<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For The Fiscal Year Ended December 31, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number 1-6152
THE BANK OF NEW YORK COMPANY, INC.
(Exact name of registrant as specified in its charter)
NEW YORK 13-2614959
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
One Wall Street, New York, New York 10286
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code (212) 495-1784
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
------------------- ---------------------
Common Stock, $7.50 par value NEW YORK STOCK EXCHANGE
Preferred Stock Purchase Rights NEW YORK STOCK EXCHANGE
7.80% Trust Preferred Securities, Series C NEW YORK STOCK EXCHANGE
7.05% Preferred Securities, Series D NEW YORK STOCK EXCHANGE
6.88% Trust Preferred Securities, Series E NEW YORK STOCK EXCHANGE
Securities registered pursuant to Section 12(g) of the Act:
Title of each class
-------------------
Class A, 7.75% Cumulative Convertible Preferred Stock
7.97% Capital Securities, Series B
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [ ]
The aggregate market value of voting stock held by nonaffiliates of the
registrant at February 29, 2000 consisted of:
Common Stock ($7.50 par value) $24,506,591,106
(based on closing price
on New York Stock Exchange)
The number of shares outstanding of the registrant's Common Stock $7.50 par
value was 737,040,334 shares on February 29, 2000.
<PAGE 2>
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the 1999 Annual Report to Shareholders are incorporated by
reference into Parts I, II, and IV.
Proxy Statement for the annual meeting of shareholders to be held May 9, 2000
(other than information included in the proxy statement pursuant to Item 402
(i), (k) and (l) of Regulation S-K is incorporated by reference into Part III.
PART I
- ------
ITEM 1. BUSINESS
- -----------------
INTRODUCTION
The business of The Bank of New York Company, Inc. (the "Company") and
its subsidiaries is described in the Company's 1999 Annual Report to
Shareholders beginning under the heading "Securities Servicing and Cash
Processing" and continuing through " Global Markets" which description is
included in Exhibit 13 to this report and incorporated herein by reference.
Also, the "Management's Discussion and Analysis" section included in Exhibit
13 contains financial and statistical information on the operations of the
Company. Such information is herein incorporated by reference.
CERTAIN REGULATORY CONSIDERATIONS
General
As a bank holding company, the Company is subject to the regulation and
supervision of the Federal Reserve Board under the Bank Holding Company Act of
1956 ("BHC Act"). The Company is also subject to regulation by the New York
State Banking Department. Under the BHC Act, bank holding companies may not
directly or indirectly acquire the ownership or control of more than 5% of the
voting shares or substantially all of the assets of any company, including a
bank, without the prior approval of the Federal Reserve Board. In addition,
bank holding companies are generally prohibited under the BHC Act from
engaging in nonbanking activities, subject to certain exceptions. Bank
Holding Companies qualified and electing to be treated as Financial Holding
Companies are entitled to engage in a broader range of activities. See the
discussion under the heading "Legislation and Regulation".
The Company's subsidiary banks are subject to supervision and examination
by applicable federal and state banking agencies. The Bank of New York
("BNY"), the Company's principal banking subsidiary, is a New York chartered
banking corporation, a member of the Federal Reserve System and is subject to
regulation, supervision and examination by the Federal Reserve Board. BNY is
also subject to regulation, supervision and examination by the New York State
Banking Department.
Both federal and state laws extensively regulate various aspects of the
banking business, such as permissible types and amounts of loans and
investments, permissible activities, and reserve requirements. These
regulations are intended primarily for the protection of depositors rather
than the Company's stockholders.
Capital Adequacy
The Federal bank regulators have adopted risk-based capital guidelines
for bank holding companies and banks. The minimum ratio of qualifying total
capital ("Total Capital") to risk-weighted assets (including certain off-
balance sheet items) is 8%. At least half of the total capital is to consist
of common stock, retained earnings, noncumulative perpetual preferred stock,
minority interests (including preferred trust securities) and, for bank
holding companies, a limited amount of qualifying cumulative perpetual
preferred stock, less most intangibles including goodwill ("Tier 1 Capital").
<PAGE 3>
The remainder ("Tier 2 Capital") may consist of other preferred stock, certain
other instruments, and limited amounts of subordinated debt and the loan and
lease allowance. Not more than 25% of qualifying Tier 1 Capital may consist
of preferred trust securities.
In addition, the Federal Reserve Board has established minimum Leverage
Ratio (Tier 1 Capital to average total assets) guidelines for bank holding
companies and banks. The Federal Reserve Board's guidelines provide for a
minimum Leverage Ratio of 3% for bank holding companies and banks that meet
certain specified criteria, including those having the highest regulatory
rating. All other banking organizations will be required to maintain a
Leverage Ratio of at least 3% plus an additional cushion of 100 to 200 basis
points. The guidelines also provide that banking organizations experiencing
internal growth or making acquisitions will be expected to maintain strong
capital positions substantially above the minimum supervisory levels, without
significant reliance on intangible assets. At December 31, 1999, the Federal
Reserve Board has not advised the Company of any specific minimum Leverage
Ratio applicable to it. See "FDICIA" below.
The Federal Reserve recently proposed regulations which would require
Bank Holding Companies to deduct from Tier 1 capital 50% of the total carrying
value of certain investments in non-financial companies, including merchant
banking investments. The Company is considering the possible impact of this
proposal but does not believe that such changes would have a material effect
on its capital position.
FDICIA
The Federal Deposit Insurance Corporation Improvement Act of 1991
("FDICIA") among other things, requires federal banking regulators to take
prompt corrective action in respect of FDIC-insured depository institutions
(such as BNY) that do not meet minimum capital requirements. FDICIA
establishes five capital tiers: "well capitalized", "adequately capitalized",
"undercapitalized", "significantly undercapitalized", and "critically
undercapitalized". A depository institution's capital tier will depend upon
how its capital levels compare to various relevant capital measures and
certain other factors, as established by regulation. Under applicable
regulations, an FDIC-insured bank is deemed to be: (i) well capitalized if it
maintains a Leverage Ratio of at least 5%, a Tier 1 Capital Ratio (Tier 1
Capital to risk-weighted assets and certain off-balance sheet items) of at
least 6% and a Total Capital Ratio of at least 10% and is not subject to an
order, written agreement, capital directive, or prompt corrective action
directive to meet and maintain a specific level for any capital measure; (ii)
adequately capitalized if it maintains a Leverage Ratio of at least 4% (or a
Leverage Ratio of at least 3% if it is rated Composite 1 in its most recent
report of examination, subject to appropriate federal banking agency
guidelines), a Tier 1 Capital Ratio of 4% and a Total Capital Ratio of at
least 8% and is not defined to be well capitalized but meets all of its
minimum capital requirements; (iii) undercapitalized if it has a Leverage
Ratio of less than 4% (or a Leverage Ratio that is less than 3% if it is rated
Composite 1 in its most recent report of examination, subject to appropriate
federal banking agency guidelines), a Tier 1 Capital Ratio less than 4% and a
Total Capital Ratio of less than 10% and it does not meet the definition of a
significantly undercapitalized or critically undercapitalized institution;
(iv) significantly undercapitalized if it has a Leverage Ratio of less than
3%, a Tier 1 Capital Ratio less than 3% and a Total Capital Ratio of less than
10% and it does not meet the definition of critically undercapitalized; and
(v) critically undercapitalized if it maintains a level of tangible equity
capital equal to or less than 2% of total assets. A bank may be deemed to be
in a capitalization category that is lower than is indicated by its actual
capital position if it receives an unsatisfactory examination rating. FDICIA
imposes progressively more restrictive constraints on operations, management
and capital distributions, depending on the capital category in which an
institution is classified.
FDICIA generally prohibits an FDIC-insured depository institution from
making any capital distribution (including payment of dividends) or paying any
management fee to its holding company if the depository institution would
<PAGE 4>
thereafter be undercapitalized. Undercapitalized depository institutions are
subject to restrictions on borrowing from the Federal Reserve. In addition,
undercapitalized depository institutions are subject to growth limitations and
are required to submit a capital restoration plan. The federal banking
agencies may not accept a capital plan without determining, among other
things, that the plan is based on realistic assumptions and is likely to
succeed in restoring the depository institution's capital. In addition, for
an undercapitalized depository institution's capital restoration plan to be
acceptable, its holding company must guarantee the capital plan up to an
amount equal to the lesser of 5% of the depository institution's assets at the
time it became undercapitalized or the amount of the capital deficiency when
the institution fails to comply with the plan. In the event of the parent
holding company's bankruptcy, such guarantee would take priority over the
parent's general unsecured creditors. If a depository institution fails to
submit an acceptable plan, it is treated as if it is significantly
undercapitalized.
Significantly undercapitalized depository institutions may be subject to
a number of requirements and restrictions, including orders to sell sufficient
voting stock to become adequately capitalized, requirements to reduce total
assets and cessation of receipt of deposits from correspondent banks.
Critically undercapitalized depository institutions are subject to appointment
of a receiver or conservator. A depository institution that is not well
capitalized is subject to certain limitations on brokered deposits.
A discussion of the Company's capital position and capital adequacy is
incorporated by reference from "Capital Resources" in the "Management's
Discussion and Analysis" Section and Note 10 to the Consolidated Financial
Statements of Exhibit 13.
A discussion of the Gramm-Leach-Bliley Financial Modernization Act of
1999 appears herein under the heading "Legislation and Regulation".
As of December 31, 1999 and 1998, capital ratios for the Company and BNY
were categorized as well capitalized as set forth in the table below.
December 31, 1999 December 31, 1998
----------------- -----------------
Well
Capitalized
Company BNY Company BNY Guidelines
------- --- ------- --- -----------
Tier I 7.51% 7.14% 7.89% 7.39% 6%
Total Capital 11.67 10.50 11.90 10.72 10
Leverage 7.20 6.85 7.46 6.95 5
Tangible Common
Equity 4.79 6.36 6.25 7.43
At December 31, 1999, the amounts of capital by which the Company and BNY
exceed the well capitalized guidelines are as follows:
(in millions) Company BNY
------- ---
Tier 1 $ 999 $ 726
Total Capital 1,102 316
Leverage 1,518 1,223
<PAGE 5>
The following table presents the components of the Company's risk-based
capital at December 31, 1999 and 1998:
(in millions) 1999 1998
---- ----
Common Stock $ 5,142 $ 5,447
Preferred Stock 1 1
Minority Interest - Preferred Securities 1,500 1,300
Adjustments: Intangibles (1,624) (1,558)
Securities Valuation Allowance (58) (340)
-------- --------
Tier 1 Capital 4,961 4,850
Qualifying Unrealized Equity Security Gains 74 181
Qualifying Long-term Debt 2,089 1,655
Qualifying Allowance for Loan Losses 581 633
-------- --------
Tier 2 Capital 2,744 2,469
-------- -------
Total Risk-based Capital $ 7,705 $ 7,319
======== =======
The following table presents the components of the Company's risk
adjusted assets at December 31, 1999 and 1998:
<TABLE>
<CAPTION>
1999 1998
---------------------------------------------
Balance Balance
sheet/ Risk sheet/ Risk
notional adjusted notional adjusted
(in millions) amount balance amount balance
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Assets
- ------
Cash, Due From Banks and Interest-
Bearing Deposits in Banks $ 10,126 $ 1,727 $ 8,503 $ 1,347
Securities 6,899 2,481 6,415 1,832
Trading Assets 8,715 - 1,637 -
Fed Funds Sold and Securities
Purchased Under Resale Agreements 5,383 957 3,281 345
Loans 37,547 32,901 38,386 33,246
Allowance for Credit Losses (595) - (636) -
Other Assets 6,681 4,612 5,917 3,732
--------- ------- --------- -------
Total Assets $ 74,756 42,678 $ 63,503 40,502
========= ------- ========= -------
Off-Balance Sheet Exposures
- ---------------------------
Commitments to Extend Credit $ 51,574 13,484 $ 44,767 13,497
Securities Lending Indemnifications 61,378 - 47,839 -
Standby Letters of Credit and
Other Guarantees 10,399 8,397 8,738 6,404
Interest Rate Contracts 213,653 535 142,454 235
Foreign Exchange Contracts 102,950 - 132,129 1
--------- ------- --------- -------
Total Off-Balance Sheet Exposures $439,954 22,416 $375,927 20,137
========= ------- ========= -------
Market Risk Equivalent Assets 887 683
Unrealized Equity Security Gains
Qualifying as Risk Based Capital 74 181
------- -------
Risk Adjusted Assets $66,055 $61,503
======= =======
</TABLE>
<PAGE 6>
FDIC Insurance Assessments
BNY is subject to FDIC deposit insurance assessments. As required by
FDICIA, the FDIC adopted a risk-based premium schedule to determine the
assessment rates for most FDIC-insured depository institutions. Effective
January 1, 1997, under the schedule, the premiums range from zero to $.27 for
every $100 of deposits. Each financial institution is assigned to one of nine
categories based on the institutions capital ratios and supervisory
evaluations, and the premium paid by the institution is based on the category.
Under the present schedule institutions in the highest of the three capital
categories and the highest of three supervisory categories pay no premium and
institutions in the lowest of these categories pay $.27 per $100 of deposits.
BNY paid no FDIC insurance premiums in 1999. In addition, the Deposit
Insurance Funds Act provides for assessments at all insured depository
institutions to pay for the cost of the Financing Corporation (a governmental
agency) funding. The assessment will be based on deposit levels and will be
approximately 1.19 basis points.
The FDIC is authorized to raise insurance premiums in certain
circumstances. Any increase in premiums would have an adverse effect on the
Company's earnings.
Under the FDICIA, insurance of deposits may be terminated by the FDIC
upon a finding that the institution has engaged in unsafe and unsound
practices, is in an unsafe or unsound condition to continue operations or has
violated any applicable law, regulation, rule, order, or condition imposed by
a bank's federal regulatory agency.
Depositor Preference
The Omnibus Budget Reconciliation Act of 1993 provides for a domestic
depositor preference on amounts realized from the liquidation or other
resolution of any depository institution insured by the FDIC.
Acquisitions
The BHC Act generally limits acquisitions by the Company to commercial
banks and companies engaged in activities that the Federal Reserve Board has
determined to be so closely related to banking as to be a proper incident
thereto. The Company's direct activities are generally limited to furnishing
services to its subsidiaries and activities that qualify under the "closely
related" and "proper incident" tests. Prior Federal Reserve Board approval is
required under the BHC Act for new activities and acquisitions of most
nonbanking companies.
The BHC Act, the Federal Bank Merger Act, and the New York Banking Law
regulate the acquisition of commercial banks. The BHC Act requires the prior
approval of the Federal Reserve Board for the direct or indirect acquisition
of more than 5% of the voting shares of a commercial bank.
The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994
("IBBEA") permits bank holding companies, with Federal Reserve Board approval,
to acquire banks located in states other than the bank holding company's home
state without regard to whether the transaction is permitted under state law.
In addition, IBBEA provides that national banks and state banks with different
home states are permitted to merge across state lines, with the approval of
the appropriate federal banking agency, unless the home state of a
participating bank passed legislation between the date of enactment of IBBEA
and May 31, 1997 expressly prohibiting interstate mergers. Most states,
including New York, New Jersey and Connecticut have not passed legislation
prohibiting interstate mergers. A bank may also establish and operate a de
novo branch in a state in which the bank does not maintain a branch if that
state expressly permits de novo branching. Once a bank has established
branches in a state through an interstate merger transaction, the bank may
establish and acquire additional branches at any location in the state where
any bank involved in the interstate merger transaction could have established
or acquired branches under applicable federal or state law. A bank that has
established a branch in a state through de novo branching may establish and
<PAGE 7>
acquire additional branches in such state in the same manner and to the same
extent as a bank having a branch in such state as a result of an interstate
merger.
The merger of BNY with another bank would require the approval of the
Federal Reserve Board or other federal bank regulatory authority and, if the
surviving bank is a New York state bank, the New York Superintendent of Banks.
In reviewing bank acquisition and merger applications, the bank
regulatory authorities will consider, among other things, the competitive
effect of the transaction, financial and managerial issues including the
capital position of the combined organization, and convenience and needs
factors, including the applicant's record under the Community Reinvestment
Act.
Under Federal Reserve Board policy, the Company is expected to act as a
source of financial strength to its banks and to commit resources to support
such banks in circumstances where it might not do so absent such policy. In
addition, any loans by the Company to its banks would be subordinate in right
of payment to depositors and to certain other indebtedness of its banks.
Restrictions on Transfer of Funds
Restrictions on the transfer of funds to the Company and subsidiary bank
dividend limitations are discussed in Note 10 to the Consolidated Financial
Statements included in Exhibit 13. Such discussion is incorporated herein by
reference.
Cross Guarantees
Under FDICIA, a financial institution insured by the FDIC that is under
common control with a failed or failing FDIC-insured institution can be
required to indemnify the FDIC for losses resulting from the insolvency of the
failed institution, even if this causes the affiliated institution also to
become insolvent. Any obligation or liability owed by a subsidiary depository
institution to its parent company is subordinate to the subsidiary's cross-
guarantee liability with respect to commonly controlled insured depository
institutions and to the rights of depositors.
<PAGE 8>
ADDITIONAL FINANCIAL INFORMATION
- --------------------------------
<TABLE>
Average Balances and Rates on a Taxable Equivalent Basis (dollars in millions)
- ------------------------------------------------------------------------------
<CAPTION>
1999 1998 1997
------------------------- ------------------------- ------------------------
Average Average Average Average Average Average
Balance Interest Rate Balance Interest Rate Balance Interest Rate
------------------------- ------------------------- ------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Assets
- ------
Interest-Bearing
Deposits in Banks
(Primarily Foreign) $ 5,500 $ 247 4.49% $ 3,437 $ 184 5.35% $ 3,277 $ 188 5.75%
Federal Funds Sold
and Securities
Purchased Under
Resale Agreements 4,236 205 4.83 3,880 203 5.24 2,964 162 5.46
Loans
Domestic Offices
Credit Card - - - - - - 3,329 496 14.90
Other Consumer 3,292 270 8.21 3,366 282 8.36 3,503 291 8.31
Commercial 16,415 1,148 6.99 16,407 1,229 7.49 14,744 1,143 7.75
Foreign Offices 19,174 1,219 6.36 18,567 1,264 6.81 15,001 984 6.56
-------- ------ -------- ------ -------- ------
Total Loans 38,881 2,637* 6.78 38,340 2,775* 7.24 36,577 2,914* 7.97
-------- ------ -------- ------ -------- ------
Securities
U.S. Government
Obligations 3,373 202 5.98 3,638 213 5.85 3,225 189 5.86
Obligations of
States and
Political
Subdivisions 588 46 7.86 672 54 7.98 652 56 8.57
Other Securities,
including Trading
Securities
Domestic Offices 1,882 85 4.51 2,051 108 5.23 1,360 52 3.81
Foreign Offices 1,702 95 5.56 793 31 3.93 485 34 6.92
-------- ------ -------- ------ -------- ------
Total Other
Securities 3,584 180 5.01 2,844 139 4.87 1,845 86 4.63
-------- ------ -------- ------ -------- ------
Total Securities 7,545 428 5.67 7,154 406 5.66 5,722 331 5.77
-------- ------ -------- ------ -------- ------
Total Interest-Earning
Assets 56,162 $3,517 6.26% 52,811 $3,568 6.76% 48,540 $3,595 7.40%
====== ====== ======
Allowance for Credit
Losses (613) (643) (784)
Cash and Due from
Banks 3,174 3,237 3,798
Other Assets 8,054 7,736 7,688
-------- -------- --------
Total Assets $66,777 $63,141 $59,242
======== ======== ========
Assets Attributable
to Foreign Offices ** 41.39% 38.79% 33.35%
===== ===== =====
<FN>
*Includes fees of $130 million in 1999, $120 million in 1998, and $154 million in 1997.
Nonaccrual loans are included in the average loan balance; the associated income, recognized
on the cash basis, is included in interest.
Taxable equivalent adjustments were $44 million in 1999, $58 million in 1998, and $34 million in
1997 and are based on the federal statutory tax rate (35%) and applicable state and local taxes.
**Includes Cayman Islands branch office.
</FN>
</TABLE>
<TABLE>
<PAGE 9>
Average Balances and Rates on a Taxable Equivalent Basis (dollars in millions)
- ------------------------------------------------------------------------------
<CAPTION>
1999 1998 1997
--------------------------- -------------------------- -------------------------
Average Average Average Average Average Average
Balance Interest Rate Balance Interest Rate Balance Interest Rate
--------------------------- -------------------------- -------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Liabilities and
Shareholders' Equity
- --------------------
Interest-Bearing Deposits
Domestic Offices
Money Market Rate
Accounts $ 5,142 $ 221 4.30% $ 4,998 $ 232 4.65% $ 4,326 $ 196 4.54%
Savings 7,757 177 2.28 7,682 193 2.51 7,921 202 2.55
Certificates of
Deposit of $100,000
or More 526 26 5.03 687 37 5.41 675 37 5.48
Other Time Deposits 2,238 99 4.42 2,299 110 4.80 2,514 124 4.92
------- ------ ------- ------ ------- ------
Total Domestic Offices 15,663 523 3.34 15,666 572 3.65 15,436 559 3.62
------- ------ ------- ------ ------- ------
Foreign Offices
Banks in Foreign Countries 6,402 264 4.12 5,422 246 4.53 5,304 225 4.25
Government and
Official Institutions 1,178 55 4.67 1,205 65 5.39 1,290 69 5.33
Other Time and Saving 12,613 521 4.13 9,784 491 5.02 8,308 437 5.27
------- ------ ------- ------ ------- ------
Total Foreign Offices 20,193 840 4.16 16,411 802 4.88 14,902 731 4.91
------- ------ ------- ------ ------- ------
Total Interest-
Bearing Deposits 35,856 1,363 3.80 32,077 1,374 4.28 30,338 1,290 4.25
------- ------ ------- ------ ------- ------
Federal Funds Purchased
and Securities Sold
Under Repurchase
Agreements 2,940 131 4.45 3,147 145 4.60 2,410 121 5.00
Other Borrowed Funds 2,362 126 5.36 3,761 204 5.42 3,177 168 5.27
Long-Term Debt 2,306 152 6.57 1,972 136 6.90 1,815 126 6.92
------- ------ ------- ------ ------- ------
Total Interest-Bearing
Liabilities 43,464 $1,772 4.07% 40,957 $1,859 4.54% 37,740 $1,705 4.52%
====== ====== ======
Noninterest-Bearing Deposits
Domestic Offices 10,613 10,109 9,423
Foreign Offices 95 76 149
------- ------- -------
Total Noninterest-
Bearing Deposits 10,708 10,185 9,572
------- ------- -------
Other Liabilities 6,004 5,850 6,050
Minority Interest - Preferred
Securities 1,487 1,233 830
Preferred Stock 1 1 103
Common Shareholders' Equity 5,113 4,915 4,947
------- ------- -------
Total Liabilities
and Shareholders' Equity $66,777 $63,141 $59,242
======= ======= =======
Net Interest Earnings and
Interest Rate Spread $1,745 2.19% $1,709 2.22% $1,890 2.88%
====== ====== ======
Net Yield on
Interest-Earning Assets 3.11% 3.24% 3.89%
===== ===== =====
Liabilities Attributable
to Foreign Offices 35.77% 31.53% 30.00%
====== ====== ======
</TABLE>
<PAGE 10>
<TABLE>
Rate/Volume Analysis on a Taxable Equivalent Basis (in millions)
- ----------------------------------------------------------------
<CAPTION>
1999 vs. 1998 1998 vs. 1997
------------------------------------- ----------------------------------
Increase (Decrease) Increase (Decrease)
due to change in: due to change in:
--------------------- -------------------
Total Total
Average Average Increase Average Average Increase
Balance Rate (Decrease) Balance Rate (Decrease)
------- ------- ---------- ------- ------- ----------
<S> <C> <C> <C> <C> <C> <C>
Interest Income
- ---------------
Interest-Bearing Deposits
in Banks $ 96 $ (33) $ 63 $ 9 $(13) $ (4)
Federal Funds Sold and Securities
Purchased Under Resale Agreements 18 (16) 2 48 (7) 41
Loans
Domestic Offices
Credit Card - - - (496) - (496)
Other Consumer (7) (5) (12) (11) 2 (9)
Commercial 1 (82) (81) 125 (39) 86
Foreign Offices 40 (85) (45) 238 42 280
----- ------ ------ ------ ----- ------
Total Loans 34 (172) (138) (144) 5 (139)
Securities
U.S. Government Obligations (15) 4 (11) 24 - 24
Obligations of States and
Political Subdivisions (7) (1) (8) 2 (4) (2)
Other Securities, including
Trading Assets
Domestic Offices (8) (15) (23) 32 24 56
Foreign Offices 43 21 64 16 (19) (3)
----- ------ ------ ------ ----- ------
Total Other Securities 35 6 41 48 5 53
----- ------ ------ ------ ----- ------
Total Securities 13 9 22 74 1 75
----- ------ ------ ------ ----- ------
Total Interest Income 161 (212) (51) (13) (14) (27)
----- ------ ------ ------ ----- ------
Interest Expense
- ----------------
Interest-Bearing Deposits
Domestic Offices
Money Market Rate Accounts 7 (18) (11) 31 5 36
Savings 2 (18) (16) (6) (3) (9)
Certificate of Deposits of
$100,000 or More (9) (2) (11) 1 (1) -
Other Time Deposits (3) (8) (11) (10) (4) (14)
----- ------ ------ ------ ----- ------
Total Domestic Offices (3) (46) (49) 16 (3) 13
----- ------ ------ ------ ----- ------
Foreign Offices
Banks in Foreign Countries 42 (24) 18 6 15 21
Government and Official
Institutions (1) (9) (10) (5) 1 (4)
Other Time and Savings 126 (96) 30 75 (21) 54
----- ------ ------ ------ ----- ------
Total Foreign Offices 167 (129) 38 76 (5) 71
----- ------ ------ ------ ----- ------
Total Interest-Bearing
Deposits 164 (175) (11) 92 (8) 84
Federal Funds Purchased and
Securities Sold Under
Repurchase Agreements (9) (5) (14) 34 (10) 24
Other Borrowed Funds (76) (2) (78) 31 5 36
Long-Term Debt 22 (6) 16 11 (1) 10
----- ------ ------ ------ ----- ------
Total Interest Expense 101 (188) (87) 168 (14) 154
----- ------ ------ ------ ----- ------
Change in Net Interest Income $ 60 $ (24) $ 36 $(181) $ - $(181)
===== ====== ====== ====== ===== ======
<FN>
Changes which are not solely due to balance changes or rate changes are allocated to such
categories on the basis of the respective percentage changes in average balances and average
rates.
</FN>
</TABLE>
<PAGE 11>
Market Risk Management
- ----------------------
Market risk is the risk of loss due to adverse changes in the financial
markets. Market risk arises from derivative financial instruments, such as
futures, forwards, swaps and options, and other financial instruments, such as
loans, securities, deposits and other borrowings. The Company's market risks
are primarily interest rate and foreign exchange risk, as well as credit risk.
Market risk associated with the Company's trading activities and
asset/liability management activities is managed and controlled as discussed
under "Market Risk Management", "Trading Activities and Risk Management" and,
"Asset/Liability Management" in the "Management's Discussion and Analysis"
section of Exhibit 13. Such discussion is incorporated herein by reference.
The information presented with respect to market risk is forward looking
information. As such it is subject to risks and uncertainties that could
cause actual results to differ materially from projected results discussed in
this Report. These include adverse changes in market conditions and the
actions that management could take in response to these changes.
Credit Risk Management
- ----------------------
Credit risk represents the possibility that the Company would suffer a
loss if a borrower or other counterparty were to default on its obligations to
the Company. Credit risk exposure arises primarily from lending activities,
as well as from interest rate, foreign exchange, and securities processing
products. For derivative financial instruments, total credit exposure
consists of current and potential exposure. Current credit exposure
represents the replacement cost of the transaction. Potential credit exposure
is a statistically based estimate of the future replacement cost of the
transaction. The Company has established policies and procedures to manage
the level and composition of its credit risk on both a transaction and a
portfolio basis. In managing the aggregate credit extension to individual
customers, the Company measures the amount at risk on derivative financial
instruments as the total of current and potential credit exposure.
The Risk Management Sector is responsible for developing and maintaining
credit risk policies, as well as for overseeing and reviewing credit
guidelines. After development, credit risk policies are reviewed and approved
by the Board of Directors. Through the use of a credit approval process and
established credit limits, the Company evaluates the credit quality of
counterparties, industries, products, and countries. The Company seeks to
reduce both on and off-balance-sheet credit risk through portfolio
diversification, loan participations, syndications, asset sales, credit
enhancements, risk reduction arrangements, and netting agreements.
Although the Company attempts to minimize its exposure to credit risk,
this risk is inherent in the banking industry and can increase as a result of
general economic developments.
Provision and Allowance for Credit Losses
- -----------------------------------------
The provision for credit losses was $135 million in 1999, compared with $20
million in 1998 and $280 million in 1997. The increase in the provision
compared with 1998 was primarily due to 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 by 18% to $158 million at December 31,
1999. The decrease in nonperforming assets during 1999 is attributable to
charge-offs and writedowns of $126 million and paydowns, sales, and returns to
accrual status of $163 million. The decrease was partially offset by $254
million of loans placed on nonperforming status.
<PAGE 12>
A summary of nonperforming assets is presented in the following table.
<TABLE>
<CAPTION>
(in millions) December 31,
----------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Nonaccrual
- ----------
Domestic $ 83 $126 $159 $175 $184
Foreign 63 53 34 38 41
---- ---- ---- ---- ----
146 179 193 213 225
---- ---- ---- ---- ----
146 179 193 213 225
Real Estate Acquired
in Satisfaction of Loans 12 14 15 41 72
- ------------------------ ---- ---- ---- ---- ----
$158 $193 $208 $254 $297
==== ==== ==== ==== ====
Past Due 90 Days or More
and Still Accruing Interest
- ---------------------------
Domestic:
Credit Card $ - $ - $ 1 $215 $214
Other Consumer 3 3 2 2 5
Commercial 13 26 75 30 51
---- ---- ---- ---- ----
16 29 78 247 270
Foreign:
Banks 3 - - - -
---- ---- ---- ---- ----
$ 19 $ 29 $ 78 $247 $270
==== ==== ==== ==== ====
</TABLE>
1999 1998
---- ----
Nonperforming Asset Ratio 0.4% 0.5%
Allowance/Nonperforming Loans 407.7 355.5
Allowance/Nonperforming Assets 376.9 328.9
Net charge-offs were $137 million in 1999, $29 million in 1998, and $354
million in 1997. In 1999, net charge-offs were primarily related to the
decision to accelerate the disposition of certain loans, as well as higher
charge-offs in the Company's asset based lending businesses. Net charge-offs
in 1998 were mainly related to commercial loans, while net charge-offs were
primarily attributable to credit card loans in 1997. The total allowance for
credit losses was $595 million and $636 million at year-end 1999 and 1998. The
ratio of the total allowance for credit losses to year-end loans was 1.58% and
1.66% at December 31, 1999 and 1998.
In 1999 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 profitability. As a result, in 1999 the
Company categorized over $1 billion of loans as available for sale and
recorded a liquidity charge of $124 million. At December 31, 1999, the
remaining credit exposures available for sale totaled $538 million with
outstandings of $318 million.
<PAGE 13>
<TABLE>
The following table details changes in the Company's allowance for credit losses
for the last five years.
<CAPTION>
(dollars in millions) 1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Loans Outstanding, December 31, $37,547 $38,386 $35,127 $37,006 $37,687
Average Loans Outstanding 38,881 38,340 36,577 36,698 35,421
Allowance for Loan Losses
- -------------------------
Balance, January 1
Domestic $ 498 $ 441 $ 670 $ 515 $ 509
Foreign 69 44 38 82 155
Unallocated 69 156 193 159 128
------ ------ ------ ------ ------
Total, January 1 636 641 901 756 792
------ ------ ------ ------ ------
Allocations and Acquisitions (1) (39) 4 (186) - 11
Charge-Offs
Domestic
Commercial and Industrial (104) (34) (89) (46) (56)
Real Estate & Construction (5) - - (11) (19)
Consumer (8) (10) (13) (16) (15)
Credit Card - - (298) (503) (294)
Foreign (37) (7) (3) (4) (48)
------ ------ ------ ------ ------
Total (154) (51) (403) (580) (432)
------ ------ ------ ------ ------
Recoveries
Domestic
Commercial and Industrial 10 7 9 15 14
Real Estate & Construction 2 7 3 - 3
Consumer 4 5 8 7 10
Credit Card - - 23 62 27
Foreign 1 3 6 41 1
------ ------ ------ ------ ------
Total 17 22 49 125 55
Net Charge-Offs (137) (29) (354) (455) (377)
------ ------ ------ ------ ------
Provision 135 20 280 600 330
Balance, December 31,
Domestic 485 498 441 670 515
Foreign 71 69 44 38 82
Unallocated 39 69 156 193 159
------ ------ ------ ------ ------
Total, December 31, $ 595 $ 636 $ 641 $ 901 $ 756
====== ====== ====== ====== ======
Ratios
- ------
Net Charge-Offs to Average Loans
Outstandings 0.35% 0.08% 0.97% 1.24% 1.06%
====== ====== ====== ====== ======
Net Charge-Offs to Total Allowance 23.03% 4.56% 55.23% 50.50% 49.87%
====== ====== ====== ====== ======
Total Allowance to Year-End Loans
Outstanding 1.58% 1.66% 1.82% 2.44% 2.01%
===== ===== ===== ===== =====
<FN>
(1) In 1999, $39 million was allocated to BNYFC loans sold. In 1997, $186 million of the
allowance was allocated to credit card loans sold in 1997.
</FN>
</TABLE>
At December 31, 1999 and 1998, the Company's nonperforming real estate
loans and real estate acquired in satisfaction of loans aggregated $12 million
and $40 million, respectively. Real estate loan net charge-offs were $3
million in 1999 with net recoveries of $7 million in 1998. In addition, other
real estate expenses were $1 million and $2 million in 1999 and 1998.
At December 31, 1999, the Company's emerging markets exposures consisted
of $111 million in medium-term loans (and no material commitments), $1,393
million in short-term loans, primarily trade related, and $254 million in
investments. The Company expects to complete the sale of an investment in
Brazil ($44 million carrying value) in the second quarter of 2000 with a small
gain. In addition, the Company has $308 million of debt securities of
emerging market countries, including $256 million (book value) of bonds whose
principal payments are collateralized by U.S. Treasury zero coupon obligations
and whose interest payments are partially collateralized. Emerging market
<PAGE 14>
countries where the Company has exposure include Argentina, Brazil, Bulgaria,
China, Colombia, Costa Rica, Dominican Republic, Ecuador, Egypt, Honduras,
Indonesia, Iraq, Jamaica, Malaysia, Mexico, Morocco, Panama, Peru,
Philippines, Russia, Thailand, Uruguay, Venezuela, and Vietnam.
The Company's consumer loan portfolio is comprised principally of other
installment and residential loans. Residential and auto loans are
collateralized, thereby reducing the risk.
The Company's loans to the energy industry primarily consist of credits
with investor-owned electric and gas utilities, and oil, gas and mining
companies. There were no nonperforming loans to borrowers in this industry at
December 31, 1999 and 1998. There were no charge-offs in this industry in 1999
and 1998.
The Company's loans to the media and telecommunications industries
primarily consist of credits with cable television operators, broadcasters,
magazine and newspaper publishers, motion picture theaters and regional
telephone companies. Nonperforming loans to borrowers in these industries
were $7 million and zero at December 31, 1999 and 1998. Charge-offs were $15
million and zero in 1999 and 1998.
The Company's portfolio of loans for purchasing or carrying securities is
comprised largely of overnight loans which are fully collateralized, with
appropriate margins, by marketable securities. Throughout its many years of
experience in this area, the Company has rarely experienced a loss.
The Company makes loans to mortgage bankers to fund their operations and
mortgages to be sold to investors. Frequently these loans are collateralized
by the mortgages sold to investors. Nonperforming loans were $10 million and
zero at December 31, 1999 and 1998. Charge-offs were $44 million and zero in
1999 and 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:
[CAPTION]
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
[S] [C] [C] [C] [C] [C]
Real Estate 4% 3% 4% 5% 7%
Domestic Commercial
And Industrial 78 74 64 40 36
Consumer - 1 1 1 2
Credit Card - - - 29 23
Foreign 12 11 7 4 11
Unallocated 6 11 24 21 21
---- ---- ---- ---- ----
100% 100% 100% 100% 100%
==== ==== ==== ==== ====
<PAGE 15>
Securities
- ----------
<TABLE>
The following table shows the maturity distribution by carrying amount and yield
(not on a taxable equivalent basis) of the Company's securities portfolio at
December 31, 1999.
<CAPTION>
U.S. States and Other Bonds, Asset-Backed
U.S. Government Political Notes and and Equity
Government Agency Subdivisions Debentures Securities
------------- ------------- ------------- ------------- -------------
(dollars in millions) Amount Yield* Amount Yield* Amount Yield* Amount Yield* Amount Yield* Total
------ ----- ------ ----- ------ ----- ------ ----- ------ ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Securities Held-
- ----------------
to-Maturity
- ------------
One Year or Less $ 9 4.82% $ 3 6.89% $ 191 5.72% $ 80 6.59% $ - -% $ 283
Over 1 through 5 Years 3 6.18 1 8.00 32 5.61 111 4.01 - - 147
Over 5 through 10 Years - - - - 29 6.61 206 6.60 - - 235
Over 10 years - - - - 23 6.73 69 6.06 - - 92
Asset-Backed Securities - - 114 7.25 - - - - - - 114
------ ----- ------ ---- ------ ------
$ 12 5.19% $ 118 7.04% $ 275 5.88% $466 5.90% $ - - $ 871
====== ===== ====== ==== ====== ======
Securities Available-
- ---------------------
for-Sale
- ---------
One Year or Less $ 679 5.74% $ 50 5.56% $ 4 5.66% $604 4.78% $ - -% $1,337
Over 1 through 5 Years 1,754 5.85 65 5.94 44 5.08 184 5.31 - - 2,047
Over 5 through 10 Years 185 5.97 401 6.72 61 5.24 20 6.54 - - 667
Over 10 years 99 6.33 216 6.51 208 5.54 36 5.86 - - 559
Asset-Backed Securities - - - - - - - - 354 6.04 354
Equity Securities - - - - - - - - 1,064 2.07 1,064
----- ----- ------ ---- ------ ------
$2,717 5.85% $ 732 6.51% $ 317 5.42% $844 4.98% $1,418 3.07% $6,028
====== ===== ====== ==== ====== ======
<FN>
*Yields are based upon the amortized cost of securities.
</FN>
</TABLE>
Loans
- -----
The following table shows the maturity structure of the Company's commercial
loan portfolio at December 31, 1999.
<TABLE>
<CAPTION>
Over 1 Year
1 Year Through Over
(in millions) or Less 5 Years 5 Years Total
------- ----------- ------- ------
<S> <C> <C> <C> <C>
Domestic
- --------
Real Estate, Excluding Loans Collateralized
by 1-4 Family Residential Properties $ 368 $ 1,140 $1,538 $ 3,046
Commercial and Industrial Loans 3,317 8,313 2,770 14,400
Other, Excluding Loans to Individuals and those
Collateralized by 1-4 Family Residential Properties 4,917 1,254 88 6,259
------- ------- ------ -------
8,602 10,707 4,396 23,705
Foreign 2,890 1,499 958 5,347
- -------
------- ------- ------ -------
Total $11,492 $12,206 $5,354 $29,052
======= ======= ====== =======
Loans with:
Predetermined Interest Rates $ 2,647 $ 1,004 $1,466 $ 5,117
Floating Interest Rates 8,845 11,202 3,888 23,935
------- ------- ------ -------
Total $11,492 $12,206 $5,354 $29,052
======= ======= ====== =======
</TABLE>
Deposits
- --------
The aggregate amount of deposits by foreign customers in domestic offices
was $7.1 billion, $5.4 billion, and $4.5 billion at December 31, 1999, 1998,
and 1997.
The following table shows the maturity breakdown of domestic time
deposits of $100,000 or more at December 31, 1999.
<TABLE>
<CAPTION>
Other
Certificates Time
(in millions) of Deposits Deposits Total
--------------------------------------------
<S> <C> <C> <C>
3 Months or Less $1,044 $2,632 $3,676
Over 3 Through 6 Months 134 - 134
Over 6 Through 12 Months 113 3 116
Over 12 Months 289 15 304
------ ------ ------
Total $1,580 $2,650 $4,230
====== ====== ======
</TABLE>
<PAGE 16>
The majority of deposits in foreign offices are time deposits in
denominations of $100,000 or more.
Other Borrowed Funds
- --------------------
Information related to other borrowed funds in 1999, 1998, and 1997 is
presented in the table below.
<TABLE>
<CAPTION>
1999 1998 1997
--------------------------------------------------------------
(dollars in millions) Average Average Average
Amount Rate Amount Rate Amount Rate
------ ------- ------ ------- ------ --------
<S> <C> <C> <C> <C> <C> <C>
Federal Funds Purchased and Securities
Sold Under Repurchase Agreements
At December 31 $1,318 2.46% $1,571 3.78% $2,329 4.32%
Average During Year 2,940 4.45 3,147 4.60 2,410 5.00
Maximum Month-End Balance During Year 3,639 2.58 4,684 4.65 3,805 5.45
Other*
At December 31 $1,595 3.97% $2,963 4.86% $2,960 5.69%
Average During Year 2,362 5.36 3,761 5.42 3,177 5.27
Maximum Month-End Balance During Year 3,476 4.70 3,467 5.07 3,439 5.12
<FN>
*Other borrowings consist primarily of commercial paper, bank notes, extended
federal funds purchased, and amounts owed to the U.S. Treasury.
</FN>
</TABLE>
Foreign Assets
- --------------
Foreign assets are subject to general risks attendant to the conduct of
business in each foreign country, including economic uncertainties and each
foreign government's regulations. In addition, the Company's foreign assets
may be affected by changes in demand or pricing resulting from fluctuations in
currency exchange rates or other factors. At December 31, 1999, the Company
had cross border exposure of more than 1% of its total assets in Germany,
totaling $1.2 billion, in the United Kingdom, totaling $1.1 billion and in
France, totaling $1.1 billion. Germany's assets consisted of $935 million
attributable to banks and other financial institutions, $173 million
attributable to public sector entities, and $120 million attributable to
commercial, industrial and other companies. The United Kingdom's assets
consisted of $607 million attributable to banks and other financial
institutions and $500 million attributable to commercial, industrial and other
companies. France's assets consisted of $830 million attributable to banks
and other financial institutions, $182 million attributable to public sector
entities, and $39 million attributable to commercial, industrial and other
companies. At December 31, 1999, the Company had cross border exposure of
more than .75% of its total assets in Belgium and Italy, aggregating $1.3
billion. At December 31, 1998, the Company had cross border exposure of more
than .75% of its total assets in France and Hong Kong, aggregating $1.1
billion.
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 17>
<TABLE>
EXECUTIVE OFFICERS OF THE REGISTRANT AND BUSINESS EXPERIENCE DURING THE PAST FIVE YEARS
- ------------------------------------------------------------------------------------------
<CAPTION>
Company
Officer
Name Office and Experience Age Since
- ---- --------------------- --- -------
<S> <C> <C> <C> <C>
Thomas A. Renyi 1998-2000 Chairman and Chief Executive Officer 54 1992
of the Company and the Bank
1997-1998 President and Chief Executive Officer of
the Company and the Bank
1996-1997 President of the Company and President and
Chief Executive Officer of the Bank
1995 President of the Company and President and
Chief Operating Officer of the Bank
Alan R. Griffith 1995-2000 Vice Chairman of the Company and the Bank 58 1990
Gerald L. Hassell 1998-2000 President of the Company and the Bank and 48 1998
Senior Executive Vice President of the Company
1995-1998 Chief Commercial Banking Officer and
Senior Executive Vice President of the Bank
Bruce W. Van Saun 1998-2000 Senior Executive Vice President of the 42 1998
Company and Chief Financial Officer of the
Company and the Bank
1997-1998 Executive Vice President and Chief Financial
Officer of the Bank
1995-1997 Chief Financial Officer Deutsche Bank
North America
Thomas J. Mastro 1999-2000 Comptroller of the Company and the Bank 50 1999
1998-1999 Senior Vice President of the Bank
1995-1998 Vice President of the Bank
Robert J. Goebert 1995-2000 Auditor of the Company, Senior Vice 58 1982
President of the Bank
</TABLE>
<TABLE>
OFFICERS OF BNY WHO PERFORM MAJOR PLOICY MAKING FUNCTIONS:
- ------------------------------------------------------------------------------------------
<CAPTION>
Bank
Executive
Officer
Name Office and Experience Age Since
- ---- --------------------- --- -------
<S> <C> <C> <C> <C>
Robert J. Mueller 1998-2000 Senior Executive Vice President - 58 1989
Asset Based Lending Sector
1995-1998 Senior Executive Vice President and
Chief Credit Policy Officer
<FN>
There are no family relationships between the executive officers of the Company. The terms
of office of the executive officers of the Company extend until the annual organizational
meeting of the Board of Directors.
</FN>
</TABLE>
<PAGE 18>
ITEM 2. PROPERTIES
- -------------------
At December 31, 1999 in New York City, the Company owned the forty-nine
story building housing its executive headquarters at One Wall Street and an
operations center at 101 Barclay Street. The Company leases the land at the
101 Barclay Street location under a lease expiring in 2080. In addition, the
Company owns and/or leases administrative and operations facilities in New
York City; various locations in New Jersey and Connecticut; Harrison, New
York; Newark, Delaware; Brussels, Belgium; London, England; and Utica, New
York. Other real properties owned or leased by the Company, when considered
in the aggregate, are not material to its operations.
ITEM 3. LEGAL PROCEEDINGS
- --------------------------
The Company is cooperating with investigations being conducted by law
enforcement and bank regulatory authorities focusing on funds transfer
activities in certain accounts at BNY, principally involving wire transfers
from Russian and other sources in Eastern Europe. The investigations center
around accounts controlled by Peter Berlin, his wife, Lucy Edwards (until
discharged in September 1999, an officer of BNY), and companies and persons
associated with them. Berlin and Edwards have pleaded guilty to various
federal criminal charges.
On February 8, 2000, BNY entered into a written agreement with both the
Federal Reserve Bank of New York and the New York State Banking Department,
which imposed a number of reporting requirements and controls. A substantial
portion of these were in place on the date the agreement was signed.
Three purported shareholder derivative actions have been filed in
connection with these Russian related matters - - two in the United States
District Court for the Southern District of New York and one in the New York
Supreme Court, New York County - - against certain directors and officers of
the Company and BNY alleging that the defendants have breached their fiduciary
duties of due care and loyalty by aggressively pursuing business with Russian
banks and entities without implementing sufficient safeguards and failing to
supervise properly those responsible for that business. The actions seek, on
behalf of the Company and BNY, monetary damages from the defendants,
corrective action and attorneys' fees.
Additionally, on October 7, 1999 six alleged depositors of Joint Stock
Bank Inkombank ("Inkombank"), a Russian Bank, filed a purported class action
in the United States District Court for the Southern District of New York on
behalf of all depositors of Inkombank who lost their deposits when that bank
collapsed in 1998. The complaint, as subsequently amended, alleges that the
Company and BNY and their senior officers knew about, and aided and abetted
the looting of Inkombank by its principals. The amended complaint asserts
causes of action for conversion and aiding and abetting conversion under New
York law. In addition, the amended complaint states a claim under the
Racketeer Influenced and Corrupt Organizations Act ("RICO"). It seeks an
unspecified amount of damages believed to exceed $500 million, along with
punitive damages of $500 million, interest, costs, attorneys' fees, expert
fees, and other expenses. The amended compliant seeks a trebling of any RICO
damages. The Company and BNY have filed a motion to dismiss the amended
complaint in its entirety. The Company and BNY believe that the allegations
of the amended complaint are without merit and intend to defend the actions
vigorously.
The Company does not expect that any of the foregoing civil actions will
have a material impact on the Company's consolidated financial condition.
In the ordinary course of business, there are various legal 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 on the Company's consolidated financial statements.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- ------------------------------------------------------------
There were no matters submitted to a vote of security holders of the
registrant during the fourth quarter of 1999.
<PAGE 19>
PART II
- -------
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
- ------------------------------------------------------------------------------
Information with respect to the market for the Company's common equity
and related stockholder matters is incorporated herein by reference from the
"Quarterly Data" section included in Exhibit 13. The Company's securities
that are listed on the New York Stock Exchange (NYSE), are indicated as such
on the front cover of this report. The NYSE symbol for the Company's Common
Stock is BK. All of the Company's other securities are not currently listed.
The Company had 29,176 common shareholders of record at February 29, 2000.
ITEM 6. SELECTED FINANCIAL DATA
- --------------------------------
Selected financial data are incorporated herein by reference from the
"Financial Highlights" section included in Exhibit 13.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
- ----------------------------------------------------------
Management's discussion and analysis of financial condition and results
of operations is incorporated herein by reference from the corresponding
section of Exhibit 13.
FORWARD LOOKING STATEMENTS
The information presented with respect to earnings growth, the Company's
plans and objectives in moving toward fee based business and otherwise is
forward looking information. Forward looking statements are the Company's
current estimates or expectations of future events or future results. As such
forward looking statements are 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. When used in
this report, any press release or oral statements, the words "estimate",
"project", "anticipate", "expect", "intend", "believe", "plan", "goal", and
words of like import are intended to identify forward looking statements in
addition to statements specifically identified as forward looking statements.
These 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-K involve a number of
risks and uncertainties, including risks relating to the uncertainties created
by the 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.
Forward looking statements speak only as of the date they are made. The
Company will not update forward looking statements to reflect factual
assumptions, circumstances or events which have changed after a forward
looking statement was made.
Government Monetary Policies
The Federal Reserve Board has the primary responsibility for United
States monetary policy. 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 20>
Legislation and Regulation
The Gramm-Leach-Bliley Financial Modernization Act of 1999:
a) Allows 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) Allows insurers and other financial services companies to acquire banks;
c) Removes various restrictions that currently apply to bank holding company
ownership of securities firms and mutual fund advisory companies; and
d) Establishes the overall regulatory structure applicable to bank holding
companies that also engage in insurance and securities operations.
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 services
organizations, whose products and services span the local, national, and
global markets in which the Company conducts operations.
Savings banks, savings and loan associations, and credit unions actively
compete for deposits, and money market funds and brokerage houses offer
deposit-like services. These institutions, as well as consumer and commercial
finance companies, national retail chains, factors, insurance companies and
pension trusts, are important competitors for various types of loans. Issuers
of commercial paper compete actively for funds and reduce demand for bank
loans. For personal and corporate trust services and investment counseling
services, insurance companies, investment counseling firms, and other business
firms and individuals offer active competition. A wide variety of domestic
and foreign companies compete for processing services.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
- --------------------------------------------------------------------
See page 11 "Market Risk Management".
Quantitative and qualitative disclosure about market risk are
incorporated herein by reference from the "Market Risk Management", "Trading
Activities and Risk Management", and "Asset/Liability Management" sections
included in Exhibit 13.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
- ----------------------------------------------------
Consolidated financial statements and notes and the independent auditors'
report are incorporated herein by reference from Exhibit 13 to this Report.
Supplementary financial information is incorporated herein by reference
from the "Quarterly Data" section included in Exhibit 13.
<PAGE 21>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
- -------------------------------------------------------------------------
There have been no events which require disclosure under Item 304 of
Regulation S-K.
PART III
- --------
The material responsive to Items 10, 11, 12 and 13 is incorporated by
reference to the Company's definitive proxy statement for its 2000 Annual
Meeting, except for information as to Executive Officers set forth in Part I,
Item 1.
PART IV
- -------
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
- --------------------------------------------------------------------------
(a) 1. Financial Statements:
See Item 8.
(a) 2. Financial Statement Schedules:
Financial statement schedules are omitted since the required information
is either not applicable, not deemed material, or is shown in the respective
financial statements or in the notes thereto.
(a) 3. Listing of Exhibits:
A list of the exhibits filed or incorporated by reference appears
following page 23 of this Report, which information is incorporated by
reference.
(b) Reports on Form 8-K:
October 18, 1999: Unaudited interim financial information and
accompanying discussion for the third quarter of 1999.
December 6, 1999: 7.30% Senior Subordinated Notes due 2009 with four
exhibits: underwriting agreement, dated November 30, 1999; the Form of Note;
an Officers' Certificate pursuant to Section 301 of the Indenture; and the
opinion as to the legality of the Notes.
December 16, 1999: Projections and earnings estimates presented
to the financial analysts on December 16, 1999.
January 18, 2000: Unaudited interim financial information and
accompanying discussion for the fourth quarter of 1999.
(c) Exhibits:
Submitted as a separate section of this report.
(d) Financial Statements Schedules:
None
<PAGE 22>
SIGNATURES
- ----------
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized in New York, New York, on
the 14th day of March, 2000.
THE BANK OF NEW YORK COMPANY, INC.
By: \s\ Thomas J. Mastro
-------------------------------------
(Thomas J. Mastro,
Comptroller)
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been duly signed below by the following persons on behalf of the
registrant and in the capacities indicated on the 14th day of March, 2000.
Signature Title
--------- -----
\s\ Thomas A. Renyi Chairman of the Board, Chief
- ------------------------------------ Executive Officer (Principal
(Thomas A. Renyi) Executive Officer), and Director
\s\ Gerald L. Hassell President and Director
- ------------------------------------
(Gerald L. Hassell)
\s\ Alan R. Griffith Vice Chairman and Director
- ------------------------------------
(Alan R. Griffith)
\s\ Bruce W. Van Saun Senior Executive Vice President
- ------------------------------------ and Chief Financial Officer
(Bruce W. Van Saun) (Principal Financial Officer)
\s\ Thomas J. Mastro Comptroller
- ------------------------------------ (Principal Accounting Officer)
(Thomas J. Mastro)
\s\ J. Carter Bacot Director
- ------------------------------------
(J. Carter Bacot)
\s\ Richard Barth Director
- ------------------------------------
(Richard Barth)
\s\ Frank J. Biondi, Jr. Director
- ------------------------------------
(Frank J. Biondi, Jr.)
<PAGE 23>
\s\ William R. Chaney Director
- ------------------------------------
(William R. Chaney)
\s\ Nicholas M. Donofrio Director
- ------------------------------------
(Nicholas M. Donofrio)
\s\ Richard J. Kogan Director
- ------------------------------------
(Richard J. Kogan)
\s\ John A. Luke, Jr. Director
- ------------------------------------
(John A. Luke, Jr.)
\s\ John C. Malone Director
- ------------------------------------
(John C. Malone)
\s\ Donald L. Miller Director
- ------------------------------------
(Donald L. Miller)
\s\ Catherine A. Rein Director
- ------------------------------------
(Catherine A. Rein)
\s\ William C. Richardson Director
- ------------------------------------
(William C. Richardson)
\s\ Brian L. Roberts Director
- ------------------------------------
(Brian L. Roberts)
<PAGE 24>
INDEX TO EXHIBITS
Exhibit No.
- ----------
3 (a) The By-Laws of The Bank of New York Company, Inc. as amended through
October 13, 1987- incorporated by reference to Exhibit 3(a) to the
Company's 1987 Annual Report on Form 10-K.
(b) Restated Certificate of Incorporation of The Bank of New York Company,
Inc. dated July 20, 1994, incorporated by reference to Exhibit 4 to
the Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1994.
(c) Amendment to Certificate of Incorporation of The Bank of New York
Company, Inc. dated July 9, 1996, incorporated by reference to
Exhibit 4 to the Company's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1996.
(d) Amendment to Certificate of Incorporation of The Bank of New York
Company, Inc. dated July 16, 1998 incorporated by reference to Exhibit
4.3 to the Company's Registration Statement on Form S-3 (Registration
Statement No. 333-70187.
4 (a) None of the outstanding instruments defining the rights of holders of
long-term debt of the Company represent long-term debt in excess of
10% of the total assets of the Company. The Company hereby agrees to
furnish to the Commission, upon request, a copy of any of such
instrument.
(b) Rights Agreement, including form of Preferred Stock Purchase Right,
dated as of December 10, 1985 between The Bank of New York Company,
Inc. and The Bank of New York, as Rights Agent, incorporated by
reference to the Company's registration statement on Form 8-A dated
December 18,1995.
(c) First Amendment, dated as of June 13, 1989, to the Rights Agreement,
including form of Preferred Stock Purchase Right, dated as of December
10, 1985, between The Bank of New York Company, Inc. and The Bank of
New York, as Rights Agent, incorporated by reference to the amendment
on Form 8, dated June 14, 1989, to the Company's Registration
Statement on Form 8-A, dated December 18, 1985. (File No. 1-6152)
(d) Second Amendment, dated as of April 30, 1993, to the Rights Agreement,
including form of Preferred Stock Purchase Right, dated as of December
10, 1985, between The Bank of New York Company, Inc. and The Bank of
New York, as Rights Agent incorporated by reference to the amendment
on Form 8-A/A , filed May 3, 1993, to the Company's Registration
Statement on Form 8-A, dated December 18, 1985. (File No. 1-6152)
(e) Third Amendment, dated as of March 8, 1994, to the Rights Agreement,
dated as of December 10, 1985, between The Bank of New York Company,
Inc. and The Bank of New York, as Rights Agent, incorporated by
reference to the amendment on Form 8-A/A, filed March 24, 1994, to the
Company's Registration Statement on Form 8-A, dated December 18, 1985.
(File No. 1-6152)
*10(a) Amendment dated October 1, 1997 to the Trust Agreement dated
November 16, 1993 related to executive compensation agreements,
incorporated by reference to Exhibit 10(a) to the Company's Annual
Report on Form 10-K for the year ended December 31, 1997.
*(b) Enhanced Severance Agreement dated July 8, 1997, incorporated by
reference to Exhibit 10(b) to the Company's Annual Report on Form 10-K
for the year ended December 31, 1997.
*(c) Enhanced Severance Agreement dated July 8, 1997, incorporated by
reference to Exhibit 10(c) to the Company's Annual Report on Form 10-K
for the year ended December 31, 1997.
<PAGE 25>
*(d) Enhanced Severance Agreement dated July 8, 1997, incorporated by
reference to Exhibit 10(d) to the Company's Annual Report on Form 10-K
for the year ended December 31, 1997.
*(e) Enhanced Severance Agreement dated July 8, 1997, incorporated by
reference to Exhibit 10(e) to the Company's Annual Report on Form 10-K
for the year ended December 31, 1997.
*(f) Consulting Agreement dated November 5, 1997, incorporated by reference
to Exhibit 10(f) to the Company's Annual Report on Form 10-K for the
year ended December 31, 1997.
*(g) Compensation Agreement dated April 17, 1997, incorporated by reference
to Exhibit 10(g) to the Company's Annual Report on Form 10-K for the
year ended December 31, 1997.
*(h) 1984 Stock Option Plan of The Bank of New York Company, Inc. as
amended through February 23, 1988, incorporated by reference to
Exhibit 10(a) to the Company's Annual Report on Form 10-K for the year
ended December 31, 1988.
*(i) Amendment dated October 11, 1994 to 1984 Stock Option Plan of The Bank
of New York Company, Inc., incorporated by reference to Exhibit 10(b)
to the Company's Annual Report on Form 10-K for the year ended
December 31, 1994.
*(j) The Bank of New York Company, Inc. Excess Contribution Plan as amended
through July 10, 1990- incorporated by reference to Exhibit 10(b) to
the Company's Annual Report on Form 10-K for the year ended
December 31, 1990.
*(k) Amendments dated February 23, 1994 and November 9, 1993 to The Bank of
New York Company, Inc. Excess Contribution Plan, incorporated by
reference to Exhibit 10(c) to the Company's Annual Report on Form 10-K
for the year ended December 31, 1993.
*(l) Amendment to The Bank of New York Company, Inc. Excess Contribution
Plan dated November 14, 1995, incorporated by reference to Exhibit
10(l) to the Company's Annual Report on Form 10-K for the year ended
December 31, 1997.
*(m) The Bank of New York Company, Inc. Excess Benefit Plan as amended
through December 8, 1992, incorporated by reference to Exhibit 10(d)
to the Company's Annual Report on Form 10-K for the year ended
December 31, 1993.
*(n) Amendments dated February 23, 1994 and November 9, 1993 to The Bank
of New York Company, Inc. Excess Benefit Plan, incorporated by
reference to Exhibit 10(c) to the Company's Annual Report on Form 10-K
for the year ended December 31, 1993.
*(o) Amendment dated May 10, 1994 to The Bank of New York Company, Inc.
Excess Benefit Plan, incorporated by reference to Exhibit 10(g) to the
Company's Annual report on Form 10-K for the year ended
December 31, 1994.
*(p) Amendment dated November 14, 1995 to The Bank of New Company, Inc.
Excess Benefit Plan, incorporated by reference to Exhibit 10(i) to the
Company's Annual report on Form 10-K for the year ended
December 31, 1995.
*(q) 1994 Management Incentive Compensation Plan of The Bank of New York
Company, Inc., incorporated by reference to Exhibit 10(g) to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1993.
<PAGE 26>
*(r) Amendment dated January 12, 1999 to the 1994 Management Incentive
Compensation Plan of The Bank of New York Company, Inc, incorporated
by reference to exhibit 10 (r) to the Company's annual report on
Form 10-K for the year ended December 31, 1998.
*(s) 1988 Long-Term Incentive Plan as amended through December 8, 1992,
incorporated by reference to Exhibit 10(f) to the Company's Annual
Report on Form 10-K for the year ended December 31, 1992.
*(t) Amendment dated October 11, 1994 to the 1988 Long-Term Incentive Plan
of The Bank of New York Company, Inc., incorporated by reference to
Exhibit 10(j) to the Company's Annual Report on Form 10-K for the year
ended December 31, 1994.
*(u) The Bank of New York Company, Inc. 1993 Long-Term Incentive Plan,
incorporated by reference to Exhibit 10(m) to the Company's Annual
Report on Form 10-K for the year ended December 31, 1992.
*(v) Amendment dated October 11, 1994 to the 1993 Long-Term Incentive Plan
of The Bank of New York Company, Inc., incorporated by reference to
Exhibit 10(l) to the Company's Annual Report on Form 10-K for the year
ended December 31, 1994.
*(w) Amendment dated December 10, 1996 to the 1993 Long-Term Incentive Plan
of The Bank of New York Company, Inc., incorporated by reference to
Exhibit 10(g) to the Company's Annual Report on Form 10-K for the year
ended December 31, 1996.
*(x) Amendment dated January 14, 1997 to the 1993 Long-Term Incentive Plan
of The Bank of New York Company, Inc., incorporated by reference to
Exhibit 10(h) to the Company's Annual Report on Form 10-K for the year
ended December 31, 1996.
*(y) Amendment dated March 11, 1997 to the 1993 Long-Term Incentive Plan of
The Bank of New York Company, Inc., incorporated by reference to
Exhibit 10(i) to the Company's Annual Report on Form 10-K for the year
ended December 31, 1996.
*(z) Amendment dated July 14, 1998 to the 1993 Long-Term Incentive Plan of
The Bank of New York Company, Inc incorporated by reference to Exhibit
10(z) to the Company's Annual Report on Form 10-K for the year ended
December 31, 1998.
*(aa) The Bank of New York Company, Inc. 1999 Long-Term Incentive Plan,
incorporated by reference to Exhibit 10(aa) to the Company's Annual
Report on Form 10-K for the year ended December 31, 1998.
*(bb) The Bank of New York Company, Inc. Supplemental Executive
Retirement Plan, incorporated by reference to Exhibit 10(n) to the
Company's Annual Report on Form 10-K for the year ended December 31,
1992.
*(cc) Amendment dated March 9, 1993 to The Bank of New York Company, Inc.
Supplemental Executive Retirement Plan, incorporated by reference to
Exhibit 10(k) to the Company's Annual Report On Form 10-K for the year
ended December 31, 1993.
*(dd) Amendment effective October 11, 1994 to The Bank of New York Company,
Inc. Supplemental Executive Retirement Plan, incorporated by reference
to Exhibit 10(o) to the Company's Annual Report on Form 10-K for the
year ended December 31, 1994.
*(ee) Amendment dated June 11, 1996 to The Bank of New York Company, Inc.
Supplemental Executive Retirement Plan, incorporated by reference to
Exhibit 10(a) to the Company's Annual Report on Form 10-K for the year
ended December 31, 1996.
*(ff) Amendment dated November 12, 1996 to The Bank of New York Company,
Inc. Supplemental Executive Retirement Plan, incorporated by reference
<PAGE 27>
to Exhibit 10(b) to the Company's Annual Report on Form 10-K for the
year ended December 31, 1996.
*(gg) Amendment dated December 23, 1999 to the Trust Agreement dated
November 16, 1993 related to executive compensation.
*(hh) Trust Agreement dated November 16, 1993 related to certain executive
compensation plans and agreements, incorporated by reference to
Exhibit 10(m) to the Company's Annual Report on Form 10-K for the year
ended December 31, 1993.
*(ii) Amendment dated October 11, 1994 to Trust Agreement dated November 16,
1993, related to certain executive compensation plans and agreements,
incorporated by reference to Exhibit 10(r) to the Company's Annual
Report on Form 10-K for the year ended December 31, 1994.
*(jj) Trust Agreement dated December 15, 1994 related to certain executive
compensation plans and agreements, incorporated by reference to
Exhibit 10(s) to the Company's Annual Report on Form 10-K for the year
ended December 31, 1994.
*(kk) Amendment dated December 10, 1996 to The Bank of New York Company,
Inc. Excess Benefit Plan.
*(ll) Amendment dated January 14, 1997 to the Trust Agreement dated
November 16, 1993 related to executive compensation agreements,
incorporated by reference to Exhibit 10(d) to the Company's Annual
Report on Form 10-K for the year ended December 31, 1996.
*(mm) Amendment dated January 31, 1997 to the Trust Agreement dated
November 16, 1993 related to executive compensation agreements,
incorporated by reference to Exhibit 10(c) to the Company's Annual
Report on Form 10-K for the year ended December 31, 1996.
*(nn) Consulting Agreement dated June 18, 1999.
*(oo) Amendment dated September 11, 1998 to the Trust Agreement dated
November 16, 1993 related to executive compensation agreements,
Incorporated by reference to Exhibit 10(oo) to the the Company's
Annual Report on Form 10-K for the year ended December 31,1998.
*(pp) Form of Remuneration Agreement between the Company and one of the five
most highly compensated executive officers of the Company incorporated
by reference to Exhibit 10 to the Company's Annual Report on Form 10-K
for the year ended December 31, 1982.
*(qq) Form of Tax Reimbursement Agreement dated as of July 13, 1994 between
the Company and two of the five most highly compensated executive
officers of the Company, incorporated by reference to Exhibit 10(u) to
the Company's Annual Report on Form 10-K for the year ended
December 31, 1994.
*(rr) Form of Remuneration Agreement dated October 11, 1994 between the
Company and three of the five most highly compensated officers of the
Company, incorporated by reference to Exhibit 10(v) to the Company's
Annual Report on Form 10-K for the year ended December 31, 1994.
*(ss) The Bank of New York Company, Inc. Retirement Plan for Non-Employee
Directors- incorporated by reference to Exhibit 10(r) to the Company's
Annual Report on Form 10-K for the year ended December 31, 1994,
*(tt) Amendment dated November 8, 1994 to The Bank of New York Company, Inc.
Retirement Plan for Non-Employee Directors, incorporated by reference
to Exhibit 10(x) to the Company's Annual Report on Form 10-K for the
year ended December 31, 1994.
*(uu) Amendment dated February 9, 1999 to The Bank of New York Company, Inc.
Retirement Plan for Non-Employee Directors, Incorporated by reference
To Exhibit 10(uu) to the Company's Annual Report on Form 10-K for the
<PAGE 28>
Year ended December 31, 1998.
*(vv) Deferred Compensation Plan for Non-Employee Directors of The Bank of
New York Company, Inc., incorporated by reference to Exhibit 10(s) to
the Company's Annual Report on Form 10-K for the year ended
December 31, 1993.
*(ww) Amendment dated November 8, 1994 to Deferred Compensation Plan for
Non-Employee Directors of The Bank of New York Company, Inc.,
incorporated by reference to Exhibit 10(z) to the Company's Annual
Report on Form 10-K for the year ended December 31, 1994.
*(xx) Amendment dated February 11, 1997 to the Directors' Deferred
Compensation Plan for The Bank of New York Company, Inc., incorporated
by reference to Exhibit 10(j) to the Company's Annual Report on Form
10-K for the year ended December 31, 1996.
*(yy) Enhanced Severance Agreement dated July 8, 1997.
12 Statement - Re: Computation of Earnings to Fixed Charges Ratios
13 Portions of the 1999 Annual Report to Shareholders
21 Subsidiaries of the Registrant
23.1 Consent of Ernst & Young LLP
27 Financial Data Schedule
* Constitutes a Management Contract or Compensatory Plan or Arrangement
<Page 1>
EXHIBIT 10 (gg)
AMENDMENT NUMBER ELEVEN
TO
GRANTOR TRUST AGREEMENT
THIS AGREEMENT, made as of the 23rd day of December, 1999 by and
between THE BANK OF NEW YORK COMPANY, INC., a corporation organized and
existing under the laws of the State of New York (hereinafter referred to as
the "Company"), and THE CHASE MANHATTAN BANK, a corporation organized and
existing under the laws of the New York (hereinafter referred to as the
"Trustee").
WITNESSETH:
WHEREAS, the Company and the Trustee entered into a Grantor
Trust Agreement dated as of November 16, 1993 (as amended from time to time,
the "Agreement");
WHEREAS, Article TWELFTH of the Agreement provides that the
Company may amend the Agreement; and
WHEREAS, the Company desires to amend the Agreement;
NOW, THEREFORE, the Company and the Trustee agree as follows,
effective December 23, 1999:
Exhibit I the Agreement is amended by deleting Exhibit I
in its entirety and substituting therefor Exhibit I in the form
attached hereto.
IN WITNESS WHEREOF, the parties hereto have caused this
agreement to be executed in their respective names by their duly authorized
officers under their corporate seals as of the day and year first above
written.
ATTEST: THE BANK OF NEW YORK COMPANY, INC.
\s\ Russell P. Wellinger By: \s\ Bruce Van Saun
- ------------------------- -----------------------
Russell P.Wellinger Bruce W. Van Saun
Senior Executive Vice President
ATTEST: THE CHASE MANHATTAN BANK
\s\ Barry O'Connor By: \s\ Gerard Stafford-Smith
- ------------------ -----------------------------
Name: Gerard Stafford-Smith
Title: Vice President
<Page 2>
EXHIBIT I
1. The Bank of New York Company, Inc. Excess Benefit Plan
2. The Bank of New York Company, Inc. Supplemental Executive Retirement Plan
3. Agreements between The Bank of New York Company, Inc. and the following
persons:
Individual Date of Agreement
Alan R. Griffith July 8, 1997
Gerald L. Hassell July 8, 1997
Newton P.S. Merrill October 11, 1994
Donald R. Monks January 14, 1997
Robert J. Mueller July 8, 1997
Richard A. Pace October 11, 1994
Thomas J. Perna September 11, 1998
Thomas A. Renyi July 8, 1997
Bruce W. Van Saun July 8, 1997
Joseph M. Velli September 11, 1998
<Page 1>
EXHIBIT 10 (kk)
AMENDMENT TO
THE BANK OF NEW YORK COMPANY, INC.
EXCESS BENEFIT PLAN
WHEREAS, The Bank of New York Company, Inc. Excess Benefit
Plan (the "Excess Benefit Plan") was amended and restated, effective as of
July 10, 1990; and
WHEREAS, Section 17 of the Excess Benefit Plan provides
that the Compensation Committee of the Board of Directors of The Bank of New
York Company, Inc. may amend the Excess Benefit Plan at any time, except in
certain respects not material hereto; and
WHEREAS, the Compensation Committee desires to amend the
Excess Benefit Plan;
NOW, THEREFORE, the Excess Benefit Plan is hereby amended,
effective as of July1, 1996, by deleting the last paragraph of Appendix B of
the Plan.
IN WITNESS WHEREOF, The Bank of New York Company, Inc. has
caused this Amendment to be executed by its duly authorized officers this 10th
day of December, 1996.
\s\ Thomas A. Renyi
-------------------
ATTEST:
\s\ Jacqueline R. McSwiggan
- ----------------------------
Assistant Secretary
EXHIBIT 10 (nn)
<PAGE 1>
June 18, 1999
Mr. Deno D. Papageorge
C/o The Bank of New York
32 Old Slip
New York, New York 10286
Re: Consulting Agreement
Dear Deno:
This letter confirms the terms and conditions of your
engagement as a consultant to assist The Bank of New York Company, Inc. ("BNY
Co.") in tasks assigned pursuant to this agreement after your retirement from
BNY Co. and The Bank of New York ("BNY") and your resignation as a director of
BNY Co. effective July 16, 1999.
1. Services. You agree to render such services to BNY
Co., its subsidiaries or affiliates as the Chairman of BNY Co. shall from time
to time request (the "Services") and, in particular, relating to BNY Co.'s
financial statements and strategic planning. In rendering Services hereunder
you shall report to the Chairman of BNY Co.
2. Term. This agreement shall be effective immediately
after you retire from BNY Co. and BNY on July 16, 1999 (the "Effective Date").
Subject to Section 8, it shall continue in effect through the first
anniversary of the Effective Date and shall be extended automatically for
additional one (1) year periods unless, no later than 90 days prior to each
anniversary of the Effective Date, either party shall have given notice to the
other that it does not wish to extend this Agreement.
3. Consulting Fee. Consultant shall be entitled to a fee
for Services rendered in the amount of $200,000.00 (the "Consulting Fee"), for
each year that the term of this Agreement remains in effect. The Consulting
Fee shall be payable by BNY Co. in equal quarterly installments in arrears and
shall cover Services rendered by you up to 40 days per each year during the
term of this agreement. For each day in each year of the term of this
agreement that you provide services in excess of 40 days, BNY Co. shall pay to
you a per diem consulting fee of $5,000.00 (the "Per Diem Fee"). The Per Diem
Fee shall be payable promptly after you submit your invoice to BNY Co. As
hereinafter referred to, "Consulting Fee" shall include the Per Diem Fee.
<PAGE 2>
You shall be responsible for the payment of all
applicable taxes levied or based upon any portion of the Consulting Fee paid
by BNY Co., including SECA and federal, state and local income taxes.
In addition, BNY Co. shall pay you a pro rata bonus
for 1999 based on (i) the achievement of performance goals established for you
under the 1994 Management Incentive Compensation Plan of The Bank of New York
Company, Inc. and (ii) the number of full months elapsed in 1999 prior to your
retirement.
4. Reimbursement for Expenses. BNY Co. shall reimburse
you for all reasonable costs and expenses incurred by you in connection with
the rendering of Services hereunder. You shall periodically submit invoices to
BNY Co. for reimbursement of costs and expenses incurred.
5. Confidential Information. You shall hold all
Confidential Information (as defined below) at all times in trust and
confidence for BNY Co., its subsidiaries and affiliates from the time you
acquire such Confidential Information. You shall not use any such Confidential
Information for your own benefit or for the benefit of any other person and,
except as authorized by BNY Co. or its designee in writing, you shall not
disclose to any person or entity any such Confidential Information. Upon
termination of this agreement, if requested by BNY Co. or its designee, you
shall deliver to BNY Co. originals and copies of all reports, your notes and
work papers, documents, correspondence, manuals, tapes and any and all other
materials in your possession or under your control which may contain
confidential information. As used herein, Confidential Information means any
and all information of a confidential or otherwise non-public nature obtained
by you from, or disclosed to you by, BNY Co. or any of its subsidiaries or
affiliates or any of its or their directors, officers, employees, agents or
representatives relating in any way to past, present of future business
affairs, financial information, methods or processes of BNY Co. or any of its
subsidiaries or affiliates. Your obligations under this Section 5 shall
survive any termination or expiration of this agreement.
6. Non-Competition: Exclusivity. During the term of this
agreement, you shall not, directly or indirectly, own, manage, operate, join,
control or otherwise carry on, participate in the management, operation or
control of, consult for, or be engaged in or concerned with any commercial
bank, securities firm or other entity or person that is or is seeking to
become competitive with BNY Co., its subsidiaries or affiliates.
Notwithstanding the foregoing provisions of this Section, nothing shall
prevent you from owning less than 5% of the outstanding shares of any entity
actively traded on a recognized securities exchange or NASDAQ.
<PAGE 3>
7. Independent Contractor. You shall act hereunder as an
independent contractor, shall not be subject to any formal schedule of duties
or hours, and shall in no event be deemed an employee of BNY Co., its
subsidiaries or affiliates for purposes of employee benefits or otherwise,
merely as a consequence of this agreement or your rendering of Services. This
agreement and the rendering of Services shall not in any way affect your
rights or benefits as a retired BNY employee, including without limitation any
employee benefit (whether pension or otherwise) earned or accrued as a BNY
employee prior to the Effective Date and any fees earned as a member of the
Board of Directors of BNY Co.
8. Termination. Upon written notice to you, BNY Co. may
at any time terminate this agreement with or without Cause (defined below). If
BNY Co. terminates this agreement without Cause, it shall be obligated to pay
you any unpaid portion of the annual Consulting Fee when otherwise due. If BNY
Co. terminates this agreement with Cause, it shall only be obligated to pay
you that portion of the annual Consulting Fee that has accrued through the
last day you render Services.
Upon written notice to BNY Co., you may at any time
terminate this agreement, in which case BNY Co. shall only be obligated to pay
you that portion of the annual Consulting Fee that has accrued through the
last day you render Services.
In the event of your death or Disability (defined
below), this agreement shall terminate and BNY Co. shall have no further
obligation to pay any party, including your estate, any unpaid portion of the
Consulting Fee and your estate shall have no obligation to reimburse BNY Co.
for any portion of the Consulting Fee which has been paid to you.
As used herein, Cause means you have (i) materially
breached this agreement, (ii) failed, after being provided with notice and
reasonable opportunity to cure, to render any Services required under this
agreement, (iii) breached any of your fiduciary duties to BNY Co., its
subsidiaries or affiliates, or (iv) been convicted of any felony.
As used herein, Disability shall mean your inability
due to a physical or mental disability, for a period of 90 days, regardless of
whether consecutive, during any 360 day period to perform the services
contemplated under this agreement. A determination of Disability shall be made
by a physician satisfactory to both you and BNY Co., provided that if you and
BNY Co. do not agree on a physician, you and BNY Co. shall each select a
physician and these two physicians together shall select a third physician,
whose determination as to Disability shall be binding on you and BNY Co.
9. Complete Agreement: Modification. This agreement
contains the entire agreement of the parties with respect to the subject
matter hereof. It may not be amended expect in writing signed by both parties.
<PAGE 4>
In case any one or more of the provisions contained herein shall be held to be
invalid, illegal or unenforceable in any respect, such invalidity, illegality
or unenforceability shall not affect the other provisions herein, and this
agreement shall be construed as if such invalid, illegal or unenforceable
provision had never been contained herein. If, moreover, any one or more of
the provisions contained herein shall for any reason be held to be excessively
broad as to duration, geographical scope, activity or subject, it shall be
construed by limiting and reducing it, so as to be enforceable to the extent
compatible with the applicable law as it shall then appear.
10. Binding Nature: Assignment. This agreement shall be
binding on and inure to the benefit of the parties hereto and may not be
assigned by either party. Notwithstanding the foregoing, BNY Co. may assign
this agreement to any entity controlled by, or under common control with, it
without your consent.
11. Limitation of Liability. Except as otherwise
expressly provided herein, you assume no responsibility under this agreement
other than to render the Services called for hereunder in good faith and shall
not be liable to BNY Co. except for your acts or omissions constituting bad
faith, willful misconduct, gross negligence or reckless disregard of your
duties.
12. Applicable Law. You will comply with all applicable
laws in rendering Services under this agreement. This agreement shall be
governed by and construed in accordance with the substantive laws, and not the
choice of law rules, of the State of New York.
If the foregoing reflects our understanding, please
sign and return the duplicate copy of this letter to the undersigned.
Very truly yours,
THE BANK OF NEW YORK ACCEPTED AND AGREED:
COMPANY, INC.
By: \s\ Thomas A. Renyi \s\ Deno D. Papageorge
------------------- -----------------------
Thomas A. Renyi Deno D. Papageorge
Chairman and
Chief Executive Officer
EXHIBIT 10 (yy)
<PAGE 1>
July 8, 1997
Mr. Robert J. Mueller
The Bank of New York
One Wall Street
New York, New York 10286
Dear Mr. Mueller:
The Bank of New York Company, Inc., a New York corporation (the "Company"),
considers the establishment and maintenance of a sound and vital management to
be essential to protecting and enhancing the best interests of the Company and
its shareholders. In this connection, the Company recognizes that, as is the
case with many publicly held corporations, the possibility of a change in
control may arise and that such possibility, and the uncertainty and questions
which it may raise among management of the Company and its principal
subsidiary, The Bank of New York (the "Bank"), may result in the departure or
distraction of management personnel to the detriment of the Company and its
shareholders. Accordingly, the Board of Directors of the Company (the
"Board") has determined that appropriate steps should be taken to reinforce
and encourage the continued attention and dedication of members of management
of the Company and the Bank to their assigned duties without distraction in
circumstances arising from the possibility of a change in control of the
Company. In particular, the Board believes it important, should the Company
or its shareholders receive a proposal for transfer of control of the Company,
that you be able to assess and advise the Board whether such proposal would be
in the best interests of the Company and its shareholders and to take such
other action regarding such proposal as the Board might determine to be
appropriate, without being influenced by the uncertainties of your own
situation.
In order to induce you to remain in the employ of the Company, this
letter agreement sets forth the severance benefits which the Company agrees
will be provided to you in the event your employment with the Company or the
Bank is terminated subsequent to a "change in control" of the Company under
the circumstances described below.
<PAGE 2>
1. Agreement to Provide Services; Right to Terminate.
(i) Except as otherwise provided in paragraph (ii) below, the Company,
the Bank or you may terminate your employment at any time, subject to the
Company's providing the benefits hereinafter specified in accordance with the
terms hereof.
(ii) In the event a tender offer or exchange offer is made by a Person
(as hereinafter defined) for more than 25% of the combined voting power of the
Company's outstanding securities ordinarily having the right to vote at
elections of directors ("Voting Securities"), including shares of the common
stock of the Company, you agree that you will not leave the employ of the
Company or the Bank (other than as a result of Disability or upon Retirement,
as such terms are hereinafter defined) and will render the services
contemplated in the recitals to this Agreement until such tender offer or
exchange offer has been abandoned or terminated or a change in control of the
Company, as defined in Section 3 hereof, has occurred. For purposes of this
Agreement, the term "Person" shall mean and include any individual,
corporation, partnership, group, association or other "person", as such term
is used in Section 14(d) of the Securities Exchange Act of 1934 (the "Exchange
Act"), other than the Company, the Bank, any other subsidiary of the Company
or any employee benefit plan(s) sponsored by the Company, the Bank or any
other subsidiary of the Company.
2. Term of Agreement. This Agreement shall commence on the date hereof
and shall continue in effect until December 31, 1999; provided, however, that
commencing on January 1, 2000 and each January 1 thereafter, the term of this
Agreement shall automatically be extended for one additional year unless at
least 90 days prior to such January 1st date, the Company or you shall have
given notice that this Agreement shall not be extended; and provided, further,
that, notwithstanding the delivery of any such notice, this Agreement shall
continue in effect for a period of twenty-four (24) months after a change in
control of the Company, as defined in Section 3 hereof, if such change in
control shall have occurred during the term of this Agreement, as it may be
extended by the first proviso set forth above. Notwithstanding anything in
this Section 2 to the contrary, this Agreement shall terminate if you or the
Company or the Bank terminate your employment prior to a change in control of
<PAGE 3>
the Company.
3. Change in Control. For purposes of this Agreement, a "change in
control" of the Company shall be deemed to occur if (A) any "person" (as such
term is defined in Section 3(a)(9) and as used in Sections 13(d) and 14(d) of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
excluding the Company or any of its subsidiaries, a trustee or any fiduciary
holding securities under an employee benefit plan of the Company or any of its
subsidiaries, an underwriter temporarily holding securities pursuant to an
offering of such securities or a corporation owned, directly or indirectly, by
stockholders of the Company in substantially the same proportion as their
ownership of the Company, is or becomes the "beneficial owner" (as defined in
Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of
the Company representing 25% or more of the combined voting power of the
Company's then outstanding securities ("Voting Securities"); or (B) during any
period of not more than two years, individuals who constitute the Board as of
the beginning of the period and any new director (other than a director
designated by a person who has entered into an agreement with the Company to
effect a transaction described in clause (A) or (C) of this sentence) whose
election by the Board or nomination for election by the Company's shareholders
was approved by a vote of at least two-thirds (2/3) of the directors then
still in office who either were directors at such time or whose election or
nomination for election was previously so approved, cease for any reason to
constitute a majority thereof; or (C) the shareholders of the Company approve
a merger or consolidation of the Company with any other corporation, other
than a merger or consolidation which would result in the Voting Securities of
the Company outstanding immediately prior thereto continuing to represent
(either by remaining outstanding or by being converted into Voting Securities
of the surviving entity) at least 60% of the combined voting power of the
Voting Securities of the Company or such surviving entity outstanding
immediately after such merger or consolidation, or the shareholders of the
Company approve a plan of complete liquidation of the Company or any agreement
for the sale or disposition by the Company or all or substantially all of the
Company's assets.
<PAGE 4>
4. Termination Following Change in Control. If any of the events
described in Section 3 hereof constituting a change in control of the Company
shall have occurred, you shall be entitled to the benefits provided in Section
5 hereof upon the termination of your employment with the Company or the Bank
within twenty-four (24) months after such event, unless such termination is
(a) because of your death or Retirement, (b) by the Company for Cause or
Disability or (c) by you other than for Good Reason (as all such capitalized
terms are hereinafter defined).
(i) Disability. Termination by the Company of your employment based on
"Disability" shall mean termination because of your absence from your duties
with the Company on a full time basis for one hundred eighty (180) consecutive
days as a result of your incapacity due to physical or mental illness, unless
within thirty (30) days after Notice of Termination (as hereinafter defined)
is given to you following such absence you shall have returned to the full
time performance of your duties.
(ii) Retirement. Termination by you or by the Company of your
employment based on "Retirement" shall mean termination on or after your
attainment of age sixty-five (65).
(iii) Cause. Termination by the Company or the Bank of your employment
for "Cause" shall mean termination upon (a) the willful and continued failure
by you to perform substantially your duties with the Company or the Bank
(other than any such failure resulting from your incapacity due to physical or
mental illness) after a demand for substantial performance is delivered to you
by the Chairman of the Board or President of the Company or the Chief
Executive Officer of the Bank, as appropriate, which specifically identifies
the manner in which such executive believes that you have not substantially
performed your duties, or (b) the willful engaging by you in illegal conduct
which is materially and demonstrably injurious to the Company or the Bank.
For purposes of this paragraph (iii), no act, or failure to act, on your part
<PAGE 5>
shall be considered "willful" unless done, or omitted to be done, by you in
bad faith and without reasonable belief that your action or omission was in,
or not opposed to, the best interests of the Company or the Bank. Any act, or
failure to act, based upon authority given pursuant to a resolution duly
adopted by the Board or based upon the advice of counsel for the Company or
the Bank shall be conclusively presumed to be done, or omitted to be done, by
you in good faith and in the best interests of the Company and the Bank. It
is also expressly understood that your attention to matters not directly
related to the business of the Company or the Bank shall not provide a basis
for termination for Cause so long as the Board has approved your engagement in
such activities. Notwithstanding the foregoing, you shall not be deemed to
have been terminated for Cause unless and until there shall have been
delivered to you a copy of a resolution duly adopted by the affirmative vote
of not less than three-quarters of the entire membership of the Board at a
meeting of the Board called and held for the purpose (after reasonable notice
to you and an opportunity for you, together with your counsel, to be heard
before the Board), finding that in the good faith opinion of the Board you
were guilty of the conduct set forth above in (a) or (b) of this paragraph
(iii) and specifying the particulars thereof in detail.
(iv) Good Reason. Termination by you of your employment for "Good
Reason" shall mean termination based on:
(A) a determination by you, in your reasonable judgment, that there has
been an adverse change in your status or position(s) as an executive officer
of the Company or the Bank as in effect immediately prior to the change in
control, including, without limitation, any adverse change in your status or
position as a result of a diminution in your duties or responsibilities (other
than, if applicable, any such change directly attributable to the fact that
the Company is no longer publicly owned) or the assignment to you of any
duties or responsibilities which are inconsistent with such status or
position(s), or any removal of you from or any failure to reappoint or reelect
you to such position(s) (except in connection with the termination of your
employment for Cause, Disability or Retirement or as a result of your death or
by you other than for Good Reason);
(B) a reduction by the Company or the Bank in your base salary as in
effect immediately prior to the change in control;
(C) the failure by the Company or the Bank to continue in effect any
Plan (as hereinafter defined) in which you are participating at the time of
<PAGE 6>
the change in control of the Company (or Plans providing you with at least
substantially similar benefits) other than as a result of the normal
expiration of any such Plan in accordance with its terms as in effect at the
time of the change in control, or the taking of any action, or the failure to
act, by the Company or the Bank which would adversely affect your continued
participation in any of such Plans on at least as favorable a basis to you as
is the case on the date of the change in control or which would materially
reduce your benefits in the future under any of such Plans or deprive you of
any material benefit enjoyed by you at the time of the change in control;
(D) the failure by the Company or the Bank to provide and credit you
with the number of paid vacation days to which you are then entitled in
accordance with its normal vacation policy as in effect immediately prior to
the change in control;
(E) the requirement by the Company or the Bank that you be based at an
office that is greater than 35 miles from where your office is located
immediately prior to the change in control except for required travel on the
business of the Company or the Bank to an extent substantially consistent with
the business travel obligations which you undertook on behalf of the Company
or the Bank prior to the change in control;
(F) the failure by the Company to obtain from any Successor (as
hereinafter defined) the assent to this Agreement contemplated by Section 6
hereof;
(G) any purported termination by the Company or the Bank of your
employment which is not effected pursuant to a Notice of Termination
satisfying the requirements of paragraph (v) below (and, if applicable,
paragraph (iii) above); and for purposes of this Agreement, no such purported
termination shall be effective; or
(H) any refusal by the Company or the Bank to continue to allow you to
attend to matters or engage in activities not directly related to the business
of the Company or the Bank which, prior to the change in control, you were
permitted by the Board to attend to or engage in.
<PAGE 7>
For purposes of this Agreement, "Plan" shall mean any compensation plan such
as an incentive, stock option or restricted stock plan or any employee benefit
plan such as a thrift, pension, profit sharing, medical, disability, accident,
life insurance plan or a relocation plan or policy or any other plan, program
or policy of the Company or the Bank intended to benefit employees.
(v) Notice of Termination. Any purported termination by the Company or
the Bank or by you following a change in control shall be communicated by
written Notice of Termination to the other party hereto. For purposes of this
Agreement, a "Notice of Termination" shall mean a notice which shall indicate
the specific termination provision in this Agreement relied upon.
(vi) Date of Termination. "Date of Termination" following a change in
control shall mean (a) if your employment is to be terminated for Disability,
thirty (30) days after Notice of Termination is given (provided that you shall
not have returned to the performance of your duties on a full-time basis
during such thirty (30) day period), (b) if your employment is to be
terminated by the Company or the Bank for Cause or by you pursuant to Sections
4(iv)(F) and 6 hereof or for any other Good Reason, the date specified in the
Notice of Termination, or (c) if your employment is to be terminated by the
Company or the Bank for any reason other than Cause, the date specified in the
Notice of Termination, which in no event shall be a date earlier than ninety
(90) days after the date on which a Notice of Termination is given, unless an
earlier date has been expressly agreed to by you in writing either in advance
of, or after, receiving such Notice of Termination. In the case of
termination by the Company or the Bank of your employment for Cause, if you
have not previously expressly agreed in writing to the termination, then
within thirty (30) days after receipt by you of the Notice of Termination with
respect thereto, you may notify the Company that a dispute exists concerning
the termination, in which event the Date of Termination shall be the date set
either by mutual written agreement of the parties or by the arbitrators in a
proceeding as provided in Section 13 hereof. During the pendency of any such
dispute, the Company or the Bank will continue to pay you your full
compensation in effect just prior to the time the Notice of Termination is
given and until the dispute is resolved in accordance with Section 13.
<PAGE 8>
5. Compensation Upon Termination or During Disability; Other Agreements.
(i) During any period following a change in control of the Company that
you fail to perform your duties as a result of incapacity due to physical or
mental illness, you shall continue to receive your salary at the rate then in
effect and any benefits or awards under any Plans shall continue to accrue
during such period, to the extent not inconsistent with such Plans, until your
employment is terminated pursuant to and in accordance with Sections 4(i) and
4(vi) hereof. Thereafter, your benefits shall be determined in accordance
with the Plans then in effect.
(ii) If your employment shall be terminated for Cause following a change
in control of the Company, the Company or the Bank shall pay you your salary
through the Date of Termination at the rate in effect just prior to the time a
Notice of Termination is given plus any benefits or awards (including both the
cash and stock components) which pursuant to the terms of any Plans have been
earned and are otherwise payable, but which have not yet been paid to you.
Thereupon the Company and the Bank shall have no further obligations to you
under this Agreement.
(iii) If, within twenty-four (24) months after a change in control of
the Company, as defined in Section 3 above, shall have occurred, your
employment by the Company or the Bank shall be terminated (a) by the Company
or the Bank other than for Cause, Disability or Retirement or (b) by you for
Good Reason, then the Company shall pay or cause the Bank to pay to you, no
later than the fifth business day following the Date of Termination, without
regard to any contrary provisions of any Plan, the following:
(A) your salary through the Date of Termination at the rate in effect
just prior to the time a Notice of Termination is given plus any benefits or
awards (including both the cash and stock components) which pursuant to the
terms of any Plans have been earned and otherwise payable, but which have not
yet been paid to you; and
(B) as severance pay a lump sum in cash equal to the sum of the
following amounts:
<PAGE 9>
(1) three times the average annual salary and bonus paid to you during
the 36 months immediately preceding the month in which the change in control
occurs; and
(2) the lump sum actuarial equivalent (utilizing actuarial assumptions
no less favorable to you than those in effect under the Company's Retirement
Plan immediately prior to the change in control) of the excess of the (A)
benefits under the Company's Retirement Plan, Excess Benefit Plan and
Supplemental Executive Retirement Plan (collectively, the "Defined Benefit
Plans") which you would receive if your employment continued for three years
after the Date of Termination, assuming for this purpose that (x) your accrued
benefits under the Defined Benefit Plans were fully vested, (y) in each of the
three years you received (a) salary at the annual rate in effect immediately
prior to the change in control and (b) bonus compensation equal to the last
bonus paid to you prior to the change in control and (z) there were no
reduction or offset under the Defined Benefit Plans for the actuarial value of
your account under the Employee Stock Ownership Plan of The Bank of New York
Company, Inc. (the "ESOP"), over (B) the vested accrued benefits payable under
the Defined Benefit Plans as of the Date of Termination if there were no
reduction or offset thereunder for the actuarial value of your ESOP account.
(iv) If, within twenty-four (24) months after a change in control of the
Company, as defined in Section 3 above, shall have occurred, your employment
by the Company or the Bank shall be terminated (a) by the Company or the Bank
other than for Cause, Disability or Retirement or (b) by you for Good Reason,
then the Company shall maintain or cause the Bank to maintain in full force
and effect, for the continued benefit of you and your dependents for a period
terminating on the earliest of (a) three years after the Date of Termination,
(b) the commencement date of equivalent benefits from a new employer or (c)
your attainment of age sixty-five (65), all insured and self-insured employee
welfare benefit Plans in which you were entitled to participate immediately
prior to the Date of Termination, provided that your continued participation
is possible under the general terms and provisions of such Plans (and any
<PAGE 10>
applicable funding media) and you continue to pay an amount equal to your
regular contribution under such plans for such participation. If, at the end
of three years after the Termination Date, you have not reached your sixty-
fifth birthday and you have not previously received or are not then receiving
equivalent benefits from a new employer, the Company shall or cause the Bank
to arrange, at its sole cost and expense, to enable you to convert your and
your dependents' coverage under such Plans to individual policies or programs
upon the same terms as employees of the Company and the Bank may apply for
such conversions. In the event that your participation in any such Plan is
barred, the Company shall or cause the Bank, at its sole cost and expense, to
arrange to have issued for the benefit of you and your dependents individual
policies of insurance providing benefits substantially similar (on an after-
tax basis) to those which you otherwise would have been entitled to receive
under such Plans pursuant to this paragraph (iv) or, if such insurance is not
available at a reasonable cost to the Company or the Bank, the Company shall
or cause the Bank to otherwise provide you and your dependents with equivalent
benefits (on an after-tax basis). You shall not be required to pay any
premiums or other charges in an amount greater than that which you would have
paid in order to participate in such Plans.
(v) In the event it shall be determined that any payment, award, benefit
or distribution (or any acceleration of any payment, award, benefit or
distribution) by the Company (or any of its affiliated entities) or any entity
which effectuates a change in control (or any of its affiliated entities) to
or for your benefit, whether pursuant to the terms of this Agreement or
otherwise, but determined without regard to any additional payments required
under this Section 5 (the "Payments"), would be subject to the excise tax
imposed by Section 4999 of the Internal Revenue Code of 1986, as amended (the
"Code"), or any interest or penalties are incurred by you with respect to such
excise tax (such excise tax, together with any such interest and penalties,
are hereinafter collectively referred to as the "Excise Tax"), then the
Company shall pay you an additional payment (a "Gross-Up Payment") in an
amount such that after payment by you of all taxes (including any Excise Tax)
imposed upon the Gross-Up Payment, you retain an amount of the Gross-Up
Payment equal to the sum of (x) the Excise Tax imposed upon the Payments and
(y) the product of any deductions disallowed because of the inclusion of the
<PAGE 11>
Gross-up Payment in your adjusted gross income and the highest applicable
marginal rate of federal income taxation for the calendar year in which the
Gross-up Payment is to be made. For purposes of determining the amount of the
Gross-up Payment, you shall be deemed to (i) pay federal income taxes at the
highest marginal rates of federal income taxation for the calendar year in
which the Gross-up Payment is to be made, (ii) pay applicable state and local
income taxes at the highest marginal rate of taxation for the calendar year in
which the Gross-up Payment is to be made, net of the maximum reduction in
federal income taxes which could be obtained from deduction of such state and
local taxes and (iii) have otherwise allowable deductions for federal income
tax purposes at least equal to those which could be disallowed because of the
inclusion of the Gross-up Payment in the Executive's adjusted gross income.
The Gross-up Payment under this paragraph (v) with respect to any Payment
shall be made no later than thirty (30) days following such Payment.
As a result of the uncertainty in the application of Section 4999 of the
Code at the time of the Determination, it is possible that Gross-Up Payments
which will not have been made by the Company should have been made
("Underpayment") or Gross-up Payments are made by the Company which should not
have been made ("Overpayment"), consistent with the calculations required to
be made hereunder. In the event that you are thereafter required to make
payment of any Excise Tax or additional Excise Tax, the Accounting Firm shall
determine the amount of the Underpayment that has occurred and any such
Underpayment (together with interest at the rate provided in Section
1274(b)(2)(B) of the Code) shall be promptly paid by the Company to or for
your benefit. In the event the amount of the Gross-up Payment exceeds the
amount necessary to reimburse you for your Excise Tax, the Accounting Firm
shall determine the amount of the Overpayment that has been made and any such
Overpayment (together with interest at the rate provided in Section 1274(b)(2)
of the Code) shall be promptly paid by you (to the extent you have received a
refund if the applicable Excise Tax has been paid to the Internal Revenue
Service) to or for the benefit of the Company. You shall cooperate, to the
extent your expenses are reimbursed by the Company, with any reasonable
requests by the Company in connection with any contests or disputes with the
Internal Revenue Service in connection with the Excise Tax.
<PAGE 12>
(vi) Notwithstanding the provisions of paragraph (iii) of this Section
5, you shall receive in lieu of the amounts provided by subparagraph (B)
thereof, the following amount if it is greater than the sum of the amounts
provided by such subparagraph: a lump sum in cash equal to 2.99 times your
annualized includible compensation for the base period" (as such term is
defined in Section 280G(d)(1) of the Code), reduced, if applicable, to the
maximum amount that could be paid to you without giving rise to the Excise Tax
(the "Safe Harbor Cap"). The reduction of the amounts payable under this
Agreement, if applicable, shall be made first by reducing the lump sum payment
provided for in the preceding sentence unless an alternative method of
reduction is elected by you.
(vii) All determinations required to be made under paragraphs (v) and
(vi) of this Section, including whether and when a Gross-Up Payment is
required and the amount of such Gross-Up Payment or the reduction of the
Payments to the Safe Harbor Cap, as well as the assumptions to be utilized in
arriving at such determinations, shall be made by the public accounting firm
that is retained by the Company as of the date immediately prior to the change
in control (the "Accounting Firm") which shall provide detailed supporting
calculations both to the Company and you within fifteen (15) business days of
the receipt of notice from the Company or you that there has been a Payment,
or such earlier time as is requested by the Company (collectively, the
"Determination"). In the event that the Accounting Firm is serving as
accountant or auditor for the individual, entity or group effecting the change
in control, you may appoint another nationally recognized public accounting
firm to make the determinations required hereunder (which accounting firm
shall then be referred to as the Accounting Firm hereunder). All fees and
expenses of the Accounting Firm shall be borne solely by the Company and the
Company shall enter into any agreement requested by the Accounting Firm in
connection with the performance of the services hereunder. If the Accounting
Firm determines that no Excise Tax is payable by you, it shall furnish you
with a written opinion to such effect, and to the effect that failure to
report the Excise Tax, if any, on your applicable federal income tax return
will not result in the imposition of a negligence or similar penalty. In the
event the Accounting Firm determines that the Payments shall be reduced to the
Safe Harbor Cap, it shall furnish you with a written opinion to such effect.
The Determination by the Accounting Firm shall be binding upon the Company and
you.
<PAGE 13>
(viii) Except as specifically provided in paragraph (iv) above, the
amount of any payment provided for in this Section 5 shall not be reduced,
offset or subject to recovery by the Company or the Bank by reason of any
compensation earned by you as the result of employment by another employer
after the Date of Termination, or otherwise.
6. Successors; Binding Agreement.
(i) The Company will seek, by written request at least five business
days prior to the time a Person becomes a Successor (as hereinafter defined),
to have such Person by agreement in form and substance satisfactory to you,
assent to the fulfillment of the Company's obligations under this Agreement.
Failure of such Person to furnish such assent by the later of (A) three
business days prior to the time such Person becomes a Successor or (B) two
business days after such Person receives a written request to so assent shall
constitute Good Reason for termination by you of your employment if a change
in control of the Company occurs or has occurred. For purposes of this
Agreement, "Successor" shall mean any Person that succeeds to, or has the
practical ability to control (either immediately or with the passage of time),
the Company's business directly, by merger or consolidation, or indirectly, by
purchase of the Company's Voting Securities or otherwise.
(ii) This Agreement shall inure to the benefit of and be enforceable by
your personal or legal representatives, executors, administrators, successors,
heirs, distributees, devisees and legatees. If you should die while any
amount would still be payable to you hereunder if you had continued to live,
all such amounts, unless otherwise provided herein, shall be paid in
accordance with the terms of this Agreement to your devisee, legatee or other
designee or, if there be no such designee, to your estate.
(iii) For purposes of this Agreement, the "Company" shall include any
corporation or other entity which is the surviving or continuing entity in
respect of any merger, consolidation or form of business combination in which
the Company ceases to exist.
<PAGE 14>
7. Fees, Expenses and Interest; Mitigation.
(i) The Company shall, or cause the Bank to, reimburse you, on a current
basis, for all reasonable legal fees and related expenses incurred by you in
connection with the Agreement following a change in control of the Company,
including, without limitation, (a) all such fees and expenses, if any,
incurred in contesting or disputing any termination of your employment or
incurred by you in seeking advice with respect to the matters set forth in
Section 8 hereof or (b) your seeking to obtain or enforce any right or benefit
provided by this Agreement, in each case, regardless of whether or not your
claim is upheld by a court of competent jurisdiction; provided, however, you
shall be required to repay any such amounts to the Company to the extent that
a court issues a final and non-appealable order setting forth the
determination that the position taken by you was frivolous or advanced by you
in bad faith. In addition to the fees and expenses provided herein, you shall
also be paid interest on any disputed amount ultimately paid to you at the
prime rate announced by the Bank from time to time from the date payment
should have been made until paid in full.
(ii) You shall not be required to mitigate the amount of any payment the
Company or the Bank becomes obligated to make to you in connection with this
Agreement, by seeking other employment or otherwise.
8. Taxes. All payments to be made to you under this Agreement will be
subject to required withholding of federal, state and local income and
employment taxes.
9. Survival. The respective obligations of, and benefits afforded to,
the Company and you as provided in Sections 5, 6(ii), 7, 8, 13 and 14 of this
Agreement shall survive termination of this Agreement.
10. Notice. For the purposes of this Agreement, notices and all other
communications provided for in the Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by United States
registered mail, return receipt requested, postage prepaid and addressed, in
the case of the Company, to the address set forth on the first page of this
Agreement or, in the case of the undersigned employee, to the address set
forth below his signature, provided that all notices to the Company shall be
directed to the attention of the Chairman of the Board or President of the
<PAGE 15>
Company, with a copy to the Secretary of the Company, or to such other address
as either party may have furnished to the other in writing in accordance
herewith, except that notice of change of address shall be effective only upon
receipt.
11. Miscellaneous. No provision of this Agreement may be modified,
waived or discharged unless such modification, waiver or discharge is agreed
to in a writing signed by you and the Chairman of the Board or President of
the Company. No waiver by either party hereto at any time of any breach by
the other party hereto of, or of compliance with, any condition or provision
of this Agreement to be performed by such other party shall be deemed a waiver
of similar or dissimilar provisions or conditions at the same or at any prior
or subsequent time. No agreements or representations, oral or otherwise,
express or implied, with respect to the subject matter hereof have been made
by either party which are not expressly set forth in this Agreement. The
validity, interpretation, construction and performance of this Agreement shall
be governed by the laws of the State of New York applied without regard to
conflict of laws principles.
12. Validity. The invalidity or unenforceability of any provision of
this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, which shall remain in full force and effect.
13. Arbitration. Any dispute or controversy arising under or in
connection with this Agreement shall be settled exclusively by arbitration in
New York City by three arbitrators in accordance with the rules of the
American Arbitration Association then in effect. Judgment may be entered on
the arbitrators' award in any court having jurisdiction; provided, however,
that you shall be entitled to seek specific performance of your right to be
paid until the Date of Termination during the pendency of any dispute or
controversy arising under or in connection with this Agreement. The Company
shall bear all costs and expenses arising in connection with any arbitration
proceeding pursuant to this Section 13.
14. Employee's Commitment. You agree that subsequent to your period of
employment with the Company and the Bank, you will not at any time communicate
or disclose to any unauthorized person, without the written consent of the
Company, any proprietary processes of the Company or any subsidiary or other
<PAGE 16>
confidential information concerning their business, affairs, products,
suppliers or customers which, if disclosed, would have a material adverse
effect upon the business or operations of the Company and its subsidiaries,
taken as a whole; it being understood, however, that the obligations of this
Section 14 shall not apply to the extent that the aforesaid matters (a) are
disclosed in circumstances where you are legally required to do so or (b)
become generally known to and available for use by the public otherwise than
by your wrongful act or omission.
15. Related Agreements. To the extent that any provision of any other
agreement between the Company, the Bank or any of the Company's other
subsidiaries and you shall limit, qualify or be inconsistent with any
provision of this Agreement, then for purposes of this Agreement, while the
same shall remain in force, the provision of this Agreement shall control and
such provision of such other agreement shall be deemed to have been
superseded, and to be of no force or effect, as if such other agreement had
been formally amended to the extent necessary to accomplish such purpose.
16. Counterparts. This Agreement may be executed in several
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
If this letter correctly sets forth our agreement on the subject matter
hereof, kindly sign and return to the Company the enclosed copy of this letter
which will then constitute our agreement on this subject and will supersede
<PAGE 17>
our previous letter agreement dated October 11, 1994.
Sincerely,
THE BANK OF NEW YORK COMPANY, INC.
By: \s\ Phebe C. Miller
- -----------------------------
Name: Phebe C. Miller
Title:Chief Legal Officer and Secretary
Agreed to this 15th day
of September, 1997.
\s\ Robert J. Mueller
- -------------------------
Robert J. Mueller
EXHIBIT 12
<TABLE>
THE BANK OF NEW YORK COMPANY, INC.
Ratios of Earnings to Fixed Charges and
Ratios of Earnings to Combined Fixed Charges,
Distribution on Trust Preferred Securities,
and Preferred Stock Dividends
(Dollars in millions)
<CAPTION>
For The Years Ended December 31 1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
EARNINGS
- --------
Income Before Income Taxes $2,952 $1,986 $1,838 $1,656 $1,482
Fixed Charges, Excluding Interest on Deposits 442 519 446 502 568
------ ------ ------ ------ ------
Income Before Income Taxes and Fixed Charges
Excluding Interest on Deposits 3,394 2,505 2,284 2,158 2,050
Interest on Deposits 1,363 1,374 1,290 1,152 1,265
------ ------ ------- ------ ------
Income Before Income Taxes and Fixed Charges,
Including Interest on Deposits $4,757 $3,879 $3,574 $3,310 $3,315
====== ====== ======= ====== ======
FIXED CHARGES
- -------------
Interest Expense, Excluding Interest
on Deposits $ 409 $ 485 $ 415 $ 470 $ 537
One-Third Net Rental Expense* 33 34 31 32 31
------ ------ ------ ------ ------
Total Fixed Charges, Excluding Interest on
Deposits 442 519 446 502 568
Interest on Deposits 1,363 1,374 1,290 1,152 1,265
------ ------ ------ ------ ------
Total Fixed Charges, Including Interest on
Deposits $1,805 $1,893 $1,736 $1,654 $1,833
====== ====== ====== ====== ======
DISTRIBUTION ON TRUST PREFERRED
SECURITIES, PRE-TAX BASIS $ 112 $ 95 $ 65 $ 2 $ -
- -------------------------------
====== ====== ====== ====== ======
PREFERRED STOCK DIVIDENDS, PRE-TAX BASIS $ - $ - $ 14 $ 16 $ 16
- ----------------------------------------
====== ====== ====== ====== ======
EARNINGS TO FIXED CHARGES RATIOS
- --------------------------------
Excluding Interest on Deposits 7.68x 4.83x 5.12x 4.30x 3.61x
Including Interest on Deposits 2.64 2.05 2.06 2.00 1.81
EARNINGS TO COMBINED FIXED CHARGES,
DISTRIBUTION ON TRUST PREFERRED SECURITIES,
& PREFERRED STOCK DIVIDENDS RATIOS
- -------------------------------------------
Excluding Interest on Deposits 6.13 4.08 4.35 4.15 3.51
Including Interest on Deposits 2.48 1.95 1.97 1.98 1.79
<FN>
*The proportion deemed representative of the interest factor.
</FN>
</TABLE>
<PAGE 1>
EXHIBIT 13
1999 Annual Report to Shareholders
<PAGE 2>
<TABLE>
FINANCIAL HIGHLIGHTS
<CAPTION>
Dollars in millions,
except per share amounts 1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net Interest Income $ 1,701 $ 1,651 $ 1,855 $ 1,961 $ 2,029
Noninterest Income 3,493 2,283 2,137 2,130 1,491
Provision for Credit Losses 135 20 280 600 330
Noninterest Expense 2,107 1,928 1,874 1,835 1,708
Net Income 1,739 1,192 1,104 1,020 914
Net Income Available to
Common Shareholders 1,739 1,192 1,095 1,010 904
Return on Average Assets 2.60% 1.89% 1.86% 1.90% 1.72%
Return on Average Common
Shareholders' Equity 34.00 24.25 22.13 19.98 19.42
Common Dividend Payout Ratio 25.03 33.84 34.13 32.50 28.84
Per Common Share
Basic Earnings $ 2.31 $ 1.59 $ 1.44 $ 1.30 $ 1.17
Diluted Earnings 2.27 1.53 1.36 1.20 1.09
Cash Dividends Paid 0.58 0.54 0.49 0.42 0.34
Market Value at Year End 40.00 40.25 28.91 16.88 12.19
Averages
Securities $ 7,545 $ 7,154 $ 5,722 $ 5,343 $ 5,260
Loans 38,881 38,340 36,577 36,698 35,421
Total Assets 66,777 63,141 59,242 53,649 53,053
Deposits 46,564 42,262 39,910 36,599 36,061
Long-Term Debt 2,306 1,972 1,815 1,870 1,773
Minority Interest -
Preferred Securities 1,487 1,233 830 26 -
Shareholders' Equity:
Preferred - 1 103 113 115
Common 5,114 4,915 4,947 5,055 4,653
At Year End
Allowance for Credit Losses
as a Percent of Loans 1.58% 1.66% 1.82% 2.44% 2.01%
Tier 1 Capital Ratio 7.51 7.89 7.92 8.34 8.42
Total Capital Ratio 11.67 11.90 11.97 12.78 13.08
Leverage Ratio 7.20 7.46 7.59 8.70 8.46
Common Equity to Assets Ratio 6.88 8.58 8.34 8.99 9.53
Total Equity to Assets Ratio 6.88 8.58 8.34 9.19 9.74
Common Shares Outstanding
(in millions) 738.770 771.318 747.670 770.544 789.912
Employees 17,735 17,157 16,494 16,158 15,810
<FN>
The per common share amounts and common shares outstanding have been restated to
reflect the 2-for-1 common stock splits effective July 24, 1998 and July 19,
1996.
</FN>
</TABLE>
<PAGE 3>
<TABLE>
Consolidated Balance Sheets
<CAPTION>
- ----------------------------------------------------------------------------------------
Dollars in millions, except per share amounts December 31, 1999 1998
- ----------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Cash and Due from Banks $ 3,276 $ 3,999
Interest-Bearing Deposits in Banks 6,850 4,504
Securities:
Held-to-Maturity (fair value of $839 in 1999
and $923 in 1998) 871 964
Available-for-Sale 6,028 5,451
------- -------
Total Securities 6,899 6,415
Trading Assets 8,715 1,637
Federal Funds Sold and Securities Purchased
Under Resale Agreements 5,383 3,281
Loans (less allowance for credit losses of $595 in
1999 and $636 in 1998) 36,952 37,750
Premises and Equipment 893 856
Due from Customers on Acceptances 739 946
Accrued Interest Receivable 319 355
Other Assets 4,730 3,760
------- -------
Total Assets $74,756 $63,503
======= =======
Liabilities and Shareholders' Equity
Deposits:
Noninterest-Bearing (principally domestic offices) $12,162 $11,480
Interest-Bearing
Domestic Offices 16,319 16,091
Foreign Offices 27,270 17,061
------- -------
Total Deposits 55,751 44,632
Federal Funds Purchased and Securities
Sold Under Repurchase Agreements 1,318 1,571
Other Borrowed Funds 3,825 4,536
Acceptances Outstanding 740 951
Accrued Taxes and Other Expenses 2,644 2,183
Accrued Interest Payable 131 188
Other Liabilities 893 608
Long-Term Debt 2,811 2,086
------- -------
Total Liabilities 68,113 56,755
------- -------
Company-Obligated Mandatory Redeemable Preferred Trust Securities
of Subsidiary Trust Holding Solely Junior Subordinated Debentures 1,500 1,300
------- -------
Shareholders' Equity
Class A Preferred Stock-par value $2.00 per share, authorized
5,000,000 shares, outstanding 16,787 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 977,961,165 shares in 1999 and
970,767,767 shares in 1998 7,335 7,281
Additional Capital 315 142
Retained Earnings 2,620 1,318
Accumulated Other Comprehensive Income 30 312
------- -------
10,301 9,054
Less: Treasury Stock (237,747,242 shares in 1999
and 197,648,459 shares in 1998), at cost 5,148 3,593
Loan to ESOP (1,444,005 shares in 1999 and
1,801,003 shares in 1998), at cost 10 13
------- -------
Total Shareholders' Equity 5,143 5,448
------- -------
Total Liabilities and Shareholders' Equity $74,756 $63,503
======= =======
<FN>
See accompanying Notes to Consolidated Financial Statements.
</FN>
</TABLE>
<PAGE 4>
<TABLE>
Consolidated Statements of Income
<CAPTION>
- -----------------------------------------------------------------------------------------
In millions, except per share amounts
For the years ended December 31, 1999 1998 1997
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest Income
Loans $2,636 $2,770 $2,910
Securities
Taxable 257 271 244
Exempt from Federal Income Taxes 50 61 35
------ ------ ------
307 332 279
Deposits in Banks 247 184 188
Federal Funds Sold and Securities
Purchased Under Resale Agreements 205 203 162
Trading Assets 78 21 21
------ ------ ------
Total Interest Income 3,473 3,510 3,560
------ ------ ------
Interest Expense
Deposits 1,363 1,374 1,290
Federal Funds Purchased and Securities
Sold Under Repurchase Agreements 131 145 121
Other Borrowed Funds 126 204 168
Long-Term Debt 152 136 126
------ ------ ------
Total Interest Expense 1,772 1,859 1,705
------ ------ ------
Net Interest Income 1,701 1,651 1,855
Provision for Credit Losses 135 20 280
------ ------ ------
Net Interest Income After Provision
for Credit Losses 1,566 1,631 1,575
------ ------ ------
Noninterest Income
Processing Fees
Securities 1,245 1,000 790
Cash 274 256 239
------ ------ ------
1,519 1,256 1,029
Private Client Services and
Asset Management Fees 244 208 181
Service Charges and Fees 338 326 354
Securities Gains 199 175 136
Other 1,193 318 437
------ ------ ------
Total Noninterest Income 3,493 2,283 2,137
------ ------ ------
Noninterest Expense
Salaries and Employee Benefits 1,251 1,178 1,066
Net Occupancy 165 166 166
Furniture and Equipment 96 86 95
Other 595 498 547
------ ------ ------
Total Noninterest Expense 2,107 1,928 1,874
------ ------ ------
Income Before Income Taxes 2,952 1,986 1,838
Income Taxes 1,101 699 669
Distribution on Preferred Trust Securities 112 95 65
------ ------ ------
Net Income $1,739 $1,192 $1,104
====== ====== ======
Net Income Available to Common Shareholders $1,739 $1,192 $1,095
====== ====== ======
Per Common Share
Basic Earnings $ 2.31 $ 1.59 $ 1.44
Diluted Earnings 2.27 1.53 1.36
Cash Dividends Paid 0.58 0.54 0.49
Diluted Shares 765 781 807
<FN>
See accompanying Notes to Consolidated Financial Statements.
</FN>
</TABLE>
<PAGE 5>
<TABLE>
Consolidated Statements of Changes in Shareholders' Equity
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
In millions For the years ended December 31, 1999 1998 1997
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Preferred Stock
Balance, January 1 $ 1 $ 1 $ 112
Redemption (shares: 184,000 in 1997) - - (111)
------ ------ ------
Balance, December 31 1 1 1
------ ------ ------
Common Stock
Balance, January 1 7,281 6,904 6,664
Exercise of Warrants (shares: 42,930,224 in 1998,
and 21,845,256 in 1997) - 322 164
Other Issuances (shares: 7,193,398 in 1999,
7,412,305 in 1998, and 9,944,410 in 1997) 54 55 76
------ ------ ------
Balance, December 31 7,335 7,281 6,904
------ ------ ------
Additional Capital
Balance, January 1 142 12 9
Exercise of Warrants - 11 5
Other, Primarily Common Stock Issued in Connection
with Employee Benefit Plans 173 119 (2)
------ ------ ------
Balance, December 31 315 142 12
------ ------ ------
Retained Earnings
Balance, January 1 1,318 529 (190)
Net Income $1,739 1,739 $1,192 1,192 $1,104 1,104
Cash Dividends
Common Stock (437) (403) (373)
Preferred Stock - - (10)
Other, Primarily Conversion of Debentures - - (2)
------ ------ ------
Balance, December 31 2,620 1,318 529
Accumulated Other Comprehensive Income
Securities Valuation Allowance
Balance, January 1 340 320 82
Change in Fair Value of Securities Available-for-Sale,
Net of Taxes of ($103) in 1999, $90 in 1998,
and $152 in 1997 (147) (147) 145 145 293 293
Reclassification Adjustment, Net of Taxes
of $74 in 1999, $69 in 1998, and $29 in 1997 (135) (135) (125) (125) (55) (55)
------ ------ ------
Balance, December 31 58 340 320
Foreign Currency Items
Balance, January 1 (28) (35) (9)
Foreign Currency Translation Adjustment
Net of Tax Expense(Benefit) of
$5 in 1998 and ($18) in 1997 - - 7 7 (26) (26)
------ ------ ------
Balance, December 31 (28) (28) (35)
------ ------ ------
Total Comprehensive Income $1,457 $1,219 $1,316
====== ====== ======
Less Treasury Stock
Balance, January 1 3,593 2,714 1,524
Issued (shares: 3,673,172 in 1999, 5,507,044 in 1998,
and 2,569,458 in 1997) (71) (97) (34)
Acquired (shares: 43,771,955 in 1999, 32,514,495 in 1998,
and 57,510,776 in 1997) 1,626 976 1,224
------ ------ ------
Balance, December 31 5,148 3,593 2,714
------ ------ ------
Less Loan to ESOP
Balance, January 1 13 15 17
Released (shares: 356,998 in 1999, 312,655 in 1998,
and 277,780 in 1997) (3) (2) (2)
------ ------ ------
Balance, December 31 10 13 15
------ ------ ------
Total Shareholders' Equity, December 31 $5,143 $5,448 $5,002
====== ====== =======
<FN>
See accompanying Notes to Consolidated Financial Statements.
</FN>
</TABLE>
<PAGE 6>
<TABLE>
Consolidated Statements of Cash Flows
<CAPTION>
- ----------------------------------------------------------------------------------------
In millions For the years ended December 31, 1999 1998 1997
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating Activities
Net Income $1,739 $1,192 $1,104
Adjustments to Determine Net Cash Attributable to
Operating Activities:
Provision for Losses on Loans
and Other Real Estate 135 21 292
Liquidity Charge on Loans Available for Sale 124 - -
Sale of BNYFC (1999) and Credit Card Loans (1997) (1,020) - (177)
Depreciation and Amortization 215 187 200
Deferred Income Taxes 454 260 271
Securities Gains (199) (175) (136)
Change in Trading Activities (1,899) 1,102 (786)
Change in Accruals and Other, Net (533) (1,021) 58
------ ------ ------
Net Cash Provided (Used) by Operating Activities (984) 1,566 826
------ ------ ------
Investing Activities
Change in Interest-Bearing Deposits in Banks (739) (2,256) (833)
Purchases of Securities Held-to-Maturity (422) (631) (318)
Maturities of Securities Held-to-Maturity 460 814 366
Purchases of Securities Available-for-Sale (2,992) (2,481) (2,550)
Sales of Securities Available-for-Sale 865 1,767 453
Maturities of Securities Available-for-Sale 1,036 849 954
Net Principal Disbursed on Loans to Customers (2,008) (2,561) (4,248)
Sales of Loans and Other Real Estate 367 258 5,680
Change in Federal Funds Sold and Securities
Purchased Under Resale Agreements (2,102) (461) (2,258)
Purchases of Premises and Equipment (97) (88) (45)
Acquisitions, Net of Cash Acquired (490) (166) (269)
Disposition, Net of Cash Included 4,867 - -
Proceeds from the Sale of Premises and Equipment 10 50 10
Other, Net 179 (268) (93)
------ ------ ------
Net Cash Used by Investing Activities (1,066) (5,174) (3,151)
------ ------ ------
Financing Activities
Change in Deposits 2,215 3,199 2,204
Change in Federal Funds Purchased and Securities
Sold Under Repurchase Agreements (253) (758) 592
Change in Other Borrowed Funds 202 (323) 259
Proceeds from the Issuance of Preferred Trust Securities 200 300 400
Proceeds from the Issuance of Long-Term Debt 731 315 25
Repayments of Long-Term Debt (21) (44) (48)
Redemption and Repurchases of Preferred Stock - - (115)
Issuance of Common Stock 301 606 278
Treasury Stock Acquired (1,626) (976) (1,224)
Cash Dividends Paid (435) (403) (383)
------ ------ ------
Net Cash Provided by Financing Activities 1,314 1,916 1,988
------ ------ ------
Effect of Exchange Rate Changes on Cash 13 (78) 74
------ ------ ------
Change in Cash and Due From Banks (723) (1,770) (263)
Cash and Due from Banks at Beginning of Year 3,999 5,769 6,032
------ ------ ------
Cash and Due from Banks at End of Year $3,276 $3,999 $5,769
====== ====== ======
Supplemental Disclosure of Cash Flow Information
Cash Paid During the Year for:
Interest $1,829 $1,853 $1,701
Income Taxes 542 404 381
Noncash Investing Activity
(Primarily Foreclosure of Real Estate) 4 8 10
<FN>
See accompanying Notes to Consolidated Financial Statements.
</FN>
</TABLE
<PAGE 7>
Notes to Consolidated Financial Statements
1. Summary of Significant Accounting and Reporting Policies
The Bank of New York Company, Inc. (the "Company") provides a complete range
of banking and other financial services to corporations and individuals
worldwide through its business segments: Servicing and Fiduciary Businesses;
Corporate Banking; Retail Banking; and Financial Markets.
Use of Estimates - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts in the consolidated financial
statements. Amounts subject to significant estimates and assumptions are items
such as the allowance for credit losses, pension and postretirement
obligations, and the fair value of financial instruments. Actual results could
differ from these estimates.
Securities - Debt and equity securities classified as available-for-sale are
carried at fair value, except for those equity securities whose fair value
cannot be readily determined. These securities are carried at cost. Equity
investments of less than a majority but at least 20% ownership are accounted
for by the equity method and classified as other assets. For securities
carried at fair value, the after-tax effect of net unrealized gains and losses
is reported as a separate component of shareholders' equity.
Securities classified as trading assets are carried at fair value, with
net unrealized holding gains and losses recognized currently in income. Debt
securities, which the Company has the ability and intent to hold until
maturity, are classified as held-to-maturity and stated at cost, adjusted for
discount accreted and premium amortized. Realized gains and losses on the sale
of debt and equity securities are determined by the specific identification
and average cost methods, respectively.
Allowance for Credit Losses - The allowance for credit losses is maintained at
a level that, in management's judgment, is adequate to absorb probable losses
associated with specifically identified loans, as well as estimated probable
credit losses inherent in the remainder of the loan portfolio at the balance
sheet date. Management's judgment includes the following factors, among
others: risks of individual credits; past experience; the volume, composition,
and growth of the loan portfolio; and economic conditions.
The Company conducts a quarterly portfolio review to determine the
adequacy of its allowance for credit losses. All significant commercial loans
are assigned to specific risk categories. Smaller commercial and consumer
loans are evaluated on a pooled basis. Following this review, senior
management of the Company analyzes the results and determines the allowance
for credit losses. The Audit and Examining Committee of the Company's Board of
Directors reviews the allowance at the end of each quarter.
The portion of the allowance for credit losses allocated to nonaccrual
commercial loans over $1 million (impaired loans) is measured by the
difference between their recorded value and fair value. Fair value is either
the present value of the expected future cash flows from borrowers, the market
value of the loan, or the fair value of the collateral.
<PAGE 8>
Nonperforming Assets - Commercial loans are placed on nonaccrual status when
collateral is insufficient and principal or interest is past due 90 days or
more, or when there is reasonable doubt that interest or principal will be
collected. Accrued interest is usually reversed when a loan is placed on
nonaccrual status. Interest payments received on nonaccrual loans may be
recognized as income or applied to principal depending upon management's
judgment. Nonaccrual loans are restored to accrual status when principal and
interest are current or they become fully collateralized. Consumer loans are
not classified as nonperforming assets, but are charged off and interest
accrued is suspended based upon an established delinquency schedule determined
by product. Real estate acquired in satisfaction of loans is carried in other
assets at the lower of the recorded investment in the property or fair value
minus estimated costs to sell.
Derivative Financial Instruments - Derivative contracts, such as futures,
forwards, swaps, options, and similar products used in trading activities, are
recorded at market value. Gains and losses are included in other noninterest
income. Unrealized gains and losses are reported on a gross basis in trading
account assets and other borrowed funds, after taking into consideration
master netting agreements.
Derivative contracts are designated as an element of the Company's asset
and liability management (ALM) process when they alter the Company's interest
rate and foreign currency exposures. Contracts used in the ALM process are
linked to specific or groups of similar assets or liabilities where there is a
high correlation between the derivative contract and the item altered, both at
inception and throughout the contract period. ALM derivative contracts are
accounted for on the deferral, accrual, or mark-to-market basis, as noted
below. Under the deferral or accrual method, gains and losses on terminated
derivative contracts are deferred and amortized over the remaining life of the
linked assets or liabilities. Gains and losses on derivative contracts linked
to assets or liabilities that are sold are recognized as an adjustment to the
gain or loss of the balance sheet item.
Deferral Accounting - This method relates principally to futures and
forwards. Deferred gains and losses are reported as adjustments to the
carrying value of the linked items. The amortization of deferred gains and
losses is reported as interest income or expense related to the linked item.
Accrual Accounting - Interest rate swap and purchased option contracts
are accounted for on an accrual basis as an adjustment to interest income or
expense related to the linked item.
Mark-to-Market Accounting - This method relates to derivative contracts
linked to balance sheet items recorded at fair value. The fair value changes
of balance sheet and derivative items are reported in shareholders' equity net
of tax. Interest accruals for derivative contracts are reported as interest
income related to balance sheet items. Fair value changes in derivative
contracts are recorded in earnings when the linked balance sheet item's fair
value changes are recorded in earnings.
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.
Reclassifications - Certain prior year information has been reclassified to
conform its presentation with the 1999 financial statements.
<PAGE 9>
2. Acquisitions and Dispositions
On October 31,1999, the Company acquired RBS Trust Bank Limited ("RBSTB")
from the Royal Bank of Scotland plc. At acquisition, RBSTB had assets of $9.5
billion. RBSTB is the largest provider of investor services to pension funds
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
Company's expansion in the European market.
On November 15, 1999, the Company acquired Estabrook Capital Management
Inc., an asset management firm based in New York with approximately $2.3
billion in assets under management.
During the first quarter of 1999, the Company formed BNY Asset Solutions
through the consolidation of BNY Trotter Kent LLC and The Capital Company of
America Client Services LLC, both of which were acquired by the Company during
1999. The subsidiary provides administrative and operational support to the
commercial mortgage and asset-backed lending markets from origination through
securitization, as well as administrative agent services to the syndicated
loan market.
Also in 1999, the Company acquired a planned giving service, a eurobond
paying agency and depositary business, and the corporate trust businesses of
other financial service companies.
In the third quarter of 1999, the Company sold BNY Financial Corporation
("BNYFC")to General Motors Acceptance Corporation. Net income includes a pre-
tax gain of $1,020 million ($573 million after-tax) or 75 cents per share from
this sale.
During 1998, the Company acquired a merger and advisory firm, a
correspondent securities clearing organization and a directed brokerage
services firm. The Company also acquired the corporate trust businesses of
several smaller banks in 1998 as well as a firm specializing in the research
and trading of high yield securities. In 1998, the Company acquired
International Factors, Ltd. which was subsequently sold as part of the BNYFC
transaction.
During 1997, the Company acquired asset based lending and employee
benefit recordkeeping businesses. Also in 1997, the Company acquired the
corporate trust businesses of Wells Fargo & Company and Boatmen's Bancshares
as well as those of several smaller banks. In addition, the Company acquired
certain assets of BondNet, an information technology company. The Company also
acquired ESI Securities Company and its affiliate, B-Trade Services. These
companies deliver trading services to institutions.
In January 1997, the Company sold approximately $900 million in credit
card receivables. In November 1997, the Company sold its remaining credit card
operations ($4.4 billion in receivables) and recorded a pre-tax gain on this
sale of approximately $177 million.
In 1997, the Company sold a portion of its interest in Wing Hang Bank,
Ltd. for a pre-tax gain of $27 million.
The pro forma effect of the above acquisitions and dispositions is not
material.
<PAGE 10>
3. Securities
The following table sets forth the amortized cost and the fair values of
securities at the end of the last two years:
1999
---------------------------------------------
Gross Unrealized
In millions Amortized ---------------- Fair
Cost Gains Losses Value
--------- ----- ------ -----
Securities Held-to-Maturity
US Government Obligations $ 12 $ - $ - $ 12
US Government Agency Obligations 118 - 2 116
Obligations of States and
Political Subdivisions 275 1 - 276
Emerging Markets 304 - 32 272
Other Debt Securities 162 1 - 163
------ ---- ---- ------
Total Securities Held-to-Maturity 871 2 34 839
------ ---- ---- ------
Securities
Available-for-Sale
US Government Obligations 2,767 - 50 2,717
US Government Agency Obligations 768 - 36 732
Obligations of States and
Political Subdivisions 315 3 1 317
Other Debt Securities 843 4 3 844
Asset-Backed Securities 354 - - 354
Equity Securities 900 221 57 1,064
------ ---- ---- ------
Total Securities Available-for-Sale 5,947 228 147 6,028
------ ---- ---- ------
Total Securities $6,818 $230 $181 $6,867
====== ==== ==== ======
1998
----------------------------------------------
Gross Unrealized
In millions Amortized ---------------- Fair
Cost Gains Losses Value
--------- ----- ------ ------
Securities Held-to-Maturity
US Government Obligations $ 31 $ - $ - $ 31
US Government Agency Obligations 164 4 - 168
Obligations of States and
Political Subdivisions 336 3 - 339
Emerging Markets 307 - 52 255
Other Debt Securities 126 4 - 130
------ ---- ---- ------
Total Securities Held-to-Maturity 964 11 52 923
------ ---- ---- ------
Securities
Available-for-Sale
US Government Obligations 2,499 87 1 2,585
US Government Agency Obligations 658 2 - 660
Obligations of States and
Political Subdivisions 306 17 - 323
Other Debt Securities 605 3 - 608
Equity Securities 872 403 - 1,275
------ ---- ---- ------
Total Securities Available-for-Sale 4,940 512 1 5,451
------ ---- ---- ------
Total Securities $5,904 $523 $ 53 $6,374
====== ==== ==== ======
<PAGE 11>
The amortized cost and fair values of securities at December 31, 1999, by
contractual maturity, are as follows:
Held-to-Maturity Available-for-Sale
--------------------- ---------------------
Amortized Fair Amortized Fair
In millions Cost Value Cost Value
--------- ------ --------- ------
Due in One Year or Less $ 283 $ 283 $1,337 $1,337
Due After One Year Through
Five Years 147 144 2,069 2,047
Due After Five Years Through
Ten Years 235 218 697 667
Due After Ten Years 92 82 590 559
Mortgage-Backed Securities 114 112 - -
Asset-Backed Securities - - 354 354
Equity Securities - - 900 1,064
------ ------ ------ ------
Total $ 871 $ 839 $5,947 $6,028
====== ====== ====== ======
Realized gross gains on the sale of securities available-for-sale were
$175 million and $146 million in 1999 and 1998. There were $1 million of
realized gross losses in 1999 and $3 million of realized gross losses in 1998.
Assets, including securities sold under repurchase agreements, carried at
$4 billion, $4 billion, and $3 billion at December 31, 1999, 1998, and 1997,
were pledged for various purposes as required or permitted by law.
4. Loans
The Company's loan distribution and industry concentrations of credit risk at
December 31, 1999 and 1998 are incorporated by reference from "Loans" in the
Management's Discussion and Analysis Section of this Report. The Company's
retail, community, and regional commercial banking operations in the New York
metropolitan area create a significant geographic concentration.
In the ordinary course of business, the Company and its banking
subsidiaries have made loans at prevailing interest rates and terms to
directors and executive officers of the Company and to certain entities to
which these individuals are related. The aggregate dollar amount of these
loans was $432 million, $1,057 million, and $767 million at December 31, 1999,
1998, and 1997. These loans are primarily with related entities under
revolving lines of credit. During 1999, these loans averaged $732 million, and
ranged from $358 million to $1,192 million. All loans were fully performing
during this period.
Transactions in the allowance for credit losses are summarized as follows:
In millions 1999 1998 1997
- ----------- ------ ------ ------
Balance, January 1 $636 $641 $901
Charge-Offs (154) (51) (403)
Recoveries 17 22 49
----- ----- -----
Net Charge-Offs (137) (29) (354)
Provision 135 20 280
Other (1) (39) 4 (186)
----- ----- -----
Balance, December 31 $595 $636 $641
==== ==== ====
(1) In 1999, $39 million was allocated to BNYFC loans sold. In 1997, $186
million was allocated to credit card loans sold during the year.
<PAGE 12>
Nonaccrual and reduced rate loans outstanding at December 31, 1999, 1998,
and 1997 were $146 million, $179 million, and $193 million. At December 31,
1999, commitments to borrowers whose loans were classified as nonaccrual or
reduced rate were not material.
At December 31, 1999 and 1998, impaired loans aggregated $88 million and
$145 million, of which $65 million and $116 million exceeded their fair value
by $21 million and $35 million. For 1999 and 1998, the average amount of
impaired loans was $130 million and $142 million and interest income
recognized on them (limited to cash received) was $0.2 million and $1 million
in 1999 and 1998.
Interest income recognized on total nonaccrual and reduced rate loans
exceeded reversals by $1 million in 1999, $3 million in 1998, and $2 million
in 1997. Interest income would have been increased by $8 million, $10 million,
and $10 million if loans on nonaccrual status at December 31, 1999, 1998, and
1997 had been performing for the entire year. At year end, foreign loans on
nonperforming status were $63 million in 1999, $53 million in 1998, and $34
million in 1997. Interest income received on foreign nonperforming loans
equaled reversals in 1999, 1998, and 1997. If foreign loans on nonaccrual
status at December 31, 1999, 1998, and 1997 had been performing for the entire
year, interest income would have been increased by $1 million for 1999, $2
million for 1998 and $3 million for 1997.
Other real estate was $12 million, $14 million, and $15 million at
December 31, 1999, 1998, and 1997. Writedowns of and expenses related to other
real estate included in noninterest expense were $1 million, $2 million, and
$11 million in 1999, 1998, and 1997.
5. Long-Term Debt
The following is a summary of the contractual maturity and sinking fund
requirements of long-term debt at December 31, 1999 and totals for 1998:
1999 1998
--------------------------------------- ------
After
5 Years
Under Through After
In millions 5 Years(1) 10 Years 10 Years Total Total
- ----------- ------- -------- -------- ------ ------
Fixed $1,448 $460 $822 $2,730 $1,989
Variable 50 - 31 81 97
------ ----- ------ ------ ------
Total $1,498 $460 $853 $2,811(2) $2,086
====== ===== ==== ====== ======
(1) The under five years category above includes $3 million of fixed rate debt
and $50 million of variable rate debt with scheduled maturity of under one
year
(2) At December 31, 1999, long term debt aggregating $820 million is
redeemable at the option of the Company as follows: $300 million in 2000;
$70 million in 2001; $280 million in 2002; and $170 million in 2003.
Fixed-rate debt at December 31, 1999 had interest rates ranging from 6.10% to
8.50%. The weighted average interest rates on fixed-rate debt at December 31,
1999 and 1998 were 7.32% and 7.50%. The weighted average interest rates on
variable-rate debt at December 31, 1999 and 1998 were 5.69% and 5.41%.
Exposure to interest rate movements is reduced by interest rate swap
agreements. As a result of these agreements, the effective interest rates
differ from those stated.
<PAGE 13>
6. Company-Obligated Mandatory Redeemable Preferred Trust Securities of
Subsidiary Trust Holding Solely Junior Subordinated Debentures
Wholly owned subsidiaries of the Company ("the Trusts") have issued cumulative
Preferred Trust Securities ("Preferred Trust Securities"). The sole assets of
each trust are junior subordinated deferrable interest debentures of the
Company, whose maturities and interest rates match the Preferred Trust
Securities. The Company's obligations under the agreements that relate to the
Preferred Trust Securities, the Trusts and the debentures constitute a full
and unconditional guarantee by the Company of the Trusts' obligations under
the Preferred Trust Securities.
The following table sets forth a summary of the Preferred Trust
Securities issued by the Company as of December 31, 1999:
Preferred Trust Securities
- --------------------------
Dollars Interest Assets Due Call Call
in millions Amount Rate of Trust Date Date Price
- ----------- ------ -------- -------- ---- ---- -------
BNY Institutional
Capital Trust A $300 7.78% $309 2026 2006 103.89%
BNY Capital I 300 7.97 309 2026 2006 103.99
BNY Capital II 400 7.80 412 2027 2002 Par
BNY Capital III 300 7.05 309 2028 2003 Par
BNY Capital IV 200 6.88 206 2028 2004 Par
The Company has the option to shorten the maturity of BNY Capital II, III and
IV to 2012, 2013 and 2013 or extend the maturity to 2046, 2047 and 2047.
7. Shareholders' Equity
The Company currently plans to buy back up to 14 million shares of its common
stock. In 1998, the Company's shareholders authorized an increase in the
Company's common stock from 800 million common shares to 1.6 billion common
shares. The common stock was split two-for-one as of July 24, 1998. Prior
period financial statements have been restated to reflect the stock split. The
Company's warrants expired in November 1998. In addition to the Class A
preferred stock, the Company has 5 million authorized shares of preferred
stock having no par value, with no shares outstanding at either December 31,
1999 or 1998.
The Company's preferred stock purchase rights plan provides that if any
person or group becomes the beneficial owner of 20% or more of the Company's
common stock (an "acquiring person"), then on and after the tenth day
thereafter, each right would entitle the holder (other than the acquiring
person) to purchase $400 in market value of the Company's common stock for
$200. In addition, if there is a business combination between the Company and
an acquiring person, or in certain other circumstances, each right (if not
previously exercised) would entitle the holder (other than the acquiring
person) to purchase $200 in market value of the common stock of the acquiring
person for $100. The rights are redeemable by the Company at $0.05 per right
until they are exercisable, and will expire in 2004.
At December 31, 1999, the Company had reserved for issuance 93 million
common shares pursuant to the terms of securities and employee benefit plans.
<PAGE 14>
Basic and diluted earnings per share are calculated as follows:
In millions, except per share amounts 1999 1998 1997
------------------------------------- ------ ------ ------
Net Income $1,739 $1,192 $1,104
Net Income Available to Common Shareholders $1,739 $1,192 $1,095
Diluted Net Income $1,739 $1,192 $1,095
Basic Weighted Average Shares Outstanding 751 751 760
Shares Issuable upon Conversion:
Warrants - 18 34
Employee Stock Options 14 12 13
------ ------ ------
Diluted Weighted Average Shares Outstanding 765 781 807
====== ====== ======
Basic Earnings per Share $ 2.31 $ 1.59 $ 1.44
Diluted Earnings per Share $ 2.27 $ 1.53 $ 1.36
8. Income Taxes
Income taxes included in the consolidated statements of income consist of the
following:
</TABLE>
<TABLE>
<CAPTION>
1999 1998 1997
---------------------- ---------------------- ----------------------
In millions Current Deferred Total Current Deferred Total Current Deferred Total
------- -------- ----- ------- -------- ----- ------- -------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Federal $422 $342 $ 764 $280 $185 $465 $284 $217 $501
Foreign 101 - 101 75 - 75 48 - 48
State and Local 124 112 236 84 75 159 66 54 120
---- ---- ----- ---- ---- ---- ---- ---- ----
Income Taxes $647 $454 $1,101 $439 $260 $699 $398 $271 $669
==== ==== ===== ==== ==== ==== ==== ==== ====
</TABLE>
The components of income before taxes are as follows:
In millions 1999 1998 1997
- ----------- ------ ------ ------
Domestic $2,691 $1,751 $1,673
Foreign 261 235 165
------ ------ ------
Income Before Taxes $2,952 $1,986 $1,838
====== ====== ======
The Company's net deferred tax liability (included in accrued taxes) at
December 31 consisted of the following:
In millions 1999 1998 1997
- ----------- ------ ------ ------
Lease Financings $2,108 $1,696 $1,405
Depreciation and Amortization 239 202 224
Credit Losses on Loans (322) (317) (329)
Other Assets (151) (97) (90)
Other Liabilities 278 334 326
------ ------ ------
Net Deferred Tax Liability $2,152 $1,818 $1,536
====== ====== ======
The Company has not recorded a valuation allowance because it expects to
realize all of its deferred tax assets.
<PAGE 15>
The statutory federal income tax rate is reconciled to the Company's
effective income tax rate below:
1999 1998 1997
------ ------ ------
Federal Rate 35.0% 35.0% 35.0%
Tax-Exempt Income (1.0) (1.2) (0.6)
Foreign Operations (0.1) (0.2) (0.7)
State and Local Income Taxes,
Net of Federal Income Tax Benefit 5.0 5.0 4.0
Nondeductible Expenses 0.5 0.8 0.9
Leveraged Lease Portfolio (0.1) (0.8) (0.2)
Preferred Trust Securities (1.3) (1.7) (1.2)
Other (0.7) (1.7) (0.8)
----- ----- -----
Effective Rate 37.3% 35.2% 36.4%
===== ===== =====
9. Employee Benefit Plans
The Company has defined benefit retirement plans covering substantially all
full-time employees and also provides health care benefits for certain retired
employees. The Company's Employee Stock Ownership Plan may provide additional
benefits.
Pension Benefits Healthcare Benefits
------------------ ---------------------
Dollars in millions 1999 1998 1999 1998
- ------------------- ---- ---- ---- ----
Change in Benefit Obligation
Obligation at Beginning of Period $(450) $(375) $(125) $(120)
Service Cost (22) (17) (1) (1)
Interest Cost (31) (28) (9) (9)
Employee Contributions - - (1) -
Actuarial Gain (Loss) 39 (83) 11 (4)
Benefits Paid 47 53 10 9
Acquisitions and Dispositions (79) - - -
----- ----- ----- -----
Obligation at End of Period (496) (450) (115) (125)
----- ----- ----- -----
Change in Plan Assets
Fair Value at Beginning of Period 1,073 1,027 57 1
Actual Return on Plan Assets 263 72 2 (2)
Acquisitions and Dispositions 80 - - -
Employer Contributions 6 6 - 67
Benefit Payments (47) (32) - (9)
------ ----- ----- -----
Fair Value at End of Period 1,375 1,073 59 57
------ ----- ----- -----
Funded Status 879 623 (56) (68)
Unrecognized Net Transition Asset (9) (12) 81 88
Unrecognized Prior Service Cost (10) (12) - -
Unrecognized Net Gain (353) (145) (16) (11)
------ ----- ----- -----
Prepaid (Accrued) Benefit Cost $ 507 $ 454 $ 9 $ 9
====== ===== ===== =====
Weighted-Average Assumptions
Discount Rate 8.00% 7.125% 7.75% 7.125%
Expected Rate of Return on
Plan Assets 10.5 10.5 8.3 8.3
Rate of Compensation Increase 4.3 4.3
<PAGE 16>
The Company uses September 30 as a measurement date for plan assets and
obligations.
Pension Benefits Healthcare Benefits
------------------- -------------------
Dollars in millions 1999 1998 1997 1999 1998 1997
- ------------------- ---- ---- ---- ---- ---- ----
Net Periodic Cost (Income):
Service Cost $ 22 $ 17 $ 19 $ 1 $ 1 $ 1
Interest Cost 31 28 29 9 9 9
Expected Return on Assets (96) (86) (78) (5) (3) -
Other (1) (3) (4) 5 5 4
---- ---- ---- ---- ---- ----
Net Periodic Cost (Income) $(44) $(44) $(34) $ 10 $ 12 $ 14
==== ==== ==== ==== ==== ====
The assumed health care cost trend rate used in determining benefit
expense for 1999 is 7.5% decreasing to 5.0% in 2005 and thereafter. A change
of one percentage point in this rate for each year would change the benefit
obligation by 8% and the benefit expense by 9%.
The Company has defined contribution benefit plans for which it
recognized a cost of $94 million in 1999, $82 million in 1998 and $78 million
in 1997.
10. Company Financial Information
The Bank of New York (the "Bank"), the Company's primary banking subsidiary,
is subject to dividend limitations under the Federal Reserve Act and state
banking laws. Under these statutes, prior regulatory approval is required for
dividends in any year that would exceed the Bank's net profits for such year
combined with retained net profits for the prior two years. The Bank is also
prohibited from paying a dividend in excess of undivided profits.
Under the first of these limitations, in 2000 the Bank could declare
dividends of $672 million plus net profits earned in 2000. The Bank is not
restrained from paying dividends under the second limitation.
The Federal Reserve Board can prohibit a dividend if payment would
constitute an unsafe or unsound banking practice. The Federal Reserve Board
generally considers that a bank's dividends should not exceed earnings from
continuing operations.
Regulators require the Company and the Bank to maintain minimum levels of
capital in accordance with established quantitative measurements. As of
December 31, 1999 and 1998, the Company and the Bank were considered well
capitalized on the basis of the ratios (defined by regulation) of Total and
Tier I capital to risk-weighted assets and leverage (Tier I capital to average
assets), which are shown as follows:
December 31, 1999 December 31, 1998
--------------------- --------------------- Well
Capitalized
Company Bank Company Bank Guidelines
------- ------ ------- ------ -----------
Tier I 7.51% 7.14% 7.89% 7.39% 6%
Total Capital 11.67 10.50 11.90 10.72 10
Leverage 7.20 6.85 7.46 6.95 5
Tangible Common
Equity 4.79 6.36 6.25 7.43
The Federal Reserve Act limits and requires collateral for extensions of
credit by the Company's banks to the Company and certain of its non-bank
<PAGE 17>
affiliates. Also, there are restrictions on the amounts of investments by such
banks in stock and other securities of the Company and such affiliates, and
restrictions on the acceptance of their securities as collateral for loans by
such banks. Extensions of credit by the banks to each of the Company and such
affiliates are limited to 10% of such bank's regulatory capital, and in the
aggregate for the Company and all such affiliates to 20%.
The subsidiary banks of the Company are required to maintain reserve
balances with Federal Reserve Banks under the Federal Reserve Act and
Regulation D. Required balances averaged $489 million and $468 million for the
years 1999 and 1998.
The Company's condensed financial statements are as follows:
<TABLE>
Balance Sheets
<CAPTION>
In millions December 31, 1999 1998
- ------------------------------------------------- ------- -------
<S> <C> <C>
Assets
Cash and Due from Banks $ 1 $ 12
Securities 2 3
Loans 9 474
Investment in and Advances to Subsidiaries
and Associated Companies
Banks 7,889 7,211
Other 3,370 3,405
------- -------
11,259 10,616
Other Assets 97 59
------- -------
Total Assets $11,368 $11,164
======= =======
Liabilities and Shareholders' Equity
Other Borrowed Funds $ 450 $ 816
Due to Non-Bank Subsidiaries 2,945 2,678
Due to Bank Subsidiaries - 100
Other Liabilities 50 67
Long-Term Debt 2,780 2,055
------- -------
Total Liabilities 6,225 5,716
------- -------
Shareholders' Equity*
Preferred 1 1
Common 5,142 5,447
------- -------
Total Liabilities and Shareholders' Equity $11,368 $11,164
======= =======
<FN>
*See Consolidated Statements of Changes in Shareholders' Equity.
</FN>
</TABLE>
<PAGE 18>
<TABLE>
Statements of Income
<CAPTION>
In millions
For the years ended December 31, 1999 1998 1997
- ----------------------------------------------- ------- ------ ------
<S> <C> <C> <C>
Operating Income
Dividends from Subsidiaries
Banks $1,364 $ 564 $ 76
Other 1,322 52 550
Interest from Subsidiaries
Banks 99 88 85
Other 31 24 13
Other 54 56 17
------ ------ ------
Total 2,870 784 741
------ ------ ------
Operating Expenses
Interest (including $186 in 1999, $169 in
1998, and $90 in 1997 to Subsidiaries) 379 367 248
Other 19 10 19
------ ------ ------
Total 398 377 267
------ ------ ------
Income Before Income Taxes and Equity in
Undistributed Earnings of Subsidiaries 2,472 407 474
Income Tax Benefit (98) (116) (88)
------ ------ ------
Income Before Equity in Undistributed
Earnings of Subsidiaries 2,570 523 562
------ ------ ------
Equity in Undistributed Earnings of Subsidiaries
Banks 187 411 698
Other (1,018) 258 (156)
------ ------ ------
Total (831) 669 542
------ ------ ------
Net Income $1,739 $1,192 $1,104
====== ====== ======
</TABLE>
<PAGE 19>
<TABLE>
Statements of Cash Flows
<CAPTION>
In millions For the years ended December 31, 1999 1998 1997
- -------------------------------------------------- ------ ------ ------
<S> <C> <C> <C>
Operating Activities
Net Income $1,739 $1,192 $1,104
Adjustments to Determine Net Cash Attributable to
Operating Activities:
Amortization 16 11 5
Equity in Undistributed Earnings of Subsidiaries 832 (669) (542)
Securities Gains (19) (1) 2
Change in Interest Receivable (21) (16) (10)
Change in Interest Payable 8 4 1
Change in Taxes Payable (44) (51) (33)
Other, Net 10 (26) 23
------ ------ ------
Net Cash Provided by Operating Activities 2,521 444 550
------ ------ ------
Investing Activities
Purchases of Securities (18) (25) (14)
Sales of Securities - 1 -
Maturities of Securities 4 22 17
Change in Loans 465 (151) 79
Acquisition of, Investment in, and Advances to
Subsidiaries (1,736) (286) (925)
Other, Net - (6) 1
------ ------ ------
Net Cash Used by Investing Activities (1,285) (445) (842)
------ ------ ------
Financing Activities
Change in Other Borrowed Funds (366) (66) 372
Proceeds from the Issuance of Long-Term Debt 731 286 -
Repayments of Long-Term Debt (20) (17) (17)
Change in Advances from Subsidiaries 168 579 1,383
Redemption and Repurchases of Preferred Stock - - (115)
Issuance of Common Stock 301 606 278
Treasury Stock Acquired (1,626) (976) (1,224)
Cash Dividends Paid (435) (403) (383)
------ ------ ------
Net Cash (Used) Provided by Financing Activities (1,247) 9 294
------ ------ ------
Change in Cash and Due from Banks (11) 8 2
Cash and Due from Banks at Beginning of Year 12 4 2
------ ------ ------
Cash and Due from Banks at End of Year $ 1 $ 12 $ 4
====== ====== ======
Supplemental Disclosure of Cash Flow Information
Cash Paid During the Year for:
Interest $ 369 $ 361 $ 244
Income Taxes 435 339 333
</TABLE>
11. Other Noninterest Income and Expense
Other noninterest income includes equity in earnings of unconsolidated
subsidiaries of $20 million, $22 million, and $36 million in 1999, 1998, and
1997. In 1999, other noninterest income included a pre-tax gain of $1,020
million on the sale of BNYFC and a liquidity charge of $124 million on the
accelerated disposition of certain loans. In 1997, a pre-tax gain of
approximately $177 million was recorded on the sale of the Company's credit
card operations.
Other noninterest expense includes amortization of intangibles of $102
million, $101 million, and $105 million in 1999, 1998, and 1997. Included in
<PAGE 20>
other assets at December 31, 1999, 1998, and 1997 were intangible assets of
$1,640 million, $1,580 million, and $1,200 million.
12. Fair Value of Financial Instruments
The carrying amounts of the Company's financial instruments (i.e., monetary
assets and liabilities) are determined under different accounting methods-see
Note 1. The following disclosure discusses these instruments on a uniform
basis - fair value. However, active markets do not exist for a significant
portion of these instruments, principally loans and commitments. As a result,
fair value determinations require significant subjective judgments regarding
future cash flows. Other judgments would result in different fair values.
Among the assumptions used by the Company are discount rates ranging
principally from 6% to 9% at December 31, 1999 and 5% to 8% at December 31,
1998. The fair value information supplements the basic financial statements
and other traditional financial data presented throughout this Report.
A summary of the practices used for determining fair value is as follows:
Securities, Trading Activities, and Derivatives Used for ALM
- ------------------------------------------------------------
The fair value of securities and trading assets and liabilities is based
on quoted market prices, dealer quotes, or pricing models. Fair value amounts
for derivative instruments, such as options, futures and forward rate
contracts, commitments to purchase and sell foreign exchange, and foreign
currency swaps, are similarly determined. The fair value of interest rate
swaps is the amount that would be received or paid to terminate the agreement.
Loans and Commitments
- ---------------------
For certain categories of consumer loans, fair value includes
consideration of the quoted market prices for securities backed by similar
loans. Discounted future cash flows and secondary market values are used to
determine the fair value of other types of loans. The fair value of
commitments to extend credit, standby letters of credit, and commercial
letters of credit is based upon the cost to settle the commitment.
Other Financial Assets
- ----------------------
Fair value is assumed to equal carrying value for these assets due to
their short maturity.
Deposits, Borrowings, and Long-Term Debt
- ----------------------------------------
The fair value of noninterest-bearing deposits is assumed to be their
carrying amount. The fair value of interest-bearing deposits, borrowings, and
long-term debt is based upon current rates for instruments of the same
remaining maturity or quoted market prices for the same or similar issues.
<PAGE 21>
The carrying amount and estimated fair value of the Company's financial
instruments are as follows:
In millions December 31, 1999 1998
- ---------------------------- -------------------- --------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
-------- ------- -------- -------
Assets
Securities $ 7,250 $ 7,299 $ 6,646 $ 6,674
Trading Assets 8,715 8,715 1,637 1,637
Loans and Commitments 33,030 32,934 34,344 34,372
Derivatives Used for ALM 17 15 73 (117)
Other Financial Assets 16,421 16,421 12,130 12,130
------- ------- ------- -------
Total Financial Assets 65,433 $65,384 54,830 $54,696
======= =======
Non-Financial Assets 9,323 8,673
------- -------
Total Assets $74,756 $63,503
======= =======
Liabilities
Noninterest-Bearing Deposits $12,162 $12,162 $11,480 $11,480
Interest-Bearing Deposits 43,589 43,607 33,152 33,206
Borrowings 2,913 2,914 4,625 4,629
Long-Term Debt 2,811 2,653 2,086 2,178
Trading Liabilities 2,353 2,353 1,642 1,642
Preferred Trust Securities 1,500 1,307 1,300 1,389
Derivatives Used for ALM 8 98 28 (121)
------- ------- ------- -------
Total Financial Liabilities 65,336 $65,094 54,313 $54,403
======= =======
Non-Financial Liabilities 4,277 3,742
------- -------
Total Liabilities and
Preferred Trust Securities $69,613 $58,055
======= =======
Commitments and contingent items reduced the fair value of loans and
commitments by $11 million in 1999 and $16 million in 1998.
The table below summarizes the carrying amount of the financial
instruments and the related notional amount and estimated fair value
(unrealized gain/loss) of ALM interest rate swaps that were linked to these
items:
ALM Interest Rate Swaps
-----------------------
Carrying Notional Unrealized
In millions Amount Amount Gain (Loss)
- ----------- -------- -------- ---- ----
At December 31, 1999
- --------------------
Loans $ 505 $ 505 $ 16 $ (1)
Deposits 290 290 1 (11)
Borrowings 218 218 - (2)
Long-Term Debt 1,465 1,465 2 (88)
At December 31, 1998
- --------------------
Loans $3,054 $3,054 $ 1 $(118)
Deposits 552 552 16 -
Borrowings 1,478 1,478 42 -
Long-Term Debt 1,150 1,150 63 -
<PAGE 22>
The following table illustrates the notional amount, remaining contracts
outstanding, and weighted average rates for ALM interest rate contracts:
<TABLE>
Remaining Contracts Outstanding
at December 31,
<CAPTION>
Total ----------------------------------------
Dollars in millions 12/31/99 2000 2001 2002 2003 2004
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Receive Fixed Interest Rate Swaps:
Notional Amount $1,873 $1,175 $1,055 $ 840 $ 670 $ 660
Weighted Average Rate 6.85% 7.03% 7.08% 7.00% 7.10% 7.09%
Pay Fixed Interest Rate Swaps:
Notional Amount $ 505 $ 474 $ 432 $ 387 $ 364 $ 280
Weighted Average Rate 6.29% 6.33% 6.33% 6.40% 6.40% 6.36%
Basis Interest Rate Swaps:
Notional Amount $ 100 $ - $ - $ - $ - $ -
Forward LIBOR Rate (1) 6.00% 6.38% 6.68% 6.82% 6.89% 6.91%
<FN>
(1) The forward LIBOR rate shown above reflects the implied forward yield curve for that
index at December 31, 1999. However, actual repricings for ALM interest rate swaps are
generally based on 3 month LIBOR.
</FN>
</TABLE>
The Company's financial assets and liabilities are primarily variable
rate instruments. Fixed rate loans and deposits are issued to satisfy customer
and investor needs. Derivative financial instruments are utilized to manage
exposure to the effect of interest rate changes on fixed rate assets and
liabilities, and to enhance liquidity. The Company matches the duration of
derivatives to that of the assets and liabilities being hedged, so that
changes in fair value resulting from changes in interest rates will be offset.
The Company uses interest rate swaps, futures contracts, and forward rate
agreements to convert fixed rate loans, deposits, and long-term debt to
floating rates. Basis swaps are used to convert various variable rate
borrowings to LIBOR which better matches the assets funded by the borrowings.
The Company uses forward foreign exchange contracts to protect the value
of its investments in foreign subsidiaries. The after-tax effects are shown in
the cumulative translation adjustment included in shareholders' equity. At
December 31, 1999 and 1998, $571 million and $360 million in notional amount
of foreign exchange contracts, with fair values of $8 million and $(1.6)
million, hedged corresponding amounts of foreign investments. These foreign
exchange contracts had a maturity of less than 2 months at December 31, 1999.
Deferred net gains or losses on ALM derivative financial instruments at
December 31, 1999 and 1998 were $27 million credit and zero.
Net interest income increased by $5 million in 1999, $4 million in 1998,
and $8 million in 1997 as a result of ALM derivative financial instruments.
A discussion of the credit, market, and liquidity risks inherent in
financial instruments is presented under "Liquidity", "Market Risk
Management", "Trading Activities and Risk Management", and "Asset/Liability
Management" in the unaudited Management's Discussion and Analysis Section of
this Report and Note 13 to the Consolidated Financial Statements.
<PAGE 23>
13. Trading Activities
The following table shows the fair value of the Company's financial
instruments that are held for trading purposes:
<TABLE>
<CAPTION>
1999 1998
--------------------------- --------------------------
In millions Assets Liabilities Assets Liabilities
------------- ------------- ------------- -------------
Trading Account 12/31 Average 12/31 Average 12/31 Average 12/31 Average
- --------------- ----- ------- ----- ------- ----- ------- ----- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest Rate Contracts:
Futures and Forward
Contracts $ 2 $ 9 $ - $ - $ 14 $ 14 $ - $ -
Swaps 1,104 692 729 543 260 217 138 171
Written Options - - 760 567 - - 339 172
Purchased Options 60 69 - - 83 47 - -
Foreign Exchange Contracts:
Written Options - - 164 224 - - 583 640
Purchased Options 254 240 - - 397 561 - -
Commitments to Purchase
and Sell Foreign
Exchange 600 560 577 535 537 767 513 762
Debt Securities 6,695 1,367 123 165 248 600 69 200
Other Securities - - - - 98 84 - -
------ ------ ------ ------ ----- ------ ------ ------
Total Trading Account $8,715 $2,937 $2,353 $2,034 $1,637 $2,290 $1,642 $1,945
====== ====== ====== ====== ====== ====== ====== ======
</TABLE>
Other noninterest income included the following income related to trading
activities:
In millions 1999 1998 1997
- ----------- ----- ----- -----
Foreign Exchange $137 $126 $109
Interest Rate Contracts 20 26 9
Debt and Other Securities 32 18 7
----- ----- -----
$189 $170 $125
==== ==== ====
Foreign exchange includes income from purchasing and selling foreign
exchange, futures, and options. Interest rate contracts reflect results from
futures and forward contracts, interest rate swaps, foreign currency swaps,
and options. Debt and other securities primarily reflect income from debt
securities.
14. Commitments and Contingent Liabilities
In the normal course of business, various commitments and contingent
liabilities are outstanding which are not reflected in the accompanying
consolidated balance sheets. Management does not expect any material losses to
result from these matters.
The Company's significant trading and off-balance-sheet risks are
securities, foreign currency and interest rate risk management products,
commercial lending commitments, letters of credit, and securities lending
indemnifications. The Company assumes these risks account to reduce interest
rate and foreign currency risks, to provide customers with the ability to meet
credit and liquidity needs, to hedge foreign currency and interest rate risks,
and to trade for its own account. These items involve, to varying degrees,
credit, foreign exchange, and interest rate risk not recognized in the balance
sheet. The Company's off-balance-sheet risks are managed and monitored in
manners similar to those used for on-balance-sheet risks. There are no
significant industry concentrations of such risks.
<PAGE 24>
A summary of the notional amount of the Company's off-balance-sheet
credit transactions, net of participations, at December 31, 1999 and 1998
follows:
Off-Balance-Sheet Credit Risks
In millions 1999 1998
- ----------- ------- -------
Commercial Lending Commitments $50,721 $44,104
Standby Letters of Credit 8,257 6,620
Commercial Letters of Credit 1,329 1,548
Securities Lending Indemnifications 61,378 47,839
The total potential loss on undrawn commitments, standby and commercial
letters of credit, and securities lending indemnifications is equal to the
total notional amount if drawn upon, which does not consider the value of any
collateral. Since many of the commitments are expected to expire without being
drawn upon, the total amount does not necessarily represent future cash
requirements. In securities lending transactions, the Company requires the
borrower to provide collateral, thus reducing credit risk.
The notional amounts for other off-balance-sheet risks express the dollar
volume of the transactions; however, credit risk is much smaller. The Company
performs credit reviews and enters into netting agreements to minimize the
credit risk of foreign currency and interest rate risk management products.
The Company enters into offsetting positions to reduce exposure to foreign
exchange and interest rate risk.
Standby letters of credit principally support corporate obligations and
include $0.4 billion and $0.3 billion that were collateralized with cash and
securities at December 31, 1999 and 1998. At December 31, 1999 and 1998,
securities lending indemnifications were secured by collateral of $61.4
billion and $47.8 billion. At December 31, 1999, approximately $6.8 billion of
the standbys will expire within one year, and the balance between one to five
years.
At December 31, 1999, approximately $74.4 billion of interest rate
contracts will mature within one year, $116.8 billion between one and five
years, and the balance after five years. At December 31, 1999, approximately
$101.4 billion of foreign exchange contracts will mature within one year and
$1.5 billion between one and five years. There were no derivative financial
instruments on nonperforming status at year end 1999.
Use of derivative financial instruments involves reliance on
counterparties. Failure of a counterparty to honor its obligation under a
derivative contract is a risk the Company assumes whenever it engages in a
derivative contract.
<PAGE 25>
A summary of the notional amount and credit exposure of the Company's
derivative financial instruments at December 31, 1999 and 1998 follows:
Derivative Financial Instruments
Notional Amount Credit Exposure
--------------- ---------------
In millions 1999 1998 1999 1998
- ----------- ------ ------- ----- ------
Interest Rate Contracts:
Futures and Forward Contracts $20,537 $13,011 $ 2 $ 1
Swaps 86,341 47,417 1,124 468
Written Options 70,009 54,931 - -
Purchased Options 36,766 27,095 287 158
Foreign Exchange Contracts:
Swaps 147 35 16 2
Written Options 24,639 45,700 28 -
Purchased Options 27,968 45,104 287 683
Commitments to Purchase and Sell
Foreign Exchange 50,196 41,290 694 588
Equity Derivatives:
Purchased Options 3 - - -
Credit Derivatives:
Swaps 325 - 83 -
------ ------
2,521 1,900
Effect of Master Netting Agreement (1,558) (455)
------ ------
Total Credit Exposure $ 963 $1,445
====== ======
Operating Leases
Net rent expense for premises and equipment was $100 million in 1999,
$101 million in 1998, and $92 million in 1997.
At December 31, 1998, the Company and its subsidiaries were obligated
under various noncancelable lease agreements, some of which provide for
additional rents based upon real estate taxes, insurance, and maintenance and
for various renewal options. The minimum rental commitments under
noncancelable operating leases for premises and equipment having a term of
more than one year from December 31, 1999 are as follows:
Year ending December 31, In millions
- -----------------------------------------------------
2000 $ 93
2001 83
2002 62
2003 51
2004 44
Thereafter 232
-----
Total Minimum Lease Payments $ 565
=====
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 26>
15. Stock Option Plans
The Company's stock option plans ("the Option Plans") provide for the issuance
of stock options at fair market value at the date of grant to officers and
employees of the Company and its subsidiaries. Under the Company's 1999 Plan,
options to acquire common stock may be granted in amounts that do not exceed
70 million shares. Generally, each option granted under the Option Plans is
exercisable between one and ten years from the date of grant.
The Company accounts for its Option Plans under Accounting Principles
Board Opinion 25. As a result, compensation cost is not recorded. If
compensation cost for these plans had been based on fair value, net income
would have been reduced by $31 million in 1999, $24 million in 1998, and $22
million in 1997. Also, diluted earnings per share would have been reduced by
4 cents per share in 1999, 3 cents per share in 1998, and 3 cents per share in
1997.
The assumptions used in the Black-Scholes Model for determining the
impact of accounting for the Option Plans at fair value for 1999 are as
follows: dividend yield of 3%; expected volatility of 28%; risk free interest
rate of 4.68%; and expected option lives of 5 years.
A summary of the status of the Company's Option Plans as of December 31,
1999, 1998, and 1997, and changes during the years ending on those dates is
presented below:
<TABLE>
<CAPTION>
1999 1998 1997
--------------------- ---------------------- ---------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Options Shares Price Shares Price Shares Price
- ------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at
Beginning of Year 28,195,178 $16.72 24,662,436 $10.31 24,938,428 $ 7.12
Granted 7,322,850 35.60 9,206,000 29.37 7,307,500 17.30
Exercised (4,579,044) 10.12 (5,273,966) 8.34 (7,346,620) 6.22
Canceled (598,357) 28.64 (399,292) 22.68 (236,872) 16.90
--------- ---------- ----------
Outstanding at
End of Year 30,340,627 22.04 28,195,178 16.72 24,662,436 10.31
========== ========== ==========
Options Exercisable
at Year-end 16,223,731 13.38 16,414,092 10.09 15,770,652 7.33
Weighted-average
Fair Value of
Options Granted
During the Year $ 8.18 $6.24 $3.71
</TABLE>
The following table summarizes information about stock options outstanding at
December 31, 1999:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------------------------ ----------------------
Weighted
Average Weighted Weighted
Number Remaining Average Number Average
Range of Outstanding Contractual Exercise Exercisable Exercise
Exercise Prices at 12/31/99 Life Price at 12/31/99 Price
- --------------- ----------- ----------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$ 3 to 5 1,186,217 1.8 Years $ 4.52 1,186,217 $ 4.52
6 to 7 5,177,533 4.1 6.98 5,177,533 6.98
11 to 17 8,332,472 6.6 14.87 7,556,148 14.86
20 to 25 56,064 7.4 21.68 37,168 21.95
27 to 30 7,058,537 8.0 27.49 2,211,061 27.49
32 to 42 8,529,804 9.0 36.12 55,604 31.73
----------- -----------
3 to 42 30,340,627 7.0 22.04 16,223,731 13.38
=========== ===========
</TABLE>
<PAGE 27>
Report of Independent Auditors
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF
THE BANK OF NEW YORK COMPANY, INC.
NEW YORK, NEW YORK
We have audited the accompanying consolidated balance sheets of The Bank of
New York Company, Inc. and subsidiaries as of December 31, 1999 and 1998, and
the related consolidated statements of income, changes in shareholders'
equity, and cash flows for each of the three years in the period ended
December 31, 1999. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. These standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of The Bank of New
York Company, Inc. and subsidiaries at December 31, 1999 and 1998, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1999, in conformity with
accounting principles generally accepted in the United States.
/S/ Ernst & Young, LLP
NEW YORK, NEW YORK
JANUARY 28, 2000
<PAGE 28>
Management's Discussion and Analysis of the Company's Financial Condition and
Results of Operations
- ------------------------------------------------------------------------------
SUMMARY OF RESULTS
The Bank of New York Company, Inc. (the "Company") actual results of future
operations may differ from those set forth in certain forward-looking
statements contained herein. When used in this report, the words
"prospective", "expected", "projected", "estimated", "anticipated",
"intended", "believe", and similar expressions identify forward looking
statements. Readers are cautioned that forward looking statements should be
read in conjunction with the Company's Form 10-K disclosure under the heading
"Forward Looking Statements".
For 1999, the Company reported record net income of $1,739 million or a record
$2.27 per diluted share, compared with $1,192 million or $1.53 per diluted
share in 1998 and $1,104 million or $1.36 per diluted share in 1997. The 1999
results reflect an after-tax gain of $573 million or 75 cents per share on the
sale of BNYFC and the decision to exit a portfolio of credits on an
accelerated basis.
The record results for the year 1999 reflect the successful execution of
the Company's consistent, long-term strategy to emphasize fiduciary,
securities servicing, and cash processing services to global clients. The
continued repositioning of the Company's business profile, as evidenced by the
acquisition of Royal Bank of Scotland Trust Bank and the divestiture of the
Company's commercial finance business, drove noninterest income to 61% of
total revenue, up from 58% last year. Securities servicing revenues were up
24% to a record $1,245 million in 1999 reflecting particular strength in
global custody, mutual funds, securities lending, ADRs, and execution
services. Market share gains from new business wins, as well as the RBSTB
acquisition, resulted in assets under custody reaching $6.3 trillion at year
end. All areas contributed to an internal growth rate of 15% for 1999. Private
client services and asset management fees were up 17% to a record $244 million
in 1999, led by strong results from personal trust, personal asset management,
and retail investment products. In 1999, cash processing fees increased 7% to
a record $274 million. Higher transaction flows in the Company's European
securities servicing business drove foreign exchange and other trading
revenues up 12% to a record $189 million this year compared with $170 million
last year. In 1999, net interest income on a taxable equivalent basis was
$1,745 million compared with $1,709 million in 1998. The provision for credit
losses increased to $135 million from $20 million and the Company recorded a
liquidity charge to noninterest income of $124 million associated with the
decision to exit a portfolio of credits on an accelerated basis.
In 1999, return on average common equity was a record 34.0% compared with
24.25% in 1998 and 22.13% in 1997, while return on average assets was 2.60%
compared with 1.89% in 1998 and 1.86% in 1997. The 1999 ratios reflect the
gain on the sale of BNYFC.
Tangible diluted earnings per share (earnings before the amortization of
goodwill and intangibles) were $2.37 per share in 1999 compared with $1.62 per
share in 1998. Tangible return on average assets was 2.78% in 1999 and 2.06%
in 1998 and tangible return on average common equity was 50.23% in 1999
compared with 37.13% in 1998.
In 1998, securities servicing fee revenues grew by 27% reaching $1
billion for the year which, when combined with 15% growth in private client
services and asset management fees, pushed noninterest income to 58% of
revenues, up from 54% in the prior year. Principal drivers for securities
servicing were continued strong growth in securities transaction volumes,
augmented by record new business wins and the introduction of new products.
Strong internal growth of 16% was spread over all of the Company's securities
servicing businesses with acquisitions contributing the remainder. Revenue
growth was led by ADRs, domestic and global custody, securities lending,
corporate trust, UIT, and execution services. Private client services and
<PAGE 29>
asset management fees were $208 million for 1998, an increase of 15% over
1997, as a result of focused and aggressive new business efforts. Keeping pace
with the substantial increase in the Company's processing businesses, foreign
exchange and other trading revenues grew to $170 million for 1998 compared
with $125 million in 1997, reflecting the customer driven nature of this
business. In 1998, net interest income on a taxable equivalent basis was
$1,709 million compared with $1,890 million in 1997 and the provision for
credit losses decreased to $20 million from $280 million reflecting primarily
the impact of the sale of the credit card business in 1997. Additional
highlights were continued strength in asset quality and the maintenance of one
of the best efficiency ratios in the industry at 50.5%.
In 1997, revenues from the Company's securities servicing business grew
21% to $790 million. This reflects strong internal growth of 16%, with
increases in all businesses. ADRs, stock transfer, corporate trust, and mutual
funds were particularly strong. Fees from cash processing were up 14% in 1997
to $239 million. Private client services and asset management grew 12% over
1996 to $181 million reflecting new business and generally strong markets. In
1997, net income on a taxable equivalent basis totaled $1,890 million compared
with $1,999 million in the prior year. The decline is primarily attributable
to the sale of the credit card operations and the stock buyback program,
partially offset by growth in corporate lending. The provision for credit
losses decreased to $280 million from $600 million due largely to the sale of
credit card receivables. Operating expenses continued to remain under good
control.
NET INTEREST INCOME
Dollars in millions 1999 1998 1997
- ------------------- ---- ---- ----
Net Interest Income on a Taxable
Equivalent Basis $ 1,745 $1,709 $1,890
Net Interest Rate Spread 2.19% 2.22% 2.88%
Net Yield on Interest-Earning Assets 3.11 3.24 3.89
For 1999, net interest income on a taxable equivalent basis, amounted to
$1,745 million compared with $1,709 million in 1998. Average earning assets
were $56.2 billion up from $52.8 billion in 1998 reflecting growth in highly
liquid, lower yielding assets generated by the Company's securities servicing
businesses and the acquisition of RBSTB. Average loans were $38.8 billion in
1999 compared with $38.3 billion in 1998. Growth in the loan portfolio in 1999
was partially offset by the sale of BNYFC. The net interest rate spread was
2.19% in 1999 compared with 2.22% in 1998, while the net yield on interest-
earning assets was 3.11% in 1999 and 3.24% in 1998. The increase in net
interest income and the decline in spread and yield from 1998 was caused by
growth in highly liquid but lower yielding assets. The yield was also impacted
by the Company's stock buyback program.
In 1998, net interest income on a taxable equivalent basis amounted to
$1,709 million compared with $1,890 million in 1997. Average earning assets
were $52.8 billion up from $48.5 billion in 1997 reflecting increased customer
driven deposits from the Company's global securities servicing business as
well as increased corporate lending. Average loans were $38.3 billion in 1998
compared with $36.6 billion in 1997. The increase in loans was primarily in
the special industries lending divisions and asset based lending. The net
interest rate spread and yield were 2.22% and 3.24% in 1998 compared with
2.88% and 3.89% in 1997. The decrease in net interest income, net interest
rate spread, and yield from 1997 reflect the impact of the sale of the
Company's credit card operations and the financing of the stock buyback
program.
On a taxable equivalent basis, net interest income was $1,890 million in
1997. Average loans were $36.6 billion in 1997 down from $36.7 billion in
1996. Year-end 1997 loans were $34.5 billion down from $36.1 billion in 1996
reflecting the sale of $5.3 billion of credit card receivables partially
offset by increased corporate lending. The net interest rate spread and yield
<PAGE 30>
were 2.88% and 3.89% in 1997 compared with 3.37% and 4.35% in 1996. These
declines were primarily attributable to the sale of the credit card portfolio.
The decline in the net yield also reflected the financing of the stock buyback
program.
Interest income would have been increased by $8 million, $10 million, and
$10 million if loans on nonaccrual status at December 31, 1999, 1998, and 1997
had been performing for the entire year.
NONINTEREST INCOME
A wide range of securities servicing, cash processing services, private client
services and asset management fees, other fee-based services, and trading
activities provide noninterest income. Revenues from these activities were
$3,493 million in 1999, compared with $2,283 million in 1998 and $2,137
million in 1997. On a proforma basis, reflecting the sale of BNYFC and
excluding the liquidity charge on the accelerated disposition of loans,
noninterest income for the year was $2,532 million.
Securities servicing fees were $1,245 million, $1,000 million, and $790
million in 1999, 1998, and 1997. The 24% increase in securities servicing fees
from 1998 reflects strong internal growth and the acquisition of RBSTB. Cash
processing fees, principally funds transfer, cash management, and trade
finance, were $274 million in 1999, $256 million in 1998, and $239 million in
1997. Funds transfer fees were ahead a strong 9% and cash management fees were
up by 11%. Revenues from the trade finance business were flat compared to 1998
partially due to the sale of BNYFC. Private client services and asset
management fees were $244 million in 1999, $208 million in 1998, and $181
million in 1997. Service charges and fees were $338 million in 1999, compared
with $326 million in 1998 and $354 million in 1997. For further discussion of
fee revenue see Segment Profitability.
Securities gains totaled $199 million, $175 million, and $136 million in
1999, 1998, and 1997.
Other noninterest income was $1,193 million in 1999, $318 million in
1998, and $437 million in 1997. In 1999, other noninterest income included a
$1,020 million pre-tax gain on the sale of BNYFC and $124 million liquidity
charge on loans available for sale. Profits from foreign exchange and other
trading activities were $189 million, $170 million, and $125 million in 1999,
1998, and 1997. In 1998, other noninterest income included a $29 million pre-
tax gain on the sale of the Company's property at 48 Wall Street. In 1997,
other noninterest income included pre-tax gains on the sale of credit card
portfolios of $177 million. Other noninterest income also includes a pre-tax
gain of $27 million in 1997 related to the sale of a portion of the Company's
interest in Wing Hang Bank, Ltd.
NONINTEREST EXPENSE AND INCOME TAXES
Total noninterest expense was $2,107 million in 1999, $1,928 million in 1998,
and $1,874 million in 1997. On a proforma basis, reflecting the sale of BNYFC,
noninterest expense for 1999 was $2,054 million. Salaries and employee
benefits increased 6% to $1,251 million in 1999. Net occupancy and furniture
and fixture expenses increased by a combined $9 million to $261 million. Other
expenses increased by 19% in 1999 to $595 million. Noninterest expense for
1999 includes $20 million related to making computer systems Year 2000
compliant. The increase in expenses in 1999 was attributable to acquisitions,
particularly RBSTB, growth in the Company's fee based businesses and increased
investment in technology. Offsetting these factors was the sale of BNYFC.
Total noninterest expense increased 3% in 1998 compared with 1997,
principally due to acquisitions, new businesses growth and technology
spending. Salaries and employee benefits increased 11% in 1998 to $1,178
million. Net occupancy and furniture and fixture expenses decreased by a
combined $9 million to $252 million in 1998. Other expenses fell by 9% in 1998
to $498 million. Year 2000 expenses were $33 million.
<PAGE 31>
The efficiency ratio was 50.8% in 1999 compared with 50.5% in 1998 and
50.2% in 1997. The efficiency ratios exclude the gains on the sale of BNYFC in
1999 and sales of the credit card portfolios in 1997.
The Company's consolidated effective tax rates for 1999, 1998, and 1997
were 37.3%, 35.2%, and 36.4%. The 1999 rate reflects fewer tax benefits from
leasing activities and higher taxes associated with the sale of BNYFC. The
1998 rate decreased compared with 1997 due to higher non-taxable income and
larger deductions for preferred trust securities partially offset by higher
state and local taxes. The 1997 rate decreased due to larger deductions for
preferred trust securities in addition to the reduced impact of state and
local taxes.
LIQUIDITY
The Company maintains its liquidity through the management of its assets and
liabilities, utilizing worldwide financial markets. The diversification of
liabilities reflects the flexibility of the Company's funding sources under
changing market conditions. Stable core deposits, including demand, retail
time, and trust deposits from processing businesses, are generated through the
Company's diversified network and managed with the use of trend studies and
deposit pricing. The use of derivative products such as interest rate swaps
and financial futures enhances liquidity through the issue of long-term
liabilities with limited exposure to interest rate risk. Liquidity also
results from the maintenance of a portfolio of assets which can be easily
reduced and the monitoring of unfunded loan commitments, thereby reducing
unanticipated funding requirements.
In 1999, the Company reduced its reliance on non-core sources of funds
such as money market rate accounts, certificate deposits greater than
$100,000, federal funds purchased and other borrowing as these sources
declined in aggregate to $11.0 billion on an average basis from $12.6 billion
in 1998. Stable foreign deposits primarily from the Company's European based
securities servicing business increased on average to $20.2 billion from $16.4
billion in 1998. Savings and other time deposits were flat on an average
basis. Foreign deposits increased significantly at December 31, 1999 due to
the acquisition of RBSTB.
In 1999, the Company's average commercial paper borrowings were $690
million compared with $1.1 billion in 1998. The Company has backup lines of
credit of $350 million at financial institutions supporting these borrowings.
The following comments relate to the information disclosed in the
Consolidated Statements of Cash Flows.
Earnings and other operating activities used $1.0 billion in 1999,
compared with being a source of $1.6 billion and $0.8 billion of cash inflows
in 1998 and 1997. The changes in cash flows from operations 1999 and 1998 were
principally the result of changes in trading activities.
In 1999, cash used by investing activities was $1.1 billion as compared
to $5.2 billion and $3.2 billion used by investing activities in 1998 and
1997. In 1999, additions to loans, interest-bearing deposits in banks, and
federal fund sold and securities purchased under resale agreements were
partially offset by the sale of BNYFC. In 1998, additions to commercial loans
and interest-bearing deposits were partially offset by sales of securities. In
1997, additions to commercial loans, securities and federal funds sold and
securities purchased under resale agreements were partially offset by the sale
of credit card loans.
Cash provided by financing activities was $1.3 billion, $1.9 billion, and
$2.0 billion in 1999, 1998, and 1997 as the Company used deposits to finance
its investing activities. In 1999, 1998, and 1997, financing activities used
cash to buy back the Company's common shares, and provided cash through the
issuance of preferred trust securities and long-term debt. Federal funds
purchased and securities sold under repurchase agreements were a net use of
funds in 1999 and 1998 while a net source of funds in 1997.
<PAGE 32>
Restrictions on the ability of the Company to obtain funds from its
subsidiaries are discussed in Note 10 to the Consolidated Financial
Statements.
CAPITAL RESOURCES
Shareholders' equity was $5,143 million at December 31, 1999, compared with
$5,448 million at December 31, 1998 and $5,002 million at December 31, 1997.
In October 1999, the Company increased its quarterly common stock dividend to
16 cents per share, up 14% from the beginning of 1999. During 1999, the
Company retained $1,302 million of earnings and issued $200 million of
preferred trust securities. The Company also issued $300 million of
subordinated notes and $631 million of medium-term notes, increasing long-term
debt to $2,811 million from $2,086 million. The increased long-term debt
supports assets acquired in the RBSTB acquisition and replaces subordinated
debt ceasing to qualify as Tier 2 capital. The Company also repurchased 43.8
million common shares for $1.6 billion. The Company has a shelf registration
statement with a remaining capacity of $369 million of debt, preferred stock,
preferred trust securities, or common stock.
In 1998, the Company retained $789 million of earnings and issued $300
million of preferred trust securities and $335 million of medium term notes.
In July 1998, the Company increased its quarterly common stock dividend to 14
cents per share, up 17% from the beginning of 1997. In addition, the
conversion of warrants provided $333 million in capital. The Company also
repurchased 32.5 million common shares for $976 million.
In 1997, the Company retained $721 million of earnings and issued $400
million of preferred trust securities. Warrant holders converted 3 million
warrants into 22 million common shares, providing $169 million in capital. In
addition, 58 million common shares were repurchased for $1.2 billion and $111
million in preferred stock was redeemed.
PROVISION AND ALLOWANCE FOR CREDIT LOSSES
The provision for credit losses was $135 million in 1999, compared with $20
million in 1998 and $280 million in 1997. The increase in the provision
compared with 1998 was primarily due to 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 by 18% to $158 million at December 31,
1999. The decrease in nonperforming assets during 1999 is attributable to
charge-offs and writedowns of $126 million and paydowns, sales, and returns to
accrual status of $163 million. The decrease was partially offset by $254
million of loans placed on nonperforming status.
<PAGE 33>
The following table shows the distribution of nonperforming assets at
December 31, 1999 and 1998:
Dollars in millions 1999 1998 Change
- ------------------- ---- ---- ------
Category of Loans:
Commercial Real Estate $ - $ 26 (100)%
Other Commercial 20 65 (69)
Foreign 63 53 19
Regional Commercial 30 35 (14)
Loans Available for Sale 33 - -
---- ----
Total Nonperforming Loans 146 179 (18)
Other Real Estate 12 14 (14)
---- ----
Total Nonperforming Assets $158 $193 (18)
==== ====
Nonperforming Asset Ratio 0.4% 0.5%
Allowance/Nonperforming Loans 407.7 355.5
Allowance/Nonperforming Assets 376.9 328.9
Net charge-offs were $137 million in 1999, $29 million in 1998, and $354
million in 1997. In 1999, net charge-offs were primarily related to the
decision to accelerate the disposition of certain loans, as well as higher
charge-offs in the Company's asset based lending businesses. Net charge-offs
in 1998 were mainly related to commercial loans, while net charge-offs were
primarily attributable to credit card loans in 1997. The total allowance for
credit losses was $595 million and $636 million at year-end 1999 and 1998. The
ratio of the total allowance for credit losses to year-end loans was 1.58% and
1.66% at December 31, 1999 and 1998.
In 1999 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 profitability. As a result, in 1999 the
Company categorized over $1 billion of loans as available for sale and
recorded a liquidity charge of $124 million. At December 31, 1999, the
remaining credit exposures available for sale totaled $538 million with
outstandings of $318 million.
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:
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
Real Estate 4% 3% 4% 5% 7%
Domestic Commercial and
Industrial 78 74 64 40 36
Consumer - 1 1 1 2
Credit Card - - - 29 23
Foreign 12 11 7 4 11
Unallocated 6 11 24 21 21
---- ---- ---- ---- ----
100% 100% 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
<PAGE 34>
MARKET RISK MANAGEMENT
Market risk is the risk of loss due to adverse changes in the financial
markets. Market risk arises from derivative financial instruments, such as
futures, forwards, swaps and options, and other financial instruments, such
as loans, securities, deposits, and other borrowings. The Company's market
risks are primarily interest rate and foreign exchange risk, as well as
credit risk.
The Company's risk management process begins with oversight by the
Board of Directors, who periodically review risk management policies and
controls and approve aggregate levels of risk. The Company's market risk
governance structure includes two committees comprised of senior executives
who review market risk activities, risk measurement methodologies and risk
limits, approve new products, and provide direction for the Company's
market risk profile. The Asset/Liability Management Committee oversees the
market risk management process for interest rate risk related to
asset/liability management activities. The Market Risk Management Committee
oversees the market risk management process for trading activities. Both
committees are supported by a comprehensive risk management process that is
designed to identify, measure, and manage market risk.
TRADING ACTIVITIES AND RISK MANAGEMENT
The Company's trading activities are primarily oriented towards acting as a
market maker for the Company's customers. The risk from these market making
activities and from the Company's own positions is managed by the Company's
traders and limited in total exposure as described below.
The Company manages trading risk through a system of position limits,
a value at risk (VAR) methodology, based on a Monte Carlo simulation, 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. As the VAR
methodology does not evaluate risk attributable to extraordinary financial,
economic or other occurrences, the risk assessment process includes a
number of stress scenarios based upon the risk factors in the portfolio and
management's assessment of market conditions. Additional stress scenarios
based upon historic market events are also tested.
The following table indicates the calculated VAR amounts for the
trading portfolio for the years ending December 31, 1999 and 1998. During
these periods, the daily trading loss did not exceed the calculated VAR
amounts on any given day.
<TABLE>
<CAPTION>
(In millions) 1999 1998
----------------------------------- -----------------------------------
Market Risk Average Minimum Maximum 12/31/99 Average Minimum Maximum 12/31/98
- ----------- ------- ------- ------- -------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest Rate $5.4 $2.5 $12.6 $4.5 $4.2 $1.5 $7.0 $4.4
Foreign Exchange 1.7 0.7 4.0 1.8 2.4 0.8 5.7 2.2
Overall Portfolio 7.1 3.9 13.7 6.3 6.6 2.8 9.7 6.6
</TABLE>
<PAGE 35>
ASSET/LIABILITY MANAGEMENT
The Company's asset liability management activities include lending,
investing in securities, accepting deposits, raising money as needed to
fund assets, and processing securities and other transactions. The market
risks that arise from these activities are interest rate risk, and to a
lesser degree, foreign exchange risk. The Company's primary market risk is
exposure to movements in US dollar interest rates. Exposure to movements in
foreign currency interest rates also exists, but to a significantly lower
degree. The Company actively manages interest-rate sensitivity (the
exposure of net interest income to interest rate movements). In addition to
gap analysis, the Company uses earnings simulation and discounted cash flow
models to identify interest rate exposures.
An earnings simulation model is the primary tool used to assess
changes in pre-tax net interest income. The model incorporates management's
assumptions regarding interest rates, balance changes on core deposits, and
changes in the prepayment behavior of loans. These assumptions have been
developed through a combination of historical analysis and future expected
pricing behavior. Derivative financial instruments used for interest rate
risk management purposes are also included in this model.
The Company evaluates the effect on earnings by running scenarios with
interest rates shocked 200 basis points up and down from a baseline
scenario with flat interest rates. These scenarios are reviewed to examine
the impact of large interest rate movements. Interest rate sensitivity is
quantified by calculating the change in pre-tax net interest income between
the scenarios over a 12 month measurement period. The measurement of
interest rate sensitivity is the percentage change in net interest income
calculated by the model under the shock up 200 basis points versus the
baseline scenario and under the shock down 200 basis point scenario versus
the baseline scenario. Under these shock scenarios, pre-tax net interest
income would be positively affected by 1.50% from the baseline scenario for
a 200 basis point increase in rates and negatively affected by 4.53% for a
200 basis point decline. These scenarios do not include the strategies that
management could employ as rate expectations change.
To manage foreign exchange risk, the Company funds foreign currency-
denominated assets with liability instruments denominated in the same
currency. The Company utilizes various foreign exchange contracts if a
liability denominated in the same currency is not available or desired, and
to minimize the earnings impact of translation gains or losses created by
investments in overseas markets. The foreign exchange risk related to the
interest rate spread on foreign currency-denominated asset/liability
positions is managed as part of the Company's trading activities. The
Company uses forward foreign exchange contracts to protect the value of its
net investment in foreign operations. At December 31, 1999, net investments
in foreign operations approximated $690 million and were spread across 10
foreign currencies.
The Company's equity investments of $1.6 billion at December 31, 1999
primarily consisted of venture capital investments, equity positions from
debts previously contracted, equity positions in other financial
institutions, and minority interests in various subsidiaries. The majority
of these investments are of a long-term nature and accordingly the Company
does not view fluctuations in the market prices of these securities as
having a material impact on the Company's operations. Changes in prices for
marketable equity securities are reflected in the Statements of Changes in
Shareholders' Equity. All equity investments are evaluated on a regular
basis for permanent impairment.
<PAGE 36>
SEGMENT PROFITABILITY
Segment Data
The Company has an internal information system that produces performance
data for management about the Company's four segments along product and
service lines.
The Servicing and Fiduciary segment provides a broad array of fee
based services. This segment includes the Company's securities servicing,
cash processing, and private client services and asset management
businesses. Securities servicing includes global custody, securities
clearance, mutual funds, unit investment trust, securities lending,
American Depositary Receipts, corporate trust, stock transfer and execution
services. Cash processing products primarily relate to funds transfer, cash
management and trade finance. Private client services and asset management
provide traditional banking and trust services to affluent clients and
asset management to institutional and private clients.
The Corporate Banking segment provides lending services, such as term
loans, lines of credit, asset based financings, and commercial mortgages,
to domestic and international commercial enterprises. Through BNY Capital
Markets, the Company provides syndicated loans, bond underwriting, private
placements of corporate debt and equity securities, and merger,
acquisition, and advisory services.
The Retail Banking segment includes consumer lending, residential
mortgage lending, and retail deposit services. The Company operates 353
branches in 22 counties in three states.
The Financial Markets segment includes trading of foreign exchange and
interest rate products, 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 ensure that reported results of the segments track
their economic performance. Segment results are subject to restatement
whenever improvements are made in the measurement principles or
organizational changes are made.
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.
<PAGE 37>
The segments contributed to the Company's profitability as follows:
<TABLE>
<CAPTION>
In Millions Servicing
and
For the Year Ended Fiduciary Corporate Retail Financial Reconciling Consolidated
December 31, 1999 Businesses Banking Banking Markets Items Total
- ------------------ ---------- --------- ------- --------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Net Interest Income $ 474 $ 615 $ 479 $ 96 $ 37 $ 1,701
Provision for
Credit Losses - 110 3 (2) 24 135
Noninterest Income 1,909 314 92 218 960 3,493
Noninterest Expense 1,227 248 306 62 264 2,107
----- ----- ----- ----- ----- ------
Income Before Taxes $1,156 $ 571 $ 262 $ 254 $ 709 $ 2,952
====== ======= ====== ======= ====== =======
Average Assets $7,692 $31,219 $4,572 $21,821 $1,473 $66,777
</TABLE>
<TABLE>
<CAPTION>
In Millions Servicing
and
For the Year Ended Fiduciary Corporate Retail Financial Reconciling Consolidated
December 31, 1998 Businesses Banking Banking Markets Items Total
- ------------------ ---------- --------- ------- --------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Net Interest Income $ 395 $ 677 $ 486 $ 100 $ (7) $ 1,651
Provision for
Credit Losses - 114 7 7 (108) 20
Noninterest Income 1,579 305 73 252 74 2,283
Noninterest Expense 1,032 262 311 59 264 1,928
----- ------ ----- ------ ----- ------
Income Before Taxes $ 942 $ 606 $ 241 $ 286 $ (89) $ 1,986
====== ======= ====== ====== ======= =======
Average Assets $6,016 $33,783 $4,527 $17,286 $1,529 $63,141
</TABLE>
<TABLE>
<CAPTION>
In Millions Servicing
and
For the Year Ended Fiduciary Corporate Retail Financial Reconciling Consolidated
December 31, 1997 Businesses Banking Banking Markets Items Total
- ------------------ ---------- --------- ------- --------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Net Interest Income $ 343 $ 585 $ 844 $ 66 $ 17 $ 1,855
Provision for
Credit Losses - 95 285 - (100) 280
Noninterest Income 1,305 252 163 186 231 2,137
Noninterest Expense 901 224 444 59 246 1,874
----- ----- ----- ------ ----- ------
Income Before Taxes $ 747 $ 518 $ 278 $ 193 $ 102 $ 1,838
====== ====== ====== ====== ====== ======
Average Assets $6,373 $27,558 $8,119 $15,963 $1,229 $59,242
</TABLE>
<PAGE 38>
Segment Highlights
In the Servicing and Fiduciary businesses segment, securities
servicing fees increased to $1,245 million as compared with $1,000 million
in 1998 and $790 million in 1997. New business wins, greater processing
volumes from existing custody clients reflecting favorable markets
worldwide, and acquisitions drove fee revenue up 24% in 1999. 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 in 1999. The Company's ADR business benefited from record
depositary receipt trading volume on US exchanges which grew 15% in 1999.
In addition, the Company was named as agent on 130 new programs from 39
countries, or 71% of all new sponsored depositary receipt programs in 1999.
Global custody continued to gain momentum from significant new business
wins in the mutual funds and insurance industries. Market share gains from
new business wins as well as the RBSTB acquisition resulted in assets under
custody reaching $6.3 trillion in 1999 up from $5.1 trillion in 1998 and
$3.9 trillion in 1997.
Fees from cash processing in 1999 increased to $274 million over
1998's $256 million and 1997's $239 million. Cash management fees were
particularly strong in 1999, growing by 11% to $51 million, with fund
transfer fees ahead of the prior year by 9%, reaching $103 million.
Fees from private client services and asset management grew to $244
million in 1999, as compared with $208 million in 1998 and $181 million in
1997, reflecting strong investment performance which continues to attract
new customers and generally strong markets. Assets under management were
$60.4 billion, $48.4 billion and $42.1 billion in 1999, 1998, and 1997.
Assets under administration were $30.2 billion up from $25.8 billion in
1998 and $22 billion in 1997.
Net charge-offs in the Servicing and Fiduciary businesses segment were
zero in 1999, 1998, and 1997. The rise in noninterest expense is consistent
with the significant increase in fee revenue as well as the Company's
continued investment in technology.
The Corporate Banking segment's net interest income was $615 million
in 1999 compared with $677 million in 1998 and $585 million in 1997. The
decrease in 1999 reflects the sale of BNYFC. The provision for credit
losses was $110 million in 1999 compared with $114 million and $95 million
in 1997. Net charge-offs in the Corporate Banking segment were $135
million, $16 million, and $75 million in 1999, 1998, and 1997. The increase
in noninterest income to $314 million in the current year was due to
increased capital markets fees partially offset by the sale of BNYFC.
Capital markets fees in 1999 increased nearly 48% over 1998. The Company
acted as agent/co-agent on over $250 billion of loan syndication in 1999
compared with $223 billion in 1998. In 1999 the Company was the co-manager
on 51 underwritings, up from 41 in 1998. This trend was offset by continued
lower income from the Company's offshore banking subsidiaries in Hong Kong
and Brazil. The decrease in 1999's noninterest expense reflects the sale of
BNYFC.
Net interest income in the Retail Banking sector was $479 million in
1999 compared with $486 million in 1998 and $844 million in 1997. Net
interest income in the branch banking network in 1999 was negatively
impacted by the decrease in value of noninterest bearing sources of funds
in a lower rate environment. Noninterest income was $92 million in 1999
compared with $73 million in 1998 and $163 million in 1997. The increase in
1999 reflects new product introductions, improved cross-selling, and
selective price increases. Operating expenses were $306 million in 1999
compared with $311 million in 1998 and $444 million in 1997. Operating
expenses relating to branch banking decreased in 1998, due in part to the
sale of 11 retail branches in late 1997. The decreases in the Retail
Banking segment's net interest income, provision for credit losses,
noninterest income, and noninterest expense in 1998 compared with 1997 are
principally due to the sale of the Company's credit card operation. Net
<PAGE 39>
charge-offs were $4 million, $5 million and $280 million in 1999, 1998, and
1997.
In the Financial Markets segment, net interest income was $96 million
compared with 1998's $100 million and 1997's $66 million. Noninterest
income was $218 million compared with $252 million in 1998 and $186 million
in 1997. Strong equity markets resulted in a significant and relatively
consistent level of securities gains included in noninterest income in
1999, 1998, and 1997. Revenues from foreign exchange proprietary trading
activities declined in 1999. Net charge-offs were a recovery of $2 million
in 1999 and charge-offs of $7 million in 1998 and zero in 1997. Expenses
were relatively flat over the period.
Reconciling items
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, the liquidity charge on the sale of
loans, again on the sale of the Company's credit card operation, sales of
interest in Wing Hang Bank and other securities, and the sale of a building.
Reconciling items for noninterest expense include $102 million, $101
million and $105 million of amortization of intangibles in 1999, 1998,
and 1997, 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.
Foreign Operations
The Company's foreign activities consist of banking, trust, and
processing services provided to customers domiciled outside of the United
States, principally in Europe and Asia. The acquisition of RBSTB, which was
renamed The Bank of New York (Europe) ("BNYE"), significantly expanded the
Company's presence in Europe. In addition to BNYE, which is based in
London, the Company operates through 30 branches and representative offices
in 26 countries. There were no major customers from whom revenues were
individually material to the Company's performance.
<TABLE>
<CAPTION>
1999 1998 1997
---------------------------------- --------------------------------- ---------------------------------
In millions Income Income Income
Before Before Before
Geographic Income Net Total Income Net Total Income Net Total
Data Revenues Taxes Income Assets Revenues Taxes Income Assets Revenues Taxes Income Assets
- ---------- -------- ------ ------ ------- -------- ------ ------ ------- -------- ------- ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Domestic $5,245 $2,530 $1,474 $49,913 $4,620 $1,806 $1,076 $49,564 $4,621 $1,669 $ 997 $48,306
Europe 1,098 325 204 16,639 662 101 65 6,912 424 35 22 3,554
Asia 227 16 10 3,744 239 22 14 3,349 311 81 51 3,614
Other 396 81 51 4,460 272 57 37 3,678 341 53 34 4,487
------- ------ ------ ------- ------ ------ ------ ------- ------ ------ ------ -------
Total $6,966 $2,952 $1,739 $74,756 $5,793 $1,986 $1,192 $63,503 $5,697 $1,838 $1,104 $59,961
====== ====== ====== ======= ====== ====== ====== ======= ====== ====== ====== =======
</TABLE>
<PAGE 40>
LOANS
The following table shows the Company's loan distribution at the end of each of
the last five years:
<TABLE>
<CAPTION>
In millions 1999 1998 1997 1996 1995
- ----------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Domestic
Commercial and Industrial Loans(1) $14,400 $13,626 $12,585 $11,780 $10,925
Real Estate Loans
Construction and Land Development 275 271 208 139 118
Other, Principally Commercial
Mortgages 2,771 2,691 2,669 2,645 2,741
Collateralized by Residential
Properties 2,999 3,010 3,091 2,905 2,815
Banks and Other Financial
Institutions 1,788 1,788 1,899 1,650 1,953
Loans for Purchasing or Carrying
Securities 3,865 3,612 3,479 3,695 3,068
Lease Financings 2,870 2,566 1,953 1,688 1,503
Consumer Loans 1,610 1,243 1,197 6,605 9,859
Asset Based Lending - 2,007 1,844 1,064 1,100
Other(2) 606 420 341 249 235
Less: Unearned Income 912 895 703 557 486
------- ------- ------- ------- -------
Total Domestic 30,272 30,339 28,563 31,863 33,831
------- ------- ------- ------- -------
Foreign
Commercial and Industrial Loans 3,451 3,349 2,872 2,465 1,784
Banks and Other Financial
Institutions 1,703 1,476 1,756 1,060 828
Lease Financings 3,483 3,174 2,488 1,917 1,237
Government and Official Institutions 153 192 110 414 227
Asset Based Lending - 1,310 453 129 122
Other(2) 40 21 97 79 146
Less: Unearned Income 1,555 1,475 1,212 921 488
------- ------- ------- ------- -------
Total Foreign 7,275 8,047 6,564 5,143 3,856
------- ------- ------- ------- -------
Less: Allowance for Credit Losses 595 636 641 901 756
------- ------- ------- ------- -------
Net Loans $36,952 $37,750 $34,486 $36,105 $36,931
======= ======= ======= ======= =======
<FN>
(1) The commercial and industrial loan portfolio does not contain any industry
concentration which exceeds 10% of loans.
(2) Other loans include $309 million domestic and $9 million of foreign loans
available for sale.
</FN>
</TABLE>
<PAGE 41>
<TABLE>
QUARTERLY DATA UNAUDITED
<CAPTION>
1999 1998
------------------------------- ------------------------------
Dollars in millions, Fourth Third Second First Fourth Third Second First
except per share
amounts
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest Income $ 943 $ 834 $ 839 $ 857 $ 900 $ 906 $ 870 $ 834
Interest Expense 502 417 423 430 468 491 462 439
----- ----- ----- ----- ----- ----- ----- -----
Net Interest Income 441 417 416 427 432 415 408 395
----- ----- ----- ----- ----- ----- ----- -----
Provision for Credit
Losses 15 90 15 15 5 5 5 5
`
Noninterest Income 686 1,531 651 625 597 572 561 553
Noninterest Expense 570 515 513 509 507 481 472 467
----- ----- ----- ----- ----- ----- ----- -----
Income Before
Income Taxes 542 1,343 539 528 517 501 492 476
Income Taxes 187 542 188 184 179 175 172 172
Distribution on Preferred
Trust Securities 28 28 28 28 25 25 25 20
----- ----- ----- ----- ----- ----- ----- -----
Net Income $ 327 $ 773 $ 323 $ 316 $ 313 $ 301 $ 295 $ 284
===== ===== ===== ===== ===== ===== ===== =====
Net Income
Available to
Common Shareholders $ 327 $ 773 $ 323 $ 316 $ 313 $ 301 $ 295 $ 284
===== ===== ===== ===== ===== ===== ===== =====
Per Common Share Data:
Basic Earnings $0.44 $1.04 $0.42 $0.41 $0.41 $0.40 $0.39 $0.38
Diluted Earnings 0.44 1.02 0.42 0.41 0.40 0.39 0.38 0.36
Cash Dividends 0.16 0.14 0.14 0.14 0.14 0.14 0.13 0.13
Stock Price
High 44.81 39.56 40.63 39.56 40.25 33.97 33.25 32.06
Low 32.44 32.31 33.88 32.75 25.69 24.50 28.31 26.69
Ratios:
Return on Average
Common
Shareholders'
Equity 25.98% 61.23% 24.82% 24.48% 23.88% 24.19% 24.03% 24.99%
Return on Average
Assets 1.84 4.78 1.95 1.94 1.86 1.86 1.90 1.93
</TABLE>
<PAGE 42>
YEAR 2000 READINESS DISCLOSURE
The Company's data processing systems transitioned to the start of the Year
2000 without exhibiting any material problems. In addition to analysis,
remediation, and testing of the Company's systems, the Company's compliance
program focused on assessing the Year 2000 readiness of its global sub-
custodians, major service providers, correspondents, business partners, and
borrowers. The Company has not experienced any material problems due to the
Year 2000 performance of any significant third party. The Company's current
focus is to monitor continued performance, preparedness, and contingency
planning. While contingency planning has been defined as part of the Year 2000
compliance program, owing to the Company's continued exposure to potential Y2K
problems, all new measures have been incorporated into the Company's existing
Business Continuity Plans.
The Company considers Year 2000 compliance 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 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 includes 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. We believe these plans to be adequate to mitigate
continuing Year 2000 related risks. The Company's Year 2000 information
center, which was established as a repository and focus for analysis of
information, published 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 during the
remaining risk periods in 2000.
Overall, the Company's Year 2000 compliance program has to date, met the
needs of its customers and compliance deadlines of its regulators. The total
cost of the Year 2000 compliance program is projected to be $82 million. For
the year ended December 31, 1999, the Company spent $20 million on making
computer systems Year 2000 compliant. Total expenses since 1997 have been $71
million. The Company estimates that approximately $11 million in expenditures
will be incurred beyond December 31, 1999 in connection with the Year 2000
compliance program.
The Year 2000 compliance program is intended to significantly reduce the
Company's level of uncertainty about the Year 2000 problem including the Year
2000 compliance and performance of its material business partners. The Company
believes that with the successful transition of the Company's systems to the
start of the Year 2000, 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. The Company
anticipates continued exposure to potential Year 2000 problems until at least
the end of the year 2000. 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" in its Form 10-K.
<PAGE 43>
Securities Servicing and Cash Processing
We are the world's premier provider of Securities Servicing and Global Payment
Services, offering the broadest product array of any servicing company. We
rank either one or two in virtually every product line; from custody with over
$6.3 trillion in assets under administration to a 64% market share in
depositary receipts. In 1999 total fees reached $1.52 billion, a 21% increase
over 1998. Our advanced technology and global network uniquely position us to
provide solutions to financial institutions, corporations and intermediaries
around the world.
The Investment Lifecycle
Investor Services
We continue to expand our ability to provide packages of customized services
for every step of the investment lifecycle. Beginning with pre-trade analysis
and portfolio modeling and carrying through to post-trade processing, we
provide the products and services needed to allow clients to focus on their
core businesses.
When making investment decisions, clients benefit from our pre-trade
analytical and compliance tools, which help them to devise optimal investment
strategies - across varied currencies and asset types. When an investment
decision is executed, we help clients maximize efficiency, mitigate risk and
reduce expenses while paving the way for optimal execution. Our technology
helps enhance price discovery and eliminates market fragmentation in the
equity, fixed income and foreign exchange markets.
We service the portfolio with a broad array of outsourcing options,
delivering technologically sophisticated custody and clearing services in 90
markets. Using our local market expertise, we employ the resources and
advanced technology required to support safekeeping, trade settlement,
liquidity and reporting needs, as well as global accounting. We also provide
liquidity through short-term investment vehicles and credit options. To
maximize returns on their portfolio assets, clients can utilize our securities
lending services, which balance risk and optimize portfolio returns.
In portfolio analysis, the final phase of the investment lifecycle, we
offer a powerful spectrum of portfolio analytic products that help monitor
risk and enhance performance. The VaR model calculates the specific risk
inherent in individual portfolios, strategies or positions and allows the
management of incremental risk. Our interactive browser-based performance
measurement application provides the ability to analyze the impact of
investment decisions.
Global Trends
Global financial markets are expanding at tremendous rates, generating
significant growth in worldwide financial assets. These trends, combined with
privatization of pension plans and government owned agencies and the
continuing growth of cross-border investments, have created enormous
opportunities for revenue growth. Structural market changes including
shortened settlement cycles, the consolidation of clearing and settlement
systems in Europe, decimalization and extended trading hours are putting
additional pressures on other service providers. However, because of our
superior technology, we are well positioned to accommodate and benefit from
these changes. Industry consolidation continues to provide opportunities to
generate new business and make acquisitions that support our long-term
strategy. We are well positioned to provide the guidance and support our
clients require to meet these challenges.
<PAGE 44>
Industry Focus
We remain focused on specific industries, offering expertise to insurance
companies, mutual funds, fund managers, banks, government agencies, endowments
and foundations, pensions, central banks, and broker/dealers. Partnering with
our clients we help mitigate risk, maximize returns, facilitate transaction
processing, manage cash, reduce costs and provide financing to support
clients' global business objectives.
Integrated Platform
Our integrated technology smoothly transitions clients from one phase of the
investment lifecycle to the next. One system, INFORM, our real-time, web-based
platform for customer communication provides access to our diverse suite of
products and services. INFORM is in its third generation and is deployed in
over 50 countries. Our rapid, flexible and highly efficient technology-based
services increase the productivity of our clients' businesses.
Issuer Services
Depositary Receipts
Depositary receipts (DRs) enable investors worldwide to invest in dollar-
denominated securities of non-U.S. companies and provide issuers of these
securities access to U.S. and European capital markets. 1999 was another
record year for our DR business. We won 130 new clients from 39 countries,
leading all competitors with a 71% share of the worldwide market. As the
largest depositary, we managed 64% of all DR programs globally with more than
1,300 clients from 69 countries.
Using INFORM, DR clients can access comprehensive shareholder analysis,
DR trading, price performance and DR program activity on a daily basis. It is
used by over 300 clients from 35 countries. We also launched Internet HOLDRs
(service mark) Trust and Biotech HOLDRs (service mark) Trust, innovative
exchange-listed, equity basket securities. The trusts issue depositary
receipts that represent common shares of specified companies in the Internet
and biotechnology industries, respectively. Basket securities offer
flexibility, diversification and expected reduced investing cost.
Consolidations of industries, on a global basis, enabled us to expand our
relationships with existing DR clients as we served as tender and exchange
agent in some of the year's largest cross-border acquisitions, including
Vodafone-Airtouch, RepsolYPF, TotalFina/ElfAcquitaine and ScottishPower
/PacifiCorp.
Corporate Trust
We are the largest corporate trust service provider in the world. Our
portfolio of more than 70,000 debt issues for more than 30,000 clients
includes market leading positions for traditional corporate and high yield
debt, mortgage-backed and asset-backed securities, derivative structures and
municipal finance. Our global trust services group, which provides specialized
fiduciary and debt services, is the fastest growing in the industry, with
revenues increasing by more than 35% in 1999.
We continue to develop new products and services. In our municipal trust
business, we introduced BNY Smart Services (service mark), an advanced web-
based asset reporting and accounting product aimed at state and local
governments with multiple trust and safekeeping relationships. We also
developed a series of application services for issuers of public housing bonds
that includes analytic and reporting services similar to those used by our
mortgage-backed securities clients.
<PAGE 45>
In structured finance, we expanded our product offerings to include trust
and agency services for issuers and managers of collateralized loan and debt
obligations. To provide these services, the Bank developed an integrated
trustee, custodian, asset servicing and analytical reporting product.
BNY Asset Solutions LLC was formed after the acquisition of Capital of
America Client Services from Nomura Holding America. This acquisition
continues our strategy of creating a specialized asset-servicing platform to
support non-routine asset securitizations. At year end, BNY Asset Solutions
serviced a portfolio in excess of $10 billion.
Stock Transfer
As one of the world's leading stock transfer agents, we offer recordkeeping,
dividend payment and reinvestment, proxy tabulation and exchange agent
services for corporate issuers of equity securities. We provide interrelated
services, such as direct registration, direct purchase and sales plans,
employee stock option plans, initial public offerings and corporate
reorganization services.
We serve 11.5 million shareholders for more than 550 clients. In 1999, we
increased our emphasis on improving profitability and high margin add-on
services. Our continuing investment in new technology has allowed us to meet
the demands from both issuers and investors worldwide. We launched three major
technology initiatives in 1999 aimed at creating true straight-through-
processing: Internet access for issuers, a transactional website for
investors, and an advanced imaging platform.
BNY ESI & Co.
BNY ESI & Co., our equity brokerage affiliate, continued its record
performance. Driving this growth were a number of ongoing initiatives. The
first is product development, which focused on providing asset managers with
quantitative equity trading services. Next, building on its presence in the
Plan Sponsor market, BNY ESI acquired a firm specializing in commission
recapture for union plans, added an international recapture service, and made
significant investments in technology to support a fast growing client roster.
Finally, BNY ESI created several new revenue sources by cross selling Unit
Investment Trust and exchange product trading, and share repurchase programs.
Cash Processing/Global Payment Services
We are a global market leader in payment services, offering financial
institutions and corporations solutions that optimize cash flow, integrate
systems and increase investment return. We recently launched CA$H-Register
Plus (service mark), a browser-based cash management delivery system that
allows customers to conduct a full range of transactions, including wire
transfers, ACH payments and collections, information reporting and the
retrieval of check images. We are the first bank to offer such a broad range
of global payment services on a browser-based platform.
Funds Transfer
The Bank is among the top three providers of funds transfer services in the
U.S. and the only bank that has consistently increased its market share over
the past five years, growing from 6.9% to 12.1%. We process over 125,000
transactions daily with an aggregate value in excess of $600 billion. The
underlying business activity reflects global trade, securities and foreign
exchange transactions.
Trade Services
We deliver services that facilitate global trade, including letters of credit,
documentary collections, reimbursements, and automated inquiry and reporting
<PAGE 46>
as well as trade services on an outsourced basis. Our customers include import
and export corporations and banks that deliver trade services around the
world.
In 1999 we introduced two Internet-based trade services - Trade Internet
Query (service mark), an Internet-based system, providing information on
transactions processed by our branches worldwide, and Internet Global
Collections, which facilitates payments under letters of credit and
documentary collections.
Deposit Services
We offer products and services to corporate and institutional customers
designed to facilitate the receipt and disbursement of cash and provide
sophisticated reporting capabilities. Our services range from traditional
check processing to an image-based wholesale lockbox system.
BNY Asset Management & Private Client Services
BNY Asset Management and Private Client Services fee revenue reached a record
high of $244 million in 1999, 17% ahead of the previous year. Top tier
investment performance, strong new business development, and the favorable
growth trends of these businesses continue to drive results.
BNY Asset Management
This year we established the BNY Asset Management sector to highlight our
strength as a premier investment manager with over 150 years of investment
management experience. This new structure enables us to accelerate our growth
and broaden our product offerings through strategic acquisitions and
proprietary product development. Superior investment performance and strong
new business results led to a 25% growth in total assets under management in
1999 to $60 billion - earning us a leading position among the largest bank
managers of trusts and investment assets in the U.S.
BNY Asset Management's disciplined investment approach and experienced
professionals provided our clients with another year of strong returns. The
BNY Hamilton Equity Mutual Funds outperformed their peer universes by
substantial margins over the past year. The BNY Hamilton Small Cap Fund had a
particularly strong year outperforming its peer index by more than 55%. The
BNY Hamilton Large Cap and BNY Hamilton Equity Income funds were rated among
the "top ten" in The Wall Street Journal's Mutual-Fund Scorecard: "Last Year's
Top Performers."
Private Client Services
Private Client Services includes Private Banking, Personal Trust and Estate
Administration, Personal Financial Planning, and Personal and Advisory
Custody. Our primary target markets include high net-worth individuals and
their families, corporate executives, entrepreneurs and business owners. We
opened two new private banking offices in Connecticut to increase our presence
in Fairfield County. Our Personal and Advisory Custody business targeting
individuals, investment managers, financial consultants and family offices,
realized outstanding growth in 1999 with assets under administration
increasing 21% from 1998.
We acquired Swerdlin White & Huber, Ltd. and Estabrook Capital Management
Inc., which reflects our commitment to expanding our businesses and providing
a full range of wealth management services to our clients. Swerdlin White
added expertise in planned giving and the ability to offer non-profit
organizations innovative approaches to meeting both their fiduciary
obligations and investment objectives. The BNY Hamilton CRT funds, the first-
ever charitable remainder trust mutual funds, were created specifically for
<PAGE 47>
the planned giving community. Our acquisition of Estabrook Capital Management
gives us 70 years of expertise in value investing which complements our
traditional growth-oriented investing philosophy.
Corporate Banking
Our Corporate Banking divisions are responsible for the management of
commercial and institutional relationships. Focusing globally on financial
service companies and specialized industries in the United States, we provide
credit and fee-based financial services, including bond underwriting, leasing
and other capital markets services.
In 1999 we continued the strategic transformation of our corporate loan
portfolio increasing the alignment of credit extension with the sale of fee-
based products. In 1994 stand-alone credit relationships represented 45% of
our total loan portfolio vs. less than 10% at year-end. In addition to credit,
our relationship managers focus on cross selling the Bank's investor and
issuer products and services.
Financial Companies Services
Financial companies remain the Bank's largest and fastest growing market. We
provide services to mutual funds, insurance companies, banks, investment
managers, government agencies and broker/dealers. Widely recognized for our
industry knowledge and expertise, we deliver company-specific solutions for
our clients' overall securities servicing, cash management and financing
needs. As a back-, mid- and front-office service provider, the Bank is
uniquely positioned to deliver a host of products that help clients focus on
their core businesses and attain their strategic goals.
Special Industries Banking
We are a leader in providing financing and other corporate banking services to
certain key industry sectors, including media and telecommunications, energy
and public utilities, real estate, retailing, automotive and healthcare. We
are a major lender and syndicator of bank loans and other financing for our
clients in these industries. During 1999 loan volume throughout the special
industries sector remained strong, with impressive results in our media and
telecommunications sector.
U.S. Commercial Banking
Our diverse portfolio of commercial lending clients ranges from traditional
manufacturers to leading distribution and service companies throughout the
United States. The Bank's corporate lending franchise serves as a foundation
for cross selling other services and has also served as the platform for the
introduction of many new product offerings.
Regional Commercial Banking
We offer a wide range of banking services, including traditional lending, cash
management, leasing, capital markets and corporate finance, to mid-sized
companies in the metropolitan New York area. Additionally, we offer a full
range of private banking and asset management services to the principals of
these companies.
Leasing
BNY Capital Funding LLC, one of the largest bank-owned leasing companies in
the United States, develops innovative structuring to meet the tax-oriented
equipment financing needs of domestic and international customers. In 1999 we
<PAGE 48>
financed over $1 billion in cross-border and domestic lease transactions. BNY
Capital Resources Corporation, our middle market subsidiary, completed over
$100 million in financing for corporate banking clients. Our BNY Leasing Edge
(service mark) product provides leasing alternatives to our retail and
corporate clients.
Capital Markets
BNY Capital Markets, Inc., a subsidiary, provides capital markets and
investment banking services including the structuring and syndication of
credit facilities, the underwriting and distribution of corporate bonds,
private placement of debt securities, and targeted merger, acquisition and
advisory services. Also, the municipal securities group specializes in
underwriting and dealing in investment grade tax-exempt securities.
In 1999 we acted as agent or co-agent in syndicated corporate credit
facilities resulting in over $250 billion in bank financing for our clients.
We also expanded our corporate bond underwriting activities and acted as a co-
manager/placement agent on 51 investment grade and high yield bond
transactions, which raised over $37 billion for our clients.
International Banking
We have 30 international branches and representative offices in 26 countries
throughout Europe, Asia, Latin America, Australia and the Middle East and a
network of over 2,300 foreign correspondent banks. Our global presence
provides an important marketing platform for all of our servicing and
processing businesses. We are among the top five U.S. issuers of import trade
letters of credit and a major player in facilitating export trade
transactions.
Retail Banking
We operate in three states with a network of 353 full service branches,
establishing us as a leader in the suburban metropolitan New York market. Our
branches offer a mix of traditional banking and alternative services including
financial planning and insurance products to over 635,000 individual
households and more than 100,000 businesses. These offices serve as a platform
for cross-selling services including investment products designed by some of
our most important securities services clients.
With over $14 billion in core deposits, retail banking continues to
provide a stable, low-cost funding source that supports lending activities
throughout the Bank. 1999 produced exceptional results - in all key business
categories. Transaction balance growth was strong with balances increasing by
5% and noninterest income increasing by 26% over last year.
Our focus is targeted to high-profit customer segments by maintaining and
expanding relationships. Two such products that have been highly successful
are Priority Value Banking (service mark), a relationship product that offers
a tailored package of deposit services and CheckInvest(registered trademark),
an innovative business product that automatically sweeps excess balances from
a checking account to a mutual fund. CheckInvest continues to be one of our
fastest growing business products with a 20% increase in the number of
accounts and a 25% increase in balances.
The Direct 24 (trademark) Debit Card program provides a major new source
of fee income. In its first year, the card was utilized by over a third of
customers and generated 37% more fee income than projected. Direct 24 (service
mark) PC Banking and Bill Paying Services, provide customers with additional
access to their accounts on their PCs, 24-hours a day. The number of accounts
using these services increased 74% in 1999.
<PAGE 49>
Year-end loan balance growth exceeded expectations with a 10% increase
over December 1998. We introduced Personal Edge (service mark), an unsecured
loan product for highly credit-worthy individuals, which features tiered rates
based on the amount borrowed, and the Credit Options program which provides
credit alternatives to selected loan applicants.
The Group Banking Program offers a package of preferred rates and banking
services to employees of corporate customers. It provides an opportunity to
strengthen relationships with our corporate customers while growing our
individual customer base. In 1999, we increased the number of corporations
participating by 24% and added 6% more individual accounts.
Our business and professional lending group has doubled its loan
portfolio over the last two years by offering a full range of credit products.
Business CreditLink (service mark), a revolving line of credit, has been
particularly successful, offering convenient access to credit through a check,
ATM, or Direct 24 PC Banking.
In 1999, investment sales were strong with growth of 25%. The BNY
Investment Center Inc., a registered broker/dealer, was converted to a wholly-
owned subsidiary. It now provides financial planning, insurance products and
investment consultations. For self-directed investors, we provide trade
executions and settlement services. We introduced One Wall Street Plus
(service mark), a personal asset management account linking checking, money
market and brokerage accounts into one product package.
BNY Mortgage Company (service mark) continues to build its position as an
industry leader in the origination of New York State-backed loans for first-
time borrowers with volume up 40% over 1998. Our reverse mortgage product for
senior citizens recorded a 15% increase in loan volume in 1999. We service the
financing needs of homebuyers with innovative residential financing programs,
including government-insured loans, construction loans, and Fannie Mae pilot
programs. Our joint venture formed with Alliance Mortgage last year has
provided the opportunity to reduce our cost structure and build greater depth
in this cyclical industry.
Global Markets
Global Markets includes the Bank's foreign exchange and interest-rate risk
management products as well as our trading and sales activities. Operating
around the world, we benefit from the growth of our global securities
servicing client base and their growing demand for financial market products
and solutions. Revenues for 1999 reached $189 million driven by increased
customer volumes.
Foreign Exchange
We are a premier FX provider, trading in over 100 currency markets around the
world. In 1999, we expanded our global investment manager customer base by 30%
and increased trading activity by over 40%.
Interest Rate and Currency Derivatives
The Bank is a leading provider of currency and interest rate derivatives,
offering a full array of currency and interest rate options, swaps and risk
management solutions. Our market leading worldwide currency derivatives
capabilities were enhanced in 1999 with the expansion of the interest rate
derivatives business into the European market. This business expansion builds
on the Bank's recognized leadership as a provider of interest rate risk
management products to U.S. government agencies and its growing interest rate
derivatives presence within the U.S. corporate and financial institutions
marketplaces.
<PAGE 50>
Global Risk Management Services
In 1999, we expanded our suite of research products to provide market
professionals with a wide array of research, technological tools, and e-
commerce alternatives for the foreign exchange and interest rate markets. Our
interest rate derivatives customer base expanded by 30% as we continued to
build our market leadership in providing risk management solutions.
iFX Manager
The Bank introduced one of the industry's first browser-based FX trade order
management and execution systems. iFX Manager (service mark) enables customers
to take advantage of straight-through-processing, automating the entire
workflow process - from preparation of trade requests to order management,
trade execution, reporting and ticket input. The system offers auditing and
record keeping advantages, saves time and minimizes trade-processing errors.
Strategy and Research
We rank among the top U.S. banks in derivative activity, offering a full array
of currency and interest rate options, swaps and risk management solutions.
Our research professionals publish fundamental and technical analysis
regularly on the Bank's website, www.bankofny.com, including a proprietary
model that monitors cross-border investment flows.
BNY Overlay Associates
BNY Overlay Associates is the Bank's specialist currency overlay manager,
providing investment advisory services to institutional investors. Using
proprietary techniques, we manage clients' existing currency exposures with
the twin objectives of managing risk and increasing overall portfolio returns.
EXHIBIT 21
Subsidiaries Of The Registrant
Significant subsidiaries of The Bank of New York Company, Inc. are as follows:
The Bank of New York, a New York State Chartered Bank
The Bank of New York Europe*
BNY Holdings (Delaware) Corporation, a Delaware Corporation
The Bank of New York (Delaware)**, a Delaware State Chartered Bank
- -----------------------------------------
* Subsidiary of The Bank of New York.
** Subsidiary of BNY Holdings (Delaware) Corporation
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP
INDEPENDENT AUDITORS
We consent to the incorporation by reference in this Annual Report (Form 10-K)
of The Bank of New York Company, Inc. of our report dated January 28, 2000,
included in the 1999 Annual Report to Shareholders of The Bank of New York
Company, Inc.
We also consent to the incorporation by reference in the following
Registration Statements of The Bank of New York Company, Inc. of our report
dated January 28, 2000, with respect to the consolidated financial statements
of The Bank of New York Company, Inc. incorporated by reference in this Annual
Report (Form 10-K) for the year ended December 31, 1999:
Registration Statement Number Form Description
- ----------------------------- ---- -----------
No. 333-03811 S-3 Dividend Reinvestment and Stock
Purchase Plan
No. 333-15951 S-3 Trust Preferred Securities in the
No. 333-15951-01 amount of $700 million
No. 333-15951-02
No. 333-15951-03
No. 333-15951-04
No. 333-15951-05
No. 333-40837 S-3 Trust Preferred Securities in the
No. 333-40837-01 amount of $500 million
No. 333-40837-02
No. 333-40837-03
No. 333-70187 S-3 Debt Securities, Preferred Stock,
No. 333-70187-01 Common Stock, and Trust Preferred
No. 333-70187-02 Securities in the amount of
No. 333-70187-03 $1.3 billion
No. 333-70187-04
No. 33-59225 S-4 Proxy Statement related to merger
with National Community Banks, Inc.
No. 33-25805 S-4 Proxy Statement related to merger
with Putnam Trust Company of Greenwich
No. 333-78685 S-8 Employees Stock Purchase Plan
Employees Profit Sharing Plan
1993 Long-Term Incentive Plan
1999 Long-Term Incentive Plan
No. 33-56863 S-8 Employee Stock Purchase Plan,
Employee Preferred Stock Plan and
1993 Long-Term Incentive Plan
No. 33-57670 S-8 Employee Stock Purchase Plan,
Employee Preferred Stock Plan and
1993 Long-Term Incentive Plan
No. 2-95764 S-8 1984 Stock Option Plan
No. 33-20999 S-8 1988 Long-Term Incentive Plan
No. 33-33460 S-8 Amendment to 1988 Long-Term Incentive
Plan
No. 33-49963 S-8 NCB Employee Incentive Savings Plan
No. 33-62267 S-8 Putnam Profit Sharing Plan, Putnam
Stock Option Plan and Putnam Incentive
Stock Option Plan
\s\ Ernst & Young LLP
Ernst & Young LLP
New York, New York
March 28, 2000
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This schedule contains summary financial information extracted from the Bank
of New York Company, Inc.'s Form 10-K for the period ended December 31, 1999
and is qualified entirely by reference to such Form 10-K.
</LEGEND>
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<NAME> THE BANK OF NEW YORK COMPANY, INC.
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