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1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For The Fiscal Year Ended December 31, 1997
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number 1-6152
THE BANK OF NEW YORK COMPANY, INC.
(Exact name of registrant as specified in its charter)
NEW YORK 13-2614959
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
48 Wall Street, New York, New York 10286
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code (212) 495-1784
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
------------------- -----------------------
Common Stock, $7.50 par value NEW YORK STOCK EXCHANGE
Preferred Stock Purchase Rights NEW YORK STOCK EXCHANGE
Securities registered pursuant to Section 12(g) of the Act:
Title of each class
-------------------
Warrants to Purchase Common Stock
Class A, 7.75% Cumulative Convertible Preferred Stock
7.97% Capital Securities, Series B
7.80% Trust Preferred Securities, Series C
7.05% Preferred Securities, Series D
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days
Yes X No
----- -----
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [ ]
The aggregate market value of voting stock held by nonaffiliates of the
registrant at February 27, 1998 consisted of:
Common Stock ($7.50 par value) $21,700,774,297
(based on closing price
on New York Stock Exchange)
The number of shares outstanding of the registrant's Common Stock $7.50 par
value was 370,557,512 shares on February 27, 1998
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the 1997 Annual Report to Shareholders are incorporated by
reference into Parts I, II, and IV.
2
PART I
- ------
ITEM 1. BUSINESS
- -----------------
INTRODUCTION
The business of The Bank of New York Company, Inc. (the "Company") and
its subsidiaries is described in the "Business Review" section of the
Company's 1997 Annual Report to Shareholders which description is included in
Exhibit 13 to this report and incorporated herein by reference. Also, the
"Management's Discussion and Analysis" section included in Exhibit 13 contains
financial and statistical information on the operations of the Company. Such
information is herein incorporated by reference.
CERTAIN REGULATORY CONSIDERATIONS
General
As a bank holding company, the Company is subject to the regulation and
supervision of the Federal Reserve Board under the Bank Holding Company Act
("BHC Act"). The Company is also subject to regulation by the New York State
Department of Banking. Under the BHC Act, bank holding companies may not
directly or indirectly acquire the ownership or control of more than 5% of
the voting shares or substantially all of the assets of any company, including
a bank, without the prior approval of the Federal Reserve Board. In addition,
bank holding companies are generally prohibited under the BHC Act from
engaging in nonbanking activities, subject to certain exceptions.
The Company's subsidiary banks are subject to supervision and examination
by applicable federal and state banking agencies. The Bank of New York
("BNY"), a New York chartered banking corporation, is a member of the Federal
Reserve System and is subject to regulation, supervision and examination by
the Federal Reserve Board. BNY is also subject to regulation, supervision
and examination by the New York Banking Department.
Both federal and state laws extensively regulate various aspects of the
banking business, such as permissible types and amounts of loans and
investments, permissible activities, and reserve requirements. These
regulations are intended primarily for the protection of depositors rather
than the Company's stockholders.
Capital Adequacy
Bank regulators have adopted risk-based capital guidelines for bank
holding companies and banks. The minimum ratio of qualifying total capital
to risk-weighted assets and certain off-balance sheet items ("Total Capital
Ratio") is 8%. At least half of the total capital is to be comprised of
common stock, retained earnings, noncumulative perpetual preferred stock,
minority interests (and, for bank holding companies, a limited amount of
qualifying cumulative perpetual preferred stock), less most intangibles
including goodwill ("Tier 1 capital"). The remainder ("Tier 2 capital") may
consist of other preferred stock, certain other instruments, and limited
amounts of subordinated debt and allowance for loan losses.
In addition, the Federal Reserve Board has established minimum Leverage
Ratio (Tier 1 capital to average total assets) guidelines for bank holding
companies and banks, and the FDIC has established substantially identical
minimum leverage requirements for state chartered FDIC-insured, non-member
banks. The Federal Reserve Board's guidelines provide for a minimum Leverage
Ratio of 3% for bank holding companies and banks that meet certain specified
criteria, including those having the highest regulatory rating. All other
banking organizations will be required to maintain a Leverage Ratio of at
least 3% plus an additional cushion of 100 to 200 basis points. The
guidelines also provide that banking organizations experiencing internal
growth or making acquisitions will be expected to maintain strong capital
positions substantially above the minimum supervisory levels, without
significant reliance on intangible assets. The Federal Reserve Board has not
advised the Company of any specific minimum Leverage Ratio applicable to it.
See "FDICIA" below.
3
Federal banking agencies have issued regulations, which become effective
in 1998, that modify existing rules related to capital ratios with respect to
various areas of risk including interest rate exposure and other market risk.
The Company does not believe that the aggregate impact of these modifications
would have a significant impact on its capital position.
FDICIA
The Federal Deposit Insurance Corporation Improvement Act of 1991
("FDICIA"), substantially revised the depository institution regulatory and
funding provisions of the Federal Deposit Insurance Act ("FDIA") and made
revisions to several other federal banking statutes.
Among other things, FDICIA requires the federal banking regulators to
take prompt corrective action in respect of FDIC-insured depository
institutions that do not meet minimum capital requirements. FDICIA
establishes five capital tiers: "well capitalized", "adequately capitalized,"
"undercapitalized," "significantly undercapitalized" and "critically
undercapitalized." Under applicable regulations, an FDIC-insured bank is
defined to be well capitalized if it maintains a Leverage Ratio of at least
5%, a Tier 1 Capital Ratio (Tier 1 Capital to risk-weighted assets and
certain off-balance sheet items) of at least 6% and a Total Capital Ratio of
at least 10% and is not otherwise in a "troubled condition" as specified by
its appropriate federal regulatory agency. A bank is generally considered to
be adequately capitalized if it is not defined to be well capitalized but
meets all of its minimum capital requirements, i.e., if it has a Total Capital
Ratio of 8% or greater, a Tier 1 Capital Ratio of 4% or greater and a Leverage
Ratio of 4% or greater. A bank will be considered undercapitalized if it fails
to meet any minimum required measure, significantly undercapitalized if it is
significantly below any such measure and critically undercapitalized if it
maintains a level of tangible equity capital equal to or less than 2% of
total assets. A bank may be deemed to be in a capitalization category that
is lower than is indicated by its actual capital position if it receives an
unsatisfactory examination rating.
FDICIA generally prohibits an FDIC-insured depository institution from
making any capital distribution (including payment of dividends) or paying
any management fee to its holding company if the depository institution would
thereafter be undercapitalized. Undercapitalized depository institutions are
subject to restrictions on borrowing from the Federal Reserve System.
Depository institutions that are not well capitalized are subject to
restrictions on receipt of brokered deposits. In addition, bank regulators
can be expected to restrain acquisitions and new activities by bank holding
companies and banks that are not well capitalized. Undercapitalized
depository institutions are subject to growth limitations and are required to
submit capital restoration plans. For an undercapitalized depository
institution's capital restoration plan to be acceptable, its holding company
must guarantee the capital plan up to an amount equal to the lesser of 5% of
the depository institution's assets at the time it becomes undercapitalized
or the amount of the capital deficiency when the institution fails to comply
with the plan. In the event of the parent holding company's bankruptcy, such
guarantee would take priority over the parent's general unsecured creditors.
The federal banking agencies may not accept a capital plan without
determining, among other things, that the plan is based on realistic
assumptions and is likely to succeed in restoring the depository
institution's capital. If a depository institution fails to submit an
acceptable plan, it is treated as if it is significantly undercapitalized.
Significantly undercapitalized depository institutions may be subject to
a number of requirements and restrictions, including orders to sell
sufficient voting stock to become adequately capitalized, requirements to
reduce total assets and cessation of receipt of deposits from correspondent
banks. Critically undercapitalized depository institutions are subject to
appointment of a receiver or conservator.
A discussion of the Company's capital position and capital adequacy is
incorporated by reference from "Capital Resources" in the "Management's
Discussion and Analysis" Section and Note 10 to the Consolidated Financial
Statements of Exhibit 13.
As of December 31, 1997 and 1996, capital ratios for the Company and BNY
4
were categorized as well capitalized as set forth in the table below.
December 31, 1997 December 31, 1996
-------------------- --------------------- Well
Capitalized
Company BNY Company BNY Guidelines
------- --- ------- --- ----------
Tier I 7.92% 7.70% 8.34% 7.03% 6%
Total Capital 11.97 10.38 12.78 10.26 10
Leverage 7.59 7.42 8.70 6.89 5
Tangible Common
Equity 6.47 7.57 6.99 6.68
At December 31, 1997, the amounts of capital by which the Company and
BNY exceed the well capitalized guidelines are as follows:
Company BNY
(in millions) ------- ---
Tier 1 $1,092 $ 920
Total Capital 1,118 206
Leverage 1,539 1,359
5
The following table presents the components of the Company's risk-based
capital at December 31, 1997 and 1996:
(in millions) 1997 1996
---- ----
Common Stock $5,000 $5,015
Preferred Stock 1 112
Minority Interest 1,000 600
Adjustments: Intangibles (1,174) (1,003)
Securities Valuation Allowance (320) (82)
50% Investment in Section 20
Subsidiary - (29)
------ ------
Tier 1 Capital 4,507 4,613
Qualifying Long-term Debt 1,662 1,796
Qualifying Allowance for Loan Losses 641 695
Adjustment: 50% Investment in Section 20
Subsidiary - (29)
------ ------
Tier 2 Capital 2,303 2,462
------ ------
Total Risk-based Capital $6,810 $7,075
====== ======
The following table presents the components of the Company's risk
adjusted assets at December 31, 1997 and 1996:
1997 1996
------------------- --------------------
Balance Balance
(in millions) sheet/ Risk sheet/ Risk
notional adjusted notional adjusted
Assets amount balance amount balance
- ------ -------- -------- -------- --------
Cash, Due From Banks and Interest-
Bearing Deposits in Banks $ 7,895 $ 1,064 $ 7,419 $ 758
Securities 6,628 1,371 5,053 904
Trading Assets 2,616 142 1,547 67
Fed Funds Sold and Securities
Purchased Under Resale Agreements 2,820 439 562 65
Loans 35,127 30,952 37,006 33,518
Allowance for Loan Losses (641) - (901) -
Other Assets 5,516 3,469 5,079 3,600
-------- ------ -------- -------
Total Assets $ 59,961 37,437 $ 55,765 38,912
======== ------- ======== -------
Off-Balance Sheet Exposures
- ---------------------------
Commitments to Extend Credit $ 38,799 12,936 $ 47,111 11,612
Securities Lending Indemnifications 41,041 - 23,881 -
Standby Letters of Credit and
Other Guarantees 8,052 5,863 6,447 4,610
Interest Rate Contracts 61,523 118 29,518 69
Foreign Exchange Contracts 142,204 558 101,527 401
-------- ------- -------- -------
Total Off-Balance Sheet Exposures $291,619 19,475 $208,484 16,692
======== ------- ======== -------
Gross Risk Adjusted Assets 56,912 55,604
Less: Allowance for Loan Losses not
Qualifying as Risk Based Capital - 206
Investment in Section 20
Subsidiary - 58
------- -------
Risk Adjusted Assets $56,912 $55,340
======= =======
6
FDIC Insurance Assessments
BNY is subject to FDIC deposit insurance assessments. As required by
FDICIA, the FDIC adopted a risk-based premium schedule to determine the
assessment rates for most FDIC-insured depository institutions. Effective
January 1, 1997, under the schedule, the premiums range from zero to $.27 for
every $100 of deposits. Each financial institution is assigned to one of
nine categories based on the institutions capital ratios and supervisory
evaluations, and the premium paid by the institution is based on the category.
Under the present schedule institutions in the highest of the three capital
categories and the highest of three supervisory categories pay no premium and
institutions in the lowest of these categories pay $.27 per $100 of deposits.
In addition, the Deposit Insurance Funds Act provides for assessments at all
insured depository institutions to pay for the cost of the Financing
Corporation (a governmental agency) funding. The assessment will be based on
deposit levels and will be approximately 1.296 basis points.
The FDIC is authorized to raise insurance premiums in certain
circumstances. Any increase in premiums would have an adverse effect on the
Company's earnings.
Under the FDIA, insurance of deposits may be terminated by the FDIC upon
a finding that the institution has engaged in unsafe and unsound practices,
is in an unsafe or unsound condition to continue operations or has violated
any applicable law, regulation, rule, order, or condition imposed by a bank's
federal regulatory agency.
Depositor Preference
The Omnibus Budget Reconciliation Act of 1993 provides for a national
depositor preference on amounts realized from the liquidation or other
resolution of any depository institution insured by the FDIC.
Acquisitions
The BHC Act generally limits acquisitions by the Company to commercial
banks and companies engaged in activities that the Federal Reserve Board has
determined to be so closely related to banking as to be a proper incident
thereto. The Company's direct activities are generally limited to furnishing
services to its subsidiaries and activities that qualify under the "closely
related" and "proper incident" tests. Prior Federal Reserve Board approval
is required under the BHC Act for new activities and acquisitions of most
nonbanking companies.
The BHC Act, the Federal Bank Merger Act, and the New York Banking Law
regulate the acquisition of commercial banks. The BHC Act requires the prior
approval of the Federal Reserve Board for the direct or indirect acquisition
of more than 5% of the voting shares of a commercial bank.
The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994
("IBBEA") permits bank holding companies, with Federal Reserve Board approval,
to acquire banks located in states other than the bank holding company's home
state without regard to whether the transaction is permitted under state law.
In addition, IBBEA provides that national banks and state banks with
different home states are permitted to merge across state lines, with the
approval of the appropriate federal banking agency, unless the home state of
a participating bank passed legislation between the date of enactment of IBBEA
and May 31, 1997 expressly prohibiting interstate mergers. A bank may also
establish and operate a de novo branch in a state in which the bank does not
maintain a branch if that state expressly permits de novo branching. Once a
bank has established branches in a state through an interstate merger
transaction, the bank may establish and acquire additional branches at any
location in the state where any bank involved in the interstate merger
transaction could have established or acquired branches under applicable
federal or state law. A bank that has established a branch in a state
through de novo branching may establish and acquire additional branches in
such state in the same manner and to the same extent as a bank having a
branch in such state as a result of an interstate merger.
The merger of BNY with another bank would require the approval of the
7
Federal Reserve Board or other federal bank regulatory authority and, if the
surviving bank is a New York state bank, the New York Superintendent of Banks.
In reviewing bank acquisition and merger applications, the bank regulatory
authorities will consider, among other things, the competitive effect of the
transaction, financial and managerial issues including the capital position
of the combined organization, and convenience and needs factors, including
the applicant's record under the Community Reinvestment Act.
Under Federal Reserve Board policy, the Company is expected to act as a
source of financial strength to its banks and to commit resources to support
such banks in circumstances where it might not do so absent such policy.
In addition, any loans by the Company to its banks would be subordinate in
right of payment to depositors and to certain other indebtedness of its banks.
Restrictions on Transfer of Funds
Restrictions on the transfer of funds to the Company and subsidiary bank
dividend limitations are discussed in Note 10 to the Consolidated Financial
Statements included in Exhibit 13. Such discussion is incorporated herein
by reference.
Cross Guarantees
Under FDIA, a financial institution insured by the FDIC that is under
common control with a failed or failing FDIC-insured institution can be
required to indemnify the FDIC for losses resulting from the insolvency of
the failed institution, even if this causes the affiliated institution also
to become insolvent. Any obligation or liability owed by a subsidiary
depository institution to its parent company is subordinate to the
subsidiary's cross-guarantee liability with respect to commonly controlled
insured depository institutions and to the rights of depositors.
8
ADDITIONAL FINANCIAL INFORMATION
- ------------------------------------------------------------------------------
Average Balances and Rates on a Taxable Equivalent Basis (dollars in millions)
1997 1996 1995
===============================================================================
Aver- Aver- Aver-
Average Int- age Average Int- age Average Int- age
Balance erest Rate Balance erest Rate Balance erest Rate
-----------------------------------------------------------------
Assets
- ------
Interest-
Bearing
Deposits
in Banks
(Primarily
Foreign) $ 3,277 $ 188 5.75% $ 1,585 $ 91 5.71% $ 1,682 $ 106 6.28%
Federal Funds
Sold and
Securities
Purchased
Under Resale
Agreements 2,964 162 5.46 2,356 126 5.35 3,280 193 5.89
Loans
Domestic
Offices
Credit Card 3,329 472 14.17 6,905 886 12.83 7,637 989 12.96
Other
Consumer 3,503 291 8.31 3,567 362 10.16 3,514 392 11.14
Commercial 14,744 1,167 7.91 13,945 1,023 7.34 13,215 1,047 7.92
Foreign
Offices 15,001 984 6.56 12,281 810 6.59 11,055 805 7.28
------- ----- ------- ------ ------- ------
Total Loans 36,577 2,914* 7.97 36,698 3,081* 8.40 35,421 3,233* 9.13
------- ------ ------- ------ ------- ------
Securities
U.S.
Government
Obligations 3,225 189 5.86 3,365 197 5.84 3,301 191 5.78
Obligations
of States
and Political
Subdivisions 652 56 8.57 656 58 8.91 650 68 10.50
Other
Securities,
including
Trading
Securities
Domestic
Offices 1,360 52 3.81 811 37 4.56 1,076 65 6.10
Foreign
Offices 485 34 6.92 511 31 6.11 233 14 6.31
------- ------ ------- ------ ------- ------
Total Other
Securities 1,845 86 4.63 1,322 68 5.16 1,309 79 6.13
------- ------ ------- ------ ------- ------
Total
Securities 5,722 331 5.77 5,343 323 6.05 5,260 338 6.45
------- ------ ------- ------ ------- ------
Total Inter-
est-Earning
Assets 48,540 $3,595 7.40% 45,982 $3,621 7.88% 45,643 $3,870 8.48%
====== ====== ======
Allowance for
Loan Losses (784) (837) (739)
Cash and Due
from Banks 3,798 2,805 2,971
Other Assets 7,688 5,699 5,178
------- ------- -------
Total Assets $59,242 $53,649 $53,053
======= ======= =======
Assets
Attributable
to Foreign
Offices ** 33.35% 28.50% 25.73%
===== ===== =====
*Includes fees of $154 million in 1997, $139 million in 1996, and $134 million
in 1995. Nonaccrual loans are included in the average loan balance; the
associated income, recognized on the cash basis, is included in interest.
Taxable equivalent adjustments were $34 million in 1997, $38 million in 1996,
and $39 million in 1995 and are based on the federal statutory tax rate
(35%) and applicable state and local taxes.
**Includes Cayman Islands branch office.
Continued on page 9
9
Average Balances and Rates on a Taxable Equivalent Basis (dollars in millions)
1997 1996 1995
===============================================================================
Aver- Aver- Aver-
Average Int- age Average Int- age Average Int- age
Balance erest Rate Balance erest Rate Balance erest Rate
--------------------------------------------------------------
Liabilities and
Shareholders'
Equity
- ---------------
Interest-Bearing
Deposits
Domestic
Offices
Money Market
Rate Accounts $ 4,326 $ 196 4.54% $ 3,855 $ 166 4.30% $ 3,451 $ 153 4.44%
Savings 7,921 202 2.55 8,188 223 2.72 7,909 243 3.07
Certificates
of Deposit
of $100,000
or More 675 37 5.48 895 48 5.32 1,673 95 5.68
Other Time
Deposits 2,514 124 4.92 2,547 121 4.75 2,560 143 5.60
------- ------ ------- ------ ------- ------
Total Domestic
Offices 15,436 559 3.62 15,485 558 3.60 15,593 634 4.07
------- ------ ------- ------ ------- ------
Foreign Offices
Banks in
Foreign
Countries 5,304 225 4.25 4,645 225 4.85 3,968 218 5.48
Government and
Official
Institutions 1,290 69 5.33 1,236 62 5.05 1,394 81 5.78
Other Time and
Savings 8,308 437 5.27 6,351 307 4.85 6,041 332 5.52
------- ------ ------- ------ ------- ------
Total Foreign
Offices 14,902 731 4.91 12,232 594 4.87 11,403 631 5.54
------- ------ ------- ------ ------- ------
Total Interest-
Bearing
Deposits 30,338 1,290 4.25 27,717 1,152 4.16 26,996 1,265 4.69
------- ------ ------- ------ ------- ------
Federal Funds
Purchased and
Securities Sold
Under Repurchase
Agreements 2,410 121 5.00 2,957 155 5.23 2,804 161 5.75
Other Borrowed
Funds 3,177 168 5.27 3,406 186 5.47 3,962 246 6.22
Long-Term Debt 1,815 126 6.92 1,870 129 6.90 1,773 130 7.30
------- ------ ------- ------ ------- ------
Total Interest-
Bearing
Liabilities 37,740 $1,705 4.52% 35,950 $1,622 4.51% 35,535 $1,802 5.07%
====== ====== ======
Noninterest-
Bearing Deposits
Domestic Offices 9,423 8,838 9,012
Foreign Offices 149 44 53
------- ------- -------
Total
Noninterest-
Bearing
Deposits 9,572 8,882 9,065
------- ------- -------
Other Liabilities 6,050 3,621 3,685
Minority Interest
- Preferred
Securities 830 26 -
Preferred Stock 103 113 115
Common
Shareholders'
Equity 4,947 5,055 4,653
------- ------- -------
Total Liabilities
and Share-
holders' Equity $59,242 $53,647 $53,053
======= ======= =======
Net Interest
Earnings and
Interest
Rate Spread $1,890 2.88% $1,999 3.37% $2,068 3.41%
====== ====== ======
Net Yield on
Interest-Earning
Assets 3.89% 4.35% 4.53%
==== ==== ====
Liabilities
Attributable
to Foreign
Offices 30.00% 26.69% 24.94%
===== ===== =====
10
Rate/Volume Analysis on a Taxable Equivalent Basis (in millions)
- ----------------------------------------------------------------
1997 vs. 1996 1996 vs. 1995
-------------------------------------------------------
Increase (Decrease) Increase (Decrease)
due to change in: due to change in:
------------------ Total ------------------ Total
Average Average Increase Average Average Increase
Balance Rate (Decrease) Balance Rate (Decrease)
------- ------- ---------- ------- ------- ----------
Interest Income
- ---------------
Interest-Bearing
Deposits in Banks $ 96 $ 1 $ 97 $ (6) $ (9) $ (15)
Federal Funds Sold
and Securities
Purchased Under
Resale Agreements 33 3 36 (51) (16) (67)
Loans
Domestic Offices
Credit Card (498) 84 (414) (94) (9) (103)
Other Consumer (5) (66) (71) 6 (36) (30)
Commercial 61 83 144 56 (80) (24)
Foreign Offices 178 (4) 174 85 (80) 5
----- ----- ----- ----- ------ ------
Total Loans (264) 97 (167) 53 (205) (152)
Securities
U.S. Government
Obligations (9) 1 (8) 4 2 6
Obligations of
States and
Political
Subdivisions - (2) (2) 1 (11) (10)
Other Securities,
including Trading
Assets
Domestic Offices 22 (7) 15 (14) (14) (28)
Foreign Offices (2) 5 3 17 - 17
----- ----- ----- ----- ----- ------
Total Other
Securities 20 (2) 18 3 (14) (11)
----- ----- ----- ----- ----- ------
Total Securities 11 (3) 8 8 (23) (15)
----- ----- ----- ----- ----- ------
Total Interest
Income (124) 98 (26) 4 (253) (249)
----- ----- ----- ----- ----- ------
Interest Expense
- ----------------
Interest-Bearing
Deposits
Domestic Offices
Money Market Rate
Accounts 21 9 30 17 (4) 13
Savings (7) (14) (21) 8 (28) (20)
Certificate of
Deposits of
$100,000 or More (12) 1 (11) (42) (5) (47)
Other Time Deposits (2) 5 3 (1) (21) (22)
----- ----- ----- ----- ----- ------
Total Domestic
Offices - 1 1 (18) (58) (76)
----- ----- ----- ----- ----- ------
Foreign Offices
Banks in Foreign
Countries 30 (30) - 35 (28) 7
Government and
Official Institutions 3 4 7 (9) (10) (19)
Other Time and
Savings 99 31 130 17 (42) (25)
----- ----- ----- ----- ----- ------
Total Foreign
Offices 132 5 137 43 (80) (37)
----- ----- ----- ----- ----- ------
Total Interest-
Bearing
Deposits 132 6 138 25 (138) (113)
Federal Funds Purchased
and Securities
Sold Under
Repurchase
Agreements (28) (6) (34) 9 (15) (6)
Other Borrowed Funds (12) (6) (18) (32) (28) (60)
Long-Term Debt (4) 1 (3) 7 (8) (1)
----- ----- ----- ----- ----- ------
Total Interest
Expense 88 (5) 83 9 (189) (180)
----- ----- ----- ----- ----- ------
Change in Net
Interest Income $(212) $ 103 $ (109) $ (5) $ (64) $ (69)
===== ===== ===== ===== ===== ======
Changes which are not solely due to balance changes or rate changes are
allocated to such categories on the basis of the respective percentage
changes in average balances and average rates.
11
Market Risk Management
- ----------------------
Market risk is the risk of loss due to adverse changes in the financial
markets. Market risk arises from derivative financial instruments, such as
futures, forwards, swaps and options, and other financial instruments, such
as loans, securities, deposits and other borrowings. These instruments
expose the Company primarily to interest rate and foreign exchange risk, but
they also involve credit risk. Market risk associated with the Company's
trading activities and asset/liability management activities is managed and
controlled as discussed under "Market Risk Management", "Trading Activities
and Risk Management" and, "Asset/Liability Management" in the Management's
Discussion and Analysis section of Exhibit 13. Such discussion is
incorporated herein by reference.
The information presented with respect to market risk is forward looking
information. As such it is subject to risks and uncertainties that could
cause actual results to differ materially from projected results discussed in
this Report. These include adverse changes in market conditions and the
actions that management could take in response to these changes.
Interest-Rate Sensitivity
- -------------------------
A discussion of the Company's interest rate sensitivity management
activities is incorporated by reference from "Asset/Liability Management" in
the Management's Discussion and Analysis section of Exhibit 13.
The following table reflects the year-end position of the Company's
interest-earning assets and interest-bearing liabilities that either reprice
or mature within the designated time periods. The interest sensitivity
indicated by this table is not necessarily indicative of the Company's
interest sensitivity models (discussed under "Asset/Liability Management" in
the Managements' Discussion and Analysis section of Exhibit 13) because
within each time period, assets and liabilities reprice on different dates
and at different levels, and interest sensitivity gaps change daily. A
positive interest sensitivity gap, for a particular time period, is one in
which more assets reprice or mature than liabilities. A negative interest
sensitivity gap results from a greater amount of liabilities repricing or
maturing. A positive gap implies that there are more rate sensitive assets
than liabilities which suggests that as interest rates rise, the return on
assets will rise faster than the funding costs. Conversely, a negative gap
indicates more rate sensitive liabilities than assets. In such case, if
interest rates rise, then funding costs will rise at a faster rate than the
return on assets. The cumulative gap is the sum of the dollar gap for
sequential time periods.
12
December 31, 1997
------------------------------------------------------
Within Within Within Within Greater
2-3 4-6 7-12 Than
1 Mo. Mos. Mos. Mos. 12 Mos. Total
------ ------ ------ ------ -------- ------
(in millions)
Interest-Earning Assets
- -----------------------
Foreign Offices $11,171 $ 5,112 $ 2,413 $ 559 $ 110 $19,365
Domestic Offices
Loans 11,015 692 321 442 6,130 18,600
Securities 120 259 307 628 3,428 4,742
Trading Assets 2,336 - - - - 2,336
Federal Funds Sold and
Securities Purchased
Under Resale Agreement 2,820 - - - - 2,820
------ ------- ------- ------ ------- -------
Total 27,462 6,063 3,041 1,629 9,668 $47,863
------- ------- ------- ------ ------- =======
Interest-Bearing
Liabilities
- ----------------
Foreign Offices 12,619 928 104 145 - 13,796
Domestic Offices
Interest-Bearing
Deposits
Money Market Rate
Accounts 4,955 - - - - 4,955
Savings 6,562 - - 13 1,092 7,667
Certificates of
Deposit of $100,000
or More 429 424 201 90 498 1,642
Other Time Deposits 267 232 305 280 259 1,343
------- ------- ------- ------ ------- -------
24,832 1,584 610 528 1,849 29,403
------- ------- ------- ------ ------- -------
Federal Funds
Purchased and
Other Borrowed Funds 4,517 1,121 545 160 53 6,396
Long-Term Debt - - 32 - 1,777 1,809
Trust Preferred
Securities - - - - 1,000 1,000
------- ------- ------- ------ ------- -------
Noninterest-Bearing
Sources of Funds 3,078 170 255 509 5,243 9,255
- ------------------- ------- ------- ------- ------ ------- -------
Total 32,427 2,875 1,442 1,197 9,922 $47,863
=======
Effect of Financial
Futures and Swaps 1,310 (1,016) (357) 38 25
------------------- ------- ------- ------- ------ -------
Interest-Sensitive Gap $(3,655) $ 2,172 $ 1,242 $ 470 $ (229)
- ---------------------- ======= ======= ======= ====== =======
Cumulative Interest-
Sensitivity Gap $(3,655) $(1,483) $ (241) $ 229 $ -
- -------------------- ======= ======= ======= ====== =======
13
CREDIT RISK MANAGEMENT
- ----------------------
Credit risk represents the possibility that the Company would suffer a
loss if a borrower or other counterparty were to default on its obligations
to the Company. Credit risk exposure arises primarily from lending activities,
as well as from interest rate, foreign exchange, and securities processing
products. For derivative financial instruments, total credit exposure
consists of current and potential exposure. Current credit exposure represents
the replacement cost of the transaction. Potential credit exposure is a
statistically based estimate of the future replacement cost of the transaction.
The Company has established policies and procedures to manage the level and
composition of its credit risk on both a transaction and a portfolio basis.
In managing the aggregate credit extension to individual customers, the
Company measures the amount at risk on derivative financial instruments as
the total of current and potential credit exposure.
The Credit Policy Committee is responsible for developing and maintaining
credit risk policies, as well as for overseeing and reviewing credit
guidelines. Through the use of a credit approval process and established
credit limits, the Company evaluates the credit quality of counterparties,
industries, products, and countries. The Company seeks to reduce both on and
off-balance-sheet credit risk through portfolio diversification, loan
participations, syndications, asset sales, credit enhancements, risk
reduction arrangements, and netting agreements.
LOANS AND PROVISION AND ALLOWANCE FOR LOAN LOSSES
- -------------------------------------------------
The provision for loan losses was $280 million in 1997, compared with
$600 million in 1996 and $330 million in 1995. The decrease in the provision
compared with 1996 is primarily due to the sale of credit card receivables.
In 1997, the Company continued to experience improvement in the asset quality
of business loans as nonperforming loans dropped.
At December 31, 1997, the domestic commercial real estate portfolio had
approximately 81% of its loans in New York and New Jersey and 2% in each of
Pennsylvania, California, and Connecticut; no other state accounts for more
than 1% of the portfolio. This portfolio consists of the following types of
properties:
Business loans secured by real estate 38%
Offices 27
Retail 11
Mixed-Used 3
Hotels 4
Condominiums and cooperatives 6
Industrial/Warehouse 2
Other 9
----
100%
====
At December 31, 1997 and 1996, the Company's nonperforming real estate
loans and real estate acquired in satisfaction of loans aggregated $50
million and $61 million, respectively. Real estate loan net recoveries were
$3 million in 1997 and net charge-offs were $11 million in 1996. In addition,
other real estate charges were $11 million and $1 million in 1997 and 1996.
Other real estate charges in 1997 primarily relate to the sale of one
property in Florida.
At December 31, 1997 the Company's LDC exposures consisted of $44
million in medium-term loans (and no material commitments), $1,250 million in
short-term loans, $22 million in accrued interest, and $132 million in
investments. In addition, the Company has $310 million of debt securities
to emerging market countries, including $266 million (book value) of bonds
whose principal payments are collateralized by U.S. Treasury zero coupon
obligations and whose interest payments are partially collateralized.
14
The Company's consumer loan portfolio is comprised principally of other
installment and residential loans. Residential and auto loans are
collateralized, thereby reducing the risk.
The Company's loans to the energy industry primarily consist of credits
with investor-owned electric and gas utilities, and oil, gas and mining
companies. There were no nonperforming loans to borrowers in this industry
at December 31, 1997 and 1996. Charge-offs in this industry were $2 million
in 1997 and $1 million in 1996.
The Company's loans to the media and telecommunications industries
primarily consist of credits with cable television operators, broadcasters,
magazine and newspaper publishers, motion picture theaters and regional
telephone companies. There were no nonperforming loans to borrowers in these
industries at December 31, 1997. At December 31, 1996 nonperforming loans
amounted to $23 million and represented loans to a single borrower in the
entertainment industry. Charge-offs in these industries were $6 million in
1997 and zero in 1996.
The Company's portfolio of loans for purchasing or carrying securities
is comprised largely of overnight loans which are fully collateralized, with
appropriate margins, by marketable securities. Throughout its many years of
experience in this area, the Company has rarely experienced a loss.
The Company makes short-term, collateralized loans to mortgage bankers
to fund mortgages sold to investors. There were no nonperforming loans at
December 31, 1997 and 1996, and no charge-offs in 1997 and 1996.
Based on an evaluation of individual credits, historical loan losses,
and global economic factors, the Company has allocated its allowance for loan
losses as follows:
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
Real Estate Loans 4% 5% 7% 9% 8%
Domestic Commercial and
Industrial Loans 64 40 36 40 40
Consumer Loans 1 1 2 - -
Credit Card Loans - 29 23 16 10
Foreign Loans 7 4 11 19 18
Unallocated 24 21 21 16 24
---- ---- ---- ---- ----
100% 100% 100% 100% 100%
==== ==== ==== ==== ====
Such an allocation is inherently judgmental, and the entire allowance for
loan losses is available to absorb loan losses regardless of the nature of
the loan.
15
The following table details changes in the Company's allowance for loan losses
for the last five years.
(dollars in millions) 1997 1996 1995 1994 1993
---- ---- ---- ---- ----
Loans Outstanding, December 31, $35,127 $37,006 $37,687 $33,083 $30,570
Average Loans Outstanding 36,577 36,698 35,421 32,029 30,427
Allowance for Loan Losses
- -------------------------
Balance, January 1
Domestic $ 670 $ 515 $ 509 $ 558 $ 624
Foreign 38 82 155 176 194
Unallocated 193 159 128 236 254
----- ----- ----- ------ ------
Total, January 1 901 756 792 970 1,072
----- ----- ----- ------ ------
Allocations, Acquisitions and
Securitizations (1) (186) - 11 14 1
Charge-Offs
Domestic
Commercial and Industrial (89) (46) (56) (158) (142)
Real Estate & Construction - (11) (19) (6) (71)
Credit Card (298) (503) (294) (169) (136)
Other Consumer (13) (16) (15) (22) (37)
Foreign (3) (4) (48) (56) (63)
----- ----- ----- ------ ------
Total (403) (580) (432) (411) (449)
----- ----- ----- ------ ------
Recoveries
Domestic
Commercial and Industrial 9 15 14 14 28
Real Estate & Construction 3 - 3 - 2
Credit Card 23 62 27 21 15
Other Consumer 8 7 10 14 14
Foreign 6 41 1 8 3
----- ----- ----- ------ ------
Total 49 125 55 57 62
Net Charge-Offs (354) (455) (377) (354) (387)
----- ----- ----- ------ ------
Provision
Domestic 280 600 356 135 242
Foreign - - (26) 27 42
----- ----- ----- ------ ------
Total 280 600 330 162 284
----- ----- ----- ------ ------
Balance, December 31,
Domestic 441 670 515 509 558
Foreign 44 38 82 155 176
Unallocated 156 193 159 128 236
----- ----- ----- ------ ------
Total, December 31, $ 641 $ 901 $ 756 $ 792 $ 970
===== ===== ===== ====== ======
Ratios
- ------
Net Charge-Offs to Average Loans
Outstandings 0.97% 1.24% 1.06% 1.11% 1.27%
===== ===== ===== ===== =====
Net Charge-Offs to Total
Allowance 55.23% 50.50% 49.87% 44.70% 39.90%
===== ===== ===== ===== =====
Total Allowance to Year-End
Loans Outstanding 1.82% 2.44% 2.01% 2.40% 3.17%
===== ===== ===== ===== =====
(1) In 1997, $186 million of the allowance was allocated to credit card
loans sold in 1997.
16
Nonperforming Assets
- --------------------
A summary of nonperforming assets is presented in the following table.
(in millions) December 31,
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
Nonaccrual
- ----------
Domestic $159 $175 $184 $220 $408
Foreign 34 38 41 77 130
---- ---- ---- ---- ----
193 213 225 297 538
Reduced Rate (Domestic) - - - - 2
- ------------ ---- ---- ---- ---- ----
193 213 225 297 540
Real Estate Acquired
in Satisfaction of Loans 15 41 72 56 99
- ------------------------ ---- ---- ---- ---- ----
$208 $254 $297 $353 $639
==== ==== ==== ==== ====
Past Due 90 Days or More
and Still Accruing Interest
- ---------------------------
Domestic
Credit Card $ 1 $215 $214 $ 97 $ 65
Other Consumer 2 2 5 2 3
Commercial 75 30 51 64 88
---- ---- ---- ---- ----
$ 78 $247 $270 $163 $156
==== ==== ==== ==== ====
17
Securities
- ----------
The following table shows the maturity distribution by carrying amount and
yield (not on a taxable equivalent basis) of the Company's securities
portfolio at December 31, 1997.
States and
U.S. Government Political
U.S. Government Agency Subdivisions
--------------- --------------- ------------
Amount Yield Amount Yield Amount Yield
------ ----- ------ ----- ------ -----
(dollars in millions)
Securities Held-
- ----------------
to-Maturity
-----------
One Year or Less $ 25 4.84% $ 131 5.35% $ 223 4.11%
Over 1 through 5 Years - - 26 6.14 64 5.70
Over 5 through 10 Years - - - - 33 6.31
Over 10 years - - - - 52 6.53
Mortgage-Backed Securities - - - - - -
------ ----- ------
$ 25 4.84% $ 157 5.48% $ 372 4.91%
====== ===== ======
Securities Available-
- --------------------
for-Sale
- ----------
One Year or Less $ 827 5.14% $ 3 6.01% $ 14 6.81%
Over 1 through 5 Years 1,636 5.87 - - 37 6.54
Over 5 through 10 Years 843 5.80 77 6.33 46 5.57
Over 10 years 70 6.01 202 6.55 206 5.62
Equity Securities - - - - - -
----- ----- ------
$3,376 5.68% $ 282 6.48% $ 303 5.78%
====== ===== ======
Other Bonds, Mortgage-Backed
Notes and and Equity
Debentures Securities
--------------- ---------------
Amount Yield Amount Yield Total
------ ----- ------ ----- -----
(dollars in millions)
Securities Held-
- ----------------
to-Maturity
-----------
One Year or Less $ 24 13.54% $ - -% $ 403
Over 1 through 5 Years 70 6.19 - - 160
Over 5 through 10 Years 23 5.84 - - 56
Over 10 years 274 6.47 - - 326
Mortgage-Backed Securities - - 182 7.18 182
------ ----- ------
$ 391 6.81% $ 182 7.18% $1,127
====== ====== ======
Securities Available-
- --------------------
for-Sale
- ----------
One Year or Less $ 26 6.23% $ - -% $ 870
Over 1 through 5 Years 24 10.28 - - 1,697
Over 5 through 10 Years 53 6.20 - - 1,019
Over 10 years 5 3.52 - - 483
Equity Securities - - 1,432 2.58 1,432
----- ------ ------
$ 108 6.97% $1,432 2.58% $5,501
====== ====== ======
Loans
- -----
The following table shows the maturity structure of the Company's commercial
loan portfolio at December 31, 1997.
Over 1 Year
1 Year Through Over
or Less 5 Years 5 Years Total
------- ----------- ------- -----
(in millions)
Domestic
- --------
Real Estate, Excluding Loans
Collateralized by 1-4 Family
Residential Properties $ 455 $ 1,498 $ 924 $ 2,877
Commercial and Industrial Loans 4,861 6,705 2,863 14,429
Other, Excluding Loans to
Individuals and those
Collateralized by 1-4 Family
Residential Properties 4,541 1,005 173 5,719
------- ------- ------ -------
9,857 9,208 3,960 23,025
Foreign 3,408 931 3,437 7,776
- ------- ------- ------- ------ -------
Total $13,265 $10,139 $7,397 $30,801
======= ======= ====== =======
Loans with:
Predetermined Interest Rates $ 1,874 $ 1,161 $3,008 $ 6,043
Floating Interest Rates 11,391 8,978 4,389 24,758
------- ------- ------ -------
Total $13,265 $10,139 $7,397 $30,801
======= ======= ====== =======
18
Deposits
- --------
The aggregate amount of deposits by foreign customers in domestic offices
was $4.3 billion, $4.5 billion, and $4.0 billion at December 31, 1997, 1996,
and 1995.
The following table shows the maturity breakdown of domestic time
deposits of $100,000 or more at December 31, 1997.
Time
(in millions) Certificates Deposits-
of Deposits Other Total
-------------------------------------
3 Months or Less $ 663 $2,431 $3,094
Over 3 Through 6 Months 381 - 381
Over 6 Through 12 Months 90 - 90
Over 12 Months 455 53 508
------ ------ ------
Total $1,589 $2,484 $4,073
====== ====== ======
The majority of deposits in foreign offices are time deposits in
denominations of $100,000 or more.
Other Borrowed Funds
- ---------------------
Information related to other borrowed funds in 1997, 1996, and 1995 is presented
in the table below.
1997 1996 1995
---------------- --------------- ---------------
(dollars in millions)
Average Average Average
Amount Rate Amount Rate Amount Rate
------ ------- ------ ------- ------ -------
Federal Funds Purchased
and Securities Sold Under
Repurchase Agreements
- -------------------------
At December 31 $2,329 4.32% $1,737 5.31% $3,933 4.61%
Average During Year 2,410 5.00 2,957 5.23 2,804 5.75
Maximum Month-End Balance
During Year 3,805 5.45 4,460 4.85 3,991 5.96
Other*
- -----
At December 31 $2,960 5.69% $2,707 5.34% $3,106 5.73%
Average During Year 3,177 5.27 3,406 5.47 3,962 6.22
Maximum Month-End Balance
During Year 3,439 5.12 4,341 5.40 5,025 5.74
*Other borrowings consist primarily of commercial paper, bank notes, extended
federal funds purchased, and amounts owed to the U.S. Treasury.
Foreign Assets
- --------------
At December 31, 1997, the Company had assets in excess of 1% of year end
total assets in Brazil, totaling $778 million, and in Germany, totaling $641
million. Brazil's assets were all attributable to banks and other financial
institutions. Germany's assets consisted of $381 million attributable to
banks and other financial institutions, $126 million attributable to public
sector entities, and $134 million attributable to commercial, industrial and
other companies. At December 31, 1996, the Company had assets in excess of
1% of year end total assets in the United Kingdom, totaling $1,100 million;
and consisting of $529 million attributable to banks and other financial
institutions, and $571 million attributable to commercial, industrial and
other companies. At December 31, 1997, the Company had assets in excess of
.75% of year end total assets in the United Kingdom, Japan, and Greece
aggregating $1,544 million. At December 31, 1996, the Company had assets in
19
excess of .75% of year end total assets in Greece, South Korea, and Brazil
aggregating $1,515 million.
Year 2000 Compliance
- --------------------
Noninterest expense for 1997 includes $18 million, approximately 3 cents
per share, related to making computer systems Year 2000 compliant. The
Company plans to have all applications compliant and certified for Year 2000
processing by December 1998. As of December 31, 1997, over 60% of the
Company's 80 million lines of application code has been processed through the
renovation stage. Wholesale systems with 10 million lines of application code
are currently in the final stages of compliance. The projected costs for
1998 and 1999 are $64 million with a majority to be spent in 1998.
The Company has also initiated discussions with its significant suppliers
and customers to attempt to obtain assurance that they have appropriate
plans to be Year 2000 compliant where their systems interact with the
Company. While the Company believes at this time that its efforts are
adequate to address its Year 2000 concerns, it cannot predict whether its
suppliers and customers will be successful in becoming Year 2000 compliant.
The information presented with respect to Year 2000 compliance is forward
looking information. As such it is subject to risks and uncertainties that
could cause actual results to differ materially from the projected results
discussed in this report. These include unforeseen events relating to the
necessary modifications to the Company's computer hardware or software.
Similarly, it is not possible to forecast how interfacing with a noncompliant
system, for example, one belonging to a correspondent bank, sub-custodian,
co-trustee or agent, may affect the Company's systems.
EXECUTIVE OFFICERS OF THE REGISTRANT AND BUSINESS EXPERIENCE DURING THE PAST
- ----------------------------------------------------------------------------
FIVE YEARS
----------
Company
Officer
Name Office and Experience Age Since
---- --------------------- --- -----
J. Carter Bacot 1997-1998 Chairman of the Company and 65 1975
the Bank, retired February 1998
1995-1997 Chairman and Chief Executive Officer
of the Company, Chairman of the Bank
1993-1995 Chairman and Chief Executive Officer
of the Company and the Bank
Thomas A. Renyi 1998 Chairman, President, and Chief 52 1992
Executive Officer of the Company and
the Bank
1997-1998 President and Chief Executive Officer
of the Company and the Bank
1996-1997 President of the Company and President
and Chief Executive Officer of the Bank
1994-1995 President of the Company and President
and Chief Operating Officer of the Bank
1993-1994 President of the Company and
Vice Chairman of the Bank
Alan R. Griffith 1994-1998 Vice Chairman of the Company and 56 1990
the Bank
1993-1994 Senior Executive Vice President of
the Company, and President and Chief
Operating Officer of the Bank
Deno D. Papageorge 1997-1998 Senior Executive Vice President of 59 1980
the Company and the Bank
1993-1997 Senior Executive Vice President of
the Company, Senior Executive Vice
President and Chief Financial
Officer of the Bank
20
Robert E. Keilman 1993-1998 Comptroller of the Company and 52 1984
the Bank, Senior Vice President
of the Bank
Phebe C. Miller 1995-1998 Secretary and Chief Legal Officer 48 1995
of the Company, Senior Vice
President and Chief Legal Officer
of the Bank
1994-1995 Senior Vice President of the Bank
1993-1994 Managing Director, General Counsel
and Secretary, Discount Corporation
of New York
Robert J. Goebert 1993-1998 Auditor of the Company, Senior Vice 56 1982
President of the Bank
ITEM 2. PROPERTIES
- -------------------
At December 31, 1997, in New York City, the Company owned the thirty
story building housing its executive headquarters at 48 Wall Street, a
forty-nine story office building at One Wall Street, and an operations center
at 101 Barclay Street. Subsequent to December 31, 1997 the Company sold the
48 Wall Street property. In addition, the Company owns and/or leases
administrative and operations facilities in New York City; various locations
in New Jersey and Connecticut; Harrison, New York; Newark, Delaware;
Brussels, Belgium; London, England; and Utica, New York. Other real
properties owned or leased by the Company, when considered in the aggregate,
are not material to its operations.
ITEM 3. LEGAL PROCEEDINGS
- --------------------------
There are no material legal proceedings pending against the Company or its
subsidiaries.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- ------------------------------------------------------------
There were no matters submitted to a vote of security holders of the
registrant during the fourth quarter of 1997.
PART II
- -------
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
- ------------------------------------------------------------------------------
Information with respect to the market for the Company's common equity
and related stockholder matters is incorporated herein by reference from the
"Quarterly Data" section included in Exhibit 13. The Company's securities
that are listed on the New York Stock Exchange (NYSE), are indicated as such
on the front cover of this report. The NYSE symbol for the Company's Common
Stock is BK. The Warrants (to purchase the Company's Common Stock) are traded
over the counter. All of the Company's other securities are not currently
listed. The Company had 23,490 common shareholders of record at February 27,
1998.
ITEM 6. SELECTED FINANCIAL DATA
- --------------------------------
Selected financial data are incorporated herein by reference from the
"Financial Highlights" section included in Exhibit 13.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
- ----------------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS
-----------------------------------
Management's discussion and analysis of financial condition and results
of operations is incorporated herein by reference from the corresponding
section of Exhibit 13.
CAUTIONARY STATEMENT
The Company or its executive officers and directors on behalf of the
21
Company, may from time to time make forward looking statements. To the extent
that any forward looking statements are made, the Company is necessarily
unable to predict future changes in interest rates, economic activity,
consumer behavior, government monetary policy, legislation and regulation,
competition, and loan demand. In addition, the Company's future results of
operations and other forward looking statements contained in Management's
Discussion and Analysis and elsewhere in this Form 10-K involve a number of
risks and uncertainties. As a result of variations in such factors, actual
results may differ materially from any forward looking statements. Some of
these factors are described below. 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.
Legislation and Regulation
Proposals to change the laws and regulations governing the banking
industry are frequently introduced in Congress, in the state legislatures and
before the various bank regulatory agencies. Such changes could, among other
things, increase the Company's overhead costs, restrict access to profitable
markets, increase competition for banks, or force participation in
unprofitable markets. The likelihood and timing of any such changes and the
impact such changes might have on the Company and its subsidiaries, however,
cannot be determined at this time.
Competition
The businesses in which the Company operates are very competitive.
Competition is provided by both unregulated and regulated financial services
organizations, whose products and services span the local, national, and
global markets in which the Company conducts operations.
Savings banks, savings and loan associations, and credit unions actively
compete for deposits, and money market funds and brokerage houses offer
deposit-like services. These institutions, as well as consumer and commercial
finance companies, national retail chains, factors, insurance companies and
pension trusts, are important competitors for various types of loans.
Issuers of commercial paper compete actively for funds and reduce demand for
bank loans. For personal and corporate trust services and investment
counseling services, insurance companies, investment counseling firms, and
other business firms and individuals offer active competition. A wide variety
of domestic and foreign companies compete for processing services.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
- ----------------------------------------------------
Consolidated financial statements and notes and the independent
auditors' reports are incorporated herein by reference from Exhibits 13 and 99
to this Report.
Supplementary financial information is incorporated herein by reference
from the "Quarterly Data" section included in Exhibit 13.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
- ------------------------------------------------------------------------
FINANCIAL DISCLOSURE
--------------------
On March 12, 1996, the Company's Board of Directors, acting upon the
recommendation of the Audit Committee of the Company's Board of Directors
dismissed Deloitte & Touche LLP as the Company's independent public
accountants and appointed Ernst & Young LLP to serve as the Company's
independent public accountants for the year 1996.
Deloitte & Touche LLP's report on the Company's financial statements for
22
the fiscal year ended December 31, 1995 did not contain an adverse opinion or
a disclaimer of opinion and was not qualified or modified as to uncertainty,
audit scope, or accounting principles. During the fiscal year ended December
31, 1995 and during the period from December 31, 1995 through March 12, 1996,
there were no disagreements between the Company and Deloitte & Touche LLP on
any matter of accounting principles or practices, financial statement
disclosure, or auditing scope or procedure, which disagreements would have
caused Deloitte & Touche LLP to make reference to the subject matter of such
disagreements in connection with its reports.
There have been no other events which require disclosure under Item 304
of Regulation S-K.
PART III
- --------
The material responsive to Items 10, 11, 12 and 13 is incorporated by
reference to the Company's definitive proxy statement for its 1998 Annual
Meeting, except for information as to Executive Officers set forth in Part I,
Item 1.
PART IV
- -------
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
- --------------------------------------------------------------------------
(a) 1 Financial Statements:
See Item 8.
(a) 2 Financial Statement Schedules:
Financial statement schedules are omitted since the required information
is either not applicable, not deemed material, or is shown in the
respective financial statements or in the notes thereto.
(a) 3 Listing of Exhibits:
A list of the exhibits filed or incorporated by reference appears
following page 24 of this Report, which information is incorporated by
reference.
(b) Reports on Form 8-K:
October 21, 1997: Unaudited interim financial information and
accompanying discussion for the third quarter of 1997.
December 18, 1997: Announcement of the approval by the Board of
Directors of a plan to buy back, through the end of 1998, up to
15 million common shares.
January 20, 1998: Unaudited interim financial information and
accompanying discussion for the fourth quarter of 1997.
February 27, 1998: Restatement of selected financial data and
quarterly financial data that appeared in the Company's 1996 Form
10-K and restatement of the computation of earnings per share for
the years 1992-1996 and the quarters for 1995 and 1996 to be in
conformity with SFAS 128.
(c) Exhibits:
Submitted as a separate section of this report.
(d) Financial Statements Schedules:
None
23
SIGNATURES
- ----------
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized in New York, New York,
on the 10th day of March, 1998.
THE BANK OF NEW YORK COMPANY, INC.
By: \s\ Robert E. Keilman
-------------------------------------
(Robert E. Keilman,
Comptroller)
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been duly signed below by the following persons on behalf of the
registrant and in the capacities indicated on the 10th day of March, 1998.
Signature Title
--------- -----
\s\ J. Carter Bacot Director
- ------------------------------------
(J. Carter Bacot)
\s\ Deno D. Papageorge Senior Executive Vice President
- ------------------------------------ and Director
(Deno D. Papageorge)
\s\ Robert E. Keilman Comptroller
- ------------------------------------ (principal accounting officer)
(Robert E. Keilman)
\s\ Richard Barth Director
- ------------------------------------
(Richard Barth)
\s\ Frank J. Biondi, Jr. Director
- ------------------------------------
(Frank J. Biondi, Jr.)
\s\ William R. Chaney Director
- ------------------------------------
(William R. Chaney)
\s\ Ralph E. Gomory Director
- ------------------------------------
(Ralph E. Gomory)
\s\ Alan R. Griffith Vice Chairman and Director
- ------------------------------------
(Alan R. Griffith)
24
\s\ Edward L. Hennessy, Jr. Director
- ------------------------------------
(Edward L. Hennessy, Jr.)
\s\ Richard J. Kogan Director
- ------------------------------------
(Richard J. Kogan)
\s\ John A. Luke, Jr. Director
- ------------------------------------
(John A. Luke, Jr.)
\s\ John C. Malone Director
- ------------------------------------
(John C. Malone)
\s\ Donald L. Miller Director
- ------------------------------------
(Donald L. Miller)
\s\ H. Barclay Morley Director
- ------------------------------------
(H. Barclay Morley)
\s\ Catherine A. Rein Director
- ------------------------------------
(Catherine A. Rein)
\s\ Thomas A. Renyi Chairman, Chief Executive Officer,
- ------------------------------------ President, and Director
(Thomas A. Renyi) (principal executive officer)
\s\ Harold E. Sells Director
- ------------------------------------
(Harold E. Sells)
25
INDEX TO EXHIBITS
Exhibit No.
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3 (a) The By-Laws of The Bank of New York Company, Inc. as amended through
October 13, 1987.*
(b) Restated Certificate of Incorporation of The Bank of New York
Company, Inc. dated July 20, 1994, as amended by a Certificate of
Amendment to Certificate of Incorporation - incorporated by
reference to the Company's Quarterly Reports on Form 10-Q for the
quarters ended September 30, 1994 and June 30, 1996.*
4 (a) None of the outstanding instruments defining the rights of holders
of long-term debt of the Company represent long-term debt in excess
of 10% of the total assets of the Company. The Company hereby
agrees to furnish to the Commission, upon request, a copy of any of
such instrument.
(b) Rights Agreement, including form of Preferred Stock Purchase
Rights.*
(c) First Amendment, dated as of June 13, 1989, to the Rights Agreement,
including form of Preferred Stock Purchase Right, dated as of
December 10, 1985, between The Bank of New York Company, Inc. and
The Bank of New York, as Rights Agent.*
(d) Second Amendment, dated as of April 30, 1993, to the Rights
Agreement, including form of Preferred Stock Purchase Right, dated
as of December 10, 1985, between The Bank of New York Company, Inc.
and The Bank of New York, as Rights Agent.*
(e) Third Amendment, dated as of March 8, 1994, to the Rights
Agreement, dated as of December 10, 1985, between The Bank of New
York Company, Inc. and The Bank of New York, as Rights Agent.*
10 (a) Amendment dated October 1, 1997 to the Trust Agreement dated
November 16, 1993 related to executive compensation agreements.
(b) Enhanced Severance Agreement dated July 8, 1997.
(c) Enhanced Severance Agreement dated July 8, 1997.
(d) Enhanced Severance Agreement dated July 8, 1997.
(e) Enhanced Severance Agreement dated July 8, 1997.
(f) Consulting Agreement dated November 5, 1997.
(g) Compensation Agreement dated April 17, 1997.
(h) 1984 Stock Option Plan of The Bank of New York Company, Inc. as
amended through February 23, 1988.*
(i) Amendment dated October 11, 1994 to 1984 Stock Option Plan of The
Bank of New York Company, Inc.*
(j) The Bank of New York Company, Inc. Excess Contribution Plan as
amended through July 10, 1990.*
(k) Amendments to The Bank of New York Company, Inc. Excess
Contribution Plan dated February 23, 1994 and November 9, 1993.*
(l) Amendment to The Bank of New York Company, Inc. Excess Contribution
Plan dated November 14, 1995.*
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(m) The Bank of New York Company, Inc. Excess Benefit Plan as amended
through December 8, 1992.*
(n) Amendments to The Bank of New York Company, Inc. Excess Benefit
Plan dated February 23, 1994 and November 9, 1993.*
(o) Amendment dated May 10, 1994 to The Bank of New York Company, Inc.
Excess Benefit Plan.*
(p) Amendment to The Bank of New Company, Inc. Excess Benefit Plan dated
November 14, 1995.*
(q) 1994 Management Incentive Compensation Plan of The Bank of New York
Company, Inc.*
(r) 1988 Long-Term Incentive Plan as amended through December 8, 1992.*
(s) Amendment dated October 11, 1994 to the 1988 Long-Term Incentive
Plan of The Bank of New York Company, Inc.*
(t) The Bank of New York Company, Inc. 1993 Long-Term Incentive Plan.*
(u) Amendment dated October 11, 1994 to the 1993 Long-Term Incentive
Plan of The Bank of New York Company, Inc.*
(v) Amendment to the 1993 Long-Term Incentive Plan of The Bank of New
York Company, Inc. dated December 10, 1996.*
(w) Amendment to the 1993 Long-Term Incentive Plan of The Bank of New
York Company, Inc. dated January 14, 1997.*
(x) Amendment to the 1993 Long-Term Incentive Plan of The Bank of New
York Company, Inc. dated March 11, 1997.*
(y) The Bank of New York Company, Inc. Supplemental Executive
Retirement Plan.*
(z) Amendment to The Bank of New York Company, Inc. Supplemental
Executive Retirement Plan dated March 9, 1993.*
(aa) Amendment effective October 11, 1994 to The Bank of New York
Company, Inc. Supplemental Executive Retirement Plan.*
(bb) Amendment to The Bank of New York Company, Inc. Supplemental
Executive Retirement Plan dated June 11, 1996.*
(cc) Amendment to The Bank of New York Company, Inc. Supplemental
Executive Retirement Plan dated November 12, 1996.*
(dd) Trust Agreement dated April 19, 1988 related to certain executive
compensation plans and agreements.*
(ee) Trust Agreement dated November 16, 1993 related to certain executive
compensation plans and agreements.*
(ff) Amendment dated October 11, 1994 to Trust Agreement dated November
16, 1993, related to certain executive compensation plans and
agreements.*
(gg) Trust Agreement dated December 15, 1994 related to certain executive
compensation plans and agreements.*
(hh) Amendment dated January 31, 1997 to the Trust Agreement dated
April 19, 1988 related to executive compensation agreements.*
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(ii) Amendment dated January 14, 1997 to the Trust Agreement dated
November 16, 1993 related to executive compensation agreements.*
(jj) Amendment dated January 31, 1997 to the Trust Agreement dated
November 16, 1993 related to executive compensation agreements.*
(kk) Amendment dated January 31, 1997 to the Trust Agreement dated
December 15, 1994 related to certain executive compensation plans
and agreements.*
(ll) Form of Remuneration Agreement between the Company and one of the
five most highly compensated executive officers of the Company.*
(mm) Form of Tax Reimbursement Agreement dated as of July 13, 1994
between the Company and two of the five most highly compensated
executive officers of the Company.*
(nn) Form of Remuneration Agreement dated October 11, 1994 between the
Company and three of the five most highly compensated officers of
the Company.*
(oo) The Bank of New York Company, Inc. Retirement Plan for Non-Employee
Directors.*
(pp) Amendment dated November 8, 1994 to The Bank of New York Company,
Inc. Retirement Plan for Non-Employee Directors.*
(qq) Deferred Compensation Plan for Non-Employee Directors of The Bank
of New York Company, Inc.*
(rr) Amendment dated November 8, 1994 to Deferred Compensation Plan for
Non-Employee Directors of The Bank of New York Company, Inc.*
(ss) Amendment to the Directors' Deferred Compensation Plan for The Bank
of New York Company, Inc. dated February 11, 1997.*
11 Statement - Re: Computation of Per Common Share Earnings
12 Statement - Re: Computation of Earnings to Fixed Charges Ratios
13 Portions of the 1997 Annual Report to Shareholders
16 Letter re: Change in Certifying Accountant*
21 Subsidiaries of the Registrant
23.1 Consent of Ernst & Young LLP
23.2 Consent of Deloitte & Touche LLP
27 Financial Data Schedule
99 Opinion of Deloitte & Touche LLP
* Incorporated by reference