Back to GetFilings.com
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, 1998
[ ] 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.)
One 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
7.80% Trust Preferred Securities, Series C NEW YORK STOCK EXCHANGE
7.05% Preferred Securities, Series D NEW YORK STOCK EXCHANGE
6.88% Trust Preferred Securities, Series E NEW YORK STOCK EXCHANGE
Securities registered pursuant to Section 12(g) of the Act:
Title of each class
-------------------
Class A, 7.75% Cumulative Convertible Preferred Stock
7.97% Capital Securities, Series B
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 26, 1999 consisted of:
Common Stock ($7.50 par value) $26,764,883,455
(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 766,078,954 shares on February 26, 1999.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the 1998 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 Businesses of The Bank of New York"
section of the Company's 1998 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
The Federal bank regulators have adopted risk-based capital guidelines
for bank holding companies and banks. The minimum ratio of qualifying total
capital ("Total Capital") to risk-weighted assets (including certain off-
balance sheet items) is 8%. At least half of the total capital is to consist
of common stock, retained earnings, noncumulative perpetual preferred stock,
minority interests (including trust preferred securities) 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 the loan and
lease allowance. Not more than 25% of qualifying Tier 1 Capital may consist
of trust preferred securities.
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. 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. At December 31, 1998, 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 recently issued regulations 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") among other things, 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." An FDIC-insured bank is defined to be: (i) 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%; (ii)
adequately capitalized if it maintains a Leverage Ratio of at least 4% (or a
Leverage Ratio of at least 3% if it is rated Composite 1 in its most recent
report of examination, subject to appropriate federal banking agency
guidelines), a Tier 1 Capital Ratio of 4% and a Total Capital Ratio of at
least 8% and is not defined to be well capitalized; (iii) undercapitalized if
it has a Leverage Ratio of less than 4% (or a Leverage Ratio that is less than
3% if it is rated Composite 1 in its most recent report of examination,
subject to appropriate federal banking agency guidelines), a Tier 1 Capital
Ratio less than 4% and a Total Capital Ratio of less than 8% and it does not
meet the definition of a significantly undercapitalized or critically
undercapitalized institution; (iv) significantly undercapitalized if it has a
Leverage Ratio of less than 3%, a Tier 1 Capital Ratio less than 3% and a
Total Capital Ratio of less than 6% and it does not meet the definition of
critically undercapitalized; and (v) 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 imposes progressively more
restrictive constraints on operations, management and capital distributions,
depending on the capital category in which an institution is classified.
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 growth limitations and are required to submit a capital restoration
plan. 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. In addition, 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 became undercapitalized and 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. 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 depository institution that is not well
capitalized is subject to certain limitations on brokered deposits.
A discussion of the Company's capital position and capital adequacy is
incorporated by reference from "Capital Resources" in the "Management's
4
Discussion and Analysis" Section and Note 10 to the Consolidated Financial
Statements of Exhibit 13.
As of December 31, 1998 and 1997, capital ratios for the Company and BNY
were categorized as well capitalized as set forth in the table below.
December 31, 1998 December 31, 1997
----------------- -----------------
Well
Capitalized
Company BNY Company BNY Guidelines
------- --- ------- --- -----------
Tier I 7.89% 7.39% 7.92% 7.70% 6%
Total Capital 11.90 10.72 11.97 10.38 10
Leverage 7.46 6.95 7.59 7.42 5
Tangible Common
Equity 6.25 7.43 6.47 7.57
At December 31, 1998, the amounts of capital by which the Company and BNY
exceed the well capitalized guidelines are as follows:
(in millions) Company BNY
------- ---
Tier 1 $1,160 $ 808
Total Capital 1,169 418
Leverage 1,600 1,207
The following table presents the components of the Company's risk-based
capital at December 31, 1998 and 1997:
(in millions) 1998 1997
---- ----
Common Stock $ 5,447 $ 5,001
Preferred Stock 1 1
Minority Interest - Preferred Securities 1,300 1,000
Adjustments: Intangibles (1,558) (1,175)
Securities Valuation Allowance (340) (320)
------- -------
Tier 1 Capital 4,850 4,507
Qualifying Unrealized Equity Security Gains 181 -
Qualifying Long-term Debt 1,655 1,662
Qualifying Allowance for Loan Losses 633 641
------- -------
Tier 2 Capital 2,469 2,303
------- -------
Total Risk-based Capital $ 7,319 $ 6,810
======= =======
5
The following table presents the components of the Company's risk
adjusted assets at December 31, 1998 and 1997:
1998 1997
---------------------------------------------
Balance Balance
sheet/ Risk sheet/ Risk
notional adjusted notional adjusted
(in millions) amount balance amount balance
-------- -------- -------- --------
Assets
- ------
Cash, Due From Banks and Interest-
Bearing Deposits in Banks $ 8,503 $ 1,347 $ 7,895 $ 1,064
Securities 6,415 1,832 6,628 1,371
Trading Assets 1,637 - 2,616 142
Fed Funds Sold and Securities
Purchased Under Resale Agreements 3,281 345 2,820 439
Loans 38,386 33,246 35,127 30,952
Allowance for Credit Losses (636) - (641) -
Other Assets 5,917 3,732 5,516 3,469
-------- ------- -------- -------
Total Assets $ 63,503 40,502 $ 59,961 37,437
======== ------- ======== -------
Off-Balance Sheet Exposures
- ---------------------------
Commitments to Extend Credit $ 44,767 13,497 $ 38,799 12,936
Securities Lending Indemnifications 47,839 - 41,041 -
Standby Letters of Credit and
Other Guarantees 8,738 6,404 8,503 5,863
Interest Rate Contracts 142,454 235 61,523 118
Foreign Exchange Contracts 132,129 1 142,204 558
-------- ------- -------- -------
Total Off-Balance Sheet Exposures $375,927 20,137 $292,043 19,475
======== ------- ======== -------
Market Risk Equivalent Assets 683 -
Unrealized Equity Security Gains
Qualifying as Risk Based Capital 181 -
------- -------
Risk Adjusted Assets $61,503 $56,912
======= =======
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 1.76 basis points. BNY paid no FDIC
insurance premiums in 1998.
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 domestic
depositor preference on amounts realized from the liquidation or other
resolution of any depository institution insured by the FDIC.
6
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. Most states,
including New York, New Jersey and Connecticut have not passed legislation
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
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
7
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.
ADDITIONAL FINANCIAL INFORMATION
- --------------------------------
Average Balances and Rates on a Taxable Equivalent Basis (dollars in millions)
- ------------------------------------------------------------------------------
1998 1997 1996
------------------------- ------------------------- ------------------------
Average Average Average Average Average Average
Balance Interest Rate Balance Interest Rate Balance Interest Rate
------------------------- ------------------------- ------------------------
Assets
- ------
Interest-Bearing
Deposits in Banks
(Primarily Foreign) $ 3,437 $ 184 5.35% $ 3,277 $ 188 5.75% $ 1,585 $ 91 5.71%
Federal Funds Sold
and Securities
Purchased Under
Resale Agreements 3,880 203 5.24 2,964 162 5.46 2,356 126 5.35
Loans
Domestic Offices
Credit Card - - - 3,329 496 14.90 6,905 934 13.53
Other Consumer 3,366 282 8.36 3,503 291 8.31 3,567 314 8.82
Commercial 16,407 1,229 7.49 14,744 1,143 7.75 13,945 1,023 7.34
Foreign Offices 18,567 1,264 6.81 15,001 984 6.56 12,281 810 6.59
------- ------ ------- ------ ------- ------
Total Loans 38,340 2,775* 7.24 36,577 2,914* 7.97 36,698 3,081* 8.40
------- ------ ------- ------ ------- ------
Securities
U.S. Government
Obligations 3,638 213 5.85 3,225 189 5.86 3,365 197 5.84
Obligations of
States and
Political
Subdivisions 672 54 7.98 652 56 8.57 656 58 8.91
Other Securities,
including Trading
Securities
Domestic Offices 2,051 108 5.23 1,360 52 3.81 811 37 4.56
Foreign Offices 793 31 3.93 485 34 6.92 511 31 6.11
------- ------ ------- ------ ------- ------
Total Other
Securities 2,844 139 4.87 1,845 86 4.63 1,322 68 5.16
------- ------ ------- ------ ------- ------
Total Securities 7,154 406 5.66 5,722 331 5.77 5,343 323 6.05
------- ------ ------- ------ ------- ------
Total Interest-Earning
Assets 52,811 $3,568 6.76% 48,540 $3,595 7.40% 45,982 $3,621 7.88%
====== ====== ======
Allowance for Credit
Losses (643) (784) (837)
Cash and Due from
Banks 3,237 3,798 2,805
Other Assets 7,736 7,688 5,699
------- ------- -------
Total Assets $63,141 $59,242 $53,649
======= ======= =======
Assets Attributable
to Foreign Offices ** 38.79% 33.35% 28.50%
===== ===== =====
*Includes fees of $120 million in 1998, $154 million in 1997, and $139 million in 1996.
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 $58 million in 1998, $34 million in 1997, and $38 million in
1996 and are based on the federal statutory tax rate (35%) and applicable state and local taxes.
**Includes Cayman Islands branch office.
Continued on page 8
8
Average Balances and Rates on a Taxable Equivalent Basis (dollars in millions)
- ------------------------------------------------------------------------------
1998 1997 1996
--------------------------- -------------------------- -------------------------
Average Average Average Average Average Average
Balance Interest Rate Balance Interest Rate Balance Interest Rate
--------------------------- -------------------------- -------------------------
Liabilities and
Shareholders' Equity
- --------------------
Interest-Bearing Deposits
Domestic Offices
Money Market Rate
Accounts $ 4,998 $ 232 4.65% $ 4,326 $ 196 4.54% $ 3,855 $ 166 4.30%
Savings 7,682 193 2.51 7,921 202 2.55 8,188 223 2.72
Certificates of
Deposit of $100,000
or More 687 37 5.41 675 37 5.48 895 48 5.32
Other Time Deposits 2,299 110 4.80 2,514 124 4.92 2,547 121 4.75
------- ------ ------- ------ ------- ------
Total Domestic Offices 15,666 572 3.65 15,436 559 3.62 15,485 558 3.60
------- ------ ------- ------ ------- ------
Foreign Offices
Banks in Foreign Countries 5,422 246 4.53 5,304 225 4.25 4,645 225 4.85
Government and
Official Institutions 1,205 65 5.39 1,290 69 5.33 1,236 62 5.05
Other Time and Saving 9,784 491 5.02 8,308 437 5.27 6,351 307 4.85
------- ------ ------- ------ ------- ------
Total Foreign Offices 16,411 802 4.88 14,902 731 4.91 12,232 594 4.87
------- ------ ------- ------ ------- ------
Total Interest-
Bearing Deposits 32,077 1,374 4.28 30,338 1,290 4.25 27,717 1,152 4.16
------- ------ ------- ------ ------- ------
Federal Funds Purchased
and Securities Sold
Under Repurchase
Agreements 3,147 145 4.60 2,410 121 5.00 2,957 155 5.23
Other Borrowed Funds 3,761 204 5.42 3,177 168 5.27 3,406 186 5.47
Long-Term Debt 1,972 136 6.90 1,815 126 6.92 1,870 129 6.90
------- ------ ------- ------ ------- ------
Total Interest-Bearing
Liabilities 40,957 $1,859 4.54% 37,740 $1,705 4.52% 35,950 $1,622 4.51%
====== ====== ======
Noninterest-Bearing Deposits
Domestic Offices 10,109 9,423 8,838
Foreign Offices 76 149 44
------- ------- -------
Total Noninterest-
Bearing Deposits 10,185 9,572 8,882
------- ------- -------
Other Liabilities 5,850 6,050 3,623
Minority Interest - Preferred
Securities 1,233 830 26
Preferred Stock 1 103 113
Common Shareholders' Equity 4,915 4,947 5,055
------- ------- -------
Total Liabilities
and Shareholders' Equity $63,141 $59,242 $53,649
======= ======= =======
Net Interest Earnings and
Interest Rate Spread $1,709 2.22% $1,890 2.88% $1,999 3.37%
====== ====== ======
Net Yield on
Interest-Earning Assets 3.24% 3.89% 4.35%
==== ==== ====
Liabilities Attributable
to Foreign Offices 31.53% 30.00% 26.69%
===== ===== =====
9
Rate/Volume Analysis on a Taxable Equivalent Basis (in millions)
- ----------------------------------------------------------------
1998 vs. 1997 1997 vs. 1996
------------------------------------- ----------------------------------
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 $ 9 $ (13) $ (4) $ 96 $ 1 $ 97
Federal Funds Sold and Securities
Purchased Under Resale Agreements 48 (7) 41 33 3 36
Loans
Domestic Offices
Credit Card (496) - (496) (524) 87 (437)
Other Consumer (11) 2 (9) (4) (19) (23)
Commercial 125 (39) 86 60 59 119
Foreign Offices 238 42 280 178 (4) 174
----- ----- ----- ----- ----- ------
Total Loans (144) 5 (139) (290) 123 (167)
Securities
U.S. Government Obligations 24 - 24 (9) 1 (8)
Obligations of States and
Political Subdivisions 2 (4) (2) - (2) (2)
Other Securities, including
Trading Assets
Domestic Offices 32 24 56 22 (7) 15
Foreign Offices 16 (19) (3) (2) 5 3
----- ----- ----- ----- ----- ------
Total Other Securities 48 5 53 20 (2) 18
----- ----- ----- ----- ----- ------
Total Securities 74 1 75 11 (3) 8
----- ----- ----- ----- ----- ------
Total Interest Income (13) (14) (27) (151) 124 (27)
----- ----- ----- ----- ----- ------
Interest Expense
- ----------------
Interest-Bearing Deposits
Domestic Offices
Money Market Rate Accounts 31 5 36 21 9 30
Savings (6) (3) (9) (7) (14) (21)
Certificate of Deposits of
$100,000 or More 1 (1) - (12) 1 (11)
Other Time Deposits (10) (4) (14) (2) 5 3
----- ----- ----- ----- ----- ------
Total Domestic Offices 16 (3) 13 - 1 1
----- ----- ----- ----- ----- ------
Foreign Offices
Banks in Foreign Countries 6 15 21 30 (30) -
Government and Official
Institutions (5) 1 (4) 3 4 7
Other Time and Savings 75 (21) 54 99 31 130
----- ----- ----- ----- ----- ------
Total Foreign Offices 76 (5) 71 132 5 137
----- ----- ----- ----- ----- ------
Total Interest-Bearing
Deposits 92 (8) 84 132 6 138
Federal Funds Purchased and
Securities Sold Under
Repurchase Agreements 34 (10) 24 (28) (6) (34)
Other Borrowed Funds 31 5 36 (12) (6) (18)
Long-Term Debt 11 (1) 10 (4) 1 (3)
----- ----- ----- ----- ----- ------
Total Interest Expense 168 (14) 154 88 (5) 83
----- ----- ----- ----- ----- ------
Change in Net Interest Income $(181) $ - $ (181) $(239) $ 129 $ (110)
===== ===== ===== ===== ===== ======
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.
10
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. The market risks are
primarily interest rate and foreign exchange risk, as well as 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 "Management's 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.
11
December 31, 1998
-----------------------------------------------------------------
Within Within Within Within Greater
(in millions) 1 Mo. 2-3 Mos. 4-6 Mos. 7-12 Mos. Than 12 Mos. Total
------ -------- -------- -------- ----------- -----
Interest-Earning Assets:
Foreign Offices $14,613 $ 6,436 $ 2,969 $ 637 $ 134 $24,789
Domestic Offices
Loans 9,437 741 421 390 7,846 18,335
Securities 142 119 139 248 4,024 4,672
Trading Assets 1,356 - - - - 1,356
Federal Funds Sold and
Securities Purchased Under
Resale Agreement 3,279 - - - - 3,279
------- ------- ------- ------ ------- -------
Total Interest-Earning Assets 28,827 7,296 3,529 1,275 12,004 $52,931
------- ------- ------- ------ ------- =======
Interest-Bearing Liabilities:
Foreign Offices 17,036 516 71 12 - $17,635
Domestic Offices
Interest-Bearing Deposits
Money Market Rate Accounts 5,488 - - - - 5,488
Savings 6,699 - - 13 1,076 7,788
Certificates of Deposit
of $100,000 or More 534 284 188 154 423 1,583
Other Time Deposits 230 233 301 249 219 1,232
Federal Funds Purchased and
Other Borrowed Funds 3,844 1,134 536 14 5 5,533
Long-Term Debt 50 31 15 - 1,990 2,086
Trust Preferred Securities - - - - 1,300 1,300
------- ------- ------- ------ ------- -------
Total Interest-Bearing Liabilities 33,881 2,198 1,111 442 5,013 42,645
Noninterest-Bearing Sources of Funds 3,910 180 269 539 5,388 10,286
------- ------- ------ ------- ------- -------
Total Sources of Funds Used to
Support Earning Assets 37,791 2,378 1,380 981 10,401 $52,931
=======
Effect of Financial Futures and Swaps 2,251 (1,318) 361 (363) (931)
------- ------- ------- ------ -------
Interest-Sensitivity Gap $(6,713) $ 3,600 $ 2,510 $ (69) $ 672
======= ======= ======= ====== =======
Cumulative Interest-Sensitivity Gap $(6,713) $(3,113) $ (603) $(672) $ -
======= ======= ======= ====== =======
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.
12
Although the Company attempts to minimize its exposure to credit risk,
this risk is inherent in the banking industry and can increase as a result of
general economic developments.
Provision and Allowance for Credit Losses
- -----------------------------------------
The provision for credit losses was $20 million in 1998, compared with
$280 million in 1997 and $600 million in 1996. The decrease in the provision
compared with 1997 and 1996 was primarily due to the sale of credit card
receivables, continued low charge-offs in the remainder of the loan portfolio,
and a further reduction in nonperforming loans
Nonperforming assets declined by 7% to $193 million at December 31, 1998.
The decrease in nonperforming assets during 1998 is attributable to charge-
offs and writedowns of $18 million and paydowns, sales, and returns to accrual
status of $79 million. The decrease was partially offset by $82 million of
loans placed on nonperforming status.
A summary of nonperforming assets is presented in the following table.
(in millions) December 31,
----------------------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
Nonaccrual
- ----------
Domestic $126 $159 $175 $184 $220
Foreign 53 34 38 41 77
---- ---- ---- ---- ----
179 193 213 225 297
Reduced Rate (Domestic) - - - - -
- ------------ ---- ---- ---- ---- ----
179 193 213 225 297
Real Estate Acquired
in Satisfaction of Loans 14 15 41 72 56
- ------------------------ ---- ---- ---- ---- ----
$193 $208 $254 $297 $353
==== ==== ==== ==== ====
Past Due 90 Days or More
and Still Accruing Interest
- ---------------------------
Domestic
Credit Card $ - $ 1 $215 $214 $ 97
Other Consumer 3 2 2 5 2
Commercial 26 75 30 51 64
---- ---- ---- ---- ----
$ 29 $ 78 $247 $270 $163
==== ==== ==== ==== ====
1998 1997
---- ----
Nonperforming Asset Ratio 0.5% 0.6%
Allowance/Nonperforming Loans 355.5 331.4
Allowance/Nonperforming Assets 328.9 307.2
Net charge-offs were $29 million in 1998, $354 million in 1997, and $455
million in 1996. In 1998, net charge-offs were mainly related to commercial
loans, while net charge-offs were primarily attributable to credit card loans
in 1997 and 1996. The total allowance for credit losses was $636 million and
$641 million at year-end 1998 and 1997. The ratio of the total allowance for
credit losses to year-end loans was 1.66% and 1.82% at December 31, 1998 and
1997 reflecting a $3.3 billion increase in loans in 1998.
13
The following table details changes in the Company's allowance for credit losses
for the last five years.
(dollars in millions) 1998 1997 1996 1995 1994
---- ---- ---- ---- ----
Loans Outstanding, December 31, $38,386 $35,127 $37,006 $37,687 $33,083
Average Loans Outstanding 38,340 36,577 36,698 35,421 32,029
Allowance for Loan Losses
- -------------------------
Balance, January 1
Domestic $ 441 $ 670 $ 515 $ 509 $ 558
Foreign 44 38 82 155 176
Unallocated 156 193 159 128 236
----- ----- ----- ----- -----
Total, January 1 641 901 756 792 970
----- ----- ----- ----- -----
Allocations and Acquisitions (1) 4 (186) - 11 14
Charge-Offs
Domestic
Commercial and Industrial (34) (89) (46) (56) (158)
Real Estate & Construction - - (11) (19) (6)
Consumer (10) (13) (16) (15) (22)
Credit Card - (298) (503) (294) (169)
Foreign (7) (3) (4) (48) (56)
----- ----- ----- ----- -----
Total (51) (403) (580) (432) (411)
----- ----- ----- ----- -----
Recoveries
Domestic
Commercial and Industrial 7 9 15 14 14
Real Estate & Construction 7 3 - 3 -
Consumer 5 8 7 10 14
Credit Card - 23 62 27 21
Foreign 3 6 41 1 8
----- ----- ----- ----- -----
Total 22 49 125 55 57
Net Charge-Offs (29) (354) (455) (377) (354)
----- ----- ----- ----- -----
Provision
Domestic 20 280 600 356 135
Foreign - - - (26) 27
----- ----- ----- ----- -----
Total 20 280 600 330 162
----- ----- ----- ----- -----
Balance, December 31,
Domestic 498 441 670 515 509
Foreign 69 44 38 82 155
Unallocated 69 156 193 159 128
----- ----- ----- ----- -----
Total, December 31, $ 636 $ 641 $ 901 $ 756 $ 792
===== ===== ===== ===== =====
Ratios
- ------
Net Charge-Offs to Average Loans
Outstandings 0.08% 0.97% 1.24% 1.06% 1.11%
===== ===== ===== ===== =====
Net Charge-Offs to Total Allowance 4.56% 55.23% 50.50% 49.87% 44.67%
===== ===== ===== ===== =====
Total Allowance to Year-End Loans
Outstanding 1.66% 1.82% 2.44% 2.01% 2.40%
===== ===== ===== ===== =====
(1) In 1997, $186 million of the allowance was allocated to credit card loans sold in 1997.
14
At December 31, 1998, the domestic commercial real estate portfolio had
approximately 86% of its loans in New York and New Jersey and 2% in
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 36%
Offices 27
Retail 11
Mixed-Use 9
Hotels -
Condominiums and Cooperatives 7
Industrial/Warehouse 2
Other 8
----
100%
====
At December 31, 1998 and 1997, the Company's nonperforming real estate
loans and real estate acquired in satisfaction of loans aggregated $40 million
and $50 million, respectively. Real estate loan net recoveries were $7
million in 1998 and $3 million in 1997. In addition, other real estate
charges were $2 million and $11 million in 1998 and 1997. Other real estate
charges in 1997 primarily relate to the sale of one property in Florida.
At December 31, 1998, the Company's emerging markets exposures consisted
of $70 million in medium-term loans (and no material commitments), $1,258
million in short-term loans, primarily trade related, and $113 million in
investments. In addition, the Company has $313 million of debt securities of
emerging market countries, including $219 million (book value) of bonds whose
principal payments are collateralized by U.S. Treasury zero coupon obligations
and whose interest payments are partially collateralized. Emerging market
countries where the Company has exposure include Argentina, Brazil, Bulgaria,
China, Colombia, Costa Rica, Dominican Republic, Ecuador, Egypt, Honduras,
Indonesia, Iraq, Jamaica, Malaysia, Mexico, Morocco, Panama, Peru,
Philippines, Russia, Thailand, Uruguay, Venezuela, and Vietnam.
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, 1998 and 1997. There were no charge-offs in this industry in 1998
and there were $2 million charge-offs in 1997.
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, 1998 and 1997. There were no charge-offs in these
industries in 1998 and there were $6 million charge-offs in 1997.
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 loans to mortgage bankers to fund their operations and
mortgages to be sold to investors. Frequently these loans are collateralized
by the mortgages sold to investors. There were no nonperforming loans at
December 31, 1998 and 1997, and no charge-offs in 1998 and 1997. A $44
million loan to a mortgage lender became nonperforming in the first quarter of
1999.
15
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:
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
Real Estate 3% 4% 5% 7% 9%
Domestic Commercial
And Industrial 74 64 40 36 40
Consumer 1 1 1 2 -
Credit Card - - 29 23 16
Foreign 11 7 4 11 19
Unallocated 11 24 21 21 16
----- ----- ----- ----- -----
100% 100% 100% 100% 100%
===== ===== ===== ===== =====
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, 1998.
U.S. States and Other Bonds, Mortgage-Backed
U.S. Government Political Notes and and Equity
Government Agency Subdivisions Debentures Securities
------------- ------------- ------------- ------------- ---------------
(dollars in millions) Amount Yield Amount Yield Amount Yield Amount Yield Amount Yield Total
------ ----- ------ ----- ------ ----- ------ ----- ------ ----- -----
Securities Held-
- ----------------
to-Maturity
- ------------
One Year or Less $ 31 4.35% $ 14 6.11% $ 233 3.91% $ 36 5.72% $ - -% $ 314
Over 1 through 5 Years - - 4 6.00 40 5.12 104 5.61 - - 148
Over 5 through 10 Years - - - - 32 6.57 21 5.63 - - 53
Over 10 years - - - - 31 6.61 272 6.02 - - 303
Mortgage-Backed Securities - - - - - - - - 146 7.27 146
------ ----- ------ ---- ------ ------
$ 31 4.35% $ 18 6.09% $ 336 4.56% $433 5.88% $ 146 7.27% $ 964
====== ===== ====== ==== ====== ======
Securities Available-
- ---------------------
for-Sale
- ---------
One Year or Less $ 207 5.89% $ - -% $ 8 5.67% $ 25 2.13% $ - -% $ 240
Over 1 through 5 Years 1,972 5.52 50 5.41 47 5.86 14 - - - 2,083
Over 5 through 10 Years 268 5.81 283 6.36 51 5.34 40 3.25 - - 642
Over 10 years 138 5.69 327 6.24 217 5.43 529 5.14 - - 1,211
Equity Securities - - - - - - - - 1,275 1.89 1,275
----- ----- ------ ---- ------ ------
$2,585 5.59% $ 660 6.23% $ 323 5.48% $608 4.78% $1,275 1.89% $5,451
====== ===== ====== ==== ====== ======
Loans
- -----
The following table shows the maturity structure of the Company's commercial
loan portfolio at December 31, 1998.
Over 1 Year
1 Year Through Over
(in millions) or Less 5 Years 5 Years Total
------- ----------- ------- -----
Domestic
- --------
Real Estate, Excluding Loans Collateralized
by 1-4 Family Residential Properties $ 421 $ 1,126 $1,415 $ 2,962
Commercial and Industrial Loans 4,534 8,037 3,062 15,633
Other, Excluding Loans to Individuals and those
Collateralized by 1-4 Family Residential Properties 4,529 984 307 5,820
------- ------- ------ -------
9,484 10,147 4,784 24,415
Foreign 3,858 1,300 1,191 6,349
- -------
------- ------- ------ -------
Total $13,342 $11,447 $5,975 $30,764
======= ======= ====== =======
Loans with:
Predetermined Interest Rates $ 1,787 $ 1,021 $1,305 $ 4,113
Floating Interest Rates 11,555 10,426 4,670 26,651
------- ------- ------ -------
Total $13,342 $11,447 $5,975 $30,764
======= ======= ====== =======
16
Deposits
- --------
The aggregate amount of deposits by foreign customers in domestic offices
was $5.3 billion, $4.3 billion, and $4.5 billion at December 31, 1998, 1997,
and 1996.
The following table shows the maturity breakdown of domestic time
deposits of $100,000 or more at December 31, 1998.
Time
Certificates Deposits-
(in millions) of Deposits Other Total
---------------------------------------------
3 Months or Less $ 762 $1,708 $2,470
Over 3 Through 6 Months 198 - 198
Over 6 Through 12 Months 193 - 193
Over 12 Months 354 68 422
------ ------ ------
Total $1,507 $1,776 $3,283
====== ====== ======
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 1998, 1997, and 1996 is
presented in the table below.
1998 1997 1996
--------------------------------------------------------------
(dollars in millions) Average Average Average
Amount Rate Amount Rate Amount Rate
------ ------- ------ ------- ------ --------
Federal Funds Purchased and Securities
Sold Under Repurchase Agreements
At December 31 $1,571 3.78% $2,329 4.32% $1,737 5.31%
Average During Year 3,147 4.60 2,410 5.00 2,957 5.23
Maximum Month-End Balance During Year 4,684 4.65 3,805 5.45 4,460 4.85
Other*
At December 31 $2,963 4.86% $2,960 5.69% $2,707 5.34%
Average During Year 3,761 5.42 3,177 5.27 3,406 5.47
Maximum Month-End Balance During Year 3,467 5.07 3,439 5.12 4,341 5.40
*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, 1998, the Company had more than 1% of its total assets in
Germany, totaling $1.2 billion, and in the United Kingdom, totaling $942
million. Germany's assets consisted of $785 million attributable to banks and
other financial institutions, $124 million attributable to public sector
entities, and $274 million attributable to commercial, industrial and other
companies. The United Kingdom's assets consisted of $162 million attributable
to banks and other financial institutions, $33 million attributable to public
sector entities, and $747 million attributable to commercial, industrial and
other companies. At December 31, 1997, the Company had more than 1% of its
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, 1998, the Company had more than .75% of its
total assets in France and Hong Kong, aggregating $1.1 billion. At December
31, 1997, the Company had more than.75% of its total assets in the United
Kingdom, Japan, and Greece aggregating $1,544 million.
17
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.
18
EXECUTIVE OFFICERS OF THE REGISTRANT AND BUSINESS EXPERIENCE DURING THE PAST FIVE YEARS
- ---------------------------------------------------------------------------------------
Company
Officer
Name Office and Experience Age Since
- ---- --------------------- --- -------
Thomas A. Renyi 1998-1999 Chairman and Chief Executive Officer 53 1992
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
1994 President of the Company and
Vice Chairman of the Bank
Alan R. Griffith 1994-1999 Vice Chairman of the Company and the Bank 57 1990
1994 Senior Executive Vice President of the
Company, and President and Chief Operating
Officer of the Bank
Gerald L. Hassell 1998-1999 President of the Company and the Bank and 47 1998
Senior Executive Vice President of the Company
1994-1998 Chief Commercial Banking Officer and
Senior Executive Vice President of the Bank
Deno D. Papageorge 1997-1999 Senior Executive Vice President of the 60 1980
Company and the Bank
1994-1997 Senior Executive Vice President of the
Company, Senior Executive Vice President
and Chief Financial Officer of the Bank
Bruce W. Van Saun 1998-1999 Senior Executive Vice President of the 41 1998
Company and Chief Financial Officer of the
Company and the Bank
1997-1998 Executive Vice President and Chief Financial
Officer of the Bank
1994-1997 Chief Financial Officer Deutsche Bank U.S.
Robert E. Keilman 1994-1999 Comptroller of the Company and the Bank, 53 1984
Senior Vice President of the Bank,
retired January 1999
Thomas J. Mastro 1999 Comptroller of the Company and the Bank 49 1999
1998-1999 Senior Vice President of the Bank
1994-1998 Vice President of the Bank
Phebe C. Miller 1995-1999 Secretary and Chief Legal Officer of the 49 1995
Company, Senior Vice President and Chief
Legal Officer of the Bank
1994-1995 Senior Vice President of the Bank
1994 Managing Director, General Counsel and
Secretary, Discount Corporation of New York
Robert J. Goebert 1994-1999 Auditor of the Company, Senior Vice 57 1982
President of the Bank
ITEM 2. PROPERTIES
- -------------------
At December 31, 1998 in New York City, the Company owned the forty-nine
story building housing its executive headquarters at One Wall Street and an
operations center at 101 Barclay Street. The Company leases the land at the
101 Barclay Street location under a lease expiring in 2080. 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.
19
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 1998.
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. All of the Company's other securities are not currently listed.
The Company had 24,245 common shareholders of record at February 26, 1999.
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.
FORWARD LOOKING STATEMENTS
The Company or its executive officers and directors on behalf of the
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, including risks relating to Year 2000 and the
introduction of the Euro (in particular, the Year 2000 readiness of third
parties with which the Company does business). 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. References made to
the Company's reports filed with the Securities and Exchange Commission for a
further discussion of such factors. The Company disclaims any obligation to
update forward looking statements.
Government Monetary Policies
The Federal Reserve Board has the primary responsibility for United
States monetary policy. 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 and capital costs or reduce fees
charged by the Company or increase competition for banks. 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.
20
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 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
- --------------------------------------------------------------------
See page 10 and 11 "Market Risk Management" and "Interest Rate
Sensitivity".
Quantitative and qualatative disclosure about market risk are
incorporated herein by reference from the "Market Risk Management", "Trading
Activities and Risk Management", and "Asset/Liability Mangement" sections
included in Exhibit 13.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
- ----------------------------------------------------
Consolidated financial statements and notes and the independent auditors'
report are incorporated herein by reference from Exhibits 13 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
- -------------------------------------------------------------------------
There have been no 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 1999 Annual
Meeting, except for information as to Executive Officers set forth in Part I,
Item 1.
21
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 23 of this Report, which information is incorporated by
reference.
(b) Reports on Form 8-K:
October 19, 1998: Unaudited interim financial information and
accompanying discussion for the third quarter of 1998.
January 19, 1999: Unaudited interim financial information and
accompanying discussion for the fourth quarter of 1998.
January 29, 1999: Issuance by BNY Capital IV, a statutory business trust
of 8,000,000,000 of its 6 7/8% Trust Preferred Securities, Series E
(c) Exhibits:
Submitted as a separate section of this report.
(d) Financial Statements Schedules:
Non
22
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 9th day of March, 1999.
THE BANK OF NEW YORK COMPANY, INC.
By: \s\ Thomas J. Mastro
-------------------------------------
(Thomas J. Mastro,
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 9th day of March, 1999.
Signature Title
--------- -----
\s\ Thomas A. Renyi Chairman of the Board, Chief
- ------------------------------------ Executive Officer (Principal
(Thomas A. Renyi) Executive Officer), and Director
\s\ Gerald L. Hassell President and Director
- ------------------------------------
(Gerald L. Hassell)
\s\ Alan R. Griffith Vice Chairman and Director
- ------------------------------------
(Alan R. Griffith)
\s\ Deno D. Papageorge Senior Executive Vice President
- ------------------------------------ and Director
(Deno D. Papageorge)
\s\ Thomas J. Mastro Comptroller
- ------------------------------------ (Principal Accounting Officer)
(Thomas J. Mastro)
\s\ J. Carter Bacot Director
- ------------------------------------
(J. Carter Bacot)
\s\ Richard Barth Director
- ------------------------------------
(Richard Barth)
\s\ Frank J. Biondi, Jr. Director
- ------------------------------------
(Frank J. Biondi, Jr.)
23
\s\ William R. Chaney Director
- ------------------------------------
(William R. Chaney)
\s\ Ralph E. Gomory Director
- ------------------------------------
(Ralph E. Gomory)
\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\ William C. Richardson Director
- ------------------------------------
(William C. Richardson)
\s\ Harold E. Sells Director
- ------------------------------------
(Harold E. Sells)
\s\ Bruce W. Van Saun Senior Executive Vice President
- ------------------------------------ and Chief Financial Officer
(Bruce W. Van Saun) (Principal Financial Officer)
24
INDEX TO EXHIBITS
Exhibit No.
- ----------
3 (a) The By-Laws of The Bank of New York Company, Inc. as amended through
October 13, 1987- incorporated by reference to Exhibit 3(a) to the
Company's 1987 Annual Report on Form 10-K.
(b) Restated Certificate of Incorporation of The Bank of New York Company,
Inc. dated July 20, 1994, incorporated by reference to Exhibit 4 to
the Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1994
(c) Amendment to Certificate of Incorporation of The Bank of New York
Company, Inc. dated July 9, 1996, incorporated by reference to
Exhibit 4 to the Company's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1996.
(d) Amendment to Certificate of Incorporation of The Bank of New York
Company, Inc. dated July 16, 1998 incorporated by reference to Exhibit
4.3 to the Company's Registration Statement on Form S-3 (Registration
Statement No. 333-70187.
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 Right,
dated as of December 10, 1985 between The Bank of New York Company,
Inc. and The Bank of New York, as Rights Agent, incorporated by
reference to the Company's registration statement on Form 8-A dated
Dec. 18,1995.
(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, incorporated by reference to the amendment
on Form 8, dated June 14, 1989, to the Company's Registration
Statement on Form 8-A, dated December 18, 1985. (File No. 1-6152)
(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 incorporated by reference to the amendment
on Form 8-A/A , filed May 3, 1993, to the Company's Registration
Statement on Form 8-A, dated December 18, 1985. (File No. 1-6152)
(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, incorporated by
reference to the amendment on Form 8-A/A, filed March 24, 1994, to the
Company's Registration Statement on Form 8-A, dated December 18, 1985.
(File No. 1-6152)
*10(a) Amendment dated October 1, 1997 to the Trust Agreement dated
November 16, 1993 related to executive compensation agreements,
incorporated by reference to Exhibit 10(a) to the Company's Annual
Report on Form 10-K for the year ended December 31, 1997.
*(b) Enhanced Severance Agreement dated July 8, 1997, incorporated by
reference to Exhibit 10(b) to the Company's Annual Report on Form 10-K
for the year ended December 31, 1997.
*(c) Enhanced Severance Agreement dated July 8, 1997, incorporated by
reference to Exhibit 10(c) to the Company's Annual Report on Form 10-K
for the year ended December 31, 1997.
25
*(d) Enhanced Severance Agreement dated July 8, 1997, incorporated by
reference to Exhibit 10(d) to the Company's Annual Report on Form 10-K
for the year ended December 31, 1997.
*(e) Enhanced Severance Agreement dated July 8, 1997, incorporated by
reference to Exhibit 10(e) to the Company's Annual Report on Form 10-K
for the year ended December 31, 1997.
*(f) Consulting Agreement dated November 5, 1997, incorporated by reference
to Exhibit 10(f) to the Company's Annual Report on Form 10-K for the
year ended December 31, 1997.
*(g) Compensation Agreement dated April 17, 1997, incorporated by reference
to Exhibit 10(g) to the Company's Annual Report on Form 10-K for the
year ended December 31, 1997.
*(h) 1984 Stock Option Plan of The Bank of New York Company, Inc. as
amended through February 23, 1988, incorporated by reference to
Exhibit 10(a) to the Company's Annual Report on Form 10-K for the year
ended December 31, 1988.
*(i) Amendment dated October 11, 1994 to 1984 Stock Option Plan of The Bank
of New York Company, Inc., incorporated by reference to Exhibit 10(b)
to the Company's Annual Report on Form 10-K for the year ended
December 31, 1994.
*(j) The Bank of New York Company, Inc. Excess Contribution Plan as amended
through July 10, 1990- incorporated by reference to Exhibit 10(b) to
the Company's Annual Report on Form 10-K for the year ended
December 31, 1990.
*(k) Amendments dated February 23, 1994 and November 9, 1993 to The Bank of
New York Company, Inc. Excess Contribution Plan, incorporated by
reference to Exhibit 10(c) to the Company's Annual Report on Form 10-K
for the year ended December 31, 1993.
*(l) Amendment to The Bank of New York Company, Inc. Excess Contribution
Plan dated November 14, 1995, incorporated by reference to Exhibit
10(l) to the Company's Annual Report on Form 10-K for the year ended
December 31, 1997.
*(m) The Bank of New York Company, Inc. Excess Benefit Plan as amended
through December 8, 1992, incorporated by reference to Exhibit 10(d)
to the Company's Annual Report on Form 10-K for the year ended
December 31, 1993.
*(n) Amendments dated February 23, 1994 and November 9, 1993 to The Bank
of New York Company, Inc. Excess Benefit Plan, incorporated by
reference to Exhibit 10(c) to the Company's Annual Report on Form 10-K
for the year ended December 31, 1993.
*(o) Amendment dated May 10, 1994 to The Bank of New York Company, Inc.
Excess Benefit Plan, incorporated by reference to Exhibit 10(g) to the
Company's Annual report on Form 10-K for the year ended
December 31, 1994.
*(p) Amendment dated November 14, 1995 to The Bank of New Company, Inc.
Excess Benefit Plan, incorporated by reference to Exhibit 10(i) to the
Company's Annual report on Form 10-K for the year ended
December 31, 1995.
*(q) 1994 Management Incentive Compensation Plan of The Bank of New York
Company, Inc., incorporated by reference to Exhibit 10(g) to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1993.
*(r) Amendment dated January 12, 1999 to the 1994 Management Incentive
Compensation Plan of The Bank of New York Company, Inc.
26
*(s) 1988 Long-Term Incentive Plan as amended through December 8, 1992,
incorporated by reference to Exhibit 10(f) to the Company's Annual
Report on Form 10-K for the year ended December 31, 1992.
*(t) Amendment dated October 11, 1994 to the 1988 Long-Term Incentive Plan
of The Bank of New York Company, Inc., incorporated by reference to
Exhibit 10(j) to the Company's Annual Report on Form 10-K for the year
ended December 31, 1994.
*(u) The Bank of New York Company, Inc. 1993 Long-Term Incentive Plan,
incorporated by reference to Exhibit 10(m) to the Company's Annual
Report on Form 10-K for the year ended December 31, 1992.
*(v) Amendment dated October 11, 1994 to the 1993 Long-Term Incentive Plan
of The Bank of New York Company, Inc., incorporated by reference to
Exhibit 10(l) to the Company's Annual Report on Form 10-K for the year
ended December 31, 1994.
*(w) Amendment dated December 10, 1996 to the 1993 Long-Term Incentive Plan
of The Bank of New York Company, Inc., incorporated by reference to
Exhibit 10(g) to the Company's Annual Report on Form 10-K for the year
ended December 31, 1996.
*(x) Amendment dated January 14, 1997 to the 1993 Long-Term Incentive Plan
of The Bank of New York Company, Inc., incorporated by reference to
Exhibit 10(h) to the Company's Annual Report on Form 10-K for the year
ended December 31, 1996.
*(y) Amendment dated March 11, 1997 to the 1993 Long-Term Incentive Plan of
The Bank of New York Company, Inc., incorporated by reference to
Exhibit 10(i) to the Company's Annual Report on Form 10-K for the year
ended December 31, 1996.
*(z) Amendment dated July 14, 1998 to the 1993 Long-Term Incentive Plan of
The Bank of New York Company, Inc.
*(aa) The Bank of New York Company, Inc. 1999 Long-Term Incentive Plan.
*(bb) The Bank of New York Company, Inc. Supplemental Executive Retirement
Plan, incorporated by reference to Exhibit 10(n) to the Company's
Annual Report on Form 10-K for the year ended December 31, 1992.
*(cc) Amendment dated March 9, 1993 to The Bank of New York Company, Inc.
Supplemental Executive Retirement Plan, incorporated by reference to
Exhibit 10(k) to the Company's Annual Report On Form 10-K for the year
ended December 31, 1993.
*(dd) Amendment effective October 11, 1994 to The Bank of New York Company,
Inc. Supplemental Executive Retirement Plan, incorporated by reference
to Exhibit 10(o) to the Company's Annual Report on Form 10-K for the
year ended December 31, 1994.
*(ee) Amendment dated June 11, 1996 to The Bank of New York Company, Inc.
Supplemental Executive Retirement Plan, incorporated by reference to
Exhibit 10(a) to the Company's Annual Report on Form 10-K for the year
ended December 31, 1996.
*(ff) Amendment dated November 12, 1996 to The Bank of New York Company,
Inc. Supplemental Executive Retirement Plan, incorporated by reference
to Exhibit 10(b) to the Company's Annual Report on Form 10-K for the
year ended December 31, 1996.
*(gg) Trust Agreement dated April 19, 1988 related to certain executive
compensation plans and agreements, incorporated by reference to
Exhibit 10(h) to the Company's Annual Report on Form 10-K for the year
ended December 31, 1988.
27
*(hh) Trust Agreement dated November 16, 1993 related to certain executive
compensation plans and agreements, incorporated by reference to
Exhibit 10(m) to the Company's Annual Report on Form 10-K for the year
ended December 31, 1993.
*(ii) Amendment dated October 11, 1994 to Trust Agreement dated November 16,
1993, related to certain executive compensation plans and agreements,
incorporated by reference to Exhibit 10(r) to the Company's Annual
Report on Form 10-K for the year ended December 31, 1994.
*(jj) Trust Agreement dated December 15, 1994 related to certain executive
compensation plans and agreements, incorporated by reference to
Exhibit 10(s) to the Company's Annual Report on Form 10-K for the year
ended December 31, 1994.
*(kk) Amendment dated January 31, 1997 to the Trust Agreement dated
April 19, 1988 related to executive compensation agreements,
incorporated by reference to Exhibit 10(c) to the Company's Annual
Report on Form 10-K for the year ended December 31, 1996.
*(ll) Amendment dated January 14, 1997 to the Trust Agreement dated
November 16, 1993 related to executive compensation agreements,
incorporated by reference to Exhibit 10(d) to the Company's Annual
Report on Form 10-K for the year ended December 31, 1996.
*(mm) Amendment dated January 31, 1997 to the Trust Agreement dated
November 16, 1993 related to executive compensation agreements,
incorporated by reference to Exhibit 10(c) to the Company's Annual
Report on Form 10-K for the year ended December 31, 1996.
*(nn) Amendment dated January 31, 1997 to the Trust Agreement dated
December 15, 1994 related to certain executive compensation plans and
agreements, incorporated by reference to Exhibit 10(f) to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1996.
*(oo) Amendment dated September 11, 1998 to the Trust Agreement dated
November 16, 1993 related to executive compensation agreements.
*(pp) Form of Remuneration Agreement between the Company and one of the five
most highly compensated executive officers of the Company incorporated
by reference to Exhibit 10 to the Company's Annual Report on Form 10-K
for the year ended December 31, 1982.
*(qq) 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, incorporated by reference to Exhibit 10(u) to
the Company's Annual Report on Form 10-K for the year ended
December 31, 1994.
*(rr) Form of Remuneration Agreement dated October 11, 1994 between the
Company and three of the five most highly compensated officers of the
Company, incorporated by reference to Exhibit 10(v) to the Company's
Annual Report on Form 10-K for the year ended December 31, 1994.
*(ss) The Bank of New York Company, Inc. Retirement Plan for Non-Employee
Directors- incorporated by reference to Exhibit 10(r) to the Company's
Annual Report on Form 10-K for the year ended December 31, 1994,
*(tt) Amendment dated November 8, 1994 to The Bank of New York Company, Inc.
Retirement Plan for Non-Employee Directors, incorporated by reference
to Exhibit 10(x) to the Company's Annual Report on Form 10-K for the
year ended December 31, 1994.
*(uu) Amendment dated February 9, 1999 to The Bank of New York Company, Inc.
Retirement Plan for Non-Employee Directors.
28
*(vv) Deferred Compensation Plan for Non-Employee Directors of The Bank of
New York Company, Inc., incorporated by reference to Exhibit 10(s) to
the Company's Annual Report on Form 10-K for the year ended
December 31, 1993.
*(ww) Amendment dated November 8, 1994 to Deferred Compensation Plan for
Non-Employee Directors of The Bank of New York Company, Inc.,
incorporated by reference to Exhibit 10(z) to the Company's Annual
Report on Form 10-K for the year ended December 31, 1994.
*(xx) Amendment dated February 11, 1997 to the Directors' Deferred
Compensation Plan for The Bank of New York Company, Inc., incorporated
by reference to Exhibit 10(j) to the Company's Annual Report on Form
10-K for the year ended December 31, 1996.
12 Statement - Re: Computation of Earnings to Fixed Charges Ratios
13 Portions of the 1998 Annual Report to Shareholders
21 Subsidiaries of the Registrant
23.1 Consent of Ernst & Young LLP
27 Financial Data Schedule
* Constitutes a Management Contract or Compensatory Plan or Arrangement