor continued preparedness and
contingency planning. While contingency planning has been defined as part of
the Year 2000 compliance program, all new measures have been incorporated into
the Bank's existing Business Continuity Plans.
The Company divided its major proprietary applications systems into three
business line groups. The applications in each group were subjected to a
phased process of assessment, renovation, certification testing, and
implementation. All critical systems have completed all phases. A program is
in place to continue to monitor critical systems to prevent Y2K problems from
being reintroduced. Major business-line products have been made available in
isolated future-dated environments for selected customers to test their
interfaces and to assure themselves of the Company's compliance. The Company
is satisfied with the results of testing with customers and agencies.
Continued participation at the request of the agencies and customers will
continue as required.
Remediation of the Company's proprietary customer software has been
completed. Installation on client desktop computers is substantially complete.
Customers have been advised of their obligation to assure that their
environments are compliant in order for the Company's software to function
correctly during and after the century date change.
The Company has substantially completed an evaluation of its significant
business partners, including other financial service providers,
correspondents, counterparties, sub-custodians, vendors and settlement
agencies, for the purpose of assessing their Year 2000 compliance. The Company
is currently satisfied with the information it has received concerning the
progress and Year 2000 readiness programs of each significant third party.
The Company will continue to monitor the readiness and progress of these
parties throughout 1999. The Company intends to replace service providers that
are seen as not managing the Year 2000 issue adequately.
The Company considers Year 2000 readiness in its credit decisions and
factors this into borrower ratings. Based on a review of significant obligors,
<PAGE> 19
the Company believes that exposure to obligor Year 2000 problems does not
present a material risk to the Company.
The Company's personal computers considered to be critical to the
Company's operations have been upgraded. Upgrading of physical facilities that
is considered critical to the Company's operations to Year 2000 readiness are
expected to be completed by the end of September 1999.
The Company's contingency plans relating to Year 2000 issues include the
identification and assessment of the impact of various worst case scenarios on
the critical operational components for each of the Company's business units.
The Company has reviewed the applicability of its current contingency plans,
which include creation of an information center, establishment of special
rapid response technology teams, scheduling availability of key personnel,
testing and simulation activities, offsite data center facilities, and
emergency backup power. These plans, with minor modification have been
determined to be adequate to mitigate Year 2000 related risks. The information
center, which has been established as a repository and focus for analysis of
information, will publish the status of the organization internally and
externally during critical periods. It is also authorized to requisition and
deploy resources as needed to address unanticipated situations.
Overall the Company's Year 2000 compliance program is on or ahead of
schedule to meet the needs of its customers and compliance deadlines defined
by its regulators. The estimated cost of the Year 2000 project is
approximately $82 million. In the first half of 1999 the Company spent $11
million on making computer systems Year 2000 compliant. Total expenses since
1997 have been $62 million.
A material Year 2000 problem could result in an interruption in, or a
failure of, certain normal business activities or operations. Such problems
could materially and adversely affect the Company's results of operations,
liquidity and financial condition. Due to the general uncertainty inherent in
the Year 2000 problem, resulting in part from the uncertainty of the Year 2000
readiness of suppliers, customers and other business partners, as well as
entities with which the Company does not have direct business relations, the
Company is unable to determine at this time whether the consequences of the
Year 2000 failures will have a material impact on the Company's results of
operations, liquidity or financial condition. The Year 2000 compliance program
is intended to significantly reduce the Company's level of uncertainty about
the Year 2000 problem and, in particular, about the Year 2000 compliance and
readiness of its material business partners. The Company believes that, with
completion of its Year 2000-compliance program as scheduled, the possibility
of significant interruptions of normal operations should be reduced. However,
because of the unprecedented nature of this issue, there can be no certainty
as to its impact.
INTRODUCTION OF THE EURO
In January 1999, eleven European countries adopted the euro as their
common legal currency. In the transition period from adoption through December
31, 2001, commerce may be conducted in either the euro or the former national
currencies.
The Company has adapted its information technology systems and business
practices to accommodate euro-denominated transactions. The introduction of
the euro currency may result in increased price transparency in the euro-area
countries as well as a loss of cross-currency trading in the former national
currencies, and may ultimately have profound political and financial
implications. Based on its knowledge at this time, the Company does not,
anticipate that the introduction of the euro will have a material effect on
the Company's financial condition or results of operations.
<PAGE> 20
FORWARD LOOKING STATEMENTS
The Company or its executive officers and directors on behalf of the
Company, may from time to time make forward looking statements. Any such
forward looking statements could be affected by a number of factors that the
Company is necessarily unable to predict with accuracy, including future
changes in interest rates, general credit quality, economic activity, consumer
behavior, government monetary policy, legislation and regulation, competition,
credit, market and operating risk, 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-Q involve a
number of risks and uncertainties, including risks relating to Year 2000 and
the introduction of the Euro (in particular, the Year 2000 readiness of third
parties with which the Company does business). 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 and capital costs or reduce fees
charged by the Company, increase competition for banks, or provide for further
integration of the financial services industry. 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.
In addition to other commercial banks, 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.
<PAGE> 21
THE BANK OF NEW YORK COMPANY, INC.
Average Balances and Rates on a Taxable Equivalent Basis
(Dollars in millions)
<TABLE>
<CAPTION>
For the three months For the three months
ended June 30, 1999 ended June 30, 1998
------------------------------ ------------------------------
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) $ 5,024 $ 54 4.31% $ 3,150 $ 40 5.12%
Federal Funds Sold and Securities
Purchased Under Resale Agreements 3,949 46 4.66 3,165 42 5.33
Loans
Domestic Offices 20,704 362 7.02 19,753 384 7.80
Foreign Offices 19,310 297 6.16 18,219 312 6.86
------- ----- ------- -----
Total Loans 40,014 659 6.60 37,972 696 7.35
------- ----- ------- -----
Securities
U.S. Government Obligations 2,512 36 5.82 3,307 48 5.81
U.S. Government Agency Obligations 875 14 6.40 557 9 6.50
Obligations of States and
Political Subdivisions 580 11 7.90 656 14 8.23
Other Securities, including
Trading Securities 2,740 30 4.31 3,085 37 4.86
------- ----- ------- -----
Total Securities 6,707 91 5.46 7,605 108 5.68
------- ----- ------- -----
Total Interest-Earning Assets 55,694 850 6.12% 51,892 886 6.85%
----- -----
Allowance for Credit Losses (630) (598)
Cash and Due from Banks 3,075 3,529
Other Assets 8,398 7,411
------- -------
TOTAL ASSETS $66,537 $62,234
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
Interest-Bearing Deposits
Money Market Rate Accounts $ 5,195 54 4.13% $ 4,991 59 4.77%
Savings 7,821 43 2.22 7,751 48 2.50
Certificates of Deposit
$100,000 & Over 591 7 4.75 734 10 5.48
Other Time Deposits 2,123 22 4.25 2,293 28 4.86
Foreign Offices 19,652 198 4.04 15,864 198 4.98
------- ----- ------- -----
Total Interest-Bearing Deposits 35,382 324 3.67 31,633 343 4.34
Federal Funds Purchased and
Securities Sold Under Repurchase
Agreements 3,370 36 4.26 2,760 31 4.56
Other Borrowed Funds 2,153 28 5.25 4,053 54 5.36
Long-Term Debt 2,233 35 6.30 1,964 34 6.83
------- ----- ------- -----
Total Interest-Bearing Liabilities 43,138 423 3.94% 40,410 462 4.58%
----- -----
Noninterest-Bearing Deposits 10,640 10,227
Other Liabilities 6,044 5,379
Minority Interest-Preferred Securities 1,500 1,300
Preferred Stock - 1
Common Shareholders' Equity 5,215 4,917
------- -------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $66,537 $62,234
======= =======
Net Interest Earnings
and Interest Rate Spread $ 427 2.18% $ 424 2.27%
===== ==== ===== ====
Net Yield on Interest-Earning Assets 3.07% 3.28%
==== ====
</TABLE>
<PAGE> 22
THE BANK OF NEW YORK COMPANY, INC.
Average Balances and Rates on a Taxable Equivalent Basis
(Dollars in millions)
<TABLE>
<CAPTION>
For the six months For the six months
ended June 30, 1999 ended June 30, 1998
------------------------------ ------------------------------
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) $ 5,158 $ 118 4.61% $ 3,002 $ 83 5.56%
Federal Funds Sold and Securities
Purchased Under Resale Agreements 4,229 99 4.71 2,743 72 5.29
Loans
Domestic Offices 20,263 724 7.21 19,389 755 7.86
Foreign Offices 19,407 596 6.19 17,923 611 6.87
------- ----- ------- -----
Total Loans 39,670 1,320 6.71 37,312 1,366 7.38
------- ----- ------- -----
Securities
U.S. Government Obligations 2,552 73 5.77 3,365 97 5.78
U.S. Government Agency Obligations 866 28 6.36 584 19 6.47
Obligations of States and
Political Subdivisions 603 23 7.80 660 27 8.23
Other Securities, including
Trading Securities 2,538 55 4.37 2,907 65 4.53
------- ----- ------- -----
Total Securities 6,559 179 5.51 7,516 208 5.58
------- ----- ------- -----
Total Interest-Earning Assets 55,616 1,716 6.22% 50,573 1,729 6.89%
----- -----
Allowance for Credit Losses (633) (621)
Cash and Due from Banks 3,075 3,535
Other Assets 8,217 7,439
------- -------
TOTAL ASSETS $66,275 $60,926
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
Interest-Bearing Deposits
Money Market Rate Accounts $ 5,186 106 4.12% $ 4,857 114 4.73%
Savings 7,808 86 2.21 7,712 97 2.54
Certificates of Deposit
$100,000 & Over 624 15 4.84 701 19 5.50
Other Time Deposits 2,188 47 4.34 2,301 55 4.86
Foreign Offices 19,127 387 4.08 15,112 382 5.10
------- ----- ------- -----
Total Interest-Bearing Deposits 34,933 641 3.70 30,683 667 4.39
Federal Funds Purchased and
Securities Sold Under Repurchase
Agreements 3,181 67 4.24 2,856 65 4.60
Other Borrowed Funds 2,886 75 5.29 3,717 103 5.56
Long-Term Debt 2,180 70 6.41 1,902 66 6.88
------- ----- ------- -----
Total Interest-Bearing Liabilities 43,180 853 3.98% 39,158 901 4.64%
----- -----
Noninterest-Bearing Deposits 10,532 10,124
Other Liabilities 5,863 5,718
Minority Interest-Preferred Securities 1,473 1,164
Preferred Stock - 1
Common Shareholders' Equity 5,227 4,761
------- -------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $66,275 $60,926
======= =======
Net Interest Earnings
and Interest Rate Spread $ 863 2.24% $ 828 2.25%
===== ==== ===== ====
Net Yield on Interest-Earning Assets 3.13% 3.30%
==== ====
</TABLE>
<PAGE> 23
PART II. OTHER INFORMATION
Item 2. Sales of Unregistered Common Stock
- -------------------------------------------
During the second quarter of 1999, shares of the Company's common stock
were issued in transactions exempt from registration under the Securities Act
of 1933 pursuant to Section 4(2) thereof. 14,400 shares of common stock were
issued to serving non-employee directors as part of their annual retainer on
June 15, 1999.
Item 4. Submission of Matters to Vote of Security Holders
- ----------------------------------------------------------
The Company held its annual meeting on May 11, 1999 at The Bank of New
York at 101 Barclay St. in New York, New York. The following matters were
submitted to a vote of the shareholders:
-- election of fifteen director nominees to new one-year terms was
approved with no nominee receiving less than 585.1 million votes;
-- appointment of Ernst & Young LLP as the Company's independent public
accountants for 1999 was ratified by a vote of 662.2 affirmative to 1.1
million negative;
-- proposal to re-approve current performance goal standards under, and
approve amendment to, the 1994 Management Incentive Compensation Plan was
approved by a vote of 639.6 million affirmative to 21.1 million negative;
-- proposal that cumulative voting rights be accorded to shareholders was
defeated by a vote of 150.6 million affirmative to 348.9 negative; and
-- proposal that the Company affirm its political non-partisanship was
defeated by a vote of 25.1 million affirmative to 500.1 million votes
negative.
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 and Distributions on Trust
Preferred Securities and for the Three and Six Months Ended
June 30, 1999 and 1998.
Exhibit 27 - Statement Re: Financial Data Schedule containing selected
financial data at June 30, 1999 and for the Six Months Ended June 30,
1999
(b) The Company filed the following reports on Form 8-K since March 31, 1999:
On June 8, 1999, the Company filed a Form 8-K Current Report (Items 5 and
7), which report included the press release announcing the sale of the
Company's Factoring and Asset-Based Lending Business to GMAC for $1.8 billion
and a new stock buyback program.
On July 19, 1999, 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 second quarter of 1999 contained in the
Company's press release dated July 19, 1999.
<PAGE> 24
On July 30, 1999, the Company filed a Form 8-K Current Report (Items 5
and 7) related to the issuance by the Company of $895,000,00 of its Senior
Subordinated Medium-Term Notes, Series D and Senior Medium-Term Notes, Series
C (collectively, the "Notes"), issuable under an Indenture, dated as of
October 1, 1993 between the Company and Chase Manhattan Trust Company National
Association (the "Senior Subordinated Indenture") and an Indenture, dated as
of July 18, 1991 between the Company and Bankers Trust Company, respectively
(the "Senior Indenture" and together with the Senior Subordinated Indenture,
the "Indentures"). The exhibits filed in connection with the Registration
Statements on Form S-3 (File Nos. 33-61957, 333-70187, and 333-70187-01
through 04) consist of the Distribution Agreement, the Forms of Notes,
Officers' Certificates pursuant to Section 301 of the Indentures, and the
opinion of counsel as to the legality of the Notes.
<PAGE> 25
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: August 13, 1999 By: \s\ Thomas J. Mastro
---------------------------------
Name: Thomas J. Mastro
Title: Comptroller
<PAGE> 26
EXHIBIT INDEX
--------------
Exhibit Description
- ------- -----------
12 Ratio of Earnings to Fixed Charges and Ratio of Earnings
to Combined Fixed Charges and Distributions on Trust
Preferred Securities for the Three and Six Months Ended
June 30, 1999 and 1998.
27 Financial Data Schedule containing selected financial
data at June 30, 1999 and for the Six Months Ended
June 30, 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,
and Distributions on Trust Preferred Securities
(Dollars in millions)
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
EARNINGS
- --------
Income Before Income Taxes $ 539 $ 492 $1,067 $ 967
Fixed Charges, Excluding Interest
on Deposits 107 128 228 250
------ ------ ------ ------
Income Before Income Taxes and Fixed
Charges Excluding Interest on Deposits 646 620 1,295 1,217
Interest on Deposits 324 343 641 667
------ ------ ------ ------
Income Before Income Taxes and Fixed
Charges, Including Interest on Deposits $ 970 $ 963 $1,936 $1,884
====== ====== ====== ======
FIXED CHARGES
- -------------
Interest Expense, Excluding Interest
on Deposits $ 99 $ 119 $ 212 $ 234
One-Third Net Rental Expense* 8 9 16 16
------ ------ ------ ------
Total Fixed Charges, Excluding Interest
on Deposits 107 128 228 250
Interest on Deposits 324 343 641 667
------ ------ ------ ------
Total Fixed Charges, Including Interest
on Deposits $ 431 $ 471 $ 869 $ 917
====== ====== ====== ======
DISTRIBUTION ON TRUST PREFERRED
SECURITIES, PRE-TAX BASIS $ 28 $ 25 $ 56 $ 45
- -------------------------------
====== ====== ====== ======
EARNINGS TO FIXED CHARGES RATIOS
- --------------------------------
Excluding Interest on Deposits 6.04x 4.84x 5.68x 4.87x
Including Interest on Deposits 2.25 2.04 2.23 2.05
EARNINGS TO COMBINED FIXED CHARGES,
DISTRIBUTION ON TRUST PREFERRED SECURITIES,
& PREFERRED STOCK DIVIDENDS RATIOS
- -------------------------------------------
Excluding Interest on Deposits 4.79 4.05 4.56 4.13
Including Interest on Deposits 2.11 1.94 2.09 1.96
<FN>
*The proportion deemed representative of the interest factor.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This schedule contains summary financial information extracted from the Bank
of New York Company, Inc.'s Form 10-Q for the period ended June 30, 1999 and
is qualified entirely by reference to such Form 10-Q.
</LEGEND>
<CIK> 0000009626
<NAME> THE BANK OF NEW YORK COMPANY, INC.
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