-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, TXU/4knX8Ym68WCqoyOYghe/qk6qQSpIi1kNM8WuKoP+iz9Xd4A3NUYpBsZeJOkh oieWqpmpktuuXvP27htUsA== /in/edgar/work/20000811/0000009626-00-000042/0000009626-00-000042.txt : 20000921 0000009626-00-000042.hdr.sgml : 20000921 ACCESSION NUMBER: 0000009626-00-000042 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20000630 FILED AS OF DATE: 20000811 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BANK OF NEW YORK CO INC CENTRAL INDEX KEY: 0000009626 STANDARD INDUSTRIAL CLASSIFICATION: [6022 ] IRS NUMBER: 132614959 STATE OF INCORPORATION: NY FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-06152 FILM NUMBER: 694299 BUSINESS ADDRESS: STREET 1: ONE WALL ST 10TH FL CITY: NEW YORK STATE: NY ZIP: 10286 BUSINESS PHONE: 2124951784 MAIL ADDRESS: STREET 1: 100 CHURCH STREET 9TH FLOOR CITY: NEW YORK STATE: NY ZIP: 10286 10-Q 1 0001.txt SECOND QUARTER 2000 10-Q 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 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 738,239,307 shares as of July 31, 2000 2 THE BANK OF NEW YORK COMPANY, INC. FORM 10-Q TABLE OF CONTENTS PART I. FINANCIAL INFORMATION - ------------------------------ Item 1. Financial Statements Consolidated Balance Sheets June 30, 2000 and December 31, 1999 3 Consolidated Statements of Income For the Three Months and Six Months Ended June 30, 2000 and 1999 4 Consolidated Statement of Changes In Shareholders' Equity For the Six Months Ended June 30, 2000 5 Consolidated Statements of Cash Flows For the Six Months Ended June 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 9 Item 3. Quantitative and Qualitative Disclosures about Market Risk. (See "Trading Activities") 12 PART II. OTHER INFORMATION - -------------------------- Item 1. Legal Proceedings 22 Item 2. Changes in Securities and Use of Proceeds 23 Item 4. Submission of Matters to Vote of Security Holders 23 Item 5. Other Information 24 Item 6. Exhibits and Reports on Form 8-K 24 SIGNATURE 25 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)
June 30, December 31, 2000 1999 ---- ---- Assets - ------ Cash and Due from Banks $ 4,167 $ 3,276 Interest-Bearing Deposits in Banks 4,729 6,850 Securities Held-to-Maturity (fair value of $897 in 2000 and $839 in 1999) 921 871 Available-for-Sale 5,767 6,028 ------- ------- Total Securities 6,688 6,899 Trading Assets at Fair Value 11,168 8,715 Federal Funds Sold and Securities Purchased Under Resale Agreements 4,554 5,383 Loans (less allowance for credit losses of $610 in 2000 and $595 in 1999) 37,508 36,952 Premises and Equipment 885 893 Due from Customers on Acceptances 1,194 739 Accrued Interest Receivable 331 319 Other Assets 5,437 4,730 ------- ------- Total Assets $76,661 $74,756 ======= ======= Liabilities and Shareholders' Equity - ------------------------------------ Deposits Noninterest-Bearing (principally domestic offices) $13,671 $12,162 Interest-Bearing Domestic Offices 15,851 16,319 Foreign Offices 25,815 27,270 ------- ------- Total Deposits 55,337 55,751 Federal Funds Purchased and Securities Sold Under Repurchase Agreements 1,455 1,318 Other Borrowed Funds 4,626 3,825 Acceptances Outstanding 1,196 740 Accrued Taxes and Other Expenses 2,887 2,644 Accrued Interest Payable 111 131 Other Liabilities 1,213 893 Long-Term Debt 2,829 2,811 ------- ------- Total Liabilities 69,654 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 982,085,224 shares in 2000 and 977,961,165 shares in 1999 7,366 7,335 Additional Capital 395 315 Retained Earnings 3,079 2,620 Accumulated Other Comprehensive Income 57 30 ------- ------- 10,898 10,301 Less: Treasury Stock (242,441,759 shares in 2000 and 237,747,242 shares in 1999), at cost 5,381 5,148 Loan to ESOP (1,444,005 shares in 2000 and 1999), at cost 10 10 ------- ------- Total Shareholders' Equity 5,507 5,143 ------- ------- Total Liabilities and Shareholders' Equity $76,661 $74,756 ======= ======= - ---------------------------------------------------------------------------------------- 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.
4 THE BANK OF NEW YORK COMPANY, INC. Consolidated Statements of Income (In millions, except per share amounts) (Unaudited)
For the three For the six months ended months ended June 30, June 30, 2000 1999 2000 1999 ---- ---- ---- ---- Interest Income - --------------- Loans $ 735 $ 659 $1,451 $1,319 Securities Taxable 78 63 157 128 Exempt from Federal Income Taxes 15 12 31 22 ------ ----- ----- ----- 93 75 188 150 Deposits in Banks 66 54 137 118 Federal Funds Sold and Securities Purchased Under Resale Agreements 69 46 118 99 Trading Assets 144 5 246 10 ------ ----- ----- ----- Total Interest Income 1,107 839 2,140 1,696 ------ ----- ----- ----- Interest Expense - ---------------- Deposits 521 324 992 641 Federal Funds Purchased and Securities Sold Under Repurchase Agreements 32 36 69 67 Other Borrowed Funds 42 28 70 75 Long-Term Debt 49 35 98 70 ------ ----- ----- ----- Total Interest Expense 644 423 1,229 853 ------ ----- ----- ----- Net Interest Income 463 416 911 843 - ------------------- Provision for Credit Losses 25 15 45 30 ------ ----- ----- ----- Net Interest Income After Provision for Credit Losses 438 401 866 813 ------ ----- ----- ----- Noninterest Income - ------------------ Servicing Fees Securities 403 302 775 593 Cash 65 70 131 139 ------ ----- ----- ----- 468 372 906 732 Private Client Services and Asset Management Fees 72 60 142 118 Service Charges and Fees 104 91 194 176 Securities Gains 45 50 85 100 Other 91 78 190 150 ------ ----- ----- ----- Total Noninterest Income 780 651 1,517 1,276 ------ ----- ----- ----- Noninterest Expense - ------------------- Salaries and Employee Benefits 366 311 725 622 Net Occupancy 45 40 89 81 Furniture and Equipment 27 21 53 45 Other 190 141 364 274 ------ ----- ----- ----- Total Noninterest Expense 628 513 1,231 1,022 ------ ----- ----- ----- Income Before Income Taxes 590 539 1,152 1,067 Income Taxes 206 188 401 372 Distribution on Preferred Trust Securities 28 28 57 56 ------ ----- ----- ----- Net Income $ 356 $ 323 $ 694 $ 639 - ---------- ====== ===== ===== ===== Net Income Available to Common Shareholders $ 356 $ 323 $ 694 $ 639 - ------------------------------------------- ====== ===== ===== ===== Per Common Share - ---------------- Basic Earnings $ 0.49 $0.42 $0.95 $0.84 Diluted Earnings 0.48 0.42 0.93 0.82 Cash Dividends Paid 0.16 0.14 0.32 0.28 Diluted Shares Outstanding 745 773 743 776 - ------------------------------------------------------------------------------------------------ See accompanying Notes to Consolidated Financial Statements.
5
THE BANK OF NEW YORK COMPANY, INC. Consolidated Statement of Changes in Shareholders' Equity For the six months ended June 30, 2000 (In millions) (Unaudited) Preferred Stock Balance, January 1 $ 1 ------- Balance, June 30 1 ------- Common Stock Balance, January 1 7,335 Issuances in Connection with Employee Benefit Plans 31 ------- Balance, June 30 7,366 ------- Additional Capital Balance, January 1 315 Common Stock Issued in Connection with Employee Benefit Plans 80 ------- Balance, June 30 395 ------- Retained Earnings Balance, January 1 2,620 Net Income 694 Cash Dividends on Common Stock (235) ------- Balance, June 30 3,079 ------- Accumulated Other Comprehensive Income Securities Valuation Allowance Balance, January 1 58 Change in Fair Value of Securities Available-for-Sale, Net of $28 Million in Taxes 50 Reclassification Adjustment, Net of ($12) Million in Taxes (23) ------- Balance, June 30 85 ------- Foreign Currency Items Balance, January 1 (28) Foreign Currency Translation Adjustment - ------- Balance, June 30 (28) ------- Less Treasury Stock Balance, January 1 5,148 Issued (59) Acquired 292 ------- Balance, June 30 5,381 ------- Less Loan to ESOP Balance, January 1 10 ------- Balance, June 30 10 ------- Total Shareholders' Equity, June 30 $ 5,507 ======= - ------------------------------------------------------------------------------------ Comprehensive Income for the three months ended June 30, 2000 and 1999 was $382 million and $286 million. Comprehensive income for the six months ended June 30, 2000 and 1999 was $721 million and $544 million. See accompanying Notes to Consolidated Financial Statements.
6 THE BANK OF NEW YORK COMPANY, INC. Consolidated Statements of Cash Flows (In millions) (Unaudited)
For the six months Ended June 30, 2000 1999 ---- ---- Operating Activities Net Income $ 694 $ 639 Adjustments to Determine Net Cash Attributable to Operating Activities Provision for Losses on Loans and Other Real Estate 46 30 Depreciation and Amortization 122 106 Deferred Income Taxes 256 221 Securities Gains (85) (100) Change in Trading Activities (3,042) (227) Change in Accruals and Other, Net (207) (182) ------ ------ Net Cash (Used) Provided by Operating Activities (2,216) 487 ------ ------ Investing Activities Change in Interest-Bearing Deposits in Banks 2,057 (118) Purchases of Securities Held-to-Maturity (207) (189) Maturities of Securities Held-to-Maturity 145 289 Purchases of Securities Available-for-Sale (1,766) (1,178) Sales of Securities Available-for-Sale 1,312 450 Maturities of Securities Available-for-Sale 778 236 Net Principal Disbursed on Loans to Customers (1,031) (3,560) Sales of Loans and Other Real Estate 232 107 Change in Federal Funds Sold and Securities Purchased Under Resale Agreements 829 698 Purchases of Premises and Equipment (28) (33) Acquisitions, Net of Cash Acquired (104) (56) Proceeds from the Sale of Premises and Equipment 1 2 Other, Net (132) 12 ------ ------ Net Cash Provided (Used) by Investing Activities 2,086 (3,340) ------ ------ Financing Activities Change in Deposits 372 3,171 Change in Federal Funds Purchased and Securities Sold Under Repurchase Agreements 137 2,068 Change in Other Borrowed Funds 873 (381) Proceeds from the Issuance of Preferred Trust Securities - 200 Proceeds from the Issuance of Long-Term Debt 40 206 Repayments of Long-Term Debt (28) (21) Issuance of Common Stock 170 177 Treasury Stock Acquired (292) (675) Cash Dividends Paid (235) (213) ------ ------ Net Cash Provided by Financing Activities 1,037 4,532 ------ ------ Effect of Exchange Rate Changes on Cash (16) (59) ------ ------ Change in Cash and Due From Banks 891 1,620 Cash and Due from Banks at Beginning of Period 3,276 3,999 ------ ------ Cash and Due from Banks at End of Period $4,167 $5,619 ====== ====== - ---------------------------------------------------------------------------- Supplemental Disclosure of Cash Flow Information Cash Paid During the Period for: Interest $1,249 $ 915 Income Taxes 89 148 Noncash Investing Activity (Primarily Foreclosure of Real Estate) 1 2 - ---------------------------------------------------------------------------- See accompanying Notes to Consolidated Financial Statements.
7 THE BANK OF NEW YORK COMPANY, INC. Notes to Consolidated Financial Statements 1. General ------- The accounting and reporting policies of The Bank of New York Company, Inc. (the Company), a bank holding company, and its subsidiaries conform with generally accepted accounting principles and general practice within the banking industry. Such policies are consistent with those applied in the preparation of the Company's annual financial statements. The accompanying 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 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 March 2000, the Company completed the acquisition of the correspondent clearing business of SG Cowen Securities Corporation. 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, a leading provider of domestic and international correspondent clearing services. 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 June 2000, the Company signed a definitive agreement to acquire 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 July 2000, the Company acquired the corporate trust business of Sakura Trust Company. In August 2000, the Company signed a definitive agreement to acquire Ivy Asset Management Corp., a privately-held asset management firm, based in Garden City, New York. In April 2000, the Company completed the sale of its interest in Banco Credibanco S.A. to Unibanco-Uniao de Bancos Brasileiros S.A. 8 3. Allowance for Credit Losses --------------------------- Transactions in the allowance for credit losses are summarized as follows: Six months ended June 30, (In millions) 2000 1999 ---- ---- Balance, Beginning of Period $ 595 $ 636 Charge-Offs (42) (42) Recoveries 12 8 ----- ----- Net Charge-Offs (30) (34) Acquisition/(Disposition) - (37) Provision 45 30 ----- ----- Balance, End of Period $ 610 $ 595 ===== ===== 4. Capital Transactions -------------------- As of July 31, 2000, the Company has approximately 7 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 June 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. 6. Earnings Per Share ------------------ The following table illustrates the computations of basic and diluted earnings per share for the three and six months ended June 30, 2000 and 1999: Three Months Ended Six Months Ended June 30, June 30, (In millions, except per share amounts) 2000 1999 2000 1999 ---- ---- ---- ---- Diluted Net Income $356 $323 $694 $639 ==== ==== ==== ==== Basic Weighted Average Shares Outstanding 733 761 732 763 Shares Issuable on Exercise of Employee Stock Options 12 12 11 13 ---- ---- ---- ---- Diluted Weighted Average Shares Outstanding 745 773 743 776 ==== ==== ==== ==== Basic Earnings Per Share: $ 0.49 $ 0.42 $ 0.95 $ 0.84 Diluted Earnings Per Share: 0.48 0.42 0.93 0.82 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. 9 Item 2. Management's Discussion and Analysis of Financial Condition and - ------------------------------------------------------------------------ Results of Operations - --------------------- The Company's actual results of future operations may differ from those set forth in certain forward-looking statements contained herein. Refer to further discussion under the heading "Forward Looking Statements". The Company's reported second quarter diluted earnings per share were 48 cents, up 14% from the 42 cents earned in the second quarter of 1999. Net income for the second quarter was a record $356 million, up 10% from the $323 million earned in the same period last year. Diluted earnings per share were 93 cents for the first half of 2000, up 13% from the 82 cents earned last year. Net income for the first six months was a record $694 million, an increase of 9% over last year's $639 million. Last year's results included BNY Financial Corporation ("BNYFC") which was divested in the third quarter of 1999. The second quarter results offer further evidence of the strength of the Company's long-term strategy to deliver sustainable, high quality revenue and earnings growth. In securities servicing, fee revenues increased to a record $403 million, or 33% for the quarter. Foreign exchange and other trading revenue increased to $71 million or 54% over last year, benefiting from a surge in global trading volumes and market share gains. Private client services and asset management fees grew 21% 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 63% of total revenue in the second quarter, up from 61% last year. Return on average common equity for the second quarter of 2000 was 26.93% compared with 24.82% in the second quarter of 1999. Return on average assets for the second quarter of 2000 was 1.81% compared with 1.95% in the second quarter of 1999. For the first six months of 2000, return on average common equity was 27.00% compared with 24.65% in 1999. Return on average assets was 1.79% for the first six months of 2000 compared with 1.94% in 1999. Fees from the Company's securities servicing businesses reached a record $403 million for the second quarter compared with $302 million last year. For the first six months of 2000, fees from the Company's securities servicing businesses totaled a record $775 million, growing 31% compared with $593 million in 1999. Fee revenue was strong across all product lines with particular strength in global custody, depositary receipts ("DRs"), and 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 $6.8 trillion. Cross-border custody assets now total $2 trillion, reflecting the rapid expansion of worldwide capital markets. DR trading activity reached an all time high, evidence of U.S. investor interest in global telecommunication, media, and technology industries as well as significant cross-border merger and acquisition activity. Private client services and asset management fees were $72 million for the quarter, up 21% over last year, led by continued superior investment performance by BNY Asset Management resulting in further new business, as well as by the acquisition of Estabrook Capital Management, Inc. Total revenues from global payment services, excluding trade finance, were up 10% from last year's second quarter, primarily due to strength in cash management. The introduction of CA$H-Register PlusSM, the Company's new browser-based delivery system for cash management services, has fueled revenue growth in the middle market and small business client segments. 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. Foreign exchange and other trading revenues for the quarter increased 54% over the second quarter of last year to $71 million. In the first six months 10 of 2000, foreign exchange and other trading revenues were $147 million compared with $88 million last year. Foreign exchange revenues from the Company's global securities servicing customer base were particularly strong, due to increased transaction flows and customer penetration. Net interest income on a taxable equivalent basis for the second quarter increased to $477 million from $460 million in the first quarter of 2000. For the first six months of 2000, net interest income on a taxable equivalent basis was $937 million compared with $863 million in the first half of 1999. Tangible diluted earnings per share (earnings before the amortization of goodwill and intangibles) were 51 cents per share in the second quarter of 2000, up 16% from 44 cents per share in the second quarter of 1999. On the same basis, tangible return on average common equity was 41.77% in the second quarter of 2000 compared with 37.79% in 1999; and tangible return on average assets was 1.96% in the second quarter of 2000 compared with 2.11% in 1999. Tangible diluted earnings per share were 99 cents per share for the first six months of 2000, up 14%, compared with 87 cents per share in 1999. Tangible return on average common equity was 42.37% in the first six months of 2000 compared with 37.53% in 1999; and tangible return on average assets was 1.94% in the first six months of 2000 compared with 2.11% last year. Amortization of intangibles for the second quarter and the first six months of 2000 were $28 million and $56 million, respectively, compared with $27 million and $53 million last year. CAPITAL The Company's estimated Tier 1 capital and Total capital ratios were 8.03% and 12.24% at June 30, 2000, compared with 7.39% and 11.49% at March 31, 2000, and 7.63% and 11.52% at June 30, 1999. The leverage ratio was 6.80% at June 30, 2000, compared with 6.66% at March 31, 2000, and 7.65% one year ago. Tangible common equity as a percent of total assets was 5.11% at June 30, 2000, compared with 4.74% at March 31, 2000, and 5.59% one year ago. The decline in the leverage and tangible common equity ratios from 1999 primarily reflects the acquisition of RBSTB, which brought approximately $10 billion in highly liquid, short-term assets and liabilities. In the second 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 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 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 can be easily reduced, and the monitoring of unfunded loan commitments, thereby reducing unanticipated funding requirements. 11 NONINTEREST INCOME
2nd 1st 2nd Quarter Quarter Quarter Year-to-Date ------- ------- ------- ------------ (In millions) 2000 2000 1999 2000 1999 ---- ---- ---- ---- ---- Servicing Fees Securities $403 $372 $302 $ 775 $ 593 Cash 65 66 70 131 139 ---- ---- ---- ------ ------ 468 438 372 906 732 Private Client Services and Asset Management fees 72 70 60 142 118 Service Charges and Fees 104 90 91 194 176 Foreign Exchange and Other Trading Activities 71 76 46 147 88 Securities Gains 45 40 50 85 100 Other 20 23 32 43 62 ---- ---- ---- ------ ------ Total Noninterest Income $780 $737 $651 $1,517 $1,276 ==== ==== ==== ====== ======
Total noninterest income reached $780 million, up 20%, from $651 million in the prior year period. The decline in cash servicing fees reflects both lower trade finance fees as well as lower cash management and funds transfer fees due to customers' expanded use of compensating balances in lieu of fees in a rising interest rate environment. Service charges and fees increased to $104 million due to higher capital markets activity. Securities gains were $45 million compared with $40 million in the first quarter of 2000 and $50 million one year ago. NET INTEREST INCOME
2nd 1st 2nd Quarter Quarter Quarter Year to Date ------- ------- ------- -------------- (In millions) 2000 2000 1999 2000 1999 ---- ---- ---- ---- ---- Net Interest Income $477 $460 $427 $937 $863 Net Interest Rate Spread 1.93% 1.96% 2.18% 1.94% 2.24% Net Yield on Interest- Earning Assets 2.91 2.89 3.07 2.90 3.13
Net interest income on a taxable equivalent basis was $477 million in the second quarter of 2000 compared with $460 million in the first quarter of 2000 and $427 million in the second quarter of 1999. The net interest rate spread was 1.93% in the second quarter of 2000, compared with 1.96% in the first quarter of 2000 and 2.18% one year ago. The net yield on interest-earning assets was 2.91% compared with 2.89% in the first quarter of 2000 and 3.07% in last year's second quarter. For the first six months of 2000, net interest income on a taxable equivalent basis, amounted to $937 million compared with $863 million in the first half of 1999. The year-to-date net interest rate spread was 1.94% in 2000 compared with 2.24% in 1999, while the net yield on interest-earning assets was 2.90% in 2000 and 3.13% 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 were invested in high quality liquid assets which increased net interest income, although lowering the net interest-rate spread. The improvement in the yield from the first quarter of 2000 reflects the growing value of interest-free deposits generated by the Company's securities and fiduciary businesses. 12 Interest income would have been increased by $1 million and $4 million for the second quarters of 2000 and 1999 and $4 million and $6 million for the first six months of 2000 and 1999 if loans on nonaccrual status at June 30, 2000 and 1999 had been performing for the entire quarter. TRADING ACTIVITIES The fair value and notional amounts of the Company's financial instruments held for trading purposes at June 30, 2000 are as follows: 2nd Quarter 2000 June 30, 2000 Average ---------------------------- ------------------- (In millions) Fair Value Fair Value ------------------ ------------------- Notional Trading Account Amount Assets Liabilities Assets Liabilities - --------------- -------- ------ ----------- ------ ----------- Interest Rate Contracts: Futures and Forward Contracts $22,334 $ 1 $ - $ 3 $ - Swaps 104,466 1,159 984 1,360 1,083 Written Options 79,720 - 638 - 741 Purchased Options 46,541 60 - 52 - Foreign Exchange Contracts: Swaps 346 - - - - Written Options 21,500 - 88 - 8 Purchased Options 23,735 148 - 7 - Commitments to Purchase and Sell Foreign Exchange 60,262 629 511 905 702 Securities 9,171 135 9,671 166 ------- ------ -------- ------ Total Trading Account $11,168 $2,356 $11,998 $2,700 ======= ====== ======= ====== 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 periods indicated. During these periods, the daily trading loss did not exceed the calculated VAR amounts on any given day.
(In millions) 2nd Quarter 2000 Year-to-date 2000 ------------------------- ----------------------------------- Market Risk Average Minimum Maximum Average Minimum Maximum 06/30/00 - ----------- ------- ------- ------- ------- ------- ------- -------- Interest Rate $ 5.0 $ 4.1 $ 6.6 $ 4.7 $ 2.7 $ 6.6 $ 4.2 Foreign Exchange 1.6 1.0 2.6 1.8 1.0 3.8 2.0 Overall Portfolio 6.6 5.3 8.2 6.5 4.4 8.8 6.2
(In millions) 2nd Quarter 1999 Year-to-date 1999 ------------------------- ----------------------------------- Market Risk Average Minimum Maximum Average Minimum Maximum 06/30/99 - ----------- ------- ------- ------- ------- ------- ------- -------- Interest Rate $ 4.7 $ 3.3 $ 7.1 $ 4.8 $ 2.1 $10.9 $ 4.5 Foreign Exchange 1.4 0.7 3.5 1.5 0.7 4.0 1.1 Overall Portfolio 6.1 4.5 8.7 6.3 3.7 12.1 5.6
13 NONINTEREST EXPENSE AND INCOME TAXES Noninterest expense for the second quarter of 2000 was $628 million, compared with $513 million in 1999. The increase was principally due to acquisitions and technology investment. The efficiency ratio for the second quarter of 2000 was 51.9% compared with 52.1% in the first quarter of 2000 and 49.9% in the second quarter of 1999. For the first half of 2000, the efficiency ratio was 52.0% compared with 50.1% last year. The effective tax rate remained unchanged at 34.9% for the second quarter and the first six months of 2000 and 1999. NONPERFORMING ASSETS
Change 6/30/00 vs. (Dollars in millions) 6/30/00 3/31/00 3/31/00 -------- -------- -------- Loans: Other Commercial $ 45 $ 27 $ 18 Foreign 54 63 (9) Regional Commercial 33 29 4 Loans Available for Sale 23 32 (9) ----- ----- ----- Total Loans 155 151 4 Other Real Estate 7 8 (1) ----- ----- ----- Total $ 162 $ 159 $ 3 ===== ===== ===== Nonperforming Assets Ratio 0.4% 0.4% Allowance/Nonperforming Loans 393.4 398.2 Allowance/Nonperforming Assets 376.4 378.1
Nonperforming assets totaled $162 million at June 30, 2000, compared with $159 million at March 31, 2000. At June 30, 2000, remaining credit exposures of loans available for sale totaled $246 million with outstandings of $144 million compared with $389 million and $275 million at March 31, 2000, respectively. At June 30, 2000, impaired loans (nonaccrual loans over $1 million) aggregated $110 million, of which $83 million exceeded their fair value by $25 million. Impaired loans at June 30, 1999, totaled $173 million, of which $148 million exceeded their fair value by $72 million. For the second quarters of 2000 and 1999, the average amounts of impaired loans were $103 million and $174 million. Interest income (cash received) of $589 thousand was received on the impaired loans in the second quarter of 2000, while $60 thousand was received during the second quarter of 1999. 14 CREDIT LOSS PROVISION AND NET CHARGE-OFFS
2nd 1st 2nd Quarter Quarter Quarter Year-to-date ------- ------- ------- ------------- (In millions) 2000 2000 1999 2000 1999 ---- ---- ---- ---- ---- Provision $ 25 $ 20 $ 15 $ 45 $ 30 ==== ==== ==== ==== ==== Net(Charge-offs)Recoveries: Commercial Real Estate - - 1 - (1) Other Commercial (12) (13) (13) (25) (20) Consumer (1) (1) (1) (2) (2) Foreign - - (2) - (11) Other (2) (1) - (3) - ---- ---- ---- ---- ---- Total $(15) $(15) $(15) $(30) $(34) ===== ===== ===== ===== ===== Other Real Estate Expenses $ 1 $ 1 $ - $ 2 $ -
The allowance for credit losses increased to $610 million, or 1.60% of loans at June 30, 2000, compared with $600 million, or 1.48% of loans at March 31, 2000, and $595 million, or 1.55% of loans at June 30, 1999. The ratio of the allowance to nonperforming assets was 376.4% at June 30, 2000, compared with 378.1% at March 31, 2000, and 271.0% at June 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: 6/30/00 3/31/00 12/31/99 ------- -------- -------- Real Estate 3% 3% 4% Domestic 77 79 78 Foreign 11 12 12 Unallocated 9 6 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. 15 SEGMENT PROFITABILITY Segment Data 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 the largest 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 Company has an internal information system that produces performance data for its four business segments along product and service lines. The segments contributed to the Company's profitability as follows:
In Millions Servicing and For the Quarter Ended Fiduciary Corporate Retail Financial Reconciling Consolidated June 30, 2000 Businesses Banking Banking Markets Items Total - --------------------- ---------- --------- ------- --------- ----------- ------------ Net Interest Income $ 160 $ 160 $ 132 $ 22 $ (11) $ 463 Provision for Credit Losses - 38 1 - (14) 25 Noninterest Income 610 87 24 59 - 780 Noninterest Expense 400 52 79 16 81 628 ------ ------- ------ ------- ------- ------- Income Before Taxes $ 370 $ 157 $ 76 $ 65 $ (78) $ 590 ====== ======= ====== ======= ======= ======= Average Assets $18,131 $31,529 $4,199 $23,396 $1,691 $78,946 ======= ======= ====== ======= ====== =======
In Millions Servicing and For the Quarter Ended Fiduciary Corporate Retail Financial Reconciling Consolidated June 30, 1999 Businesses Banking Banking Markets Items Total - --------------------- ---------- --------- ------- --------- ----------- ------------ Net Interest Income $ 100 $ 167 $ 120 $ 23 $ 6 $ 416 Provision for Credit Losses - 32 - (2) (15) 15 Noninterest Income 465 92 23 60 11 651 Noninterest Expense 278 79 72 18 66 513 ------ ------- ------ ------- ------- ------- Income Before Taxes $ 287 $ 148 $ 71 $ 67 $ (34) $ 539 ====== ======= ====== ======= ======= ======= Average Assets $5,315 $34,847 $3,962 $20,822 $1,591 $66,537 ====== ======= ====== ======= ====== =======
16
In Millions Servicing and For the Half Ended Fiduciary Corporate Retail Financial Reconciling Consolidated June 30, 2000 Businesses Banking Banking Markets Items Total - --------------------- ---------- --------- ------- --------- ----------- ------------ Net Interest Income $ 324 $ 292 $ 260 $ 36 $ (1) $ 911 Provision for Credit Losses - 66 2 - (23) 45 Noninterest Income 1,183 162 48 122 2 1,517 Noninterest Expense 785 105 152 34 155 1,231 ------ ------- ------ ------- ------- ------- Income Before Taxes $ 722 $ 283 $ 154 $ 124 $ (131) $ 1,152 ====== ======= ====== ======= ======= ======= Average Assets $17,082 $31,376 $4,368 $23,246 $1,670 $77,742 ======= ======= ====== ======= ====== =======
In Millions Servicing and For the Half Ended Fiduciary Corporate Retail Financial Reconciling Consolidated June 30, 1999 Businesses Banking Banking Markets Items Total - --------------------- ---------- --------- ------- --------- ----------- ------------ Net Interest Income $ 206 $ 336 $ 234 $ 52 $ 15 $ 843 Provision for Credit Losses - 61 2 (2) (31) 30 Noninterest Income 912 178 44 109 33 1,276 Noninterest Expense 566 144 147 35 130 1,022 ------ ------- ------ ------- ------- ------- Income Before Taxes $ 552 $ 309 $ 129 $ 128 $ (51) $ 1,067 ====== ======= ====== ======= ======= ======= Average Assets $6,355 $33,090 $4,246 $21,004 $1,580 $66,275 ====== ======= ====== ======= ====== =======
Segment Highlights Servicing and Fiduciary Businesses - ---------------------------------- In the second quarter of 2000, noninterest income was $610 million up from $465 million in 1999. Fees from the Company's securities servicing businesses reached a record $403 million for the second quarter compared with $302 million last year. For the first six months of 2000, fees from the Company's securities servicing businesses totaled a record $775 million, growing 31% compared with $593 million in 1999. Fee revenue was strong across all product lines with particular strength in global custody, depositary receipts, and 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 $6.8 trillion. Cross-border custody assets now total $2 trillion, reflecting the rapid expansion of worldwide capital markets. DR trading activity reached an all time high, evidence of U.S. investor interest in global telecommunication, media, and technology industries as well as significant cross-border merger and acquisition activity. Execution and clearing services continue to benefit from increased activity and a steady flow of new business. In addition, the acquisition of GENA and SG Cowen have contributed to the success of these businesses. Private client services and asset management fees were $72 million for the quarter, up 21% 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 $62.9 billion while assets under administration were $32.2 billion at June 30, 2000. Total revenues from global payment services, excluding trade finance, were up 10% from last year's second quarter, primarily due to strength in cash management. The introduction of CA$H-Register PlusSM, the Company's new browser-based delivery system for cash management services, has fueled revenue growth in the middle market and small business client segments. Trade finance 17 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 $160 million for the second quarter of 2000 compared with $100 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 second quarters of 2000 and 1999. Noninterest expense for the second quarter of 2000 was $400 million compared with $278 million in 1999. The increase was principally due to acquisitions and technology investment. Corporate Banking - ----------------- The Corporate Banking segment's net interest income was $160 million in the second quarter of 2000, down from last year's $167 million. The decline reflects the sale of BNYFC. The second quarter of 2000 provision for credit losses was $38 million compared with $32 million last year. Net charge-offs in the Corporate Banking segment were $14 million and $16 million in the second quarters of 2000 and 1999. Noninterest income was $87 million in the current year compared with $92 million last year. The decline is attributable to the sale of BNYFC partially offset by the receipt of a few large loan syndication fees. Noninterest expense declined to $52 million from $79 million reflecting the sale of BNYFC. Retail Banking - -------------- In the Retail Banking segment, net interest income in the second quarter of 2000 was $132 million compared with $120 million in 1999. The increase reflects the higher value of demand deposits in an increasing interest rate environment. Noninterest income increased in this same period to $24 million from $23 million. Noninterest expense in the second quarter of 2000 was $79 million compared with $72 million in the previous year's period. Net charge-offs were $1 million in the second quarters of 2000 and 1999. Financial Markets - ----------------- In the Financial Markets segment, net interest income for the quarter was $22 million compared with 1999's $23 million. Noninterest income was $59 million in the second quarter of 2000 down slightly from the $60 million recorded in the second quarter of 1999. The second quarter's results reflect continued success in foreign exchange trading. Net charge-offs were zero and net recoveries were $2 million in the second quarters of 2000 and 1999. Segment Accounting Principles - ----------------------------- 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 18 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 $28 million and $27 million of amortization of intangibles in the second quarters of 2000 and 1999, 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. FORWARD LOOKING STATEMENTS The information presented with respect to, among other things, earnings growth, legal proceedings, the Company's plans and objectives in moving into fee based business, 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. 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, the level of capital market activity, economic activity, consumer behavior, government monetary policy, legislation and regulation, competition, credit, market and operating risk, and loan demand. In addition, the Company's future results of operations, discussions of future plans and other forward looking statements contained in Management's Discussion and Analysis and elsewhere in this Form 10-Q involve a number of risks and uncertainties, including risks relating to the uncertainties created by the enactment of the Gramm-Leach-Bliley Act of 1999 (Financial Services Modernization). 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. 19 Government Monetary Policies The Federal Reserve Board has the primary responsibility for monetary policy; accordingly, its actions have an important influence on the demand for credit and investments and the level of interest rates and thus on the earnings of the Company. 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 compete for processing services. 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. 20 THE BANK OF NEW YORK COMPANY, INC. Average Balances and Rates on a Taxable Equivalent Basis (Preliminary) (Dollars in millions)
For the three months For the three months ended June 30, 2000 ended June 30, 1999 ------------------------------ ------------------------------ Average Average Average Average Balance Interest Rate Balance Interest Rate ------- -------- ------- ------- -------- ------- ASSETS - ------ Interest-Bearing Deposits in Banks (primarily foreign) $ 5,167 $ 66 5.11% $ 5,024 $ 54 4.31% Federal Funds Sold and Securities Purchased Under Resale Agreements 4,413 69 6.32 3,949 46 4.66 Loans Domestic Offices 19,424 358 7.42 20,704 362 7.02 Foreign Offices 20,328 377 7.45 19,310 297 6.16 ------- ----- ------- ----- Total Loans 39,752 735 7.44 40,014 659 6.60 ------- ----- ------- ----- Securities U.S. Government Obligations 2,123 32 6.00 2,512 36 5.82 U.S. Government Agency Obligations 1,132 19 6.85 875 14 6.40 Obligations of States and Political Subdivisions 615 12 8.00 580 11 7.90 Other Securities, including Trading Securities 12,749 188 5.91 2,740 30 4.31 ------- ----- ------- ----- Total Securities 16,619 251 6.06 6,707 91 5.46 ------- ----- ------- ----- Total Interest-Earning Assets 65,951 1,121 6.84% 55,694 850 6.12% ----- ----- Allowance for Credit Losses (600) (630) Cash and Due from Banks 3,435 3,075 Other Assets 10,160 8,398 ------- ------- TOTAL ASSETS $78,946 $66,537 ======= ======= LIABILITIES AND SHAREHOLDERS' EQUITY - ------------------------------------ Interest-Bearing Deposits Money Market Rate Accounts $ 5,797 71 4.95% $ 5,195 54 4.13% Savings 7,678 48 2.50 7,821 43 2.22 Certificates of Deposit $100,000 & Over 423 6 5.30 591 7 4.75 Other Time Deposits 1,991 25 5.09 2,123 22 4.25 Foreign Offices 29,176 371 5.12 19,652 198 4.04 ------- ----- ------- ----- Total Interest-Bearing Deposits 45,065 521 4.65 35,382 324 3.67 Federal Funds Purchased and Securities Sold Under Repurchase Agreements 2,400 32 5.43 3,370 36 4.26 Other Borrowed Funds 2,442 42 6.81 2,153 28 5.25 Long-Term Debt 2,823 49 6.94 2,233 35 6.30 ------- ----- ------- ----- Total Interest-Bearing Liabilities 52,730 644 4.91% 43,138 423 3.94% ----- ----- Noninterest-Bearing Deposits 11,224 10,640 Other Liabilities 8,175 6,044 Minority Interest-Preferred Securities 1,500 1,500 Common Shareholders' Equity 5,317 5,215 ------- ------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $78,946 $66,537 ======= ======= Net Interest Earnings and Interest Rate Spread $ 477 1.93% $ 427 2.18% ===== ==== ===== ==== Net Yield on Interest-Earning Assets 2.91% 3.07% ==== ====
21 THE BANK OF NEW YORK COMPANY, INC. Average Balances and Rates on a Taxable Equivalent Basis (Preliminary) (Dollars in millions)
For the six months For the six months ended June 30, 2000 ended June 30, 1999 ------------------------------ ------------------------------ Average Average Average Average Balance Interest Rate Balance Interest Rate ------- -------- ------- ------- -------- ------- ASSETS - ------ Interest-Bearing Deposits in Banks (primarily foreign) $ 5,781 $ 137 4.76% $ 5,158 $ 118 4.61% Federal Funds Sold and Securities Purchased Under Resale Agreements 4,030 118 5.90 4,229 99 4.71 Loans Domestic Offices 19,768 720 7.32 20,263 724 7.21 Foreign Offices 20,242 731 7.27 19,407 596 6.19 ------- ----- ------- ----- Total Loans 40,010 1,451 7.30 39,670 1,320 6.71 ------- ----- ------- ----- Securities U.S. Government Obligations 2,449 74 6.05 2,552 73 5.77 U.S. Government Agency Obligations 979 33 6.75 866 28 6.36 Obligations of States and Political Subdivisions 603 24 8.01 603 23 7.80 Other Securities, including Trading Securities 11,181 329 5.92 2,538 55 4.37 ------- ----- ------- ----- Total Securities 15,212 460 6.08 6,559 179 5.51 ------- ----- ------- ----- Total Interest-Earning Assets 65,033 2,166 6.70% 55,616 1,716 6.22% ----- ----- Allowance for Credit Losses (604) (633) Cash and Due from Banks 3,359 3,075 Other Assets 9,954 8,217 ------- ------- TOTAL ASSETS $77,742 $66,275 ======= ======= LIABILITIES AND SHAREHOLDERS' EQUITY - ------------------------------------ Interest-Bearing Deposits Money Market Rate Accounts $ 5,660 137 4.85% $ 5,186 106 4.12% Savings 7,663 94 2.48 7,808 86 2.21 Certificates of Deposit $100,000 & Over 444 12 5.38 624 15 4.84 Other Time Deposits 2,097 51 4.90 2,188 47 4.34 Foreign Offices 28,434 698 4.94 19,127 387 4.08 ------- ----- ------- ----- Total Interest-Bearing Deposits 44,298 992 4.51 34,933 641 3.70 Federal Funds Purchased and Securities Sold Under Repurchase Agreements 2,596 69 5.33 3,181 67 4.24 Other Borrowed Funds 2,219 70 6.36 2,886 75 5.29 Long-Term Debt 2,823 98 6.89 2,180 70 6.41 ------- ----- ------- ----- Total Interest-Bearing Liabilities 51,936 1,229 4.76% 43,180 853 3.98% ----- ----- Noninterest-Bearing Deposits 11,258 10,532 Other Liabilities 7,881 5,863 Minority Interest-Preferred Securities 1,500 1,473 Common Shareholders' Equity 5,167 5,227 ------- ------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $77,742 $66,275 ======= ======= Net Interest Earnings and Interest Rate Spread $ 937 1.94% $ 863 2.24% ===== ==== ===== ==== Net Yield on Interest-Earning Assets 2.90% 3.13% ==== ====
22 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. Substantial portions of these were in place on the date the agreement was signed. 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. The defendants have moved to dismiss both actions in New York State Supreme Court on the ground that plaintiffs have failed properly to make a demand on the boards of directors of the Company or BNY, and that the boards must reject a proper demand before a complaint can proceed. These motions are currently pending. 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 moved to dismiss the amended complaint, and the Court granted that motion with leave to replead. 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 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. 23 Item 2. Changes in Securities and Use of Proceeds - -------------------------------------------------- During the second quarter of 2000, shares of the Company's common stock were issued in transactions exempt from registration under the Securities Act of 1933 pursuant to Section 4(2) thereof. 14,400 shares of common stock were issued to serving non-employee directors as part of their annual retainer on June 15, 2000. Item 4. Submission of Matters to Vote of Security Holders - ---------------------------------------------------------- The Company held its annual meeting on May 9, 2000 at The Bank of New York at 101 Barclay St. in New York, New York. The shareholders: (1) elected fifteen persons to serve as directors of the Company; (2) ratified the appointment of Ernst & Young LLP as the Company's independent public accountants for 2000; (3) defeated a shareholder proposal regarding term limits for directors; and (4) defeated a shareholder proposal regarding the Company's Rights Plan. The number of votes cast for, against or withheld, and the number of abstentions with respect to each such matter is set forth below, as are the number of broker non-votes, where applicable. Pursuant to New York law, abstentions and broker non-votes are not counted toward the election of directors.
FOR AGAINST/WITHHELD ABSTAINED BROKER NON-VOTES (1) Election of Directors: J. Carter Bacot 639,610,979 8,808,865 Richard Barth 644,381,178 4,038,666 Frank J. Biondi, Jr. 644,443,553 3,976,291 William R. Chaney 632,868,013 15,551,831 Nicholas M. Donofrio 644,449,241 3,970,603 Alan R. Griffith 644,409,398 4,010,446 Gerald L. Hassell 644,443,303 3,976,541 Richard J. Kogan 644,480,713 3,939,131 John A. Luke, Jr. 644,295,672 4,124,172 John C. Malone 556,257,984 92,161,860 Donald L. Miller 644,293,647 4,126,197 Catherine A. Rein 644,438,929 3,980,915 Thomas A. Renyi 644,296,176 4,123,668 William C. Richardson 644,423,653 3,987,191 Brian L. Roberts 644,422,619 3,997,225 (2) Ratification of Auditors 643,710,216 2,493,714 2,215,914 (3) Approval of Shareholder Proposal Regarding Term Limits for Directors 25,303,271 522,779,851 9,847,497 90,489,225 (4) Approval of Shareholder Proposal Regarding the Company's Rights Plan 255,750,367 291,537,734 10,642,518 90,489,225
24 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 its 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 3(i) - Restated Certificate of Incorporation. 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 Six Months Ended June 30, 2000 and 1999. Exhibit 27 - Statement Re: Financial Data Schedule containing selected financial data at June 30, 2000. (b) The Company filed the following reports on Form 8-K since March 31, 2000: On April 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 first quarter of 2000 contained in the Company's press release dated April 17, 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. 25 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. THE BANK OF NEW YORK COMPANY, INC. ---------------------------------- (Registrant) Date: August 11, 2000 By: \s\ Thomas J. Mastro --------------------------------- Name: Thomas J. Mastro Title: Comptroller EXHIBIT INDEX ------------- Exhibit Description - ------- ----------- 3(i) Restated Certificate of Incorporation 12 Ratio of Earnings to Fixed Charges and Ratio of Earnings to Combined Fixed Charges and Distributions on Trust Preferred Securities for the Three and Six Months Ended June 30, 2000 and 1999. 27 Financial Data Schedule containing selected financial data at June 30, 2000 and for the Six Months Ended June 30, 2000 EX-3 2 0002.txt EXHIBIT 3(I) 1 RESTATED CERTIFICATE OF INCORPORATION OF THE BANK OF NEW YORK COMPANY, INC. Under Section 807 of the Business Corporation Law The undersigned, being Chairman of the Board and Assistant Secretary of The Bank of New York Company, Inc., a New York Corporation, hereby certify that: 1. The name of the Corporation is The Bank of New York Company, Inc., and the name under which it was formed was The B.N.Y. Company, Inc. 2. The certificate of incorporation of the Corporation was filed by the Department of State on July 9, 1968. 3. The text of the certificate of incorporation of the Corporation is hereby restated to change the post office address to which the Secretary of State shall mail a copy of any process against the Corporation served upon him and to restate the text of the certificate of incorporation, as amended by an amendment to the certificate of incorporation filed July 11, 1996 and an amendment to the certificate of incorporation filed July 23, 1998 each of which increased the number of shares of Common Stock which the corporation is authorized to issue. As so changed and restated, the certificate of incorporation of the Corporation will read as follows: FIRST: The name of the Corporation is The Bank of New York Company, Inc. SECOND: The purposes for which the Corporation is formed are: 1. To engage in and carry on the business of a bank holding company. 2. To acquire, hold, create interests in, or dispose of real or personal property, tangible or intangible, of any kind in any manner. THIRD: The office of the Corporation in the State of New York is located in the City and County of New York. FOURTH: The aggregate number of shares which the Corporation shall have the authority to issue is one billion six hundred and ten million (1,610,000,000) of which one billion six hundred million (1,600,000,000) 2 shares (par value $7.50 per share) shall be designated as Common Stock; five million (5,000,000) shares, without par value, shall be designated as Preferred Stock; and five million (5,000,000) shares (par value $2.00 per share) shall be designated as Class A Preferred Stock. The rights, preferences and limitations of said classes of stock are as follows: 1. Shares of the Preferred Stock may be issued from time to time by the Board of Directors as shares of one or more series of Preferred Stock, and the Board of Directors is expressly authorized, prior to issuance, in the resolution or resolutions providing for the issue of shares of each particular series, to fix the following: (a) The distinctive serial designation of such series which shall distinguish it from other series; (b) The number of shares included in such series, which number may be increased or decreased from time to time unless otherwise provided by the Board of Directors in creating the series; (c) The annual dividend rate (or method of determining such rate) for shares of such series and the date or dates upon which such dividends shall be payable; (d) Whether dividends on the shares of such series shall be cumulative, and, in the case of shares of any series having cumulative dividend rights, the date or dates or method of determining the date or dates from which dividends on the shares of such series shall be cumulative; (e) The amount or amounts which shall be paid out of the assets of the Corporation to the holders of the shares of such series upon voluntary or involuntary liquidation, dissolution or winding up of the Corporation; (f) The price or prices at which, the period or periods within which and the terms and conditions upon which the shares of such series may be redeemed, in whole or in part, at the option of the Corporation; (g) The obligation, if any, of the Corporation to purchase or redeem shares of such series pursuant to a sinking fund or otherwise and the price or prices at which, the period or periods within which and the terms and conditions upon which the shares of such series shall be redeemed, in whole or in part, pursuant to such obligation; (h) The period or periods within which and the terms and conditions, if any, including the price or prices or the rate or rates of conversion and 3 the terms and conditions of any adjustments thereof, upon which the shares of such series shall be convertible at the option of the holder into shares of any class of stock or into shares of any other series of Preferred Stock, except into shares of a class having rights or preferences as to dividends or distribution of assets upon liquidation which are prior or superior in rank to those of the shares being converted; (i) The voting rights, if any, of the shares of such series in addition to those required by law, including the number of votes per share; and (j) Any other relative rights, preferences or limitations of the shares of the series not inconsistent herewith or with applicable law. 2. All shares of Preferred Stock (a) shall rank senior to the Common Stock in respect of the right to receive dividends and the right to receive payments out of the assets of the Corporation upon voluntary or involuntary liquidation, dissolution or winding up of the Corporation, (b) shall be of equal rank, regardless of series, and (c) shall be identical in all respects except as provided in paragraph 1 above. The shares of any one series of the Preferred Stock shall be identical with each other in all respects except as to the dates from and after which dividends thereon shall be cumulative. In case the stated dividends or the amounts payable on liquidation are not paid in full, the shares of all series of the Preferred Stock shall share ratably in the payment of dividends, including accumulations, if any, in accordance with the sums which would be payable on said shares if all dividends were declared and paid in full, and in any distribution of assets other than by way of dividends in accordance with the sums which would be payable on such distribution if all sums payable were discharged in full. All shares of Preferred Stock redeemed, purchased or otherwise acquired by the Corporation (including shares surrendered for conversion) shall be cancelled and thereupon restored to the status of authorized but unissued shares of Preferred Stock undesignated as to series. 3. Shares of the Class A Preferred Stock may be issued from time to time by the Board of Directors as shares of one or more series of Class A Preferred Stock, and the Board of Directors is expressly authorized, prior to issuance, in the resolution or resolutions providing for the issue of shares of each particular series, to fix the following: (a) The distinctive serial designation of such series which shall distinguish it from other series; (b) The number of shares included in such series, which number may be increased or decreased from time to time unless otherwise provided by the Board of Directors in creating the series; 4 (c) The annual dividend rate (or method of determining such rate) for shares of such series and the date or dates upon which such dividends shall be payable; (d) Whether dividends on the shares of such series shall be cumulative, and, in the case of shares of any series having cumulative dividend rights, the date or dates or method of determining the date or dates from which dividends on the shares of such series shall be cumulative; (e) The amount or amounts which shall be paid out of the assets of the Corporation to the holders of the shares of such series upon voluntary or involuntary liquidation, dissolution or winding up of the Corporation; (f) The price or prices at which, the period or periods within which and the terms and conditions upon which the shares of such series may be redeemed, in whole or in part, at the option of the Corporation; (g) The obligation, if any, of the Corporation to purchase or redeem shares of such series pursuant to a sinking fund or otherwise and the price or prices at which, the period or periods within which and the terms and conditions upon which the shares of such series shall be redeemed, in whole or in part, pursuant to such obligation; (h) The period or periods within which and the terms and conditions, if any, including the price or prices or the rate or rates of conversion and the terms and conditions of any adjustments thereof, upon which the shares of such series shall be convertible at the option of the holder into shares of any class of stock or into shares of any other series of Class A Preferred Stock, except into shares of a class having rights or preferences as to dividends or distribution of assets upon liquidation which are prior or superior in rank to those of the shares being converted; (i) The voting rights, if any, of the shares of such series in addition to those required by law, including the number of votes per share; and (j) Any other relative rights, preferences or limitations of the shares of the series not inconsistent herewith or with applicable law. 4. All shares of Class A Preferred Stock (a) shall rank senior to the Common Stock in respect of the right to receive dividends and the right to receive payments out of the assets of the Corporation upon voluntary or involuntary liquidation, dissolution or winding up of the Corporation, (b) shall regardless of series be of equal rank with the Preferred Stock, and (c) shall be identical in all respects except as provided in paragraph 3 5 above. The shares of any one series of the Class A Preferred Stock shall be identical with each other in all respects except as to the dates from and after which dividends thereon shall be cumulative. In case the stated dividends or the amounts payable on liquidation are not paid in full, the shares of all series of the Class A Preferred Stock shall share ratably with all other shares of Class A Preferred Stock and all shares of Preferred Stock in the payment of dividends, including accumulations, if any, in accordance with the sums which would be payable on said shares if all dividends were declared and paid in full, and in any distribution of assets other than by way of dividends in accordance with the sums which would be payable on such distribution if all sums payable were discharged in full. All shares of Class A Preferred Stock redeemed, purchased or otherwise acquired by the Corporation (including shares surrendered for conversion) shall be cancelled and thereupon restored to the status of authorized but unissued shares of Class A Preferred Stock undesignated as to series. 5. Except as otherwise provided by the Board of Directors in accordance with paragraph 1 or 3 above in respect of any series of the Preferred Stock or the Class A Preferred Stock, and except as otherwise required by law, all voting rights of the Corporation shall be vested exclusively in the holders of the shares of Common Stock who shall be entitled to one vote per share. I. Terms of Series of Preferred Stock (a) Participating Preferred Stock (i) Designation. The designation of the series of Preferred Stock created by this resolution shall be "Participating Preferred Stock," without par value (hereinafter called this "Series"), and the number of shares constituting this Series is Three Hundred Fifty Thousand (350,000). Shares of this Series shall have a stated value of $200,000 per share. The number of authorized shares of this Series may be reduced by further resolution duly adopted by the Board of Directors of the Corporation and by the filing of a certificate pursuant to the provisions of the Business Corporation Law of the State of New York stating that such reduction has been so authorized, but the number of authorized shares of this Series shall not be increased. (ii) Dividends. (A) Dividends on each share or fraction of a share of this Series shall be payable, when and as declared by the Board of Directors or by a committee of said Board of Directors duly authorized by said Board of Directors to declare such dividends, on each date that dividends (other than dividends payable in capital stock of the Corporation) are payable on capital stock comprising part of the Reference Package (as defined in paragraph (B) of this Section (ii)), in an amount per whole share of this Series equal to the aggregate amount of dividends (other than dividends payable in capital stock of the Corporation) that would be payable on such 6 date to a holder of the Reference Package. Each such dividend shall be paid to the holders of record of shares of this Series as they appear on the stock register of the Corporation on such record date, not exceeding 50 days preceding the payment date thereof, as shall be fixed by the Board of Directors of the Corporation or by a committee of said Board of Directors duly authorized to fix such date. Dividends on account of arrears for any past dividend payment dates may be declared and paid at any time, without reference to any regular dividend payment date, to holders of record on such date, not exceeding 45 days preceding the payment date thereof, as may be fixed by the Board of Directors of the Corporation or by a committee of said Board of Directors duly authorized to fix such date. Dividends on each share of this Series or fraction of such share shall be cumulative from the date such share or fraction of a share is originally issued; provided that any such share or fraction originally issued after a dividend record date and on or prior to the dividend payment date to which such record date relates shall not be entitled to receive the dividend payable on such dividend payment date or any amount in respect of the period from such original issuance to such dividend payment date. For purposes of this paragraph (A), any redemption, purchase or other acquisition of any capital stock for any consideration by the Corporation pro rata or by lot from the holders thereof shall be deemed to be a dividend on such capital stock. (B) The term "Reference Package" shall initially mean 1,000 shares of Common Stock, par value $7.50 per share ("Common Stock"), of the Corporation. In the event the Corporation shall at any time after the Separation Date (as defined in the Rights Agreement, dated as of December 10, 1985 and amended as of June 13, 1989, April 30, 1993 and March 8, 1994 (as so amended and as such may be further amended from time to time, the "Rights Agreement"), between the Corporation and The Bank of New York, as Rights Agent) (1) declare or pay a dividend on any capital stock comprising part of the Reference Package payable in capital stock, (2) subdivide any capital stock comprising part of the Reference Package, (3) combine any capital stock comprising part of the Reference Package into a smaller number of shares or (4) issue in a reclassification, merger or consolidation any shares of capital stock in respect of or in lieu of any existing capital stock comprising part of the Reference Package, then and in each such case the Reference Package after such event shall be the capital stock that a holder of the Reference Package immediately prior to such event would hold thereafter as a result thereof. (C) No full dividends shall be declared or paid or set apart for payment on the Preferred Stock of any series ranking, as to dividends, on a parity with or junior to this Series for any period unless full cumulative dividends have been or contemporaneously are declared and paid or declared and a sum sufficient for the payment thereof set apart for such payment on this Series for all dividend payment periods terminating on or prior to the 7 date of payment of such full cumulative dividends. When dividends are not paid in full, as aforesaid, upon the shares of this Series and any other Preferred Stock ranking on a parity as to dividends with this Series, all dividends declared upon shares of this Series and any other Preferred Stock ranking on a parity as to dividends with this Series shall be declared pro rata so that the amount of dividends declared per share on this Series and such other Preferred Stock shall in all cases bear to each other the same ratio that accumulated dividends per share on the shares of this Series and such other Preferred Stock bear to each other. Holders of shares of this Series shall not be entitled to any dividends, whether payable in cash, property or stock, in excess of full cumulative dividends, as herein provided on this Series. No interest, or sum of money in lieu of interest, shall be payable in respect of any dividend payment or payments on this Series which may be in arrears. (D) So long as any shares of this Series are outstanding, no dividend (other than a dividend in Common Stock or in any other stock ranking junior to this Series as to dividends and upon liquidation) shall be declared or paid or set aside for payment or other distribution declared or made upon the Common Stock or upon any other stock ranking junior to or on a parity with this Series as to dividends or upon liquidation, nor shall any Common Stock nor any other stock of the Corporation ranking junior to or on a parity with this Series as to dividends or upon liquidation be redeemed, purchased or otherwise acquired for any consideration (or any moneys be paid to or made available for a sinking fund for the redemption of any shares of any such stock) by the Corporation (except by conversion into or exchange for stock of the Corporation ranking junior to this Series as to dividends and upon liquidation) unless, in each case, the full cumulative dividends (including the dividend to be due upon payment of such dividend, distribution, redemption, purchase or other acquisition) on all outstanding shares of this Series shall have been, or shall contemporaneously be, paid. (iii) Redemption. (A) The shares of this Series shall be redeemable at the option of the Corporation, as a whole or in part, at any time or from time to time after the date which is two years following the Separation Date referred to in paragraph (B) of Section (ii), at a redemption price equal to the liquidation value per share of this Series at such time, calculated pursuant to paragraph (A) of Section (vi). (B) In the event that fewer than all the outstanding shares of this Series are to be redeemed, the number of shares to be redeemed and the method for selection of those shares shall be as determined by the Board of Directors. (C) In the event the Corporation shall redeem shares of this Series, notice of such redemption shall be given by first class mail, postage prepaid, mailed not less than 30 nor more than 60 days prior to the redemption 8 date, to each holder of record of the shares to be redeemed, at such holder's address as the same appears on the stock register of the Corporation. Each such notice shall state: (1) the redemption date; (2) the number of shares of this Series to be redeemed and, if fewer than all the shares held by such holder are to be redeemed, the number of such shares to be redeemed from such holder; (3) the redemption price; (4) the place or places where certificates for such shares are to be surrendered for payment of the redemption price; and (5) that dividends on the shares to be redeemed will cease to accrue on such redemption date. (D) Notice having been mailed as aforesaid, from and after the redemption date (unless default shall be made by the Corporation in providing money for the payment of the redemption price) dividends on the shares of this Series so called for redemption shall cease, and said shares shall no longer be deemed to be outstanding, and all rights of the holders thereof as shareholders of the Corporation (except the right to receive from the Corporation the redemption price) shall cease. Upon surrender in accordance with said notice of the certificates for any shares so redeemed (properly endorsed or assigned for transfer, if the Board of Directors of the Corporation shall so require and the notice shall so state), such shares shall be redeemed by the Corporation at the redemption price aforesaid. In case fewer than all the shares represented by any such certificate are redeemed, a new certificate shall be issued representing the unredeemed shares without cost to the holder thereof. (E) Any shares of this Series which shall at any time have been redeemed shall, after such redemption, have the status of authorized but unissued shares of Preferred Stock, without designation as to series until such shares are once more designated as part of a particular series by the Board of Directors. (F) Notwithstanding the foregoing provisions of this Section (iii), if any dividends on this Series are in arrears, no shares of this Series shall be redeemed unless all outstanding shares of this Series are simultaneously redeemed, and the Corporation shall not purchase or otherwise acquire any shares of this Series; provided, however, that the foregoing shall not prevent the purchase or acquisition of shares of this Series pursuant to a purchase or exchange offer made on the same terms to holders of all outstanding shares of this Series. (iv) Conversion or Exchange. The holders of shares of this Series shall not have any rights herein to convert such shares into or exchange such shares for shares of any other class or classes or of any other series of any class or classes of capital stock of the Corporation. (v) Voting. The shares of this Series shall not have any voting powers either general or special, except that 9 (A) Unless the vote or consent of the holders of a greater number of shares shall then be required by law, the consent of the holders of at least a majority of all of the shares of this Series at the time outstanding, given in person or by proxy, either in writing or by a vote at a meeting called for the purpose at which the holders of shares of this Series shall vote together as a separate class, shall be necessary for authorizing, effecting or validating the amendment, alteration or repeal of any of the provisions of the Certificate of Incorporation or of any certificate amendatory thereof or supplemental thereto (including any Certificate of Amendment or any similar document relating to any series of Preferred Stock) so as to affect adversely the preferences, rights, powers or privileges of this Series; provided, however, that an increase in the authorized number of shares of the class of Preferred Stock or the authorization, creation or issue, or increase in the authorized amount, of any class or series of capital stock of the Corporation ranking on a parity with the shares of this Series either as to dividends or upon liquidation, or both, shall not be deemed to affect adversely the preferences, rights, powers or privileges of this Series. (B) Unless the vote or consent of the holders of a greater number of shares shall then be required by law, the consent of the holders of at least a majority of all of the shares of this Series and all other series of Preferred Stock ranking on a parity with shares of this Series, either as to dividends or upon liquidation, at the time outstanding, given in person or by proxy, either in writing or by a vote at a meeting called for the purpose at which holders of shares of this Series and such other series of Preferred Stock shall vote together as a single class without regard to series, shall be necessary for authorizing, effecting or validating the creation, authorization or issue of any shares of any class of stock of the Corporation ranking prior to the shares of this Series as to dividends or upon liquidation, or the reclassification of any authorized stock of the Corporation into any such prior shares, or the creation, authorization or issue of any obligation or security convertible into or evidencing the right to purchase any such prior shares; (C) Unless the vote or consent of the holders of a greater number of shares shall then be required by law, the consent of the holders of at least a majority of all of the shares of this Series and all other series of Preferred Stock ranking on a parity with this Series, either as to dividends or upon liquidation, at the time outstanding, given in person or by proxy, either in writing or by a vote at a meeting called for the purpose at which the holders of shares of this Series and such other series of Preferred Stock shall vote together as a single class without regard to series, shall be necessary for authorizing, effecting or validating the sale, lease or conveyance of all or substantially all the property or business of the Corporation or the merger or consolidation of the Corporation into or with any other corporation; provided, however, that no such vote or consent of the holders of shares of this Series and such other series of Preferred Stock, 10 voting as a class without regard to series, shall be required for the merger or consolidation of another corporation into or with the Corporation if none of the preferences, rights, powers or privileges of this Series or such other series of Preferred Stock or the holders thereof will be adversely affected thereby and there shall not be authorized or outstanding after such merger or consolidation any class of stock or other securities (except such stock or securities of the Corporation as may have been authorized or outstanding immediately preceding such merger or consolidation) ranking prior to the shares of this Series and such other series of Preferred Stock as to dividends or upon liquidation; (D) If at the time of any annual meeting of shareholders for the election of directors a default in preference dividends on the Preferred Stock shall exist, the number of directors constituting the Board of Directors of the Corporation shall be increased by two, and the holders of the Preferred Stock of all series (whether or not the holders of such series of Preferred Stock would be entitled to vote for the election of directors if such default in preference dividends did not exist), shall have the right at such meeting, voting together as a single class without regard to series, to the exclusion of the holders of Common Stock, to elect two directors of the Corporation to fill such newly created directorships. Such right shall continue until there are no dividends in arrears upon the Preferred Stock. Whenever all arrears in dividends on the Preferred Stock then outstanding shall have been and dividends for the current quarterly dividend period shall have been paid or declared and set apart for payment, then the right of the holders of such Preferred Stock to elect such additional directors (herein called a "Preferred Director"), shall cease (but subject always to the same provisions for the vesting of such voting rights in the case of any similar future arrearages in dividends) and the terms of office of all persons elected as directors by the holders of such Preferred Stock shall forthwith terminate and the number of the Board of Directors shall be reduced accordingly. Any Preferred Director may be removed by, and shall not be removed except by, the vote of the holders of record of the outstanding shares of Preferred Stock, voting together as a single class without regard to series, at a meeting of the shareholders, or of the holders of shares of Preferred Stock, called for the purpose. So long as a default in any preference dividends on the Preferred Stock shall exist (1) any vacancy in the office of a Preferred Director may be filled (except as provided in the following clause (2)) by an instrument in writing signed by the remaining Preferred Director and filed with the Corporation and (2) in the case of the removal of any Preferred Director, the vacancy may be filled by the vote of the holders of the outstanding shares of Preferred Stock, voting together as a single class without regard to series, at the same meeting at which such removal shall be voted or at a meeting of holders of shares of Preferred Stock called for the purpose. Each director appointed as aforesaid by the remaining Preferred Director shall be deemed, for all purposes hereof, to be a Preferred Director. For the purposes hereof, a 11 "default in preference dividends" on the Preferred Stock shall be deemed to have occurred whenever the amount of accumulated dividends upon this Series shall be equivalent to or greater than the sum of the dividend amounts payable on the preceding six dividend payment dates or whenever the amount of accrued dividends upon any other series of the Preferred Stock shall be equivalent to six full quarterly-yearly dividends or more, and, having so occurred, such default shall be deemed to exist thereafter until, but only until, all accumulated dividends on all shares of Preferred Stock of each and every series then outstanding shall have been paid to the end of the last preceding dividend period. Whenever holders of this Series vote as a class with holders of other series of Preferred Stock, the vote per share of all such series of Preferred Stock will be computed on the basis of one vote for each $50.00 of liquidation value. (vi) Liquidation Rights. (A) Upon the dissolution, liquidation or winding up of the Corporation, the holders of the shares of this Series shall be entitled to receive out of the assets of the Corporation, before any payment or distribution shall be made on the Common Stock or on any other class of stock ranking junior to the Preferred Stock upon liquidation, the amount of $200,000 per share, plus a sum equal to all dividends (whether or not earned or declared) on such shares accumulated and unpaid thereon to the date of final distribution. (B) After the payment to the holders of the shares of this Series of the full preferential amounts provided for in this Section (vi), the holders of this Series as such shall have no right or claim to any of the remaining assets of the Corporation. (C) In the event the assets of the Corporation available for distribution to the holders of shares of this Series upon any dissolution, liquidation or winding up of the Corporation, whether voluntary or involuntary, shall be insufficient to pay in full all amounts to which such holders are entitled pursuant to paragraph (A) of this Section (vi), no such distribution shall be made on account of any shares of any other class or series of Preferred Stock ranking on a parity with the shares of this Series upon such dissolution, liquidation or winding up unless proportionate distributive amounts shall be paid on account of the shares of this Series, ratably, in proportion to the full distributable amounts for which holders of all such parity shares are respectively entitled upon such dissolution, liquidation or winding up. (D) Unless the dissolution, liquidation or winding up of the Corporation, the holders of shares of this Series then outstanding shall be entitled to be paid out of the assets of the Corporation available for distribution to its shareholders all amounts to which such holders are 12 entitled pursuant to paragraph (A) of this Section (vi) before any payment shall be made to the holders of any class of capital stock of the Corporation ranking junior upon liquidation to this Series. (vii) For purposes of this Series any stock of any class or classes of the Corporation shall be deemed to rank: (A) prior to the shares of this Series, either as to dividends or upon liquidation, if the holders of such class or classes shall be entitled to the receipt of dividends or of amounts distributable upon dissolution, liquidation or winding up of the Corporation, as the case may be, in preference or priority to the holders of shares of this Series; (B) on a parity with shares of this Series, either as to dividends or upon liquidation, whether or not the dividend rates, dividend payment dates or redemption or liquidation prices per share or sinking fund provisions, if any, be different from those of this Series, if the holders of such stock shall be entitled to the receipt of dividends or of amounts distributable upon dissolution, liquidation or winding up of the Corporation, as the case may be, in proportion to their respective dividend rates or liquidation prices, without preference or priority, one over the other, as between the holders of such stock and the holders of shares of this Series; and (C) junior to shares of this Series, either as to dividends or upon liquidation, if such class shall be Common Stock or if the holders of shares of this Series shall be entitled to receipt of dividends or of amounts distributable upon dissolution, liquidation or winding up of the Corporation, as the case may be, in preference or priority to the holders of shares of such class or classes. (b) 8.60% Cumulative Preferred Stock (i) Designation. The designation of the series of Preferred Stock created by this resolution shall be "8.60% Cumulative Preferred Stock" without par value (hereinafter called this "Series"), and the number of shares constituting this Series is 184,000. Shares of this Series shall have a stated value of $625 per share. The number of authorized shares of this Series may be reduced by further resolution duly adopted by the Board of Directors of the Corporation, or a duly authorized committee of said Board, and by the filing of a certificate pursuant to the provisions of the Business Corporation Law of the State of New York stating that such reduction has been so authorized, but the number of authorized shares of this Series may not be increased. (ii) (A) Dividends. Dividend rates on the shares of this Series shall be: (1) for the period (the "Initial Dividend Period") from the original issue date to and including the day next preceding March 1, 1993, a rate of 8.60% per annum and (2) for each quarterly dividend period thereafter, 13 which dividend periods ("Dividend Periods") shall commence on March 1, June 1, September 1 and December 1 in each year and shall end on and include the day next preceding the first day of the next Dividend Period, a rate of 8.60% per annum of the stated value thereof. Such dividends shall be cumulative from the date of original issue of the shares of this Series and shall be payable, when and as declared by the Board of Directors, or by a duly authorized committee of said Board, on March 1, June 1, September 1 and December 1 of each year, commencing March 1, 1993. Each such dividend shall be paid to the holders of record of shares of this Series as they appear on the stock register of the Corporation on such record date, not exceeding 50 days preceding the payment date thereof, as shall be fixed by the Board of Directors, or by a duly authorized committee of said Board. Dividends on account of arrears for any past Dividend Periods may be declared and paid at any time, without reference to any regular dividend payment date, to holders of record on such date, not exceeding 45 days preceding the payment date thereof, as may be fixed by the Board, or by any such committee. (B) No full dividends shall be declared or paid or set apart for payment on the Preferred Stock of any series ranking, as to dividends, on a parity with or junior to this Series for any period unless full cumulative dividends then due to be paid have been or contemporaneously are declared and paid or declared and a sum sufficient for the payment thereof set apart for such payment on this Series for all dividend payment periods terminating on or prior to the date of payment of such full cumulative dividends. When dividends are not paid in full, as aforesaid, upon the shares of this Series and any other Preferred Stock ranking on a parity as to dividends with this Series, all dividends declared upon shares of this Series and any other Preferred Stock ranking on a parity as to dividends with this Series shall be declared pro rata so that the amount of dividends declared per share on this Series and such other Preferred Stock shall in all cases bear to each other the same ratio that accumulated dividends per share on the shares of this Series and such other Preferred Stock bear to each other. Holders of shares of this Series shall not be entitled to any dividends, whether payable in cash, property or stock, in excess of full cumulative dividends, as herein provided on this Series. No interest, or sum of money in lieu of interest, shall be payable in respect of any dividend payment or payments on this Series which may be in arrears. (C) So long as any shares of this Series are outstanding, no dividend (other than a dividend in Common Stock or in any other stock ranking junior to this Series as to dividends and upon liquidation and other than as provided in paragraph (B) of this Section (ii)) shall be declared or paid or set aside for payment or other distribution, declared or made upon the Common Stock or upon any other stock ranking junior to or on a parity with this Series as to dividends or upon liquidation, nor shall any Common Stock nor any other stock of the Corporation ranking junior to or on parity with this Series 14 as to dividends or upon liquidation be redeemed, purchased or otherwise acquired for any consideration (or any moneys be paid to or made available for a sinking fund for the redemption of any shares of any such stock) by the Corporation (except by conversion into or exchange for stock of the Corporation ranking junior to this Series as to dividends and upon liquidation) unless, in each case, the full cumulative dividends on all outstanding shares of this Series shall have been paid for all past dividend payment periods. (D) Dividends payable on each share of the Series for each Dividend Period shall be computed by dividing the per annum dividend by four. Dividends payable on the shares of this Series for any period less than a full Dividend Period, including the Initial Dividend Period, shall be computed on the basis of a 360-day year consisting of twelve 30-day months. (iii) Redemption. (A) The shares of this Series shall not be redeemable prior to December 1, 1997. On and after December 1, 1997, the Corporation, at its option, may redeem the shares of this Series, as a whole or in part, at any time or from time to time at a redemption price equal to $625 per share, plus accrued and unpaid dividends thereon to the date fixed for redemption. (B) Notwithstanding the foregoing provisions of this Section (iii), if the full dividends, including accumulations, on the shares of this Series and the full dividends, including any accumulated dividend, on the shares of all other Preferred Stock of the Corporation ranking, as to dividends, on a parity with or senior to the shares of this Series have not been paid or contemporaneously declared and paid, no shares of this Series or the shares of such other class or series of Preferred Stock shall be redeemed pursuant to Section (iii) (A) unless all outstanding shares of this Series and all outstanding shares of such other class or series of Preferred Stock are simultaneously redeemed; provided, however, that the foregoing shall not prevent the purchase or acquisition of shares of this Series or of shares of such other class or series of Preferred Stock by conversion into or exchange for shares of the Corporation ranking junior to the shares of this Series and the shares of such other class or series of Preferred Stock as to dividends and upon liquidation. (C) In the event that fewer than all the outstanding shares of this Series are to be redeemed, the number of shares to be redeemed shall be determined by the Board of Directors and the shares to be redeemed shall be determined on a pro rata basis as may be determined by the Board of Directors of the Corporation or by duly an authorized committee thereof or by any other method as may be determined by the Board of Directors of the Corporation or by any duly authorized committee thereof in its sole discretion to be fair and 15 equitable, provided that such method satisfies any applicable requirements of any securities exchange on which the shares of this Series are listed. (D) In the event the Corporation shall redeem shares of this Series, notice of such redemption (a "Notice of Redemption") shall be given by first class mail, postage prepaid, mailed not less than 30 nor more than 60 days prior to the redemption date, to each holder of record of the shares of this Series to be redeemed as they appear on the stock register of the Corporation on the 7th day preceding the date of such Notice of Redemption, at such holder's address as the same appears on such stock register. Each such notice shall state: (1) the redemption date; (2) the number of shares of this Series to be redeemed and, if fewer than all the shares held by such holder are to be redeemed, the number of such shares to be redeemed from such holder; (3) the redemption price (specifying the amount of accrued and unpaid dividends to be included therein); (4) the place or places (which shall be in The City of New York) where certificates for such shares are to be surrendered for payment of the redemption price; and (5) that dividends on the shares to be redeemed will cease to accrue on such redemption date. (E) Notice having been mailed as aforesaid, from and after the redemption date (unless default shall be made by the Corporation in providing money for the payment of the redemption price) dividends on the shares of this Series so called for redemption shall cease to accrue, and said shares shall no longer be deemed to be outstanding, and all rights of the holders thereof as shareholders of the Corporation (except the right to receive from the Corporation the redemption price) shall cease. Upon surrender in accordance with said notice of the certificates for any shares so redeemed (properly endorsed or assigned for transfer, if the Board or a committee thereof shall so require and the notice shall so state), such shares shall be redeemed by the Corporation at the redemption price aforesaid. In case fewer than all the shares represented by any such certificate are redeemed, a new certificate shall be issued representing the unredeemed shares without cost to the holder thereof, provided, however, that the Corporation may require payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in relation thereto and any other expenses connected therewith. (F) Any of the shares of this Series which shall at any time have been redeemed shall, after such redemption, have the status of authorized but unissued shares of Preferred Stock, without designation as to series until such shares are once more designated as part of a particular series by the Board of Directors of the Corporation or any duly authorized committee thereof. (iv) Conversion or Exchange. The holders of shares of this Series shall not have any rights herein to convert such shares into or exchange such shares for shares of any other class or classes or of any other series of any class or classes of capital stock of the Corporation. 16 (v) Voting. The shares of this Series shall not have any voting powers either general or special, except that (A) Unless the vote or consent of the holders of a greater number of shares shall then be required by law, the consent of the holders of at least two-thirds of all of the shares of this Series at the time outstanding, given in person or by proxy, either in writing or by a vote at a meeting called for the purpose at which the holders of shares of this Series shall vote together as a separate class, shall be necessary for authorizing, effecting or validating the amendment, alteration or repeal of any of the provisions of the Certificate of Incorporation of the Corporation or of any certificate amendatory thereof or supplemental thereto (including any Certificates of Amendment or any similar document relating to any series of Preferred Stock) so as to affect adversely the preferences, rights, powers or privileges of this Series. For purposes of this provision, an increase in the authorized number of shares of the class of Preferred Stock or the authorization, creation or issue, or increase in the authorized amount, of any class or series of capital stock of the Corporation ranking on a parity with the shares of this Series either as to dividends or upon liquidation, or both, shall not be deemed to affect adversely the preferences, rights, powers or privileges of this Series. (B) Unless the vote or consent of the holders of a greater number of shares shall then be required by law, the consent of the holders of at least two-thirds of all of the shares of this Series and all other series of Preferred Stock ranking on a parity with shares of this Series, either as to dividends or upon liquidation, at the time outstanding, given in person or by proxy, either in writing or by a vote at a meeting called for the purpose at which the holders of shares of this Series and such other series of Preferred Stock shall vote together as a single class without regard to series, shall be necessary for authorizing, effecting or validating the creation, authorization or issue of any shares of any class of stock of the Corporation ranking prior to the shares of this Series as to dividends or upon liquidation, or the reclassification of any authorized stock of the Corporation into any such prior shares, or the creation, authorization or issue of any obligation or security convertible into or evidencing the right to purchase any such prior shares. (C) If at the time of any annual meeting of shareholders for the election of directors a default in preference dividends on any series of Preferred Stock shall exist, the number of directors constituting the Board of Directors of the Corporation shall be increased by two, and the holders of the Preferred Stock of all series (whether or not the holders of such series of Preferred Stock would be entitled to vote for the election of directors if such default in preference dividends did not exist), shall have the right at 17 such meeting, voting together as a single class without regard to series, to the exclusion of the holders of Common Stock, to elect two directors of the Corporation to fill such newly created directorships. Such right shall continue until there are no dividends in arrears upon the Preferred Stock of any series. Whenever all arrears in dividends on the Preferred Stock then outstanding shall have been and dividends for the current quarterly dividend period shall have been, paid or declared and set apart for payment, then the right of the holders of such Preferred Stock to elect such additional directors (herein called a "Preferred Director"), shall cease (but subject always to the same provisions for the vesting of such voting rights in the case of any similar future arrearages in dividends) and the terms of office of all persons elected as directors by the holders of such Preferred Stock shall forthwith terminate and the number of the Board of Directors shall be reduced accordingly. Any Preferred Director may be removed by, and shall not be removed except by, the vote of the holders of record of the outstanding shares of Preferred Stock, voting together as a single class without regard to series, to the exclusion of the holders of Common Stock, at a meeting of the shareholders or of the holders of shares of Preferred Stock, called for the purpose. So long as a default in any preference dividends on the Preferred Stock shall exist (1) any vacancy in the office of a Preferred Director may be filled (except as provided in the following clause (2)) by an instrument in writing signed by the remaining Preferred Director and filed with the Corporation and (2) in the case of the removal of any Preferred Director, the vacancy may be filled by the vote of the holders of the outstanding shares of Preferred Stock, voting together as a single class without regard to series, to the exclusion of the holders of Common Stock, at the same meeting at which such removal shall be voted or at a meeting of holders of shares of Preferred Stock called for the purpose. Each director appointed as aforesaid by the remaining Preferred Director shall be deemed, for all purposes hereof, to be a Preferred Director. For the purposes hereof, a "default in preference dividends" on the Preferred Stock shall be deemed to have occurred whenever the amount of accrued dividends upon any series of the Preferred Stock shall be equivalent to six full quarter-yearly dividends and, having so occurred, such default shall be deemed to exist thereafter until, but only until, all accrued dividends on all hares of Preferred Stock of each and every series then outstanding shall have been paid to the end of the last preceding quarterly dividend period. Whenever holders of shares of this Series vote as a class with holders of other series of Preferred Stock, the vote per share of all such series of Preferred Stock will be computed on the basis of one vote for each $625.00 of liquidation value. vi) Liquidation Rights. (A) Upon the dissolution, liquidation or winding up of the Corporation, the holders of the shares of this Series shall be entitled to receive out of the assets of the Corporation, before any payment or distribution shall be made on the Common Stock or on any other 18 class of stock ranking junior to the Preferred Stock upon liquidation, the amount of $625 per share, plus a sum equal to all dividends (whether or not earned or declared) on such shares accumulated and unpaid thereon to the date of final distribution. (B) After the payment to the holders of the shares of this Series of the full preferential amounts provided for in this Section (vi), the holders of this Series as such shall have no right or claim to any of the remaining assets of the Corporation. (C) In the event the assets of the Corporation available for distribution to the holders of shares of this Series upon any dissolution, liquidation or winding up of the Corporation, whether voluntary or involuntary, shall be insufficient to pay in full all amounts to which such holders are entitled pursuant to paragraph (A) of this Section (vi), no such distribution shall be made on account of any shares of any other class or series of Preferred Stock ranking on a parity with the shares of this Series upon such dissolution, liquidation or winding up unless proportionate distributive amounts shall be paid on account of the shares of this Series, ratably, in proportion to the full distributable amounts for which holders of all such parity shares are respectively entitled upon such dissolution, liquidation or winding up. (D) Upon the dissolution, liquidation or winding up of the Corporation, the holders of shares of this Series then outstanding shall be entitled to be paid out of the assets of the Corporation available for distribution to its shareholders all amounts to which such holders are entitled pursuant to paragraph (A) of this Section (vi) before any payment shall be made to the holders of any class of capital stock of the Corporation ranking junior upon liquidation to this Series. (E) Neither the consolidation nor merger of the Corporation into or with another corporation or corporations, nor the sale, lease or exchange (for cash, shares of equity stock, securities or other consideration) of all or substantially all of the property and assets of the Corporation, nor the distribution to the stockholders of the Corporation of all or substantially all of the consideration for such sale, unless such consideration (apart from assumption of liabilities) or the net proceeds thereof consists substantially entirely of cash, shall be deemed to be a liquidation, dissolution or winding up of the Corporation within the meaning of this Section (vi). (vii) For purposes of this Series any stock of any class or classes of capital stock of the Corporation, or any series of shares of any such class, shall be deemed to rank: (A) prior to the shares of this Series, either as to dividends or upon liquidation, if the holders of such class or classes or series shall be 19 entitled to the receipt of dividends or of amounts distributable upon dissolution, liquidation or winding up of the Corporation, as the case may be, in preference or priority to the holders of shares of this Series; (B) on a parity with shares of this Series, either as to dividends or upon liquidation, whether or not the dividend rates, dividend payment dates or redemption or liquidation prices per share or sinking fund provisions, if any, be different from those of this Series, if the holders of such stock shall be entitled to the receipt of dividends or of amounts distributable upon dissolution, liquidation or winding up of the Corporation, as the case may be, in proportion to their respective dividend rates or liquidation prices, without preference or priority, one over the other, as between the holders of such stock and the holders of shares of this Series; and (C) junior to shares of this Series, either as to dividends or upon liquidation, if such class or classes or series shall be Common Stock or if the holders of shares of this Series shall be entitled to receipt of dividends or of amounts distributable upon dissolution, liquidation or winding up of the Corporation, as the case may be, in preference or priority to the holders of shares of such class or classes or series. II. Terms of Series of Class A Preferred Stock (a) 7.75% Cumulative Convertible Preferred Stock (i) Designation. The designation of the series of preferred stock created by this resolution shall be "7.75% Cumulative Convertible Preferred Stock", par value $2.00 per share (the "Preferred Stock"), and the number of shares constituting Preferred Stock shall be 1,150,000. Such number of shares may be decreased by resolution duly adopted by the Board of Directors; provided, that no decrease shall reduce the number of shares of Preferred Stock to a number less than the number of shares then outstanding plus the number of shares reserved for issuance upon the exercise of outstanding options, rights, or warrants or upon the conversion of any outstanding securities issued by the Corporation convertible into Preferred Stock. The Preferred Stock shall rank senior to the Corporation's Common Stock with respect to the payment of dividends and to the distribution of assets upon liquidation, dissolution or winding up. (ii) Dividends. (A) For purposes of this Section (ii), each January 1, April 1, July 1, and October 1 on which any share of Preferred Stock shall be outstanding shall be deemed to be a "Dividend Payment Date." Commencing on the Dividend Payment Date next succeeding the date of original issuance of the Preferred Stock (such date of original issuance, the "Original Issue Date"), the holders of shares of Preferred Stock shall be entitled to receive, when and as declared by the Board of Directors of the Corporation out 20 of funds legally available therefor, cumulative dividends at the rate of $1.9375 per year on each share of Preferred Stock and no more, except that the dividend with respect to the initial dividend period shall be determined as provided in paragraph (B) of this Section (ii). (B) (1) If the Original Issue Date occurs subsequent to the record date (a "Series B Record Date") for a dividend payment in respect of the Series B 7.75% Cumulative Convertible Preferred Stock, par value $2.00 per share (the "Series B Preferred Stock"), of National Community Banks, Inc. ("NCB") and prior to the corresponding dividend payment date (a "Series B Dividend Payment Date"), holders of shares of Preferred Stock who were holders of record of shares of Series B Preferred Stock on such Series B Record Date shall be entitled to receive, commencing on the Dividend Payment Date next succeeding the Original Issue Date, when and as declared by the Board of Directors of the Corporation out of funds legally available therefor, an amount per share of Preferred Stock equal to the sum of (aa) the excess, if any, of (y) the amount of dividends that would have accrued on a share of Series B Preferred Stock from the first day of the dividend period for the Series B Preferred Stock in which the Original Issue Date occurs to the Series B Dividend Payment Date immediately succeeding the Original Issue Date over (z) the amount of dividends declared and paid or set aside for payment on a share of Series B Preferred Stock on the Series B Dividend Payment Date immediately succeeding the Original Issue Date and (bb) the amount of dividends accrued and unpaid, if any, on a share of Series B Preferred Stock as of the close of business on the Series B Dividend Payment Date immediately preceding the Original Issue Date, and such dividend shall be cumulative from such date for all purposes hereof. (2) If the Original Issue Date occurs after a Series B Dividend Payment Date and prior to the record date for the immediately succeeding Series B Dividend Payment Date, holders of shares of Preferred Stock shall be entitled to receive, commencing on the Dividend Payment Date immediately succeeding the Original Issue Date, when and as declared by the Board of Directors of the Corporation out of funds legally available therefor, an amount per share of Preferred Stock equal to the sum of (aa) the amount of dividends that would have accrued on a share of Series B Preferred Stock from the first day of the dividend period for the Series B Preferred Stock in which the Original Issue Date occurs to the Series B Dividend Payment Date immediately succeeding the Original Issue Date and (bb) the amount of dividends accrued and unpaid, if any, on a share of Series B Preferred Stock as of the close of business on the Series B Dividend Payment Date immediately preceding the Original Issue Date, and such dividend shall be cumulative from such date for all purposes hereof. 21 (C) The Board of Directors may fix a record date for the determination of holders of shares of Preferred Stock entitled to receive payment of a dividend declared thereon, which record date shall be not more than 45 days prior to the date fixed for the payment thereof. (D) On each Dividend Payment Date all dividends which shall have accrued on each share of Preferred Stock outstanding on such Dividend Payment Date shall accumulate and be deemed to become "due". Any dividend which shall not be paid on the Dividend Payment Date on which it shall become due shall be deemed to be "past due" until such dividend shall be paid or until the share of Preferred Stock with respect of which such dividend became due shall no longer be outstanding, whichever is the earlier to occur. No interest or sum of money in lieu of interest shall be payable in respect of any dividend payment or payments which are past due. Dividends paid on shares of Preferred Stock in an amount less than the total amount of such dividends at the time accumulated and payable on such shares shall be allocated pro rata on a share- by-share basis among all such shares at the time outstanding. (E) If there shall be outstanding shares of any class or series of preferred stock of the Corporation ranking junior to or on parity with the Preferred Stock as to dividends, no full dividends shall be declared or paid or set apart for payment on any such other class or series for any period unless full cumulative dividends have been or contemporaneously are declared and paid or declared and a sum sufficient for the payment thereof set apart for such payment on the Preferred Stock for all dividend payment periods terminating on or prior to the date of payment of such full cumulative dividends. When dividends are not paid in full or are past due on the shares of the Preferred Stock and on any other class or series of preferred stock ranking on a parity as to dividends with the Preferred Stock all dividends declared on all outstanding shares of the Preferred Stock and shares of such other class or series of preferred stock shall be declared pro rata so that the amount of dividends declared per share on the Preferred Stock and such other preferred stock shall in all cases bear to each other the same ratio that accrued and unpaid dividends per share on the shares of the Preferred Stock and such other preferred stock to the date of such dividend payment bear to each other. Holders of shares of Preferred Stock shall not be entitled to any dividend, whether payable in cash, property or securities, in excess of full cumulative dividends, as herein provided, on the Preferred Stock. 22 (F) So long as any shares of Preferred Stock are outstanding, no dividend (other than (1) a dividend or distribution in Common Stock or in any other stock ranking junior to the Preferred Stock as to dividends and upon liquidation, dissolution or winding up, (2) dividends or distributions of the Corporation's preferred stock purchase rights (the "Rights"), the terms of which are set forth in the Rights Agreement, dated as of December 10, 1985 and amended as of June 13, 1989, April 30, 1993 and March 8, 1994 (as so amended and as amended from time to time, the "Rights Agreement"), between the Corporation and The Bank of New York, as Rights Agent or (3) the issuance of such Rights in connection with the issuance of any other capital stock of the Corporation ranking junior to or on a parity with the Preferred Stock as to dividends and upon liquidation, dissolution or winding up and other than as provided in paragraph (E) of this Section (ii)) shall be declared or paid or set aside for payment or other distribution declared or made upon the Common Stock or upon any other stock ranking junior to, or on a parity with, the Preferred Stock as to dividends or upon liquidation, dissolution or winding up, nor shall any Common Stock or any other stock of the Corporation ranking junior to, or on a parity with, the Preferred Stock as to dividends or upon liquidation, dissolution or winding up, be redeemed, purchased or otherwise acquired for any consideration (or any moneys be paid to or made available for a sinking fund for the redemption of any shares of any such stock) by the Corporation (except for conversion of such junior or parity stock into, or exchange of such junior or parity stock for, stock of the Corporation ranking junior to the Preferred Stock as to dividends and upon liquidation, dissolution, or winding up, and except for the redemption of the Rights at their current redemption price) unless, in each case, the full cumulative dividends on all outstanding shares of the Preferred Stock shall have been paid or declared and set aside for payment for all past dividend payment periods. (G) The Corporation shall not permit any subsidiary of the Corporation to purchase or otherwise acquire for consideration any shares of stock of the Corporation unless the Corporation could, under paragraph (F) of this Section (ii), purchase or otherwise acquire such shares at such time and in such manner; provided, however, that this paragraph shall not prohibit the acquisition of shares of stock of the Corporation which have been pledged to the Corporation or any subsidiary of the Corporation for a bona fide debt. (H) Dividends payable on each share of the Preferred Stock for each full dividend period shall be computed by dividing the per annum dividend by four. Dividends payable on the shares of the Preferred Stock for any period less than a full dividend period, other than the initial dividend period, shall be computed on the basis of a 360-day year consisting of twelve 30-day months. 23 (iii) General, Class and Series Voting Rights. Except as provided in this Section (iii) and in Section (iv) hereof or as otherwise from time to time required by applicable law, the Preferred Stock shall have no voting rights. (A) Unless the vote or consent of the holders of a greater number of shares shall then be required by law, the consent of the holders of at least 66-2/3% of all of the shares of the Preferred Stock and all other classes and series of preferred stock of the Corporation ranking on a parity with shares of the Preferred Stock, either as to dividends or upon liquidation, dissolution or winding up, at the time outstanding, given in person or by proxy, either in writing or by a vote at a meeting called for the purpose at which holders of shares of the Preferred Stock and such other classes and series of Preferred Stock of the Corporation shall vote together as a single class without regard to series, shall be necessary for authorizing, effecting or validating the creation, authorization or issuance of, or reclassification of any authorized stock of the Corporation into, or creation, authorization or issuance of any obligation or security convertible into or evidencing a right to purchase any shares of, or increase in the authorized or issued amount of, any class or series of stock (including any class or series of preferred stock) ranking prior (as that term is hereinafter defined in this Section (iii)) to the Preferred Stock with respect to the payment of dividends or the distribution of assets upon liquidation, dissolution or winding up. (B) Unless the vote or consent of the holders of a greater number of shares shall then be required by law, the consent of the holders of at least 66-2/3% of all of the shares of the Preferred Stock, and any one or more classes or series of preferred stock of the Corporation similarly affected, at the time outstanding, given in person or by proxy, either in writing or by a vote at a meeting called for the purpose at which the holders of shares of such classes or series of preferred stock shall vote together as a separate class, shall be necessary for authorizing, effecting or validating the amendment, alteration or repeal, whether by merger, consolidation or otherwise, of any of the provisions of the Certificate of Incorporation (or any certificate amendatory thereof or supplemental thereto providing for the capital stock of the Corporation including, without limitation, this Certificate) which would adversely affect the preferences, rights, powers or privileges of holders of shares of the Preferred Stock and such other classes or series of preferred stock of the Corporation. Any increase in the amount of authorized Preferred Stock or the creation and issuance of other classes or series of preferred stock ranking on a parity with or junior to the Preferred Stock with respect to dividends and upon liquidation, dissolution or winding up shall not be deemed to affect adversely the rights of the holders of shares of Preferred Stock. 24 The foregoing voting provisions shall not apply if, at or prior to the time when the act with respect to which such vote would otherwise be required shall be effected, all outstanding shares of Preferred Stock shall have been redeemed or sufficient funds shall have been deposited in trust to effect such redemption. Any class or classes of stock of the Corporation shall be deemed to rank: (1) prior to the Preferred Stock as to dividends or as to distribution of assets upon liquidation, dissolution or winding up if the holders of such class shall be entitled to the receipt of dividends or of amounts distributable upon liquidation, dissolution or winding up, as the case may be, in preference or priority to the holders of Preferred Stock; and (2) on a parity with the Preferred Stock as to dividends or as to distribution of assets upon liquidation, dissolution or winding up, whether or not the dividend rates, dividend payment dates, or redemption or liquidation prices per share thereof be different from those of the Preferred Stock, if the holders of such class of stock and the Preferred Stock shall be entitled to the receipt of dividends or of amounts distributable upon liquidation, dissolution or winding up, as the case may be, in proportion to their respective dividend rates or liquidation prices, without preference or priority one over the other. Whenever holders of shares of the Preferred Stock vote as a class with holders of other classes or series of preferred stock of the Corporation, the vote per share of all such classes or series of preferred stock of the Corporation will be computed on the basis of one vote for each $25.00 of liquidation value. (iv) Default Voting Rights. Whenever at any time or times, dividends payable on the shares of Preferred Stock shall be in arrears in an amount equal to at least six full quarterly dividends on shares of the Preferred Stock at the time outstanding, the holders of the outstanding shares of Preferred Stock shall have the exclusive right (voting separately as a class together with holders of shares of any one or more other classes or series of preferred stock ranking on a parity with the Preferred Stock either as to dividends or the distribution of assets upon liquidation, dissolution or winding up and upon which like voting rights have been conferred and are exercisable) to elect two directors of the Corporation at the Corporation's next annual meeting of shareholders and at each subsequent annual meeting of shareholders. At elections for such directors, each holder of Preferred Stock shall be entitled to one vote for each share held (the holders of shares of any other class or series of preferred stock ranking on such a parity being entitled to such number of votes, if any, for each share of stock held as may 25 be granted to them). Upon the vesting of such right of the holders of Preferred Stock, the maximum authorized number of members of the Board of Directors shall automatically be increased by two and the two vacancies so created shall be filled by vote of the holders of the outstanding shares of Preferred Stock (either alone or together with the holders of shares of any one or more other classes or series of preferred stock ranking on such a parity) as hereinafter set forth. The right of holders of Preferred Stock, voting separately as a class to elect (either alone or together with the holders of shares of any one or more other classes or series of preferred stock ranking on such a parity) members of the Board of Directors of the Corporation as aforesaid shall continue until such time as all dividends accumulated on the Preferred Stock shall have been paid in full, at which time such right shall terminate, except as herein or by law expressly provided, subject to revesting in the event of each and every subsequent default of the character above mentioned. Each director elected by the holders of shares of Preferred Stock shall continue to serve as such director for the full term for which he shall have been elected, notwithstanding that prior to the end of such term such arrearage shall cease to exist. If the office of any director elected by the holders of Preferred Stock voting as a class becomes vacant by reason of death, resignation, retirement, disqualification, removal from office, or otherwise, the remaining director elected by the holders of Preferred Stock voting as a class may choose a successor who shall hold office for the unexpired term in respect of which such vacancy occurred. Whenever the term of office of the directors elected by the holders of Preferred Stock voting as a class shall end and the special voting powers vested in the holders of Preferred Stock as provided in this Section (iv) shall have expired, the number of directors shall be such number as may be provided for in the By-Laws irrespective of any increase made pursuant to the provisions of this Section (iv). The shares of Preferred Stock shall be deemed to be shares of a series of the same class of preferred stock as each series of preferred stock, without par value, outstanding on the Original Issue Date with respect to determining holders of preferred stock entitled to vote under any provision of any such series of preferred stock, without par value. (v) Redemption. (A) The shares of Preferred Stock are not redeemable prior to July 1, 1996. At any time on or after such date, the shares of Preferred Stock are redeemable, in whole or in part, at the option of the Corporation, during the twelve-month periods commencing on July 1 of the years indicated below at the following redemption prices per share of Preferred Stock, plus accrued and unpaid dividends thereon to the date fixed for redemption: 26 Redemption Redemption Year Price Year Price ---- ---------- ---- ---------- 1996 $26.16 2000 $25.39 1997 25.97 2001 25.19 1998 25.78 2002 and 25.00 thereafter 1999 25.58 (B) In the event the Corporation shall elect to redeem shares of Preferred Stock, the Corporation shall give notice to the holders of record of shares of the Preferred Stock being so redeemed, not less than 30 nor more than 60 days prior to such redemption, by first class mail, postage prepaid, at their addresses as shown on the stock registry books of the Corporation that said shares are being redeemed, provided that without limiting the obligation of the Corporation hereunder to give the notice provided in this Section (v) (B), the failure of the Corporation to give such notice shall not invalidate any corporate action by the Corporation. Each such notice shall state: (1) the redemption date; (2) the number of shares of Preferred Stock to be redeemed and, if fewer than all the shares held by such holder are to be redeemed, the number of such shares to be redeemed from such holder; (3) the redemption price; (4) the place or places where certificates for such shares are to be surrendered for payment of the redemption price; (5) that dividends on the shares to be redeemed will cease to accrue on such redemption date; and (6) that such holder has the right to convert such shares into a number of shares of Common Stock prior to the close of business on the tenth day preceding such redemption date. (C) In the event that fewer than all the outstanding shares of Preferred Stock are to be redeemed, the number of shares to be redeemed shall be determined by the Board of Directors of the Corporation and the shares to be redeemed shall be determined pro rata or by lot as may be determined by the Board of Directors of the Corporation or by any other method as may be determined by the Board of Directors of the Corporation in its sole discretion to be equitable provided that such method satisfies any applicable requirements of any securities exchange on which the Preferred Stock is listed. (D) Notice having been mailed as aforesaid, from and after the applicable redemption date (unless default shall be made by the Corporation in providing money for the payment of the redemption price), dividends on the shares of Preferred Stock to be redeemed on such redemption date shall cease to accrue, and said shares shall no longer be outstanding, and all rights of the holders thereof as shareholders of the Corporation (except the right to receive from the Corporation the redemption price) shall cease; provided that, notwithstanding the foregoing, if notice of redemption has been given pursuant to this Section (v) and any holder of shares of Preferred Stock shall, prior to the close of business on the tenth day preceding the redemption date, 27 surrender for conversion any or all of the shares to be redeemed held by such holder in accordance with Section (vi) then the conversion of such shares to be redeemed shall become effective as provided in Section (vi). Upon surrender of the certificates for any shares so redeemed (properly endorsed or assigned for transfer, if the Board of Directors of the Corporation shall so require and the notice shall so state), such shares shall be redeemed by the Corporation at the redemption price aforesaid. In case fewer than all the shares represented by any such certificate are redeemed, a new certificate shall be issued representing the unredeemed shares without cost to the holder thereof. (E) Any shares of Preferred Stock which shall at any time have been redeemed shall, after such redemption, have the status of authorized but unissued shares of Class A Preferred Stock, par value $2.00 per share, without designation as to series until such shares are once more designated as part of a particular series by the Board of Directors of the Corporation. (F) Notwithstanding the foregoing provisions of this Section (v), if any dividends on Preferred Stock are past due, no shares of Preferred Stock shall be redeemed unless all outstanding shares of Preferred Stock are simultaneously redeemed, and the Corporation shall not purchase or otherwise acquire any shares of Preferred Stock; provided, however, that the foregoing shall not prevent the purchase or acquisition of shares of Preferred Stock pursuant to a purchase or exchange offer made on the same terms to holders of all outstanding shares of Preferred Stock. (vi) Conversion. (A) The holder of any share of Preferred Stock shall have the right, at such holder's option (but if such share is called for redemption, then in respect of such share only to and including but not after the close of business on the tenth day preceding the date fixed for such redemption, provided that no default by the Corporation in the payment of the applicable redemption price (including any accrued and unpaid dividends) shall have occurred and be continuing on the date fixed for such redemption) to convert such share into that number of fully paid and non-assessable shares of Common Stock (calculated as to each conversion to the nearest 1/100th of a share) obtained by dividing $25.00 by the Conversion Price then in effect. The Conversion Price shall initially be $27.08 per share and shall be subject to adjustment as set forth below. (B) In order to exercise the conversion privilege, the holder of shares of Preferred Stock shall surrender the certificates representing such shares, accompanied by transfer instruments satisfactory to the Corporation and sufficient to transfer the Preferred Stock being converted to the Corporation free of any adverse interest, at any of the offices or agencies maintained for such purpose by the Corporation ("Conversion Agent") and shall give written notice to the Corporation at such Conversion Agent that the 28 holder elects to convert such shares. Such notice shall also state the names, together with addresses, in which the certificates for shares of Common Stock which shall be issuable on such conversion shall be issued. As promptly as practicable after the surrender of such shares of Preferred Stock as aforesaid, the Corporation shall issue and shall deliver at such Conversion Agent to such holder, or on his written order, a certificate for the number of full shares of Common Stock issuable upon the conversion of such shares in accordance with the provisions hereof. Balance certificates will be issued for the remaining shares of Preferred Stock in any case in which fewer than all of the shares of Preferred Stock represented by a certificate are converted. Each conversion shall be deemed to have been effected immediately prior to the close of business on the date on which shares of Preferred Stock shall have been so surrendered and such notice received by the Corporation as aforesaid, and the persons in whose names any certificates for shares of Common Stock shall be issuable upon such conversion shall be deemed to have become the holders of record of the Common Stock represented thereby at such time, unless the stock transfer books of the Corporation shall be closed on the date on which shares of Preferred Stock are so surrendered for conversion, in which event such conversion shall be deemed to have been effected immediately prior to the close of business on the next succeeding day on which such stock transfer books are open, and such persons shall be deemed to have become such holders of record of the Common Stock at the close of business on such later day. In either circumstance, such conversion shall be at the Conversion Price in effect on the date upon which such share shall have been surrendered and such notice received by the Corporation. (C) In the case of any share of Preferred Stock which is converted after any record date with respect to the payment of a dividend on the Preferred Stock and on or prior to the next succeeding Dividend Payment Date, the dividend due on such Dividend Payment Date shall be payable on such Dividend Payment Date to the holder of record of such shares as of such preceding record date notwithstanding such conversion. Shares of Preferred Stock surrendered for conversion during the period from the close of business on any record date with respect to the payment of a dividend on the Preferred Stock next preceding any Dividend Payment Date to the opening of business on such Dividend Payment Date shall (except in the case of shares of Preferred Stock which have been called for redemption on a redemption date within such period) be accompanied by payment in New York Clearing House or other funds acceptable to the Corporation in an amount equal to the dividend payable on such Dividend Payment Date on the shares of Preferred Stock being surrendered for conversion. The dividend with respect to a share of Preferred Stock called for redemption on a redemption date during the period from the close of business on any record date with respect to the payment of a dividend on the Preferred Stock next preceding any Dividend Payment Date to the opening of business on such Dividend Payment Date shall be payable on such Dividend Payment Date to the holder of record of such share on such dividend record 29 date notwithstanding the conversion of such share of Preferred Stock after such record date and prior to such Dividend Payment Date, and the holder converting such share of Preferred Stock need not include a payment of such dividend amount upon surrender of such share of Preferred Stock for conversion. Except as provided in this paragraph, no payment or adjustment shall be made upon any conversion on account of any dividends accrued on shares of Preferred Stock surrendered for conversion or on account of any dividends on the Common Stock issued upon conversion. (D) No fractional shares or scrip representing fractions of shares of Common Stock shall be issued upon conversion of any shares of Preferred Stock. Instead of any fractional interest in a share of Common Stock which would otherwise be deliverable upon the conversion of a share of Preferred Stock, the Corporation shall pay to the holder of such share of Preferred Stock an amount in cash (computed to the nearest cent, with one-half cent being rounded upward) equal to such fraction multiplied by the reported closing sale price (as defined in subparagraph (E)(6) of this Section (vi)) of the Common Stock at the close of business on the day on which such share or shares of Preferred Stock are surrendered for conversion in the manner set forth above, or if such date is not a trading date, on the next succeeding trading date. If more than one certificate representing shares of Preferred Stock shall be surrendered for conversion at one time by the same holder, the number of full shares issuable upon conversion thereof shall be computed on the basis of the aggregate number of shares of Preferred Stock represented by such certificates, or the specified portions thereof to be converted, so surrendered. (E) The Conversion Price shall be adjusted from time to time as follows: (1) In case the Corporation shall pay or make a dividend or other distribution on any class of capital stock of the Corporation in Common Stock, the Conversion Price in effect at the opening of business on the day following the date fixed for the determination of shareholders entitled to receive such dividend or other distribution shall be reduced by multiplying such Conversion Price by a fraction of which the numerator shall be the number of shares of Common Stock outstanding at the close of business on the date fixed for such determination and the denominator shall be the sum of such number of shares and the total number of shares constituting such dividend or other distribution, such reduction to become effective immediately after the opening of business on the day following the date fixed for such determination. For the purposes of this subparagraph (1), the number of shares of Common Stock at any time outstanding shall not include shares held in the treasury of the Corporation but shall include shares issuable in respect of scrip certificates issued in lieu of fractions of shares of Common Stock. The Corporation will not pay any dividend or make any distribution on shares of Common Stock held in the treasury of the Corporation. 30 (2) In case the Corporation shall issue rights or warrants to all holders of its Common Stock entitling them to subscribe for or purchase shares of Common Stock at a price per share less than the current market price per share (determined as provided in subparagraph (4) below) of the Common Stock on the date fixed for the determination of shareholders entitled to receive such rights or warrants (other than pursuant to a dividend reinvestment plan), the Conversion Price in effect at the opening of business on the day following the date fixed for such determination shall be reduced by multiplying such Conversion Price by a fraction of which the numerator shall be the number of shares of Common Stock outstanding at the close of business on the date fixed for such determination plus the number of shares of Common Stock which the aggregate of the offering price of the total number of shares of Common Stock so offered for subscription or purchase would purchase at such current market price and the denominator shall be the number of shares of Common Stock outstanding at the close of business on the date fixed for such determination plus the number of shares of Common Stock so offered for subscription or purchase, such reduction to become effective immediately after the opening of business on the day following the date fixed for such determination. For the purposes of this subparagraph (2), the number of shares of Common Stock at any time outstanding shall not include shares held in the treasury of the Corporation but shall include shares issuable in respect of scrip certificates issued in lieu of fractions of shares of Common Stock. The Corporation will not issue any rights or warrants in respect of shares of Common Stock held in the treasury of the Corporation. (3) In case outstanding shares of Common Stock shall be subdivided into a greater number of shares of Common Stock, the Conversion Price in effect at the opening of business on the day following the day upon which such subdivision becomes effective shall be proportionately reduced, and, conversely, in case outstanding shares of Common Stock shall each be combined into a smaller number of shares of Common Stock, the Conversion Price in effect at the opening of business on the day following the day upon which such combination becomes effective shall be proportionately increased, such reduction or increase, as the case may be, to become effective immediately after the opening of business on the day following the day upon which such subdivision or combination becomes effective. (4) In case the Corporation shall, by dividend or otherwise, distribute to all holders of its Common Stock (aa) evidences of its indebtedness, (bb) cash or other assets (including securities, but excluding any rights or warrants referred to in subparagraph (2) above, any regular quarterly dividend payable solely in cash out of retained earnings of the Corporation that may from time to time be fixed by the Board of Directors of 31 the Corporation and any dividend or distribution referred to in subparagraph (1) above) or (cc) any combination thereof, then in each case the Conversion Price shall be adjusted so that the same shall equal the price determined by multiplying the Conversion Price in effect immediately prior to the close of business on the date fixed for the determination of shareholders entitled to receive such distribution by a fraction of which the numerator shall be the current market price per share (determined as provided in subparagraph (6) below) of the Common Stock on the date fixed for such determination less the then fair market value (as determined by the Board of Directors, whose determination, if made in good faith, shall be conclusive and shall be described in a statement filed with any Conversion Agent) of the portion of the cash or other assets or evidences of indebtedness so distributed (and for which an adjustment to the Conversion Price has not previously been made pursuant to the terms of this Section (vi)) applicable to one share of Common Stock and the denominator shall be such current market price per share of the Common Stock, such adjustment to become effective immediately prior to the opening of business on the day following such record date; provided, however, that if and to the extent that the fair market value of such distribution, as so determined by the Board of Directors, shall exceed the retained earnings of the Corporation, then in lieu of adjusting the Conversion Price as provided above with respect to the portion of such distribution which exceeds the Corporation's retained earnings, the holders of the Preferred Stock then outstanding shall have the right thereafter to convert the shares of Preferred Stock into (I) the kind and amount of indebtedness or cash or other assets of the Corporation receivable in such distribution by a holder of the number of shares of Common Stock into which the Preferred Stock might have been converted at the close of business on the date fixed for the determination of shareholders entitled to receive such distribution, and (II) such number of shares of Common Stock into which the Preferred Stock may then be convertible, as adjusted from time to time pursuant to this Section (vi). If after the Separation Date (as such term is defined in the Rights Agreement) for the Rights of the Corporation, as presently constituted, converting holders of the Preferred Stock are not entitled to receive the Rights which would otherwise be attributable (but for the date of conversion) to the shares of Common Stock received upon such conversion, then adjustment of the Conversion Price shall be made under the preceding sentence as if the Rights were then being distributed to the holders of Common Stock. If such an adjustment is made and the Rights are later redeemed, invalidated or terminated, then a corresponding reversing adjustment shall be made to the Conversion Price, on an equitable basis, to take account of such event. However, the Corporation may elect to amend the provisions presently applicable to the Rights so that each share of Common Stock issuable upon conversion of the Preferred Stock, whether or not issued after the Separation Date for such Rights, will be accompanied by the Rights which would otherwise be attributable (but for the date of conversion) to such share of Common Stock in which event the previous two sentences would not apply. 32 (5) The reclassification of Common Stock into securities other than Common Stock (other than any reclassification upon a consolidation or merger to which paragraph (F) below applies) shall be deemed to involve (aa) a distribution of such securities other than Common Stock to all holders of Common Stock (and the effective date of such reclassification shall be deemed to be "the date fixed for the determination of shareholders entitled to receive such distribution" and the "date fixed for such determination" within the meaning of subparagraph (4) above), and (bb) a subdivision or combination, as the case may be, of the number of shares of Common Stock outstanding immediately prior to such reclassification into the number of shares of Common Stock outstanding immediately thereafter (and the effective date of such reclassification shall be deemed to be "the day upon which such subdivision becomes effective" or "the day upon which such combination becomes effective", as the case may be, and "the day upon which such subdivision or combination becomes effective" within the meaning of subparagraph (3) above). (6) For the purpose of any computation under subparagraphs (2) and (4) above, the current market price per share of Common Stock on any date shall be deemed to be the average of the daily closing prices for the five consecutive trading days selected by the Board of Directors commencing no more than 20 trading days before and ending no later than the day before the day in question. The closing price for each day shall be the reported last sale price, regular way, or, in case no such reported sale takes place on such day, the average of the reported closing bid and asked prices, regular way, in either case as reported on the New York Stock Exchange Composite Tape or, if the Common Stock is not listed or admitted to trading on the New York Stock Exchange at such time, on the principal national securities exchange on which the Common Stock is listed or admitted to trading, or, if not listed or admitted to trading on any national securities exchange, on the National Market System of the National Association of Securities Dealers, Inc. Automated Quotations System ("NASDAQ") or, if the Common Stock is not quoted on the NASDAQ National Market System, the average of the closing bid and asked prices on such day in the over-the-counter market as reported by NASDAQ or, if bid and asked prices for the Common Stock on each such day shall not have been reported through NASDAQ, the average of the bid and asked prices for such date as furnished by any New York Stock Exchange member firm regularly making a market in the Common Stock selected from time to time by the Board of Directors of the Corporation for such purpose or, if no such quotations are available, the fair market value of the Common Stock as determined by a New York Stock Exchange member firm regularly making a market in the Common Stock selected from time to time by the Board of Directors of the Corporation for such purpose. 33 (7) No adjustment in the Conversion Price shall be required unless such adjustment would require an increase or decrease of at least 1% of such price; provided, however, that any adjustments which by reason of this subparagraph (7) are not required to be made shall be carried forward and taken into account in any subsequent adjustment, provided, further, that at the Original Issue Date an adjustment in the amount equal to the quotient of (aa) any adjustment permitted pursuant to Section 6(G)(vii) of the Certificate of Amendment of the Certificate of Incorporation of NCB relating to the Series B Preferred Stock, but not made at or prior to the cancellation of the Series B Preferred Stock and (bb) .96 (provided that in no event shall any such adjustment be greater than $0.27 per share), shall be carried forward and taken into account, together with any adjustments required by subparagraph (1), (2), (3) or (4) above, in any subsequent adjustment pursuant to this paragraph (E), and provided further, that adjustment shall be required and made in accordance with the provisions hereof not later than such time as may be required in order to preserve the tax-free nature of distribution to the holders of shares of Preferred Stock or Common Stock. All calculations shall be made to the nearest cent or to the nearest 1/100th of a share, as the case may be. The Corporation may make such reductions in the Conversion Price, in addition to those required by subparagraphs (1), (2), (3), and (4) above, as it considers to be advisable in order to avoid or diminish any income tax to any holders of shares of Common Stock resulting from any dividend or distribution of stock or issuance of rights or warrants to purchase or subscribe for stock or from any event treated as such for income tax purposes or for any other reasons. (8) Whenever the Conversion Price is adjusted as herein provided, (aa) the Corporation shall promptly file with any Conversion Agent a certificate of a firm of independent public accountants setting forth the Conversion Price after such adjustment and setting forth a brief statement of the facts requiring such adjustment, and the manner of computing the same, which certificate shall be conclusive evidence of the correctness of such adjustment, and (bb) a notice stating that the Conversion Price has been adjusted and setting forth the adjusted Conversion Price shall forthwith be given by the Corporation to any Conversion Agent and mailed by the Corporation to each holder of shares of Preferred Stock at their last address as the same appears on the books of the Corporation. (F) In case of any consolidation of the Corporation with, or merger of the Corporation into, any other entity (other than a merger or consolidation in which the Corporation is the continuing Corporation) or any sale or conveyance to another corporation of the property of the Corporation as an entirety or substantially as an entirety, or in the case of a statutory exchange of securities with another Corporation, the Conversion Price shall not be adjusted but each holder of a share of Preferred Stock then outstanding shall have the right thereafter to convert such share only into the kind and amount of securities, cash and other property which such holder would have owned or have been entitled to receive immediately after such consolidation, 34 merger, sale, conveyance or exchange had such share of Preferred Stock been converted immediately prior to such consolidation, merger, sale, conveyance or exchange. Provision shall be made in any such consolidation, merger, sale, conveyance or exchange for adjustments in the Conversion Price which shall be as nearly equivalent as may be practicable to the adjustments provided for in Section (vi)(E). The above provisions shall similarly apply to successive consolidations, mergers, sales, conveyances or exchanges. For purposes of this Section (vi), "Common Stock" includes any stock of any class of the Corporation which has no preference in respect of dividends or of amounts payable in the event of any voluntary or involuntary liquidation, dissolution or winding up of the Corporation and which is not subject to redemption by the Corporation. However, subject to the provisions of paragraph (F) above, shares issuable on conversion of shares of Preferred Stock shall include only shares of the class designated as Common Stock of the Corporation on the Original Issue Date, or shares of any class or classes resulting from any reclassification or reclassifications thereof and which have no preference in respect of dividends or of amounts payable in the event of any voluntary or involuntary liquidation, dissolution or winding up of the Corporation and which are not subject to redemption by the Corporation. In case: (1) the Corporation shall declare a dividend (or any other distribution) on its Common Stock that would cause an adjustment to the Conversion Price of the Preferred Stock pursuant to the terms of subparagraph (1) or subparagraph (4) of paragraph (E) above (including such an adjustment that would occur but for the terms of the first sentence of subparagraph (7) of paragraph (E) above); or (2) the Corporation shall authorize the granting to the holders of its Common Stock of rights or warrants to subscribe for or purchase any shares of capital stock of any class or of any other rights; or (3) of any reclassification of the Common Stock of the Corporation (other than a subdivision or combination of its outstanding shares of Common Stock), or of any consolidation, merger or share exchange to which the Corporation is a party and for which approval of any shareholders of the Corporation is required, or of the sale or conveyance of the property of the Corporation as an entirety or substantially as an entirety; or (4) of the voluntary or involuntary dissolution, liquidation or winding up of the Corporation; 35 then the Corporation shall cause to be filed with any Conversion Agent, and shall cause to be mailed to all holders of shares of Preferred Stock at each such holder's last address as the same appears on the books of the Corporation, at least 20 days (or 10 days in any case specified in clause (1) or (2) above) prior to the applicable record or effective date hereinafter specified, a notice stating (aa) the date on which a record is to be taken for the purpose of such dividend, distribution, rights or warrants, or, if a record is not to be taken, the date as of which the holders of Common Stock of record to be entitled to such dividend, distribution, rights or warrants are to be determined, or (bb) the date on which such reclassification, consolidation, merger, share exchange, sale, conveyance, dissolution, liquidation or winding up is expected to become effective, and the date as of which it is expected that holders of Common Stock of record shall be entitled to exchange their shares of Common Stock for securities, cash or other property deliverable upon such reclassification, consolidation, merger, share exchange, sale, conveyance, dissolution, liquidation or winding up. Neither the failure to give such notice nor any defect therein shall affect the legality or validity of the proceedings described in clauses (1) through (4) above. The Corporation will pay any and all documentary stamp or similar issue or transfer taxes payable in respect of the issue or delivery of shares of Common Stock on conversions of shares of Preferred Stock pursuant hereto; provided, however, that the Corporation shall not be required to pay any tax which may be payable in respect of any transfer involved in the issue or delivery of shares of Common Stock in a name other than that of the holder of the shares of Preferred Stock to be converted and no such issue or delivery shall be made unless and until the person requesting such issue or delivery has paid to the Corporation the amount of any such tax or has established, to the satisfaction of the Corporation, that such tax has been paid. The Corporation covenants that all shares of Common Stock which may be delivered upon conversions of shares of Preferred Stock will upon delivery be duly and validly issued and fully paid and non-assessable, free of all liens and charges and not subject to any preemptive rights. The Corporation further covenants that, if necessary, it shall reduce the par value of the Common Stock so that all shares of Common Stock delivered upon conversion of shares of Preferred Stock are fully paid and non-assessable. The Corporation covenants that it will at all times reserve and keep available, free from preemptive rights, out of its authorized but unissued shares of Common Stock or its issued shares of Common Stock held in its treasury, or both, for the purpose of effecting conversions of shares of Preferred Stock, the full number of shares of Common Stock deliverable upon the conversion of all outstanding shares of Preferred Stock not theretofore converted. For purposes of this reservation of Common Stock, the number of 36 shares of Common Stock which shall be deliverable upon the conversion of all outstanding shares of Preferred Stock shall be computed as if at the time of computation all outstanding shares of Preferred Stock were held by a single holder. The issuance of shares of Common Stock upon conversion of shares of Preferred Stock is authorized in all respects. Each share of Common Stock issued upon conversion of shares of Preferred Stock shall be entitled to receive the appropriate number of Rights, if any, and the certificates representing the Common Stock issued upon such conversion shall bear such legends, if any, in each case as provided by the terms of the Rights Agreement as in effect at the time of such conversion. Notwithstanding anything else to the contrary in this Section (vi), except as expressly provided in paragraph (E)(4) hereof there shall not be any adjustment to the conversion privilege or Conversion Price as a result of (1) the distribution of separate certificates representing the Rights, (2) the occurrence of certain events entitling holders of Rights to receive, upon exercise thereof, Common Stock of the Company or capital stock of another corporation, or (3) the exercise of such Rights in accordance with the Rights Agreement. As used herein, "Rights" means the Preferred Stock purchase rights of the Corporation, the terms of which are set forth in the Rights Agreement or any similar rights issued pursuant to a similar agreement. (vii) Liquidation. In the event of any voluntary or involuntary dissolution, liquidation or winding up of the Corporation (for the purposes of this Section (vii), a "Liquidation"), before any distribution of assets shall be made to the holders of the Common Stock or the holders of any other stock that ranks junior to the Preferred Stock in respect of distributions upon the Liquidation of the Corporation, the holder of each share of Preferred Stock then outstanding shall be entitled to be paid out of the assets of the Corporation available for distribution to its shareholders, an amount equal to $25.00 per share plus all dividends (whether or not declared or due) accrued and unpaid on such share on the date fixed for the distribution of assets of the Corporation to the holders of Preferred Stock. If upon any Liquidation of the Corporation, the assets available for distribution to the holders of Preferred Stock and any other stock of the Corporation ranking on a parity with the Preferred Stock upon Liquidation issued by the Corporation which shall then be outstanding (hereinafter in this paragraph called the "Total Amount Available") shall be insufficient to pay the holders of all outstanding shares of Preferred Stock and all other such parity stock the full amounts (including all dividends accrued and unpaid) to which they shall be entitled by reason of such Liquidation of the Corporation, then there shall be paid to the holders of the Preferred Stock in connection with such Liquidation of the Corporation, an amount equal to the product derived by multiplying the Total Amount Available times a fraction, the 37 numerator of which shall be the full amount to which the holders of the Preferred Stock shall be entitled under the terms of the preceding paragraph by reason of such Liquidation of the Corporation and the denominator of which shall be the total amount which would have been distributed by reason of such Liquidation of the Corporation with respect to the Preferred Stock upon Liquidation then outstanding had the Corporation possessed sufficient assets to pay the maximum amount which the holders of all such stock would be entitled to receive in connection with such Liquidation of the Corporation. The voluntary sale, conveyance, lease, exchange or transfer of the property of the Corporation as an entirety or substantially as an entirety, or the merger or consolidation of the Corporation into or with any other corporation, or the merger of any other corporation into the Corporation, or any purchase or redemption of some or all of the shares of any class or series of stock of the Corporation, shall not be deemed to be a Liquidation of the Corporation for the purposes of this Section (vii) (unless in connection therewith the Liquidation of the Corporation is specifically approved). The holder of any shares of Preferred Stock shall not be entitled to receive any payment owed for such shares under this Section (vii) until such holder shall cause to be delivered to the Corporation (A) the certificate or certificates representing such shares of Preferred Stock and (B) transfer instrument or instruments satisfactory to the Corporation and sufficient to transfer such shares of Preferred Stock to the Corporation free of any adverse interest. As in the case of the redemption price, no interest shall accrue on any payment upon Liquidation after the due date thereof. After payment of the full amount of the liquidating distribution to which they are entitled, the holders of shares of the Preferred Stock will not be entitled to any further participation in any distribution of assets by the Corporation. (viii) Payments. The Corporation may provide funds for any payment of the redemption price for any shares of Preferred Stock or any amount distributable with respect to any Preferred Stock under Section (vii) hereof by depositing such funds with a bank or trust company selected by the Corporation having a net worth of at least $50,000,000 and organized under the laws of the United States or any state thereof, in trust for the benefit of the holder of such shares of Preferred Stock under arrangements providing irrevocably for payment upon satisfaction of any conditions to such payment by the holder of such shares of Preferred Stock which shall reasonably be required by the Corporation. The Corporation shall be entitled to make any deposit of funds contemplated by this Section (viii) under arrangements designated to permit such funds to generate interest or other income for the Corporation, and the Corporation shall be entitled to receive all interest and 38 other income earned by any funds while they shall be deposited as contemplated by this Section (viii), provided that the Corporation shall maintain on deposit funds sufficient to satisfy all payments which the deposit arrangement shall have been established to satisfy. If the conditions precedent to the disbursement of any funds deposited by the Corporation pursuant to this Section (viii) shall not have been satisfied within two years after the establishment of the trust for such funds, then (1) such funds shall be returned to the Corporation upon its request; (2) after such return, such funds shall be free of any trust which shall have been impressed upon them; (3) the person entitled to the payment for which such funds shall have been originally intended shall have the right to look only to the Corporation for such payment, subject to applicable escheat laws; and (4) the trustee which shall have held such funds shall be relieved of any responsibility for such funds upon the return of such funds to the Corporation. Any payment which may be owed for the payment of the redemption price for any shares of the Preferred Stock pursuant to Section (v) or the payment of any amount distributable with respect to the shares of the Preferred Stock under Section (vii) shall be deemed to have been "paid or properly provided for" upon the earlier to occur of: (1) the date upon which funds sufficient to make such payment shall be deposited in a manner contemplated by the preceding paragraph or (2) the date upon which a check payable to the person entitled to receive such payment shall be delivered to such person or mailed to such person at the address of such person then appearing on the books of the Corporation. (ix) Status of Reacquired Shares. Shares of Preferred Stock issued and reacquired by the Corporation (including, without limitation, shares of Preferred Stock which have been redeemed pursuant to the terms of Section (v) hereof and shares of Preferred Stock which have been converted into shares of Common Stock) have the status of authorized and unissued shares of Class A Preferred Stock, par value $2.00 per share, undesignated as to series, subject to later issuance. (x) Preemptive Rights. Holders of shares of Preferred Stock are not entitled to any preemptive or subscription rights in respect of any securities of the Corporation. (xi) Legal Holidays. In any case where any Dividend Payment Date, redemption date or the last date on which a holder of Preferred Stock has the right to convert such holder's shares of Preferred Stock shall not be a Business Day (as defined below), then (notwithstanding any other provision of this Certificate of Amendment or of the Preferred Stock) payment of a dividend due or a redemption price or conversion of the shares of Preferred Stock need not be made on such date, but may be made on the next succeeding Business Day with the same force and effect as if made on the Dividend Payment Date or redemption date or the last day for conversion, provided that, for purposes of 39 computing such payment, no interest shall accrue for the period from and after such Dividend Payment Date or redemption date, as the case may be. As used in this Section (xi), "Business Day" means each Monday, Tuesday, Wednesday, Thursday and Friday which is not a day on which banking institutions in the State of New York are authorized or obligated by law or executive order to close. FIFTH: The Secretary of State of the State of New York is hereby designated as agent of the Corporation upon whom process against it may be served. The post office address to which the Secretary of State shall mail a copy of any process against the Corporation served upon him is One Wall Street, New York, New York 10286, Attn: Legal Department, Head of Litigation. SIXTH: No holder of shares of the Corporation of any class, now or hereafter authorized, shall have any preferential or preemptive right to subscribe for, purchase or receive any shares of the Corporation of any class, now or hereafter authorized, or any options or warrants for such shares, or any rights to subscribe to or purchase such shares, or any securities convertible into or exchangeable for such shares, which may at any time be issued, sold or offered for sale by the Corporation. 4. The foregoing restated certificate of incorporation was authorized by the Board of Directors of the Corporation at a meeting duly called and held on June 13, 2000 without a vote of shareholders. IN WITNESS WHEREOF, the undersigned have signed this restated certificate of incorporation on June 13, 2000 and affirm the statements contained herein as true under the penalties of perjury. THE BANK OF NEW YORK COMPANY, INC. By /s/ Thomas A. Renyi ------------------------------ Thomas A. Renyi Chairman of the Board By /s/ Patricia A. Bicket ------------------------------ Patricia A. Bicket Assistant Secretary EX-12 3 0003.txt EXHIBIT 12 EXHIBIT 12 THE BANK OF NEW YORK COMPANY, INC. Ratios of Earnings to Fixed Charges and Ratios of Earnings to Combined Fixed Charges, and Distributions on Preferred Trust Securities (Dollars in millions)
Three Months Ended Six Months Ended June 30, June 30, 2000 1999 2000 1999 ---- ---- ---- ---- EARNINGS - -------- Income Before Income Taxes $ 590 $ 539 $1,152 $1,067 Fixed Charges, Excluding Interest on Deposits 132 107 256 228 ------ ------ ------ ------ Income Before Income Taxes and Fixed Charges Excluding Interest on Deposits 722 646 1,408 1,295 Interest on Deposits 521 324 992 641 ------ ------ ------ ------ Income Before Income Taxes and Fixed Charges, Including Interest on Deposits $1,243 $ 970 $2,400 $1,936 ====== ====== ====== ====== FIXED CHARGES - ------------- Interest Expense, Excluding Interest on Deposits $ 123 $ 99 $ 237 $ 212 One-Third Net Rental Expense* 9 8 19 16 ------ ------ ------ ------ Total Fixed Charges, Excluding Interest on Deposits 132 107 256 228 Interest on Deposits 521 324 992 641 ------ ------ ------ ------ Total Fixed Charges, Including Interest on Deposits $ 653 $ 431 $1,248 $ 869 ====== ====== ====== ====== DISTRIBUTION ON PREFERRED TRUST SECURITIES, PRE-TAX BASIS $ 28 $ 28 $ 57 $ 56 - ------------------------------- ====== ====== ====== ====== EARNINGS TO FIXED CHARGES RATIOS - -------------------------------- Excluding Interest on Deposits 5.47x 6.04x 5.50x 5.68x Including Interest on Deposits 1.90 2.25 1.92 2.23 EARNINGS TO COMBINED FIXED CHARGES, DISTRIBUTION ON PREFERRED TRUST SECURITIES, & PREFERRED STOCK DIVIDENDS RATIOS - ------------------------------------------- Excluding Interest on Deposits 4.51 4.79 4.50 4.56 Including Interest on Deposits 1.83 2.11 1.84 2.09 *The proportion deemed representative of the interest factor.
EX-27 4 0004.txt FINANCIAL DATA SCHEDULE
9 This schedule contains summary financial information extracted from the Bank of New York Company, Inc.'s Form 10-Q for the period ended June 30, 2000 and is qualified entirely by reference to such Form 10-Q. 0000009626 THE BANK OF NEW YORK COMPANY, INC. 1,000,000 6-MOS DEC-31-2000 JAN-01-2000 JUN-30-2000 4,167 4,729 4,554 11,168 5,767 921 897 38,118 610 76,661 55,337 6,081 4,211 2,829 0 1 7,366 (1,860) 76,661 1,451 188 501 2,140 992 1,229 911 45 85 1,231 1,152 694 0 0 694 0.95 0.93 2.90 155 15 0 0 595 (42) 12 610 486 70 54
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