-----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, H8gkaOmP6t6YVehJwFVWFn6kOZps6pdSLu1gYHOGZjleRLVt2MW1/ia8P0gNeA56 hxG/st0p2fIO+cR2BkBRZg== 0000009626-04-000006.txt : 20040121 0000009626-04-000006.hdr.sgml : 20040121 20040121095412 ACCESSION NUMBER: 0000009626-04-000006 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20031231 ITEM INFORMATION: ITEM INFORMATION: Other events ITEM INFORMATION: Financial statements and exhibits FILED AS OF DATE: 20040121 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BANK OF NEW YORK CO INC CENTRAL INDEX KEY: 0000009626 STANDARD INDUSTRIAL CLASSIFICATION: STATE COMMERCIAL BANKS [6022] IRS NUMBER: 132614959 STATE OF INCORPORATION: NY FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-06152 FILM NUMBER: 04533943 BUSINESS ADDRESS: STREET 1: ONE WALL ST 10TH FL CITY: NEW YORK STATE: NY ZIP: 10286 BUSINESS PHONE: 212-495-1784 MAIL ADDRESS: STREET 1: ONE WALL STREET 31ST FLOOR CITY: NEW YORK STATE: NY ZIP: 10286 8-K 1 r4q038k.txt 8-K 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 8 - K CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Date of Report (Date of earliest event reported): January 21, 2004 THE BANK OF NEW YORK COMPANY, INC. ---------------------------------- (exact name of registrant as specified in its charter) NEW YORK -------- (State or other jurisdiction of incorporation) 001-06152 13-2614959 --------- ---------- (Commission file number) (I.R.S. employer identification number) One Wall Street, New York, NY 10286 ----------------------------- ----- (Address of principal executive offices) (Zip code) 212-495-1784 ------------ (Registrant's telephone number, including area code) 2 ITEM 5. Other Events ------------ Fourth Quarter of 2003 Financial Results ---------------------------------------- On January 21, 2004, The Bank of New York Company, Inc. issued a press release containing unaudited interim financial information and accompanying discussion for the fourth quarter of 2003. Exhibit 99 is a copy of such press release and is incorporated herein by reference. ITEM 7. Financial Statements, Pro Forma Financial Information and Exhibits ------------------------------------------------------------------ (c) Exhibit Description ------- ----------- 99 Unaudited interim financial information and accompanying discussion for the fourth quarter of 2003 contained in the press release dated January 21, 2004, of The Bank of New York Company, Inc. ITEM 12. Results of Operations and Financial Condition --------------------------------------------- Press release filed under Item 5 3 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. Dated: January 21, 2004 THE BANK OF NEW YORK COMPANY, INC. (Registrant) By: /s/ Thomas J. Mastro ------------------------- Name: Thomas J. Mastro Title: Comptroller 4 EXHIBIT INDEX ------------- Exhibit No. Description - ----------- ----------- 99 Unaudited interim financial information and accompanying discussion for the fourth quarter of 2003 contained in the press release dated January 21, 2004, of The Bank of New York Company, Inc. EX-99 3 r4q03ex99.txt EX-99 1 IMMEDIATELY - ----------- Media: Investors: - ----- ---------- R. Jeep Bryant, MD John M. Roy, MD (212) 635-1569 (212) 635-8005 Gregg A. Scheuing, VP (212) 635-1578 THE BANK OF NEW YORK COMPANY, INC. EARNINGS GROWTH LED BY STRENGTH IN SECURITIES SERVICING AND FIDUCIARY FEES NEW YORK, N.Y., January 21, 2004 -- The Bank of New York Company, Inc. (NYSE: BK) reports fourth quarter diluted earnings per share of 40 cents and operating earnings of 44 cents per share, compared with operating earnings of 42 cents per share in the third quarter. Fourth quarter 2003 reported results include merger and integration costs associated with the acquisition of Pershing of 4 cents per share. Net income for the fourth quarter was $307 million, compared with $100 million or 14 cents per share in the fourth quarter of 2002, when results included significant charge-offs primarily related to the Company's airline exposure. For the full year, net income in 2003 was $1,157 million, or $1.52 per share, compared to $902 million, or $1.24 per share in 2002. The Company's operating income for 2003 was $1.67 per share, as it recorded non- operating charges of 8 cents per share for Pershing related merger and 2 integration costs and 7 cents per share for settlement costs with GMAC related to the Company's sale of its factoring business in 1999. The fourth quarter results showed continued growth in the Company's servicing and fiduciary businesses. Securities servicing fees reached a record $684 million in the fourth quarter, an increase of $27 million, or 4%, over the third quarter. Securities servicing fee growth was led by global custody, fund servicing, depositary receipts, and Pershing. Private client services and asset management grew by $6 million, or 6%, over the third quarter, due to higher equity price levels and continued strength in Ivy Asset Management, a fund of funds hedge fund manager. Partially offsetting these increases, foreign exchange and other trading were down by $11 million, or 12%, versus the third quarter, global payments services was down $4 million, or 5%, versus the third quarter, and compensation and volume-related expenses were higher. Nonperforming assets continued to decline, dropping 10% in the fourth quarter, reflecting continuing improvement in asset quality and the Company lowered its provision for credit losses from $40 million in the third quarter to $35 million. Chairman and Chief Executive Officer Thomas A. Renyi stated, "I am pleased that we recorded our third consecutive quarter of improved operating earnings in spite of a mixed market environment. Our strategic accomplishments in 2003 included gaining market share in our key businesses, significantly enhancing our credit risk profile, and successfully integrating Pershing. "While our business model demonstrated strength and resiliency in 2003, our positive outlook for the coming year is tempered by a number of challenges. The improvement in the capital markets has been uneven, with growth in equity trading volumes and corporate actions rebounding more slowly than asset price levels. The ongoing investigation of mutual fund companies and continued debates over market structure have also created an atmosphere of uncertainty that will take time to resolve. At the same time, the economic and competitive environment has resulted in a lack of pricing power, in the face of continued pressures on expenses. 3 "Notwithstanding these conditions, we will continue to make strategic investments to strengthen our competitive position and enhance client service, while remaining focused on continued expense discipline and major initiatives to improve productivity." SUPPLEMENTAL FINANCIAL INFORMATION For the quarter and year ended December 31, 2003, the Company has prepared information in four categories: - Reported results which are in accordance with Generally Accepted Accounting Principles (GAAP). - Core operating results which exclude the Pershing acquisition. - Pershing results which reflect the revenues and expenses since the May 1 acquisition of Pershing but exclude the merger and integration costs. - Other non-operating expenses including merger and integration costs related to the Pershing acquisition and the settlement with GMAC. The Company believes that providing supplemental non-GAAP financial information is useful to investors in understanding the underlying operational performance of the Company, its businesses and performance trends and, therefore, facilitates comparisons with the performance of other financial service companies. Specifically, the Company believes that the exclusion of the merger and integration costs, and the settlement with GMAC, permits evaluation and a comparison of results for ongoing business operations, and it is on this basis that the Company's management internally assesses performance. The following is a reconciliation of the Company's financial results for the three months and year ended December 31, 2003: 4 THE BANK OF NEW YORK COMPANY, INC. Supplemental Information (In millions, except per share amounts) (Unaudited)
Income Statement Quarter ended December 31 SUPPLEMENTAL GAAP ----------------------------------- ----------------------- Operating 2003 2002 ------------ Reported Reported Core Pershing (a) Other(b) Results Results ---- ----------- ----------- -------- -------- Net Interest Income $ 396 $ 22 $ - $ 418 $ 413 - ------------------- Provision for Credit Losses 35 - - 35 390 ----- ----- ----- ------ ----- Net Interest Income After Provision for Credit Losses 361 22 - 383 23 ----- ----- ----- ------ ----- Noninterest Income - ------------------ Servicing Fees Securities 511 173 - 684 484 Global Payment Services 76 - - 76 76 ----- ----- ----- ------ ----- 587 173 - 760 560 Private Client Services and Asset Management Fees 103 - - 103 88 Service Charges and Fees 96 1 - 97 92 Foreign Exchange and Other Trading Activities 68 13 - 81 51 Securities Gains 9 - - 9 13 Other 47 5 - 52 29 ----- ----- ----- ------ ----- Total Noninterest Income 910 192 - 1,102 833 ----- ----- ----- ------ ----- Noninterest Expense - ------------------- Salaries and Employee Benefits 460 88 - 548 379 Net Occupancy 56 14 - 70 56 Furniture and Equipment 35 14 - 49 37 Clearing 28 15 - 43 33 Sub-custodian Expenses 21 - - 21 22 Software 36 10 - 46 31 Communications 18 5 - 23 20 Amortization of Intangibles 3 4 - 7 3 Merger and Integration Costs - - 48 48 - Other 130 31 - 161 119 ----- ----- ----- ------ ----- Total Noninterest Expense 787 181 48 1,016 700 ----- ----- ----- ------ ----- Income Before Income Taxes 484 33 (48) 469 156 Income Taxes 164 15 (17) 162 56 ----- ----- ----- ------ ----- Net Income $ 320 $ 18 $ (31) $ 307 $ 100 - ---------- ===== ===== ===== ====== ===== Diluted Earnings Per Share $0.44 $0.00 $(0.04) $0.40 $0.14 Notes: Reported results agree with the Company's Consolidated Statement of Income (a) Includes $8 million of net interest costs attributable to the Pershing acquisition financing. (b) Consists of merger and integration costs related to the Pershing acquisition.
5 THE BANK OF NEW YORK COMPANY, INC. Supplemental Information (In millions, except per share amounts) (Unaudited)
Income Statement Year ended December 31 SUPPLEMENTAL GAAP ----------------------------------- ----------------------- Operating 2003 2002 ------------ Reported Reported Core Pershing (a) Other(c) Results Results ---- ----------- ----------- -------- -------- Net Interest Income $1,556 $ 53 $ - $1,609 $1,665 - ------------------- Provision for Credit Losses 155 - - 155 685 ------ ----- ----- ------ ------ Net Interest Income After Provision for Credit Losses 1,401 53 - 1,454 980 ------ ----- ----- ------ ------ Noninterest Income - ------------------ Servicing Fees Securities 1,968 444 - 2,412 1,896 Global Payment Services 314 - - 314 296 ------ ----- ----- ------ ------ 2,282 444 - 2,726 2,192 Private Client Services and Asset Management Fees 384 - - 384 344 Service Charges and Fees 373 2 - 375 357 Foreign Exchange and Other Trading Activities 292 35 - 327 234 Securities Gains 35 - - 35 (118) Other 147 12 - 159 134 ------ ----- ----- ------ ------ Total Noninterest Income 3,513 493 - 4,006 3,143 ------ ----- ----- ------ ------ Noninterest Expense - ------------------- Salaries and Employee Benefits 1,765 237 - 2,002 1,581 Net Occupancy 228 33 - 261 230 Furniture and Equipment 144 41 - 185 138 Clearing 116 38 - 154 124 Sub-custodian Expenses 74 - - 74 70 Software 144 26 - 170 115 Communications 81 11 - 92 65 Amortization of Intangibles 13 12 - 25 8 Merger and Integration Costs - - 96 96 - Other 491 70 78 639 420 ------ ----- ----- ------ ------ Total Noninterest Expense 3,056 468 174 3,698 2,751 ------ ----- ----- ------ ------ Income Before Income Taxes 1,858 78 (174) 1,762 1,372 Income Taxes 637 33 (65) 605 470 ------ ----- ----- ------ ------ Net Income $1,221 $ 45 $(109) $1,157 $ 902 - ---------- ====== ===== ===== ====== ====== Diluted Earnings Per Share $1.69 $(0.02) (b) $(0.15) $1.52 $1.24 Notes: Reported results agree with the Company's Consolidated Statement of Income (a) Includes $22 million of net interest costs attributable to the Pershing acquisition financing. (b) The $0.02 dilution is due to changes in shares outstanding attributable to the acquisition. (c) Consists of merger and integration costs related to the Pershing acquisition and the settlement with GMAC of $78 million, net of reserves.
6 The following is a supplemental balance sheet showing the impact of the Pershing acquisition. THE BANK OF NEW YORK COMPANY, INC. Supplemental Information (In millions) (Unaudited)
Balance Sheet December 31, 2003 GAAP SUPPLEMENTAL REPORTED ----------------------------------------- ------------------------ Core Pershing Elimination December 31, December 31, Entries December 31, December 31, 2003 2003 2003 2002 ----------- ----------- ----------- ----------- --------- Assets - ------ Cash and Due from Banks $ 3,754 $ 89 $ - $ 3,843 $ 4,748 Interest-Bearing Deposits in Banks 6,781 1,505 - 8,286 5,104 Securities 22,864 39 - 22,903 18,300 Trading Assets at Fair Value 5,239 167 - 5,406 7,309 Federal Funds Sold and Securities Purchased Under Resale Agreements 1,167 3,662 - 4,829 1,385 Margin Loans - 5,712 - 5,712 352 Loans (less allowance for loan losses of $668 in 2003 and $656 in 2002) 26,870 2,033 - 28,903 30,331 Premises and Equipment 956 123 - 1,079 975 Due from Customers on Acceptances 170 - - 170 351 Accrued Interest Receivable 204 10 - 214 204 Investment in/Advances to Pershing 3,744 - (3,744) Goodwill & Intangible Assets 2,737 1,355 - 4,092 2,575 Other Assets 5,356 1,509 - 6,865 6,105 ------- ------- ------- ------- ------- Total Assets $79,842 $16,204 $(3,744) $92,302 $77,739 ======= ======= ======= ======= ======= Liabilities and Shareholders' Equity - ------------------------------------ Deposits $56,385 $ - $ - $56,385 $55,387 Federal Funds Purchased and Securities Sold Under Repurchase Agreements 667 372 - 1,039 636 Trading Liabilities 2,462 56 - 2,518 2,800 Payables to Customers and Broker-Dealers 229 9,963 - 10,192 870 Other Borrowed Funds 392 2,185 (1,741) 836 475 Acceptances Outstanding 172 - - 172 352 Accrued Taxes and Other Expenses 4,014 167 - 4,181 4,066 Accrued Interest Payable 79 3 - 82 101 Other Liabilities (including allowance for lending-related commitments of $136 in 2003 and $175 in 2002) 913 1,455 - 2,368 928 Long-Term Debt 6,121 - - 6,121 5,440 ------- ------ ------ ------- ------- Total Liabilities 71,434 14,201 (1,741) 83,894 71,055 ------- ------ ------ ------- ------- Shareholders' Equity 8,408 2,003 (2,003) 8,408 6,684 ------- ------- ------- ------- ------- Total Liabilities and Shareholders' Equity $79,842 $16,204 $(3,744) $92,302 $77,739 ======= ======= ======= ======= ======= - -------------------------------------------------------------------------------------------------- Note: The balance sheet at December 31, 2002 has been derived from the audited financial statements at that date.
Although the Company believes that the non-GAAP financial measures presented in this release enhance investors' understanding of the Company's business and performance, these non-GAAP measures should not be considered an alternative to GAAP. 7 SECURITIES SERVICING FEES Securities servicing fees were a record $684 million in the fourth quarter, an increase of $27 million or 4% over the third quarter, primarily because of improved performance at Pershing and growth in issuer services. Compared with the fourth quarter of 2002, securities servicing fees were up $200 million, or 41%, primarily resulting from the acquisition of Pershing and core growth in all areas. For the year 2003, securities servicing fees were $2,412 million, an increase of $516 million from $1,896 million in 2002, principally due to Pershing and growth in investor and broker-dealer services. Pershing's securities servicing fees included in the quarter and year ended December 31, 2003 were $173 million and $444 million, respectively. Investor services fees were up slightly on a sequential quarter basis and modestly higher on a year-over-year basis. Strength in global custody, which benefited from higher equity price levels, favorable exchange rates, and new business wins, offset a decrease in securities lending fees in the fourth quarter. As of December 31, 2003, assets under custody rose to $8.3 trillion, from $7.9 trillion at September 30, 2003 and $6.8 trillion at December 31, 2002. While broker-dealer services fees were also slightly higher on a sequential quarter basis, strong performance in global clearance and collateral management services led to improved results over the fourth quarter a year ago. These businesses continue to benefit from new business wins and higher fixed income transaction volumes. Mutual fund servicing also increased compared to the fourth quarter of 2002 due to higher equity price levels. Global issuer services fees were up strongly on both a sequential quarter basis and from a year ago reflecting improved activity levels in depositary receipts (DRs) and strong corporate and municipal issuance in corporate trust in the fourth quarter. Execution and clearing services fees increased both sequentially and in comparison with last year's fourth quarter due to Pershing. Execution services increased over the third quarter due to increased transition services fees, international equity execution and seasonal portfolio rebalancings, but 8 was down compared with last year's fourth quarter. Average daily combined fourth quarter NYSE and NASDAQ trading volume was unchanged from the third quarter of 2003 and up 1% from the fourth quarter of 2002. In clearing services, Pershing improved on a sequential quarter basis as retail investor activity rose modestly in the fourth quarter. NONINTEREST INCOME Noninterest income for the fourth quarter of 2003 was $1,102 million, an increase of 4% sequentially and 32% from a year ago. For the year ended December 31, 2003, noninterest income was $4,006 million, an increase of 27% over the year 2002, principally due to the acquisition of Pershing and improved performance in the core businesses. Pershing's contribution to the Company's noninterest income was $192 million for the quarter and $493 million for the year ended December 31, 2003. 4th 3rd 4th Quarter Quarter Quarter Year ------- ------- ------- ------------ (In millions) 2003 2003 2002 2003 2002 ----- ---- ---- ---- ---- Servicing Fees Securities $ 684 $ 657 $484 $2,412 $1,896 Global Payment Services 76 80 76 314 296 ------ ------ ---- ------ ------ 760 737 560 2,726 2,192 Private Client Services and Asset Management Fees 103 97 88 384 344 Service Charges and Fees 97 89 92 375 357 Foreign Exchange and Other Trading Activities 81 92 51 327 234 Securities Gains 9 9 13 35 (118) Other 52 39 29 159 134 ------ ------ ---- ------ ------ Total Noninterest Income $1,102 $1,063 $833 $4,006 $3,143 ====== ====== ==== ====== ====== Global payment services fees were down compared with the prior quarter and flat compared to the fourth quarter of 2002. Year-over-year growth is attributable to improved multi-currency funds transfer product capabilities and new business wins. Private client services and asset management fees for the fourth quarter were up 6% from the prior quarter and 17% from the fourth quarter of 2002. The sequential quarter and year-over-year increases reflect higher equity 9 price levels as well as strong growth at Ivy Asset Management. In addition, the year-over-year comparison also benefited from the full year impact of several 2002 acquisitions. Total assets under management were $89 billion at December 31, 2003, up from $85 billion at September 30, 2003 and $76 billion a year ago. Service charges and fees were up 9% from the third quarter and 5% over the fourth quarter and year 2002 driven by higher loan syndication fees and bond underwriting fees reflecting active fixed income markets. Foreign exchange and other trading revenues were down $11 million compared with the prior quarter and up $30 million, or 59% from one year ago. Continued volatility in the currency markets resulted in strong foreign exchange revenues although they were lower than the record third quarter. Other trading activity was impacted by a decline in fixed income hedging activity. Compared to the fourth quarter of 2002, the significant increase resulted from increased client-driven foreign exchange, interest rate hedging activity, and the Pershing acquisition. For the year 2003, foreign exchange and other trading revenues were up 40% over 2002 reflecting the same factors that drove the year-over-year quarterly comparison. Securities gains in the fourth quarter were $9 million, flat with the prior quarter and down from $13 million a year ago. Securities gains for the year 2003 were $153 million higher than the prior year, reflecting a $210 million equity write-down in the third quarter of 2002. Other noninterest income increased $13 million from the third quarter of 2003 and $23 million from the fourth quarter of 2002. The fourth quarter of 2003 included a $6 million gain on the sale of a lease residual. 10 NET INTEREST INCOME
4th 3rd 4th Quarter Quarter Quarter Year (Dollars in millions) ------- ------- ------- ------------ 2003 2003 2002 2003 2002 ---- ---- ---- ---- ---- Net Interest Income $418 $407 $413 $1,609 $1,665 Tax Equivalent Adjustment 8 9 10 35 49 ---- ---- ---- ------ ------ Net Interest Income on a Tax Equivalent Basis $426 $416 $423 $1,644 $1,714 ==== ==== ==== ====== ====== Net Interest Rate Spread 1.92% 1.87% 2.25% 1.97% 2.30% Net Yield on Interest Earning Assets 2.15 2.10 2.54 2.22 2.62
Net interest income on a taxable equivalent basis was $426 million in the fourth quarter of 2003, compared with $416 million in the third quarter of 2003, and $423 million in the fourth quarter of 2002. The net interest rate spread was 1.92% in the fourth quarter of 2003, compared with 1.87% in the third quarter of 2003, and 2.25% in the fourth quarter of 2002. The net yield on interest earning assets was 2.15% in the fourth quarter of 2003, compared with 2.10% in the third quarter of 2003, and 2.54% in the fourth quarter of 2002. The increase in net interest income from the third quarter of 2003 is primarily due to modest growth in the Company's investment securities portfolio, refinancing of higher cost debt, and higher corporate loan breakage fees. The slight increase in net interest income from the fourth quarter of 2002 reflects the Pershing acquisition and higher average balances of investment securities, which were partially offset by lower reinvestment yields on the investment securities portfolio, planned decreases in loan balances, and the impact of Federal Reserve interest rate reductions in 2003. For the year ended December 31, 2003, net interest income on a taxable equivalent basis amounted to $1,644 million compared with $1,714 million for the year ended December 31, 2002, reflecting the same factors that affected the comparison with last year's quarter. For the year 2003, the net interest spread was 1.97% in 2003 compared with 2.30% in 2002, while the net yield on interest earning assets was 2.22% in 2003 and 2.62% in 2002. In this release a number of amounts related to net interest income are presented on a "taxable equivalent basis". The Company believes that this 11 presentation provides comparability of net interest income arising from both taxable and tax-exempt sources and is consistent with industry standards. NONINTEREST EXPENSE AND INCOME TAXES 4th 3rd 4th Quarter Quarter Quarter Year ------- ------- ------- ------------ (In millions) 2003 2003 2002 2003 2002 ---- ---- ---- ---- ---- Salaries and Employee Benefits $ 460 $ 443 $379 $1,765 $1,581 Net Occupancy 56 57 56 228 230 Furniture and Equipment 35 35 37 144 138 Clearing 28 28 33 116 124 Sub-custodian Expenses 21 18 22 74 70 Software 36 36 31 144 115 Communications 18 21 20 81 65 Amortization of Intangibles 3 4 3 13 8 Other 130 124 119 491 420 ------ ------ ---- ------ ------ Total Core 787 766 700 3,056 2,751 Merger and Integration Costs 48 23 - 96 - Pershing 181 172 - 468 - GMAC Settlement - 78 - 78 - ------ ------ ---- ------ ------ Total Noninterest Expense $1,016 $1,039 $700 $3,698 $2,751 ====== ====== ==== ====== ====== Noninterest expense for the fourth quarter of 2003 was down slightly to $1,016 million, compared with $1,039 million in the prior quarter, when the Company recognized a charge for the GMAC settlement. Core noninterest expense was $787 million, compared to $766 million in the third quarter of 2003. Compared to the third quarter of 2003, salaries and employee benefits were up 4% principally reflecting higher incentive compensation costs. In addition, severance, relocation, and consulting expenses associated with cost reduction initiatives were $5 million in the fourth quarter of 2003. The increase in core noninterest expenses compared to the fourth quarter of 2002 and full year 2002 primarily reflects the impact of acquisitions, the inception of stock option expensing in 2003, a lower pension credit, increased technology investments, and higher business continuity spending. Noninterest expenses related to Pershing were up 5% compared to prior quarter due to higher variable expenses tied to revenues. In addition, the Company recorded merger and integration costs of $48 million, reflecting the remaining nonrecurring costs associated with the acquisition. Included in 12 this amount was an additional $10 million charge for London space restructuring, which was not anticipated in prior guidance. For the year, merger and integration costs totaled $96 million, or 8 cents per share. The effective tax rate for the fourth quarter of 2003 was 34.6%, compared to 33.4% in the third quarter of 2003, and 35.9% in the fourth quarter of 2002. For the year 2003, the effective tax rate was 34.3%, unchanged from a year ago. The increase in the effective tax rate on a sequential quarter basis mainly reflects the tax benefits related to the GMAC settlement in the third quarter. BALANCE SHEET RETURN AND CAPITAL RATIOS Total assets were $92.3 billion at December 31, 2003, compared with $95.2 billion at September 30, 2003, and $77.7 billion at December 31, 2002. The increase versus a year ago mainly reflects the Pershing acquisition. Total shareholders' equity was $8.4 billion at December 31, 2003, compared with $8.2 billion at September 30, 2003, and $6.7 billion at December 31, 2002. The major reasons for the increase in shareholders' equity from a year ago are the issuance of approximately $1 billion of common stock to fund the Pershing acquisition and the retention of earnings. Return on average common equity on a reported basis for the fourth quarter of 2003 was 14.81%, compared with 12.82% in the third quarter of 2003, and 5.99% in the fourth quarter of 2002. On an operating basis, return on average common equity for the fourth quarter of 2003 was 16.33%, compared with 15.85% in the third quarter of 2003. For the year ended December 31, 2003, the reported return on average common equity was 15.12% compared with 13.96% in 2002 and the return on average assets was 1.27% for the year ended December 31, 2003 compared with 1.13% in 2002. On a reported basis, return on average assets for the fourth quarter of 2003 was 1.26%, compared with 1.06% in the third quarter of 2003, and 0.49% in the fourth quarter of 2002. On an operating basis, return on average assets 13 for the fourth quarter of 2003 was 1.39%, compared with 1.31% in the third quarter of 2003. The Company's estimated regulatory Tier 1 capital and Total capital ratios were 7.41% and 11.46% at December 31, 2003, compared with 7.08% and 11.18% at September 30, 2003, and 7.58% and 11.96% at December 31, 2002. The regulatory leverage ratio was 5.80% at December 31, 2003, compared with 5.64% at September 30, 2003, and 6.48% at December 31, 2002. The Company's tangible common equity as a percentage of total assets was 4.89% at December 31, 2003, compared with 4.65% at September 30, 2003, and 5.47% at December 31, 2002. The improvement in the Company's capital ratios versus September 30, 2003 reflects the retention of equity during the quarter and a smaller balance sheet. NONPERFORMING ASSETS Change 12/31/03 vs. (Dollars in millions) 12/31/03 9/30/03 9/30/03 -------- -------- ------------ Loans: Commercial $219 $265 $(46) Foreign 79 79 - Other 51 44 7 ---- ---- ---- Total Nonperforming Loans 349 388 (39) Other Real Estate - - - ---- ---- ---- Total Nonperforming Assets $349 $388 $(39) ==== ==== ==== Nonperforming Assets Ratio 1.2% 1.2% Allowance for loan losses/Nonperforming Loans 191.2 171.3 Allowance for loan losses/Nonperforming Assets 191.2 171.3 Allowance for credit losses/Nonperforming Loans 230.2 210.5 Allowance for credit losses/Nonperforming Assets 230.2 210.5 Nonperforming assets declined by $39 million, or 10%, during the fourth quarter to $349 million, reflecting continued improvement in asset quality. The decrease primarily reflects paydowns and charge-offs of commercial loans. The ratio of the allowance for credit losses to nonperforming assets increased to 230.2% at December 31, 2003, compared with 210.5% at September 30, 2003, and 188.7% at December 31, 2002. 14 CREDIT LOSS PROVISION AND NET CHARGE-OFFS
4th 3rd 4th Quarter Quarter Quarter Year ------- ------- ------- ------------ (In millions) 2003 2003 2002 2003 2002 ---- ---- ---- ---- ---- Provision $ 35 $ 40 $390 $155 $685 ==== ==== ==== ==== ==== Net Charge-offs: Commercial $ (24) $ (25) $(210) $(109) $(388) Foreign (7) (12) (18) (25) (21) Other (5) (4) (7) (20) (41) Consumer (12) (6) (5) (28) (20) ------ ------ ------ ----- ------ Total $ (48) $ (47) $(240) $(182) $(470) ====== ====== ====== ===== ====== Other Real Estate Expenses $ - $ - $ - $ - $ -
The Company's lower provision in the fourth quarter reflects improved credit quality in the loan portfolio. The allowance for credit losses was $804 million at December 31, 2003, $817 million at September 30, 2003, and $831 million at December 31, 2002. The allowance for credit losses as a percent of non-margin loans increased to 2.72% at December 31, 2003, compared with 2.55% at September 30, 2003, and 2.68% at December 31, 2002. December 31 September 30 December 31 (Dollars in millions) 2003 2003 2002 ------- -------- ------- Margin Loans $ 5,712 $ 5,472 $ 352 Non-Margin Loans 29,571 32,068 30,987 Total Loans 35,283 37,540 31,339 Allowance for Loan Losses 668 665 656 Allowance for Lending-Related Commitments 136 152 175 Total Allowance for Credit Losses 804 817 831 Allowance for Credit Losses As a Percent of Total Loans 2.28% 2.18% 2.65% Allowance for Credit Losses As a Percent of Non-Margin Loans 2.72 2.55 2.68 Allowance for Loan Losses As a Percent of Total Loans 1.89 1.77 2.09 Allowance for Loan Losses As a Percent of Non-Margin Loans 2.26 2.07 2.12 15 OTHER DEVELOPMENTS The Company has nearly completed its $9 billion corporate exposure reduction program announced last year. During the fourth quarter, corporate exposures were reduced by approximately $1.8 billion, to $24.5 billion compared with a target of $24 billion by December 31, 2004. Telecom industry exposures were reduced to approximately $875 million at December 31, 2003, down from $1.5 billion at December 31, 2002. During the fourth quarter of 2003, the Company acquired Fifth Third Bank's corporate trust business, which includes approximately 5,000 bond trustee and agency appointments representing $45 billion of principal debt outstanding for nearly 4,000 clients. Also, in the fourth quarter of 2003, the Company announced it had agreed to acquire the corporate trust business of The Bank of Hawaii. This transaction includes 80 bond trust and agency agreements representing approximately $3 billion of principal debt outstanding, and is expected to close in the first quarter of 2004. The Company adopts new accounting policies as they become accepted as a best practice or required by generally accepted accounting principles. Accordingly, at December 31, 2003, the Company split its allowance for credit losses into an allowance for loan losses and an allowance for lending-related commitments such as unfunded loan commitments and standby letters of credit. This resulted in a decrease in the allowance for loan losses of $136 million and a corresponding increase in other liabilities (which includes the allowance for lending-related commitments). Prior period balance sheets have been restated. As required by Financial Accounting Standards Board Interpretation No. 46, ("FIN 46"), "Consolidation of Variable Interest Entities", the Company deconsolidated the trusts that issue its trust preferred securities at December 31, 2003. This resulted in an increase in other assets and long- term debt of $36 million. 16 ADDITIONAL INFORMATION Thomas A. Renyi, chairman and chief executive officer, and Bruce W. Van Saun, senior executive vice president and chief financial officer, will review the quarterly results in a live conference call and audio webcast today at 9:00 am ET. The presentation will be accessible from the Company's website at www.bankofny.com/earnings and also by telephone at (888) 790-0319 within the United States or (610) 769-3531 internationally. A replay of the call will be available through the Company's website and also by telephone at (888) 567-0449 within the United States or (402) 998-1803 internationally. The Bank of New York Company, Inc. (NYSE: BK) is a global leader in securities servicing for issuers, investors and financial intermediaries. The Company plays an integral role in the infrastructure of the capital markets, servicing securities in more than 100 markets worldwide. The Company provides quality solutions through leading technology for global corporations, financial institutions, asset managers, governments, non-profit organizations, and individuals. Its principal subsidiary, The Bank of New York, founded in 1784, is the oldest bank in the United States and has a distinguished history of serving clients around the world through its five primary businesses: Securities Servicing and Global Payment Services, Private Client Services and Asset Management, Corporate Banking, Global Market Services, and Retail Banking. Additional information on the Company is available at www.bankofny.com. *************************** 17 FORWARD LOOKING STATEMENTS All statements in this press release other than statements of historical fact are forward looking statements including, among other things, projections with respect to revenue and earnings and the Company's plans and objectives and as such are subject to risks and uncertainties that could cause actual results to differ materially from those expressed in the forward looking statements. These include lower than expected performance or higher than expected costs in connection with acquisitions and integration of acquired businesses, the level of capital market activity, changes in customer credit quality, the effects of capital reallocation, portfolio performance, ultimate differences from management projections or market forecasts, the actions that management could take in response to these changes and other factors described under the heading "Forward Looking Statements" in the Company's 2002 Form 10-K and Third Quarter 2003 Form 10-Q which have been filed with the SEC and are available at the SEC's website (www.sec.gov). 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. (Financial highlights and detailed financial statements are attached.) 18
THE BANK OF NEW YORK COMPANY, INC. Financial Highlights (Dollars in millions, except per share amounts) (Unaudited) December 31, September 30, December 31, 2003 2003 2002 --------------------- ------------------- ------------ Reported Operating Reported Operating Reported --------- --------- -------- --------- ------------ Quarter ------- Revenue (tax equivalent basis) $1,694 $1,694 $1,647 $1,647 $1,471 Net Income 307 338 260 322 100 Basic EPS 0.40 0.44 0.34 0.42 0.14 Diluted EPS 0.40 0.44 0.34 0.42 0.14 Cash Dividends Per Share 0.19 0.19 0.19 0.19 0.19 Return on Average Common Shareholders' Equity 14.81% 16.33% 12.82% 15.85% 5.99% Return on Average Assets 1.26 1.39 1.06 1.31 0.49 Efficiency Ratio 66.9 63.7 70.7 63.8 56.3 Year-to-Date ------------ Revenue (tax equivalent basis) $6,371 $6,371 $4,676 $4,676 $5,805 Net Income 1,157 1,266 850 929 902 Basic EPS 1.54 1.69 1.14 1.24 1.25 Diluted EPS 1.52 1.67 1.13 1.23 1.24 Cash Dividends Per Share 0.76 0.76 0.57 0.57 0.76 Return on Average Common Shareholders' Equity 15.12% 16.55% 15.23% 16.63% 13.96% Return on Average Assets 1.27 1.39 1.27 1.39 1.13 Efficiency Ratio 65.8 62.7 65.5 62.4 55.3 Assets $92,302 $95,345 $77,739 Loans 35,283 37,540 31,339 Securities 22,903 22,862 18,300 Deposits - Domestic 33,709 35,660 33,094 - Foreign 22,676 23,283 22,293 Long-Term Debt 6,121 6,298 5,440 Common Shareholders' Equity 8,408 8,223 6,684 Common Shareholders' Equity Per Share $10.85 $10.63 $ 9.21 Market Value Per Share of Common Stock 33.12 29.11 23.96 Allowance for Credit Losses as a Percent of Total Loans 2.28% 2.18% 2.65% Allowance for Credit Losses as a Percent of Non-Margin Loans 2.72 2.55 2.68 Allowance for Loan Losses as a Percent of Total Loans 1.89 1.77 2.09 Allowance for Loan Losses as a Percent of Non-Margin Loans 2.26 2.07 2.12 Tier 1 Capital Ratio 7.41 7.08 7.58 Total Capital Ratio 11.46 11.18 11.96 Leverage Ratio 5.80 5.64 6.48 Tangible Common Equity Ratio 4.89 4.65 5.47 Employees 22,901 22,926 19,437 Assets Under Custody (In trillions) Total Assets Under Custody $8.3 $7.9 $6.8 Equity Securities 34% 32% 26% Fixed Income Securities 66 68 74 Cross-Border Assets $2.3 $2.2 $1.9 Assets Under Management (In billions) Total Assets Under Management $89 $85 $76 Equity Securities 34% 31% 29% Fixed Income Securities 22 22 25 Alternative Investments 10 10 8 Liquid Assets 34 37 38 Assets Under Administration (In billions) $32 $32 $28
19
THE BANK OF NEW YORK COMPANY, INC. Consolidated Statements of Income (In millions, except per share amounts) (Unaudited) For the three For the year months ended ended December 31, December 31, 2003 2002 2003 2002 ---- ---- ---- ---- Interest Income - --------------- Loans $ 283 $ 344 $1,187 $1,452 Margin loans 32 3 86 12 Securities Taxable 174 166 651 639 Exempt from Federal Income Taxes 11 14 48 61 ------ ----- ------ ------ 185 180 699 700 Deposits in Banks 41 26 150 133 Federal Funds Sold and Securities Purchased Under Resale Agreements 17 14 79 51 Trading Assets 26 61 129 259 ------ ----- ------ ------ Total Interest Income 584 628 2,330 2,607 ------ ----- ------ ------ Interest Expense - ---------------- Deposits 110 160 507 644 Federal Funds Purchased and Securities Sold Under Repurchase Agreements 3 5 13 29 Other Borrowed Funds 8 6 21 65 Customer Payables 11 - 30 2 Long-Term Debt 34 44 150 202 ------ ----- ------ ------ Total Interest Expense 166 215 721 942 ------ ----- ------ ------ Net Interest Income 418 413 1,609 1,665 - ------------------- Provision for Credit Losses 35 390 155 685 ------ ----- ------ ------ Net Interest Income After Provision for Credit Losses 383 23 1,454 980 ------ ----- ------ ------ Noninterest Income - ------------------ Servicing Fees Securities 684 484 2,412 1,896 Global Payment Services 76 76 314 296 ------ ----- ------ ------ 760 560 2,726 2,192 Private Client Services and Asset Management Fees 103 88 384 344 Service Charges and Fees 97 92 375 357 Foreign Exchange and Other Trading Activities 81 51 327 234 Securities Gains 9 13 35 (118) Other 52 29 159 134 ------ ----- ------ ------ Total Noninterest Income 1,102 833 4,006 3,143 ------ ----- ------ ------ Noninterest Expense - ------------------- Salaries and Employee Benefits 548 379 2,002 1,581 Net Occupancy 70 56 261 230 Furniture and Equipment 49 37 185 138 Other 301 228 1,154 802 Merger and Integration Costs 48 - 96 - ------ ----- ------ ------ Total Noninterest Expense 1,016 700 3,698 2,751 ------ ----- ------ ------ Income Before Income Taxes 469 156 1,762 1,372 Income Taxes 162 56 605 470 ------ ----- ------ ------ Net Income $ 307 $ 100 $1,157 $ 902 - ---------- ====== ===== ====== ====== Per Common Share Data: - ---------------------- Basic Earnings $0.40 $0.14 $1.54 $1.25 Diluted Earnings 0.40 0.14 1.52 1.24 Cash Dividends Paid 0.19 0.19 0.76 0.76 Diluted Shares Outstanding 776 726 759 728 - -------------------------------------------------------------------------------------------------
20
THE BANK OF NEW YORK COMPANY, INC. Consolidated Balance Sheets (Dollars in millions, except per share amounts) (Unaudited) December 31, December 31, 2003 2002 ---- ---- Assets - ------ Cash and Due from Banks $ 3,843 $ 4,748 Interest-Bearing Deposits in Banks 8,286 5,104 Securities Held-to-Maturity 261 954 Available-for-Sale 22,642 17,346 ------- ------- Total Securities 22,903 18,300 Trading Assets at Fair Value 5,406 7,309 Federal Funds Sold and Securities Purchased Under Resale Agreements 4,829 1,385 Loans (less allowance for loan losses of $668 in 2003 and $656 in 2002) 34,615 30,683 Premises and Equipment 1,079 975 Due from Customers on Acceptances 170 351 Accrued Interest Receivable 214 204 Goodwill 3,268 2,497 Intangible Assets 824 78 Other Assets 6,865 6,105 ------- ------- Total Assets $92,302 $77,739 ======= ======= Liabilities and Shareholders' Equity - ------------------------------------ Deposits Noninterest-Bearing (principally domestic offices) $14,766 $13,301 Interest-Bearing Domestic Offices 19,284 19,997 Foreign Offices 22,335 22,089 ------- ------- Total Deposits 56,385 55,387 Federal Funds Purchased and Securities Sold Under Repurchase Agreements 1,039 636 Trading Liabilities 2,518 2,800 Payables to Customers and Broker-Dealers 10,192 870 Other Borrowed Funds 836 475 Acceptances Outstanding 172 352 Accrued Taxes and Other Expenses 4,181 4,066 Accrued Interest Payable 82 101 Other Liabilities (including allowance for lending-related commitments of $136 in 2003 and $175 in 2002) 2,368 928 Long-Term Debt 6,121 5,440 ------- ------- Total Liabilities 83,894 71,055 ------- ------- Shareholders' Equity Class A Preferred Stock - par value $2.00 per share, authorized 5,000,000 shares, outstanding 3,000 shares in 2003 and in 2002 - - Common Stock-par value $7.50 per share, authorized 2,400,000,000 shares, issued 1,039,968,482 shares in 2003 and 993,697,297 shares in 2002 7,800 7,453 Additional Capital 1,627 847 Retained Earnings 5,330 4,736 Accumulated Other Comprehensive Income 72 134 ------- ------- 14,829 13,170 Less: Treasury Stock (264,649,827 shares in 2003 and 267,240,854 shares in 2002), at cost 6,420 6,483 Loan to ESOP (126,960 shares in 2003 And 485,533 in 2002), at cost 1 3 ------- ------- Total Shareholders' Equity 8,408 6,684 ------- ------- Total Liabilities and Shareholders' Equity $92,302 $77,739 ======= ======= - ---------------------------------------------------------------------------------------- Note: The balance sheet at December 31, 2002 has been derived from the audited financial statements at that date.
21
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 December 31, 2003 ended December 31, 2002 ------------------------------ ------------------------------ Average Average Average Average Balance Interest Rate Balance Interest Rate ------- -------- ------- ------- -------- ------- ASSETS - ------ Interest-Bearing Deposits in Banks (primarily foreign) $ 7,605 $ 41 2.12% $ 4,266 $ 26 2.44% Federal Funds Sold and Securities Purchased Under Resale Agreements 7,124 17 0.97 4,021 14 1.37 Margin Loans 5,758 32 2.18 396 3 2.98 Loans Domestic Offices 21,449 212 3.93 19,464 233 4.73 Foreign Offices 10,096 71 2.77 13,480 112 3.29 ------- ----- ------- ----- Total Loans 31,545 283 3.56 32,944 345 4.14 ------- ----- ------- ----- Securities U.S. Government Obligations 444 3 2.31 433 4 4.05 U.S. Government Agency Obligations 4,319 36 3.30 3,726 43 4.57 Obligations of States and Political Subdivisions 274 4 6.29 430 7 6.56 Other Securities 17,315 150 3.46 12,670 135 4.27 Trading Securities 4,019 26 2.59 6,983 61 3.46 ------- ----- ------- ----- Total Securities 26,371 219 3.31 24,242 250 4.12 ------- ----- ------- ----- Total Interest-Earning Assets 78,403 592 2.99% 65,869 638 3.84% ----- ----- Allowance for Credit Losses (821) (677) Cash and Due from Banks 2,861 2,731 Other Assets 16,022 12,592 ------- ------- TOTAL ASSETS $96,465 $80,515 ======= ======= LIABILITIES AND SHAREHOLDERS' EQUITY - ------------------------------------ Interest-Bearing Deposits Money Market Rate Accounts $ 7,049 $ 12 0.68% $ 7,440 $ 21 1.10% Savings 9,142 16 0.71 8,241 20 0.99 Certificates of Deposit $100,000 & Over 3,518 12 1.32 4,445 22 1.98 Other Time Deposits 1,224 4 1.35 1,390 7 2.04 Foreign Offices 24,302 66 1.07 23,995 90 1.49 ------- ----- ------- ----- Total Interest-Bearing Deposits 45,235 110 0.96 45,511 160 1.40 Federal Funds Purchased and Securities Sold Under Repurchase Agreements 1,756 3 0.72 1,633 5 1.24 Other Borrowed Funds 2,084 8 1.43 965 6 2.15 Payables to Customers and Broker-Dealers 6,274 11 0.70 168 - 0.68 Long-Term Debt 6,179 34 2.19 5,402 44 3.19 ------- ----- ------- ----- Total Interest-Bearing Liabilities 61,528 166 1.07% 53,679 215 1.59% ----- ----- Noninterest-Bearing Deposits 13,646 11,501 Other Liabilities 13,079 8,689 Common Shareholders' Equity 8,212 6,646 ------- ------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $96,465 $80,515 ======= ======= Net Interest Earnings and Interest Rate Spread $ 426 1.92% $ 423 2.25% ===== ==== ===== ==== Net Yield on Interest-Earning Assets 2.15% 2.54% ==== ====
22
THE BANK OF NEW YORK COMPANY, INC. Average Balances and Rates on a Taxable Equivalent Basis (Preliminary) (Dollars in millions) For the year For the year ended December 31, 2003 ended December 31, 2002 ------------------------------ ------------------------------ Average Average Average Average Balance Interest Rate Balance Interest Rate ------- -------- ------- ------- -------- ------- ASSETS - ------ Interest-Bearing Deposits in Banks (primarily foreign) $ 6,690 $ 150 2.24% $ 4,809 $ 133 2.76% Federal Funds Sold and Securities Purchased Under Resale Agreements 7,326 79 1.07 3,225 51 1.60 Margin Loans 3,795 86 2.27 434 12 2.73 Loans Domestic Offices 20,458 855 4.18 18,985 948 5.00 Foreign Offices 11,370 332 2.93 14,886 505 3.38 ------- ------ ------- ----- Total Loans 31,828 1,187 3.73 33,871 1,453 4.27 ------- ------ ------- ----- Securities U.S. Government Obligations 323 10 3.12 605 31 5.08 U.S. Government Agency Obligations 3,516 129 3.66 3,407 177 5.20 Obligations of States and Political Subdivisions 329 23 6.94 520 34 6.57 Other Securities 15,758 571 3.63 10,849 505 4.66 Trading Securities 4,605 130 2.81 7,655 260 3.39 ------- ------ ------- ----- Total Securities 24,531 863 3.52 23,036 1,007 4.37 ------- ------ ------- ----- Total Interest-Earning Assets 74,170 2,365 3.19% 65,375 2,656 4.06% ------ ----- Allowance for Credit Losses (825) (631) Cash and Due from Banks 2,834 2,675 Other Assets 15,135 12,236 ------- ------- TOTAL ASSETS $91,314 $79,655 ======= ======= LIABILITIES AND SHAREHOLDERS' EQUITY - ------------------------------------ Interest-Bearing Deposits Money Market Rate Accounts $ 7,381 $ 60 0.82% $ 6,857 $ 87 1.27% Savings 9,014 71 0.78 8,154 90 1.11 Certificates of Deposit $100,000 & Over 4,179 65 1.56 2,393 52 2.17 Other Time Deposits 1,257 20 1.55 1,508 34 2.25 Foreign Offices 24,114 291 1.21 24,210 381 1.57 ------- ------ ------- ----- Total Interest-Bearing Deposits 45,945 507 1.10 43,122 644 1.49 Federal Funds Purchased and Securities Sold Under Repurchase Agreements 1,542 13 0.85 2,018 29 1.43 Other Borrowed Funds 1,654 21 1.26 2,701 65 2.40 Payables to Customers and Broker-Dealers 3,945 30 0.75 176 2 0.98 Long-Term Debt 6,103 150 2.45 5,338 202 3.79 ------- ------ ------- ----- Total Interest-Bearing Liabilities 59,189 721 1.22% 53,355 942 1.76% ------ ----- Noninterest-Bearing Deposits 12,670 10,673 Other Liabilities 11,801 9,162 Common Shareholders' Equity 7,654 6,465 ------- ------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $91,314 $79,655 ======= ======= Net Interest Earnings and Interest Rate Spread $1,644 1.97% $1,714 2.30% ====== ==== ====== ==== Net Yield on Interest-Earning Assets 2.22% 2.62% ==== ====
-----END PRIVACY-ENHANCED MESSAGE-----