<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 September 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 736,398,203 shares as of October 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
September 30, 1999 and December 31, 1998 3
Consolidated Statements of Income
For the Three Months and Nine Months
Ended September 30, 1999 and 1998 4
Consolidated Statement of Changes In
Shareholders' Equity For the Nine
Months Ended September 30, 1999 5
Consolidated Statements of Cash Flows
For the Nine Months Ended September 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 24
Item 6. Exhibits and Reports on Form 8-K 24
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>
September 30, December 31,
1999 1998
---- ----
<S> <C> <C>
Assets
- ------
Cash and Due from Banks $ 6,430 $ 3,999
Interest-Bearing Deposits in Banks 4,543 4,504
Securities:
Held-to-Maturity (fair value of $806 in 1999
and $923 in 1998) 844 964
Available-for-Sale 5,048 5,451
------- -------
Total Securities 5,892 6,415
Trading Assets at Fair Value 1,806 1,637
Federal Funds Sold and Securities Purchased Under Resale
Agreements 1,614 3,281
Loans (less allowance for credit losses of $594 in 1999
and $636 in 1998) 37,163 37,750
Premises and Equipment 848 856
Due from Customers on Acceptances 399 946
Accrued Interest Receivable 284 355
Other Assets 4,179 3,760
------- -------
Total Assets $63,158 $63,503
======= =======
Liabilities and Shareholders' Equity
- ------------------------------------
Deposits
Noninterest-Bearing (principally domestic offices) $11,608 $11,480
Interest-Bearing
Domestic Offices 14,858 16,091
Foreign Offices 18,329 17,061
------- -------
Total Deposits 44,795 44,632
Federal Funds Purchased and Securities
Sold Under Repurchase Agreements 2,055 1,571
Other Borrowed Funds 3,834 4,536
Acceptances Outstanding 401 951
Accrued Taxes and Other Expenses 2,711 2,183
Accrued Interest Payable 116 188
Other Liabilities 434 608
Long-Term Debt 2,416 2,086
------- -------
Total Liabilities 56,762 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 $25.00 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 975,695,998
shares in 1999 and 970,767,767 shares in 1998 7,318 7,281
Additional Capital 265 142
Retained Earnings 2,411 1,318
Accumulated Other Comprehensive Income 63 312
------- -------
10,058 9,054
Less: Treasury Stock (238,009,759 shares in 1999
and 197,648,459 shares in 1998), at cost 5,149 3,593
Loan to ESOP (1,801,003 shares in 1999
and 1998), at cost 13 13
------- -------
Total Shareholders' Equity 4,896 5,448
------- -------
Total Liabilities and Shareholders' Equity $63,158 $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 Consolidated Financial Statements.
</FN>
</TABLE>
<PAGE> 4
THE BANK OF NEW YORK COMPANY, INC.
Consolidated Statements of Income
(Dollars in millions, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
For the three For the nine
months ended months ended
September 30, September 30,
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Interest Income
- ---------------
Loans $ 643 $ 708 $1,962 $2,073
Securities
Taxable 63 64 190 209
Exempt from Federal Income Taxes 13 16 36 46
------ ----- ------ ------
76 80 226 255
Deposits in Banks 62 44 180 127
Federal Funds Sold and Securities Purchased
Under Resale Agreements 49 68 147 140
Trading Assets 4 6 15 15
------ ----- ------ ------
Total Interest Income 834 906 2,530 2,610
------ ----- ------ ------
Interest Expense
- ----------------
Deposits 320 367 961 1,034
Federal Funds Purchased and Securities Sold
Under Repurchase Agreements 32 38 99 104
Other Borrowed Funds 27 52 102 154
Long-Term Debt 38 34 108 100
------ ----- ------ ------
Total Interest Expense 417 491 1,270 1,392
------ ----- ------ ------
Net Interest Income 417 415 1,260 1,218
- -------------------
Provision for Credit Losses 90 5 120 15
------ ----- ------ ------
Net Interest Income After Provision for
Credit Losses 327 410 1,140 1,203
------ ----- ------ ------
Noninterest Income
- ------------------
Processing Fees
Securities 311 258 904 726
Cash 69 66 208 193
------ ----- ------ ------
380 324 1,112 919
Trust and Investment Fees 61 53 179 154
Service Charges and Fees 77 81 252 248
Securities Gains 50 51 149 125
Other 963 63 1,115 239
------ ----- ------ ------
Total Noninterest Income 1,531 572 2,807 1,685
------ ----- ------ ------
Noninterest Expense
- -------------------
Salaries and Employee Benefits 300 294 922 863
Net Occupancy 41 41 122 126
Furniture and Equipment 25 22 69 63
Other 149 124 424 368
------ ----- ------ ------
Total Noninterest Expense 515 481 1,537 1,420
------ ----- ------ ------
Income Before Income Taxes 1,343 501 2,410 1,468
Income Taxes 542 175 915 519
Distribution on Trust Preferred Securities 28 25 84 70
------ ----- ------ ------
Net Income $ 773 $ 301 $1,411 $ 879
- ---------- ====== ===== ====== ======
Net Income Available to Common Shareholders $ 773 $ 301 $1,411 $ 879
- ------------------------------------------- ====== ===== ====== ======
Per Common Share Data:
- ----------------------
Basic Earnings $ 1.04 $0.40 $ 1.87 $ 1.18
Diluted Earnings 1.02 0.39 1.84 1.13
Cash Dividends Paid 0.14 0.14 0.42 0.40
Diluted Shares Outstanding 754 779 769 781
<FN>
- ------------------------------------------------------------------------------------------------
See accompanying Notes to Consolidated Financial Statements
</FN>
</TABLE>
<PAGE> 5
THE BANK OF NEW YORK COMPANY, INC.
Consolidated Statement of Changes in Shareholders' Equity
For the nine months ended September 30, 1999
(In millions of Dollars)
(Unaudited)
<TABLE>
<CAPTION>
<S> <C>
Preferred Stock
Balance, January 1 $ 1
-------
Balance, September 30 1
-------
Common Stock
Balance, January 1 7,281
Issuances in Connection with Employee Benefit Plans 37
-------
Balance, September 30 7,318
-------
Additional Capital
Balance, January 1 142
Common Stock Issuances in Connection with Employee Benefit Plans 123
-------
Balance, September 30 265
-------
Retained Earnings
Balance, January 1 1,318
Net Income 1,411
Cash Dividends (318)
-------
Balance, September 30 2,411
-------
Accumulated Other Comprehensive Income
Securities Valuation Allowance
Balance, January 1 340
Change in Fair Value of Securities Available-for-Sale,
Net of $107 Million in Taxes (163)
Reclassification Adjustment, Net of $46 Million in Taxes (85)
-------
Balance, September 30 92
-------
Foreign Currency Items
Balance, January 1 (28)
Foreign Currency Translation Adjustment,
Net of $1 Million in Tax Benefits (1)
-------
Balance, September 30 (29)
-------
Less Treasury Stock
Balance, January 1 3,593
Issued (59)
Acquired 1,615
-------
Balance, September 30 5,149
-------
Less Loan to ESOP
Balance, January 1 13
-------
Balance, September 30 13
-------
Total Shareholders' Equity, September 30 $ 4,896
=======
<FN>
- ------------------------------------------------------------------------------------
Comprehensive Income for the three months ended September 30, 1999 and 1998 was $618
million and $167 million.
Comprehensive income for the nine months ended September 30, 1999 and 1998 was $1,162
million and $814 million.
See accompanying Notes to Consolidated Financial Statements.
</FN>
</TABLE>
<PAGE> 6
THE BANK OF NEW YORK COMPANY, INC.
Consolidated Statements of Cash Flows
(In millions)
(Unaudited)
<TABLE>
<CAPTION>
For the nine months
Ended September 30,
1999 1998
---- ----
<S> <C> <C>
Operating Activities
Net Income $1,411 $ 879
Adjustments to Determine Net Cash Provided (Used) by
Operating Activities:
Provision for Losses on Loans and Other Real Estate 120 16
Liquidity Charge on Loans Available-for-Sale 124 -
Gain on the Sale of BNYFC (1,020) -
Depreciation and Amortization 156 138
Deferred Income Taxes 305 209
Securities Gains (149) (125)
Change in Trading Activities (817) 103
Change in Accruals and Other, Net (469) (995)
------ ------
Net Cash (Used) Provided by Operating Activities (339) 225
------ ------
Investing Activities
Change in Interest-Bearing Deposits in Banks (104) (456)
Purchases of Securities Held-to-Maturity (303) (505)
Maturities of Securities Held-to-Maturity 369 637
Purchases of Securities Available-for-Sale (1,875) (1,885)
Sales of Securities Available-for-Sale 476 1,704
Maturities of Securities Available-for-Sale 837 731
Net Principal Disbursed on Loans to Customers (2,808) (2,645)
Sales of Loans and Other Real Estate 230 204
Change in Federal Funds Sold and Securities
Purchased Under Resale Agreements 1,666 1,677
Purchases of Premises and Equipment (58) (66)
Acquisitions, Net of Cash Acquired (71) (445)
Disposition, Net of Cash Included 4,867 -
Proceeds from the Sale of Premises and Equipment 10 48
Other, Net 138 (80)
------ ------
Net Cash Provided (Used) by Investing Activities 3,374 (1,081)
------ ------
Financing Activities
Change in Deposits 291 3,035
Change in Federal Funds Purchased and Securities
Sold Under Repurchase Agreements 484 (522)
Change in Other Borrowed Funds (145) 554
Proceeds from the Issuance of Trust Preferred Securities 200 300
Proceeds from the Issuance of Long-Term Debt 343 270
Repayments of Long-Term Debt (21) (34)
Issuance of Common Stock 219 399
Treasury Stock Acquired (1,615) (904)
Cash Dividends Paid (318) (298)
------ ------
Net Cash (Used) Provided by Financing Activities (562) 2,800
------ ------
Effect of Exchange Rate Changes on Cash (42) (20)
------ ------
Change in Cash and Due From Banks 2,431 1,924
Cash and Due from Banks at Beginning of Period 3,999 5,769
------ ------
Cash and Due from Banks at End of Period $6,430 $7,693
====== ======
- ----------------------------------------------------------------------------
Supplemental Disclosure of Cash Flow Information
Cash Paid During the Period for:
Interest $1,342 1,401
Income Taxes 169 229
Noncash Investing Activity
(Primarily Foreclosure of Real Estate) 4 7
<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 Financial
Corporation ("BNYFC") to General Motors Acceptance Corporation. Net income
for the third quarter and year-to-date periods included a pre-tax gain of
$1,020 million ($573 million after-tax) or 75 cents per share from the sale.
On October 31, 1999, the Company completed the acquisition of RBS Trust
Bank Limited from the Royal Bank of Scotland plc ("RBS"). On the date of
acquisition, the assets acquired from RBS totaled $9.5 billion. In addition,
the Company acquired a 30% equity ownership in RBSI Security Services
(Holdings) Limited headquartered on the island of Jersey. RBS Trust Bank
Limited, which was renamed The Bank of New York Europe Limited, is the largest
provider of pension fund services in the United Kingdom, and holds a leading
position in the fund manager market, offering retail funds services, trustee
and depositary services, as well as pension, banking and treasury products.
The acquisition continues The Bank of New York's expansion in the European
market.
3. Allowance for Credit Losses
---------------------------
Transactions in the allowance for credit losses are summarized as
follows:
Nine months ended
September 30,
(In millions) 1999 1998
---- ----
Balance, Beginning of Period $ 636 $ 641
Charge-Offs (133) (42)
Recoveries 10 20
----- -----
Net Charge-Offs (123) (22)
Acquisition/(Disposition) (39) 4
Provision 120 15
----- -----
Balance, End of Period $ 594 $ 638
===== =====
4. Capital Transactions
--------------------
In the first nine months of 1999, the Company repurchased 44 million
shares of the 48 million authorized under its buyback programs. As of October
31, 1999, approximately 4 million shares remain to be purchased under these
plans.
<PAGE> 8
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 nine months ended September 30, 1999 and
1998:
Three Months Ended Nine Months Ended
September 30, September 30,
(In millions, except per share amounts)
1999 1998 1999 1998
---- ---- ---- ----
Net Income $ 773 $ 301 $1,411 $879
====== ====== ====== ====
Diluted Net Income $ 773 $ 301 $1,411 $879
====== ====== ====== ====
Basic Weighted Average
Shares Outstanding 741 751 756 746
Shares to be Issued on Conversion:
Warrants - 16 - 22
Employee Stock Options 13 12 13 13
------ ------ ------ ----
Diluted Weighted Average
Shares Outstanding 754 779 769 781
====== ====== ====== ====
Basic Earnings Per Share: $ 1.04 $ 0.40 $ 1.87 $ 1.18
Diluted Earnings Per Share: 1.02 0.39 1.84 1.13
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.
In addition, as the Company has previously announced, it is cooperating
fully with regulatory and law enforcement agencies in their investigations of
various Russia related financial activities.
<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. When used in
this report, any press release and in oral statements made by authorized
officers the words "prospective", "expected", "projected", "estimated",
"anticipated", "intended", "believe" and similar expressions identify forward
looking statements. Refer to further discussion under the heading "Forward
Looking Statements".
The Company reported record third quarter diluted earnings per share of
$1.02, up 162% from the 39 cents earned in the third quarter of 1998. Net
income for the third quarter was a record $773 million, up 157% from the $301
million earned in the same period last year. The third quarter results
reflect a gain on the sale of BNY Financial Corporation ("BNYFC") as well as
certain charges related to the decision to exit a portfolio of credits on an
accelerated basis. Diluted earnings per share were $1.84 for the first nine
months of 1999, up 63% from the $1.13 earned last year. Net income for the
first nine months was a record $1,411 million, an increase of 61% over last
year's $879 million.
Continued momentum in the Company's fee-based businesses drove strong
core revenue growth. The exit from the commercial finance business and from
select commercial credits is expected to result in a higher quality
prospective earnings profile that involves less credit risk. In addition,
these sales will provide capital for reinvestment in our higher growth
securities servicing and asset management businesses. New business wins and
continued favorable markets worldwide drove securities servicing revenues up
21%. Trust and investment fees grew 15%, led by strong investment
performance, new customers and favorable U.S. equity markets. Overall,
noninterest income contributed 60% of revenues for the quarter, excluding the
gain on the sale of BNYFC and the liquidity charges associated with the
accelerated disposition of the portfolio of credits.
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 to $5.4 trillion at quarter end. Trust and
investment's results were driven by strong investment performance which
continues to attract new customers.
On July 22, 1999, the Company completed the sale of BNYFC to General
Motors Acceptance Corporation. Net income for the third quarter and year-to-
date periods included a pre-tax gain of $1,020 million ($573 million after-
tax) or 75 cents per share from the sale.
As part of its continuing strategy to align credit products with
fiduciary and servicing businesses, the Company reviewed its credit portfolio
and decided to accelerate the disposition of certain loans based on, in part,
cross-sell potential and overall relationship profitability. As a result, in
the third quarter of 1999, the Company identified exposures totaling
$1 billion and related outstandings of $732 million and categorized them as
available for sale and recorded a liquidity charge to noninterest income of
$124 million. At September 30, 1999, remaining exposures available for sale
totaled $726 million with related outstandings of $466 million.
The provision for credit losses for the quarter was $90 million. The
increase from the $15 million in the prior quarter primarily reflects both the
decision to accelerate the disposition of certain loans, some of which were
nonperforming, as well as higher charge-offs in the Company's asset based
lending businesses. Nonperforming assets declined to $155 million at
September 30, 1999 from $220 million at June 30, 1999.
<PAGE> 10
Return on average common equity for the third quarter of 1999 was 61.23%
compared with 24.19% in the third quarter of 1998. Return on average assets
for the third quarter of 1999 was 4.78% compared with 1.86% in the third
quarter of 1998. For the first nine months of 1999, return on average common
equity totaled 36.63% compared with 24.39% in 1998. Return on average assets
was 2.88% for the first nine months of 1999 compared with 1.90% in 1998.
These and other return rates were significantly affected by the sale of BNYFC
and the loan disposition program.
Net interest income on a taxable equivalent basis for the third quarter
increased to $429 million from $427 million in the second quarter of 1999.
For the first nine months of 1999, net interest income on a taxable equivalent
basis was $1,292 million compared with $1,258 million in the first nine months
of 1998.
Fees from the Company's securities servicing businesses reached $311
million for the third quarter compared with $258 million last year. For the
first nine months of 1999 fees from the Company's securities servicing
businesses totaled $904 million, growing by 24% compared with the
corresponding period of the prior year.
In cash processing, fees from cash management were up 7% for the quarter
driven by continued cross selling to the Company's securities servicing
customers. Fees from funds transfer grew by 11% from the previous year, the
result of continued market share gains and the firming global economy. Trade
finance fees were down 6% from a year ago primarily due to the sale of BNYFC.
Overall, cash processing fees grew by 4% reaching $69 million for the quarter.
For the first nine months, cash processing fees increased 8% to $208 million.
Trust and investment fees were $61 million for the quarter, an increase
of 15% over last year, led by strong results from personal trust, personal
asset management and retail investment products. Higher transaction flows in
the Company's European securities servicing business drove foreign exchange
and other trading revenues up to $45 million this quarter compared with $30
million in the third quarter last year.
Tangible diluted earnings per share (earnings before the amortization of
goodwill and intangibles) were $1.05 per share in the third quarter of 1999,
up from 41 cents per share in the third quarter of 1998. On the same basis,
tangible return on average common equity was 86.97% in 1999 compared with
37.56% in 1998; and tangible return on average assets was 5.00% in 1999
compared with 2.03% in 1998. Tangible diluted earnings per share were $1.91
per share for the first nine months of 1999, compared with $1.20 per share in
1998. Tangible return on average common equity was 54.08% in the first nine
months of 1999 compared with 37.47% in 1998; and tangible return on average
assets was 3.07% in the first nine months of 1999 compared with 2.07% last
year. Amortization of intangibles for the third quarter and the first nine
months of 1999 were $23 million and $76 million compared with $26 million and
$75 million last year.
CAPITAL
The Company's Tier 1 capital and Total capital ratios remained strong at
8.38% and 12.52% at September 30, 1999 compared with 7.63% and 11.52% at June
30, 1999, and 7.52% and 11.64% at September 30, 1998. Tangible common equity
as a percent of total assets was 5.93% at September 30, 1999 compared with
5.59% at June 30, 1999 and September 30, 1998. The leverage ratio was 8.10%
at September 30, 1999 compared with 7.65% at June 30, 1999 and 7.24% one year
ago.
<PAGE> 11
LIQUIDITY
The Company maintains its liquidity through the management of its assets
and liabilities, utilizing worldwide financial markets. The diversification of
liabilities reflects the flexibility of the Company's funding sources under
changing market conditions. Stable core deposits, including demand, retail
time, and trust deposits from processing businesses, are generated through the
Company's diversified network and managed with the use of trend studies and
deposit pricing. The use of derivative products such as interest rate swaps
and financial futures enhances liquidity through the issue of long-term
liabilities with limited exposure to interest rate risk. Liquidity also
results from the maintenance of a portfolio of assets, which can be easily
reduced, and the monitoring of unfunded loan commitments, thereby reducing
unanticipated funding requirements.
Developments relating to the Year 2000 computer conversion issue may
affect both the customer demand for funding and funding commitments and the
level of deposits and other funding at The Bank of New York. The Company is
attempting to monitor this situation closely in order to be able to deal
effectively with any imbalances that could arise.
NET INTEREST INCOME
<TABLE>
<CAPTION>
3rd 2nd 3rd
Quarter Quarter Quarter Year to Date
------- ------- ------- ------------------
(In millions) 1999 1999 1998 1999 1998
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net Interest Income $429 $427 $430 $1,292 $1,258
Net Interest Rate
Spread 2.21% 2.18% 2.14% 2.23% 2.21%
Net Yield on Interest-
Earning Assets 3.16 3.07 3.15 3.14 3.25
</TABLE>
Net interest income on a taxable equivalent basis was $429 million in the
third quarter of 1999 compared with $427 million in the second quarter of 1999
and $430 million in the third quarter of 1998. The net interest rate spread
was 2.21% in the third quarter of 1999, compared with 2.18% in the second
quarter of 1999 and 2.14% one year ago. The net yield on interest-earning
assets was 3.16% compared with 3.07% in the second quarter of 1999 and 3.15%
in last year's third quarter.
For the first nine months of 1999, net interest income on a taxable
equivalent basis, amounted to $1,292 million compared with $1,258 million in
the first nine months of 1998. The year-to-date net interest rate spread was
2.23% in 1999 compared with 2.21% in 1998, while the net yield on interest-
earning assets was 3.14% in 1999 and 3.25% in 1998.
The increase in net interest income from the second quarter was caused by
a higher yield, reflecting a rising rate environment which increases the value
of interest-free deposits, as well as by the temporary reinvestment of BNYFC
sale proceeds.
Interest income would have been increased by $2 million for the third
quarters of 1999 and 1998 and by $8 million for the first nine months of 1999
and 1998 if loans on nonaccrual status had been performing for the entire
quarters.
<PAGE> 12
NONINTEREST INCOME
<TABLE>
<CAPTION>
3rd 2nd 3rd
Quarter Quarter Quarter Year-to-Date
------- ------- ------- ------------
(In millions) 1999 1999 1998 1999 1998
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Servicing Fees
Securities $ 311 $302 $258 $ 904 $ 726
Cash 69 70 66 208 193
------ ---- ---- ------ ------
380 372 324 1,112 919
Trust and Investment Fees 61 60 53 179 154
Service Charges and Fees 77 91 81 252 248
Foreign Exchange and
Other Trading Activities 45 46 30 133 118
Securities Gains 50 50 51 149 125
Gain on the Sale of BNYFC 1,020 - - 1,020 -
Liquidity Charge - Loans Available
for Sale (124) - - (124) -
Other 22 32 33 86 121
------ ---- ---- ------ ------
Total Noninterest Income $1,531 $651 $572 $2,807 $1,685
====== ==== ==== ====== ======
</TABLE>
Securities servicing fees grew 21%, reaching $311 million compared with
$258 million from a year ago. Fees from trust and investment were $61
million, up 15% from the third quarter of 1998. The decline in service
charges and fees and other income primarily reflects the sale of BNYFC.
Securities gains were $50 million, which compares to $50 million in the second
quarter of 1999 and $51 million in the third quarter of 1998. On a pro forma
basis, reflecting the sale of BNYFC and excluding the liquidity charge on the
accelerated disposal of loans, noninterest income for the third quarter was
$629 million, up 16% from $541 million in the third quarter of 1998.
TRADING ACTIVITIES
The fair value and notional amounts of the Company's financial
instruments held for trading purposes at September 30, 1999 were as follows:
3rd Quarter 1999
September 30, 1999 Average
---------------------------- -------------------
(In millions) Fair Value Fair Value
------------------ -------------------
Notional
Trading Account Amount Assets Liabilities Assets Liabilities
- --------------- -------- ------ ----------- ------ -----------
Interest Rate Contracts:
Futures and Forward
Contracts $20,602 $ 2 $ - $ 4 $ -
Swaps 70,890 734 589 776 582
Written Options 68,657 - 643 - 707
Purchased Options 38,712 66 - 74 -
Foreign Exchange Contracts:
Swaps 148 - - - -
Written Options 33,852 - 197 - 198
Purchased Options 37,245 227 - 278 -
Commitments to Purchase
and Sell Foreign Exchange 54,871 491 427 496 458
Securities 286 280 374 255
------ ------ ------ ------
Total Trading Account $1,806 $2,136 $2,002 $2,200
====== ====== ====== ======
<PAGE> 13
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) 3rd Quarter 1999 Year-to-date 1999
------------------------- -------------------------
Market Risk Average Minimum Maximum Average Minimum Maximum 09/30/99
- ----------- ------- ------- ------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Interest Rate $ 3.9 $ 2.3 $ 6.2 $ 4.5 $ 2.1 $10.9 $ 4.7
Foreign Exchange 1.5 0.8 3.0 1.5 0.7 4.0 1.2
Overall Portfolio 5.4 3.6 8.7 6.0 3.6 12.1 5.9
</TABLE>
<TABLE>
<CAPTION>
(In millions) 3rd Quarter 1998 Year-to-date 1998
------------------------- -------------------------
Market Risk Average Minimum Maximum Average Minimum Maximum 09/30/98
- ----------- ------- ------- ------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Interest Rate $ 3.3 $ 1.5 $ 6.4 $ 4.3 $ 1.5 $ 7.0 $ 4.3
Foreign Exchange 2.6 1.1 4.8 2.3 0.8 4.8 2.9
Overall Portfolio 5.9 2.8 9.7 6.6 2.8 9.7 7.2
</TABLE>
NONINTEREST EXPENSE AND INCOME TAXES
Noninterest expense for the third quarter of 1999 was $515 million, up
from $481 million in 1998. The increase was principally due to acquisitions
and growth in the Company's securities servicing businesses.
The efficiency ratio for the third quarter of 1999 was 50.7% compared
with 49.9% in the second quarter of 1999 and 50.6% for the third quarter of
1998. For the first nine months of 1999, the efficiency ratio was 50.3%
compared with 50.3% last year. The computation of the efficiency ratio
excludes the gain on the sale of BNYFC and the liquidity charge.
The effective tax rates for the third quarter and the first nine months
of 1999 were 40.4% and 37.9% compared with 35.1% and 35.4% last year. The
increases in these rates reflect the sale of BNYFC.
<PAGE> 14
NONPERFORMING ASSETS
<TABLE>
<CAPTION>
Change
9/30/99 vs.
(Dollars in millions) 9/30/99 6/30/99 6/30/99
-------- -------- --------
<S> <C> <C> <C>
Loans:
Commercial Real Estate $ 1 $ 1 $ -
Other Commercial 12 103 (91)
Foreign 69 68 1
Regional Commercial 29 33 (4)
Loans Available for Sale 31 - 31
---- ---- ----
Total Loans 142 205 (63)
Other Real Estate 13 15 (2)
---- ---- ----
Total $155 $220 $(65)
==== ==== ====
Nonperforming Assets Ratio 0.4% 0.6%
Allowance/Nonperforming Loans 420.1 290.2
Allowance/Nonperforming Assets 384.2 271.0
</TABLE>
The decline in nonperforming assets primarily reflects both the decision
to sell certain loans as well as higher charge-offs in the Company's asset
based lending businesses. The June 30, 1999 nonperforming assets exclude $21
million of loans related to the BNYFC transaction.
At September 30, 1999, impaired loans (nonaccrual loans over $1 million)
aggregated $83 million, of which $57 million exceeded their fair value by $16
million. Impaired loans at September 30, 1998, totaled $138 million, of which
$106 million exceeded their fair value by $36 million. For the third quarters
of 1999 and 1998, the average amounts of impaired loans were $128 million and
$139 million. Interest income (cash received) of $62 thousand was received on
the impaired loans in the third quarter of 1999, while no interest income was
received during the third quarter of 1998.
<PAGE> 15
CREDIT LOSS PROVISION AND NET CHARGE-OFFS
<TABLE>
<CAPTION>
3rd 2nd 3rd
Quarter Quarter Quarter Year-to-date
------- ------- ------- ------------
(In millions) 1999 1999 1998 1999 1998
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Provision $ 90 $ 15 $ 5 $ 120 $ 15
==== ==== ==== ===== ====
Net(Charge-offs)Recoveries:
Commercial Real Estate $ (1) $ 1 $ 5 $ (2) $ 7
Other Commercial (61) (13) (16) (82) (22)
Consumer (1) (1) (1) (3) (3)
Foreign (23) (2) (1) (34) (2)
Other (3) - - (2) (2)
---- ---- ---- ----- ----
Total $(89) $(15) $(13) $(123) $(22)
==== ==== ==== ===== ====
Other Real Estate Expenses $ - $ - $ - $ 1 $ 2
</TABLE>
The provision for credit losses for the quarter was $90 million. The
increase from the $15 million recorded in the prior quarter primarily reflects
the decision to accelerate the disposition of certain loans and higher charge-
offs related to the Company's asset based lending businesses. The allowance
for credit losses was $594 million, or 1.57% of loans at September 30, 1999
compared with $595 million, or 1.55% of loans at June 30, 1999 and $638
million, or 1.66% of loans at September 30, 1998. The ratio of the allowance
to nonperforming assets was 384.2% at September 30, 1999 compared with 271.0%
at June 30, 1999 and 327.8% at September 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:
9/30/99 6/30/99 12/31/98
------- -------- --------
Real Estate 4% 4% 3%
Domestic Commercial and Industrial 71 80 74
Consumer - - 1
Foreign 12 13 11
Unallocated 13 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.
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
<PAGE> 16
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
September 30, 1999 Processing Banking Banking Markets Items* Total
- --------------------- ---------- --------- ------- --------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Net Interest Income $ 115 $ 142 $ 125 $ 32 $ 3 $ 417
Provision for
Credit Losses - 22 1 - 67 90
Noninterest Income 474 70 23 56 908 1,531
Noninterest Expense 294 57 78 23 63 515
------ ------- ------ ------- ------ -------
Income Before Taxes $ 295 $ 133 $ 69 $ 65 $ 781 $ 1,343
====== ======= ====== ======= ====== =======
Average Assets $6,141 $29,215 $4,617 $22,862 $1,228 $64,063
====== ======= ====== ======= ====== =======
</TABLE>
<TABLE>
<CAPTION>
In Millions Trust, and
Securities
For the Quarter Ended and Cash Corporate Retail Financial Reconciling Consolidated
September 30, 1998 Processing Banking Banking Markets Items* Total
- --------------------- ---------- --------- ------- --------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Net Interest Income $ 98 $ 170 $ 123 $ 30 $ (6) $ 415
Provision for
Credit Losses - 27 (2) 7 (27) 5
Noninterest Income 393 73 20 57 29 572
Noninterest Expense 259 62 79 20 61 481
------ ------- ------ ------- ------ -------
Income Before Taxes $ 232 $ 154 $ 66 $ 60 $ (11) $ 501
====== ======= ====== ======= ====== =======
Average Assets $5,611 $33,452 $4,377 $19,058 $1,534 $64,032
====== ======= ====== ======= ====== =======
</TABLE>
<PAGE> 17
<TABLE>
<CAPTION>
In Millions Trust, and
For the Nine Securities
Months Ended and Cash Corporate Retail Financial Reconciling Consolidated
September 30, 1999 Processing Banking Banking Markets Items* Total
- --------------------- ---------- --------- ------- --------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Net Interest Income $ 321 $ 478 $ 359 $ 84 $ 18 $ 1,260
Provision for
Credit Losses - 83 3 (2) 36 120
Noninterest Income 1,386 248 67 165 941 2,807
Noninterest Expense 860 201 225 58 193 1,537
------ ------- ------ ------- ------ -------
Income Before Taxes $ 847 $ 442 $ 198 $ 193 $ 730 $ 2,410
====== ======= ====== ======= ====== =======
Average Assets $6,283 $31,784 $ 4,371 $21,630 $1,462 $65,530
====== ======= ====== ======= ====== =======
</TABLE>
<TABLE>
<CAPTION>
In Millions Trust, and
For the Nine Securities
Months Ended and Cash Corporate Retail Financial Reconciling Consolidated
September 30, 1998 Processing Banking Banking Markets Items* Total
- --------------------- ---------- --------- ------- --------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Net Interest Income $ 295 $ 484 $ 378 $ 70 $ (9) $ 1,218
Provision for
Credit Losses - 83 5 7 (80) 15
Noninterest Income 1,144 234 59 177 71 1,685
Noninterest Expense 748 192 231 52 197 1,420
------ ------- ------ ------- ------ -------
Income Before Taxes $ 691 $ 443 $ 201 $ 188 $ (55) $ 1,468
====== ======= ====== ======= ====== =======
Average Assets $5,654 $32,952 $4,609 $17,244 $1,514 $61,973
====== ======= ====== ======= ====== =======
<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 BNYFC and the liquidity charge in the third
quarter of 1999 and to the sale of a building in 1998. Reconciling items for
noninterest expense include $23 million and $76 million of amortization of
intangibles for the third quarter and year-to-date for 1999 and $26 million
and $75 million of amortization of intangibles for the third 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>
Segment Highlights
Trust, and Securities and Cash Processing
- -----------------------------------------
In the Trust, and Securities and Cash Processing segment, noninterest
income in the third quarter of 1999 increased to $474 million from $393
million in the third 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. Assets
under custody grew to $5.4 trillion at quarter end. Securities servicing fees
increased to $311 million as compared with $258 million in the third quarter
of 1998.
Fees from cash processing in the third quarter of 1999 increased to $69
million from $66 million in last year's third quarter. Fees from cash
management were up 7% driven by continued cross selling to the Company's
securities servicing customers. Fees from funds transfer grew by 11% from the
<PAGE> 18
previous year, the result of continued markets share gains and the firming
global economy. Trade finance fees were down 6% from a year ago primarily due
to the sale of BNYFC. Fees from trust and investment management grew to $61
million in the third quarter of 1999, as compared to $53 million in the third
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 third quarters of 1999 and 1998. The rise in noninterest
expense is consistent with the growth in the Company's existing businesses as
well as the added salary and other expenses from acquisitions.
Corporate Banking
- -----------------
The Corporate Banking segment's net interest income was $142 million in
the third quarter of 1999 compared with $170 million last year reflecting the
sale of BNYFC.
The third quarter of 1999 provision for credit losses was $22 million
compared with $27 million last year. Net charge-offs in the Corporate Banking
segment were $88 million and $5 million in the third quarters of 1999 and
1998. Noninterest income declined to $70 million in the current quarter from
$73 million last year. Noninterest expense decreased to $57 million from $62
million. The decline in noninterest income and expense reflects the sale of
BNYFC.
Retail Banking
- --------------
In the Retail Banking segment, net interest income in the third quarter
of 1999 was $125 million compared with $123 million in the third quarter of
1998. Noninterest income increased in this same period to $23 million from $20
million. Noninterest expense in the third quarter of 1999 was $78 million
compared with $79 million in the previous year's period. Net charge-offs were
$1 million in the third quarters of 1999 and 1998.
Financial Markets
- -----------------
In the Financial Markets segment, net interest income was $32 million in
the third quarter of 1999 compared with $30 million in the third quarter of
1998. Noninterest income was $56 million in the third quarter of 1999 compared
with $57 million in thethird quarter of 1998. Net charge-offs were zero in the
third quarter of 1999 and $7 million in the third quarter of 1998.
YEAR 2000 READINESS DISCLOSURE
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 Company'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 in an effort 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
<PAGE> 19
their interfaces and to assure themselves of the Company's compliance. The
Company is satisfied with the results of testing with customers and clearing
and settlement agencies. Participation in testing, 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 data
processing environments are Year 2000 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 has replaced certain service providers
that were 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,
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 to
Year 2000 readiness that is considered critical to the Company's operations is
expected to be completed by the end of November 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. With minor modification, we believe these plans 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 nine months of 1999 the Company spent
$16 million on making computer systems Year 2000 compliant. Total expenses
since 1997 have been $67 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
<PAGE> 20
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. Forward looking statements contained in this Year 2000
update should also be read in conjunction with the Company's disclosures under
the heading "Forward Looking Statements" below.
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.
FORWARD LOOKING STATEMENTS
The information presented with respect to earnings growth and the
Company's plans and objectives in moving toward fee based business is forward
looking information. As such it is subject to risks and uncertainties that
could cause actual results to differ materially from projected results
discussed in this Report. These include variations in management projections
or market forecasts and the actions that management could take in response to
these changes.
The Company or its executive officers and directors on behalf of the
Company, may from time to time make forward looking statements. These
statements, which will be identified as forward looking statements,
projections or future plans, 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, discussions of future plans 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 (in particular, the Year 2000 readiness
of third parties with which the Company does business) and the uncertainties
created by the anticipated enactment of the Gramm-Leach-Bliley Financial
Modernization Act of 1999. As a result of variations in such factors, actual
results may differ materially from any forward looking statements. 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.
<PAGE> 21
Legislation and Regulation
Congress has passed the Gramm-Leach-Bliley Financial Modernization Act of
1999. If signed into law by the President, the Modernization Act would:
a) Allow bank holding companies meeting management, capital and Community
Reinvestment Act standards to engage in a substantially broader range of
nonbanking activities than currently is permissible, including insurance
underwriting and making merchant banking investments in commercial and
financial companies;
b) Allow insurers and other financial services companies to acquire banks;
c) Remove various restrictions that currently apply to bank holding company
ownership of securities firms and mutual fund advisory companies; and
d) Establish the overall regulatory structure applicable to bank holding
companies that also engage in insurance and securities operations.
Currently, the Company meets the requirements for the broader range of
activities that would be permitted by the Modernization Act.
The Modernization Act also modifies current law related to financial privacy
and community reinvestment. The new financial privacy provisions would
generally prohibit financial institutions, including the Company, from
disclosing nonpublic personal financial information to third parties unless
customers have the opportunity to "opt out" of the disclosure.
Competition
The businesses in which the Company operates are very competitive.
Competition is provided by both unregulated and regulated financial service
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> 22
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 September 30, 1999 ended September 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) $ 5,641 $ 62 4.35% $ 3,247 $ 44 5.43%
Federal Funds Sold and Securities
Purchased Under Resale Agreements 4,051 49 4.76 4,889 68 5.50
Loans
Domestic Offices 19,224 349 7.20 20,074 383 7.56
Foreign Offices 18,522 294 6.30 18,846 327 6.88
------- ----- ------- -----
Total Loans 37,746 643 6.76 38,920 710 7.23
------- ----- ------- -----
Securities
U.S. Government Obligations 2,452 36 5.85 2,907 42 5.73
U.S. Government Agency Obligations 840 14 6.56 465 8 6.67
Obligations of States and
Political Subdivisions 570 11 7.87 687 13 7.80
Other Securities, including
Trading Securities 2,537 31 4.93 2,984 36 4.76
------- ----- ------- -----
Total Securities 6,399 92 5.76 7,043 99 5.58
------- ----- ------- -----
Total Interest-Earning Assets 53,837 846 6.24% 54,099 921 6.75%
----- -----
Allowance for Credit Losses (593) (646)
Cash and Due from Banks 3,240 3,133
Other Assets 7,579 7,446
------- -------
TOTAL ASSETS $64,063 $64,032
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
Interest-Bearing Deposits
Money Market Rate Accounts $ 4,891 54 4.37% $ 5,078 62 4.87%
Savings 7,763 45 2.32 7,645 50 2.60
Certificates of Deposit
$100,000 & Over 430 5 5.03 666 9 5.46
Other Time Deposits 2,208 24 4.27 2,228 27 4.78
Foreign Offices 18,664 192 4.07 17,542 219 4.94
------- ----- ------- -----
Total Interest-Bearing Deposits 33,956 320 3.74 33,159 367 4.39
Federal Funds Purchased and
Securities Sold Under Repurchase
Agreements 2,827 32 4.50 3,205 38 4.75
Other Borrowed Funds 2,012 27 5.34 3,827 52 5.31
Long-Term Debt 2,313 38 6.59 1,998 34 6.81
------- ----- ------- -----
Total Interest-Bearing Liabilities 41,108 417 4.03% 42,189 491 4.61%
----- -----
Noninterest-Bearing Deposits 10,580 10,220
Other Liabilities 5,870 5,391
Minority Interest-Preferred Securities 1,500 1,300
Preferred Stock 1 1
Common Shareholders' Equity 5,004 4,931
------- -------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $64,063 $64,032
======= =======
Net Interest Earnings
and Interest Rate Spread $ 429 2.21% $ 430 2.14%
===== ==== ===== ====
Net Yield on Interest-Earning Assets 3.16% 3.15%
==== ====
</TABLE>
<PAGE> 23
THE BANK OF NEW YORK COMPANY, INC.
Average Balances and Rates on a Taxable Equivalent Basis
(Dollars in millions)
<TABLE>
<CAPTION>
For the nine months For the nine months
ended September 30, 1999 ended September 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) $ 5,321 $ 180 4.52% $ 3,084 $ 127 5.51%
Federal Funds Sold and Securities
Purchased Under Resale Agreements 4,169 147 4.73 3,466 140 5.39
Loans
Domestic Offices 19,913 1,073 7.21 19,620 1,137 7.76
Foreign Offices 19,109 890 6.23 18,234 938 6.88
------- ------ ------- ------
Total Loans 39,022 1,963 6.73 37,854 2,075 7.33
------- ------ ------- ------
Securities
U.S. Government Obligations 2,518 109 5.79 3,211 139 5.77
U.S. Government Agency Obligations 857 41 6.43 544 27 6.53
Obligations of States and
Political Subdivisions 592 35 7.82 669 41 8.08
Other Securities, including
Trading Securities 2,538 87 4.56 2,933 101 4.61
------- ------ ------- ------
Total Securities 6,505 272 5.59 7,357 308 5.58
------- ------ ------- ------
Total Interest-Earning Assets 55,017 2,562 6.23% 51,761 2,650 6.84%
------ ------
Allowance for Credit Losses (619) (644)
Cash and Due from Banks 3,130 3,400
Other Assets 8,002 7,456
------- -------
TOTAL ASSETS $65,530 $61,973
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
Interest-Bearing Deposits
Money Market Rate Accounts $ 5,086 160 4.20% $ 4,931 176 4.78%
Savings 7,793 131 2.24 7,689 147 2.56
Certificates of Deposit
$100,000 & Over 559 20 4.89 690 28 5.49
Other Time Deposits 2,195 71 4.31 2,276 82 4.83
Foreign Offices 18,971 579 4.08 15,931 601 5.04
------- ------ ------- ------
Total Interest-Bearing Deposits 34,604 961 3.71 31,517 1,034 4.39
Federal Funds Purchased and
Securities Sold Under Repurchase
Agreements 3,061 99 4.32 2,973 104 4.65
Other Borrowed Funds 2,591 102 5.31 3,754 154 5.48
Long-Term Debt 2,225 108 6.45 1,935 100 6.85
------- ------ ------- ------
Total Interest-Bearing Liabilities 42,481 1,270 4.00% 40,179 1,392 4.63%
------ ------
Noninterest-Bearing Deposits 10,548 10,156
Other Liabilities 5,866 5,609
Minority Interest-Preferred Securities 1,482 1,210
Preferred Stock 1 1
Common Shareholders' Equity 5,152 4,818
------- -------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $65,530 $61,973
======= =======
Net Interest Earnings
and Interest Rate Spread $1,292 2.23% $1,258 2.21%
====== ==== ====== ====
Net Yield on Interest-Earning Assets 3.14% 3.25%
==== ====
</TABLE>
<PAGE> 24
PART II. OTHER INFORMATION
Item 2. Sales of Unregistered Common Stock
- -------------------------------------------
Shares of the Company's common stock were issued in the following
transactions exempt from registration under the Securities Act of 1933
pursuant to Section 4(2) thereof:
a) On September 14, 1999, 2,400 shares of common stock were issued to a newly
elected non-employee director as part of the annual retainer.
b) On November 5, 1999, 1,326,451 shares of the Company's common stock were
issued to the shareholders of a corporation acquired by the Company in
exchange for all of the shares of the acquired corporation.
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: Ratios of Earnings to Fixed Charges and
Ratios of Earnings to Combined Fixed Charges and Distributions on Trust
Preferred Securities and for the Three and Nine Months Ended
September 30, 1999 and 1998.
Exhibit 27 - Statement Re: Financial Data Schedule containing selected
financial data at September 30, 1999 and for the Nine Months Ended
September 30, 1999.
b) The Company filed the following reports on Form 8-K since June 30, 1999:
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.
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.
On October 20, 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 third quarter of 1999 contained in the
Company's press release dated October 18, 1999.
<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: November 12, 1999 By: \s\ Thomas J. Mastro
---------------------------------
Name: Thomas J. Mastro
Title: Comptroller
<PAGE> 26
EXHIBIT INDEX
-------------
Exhibit Description
- ------- -----------
12 Ratios of Earnings to Fixed Charges and Ratios of Earnings
to Combined Fixed Charges and Distributions on Trust
Preferred Securities for the Three and Nine Months Ended
September 30, 1999 and 1998.
27 Financial Data Schedule containing selected financial
data at September 30, 1999 and for the Nine Months Ended
September 30, 1999.
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 Nine Months Ended
September 30, September 30,
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
EARNINGS
- --------
Income Before Income Taxes $1,343 $ 501 $2,410 $1,468
Fixed Charges, Excluding Interest
on Deposits 105 132 333 382
------ ------ ------ ------
Income Before Income Taxes and Fixed
Charges Excluding Interest on Deposits 1,448 633 2,743 1,850
Interest on Deposits 320 367 961 1,034
------ ------ ------ ------
Income Before Income Taxes and Fixed
Charges, Including Interest on Deposits $1,768 $1,000 $3,704 $2,884
====== ====== ====== ======
FIXED CHARGES
- -------------
Interest Expense, Excluding Interest
on Deposits $ 97 $ 124 $ 309 $ 358
One-Third Net Rental Expense* 8 8 24 24
------ ------ ------ ------
Total Fixed Charges, Excluding Interest
on Deposits 105 132 333 382
Interest on Deposits 320 367 961 1,034
------ ------ ------ ------
Total Fixed Charges, Including Interest
on Deposits $ 425 $ 499 $1,294 $1,416
====== ====== ====== ======
DISTRIBUTION ON TRUST PREFERRED
SECURITIES, PRE-TAX BASIS $ 28 $ 25 $ 84 $ 70
- -------------------------------
====== ====== ====== ======
EARNINGS TO FIXED CHARGES RATIOS
- --------------------------------
Excluding Interest on Deposits 13.79x 4.80x 8.24x 4.84x
Including Interest on Deposits 4.16 2.00 2.86 2.04
EARNINGS TO COMBINED FIXED CHARGES,
DISTRIBUTION ON TRUST PREFERRED SECURITIES,
& PREFERRED STOCK DIVIDENDS RATIOS
- -------------------------------------------
Excluding Interest on Deposits 10.89 4.03 6.58 4.09
Including Interest on Deposits 3.90 1.91 2.69 1.94
<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 September 30, 1999
and is qualified entirely by reference to such Form 10-Q.
</LEGEND>
<CIK> 0000009626
<NAME> THE BANK OF NEW YORK COMPANY, INC.
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
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0
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</TABLE>
