-----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, NxVacj5eWxE5HkdJXbNDg7wcVZG2EIyTxgIhhvsFR5WFLEKe5kY/FEiXnduxUoHb IEVmHQUVSDI2gGUZ7nc0sg== 0000009626-99-000036.txt : 19991117 0000009626-99-000036.hdr.sgml : 19991117 ACCESSION NUMBER: 0000009626-99-000036 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19990930 FILED AS OF DATE: 19991115 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: 10-Q SEC ACT: SEC FILE NUMBER: 001-06152 FILM NUMBER: 99751594 BUSINESS ADDRESS: STREET 1: ONE WALL STREET 10TH FLOOR 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 THIRD QUARTER 1999 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 September 30, 1999 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission file number 1-6152 THE BANK OF NEW YORK COMPANY, INC. (Exact name of registrant as specified in its charter) NEW YORK 13-2614959 (State or other jurisdiction of (I.R.S. employer incorporation or organization) identification number) One Wall Street, New York, New York 10286 (Address of principal executive offices) (Zip code) (212) 495-1784 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months(or such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] The number of shares outstanding of the issuer's Common Stock, $7.50 par value, was 736,398,203 shares as of October 31, 1999 2 THE BANK OF NEW YORK COMPANY, INC. FORM 10-Q TABLE OF CONTENTS PART I. FINANCIAL INFORMATION - ------------------------------ Item 1. Financial Statements Consolidated Balance Sheets September 30, 1999 and December 31, 1998 3 Consolidated Statements of Income For the Three Months and Nine Months Ended September 30, 1999 and 1998 4 Consolidated Statement of Changes In Shareholders' Equity For the Nine Months Ended September 30, 1999 5 Consolidated Statements of Cash Flows For the Nine Months Ended September 30, 1999 and 1998 6 Notes to Consolidated Financial Statements 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 9 Item 3. Quantitative and Qualitative Disclosures about Market Risk. (See "Trading Activities") 12 PART II. OTHER INFORMATION - -------------------------- Item 2. Sales of Unregistered Common Stock 24 Item 6. Exhibits and Reports on Form 8-K 24 SIGNATURE 25 3 PART I. FINANCIAL INFORMATION Item 1. Financial Statements - ----------------------------- THE BANK OF NEW YORK COMPANY, INC. Consolidated Balance Sheets (Dollars in millions, except per share amounts) (Unaudited)
September 30, December 31, 1999 1998 ---- ---- Assets - ------ Cash and Due from Banks $ 6,430 $ 3,999 Interest-Bearing Deposits in Banks 4,543 4,504 Securities: Held-to-Maturity (fair value of $806 in 1999 and $923 in 1998) 844 964 Available-for-Sale 5,048 5,451 ------- ------- Total Securities 5,892 6,415 Trading Assets at Fair Value 1,806 1,637 Federal Funds Sold and Securities Purchased Under Resale Agreements 1,614 3,281 Loans (less allowance for credit losses of $594 in 1999 and $636 in 1998) 37,163 37,750 Premises and Equipment 848 856 Due from Customers on Acceptances 399 946 Accrued Interest Receivable 284 355 Other Assets 4,179 3,760 ------- ------- Total Assets $63,158 $63,503 ======= ======= Liabilities and Shareholders' Equity - ------------------------------------ Deposits Noninterest-Bearing (principally domestic offices) $11,608 $11,480 Interest-Bearing Domestic Offices 14,858 16,091 Foreign Offices 18,329 17,061 ------- ------- Total Deposits 44,795 44,632 Federal Funds Purchased and Securities Sold Under Repurchase Agreements 2,055 1,571 Other Borrowed Funds 3,834 4,536 Acceptances Outstanding 401 951 Accrued Taxes and Other Expenses 2,711 2,183 Accrued Interest Payable 116 188 Other Liabilities 434 608 Long-Term Debt 2,416 2,086 ------- ------- Total Liabilities 56,762 56,755 ------- ------- Guaranteed Preferred Beneficial Interests in the Company's Junior Subordinated Deferrable Interest Debentures 1,500 1,300 ------- ------- Shareholders' Equity Class A Preferred Stock - par value $25.00 per share, authorized 5,000,000 shares, outstanding 16,887 shares in 1999 and 22,820 shares in 1998 1 1 Common Stock-par value $7.50 per share, authorized 1,600,000,000 shares, issued 975,695,998 shares in 1999 and 970,767,767 shares in 1998 7,318 7,281 Additional Capital 265 142 Retained Earnings 2,411 1,318 Accumulated Other Comprehensive Income 63 312 ------- ------- 10,058 9,054 Less: Treasury Stock (238,009,759 shares in 1999 and 197,648,459 shares in 1998), at cost 5,149 3,593 Loan to ESOP (1,801,003 shares in 1999 and 1998), at cost 13 13 ------- ------- Total Shareholders' Equity 4,896 5,448 ------- ------- Total Liabilities and Shareholders' Equity $63,158 $63,503 ======= ======= - ---------------------------------------------------------------------------------------- Note: The balance sheet at December 31, 1998 has been derived from the audited financial statements at that date. See accompanying Notes to Consolidated Financial Statements.
4 THE BANK OF NEW YORK COMPANY, INC. Consolidated Statements of Income (Dollars in millions, except per share amounts) (Unaudited)
For the three For the nine months ended months ended September 30, September 30, 1999 1998 1999 1998 ---- ---- ---- ---- Interest Income - --------------- Loans $ 643 $ 708 $1,962 $2,073 Securities Taxable 63 64 190 209 Exempt from Federal Income Taxes 13 16 36 46 ------ ----- ------ ------ 76 80 226 255 Deposits in Banks 62 44 180 127 Federal Funds Sold and Securities Purchased Under Resale Agreements 49 68 147 140 Trading Assets 4 6 15 15 ------ ----- ------ ------ Total Interest Income 834 906 2,530 2,610 ------ ----- ------ ------ Interest Expense - ---------------- Deposits 320 367 961 1,034 Federal Funds Purchased and Securities Sold Under Repurchase Agreements 32 38 99 104 Other Borrowed Funds 27 52 102 154 Long-Term Debt 38 34 108 100 ------ ----- ------ ------ Total Interest Expense 417 491 1,270 1,392 ------ ----- ------ ------ Net Interest Income 417 415 1,260 1,218 - ------------------- Provision for Credit Losses 90 5 120 15 ------ ----- ------ ------ Net Interest Income After Provision for Credit Losses 327 410 1,140 1,203 ------ ----- ------ ------ Noninterest Income - ------------------ Processing Fees Securities 311 258 904 726 Cash 69 66 208 193 ------ ----- ------ ------ 380 324 1,112 919 Trust and Investment Fees 61 53 179 154 Service Charges and Fees 77 81 252 248 Securities Gains 50 51 149 125 Other 963 63 1,115 239 ------ ----- ------ ------ Total Noninterest Income 1,531 572 2,807 1,685 ------ ----- ------ ------ Noninterest Expense - ------------------- Salaries and Employee Benefits 300 294 922 863 Net Occupancy 41 41 122 126 Furniture and Equipment 25 22 69 63 Other 149 124 424 368 ------ ----- ------ ------ Total Noninterest Expense 515 481 1,537 1,420 ------ ----- ------ ------ Income Before Income Taxes 1,343 501 2,410 1,468 Income Taxes 542 175 915 519 Distribution on Trust Preferred Securities 28 25 84 70 ------ ----- ------ ------ Net Income $ 773 $ 301 $1,411 $ 879 - ---------- ====== ===== ====== ====== Net Income Available to Common Shareholders $ 773 $ 301 $1,411 $ 879 - ------------------------------------------- ====== ===== ====== ====== Per Common Share Data: - ---------------------- Basic Earnings $ 1.04 $0.40 $ 1.87 $ 1.18 Diluted Earnings 1.02 0.39 1.84 1.13 Cash Dividends Paid 0.14 0.14 0.42 0.40 Diluted Shares Outstanding 754 779 769 781 - ------------------------------------------------------------------------------------------------ See accompanying Notes to Consolidated Financial Statements
5 THE BANK OF NEW YORK COMPANY, INC. Consolidated Statement of Changes in Shareholders' Equity For the nine months ended September 30, 1999 (In millions of Dollars) (Unaudited)
Preferred Stock Balance, January 1 $ 1 ------- Balance, September 30 1 ------- Common Stock Balance, January 1 7,281 Issuances in Connection with Employee Benefit Plans 37 ------- Balance, September 30 7,318 ------- Additional Capital Balance, January 1 142 Common Stock Issuances in Connection with Employee Benefit Plans 123 ------- Balance, September 30 265 ------- Retained Earnings Balance, January 1 1,318 Net Income 1,411 Cash Dividends (318) ------- Balance, September 30 2,411 ------- Accumulated Other Comprehensive Income Securities Valuation Allowance Balance, January 1 340 Change in Fair Value of Securities Available-for-Sale, Net of $107 Million in Taxes (163) Reclassification Adjustment, Net of $46 Million in Taxes (85) ------- Balance, September 30 92 ------- Foreign Currency Items Balance, January 1 (28) Foreign Currency Translation Adjustment, Net of $1 Million in Tax Benefits (1) ------- Balance, September 30 (29) ------- Less Treasury Stock Balance, January 1 3,593 Issued (59) Acquired 1,615 ------- Balance, September 30 5,149 ------- Less Loan to ESOP Balance, January 1 13 ------- Balance, September 30 13 ------- Total Shareholders' Equity, September 30 $ 4,896 ======= - ------------------------------------------------------------------------------------ Comprehensive Income for the three months ended September 30, 1999 and 1998 was $618 million and $167 million. Comprehensive income for the nine months ended September 30, 1999 and 1998 was $1,162 million and $814 million. See accompanying Notes to Consolidated Financial Statements.
6 THE BANK OF NEW YORK COMPANY, INC. Consolidated Statements of Cash Flows (In millions) (Unaudited)
For the nine months Ended September 30, 1999 1998 ---- ---- Operating Activities Net Income $1,411 $ 879 Adjustments to Determine Net Cash Provided (Used) by Operating Activities: Provision for Losses on Loans and Other Real Estate 120 16 Liquidity Charge on Loans Available-for-Sale 124 - Gain on the Sale of BNYFC (1,020) - Depreciation and Amortization 156 138 Deferred Income Taxes 305 209 Securities Gains (149) (125) Change in Trading Activities (817) 103 Change in Accruals and Other, Net (469) (995) ------ ------ Net Cash (Used) Provided by Operating Activities (339) 225 ------ ------ Investing Activities Change in Interest-Bearing Deposits in Banks (104) (456) Purchases of Securities Held-to-Maturity (303) (505) Maturities of Securities Held-to-Maturity 369 637 Purchases of Securities Available-for-Sale (1,875) (1,885) Sales of Securities Available-for-Sale 476 1,704 Maturities of Securities Available-for-Sale 837 731 Net Principal Disbursed on Loans to Customers (2,808) (2,645) Sales of Loans and Other Real Estate 230 204 Change in Federal Funds Sold and Securities Purchased Under Resale Agreements 1,666 1,677 Purchases of Premises and Equipment (58) (66) Acquisitions, Net of Cash Acquired (71) (445) Disposition, Net of Cash Included 4,867 - Proceeds from the Sale of Premises and Equipment 10 48 Other, Net 138 (80) ------ ------ Net Cash Provided (Used) by Investing Activities 3,374 (1,081) ------ ------ Financing Activities Change in Deposits 291 3,035 Change in Federal Funds Purchased and Securities Sold Under Repurchase Agreements 484 (522) Change in Other Borrowed Funds (145) 554 Proceeds from the Issuance of Trust Preferred Securities 200 300 Proceeds from the Issuance of Long-Term Debt 343 270 Repayments of Long-Term Debt (21) (34) Issuance of Common Stock 219 399 Treasury Stock Acquired (1,615) (904) Cash Dividends Paid (318) (298) ------ ------ Net Cash (Used) Provided by Financing Activities (562) 2,800 ------ ------ Effect of Exchange Rate Changes on Cash (42) (20) ------ ------ Change in Cash and Due From Banks 2,431 1,924 Cash and Due from Banks at Beginning of Period 3,999 5,769 ------ ------ Cash and Due from Banks at End of Period $6,430 $7,693 ====== ====== - ---------------------------------------------------------------------------- Supplemental Disclosure of Cash Flow Information Cash Paid During the Period for: Interest $1,342 1,401 Income Taxes 169 229 Noncash Investing Activity (Primarily Foreclosure of Real Estate) 4 7 - ---------------------------------------------------------------------------- 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 financial statements are unaudited. In the opinion of management, all adjustments necessary for a fair presentation of financial position, results of operations and cash flows for the interim periods have been made. Such adjustments are of a normal recurring nature. 2. Acquisitions and Dispositions ----------------------------- On July 22, 1999, the Company completed the sale of BNY Financial Corporation ("BNYFC") to General Motors Acceptance Corporation. Net income for the third quarter and year-to-date periods included a pre-tax gain of $1,020 million ($573 million after-tax) or 75 cents per share from the sale. On October 31, 1999, the Company completed the acquisition of RBS Trust Bank Limited from the Royal Bank of Scotland plc ("RBS"). On the date of acquisition, the assets acquired from RBS totaled $9.5 billion. In addition, the Company acquired a 30% equity ownership in RBSI Security Services (Holdings) Limited headquartered on the island of Jersey. RBS Trust Bank Limited, which was renamed The Bank of New York Europe Limited, is the largest provider of pension fund services in the United Kingdom, and holds a leading position in the fund manager market, offering retail funds services, trustee and depositary services, as well as pension, banking and treasury products. The acquisition continues The Bank of New York's expansion in the European market. 3. Allowance for Credit Losses --------------------------- Transactions in the allowance for credit losses are summarized as follows: Nine months ended September 30, (In millions) 1999 1998 ---- ---- Balance, Beginning of Period $ 636 $ 641 Charge-Offs (133) (42) Recoveries 10 20 ----- ----- Net Charge-Offs (123) (22) Acquisition/(Disposition) (39) 4 Provision 120 15 ----- ----- Balance, End of Period $ 594 $ 638 ===== ===== 4. Capital Transactions -------------------- In the first nine months of 1999, the Company repurchased 44 million shares of the 48 million authorized under its buyback programs. As of October 31, 1999, approximately 4 million shares remain to be purchased under these plans. 8 5. New Accounting Pronouncements ----------------------------- Effective January 1, 2001, a new accounting standard will require the Company to record all derivatives on the balance sheet at fair value and apply new accounting practices for hedging activities. The Company has not yet determined the impact of the new accounting standard. 6. Earnings Per Share ------------------ The following table illustrates the computations of basic and diluted earnings per share for the three and nine months ended September 30, 1999 and 1998: Three Months Ended Nine Months Ended September 30, September 30, (In millions, except per share amounts) 1999 1998 1999 1998 ---- ---- ---- ---- Net Income $ 773 $ 301 $1,411 $879 ====== ====== ====== ==== Diluted Net Income $ 773 $ 301 $1,411 $879 ====== ====== ====== ==== Basic Weighted Average Shares Outstanding 741 751 756 746 Shares to be Issued on Conversion: Warrants - 16 - 22 Employee Stock Options 13 12 13 13 ------ ------ ------ ---- Diluted Weighted Average Shares Outstanding 754 779 769 781 ====== ====== ====== ==== Basic Earnings Per Share: $ 1.04 $ 0.40 $ 1.87 $ 1.18 Diluted Earnings Per Share: 1.02 0.39 1.84 1.13 7. Commitments and Contingent Liabilities -------------------------------------- In the ordinary course of business, there are various claims pending against the Company and its subsidiaries. In the opinion of management, liabilities arising from such claims, if any, would not have a material effect upon the Company's consolidated financial statements. In addition, as the Company has previously announced, it is cooperating fully with regulatory and law enforcement agencies in their investigations of various Russia related financial activities. 9 Item 2. Management's Discussion and Analysis of Financial Condition and - ------------------------------------------------------------------------ Results of Operations - --------------------- The Company's actual results of future operations may differ from those set forth in certain forward-looking statements contained herein. When used in this report, any press release and in oral statements made by authorized officers the words "prospective", "expected", "projected", "estimated", "anticipated", "intended", "believe" and similar expressions identify forward looking statements. Refer to further discussion under the heading "Forward Looking Statements". The Company reported record third quarter diluted earnings per share of $1.02, up 162% from the 39 cents earned in the third quarter of 1998. Net income for the third quarter was a record $773 million, up 157% from the $301 million earned in the same period last year. The third quarter results reflect a gain on the sale of BNY Financial Corporation ("BNYFC") as well as certain charges related to the decision to exit a portfolio of credits on an accelerated basis. Diluted earnings per share were $1.84 for the first nine months of 1999, up 63% from the $1.13 earned last year. Net income for the first nine months was a record $1,411 million, an increase of 61% over last year's $879 million. Continued momentum in the Company's fee-based businesses drove strong core revenue growth. The exit from the commercial finance business and from select commercial credits is expected to result in a higher quality prospective earnings profile that involves less credit risk. In addition, these sales will provide capital for reinvestment in our higher growth securities servicing and asset management businesses. New business wins and continued favorable markets worldwide drove securities servicing revenues up 21%. Trust and investment fees grew 15%, led by strong investment performance, new customers and favorable U.S. equity markets. Overall, noninterest income contributed 60% of revenues for the quarter, excluding the gain on the sale of BNYFC and the liquidity charges associated with the accelerated disposition of the portfolio of credits. In securities servicing, all areas did well with global custody, mutual funds, securities lending, ADRs and execution services particularly strong. Domestic and global custody continued to gain market share from new business wins as assets under custody grew to $5.4 trillion at quarter end. Trust and investment's results were driven by strong investment performance which continues to attract new customers. On July 22, 1999, the Company completed the sale of BNYFC to General Motors Acceptance Corporation. Net income for the third quarter and year-to- date periods included a pre-tax gain of $1,020 million ($573 million after- tax) or 75 cents per share from the sale. As part of its continuing strategy to align credit products with fiduciary and servicing businesses, the Company reviewed its credit portfolio and decided to accelerate the disposition of certain loans based on, in part, cross-sell potential and overall relationship profitability. As a result, in the third quarter of 1999, the Company identified exposures totaling $1 billion and related outstandings of $732 million and categorized them as available for sale and recorded a liquidity charge to noninterest income of $124 million. At September 30, 1999, remaining exposures available for sale totaled $726 million with related outstandings of $466 million. The provision for credit losses for the quarter was $90 million. The increase from the $15 million in the prior quarter primarily reflects both the decision to accelerate the disposition of certain loans, some of which were nonperforming, as well as higher charge-offs in the Company's asset based lending businesses. Nonperforming assets declined to $155 million at September 30, 1999 from $220 million at June 30, 1999. 10 Return on average common equity for the third quarter of 1999 was 61.23% compared with 24.19% in the third quarter of 1998. Return on average assets for the third quarter of 1999 was 4.78% compared with 1.86% in the third quarter of 1998. For the first nine months of 1999, return on average common equity totaled 36.63% compared with 24.39% in 1998. Return on average assets was 2.88% for the first nine months of 1999 compared with 1.90% in 1998. These and other return rates were significantly affected by the sale of BNYFC and the loan disposition program. Net interest income on a taxable equivalent basis for the third quarter increased to $429 million from $427 million in the second quarter of 1999. For the first nine months of 1999, net interest income on a taxable equivalent basis was $1,292 million compared with $1,258 million in the first nine months of 1998. Fees from the Company's securities servicing businesses reached $311 million for the third quarter compared with $258 million last year. For the first nine months of 1999 fees from the Company's securities servicing businesses totaled $904 million, growing by 24% compared with the corresponding period of the prior year. In cash processing, fees from cash management were up 7% for the quarter driven by continued cross selling to the Company's securities servicing customers. Fees from funds transfer grew by 11% from the previous year, the result of continued market share gains and the firming global economy. Trade finance fees were down 6% from a year ago primarily due to the sale of BNYFC. Overall, cash processing fees grew by 4% reaching $69 million for the quarter. For the first nine months, cash processing fees increased 8% to $208 million. Trust and investment fees were $61 million for the quarter, an increase of 15% over last year, led by strong results from personal trust, personal asset management and retail investment products. Higher transaction flows in the Company's European securities servicing business drove foreign exchange and other trading revenues up to $45 million this quarter compared with $30 million in the third quarter last year. Tangible diluted earnings per share (earnings before the amortization of goodwill and intangibles) were $1.05 per share in the third quarter of 1999, up from 41 cents per share in the third quarter of 1998. On the same basis, tangible return on average common equity was 86.97% in 1999 compared with 37.56% in 1998; and tangible return on average assets was 5.00% in 1999 compared with 2.03% in 1998. Tangible diluted earnings per share were $1.91 per share for the first nine months of 1999, compared with $1.20 per share in 1998. Tangible return on average common equity was 54.08% in the first nine months of 1999 compared with 37.47% in 1998; and tangible return on average assets was 3.07% in the first nine months of 1999 compared with 2.07% last year. Amortization of intangibles for the third quarter and the first nine months of 1999 were $23 million and $76 million compared with $26 million and $75 million last year. CAPITAL The Company's Tier 1 capital and Total capital ratios remained strong at 8.38% and 12.52% at September 30, 1999 compared with 7.63% and 11.52% at June 30, 1999, and 7.52% and 11.64% at September 30, 1998. Tangible common equity as a percent of total assets was 5.93% at September 30, 1999 compared with 5.59% at June 30, 1999 and September 30, 1998. The leverage ratio was 8.10% at September 30, 1999 compared with 7.65% at June 30, 1999 and 7.24% one year ago. 11 LIQUIDITY The Company maintains its liquidity through the management of its assets and liabilities, utilizing worldwide financial markets. The diversification of liabilities reflects the flexibility of the Company's funding sources under changing market conditions. Stable core deposits, including demand, retail time, and trust deposits from processing businesses, are generated through the Company's diversified network and managed with the use of trend studies and deposit pricing. The use of derivative products such as interest rate swaps and financial futures enhances liquidity through the issue of long-term liabilities with limited exposure to interest rate risk. Liquidity also results from the maintenance of a portfolio of assets, which can be easily reduced, and the monitoring of unfunded loan commitments, thereby reducing unanticipated funding requirements. Developments relating to the Year 2000 computer conversion issue may affect both the customer demand for funding and funding commitments and the level of deposits and other funding at The Bank of New York. The Company is attempting to monitor this situation closely in order to be able to deal effectively with any imbalances that could arise. NET INTEREST INCOME
3rd 2nd 3rd Quarter Quarter Quarter Year to Date ------- ------- ------- ------------------ (In millions) 1999 1999 1998 1999 1998 ---- ---- ---- ---- ---- Net Interest Income $429 $427 $430 $1,292 $1,258 Net Interest Rate Spread 2.21% 2.18% 2.14% 2.23% 2.21% Net Yield on Interest- Earning Assets 3.16 3.07 3.15 3.14 3.25
Net interest income on a taxable equivalent basis was $429 million in the third quarter of 1999 compared with $427 million in the second quarter of 1999 and $430 million in the third quarter of 1998. The net interest rate spread was 2.21% in the third quarter of 1999, compared with 2.18% in the second quarter of 1999 and 2.14% one year ago. The net yield on interest-earning assets was 3.16% compared with 3.07% in the second quarter of 1999 and 3.15% in last year's third quarter. For the first nine months of 1999, net interest income on a taxable equivalent basis, amounted to $1,292 million compared with $1,258 million in the first nine months of 1998. The year-to-date net interest rate spread was 2.23% in 1999 compared with 2.21% in 1998, while the net yield on interest- earning assets was 3.14% in 1999 and 3.25% in 1998. The increase in net interest income from the second quarter was caused by a higher yield, reflecting a rising rate environment which increases the value of interest-free deposits, as well as by the temporary reinvestment of BNYFC sale proceeds. Interest income would have been increased by $2 million for the third quarters of 1999 and 1998 and by $8 million for the first nine months of 1999 and 1998 if loans on nonaccrual status had been performing for the entire quarters. 12 NONINTEREST INCOME
3rd 2nd 3rd Quarter Quarter Quarter Year-to-Date ------- ------- ------- ------------ (In millions) 1999 1999 1998 1999 1998 ---- ---- ---- ---- ---- Servicing Fees Securities $ 311 $302 $258 $ 904 $ 726 Cash 69 70 66 208 193 ------ ---- ---- ------ ------ 380 372 324 1,112 919 Trust and Investment Fees 61 60 53 179 154 Service Charges and Fees 77 91 81 252 248 Foreign Exchange and Other Trading Activities 45 46 30 133 118 Securities Gains 50 50 51 149 125 Gain on the Sale of BNYFC 1,020 - - 1,020 - Liquidity Charge - Loans Available for Sale (124) - - (124) - Other 22 32 33 86 121 ------ ---- ---- ------ ------ Total Noninterest Income $1,531 $651 $572 $2,807 $1,685 ====== ==== ==== ====== ======
Securities servicing fees grew 21%, reaching $311 million compared with $258 million from a year ago. Fees from trust and investment were $61 million, up 15% from the third quarter of 1998. The decline in service charges and fees and other income primarily reflects the sale of BNYFC. Securities gains were $50 million, which compares to $50 million in the second quarter of 1999 and $51 million in the third quarter of 1998. On a pro forma basis, reflecting the sale of BNYFC and excluding the liquidity charge on the accelerated disposal of loans, noninterest income for the third quarter was $629 million, up 16% from $541 million in the third quarter of 1998. TRADING ACTIVITIES The fair value and notional amounts of the Company's financial instruments held for trading purposes at September 30, 1999 were as follows: 3rd Quarter 1999 September 30, 1999 Average ---------------------------- ------------------- (In millions) Fair Value Fair Value ------------------ ------------------- Notional Trading Account Amount Assets Liabilities Assets Liabilities - --------------- -------- ------ ----------- ------ ----------- Interest Rate Contracts: Futures and Forward Contracts $20,602 $ 2 $ - $ 4 $ - Swaps 70,890 734 589 776 582 Written Options 68,657 - 643 - 707 Purchased Options 38,712 66 - 74 - Foreign Exchange Contracts: Swaps 148 - - - - Written Options 33,852 - 197 - 198 Purchased Options 37,245 227 - 278 - Commitments to Purchase and Sell Foreign Exchange 54,871 491 427 496 458 Securities 286 280 374 255 ------ ------ ------ ------ Total Trading Account $1,806 $2,136 $2,002 $2,200 ====== ====== ====== ====== 13 The Company manages trading risk through a system of position limits, a value at risk (VAR) methodology, stop loss advisory triggers, and other market sensitivity measures. Risk is monitored and reported to senior management by an independent unit on a daily basis. The VAR methodology captures, based on certain assumptions, the potential overnight pre-tax dollar loss from adverse changes in fair values of all trading positions. The calculation assumes a one day holding period for most instruments, utilizes a 99% confidence level, and incorporates the non-linear characteristics of options. This methodology does not attempt to evaluate risk created from extraordinary financial, economic or other occurrences, and any risk evaluation system has judgmental aspects. The following table indicates the calculated VAR amounts for the trading portfolio for the periods indicated. During these periods, the daily trading loss did not exceed the calculated VAR amounts on any given day.
(In millions) 3rd Quarter 1999 Year-to-date 1999 ------------------------- ------------------------- Market Risk Average Minimum Maximum Average Minimum Maximum 09/30/99 - ----------- ------- ------- ------- ------- ------- ------- -------- Interest Rate $ 3.9 $ 2.3 $ 6.2 $ 4.5 $ 2.1 $10.9 $ 4.7 Foreign Exchange 1.5 0.8 3.0 1.5 0.7 4.0 1.2 Overall Portfolio 5.4 3.6 8.7 6.0 3.6 12.1 5.9
(In millions) 3rd Quarter 1998 Year-to-date 1998 ------------------------- ------------------------- Market Risk Average Minimum Maximum Average Minimum Maximum 09/30/98 - ----------- ------- ------- ------- ------- ------- ------- -------- Interest Rate $ 3.3 $ 1.5 $ 6.4 $ 4.3 $ 1.5 $ 7.0 $ 4.3 Foreign Exchange 2.6 1.1 4.8 2.3 0.8 4.8 2.9 Overall Portfolio 5.9 2.8 9.7 6.6 2.8 9.7 7.2
NONINTEREST EXPENSE AND INCOME TAXES Noninterest expense for the third quarter of 1999 was $515 million, up from $481 million in 1998. The increase was principally due to acquisitions and growth in the Company's securities servicing businesses. The efficiency ratio for the third quarter of 1999 was 50.7% compared with 49.9% in the second quarter of 1999 and 50.6% for the third quarter of 1998. For the first nine months of 1999, the efficiency ratio was 50.3% compared with 50.3% last year. The computation of the efficiency ratio excludes the gain on the sale of BNYFC and the liquidity charge. The effective tax rates for the third quarter and the first nine months of 1999 were 40.4% and 37.9% compared with 35.1% and 35.4% last year. The increases in these rates reflect the sale of BNYFC. 14 NONPERFORMING ASSETS
Change 9/30/99 vs. (Dollars in millions) 9/30/99 6/30/99 6/30/99 -------- -------- -------- Loans: Commercial Real Estate $ 1 $ 1 $ - Other Commercial 12 103 (91) Foreign 69 68 1 Regional Commercial 29 33 (4) Loans Available for Sale 31 - 31 ---- ---- ---- Total Loans 142 205 (63) Other Real Estate 13 15 (2) ---- ---- ---- Total $155 $220 $(65) ==== ==== ==== Nonperforming Assets Ratio 0.4% 0.6% Allowance/Nonperforming Loans 420.1 290.2 Allowance/Nonperforming Assets 384.2 271.0
The decline in nonperforming assets primarily reflects both the decision to sell certain loans as well as higher charge-offs in the Company's asset based lending businesses. The June 30, 1999 nonperforming assets exclude $21 million of loans related to the BNYFC transaction. At September 30, 1999, impaired loans (nonaccrual loans over $1 million) aggregated $83 million, of which $57 million exceeded their fair value by $16 million. Impaired loans at September 30, 1998, totaled $138 million, of which $106 million exceeded their fair value by $36 million. For the third quarters of 1999 and 1998, the average amounts of impaired loans were $128 million and $139 million. Interest income (cash received) of $62 thousand was received on the impaired loans in the third quarter of 1999, while no interest income was received during the third quarter of 1998. 15 CREDIT LOSS PROVISION AND NET CHARGE-OFFS
3rd 2nd 3rd Quarter Quarter Quarter Year-to-date ------- ------- ------- ------------ (In millions) 1999 1999 1998 1999 1998 ---- ---- ---- ---- ---- Provision $ 90 $ 15 $ 5 $ 120 $ 15 ==== ==== ==== ===== ==== Net(Charge-offs)Recoveries: Commercial Real Estate $ (1) $ 1 $ 5 $ (2) $ 7 Other Commercial (61) (13) (16) (82) (22) Consumer (1) (1) (1) (3) (3) Foreign (23) (2) (1) (34) (2) Other (3) - - (2) (2) ---- ---- ---- ----- ---- Total $(89) $(15) $(13) $(123) $(22) ==== ==== ==== ===== ==== Other Real Estate Expenses $ - $ - $ - $ 1 $ 2
The provision for credit losses for the quarter was $90 million. The increase from the $15 million recorded in the prior quarter primarily reflects the decision to accelerate the disposition of certain loans and higher charge- offs related to the Company's asset based lending businesses. The allowance for credit losses was $594 million, or 1.57% of loans at September 30, 1999 compared with $595 million, or 1.55% of loans at June 30, 1999 and $638 million, or 1.66% of loans at September 30, 1998. The ratio of the allowance to nonperforming assets was 384.2% at September 30, 1999 compared with 271.0% at June 30, 1999 and 327.8% at September 30, 1998. Based on an evaluation of individual credits, historical credit losses, and global economic factors, the Company has allocated its allowance for credit losses as follows: 9/30/99 6/30/99 12/31/98 ------- -------- -------- Real Estate 4% 4% 3% Domestic Commercial and Industrial 71 80 74 Consumer - - 1 Foreign 12 13 11 Unallocated 13 3 11 --- --- --- 100% 100% 100% Such an allocation is inherently judgmental, and the entire allowance for credit losses is available to absorb credit losses regardless of the nature of the loss. SEGMENT PROFITABILITY Segment Data Effective January 1, 1999, the Company adopted a new accounting pronouncement requiring disclosure about the Company's segments based on a management approach. The Company has an internal information system that produces performance data for its four segments along product and service lines. The Trust, and Securities and Cash Processing segment provides a broad array of fee based services. Trust includes personal trust and investment management. Securities servicing includes services to both institutional 16 issuers and investors. Cash processing products primarily relate to funds transfer, deposit services and trade finance. The Corporate Banking segment provides lending services, including asset based financing, to domestic and international commercial enterprises. The Retail Banking segment includes consumer lending, residential mortgage lending, and retail deposit services. The Financial Markets segment includes trading, investing and leasing activities, and treasury services to other segments. The Company's segment data has been determined on an internal management basis of accounting, other than the generally accepted accounting principles used for consolidated financial reporting. These measurement principles are designed to ensure that reported results of the segments track their economic performance. Segment results are subject to restatement when improvements are made in the measurement principles or organizational changes are made. In 1999, net interest income for the Corporate Banking and Financial Markets segments has been restated to reflect adjustments to deposit balances allocated to these sectors. The measure of revenues and profit or loss by operating segment has been adjusted to present segment data on a taxable equivalent basis. The provision for credit losses allocated to each reportable segment is based on management's judgment as to average credit losses that will be incurred in the operations of the segment over a credit cycle of a period of years. Management's judgment includes the following factors among others: historical charge-off experience and the volume, composition and growth of the loan portfolio. This method is different from that required under generally accepted accounting principles as it anticipates future losses which are not yet probable and therefore not recognizable under generally accepted accounting principles. Assets and liabilities are match funded. Support and other indirect expenses are allocated to segments based on general guidelines. The segments contributed to the Company's profitability as follows:
In Millions Trust, and Securities For the Quarter Ended and Cash Corporate Retail Financial Reconciling Consolidated September 30, 1999 Processing Banking Banking Markets Items* Total - --------------------- ---------- --------- ------- --------- ----------- ------------ Net Interest Income $ 115 $ 142 $ 125 $ 32 $ 3 $ 417 Provision for Credit Losses - 22 1 - 67 90 Noninterest Income 474 70 23 56 908 1,531 Noninterest Expense 294 57 78 23 63 515 ------ ------- ------ ------- ------ ------- Income Before Taxes $ 295 $ 133 $ 69 $ 65 $ 781 $ 1,343 ====== ======= ====== ======= ====== ======= Average Assets $6,141 $29,215 $4,617 $22,862 $1,228 $64,063 ====== ======= ====== ======= ====== =======
In Millions Trust, and Securities For the Quarter Ended and Cash Corporate Retail Financial Reconciling Consolidated September 30, 1998 Processing Banking Banking Markets Items* Total - --------------------- ---------- --------- ------- --------- ----------- ------------ Net Interest Income $ 98 $ 170 $ 123 $ 30 $ (6) $ 415 Provision for Credit Losses - 27 (2) 7 (27) 5 Noninterest Income 393 73 20 57 29 572 Noninterest Expense 259 62 79 20 61 481 ------ ------- ------ ------- ------ ------- Income Before Taxes $ 232 $ 154 $ 66 $ 60 $ (11) $ 501 ====== ======= ====== ======= ====== ======= Average Assets $5,611 $33,452 $4,377 $19,058 $1,534 $64,032 ====== ======= ====== ======= ====== =======
17
In Millions Trust, and For the Nine Securities Months Ended and Cash Corporate Retail Financial Reconciling Consolidated September 30, 1999 Processing Banking Banking Markets Items* Total - --------------------- ---------- --------- ------- --------- ----------- ------------ Net Interest Income $ 321 $ 478 $ 359 $ 84 $ 18 $ 1,260 Provision for Credit Losses - 83 3 (2) 36 120 Noninterest Income 1,386 248 67 165 941 2,807 Noninterest Expense 860 201 225 58 193 1,537 ------ ------- ------ ------- ------ ------- Income Before Taxes $ 847 $ 442 $ 198 $ 193 $ 730 $ 2,410 ====== ======= ====== ======= ====== ======= Average Assets $6,283 $31,784 $ 4,371 $21,630 $1,462 $65,530 ====== ======= ====== ======= ====== =======
In Millions Trust, and For the Nine Securities Months Ended and Cash Corporate Retail Financial Reconciling Consolidated September 30, 1998 Processing Banking Banking Markets Items* Total - --------------------- ---------- --------- ------- --------- ----------- ------------ Net Interest Income $ 295 $ 484 $ 378 $ 70 $ (9) $ 1,218 Provision for Credit Losses - 83 5 7 (80) 15 Noninterest Income 1,144 234 59 177 71 1,685 Noninterest Expense 748 192 231 52 197 1,420 ------ ------- ------ ------- ------ ------- Income Before Taxes $ 691 $ 443 $ 201 $ 188 $ (55) $ 1,468 ====== ======= ====== ======= ====== ======= Average Assets $5,654 $32,952 $4,609 $17,244 $1,514 $61,973 ====== ======= ====== ======= ====== ======= * - Reconciling items for net interest income primarily relate to the recording of interest income on a taxable equivalent basis, reallocation of capital and the funding of goodwill. Reconciling items for noninterest income primarily relate to the sale of BNYFC and the liquidity charge in the third quarter of 1999 and to the sale of a building in 1998. Reconciling items for noninterest expense include $23 million and $76 million of amortization of intangibles for the third quarter and year-to-date for 1999 and $26 million and $75 million of amortization of intangibles for the third quarter and year- to-date for 1998, Year 2000 expenses, and corporate overhead. The adjustment to the provision for credit losses reflects the difference between the aggregate of the credit provision over a credit cycle for the reportable segments and the Company's recorded provision. The reconciling items for average assets consist of goodwill and other intangible assets.
Segment Highlights Trust, and Securities and Cash Processing - ----------------------------------------- In the Trust, and Securities and Cash Processing segment, noninterest income in the third quarter of 1999 increased to $474 million from $393 million in the third quarter of 1998. All of the Company's businesses have shown strong internal growth with global custody, mutual funds, securities lending, ADRs, and execution services performing particularly well. Assets under custody grew to $5.4 trillion at quarter end. Securities servicing fees increased to $311 million as compared with $258 million in the third quarter of 1998. Fees from cash processing in the third quarter of 1999 increased to $69 million from $66 million in last year's third quarter. Fees from cash management were up 7% driven by continued cross selling to the Company's securities servicing customers. Fees from funds transfer grew by 11% from the 18 previous year, the result of continued markets share gains and the firming global economy. Trade finance fees were down 6% from a year ago primarily due to the sale of BNYFC. Fees from trust and investment management grew to $61 million in the third quarter of 1999, as compared to $53 million in the third quarter of 1998, driven by strong results from personal trust, personal asset management and retail investment products. Net charge-offs in the Trust, and Securities and Cash Processing segment were zero in the third quarters of 1999 and 1998. The rise in noninterest expense is consistent with the growth in the Company's existing businesses as well as the added salary and other expenses from acquisitions. Corporate Banking - ----------------- The Corporate Banking segment's net interest income was $142 million in the third quarter of 1999 compared with $170 million last year reflecting the sale of BNYFC. The third quarter of 1999 provision for credit losses was $22 million compared with $27 million last year. Net charge-offs in the Corporate Banking segment were $88 million and $5 million in the third quarters of 1999 and 1998. Noninterest income declined to $70 million in the current quarter from $73 million last year. Noninterest expense decreased to $57 million from $62 million. The decline in noninterest income and expense reflects the sale of BNYFC. Retail Banking - -------------- In the Retail Banking segment, net interest income in the third quarter of 1999 was $125 million compared with $123 million in the third quarter of 1998. Noninterest income increased in this same period to $23 million from $20 million. Noninterest expense in the third quarter of 1999 was $78 million compared with $79 million in the previous year's period. Net charge-offs were $1 million in the third quarters of 1999 and 1998. Financial Markets - ----------------- In the Financial Markets segment, net interest income was $32 million in the third quarter of 1999 compared with $30 million in the third quarter of 1998. Noninterest income was $56 million in the third quarter of 1999 compared with $57 million in thethird quarter of 1998. Net charge-offs were zero in the third quarter of 1999 and $7 million in the third quarter of 1998. YEAR 2000 READINESS DISCLOSURE The Company's Year 2000 compliance program consists of updating major Company-owned application systems, business-area supported systems, and the Company's proprietary customer software and evaluating the Year 2000 compliance efforts of vendors of major vendor-supplied systems. The Company's compliance efforts have also considered the Year 2000 readiness of its global sub-custodians, major service providers, correspondents, business partners, and borrowers. The current focus is to monitor continued preparedness and contingency planning. While contingency planning has been defined as part of the Year 2000 compliance program, all new measures have been incorporated into the Company's existing Business Continuity Plans. The Company divided its major proprietary applications systems into three business line groups. The applications in each group were subjected to a phased process of assessment, renovation, certification testing, and implementation. All critical systems have completed all phases. A program is in place to continue to monitor critical systems in an effort to prevent Y2K problems from being reintroduced. Major business-line products have been made available in isolated future-dated environments for selected customers to test 19 their interfaces and to assure themselves of the Company's compliance. The Company is satisfied with the results of testing with customers and clearing and settlement agencies. Participation in testing, at the request of the agencies and customers, will continue as required. Remediation of the Company's proprietary customer software has been completed. Installation on client desktop computers is substantially complete. Customers have been advised of their obligation to assure that their data processing environments are Year 2000 compliant in order for the Company's software to function correctly during and after the century date change. The Company has substantially completed an evaluation of its significant business partners, including other financial service providers, correspondents, counterparties, sub-custodians, vendors and settlement agencies, for the purpose of assessing their Year 2000 compliance. The Company is currently satisfied with the information it has received concerning the progress and Year 2000 readiness programs of each significant third party. The Company will continue to monitor the readiness and progress of these parties throughout 1999. The Company has replaced certain service providers that were seen as not managing the Year 2000 issue adequately. The Company considers Year 2000 readiness in its credit decisions and factors this into borrower ratings. Based on a review of significant obligors, the Company believes that exposure to obligor Year 2000 problems does not present a material risk to the Company. The Company's personal computers considered to be critical to the Company's operations have been upgraded. Upgrading of physical facilities to Year 2000 readiness that is considered critical to the Company's operations is expected to be completed by the end of November 1999. The Company's contingency plans relating to Year 2000 issues include the identification and assessment of the impact of various worst case scenarios on the critical operational components for each of the Company's business units. The Company has reviewed the applicability of its current contingency plans, which include creation of an information center, establishment of special rapid response technology teams, scheduling availability of key personnel, testing and simulation activities, offsite data center facilities, and emergency backup power. With minor modification, we believe these plans to be adequate to mitigate Year 2000 related risks. The information center, which has been established as a repository and focus for analysis of information, will publish the status of the organization internally and externally during critical periods. It is also authorized to requisition and deploy resources as needed to address unanticipated situations. Overall the Company's Year 2000 compliance program is on or ahead of schedule to meet the needs of its customers and compliance deadlines defined by its regulators. The estimated cost of the Year 2000 project is approximately $82 million. In the first nine months of 1999 the Company spent $16 million on making computer systems Year 2000 compliant. Total expenses since 1997 have been $67 million. A material Year 2000 problem could result in an interruption in, or a failure of, certain normal business activities or operations. Such problems could materially and adversely affect the Company's results of operations, liquidity and financial condition. Due to the general uncertainty inherent in the Year 2000 problem, resulting in part from the uncertainty of the Year 2000 readiness of suppliers, customers and other business partners, as well as entities with which the Company does not have direct business relations, the Company is unable to determine at this time whether the consequences of the Year 2000 failures will have a material impact on the Company's results of operations, liquidity or financial condition. The Year 2000 compliance program is intended to significantly reduce the Company's level of uncertainty about the Year 2000 problem and, in particular, about the Year 2000 compliance and 20 readiness of its material business partners. The Company believes that, with completion of its Year 2000-compliance program as scheduled, the possibility of significant interruptions of normal operations should be reduced. However, because of the unprecedented nature of this issue, there can be no certainty as to its impact. Forward looking statements contained in this Year 2000 update should also be read in conjunction with the Company's disclosures under the heading "Forward Looking Statements" below. INTRODUCTION OF THE EURO In January 1999, eleven European countries adopted the euro as their common legal currency. In the transition period from adoption through December 31, 2001, commerce may be conducted in either the euro or the former national currencies. The Company has adapted its information technology systems and business practices to accommodate euro-denominated transactions. The introduction of the euro currency may result in increased price transparency in the euro-area countries as well as a loss of cross-currency trading in the former national currencies, and may ultimately have profound political and financial implications. Based on its knowledge at this time, the Company does not anticipate that the introduction of the euro will have a material effect on the Company's financial condition or results of operations. FORWARD LOOKING STATEMENTS The information presented with respect to earnings growth and the Company's plans and objectives in moving toward fee based business is forward looking information. As such it is subject to risks and uncertainties that could cause actual results to differ materially from projected results discussed in this Report. These include variations in management projections or market forecasts and the actions that management could take in response to these changes. The Company or its executive officers and directors on behalf of the Company, may from time to time make forward looking statements. These statements, which will be identified as forward looking statements, projections or future plans, could be affected by a number of factors that the Company is necessarily unable to predict with accuracy, including future changes in interest rates, general credit quality, economic activity, consumer behavior, government monetary policy, legislation and regulation, competition, credit, market and operating risk, and loan demand. In addition, the Company's future results of operations, discussions of future plans and other forward looking statements contained in Management's Discussion and Analysis and elsewhere in this Form 10-Q involve a number of risks and uncertainties, including risks relating to Year 2000 (in particular, the Year 2000 readiness of third parties with which the Company does business) and the uncertainties created by the anticipated enactment of the Gramm-Leach-Bliley Financial Modernization Act of 1999. As a result of variations in such factors, actual results may differ materially from any forward looking statements. The Company disclaims any obligation to update forward looking statements. Government Monetary Policies The Federal Reserve Board has the primary responsibility for monetary policy; accordingly, its actions have an important influence on the demand for credit and investments and the level of interest rates and thus on the earnings of the Company. 21 Legislation and Regulation Congress has passed the Gramm-Leach-Bliley Financial Modernization Act of 1999. If signed into law by the President, the Modernization Act would: a) Allow bank holding companies meeting management, capital and Community Reinvestment Act standards to engage in a substantially broader range of nonbanking activities than currently is permissible, including insurance underwriting and making merchant banking investments in commercial and financial companies; b) Allow insurers and other financial services companies to acquire banks; c) Remove various restrictions that currently apply to bank holding company ownership of securities firms and mutual fund advisory companies; and d) Establish the overall regulatory structure applicable to bank holding companies that also engage in insurance and securities operations. Currently, the Company meets the requirements for the broader range of activities that would be permitted by the Modernization Act. The Modernization Act also modifies current law related to financial privacy and community reinvestment. The new financial privacy provisions would generally prohibit financial institutions, including the Company, from disclosing nonpublic personal financial information to third parties unless customers have the opportunity to "opt out" of the disclosure. Competition The businesses in which the Company operates are very competitive. Competition is provided by both unregulated and regulated financial service organizations, whose products and services span the local, national, and global markets in which the Company conducts operations. In addition to other commercial banks, savings banks, savings and loan associations, and credit unions actively compete for deposits, and money market funds and brokerage houses offer deposit-like services. These institutions, as well as consumer and commercial finance companies, national retail chains, factors, insurance companies and pension trusts, are important competitors for various types of loans. Issuers of commercial paper compete actively for funds and reduce demand for bank loans. For personal and corporate trust services and investment counseling services, insurance companies, investment counseling firms, and other business firms and individuals offer active competition. A wide variety of domestic and foreign companies compete for processing services. 22 THE BANK OF NEW YORK COMPANY, INC. Average Balances and Rates on a Taxable Equivalent Basis (Dollars in millions)
For the three months For the three months ended September 30, 1999 ended September 30, 1998 ------------------------------ ------------------------------ Average Average Average Average Balance Interest Rate Balance Interest Rate ------- -------- ------- ------- -------- ------- ASSETS - ------ Interest-Bearing Deposits in Banks (primarily foreign) $ 5,641 $ 62 4.35% $ 3,247 $ 44 5.43% Federal Funds Sold and Securities Purchased Under Resale Agreements 4,051 49 4.76 4,889 68 5.50 Loans Domestic Offices 19,224 349 7.20 20,074 383 7.56 Foreign Offices 18,522 294 6.30 18,846 327 6.88 ------- ----- ------- ----- Total Loans 37,746 643 6.76 38,920 710 7.23 ------- ----- ------- ----- Securities U.S. Government Obligations 2,452 36 5.85 2,907 42 5.73 U.S. Government Agency Obligations 840 14 6.56 465 8 6.67 Obligations of States and Political Subdivisions 570 11 7.87 687 13 7.80 Other Securities, including Trading Securities 2,537 31 4.93 2,984 36 4.76 ------- ----- ------- ----- Total Securities 6,399 92 5.76 7,043 99 5.58 ------- ----- ------- ----- Total Interest-Earning Assets 53,837 846 6.24% 54,099 921 6.75% ----- ----- Allowance for Credit Losses (593) (646) Cash and Due from Banks 3,240 3,133 Other Assets 7,579 7,446 ------- ------- TOTAL ASSETS $64,063 $64,032 ======= ======= LIABILITIES AND SHAREHOLDERS' EQUITY - ------------------------------------ Interest-Bearing Deposits Money Market Rate Accounts $ 4,891 54 4.37% $ 5,078 62 4.87% Savings 7,763 45 2.32 7,645 50 2.60 Certificates of Deposit $100,000 & Over 430 5 5.03 666 9 5.46 Other Time Deposits 2,208 24 4.27 2,228 27 4.78 Foreign Offices 18,664 192 4.07 17,542 219 4.94 ------- ----- ------- ----- Total Interest-Bearing Deposits 33,956 320 3.74 33,159 367 4.39 Federal Funds Purchased and Securities Sold Under Repurchase Agreements 2,827 32 4.50 3,205 38 4.75 Other Borrowed Funds 2,012 27 5.34 3,827 52 5.31 Long-Term Debt 2,313 38 6.59 1,998 34 6.81 ------- ----- ------- ----- Total Interest-Bearing Liabilities 41,108 417 4.03% 42,189 491 4.61% ----- ----- Noninterest-Bearing Deposits 10,580 10,220 Other Liabilities 5,870 5,391 Minority Interest-Preferred Securities 1,500 1,300 Preferred Stock 1 1 Common Shareholders' Equity 5,004 4,931 ------- ------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $64,063 $64,032 ======= ======= Net Interest Earnings and Interest Rate Spread $ 429 2.21% $ 430 2.14% ===== ==== ===== ==== Net Yield on Interest-Earning Assets 3.16% 3.15% ==== ====
23 THE BANK OF NEW YORK COMPANY, INC. Average Balances and Rates on a Taxable Equivalent Basis (Dollars in millions)
For the nine months For the nine months ended September 30, 1999 ended September 30, 1998 ------------------------------ ------------------------------ Average Average Average Average Balance Interest Rate Balance Interest Rate ------- -------- ------- ------- -------- ------- ASSETS - ------ Interest-Bearing Deposits in Banks (primarily foreign) $ 5,321 $ 180 4.52% $ 3,084 $ 127 5.51% Federal Funds Sold and Securities Purchased Under Resale Agreements 4,169 147 4.73 3,466 140 5.39 Loans Domestic Offices 19,913 1,073 7.21 19,620 1,137 7.76 Foreign Offices 19,109 890 6.23 18,234 938 6.88 ------- ------ ------- ------ Total Loans 39,022 1,963 6.73 37,854 2,075 7.33 ------- ------ ------- ------ Securities U.S. Government Obligations 2,518 109 5.79 3,211 139 5.77 U.S. Government Agency Obligations 857 41 6.43 544 27 6.53 Obligations of States and Political Subdivisions 592 35 7.82 669 41 8.08 Other Securities, including Trading Securities 2,538 87 4.56 2,933 101 4.61 ------- ------ ------- ------ Total Securities 6,505 272 5.59 7,357 308 5.58 ------- ------ ------- ------ Total Interest-Earning Assets 55,017 2,562 6.23% 51,761 2,650 6.84% ------ ------ Allowance for Credit Losses (619) (644) Cash and Due from Banks 3,130 3,400 Other Assets 8,002 7,456 ------- ------- TOTAL ASSETS $65,530 $61,973 ======= ======= LIABILITIES AND SHAREHOLDERS' EQUITY - ------------------------------------ Interest-Bearing Deposits Money Market Rate Accounts $ 5,086 160 4.20% $ 4,931 176 4.78% Savings 7,793 131 2.24 7,689 147 2.56 Certificates of Deposit $100,000 & Over 559 20 4.89 690 28 5.49 Other Time Deposits 2,195 71 4.31 2,276 82 4.83 Foreign Offices 18,971 579 4.08 15,931 601 5.04 ------- ------ ------- ------ Total Interest-Bearing Deposits 34,604 961 3.71 31,517 1,034 4.39 Federal Funds Purchased and Securities Sold Under Repurchase Agreements 3,061 99 4.32 2,973 104 4.65 Other Borrowed Funds 2,591 102 5.31 3,754 154 5.48 Long-Term Debt 2,225 108 6.45 1,935 100 6.85 ------- ------ ------- ------ Total Interest-Bearing Liabilities 42,481 1,270 4.00% 40,179 1,392 4.63% ------ ------ Noninterest-Bearing Deposits 10,548 10,156 Other Liabilities 5,866 5,609 Minority Interest-Preferred Securities 1,482 1,210 Preferred Stock 1 1 Common Shareholders' Equity 5,152 4,818 ------- ------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $65,530 $61,973 ======= ======= Net Interest Earnings and Interest Rate Spread $1,292 2.23% $1,258 2.21% ====== ==== ====== ==== Net Yield on Interest-Earning Assets 3.14% 3.25% ==== ====
24 PART II. OTHER INFORMATION Item 2. Sales of Unregistered Common Stock - ------------------------------------------- Shares of the Company's common stock were issued in the following transactions exempt from registration under the Securities Act of 1933 pursuant to Section 4(2) thereof: a) On September 14, 1999, 2,400 shares of common stock were issued to a newly elected non-employee director as part of the annual retainer. b) On November 5, 1999, 1,326,451 shares of the Company's common stock were issued to the shareholders of a corporation acquired by the Company in exchange for all of the shares of the acquired corporation. Item 6. Exhibits and Reports on Form 8-K - ----------------------------------------- a) The exhibits filed as part of this report are as follows: Exhibit 12 - Statement Re: Ratios of Earnings to Fixed Charges and Ratios of Earnings to Combined Fixed Charges and Distributions on Trust Preferred Securities and for the Three and Nine Months Ended September 30, 1999 and 1998. Exhibit 27 - Statement Re: Financial Data Schedule containing selected financial data at September 30, 1999 and for the Nine Months Ended September 30, 1999. b) The Company filed the following reports on Form 8-K since June 30, 1999: On July 19, 1999, the Company filed a Form 8-K Current Report (Items 5 and 7), which report included unaudited interim financial information and accompanying discussion for the second quarter of 1999 contained in the Company's press release dated July 19, 1999. On July 30, 1999, the Company filed a Form 8-K Current Report (Items 5 and 7) related to the issuance by the Company of $895,000,00 of its Senior Subordinated Medium-Term Notes, Series D and Senior Medium-Term Notes, Series C (collectively, the "Notes"), issuable under an Indenture, dated as of October 1, 1993 between the Company and Chase Manhattan Trust Company National Association (the "Senior Subordinated Indenture") and an Indenture, dated as of July 18, 1991 between the Company and Bankers Trust Company, respectively (the "Senior Indenture" and together with the Senior Subordinated Indenture, the "Indentures"). The exhibits filed in connection with the Registration Statements on Form S-3 (File Nos. 33-61957, 333-70187, and 333-70187-01 through 04) consist of the Distribution Agreement, the Forms of Notes, Officers' Certificates pursuant to Section 301 of the Indentures, and the opinion of counsel as to the legality of the Notes. On October 20, 1999, the Company filed a Form 8-K Current Report (Items 5 and 7), which report included unaudited interim financial information and accompanying discussion for the third quarter of 1999 contained in the Company's press release dated October 18, 1999. 25 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. THE BANK OF NEW YORK COMPANY, INC. ---------------------------------- (Registrant) Date: November 12, 1999 By: \s\ Thomas J. Mastro --------------------------------- Name: Thomas J. Mastro Title: Comptroller 26 EXHIBIT INDEX ------------- Exhibit Description - ------- ----------- 12 Ratios of Earnings to Fixed Charges and Ratios of Earnings to Combined Fixed Charges and Distributions on Trust Preferred Securities for the Three and Nine Months Ended September 30, 1999 and 1998. 27 Financial Data Schedule containing selected financial data at September 30, 1999 and for the Nine Months Ended September 30, 1999. EX-12 2 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 Trust Preferred Securities (Dollars in millions)
Three Months Ended Nine Months Ended September 30, September 30, 1999 1998 1999 1998 ---- ---- ---- ---- EARNINGS - -------- Income Before Income Taxes $1,343 $ 501 $2,410 $1,468 Fixed Charges, Excluding Interest on Deposits 105 132 333 382 ------ ------ ------ ------ Income Before Income Taxes and Fixed Charges Excluding Interest on Deposits 1,448 633 2,743 1,850 Interest on Deposits 320 367 961 1,034 ------ ------ ------ ------ Income Before Income Taxes and Fixed Charges, Including Interest on Deposits $1,768 $1,000 $3,704 $2,884 ====== ====== ====== ====== FIXED CHARGES - ------------- Interest Expense, Excluding Interest on Deposits $ 97 $ 124 $ 309 $ 358 One-Third Net Rental Expense* 8 8 24 24 ------ ------ ------ ------ Total Fixed Charges, Excluding Interest on Deposits 105 132 333 382 Interest on Deposits 320 367 961 1,034 ------ ------ ------ ------ Total Fixed Charges, Including Interest on Deposits $ 425 $ 499 $1,294 $1,416 ====== ====== ====== ====== DISTRIBUTION ON TRUST PREFERRED SECURITIES, PRE-TAX BASIS $ 28 $ 25 $ 84 $ 70 - ------------------------------- ====== ====== ====== ====== EARNINGS TO FIXED CHARGES RATIOS - -------------------------------- Excluding Interest on Deposits 13.79x 4.80x 8.24x 4.84x Including Interest on Deposits 4.16 2.00 2.86 2.04 EARNINGS TO COMBINED FIXED CHARGES, DISTRIBUTION ON TRUST PREFERRED SECURITIES, & PREFERRED STOCK DIVIDENDS RATIOS - ------------------------------------------- Excluding Interest on Deposits 10.89 4.03 6.58 4.09 Including Interest on Deposits 3.90 1.91 2.69 1.94 *The proportion deemed representative of the interest factor.
EX-27 3 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 September 30, 1999 and is qualified entirely by reference to such Form 10-Q. 0000009626 THE BANK OF NEW YORK COMPANY, INC. 1,000,000 9-MOS DEC-31-1999 JAN-01-1999 SEP-30-1999 6,430 4,543 1,614 1,806 5,048 844 806 37,757 594 63,158 44,795 5,889 3,261 2,416 0 1 7,318 (2,423) 63,158 1,962 226 342 2,530 961 1,270 1,260 120 149 1,537 2,410 1,411 0 0 1,411 1.87 1.84 3.14 142 24 0 0 636 (133) 10 594 448 70 76
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