10-K 1 1994 FORM 10K 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 [FEE REQUIRED] For The Fiscal Year Ended December 31, 1994 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] 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 8.60% Cumulative Preferred Stock NEW YORK STOCK EXCHANGE Preferred Stock Purchase Rights NEW YORK STOCK EXCHANGE Convertible Subordinated Debentures due 2001 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 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. [X] The aggregate market value of voting stock held by nonaffiliates of the registrant at February 28, 1995 consisted of: Common Stock ($7.50 par value) $6,301,003,576 (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 188,089,659 shares on February 28, 1995. DOCUMENTS INCORPORATED BY REFERENCE Portions of the 1995 Annual Report to Shareholders are incorporated by reference into Parts I, II, and IV. Portions of the definitive Proxy Statement pursuant to Regulation 14A for the 1995 Annual Meeting of Shareholders are incorporated by reference into Part III. 2 PART I ------ ITEM 1. BUSINESS ----------------- 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 1994 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. COMPETITION The retail and commercial 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. 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") is a state-chartered New York banking corporation and a member of the Federal Reserve System and is subject to regulation and supervision principally by the Federal Reserve Board. The Bank of New York (Delaware) ("BNY Del.") is a Delaware chartered FDIC insured non-member bank and therefore is subject to regulation and supervision principally by the FDIC. The Bank of New York National Association ("BNYNA") is organized as a national association under the laws of the United States and therefore is subject to regulation and supervision principally by the Comptroller of the Currency ("Comptroller"). 3 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 (including certain off-balance sheet items) is 8%. At least half of the total capital is to be comprised of common stock, retained earnings, noncumulative perpetual preferred stocks, minority interests and for bank holding companies, a limited amount of qualifying cumulative perpetual preferred stock, less certain intangibles including goodwill ("Tier I capital"). The remainder ("Tier II capital") may consist of other preferred stock, certain other instruments, and limited amounts of subordinated debt and the loan and lease loss allowance. In addition, the Federal Reserve Board has established minimum Leverage Ratio (Tier I capital to average total assets) guidelines for bank holding companies and banks. These guidelines provide for a minimum leverage ratio of 3% for bank holding companies and banks that meet certain specified criteria, including that they have the highest regulatory rating. All other banking organizations will be required to maintain a leverage ratio of 3% plus an additional cushion of at least 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. Furthermore, the guidelines indicate that the Federal Reserve Board will continue to consider a "Tangible Tier I Leverage Ratio" in evaluating proposals for expansion or new activities. The Tangible Tier I Leverage Ratio is the ratio of Tier I capital, less intangibles not deducted from Tier I capital, to average total assets. The Federal Reserve Board has not advised the Company of any specific minimum leverage ratio applicable to it. Federal banking agencies have proposed regulations that would modify existing rules related to risk-based and leverage capital ratios. The Company does not believe that the aggregate impact of these modifications would have a significant impact on its capital position. Bank regulators continue to indicate their desire to raise capital requirements applicable to banking organizations beyond their current levels. However, management is unable to predict whether and when higher capital requirements would be imposed and, if so, at what level and on what schedule. 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 I Capital Ratio 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 I 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 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. 4 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. In addition, 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. The Company's significant banking subsidiaries are well capitalized. The table below indicates capital ratios of the Company and its significant banking subsidiaries at December 31, 1994 and 1993 and the respective guidelines for well capitalized institutions under FDICIA. December 31, 1994 December 31, 1993 BNY BNY Company BNY Del. BNYNA Company BNY Del. BNYNA ------- --- ---- ----- ------- --- ---- ----- Well Capitalized Guidelines ----------- Tier I 8.45% 8.26% 7.27% 18.04% 8.87% 8.21% 7.53% 13.90% 6% Total Capital 13.43 12.36 11.34 19.30 13.65 12.82 11.00 15.17 10 Leverage 7.89 7.28 7.72 8.58 7.99 7.22 8.09 6.43 5 Tangible Common Equity 7.39 7.66 7.28 8.76 7.00 7.74 7.87 6.48 At December 31, 1994, the amounts of capital by which the Company and its significant banking subsidiaries exceed the guidelines are as follows: Well Capitalized BNY Company BNY Del. BNYNA (in millions) ------- --- ---- ----- Tier I $1,167 $839 $ 97 $247 Total Capital 1,634 877 103 191 Leverage 1,475 961 196 155 5 The following table presents the components of the Company's risk-based capital at December 31, 1994 and 1993: (in millions) 1994 1993 ---- ---- Common Stock $4,234 $3,778 Preferred Stock 119 294 Less: Intangibles 329 317 ----- ------ Tier 1 Capital 4,024 3,755 Qualifying Long-term Debt 1,774 1,489 Qualifying Allowance for Loan Losses 597 534 ------ ------ Tier 2 Capital 2,371 2,023 ------ ------ Total Risk-based Capital $6,395 $5,778 ====== ====== The following table presents the components of the Company's risk adjusted assets at December 31, 1994 and 1993: 1994 1993 ------------------ ------------------ 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 $ 3,895 $ 567 $ 4,780 $ 318 Securities 4,651 671 5,597 571 Trading Assets 940 124 1,325 270 Fed Funds Sold and Securities Purchased Under Resale Agreements 3,019 3 36 5 Loans 33,083 30,814 30,570 27,954 Allowance for Loan Losses (792) - (970) - Other Assets 4,083 3,273 4,208 3,425 ------- ------- ------- ------- Total Assets $48,879 35,452 $45,546 32,543 ======= ------- ======= ------- Off-Balance Sheet Exposures --------------------------- Commitments to Extend Credit $ 37,771 7,520 $ 30,877 6,167 Securities Lending Indemnifications 15,326 - 15,005 - Standby Letters of Credit and Other Guarantees 7,240 4,515 5,699 3,685 Interest Rate Contracts 28,632 81 36,834 145 Foreign Exchange Contracts 51,021 236 39,878 225 -------- ------- -------- ------- Total Off-Balance Sheet Exposures $139,990 12,352 $128,293 10,222 ======== ------- ======== ------- Gross Risk Adjusted Assets 47,804 42,765 Less: Allowance for Loan Losses not Qualifying as Risk Based Capital 195 436 ------- ------- Risk Adjusted Assets $47,609 $42,329 ======= ======= 6 A discussion of the Company's capital position is incorporated by reference from the caption "Capital Resources" in the "Management's Discussion and Analysis" section of Exhibit 13. Brokered Deposits The FDIC has adopted regulations under FDICIA governing the receipt of brokered deposits. Under the regulations, a bank cannot accept, rollover or renew brokered deposits unless (i) it is well capitalized or (ii) it is adequately capitalized and receives a waiver from the FDIC. A bank that cannot receive brokered deposits also cannot offer "pass-through" insurance on certain employee benefit accounts. Whether or not it has obtained such a waiver, an adequately capitalized bank may not pay an interest rate on any deposits in excess of 75 basis points over certain prevailing market rates specified by regulation. There are no such restrictions on a bank that is well capitalized. Because BNY and BNY Del. are well capitalized, the Company believes the brokered deposits regulation will have no material effect on the funding or liquidity of BNY and BNY Del. BNYNA is well capitalized, but has no brokered deposits. FDIC Insurance Assessments BNY, BNY Del., and BNYNA are 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. Under the schedule, the premiums initially range from $.23 to $.31 for every $100 of deposits. Each financial institution is assigned to one of three capital groups --- well capitalized, adequately capitalized, or undercapitalized --- and further assigned to one of three subgroups within a capital group, on the basis of supervisory evaluations by the institution's primary federal and, if applicable, state supervisors and other information relevant to the institution's financial condition and the risk posed to the applicable insurance fund. The actual assessment rate applicable to a particular institution will, therefore, depend in part upon the risk assessment classification so assigned to the institution by the FDIC. In February 1995, the FDIC issued a proposal to change the premium range from $.04 to $0.31 for every $100 of deposits. If implemented, this proposal would result in a significant reduction in FDIC insurance assessments of BNY, BNY Delaware and BNYNA. 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. That act requires claims to be paid in the following order of priority: the receiver's administrative expenses; deposits; other general or senior liabilities of the institution; obligations subordinated to depositors or general creditors; and obligations to shareholders. Under an FDIC interim rule, which became effective August 13, 1993, "administrative expenses of the receiver" are defined as those incurred by the receiver in liquidating or resolving the affairs of a failed insured depository institution. 7 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 to its subsidiaries services 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 BHC Act generally prohibits the acquisition of a domestic bank located outside the Company's state of principal operations, New York State, unless authorized by the law of the state of the target bank. Most states have enacted interstate banking laws that permit the Company to acquire banks located in their states, but some states (particularly in the Southeast) presently do not permit entry by New York bank holding companies. The New York Banking Law requires state regulatory approval before the Company can acquire more than 5% of the voting shares of a commercial bank in New York. The Riegle-Neal Interstate banking and Branching Efficiency Act of 1994 which was enacted in September, 1994, authorizes (i) bank holding companies to engage in interstate acquisitions of banks beginning one year after the date of its enactment, (ii) interstate branching through interstate bank mergers beginning June 1, 1997 (subject to the ability of states to "opt-in" and thereby permit such mergers earlier or to "opt-out" and thereby prohibit them), (iii) de novo interstate branching provided that such action is specifically authorized by the law of the state in which the branch is to be located and (iv) banks to receive deposits, close and service loans, and receive payments on loans and other obligations as agent for a bank affiliate in the same or a different state beginning September 29, 1995. One effect of this legislation, subject to the state authority described above, will be to permit the Company to merge two or more of its banking subsidiaries which, as a result, may create greater efficiency in its operations. 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 state bank, the New York Superintendent of Banks. With respect to BNYNA, the approval of the Comptroller is required for branching of national banks, purchasing the assets of other banks and for bank mergers in which the continuing bank is a national bank. In reviewing bank acquisition and merger applications, the bank regulatory authorities will consider, among other things, the competitive effect and public benefits of the transactions, the capital position of the combined organization, and 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 deposits and to certain other indebtedness of its banks. Regulated Banking Subsidiaries As a New York State chartered bank and a member of the Federal Reserve System, BNY is subject to the supervision of, and is regularly examined by, the New York State Banking Department and the Federal Reserve Board. As a bank insured by the FDIC, BNY is also subject to examination by that agency. BNY Del. is subject to the supervision of, and is regularly examined by, the FDIC and the Office of State Bank Commissioner of the State of Delaware. BNYNA is a national bank subject to the regulation and supervision of, and regular examination by, the Comptroller and subject to regulations of the FDIC and Federal Reserve Board. 8 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. Restrictions on Transfer of Funds Restrictions on the transfer of funds to the Company are discussed in Note 9 to the Consolidated Financial Statements included in Exhibit 13. Such discussion is incorporated herein by reference. FIRREA A depository institution insured by the FDIC can be held liable for any loss incurred by, or reasonably expected to be incurred by, the FDIC in connection with (i) the default of a commonly controlled institution or (ii) any assistance provided by the FDIC to a commonly controlled, FDIC-insured depository institution in danger of default. "Default" is defined generally as the appointment of a conservator or receiver, and "in danger of default" is defined generally as the existence of certain conditions indicating that a "default" is likely to occur in the absence of regulatory assistance. 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. 9 ADDITIONAL FINANCIAL INFORMATION ------------------------------------------------------------------------------ Average Balances and Rates on a Taxable Equivalent Basis (dollars in millions) 1994 1993 1992 ============================================================================== Aver- Aver- Aver- Average Inter- age Average Inter- age Average Inter- age Balance est Rate Balance est Rate Balance est Rate ----------------------------------------------------------------- Assets ------ Interest -Bearing Deposits in Banks (Primarily Foreign) $ 1,266 $ 68 5.33% $ 452 $ 24 5.42% $ 753 $ 76 10.14% Federal Funds Sold and Securities Purchased Under Resale Agreements 3,653 161 4.39 3,149 97 3.06 2,379 85 3.54 Loans Domestic Offices Consumer 9,549 1,015 10.62 8,259 806 9.76 7,016 704 10.04 Commercial 12,340 833 6.76 11,998 741 6.18 11,643 755 6.48 Foreign Offices 10,140 564 5.56 10,170 485 4.77 11,686 651 5.57 ------- ------ ------- ------ ------- ------ Total Loans 32,029 2,412* 7.53 30,427 2,032* 6.68 30,345 2,110* 6.95 ------- ------ ------- ------ ------- ------ Securities U.S. Government Obligations 3,516 197 5.61 3,732 215 5.78 3,611 240 6.66 Obligations of States and Political Subdivisions 893 89 10.02 1,070 110 10.29 1,224 135 11.04 Other Securities, including Trading Securities Domestic Offices 1,341 70 5.25 1,358 64 4.74 1,190 91 7.65 Foreign Offices 191 11 5.64 192 14 7.36 177 17 9.44 ------- ------ ------- ------ ------- ------ Total Other Securities 1,532 81 5.30 1,550 78 5.06 1,367 108 7.88 ------- ------ ------- ------ ------- ------ Total Securities 5,941 367 6.19 6,352 403 6.36 6,202 483 7.79 ------- ------ ------- ------ ------- ------ Total Interest- Earning Assets 42,889 $3,008 7.01% 40,380 $2,556 6.33% 39,679 $2,754 6.94% ====== ====== ====== Allowance for Loan Losses (906) (1,045) (1,057) Cash and Due from Banks 2,827 2,735 2,522 Other Assets 5,470 4,574 5,083 ------- ------- ------- Total Assets $50,280 $46,644 $46,227 ======= ======= ======= Assets Attributable to Foreign Offices 24.30% 24.37% 28.63% ===== ===== ===== *Includes fees of $118 million in 1994, $103 million in 1993, and $96 million in 1992. 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 $46 million in 1994, $54 million in 1993, and $66 million in 1992, and are based on the federal statutory tax rate (35% in 1994 and 1993, and 34% in 1992) and applicable state and local taxes. Continued on page 10 10 Average Balances and Rates on a Taxable Equivalent Basis (dollars in millions) 1994 1993 1992 =============================================================================== Aver- Aver- Aver- Average Inter- age Average Inter- age Average Inter- age Balance est Rate Balance est Rate Balance est Rate ------------------------------------------------------------- Liabilities and Shareholders' Equity --------------- Interest-Bearing Deposits Domestic Offices Money Market Rate Accounts $ 3,593 $ 108 3.01% $ 3,666 $ 91 2.48% $ 3,468 $ 108 3.11% Savings 8,166 190 2.32 8,379 198 2.37 7,189 216 3.01 Certificates of Deposit of $100,000 or More 1,041 42 4.03 1,189 36 3.00 1,709 64 3.75 Other Time Deposits 2,296 97 4.24 2,701 119 4.39 2,965 152 5.15 ------- ------ ------- ------ ------- ------ Total Domestic Offices 15,096 437 2.90 15,935 444 2.78 15,331 540 3.53 ------- ------ ------- ------ ------- ------ Foreign Offices Banks in Foreign Countries 2,917 125 4.30 2,829 93 3.28 4,018 204 5.07 Government and Official Institutions 1,384 60 4.37 1,306 57 4.34 1,270 61 4.81 Other Time and Savings 5,689 220 3.84 3,752 107 2.87 4,716 200 4.24 ------- ------ ------- ------ ------- ------ Total Foreign Offices 9,990 405 4.05 7,887 257 3.26 10,004 465 4.64 ------- ------ ------- ------ ------- ------ Total Interest- Bearing Deposits 25,086 842 3.35 23,822 701 2.94 25,335 1,005 3.97 ------- ------ ------- ------ ------- ------ Federal Funds Purchased and Securities Sold Under Repurchase Agreements 2,843 106 3.73 3,467 102 2.94 4,001 136 3.40 Other Borrowed Funds 4,135 191 4.63 2,348 86 3.66 2,045 85 4.13 Long-Term Debt 1,530 106 6.93 1,729 117 6.79 1,386 94 6.77 ------- ------ ------- ------ ------- ------ Total Interest- Bearing Liabilities 33,594 $1,245 3.71% 31,366 $1,006 3.21% 32,767 $1,320 4.03% ======= ======= ======= Noninterest- Bearing Deposits Domestic Offices 8,897 8,946 7,797 Foreign Offices 58 69 105 ------- ------- ------- Total Noninterest- Bearing Deposits 8,955 9,015 7,902 ------- ------- ------- Other Liabilities 3,594 2,366 2,153 Preferred Stock 157 334 409 Common Shareholders' Equity 3,980 3,563 2,996 ------- ------- ------- Total Liabilities and Shareholders' Equity $50,280 $46,644 $46,227 ======= ======= ======= Net Interest Earnings and Interest Rate Spread $1,763 3.30 $1,550 3.12 $1,434 2.91 ====== ====== ====== Net Yield on Interest-Earning Assets 4.11% 3.84% 3.61% ==== ==== ==== Liabilities Attributable to Foreign Offices 22.79% 19.74% 24.91% ===== ===== ===== 11 Rate/Volume Analysis on a Taxable Equivalent Basis (in millions) ---------------------------------------------------------------- 1994 vs. 1993 1993 vs. 1992 ---------------------------------------------------------------------------- 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 $ 44 $ - $ 44 $ (24) $ (28) $ (52) Federal Funds Sold and Securities Purchased Under Resale Agreements 17 47 64 25 (13) 12 Loans Domestic Offices Consumer 134 75 209 122 (20) 102 Commercial 22 70 92 23 (37) (14) Foreign Offices (1) 80 79 (79) (87) (166) ----- ----- ----- ------ ------ ------ Total Loans 155 225 380 66 (144) (78) Securities U.S. Government Obligations (12) (6) (18) 8 (33) (25) Obligations of States and Political Subdivisions (18) (3) (21) (16) (9) (25) Other Securities, including Trading Assets Domestic Offices (1) 7 6 12 (39) (27) Foreign Offices - (3) (3) 1 (4) (3) ----- ----- ----- ----- ----- ------ Total Other Securities (1) 4 3 13 (43) (30) ----- ----- ----- ----- ----- ------ Total Securities (31) (5) (36) 5 (85) (80) ----- ----- ----- ----- ----- ------ Total Interest Income 185 267 452 72 (270) (198) ----- ----- ----- ----- ----- ------ Interest Expense ---------------- Interest-Bearing Deposits Domestic Offices Money Market Rate Accounts (2) 19 17 6 (23) (17) Savings (5) (3) (8) 32 (50) (18) Certificate of Deposits of $100,000 or More (5) 11 6 (17) (11) (28) Other Time Deposits (18) (4) (22) (12) (21) (33) ----- ----- ----- ----- ----- ------ Total Domestic Offices (30) 23 (7) 9 (105) (96) ----- ----- ----- ----- ----- ------ Foreign Offices Banks in Foreign Countries 3 29 32 (51) (60) (111) Government and Official Institutions 3 - 3 2 (6) (4) Other Time and Savings 67 46 113 (37) (56) (93) ----- ----- ----- ----- ----- ------ Total Foreign Offices 73 75 148 (86) (122) (208) ----- ----- ----- ----- ----- ------ Total Interest- Bearing Deposits 43 98 141 (77) (227) (304) Federal Funds Purchased and Securities Sold Under Repurchase Agreements (20) 24 4 (17) (17) (34) Other Borrowed Funds 77 28 105 11 (10) 1 Long-Term Debt (13) 2 (11) 23 - 23 ----- ----- ----- ----- ----- ------ Total Interest Expense 87 152 239 (60) (254) (314) ----- ----- ----- ----- ----- ------ Change in Net Interest Income $ 98 $ 115 $ 213 $ 132 $ (16) $ 116 ===== ===== ===== ===== ===== ====== 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. 12 Interest-Rate Sensitivity ------------------------- The Company actively manages interest-rate sensitivity (the exposure of net interest income to interest rate movements). The relationship of interest-earning assets and interest-bearing liabilities between repricing dates is closely monitored, yet the Company's policies are flexible enough to capitalize on profit opportunities, while minimizing adverse effects on earnings when changes in short-term and long-term interest rates occur. The Company uses complex simulation models to adjust the structure of its assets and liabilities in response to interest rate exposures. The Company uses three basic scenarios to model interest rate sensitivity, these include base line, high rate, and low rate. The base line scenario is the Company's estimated most likely path for future short-term interest rates. The base line scenario forecast in January 1995 assumes rising rates. The "high rate" scenario assumes a 79 basis point increase from the base line scenario (already a rising rate scenario). The "low rate" scenario assumes the average rate declines 121 basis points under the base line scenario. Additionally, other scenarios are reviewed to examine the impact of other interest rate changes. The Company quantifies interest rate sensitivity by calculating the change in net interest income between the three scenarios over a 12 month policy measurement period. Net interest income as calculated by the earnings simulation model under the base line scenario becomes the standard. The measurement of interest rate sensitivity is the percentage change in net interest income calculated by the model under high rate versus base-line scenario and under low rate versus base-line scenario. The scenarios do not include the adjustments that management would make as rate expectations change. The Company's policy limit for fluctuations in net interest income resulting from either the high rate or low rate scenario is 6 percent. Based upon the January 1995 outlook, if interest rates were to rise to follow the high rate scenario, then net interest income during the policy measurement period would be positively affected by 1.82% percent (assuming management took no actions.) If interest rates were to follow the low rate scenario, then net interest income would be negatively affected by 1.94% In addition to the policy limit discussed above, the Company also has a global mismatch limit to control the impact of interest rate fluctuations on the Company's earnings. The Company's global mismatch is defined as the absolute value of the Company's asset repricings less liability repricings in 24 maturity bands ranging from one day to over 10 years. Off balance sheet instruments, such as swaps and futures used to hedge balance sheet items are included in the calculation of the global mismatch. Each year the Company's Board of Directors approves specific mismatch limits. The global mismatch is reviewed weekly by senior management. 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. Further, within each time period assets and liabilities reprice on different dates and at different levels. 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 a higher ratio of rate sensitive liabilities than assets. In such cases, if interest rates rise, then funding costs will rise at a faster rate than the return on assets. Finally, the cumulative gap is the sum of the dollar gap for sequential time periods. 13 December 31, 1994 ----------------------------------------------- Within Greater Within Within Within 7-12 Than 1 Mo. 2-3 Mos. 4-6 Mos. Mos. 12 Mos. Total ------ -------- -------- ------ ------- ------- (in millions) Interest-Earning Assets ----------------------- Foreign Offices $ 5,840 $ 4,025 $1,677 $ 196 $ 217 $11,955 Domestic Offices Loans 16,976 471 392 564 4,387 22,790 Securities 131 60 93 309 3,380 3,973 Trading Assets 686 - - - - 686 Federal Funds Sold and Securities Purchased Under Resale Agreement 3,019 - - - - 3,019 ------- ------- ------ ------ ------ ------- 26,652 4,556 2,162 1,069 7,984 $42,423 ------- ------- ------ ------ ------ ======= Interest-Bearing Liabilities ---------------------------- Foreign Offices 8,323 1,614 625 488 32 11,082 Domestic Offices Interest-Bearing Deposits Money Market Rate Accounts 3,330 - - - - 3,330 Savings 6,444 - - 13 1,296 7,753 Certificates of Deposit of $100,000 or More 493 399 224 304 901 2,321 Other Time Deposits 335 235 322 219 355 1,466 ------- ------- ------ ------ ------ ------- Total Interest-Bearing Deposits 18,925 2,248 1,171 1,024 2,584 25,952 ------- ------- ------ ------ ------ ------- Federal Funds Purchased and Other Borrowed Funds 4,344 737 147 555 17 5,800 Long-Term Debt - - 64 - 1,710 1,774 ------- ------- ------ ------ ------ ------- Noninterest-Bearing Sources of Funds 3,581 25 38 76 5,177 8,897 --------------------------- ------- ------- ------ ------ ------ ------- Total 26,850 3,010 1,420 1,655 9,488 $42,423 ======= Effect of Financial Futures and Swaps 933 (2,401) (396) 1,055 809 --------------------------- ------- ------- ------ ------ ------ Interest-Sensitive Gap $ 735 $ (855) $ 346 $ 469 $ (695) ---------------------- ======= ======= ====== ====== ====== Cumulative Interest- Sensitivity Gap $ 735 $ (120) $ 226 $ 695 $ - -------------------- ======= ======= ====== ====== ====== 14 PROVISION AND ALLOWANCE FOR LOAN LOSSES --------------------------------------- At December 31, 1994, the domestic commercial real estate portfolio had approximately 76% of its loans in New York and New Jersey, 5% in California, 5% in Pennsylvania, 3% in New England, and 1% in Florida; 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 45% Offices 28 Retail 8 Hotels 5 Mixed-Used 4 Land 2 Condominiums and cooperatives 1 Industrial/Warehouse 1 Other 6 ---- 100% ==== At December 31, 1994 and 1993, the Company's nonperforming real estate loans and real estate acquired in satisfaction of loans aggregated $119 million and $171 million, respectively. Net charge-offs of real estate loans were $6 million in 1994 and $69 million in 1993. In addition, other real estate charges were $11 million and $53 million in 1994 and 1993. A discussion of other real estate charges under "Noninterest Expense and Income Taxes" in the "Management's Discussion and Analysis" section included in Exhibit 13 is incorporated herein by reference. At December 31, 1994, the Company's LDC exposures consisted of $78 million in medium-term loans (and no material commitments), $334 million in short-term loans, $14 million in accrued interest, and $48 million in equity investments. At December 31, 1994, the allowance for loan losses associated with LDC loans was $98 million. In addition, the Company has $318 million of debt securities to emerging market countries, including $270 million (book value) of bonds whose principal payments are collateralized by U.S. Treasury zero coupon obligations and whose interest payments are partially collateralized. The Company's consumer loan portfolio is comprised principally of credit card, other installment, and residential loans. Residential and auto loans are collateralized, thereby reducing the risk. Credit card net charge-offs were $149 million in 1994 compared to $121 million in 1993. The 1994 and 1993 amounts exclude $32 million and $56 million in net charge-offs related to the portion of the portfolio that is securitized. As a percentage of average credit card outstandings, net charge-offs were to 2.47% in 1994 compared to 2.88% in 1993. On a managed receivables basis, net charge-offs as a percentage of average outstandings were 2.68% in 1994 compared to 3.19% in 1993. Other consumer net charge-offs were $7 million in 1994 and $23 million in 1993. Lending to the utility industry is concentrated in investor-owned electric utilities. The Company also makes loans to gas and telephone utilities. Nonperforming loans in this industry amounted to $2 million at year-end 1994 and 1993. There were no charge-offs in 1994 and 1993. 15 The Company's loans to the communications, entertainment, and publishing industries primarily consist of credits with cable television operators, broadcasters, magazine and newspaper publishers and motion picture theaters. There were no nonperforming communications loans at December 31, 1994 and 1993. Charge-offs of communications loans were $1 million in 1993. There were no charge-off in 1994. 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. Nonperforming loans and charge-offs have not been significant. 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: 1994 1993 1992 1991 1990 ---- ---- ---- ---- ---- Real Estate Loans 9% 8% 9% 10% 11% HLT Loans 5 6 7 11 17 Other Domestic Commercial and Industrial Loans 51 58 57 51 38 Consumer Loans 16 10 9 10 8 Foreign Loans (excluding medium-term LDC loans) 7 6 6 6 6 LDC Loans 12 12 12 12 20 ---- ---- ---- ---- ---- 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. 16 The following table details changes in the Company's allowance for loan losses for the last five years. (dollars in millions) 1994 1993 1992 1991 1990 ---- ---- ---- ---- ---- Loans Outstanding, December 31, $33,083 $30,570 $29,497 $30,335 $35,776 Average Loans Outstanding 32,029 30,427 30,345 32,719 38,139 Allowance for Loan Losses ------------------------- Balance, January 1 Regular Domestic $ 794 $ 878 $ 889 $ 831 $ 593 Foreign 60 70 60 62 24 Less Developed Countries 116 124 135 218 537* ------- ------- ------- ------- ------- Total, January 1 970 1,072 1,084 1,111 1,154 ------- ------- ------- ------- ------- Allowance of Acquired Companies and Other Changes - - 56 (10) 1 Credit Card Securitizations 14 1 - (18) - Charge-Offs Domestic Commercial and Industrial (158) (142) (311) (358) (111) Real Estate & Construction (6) (71) (103) (165) (45) Consumer Loans (191) (173) (181) (226) (157) Foreign (38) (54) (20) (32) (9) Less Developed Countries (18) (9) (13) (39) (270) ------- ------- ------- ------- ------- Total (411) (449) (628) (820) (592) ------- ------- ------- ------- ------- Recoveries Domestic Commercial and Industrial 14 28 66 11 35 Real Estate & Construction - 2 13 1 - Consumer Loans 35 29 26 21 16 Foreign 8 2 10 4 1 Less Developed Countries - 1 2 6 1 ------- ------- ------- ------- ------- Total 57 62 117 43 53 Net Charge-Offs (354) (387) (511) (777) (539) ------- ------- ------- ------- ------- Provision Domestic 135 242 423 742 449 Foreign 27 42 20 36 46 ------- ------- ------- ------- ------- Total 162 284 443 778 495 ------- ------- ------- ------- ------- Balance, December 31, Regular Domestic 637 794 878 889* 831* Foreign 57 60 70 60 62 Less Developed Countries 98 116 124 135* 218* ------- ------- ------- ------- ------- Total, December 31, $ 792 $ 970 $ 1,072 $ 1,084 $ 1,111 ======= ======= ======= ======= ======= Ratios ------ Net Charge-Offs to Average Loans Outstandings 1.11% 1.27% 1.68% 2.37% 1.41% ======= ======= ======= ======= ======= Net Charge-Offs to Total Allowance 44.70% 39.90% 47.67% 71.68% 48.51% ======= ======= ======= ======= ======= Total Allowance to Year-End Loans Outstanding 2.40% 3.17% 3.63% 3.57% 3.11% ====== ====== ===== ====== ====== *Each year includes a $50 million transfer from the LDC Allowance for Loan Losses to the Regular Allowance. 17 Nonperforming Assets -------------------- A summary of nonperforming assets is presented in the following table. (in millions) December 31, 1994 1993 1992 1991 1990 ---- ---- ---- ---- ---- Nonaccrual ---------- Domestic $ 220 $ 408 $ 581 $1,014 $1,294 Foreign (including Medium-term LDC) 77 130 198 146 86 ----- ------ ------ ------ ------ 297 538 779 1,160 1,380 Reduced Rate (Domestic) - 2 9 13 15 ------------ ----- ------ ------ ------ ------ 297 540 788 1,173 1,395 Real Estate Acquired in ----------------------- Satisfaction of Loans 56 99 268 369 355 --------------------- ----- ------ ------ ------ ------ $ 353 $ 639 $1,056 $1,542 $1,750 ===== ====== ====== ====== ====== Past Due 90 Days or More ------------------------ and Still Accruing Interest --------------------------- Domestic $ 163 $ 156 $ 218 $ 178 $ 215 Foreign - - - 66 11 ----- ------ ------ ------ ------ $ 163 $ 156 $ 218 $ 244 $ 226 ===== ====== ====== ====== ====== 18 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, 1994. 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 $ 256 5.47% $ 1 6.04% $ 264 5.44% Over 1 through 5 Years 736 4.99 153 5.08 119 6.94 Over 5 through 10 Years 436 5.63 - - 111 7.78 Over 10 years - - - - 275 7.53 Mortgage-Backed Securities - - - - - - ------ ----- ------ $1,428 5.27 $ 154 5.08 $ 769 6.76 ====== ===== ====== Securities Available- -------------------- for-Sale ---------- One Year or Less $ 25 5.50% $ - -% $ - -% Over 1 through 5 Years 958 5.87 - - 2 5.23 Over 5 through 10 Years 436 6.10 - - 2 5.34 Over 10 years 7 11.19 - - 3 5.74 Equity Securities - - - - - - ------ ----- ----- $1,426 5.96 $ - - $ 7 5.45 ====== ===== ===== 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 $ 28 5.13% $ - - % $ 549 Over 1 through 5 Years 39 6.19 - - 1,047 Over 5 through 10 Years 53 5.90 - - 600 Over 10 years 294 7.07 - - 569 Mortgage-Backed Securities - - 165 7.49 165 ---- ---- ------ $414 6.70 $165 7.49 $2,930 ==== ==== ====== Securities Available- -------------------- for-Sale ---------- One Year or Less $ 2 -% $ - -% $ 27 Over 1 through 5 Years 7 - - - 967 Over 5 through 10 Years 3 - - - 441 Over 10 years 10 5.22 - - 20 Equity Securities - - 266 4.77 266 ----- ---- ------ $ 22 2.48 $266 4.77 $1,721 ===== ==== ====== Loans ----- The following table shows the maturity structure of the Company's commercial loan portfolio at December 31, 1994. 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 $ 599 $1,392 $ 876 $ 2,867 Commercial and Industrial Loans 3,755 4,131 3,263 11,149 Other, Excluding Loans to Individuals and those Collateralized by 1-4 Family Residential Properties 3,154 340 184 3,678 ------ ------ ------ ------- 7,508 5,863 4,323 17,694 Foreign 1,425 695 1,531 3,651 ------- ------ ------ ------ ------- Total $8,933 $6,558 $5,854 $21,345 ====== ====== ====== ======= Loans with: Predetermined Interest Rates $ 437 $ 193 $1,109 $ 1,739 Floating Interest Rates 8,496 6,365 4,745 19,606 ------ ------ ------ ------- Total $8,933 $6,558 $5,854 $21,345 ====== ====== ====== ======= 19 Deposits -------- The aggregate amount of deposits by foreign customers in domestic offices was $875 million, $739 million, and $789 million at December 31, 1994, 1993, and 1992. The following table shows the maturity breakdown of domestic time deposits of $100,000 or more at December 31, 1994. Time (in millions) Certificates Deposits- of Deposits Other Total ------------------------------------------------ 3 Months or Less $ 842 $654 $1,496 Over 3 Through 6 Months 224 5 229 Over 6 Through 12 Months 374 5 379 Over 12 Months 881 19 900 ------ ---- ------ Total $2,321 $683 $3,004 ====== ==== ====== 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 1994, 1993, and 1992 is presented in the table below. 1994 1993 1992 --------------- --------------- -------------- (dollars in millions) Average Average Average Amount Rate Amount Rate Amount Rate ------ ------- ------ ------- ------ ------- Federal Funds Purchased and --------------------------- Securities Sold Under --------------------- Repurchase Agreements --------------------- At December 31 $1,502 4.91% $2,711 2.85% $1,773 2.81% Average During Year 2,843 3.73 3,467 2.94 4,001 3.40 Maximum Month-End Balance During Year 6,415 3.36 4,894 2.80 5,467 3.88 Other* ----- At December 31 4,176 5.79% 2,781 3.61 3,029 3.82 Average During Year 4,135 4.63 2,348 3.66 2,045 4.13 Maximum Month-End Balance During Year 5,639 4.57 3,161 3.60 3,029 3.82 *Other borrowings consist primarily of commercial paper, bank notes, extended federal funds purchased, and amounts owed to the U.S. Treasury. Foreign Assets -------------- The only foreign country in which the Company's assets exceed .75% of year end total assets was the United Kingdom in 1993 ($351 million). There were no foreign countries in which the Company's assets exceeded .75% of year end total assets in 1994. However, at December 31, 1994 the Company had outstanding commitments to extend credit to customers in the United Kingdom amounting to $651 million. 20 ITEM 2. PROPERTIES ------------------- In New York City, the Company owns 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. In addition, the Company owns and/or leases administrative and operations facilities in New York City; various locations in New Jersey; Harrison, New York; Newark, Delaware; 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 -------------------------- Litigation regarding Northeast Bancorp., Inc. is described in Note 12 to the Consolidated Financial Statements included in Exhibit 13, and such description is incorporated herein by reference. 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 1994. 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 26,473 common shareholders of record at February 28, 1995. 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. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA ---------------------------------------------------- Consolidated financial statements and notes and the independent auditors' report are incorporated herein by reference from Exhibit 13 to this report. The report of Independent Public Accountants for National Community Banks, Inc. is incorporated herein by reference from Exhibit 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 -------------------- There have been no events which require disclosure under Item 304 of Regulation S-K. 21 PART III -------- ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT ------------------------------------------------------------ The directors of the registrant are identified on pages 27 and 28 of this report. Additional material responsive to this item is contained in the Company's definitive Proxy Statement for its 1995 Annual Meeting of Shareholders, which information is incorporated herein by reference. EXECUTIVE OFFICERS OF THE REGISTRANT AND BUSINESS EXPERIENCE DURING THE PAST ---------------------------------------------------------------------------- FIVE YEARS ---------- Company Officer Name Office and Experience Age Since ---- --------------------- --- ----- J. Carter Bacot 1990-1995 Chairman and Chief Executive 62 1975 Officer of the Company and the Bank Thomas A. Renyi 1994-1995 President of the Company and 49 1992 President and Chief Operating Officer of the Bank 1992-1994 President of the Company and Vice Chairman of the Bank 1990-1992 Senior Executive Vice President and Chief Credit Officer of the Bank Alan R. Griffith 1994-1995 Vice Chairman of the Company and 53 1990 the Bank 1990-1994 Senior Executive Vice President of the Company, and President and Chief Operating Officer of the Bank Samuel F. Chevalier 1990-1995 Vice Chairman of the Company and 61 1989 the Bank 1990 Chief Operating Officer and President of Irving Bank Corporation Deno D. Papageorge 1990-1995 Senior Executive Vice President of 56 1980 the Company, Senior Executive Vice President and Chief Financial Officer of the Bank Richard D. Field 1990-1995 Executive Vice President of the 54 1987 Company, Senior Executive Vice President of the Bank Robert E. Keilman 1990-1995 Comptroller of the Company and the 49 1984 Bank, Senior Vice President of the Bank Phebe C. Miller 1995 Secretary and Chief Legal Officer 45 1995 of the Company, Senior Vice President and Chief Legal Officer of the Bank 1994-1995 Senior Vice President of the Bank 1991-1994 Managing Director, General Counsel and Secretary, Discount Corporation of New York 1990-1991 Vice President and Counsel, Discount Corporation of New York Robert J. Goebert 1990-1995 Auditor of the Company, Senior Vice 53 1982 President of the Bank 22 Officers of BNY who perform major policy making functions: Bank Executive Officer Name Office and Experience Age Since ---- --------------------- --- ------ Gerald L. Hassell 1994-1995 Senior Executive Vice President 43 1990 and Chief Commercial Banking Officer 1992-1994 Executive Vice President - Special Industries Banking 1990-1991 Executive Vice President - Communications, Entertainment, and Publishing Division Robert J. Mueller 1992-1995 Senior Executive Vice President - 53 1989 Chief Credit Policy Officer 1990-1992 Executive Vice President - Mortgage & Construction Lending Richard A. Pace 1990-1995 Executive Vice President and Chief 49 1989 Technologist There are no family relationships between the executive officers of the Company. The terms of office of the executive officers of the Company extend until the annual organizational meeting of the Board of Directors. ITEM 11. EXECUTIVE COMPENSATION -------------------------------- The material responsive to such item in the Company's definitive Proxy Statement for its 1995 Annual Meeting of Shareholders is incorporated by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT ------------------------------------------------------------------------ The material responsive to such item in the Company's definitive Proxy Statement for its 1995 Annual Meeting of Shareholders is incorporated by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS -------------------------------------------------------- The material responsive to such item in the Company's definitive Proxy Statement for its 1995 Annual Meeting of Shareholders is incorporated by reference. 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. 23 (a) 3 Listing of Exhibits: Exhibit No. Per Regulation S-K Description -------------- ----------- 3 (a) The By-Laws of The Bank of New York Company, Inc. as amended through October 13, 1987. (Filed as Exhibit 3(a) to the Company's 1987 Annual Report on Form 10-K Form 10-K and incorporated herein by reference.) (b) Restated Certificate of Incorporation of The Bank of New York Company, Inc. dated July 20, 1994. (Filed as Exhibit 4 to Form 10-Q filed by the Company on November 10, 1994 and incorporated herein by reference.) 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 instruments. (b) Rights Agreement, including form of Preferred Stock Purchase Rights, incorporated herein by reference to the Company's Registration Statement on Form 8-A dated December 18, 1985. (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 registrant's Registration Statement on Form 8-A, dated December 18, 1985. (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, dated April 30, 1993, to the registrant's Registration Statement on Form 8-A dated December 18, 1985. (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 Exhibit 4(a) to the Company's Current Report on Form 8-K for the Report Date March 8, 1994. 10 (a) 1984 Stock Option Plan of The Bank of New York Company, Inc. as amended through February 23, 1988. (Filed as Exhibit 10(a) to the Company's 1988 Annual Report on Form 10-K and incorporated herein by reference.)* (b) Amendment dated October 11, 1994 to 1984 Stock Option Plan of The Bank of New York Company, Inc.* (c) The Bank of New York Company, Inc. Excess Contribution Plan as amended through July 10, 1990. (Filed as Exhibit 10(b) to the Company's 1990 Annual Report on Form 10-K and incorporated herein by reference.)* (d) Amendments to The Bank of New York Company, Inc. Excess Contribution Plan dated February 23, 1994 and November 9, 1993. (Filed as Exhibit 10(c) to the Company's 1993 Annual Report on Form 10-K and incorporated herein by reference.)* 24 Exhibit No. Per Regulation S-K Description -------------- ----------- 10 (e) The Bank of New York Company, Inc. Excess Benefit Plan as amended through December 8, 1992. (Filed as Exhibit 10(d) to the Company's 1992 Annual Report on Form 10-K and incorporated herein by reference.)* (f) Amendments to The Bank of New York Company, Inc. Excess Benefit Plan dated February 23, 1994 and November 9, 1993. (Filed as Exhibit 10(e) to the Company's 1993 Annual Report on Form 10-K and incorporated herein by reference.)* (g) Amendment dated May 10, 1994 to The Bank of New York Company, Inc. Excess Benefit Plan.* (h) 1994 Management Incentive Compensation Plan of The Bank of New York Company, Inc. (Filed as Exhibit 10(g) to the Company's 1993 Annual Report on Form 10-K and incorporated herein by reference.)* (i) 1988 Long-Term Incentive Plan as amended through December 8, 1992. (Filed as Exhibit 10(f) to the Company's 1992 Annual Report on Form 10-K and incorporated herein by reference.)* (j) Amendment dated October 11, 1994 to the 1988 Long-Term Incentive Plan of The Bank of New York Company, Inc.* (k) The Bank of New York Company, Inc. 1993 Long-Term Incentive Plan. (Filed as Exhibit 10(m) to the Company's 1992 Annual Report on Form 10-K and incorporated herein by reference.)* (l) Amendment dated October 11, 1994 to the 1993 Long-Term Incentive Plan of The Bank of New York Company, Inc.* (m) The Bank of New York Company, Inc. Supplemental Executive Retirement Plan. (Filed as Exhibit 10(n) to the Company's 1992 Annual Report on Form 10-K and incorporated herein by reference.)* (n) Amendment to The Bank of New York Company, Inc. Supplemental Executive Retirement Plan dated March 9, 1993. (Filed as Exhibit 10(k) to the Company's 1993 Annual Report on Form 10-K and incorporated herein by reference.)* (o) Amendment dated October 11, 1994 to The Bank of New York Company, Inc. Supplemental Executive Retirement Plan.* (p) Trust Agreement dated April 19, 1988 related to certain executive compensation plans and agreements. (Filed as Exhibit 10(h) to the Company's 1988 Annual Report on Form 10-K and incorporated herein by reference.)* (q) Trust Agreement dated November 16, 1993 related to certain executive compensation plans and agreements. (Filed as Exhibit 10(m) to the Company's 1993 Annual Report on Form 10-K and incorporated herein by reference.)* (r) Amendment dated October 11, 1994 to Trust Agreement dated November 16, 1993, related to certain executive compensation plans and agreements.* 25 Exhibit No. Per Regulation S-K Description -------------- ----------- 10 (s) Trust Agreement dated December 15, 1994 related to certain executive compensation plans and agreements.* (t) Form of Remuneration Agreement between the Company and two of the five most highly compensated executive officers of the Company. (Filed as Exhibit 10 to the Company's 1982 Annual Report on Form 10-K and incorporated herein by reference.)* (u) 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.* (v) Form of Remuneration Agreement dated October 11, 1994 between the Company and three of the five most highly compensated officers of the Company.* (w) The Bank of New York Company, Inc. Retirement Plan for Non- Employee Directors. (Filed as Exhibit 10(r) to the Company's 1993 Annual Report on Form 10-K and incorporated herein by reference.)* (x) Amendment dated November 8, 1994 to The Bank of New York Company, Inc. Retirement Plan for Non-Employee Directors.* (y) Deferred Compensation Plan for Non-Employee Directors of The Bank of New York Company, Inc. (Filed as Exhibit 10(s) to the Company's 1993 Annual Report on Form 10-K and incorporated herein by reference.)* (z) Amendment dated November 8, 1994 to the Deferred Compensation Plan for Non-Employee Directors of The Bank of New York Company, Inc.* 11 Statement - Re: Computation of Per Common Share Earnings 12 Statement - Re: Computation of Earnings to Fixed Charges Ratios 13 Portions of the 1994 Annual Report to Shareholders 21 Subsidiaries of the Registrant 23.1 Consent of Deloitte & Touche LLP 23.2 Consent of Arthur Andersen LLP 27 Financial Data Schedule 99 Report of Independent Public Accountants for National Community Banks, Inc. -------------------- * Indicates a management contract or compensatory plan or arrangement. 26 (b) Reports on Form 8-K: October 13, 1994: Unaudited interim financial information and accompanying discussion for the third quarter of 1994. December 6, 1994: An Underwriting Agreement dated December 6, 1994, a Form of Note, an Officers' Certificate, an Opinion of Counsel, and a Consent of Counsel in connection with a Registration Statement on Form S-3 (File Nos. 33-51984 and 33-50333) covering the Company's 8.50% Subordinated Notes Due 2004 issuable under an Indenture dated October 1, 1993. January 17, 1995: Unaudited interim financial information and accompanying discussion for the fourth quarter of 1994. (c) Exhibits: Submitted as a separate section of this report. (d) Financial Statements Schedules: None 27 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 27th day of March, 1995. THE BANK OF NEW YORK COMPANY, INC. By: \s\ Deno D. Papageorge ------------------------------------- (Deno D. Papageorge Senior Executive Vice President) 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 27th day of March, 1995. Signature Title --------- ----- \s\J. Carter Bacot Chairman and ----------------------------------- Chief Executive Officer (J. Carter Bacot) (principal executive officer) \s\ Deno D. Papageorge Senior Executive Vice President ----------------------------------- (principal financial officer) (Deno D. Papageorge) \s\ Robert E. Keilman Comptroller ------------------------------------ (principal accounting officer) (Robert E. Keilman) Director ------------------------------------ (Richard Barth) \s\ William R. Chaney Director ------------------------------------ (William R. Chaney) \s\ Samuel F. Chevalier Vice Chairman and Director ------------------------------------ (Samuel F. Chevalier) Director ------------------------------------ (Anthony P. Gammie) \s\ Ralph E. Gomory Director ------------------------------------ (Ralph E. Gomory) 28 \s\ Alan R. Griffith Vice Chairman ------------------------------------ and Director (Alan R. Griffith) \s\ Edward L. Hennessy, Jr. Director ------------------------------------ (Edward L. Hennessy, 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\ Martha T. Muse Director ------------------------------------ (Martha T. Muse) \s\ Catherine A. Rein Director ------------------------------------ (Catherine A. Rein) \s\ Thomas A. Renyi President and ------------------------------------ Director (Thomas A. Renyi) \s\ Harold E. Sells Director ------------------------------------ (Harold E. Sells) \s\ Delbert C. Staley Director ------------------------------------ (Delbert C. Staley) \s\ W. S. White, Jr. Director ------------------------------------ (W. S. White, Jr.) \s\ Samuel H. Woolley Director ------------------------------------ (Samuel H. Woolley) 29 INDEX TO EXHIBITS Exhibit No. ------------ 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.* 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 instruments. (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) 1984 Stock Option Plan of The Bank of New York Company, Inc. as amended through February 23, 1988.* (b) Amendment dated October 11, 1994 to 1984 Stock Option Plan of The Bank of New York Company, Inc. (c) The Bank of New York Company, Inc. Excess Contribution Plan as amended through July 10, 1990.* (d) Amendments to The Bank of New York Company, Inc. Excess Contribution Plan dated February 23, 1994 and November 9, 1993.* (e) The Bank of New York Company, Inc. Excess Benefit Plan as amended through December 8, 1992.* (f) Amendments to The Bank of New York Company, Inc. Excess Benefit Plan dated February 23, 1994 and November 9, 1993.* (g) Amendment dated May 10, 1994 to The Bank of New York Co., Inc. Excess Benefit Plan. (h) 1994 Management Incentive Compensation Plan of The Bank of New York Company, Inc.* (i) 1988 Long-Term Incentive Plan as amended through December 8, 1992.* (j) Amendment dated October 11, 1994 to the 1988 Long-Term Incentive Plan of The Bank of New York Company, Inc. (k) The Bank of New York Company, Inc. 1993 Long-Term Incentive Plan.* (l) Amendment dated October 11, 1994 to the 1993 Long-Term Incentive Plan of The Bank of New York Company, Inc. (m) The Bank of New York Company, Inc. Supplemental Executive Retirement Plan.* 30 INDEX TO EXHIBITS Exhibit No. ------------ 10 (n) Amendment to The Bank of New York Company, Inc. Supplemental Executive Retirement Plan dated March 9, 1993.* (o) Amendment dated October 11, 1994 to The Bank of New York Company, Inc. Supplemental Executive Retirement Plan. (p) Trust Agreement dated April 19, 1988 related to deferred compensation plans.* (q) Trust Agreement dated November 16, 1993 related to deferred compensation plans.* (r) Amendment dated October 11, 1994 to Trust Agreement dated Novemeber 16, 1993, related to deferred compensation plans. (s) Trust Agreement dated December 15, 1994 related to certain executive compensation plans and agreements. (t) Form of Remuneration Agreement between the Company and two of the five most highly compensated executive officers of the Company.* (u) 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. (v) Form of Remuneration Agreement dated October 11, 1994 between the Company and three of the five most highly compensated officers of the Company. (w) The Bank of New York Company, Inc. Retirement Plan for Non- Employee Directors.* (x) Amendment dated November 8, 1994 to The Bank of New York Company, Inc. Retirement Plan for Non-Employee Directors. (y) Deferred Compensation Plan for Non-Employee Directors of The Bank of New York Company, Inc.* (z) Amendment dated November 8, 1994 to the Deferred Compensation Plan for Non-Employee Directors of The Bank of New York Company, Inc. 11 Statement - Re: Computation of Per Common Share Earnings 12 Statement - Re: Computation of Earnings to Fixed Charges Ratios 13 Portions of the 1994 Annual Report to Shareholders 21 Subsidiaries of the Registrant 23.1 Consent of Deloitte & Touche LLP 23.2 Consent of Arthur Andersen LLP 27 Financial Data Schedule 99 Report of Independent Public Accountants for National Community Banks, Inc. ------------------- * Incorporated by reference EX-10 2 EXHIBIT 10B 1 EXHIBIT 10(b) AMENDMENT TO 1984 STOCK OPTION PLAN OF THE BANK OF NEW YORK COMPANY, INC. AND CONSOLIDATED SUBSIDIARIES WHEREAS, the 1984 Stock Option Plan of The Bank of New York Company, Inc. and Consolidated Subsidiaries (the "Plan") was adopted by the Board of Directors of The Bank of New York Company, Inc. (the "Company") on January 12, 1984, effective as of April 12, 1984; and WHEREAS, Section 10 of the Plan provides that the Board of Directors of the Company may amend the Plan at any time; and WHEREAS, the Board of Directors of the Company desires to adopt an amendment to the Plan; NOW, THEREFORE, the Plan is hereby amended, effective as of October 11, 1994, by amending the second paragraph of Section 9 of the Plan to read as follows: A "Change of Control" shall be deemed to occur if (A) any "person" (as such term is defined in Section 3(a)(9) and as used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")), excluding the Company or any of its subsidiaries, a trustee or any fiduciary holding securities under an employee benefit plan of the Company or any of its subsidiaries, an underwriter temporarily holding securities pursuant to an offering of such securities or a corporation owned, directly or indirectly, by stockholders of the Company in substan- tially the same proportion as their ownership of the Company, is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing 25% or more of the combined voting power of the Com- pany's then outstanding securities ("Voting Securities"); or (B) during any period of not more than two years, individuals who constitute the Board of Directors of the Company as of the beginning of the 2 period and any new director (other than a director designated by a person who has entered into an agreement with the Company to effect a transaction described in clause (A) or (C) of this sentence) whose election by the Board of Directors of the Company or nomination for election by the Company's shareholders was approved by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors at such time or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority thereof; or (C) the shareholders of the Company approve a merger or consolidation of the Company with any other corporation, other than a merger or consolidation which would result in the Voting Securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into Voting Securities of the surviving entity) at least 60% of the combined voting power of the Voting Securities of the Company or such surviving entity outstanding immediately after such merger or consolidation, or the shareholders of the Company approve a plan of complete liquidation of the Company or any agreement for the sale or disposition by the Company or all or substantially all of the Company's assets. EX-10 3 EXHIBIT 10G Exhibit 10 (g) 1. AMENDMENT TO THE BANK OF NEW YORK COMPANY, INC. EXCESS BENEFIT PLAN WHEREAS, The Bank of New York Company, Inc. Excess Benefit Plan (the "Excess Benefit Plan") was amended and restated, effective as of July 10, 1990; and WHEREAS, Section 17 of the Excess Benefit Plan provides that the Board of Directors of The Bank of New York Company, Inc. may amend the Excess Benefit Plan at any time, except in certain respects not material hereto; and WHEREAS, the Board of Directors desires to amend the Excess Benefit Plan; NOW, THEREFORE, the Excess Benefit Plan is hereby amended in the following respects, effective as of August 11, 1994: 1. Section 2 of the Plan is amended by amending the last sentence thereof to read as follows: Notwithstanding the foregoing, no employee shall be a Participant in Part I of the Plan if he is eligible for benefits under (i) the Excess Benefit Plan of Irving Bank Corporation and Affiliated Companies, (ii) Appendix A to the Plan or (iii) the Preservation of Benefits Plan of National Community Bank of New Jersey. 2. Section 10 of the Plan is amended by amending the last sentence thereof to read as follows: Notwithstanding the foregoing, no employee shall be a Participant in Part II of the Plan if he is eligible for benefits under (i) the Excess Benefit Plan of Irving Bank Corporation and Affiliated Companies, (ii) Appendix A to the Plan or (iii) the Preservation of Benefits Plan of National Community Bank of New Jersey. 2 3. The following Appendix is added to the Plan: APPENDIX A Special Retirement Benefits for Former Participants in the Preservation of Benefits Plan of National Community Bank of New Jersey Notwithstanding any other provision of the Plan to the contrary, effective as of August 11, 1994, the provisions of this Appendix A shall be applicable to persons who were participants in the Preservation of Benefits Plan of National Community Bank of New Jersey (the "POB") on August 10, 1994. Each such participant is referred to hereinafter as a "POB Participant". Effective as of August 11, 1994, the Company shall pay to each POB Participant, or to his beneficiary after his death, the benefit to which the Participant (or beneficiary) is entitled pursuant to the terms of the POB as in effect on August 10, 1994. Such benefit shall be paid in accordance with the provisions of the POB. IN WITNESS WHEREOF, The Bank of New York Company, Inc. has caused this Amendment to be executed by its duly authorized officers this 10th day of May, 1994. \s\ Alan Griffith ATTEST: \s\ Jacqueline McSwiggan Assistant Secretary EX-10 4 EXHIBIT 10J 1 EXHIBIT 10(j) AMENDMENT TO 1988 LONG-TERM INCENTIVE PLAN OF THE BANK OF NEW YORK COMPANY, INC. WHEREAS, the 1988 Long-Term Incentive Plan of The Bank of New York Company, Inc. (the "1988 LTIP") was adopted by the Board of Directors of The Bank of New York Company, Inc. (the "Company"), effective as of January 1, 1988; and WHEREAS, Section 17 of the 1988 LTIP provides that the Board of Directors of the Company may amend the 1988 LTIP at any time; and WHEREAS, the Board of Directors of the Company desires to adopt an amendment to the 1988 LTIP; NOW, THEREFORE, the 1988 LTIP is hereby amended, effective as of October 11, 1994, by amending the second paragraph of Section 12 of the 1988 LTIP to read as follows: A "Change of Control" shall be deemed to occur if (A) any "person" (as such term is defined in Section 3(a)(9) and as used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")), excluding the Company or any of its subsidiaries, a trustee or any fiduciary holding securities under an employee benefit plan of the Company or any of its subsidiaries, an underwriter temporarily holding securities pursuant to an offering of such securities or a corporation owned, directly or indirectly, by stockholders of the Company in substan- tially the same proportion as their ownership of the Company, is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing 25% or more of the combined voting power of the Com- pany's then outstanding securities ("Voting Securities"); or (B) during any period of not more than two years, individuals who constitute the Board of Directors of the Company as of the beginning of the period and any new director (other than a director designated by a person who has entered into an agreement 2 with the Company to effect a transaction described in clause (A) or (C) of this sentence) whose election by the Board of Directors of the Company or nomination for election by the Company's shareholders was approved by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors at such time or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority thereof; or (C) the shareholders of the Company approve a merger or consolidation of the Company with any other corporation, other than a merger or consolidation which would result in the Voting Securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into Voting Securities of the surviving entity) at least 60% of the combined voting power of the Voting Securities of the Company or such surviving entity outstanding immediately after such merger or consolidation, or the shareholders of the Company approve a plan of complete liquidation of the Company or any agreement for the sale or disposition by the Company or all or substantially all of the Company's assets. EX-10 5 EXHIBIT 10L 1 EXHIBIT 10(l) AMENDMENT TO 1993 LONG-TERM INCENTIVE PLAN OF THE BANK OF NEW YORK COMPANY, INC. WHEREAS, the 1993 Long-Term Incentive Plan of The Bank of New York Company, Inc. (the "1993 LTIP") was adopted by the Board of Directors of The Bank of New York Company, Inc. (the "Company"), effective as of January 1, 1993; and WHEREAS, Section 17 of the 1993 LTIP provides that the Board of Directors of the Company may amend the 1993 LTIP at any time; and WHEREAS, the Board of Directors of the Company desires to adopt an amendment to the 1993 LTIP; NOW, THEREFORE, the 1993 LTIP is hereby amended, effective as of October 11, 1994, by amending the second paragraph of Section 12 of the 1993 LTIP to read as follows: A "Change of Control" shall be deemed to occur if (A) any "person" (as such term is defined in Section 3(a)(9) and as used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")), excluding the Company or any of its subsidiaries, a trustee or any fiduciary holding securities under an employee benefit plan of the Company or any of its subsidiaries, an underwriter temporarily holding securities pursuant to an offering of such securities or a corporation owned, directly or indirectly, by stockholders of the Company in substan- tially the same proportion as their ownership of the Company, is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing 25% or more of the combined voting power of the Com- pany's then outstanding securities ("Voting Securities"); or (B) during any period of not more than two years, individuals who constitute the Board of Directors of the Company as of the beginning of the period and any new director (other than a director designated by a person who has entered into an agreement 2 with the Company to effect a transaction described in clause (A) or (C) of this sentence) whose election by the Board of Directors of the Company or nomination for election by the Company's shareholders was approved by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors at such time or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority thereof; or (C) the shareholders of the Company approve a merger or consolidation of the Company with any other corporation, other than a merger or consolidation which would result in the Voting Securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into Voting Securities of the surviving entity) at least 60% of the combined voting power of the Voting Securities of the Company or such surviving entity outstanding immediately after such merger or consolidation, or the shareholders of the Company approve a plan of complete liquidation of the Company or any agreement for the sale or disposition by the Company or all or substantially all of the Company's assets. EX-10 6 EXHIBIT 10O 1 EXHIBIT 10(o) AMENDMENT TO THE BANK OF NEW YORK COMPANY, INC. SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN WHEREAS, The Bank of New York Company, Inc. Supplemental Executive Retirement Plan (the "SERP") was adopted by the Board of Directors of The Bank of New York Company, Inc., effective as of June 9, 1992; and WHEREAS, Section 9 of the SERP provides that the Board of Directors may amend the SERP at any time, except in certain respects not material hereto; and WHEREAS, the Board of Directors desires to amend the SERP; NOW, THEREFORE, the SERP is hereby amended, effective as of October 11, 1994, by amending the last sentence of Section 5(c) of the SERP to read as follows: For purposes of this Section, a "change of control" of the Company shall be deemed to occur if (A) any "person" (as such term is defined in Section 3(a)(9) and as used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")), excluding The Bank of New York Company, Inc. or any of its subsidiaries, a trustee or any fiduciary holding securities under an employee benefit plan of The Bank of New York Company, Inc. or any of its subsidiaries, an underwriter temporarily holding securities pursuant to an offering of such securities or a corporation owned, directly or indirectly, by stockholders of The Bank of New York Company, Inc. in substantially the same proportion as their ownership of The Bank of New York Company, Inc., is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of The Bank of New York Company, Inc. representing 25% or more of the combined voting power of the then outstanding securities of The Bank of New York Company, Inc. ("Voting Securities"); or (B) during any period of not more than two years, individuals who constitute the Board of Directors of The 2 Bank of New York Company, Inc. as of the beginning of the period and any new director (other than a director designated by a person who has entered into an agreement with The Bank of New York Company, Inc. to effect a transaction described in clause (A) or (C) of this sentence) whose election by the Board of Directors of The Bank of New York Company, Inc. or nomination for election by the shareholders of The Bank of New York Company, Inc. was approved by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors at such time or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority thereof; or (C) the shareholders of The Bank of New York Company, Inc. approve a merger or consolidation of The Bank of New York Company, Inc. with any other corporation, other than a merger or consolidation which would result in the Voting Securities of The Bank of New York Company, Inc. outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into Voting Securities of the surviving entity) at least 60% of the combined voting power of the Voting Securities of The Bank of New York Company, Inc. or such surviving entity outstanding immediately after such merger or consolidation, or the shareholders of The Bank of New York Company, Inc. approve a plan of complete liquidation of The Bank of New York Company, Inc. or any agreement for the sale or disposition by The Bank of New York Company, Inc. or all or substantially all of the assets of The Bank of New York Company, Inc. IN WITNESS WHEREOF, The Bank of New York Company, Inc. has caused this Amendment to be executed by its duly authorized officers this 14 day of March, 1995. \s\ Alan Griffith ATTEST: \s\ Jacqueline McSwiggan Assistant Secretary EX-10 7 EXHIBIT 10R 1 EXHIBIT 10 (r) AMENDMENT TO GRANTOR TRUST AGREEMENT THIS AGREEMENT, made as of October 11, 1994, by and between THE BANK OF NEW YORK COMPANY, INC., a corporation organized and existing under the laws of the State of New York (hereinafter referred to as the "Company"), and UNITED STATES TRUST COMPANY OF NEW YORK, a corporation organized and existing under the laws of the State of New York (hereinafter referred to as the "Trustee"), W I T N E S S E T H : WHEREAS, the Company and the Trustee entered into a Grantor Trust Agreement dated as of November 16, 1993 (the "Agreement"); and WHEREAS, Article TWELFTH of the Agreement provides that the Company may amend the Agreement; and WHEREAS, the Company desires to amend the Agreement in a certain respect; NOW, THEREFORE, the Company and the Trustee agree that the Agreement is amended, effective as of October 11, 1994, by amending Article FIRST in its entirety to read as follows: FIRST: Definition of Change in Control. For purposes of this Agreement, a "Change in Control" shall be deemed to occur if (A) any "person" (as such term is defined in Section 3(a)(9) and as used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")), excluding the Company or any of its subsidiaries, a trustee or any fiduciary holding securities under an employee benefit plan of the Company or any of its subsidiaries, an underwriter 2 temporarily holding securities pursuant to an offering of such securities or a corporation owned, directly or indirectly, by stockholders of the Company in substantially the same proportion as their ownership of the Company, is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing 25% or more of the combined voting power of the Company's then outstanding securities ("Voting Securities"); or (B) during any period of not more than two years, individuals who constitute the Board of Directors of the Company as of the beginning of the period and any new director (other than a director designated by a person who has entered into an agreement with the Company to effect a transaction described in clause (A) or (C) of this sentence) whose election by the Board of Directors of the Company or nomination for election by the Company's shareholders was approved by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors at such time or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority thereof; or (C) the shareholders of the Company approve a merger or consolidation of the Company with any other corporation, other than a merger or consolidation which would result in the Voting Securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into Voting Securities of the surviving entity) at least 60% of the combined voting power of the Voting Securities of the Company or such surviving entity outstanding immediately after such merger or consolidation, or the shareholders of the Company approve a plan of complete liquidation of the Company or any agreement for the sale or disposition by the Company or all or substantially all of the Company's assets. Notwithstanding the foregoing, for purposes of this Agreement, the Trustee shall not be deemed to have knowledge that a Change in Control has occurred until it 3 has received written notice thereof from the Company or a Covered Participant. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed in their respective names by their duly authorized officers under their corporate seals as of the day and year first above written. THE BANK OF NEW YORK COMPANY, INC. By \s\ Deno D. Papageorge Senior Executive Vice President ATTEST: \s\ Jacqueline McSwiggan UNITED STATES TRUST COMPANY OF NEW YORK By \s\ Martha C. Dyer Vice President ATTEST: \s\ William H. Schroder Senior Vice President EX-10 8 EXHIBIT 10S 1 Exhibit 10(s) GRANTOR TRUST AGREEMENT THIS AGREEMENT, made as of the 15th day of December, 1994, by and between THE BANK OF NEW YORK COMPANY, INC., a corporation organized and existing under the laws of the State of New York (hereinafter referred to as the "Com- pany"), and UNITED STATES TRUST COMPANY OF NEW YORK, a cor- poration organized and existing under the laws of the State of New York (hereinafter referred to as the "Trustee"), W I T N E S S E T H : WHEREAS, the Company is obligated under certain executive compensation plans and agreements, which are listed on Exhibit I hereto (the "Plans"), to make payment of certain amounts to current employees of the Company and its sub- sidiaries (the "Participants") under certain circumstances; and WHEREAS, the Company wishes to provide a separate source of funds to enable payment of such amounts to certain Participants who are intended to be covered by this Agreement (the "Covered Participants"); and WHEREAS, the Trustee is not a party to the Plans and makes no representations with respect thereto, and all representations and recitals with respect to the Plans shall be deemed to be those of the Company; NOW, THEREFORE, the Company and the Trustee agree as follows: 2 FIRST: Definition of Change in Control. For purposes of this Agreement, a "Change in Control" shall be deemed to occur if (A) any "person" (as such term is defined in Section 3(a)(9) and as used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")), excluding the Company or any of its subsidiaries, a trustee or any fiduciary holding securities under an employee benefit plan of the Company or any of its subsidiaries, an underwriter temporarily holding securities pursuant to an offering of such securities or a corporation owned, directly or indirectly, by stockholders of the Company in substantially the same proportion as their ownership of the Company, is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing 25% or more of the combined voting power of the Company's then out- standing securities ("Voting Securities"); or (B) during any period of not more than two years, individuals who constitute the Board of Directors of the Company as of the beginning of the period and any new director (other than a director designated by a person who has entered into an agreement with the Company to effect a transaction described in clause (A) or (C) of this sentence) whose election by the Board of Directors of the Company or nomination for election by the Company's shareholders was approved by a vote of at least two-thirds (2/3) of the directors then still in office who 3 either were directors at such time or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority thereof; or (C) the shareholders of the Company approve a merger or consolidation of the Company with any other corporation, other than a merger or consolidation which would result in the Voting Securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into Voting Securities of the surviving entity) at least 60% of the combined voting power of the Voting Securities of the Company or such surviving entity outstanding immediately after such merger or consolidation, or the shareholders of the Company approve a plan of complete liquidation of the Company or any agreement for the sale or disposition by the Company or all or substantially all of the Company's assets. Notwithstanding the foregoing, for purposes of this Agreement, the Trustee shall not be deemed to have knowledge that a Change in Control has occurred until it has received written notice thereof from the Company or a Covered Participant. SECOND: Creation of Trust. (a) The Company hereby establishes with the Trustee and the Trustee hereby accepts a trust consisting of such cash, Letters of Credit (as defined herein) or other property acceptable to the Trustee as shall be paid or delivered to the Trustee from 4 time to time (hereafter called the "Fund"). The Company may, in its discretion, deliver to the Trustee one or more irrevocable letters of credit, which shall be substantially in the form of Exhibit II hereto (referred to hereinafter as the "Letters of Credit"). Each Letter of Credit shall name the Trustee as beneficiary and shall provide that any notices to the Trustee thereunder shall be sent to it at the address specified in Article TENTH. (b) The Trustee shall hold the Fund in trust and manage and administer it in accordance with the terms and provisions of this Agreement. (c) The trust created herein is intended to be a Grantor Trust under the provisions of Sections 671 through 677 of the Internal Revenue Code. (d) The Company may, prior to a Change in Control, revoke the trust by written notice to the Trustee. Upon such revocation, the Trustee shall cancel all Letters of Credit, the trust shall terminate and all assets of the Fund, after payment of any unpaid fees and expenses of the Trustee, shall be paid to the Company. (e) After a Change in Control, the trust shall become irrevocable and shall be held for the exclusive purpose of providing benefits to Covered Participants in accordance with the provisions of this Agreement. THIRD: Payments from Fund. (a) The Company shall provide the Trustee with a schedule (the "Payment Schedule") 5 of Participants, indicating (i) the amount payable to or in respect of each Covered Participant upon such Covered Par- ticipant's termination of employment or providing formulae, or instructions, acceptable to the Trustee, utilizing readily determinable and objective information, for determining such amounts, (ii) the form in which such amount is to be paid (as provided for or available under the Plans), and (iii) the time for commencement of such payment. As appropriate, based upon the terms of the Plans and the implementation of those terms by the Company, and at least annually, the Company shall adjust the amounts payable to or in respect of Participants, shall add or delete Participants at any time prior to a Change in Control and, if appropriate, shall change the formulae or instructions for determining such amounts (provided such formulae or instructions are acceptable to the Trustee) by submitting a new or amending the existing Payment Schedule. The Company shall provide promptly to each Covered Participant the information on the Payment Schedule pertaining to that Covered Participant, including all changes and adjustments. In the event of any change in the Payment Schedule after a Change in Control or if after a Change in Control the Payment Schedule is not adjusted or changed at a time when a Covered Participant believes it should, the Covered Participant affected thereby shall have the right, if he disagrees with such adjustment or change or failure to make an adjustment or change, to furnish 6 information to the Trustee concerning the appropriate amount payable to the Covered Participant. The Trustee shall be obligated to pay from the Fund amounts based upon a Payment Schedule as adjusted, if applicable, to reflect information supplied by the Covered Participant. After a Change in Control, no additions to or deletions from the list of Covered Participants shall be permitted. (b) The Trustee shall create a separate account (the "Account") in the Fund for each Covered Participant. At the time of each contribution to the Fund or establishment and delivery to the Trustee of a Letter of Credit, the Company shall designate in writing the allocation among the Accounts of such contribution and Letter of Credit. The Trustee shall hold all Accounts as a consolidated single fund. The Fund shall be revalued by the Trustee as of the last business day of each calendar quarter at current market values, as determined by the Trustee. For valuation purposes, a Letter of Credit shall be deemed to have a fair market value equal to the remaining amount available for draw under the Letter of Credit on the last business day of the applicable calendar quarter. Net investment gains and losses shall be allocated by the Trustee proportionately among the Accounts as of the end of each calendar quarter based on the value of the Accounts as of the last business day of the preceding calendar quarter. The Trustee shall maintain a record of the value of each Account based on the aggregate 7 value of the Trust Fund, the information provided by the Company as to its contributions and its establishment and delivery of Letters of Credit with respect to each Account and any payments therefrom. To the extent an amount remains credited to a Covered Participant's Account after the Company's liability to him under all Plans has been paid in full, such excess shall, as of the end of the calendar quarter in which final payment has been made, be reallocated to the Accounts of all other Covered Participants in proportion to the amounts credited to the Accounts of such Covered Participants, unless the Company directs the Trustee, prior to a Change in Control, to cancel or reduce a Letter of Credit allocated to the Covered Participant's Account in an amount equal to such excess. Notwithstanding the amount credited to a Covered Participant's Account pursuant to this paragraph, in no event shall a Covered Participant be entitled to payment hereunder of more than the Company's liability to him under the Plans. (c)(1) In the event it shall be determined prior to a Change In Control that any Covered Participant is sub- ject to any tax under the terms of the trust created here- under, then the Trustee, upon receipt of written direction from the Company, shall make payments from the Fund to such persons, in such manner and in such amounts as the Company shall direct, for purposes of paying the amount of federal, state and local tax and interest and any penalties thereon 8 which such Covered Participant may incur arising out of such determination. In the event such a determination is made after a Change In Control occurs, then the Trustee shall make payments from the Fund to such Covered Participant for the purposes set forth in the preceding sentence upon notice thereof from the Covered Participant. (2) Any payment from the Fund pursuant to Sec- tion (c)(1) of this Article shall be charged to the Accounts of those Participants to whom (or on whose behalf) such a distribution is made, under the appropriate Plan or Plans. (d) The Company may, by notice to the Trustee prior to a Change in Control, direct the Trustee to pay the Company such amount as is specified in the notice, cancel one or more Letters of Credit as specified in the notice, or reduce one or more Letters of Credit by such amount as is specified in the notice. In addition, such notice shall set forth the Account or Accounts which shall be debited with respect to such payment, cancellation or reduction. If the amount which would remain in the Fund after any such payment would be less than the unpaid fees and expenses of the Trustee, then the Trustee may deduct such fees and expenses from the payment that would otherwise be made to the Company. (e) Any direction, designation or notice by the Company required under this Article shall be in writing. Any direction by the Company with respect to a payment from the Fund shall be accompanied by a certification by the Company 9 that the payment directed is in conformity with Article THIRTEENTH hereof. The Trustee shall not be liable in any way for any payment made pursuant to any such direction of the Company. In addition, the Trustee shall not be liable in any way for any payment made based on information supplied to it by the Company. FOURTH: (a) Management of Assets of Fund. Sub- ject to paragraph (b) of this Article, the Trustee, prior to a Change In Control, shall have exclusive authority and discretion to manage and control the assets of the Fund, other than Letters of Credit, and pursuant to such authority and discretion may exercise from time to time and at any time power: (i) To invest and reinvest the Fund, without distinction between principal and income, in shares of stock (whether common or preferred) or other evidences of ownership, bonds, debentures, notes or other evidences of indebtedness, unsecured or secured by mortgages on real or personal property wherever situated (including any part interest in a bond and mortgage or note and mortgage whether insured or uninsured) and other property, or part interest in property, real or personal, foreign or domestic, whether or not productive of income or consisting of wasting assets, and in order to reduce the rate of interest rate fluctuations, contracts, as either buyer or seller, for the future 10 delivery of United States Treasury securities and com- parable United States Government-backed securities; (ii) To sell, convey, redeem, exchange, grant options for the purchase or exchange of, or otherwise dispose of, any real or personal property, at public or private sale, for cash or upon credit, with or without security, without obligation on the part of any person dealing with the Trustee to see to the application of the proceeds of or to inquire into the validity, expediency or propriety of any such disposition; (iii) To manage, operate, repair and improve, and mortgage or lease for any length of time any real prop- erty held in the Fund; to renew or extend any mortgage, upon any terms the Trustee may deem expedient; to agree to reduction of the rate of interest or any other modi- fication in the terms of any mortgage or of any guar- antee pertaining to it; to enforce any covenant or condition of any mortgage or guarantee or to waive any default in the performance thereof; to exercise and enforce any right of foreclosure; to bid in property on foreclosure; to take a deed in lieu of foreclosure with or without paying consideration therefor and in connec- tion therewith to release the obligation on the bond secured by the mortgage; and to exercise and enforce in any action, suit or proceeding at law or in equity any 11 rights or remedies in respect of any mortgage or guarantee; (iv) To exercise, personally or by general or limited proxy, the right to vote any shares of stock, bonds or other securities held in the Fund; to delegate discretionary voting power to trustees of a voting trust for any period of time; and to exercise, personally or by power of attorney, any other right appurtenant to any securities or other property of the Fund; (v) To join in or oppose any reorganization, recapitalization, consolidation, merger or liquidation, or any plan therefor, or any lease, mortgage or sale of the property of any organization the securities of which are held in the Fund; to pay from the Fund any assess- ments, charges or compensation specified in any plan of reorganization, recapitalization, consolidation, merger or liquidation; to deposit any property with any committee or depositary; and to retain any property allotted to the Fund in any reorganization, recapital- ization, consolidation, merger or liquidation; (vi) To exercise or sell any conversion or sub- scription or other rights appurtenant to any stock, security or other property held in the Fund; (vii) To borrow from any lender (other than the Trustee in its individual capacity or the Company or any of its affiliates) money, in any amount and upon any 12 reasonable terms and conditions, for purposes of this Agreement, and to pledge or mortgage any property held in the Fund to secure the repayment of any such loan; (viii) To compromise, settle or arbitrate any claim, debt, or obligation of or against the Fund; to enforce or abstain from enforcing any right, claim, debt or obligation; and to abandon any property determined by it to be worthless; and (ix) To make loans of securities held in the Fund to registered brokers and dealers upon such terms and conditions as are permitted by applicable law and regu- lations, and in each instance to permit the securities so lent to be registered in the name of the borrower or a nominee of the borrower, provided that in each instance the loan is adequately secured and neither the borrower nor any affiliate of the borrower has discre- tionary authority or control with respect to the assets of the Fund involved in the transaction or renders investment advice with respect to those assets. (b) The Company shall deliver to the Trustee each Letter of Credit established for the Fund as executed by the bank issuing such credit. On the last business day of each month, the Trustee shall draw on the Letters of Credit to the extent the assets of the Fund are not sufficient to make payments required to be made under the Payment Schedule during the next six months. Amounts received on the draw of 13 any Letter of Credit shall reduce the allocation of the Letter of Credit to those Covered Participants for whom such Letter of Credit was previously allocated and shall be allo- cated to the Accounts of such Covered Participants as if such amounts were contributions to the Fund. If the Trustee receives written notice prior to the expiration or cancellation of a Letter of Credit from the bank which issued such Letter of Credit, referencing the Letter of Credit by number, signed by an officer of such bank, and stating that such Letter of Credit is due to expire and has not been extended, or is being cancelled (other than a cancellation pursuant to paragraph (d) of Article THIRD), the Trustee shall draw on such Letter of Credit to the full extent thereof prior to the expiration of such Letter of Credit (but in no event earlier than the fifth business day prior to such expiration) unless, prior to taking such action, the Trustee has received a replacement Letter of Credit or cash or other property in at least the remaining amount available to be drawn under the Letter of Credit which is due to expire or is being cancelled. The Trustee shall have no obligation to earn any income with respect to any Letters of Credit which are held by it as part of the Fund. In the event that the Trustee shall resign or be removed, and a successor trustee shall be appointed hereunder, the rights and obligations of the Trustee under each Letter of Credit shall automatically 14 become the rights and obligations of the successor trustee, and the Trustee shall have no further rights, duties, obli- gations or liabilities with respect to any Letter of Credit. (c) After a Change In Control occurs and subject to paragraph (g) of Article SIXTH hereof, the Trustee shall invest and reinvest the Fund, other than Letters of Credit, without distinction between principal and income, in direct obligations of the United States of America or agencies or instrumentalities thereof, obligations unconditionally and fully guaranteed as to principal and interest by the United States of America, and certificates of deposit and bankers' acceptances of a bank organized and existing under the laws of the United States of America or any State thereof which has a combined capital and surplus of at least $100,000,000, all having respective maturities of not more than one year when purchased. FIFTH: Administrative Powers. The Trustee shall have and in its sole and absolute discretion may exercise from time to time and at any time the following administra- tive powers and authority with respect to the Fund: (a) To continue to hold any property of the Fund whether or not productive of income; to reserve from investment and keep unproductive of income, without liability for interest, cash temporarily awaiting investment and such cash as it deems advisable or as the Company from time to time may specify prior to a Change In Control in order to 15 meet the administrative expenses of the Fund or anticipated distributions therefrom. (b) To hold property of the Fund in its own name or in the name of a nominee or nominees, without disclosure of the trust, or in bearer form so that it will pass by delivery, but no such holding shall relieve the Trustee of its responsibility for the safe custody and disposition of the Fund in accordance with the provisions of this Agreement; the Trustee's books and records shall at all times show that such property is part of the Fund; and the Trustee shall be absolutely liable for any loss occasioned by the acts of its nominee or nominees with respect to securities registered in the name of the nominee or nominees; (c) To organize and incorporate under the laws of any state it may deem advisable one or more corporations (and to acquire an interest in any such corporation that it may have organized and incorporated) for the purpose of acquiring and holding title to any property, interests or rights that the Trustee is authorized to acquire under Article FOURTH hereof; (d) To employ in the management of the Fund suitable agents, without liability for any loss occasioned by any such agents selected by the Trustee with the care, skill, prudence and diligence under the circumstances then pre- vailing that a prudent man acting in a like capacity and 16 familiar with such matters would use in the conduct of an enterprise of a like character and with like aims; (e) To make, execute and deliver, as Trustee, any deeds, conveyances, leases, mortgages, contracts, waivers or other instruments in writing that the Trustee may deem necessary or desirable in the exercise of its powers under this Agreement; (f) To hold and draw upon any Letter of Credit in accordance with paragraph (b) of Article FOURTH; and (g) To do all other acts that the Trustee may deem necessary or proper to carry out any of the powers set forth in Articles FOURTH, FIFTH and SIXTH hereof or otherwise in the best interests of the Fund. SIXTH: Annuity Contracts. (a) The Trustee, upon written direction of the Company prior to a Change In Con- trol, shall pay from the Fund such sums to such insurance company or companies as the Company may direct for the pur- pose of procuring individual or group annuity contracts for any retirement allowance payable under a Plan (hereinafter in this Article referred to as "Contracts"). The Company shall prepare, or cause to be prepared in such form as it shall prescribe, the application for any Contract to be applied for. The Trustee shall receive and hold in the Fund, subject to the provisions hereinafter set forth in this Article, all Contracts so obtained. 17 (b) The Trustee shall be the complete and absolute owner of Contracts held in the Fund and, upon written direc- tion of the Company prior to a Change In Control, shall have power, without the consent of any other person, to exercise any and all of the rights, options or privileges that belong to the absolute owner of any Contract held in the Fund or that are granted by the terms of any such Contract or by the terms of this Agreement. The Trustee shall have no discre- tion with respect to the exercise of any of the foregoing powers or to take any other action permitted by any Contract held in the Fund, but shall exercise such powers or take such action only upon the written direction of the Company prior to a Change In Control; the Trustee shall have no duty to exercise any of such powers or to take any such action unless and until it shall have received such direction. The Trustee, upon the written direction of the Company prior to a Change In Control, shall deliver any Contract held in the Fund to such person or persons as may be specified in the direction. (c) The Trustee shall hold in the Fund the pro- ceeds of any sale, assignment or surrender of any Contract held in the Fund and any and all dividends and other payments of any kind received in respect of any Contract held in the Fund. (d) Upon the written direction of the Company prior to a Change In Control, the Trustee shall pay from the 18 Fund premiums, assessments, dues, charges and interest, if any, upon any Contract held in the Fund. After a Change In Control occurs, the Trustee shall pay from the Fund premiums, assessments, dues, charges and interest, if any, upon any Contract held in the Fund, without direction from the Company. (e) No insurance company that may issue any Contract or Contracts held in the Fund shall be deemed to be a party to this Agreement for any purpose, or to be respon- sible in any way for the validity of this Agreement or to have any liability under this Agreement other than as stated in each Contract that it may issue. Any insurance company may deal with the Trustee as sole owner of any Contract issued by it and held in the Fund, without inquiry as to the authority of the Trustee to act, and may accept and rely upon any written notice, instruction, direction, certificate or other communication from the Trustee believed by it to be genuine and to be signed by an officer of the Trustee and shall incur no liability or responsibility for so doing. Any sums paid out by any insurance company under any of the terms of a Contract issued by it and held in the Fund either to the Trustee, or, in accordance with its direction, to any other person or persons designated as payees in such Contract shall be a full and complete discharge of the liability to pay such sums, and the insurance company shall have no obligation to look to the disposition of any sums so paid. No insurance 19 company shall be required to look into the terms of this Agreement, to question any action of the Trustee or to see that any action of the Trustee is authorized by the terms of this Agreement. (f) Anything contained herein to the contrary notwithstanding, neither the Company nor the Trustee shall be liable for the refusal of any insurance company to issue or change any Contract or Contracts or to take any other action requested by the Trustee; nor for the form, genuineness, validity, sufficiency or effect of any Contract or Contracts held in the Fund; nor for the act of any person or persons that may render any such Contract or Contracts null and void; nor for the failure of any insurance company to pay the proceeds and avails of any such Contract or Contracts as and when the same shall become due and payable; nor for any delay in payment resulting from any provision contained in any such Contract or Contracts; nor for the fact that for any reason whatsoever (other than their own negligence or willful misconduct) any Contract or Contracts shall lapse or otherwise become uncollectible. (g) After a Change In Control occurs, the Trustee may exercise any of the powers set forth in paragraphs (a) through (f) of this Article without direction from the Com- pany, including the power to purchase Contracts the rates of return and maturity dates of which may reasonably be expected to yield assets of the Fund sufficient to discharge all or a 20 portion of the Company's obligations for retirement allow- ances under the Plans as set forth in the most recent infor- mation furnished to the Trustee by the Company prior to such Change In Control. SEVENTH: Taxes, Expenses and Compensation of Trustee. (a) The Company shall pay any federal, state, local or other taxes imposed or levied with respect to the corpus and/or income of the Fund or any part thereof under existing or future laws and, the Company in its discretion, or the Trustee, in its discretion, may contest the validity or amount of any tax, assessment, claim or demand respecting the Fund or any part thereof. (b) The Company shall pay to the Trustee from time to time such reasonable compensation for its services as trustee as shall be agreed upon by the Company and the Trustee. The Company shall also pay the reasonable and necessary expenses incurred by the Trustee in the performance of its duties under the Agreement, including reasonable fees of counsel engaged by the Trustee pursuant to paragraph (b) of Article EIGHTH of this Agreement. Such compensation and expenses shall be charged against and paid from the Fund to the extent not paid by the Company. EIGHTH: General Duties of Trustee. (a) The Trustee shall discharge its duties under this Agreement solely in the interest of the beneficiaries of the Fund and (i) for the exclusive purpose of providing benefits to such 21 beneficiaries and defraying reasonable expenses of admini- stering the Fund; (ii) with the care, skill, prudence and diligence under the circumstances then prevailing that a prudent man acting in a like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like aims; and (iii) by diversifying the investments of the Fund so as to minimize the risk of large losses, unless under the circumstances it is clearly prudent not to do so. (b) The Trustee may consult with counsel, who may be counsel for the Company or for the Trustee in its indivi- dual capacity, and shall not be deemed imprudent by reason of its taking or refraining from taking any action in accordance with the opinion of counsel. The Trustee shall not be required to give any bond or any other security for the faithful performance of its duties under this Agreement, except as required by law. (c) The Trustee shall be under no duties whatso- ever, except such duties as are specifically set forth as such in this Agreement, and no implied covenant or obligation shall be read into this Agreement against the Trustee. The Trustee shall not be compelled to take any action toward the execution or performance of the trust created hereunder or to prosecute or defend any suit or claim in respect thereof, unless indemnified to its satisfaction against loss, liability, and reasonable costs and expenses. 22 Notwithstanding anything herein to the contrary, in the event that the bank issuing a Letter of Credit shall fail or refuse to pay upon any draw thereunder, the Trustee will not be obligated to pursue any remedy against such issuing bank unless it shall have first received from the Company, the Participants or any of them security or indemnity to its satisfaction against the costs and expenses (including attorney's fees) which may be incurred therein or thereby. The Trustee shall be under no liability or obligation to anyone with respect to any failure on the part of the Company to perform any of its obligations under this Agreement. (d) The Company shall pay and shall protect, indemnify and save harmless the Trustee and its officers, directors or trustees, employees and agents from and against any and all losses, liabilities (including liabilities for penalties), actions, suits, judgments, demands, damages, reasonable costs and expenses (including, without limitation, reasonable attorneys' fees and expenses) of any nature arising from or relating to any action or failure to act by the Trustee, its officers, directors or trustees, employees and agents or the transactions contemplated by this Agree- ment, except to the extent that any such loss, liability, action, suit, demand, damage, cost or expense is the result of the negligence or willful misconduct of the Trustee, its officers, directors or trustees, employees or agents. 23 NINTH: Accounts of Trustee. (a)(i) The Trustee shall keep accurate and detailed accounts of all its receipts, investments and disbursements under this Agreement. Such person or persons as the Company shall designate shall be allowed to inspect the books of account relating to the Fund upon request at any reasonable time during the business hours of the Trustee. (ii) Within 120 days after the close of each calendar year, the Trustee shall transmit to the Company, and certify the accuracy of, a written statement of the assets and liabilities of the Fund at the close of that year, showing the current value of each asset at that date, and a written account of all the Trustee's transactions relating to the Fund during the period from the last previous accounting to the close of that year. (For the purposes of this paragraph, the date of the Trustee's resignation or removal as provided in Article ELEVENTH hereof shall be deemed to be the close of a calendar year.) (iii) Unless the Company shall have filed with the Trustee written exceptions or objections to any such statement and account within 60 days after receipt thereof, the Company shall be deemed to have approved such statement and account; and in such case or upon the written approval by the Company of any such statement and account, the Trustee shall be forever released and discharged with respect to all matters and things embraced in such statement and account as 24 though it had been settled by decree of a court of competent jurisdiction in an action or proceeding to which the Company and all persons having any beneficial interest in the Fund were parties. (b) Nothing contained in this Agreement or in the Plans shall deprive the Trustee of the right to have a judi- cial settlement of its accounts. In any proceeding for a judicial settlement the Trustee's accounts or for instruc- tions in connection with the Fund, the only other necessary party thereto in addition to the Trustee shall be the Company. If the Trustee so elects, it may bring in as a party or parties defendant any other person or persons. No person interested in the Fund, other than the Company, shall have a right to compel an accounting, judicial or otherwise, by the Trustee, and each such person shall be bound by all accounting by the Trustee to the Company, as herein provided, as if the account had been settled by decree of a court of competent jurisdiction in an action or proceeding to which such person was a party. TENTH: Administration of the Plans; Communica- tions. (a) The Company shall administer the Plans as pro- vided therein, and subject to paragraph (b) of Article THIRD hereof or subject to any delegation by the Company and assumption by the Trustee of the duties of administering the Plans, the Trustee shall not be responsible in any respect for administering the Plans nor shall the Trustee be 25 responsible for the adequacy of the Fund to meet and dis- charge all payments and liabilities under the Plans. The Trustee shall be fully protected in relying upon any written notice, instruction, direction or other communication signed by an officer of the Company. The Company from time to time shall furnish the Trustee with the names and specimen signatures of the officers of the Company authorized to act or give directions hereunder and shall promptly notify the Trustee of the termination of office of any such officer of the Company and the appointment of a successor thereto. Until notified to the contrary, the Trustee shall be fully protected in relying upon the most recent list of the officers of the Company furnished to it by the Company. (b) Any action required by any provision of this Agreement to be taken by the Board of Directors of the Com- pany shall be evidenced by a resolution of the Board of Directors certified to the Trustee by the Secretary or an Assistant Secretary of the Company under its corporate seal, and the Trustee shall be fully protected in relying upon any resolution so certified to it. Unless other evidence with respect thereto has been specifically prescribed in this Agreement, any other action of the Company under any provi- sion of this Agreement, including any approval of or excep- tions to the Trustee's accounts, shall be evidenced by a certificate signed by an officer of the Company, and the Trustee shall be fully protected in relying upon such 26 certificate. The Trustee may accept a certificate signed by an officer of the Company as proof of any fact or matter that it deems necessary or desirable to have established in the administration of the trust (unless other evidence of such fact or matter is expressly prescribed herein), and the Trustee shall be fully protected in relying upon the state- ments in the certificate. (c) The Trustee shall be entitled conclusively to rely upon any written notice, instruction, direction, certificate or other communication believed by it to be genuine and to be signed by the proper person or persons, and the Trustee shall be under no duty to make investigation or inquiry as to the truth or accuracy of any statement con- tained therein. (d) Until notice be given to the contrary, com- munications to the Trustee shall be sent to it at its office at 770 Broadway, New York, New York 10003-9548, Attention: Department Manager, Employee Benefits Services; communica- tions to the Company shall be sent to it at its office at 48 Wall Street, New York, New York 10005, Attention: General Counsel. ELEVENTH: Resignation or Removal of Trustee. (a) The Trustee may resign at any time upon 60 days' written notice to the Company, or upon shorter notice if acceptable to the Company. The Company, by action of its Board of Directors, may remove the Trustee at any time upon 60 days' 27 written notice to the Trustee, or upon shorter notice if acceptable to the Trustee. In the event it resigns or is removed, the Trustee shall have a right to have its accounts settled as provided in Article NINTH hereof. (b) Upon the resignation or removal of the Trustee, the Company, by action of its Board of Directors, shall appoint a successor trustee which shall be a bank as defined under the Investment Advisers Act of 1940, having a net worth in excess of $100,000,000 or having assets in excess of $2,000,000,000, other than the Company or any corporation that, directly or through one or more inter- mediaries, controls, is controlled by or is under common control with the Company, to act hereunder after the effec- tive date of such removal or resignation. Each successor trustee shall have the powers and duties conferred upon the Trustee in this Agreement, and the term "Trustee" as used in this Agreement shall be deemed to include any successor trustee. Upon designation or appointment of a successor trustee, the Trustee shall transfer and deliver the Fund to the successor trustee, reserving such sums as the Trustee shall deem necessary to defray its expenses in settling its accounts, to pay any of its compensation due and unpaid and to discharge any obligation of the Fund for which the Trustee may be liable. If the sums so reserved are not sufficient for these purposes, the Trustee shall be entitled to recover the amount of any deficiency from either the Company or the 28 successor trustee, or both. When the Fund shall have been transferred and delivered to the successor trustee and the accounts of the Trustee have been settled as provided in Article NINTH hereof, the Trustee shall be released and discharged from all further accountability or liability for the Fund and shall not be responsible in any way for the further disposition of the Fund or any part thereof. TWELFTH: Amendment of Agreement. (a) Subject to paragraph (b) of this Article TWELFTH, the Company expressly reserves the right at any time to amend this Agreement and the trust created thereby to any extent that it may deem advisable. No such amendment shall be made that affects the duties or responsibilities of the Trustee without its consent thereto in writing. Such amendment shall become effective upon delivery to the Trustee of a written instrument of amendment, duly executed and acknowledged by the Company and accompanied by a certified copy of a resolution of the Board of Directors of the Company authorizing such amendment. (b) Notwithstanding any other provisions of this Agreement, the provisions of this Agreement and the trust created thereby may not be amended after the date a Change In Control occurs without the written consent of two-thirds in number of the Covered Participants. The Trustee may request that the Company furnish evidence to establish that such a majority in number of such Covered Participants have granted written consent to such an amendment. 29 THIRTEENTH: Prohibition of Diversion. (a) Except as provided in paragraph (b) below and in paragraphs (b) and (d) of Article THIRD, at no time prior to the satisfac- tion of all liabilities with respect to Covered Participants and their beneficiaries shall any part of the corpus and/or income of the Fund be used for, or diverted to, purposes other than for the exclusive benefit of Covered Participants and their beneficiaries and the assets of the Fund shall never inure to the benefit of the Company and shall be held for the exclusive purposes of providing benefits to Covered Participants and their beneficiaries and defraying reasonable expenses of administering the Fund. Upon satisfaction of all liabilities with respect to Covered Participants and their beneficiaries under the Plans, this Agreement and the trust shall be terminated and the remaining assets of the Fund shall be distributed to the Company. (b) Notwithstanding any other provision of this Agreement to the contrary, the corpus and/or income of the Fund shall at all times be subject to the claims of creditors of the Company. In the event that (i) a final judicial determination is entered that the Company is unable to pay its debts as such debts mature or (ii) there shall have been filed by or against the Company in any court or other tri- bunal either of the United States or of any State or of any other authority now or hereafter exercising jurisdiction, a petition in bankruptcy or insolvency proceedings or for 30 reorganization or for the appointment of a receiver or trustee of all or substantially all of the Company's property under the present or any future federal bankruptcy code or any other present or future applicable federal, state or other bankruptcy or insolvency statute or law, then the Trustee shall not make payments from the Fund to any bene- ficiary, but under either of such circumstances, the Trustee shall deliver any property held in the Fund only as a court or other tribunal of competent jurisdiction may direct to satisfy the claims of the Company's creditors. The Board of Directors and the Chief Executive Officer of the Company shall furnish the Trustee with written notice of such final judicial determination or filing described herein. If the Trustee receives a written allegation from a person claiming to be a creditor of the Company that the Company is unable to pay its debts as they mature, the Trustee shall, within the 30-day period from the date of receipt of such allegation, determine whether the Company is in fact unable to pay its debts as they mature. During such period, the Trustee shall suspend all payments from the Fund. If the Trustee determines the Company is able to pay its debts as they mature, payments from the Fund will resume. Otherwise, the Trustee will deliver the assets of the Fund as a court or other tribunal of competent jurisdiction may direct to satisfy the claims of the Company's creditors, and, 31 in the absence of such direction, the Trustee shall continue to suspend payments from the Fund. FOURTEENTH: Sufficiency of Fund. Notwithstanding any provision of this Agreement, the Company shall remain obligated to pay Participants the amounts due to them under the Plans. If the assets of an Account are insufficient to fulfill the Company's obligations to a Covered Participant when due, then the Company shall pay to such Covered Par- ticipant (and his beneficiaries) the amount of such insufficiency. FIFTEENTH: Prohibition of Assignment of Interest. No interest, right or claim in or to any part of the Fund or any payment therefrom shall be assignable, transferable or subject to sale, mortgage, pledge, hypothecation, commuta- tion, anticipation, garnishment, attachment, execution or levy of any kind, and the Trustee shall not recognize any attempt to assign, transfer, sell, mortgage, pledge, hypo- thecate, commute or anticipate the same, except to the extent required by law. SIXTEENTH: Affiliates. Prior to a Change in Control, any corporation that, directly or through one or more intermediaries, controls, is controlled by or is under common control with the Company may adopt and become a party to this Agreement by delivering to the Trustee an instrument in writing, duly executed and acknowledged, adopting and assuming jointly and severally the obligations of the Company 32 under this Agreement and constituting and appointing the Company to be the agent and attorney in fact of such corporation for the purposes of giving or receiving notices, instructions, directions and other communications to or from the Trustee and approving the accounts of the Trustee, accom- panied by duly certified copies of resolutions of the Board of Directors of such corporation adopting the Agreement and approving and authorizing execution, acknowledgment and delivery of such instrument and a duly certified copy of a resolution of the Board of Directors of the Company approving and consenting to the same. SEVENTEENTH: Miscellaneous. (a) This Agreement shall be interpreted, construed and enforced, and the trust hereby created shall be administered, in accordance with the laws of the United States and of the State of New York. (b) The titles to Articles of this Agreement are placed herein for convenience of reference only, and the Agreement is not to be construed by reference thereto. (c) This Agreement shall bind and inure to the benefit of the successors and assigns of the Company and the Trustee, respectively, and the Covered Participants and their beneficiaries under the Plans. (d) This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original but all of which together shall constitute but one 33 instrument, which may be sufficiently evidenced by any counterpart. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed in their respective names by their duly authorized officers under their corporate seals as of the day and year first above written. THE BANK OF NEW YORK COMPANY, INC. By \s\ Charles Rappold Chief Legal officer & Secretary ATTEST: \s\ Robert Keilman UNITED STATES TRUST COMPANY OF NEW YORK By \s\ William H. Schroder Senior Vice President ATTEST: \s\Ann E. Clark 34 STATE OF NEW YORK ) : SS.: COUNTY OF NEW YORK ) On this 15 day of December, 1994, before me personally came Charles Rappold , to me known, who, being by me duly sworn, did depose and say that he resides at 1050 Rahway Rd. Plainfield, NJ, and that he is CLO & Secretary of THE BANK OF NEW YORK COMPANY, INC., one of the corporations described in and which executed the foregoing instrument; that he knows the seal of said corporation; that the seal affixed to said instrument is such corporate seal; that it was so affixed by order of the Board of Directors of said corporation; and that he signed his name thereto by like order. \s\ Patricia D. Steube STATE OF NEW YORK ) : SS.: COUNTY OF NEW YORK ) On this 16 day of December, 1994, before me personally came William H. Schroeder, to me known, who, being by me duly sworn, did depose and say that he resides at 70 E. 10 St New York, New York , and that he is a Senior Vice President of UNITED STATES TRUST COMPANY OF NEW YORK, one of the corporations described in and which executed the foregoing instrument; that he knows the seal of said corporation; that the seal affixed to said instrument is such corporate seal; that it was so affixed by order of the Board of Trustees of said corporation; and that he signed his name thereto by like order. \s\ Stuart Omansky 1 EXHIBIT I Tax Reimbursement Agreements between The Bank of New York Company, Inc. and the following persons: Individual Date of Agreement J. Carter Bacot July 13, 1994 Deno D. Papageorge July 13, 1994 1 EXHIBIT II [FORM OF IRREVOCABLE LETTER OF CREDIT] [Date] United States Trust Company of New York, as Trustee 770 Broadway New York, New York 10003-9548 Attention: [ ] Dear Sirs: At the request and for the account of The Bank of New York Company, Inc., we hereby establish in your favor (and in favor of your successors, the terms "you" and "yours" referring to you and any successor), as Trustee under the Trust Agreement between The Bank of New York Company, Inc. and United States Trust Company of New York, dated as of __________, 1994 (the "Trust Agreement"), this Irrevocable Letter of Credit No. _________ in the amount of U.S. $_______. This Letter of Credit is effective immediately and shall expire at the close of banking business at our office at [address] on [ ], 1995, unless terminated earlier or extended in either case in accordance with the provisions hereof. The amount of this Letter of Credit will be reduced from time to time as hereinafter provided. Funds under this Letter of Credit are available to you in immediately available funds upon presentation of your sight draft in the form of Exhibit A-1 hereto appropriately completed. 2 The amount available under this Letter of Credit shall be automatically reduced by the amount of each draft paid hereunder (effective on the date of payment of such draft). In addition, upon presentation by you of a certificate in the form of Exhibit B-1 hereto appropriately completed, the amount available under this Letter of Credit shall be automatically reduced by the amount stated in such certificate. Presentation of drafts and certificates hereunder shall be made at our office at [address], Attention: ___________________, or at any other office in the City and State of New York which may be designated by us by written notice delivered to you. Upon the earlier to occur of any one of the following events: (i) the surrender to us by you of this Letter of Credit for cancellation and (ii) the expiration date stated in the initial paragraph hereof, this Letter of Credit shall automatically expire. Communications with respect to this Letter of Credit shall be delivered to us by registered mail, return receipt requested (except that drafts and certificates shall be presented by hand delivery), addressed to us at [address], Attention: _______________, specifically referring to the number of this Letter of Credit. 3 We hereby agree that drafts drawn and presented in compliance with this Letter of Credit and accompanied by the documents required hereby will be paid in accordance with the terms hereof. It is a condition of this Letter of Credit that it will be automatically extended for periods of one year from the then relevant expiry date, unless sixty (60) days prior to that relevant expiry date we notify you by registered mail, return receipt requested, that we elect not to extend this Letter of Credit for any additional period, provided, however, that under no circumstances will this Letter of Credit be renewed or extended beyond [ ]. We hereby agree that all notices to you under this Letter of Credit will be sent to you by registered mail, return receipt requested, at 770 Broadway, New York, New York 10003-9548, Attention: Department Manager, Employee Benefits Services, or such other address as from time to time specified by you in writing. This Letter of Credit shall be governed by, and construed in accordance with, the terms of the Uniform Customs and Practices for Documentary Credits (1983 Revision), International Chamber of Commerce, Publication No. 400 (the "UCP"). This Letter of Credit shall be deemed to be issued under the laws of the State of New York (including the Uniform Commercial Code as in effect in said 4 State), and, as to matters not governed by the UCP, shall be governed by, and construed in accordance with, the laws of the State of New York. Very truly yours, [Name of Bank] By ___________________________ Vice President 1 EXHIBIT A-1 SIGHT DRAFT [Date] For Value Received, pay on demand (by wire transfer in same day funds) to Account No. [insert number of account to which payment is to be made and name and address of bank] ________ United States Dollars ($__________). Charge to Account of [name of account party] Irrevocable Letter of Credit No. ___________. TO: [Name of Bank] [Address] Attention: _________________, Letter of Credit Operations UNITED STATES TRUST COMPANY OF NEW YORK By ____________________________ Title: 1 EXHIBIT B-1 REQUEST FOR REDUCTION [Date] [Name of Bank] [Address] Attention: ____________________, Letter of Credit Operations Irrevocable Letter of Credit No. Gentlemen: In accordance with the above-captioned Letter of Credit, each of the undersigned hereby requests that the amount available to be drawn by the beneficiary under said Letter of Credit be reduced by $__________ upon receipt by you of this certificate. THE BANK OF NEW YORK COMPANY, INC. By ________________________________ Title: UNITED STATES TRUST COMPANY OF NEW YORK By _________________________________ Title: EX-10 9 EXHIBIT 10U EXHIBIT 10(u) 1. Tax Reimbursement Agreement AGREEMENT, dated as of July 13, 1994, by and between THE BANK OF NEW YORK COMPANY, INC. ("Employer") and ("Employee"). WHEREAS, Employer and Employee have entered into a severance benefit agreement dated May 17, 1982 (the "1982 Agreement"); and WHEREAS, Employer desires to reimburse Employee with respect to any excise taxes owed by Employee under Section 4999 of the Internal Revenue Code of 1986, as amended (the "Code") in connection with compensation or benefits received pursuant to the 1982 Agreement. NOW, THEREFORE, in consideration of the mutual covenants herein contained, and other good and valuable consideration, the parties hereto agree as follows: 1. Tax Reimbursement Payment. (a) If any of the payments provided under the 1982 Agreement (the "Contract Payments") or any other portion of the Total Payments (as defined below) will at any time be subject to the tax (the "Excise Tax") imposed by Section 4999 of the Internal Revenue Code of 1986, as amended or the applicable provisions of any successor statute (the "Code"), the Employer shall pay to the Employee, by the fifth day following the Employee's date of termination of employment from the Employer, an additional amount (the "Tax Reimbursement Payment") such that the net amount retained by the Employee, after deduction of any Excise Tax on the Contract Payments and such other Total Payments and any 2 federal and state and local income tax, employment tax and Excise Tax upon the payment provided for by this Section 1, shall be equal to the Total Payments. For purposes of determining whether any of the payments will be subject to the Excise Tax and the amount of such Excise Tax: (i) any other payments or benefits received or to be received by the Employee in connection with the termination of his employment as contemplated by the 1982 Agreement or a change in control of the Employer (whether payable pursuant to the terms of this Agreement or any other plan, arrangement or agreement with (a) the Employer, (b) the Employer's successors, (c) any person whose action results in a change in control of the Employer or (d) any corporation affiliated (or which, as a result of the completion of a transaction causing a change in control of the Employer, will become affiliated) with the Employer within the meaning of Section 1504 of the Code) (together with the Contract Payment, the "Total Payments") shall be treated as "parachute payments" within the meaning of Section 280G(b)(2) of the Code, and all "excess parachute payments" within the meaning of Section 280G(b)(1) shall be treated as subject to the Excise Tax, unless in the opinion of tax counsel selected by the Employer's independent auditors and acceptable to the Employee the Total Payments (in whole or in part) do not constitute parachute payments, or such excess parachute payments (in whole or in part) represent reasonable compensation for services actually rendered within the meaning of Section 280G(b)(4) of the Code either in their entirety or in excess of the base 3 amount within the meaning of Section 280G(b)(3) of the Code, or are otherwise not subject to the Excise Tax; and (ii) the value of any non-cash benefits or any deferred payment or benefit shall be determined by the Employer's independent auditors in accordance with the principles of Sections 280G(d)(3) and (4) of the Code. (b) For purposes of determining the amount of the Tax Reimbursement Payment, the Employee shall be deemed to pay federal income taxes at the highest marginal rate of federal, state and local income taxation in the calendar year in which the Tax Reimbursement Payment is to be made, net of the maximum reduction in federal income taxes which could be obtained from deduction of such state and local taxes. In the event that the Excise Tax is subsequently determined to be less than the amount taken into account hereunder at the time of termination of the Employee's employment, the Employee shall repay to the Employer at the time that the amount of such reduction in Excise Tax is finally determined the portion of the Tax Reimbursement Payment attributable to such reduction (plus the portion of the Tax Reimbursement Payment attributable to the Excise Tax and federal, state and local income tax and employment tax imposed on the Tax Reimbursement Payment being repaid by the Employee if such repayment results in a reduction in Excise Tax and/or a federal and state and local income tax deduction) plus interest on the amount of such repayment at the rate provided in Section 1274(d) of the Code. In the event that the Excise Tax is determined to exceed the amount taken into account hereunder at the time of the termination 4 of the Employee's employment (including by reason of any payment the existence or amount of which cannot be determined at the time of the Tax Reimbursement Payment), the Employer shall make an additional tax reimbursement payment in respect of such excess (plus any interest payable with respect to such excess) at the time that the amount of such excess is finally determined. (c) In the event of any proceeding before the Internal Revenue Service, United State Tax Court, the United States Claims Court or any other federal court involving the question of whether any payment made or benefit provided by the Employer to the Employee is an excess parachute payment (including any proceeding initiated by a claim for refund or tax return examination with respect to either the Employer or the Employee), the Employer shall have the right to participate in such proceeding with counsel of its selection, which counsel shall be experienced in federal income tax matters and shall be reasonably satisfactory to the Employee. The direct costs of any such proceeding (including, but not limited to, all fees and disbursements of the Employee's counsel and the Employer's counsel) shall be borne by the Employer. 2. Governing Law. This Agreement is governed by and is to be construed and enforced in accordance with the laws of the State of New York, without regard to its conflicts of law principles. If under such law, any portion of this Agreement is at any time deemed to be in conflict with any applicable statute, rule, regulation or ordinance, such portion shall be deemed to be modified or 5 altered to conform thereto or, if that is not possible, to be omitted from this Agreement; the invalidity of any such portion shall not affect the force, effect and validity of the remaining portion hereof. 3. Miscellaneous. (a) Amendments and Waivers. This Agreement may be amended but only by a subsequent written agreement of the parties. Any waiver or discharge must be in writing and signed by Employee or such officer of Employer as may be designated by the Board of Directors of Employer (the "Board"). No waiver by either party hereto at any time of any breach by the other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions at the same or any prior or subsequent time. (b) Successors in Interest. This Agreement shall be binding upon and shall inure to the benefit of Employee, Employee's heirs, executors, administrators and beneficiaries, and shall be binding upon and inure to the benefit of Employer and its successors. No rights or obligations of Employer under this Agreement may be assigned or transferred by Employer, except Employer shall require any successor to or acquiror of (whether direct or indirect, by purchase, merger, consolidation or otherwise) all or substantially all of the business and/or assets of Employer to expressly assume and agree in writing to perform this Agreement in the same manner and to the same extent that 6 Employer would be required and to perform it as if no such succession had taken place. (c) Withholding Taxes. Any amount payable to Employee under this Agreement shall be subject to applicable withholding of income, wage and other taxes. (d) Claims and Denials. All claims by Employee for benefits under this Agreement shall be directed to and determined by the Board and shall be in writing. Any denial by the Board of a claim for benefits under this Agreement shall be delivered to Employee in writing and shall set forth the specific reasons for the denial and the specific provisions of this Agreement relied upon. The Board shall afford a reasonable opportunity to Employee for a review of the decisions denying a claim and shall further allow Employee to appeal to the Board a decision of the Board within sixty (60) days after notification by the Board that Employee's claim has been denied. (e) Arbitration. Any dispute or controversy arising under or in connection with this Agreement shall be settled exclusively by arbitration, conducted before a panel of three (3) arbitrators in the State of New York, in accordance with the rules of the American Arbitration Association then in effect. Judgment may be entered on the arbitrator's award in any court having jurisdiction. The expenses of such arbitration shall be borne by Employer. (f) Designated Beneficiary. In the event of Employee's death, all amounts due to Employee hereunder shall be paid to Employee's spouse or, if Employee's spouse predeceases him, to his estate, unless Employee provides to 7 the Employer in writing the names of the beneficiary or beneficiaries who shall be paid any such amounts (Employee's spouse, estate or specified beneficiary, as the case may be, shall be Employee's "Designated Beneficiary" for purposes of this Agreement). (g) Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument. (h) Applicability. This Agreement shall be applicable and payments shall be made hereunder solely to the extent the Tax Reimbursement Payment is not provided to Employee by means of another agreement with the Employer or any successor entity or affiliate of the Employer. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the year and day first above written. EMPLOYER By: Title: EMPLOYEE EX-10 10 EXHIBIT 10V 1 EXHIBIT 10(v) October 11, 1994 Dear Mr. : The Bank of New York Company, Inc., a New York cor- poration (the "Company"), considers the establishment and maintenance of a sound and vital management to be essential to protecting and enhancing the best interests of the Company and its shareholders. In this connection, the Company recognizes that, as is the case with many publicly held corporations, the possibility of a change in control may arise and that such possibility, and the uncertainty and questions which it may raise among management of the Company and its principal subsidiary, The Bank of New York (the "Bank"), may result in the departure or distraction of management personnel to the detriment of the Company and its shareholders. Accordingly, the Board of Directors of the Company (the "Board") has determined that appropriate steps should be taken to reinforce and encourage the continued attention and dedication of members of management of the Company and the Bank to their assigned duties without distraction in circumstances arising from the possibility of a change in control of the Company. In particular, the Board believes it important, should the Company or its shareholders receive a proposal for transfer of control of the Company, that you be able to assess and advise the Board whether such proposal would be in the best interests of the Company and its shareholders and to take such other action regarding such proposal as the Board might determine to be appropriate, without being influenced by the uncertainties of your own situation. In order to induce you to remain in the employ of the Company, this letter agreement sets forth the severance benefits which the Company agrees will be provided to you in the event your employment with the Company or the Bank is terminated subsequent to a "change in control" of the Company under the circumstances described below. 1. Agreement to Provide Services; Right to Terminate. (i) Except as otherwise provided in paragraph (ii) below, the Company, the Bank or you may terminate your employment at any time, subject to the Company's providing 2 the benefits hereinafter specified in accordance with the terms hereof. (ii) In the event a tender offer or exchange offer is made by a Person (as hereinafter defined) for more than 25% of the combined voting power of the Company's outstanding securities ordinarily having the right to vote at elections of directors ("Voting Securities"), including shares of the common stock of the Company, you agree that you will not leave the employ of the Company or the Bank (other than as a result of Disability or upon Retirement, as such terms are hereinafter defined) and will render the services contem- plated in the recitals to this Agreement until such tender offer or exchange offer has been abandoned or terminated or a change in control of the Company, as defined in Section 3 hereof, has occurred. For purposes of this Agreement, the term "Person" shall mean and include any individual, cor- poration, partnership, group, association or other "person", as such term is used in Section 14(d) of the Securities Exchange Act of 1934 (the "Exchange Act"), other than the Company, the Bank, any other subsidiary of the Company or any employee benefit plan(s) sponsored by the Company, the Bank or any other subsidiary of the Company. 2. Term of Agreement. This Agreement shall commence on the date hereof and shall continue in effect until December 31, 1995; provided, however, that commencing on January 1, 1996 and each January 1 thereafter, the term of this Agreement shall automatically be extended for one addi- tional year unless at least 90 days prior to such January lst date, the Company or you shall have given notice that this Agreement shall not be extended; and provided, further, that, notwithstanding the delivery of any such notice, this Agree- ment shall continue in effect for a period of twenty-four (24) months after a change in control of the Company, as defined in Section 3 hereof, if such change in control shall have occurred during the term of this Agreement, as it may be extended by the first proviso set forth above. Notwith- standing anything in this Section 2 to the contrary, this Agreement shall terminate if you or the Company or the Bank terminate your employment prior to a change in control of the Company. 3. Change in Control. For purposes of this Agreement, a "change in control" of the Company shall be deemed to occur if (A) any "person" (as such term is defined in Section 3(a)(9) and as used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")), excluding the Company or any of its subsidiaries, a trustee or any fiduciary holding securities under an employee benefit plan of the Company or any of its subsidiaries, an underwriter temporarily holding securities pursuant to an offering of such securities or a corporation 3 owned, directly or indirectly, by stockholders of the Company in substantially the same proportion as their ownership of the Company, is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing 25% or more of the combined voting power of the Company's then out- standing securities ("Voting Securities"); or (B) during any period of not more than two years, individuals who constitute the Board as of the beginning of the period and any new director (other than a director designated by a person who has entered into an agreement with the Company to effect a transaction described in clause (A) or (C) of this sentence) whose election by the Board or nomination for election by the Company's shareholders was approved by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors at such time or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority thereof; or (C) the shareholders of the Company approve a merger or consolidation of the Company with any other corporation, other than a merger or consolidation which would result in the Voting Securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into Voting Securities of the surviving entity) at least 60% of the combined voting power of the Voting Securities of the Company or such surviving entity outstanding immediately after such merger or consolidation, or the shareholders of the Company approve a plan of complete liquidation of the Company or any agreement for the sale or disposition by the Company or all or substantially all of the Company's assets. 4. Termination Following Change in Control. If any of the events described in Section 3 hereof constituting a change in control of the Company shall have occurred, you shall be entitled to the benefits provided in Section 5 hereof upon the termination of your employment with the Company or the Bank within twenty-four (24) months after such event, unless such termination is (a) because of your death or Retirement, (b) by the Company for Cause or Disability or (c) by you other than for Good Reason (as all such capital- ized terms are hereinafter defined). (i) Disability. Termination by the Company of your employment based on "Disability" shall mean termination because of your absence from your duties with the Company on a full time basis for one hundred eighty (180) consecutive days as a result of your incapacity due to physical or mental illness, unless within thirty (30) days after Notice of Termination (as hereinafter defined) is given to you following such absence you shall have returned to the full time performance of your duties. 4 (ii) Retirement. Termination by you or by the Company of your employment based on "Retirement" shall mean termination on or after your attainment of age sixty-five (65). (iii) Cause. Termination by the Company or the Bank of your employment for "Cause" shall mean termination upon (a) the willful and continued failure by you to perform sub- stantially your duties with the Company or the Bank (other than any such failure resulting from your incapacity due to physical or mental illness) after a demand for substantial performance is delivered to you by the Chairman of the Board or President of the Company or the Chief Executive Officer of the Bank, as appropriate, which specifically identifies the manner in which such executive believes that you have not substantially performed your duties, or (b) the willful engaging by you in illegal conduct which is materially and demonstrably injurious to the Company or the Bank. For purposes of this paragraph (iii), no act, or failure to act, on your part shall be considered "willful" unless done, or omitted to be done, by you in bad faith and without reason- able belief that your action or omission was in, or not opposed to, the best interests of the Company or the Bank. Any act, or failure to act, based upon authority given pursuant to a resolution duly adopted by the Board or based upon the advice of counsel for the Company or the Bank shall be conclusively presumed to be done, or omitted to be done, by you in good faith and in the best interests of the Company and the Bank. It is also expressly understood that your attention to matters not directly related to the business of the Company or the Bank shall not provide a basis for termi- nation for Cause so long as the Board has approved your engagement in such activities. Notwithstanding the fore- going, you shall not be deemed to have been terminated for Cause unless and until there shall have been delivered to you a copy of a resolution duly adopted by the affirmative vote of not less than three-quarters of the entire membership of the Board at a meeting of the Board called and held for the purpose (after reasonable notice to you and an opportunity for you, together with your counsel, to be heard before the Board), finding that in the good faith opinion of the Board you were guilty of the conduct set forth above in (a) or (b) of this paragraph (iii) and specifying the particulars thereof in detail. (iv) Good Reason. Termination by you of your employment for "Good Reason" shall mean termination based on: (A) a determination by you, in your reasonable judgment, that there has been an adverse change in your status or position(s) as an executive officer of the Company or the Bank as in effect immediately prior to 5 the change in control, including, without limitation, any adverse change in your status or position as a result of a diminution in your duties or responsibilities (other than, if applicable, any such change directly attributable to the fact that the Company is no longer publicly owned) or the assignment to you of any duties or responsibilities which are inconsistent with such status or position(s), or any removal of you from or any failure to reappoint or reelect you to such position(s) (except in connection with the termination of your employment for Cause, Disability or Retirement or as a result of your death or by you other than for Good Reason); (B) a reduction by the Company or the Bank in your base salary as in effect immediately prior to the change in control; (C) the failure by the Company or the Bank to continue in effect any Plan (as hereinafter defined) in which you are participating at the time of the change in control of the Company (or Plans providing you with at least substantially similar benefits) other than as a result of the normal expiration of any such Plan in accordance with its terms as in effect at the time of the change in control, or the taking of any action, or the failure to act, by the Company or the Bank which would adversely affect your continued participation in any of such Plans on at least as favorable a basis to you as is the case on the date of the change in control or which would materially reduce your benefits in the future under any of such Plans or deprive you of any material benefit enjoyed by you at the time of the change in control; (D) the failure by the Company or the Bank to provide and credit you with the number of paid vacation days to which you are then entitled in accordance with its normal vacation policy as in effect immediately prior to the change in control; (E) the requirement by the Company or the Bank that you be based at an office that is greater than 35 miles from where your office is located immediately prior to the change in control except for required travel on the business of the Company or the Bank to an extent substantially consistent with the business travel obligations which you undertook on behalf of the Company or the Bank prior to the change in control; (F) the failure by the Company to obtain from any Successor (as hereinafter defined) the assent to this Agreement contemplated by Section 6 hereof; 6 (G) any purported termination by the Company or the Bank of your employment which is not effected pursuant to a Notice of Termination satisfying the requirements of paragraph (v) below (and, if applicable, paragraph (iii) above); and for purposes of this Agreement, no such purported termination shall be effective; or (H) any refusal by the Company or the Bank to continue to allow you to attend to matters or engage in activities not directly related to the business of the Company or the Bank which, prior to the change in control, you were permitted by the Board to attend to or engage in. For purposes of this Agreement, "Plan" shall mean any compen- sation plan such as an incentive, stock option or restricted stock plan or any employee benefit plan such as a thrift, pension, profit sharing, medical, disability, accident, life insurance plan or a relocation plan or policy or any other plan, program or policy of the Company or the Bank intended to benefit employees. (v) Notice of Termination. Any purported termi- nation by the Company or the Bank or by you following a change in control shall be communicated by written Notice of Termination to the other party hereto. For purposes of this Agreement, a "Notice of Termination" shall mean a notice which shall indicate the specific termination provision in this Agreement relied upon. (vi) Date of Termination. "Date of Termination" following a change in control shall mean (a) if your employment is to be terminated for Disability, thirty (30) days after Notice of Termination is given (provided that you shall not have returned to the performance of your duties on a full-time basis during such thirty (30) day period), (b) if your employment is to be terminated by the Company or the Bank for Cause or by you pursuant to Sections 4(iv)(F) and 6 hereof or for any other Good Reason, the date specified in the Notice of Termination, or (c) if your employment is to be terminated by the Company or the Bank for any reason other than Cause, the date specified in the Notice of Termination, which in no event shall be a date earlier than ninety (90) days after the date on which a Notice of Termination is given, unless an earlier date has been expressly agreed to by you in writing either in advance of, or after, receiving such Notice of Termination. In the case of termination by the Company or the Bank of your employment for Cause, if you have not previously expressly agreed in writing to the termination, then within thirty (30) days after receipt by you of the Notice of Termination with respect thereto, you may notify the Company that a dispute exists concerning the 7 termination, in which event the Date of Termination shall be the date set either by mutual written agreement of the parties or by the arbitrators in a proceeding as provided in Section 13 hereof. During the pendency of any such dispute, the Company or the Bank will continue to pay you your full compensation in effect just prior to the time the Notice of Termination is given and until the dispute is resolved in accordance with Section 13. 5. Compensation Upon Termination or During Disability; Other Agreements. (i) During any period following a change in control of the Company that you fail to perform your duties as a result of incapacity due to physical or mental illness, you shall continue to receive your salary at the rate then in effect and any benefits or awards under any Plans shall continue to accrue during such period, to the extent not inconsistent with such Plans, until your employment is terminated pursuant to and in accordance with paragraphs 4(i) and 4(vi) hereof. Thereafter, your benefits shall be determined in accordance with the Plans then in effect. (ii) If your employment shall be terminated for Cause following a change in control of the Company, the Company or the Bank shall pay you your salary through the Date of Termination at the rate in effect just prior to the time a Notice of Termination is given plus any benefits or awards (including both the cash and stock components) which pursuant to the terms of any Plans have been earned and are otherwise payable, but which have not yet been paid to you. Thereupon the Company and the Bank shall have no further obligations to you under this Agreement. (iii) Subject to Section 8 hereof, if, within twenty-four (24) months after a change in control of the Company, as defined in Section 3 above, shall have occurred, your employment by the Company or the Bank shall be termi- nated (a) by the Company or the Bank other than for Cause, Disability or Retirement or (b) by you for Good Reason, then the Company shall pay or cause the Bank to pay to you, no later than the fifth business day following the Date of Termination, without regard to any contrary provisions of any Plan, the following: (A) your salary through the Date of Termination at the rate in effect just prior to the time a Notice of Termination is given plus any benefits or awards (inclu- ding both the cash and stock components) which pursuant to the terms of any Plans have been earned and otherwise payable, but which have not yet been paid to you; and 8 (B) as severance pay and in lieu of any further salary for periods subsequent to the Date of Termi- nation, an amount in cash equal to 2.99 times your "annualized includible compensation for the base period" (as defined in Section 280G(d)(1) of the Internal Revenue Code of 1986 (the "Code")). (iv) If, within twenty-four (24) months after a change in control of the Company, as defined in Section 3 above, shall have occurred, your employment by the Company or the Bank shall be terminated (a) by the Company or the Bank other than for Cause, Disability or Retirement or (b) by you for Good Reason, then the Company shall maintain or cause the Bank to maintain in full force and effect, for the continued benefit of you and your dependents for a period terminating on the earliest of (a) three years after the Date of Ter- mination, (b) the commencement date of equivalent benefits from a new employer or (c) your attainment of age sixty-five (65), all insured and self-insured employee welfare benefit Plans in which you were entitled to participate immediately prior to the Date of Termination, provided that your continued participation is possible under the general terms and provisions of such Plans (and any applicable funding media) and you continue to pay an amount equal to your regular contribution under such plans for such par- ticipation. If, at the end of three years after the Termination Date, you have not reached your sixty-fifth birthday and you have not previously received or are not then receiving equivalent benefits from a new employer, the Com- pany shall or cause the Bank to arrange, at its sole cost and expense, to enable you to convert your and your dependents' coverage under such Plans to individual policies or programs upon the same terms as employees of the Company and the Bank may apply for such conversions. In the event that your participation in any such Plan is barred, the Company shall or cause the Bank, at its sole cost and expense, to arrange to have issued for the benefit of you and your dependents individual policies of insurance providing benefits substan- tially similar (on an after-tax basis) to those which you otherwise would have been entitled to receive under such Plans pursuant to this paragraph (iv) or, if such insurance is not available at a reasonable cost to the Company or the Bank, the Company shall or cause the Bank to otherwise provide you and your dependents with equivalent benefits (on an after-tax basis). You shall not be required to pay any premiums or other charges in an amount greater than that which you would have paid in order to participate in such Plans. (v) Except as specifically provided in para- graph (iv) above, the amount of any payment provided for in this Section 5 shall not be reduced, offset or subject to 9 recovery by the Company or the Bank by reason of any compen- sation earned by you as the result of employment by another employer after the Date of Termination, or otherwise. 6. Successors; Binding Agreement. (i) The Company will seek, by written request at least five business days prior to the time a Person becomes a Successor (as hereinafter defined), to have such Person by agreement in form and substance satisfactory to you, assent to the fulfillment of the Company's obligations under this Agreement. Failure of such Person to furnish such assent by the later of (A) three business days prior to the time such Person becomes a Successor or (B) two business days after such Person receives a written request to so assent shall constitute Good Reason for termination by you of your employment if a change in control of the Company occurs or has occurred. For purposes of this Agreement, "Successor" shall mean any Person that succeeds to, or has the practical ability to control (either immediately or with the passage of time), the Company's business directly, by merger or consolidation, or indirectly, by purchase of the Company's Voting Securities or otherwise. (ii) This Agreement shall inure to the benefit of and be enforceable by your personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If you should die while any amount would still be payable to you hereunder if you had continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to your devisee, legatee or other designee or, if there be no such designee, to your estate. (iii) For purposes of this Agreement, the "Company" shall include any corporation or other entity which is the surviving or continuing entity in respect of any merger, consolidation or form of business combination in which the Company ceases to exist. 7. Fees, Expenses and Interest; Mitigation. (i) The Company shall, or cause the Bank to, reimburse you, on a current basis, for all reasonable legal fees and related expenses incurred by you in connection with the Agreement following a change in control of the Company, including, without limitation, (a) all such fees and expenses, if any, incurred in contesting or disputing any termination of your employment or incurred by you in seeking advice with respect to the matters set forth in Section 8 hereof or (b) your seeking to obtain or enforce any right or benefit provided by this Agreement, in each case, regardless of whether or not your claim is upheld by a court of com- 10 petent jurisdiction; provided, however, you shall be required to repay any such amounts to the Company to the extent that a court issues a final and non-appealable order setting forth the determination that the position taken by you was frivolous or advanced by you in bad faith. In addition to the fees and expenses provided herein, you shall also be paid interest on any disputed amount ultimately paid to you at the prime rate announced by the Bank from time to time from the date payment should have been made until paid in full. (ii) You shall not be required to mitigate the amount of any payment the Company or the Bank becomes obligated to make to you in connection with this Agreement, by seeking other employment or otherwise. 8. Taxes. (i) All payments to be made to you under this Agreement will be subject to required withholding of federal, state and local income and employment taxes. (ii) Notwithstanding anything in the foregoing to the contrary, if any of the payments provided for in this Agreement, together with any other payments which you have the right to receive from the Company or any corporation which is a member of an "affiliated group" (as defined in Section 1504(a) of the Code without regard to Section 1504(b) of the Code) of which the Company is a member, would consti- tute a "parachute payment" (as defined in Section 280G(b)(2) of the Code), the payments pursuant to this Agreement shall be reduced (reducing first the payments under Section 5(iii)(B)) to the largest amount as will result in no portion of such payments being subject to the excise tax imposed by Section 4999 of the Code; provided, however, that the deter- mination as to whether any reduction in the payments under this Agreement pursuant to this proviso is necessary shall be made by you in good faith, and such determination shall be conclusive and binding on the Company with respect to its treatment of the payment for tax reporting purposes. 9. Survival. The respective obligations of, and benefits afforded to, the Company and you as provided in Sections 5, 6(ii), 7, 8, 13 and 14 of this Agreement shall survive termination of this Agreement. 10. Notice. For the purposes of this Agreement, notices and all other communications provided for in the Agreement shall be in writing and shall be deemed to have been duly given when delivered or mailed by United States registered mail, return receipt requested, postage prepaid and addressed, in the case of the Company, to the address set forth on the first page of this Agreement or, in the case of the undersigned employee, to the address set forth below his 11 signature, provided that all notices to the Company shall be directed to the attention of the Chairman of the Board or President of the Company, with a copy to the Secretary of the Company, or to such other address as either party may have furnished to the other in writing in accordance herewith, except that notice of change of address shall be effective only upon receipt. 11. Miscellaneous. No provision of this Agreement may be modified, waived or discharged unless such modifi- cation, waiver or discharge is agreed to in a writing signed by you and the Chairman of the Board or President of the Company. No waiver by either party hereto at any time of any breach by the other party hereto of, or of compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. No agreements or representations, oral or otherwise, express or implied, with respect to the subject matter hereof have been made by either party which are not expressly set forth in this Agreement. The validity, interpretation, construction and performance of this Agree- ment shall be governed by the laws of the State of New York applied without regard to conflict of laws principles. 12. Validity. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect. 13. Arbitration. Any dispute or controversy arising under or in connection with this Agreement shall be settled exclusively by arbitration in New York City by three arbitrators in accordance with the rules of the American Arbitration Association then in effect. Judgment may be entered on the arbitrators' award in any court having jurisdiction; provided, however, that you shall be entitled to seek specific performance of your right to be paid until the Date of Termination during the pendency of any dispute or controversy arising under or in connection with this Agreement. The Company shall bear all costs and expenses arising in connection with any arbitration proceeding pur- suant to this Section 13. 14. Employee's Commitment. You agree that subse- quent to your period of employment with the Company and the Bank, you will not at any time communicate or disclose to any unauthorized person, without the written consent of the Company, any proprietary processes of the Company or any subsidiary or other confidential information concerning their business, affairs, products, suppliers or customers which, if disclosed, would have a material adverse effect upon the business or operations of the Company and its subsidiaries, 12 taken as a whole; it being understood, however, that the obligations of this Section 14 shall not apply to the extent that the aforesaid matters (a) are disclosed in circumstances where you are legally required to do so or (b) become generally known to and available for use by the public otherwise than by your wrongful act or omission. 15. Related Agreements. To the extent that any provision of any other agreement between the Company, the Bank or any of the Company's other subsidiaries and you shall limit, qualify or be inconsistent with any provision of this Agreement, then for purposes of this Agreement, while the same shall remain in force, the provision of this Agreement shall control and such provision of such other agreement shall be deemed to have been superseded, and to be of no force or effect, as if such other agreement had been formally amended to the extent necessary to accomplish such purpose. 16. Counterparts. This Agreement may be executed in several counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument. If this letter correctly sets forth our agreement on the subject matter hereof, kindly sign and return to the Company the enclosed copy of this letter which will then constitute our agreement on this subject and will supersede our previous letter agreement, dated January 12, 1993. Sincerely, THE BANK OF NEW YORK COMPANY, INC. By _______________________________ Name: Title: Agreed to this day of , 1994. _________________________ Employee Address: EX-10 11 EXHIBIT 10X 1 EXHIBIT 10(x) AMENDMENT TO THE BANK OF NEW YORK COMPANY, INC. RETIREMENT PLAN FOR NON-EMPLOYEE DIRECTORS WHEREAS, The Bank of New York Company, Inc. Retirement Plan for Non-Employee Directors (the "Directors' Retirement Plan") was adopted by the Board of Directors of The Bank of New York Company, Inc. (the "Company"), effective as of May 11, 1993; and WHEREAS, Section 6 of the Directors' Retirement Plan provides that the Board of Directors of the Company may amend the Plan at any time, except in certain respects not material hereto; and WHEREAS, the Board of Directors of the Company desires to adopt an amendment to the Directors' Retirement Plan; NOW, THEREFORE, the Directors' Retirement Plan is hereby amended, effective as of November 8, 1994, by the addition of a new paragraph (e) at the end of Section 2 of the Plan to read as follows: (e) Notwithstanding anything contained herein to the contrary, in the event of a Change of Control (as defined below), (i) each retired member of the Board who is then receiving (or entitled to receive) retirement benefits under the Plan shall be paid within 60 days thereafter, a lump sum payment of the actuarial equivalent of the retired member's retirement benefit as of the Change of Control and (ii) each member of the Board who ceases to be a member of the Board within two years after the Change of Control for any reason other than his death and (A) is entitled to a retirement benefit under the Plan or (B) would be entitled to a retirement benefit under the Plan if he satisfied the age and service requirements of paragraph (a) of 2 Section 1 of the Plan, shall receive a lump sum payment of the actuarial equivalent of the member's retirement benefit as determined in accordance with the next sentence, within 60 days after he ceases to be a member of the Board. The retirement benefit of a member of the Board referred to in clause (ii) of the preceding sentence shall be equal to 100% of his annual retainer payable for (i) the life of the member of the Board, if he has attained age 70 when he ceased to be a member of the Board, or (ii) the number of years of service as a member of the Board, if he had not attained age 70 when he ceased to be a member of the Board. The actuarial equivalent of retirement benefits hereunder shall be determined on the basis of the actuarial assumptions in effect under the Retirement Plan of The Bank of New York Company, Inc. immediately prior to the date of payment. A "Change of Control" shall be deemed to occur if (A) any "person" (as such term is defined in Section 3(a)(9) and as used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")), excluding the Company or any of its subsidiaries, a trustee or any fiduciary holding securities under an employee benefit plan of the Company or any of its subsidiaries, an underwriter temporarily holding securities pursuant to an offering of such securities or a corporation owned, directly or indirectly, by stockholders of the Company in substan- tially the same proportion as their ownership of the Company, is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing 25% or more of the combined voting power of the Com- pany's then outstanding securities ("Voting Securities"); or (B) during any period of not more than two years, individuals who constitute the Board of Directors of the Company as of the beginning of the period and any new director (other than a director designated by a person who has entered into an agreement with the Company to effect a transaction described in clause (A) or (C) of this sentence) whose election by the Board of Directors of the Company or nomination for election by the Company's shareholders was approved by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors at such time or whose election or nomination for election was previously so approved, cease for any reason to con- stitute a majority thereof; or (C) the shareholders of the Company approve a merger or consolidation of the Company with any other corporation, other than a merger or consolidation which would result in the Voting Securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into Voting Securities of the surviving entity) at least 50% of the combined voting power of the Voting Securities of the Company or such surviving entity outstanding immediately after such merger or consolidation, or the shareholders of the Company approve a plan of complete liquidation of the Company or any agreement for the sale or disposition by the Company or all or substantially all of the Company's assets. EX-10 12 EXHIBIT 10Z 1 EXHIBIT 10(z) AMENDMENT TO DEFERRED COMPENSATION PLAN FOR NON-EMPLOYEE DIRECTORS OF THE BANK OF NEW YORK COMPANY, INC. WHEREAS, the Deferred Compensation Plan for Non-Employee Directors of The Bank of New York Company, Inc. (the "Directors' Deferred Compensation Plan") was adopted by the Board of Directors of The Bank of New York Company, Inc. (the "Company"), effective as of December 1, 1993; and WHEREAS, Section 7(a) of the Directors' Deferred Compensation Plan provides that the Board of Directors of the Company may amend the Plan at any time; and WHEREAS, the Board of Directors of the Company desires to adopt an amendment to the Directors' Deferred Compensation Plan; NOW, THEREFORE, the Directors' Deferred Compensation Plan is hereby amended, effective as of November 8, 1994, by amending Section 5(g) of the Plan to read as follows: (g) A "Change of Control" shall be deemed to occur if (A) any "person" (as such term is defined in Section 3(a)(9) and as used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")), excluding the Company or any of its subsidiaries, a trustee or any fiduciary holding securities under an employee benefit plan of the Company or any of its subsidiaries, an underwriter temporarily holding securities pursuant to an offering of such securities or a corporation owned, directly or indirectly, by stockholders of the Company in substan- tially the same proportion as their ownership of the Company, is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing 25% or more of the combined voting power of the Com- pany's then outstanding securities ("Voting Securities"); or (B) during any period of not more than two years, individuals who constitute the Board of 2 Directors of the Company as of the beginning of the period and any new director (other than a director designated by a person who has entered into an agreement with the Company to effect a transaction described in clause (A) or (C) of this sentence) whose election by the Board of Directors of the Company or nomination for election by the Company's shareholders was approved by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors at such time or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority thereof; or (C) the shareholders of the Company approve a merger or consolidation of the Company with any other corporation, other than a merger or consolidation which would result in the Voting Securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into Voting Securities of the surviving entity) at least 60% of the combined voting power of the Voting Securities of the Company or such surviving entity outstanding immediately after such merger or consolidation, or the shareholders of the Company approve a plan of complete liquidation of the Company or any agreement for the sale or disposition by the Company or all or substantially all of the Company's assets. EX-11 13 EPS EXHIBIT 11 1 THE BANK OF NEW YORK COMPANY, INC. Computation of Earnings Per Common Share For the Years Ended December 31,
1994 1993 1992 ---- ---- ---- (in millions, except per share amounts) Weighted Average Number of Shares of Common Stock for Primary Computation 188 186 172 Shares Assumed to be Issued on Conversion: Debentures 12 12 12 Cumulative Preferred Stock 2 2 4 ----- ----- ----- Weighted Average Number of Shares of Common Stock Assuming Full Dilution 202 200 188 ===== ===== ===== Net Income $ 749 $ 559 $ 393 Dividend Requirements on Preferred Stock 13 25 33 ----- ----- ----- Net Income Available to Common Shareholders 736 534 360 Interest On Convertible Debentures, Net of Tax 10 10 11 Dividends on Convertible Preferred Stock 2 3 6 ----- ----- ----- Net Income Available to Common Shareholders, Assuming Full Dilution $ 748 $ 547 $ 377 ===== ===== ===== Earnings Per Share: Primary $3.92 $2.87 $2.10 Fully Diluted 3.70 2.72 2.00
EX-12 14 FIXED CHARGES EXHIBIT 12 THE BANK OF NEW YORK COMPANY, INC. Ratios of Earnings to Fixed Charges and Ratios of Earnings to Combined Fixed Charges and Preferred Stock Dividends For The Years Ended December 31,
EARNINGS 1994 1993 1992 1991 1990 -------- ---- ---- ---- ---- ---- (Dollars in millions) Income Before Income Taxes $1,198 $ 886 $ 588 $ 208 $ 430 Fixed Charges, Excluding Interest on Deposits 436 340 346 378 816 ------ ------ ------ ------ ------ Income Before Income Taxes and Fixed Charges Excluding Interest on Deposits 1,634 1,226 934 586 1,246 Interest on Deposits 842 701 1,005 1,794 2,489 ------ ------ ------ ------ ------ Income Before Income Taxes and Fixed Charges, Including Interest on Deposits $2,476 $1,927 $1,939 $2,380 $3,735 ====== ====== ====== ====== ====== FIXED CHARGES ------------- Interest Expense, Excluding Interest on Deposits $ 403 $ 305 $ 315 $ 346 $ 782 One-Third Net Rental Expense* 33 35 31 32 34 ------ ------ ------ ------ ------ Total Fixed Charges, Excluding Interest on Deposits 436 340 346 378 816 Interest on Deposits 842 701 1,005 1,794 2,489 ------ ------ ------ ------ ------ Total Fixed Charges, Including Interest on Deposits $1,278 $1,041 $1,351 $2,172 $3,305 ====== ====== ====== ====== ====== PREFERRED STOCK DIVIDENDS, PRE-TAX BASIS $ 21 $ 40 $ 50 $ 51 $ 47 ---------------------------------- ====== ====== ====== ====== ====== EARNINGS TO FIXED CHARGES RATIOS -------------------------------- Excluding Interest on Deposits 3.75x 3.61x 2.70x 1.55x 1.53x Including Interest on Deposits 1.94 1.85 1.44 1.10 1.13 EARNINGS TO COMBINED FIXED CHARGES & PREFERRED STOCK DIVIDENDS RATIOS ---------------------------------- Excluding Interest on Deposits 3.58 3.23 2.36 1.37 1.44 Including Interest on Deposits 1.91 1.78 1.38 1.07 1.11 *The proportion deemed representative of the interest factor.
EX-13 15 ANNUAL REPORT 1 EXHIBIT 13 1994 Annual Report to Shareholders FINANCIAL HIGHLIGHTS The Bank of New York Company, Inc.
Dollars in millions, except per share amounts 1994 1993 1992 1991 1990 Net Interest Income $ 1,717 $ 1,497 $ 1,367 $ 1,350 $ 1,476 Noninterest Income 1,289 1,319 1,183 1,094 976 Provision for Loan Losses 162 284 443 778 495 Noninterest Expense 1,646 1,646 1,519 1,458 1,527 Net Income 749 559 393 134 311 Net Income Available to Common Shareholders 736 534 360 102 278 Return on Average Assets 1.49% 1.20% 0.85% 0.29% 0.59% Return on Average Common Shareholders' Equity 18.49 14.98 12.00 3.85 10.64 Common Dividend Payout Ratio 27.88 27.99 33.89 125.49 57.91 Per Common Share Primary Earnings $ 3.92 $ 2.87 $ 2.10 $ 0.64 $ 1.75 Fully Diluted Earnings 3.70 2.72 2.00 - 1.75 Cash Dividends 1.10 0.86 0.76 0.84 1.06 Market Value at Year End 29.00 28.50 26.94 15.44 8.88 Average Securities $ 5,941 $ 6,352 $ 6,202 $ 4,676 $ 4,623 Average Loans 32,029 30,427 30,345 32,719 38,139 Average Total Assets 50,280 46,644 46,227 46,617 53,214 Average Deposits 34,041 32,837 33,237 35,669 37,905 Average Long-Term Debt 1,530 1,729 1,386 991 872 Average Preferred Shareholders' Equity 157 334 409 395 395 Average Common Shareholders' Equity 3,980 3,563 2,996 2,652 2,611 At Year End Allowance for Loan Losses as a Percent of Loans 2.40% 3.17% 3.63% 3.57% 3.11% Tier I Capital Ratio 8.45 8.87 7.59 5.79 5.03 Total Capital Ratio 13.43 13.65 12.30 9.40 7.96 Leverage Ratio 7.89 7.99 7.11 5.77 5.02 Common Equity to Assets Ratio 8.55 8.29 7.30 6.14 5.36 Total Equity to Assets Ratio 8.79 8.94 8.24 7.04 6.16 Common Shares Outstanding (in millions) 186.935 187.228 182.131 160.746 159.338 Employees 15,477 15,621 16,167 15,139 15,847 The per common share amounts and common shares outstanding have been restated to reflect the 2-for-1 common stock split effective April 22, 1994.
2 Consolidated Balance Sheets The Bank of New York Company, Inc.
December 31, ------------------------------------------------------------------------------- Dollars in millions, except per share amounts 1994 1993 ---- ---- Assets Cash and Due from Banks $ 2,903 $ 4,511 Interest-Bearing Deposits in Banks 992 269 Securities: Held-to-Maturity (fair value of $2,707 in 1994 and $4,449 in 1993) 2,930 4,356 Available-for-Sale (fair value of $1,721 in 1994 and $1,243 in 1993) 1,721 1,241 ------- ------- Total Securities 4,651 5,597 Trading Assets at Fair Value 940 1,325 Federal Funds Sold and Securities Purchased Under Resale Agreements 3,019 36 Loans (less allowance for loan losses of $792 in 1994 and $970 in 1993) 32,291 29,600 Premises and Equipment 914 945 Due from Customers on Acceptances 810 888 Accrued Interest Receivable 290 222 Other Assets 2,069 2,153 ------- ------- Total Assets $48,879 $45,546 ======= ======= Liabilities and Shareholders' Equity Deposits: Noninterest-Bearing (principally domestic offices) $ 8,579 $ 8,690 Interest-Bearing Domestic Offices 14,871 15,156 Foreign Offices 10,641 8,313 ------- ------- Total Deposits 34,091 32,159 Federal Funds Purchased and Securities Sold Under Repurchase Agreements 1,502 2,711 Other Borrowed Funds 4,738 2,781 Acceptances Outstanding 812 901 Accrued Taxes and Other Expenses 1,049 763 Accrued Interest Payable 213 111 Other Liabilities 404 458 Long-Term Debt 1,774 1,590 ------- ------- Total Liabilities 44,583 41,474 ------- ------- Shareholders' Equity Preferred Stock-no par value, authorized 5,000,000 shares, outstanding 184,000 shares in 1994 and 3,648,100 shares in 1993 111 267 Class A Preferred Stock-par value $2.00 per share, authorized 5,000,000 shares, outstanding 322,104 shares in 1994 and 1,085,415 shares in 1993 8 27 Common Stock-par value $7.50 per share, authorized 350,000,000 shares, issued 190,213,322 shares in 1994 and 187,400,962 shares in 1993 1,427 1,406 Additional Capital 858 841 Retained Earnings 2,048 1,536 Securities Valuation Allowance (58) - ------- ------- 4,394 4,077 Less: Treasury Stock (2,566,071 shares in 1994 and 173,198 shares in 1993), at cost 78 5 Loan to ESOP (712,695 shares in 1994), at cost 20 - ------- ------- Total Shareholders' Equity 4,296 4,072 ------- ------- Total Liabilities and Shareholders' Equity $48,879 $45,546 ======= ======= See accompanying Notes to Consolidated Financial Statements.
3 Consolidated Statements of Income The Bank of New York Company, Inc.
In millions, except per share amounts For the years ended December 31, ------------------------------------------------------------------------------- 1994 1993 1992 ---- ---- ---- Interest Income Loans $2,405 $2,025 $2,102 Securities Taxable 227 235 262 Exempt from Federal Income Taxes 56 69 86 ------ ------ ------ 283 304 348 Deposits in Banks 68 24 76 Federal Funds Sold and Securities Purchased Under Resale Agreements 161 97 85 Trading Assets 45 53 76 ------ ------ ------ Total Interest Income 2,962 2,503 2,687 ------ ------ ------ Interest Expense Deposits 842 701 1,005 Federal Funds Purchased and Securities Sold Under Repurchase Agreements 106 102 136 Other Borrowed Funds 191 86 85 Long-Term Debt 106 117 94 ------ ------ ------ Total Interest Expense 1,245 1,006 1,320 ------ ------ ------ Net Interest Income 1,717 1,497 1,367 Provision for Loan Losses 162 284 443 ------ ------ ------ Net Interest Income After Provision for Loan Losses 1,555 1,213 924 ------ ------ ------ Noninterest Income Processing Fees Securities 359 309 275 Other 171 162 148 ------ ------ ------ 530 471 423 Trust and Investment Fees 126 134 121 Service Charges and Fees 465 454 437 Securities Gains 15 64 42 Other 153 196 160 ------ ------ ------ Total Noninterest Income 1,289 1,319 1,183 ------ ------ ------ Noninterest Expense Salaries and Employee Benefits 852 813 714 Net Occupancy 178 178 168 Furniture and Equipment 88 95 97 Other 528 560 540 ------ ------ ------ Total Noninterest Expense 1,646 1,646 1,519 ------ ------ ------ Income Before Income Taxes 1,198 886 588 Income Taxes 449 327 195 ------ ------ ------ Net Income $ 749 $ 559 $ 393 ====== ====== ====== Net Income Available to Common Shareholders $ 736 $ 534 $ 360 ====== ====== ====== Per Common Share: Primary Earnings $ 3.92 $ 2.87 $ 2.10 Fully Diluted Earnings 3.70 2.72 2.00 Cash Dividends 1.10 0.86 0.76 Average Common Shares Outstanding 187.889 186.084 171.448 See accompanying Notes to Consolidated Financial Statements.
4 Consolidated Statements of Changes in Shareholders' Equity The Bank of New York Company, Inc.
Dollars in millions For the years ended December 31, 1994 1993 1992 ---- ---- ---- Preferred Stock Balance, January 1 $ 294 $ 428 $ 395 Issuance in Public Offering (shares: 1,334,000) - - 139 Redemption and Repurchase (shares: 3,464,100 in 1994, 752,120 in 1993, and 100,000 in 1992) (156) (76) (99) Conversion of Preferred Stock (shares: 763,311 in 1994, 65,157 in 1993, and 75 in 1992) (19) (58) (7) ------ ------ ------ Balance, December 31 119 294 428 ------ ------ ------ Common Stock Balance, January 1 1,406 1,366 1,208 Issuance in Public Offering (shares: 18,400,000) - - 138 Conversion of Preferred Stock (shares: 1,412,076 in 1994, 2,937,092 in 1993, and 369,580 in 1992) 11 22 2 Other Issuances (shares: 1,400,284 in 1994, 2,305,298 in 1993, and 2,227,102 in 1992) 10 18 18 ------ ------ ------ Balance, December 31 1,427 1,406 1,366 ------ ------ ------ Additional Capital Balance, January 1 841 784 561 Issuance in Public Offering - - 201 Conversion of Preferred Stock 8 24 3 Redemption and Repurchases of Preferred Stock (4) (1) (1) Other 13 34 20 ------ ------ ------ Balance, December 31 858 841 784 ------ ------ ------ Retained Earnings Balance, January 1 1,536 1,153 913 Net Income 749 559 393 Cash Dividends Common Stock (205) (150) (122) Preferred Stock (14) (27) (33) Redemption of Preferred Stock (17) - - Change in Accumulated Foreign Currency Translation Adjustment (1) 1 2 ------ ------ ------ Balance, December 31 2,048 1,536 1,153 ------ ------ ------ Securities Valuation Allowance Balance, January 1 1 - - Net Unrealized Loss on Securities Available-for-Sale (59) - - ------ ------ ------ Balance, December 31 (58) - - ------ ------ ------ Less Treasury Stock Balance, January 1 5 1 6 Issued (shares: 1,331,734 in 1994, 10,800 in 1993, and 424,346 in 1992) (39) - (6) Acquired (shares: 3,724,607 in 1994, 156,330 in 1993, and 35,644 in 1992) 112 4 1 ------ ------ ------ Balance, December 31 78 5 1 ------ ------ ------ Less Loan to ESOP (712,695 shares in 1994) 20 - - ------ ------ ------ Balance, December 31 20 - - ------ ------ ------ Total Shareholders' Equity, December 31 $4,296 $4,072 $3,730 ====== ====== ====== See accompanying Notes to Consolidated Financial Statements.
5 Consolidated Statements of Cash Flows The Bank of New York Company, Inc.
In millions For the years ended December 31, ------------------------------------------------------------------------------- 1994 1993 1992 ---- ---- ---- Operating Activities Net Income $ 749 $ 559 $ 393 Adjustments to Determine Net Cash Provided (Used) by Operating Activities: Provision for Losses on Loans and Other Real Estate 169 338 520 Depreciation and Amortization 200 187 176 Deferred Income Taxes 271 193 165 Securities Gains (15) (64) (42) Change in Trading Assets 1,309 (591) (251) Change in Accruals and Other, Net (232) 88 (263) ------ ------ ------ Net Cash Provided by Operating Activities 2,451 710 698 ------ ------ ------ Investing Activities Change in Interest-Bearing Deposits in Banks (711) 16 155 Purchases of Securities Held-to-Maturity (367) (2,344) (1,436) Sales of Securities Held-to-Maturity - 22 361 Maturities of Securities Held-to-Maturity 684 1,174 1,159 Purchase of Securities Available-for-Sale (1,177) (2,104) (3,356) Sales of Securities Available-for-Sale 1,985 3,467 2,792 Maturities of Securities Available-for-Sale 8 31 37 Net Principal Collected (Disbursed) on Loans to Customers (3,039) (2,030) 1,049 Sales of Loans 323 494 634 Sales of Other Real Estate 33 80 81 Change in Federal Funds Sold and Securities Purchased Under Resale Agreements (2,983) 229 1,462 Purchases of Premises and Equipment (43) (47) (40) Acquisitions, Net of Cash Acquired (161) 58 688 Other, Net 18 (32) 40 ------ ------ ------ Net Cash Provided (Used) by Investing Activities (5,430) (986) 3,626 ------ ------ ------ Financing Activities Change In Deposits 1,814 (1,048) (1,781) Change in Federal Funds Purchased and Securities Sold Under Repurchase Agreements (1,209) 938 (1,927) Change in Other Borrowed Funds 990 (248) 1,897 Proceeds from the Issuance of Long-Term Debt 297 546 595 Repayments of Long-Term Debt (115) (655) (131) Redemption, Conversion, and Repurchases of Preferred Stock and Warrants (177) (90) (102) Issuance of Common Stock 42 53 380 Issuance of Preferred Stock - - 139 Treasury Stock Acquired (112) (4) (1) Cash Dividends Paid (219) (179) (153) ------ ------ ------ Net Cash Provided (Used) by Financing Activities 1,311 (687) (1,084) ------ ------ ------ Effect of Exchange Rate Changes on Cash 60 (32) (33) ------ ------ ------ Change in Cash and Due From Banks (1,608) (995) 3,207 Cash and Due from Banks at Beginning of Year 4,511 5,506 2,299 ------ ------ ------ Cash and Due from Banks at End of Year $2,903 $4,511 $5,506 ====== ====== ====== Supplemental Disclosure of Cash Flow Information Cash Paid During the Year for: Interest $1,143 $1,047 $1,408 Income Taxes 155 181 74 Noncash Investing Activity (Primarily Foreclosure of Real Estate) 43 54 179 Reclassification of Assets to Securities Held for Sale 1,390 - - See accompanying Notes to Consolidated Financial Statements.
6 Notes to Consolidated Financial Statements 1. Summary of Significant Accounting and Reporting Policies The following is a summary of the Company's more significant accounting and reporting policies. Securities - Effective January 1, 1994, the Company accounts for debt and equity securities classified as available-for-sale at fair value, except for those equity securities whose fair value cannot be readily determined. These securities are carried at cost. Equity investments of less than a majority but at least 20% ownership are accounted for by the equity method and classified as other assets. For securities carried at fair value the after tax effect of net unrealized gains and losses is reported as a separate component of shareholders' equity. Previously such securities were stated at the lower of aggregate cost or market value. Securities classified as trading assets are carried at fair value, with net unrealized holding gains and losses recognized currently in income. Debt securities, which the Company has the ability and intent to hold until maturity, are classified as held-to-maturity and stated at cost, adjusted for discount accrued and premium amortized. Gains and losses on the sale of securities are determined by the specific identification method. Allowance for Loan Losses - The allowance for loan losses is maintained at a level that, in management's judgment, is adequate to absorb future losses. Management's judgment is based on an evaluation of existing risks of individual credits; past loan loss experience; the volume, composition, and growth of the loan portfolio; current and projected economic conditions; and other relevant factors. Effective January 1, 1995, a new accounting standard requires the Company to introduce the time value of money into the determination of the portion of the allowance for loan losses which relates to impaired, non-consumer loans. The loss component of impaired, non-consumer loans will be measured by the difference between their recorded value and fair value. Fair value would be either the present value of the expected future cash flows from borrowers, market value of the loan, or the fair value of the collateral. The impact of the new method on the Company's results of operations and financial condition is not expected to be material. Nonperforming Assets - Commercial loans are placed on nonaccrual status when collateral is insufficient and principal or interest is past due 90 days or more, or when there is reasonable doubt that interest or principal will be collected. Accrued interest is usually reversed when a loan is placed on nonaccrual status. Interest payments received on nonaccrual loans may be recognized as income or applied to principal depending upon management's judgment. Loans are not restored to accruing status until principal and interest are current or they become fully collateralized. Consumer loans are not classified as nonperforming assets, but are charged off when they are between 120 and 185 days past due, depending on the product. Interest accrual on consumer loans is suspended when the loans are 120 days past due. Real estate acquired in satisfaction of loans is carried in other assets at the lower of the recorded investment in the property or fair value minus estimated costs to sell. Derivative Financial Instruments - Derivative contracts, such as futures, forwards, swaps, options, and similar products, used in trading activities are recorded at market value; gains and losses are included in other noninterest income. Revenues and expenses related to derivative contracts used to hedge the Company's assets and liabilities are recorded in net interest income. Realized gains and losses on hedge transactions are deferred and amortized as adjustments to net interest income over the lives (currently 5 years) of the assets or liabilities. Other - Certain 1993 and 1992 information has been reclassified to conform its presentation with the 1994 financial statements and to reflect the effects of the 2-for-1 common stock split effective April 22, 1994. 7 2. Mergers and Acquisitions During 1994, the Company made acquisitions related to its corporate trust and factoring businesses. In December 1992, the Company acquired substantially all of the banking activities of Barclays Bank of New York, N.A. (Barclays). This transaction added deposits of $1.9 billion and assets of $1.8 billion. The pro forma effect of these acquisitions would not have been material. On August 11, 1993, the 10,730,668 outstanding shares of National Community Banks'(NCB) common stock were exchanged for 20,602,882 shares of the Company's common stock and the 1,149,750 outstanding shares of NCB's preferred stock were exchanged for an equal number of shares of the Company's Class A preferred stock. The merger was accounted for as a pooling of interests and prior period financial statements were restated. In the first quarter of 1995, the Company made acquisitions related to its corporate trust, American depositary receipts and unit investment trust businesses. 3. Securities The following table sets forth the amortized cost and the fair values of securities at the end of the last two years: 1994 -------------------------------------------- Gross Unrealized In millions Amortized ---------------- Fair Cost Gains Losses Value --------- ------ ------ ----- Securities Held-to- Maturity U. S. Government Obligations $1,428 $ 1 $ 92 $1,337 U.S. Government Agency Obligations 319 - 23 296 Obligations of States and Political Subdivisions 769 5 7 767 Emerging Markets 294 - 104 190 Other Debt Securities 120 - 3 117 ------ --- ----- ------ Total Securities Held-to-Maturity 2,930 6 229 2,707 ------ --- ----- ------ Securities Available-for-Sale U. S. Government Obligations 1,520 2 96 1,426 Obligations of States and Political Subdivisions 7 - - 7 Emerging Markets 24 3 5 22 Equity Securities 268 11 13 266 ------ --- ----- ------ Total Securities Available-for-Sale 1,819 16 114 1,721 ------ --- ----- ------ Total Securities $4,749 $22 $ 343 $4,428 ====== === ===== ====== 8 1993 ------------------------------------------- Gross Unrealized In millions Amortized ---------------- Fair Cost Gains Losses Value --------- ----- ------ ------ Securities Held-to- Maturity U. S. Government Obligations $2,754 $ 61 $2 $2,813 U.S. Government Agency Obligations 250 8 - 258 Obligations of States and Political Subdivisions 1,033 10 - 1,043 Equity Securities 206 16 2 220 Other Debt Securities 113 3 1 115 ------ ---- -- ------ Total Securities Held-to-Maturity 4,356 98 5 4,449 ------ ---- -- ------ Securities Available-for-Sale U. S. Government Obligations 1,096 1 - 1,097 U.S. Government Agency Obligations 120 - - 120 Obligations of States and Political Subdivisions 9 - - 9 Equity Securities 16 1 - 17 ------ ---- -- ------ Total Securities Available-for-Sale 1,241 2 - 1,243 ------ ---- -- ------ Total Securities $5,597 $100 $5 $5,692 ====== ==== == ====== The amortized cost and fair values of securities at December 31, 1994, by contractual maturity, are as follows: Held-to-Maturity Available-for-Sale -------------------- ------------------- Amortized Fair Amortized Fair In millions Cost Value Cost Value --------- ------- --------- ------- Due in One Year or Less $ 549 $ 544 $ 25 $ 27 Due After One Year Through Five Years 1,047 999 1,003 967 Due After Five Years Through Ten Years 600 549 507 441 Due After Ten Years 569 462 16 20 Mortgage-Backed Securities 165 153 - - Equity Securities - - 268 266 ------ ------ ------ ------ $2,930 $2,707 $1,819 $1,721 ====== ====== ====== ====== Realized gross gains and (losses) on the sale of securities available-for-sale were $17 million and $(1) million in 1994 and $38 million and $(3) million in 1993. Assets, including securities sold under repurchase agreements, carried at $2 billion, $3 billion, and $2 billion at December 31, 1994, 1993, and 1992 were pledged for various purposes as required or permitted by law. 9 4. Loans The Company's loan distribution and industry concentrations of credit risk at December 31, 1994 and 1993 are incorporated by reference from "Loans" in the Management's Discussion and Analysis Section of this Report. The Company's retail, community, and middle market banking operations in the New York metropolitan area create a significant geographic concentration. In the ordinary course of business the Company and its banking subsidiaries have made loans at prevailing interest rates and terms to directors and executive officers of the Company and to certain entities to which these individuals are related. The aggregate dollar amount of these loans was $663 million and $237 million at December 31, 1994 and 1993, respectively. The change in the amount of loans outstanding is primarily attributable to the inclusion of previously existing loans to entities which became related parties upon increased ownership interests acquired during 1994 by entities related to a director of the Company. All loans were fully performing during this period. Transactions in the allowance for loan losses are summarized as follows: ------------------------------------------------------------- In millions 1994 1993 1992 ------------------------------------------------------------- Balance, January 1 $ 970 $1,072 $1,084 Charge-Offs (411) (449) (628) Recoveries 57 62 117 ----- ------ ------ Net Charge-Offs (354) (387) (511) Provision 162 284 443 Credit Card Securitization 14 1 - Acquisitions - - 56 ----- ------ ------ Balance, December 31 $ 792 $ 970 $1,072 ===== ====== ====== Nonaccrual and reduced rate loans outstanding at December 31, 1994, 1993, and 1992 were $297 million, $540 million, and $788 million. At December 31, 1994, commitments to borrowers whose loans were classified as nonaccrual or reduced rate were not material. At December 31, 1994 there were no derivative financial instruments on nonperforming status. Interest income received on nonaccrual and reduced rate loans exceeded reversals by $3 million in 1994, $4 million in 1993, and $7 million in 1992. Interest income would have been increased by $17 million, $27 million, and $89 million if loans on nonaccrual status at December 31, 1994, 1993, and 1992 had been performing for the entire year. At year end, foreign (including LDC) loans on nonperforming status were $77 million in 1994, $130 million in 1993, and $198 million in 1992. Interest income received on foreign nonperforming loans equaled reversals in 1994 and 1993, and exceeded reversals by $1 million in 1992. Interest income would have been increased by $2 million, $6 million, and $10 million if foreign loans on nonaccrual status at December 31, 1994, 1993, and 1992 had been performing for the entire year. Other real estate was $56 million, $99 million, and $268 million, at December 31, 1994, 1993, and 1992. Writedowns of and expenses related to other real estate included in noninterest expense were $11 million, $53 million, and $106 million (including operating expenses of $4 million, $8 million, and $25 million) in 1994, 1993, and 1992. 10 5. Long-Term Debt The following is a summary of the contractual maturity and sinking fund requirements of long-term debt at December 31, 1994 and 1993: 1994 1993 --------------------------------------------- ----- 1 Year After 5 Years Under Through Through In millions 1 Year 5 Years 10 Years Total Total ------ --------- ------------- ------ ------ Fixed $3 $12 $1,700 $1,715 $1,499 Variable 5 24 30 59 91 -- --- ------ ------ ------ Total $8 $36 $1,730 $1,774 $1,590 == === ====== ====== ====== Fixed-rate debt at December 31, 1994 had interest rates ranging from 6.50% to 8.50%. The weighted average interest rates on fixed-rate debt at December 31, 1994 and 1993 were 7.50% and 7.29%. Exposure to interest rate movements is reduced by interest rate swap agreements. As a result of these agreements, the effective interest rates differ from those stated. The weighted average interest rates on variable-rate debt at December 31, 1994 and 1993 were 6.25% and 5.58%. The Company's $250 million of 7.50% subordinated debentures due 2001 are convertible at the option of the holder into common stock of the Company at a price of $19.55 per share, subject to adjustment in certain circumstances. The debentures may be redeemed, at the option of the Company, on or after August 15, 1996 at an initial redemption price of 103.75% of the principal amount, declining by 0.75% per annum. 11 6. Shareholders' Equity The following is a summary of the Company's preferred stock outstanding: Dollars in millions, except per share amounts December 31, 1994 1993 ------------------------------------------------------------------------------- 8.60% Cumulative, stated value $625 per share, issued 184,000 shares (4,600,000 depositary shares) $111 $111 Other 8 183 ---- ---- Total $119 $294 ==== ==== All holders of cumulative preferred stock have cumulative dividend rights in preference to holders of common stock. The 8.60% cumulative preferred stock has a liquidation preference of $625 per share and is redeemable at the option of the Company on and after December 1, 1997 at $625 per share, plus cumulative and unpaid dividends. At December 31, 1994, 13,771,936 warrants expiring in 1998 (exercise price $31 per share) to purchase approximately 27,543,872 shares of the Company's common stock were outstanding. The treasury shares were acquired pursuant to a plan to buy back up to 5 million common shares. At December 31, 1994, the Company had reserved for issuance 59 million common shares pursuant to the terms of securities and employee benefit plans. The Company has a preferred stock purchase rights plan. The plan provides that if any person or group becomes the beneficial owner of 20% or more of the Company's common stock (an "acquiring person"), then on and after the tenth day thereafter, each right would entitle the holder to purchase $400 in market value of the Company's common stock for $200. In addition, if there is a business combination between the Company and an acquiring person, or in certain other circumstances, each right (if not previously exercised) would entitle the holder to purchase $200 in market value of the common stock of the acquiring person for $100. The rights are redeemable by the Company at $0.05 per right until they are exercisable, and will expire in 2004. The effect of common stock equivalents (stock options and warrants) on earnings per share is not dilutive. Fully diluted earnings per share give effect to the assumed conversion of convertible debentures and convertible preferred stock. 12 7. Income Taxes Income taxes included in the consolidated statements of income consist of the following:
1994 1993 1992 In ---------------------- ---------------------- ---------------------- millions Current Deferred Total Current Deferred Total Current Deferred Total ------- -------- ----- ------- -------- ----- ------- -------- ----- Federal $134 $ 189 $323 $ 90 $153 $243 $13 $112 $125 Foreign 13 - 13 11 - 11 10 - 10 State and Local 31 82 113 33 40 73 7 53 60 ---- ----- ---- ---- ---- ---- --- ---- ---- $178 $ 271 $449 $134 $193 $327 $30 $165 $195 ==== ===== ==== ==== ==== ==== === ==== ====
The components of income before taxes for the computation of taxes are as follows: ------------------------------------------ In millions 1994 1993 1992 ------------------------------------------ Domestic $1,149 $821 $540 Foreign 49 65 48 ------ ---- ---- $1,198 $886 $588 ====== ==== ==== The Company's net deferred tax liability (included in accrued taxes) at December 31 consisted of the following: ------------------------------------------------------------ In millions 1994 1993 1992 ------------------------------------------------------------ Lease Financings $ 883 $ 784 $ 722 Depreciation and Amortization 308 285 280 Credit Losses on Nonperforming Loans (386) (508) (532) Other 105 106 70 ----- ------ ------ Net Deferred Tax Liability $ 910 $ 667 $ 540 ===== ====== ====== The Company has not recorded a valuation allowance because it expects to realize all of its deferred tax assets. A reconciliation of the statutory federal income tax rate to the Company's effective income tax rate is shown in the following table: 1994 1993 1992 ---- ---- ---- Federal Rate 35.0% 35.0% 34.0% Tax-Exempt Interest (1.6) (2.7) (4.9) Foreign Operations (1.3) (0.2) (3.2) State and Local Income Taxes, Net of Federal Income Tax Benefit 5.8 4.6 6.7 Nondeductible Expenses 1.3 2.3 3.1 Leveraged Lease Portfolio (0.5) 0.3 (0.7) Other (1.2) (2.4) (1.8) ----- ----- ----- Effective Rate 37.5% 36.9% 33.2% ===== ===== ===== 13 8. Employee Benefit Plans Pension Plans ------------- The Company has defined benefit retirement plans covering substantially all full-time employees. The Company has an Employee Stock Ownership Plan (ESOP), which may provide additional benefits. The Company's funding policy is to annually contribute an amount necessary to satisfy the Internal Revenue Service's funding standards. The following table presents the income (expense) components included in net pension income: In millions 1994 1993 1992 ---- ---- ---- Service Cost - Benefits Earned $(17) $(14) $(14) Interest Cost on Projected Benefit Obligation (23) (20) (23) Actual Return on Plan Assets (16) 52 74 Net Amortization and Deferral 82 9 (20) ---- ---- ---- Net Pension Income $ 26 $ 27 $ 17 ==== ==== ==== The expected long-term rate of return on plan assets used in computing pension income was 10.5% in 1994, 1993, and 1992. The ESOP provision was $1 million in 1994 and 1993 and $3 million in 1992. The following table sets forth the retirement plans' funded status at December 31, 1994 and 1993: In millions 1994 1993 ---- ---- Present Value of Accumulated Benefit Obligation, Including Vested Benefits of $220 in 1994 and $265 in 1993 $232 $281 ==== ==== Present Value of Projected Benefit Obligation $257 $311 Plan Assets at Fair Value, Primarily Short-Term Investments, Fixed-Income and Equity Securities 561 588 ---- ---- Excess of Plan Assets over the Projected Benefit Obligation 304 277 Unrecognized Prior Service Cost (24) (27) Unrecognized Net Loss from Past Differences and Effects of Changes in Assumptions 43 41 Unrecognized Net Asset Being Amortized over 16.2 Years (24) (27) ---- ---- Prepaid Pension Cost Included in Other Assets $299 $264 ==== ==== Assumptions used in computing the benefit obligation were: Weighted Average Discount Rate 9.38% 7.88% Rate of Increase in Future Compensation Level 4.38 4.38 14 Other Postretirement Benefits ----------------------------- The Company provides health care and life insurance benefits for certain retired employees. In the first quarter of 1993, the Company changed to the accrual from the cash method of accounting for these benefits. The cost of these benefits consisted of the following components: In millions 1994 1993 ---- ---- Service Cost - Benefits Earned $ 2 $ 3 Accumulated Benefit Obligation: Interest 10 11 Amortization 7 7 ---- ---- Total $ 19 $ 21 ==== ==== The assumed health care cost trend rates to be used in determining the cost of these benefits for 1995 is 9%, decreasing proportionately in each successive year to 6% in 2010 and thereafter. A change of one percentage point in this rate for each year would change the benefit obligation by 10% and the cost of the benefits by 7%. The following table sets forth the funded status of the Company's other postretirement benefit obligation as of December 31: In millions 1994 1993 ----- ---- Accumulated Postretirement Benefit Obligation: Retirees $ 69 $ 88 Fully Eligible Active Plan Participants 21 23 Other Active Plan Participants 29 37 ----- ----- Total Obligation 119 148 Unrecognized Net Gain (Loss) from Past Differences and Effects of Changes in Assumptions 20 (16) Unrecognized Net Liability Being Amortized Over 20 Years (116) (123) ----- ----- Accrued Postretirement Benefit Obligation Included in Other Liabilities $ 23 $ 9 ===== ===== The assumed discount rates used in determining the accumulated benefit obligation were 9.38% and 7.75% in 1994 and 1993. 15 9. Company Financial Information The condensed financial statements of the Company are as follows: Balance Sheets In millions December 31, 1994 1993 -------------------------------------------------------------------- Assets Cash and Due from Banks $ - $ 2 Securities 138 96 Loans 199 3 Investment in and Advances to Subsidiaries Banks 6,112 5,713 Other 140 435 ------ ------ 6,252 6,148 ------ ------ Other Assets 138 129 ------ ------ Total Assets $6,727 $6,378 ====== ====== Liabilities and Shareholders' Equity Other Borrowed Funds $ 427 $ 407 Due to Subsidiaries Banks 32 42 Other 16 12 ------ ------ 48 54 ------ ------ Other Liabilities 183 256 Long-Term Debt 1,773 1,589 ------ ------ Total Liabilities 2,431 2,306 ------ ------ Shareholders' Equity* Preferred 119 294 Common 4,177 3,778 ------ ------ Total Liabilities and Shareholders' Equity $6,727 $6,378 ====== ====== *See Consolidated Statements of Changes in Shareholders' Equity. 16 Statements of Income In millions For the years ended December 31, 1994 1993 1992 ----------------------------------------------------------------------------- Operating Income Dividends from Subsidiaries Banks $240 $171 $156 Other - 7 32 Interest from Subsidiaries Banks 98 99 70 Other - 1 1 Other 24 21 8 ---- ---- ---- Total 362 299 267 ---- ---- ---- Operating Expenses Interest (including $1 in 1994, $8 in 1993, and $10 in 1992 to nonbank subsidiaries) 122 128 108 Other 15 18 10 ---- ---- ---- Total 137 146 118 ---- ---- ---- Income Before Income Taxes and Equity in Undistributed Earnings of Subsidiaries 225 153 149 Income Tax Benefit (8) (11) (19) ---- ---- ---- Income Before Equity in Undistributed Earnings of Subsidiaries 233 164 168 ---- ---- ---- Equity in Undistributed Earnings of Subsidiaries Banks 506 386 236 Other 10 9 (11) ---- ---- ---- Total 516 395 225 ---- ---- ---- Net Income $749 $559 $393 ==== ==== ==== 17 Statements of Cash Flows In millions For the years ended December 31, 1994 1993 1992 ----------------------------------------------------------------------------- Operating Activities Net Income $ 749 $ 559 $ 393 Adjustments to Determine Net Cash Provided (Used) by Operating Activities Amortization 3 4 2 Equity in Undistributed Earnings of Subsidiaries (517) (393) (226) Securities (Gains) Losses (13) (14) 15 Change in Interest Receivable (4) (4) (4) Change in Interest Payable 1 (1) 13 Change in Taxes Payable (78) 31 (1) Other, Net 9 3 (18) ----- ----- ------ Net Cash Provided by Operating Activities 150 185 174 ----- ----- ------ Investing Activities Purchase of Securities (142) (57) (39) Sales of Securities 89 117 94 Maturities of Securities 1 37 4 Change in Loans (196) 8 8 Acquisition of, Investment in, and Advances to Subsidiaries 367 154 (1,265) ----- ----- ------ Net Cash Provided (Used) by Investing Activities 119 259 (1,198) ----- ----- ------ Financing Activities Change in Other Borrowed Funds 20 32 257 Proceeds from the Issuance of Long-Term Debt 297 546 595 Repayments of Long-Term Debt (115) (589) (129) Change in Advances from Subsidiaries (7) (217) 40 Redemption, Conversion, and Repurchases of Preferred Stock and Warrants (177) (90) (102) Issuance of Common Stock 42 53 380 Issuance of Preferred Stock - - 139 Treasury Stock Acquired (112) (4) (1) Cash Dividends Paid (219) (179) (153) ----- ----- ------ Net Cash Provided (Used) by Financing Activities (271) (448) 1,026 ----- ----- ------ Change in Cash and Due from Banks (2) (4) 2 Cash and Due from Banks at Beginning of Year 2 6 4 ----- ----- ------ Cash and Due from Banks at End of Year $ - $ 2 $ 6 ===== ===== ====== Supplemental Disclosure of Cash Flow Information Cash Paid During the Year for: Interest $ 122 $ 129 $ 95 Income Taxes 118 152 78 18 The Bank of New York ("Bank"), a significant subsidiary, is subject to dividend limitations under the Federal Reserve Act and the New York Banking Law. The Bank of New York National Association ("BNYNA") is subject to dividend limitations under the National Bank Act. Under these statutes, prior regulatory approval is required for dividends in any year that would exceed either bank's net profits for such year combined with retained net profits for the prior two years. Also, both banks are prohibited from paying a dividend in an amount greater than "undivided profits then on hand" less "bad debts" (generally loans six months or more past due). Under the first of these two standards, in 1995 the Bank could declare dividends of $513 million plus net profits earned in 1995 and BNYNA could declare dividends of $117 million plus net profits earned in 1995. Neither bank is restrained from paying dividends under the second of these two standards. In addition to these statutory tests, each bank's primary federal regulator (the Federal Reserve Board, in the case of the Bank, and the Comptroller of the Currency, in the case of BNYNA) could prohibit a dividend if they determined that the payment would constitute an unsafe or unsound banking practice. Bank regulators have indicated that, generally, dividends should be paid by banks only to the extent of earnings from continuing operations. The Company, the Bank, BNYNA, and The Bank of New York (Delaware) each must comply with risk based capital and leverage ratio guidelines established by bank regulators for bank holding companies and banks. In addition, the Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA") restricts dividend payments that would cause certain capital ratios to fall below "adequate" capital ratio standards. Each of the Company, the Bank, BNYNA, and The Bank of New York (Delaware) is in compliance with the capital and leverage ratio standards applicable to it. The dividend policy of The Bank of New York (Delaware) is to declare dividends that, at a minimum, allow it to meet capital guidelines established by the Federal Deposit Insurance Corporation ("FDIC"). Consistent with its policy regarding bank holding companies serving as a source of financial strength for their subsidiary banks, the Federal Reserve Board has stated that, as a matter of prudent banking, a bank holding company generally should not maintain a rate of cash dividends unless its net income available to common stockholders has been sufficient to fully fund the dividends, and the prospective rate of earnings retention appears consistent with the bank holding company's capital needs, asset quality, and overall financial condition. The Federal Reserve Act limits amounts of, and requires collateral on, extensions of credit by the Company's insured bank subsidiaries to the Company and, with certain exceptions, its nonbank affiliates; also, there are restrictions on the amounts of investments by such banks in stock and other securities of the Company and such affiliates, and restrictions on the acceptance of their securities as collateral for loans by such banks. Extensions of credit by insured bank subsidiaries to each of the Company and such affiliates are limited to 10% of such bank subsidiary's capital and surplus, and in the aggregate for the Company and all such affiliates to 20%. The subsidiary banks of the Company are required to maintain reserve balances with Federal Reserve Banks under the Federal Reserve Act and Regulation D. Required balances averaged $789 million and $769 million for the years 1994 and 1993. 19 10. Fair Value of Financial Instruments The carrying amounts of the Company's financial instruments (i.e., monetary assets and liabilities) are determined under different accounting methods-see Note 1. The following disclosure discusses these instruments on a uniform basis - fair value. However, active markets do not exist for a significant portion of these instruments, principally loans and commitments. As a result, fair value determinations require significant subjective judgments regarding future cash flows. Other judgments would result in different fair values. Among the assumptions used by the Company are discount rates ranging principally from 7% to 11% at December 31, 1994 and 4% to 11% at December 31, 1993. The fair value information supplements the basic financial statements and other traditional financial data presented throughout this Report. A summary of the practices used for determining fair value is as follows: Securities, Trading Activities, and Derivatives Designated as Hedges -------------------------------------------------------------------- The fair value of securities and trading assets and liabilities is based on quoted market prices, dealer quotes, or pricing models. The fair value of derivative instruments such as options, future and forward rate contracts, commitments to purchase and sell foreign exchange, and foreign currency swaps, are similarly determined. The fair value of interest rate swaps is the amount that would be received or paid to terminate the agreement. Loans and Commitments --------------------- For certain categories of consumer loans, fair value includes consideration of the quoted market prices for securities backed by similar loans. The fair value of other types of loans is determined by discounting the future cash flows and using secondary market values. The fair value of commitments to extend credit, standby letters of credit, and commercial letters of credit is based upon the cost to settle the commitment. Other Financial Assets ---------------------- The fair value of these assets is assumed to equal their carrying value due to their short maturity. Deposits, Borrowings, and Long-Term Debt ---------------------------------------- The fair value of noninterest-bearing deposits is assumed to be their carrying amount. The fair value of interest-bearing deposits, borrowings, and long-term debt is estimated based upon the current rates for instruments of the same remaining maturity or quoted market prices for the same or similar issues. 20 The carrying amount and estimated fair value of the Company's financial instruments are as follows: In millions December 31, 1994 1993 -------------------- ------------------- Carrying Fair Carrying Fair Amount Value Amount Value -------- ----- -------- ------- Assets: Securities $ 4,780 $ 4,623 $ 5,715 $ 5,878 Trading Assets* 940 940 1,325 1,325 Loans and Commitments 30,739 30,944 28,259 28,839 Derivatives Designated as Hedges 19 15 28 (42) Other Financial Assets 7,211 7,211 5,065 5,065 ------- ------- ------- ------- Total Financial Assets 43,689 $43,733 40,392 $41,065 ======= ======= Non-Financial Assets 5,190 5,154 ------- ------- Total Assets $48,879 $45,546 ======= ======= Liabilities: Noninterest-Bearing Deposits $ 8,579 $ 8,579 $ 8,690 $ 8,690 Interest-Bearing Deposits 25,512 25,477 23,469 23,524 Borrowings 5,888 5,886 5,586 5,607 Long-Term Debt 1,774 1,812 1,590 1,808 Trading Liabilities* 562 562 - - Derivatives Designated as Hedges 14 45 26 (30) ------- ------- ------- ------- Total Financial Liabilities 42,329 $42,361 39,361 $39,599 ======= ======= Non-Financial Liabilities 2,254 2,113 ------- ------- Total Liabilities $44,583 $41,474 ======= ======= * On January 1, 1994, a new accounting standard required the Company to recognize unrealized gains and losses related to certain interest rate and foreign currency contracts as assets and liabilities on its balance sheet. The new standard allows the netting of unrealized gains and losses with the same counterparty when a master netting agreement is in effect. The Company previously presented all unrealized gains and losses on a net basis. Reported assets and liabilities would have been increased by approximately $688 million at December 31, 1993 as a result of the new standard. Commitments and contingent items reduced the fair value of loans and commitments by $79 million in 1994 and $62 million in 1993. 21 The table below summarizes the carrying amount of items hedged and the related notional amount and fair value (unrealized gain/loss) of interest rate swaps and futures contracts that were designated as hedges: In millions Interest Futures Rate Swaps* Contracts** Financial ------------ ----------- Instruments ----------- Carrying Notional Unrealized Notional Unrealized Amount Amount Gain (Loss) Amount Gain (Loss) -------- -------- ---- ---- ------ ---- ---- At December 31, 1994 -------------------- Loans $1,383 $ 705 $22 $( 8) $1,319 $1 $ - Deposits 2,779 1,030 14 (15) 2,325 - (7) Borrowings 1,907 1,777 7 (3) 1,040 - (2) Long-Term Debt 400 400 - (39) - - - Credit Card Securitization 200 200 - - - - - At December 31, 1993 -------------------- Loans $1,001 $ 649 $ - $(35) $2,033 $- $ - Securities 601 100 1 - 4,452 - (8) Deposits 579 579 27 - - - - Borrowings 717 717 - - - - - Long-Term Debt 275 275 3 - - - - Credit Card Securitization 450 450 9 - - - - * Gross unrealized gains (losses) for interest rate swaps are shown net at December 31, 1993. ** Including forward rate agreements A discussion of the credit, interest rate, and foreign exchange risks inherent in off-balance-sheet financial transactions is presented under "Trading and Off-Balance-Sheet Risks" in the Management's Discussion and Analysis Section of this report. The Company's financial assets and liabilities are primarily variable rate instruments. Fixed rate loans and deposits are issued to satisfy customer and investor needs. Derivative financial instruments are utilized to manage exposure to the effect of interest rate changes on fixed rate assets and liabilities, and to enhance liquidity. The Company matches the duration of derivatives to that of the assets and liabilities being hedged, so that changes in fair value resulting from changes in interest rates will be offset. The Company used receive fixed and pay fixed interest rate swaps, futures contracts, and forward rate agreements to convert fixed rate loans, deposits, borrowings, long term debt, and securitized credit card receivables to floating rates. The aggregate notional amount of the futures contracts is greater than the amount of assets hedged because the three-month duration of the futures contract is shorter than the duration of the assets hedged. The basis swaps convert various variable rate borrowings to LIBOR which better matches the assets funded by the borrowings. 22 The Company uses forward foreign exchange contracts to protect the value of its investments in foreign subsidiaries. The after-tax effects are shown in the cumulative translation adjustment included in shareholders' equity. At December 31, 1994 and 1993, $202 million and $212 million in notional amount of foreign exchange contracts, with fair values of zero and $2 million, hedged corresponding amounts of foreign investments. These foreign exchange contracts had a maturity of approximately one month at December 31, 1994. Deferred net gains on derivative financial instruments designated as hedges amounted to $4 million and $7 million at December 31, 1994 and 1993. Net interest income increased by $24 million, $39 million, and zero in 1994, 1993, and 1992 as a result of derivative financial instruments designated as hedges. The following table illustrates the notional amount, maturities, and weighted average rates for interest rate contracts that were designated as hedges: Maturities In millions Total ----------------------------- 12/31/94 1995 1996 Thereafter ----------------------------------------------------------------------------- Receive Fixed Interest Rate Swaps: Notional Amount $1,525 $ 522 $ 228 $ 775 Weighted Average: Receive Rate 6.94% 6.95% 8.01% 6.62% Pay Rate (1) 6.97 5.55 6.95 7.94 Pay Fixed Interest Rate Swaps: Notional Amount $ 705 $ 152 $ 36 $ 517 Weighted Average: Receive Rate (1) 7.21% 5.51% 7.08% 7.72% Pay Rate 7.03 5.38 7.74 7.46 Basis Interest Rate Swaps: Notional Amount $1,882 $1,721 - $ 161 Weighted Average: Receive Rate 5.86% 5.87% - 5.76% Pay Rate 5.87 5.81 - 6.52 Long Eurodollar Futures: Notional Amount $2,381 $ 954 $ 537 $ 890 Weighted Average Rate 7.44% 6.90% 7.51% 7.98% Short Eurodollar Futures: Notional Amount $1,319 $1,283 $ 36 - Weighted Average Rate 6.37% 6.37% 6.18% - Forward Rate Agreements: Notional Amount $ 984 $ 984 - - Weighted Average: Receive Rate 7.13% 7.13% - - Pay Rate 7.62 7.62 - - (1) The variable replacement rates shown above are calculated from the implied forward LIBOR yield curve as of December 31, 1994. However, actual repricings are generally based on 3 month LIBOR. 23 11. Trading Activities The fair value and the notional amount of the Company's financial instruments that are held for trading purposes are: In millions 1994 Fair Values Notional Amount Assets Liabilities ------------------ --------------- -------------- Trading Account 12/31/94 12/31/93 12/31 Average 12/31 Average ----------------------------------------------------------------------------- Interest Rate Contracts: Futures and Forward Contracts $ 3,890 $ 9,998 $ 7 $ 18 $ 2 $ 14 Swaps 6,527 8,053 58 144 41 117 Written Options 5,497 6,225 - - 26 14 Purchased Options 5,685 5,159 26 14 - - Foreign Exchange Contracts: Swaps 549 677 31 45 38 52 Written Options 2,161 898 14 14 7 12 Purchased Options 2,451 1,027 3 9 13 16 Commitments to Purchase and Sell Foreign Exchange 45,860 37,265 383 721 435 712 Debt Securities 162 582 - - Other Securities 256 336 - - ---- ----- ---- ---- Total Trading Account $940 $1,883 $562 $937 ==== ====== ==== ==== The credit exposure for these assets represents unrealized gains with counterparties (Assets in the table above). These credit exposures have been reduced by $284 million as a result of master netting agreements related to trading account and hedging derivatives. At December 31, 1994, approximately $14.3 billion of interest rate contracts will mature within one year, $6.2 billion between one to five years, and the balance after five years. Substantially all foreign exchange contracts mature within one year. Other noninterest income included the following income related to trading activities: In millions ------------------------------------------------------------------------ 1994 1993 1992 ---- ---- ---- Foreign Exchange $27 $54 $66 Interest Rate Contracts 13 18 7 Debt and Other Securities 4 7 21 --- --- --- $44 $79 $94 === === === Foreign exchange includes income from trading commitments to purchase and sell foreign exchange, futures, and options. Interest rate contracts reflect the results of trading futures and forward contracts, interest rate swaps, foreign currency swaps, and options. Debt and other securities reflect income from trading debt and equity securities and mortgage loan origination activities. 24 12. Commitments and Contingent Liabilities In the normal course of business, various commitments and contingent liabilities are outstanding which are not reflected in the accompanying consolidated balance sheets. Management does not expect any material losses to result from these matters. A summary of the notional amount of the Company's off-balance-sheet credit transactions, net of participations, at December 31, 1994 and 1993 follows: In millions Off-Balance-Sheet Credit Risks 1994 1993 ------------------------------ ---- ---- Commercial Lending Commitments $21,931 $19,463 Credit Card Commitments 15,512 11,118 Standby Letters of Credit 4,085 3,146 Commercial Letters of Credit 2,070 1,497 Securities Lending Indemnifications 15,326 15,005 The total potential loss on undrawn commitments, standby and commercial letters of credit, and securities lending indemnifications is equal to the total notional amount if drawn upon, which does not consider the value of any collateral. The Company does not anticipate the use of all of its unused credit lines available to credit card holders by individual customers at one time. These credit lines are contingent upon customers maintaining specific credit standards, and the Company has the right to reduce or cancel them at any time. Standby letters of credit principally support corporate obligations and include $1.6 billion and $1.0 billion that were collateralized with cash and securities at December 31, 1994 and 1993. At December 31, 1994 and 1993, securities lending indemnifications were secured by collateral of $15.3 billion and $15.0 billion. At December 31, 1994, approximately $3.4 billion of the standbys will expire within one year, $0.7 billion between one to five years, and the balance after five years. At December 31, 1994 and 1993, the Company has recourse obligations related to the sale of $1,251 million and $2,118 million of mortgages and credit card receivables. The Company has recorded liabilities for these obligations of $7 million and $20 million at December 31, 1994 and 1993. Net rent expense for premises and equipment was $96 million in 1994, $99 million in 1993, and $91 million in 1992. At December 31, 1994, the Company and its subsidiaries were obligated under various noncancelable lease agreements, certain of which provide for additional rents based upon real estate taxes, insurance, and maintenance and for various renewal options. The minimum rental commitments under noncancelable operating leases for premises and equipment having a term of more than one year from December 31, 1994 are as follows: --------------------------------------------------------------------------- Year ending December 31, In millions --------------------------------------------------------------------------- 1995 $ 68 1996 60 1997 49 1998 35 1999 25 Subsequent to 1999 95 ---- Total Minimum Lease Payments $332 ==== 25 In April 1990, the Company notified Northeast Bancorp., Inc. (NEB) that NEB had materially breached its obligation under a merger agreement. Following denial by the Federal Reserve Board of the Company's application for approval to acquire NEB and failure by state regulators to approve the proposed merger prior to the August 15, 1990 termination date, the Company's Board of Directors notified NEB in September 1990 that it had terminated the merger agreement. In May 1990, NEB brought suit against the Company in the United States Court for the District of Connecticut seeking money damages of $350 million relating to NEB's allegations that the Company breached its obligations. In November 1990, the Company filed a motion for summary judgment to have the lawsuit dismissed; in June 1991, this motion was granted as to NEB's Connecticut Unfair Trade Practices Act and libel claims and denied as to NEB's other claims. In March 1993, the Company's motion for summary judgment on NEB's contract claims was denied. In May 1993, as part of the acquisition of NEB's Class A voting common stock by First Fidelity Bancorporation, NEB's interest in the suit was transferred to a trust funded with $2 million for the benefit of former NEB shareholders. In the opinion of management, the claims made are without merit. In the ordinary course of business, there are various claims pending against the Company and its subsidiaries. In the opinion of management, liabilities arising from such claims, if any, would not have a material effect upon the Company's consolidated financial statements. 13. Other Noninterest Income and Expense Other noninterest income includes equity in earnings of unconsolidated subsidiaries of $34 million, $46 million, and $26 million in 1994, 1993, and 1992. Other noninterest expense includes deposit insurance premiums of $52 million, $57 million, and $50 million in 1994, 1993, and 1992 and amortization of intangibles of $86 million, $81 million, and $78 million in 1994, 1993, and 1992. 26 14. Stock Option Plans The Company has stock option plans (the Plans) which provide for the issuance of stock options at fair market value at the date of grant to officers and key employees of the Company and its subsidiaries. Under the Company's 1993 Plan, options to acquire common stock may be granted in amounts that do not exceed, on a cumulative basis, 1% of the outstanding shares of common stock per year, and, subject to adjustment, options covering no more than approximately 9.2 million shares in the aggregate may be granted during the first five years. Generally, each option granted under the Plans is exercisable between one and 10 years from the date of grant. The following is a summary of activity under the Plans for the years 1994, 1993, and 1992:
1994 1993 1992 ------------------------------------------------------------------------------- Option Option Option Price Price Price Shares Per Share Shares Per Share Shares Per Share ------------------------------------------------------------------------------- Outstanding, January 1 6,609,852 $9.38 to 6,089,188 $5.56 to 5,940,276 $5.56 to 27.38 22 22 Granted 1,012,800 26 to 2,054,300 27.38 1,804,660 8.34 to 31.88 18.88 Exercised (847,386) 9.38 to (1,417,608) 5.56 to (1,497,268) 9.38 to 27.38 22 22 Canceled (58,520) 9.38 to (116,028) 9.38 to (158,480) 12.79 to 27.38 27.38 22 --------- --------- --------- -------- --------- -------- Outstanding, $10.71 to $9.38 to $5.66 to December 31 6,716,746 31.88 6,609,852 27.38 6,089,188 22 ========= ========= ========= ======== ========= ======== Exercisable, $10.71 to $9.38 to $5.56 to December 31 4,959,134 27.38 3,863,358 22 3,652,992 22 ========= ========= ========= ======== ========= ======== Available for Grant, December 31 4,346,130 5,607,850 None ========= =========
27 15. Foreign Operations The Company's foreign activities consist of banking, trust, and processing services provided to customers domiciled outside of the United States, principally in Europe and Asia. The following financial information concerning such activities reflects direct attributions and charges for funds employed, based upon average costs of interest-bearing funds: 1994 -------------------------------------- Income Before Total Income Net Total Revenue Taxes Income Assets ------- ------ ------ ------- Europe $ 124 $ 6 $ 3 $ 1,939 Asia 211 94 53 2,179 Other Foreign 181 9 5 2,785 Domestic 3,735 1,089 688 41,976 ------ ------ ---- ------- Total $4,251 $1,198 $749 $48,879 ====== ====== ==== ======= 1993 -------------------------------------- Income Before Total Income Net Total Revenue Taxes Income Assets ------- ------ ------ ------- Europe $ 138 $ 18 $ 10 $ 1,375 Asia 201 78 44 2,079 Other Foreign 190 9 5 2,355 Domestic 3,293 781 500 39,737 ------ ---- ---- ------- Total $3,822 $886 $559 $45,546 ====== ==== ==== ======= 1992 -------------------------------------- Income Before Total Income Net Total Revenue Taxes Income Assets ------- ------ ------ ------- Europe $ 208 $ 48 $ 28 $ 1,329 Asia 187 52 30 2,071 Other Foreign 212 42 24 2,382 Domestic 3,263 446 311 39,428 ------ ---- ---- ------- Total $3,870 $588 $393 $45,210 ====== ==== ==== ======= Foreign exchange activities arise from servicing customers' needs for foreign exchange, and from managing the Company's foreign currency positions. Net gains resulting from foreign exchange transactions were $27 million, $54 million, and $66 million in 1994, 1993, and 1992, and are included in other noninterest income. 28 Independent Auditors' Report Deloitte & Touche LLP To the Board of Directors and Shareholders of The Bank of New York Company, Inc. New York, New York We have audited the accompanying consolidated balance sheets of The Bank of New York Company, Inc. and subsidiaries (the "Company") as of December 31, 1994 and 1993, and the related consolidated statements of income, changes in shareholders' equity, and cash flows for each of the three years in the period ended December 31, 1994. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. The 1992 consolidated financial statements give retroactive effect to the merger of the Company and National Community Banks, Inc., which has been accounted for as a pooling of interests as described in Note 2 to the consolidated financial statements. We did not audit the consolidated statements of income, changes in shareholders' equity, and cash flows of National Community Banks, Inc. for the year ended December 31, 1992, which statements reflect net income of $23,785,000 for the year ended December 31, 1992. Those statements were audited by other auditors whose report has been furnished to us, and our opinion, insofar as it relates to the amounts included for National Community Banks, Inc. for 1992, is based solely on the report of such other auditors. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, based on our audits and the report of the other auditors, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of The Bank of New York Company, Inc. and subsidiaries as of December 31, 1994 and 1993, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1994 in conformity with generally accepted accounting principles. As discussed in Note 1 to the consolidated financial statements, on January 1, 1994 the Company changed its method of accounting for certain investments in debt and equity securities to conform with Statement of Financial Accounting Standards No. 115. \s\ Deloitte & Touche LLP New York, New York February 24, 1995 29 Management's Discussion and Analysis of the Company's Financial Condition and Results of Operations ------------------------------------------------------------------------ SUMMARY OF RESULTS For the year 1994, The Bank of New York Company, Inc. (the Company) reported record net income of $749 million or a record $3.70 per fully diluted share, compared with $559 million or $2.72 per fully diluted share in 1993 and $393 million or $2.00 per fully diluted share in 1992. Net interest income reached record levels as the net interest spread increased to 3.30% and the net yield on interest earning assets was 4.11%. These increases reflect a continued shift in the asset mix toward higher yielding assets, including strong growth in credit cards. A reduction in nonperforming assets also contributed to the increase in net interest income. Revenues from the Company's securities and other processing businesses remained strong. A lower provision for loan losses and continued control of operating expenses contributed to higher earnings. The Company increased its quarterly stock dividend to 32 cents per share, a 42% increase. The Company also declared a 2-for-1 common stock split. In addition, the Company repurchased 3.7 million shares of common stock. The Company retained $512 million of earnings and issued $300 million of subordinated debt. Two issues of preferred stock were redeemed in 1994, reducing preferred stock by $156 million and retained earnings by $17 million. In 1994, returns on average common equity and on average assets established all-time highs. Return on average common equity was 18.49% in 1994 compared with 14.98% in 1993 and 12.00% in 1992, while return on average assets for 1994 was 1.49% compared with 1.20% in 1993 and .85% in 1992. Nonperforming assets declined by $286 million, or 45%, to $353 million in 1994. December 31, 1994 marked the fourteenth consecutive quarter that nonperforming assets declined. The Tier I and total capital ratios for the Company at December 31, 1994 were 8.45% and 13.43% compared with 8.87% and 13.65% last year and 7.59% and 12.30% in 1992. Tangible common equity as a percent of total assets was 7.39% at December 31, 1994 compared with 7.00% one year ago and 5.83% in 1992. In 1993, spreads widened reflecting a continuing shift in asset mix toward higher yielding assets and a lower level of nonperforming assets. Fee income was strong, especially from credit cards and securities and other processing. A lower provision for loan losses, continued control of operating expenses, and the acquisition of 62 branches of Barclays Bank of New York, N.A. (Barclays) on December 11, 1992, also helped to increase earnings. Earnings at the National Community Division (BNYNA) increased significantly in 1993. During 1993, the Company strengthened its capital position. The Company retained $383 million of earnings and issued $550 million of subordinated debt while $655 million of long-term debt matured or was redeemed and $75 million of preferred stock was redeemed. In addition, $58 million of preferred stock was converted into $46 million of common stock. In 1992, noninterest income from personal trust, funds transfer, trade finance, securities lending, mutual fund custody, stock transfer, government securities clearance, and corporate trust grew significantly. Net interest income increased, reflecting increases in the net interest rate spread and the net yield on interest-earning assets. Strict control of operating expenses resulted in a modest increase in compensation expense and declines in furniture and fixture and occupancy expense. The provision for loan losses was significantly lower in 1992 compared with 1991. In 1992, the Company sold 18.4 million shares of common stock for $339 million, $600 million of subordinated debt, and $143 million of preferred stock. It redeemed $100 million of subordinated debt and $100 million of preferred stock. 30 NET INTEREST INCOME Dollars in millions 1994 1993 1992 ---- ---- ---- Net Interest Income on a Taxable Equivalent Basis $1,763 $1,550 $1,434 Net Interest Rate Spread 3.30% 3.12% 2.91% Net Yield on Interest-Earning Assets 4.11% 3.84% 3.61% On a taxable equivalent basis, net interest income increased 14% in 1994. Credit card growth, the large decline in nonperforming loans, and wider interest rate spreads contributed to this growth during 1994. Average loans grew to $32.0 billion in 1994 from $30.4 billion in 1993. Managed credit card outstandings were up by 24% to $7.7 billion at December 31, 1994 and the number of card accounts increased by 25% from one year ago to 6.0 million. Large corporate lending in the U.S. also showed strong growth. The net interest rate spread and net yield on interest-earning assets increased by 6% and 7% in 1994. The spread and yield benefitted from the return of most of the Company's credit card securitization to its balance sheet. The increase in the yield also reflects an increase in the volume of interest-free sources of funds by $281 million (a portion attributable to compensating balances in lieu of servicing fees), and higher returns on these funds in a rising interest rate environment. Net interest income increased 8%, the spread by 7%, and the yield by 6% in 1993. Contributing to these increases were a $0.7 billion rise in the level of average interest-earning assets, the Company being liability sensitive in a declining rate environment, and the large decline in nonperforming loans. The increase in yield also reflects a higher volume of interest-free sources of funds, partially offset by lower returns on these funds in a low interest rate environment. Average earning assets increased to $40.4 billion in 1993 from $39.7 billion in 1992, primarily resulting from a $0.8 billion increase in federal funds sold and securities purchased under resale agreements. Although average loans did not grow ($30.4 billion in 1993) the mix improved, contributing to the growth in spread and yield. Special strength was noted in wholesale mortgage lending, securities industries banking, factoring, and credit card lending, which increased $1.1 billion. The credit card securitizations reduced net interest income by $87 million in 1994, $162 million in 1993, and $164 million in 1992. Interest income would have been increased by $17 million, $27 million, and $89 million if loans on nonaccrual status at December 31, 1994, 1993, and 1992 had been performing for the entire year. 31 NONINTEREST INCOME Noninterest income is provided by a wide range of fiduciary and processing services, other fee-based services, and trading activities. These revenues were $1,289 million in 1994, compared with $1,319 million in 1993 and $1,183 million in 1992. Securities processing fees were $359 million, $309 million, and $275 million in 1994, 1993, and 1992. Other processing fees, principally funds transfer, deposit services, and trade finance, were $171 million in 1994, $162 million in 1993, and $148 million in 1992. Trust and investment fees were $126 million in 1994, $134 million in 1993, and $121 million in 1992. Service charges and fees, excluding those associated with the credit card securitization, were $427 million in 1994, compared with $390 million in 1993 and $367 million in 1992. For further discussion of fee revenue see Sector Profitability. The credit card securitizations increased noninterest income by $38 million in 1994, $64 million in 1993, and $70 million in 1992. Most of the decrease in the noninterest income from securitizations in 1994 compared with 1993 was due to maturities. Securities gains totaled $15 million, $64 million, and $42 million in 1994, 1993, and 1992, including gains on equity securities of $28 million in 1993 and $1 million in 1992. There were no net equity securities gains recorded in 1994. The 1992 results include a $31 million writedown of the Company's investment in Northeast Bancorp, Inc. Other noninterest income was $153 million in 1994, $196 million in 1993, and $160 million in 1992. Profits from foreign exchange and other trading activities were $44 million, $79 million, and $94 million in 1994, 1993, and 1992. Other noninterest income for 1994 and 1993 included pre-tax gains of $22 million and $24 million related to the sale of portions of the Company's interest in Wing Hang Bank, Ltd. NONINTEREST EXPENSE AND INCOME TAXES Expenses remained under good control in 1994. Total noninterest expense was $1,646 million in 1994, unchanged from 1993. Noninterest expense was $1,519 million in 1992. Net occupancy and furniture and fixture expenses fell by a combined $7 million, or 3%, to $266 million. Salary expense increased by 4% in 1994, and profit sharing and incentive compensation also increased. Medical insurance expense was $59 million in 1994, a decline of 5% from $62 million in 1993. Total noninterest expense increased 8% in 1993 compared with 1992. Furniture and equipment expense declined by 2% to $95 million for the year. Other real estate expense declined substantially. Salaries increased 10% in 1993 to $601 million from $546 million in 1992, and profit sharing increased to $58 million from $38 million. Other employee benefits - primarily incentive compensation and health care expenses - were up 19% to $154 million from $129 million in 1992. Occupancy expense increased by 6% to $178 million. Deposit insurance premiums were $52 million in 1994 compared with $57 million and $50 million in 1993 and 1992. The FDIC has proposed a substantial reduction in the assessment rate for deposit insurance premiums. Other real estate charges were $11 million, $53 million, and $106 million in 1994, 1993, and 1992. Operating expenses related to other real estate owned were approximately $4 million in 1994, compared with $8 million in 1993 and $25 million in 1992. The Company's consolidated effective tax rates for 1994, 1993, and 1992 were 37.5%, 36.9%, and 33.2%. The 1994 rate reflects the reduced impact of tax-exempt income and state and local income taxes, offset by lower taxes on foreign operations and the effect of nondeductible expenses to total income. In 1993, the federal tax rate increased from 34% to 35%, tax-exempt income had less of an effect, and foreign tax credits were lower. These increases were partially offset by the impact of state and local income taxes and nondeductible expenses. 32 LIQUIDITY The Company maintains its liquidity through the management of its assets and liabilities, utilizing worldwide financial markets. The diversification of liabilities reflects the flexibility of the Company's funding sources under changing market conditions. Stable core deposits, including demand and retail time, are generated through the Company's diversified network and managed with the use of trend studies and deposit pricing. The use of derivative products such as interest rate swaps and financial futures enhances liquidity through the issue of long-term liabilities without exposure to interest rate risk. Liquidity also results from the maintenance of a portfolio of assets which can be easily reduced and the monitoring of unfunded loan commitments, thereby reducing unanticipated funding requirements. Average savings and noninterest-bearing deposits decreased by $0.3 billion during 1994. Medium-term notes grew by $1.4 billion and foreign deposits increased by $2.1 billion. More volatile sources of interest-bearing deposits and borrowings decreased by $0.5 billion. In 1994, the Company's average commercial paper borrowings were $361 million compared with $93 million in 1993. The Company has backup lines of credit at financial institutions supporting these borrowings. The following comments relate to the information disclosed in the Consolidated Statements of Cash Flows. Cash flows from earnings and other operating activities were 2.5 billion in 1994, compared with $0.7 billion in 1993 and 1992. The 1994 increase reflects a decline in trading assets. The 1994 and 1993 cash flows used by investing activities were $5.4 billion and $1.0 billion, reflecting additions to loans and securities. In 1992, investing activities were the source of $3.6 billion of cash flow, reflecting a decrease in federal funds sold and securities purchased under resale agreements and a reduction of loans. Cash provided by financing activities was $1.3 billion in 1994 as the Company used deposits and other borrowings to finance its investing activities. Cash used by financing activities was $0.7 billion and $1.1 billion in 1993 and 1992 as the Company reduced its deposit borrowings. Restrictions on the ability of the Company to obtain funds from its subsidiaries are discussed in Note 9 to the Consolidated Financial Statements. CAPITAL RESOURCES December 31, Capital Ratios 1994 1993 -------------- ---- ---- Common Equity 8.55% 8.29% Tangible Common Equity 7.39 7.00 Tier I Capital 8.45 8.87 Total Capital 13.43 13.65 Leverage 7.89 7.99 The Company's common equity ratio is one of the highest among money center banks. The Company's banks' capital ratios exceed "well capitalized," the highest of five regulatory capital categories. Shareholders' equity was $4,296 million at December 31, 1994, compared with $4,072 million at December 31, 1993 and $3,730 million at December 31, 1992. The increase in common shareholders equity in 1994 is primarily attributable to growth in retained earnings of $512 million offset by the repurchase of $112 million of common stock. The change in shareholders' equity in 1993 is primarily attributable to growth in retained earnings of $383 million offset in part by the redemption of $75 million of stock. The Company can issue up to $450 million of debt and preferred stock (including convertible preferred stock) pursuant to a shelf registration statement. 33 CREDIT CARD SECURITIZATION Credit card receivables sold in the form of a security is a technique for financing the Company's credit card operations. For accounting purposes, the underlying assets and liabilities are removed from the balance sheet, and amounts otherwise reported in the income statement as net interest income, fees, and provision for loan losses are reflected in noninterest income. The Company securitized $1,350 million of credit card receivables in 1991; $200 million were outstanding at December 31, 1994 and are scheduled to mature in 1995. The impact of the securitizations on the Company's financial statements, assuming the funds received from the securitizations were used to replace short-term borrowings, is summarized below: In millions 1994 1993 1992 ---- ---- ---- Lower Net Interest Income $87 $162 $164 Lower Provision for Loan Losses 32 56 57 Higher Noninterest Income 38 64 70 PROVISION AND ALLOWANCE FOR LOAN LOSSES In 1994, the Company continued to experience significant improvement in asset quality as nonperforming loans dropped sharply. As a result the provision for loan losses was $162 million in 1994, compared with $284 million in 1993 and $443 million in 1992. Net charge-offs were $354 million in 1994, $387 million in 1993, and $511 million in 1992. In these years net charge-offs were primarily attributable to real estate, other commercial, and consumer loans. The total allowance for loan losses was $792 million and $970 million at year-end 1994 and 1993. The decrease in the allowance for loan losses ($178 million in 1994 and $102 million in 1993) resulted primarily from net charge-offs exceeding the provision for loan losses and the sharp decline in the level of nonaccrual loans. Maturities in the Company's credit card securitization program enabled it to transfer $14 million in 1994 and $1 million in 1993 of its recourse obligation from other liabilities to the allowance. The ratio of the total allowance for loan losses to year-end loans was 2.40% and 3.17% at December 31, 1994 and 1993. The allowance for loan losses was 224% of total nonperforming assets at December 31, 1994, compared with 152% at December 31, 1993. 34 LOANS The following table shows the Company's loan distribution at the end of each of the last five years: 1994 1993 1992 1991 1990 In millions ---- ---- ---- ---- ---- Domestic Commercial and Industrial Loans* $11,149 $ 9,781 $10,495 $12,398 $12,896 Consumer Loans 8,265 6,028 5,229 4,315 6,080 Real Estate Loans Construction and Land Development 125 160 188 322 665 Other, Principally Commercial Mortgages 2,743 2,626 2,822 2,340 2,456 Collateralized by Residential Properties 3,036 3,203 3,423 2,820 3,633 Banks and Other Financial Institutions** 1,289 1,893 1,521 35 35 Loans for Purchasing or Carrying Securities 2,339 2,275 1,098 1,417 1,079 Lease Financings 1,308 1,038 1,033 1,063 1,026 Other** 49 65 126 1,222 1,784 ------- ------- ------- ------- ------- Total Domestic 30,303 27,069 25,935 25,932 29,654 ------- ------- ------- ------- ------- Foreign Commercial and Industrial Loans 1,605 1,775 1,928 2,773 3,130 Banks and Other Financial Institutions 672 810 997 1,122 1,428 Government and Official Institutions*** 212 565 535 546 584 Other 1,161 1,188 947 795 1,817 ------- ------- ------- ------- ------- Total Foreign 3,650 4,338 4,407 5,236 6,959 ------- ------- ------- ------- ------- Total Loans 33,953 31,407 30,342 31,168 36,613 Less: Unearned Income 870 837 845 833 837 Allowance for Loan Losses 792 970 1,072 1,084 1,111 ------- ------- ------- ------- ------- Net Loans $32,291 $29,600 $28,425 $29,251 $34,665 ======= ======= ======= ======= ======= * The commercial and industrial loan portfolio does not contain any industry concentration which exceeds 10% of loans. ** Prior to 1992, certain loans to the securities and mortgage banking industries were classified as other loans. *** During 1994, $292 million of loans were reclassified to securities. At year-end 1994, highly leveraged transaction (HLT) loans outstanding were $1,250 million and commitments were $480 million compared with $1,314 million and $349 million at year-end 1993. At December 31, 1994, borrowers in the communication industry represented 50% of the HLT portfolio. In 1994, net charge-offs of HLTs were $33 million compared with $22 million in 1993 and $94 million in 1992. 35 NONPERFORMING ASSETS The following table shows the distribution of nonperforming assets at December 31, 1994 and 1993: Dollars in millions 1994 1993 Change ---------------------------------- Category of Loans: HLT $ 24 $ 52 (54)% Commercial Real Estate 63 72 (13) Other Commercial 50 130 (62) Foreign 32 34 (6) LDC 45 96 (53) Community Banking 83 156 (47) ---- ---- Total Nonperforming Loans 297 540 (45) Other Real Estate 56 99 (43) ---- ---- Total Nonperforming Assets $353 $639 (45) ==== ==== Nonperforming Asset Ratio 1.1% 2.1% Allowance/Nonperforming Loans 266.7 179.6 Allowance/Nonperforming Assets 224.4 151.8 Nonperforming assets declined for the fourteenth consecutive quarter to $353 million at December 31, 1994. The decrease in nonperforming assets during 1994 is attributable to charge-offs and writedowns of $149 million and paydowns, sales, and returns to accrual status of $299 million. The decrease was partially offset by $162 million of loans placed on nonperforming status. FAIR VALUE OF FINANCIAL INSTRUMENTS The fair value of the Company's financial instruments are disclosed in Note 10 to the Consolidated Financial Statements. The fair values, if realized, would improve the Company's capital resources and results of operations because the excess of fair value over the carrying amount for its assets is greater than the corresponding excess for liabilities. The fair values would not affect liquidity. In 1994, rising interest rates reduced unrecognized fair value gains in the securities portfolios compared to 1993. Higher values attributable to consumer loans more than offset the declines in value associated with credit-impaired commercial loans in both 1994 and 1993. The increase in fair value of long-term debt primarily reflects the influence of the Company's stock price on the fair value of its convertible subordinated debentures. 36 TRADING AND OFF-BALANCE SHEET RISKS The Company's significant trading and off-balance-sheet risks are securities, foreign currency and interest rate risk management products, commercial lending commitments, letters of credit, and securities lending indemnifications. The Company assumes these risks to trade for its own account, to reduce its own interest rate and foreign currency risks, and to enable its customers to meet their credit and liquidity needs and hedge their foreign currency and interest rate risks. These items involve, to varying degrees, credit, foreign exchange, and interest rate risk not recognized in the balance sheet. The Company's off-balance-sheet risks are managed and monitored in manners similar to those used for on-balance-sheet risks. There are no significant industry concentrations of such risks. The Company manages trading risk through a system of position limits and an earnings at risk methodology. Position limits restrict by instrument and currency the size of positions the Company can take. Earnings at risk is designed to measure with 95% certainty the Company's exposure to change in earnings resulting from price fluctuations in the Company's trading portfolio over a 24-hour period. At December 31, 1994 the trading portfolio's earnings at risk were $2 million. The Company's exposure to credit loss for lending commitments, letters of credit, and securities lending indemnification is represented by the contractual amount of those transactions. Since many of the commitments are expected to expire without being drawn upon, the total amount does not necessarily represent future cash requirements. In securities lending transactions, the Company requires the borrower to provide collateral, thus reducing the credit risk. The notional amounts for other off-balance-sheet risks express the dollar volume of the transactions; however, the credit risk is much smaller. The Company performs credit reviews and enters into netting agreements to minimize the credit risk of foreign currency and interest rate risk management products. Exposure to foreign exchange and interest rate risk is reduced by entering into offsetting positions. The amounts associated with off-balance-sheet risks are disclosed in Notes 10 and 12 to the Consolidated Financial Statements. SECTOR PROFITABILITY The Company has an internal information system used for management purposes that produces sector performance data for Trust, and Securities and Other Processing, Retail Banking, Corporate Banking, and Other sectors. A set of measurement principles has been developed to help ensure that reported results of the sectors track their economic performance. Sector results are subject to restatement whenever improvements are made in the measurement principles or organizational changes are made. Net interest income is computed on a taxable equivalent basis. Support and other indirect expenses are allocated to sectors based on general guidelines. The provision for loan losses is based on net charge-offs incurred by each sector. Assets and liabilities are match funded. The Trust, and Securities and Other Processing Sector provides a broad array of fee based services. Trust includes personal trust, personal asset management and institutional investment. Securities processing includes American depositary receipts, corporate trust, securities lending, government securities clearance, mutual fund custody, unit investment trust, stock transfer, and institutional custody. Trade finance, funds transfer, and deposit services are included in other processing. Retail banking includes credit card financing, consumer lending, custom banking, and residential mortgage lending. The Corporate Banking Sector is divided into special industries banking, U.S. commercial banking, middle market banking, international banking, and factoring. Other includes trading and investing activities, treasury services to other sectors, general administration, and the difference between the recorded provision for loan losses and that allocated to sectors. 37 The sectors contributed to the Company's profitability as follows: Trust, and Securities And Other Retail Corporate Processing Banking Banking Other Total ------------------------------------------------------------- In millions 1994 1993 1994 1993 1994 1993 1994 1993 1994 1993 ---- ---- ----- ---- ---- ---- ---- ---- ------ ------ Net Interest Income on a Taxable Equivalent Basis $129 $108 $1,034 $831 $482 $466 $118 $145 $1,763 $1,550 Provision for Loan Losses - - 203 184 151 203 (192) (103) 162 284 Noninterest Income 754 703 220 242 250 248 65 126 1,289 1,319 Noninterest Expense 582 539 702 709 223 250 139 148 1,646 1,646 ------------------------------------------------------------- Income before Taxes $301 $272 $ 349 $180 $358 $261 $236 $226 $1,244 $ 939 ============================================================= In the Trust, and Securities and Other Processing Sector, American depositary receipts and corporate trust showed exceptional growth. Other areas of strength included mutual fund custody and government securities clearance. In other processing, trade finance increased by 15% over 1993. Overall volume and total revenue in funds transfer were up 20% and 18% from 1993. However, service fees in the funds transfer and deposit services area were lower due to customers' increasing use of compensating balances in a rising interest rate environment. Trust and investment management reported lower revenue due primarily to lower market valuations of assets under management. The increase in the Retail Sector principally reflects strong growth in the Company's credit card business. This growth was reflected both in net interest income, which increased due to increased outstandings, and in noninterest income, which increased due to greater interchange revenue. Maturities in the sector's credit card securitization program shifted revenue from noninterest income to net interest income. The increase in net interest income in the Corporate Banking Sector is attributable to higher yields as well as a decline in nonperforming assets. The sector also benefitted from a reduction in the provision for loan losses. In addition, increased earnings in the Company's factoring business contributed to the sector's results. The decrease in noninterest expense is partially attributable to a reduction in other real estate expense. The increase in the other sector reflects a credit for the difference between the recorded provision for loan losses and that allocated to the sectors. The other sector had a decline in revenue from trading and investing activities. 38 QUARTERLY DATA UNAUDITED
1994 1993 --------------------------- --------------------------- Dollars in millions, Fourth Third Second First Fourth Third Second First except per share amounts Interest Income $ 853 $ 783 $ 698 $ 626 $ 627 $ 628 $ 625 $ 625 Interest Expense 378 335 289 243 246 252 250 259 ----- ----- ----- ----- ----- ----- ----- ----- Net Interest Income 475 448 409 383 381 376 375 366 ----- ----- ----- ----- ----- ----- ----- ----- Provision for Loan Losses 39 39 39 45 50 55 86 93 Noninterest Income 298 321 321 350 307 335 347 330 Noninterest Expense 413 420 410 403 409 405 441 391 ----- ----- ----- ----- ----- ----- ----- ----- Income Before Income Taxes 321 310 281 285 229 251 195 212 Income Taxes 120 116 105 107 72 100 77 78 ----- ----- ----- ----- ----- ----- ----- ----- Net Income $ 201 $ 194 $ 176 $ 178 $ 157 $ 151 $ 118 $ 134 ===== ===== ===== ===== ===== ===== ===== ===== Net Income Available to Common Shareholders $ 198 $ 191 $ 173 $ 174 $ 151 $ 145 $ 111 $ 127 ===== ===== ===== ===== ===== ===== ===== ===== Per Common Share Data: Primary Earnings $1.06 $1.01 $0.92 $0.93 $0.81 $0.78 $0.60 $0.69 Fully Diluted Earnings 1.00 0.96 0.87 0.87 0.77 0.74 0.57 0.65 Cash Dividends 0.32 0.275 0.275 0.225 0.25 0.225 0.19 0.19 Stock Price High 31.87 32.62 32.00 29.69 29.12 30.06 30.87 30.12 Low 26.75 28.62 25.06 25.50 26.37 26.12 25.87 26.00 Ratios: Return on Average Common Shareholders' Equity 19.03% 18.68% 17.67% 18.55% 16.16% 15.95% 12.65% 15.06% Return on Average Assets 1.55 1.49 1.42 1.50 1.32 1.28 1.03 1.17
39 Business Review The Bank of New York Company, Inc. - Core Businesses Securities and Other Processing Services and Products * American Depositary Receipts * Corporate Trust * Stock Transfer * Master Trust/Master Custody * Mutual Funds Custody * Institutional Custody * Securities Lending * Unit Investment Trust * Government Securities Clearance * Funds Transfer * Trade Finance * Cash Management Significant Accomplishments * Corporate trust acquisitions added 2,200 new trust appointments * Established first Korean depositary receipt program * Workstation custody product software received 1994 Microsoft (registered trademark) award for financial innovation Statistical Information * Leader in ADR business with 54% of the public sponsored market * Second-largest provider of Mutual Funds Custody * Over $1.6 trillion in assets under custody * Over $200 billion daily funds transfer volume * Among top five domestic issuers of letters of credit 40 Credit Cards Services and Products * Consumers Edge (registered trademark) * Union Privilege MasterCard (registered trademark) * Affinity Cards * MasterCard (registered trademark) * VISA (registered trademark) Significant Accomplishments * Added 1.2 million new cardholders * Outstandings grew 24% * Introduced The Bank of New York MasterCard (registered trademark) Business Card for small businesses Statistical Information * Among top ten bank issuers of credit cards * Leader in the low rate/no annual fee market segment * Largest single affinity card program in the country * Over $7.7 billion in managed outstandings Corporate Banking Services and Products * Special Industries Banking * U.S. Commercial Banking * International Banking * Syndications and loan sales 41 * Factoring * Commercial Finance * Leasing Significant Accomplishments * Acted as agent or co-agent in 187 broadly syndicated loan transactions * Reduced nonperforming loans by over $200 million or 44% * Opened representative offices in Moscow and Shanghai Statistical Information * Largest lender and arranger of bank loans to the Media and Communications industries * Domestic factored volume reached $12 billion * Ranked fourth among the top 20 arrangers of bank loans to the Utility industry Retail Banking Services and Products * Deposit, lending and cash management services for individuals, professionals, small businesses, municipalities and middle market companies * Trade finance for small and mid-size companies * Residential and multifamily mortgages * Individual investment products Significant Accomplishments * Opened 55 Personal Investment Centers throughout the branch network 42 * Introduced Group Banking product with special banking services for employees of small businesses and middle market companies Statistical Information * Largest suburban New York City branch network * Total number of branches: 379 New York - 274 branches in 11 counties New Jersey - 105 branches in 13 counties * Over 1 million individual, small business, municipal and middle market customers Trust, Investment Management and Private Banking Services and Products * Financial planning * Investment management * Tax-exempt bond management * BNY Hamilton Funds * Trusts and estate settlement * Income tax preparation * Real estate management * Domestic and international private banking Significant Accomplishments * Launched integrated customer information management system * Introduced PortfolioLink, a new line of credit linked to custody and investment management accounts * Introduced Small Cap Index Fund 43 Statistical Information * Institutional assets under management of $14 billion * Personal assets under management of $12 billion * Over $11 billion in custodized assets under administration Financial Market Services Services and Products * Foreign exchange trading * Interest rate and currency risk management products * Municipal Securities broker/dealer and underwriter Significant Accomplishments * Conservative interest rate hedging strategy reduced the impact of rising interest rates on net margins * Volume of foreign exchange transactions executed on behalf of Securities and Other Processing customers increased 40% Statistical Information * Market maker in world's major trading currencies * Full-service broker/dealer and underwriter of general obligation tax-exempt securities, principally in the New York tri-state area * 24-hour trading capability through our offices in New York, London, Tokyo, Frankfurt, Hong Kong, Seoul and Taipei 44 Securities and Other Processing The Bank of New York offers a more complete range of processing and operating services than any other bank. Our long-standing commitment to this business, coupled with superior technological resources, enables us to fulfill virtually any client's needs. Securities-related products serve both the institutional issuer and investor. We are a market leader in American and global depositary receipts, securities lending and government securities clearance. We hold the number two market position in mutual funds custody and in servicing unit investment trusts. We rank among the top five providers in corporate trust, stock transfer, master trust/master custody and institutional custody. In other processing, we are a leader in funds transfer, processing over 50,000 transactions each day, and rank among the top providers of cash management, letters of credit and trade finance services to corporate and institutional customers worldwide. We have consistently invested in the technology necessary to improve our processing efficiency and accommodate incremental volume. As an example, we designed a personal computer-based information delivery system called Workstation, which allows our processing customers to access a range of securities related data captured by us from their own office. Software we have developed has allowed us to adapt this technology for use in virtually all of our securities processing businesses. Our Securities and Other Processing businesses are comprised of the following: 45 American Depositary Receipts - Allow foreign companies to offer their dollar denominated securities to investors in the United States. During 1994, The Bank of New York continued its leadership role in this market, acting as depositary for over 56% of all new public sponsored programs, including the establishment of 105 new public sponsored depositary receipt programs from 34 countries. In total, The Bank of New York acts as depositary for more public sponsored depositary receipt programs than all of our competitors combined. Securities Lending - Our global programs are designed for customers whose assets are held in custody or are otherwise available for lending. This process provides for increasing the yield on customer portfolios by lending their U.S. and non-U.S. dollar denominated securities. Overseas we saw significant growth in London and expanded our operations to include a presence in Hong Kong. Government Securities Clearance - We are the market leader in government securities clearance and the administration of tri-party repurchase agreements. Revenues from this business were up 25% from 1993 principally from the addition of 17 new relationships and the significant growth in domestic and global tri-party business. Our focus on marketing to bank securities affiliates (Section 20s) has resulted in our being the leading provider to this important growth market. Mutual Funds Custody - The Bank of New York is the second-largest provider of mutual funds custody with approximately $300 billion in assets under administration, and we continue to expand our presence as a leading provider of worldwide custody and accounting services. We provide securities safekeeping, payment of dividends and portfolio valuation. During 1994 our product offerings 46 were expanded to include full fund administration and trustee/custody services for non-U.S. portfolios. These services are being offered from a new Bank subsidiary located in Dublin, Ireland. Unit Investment Trust - We provide trustee and custody services for over 3,900 trusts with an approximate aggregate market value of $22 billion. The rising interest rate environment in 1994 benefited this business due to reduced calls of municipal bonds in existing portfolios. Corporate Trust - The Bank of New York is one of the top three providers of corporate trust services in the United States, with more than 20,000 issues representing over $300 billion in outstanding securities under administration. We offer a complete product line that can be customized to meet issuers' requirements for all types of fixed-income securities. Our commitment to this business was underscored by the acquisition of four new corporate trust books of business during 1994. Stock Transfer - We provide comprehensive record keeping and dividend disbursement services for 380 public companies with over 7.5 million shareholders. During 1994, we introduced our Workstation product to our stock transfer customers. Designed specifically for the Corporate Secretary's office, Workstation provides on-line access to vital shareholder data. Master Trust/Master Custody - The Bank provides custody and accounting services to corporate pension funds, foundations, endowments and organizations having special compliance or tax reporting requirements. We are the leader in the fast growing public funds market segment, and have also expanded our share of corporate retirement funds. Fees generated by this business were up 47 significantly in 1994, principally from the establishment of new relationships in both segments of the market. Cash Management - The Bank offers a full range of cash management services to corporate and institutional customers worldwide. Our strategy is to focus on meeting the individual needs of our corporate banking clients. These markets include the communications and securities industries, mortgage banking, mutual funds and middle market companies. Funds Transfer - We clear an average of over $200 billion each day for domestic and foreign financial institutions. We have established a network of 2,200 correspondent banking relationships in 132 countries. This global partnership enhances the accuracy and efficiency of the daily U.S. dollar denominated funds transfer activities throughout this network. Our continued investment in technology has allowed us to increase processing proficiency and support significant incremental transaction volume. The result has been improved profitability and a 30% gain in market share over the last two years. Trade Finance - The Bank provides a broad range of trade finance services, such as letters of credit, to domestic and multinational companies of all sizes. Our global network of correspondent banks enables us to expedite customers' imports and exports around the world, particularly in Asia, Latin America and the Middle East. A significant element of our trade strategy is to focus on U.S. retailers, where we have a strong domestic corporate presence. These customers represent a major share of our domestic import letter of credit activity. 48 Highlights * The Bank of New York was appointed depositary for the largest privatization in 1994: Denmark's Tele-Danmark, $1.2 billion offering. * We established the first New York Stock Exchange listed depositary receipt programs from Colombia, Korea, Indonesia, Russia and the first 144A depositary receipt program from Peru. * Our Asian branches advised and issued nearly 100,000 letters of credit with a combined face amount of over $9 billion. This exceeded our 1993 volume by over 40%. * Revenues from our Mutual Funds Custody Division grew 20% in 1994, principally from the addition of 123 new portfolios during the year. * Through our highly automated systems and direct links to the Federal Reserve network, we clear a daily average of $400 billion in U.S. Government and Agencies securities. * We have been selected by the Russian Commission on Securities and Stock Markets to lead the development of the first western-style independent share registration service in Russia. This service will be available in the second quarter of 1995. 49 Credit Cards The Bank of New York (Delaware) is the ninth-largest commercial bank issuer of credit cards in the United States. It continues to be a leading provider of low rate, no annual fee credit cards. Consumers Edge is a no annual fee card with no grace period that appeals to customers who maintain outstanding balances. It offers one of the lowest annual interest rates in the country. The Union Privilege MasterCard offered on an exclusive basis to over 14 million members of the AFL-CIO, is the largest single affinity card program in the country. 50 Highlights * Credit card accounts increased in 1994 by 25%, from 4.8 million to 6.0 million, while managed credit card outstandings rose by 24% to a year-end total of $7.7 billion. * Added over one million new accounts to the Consumers Edge program. * Introduced The Bank of New York (Delaware) MasterCard Business Card, which affords small businesses a tailored cash management tool. The Business Card offers all the conveniences of a traditional corporate charge card with additional expense control options developed specifically for small businesses. * Cardholders have access to customer representatives seven days a week from 8AM to 11PM Eastern time. * Cardholders may access general account information 24 hours a day and seven days a week through our automated voice response system. 51 Corporate Banking The Bank of New York serves the global banking needs of selected domestic and multinational corporations and institutions. Our goal is to establish broader and more durable relationships with these companies by leading their corporate credits, and by obtaining their securities processing and other operating business through effective cross-selling. The primary function of the Bank's 26 international branches and representative offices is to sell and to assist in the delivery of securities and other processing products with special emphasis on trade services and funds transfer. Corporate banking is divided into the following areas: Special Industries Banking - The Bank of New York has long been a leading provider of credit and operating services to the media, securities, energy and public utilities, surface transportation, real estate, mortgage banking and insurance industries. Each specialized area provides a focused expertise to meet the unique requirements of these industries. U.S. Commercial Banking - The Bank serves domestic corporations by focusing its calling efforts on the major metropolitan areas around the country that offer the greatest concentrations of existing and prospective customers. Middle Market Banking - We offer lending expertise to growing mid-size businesses throughout the greater New York metropolitan area along with the same sophisticated banking services usually provided to much larger companies. These 52 services include: asset-based finance, cash management, securities processing, trade finance, leasing and investment banking. International Banking - We support the global requirements of overseas correspondent banks, government agencies and corporations, both in the U.S. and abroad. Our network of foreign branches and representative offices is a major source of business for securities and other processing products such as American Depositary Receipts, funds transfer and trade finance. Our extensive international capabilities are utilized to enhance the Bank's position with corporate customers in the United States. Factoring - BNY Financial Corporation, our factoring subsidiary, is the second-largest factoring operation in the U.S. and the largest in Canada. We have accomplished major customer and geographic diversification in this business over the last five years. Historically, our customer concentration in the apparel industry ranged between 65-70%. Today, 42% of our business is to this industry, with the remainder coming from such diverse sources as the utility, industrial security, shipping, freight, food processing and beverage industries. BNY Financial Corporation now operates in seven offices located in New York, Boston, Los Angeles, Atlanta, Charlotte, as well as Toronto and Montreal. Highlights * BNY Financial Corporation completed its 13th consecutive year of record earnings. * The Bank of New York was appointed Administrative Agent on over 150 broadly syndicated loans. 53 Retail Banking The Bank of New York is the leading retail bank in the suburban New York area. Our extensive branch network totals 379 offices serving 24 counties in New York and New Jersey. We offer individuals, professionals, small businesses and municipalities a complete range of products and services that are designed to provide the best banking value. In 1994, much of our efforts focused on integrating and growing the franchises that we had acquired during the previous two years. We accomplished this by introducing new products and improved service to all of our markets. For consumers, we introduced an enhanced Priority Value Banking relationship product, offering higher savings rates and lower loan rates to our best customers. Recognizing the consumer's need to move beyond traditional products and services, we introduced the Personal Investment Centers, conveniently located in Bank of New York branches, and staffed by licensed representatives who are equipped to offer alternative investment products such as annuities and mutual funds. 54 Highlights * We introduced Group Banking, a new product that provides small business customers the ability to add direct payroll deposit, free checking and other banking services to their employee benefits packages. Before year-end we added the Pay Plus card, which allows employees without bank accounts to participate in direct deposit of payroll as well. * The Bank's 24-hour bank by phone service line, 1-800-CALL-BNY was enhanced with new features such as automated check reorders, ATM and direct deposit information. * We became the only bank in our market to accept applications by telephone, with approval in 60 minutes, for all types of consumer loans. 55 Trust, Investment Management and Private Banking The Trust, Investment Management and Private Banking sector provides a wide range of custom financial services to high income, high net worth individuals and business owners. The sector also provides domestic and offshore institutions with a fully array of investment management services. The Bank's personal services encompass financial planning, investment management, banking, trusts, estate administration, custody, income tax planning and preparation, and real estate management. These services are provided to individuals in the United States and abroad and delivered by professionals located throughout the New York City metropolitan area and New Jersey, and in Florida. The goal of our private banking teams, which are staffed by representatives from our Trust, Investment and Banking areas, is to expand our major high net worth client relationships by providing focused, responsive and more fully integrated levels of customer service. The sector's Institutional Investment Management Division manages assets for corporations, public funds, unions, foundations and endowments. Our investment options include balanced, fixed-income, active equity, index fund products and short-term money management as well as ADRs and other international instruments. Highlights * The Tax-Exempt Bond Management Division, which offers a unique service that enables investors to maximize returns on their municipal bond portfolios, posted a 39% increase in revenue over the previous year. * Short-Term Money Management service for institutions seeking safety and high returns on liquid funds posted revenue growth of 26%. 56 Financial Market Services The Bank of New York is a market maker in the world's major trading currencies. We provide 24-hour, full-service trading capabilities through our offices in New York, London, Tokyo, Frankfurt, Hong Kong, Seoul and Taipei. The Bank is a full-service broker/dealer and underwriter of high-grade, general obligation tax-exempt securities issued principally in the New York tri-state area. These securities are provided to mutual funds, financial institutions, corporations and individual investors. The Bank of New York offers a full range of interest rate hedging products to help corporate treasurers and investment managers control and reduce their exposure to interest rate risk. These products can be transacted in U.S. dollars as well as selected foreign currencies. Additionally, the Bank sells cross-currency hedging products, which are designed to manage both interest rate and currency risk. Our financial market professionals also manage our worldwide assets and liabilities and the Company's own investment portfolio. In a year where losses on derivatives portfolios dominated the financial press, The Bank of New York stood out for not employing these instruments to reach for yield through interest rate speculation. 57 Highlights * Our focus on marketing interest rate risk management products to financial institutions resulted in a $260 million increase in transaction volume to this important business sector. The majority of this growth came from transactions with large regional banks and companies in the insurance and credit card industries. * Our "match funding" approach to asset and liability management insulated our balance sheet from the effects of rising interest rates. EX-21 16 SUBSIDIARIES EXHIBIT 21 1 Subsidiaries Of The Registrant Significant subsidiaries of The Bank of New York Company, Inc. are as follows: The Bank of New York, a New York State Chartered Bank BNY Holdings (Delaware) Corporation, a Delaware Corporation The Bank of New York (Delaware)*, a Delaware State Chartered Bank BNY Holdings (New Jersey) Corporation, a New Jersey Corporation The Bank of New York National Association**, a National Bank ------------------------------- * Subsidiary of BNY Holdings (Delaware) Corporation ** Subsidiary of BNY Holdings (New Jersey) Corporation EX-23 17 DT CONSENT EXHIBIT 23.1 1 INDEPENDENT AUDITORS' CONSENT We consent to the incorporation by reference in the Registration Statements of The Bank of New York Company, Inc. listed below of our report dated February 24, 1995, appearing in the 1994 Annual Report to Shareholders which is incorporated by reference in this Annual Report on Form 10-K of The Bank of New York Company, Inc. for the year ended December 31, 1994. On Form S-3: No. 33-50333 No. 33-51984 On Form S-4: No. 33-25805 On Form S-8: No. 33-57670 Post Effective Amendment No. 2 to Registration Statement No. 2-95764 Post Effective Amendment No. 5 to Registration Statement No. 2-95765 Pre Effective Amendment No. 1 to Registration Statement No. 33-20999 Pre Effective Amendment No. 1 to Registration Statement No. 33-33460 \s\ Deloitte & Touche LLP New York, New York March 27, 1995 EX-23 18 AA CONSENT Exhibit 23.2 1 Arthur Andersen LLP CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation by reference into The Bank of New York Company Inc.'s Form 10-K of our report dated January 12, 1993 (except with respect to the matter discussed in Note 18, as to which the date is January 29, 1993) with respect to the consolidated financial statements of National Community Banks, Inc. (NCB) referred to in such report. It should be noted that we have not audited any financial statements of NCB subsequent to December 31, 1992 or performed any audit procedures subsequent to the date of our report. \s\ Arthur Andersen LLP Roseland, New Jersey Arthur Andersen LLP March 21, 1995 EX-27 19 FINANCIAL DATA SCHEDULE
9 This schedule contains summary financial information extracted from The Bank of New York Company, Inc.'s Form 10-K for the period ended December 31, 1994 and is qualified entirely by reference to such Form 10-K. 0000009626 THE BANK OF NEW YORK COMPANY, INC. 1,000,000 YEAR DEC-31-1994 JAN-1-1994 DEC-31-1994 2,903 992 3,019 940 1,721 2,930 2,707 33,083 792 48,879 34,091 6,240 1,666 1,774 1,427 0 119 2,750 48,879 2,405 283 229 2,962 842 1,245 1,717 162 15 1,646 1,198 749 0 0 749 3.92 3.70 4.11 297 163 0 0 970 411 57 792 637 155 0
EX-99 20 AA OPINION Exhibit 99 1 Arthur Andersen LLP Report of Independent Public Accountants To the Board of Directors of National Community Banks, Inc. We have audited the accompanying consolidated statement of income, changes in shareholders' equity and cash flows for the year ended December 31, 1992 of National Community Banks, Inc. (a New Jersey Corporation) and its subsidiary. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the results of operations and cash flows of National Community Banks, Inc. and subsidiary for the year ended December 31, 1992, in conformity with generally accepted accounting principles. As described in Note 13 to the consolidated financial statements, National Community Banks, Inc. (the Company), its subsidiary, National Community Bank of New Jersey, and certain directors and officers of the Company have been named defendants in a complaint seeking relief on behalf of a class of shareholders. This litigation continues to be in a preliminary stage and its ultimate outcome cannot be determined. \s\ Arthur Andersen LLP Arthur Andersen LLP Roseland, New Jersey January 12, 1993 (except with respect to the matter discussed in Note 18, as to which the date is January 29, 1993)