<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number 1-6152
THE BANK OF NEW YORK COMPANY, INC.
(Exact name of registrant as specified in its charter)
NEW YORK 13-2614959
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification number)
One Wall Street, New York, New York 10286
(Address of principal executive offices) (Zip code)
(212) 495-1784
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months(or such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
The number of shares outstanding of the issuer's Common Stock,
$7.50 par value, was 740,443,568 shares as of October 31, 2000
<PAGE> 2
THE BANK OF NEW YORK COMPANY, INC.
FORM 10-Q
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
------------------------------
Item 1. Financial Statements
Consolidated Balance Sheets
September 30, 2000 and December 31, 1999 3
Consolidated Statements of Income
For the Three Months and Nine Months
Ended September 30, 2000 and 1999 4
Consolidated Statement of Changes In
Shareholders' Equity For the Nine
Months Ended September 30, 2000 5
Consolidated Statements of Cash Flows
For the Nine Months Ended September 30,
2000 and 1999 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
Item 3. Quantitative and Qualitative Disclosures about Market
Risk. (See "Trading Activities") 13
PART II. OTHER INFORMATION
--------------------------
Item 1. Legal Proceedings 23
Item 5. Other Information 24
Item 6. Exhibits and Reports on Form 8-K 24
SIGNATURE 26
<PAGE> 3
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
-----------------------------
THE BANK OF NEW YORK COMPANY, INC.
Consolidated Balance Sheets
(Dollars in millions, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
---- ----
<S> <C> <C>
Assets
------
Cash and Due from Banks $ 4,222 $ 3,276
Interest-Bearing Deposits in Banks 5,047 6,850
Securities
Held-to-Maturity (fair value of $833 in 2000
and $839 in 1999) 849 871
Available-for-Sale 5,926 6,028
------- -------
Total Securities 6,775 6,899
Trading Assets at Fair Value 10,157 8,715
Federal Funds Sold and Securities Purchased Under Resale
Agreements 3,184 5,383
Loans (less allowance for credit losses of $617 in 2000
and $595 in 1999) 36,781 36,952
Premises and Equipment 901 893
Due from Customers on Acceptances 914 739
Accrued Interest Receivable 374 319
Other Assets 7,054 4,730
------- -------
Total Assets $75,409 $74,756
======= =======
Liabilities and Shareholders' Equity
------------------------------------
Deposits
Noninterest-Bearing (principally domestic offices) $11,886 $12,162
Interest-Bearing
Domestic Offices 15,688 16,319
Foreign Offices 25,725 27,270
------- -------
Total Deposits 53,299 55,751
Federal Funds Purchased and Securities
Sold Under Repurchase Agreements 1,478 1,318
Other Borrowed Funds 4,199 3,825
Acceptances Outstanding 917 740
Accrued Taxes and Other Expenses 3,135 2,644
Accrued Interest Payable 148 131
Other Liabilities 1,857 893
Long-Term Debt 2,957 2,811
------- -------
Total Liabilities 67,990 68,113
------- -------
Company-Obligated Mandatory Redeemable Preferred
Trust Securities of Subsidiary Trust Holding Solely
Junior Subordinated Debentures 1,500 1,500
------- -------
Shareholders' Equity
Class A Preferred Stock - par value $2.00 per share,
authorized 5,000,000 shares, outstanding 16,320 shares
in 2000 and 16,787 shares in 1999 1 1
Common Stock-par value $7.50 per share,
authorized 1,600,000,000 shares, issued
983,594,524 shares in 2000 and
977,961,165 shares in 1999 7,377 7,335
Additional Capital 454 315
Retained Earnings 3,326 2,620
Accumulated Other Comprehensive Income 189 30
------- -------
11,347 10,301
Less: Treasury Stock (242,944,902 shares in 2000
and 237,747,242 shares in 1999), at cost 5,418 5,148
Loan to ESOP (1,444,005 shares in 2000
and 1999), at cost 10 10
------- -------
Total Shareholders' Equity 5,919 5,143
------- -------
Total Liabilities and Shareholders' Equity $75,409 $74,756
======= =======
<FN>
----------------------------------------------------------------------------------------
Note: The balance sheet at December 31, 1999 has been derived from the audited financial
statements at that date.
See accompanying Notes to Consolidated Financial Statements.
</FN>
</TABLE>
<PAGE> 4
THE BANK OF NEW YORK COMPANY, INC.
Consolidated Statements of Income
(In millions, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
For the three For the nine
months ended months ended
September 30, September 30,
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Interest Income
---------------
Loans $ 732 $ 643 $2,183 $1,962
Securities
Taxable 79 63 236 190
Exempt from Federal Income Taxes 16 13 47 36
------ ----- ----- -----
95 76 283 226
Deposits in Banks 67 62 203 180
Federal Funds Sold and Securities Purchased
Under Resale Agreements 80 49 198 147
Trading Assets 133 4 380 15
------ ----- ----- -----
Total Interest Income 1,107 834 3,247 2,530
------ ----- ----- -----
Interest Expense
----------------
Deposits 501 320 1,494 961
Federal Funds Purchased and Securities Sold
Under Repurchase Agreements 38 32 107 99
Other Borrowed Funds 37 27 108 102
Long-Term Debt 52 38 149 108
------ ----- ----- -----
Total Interest Expense 628 417 1,858 1,270
------ ----- ----- -----
Net Interest Income 479 417 1,389 1,260
-------------------
Provision for Credit Losses 25 90 70 120
------ ----- ----- -----
Net Interest Income After Provision for
Credit Losses 454 327 1,319 1,140
------ ----- ----- -----
Noninterest Income
------------------
Servicing Fees
Securities 427 311 1,202 904
Cash 65 69 196 208
------ ----- ----- -----
492 380 1,398 1,112
Private Client Services and
Asset Management Fees 77 61 219 179
Service Charges and Fees 84 77 278 252
Securities Gains 20 50 105 149
Other 112 963 302 1,115
------ ----- ----- -----
Total Noninterest Income 785 1,531 2,302 2,807
------ ----- ----- -----
Noninterest Expense
-------------------
Salaries and Employee Benefits 371 300 1,097 922
Net Occupancy 47 41 137 122
Furniture and Equipment 27 25 80 69
Other 190 149 551 424
------ ----- ----- -----
Total Noninterest Expense 635 515 1,865 1,537
------ ----- ----- -----
Income Before Income Taxes 604 1,343 1,756 2,410
Income Taxes 213 542 614 915
Distribution on Preferred Trust Securities 28 28 85 84
------ ----- ------ ------
Net Income $ 363 $ 773 $1,057 $1,411
---------- ====== ===== ====== ======
Net Income Available to Common Shareholders $ 363 $ 773 $1,057 $1,411
------------------------------------------- ====== ===== ====== =====
Per Common Share
----------------
Basic Earnings $ 0.50 $1.04 $1.44 $1.87
Diluted Earnings 0.49 1.02 1.42 1.84
Cash Dividends Paid 0.16 0.14 0.48 0.42
Diluted Shares Outstanding 747 754 744 769
<FN>
------------------------------------------------------------------------------------------------
See accompanying Notes to Consolidated Financial Statements.
</FN>
</TABLE>
<PAGE> 5
<TABLE>
<CAPTION>
THE BANK OF NEW YORK COMPANY, INC.
Consolidated Statement of Changes in Shareholders' Equity
For the nine months ended September 30, 2000
(In millions)
(Unaudited)
<S> <C>
Preferred Stock
Balance, January 1 $ 1
-------
Balance, September 30 1
-------
Common Stock
Balance, January 1 7,335
Issuances in Connection with Employee Benefit Plans 42
-------
Balance, September 30 7,377
-------
Additional Capital
Balance, January 1 315
Common Stock Issued in Connection with Employee Benefit Plans 139
-------
Balance, September 30 454
-------
Retained Earnings
Balance, January 1 2,620
Net Income 1,057
Cash Dividends on Common Stock (351)
-------
Balance, September 30 3,326
-------
Accumulated Other Comprehensive Income
Securities Valuation Allowance
Balance, January 1 58
Change in Fair Value of Securities Available-for-Sale,
Net of $106 in Taxes 186
Reclassification Adjustment, Net of $(13) in Taxes (26)
-------
Balance, September 30 218
-------
Foreign Currency Items
Balance, January 1 (28)
Foreign Currency Translation Adjustment (1)
-------
Balance, September 30 (29)
-------
Less Treasury Stock
Balance, January 1 5,148
Issued (67)
Acquired 337
-------
Balance, September 30 5,418
-------
Less Loan to ESOP
Balance, January 1 10
-------
Balance, September 30 10
-------
Total Shareholders' Equity, September 30 $ 5,919
=======
<FN>
------------------------------------------------------------------------------------
Comprehensive Income for the three months ended September 30, 2000 and 1999 was $495
million and $618 million.
Comprehensive income for the nine months ended September 30, 2000 and 1999 was
$1,216 million and $1,162 million.
See accompanying Notes to Consolidated Financial Statements.
</FN>
</TABLE>
<PAGE> 6
<TABLE>
THE BANK OF NEW YORK COMPANY, INC.
Consolidated Statements of Cash Flows
(In millions)
(Unaudited)
<CAPTION>
For the nine months
Ended September 30,
2000 1999
---- ----
<S> <C> <C>
Operating Activities
Net Income $1,057 $1,411
Adjustments to Determine Net Cash Attributable to
Operating Activities
Provision for Losses on Loans and Other Real Estate 73 120
Liquidity Charge on loans Available-for-Sale - 124
Gains on the Sale of BNYFC - (1,020)
Depreciation and Amortization 184 156
Deferred Income Taxes 382 305
Securities Gains (105) (149)
Change in Trading Activities (2,475) (817)
Change in Accruals and Other, Net (1,124) (469)
------ ------
Net Cash Used by Operating Activities (2,008) (339)
------ ------
Investing Activities
Change in Interest-Bearing Deposits in Banks 1,639 (104)
Purchases of Securities Held-to-Maturity (264) (303)
Maturities of Securities Held-to-Maturity 222 369
Purchases of Securities Available-for-Sale (2,312) (1,875)
Sales of Securities Available-for-Sale 1,340 476
Maturities of Securities Available-for-Sale 1,355 837
Net Principal Disbursed on Loans to Customers (407) (2,808)
Sales of Loans and Other Real Estate 263 230
Change in Federal Funds Sold and Securities
Purchased Under Resale Agreements 2,460 1,666
Purchases of Premises and Equipment (64) (58)
Acquisitions, Net of Cash Acquired (158) (71)
Disposition, Net of Cash Included 46 4,867
Proceeds from the Sale of Premises and Equipment 2 10
Other, Net (169) 138
------ ------
Net Cash Provided by Investing Activities 3,953 3,374
------ ------
Financing Activities
Change in Deposits (1,176) 291
Change in Federal Funds Purchased and Securities
Sold Under Repurchase Agreements (71) 484
Change in Other Borrowed Funds 533 (145)
Proceeds from the Issuance of Preferred Trust Securities - 200
Proceeds from the Issuance of Long-Term Debt 190 343
Repayments of Long-Term Debt (53) (21)
Issuance of Common Stock 248 219
Treasury Stock Acquired (337) (1,615)
Cash Dividends Paid (351) (318)
------ ------
Net Cash Used by Financing Activities (1,017) (562)
------ ------
Effect of Exchange Rate Changes on Cash 18 (42)
------ ------
Change in Cash and Due From Banks 946 2,431
Cash and Due from Banks at Beginning of Period 3,276 3,999
------ ------
Cash and Due from Banks at End of Period $4,222 $6,430
====== ======
----------------------------------------------------------------------------
Supplemental Disclosure of Cash Flow Information
Cash Paid During the Period for:
Interest $1,840 $1,342
Income Taxes 200 169
Noncash Investing Activity
(Primarily Foreclosure of Real Estate) 2 4
<FN>
----------------------------------------------------------------------------
See accompanying Notes to Consolidated Financial Statements.
</FN>
</TABLE>
<PAGE> 7
THE BANK OF NEW YORK COMPANY, INC.
Notes to Consolidated Financial Statements
1. General
-------
The accounting and reporting policies of The Bank of New York Company,
Inc. (the Company), a financial holding company, and its subsidiaries conform
with generally accepted accounting principles and general practice within the
banking industry. Such policies are consistent with those applied in the
preparation of the Company's annual financial statements.
The accompanying consolidated financial statements are unaudited. In the
opinion of management, all adjustments necessary for a fair presentation of
financial position, results of operations and cash flows for the interim
periods have been made. Such adjustments are of a normal recurring nature.
2. Acquisitions and Dispositions
-----------------------------
In March 2000, the Company completed the acquisition of the correspondent
clearing business of SG Cowen Securities Corporation ("SG Cowen"). This
transaction supports the Company's ongoing strategy of growth in the
correspondent clearing business. In July 2000, the Company completed the
acquisition of BHF Securities Corporation ("BHF"), a leading provider of
domestic and international correspondent clearing services. In November 2000,
the Company announced its agreement to acquire the correspondent clearing
business of Schroder & Co. Inc, from Salomon Smith Barney Inc. This
transaction provides the Company with the opportunity to establish new client
relationships and add valuable product capabilities to its securities
servicing businesses.
In March 2000, the Company acquired the corporate trust business of
Harris Trust and Savings Bank located in Chicago, Illinois. The transaction
involves the transfer of approximately 1,700 trustee and agency appointments
for corporate and municipal issues of debt securities. In May 2000, the
Company completed its purchase of the issuer, agency and depository services
business of Barclays Bank PLC. This transaction involves the transfer of
several hundred fiscal, principal paying agent and sub-agent appointments as
well as depository holdings on behalf of Euroclear and Clearstream Banking SA.
In July 2000, the Company acquired the corporate trust business of Sakura
Trust Company. In September 2000, the Company acquired the corporate trust
business of Dai-Ichi Kangyo Bank of California, a wholly-owned subsidiary of
the Dai-Ichi Kangyo Bank Ltd., headquartered in Tokyo, Japan. In September
2000, the Company signed a definitive agreement to acquire the corporate trust
business of The Trust Company of Bank of Montreal located in Toronto, Canada.
The Trust Company's corporate trust business comprises approximately 300 bond
trustee and agency appointments for Canadian and U.S. companies, which issue
debt securities into the Canadian market.
In October 2000, the Company acquired Ivy Asset Management Corp., a
privately-held asset management firm, based in Garden City, New York. Ivy
offers clients hedge fund products and advisory services utilizing multiple
managers engaged in niche styles and sophisticated strategies not typically
available to the investing public. Also, in October 2000, the Company
completed the acquisition of approximately $9 billion in custodial accounts
administered by the Bank of America Private Bank in Los Angeles. The
acquisition of this book of business expands the Advisory Custody services for
investment advisors and their high net worth clients. This is an integral part
of the Private Client Services business which currently administers $33
billion in custody assets for private clients, consultants, investment
advisors, and family offices.
<PAGE> 8
In January 2000, the Company completed the acquisition of certain assets
of Institutional Securities Trading LLC ("IST"). IST is a commission recapture
and third-party services firm primarily serving Taft-Hartley organizations and
other plan sponsors. In May 2000, the Company completed the acquisition of
certain assets of Global Execution Network Associates, Inc. ("GENA"). GENA is
a U.S. based broker-dealer, specializing in quantitative and program equity
trading in 52 markets globally. GENA's clients are both U.S. and U.K.
institutional investors. The acquisition will enhance the Company's non-dollar
trading capabilities for the Company's institutional clients worldwide and
furthers the Company's strategy to be a recognized leader in global
institutional agency brokerage.
In April 2000, the Company completed the sale of its interest in Banco
Credibanco S.A. to Unibanco-Uniao de Bancos Brasileiros S.A.
3. Allowance for Credit Losses
---------------------------
Transactions in the allowance for credit losses are summarized as
follows:
Nine months ended
September 30,
(In millions) 2000 1999
---- ----
Balance, Beginning of Period $ 595 $ 636
Charge-Offs (62) (133)
Recoveries 14 10
----- -----
Net Charge-Offs (48) (123)
Acquisition/(Disposition) - (39)
Provision 70 120
----- -----
Balance, End of Period $ 617 $ 594
===== =====
4. Capital Transactions
--------------------
As of October 31, 2000, the Company has approximately 6 million common
shares remaining to repurchase under its share buyback programs.
5. New Accounting Pronouncements
-----------------------------
Effective January 1, 2001, a new accounting standard will require the
Company to record all derivatives on the balance sheet at fair value and apply
new accounting practices for hedging activities. The Financial Accounting
Standards Board ("FASB") continues to issue interpretative guidance related to
this standard. Based upon current interpretations of the standard and market
conditions as of September 30, 2000, the adoption of the standard is not
expected to have a material effect on the Company's financial position or
results of operations.
<PAGE> 9
6. Earnings Per Share
------------------
The following table illustrates the computations of basic and diluted
earnings per share for the three and nine months ended September 30, 2000 and
1999:
Three Months Ended Nine Months Ended
September 30, September 30,
(In millions, except per share amounts)
2000 1999 2000 1999
---- ---- ---- ----
Net Income (1) $363 $773 $1,057 $1,411
==== ==== ====== ======
Basic Weighted Average
Shares Outstanding 734 741 733 756
Shares Issuable on Exercise of
Employee Stock Options 13 13 11 13
---- ---- ---- ----
Diluted Weighted Average Shares Outstanding 747 754 744 769
==== ==== ==== ======
Basic Earnings Per Share: $ 0.50 $ 1.04 $ 1.44 $ 1.87
Diluted Earnings Per Share: 0.49 1.02 1.42 1.84
(1) For purpose of calculating earnings per share, diluted net income and net
income available to common shareholders equal net income for all periods
presented.
7. Commitments and Contingent Liabilities
--------------------------------------
In the ordinary course of business, there are various claims pending
against the Company and its subsidiaries. In the opinion of management,
liabilities arising from such claims, if any, would not have a material effect
upon the Company's consolidated financial statements.
<PAGE> 10
Item 2. Management's Discussion and Analysis of Financial Condition and
------------------------------------------------------------------------
Results of Operations
---------------------
The Company's actual results of future operations may differ from those
set forth in certain forward-looking statements contained herein. Refer to
further discussion under the heading "Forward Looking Statements".
The Company reported third quarter diluted earnings per share of
49 cents, up 17% from the 42 cents earned on a normalized basis in the third
quarter of 1999. Net income for the third quarter was $363 million, up 16%
from the $313 million earned on a normalized basis in the same period last
year. Reported diluted earnings per share were $1.02 in the third quarter of
1999 while reported net income was $773 million. Diluted earnings per share
were $1.42 for the first nine months of 2000, up 16% from the $1.22 earned on
a normalized basis last year. Net income for the first nine months was $1,057
million, an increase of 15% over last year's $916 million earned on a
normalized basis. Reported diluted earnings per share were $1.84 for the first
nine months of 1999 while reported net income was $1,411 million. (See
"Normalized Net Income" heading)
The Company's continuing emphasis on offering diversified services to
virtually all segments of the global securities markets resulted in superior
growth in both revenue and profitability. This quarter's performance continues
to reflect the fundamental strength of the Company's long-term strategy. In
securities servicing, fee revenues increased to a record $427 million, up 37%
for the quarter. Foreign exchange and other trading revenue increased to
$59 million or 31% over last year, benefiting from the continued increase in
global trading volumes. Private client services and asset management fees grew
26% in the quarter, led by strong performance in all product areas. The
Company's continued focus on fee-based businesses resulted in noninterest
income growing to 62% of total revenue in the third quarter, up from 60% last
year.
Return on average common equity for the third quarter of 2000 was 25.75%
compared with 25.33% on a normalized basis in the third quarter of 1999.
Return on average assets for the third quarter of 2000 was 1.89% compared with
1.96% on a normalized basis in the third quarter of 1999. Reported return on
average common equity was 61.23% in the third quarter of 1999 while reported
return on average assets was 4.78%. For the first nine months of 2000, return
on average common equity totaled 26.55% compared with 25.34% on a normalized
basis in 1999. Return on average assets was 1.83% for the first nine months of
2000 compared with 1.95% on a normalized basis in 1999. Reported return on
average common equity was 36.63% for the first nine months of 1999 while
reported return on average assets was 2.88%.
Fees from the Company's securities servicing businesses reached
a record $427 million for the third quarter compared with $311 million last
year. For the first nine months of 2000, fees from the Company's securities
servicing businesses totaled a record $1,202 million, growing 33% compared
with $904 million in 1999. Fee revenue was strong across all product lines
with particular strength in global custody, depositary receipts ("DRs"), unit
investment trust, and mutual funds as well as global execution and clearing
services. Fee revenue also benefited from the acquisition of the Royal Bank of
Scotland Trust Bank ("RBSTB") in the fourth quarter of 1999. The Company
continues to be the world's leading custodian with assets of $6.9 trillion
including $2 trillion of cross-border custody assets. DR trading activity
reached $1 trillion for the first time during the first nine months of 2000.
Cross-border mergers and acquisitions as well as U.S. investor interest in
global telecommunication, media, and technology industries continued to be the
major drivers of trading volume.
Private client services and asset management fees were $77 million for
the quarter, up 26% over last year, led by continued superior investment
performance by BNY Asset Management resulting in further new business, as well
as by the acquisition of Estabrook Capital Management, Inc.
<PAGE> 11
Total revenues from global payment services, excluding trade finance,
were up 10% in the first nine months of 2000. This growth was primarily due to
strong increases in funds transfer with domestic financial service companies
as well as increased cash management revenue associated with broad market
acceptance of CA$H-Register PlusSM, the Company's new internet delivery system
for cash management services. Trade finance revenues were down from a year ago
primarily due to the sale of BNY Financial Corporation ("BNYFC") and reduced
pricing, driven by the improved risk profiles of select Asian and Latin
American markets.
Foreign exchange and other trading revenues for the quarter increased 31%
over the third quarter of last year to $59 million. In the first nine months
of 2000, foreign exchange and other trading revenues were $206 million
compared with $133 million last year. Despite seasonal fluctuations, foreign
exchange revenues remained strong, driven by continued increased transaction
flows from the Company's global securities servicing customer base.
Net interest income on a taxable equivalent basis for the third quarter
increased to $492 million from $477 million in the second quarter of 2000. For
the first nine months of 2000, net interest income on a taxable equivalent
basis was $1,429 million, compared with $1,292 million in the first nine
months of 1999, benefiting from the acquisition of RBSTB, which brought
approximately $10 billion in highly liquid, short-term assets and liabilities.
Tangible diluted earnings per share (earnings before the amortization of
goodwill and intangibles) were 52 cents per share in the third quarter of
2000, compared with 44 cents per share on a normalized basis in the third
quarter of 1999. On the same basis, tangible return on average common equity
was 38.89% in the third quarter of 2000 compared with 36.52% in 1999; and
tangible return on average assets was 2.05% in the third quarter of 2000
compared with 2.11% in 1999. Tangible diluted earnings per share were $1.50
per share for the first nine months of 2000, compared with $1.34 per share on
a normalized basis in 1999. On the same basis, tangible return on average
common equity was 41.11% in the first nine months of 2000 compared with 37.72%
on a normalized basis in 1999; and tangible return on average assets was 1.98%
in the first nine months of 2000 compared with 2.19% last year. Amortization
of intangibles for the third quarter and the first nine months of 2000 was
$29 million and $85 million compared with $23 million and $76 million last
year.
CAPITAL
The Company's estimated Tier 1 capital and Total capital ratios were
8.29% and 12.67% at September 30, 2000, compared with 8.03% and 12.24% at
June 30, 2000, and 8.38% and 12.52% at September 30, 1999. The leverage ratio
was 7.42% at September 30, 2000, compared with 6.80% at June 30, 2000, and
8.10% one year ago. Tangible common equity as a percent of total assets was
5.75% at September 30, 2000, compared with 5.11% at June 30, 2000, and 5.93%
one year ago. The decline in the leverage and tangible common equity ratios
from 1999 primarily reflects the acquisition of RBSTB. In the third quarter of
2000, the Company repurchased approximately one million shares under its
common stock repurchase programs.
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 business operations and managed with the use of trend
studies and deposit pricing. The use of derivative products such as interest
rate swaps and financial futures is designed to enhance 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
<PAGE> 12
can be easily reduced, and the monitoring of unfunded loan commitments,
thereby reducing unanticipated funding requirements.
NONINTEREST INCOME
<TABLE>
<CAPTION>
3rd 2nd 3rd
Quarter Quarter Quarter Year-to-Date
------- ------- ------- ------------
(In millions) 2000 2000 1999 2000 1999
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Servicing Fees
Securities $427 $403 $311 $1,202 $ 904
Cash 65 65 69 196 208
---- ---- ---- ------ ------
492 468 380 1,398 1,112
Private Client Services and
Asset Management fees 77 72 61 219 179
Service Charges and Fees 84 104 77 278 252
Foreign Exchange and
Other Trading Activities 59 71 45 206 133
Securities Gains 20 45 50 105 149
Other 53 20 918 96 982
---- ---- ---- ------ ------
Total Noninterest Income $785 $780 $1,531 $2,302 $2,807
==== ==== ====== ====== ======
</TABLE>
Total noninterest income reached $785 million, up 24% from $635 million
in last year's third quarter, excluding the sale of BNYFC and the liquidity
charge. The decline in cash servicing fees reflects both lower trade finance
fees as well as lower cash management and funds transfer fees due to a rising
rate environment positively impacting the value of customers' compensating
balances. Service charges and fees declined from the second quarter reflecting
a reduction of capital markets activity. Securities gains were $20 million
compared with $45 million in the second quarter of 2000 and $50 million one
year ago. Other income in the third quarter of 2000 includes a $26 million
payment associated with the termination of a securities clearing contract
entered into in conjunction with the acquisition of Everen Clearing
Corporation. In 1999, other income in the third quarter included a
$1,020 million gain on the sale of BNYFC and a $124 million liquidity charge
on loans available for sale.
NET INTEREST INCOME
<TABLE>
<CAPTION>
3rd 2nd 3rd
Quarter Quarter Quarter Year to Date
(Dollars in millions on a ------- ------- ------- --------------
tax equivalent basis) 2000 2000 1999 2000 1999
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net Interest Income $492 $477 $429 $1,429 $1,292
Net Interest Rate
Spread 1.93% 1.93% 2.21% 1.94% 2.23%
Net Yield on Interest-
Earning Assets 3.05 2.91 3.16 2.95 3.14
</TABLE>
Net interest income on a taxable equivalent basis was $492 million in the
third quarter of 2000 compared with $477 million in the second quarter of 2000
and $429 million in the third quarter of 1999. The net interest rate spread
was 1.93% in the third quarter of 2000, compared with 1.93% in the second
quarter of 2000 and 2.21% one year ago. The net yield on interest-earning
assets was 3.05% compared with 2.91% in the second quarter of 2000 and 3.16%
in last year's third quarter.
For the first nine months of 2000, net interest income on a taxable
equivalent basis, amounted to $1,429 million compared with $1,292 million in
1999. The year-to-date net interest rate spread was 1.94% in 2000 compared
<PAGE> 13
with 2.23% in 1999, while the net yield on interest-earning assets was 2.95%
in 2000 and 3.14% in 1999.
The expansion of the Company's securities servicing, global payment
services, and asset management businesses continues to generate increased
levels of deposits. These additional deposits are being invested in high-
quality liquid assets which increase net interest income, although lowering
the net interest-rate spread. The improvement in the yield from the second
quarter of 2000 reflects the Company's increased capital base combined with
the growing level and value of interest-free deposits generated by the
Company's securities and fiduciary businesses.
Interest income would have been increased by $1 million and $2 million
for the third quarters of 2000 and 1999 and $5 million and $8 million for the
first nine months of 2000 and 1999 if loans on nonaccrual status at September
30, 2000 and 1999 had been performing for the entire period.
TRADING ACTIVITIES
The fair value and notional amounts of the Company's financial
instruments held for trading purposes at September 30, 2000 are as follows:
3rd Quarter 2000
September 30, 2000 Average
---------------------------- -------------------
(In millions) Fair Value Fair Value
------------------ -------------------
Notional
Trading Account Amount Assets Liabilities Assets Liabilities
--------------- -------- ------ ----------- ------ -----------
Interest Rate Contracts:
Futures and Forward
Contracts $ 23,909 $ 4 $ - $ 2 $ -
Swaps 111,779 1,063 912 1,056 928
Written Options 84,259 - 616 - 617
Purchased Options 45,506 52 - 55 -
Foreign Exchange Contracts:
Swaps 338 - - - -
Written Options 19,254 - 50 - 105
Purchased Options 22,300 125 - 175 -
Commitments to Purchase
and Sell Foreign Exchange 51,673 854 744 845 705
Securities 8,059 141 8,790 151
------- ------ ------- ------
Total Trading Account $10,157 $2,463 $10,923 $2,506
======= ====== ======= ======
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.
<PAGE> 14
The following table indicates the calculated VAR amounts for the trading
portfolio for the periods indicated. During these periods, the daily trading
loss did not exceed the calculated VAR amounts on any given day.
<TABLE>
<CAPTION>
(In millions) 3rd Quarter 2000 Year-to-date 2000
------------------------- -----------------------------------
Market Risk Average Minimum Maximum Average Minimum Maximum 09/30/00
----------- ------- ------- ------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Interest Rate $ 4.1 $ 2.9 $ 5.6 $ 4.5 $ 2.7 $ 6.6 $ 3.7
Foreign Exchange 1.5 0.9 2.7 1.7 0.9 3.8 1.5
Overall Portfolio 5.6 4.3 7.1 6.2 4.3 8.8 5.2
</TABLE>
<TABLE>
<CAPTION>
(In millions) 3rd Quarter 1999 Year-to-date 1999
------------------------- -----------------------------------
Market Risk Average Minimum Maximum Average Minimum Maximum 09/30/99
----------- ------- ------- ------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Interest Rate $ 3.9 $ 2.3 $ 6.2 $ 4.5 $ 2.1 $10.9 $ 4.7
Foreign Exchange 1.5 0.8 3.0 1.5 0.7 4.0 1.2
Overall Portfolio 5.4 3.6 8.7 6.0 3.6 12.1 5.9
</TABLE>
NONINTEREST EXPENSE AND INCOME TAXES
Noninterest expense for the third quarter of 2000 was $635 million,
compared with $515 million in 1999. The increase was principally due to
acquisitions, technology investment, and new business wins.
The efficiency ratio for the third quarter of 2000 improved to 50.4%
compared with 51.9% in the second quarter of 2000, partially reflecting the
increase in other income. For the first nine months of 2000, the efficiency
ratio was 51.4% compared with 50.3% last year. The increase is primarily
attributable to the acquisition of RBSTB in the fourth quarter of 1999. The
computation of the efficiency ratio in 1999 excludes the gain on the sale of
BNYFC and the liquidity charge.
The effective tax rates for the third quarter and the first nine months
of 2000 were 35.1% and 35.0% compared with 40.4% and 37.9% last year. The 1999
rates reflect the sale of BNYFC.
NONPERFORMING ASSETS
<TABLE>
<CAPTION>
Change
9/30/00 vs.
(Dollars in millions) 9/30/00 6/30/00 6/30/00
-------- -------- --------
<S> <C> <C> <C>
Loans:
Other Commercial $ 69 $ 45 $ 24
Foreign 49 54 (5)
Regional Commercial 28 33 (5)
Available for Sale 17 23 (6)
----- ----- -----
Total Loans 163 155 8
Other Real Estate 5 7 (2)
----- ----- -----
Total $ 168 $ 162 $ 6
===== ===== =====
Nonperforming Assets Ratio 0.4% 0.4%
Allowance/Nonperforming Loans 379.6 393.4
Allowance/Nonperforming Assets 367.5 376.4
</TABLE>
Nonperforming assets totaled $168 million at September 30, 2000, compared
with $162 million at June 30, 2000. The increase in nonperforming other
commercial loans partially reflects a loan to an insurance company. At
September 30, 2000, remaining credit exposures of loans available for sale
totaled $152 million with outstandings of $81 million compared with
$246 million and $144 million, respectively at June 30, 2000.
<PAGE> 15
In October 2000, a customer of the Company sought protection from
asbestos claims through a bankruptcy filing. The Company has a $59 million
credit exposure to this customer. Accordingly, the Company expects
nonperforming loans to rise in the fourth quarter of 2000 compared with the
third quarter of 2000.
At September 30, 2000, impaired loans (nonaccrual loans over $1 million)
aggregated $122 million, of which $98 million exceeded their fair value by
$36 million. Impaired loans at September 30, 1999, totaled $83 million, of
which $57 million exceeded their fair value by $16 million. For the third
quarters of 2000 and 1999, the average amounts of impaired loans were $116
million and $128 million. Interest income (cash received) of $1 million was
received on the impaired loans in the third quarter of 2000, while
$62 thousand was received during the third quarter of 1999.
CREDIT LOSS PROVISION AND NET CHARGE-OFFS
<TABLE>
<CAPTION>
3rd 2nd 3rd
Quarter Quarter Quarter Year-to-date
------- ------- ------- -------------
(In millions) 2000 2000 1999 2000 1999
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Provision $ 25 $ 25 $ 90 $ 70 $120
==== ==== ==== ==== ====
Net(Charge-offs)Recoveries:
Commercial Real Estate - - (1) - (2)
Other Commercial (14) (12) (61) (39) (82)
Consumer (1) (1) (1) (3) (3)
Foreign (3) - (23) (3) (34)
Other - (2) (3) (3) (2)
----- ----- ----- ----- ------
Total $(18) $(15) $(89) $(48) $(123)
===== ===== ===== ===== ======
Other Real Estate Expenses $ 1 $ 1 $ - $ 3 $ 1
</TABLE>
The allowance for credit losses increased to $617 million, or 1.65% of
loans at September 30, 2000, compared with $610 million, or 1.60% of loans
at June 30, 2000, and $594 million, or 1.57% of loans at September 30, 1999.
The ratio of the allowance to nonperforming assets was 367.5% at September 30,
2000, compared with 376.4% at June 30, 2000, and 384.2% at September 30, 1999.
Based on an evaluation of individual credits, historical credit losses,
and global economic factors, the Company has allocated its allowance for
credit losses as follows:
9/30/00 6/30/00 12/31/99
------- -------- --------
Real Estate 3% 3% 4%
Domestic 82 77 78
Foreign 12 11 12
Unallocated 3 9 6
--- --- ---
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> 16
SEGMENT PROFITABILITY
Segment Data
The Company has an internal information system that produces performance
data for its four business segments along product and service lines.
The Servicing and Fiduciary businesses segment provides a broad array of
fee based services. This segment includes the Company's securities servicing,
global payment services, 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.
Global payment services 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 focuses on providing lending services, such
as term loans, lines of credit, asset based financings, and commercial
mortgages, to large public and private corporations nationwide, as well as
public and private mid-size businesses in the New York metropolitan area.
Special industry groups focus on financial institutions, securities,
insurance, media and telecommunications, energy, real estate, retailing,
automotive, and government banking institutions. 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 351
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. This segment offers a comprehensive array of
multi-currency hedging and yield enhancement strategies. Offices in New York,
London, Brussels, Tokyo, Frankfurt, Hong Kong, Seoul and Taipei provide
clients a 24-hour trading capability.
The segments contributed to the Company's profitability as follows:
<TABLE>
<CAPTION>
In Millions Servicing
and
For the Quarter Ended Fiduciary Corporate Retail Financial Reconciling Consolidated
September 30, 2000 Businesses Banking Banking Markets Items Total
--------------------- ---------- --------- ------- --------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Net Interest Income $ 177 $ 137 $ 128 $ 31 $ 6 $ 479
Provision for
Credit Losses - 30 2 (1) (6) 25
Noninterest Income 621 66 26 52 20 785
Noninterest Expense 414 54 79 16 72 635
----- ----- ----- ---- ----- -----
Income Before Taxes $ 384 $ 119 $ 73 $ 68 $ (40) $ 604
===== ===== ===== ==== ===== =====
Average Assets $17,749 $28,687 $4,529 $23,868 $1,682 $76,515
======= ======= ====== ======= ====== =======
</TABLE>
<TABLE>
<CAPTION>
In Millions Servicing
and
For the Quarter Ended Fiduciary Corporate Retail Financial Reconciling Consolidated
September 30, 1999 Businesses Banking Banking Markets Items Total
--------------------- ---------- --------- ------- --------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Net Interest Income $ 115 $ 140 $ 127 $ 33 $ 2 $ 417
Provision for
Credit Losses - 22 1 - 67 90
Noninterest Income 474 70 23 56 908 1,531
Noninterest Expense 294 57 78 23 63 515
----- ----- ----- ---- ------ -------
Income Before Taxes $ 295 $ 131 $ 71 $ 66 $ 780 $ 1,343
===== ===== ===== ==== ====== =======
Average Assets $6,141 $29,215 $4,617 $22,862 $1,228 $64,063
====== ======= ====== ======= ====== =======
</TABLE>
<PAGE> 17
<TABLE>
<CAPTION>
In Millions Servicing
For the Nine and
Months Ended Fiduciary Corporate Retail Financial Reconciling Consolidated
September 30, 2000 Businesses Banking Banking Markets Items Total
--------------------- ---------- --------- ------- --------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Net Interest Income $ 493 $ 428 $ 381 $ 85 $ 2 $1,389
Provision for
Credit Losses - 96 4 (1) (29) 70
Noninterest Income 1,804 228 74 174 22 2,302
Noninterest Expense 1,199 159 231 50 226 1,865
------ ----- ----- ----- ----- ------
Income Before Taxes $1,098 $ 401 $ 220 $ 210 $(173) $1,756
====== ===== ===== ===== ===== ======
Average Assets $17,306 $30,473 $4,422 $23,455 $1,674 $77,330
======= ======= ====== ======= ====== =======
</TABLE>
<TABLE>
<CAPTION>
In Millions Servicing
For the Nine and
Months Ended Fiduciary Corporate Retail Financial Reconciling Consolidated
September 30, 1999 Businesses Banking Banking Markets Items Total
--------------------- ---------- --------- ------- --------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Net Interest Income $ 313 $ 474 $ 359 $ 109 $ 5 $ 1,260
Provision for
Credit Losses - 83 3 (2) 36 120
Noninterest Income 1,386 248 67 165 941 2,807
Noninterest Expense 860 201 225 58 193 1,537
----- ----- ----- ----- ----- -------
Income Before Taxes $ 839 $ 438 $ 198 $ 218 $ 717 $ 2,410
===== ===== ===== ===== ===== =======
Average Assets $6,283 $31,784 $4,371 $21,630 $1,462 $65,530
====== ======= ====== ======= ====== =======
</TABLE>
Segment Highlights
Servicing and Fiduciary Businesses
----------------------------------
In the third quarter of 2000, noninterest income was $621 million
compared with $474 million in 1999.
Fees from the Company's securities servicing businesses reached
a record $427 million for the third quarter compared with $311 million last
year. For the first nine months of 2000, fees from the Company's securities
servicing businesses totaled a record $1,202 million, growing 33% compared
with $904 million in 1999. Fee revenue was strong across all product lines
with particular strength in global custody, depositary receipts, unit
investment trust, and mutual funds as well as global execution and clearing
services. Fee revenue also benefited from the acquisition of the RBSTB in the
fourth quarter of 1999. The Company continues to be the world's leading
custodian with assets of $6.9 trillion including $2 trillion of cross-border
custody assets. DR trading activity reached $1 trillion for the first time
during the first nine months of 2000. Cross-border mergers and acquisitions as
well as U.S. investor interest in global telecommunication, media, and
technology industries continued to be the major drivers of trading volume.
Execution and clearing services continue to benefit from increased activity
and a steady flow of new business. In addition, the acquisition of GENA, BHF,
and SG Cowen have contributed to the success of these businesses.
Private client services and asset management fees were $77 million for
the quarter, up 26% over last year, led by continued superior investment
performance by BNY Asset Management resulting in further new business, as well
as by the acquisition of Estabrook Capital Management, Inc. Assets under
management were $64 billion while assets under administration were
$33 billion at September 30, 2000.
Total revenues from global payment services, excluding trade finance,
were up 10% in the first nine months of 2000. This growth was primarily due to
strong increases in funds transfer with domestic financial service companies
as well as increased cash management revenue associated with broad market
acceptance of CA$H-Register PlusSM, the Company's new internet delivery system
<PAGE> 18
for cash management services. Trade finance revenues were down from a year ago
primarily due to the sale of BNYFC and reduced pricing, driven by the improved
risk profiles of select Asian and Latin American markets.
Net interest income in the Servicing and Fiduciary businesses segment
was $177 million for the third quarter of 2000 compared with $115 million in
1999. The increase in net interest income is partially attributable to the
acquisition of RBSTB.
Net charge-offs in the Servicing and Fiduciary Businesses segment were
zero in the third quarters of 2000 and 1999. Noninterest expense for the third
quarter of 2000 was $414 million compared with $294 million in 1999. The
increase was principally due to acquisitions and technology investment.
Corporate Banking
-----------------
The Corporate Banking segment's net interest income was $137 million in
the third quarter of 2000, down from last year's $140 million. The decline is
partially attributable to the sale of BNYFC.
The third quarter of 2000 provision for credit losses was $30 million
compared with $22 million last year. Net charge-offs in the Corporate Banking
segment were $17 million and $88 million in the third quarters of 2000 and
1999. Noninterest income was $66 million in the current year compared with
$70 million last year. The decline is attributable to the sale of BNYFC.
Noninterest expense declined to $54 million from $57 million reflecting the
sale of BNYFC.
Retail Banking
--------------
In the Retail Banking segment, net interest income in the third quarter
of 2000 was $128 million compared with $127 million in 1999. Noninterest
income increased in this same period to $26 million from $23 million.
Noninterest expense in the third quarter of 2000 was $79 million compared with
$78 million in the previous year's period. Net charge-offs were $2 million in
the third quarter of 2000 and $1 million in the third quarter of 1999.
Financial Markets
-----------------
In the Financial Markets segment, net interest income for the quarter was
$31 million compared with 1999's $33 million. Noninterest income was $52
million in the third quarter of 2000 compared with $56 million in the third
quarter of 1999. There was a recovery of $1 million in the third quarter of
2000 and net charge-offs were zero in the third quarter of 1999.
Segment Accounting Principles
-----------------------------
The Company's segment data has been determined on an internal management
basis of accounting, which is different from 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. In
the third quarter of 2000, the Company changed certain assumptions related to
the duration of sector assets and liabilities and the related interest rates.
As a result, sector results for 1999 have been restated.
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
<PAGE> 19
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.
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 expense
include $29 million and $23 million of amortization of intangibles in the
third quarters of 2000 and 1999 and $85 million and $76 million of
amortization of intangibles for the nine months ended September 30, 2000 and
1999, Year 2000 expenses, and corporate overhead. The year-to date and third
quarter of 1999 reconciling items for noninterest income include the gain on
the sale of BNYFC and the liquidity charge on loans available for sale. 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.
Normalized Net Income
1999 normalized earnings reflect net income adjusted for the results of
BNYFC, the $1,020 million gain on the sale of BNYFC, the related investment of
proceeds, and repurchase of 25 million shares of Company common stock on a pro
forma basis as of December 31, 1998; the $124 million liquidity charge related
to the sale of loans; a provision adjustment of $75 million; and related tax
effects. These adjustments are shown in the table below:
Third Quarter Year-to-date
(In millions, except per share amounts) 1999 September 30, 1999
------------- ------------------
Net Income $ 773 $1,411
Adjustments:
Pre-tax Gain on Sale of BNYFC (1,020) (1,020)
BNYFC Income Before Tax (10) (100)
Liquidity Charge - Loans Available
For Sale 124 124
Provision Normalization 75 75
Interest on Proceeds 2 33
Tax Effects 369 393
------ ------
Normalized Net Income $ 313 $ 916
====== ======
Fully Diluted Shares 754 769
Share Adjustment (6) (18)
---- ----
Adjusted Shares 748 751
==== ====
Normalized Diluted Earnings Per Share $ 0.42 $ 1.22
<PAGE> 20
FORWARD LOOKING STATEMENTS
The information presented with respect to, among other things, revenue
and earnings growth, legal proceedings, the Company's plans and objectives
regarding fee based business, nonperforming loans, and future loan losses, 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 lower than expected performance or higher than
expected costs in connection with acquisitions and integration of acquired
businesses, variations in management projections or market forecasts and the
actions that management could take in response to these changes, and other
factors described in the following paragraph.
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 domestic and international factors that the Company is necessarily unable
to predict with accuracy, including future changes in interest rates, general
credit quality, the level of capital market activity, economic activity,
consumer behavior, government monetary policy, legislation, legal proceeding
and regulation, competition, credit, market and operating risk, and loan
demand. In addition, the Company's future results of operations, discussions
of future plans and other forward looking statements contained in Management's
Discussion and Analysis and elsewhere in this Form 10-Q involve a number of
risks and uncertainties. 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 monetary
policy; accordingly, its actions have an important influence on the demand for
credit and investments and the level of interest rates, as well as market
conditions, and thus on the earnings of the Company.
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.
A wide variety of domestic and foreign companies (both banks and non-
banks) compete for processing services. Commercial banks, savings banks,
savings and loan associations, and credit unions actively compete for
deposits, and money market funds and brokerage houses offer deposit-like
services. These institutions, as well as consumer and commercial finance
companies, 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.
<PAGE> 21
THE BANK OF NEW YORK COMPANY, INC.
Average Balances and Rates on a Taxable Equivalent Basis
(Dollars in millions)
<TABLE>
<CAPTION>
For the three months For the three months
ended September 30, 2000 ended September 30, 1999
------------------------------ ------------------------------
Average Average Average Average
Balance Interest Rate Balance Interest Rate
------- -------- ------- ------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
------
Interest-Bearing
Deposits in Banks
(primarily foreign) $ 4,941 $ 67 5.36% $ 5,641 $ 62 4.35%
Federal Funds Sold and Securities
Purchased Under Resale Agreements 4,863 80 6.55 4,051 49 4.76
Loans
Domestic Offices 18,862 355 7.49 19,224 349 7.20
Foreign Offices 19,676 377 7.62 18,522 294 6.30
------- ----- ------- -----
Total Loans 38,538 732 7.56 37,746 643 6.76
------- ----- ------- -----
Securities
U.S. Government Obligations 1,604 24 5.90 2,452 36 5.85
U.S. Government Agency Obligations 1,614 28 6.92 840 14 6.56
Obligations of States and
Political Subdivisions 629 13 8.12 570 11 7.87
Other Securities, including
Trading Securities 11,779 176 5.99 2,537 31 4.93
------- ----- ------- -----
Total Securities 15,626 241 6.16 6,399 92 5.76
------- ----- ------- -----
Total Interest-Earning Assets 63,968 1,120 6.97% 53,837 846 6.24%
----- -----
Allowance for Credit Losses (609) (593)
Cash and Due from Banks 3,003 3,240
Other Assets 10,153 7,579
------- -------
TOTAL ASSETS $76,515 $64,063
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Interest-Bearing Deposits
Money Market Rate Accounts $ 5,879 73 4.96% $ 4,891 54 4.37%
Savings 7,566 52 2.73 7,763 45 2.32
Certificates of Deposit
$100,000 & Over 442 7 6.01 430 5 5.03
Other Time Deposits 1,877 25 5.23 2,208 24 4.27
Foreign Offices 26,411 344 5.20 18,664 192 4.07
------- ----- ------- -----
Total Interest-Bearing Deposits 42,175 501 4.73 33,956 320 3.74
Federal Funds Purchased and
Securities Sold Under Repurchase
Agreements 2,517 38 6.06 2,827 32 4.50
Other Borrowed Funds 2,154 37 6.91 2,012 27 5.34
Long-Term Debt 2,872 52 7.13 2,313 38 6.59
------- ----- ------- -----
Total Interest-Bearing Liabilities $49,718 628 5.04% 41,108 417 4.03%
----- -----
Noninterest-Bearing Deposits 11,232 10,580
Other Liabilities 8,448 5,870
Minority Interest-Preferred Securities 1,500 1,500
Preferred Stock 1 1
Common Shareholders' Equity 5,616 5,004
------- -------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $76,515 $64,063
======= =======
Net Interest Earnings
and Interest Rate Spread $ 492 1.93% $ 429 2.21%
===== ==== ===== ====
Net Yield on Interest-Earning Assets 3.05% 3.16%
==== ====
</TABLE>
<PAGE> 22
THE BANK OF NEW YORK COMPANY, INC.
Average Balances and Rates on a Taxable Equivalent Basis
(Dollars in millions)
<TABLE>
<CAPTION>
For the nine months For the nine months
ended September 30, 2000 ended September 30, 1999
------------------------------ ------------------------------
Average Average Average Average
Balance Interest Rate Balance Interest Rate
------- -------- ------- ------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
------
Interest-Bearing
Deposits in Banks
(primarily foreign) $ 5,499 $ 203 4.94% $ 5,321 $ 180 4.52%
Federal Funds Sold and Securities
Purchased Under Resale Agreements 4,310 198 6.15 4,169 147 4.73
Loans
Domestic Offices 19,477 1,075 7.37 19,913 1,073 7.21
Foreign Offices 20,039 1,109 7.39 19,109 890 6.23
------- ----- ------- -----
Total Loans 39,516 2,184 7.38 39,022 1,963 6.73
------- ----- ------- -----
Securities
U.S. Government Obligations 2,165 97 6.01 2,518 109 5.79
U.S. Government Agency Obligations 1,192 61 6.82 857 41 6.43
Obligations of States and
Political Subdivisions 612 37 8.04 592 35 7.82
Other Securities, including
Trading Securities 11,382 507 5.94 2,538 87 4.56
------- ----- ------- -----
Total Securities 15,351 702 6.11 6,505 272 5.59
------- ----- ------- -----
Total Interest-Earning Assets 64,676 3,287 6.79% 55,017 2,562 6.23%
----- -----
Allowance for Credit Losses (606) (619)
Cash and Due from Banks 3,239 3,130
Other Assets 10,021 8,002
------- -------
TOTAL ASSETS $77,330 $65,530
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Interest-Bearing Deposits
Money Market Rate Accounts $ 5,733 210 4.89% $ 5,086 160 4.20%
Savings 7,630 146 2.56 7,793 131 2.24
Certificates of Deposit
$100,000 & Over 443 19 5.59 559 20 4.89
Other Time Deposits 2,023 76 5.00 2,195 71 4.31
Foreign Offices 27,755 1,043 5.02 18,971 579 4.08
------- ----- ------- -----
Total Interest-Bearing Deposits 43,584 1,494 4.58 34,604 961 3.71
Federal Funds Purchased and
Securities Sold Under Repurchase
Agreements 2,569 107 5.57 3,061 99 4.32
Other Borrowed Funds 2,197 108 6.54 2,591 102 5.31
Long-Term Debt 2,839 149 6.97 2,225 108 6.45
------- ----- ------- -----
Total Interest-Bearing Liabilities $51,189 1,858 4.85% 42,481 1,270 4.00%
----- -----
Noninterest-Bearing Deposits 11,249 10,548
Other Liabilities 8,073 5,866
Minority Interest-Preferred Securities 1,500 1,482
Preferred Stock 1 1
Common Shareholders' Equity 5,318 5,152
------- -------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $77,330 $65,530
======= =======
Net Interest Earnings
and Interest Rate Spread $1,429 1.94% $1,292 2.23%
====== ==== ====== ====
Net Yield on Interest-Earning Assets 2.95% 3.14%
==== ====
</TABLE>
<PAGE> 23
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
--------------------------
The Company continues to cooperate with investigations, which have been
ongoing for almost two years, by federal and state law enforcement and bank
regulatory authorities. The investigations focus on funds transfer activities
in certain accounts at The Bank of New York ("BNY"), principally involving
wire transfers from Russian and other sources in Eastern Europe, as well as
certain other matters involving BNY and its affiliates. The funds transfer
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 plead guilty to
various federal criminal charges. The Company cannot predict when or on what
basis the investigations will conclude or their effect, if any, on the
Company.
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. Substantially
all of these reporting requirements and controls are now in place.
Four 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 two 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. On September 1, 2000, plaintiffs in the
two federal actions filed an amended, consolidated complaint that names all of
the directors and certain officers of BNY and the Company as defendants,
repeats the allegations of the original complaints and adds allegations that
certain officers of BNY and the Company participated in a scheme to transfer
cash improperly from Russia to various off-shore accounts and to avoid Russian
customs, currency and tax laws. The Company and BNY believe that the
allegations of both the original and the amended complaint are without merit.
Defendants have moved to dismiss both actions in New York Supreme Court and
the consolidated action in federal court on the ground that plaintiff failed
to make a proper demand on the boards of directors. These motions are pending.
On September 12, 2000, the boards of directors of BNY and the Company
authorized a Special Litigation Committee to consider the response of BNY and
the Company to the state and federal court shareholder derivative actions.
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 twice, alleges that
the Company and BNY and their senior officers knew about, and aided and
abetted the looting of Inkombank by its principals and participated in a
scheme to transfer cash improperly from Russia to various off-shore accounts
and to avoid Russian customs, currency and tax laws. 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 complaint seeks a trebling of any RICO
damages. The Company and BNY moved to dismiss the amended complaint. The
Company and BNY believe that the allegations of the amended complaint are
without merit and intend to defend the actions vigorously.
<PAGE> 24
On October 24, 2000, three alleged shareholders of Inkombank filed an
action in the Supreme Court, New York County against the Company, BNY and
Inkombank. The complaint alleges that the defendants fraudulently induced the
plaintiffs to refrain from redeeming their alleged $40 million investment in
Inkombank. The complaint asserts a single case of action for fraud, seeking
$40 million plus 12% interest from January 1994, punitive damages, costs,
interest and attorney fees. The Company and BNY believe that the allegations
of the complaint are without merit and intend to defend the action vigorously.
The Company does not expect that any of the foregoing civil actions will
have a material impact on the Company's consolidated financial statements.
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 5. Other Information
--------------------------
In March 2000, the Federal Reserve Board published for public comment a
proposal to amend its regulatory capital guidelines to increase the amount of
consolidated regulatory capital required to be held by bank holding companies
with respect to certain equity and debt investments made by bank holding
companies, or their subsidiaries, in nonfinancial companies. The financial
impact of the proposal upon the Company cannot be determined until a final
rule is published. However, based upon the Company's estimate of the impact of
applying the proposed rule to the Company's current investments covered by the
proposed rule, management anticipates that the Company's regulatory capital
ratios will remain in excess of the ratios required in order to be considered
"well capitalized".
Item 6. Exhibits and Reports on Form 8-K
-----------------------------------------
(a) The exhibits filed as part of this report are as follows:
Exhibit 10(a) - Amendment to The Bank of New York Company, Inc.
1993 Long-Term Incentive Plan
Exhibit 10(b) - Amendment to The Bank of New York Company, Inc.
1999 Long-Term Incentive Plan
Exhibit 10(c) - Amendment to The Bank of New York Company, Inc.
Retirement Plan for Non-Employee Directors
Exhibit 10(d) - Amendment to Deferred Compensation Plan for Non-Employee
Directors Of The Bank of New York Company, Inc.
Exhibit 10(e) - Amendment to The Bank of New York Company, Inc.
Supplemental Executive Retirement Plan
Exhibit 10(f) - Amendment Number Twelve To Grantor Trust Agreement
Exhibit 10(g) - Tier I Employee Severance Agreement dated July 11,2000
Exhibit 10(h) - Tier I Employee Severance Agreement dated July 11, 2000
Exhibit 10(i) - Tier I Employee Severance Agreement dated July 11, 2000
Exhibit 10(j) - Tier I Employee Severance Agreement dated July 11, 2000
Exhibit 10(k) - Tier I Employee Severance Agreement dated July 11, 2000
Exhibit 12 - Statement Re: Ratio of Earnings to Fixed Charges and Ratio
of Earnings to Combined Fixed Charges and Distributions on
Preferred Trust Securities for the Three Months and Nine Months Ended
September 30, 2000 and 1999.
<PAGE> 25
Exhibit 27 - Statement Re: Financial Data Schedule containing selected
financial data at September 30, 2000.
(b) The Company filed the following reports on Form 8-K since
June 30, 2000:
On July 17, 2000, the Company filed a Form 8-K Current Report (Items 5
and 7), which report included unaudited interim financial information and
accompanying discussion for the second quarter of 2000 contained in the
Company's press release dated July 17, 2000.
On October 16, 2000, the Company filed a Form 8-K Current Report (Items 5
and 7), which report included unaudited interim financial information and
accompanying discussion for the third quarter of 2000 contained in the
Company's press release dated October 16, 2000.
<PAGE> 26
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
THE BANK OF NEW YORK COMPANY, INC.
----------------------------------
(Registrant)
Date: November 14, 2000 By: \s\ Thomas J. Mastro
---------------------------------
Name: Thomas J. Mastro
Title: Comptroller
<PAGE> 27
EXHIBIT INDEX
-------------
Exhibit Description
------- -----------
10(a) Amendment to The Bank of New York Company, Inc.
1993 Long-Term Incentive Plan
10(b) Amendment to The Bank of New York Company, Inc.
1999 Long-Term Incentive Plan
10(c) Amendment to The Bank of New York Company, Inc.
Retirement Plan for Non-Employee Directors
10(d) Amendment to Deferred Compensation Plan for Non-Employee
Directors Of The Bank of New York Company, Inc.
10(e) Amendment to The Bank of New York Company, Inc.
Supplemental Executive Retirement Plan
10(f) Amendment Number Twelve To Grantor Trust Agreement
10(g) Tier I Employee Severance Agreement dated July 11, 2000
10(h) Tier I Employee Severance Agreement dated July 11, 2000
10(i) Tier I Employee Severance Agreement dated July 11, 2000
10(j) Tier I Employee Severance Agreement dated July 11, 2000
10(k) Tier I Employee Severance Agreement dated July 11, 2000
12 Ratio of Earnings to Fixed Charges and Ratio of Earnings
to Combined Fixed Charges and Distributions on Preferred
Trust Securities for the Three and Nine Months Ended
September 30, 2000 and 1999.
27 Financial Data Schedule containing selected financial
data at September 30, 2000 and for the Nine Months Ended
September 30, 2000
