<PAGE> 1
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1994
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File No. 1-7410
MELLON BANK CORPORATION
(Exact name of registrant as specified in its charter)
Pennsylvania 25-1233834
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One Mellon Bank Center
Pittsburgh, Pennsylvania 15258-0001
(Address of principal executive offices)(Zip Code)
Registrant's telephone number, including area code -- (412) 234-5000
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 the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Outstanding as of
Class March 31, 1994
Common Stock, $0.50 par value 63,625,712
<PAGE> 2
<TABLE>
TABLE OF CONTENTS AND 10-Q CROSS-REFERENCE INDEX
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<CAPTION>
Page No.
--------
<S> <C>
PART I - FINANCIAL INFORMATION
Financial Highlights 2
Management's Discussion and Analysis of Financial Condition
and Results of Operations (Item 2) 3
Financial Statements (Item 1):
Consolidated Income Statement 32
Consolidated Balance Sheet 34
Consolidated Statement of Cash Flows 35
Consolidated Statement of Changes in Shareholders' Equity 36
Notes to Financial Statements 37
Selected Statistical Information:
Composition of Loan Portfolio 43
Deposits 43
Consolidated Balance Sheet - Average Balances and Interest Yields/Rates 44
PART II - OTHER INFORMATION
Legal Proceedings (Item 1) 46
Exhibits and Reports on Form 8-K (Item 6) 47
Signature 48
Corporate Information 49
Index to Exhibits 50
</TABLE>
<PAGE> 3
<TABLE>
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FINANCIAL HIGHLIGHTS
<CAPTION>
(dollar amounts in millions,
except per share amounts) 1994 1993
- - ------------------------------------------------------------------------------------------------------
<S> <C> <C>
FOR THE THREE MONTHS ENDED MARCH 31
Net income $ 131 $ 34
Net income applicable to common stock 116 19
Dividends on common stock 36 23
Per common share:
Net income $ 1.77 $ .31
Dividends .56 .38
Annualized return on common shareholders' equity 17.25% 3.39%
Annualized return on assets 1.43% .42%
Efficiency ratio:
Including amortization of intangibles 68% 60%
Excluding amortization of intangibles 62% 56%
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PRO FORMA (a)
Net income $ 131 $ 93
Net income applicable to common stock 116 78
Net income per common share $ 1.77 $ 1.27
Annualized return on common shareholders' equity 17.25% 13.86%
Annualized return on assets 1.43% 1.17%
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BALANCES AT MARCH 31
Loans $24,532 $19,431
Total assets 36,616 30,899
Deposits 26,761 22,997
Common shareholders' equity 2,793 2,363
Book value per common share (b) $ 42.76 $ 38.03
Common shareholders' equity to assets ratio 7.63% 7.65%
Tier I capital ratio 7.62% 9.49%
Total (Tier I plus Tier II) capital ratio 11.17% 13.18%
Leverage capital ratio 6.90% 8.13%
Average common shares and equivalents outstanding (in thousands) 66,287 60,627
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<FN>
Note: Throughout this report, ratios are based on unrounded numbers and factors contributing to changes between periods are noted
in descending order of materiality.
(a) Pro forma results for 1993 exclude $112 million after-tax in restructuring expense and $53 million in after-tax gains on the
sale of securities related to the Corporation's acquisition of The Boston Company.
(b) Book value per common share assumes full conversion of the Series D preferred stock to common stock. Accordingly, this
includes the additional paid-in capital on the Series D preferred stock because this paid-in capital has no liquidation
preference over the common stock.
</TABLE>
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<PAGE> 4
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The Corporation recorded net income of $131 million, or $1.77 per common share,
in the first quarter of 1994. The annualized return on common shareholders'
equity and return on assets were 17.25% and 1.43%, respectively, for the
quarter. The Corporation's net income and earnings per share in the first
quarter of 1993 were $34 million and $.31 per common share, respectively.
Results for the first quarter of 1993 included an after-tax restructuring
charge of $112 million taken in connection with the acquisition of The Boston
Company, as well as $53 million in after-tax gains on the sale of securities
taken as part of the financing plan and balance sheet restructuring related to
this acquisition. Excluding these items, the Corporation's pro forma net
income would have been $93 million, or $1.27 per common share, in the first
quarter of 1993; and pro forma annualized return on common shareholders' equity
and return on assets would have been 13.86% and 1.17%, respectively.
<TABLE>
<CAPTION>
INCOME STATEMENT HIGHLIGHTS
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Three months ended Inc (Dec)
March 31, ----------------------
(dollar amounts in millions) 1994 1993 Amount Percent
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<S> <C> <C> <C> <C>
Net interest revenue (taxable
equivalent basis) $365 $319 $46 14%
Provision for credit losses 20 35 (15) (43)
Fee revenue 343 232 111 48
Gains on the sale of securities - 87 (87) NM
Operating expense 471 533 (62) (12)
Provision for income taxes 83 34 49 NM
Net income 131 34 97 NM
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<FN>
NM - Not meaningful.
</TABLE>
Compared with the same period a year ago, results in the first quarter of 1994
reflected increases in net interest revenue and fee revenue, a lower provision
for credit losses and higher operating expenses, excluding the restructuring
charge in the prior-year period.
Net interest revenue was $362 million in the first quarter of 1994, up 14% from
$317 million in the first quarter of 1993. The increase in net interest
revenue was attributable primarily to the Corporation's 1993 acquisitions of
The Boston Company and AFCO, which were accounted for under the purchase method
of accounting. Fee revenue was $343 million, up 48% from $232 million in the
prior-year period. The Boston Company added approximately $112 million to the
first quarter 1994 fee revenue. Also impacting fee revenue was the
approximately $21 million reduction in fee revenue resulting from the fourth
quarter 1993 sale of two information services businesses.
The provision for credit losses was $20 million in the first quarter of 1994,
down $15 million from the prior-year period. Net credit losses were $17
million, down $32 million from a year earlier, reflecting continuing
improvement in the credit quality of the loan portfolio. Nonperforming assets
totaled $314 million at March 31, 1994, representing the lowest level in more
than eleven years. This compares with nonperforming assets of $341 million at
December 31, 1993, and $532 million at March 31, 1993. At March 31, 1994, the
Corporation's ratio of nonperforming loans to total loans was .80%, compared
with .83% and 1.56% at December 31, 1993 and March 31, 1993, respectively.
Operating expense for the first quarter of 1994 was $471 million, compared to
the $358 million in the first quarter of 1993 excluding the restructuring
charge. The increase was primarily due to the impact of acquisitions.
-3-
<PAGE> 5
PENDING MERGER WITH THE DREYFUS CORPORATION
In December 1993, the Corporation entered into a definitive agreement to merge
with The Dreyfus Corporation (Dreyfus). Dreyfus is the nation's sixth-largest
mutual fund company, with approximately $74 billion of assets under management
and administration at March 31, 1994. The merger of the Corporation and
Dreyfus would create a diversified financial services organization with annual
revenues of approximately $3.2 billion, including fee revenue of approximately
$1.7 billion. Dreyfus is headquartered in New York City and employs
approximately 2,100.
Dreyfus shareholders will receive .88017 shares of the Corporation's common
stock for each share of Dreyfus common stock outstanding. Dreyfus has
approximately 37 million shares outstanding. The transaction will be accounted
for under the pooling-of-interests method, with prior period financial results
restated to reflect the merger. The Corporation's capital ratios following the
merger will be approximately 200 basis points higher than the March 31, 1994
ratios. However, as a result of the approximately 32 million additional shares
of the Corporation's common stock to be issued to the Dreyfus shareholders, the
Corporation's book value per common share, on a pro forma basis, would have
been $37.28, or 13%, lower at March 31, 1994. Earnings per common share, on a
pro forma basis, would have been $1.44, or 19%, lower for the first quarter of
1994.
In connection with the transaction, the Corporation expects to record one-time
after-tax merger expenses and restructuring charges of approximately $73
million at closing, which is anticipated in the third quarter of 1994.
On May 4, 1994, Mellon Bank, N.A. received approval from The Office of the
Comptroller of the Currency for its combination with The Dreyfus Company.
Completion of the merger is contingent upon the approval of the shareholders of
the Corporation and Dreyfus, various other regulatory approvals and certain
approvals by the boards of directors and shareholders of the mutual funds
managed, advised or administered by Dreyfus.
-4-
<PAGE> 6
<TABLE>
BUSINESS SECTORS
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<CAPTION>
FOR THE THREE MONTHS ENDED MARCH 31
(dollar amounts in millions, Retail Total
averages in billions) Wholesale Banking Financial Services Service Products core sectors
1994 1993 1994 1993 1994 1993 1994 1993
- - -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue(a) $ 98 $ 84 $ 253 $ 267 $337 $194 $ 688 $ 545
Credit quality expense - 14 19 13 - - 19 27
Operating expense 38 32 181 149 255 145 474 326
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Income before taxes(a) 60 38 53 105 82 49 195 192
Income taxes(a) 22 14 21 44 34 18 77 76
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Net income $ 38 $ 24 $ 32 $ 61 $ 48 $ 31 $ 118 $ 116
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Average assets $11.7 $11.1 $16.6 $18.0 $7.3 $1.3 $35.6 $30.4
Average common equity $ 1.0 $ .7 $ 1.0 $ 1.0 $1.0 $ .4 $ 3.0 $ 2.1
Return on common
shareholders' equity(b) 16% 12% 13% 22% 20% 30% 16% 21%
Return on assets(b) 1.34% .86% .79% 1.37% NM NM 1.35% 1.55%
Efficiency ratio:
Including amortization
of intangibles 38% 38% 72% 56% 75% 74% 69% 60%
Excluding amortization
of intangibles 38% 38% 65% 50% 69% 70% 63% 55%
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</TABLE>
<TABLE>
<CAPTION>
Real Estate Total all
Banking Other sectors
1994 1993 1994 1993 1994 1993
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<S> <C> <C> <C> <C> <C> <C>
Revenue(a) $ 12 $ 12 $ 8 $ 81 $ 708 $ 638
Credit quality expense (7) 32 - 1 12 60
Operating expense 5 8 - 174 479 508
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Income (loss) before taxes(a) 14 (28) 8 (94) 217 70
Income taxes(a) 5 (11) 4 (29) 86 36
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Net income (loss) $ 9 $(17) $ 4 $(65) $ 131 $ 34
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Average assets $1.2 $1.7 $.4 $ - $37.2 $32.1
Average common equity $ .1 $ .2 (.3) - $ 2.8 $ 2.3
Return on common
shareholders' equity(b) NM * NM NM 17% 3%
Return on assets(b) NM * NM NM 1.43% .42%
Efficiency ratio:
Including amortization
of intangibles 43% 61% NM NM 68% 60%
Excluding amortization
of intangibles 43% 61% NM NM 62% 56%
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<FN>
(a) Fully taxable equivalent basis.
(b) Annualized.
NM - Not a meaningful measure of performance for this sector.
* Loss
Note: This table presents the operating results of the major business sectors within the Corporation, analyzed on an internal
management reporting basis. Capital is allocated using the federal regulatory guidelines as a basis, coupled with management's
judgement regarding the operational risks inherent in the businesses. The capital allocations may not be representative of the
capital levels that would be required if these sectors were nonaffiliated business units.
</TABLE>
-5-
<PAGE> 7
BUSINESS SECTORS (CONTINUED)
Income before taxes, on a fully taxable equivalent basis, for the Corporation's
core sectors was $195 million in the first quarter of 1994, an increase of $3
million compared with the first quarter of 1993. The first quarter of 1994,
included $20 million in marketing expenses primarily related to the
introduction of the Corporation's CornerStone credit card product. Excluding
these expenses, income before taxes for the core sectors increased $23 million,
or 12%, compared with the first quarter 1993. The improvement resulted
primarily from the impact of The Boston Company and AFCO Credit Corporation
acquisitions and lower credit quality expense reflecting the continued
improvement in asset quality. Excluding the CornerStone marketing expenses,
annualized return on common shareholders' equity and return on assets for the
core sectors was 18% and 1.49% in the first quarter of 1994 compared with 21%
and 1.55% in the prior-year period. Results in the first quarter of 1994 also
reflected significant improvement in the Real Estate Banking sector primarily
related to improved asset quality. This sector had income before taxes of $14
million, compared to a net loss before taxes of $28 million in the first
quarter 1993, representing an improvement of $42 million.
Wholesale Banking
Wholesale Banking includes large corporate and middle market lending, asset
based lending and certain capital markets and leasing activities. Income
before taxes for this sector increased $22 million, or 62%, in the first
quarter of 1994, compared with the prior-year period. This improvement
resulted primarily from higher foreign currency and trading fee revenue and
lower credit quality expense reflecting continued improvement in the credit
quality of the loan portfolio. Annualized return on common equity was 16% in
the first quarter of 1994, compared with 12% in the prior-year period.
Retail Financial Services
Retail Financial Services' income before taxes totaled $53 million in the first
quarter of 1994, a decrease of $52 million, or 51%, compared with the
prior-year period. Revenue decreased $14 million compared with the first
quarter of 1993. This decrease resulted from lower net interest revenue,
primarily related to a lower level of average interest-earning assets and lower
revenue from the Corporation's seasonal tax refund anticipation loan program.
Revenue from this product decreased $7 million compared with the first quarter
of 1993 due primarily to a change in the operating agreements with the tax
preparation firms with whom the Corporation does business. The $6 million
increase in credit quality expense primarily resulted from a loan loss
provision relating to a first quarter 1994 acquisition of a credit card
portfolio. The increase in operating expense reflected the increased marketing
expense related to the Corporation's CornerStone credit card product.
Annualized return on common shareholders' equity was 13% in the first quarter
of 1994, compared with 22% in the comparable 1993 period.
Service Products
Service Products, which primarily includes trust and investment, cash
management, information services, jumbo mortgage lending, mortgage loan
origination and servicing and insurance premium financing, continued to have
favorable returns on equity in the first quarter of 1994. Income before taxes
for this sector totaled $82 million, an increase of $33 million, or 66%,
compared with the first quarter of 1993, primarily reflecting earnings from The
Boston Company and AFCO acquisitions. The $143 million, or 74%, improvement in
revenue resulted from higher net interest revenue from The Boston Company and
AFCO acquisitions and higher trust and investment management fees earned at The
Boston Company as well as internal growth, partially offset by a decrease in
information services fees resulting from the December 1993 sale of two
information services
-6-
<PAGE> 8
BUSINESS SECTORS (CONTINUED)
businesses. Supporting the revenue growth was increased operating expenses
primarily for The Boston Company and in support of internal revenue growth.
The pretax operating margin in this sector was 25% in the first quarter of
1994, compared with 26% in the first quarter of 1993.
Real Estate Banking
Real Estate Banking includes commercial real estate lending and mortgage
banking recovery operations. This sector's income before taxes in the first
quarter of 1994 was $14 million, compared to a net loss before taxes of $28
million in the first quarter of 1993. The $42 million improvement in
profitability was due to the $39 million decrease in credit quality expense.
Credit quality expense in the first quarter of 1994 included $7 million in net
gains on the sale of acquired property, as well as no provision for credit
losses or provision to the reserve for acquired property.
Other
The "Other" sector's pretax loss of $94 million in the first quarter of 1993
primarily reflected a $175 million restructuring charge related to the
Corporation's acquisition of The Boston Company, partially offset by $87
million in gains on the sale of securities. There were no gains or losses on
the sale of securities in the first quarter of 1994.
-7-
<PAGE> 9
<TABLE>
NET INTEREST REVENUE
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<CAPTION>
Three months ended March 31,
1994 1993
(taxable equivalent basis, AVERAGE AVERAGE Average Average
dollar amounts in millions) BALANCE RATE balance rate
- - -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Money market investments $ 1,884 3.38% $ 2,997 3.39%
Trading account securities 504 5.57 293 5.85
Securities 4,417 5.35 4,654 5.92
Loans 24,627 7.22 19,900 7.86
------- -------
Total interest-earning assets $31,432 6.70% $27,844 7.03%
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Financed by:
Interest-bearing liabilities $24,819 2.53% $22,215 2.98%
Noninterest-bearing liabilities 6,613 - 5,629 -
------- -------
Total $31,432 2.00% $27,844 2.38%
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Net interest revenue $ 365 4.70% $ 319 4.65%
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<FN>
Note: Average rates are annualized and are calculated on a taxable equivalent basis at tax rates approximating 35%. Loan fees and
the income effect related to nonaccrual loans have been included in the calculation of average rates.
</TABLE>
Net interest revenue on a fully taxable equivalent basis for the first quarter
of 1994 totaled $365 million, up $46 million, or 14%, compared with the first
quarter of 1993. The net interest margin was 4.70% in the first quarter of
1994, compared with 4.65% in the first quarter of 1993.
The improvement in net interest revenue in the first quarter of 1994, compared
with the first quarter of 1993, primarily reflected a $3.6 billion higher level
of average interest-earning assets, resulting from the second quarter 1993
acquisition of The Boston Company and the December 1993 acquisition of AFCO.
AFCO contributed approximately $16 million to net interest revenue in the first
quarter of 1994. A reduction in nonperforming assets also contributed to the
improved net interest revenue and net interest margin compared with the
prior-year period. Net interest revenue in the first quarter of 1994 included
revenue from the Corporation's seasonal tax refund anticipation loan program,
which contributed 11 basis points to the net interest margin, compared with 13
basis points in the prior-year period.
-8-
<PAGE> 10
<TABLE>
CREDIT QUALITY EXPENSE AND RESERVE FOR CREDIT LOSSES
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<CAPTION>
Three months ended
March 31,
(in millions) 1994 1993 (Dec)
- - --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Provision for credit losses $20 $35 $(15)
Net expense (revenue) of acquired property (8) 25 (33)
- - --------------------------------------------------------------------------------------------------------------
Credit quality expense $12 $60 $(48)
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</TABLE>
Credit quality expense, defined as the provision for credit losses plus the net
expense of acquired property, was $12 million in the first quarter of 1994,
compared with $60 million in the prior-year period, reflecting continuing
improvement in the credit quality of the loan portfolio and the lower level of
real estate acquired (OREO).
The $8 million in net revenue from acquired property in the first quarter of
1994 primarily resulted from $9 million in gains on the sale of acquired
property. Net expense of acquired property of $25 million in the first quarter
of 1993 included $21 million of provision to the reserve for OREO. No
provision to the reserve for OREO was recorded in the first quarter of 1994.
<TABLE>
<CAPTION>
Three months ended
March 31, Inc/
(dollar amounts in millions) 1994 1993 (Dec)
- - --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Reserve balance at beginning of period(a) $600 $506 $ 94
Additions (deductions)(a):
Credit losses (36) (68) (32)
Recoveries 19 19 -
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Net credit losses (17) (49) (32)
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Provision charged to expense 20 35 (15)
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Reserve balance at end of period(a) $603 $492 $111
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Reserve as a percentage of:
Total loans 2.46% 2.53% (7)bp
Nonperforming loans 308 162 146
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<FN>
(a) Excludes the reserve for segregated assets and net credit losses on segregated assets.
</TABLE>
The reserve for credit losses was $603 million at March 31, 1994, or 2.46% of
total loans, compared with $492 million at March 31, 1993, or 2.53% of total
loans. The increase at March 31, 1994, compared with the prior-year period,
resulted primarily from a $99 million addition to the reserve from The Boston
Company acquisition. The reserve continues to indicate strong reserve coverage
of nonperforming loans, increasing to 308% of nonperforming loans at March 31,
1994, compared with 162% at March 31, 1993. The Corporation maintains a credit
loss reserve which, in management's judgment, is adequate to absorb future
losses inherent in the loan portfolio.
A summary of the Corporation's net credit losses is presented in the table on
the following page. The decrease in net credit losses for the first quarter of
1994, compared with the prior-year period, resulted primarily from lower
commercial real estate net credit losses. Although the level of credit losses
is to some extent dependent upon general economic conditions, the Corporation
expects continued moderation in the level of credit losses for the remainder of
1994, compared with the prior year, particularly in the level of commercial
real estate credit losses.
-9-
<PAGE> 11
<TABLE>
CREDIT QUALITY EXPENSE AND RESERVE FOR CREDIT LOSSES (CONTINUED)
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<CAPTION>
NET CREDIT LOSSES (RECOVERIES)
Three months ended
March 31, Inc/
(dollar amounts in millions) 1994 1993 (Dec)
- - ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CREDIT LOSSES
Domestic:
Commercial and financial $11 $15 $ (4)
Commercial real estate 2 31 (29)
Consumer credit:
Credit card 12 12 -
Consumer mortgage 3 2 1
Other consumer credit 5 6 (1)
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Total domestic 33 66 (33)
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International 3 2 1
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Total credit losses 36 68 (32)
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RECOVERIES
Domestic:
Commercial and financial (8) (9) (1)
Commercial real estate (5) (2) 3
Consumer credit:
Credit card (2) (2) -
Consumer mortgage (1) - 1
Other consumer credit (3) (3) -
- - ---------------------------------------------------------------------------------------------------------
Total domestic (19) (16) 3
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International - (3) (3)
- - ---------------------------------------------------------------------------------------------------------
Total recoveries (19) (19) -
- - ---------------------------------------------------------------------------------------------------------
NET CREDIT LOSSES (RECOVERIES)
Domestic:
Commercial and financial 3 6 (3)
Commercial real estate (3) 29 (32)
Consumer credit:
Credit card 10 10 -
Consumer mortgage 2 2 -
Other consumer credit 2 3 (1)
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Total domestic 14 50 (36)
- - ---------------------------------------------------------------------------------------------------------
International 3 (1) 4
- - ---------------------------------------------------------------------------------------------------------
Total net credit losses $17 $49 $(32)
- - ---------------------------------------------------------------------------------------------------------
Annualized net credit losses
to average loans .27% 1.00% (73)bp
- - ---------------------------------------------------------------------------------------------------------
</TABLE>
-10-
<PAGE> 12
<TABLE>
NONINTEREST REVENUE
<CAPTION>
- - ---------------------------------------------------------------------------------------------------------
Three months ended
March 31, Inc/
(in millions) 1994 1993 (Dec)
- - ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Fee revenue:
Trust and investment management:
Institutional trust $ 62 $ 29 $ 33
Mutual fund 41 - 41
Institutional asset management 38 20 18
Personal trust 34 24 10
- - ---------------------------------------------------------------------------------------------------------
Total trust and investment management 175 73 102
Cash management and deposit transaction charges 51 48 3
Information services 20 36 (16)
Mortgage servicing 16 17 (1)
Credit card 14 13 1
Foreign currency and securities trading 22 4 18
Other 45 41 4
- - ---------------------------------------------------------------------------------------------------------
Total fee revenue 343 232 111
Gains on sale of securities - 87 (87)
- - ---------------------------------------------------------------------------------------------------------
Total noninterest revenue $343 $319 $ 24
- - ---------------------------------------------------------------------------------------------------------
</TABLE>
Revenues from the Corporation's fee-generating businesses in the first quarter
of 1994 increased by $111 million, or 48%, from the first quarter of 1993 and
represented 49% of total revenue for the quarter. Approximately $112 million
of this increase was attributable to The Boston Company, partially offset by
the approximately $21 million reduction in fee revenue resulting from the
fourth quarter 1993 sale of two information services businesses.
Trust and investment management fees of $175 million for the first quarter of
1994 comprised over 50% of total noninterest revenue and 25% of total revenue
for the quarter. The $102 million improvement in trust and investment
management fees in the first quarter of 1994, compared with the prior-year
period, resulted principally from $95 million of fee revenue earned at The
Boston Company.
Upon completion of the merger with The Dreyfus Corporation, the Corporation
expects to substantially increase its trust and investment management fee
revenue and become the largest bank manager of mutual funds. At March 31,
1994, The Dreyfus Corporation had approximately $74 billion of mutual fund
assets under management and administration. On a pro forma basis, the combined
market value of assets under management and administration/custody of the
Corporation and Dreyfus at March 31, 1994 would have been approximately $835
billion.
In March 1994, the Corporation signed a non-binding letter of intent to sell
part of its Boston based mutual fund administration business. At March 31,
1994, this business administered approximately $40 billion of assets. The
Corporation will retain the custody business on these assets, thus the total
assets under administration and custody will not change. The Corporation
expects any gain or loss on the transaction to be immaterial and does not
expect the sale of the business to be material to its 1994 earnings. The
transaction is subject to board approvals, completion of a due diligence review
and the signing of a definitive agreement. As a result of the sale of this
business, trust and investment management fee revenue would decrease
approximately $7 million per quarter.
As shown in the table on the following page, the market value of assets under
management and administration/custody was approximately $763 billion at March
31, 1994, compared with approximately $754 billion at December 31, 1993, and
included approximately $375 billion related to The Boston Company. The $5
billion decrease in the market value of assets under management resulted from
the
-11-
<PAGE> 13
NONINTEREST REVENUE (CONTINUED)
decline in the equity and bond markets in the first quarter of 1994. The $14
billion increase in the market value of assets under administration/custody
reflected new business that more than offset the negative impact of declining
market values. During the first quarter of 1994, the S&P 500 index decreased
approximately 4% and the Lehman Brothers Long Term Government Bond Index
decreased approximately 6%.
<TABLE>
ASSETS UNDER MANAGEMENT AND ADMINISTRATION/CUSTODY
<CAPTION>
- - ------------------------------------------------------------------------------------------------------------
MARCH 31, Dec. 31, Sept. 30, June 30, March 31,
(in billions) 1994 1993 1993 1993 1993
- - ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Institutional trust:
Management $ 2 $ 2 $ 2 $ 1 $ 2
Administration/Custody $491 $479 $479 $428 $297
Institutional asset management:
Management 102 105 105 102 69
Personal trust:
Management 22 24 23 23 18
Administration/Custody 13 13 13 12 6
Mutual fund:
Management 6 6 6 5 2
Administration/Custody 127 125 123 113 -
- - ------------------------------------------------------------------------------------------------------------
Total
Management $132 $137 $136 $131 $ 91
Administration/Custody $631 $617 $615 $553 $303
- - ------------------------------------------------------------------------------------------------------------
</TABLE>
The $3 million increase in cash management and deposit transaction charges,
compared with the first quarter of 1993, primarily reflected increased volume.
Information services fees decreased $16 million compared with the prior-year
period, primarily as a result of the Corporation's December 1993 sale of two
information services businesses. The two businesses sold generated quarterly
revenues of approximately $21 million. Partially offsetting the decrease in
information services fees was revenue generated by a Canadian stock transfer
company in which the Corporation increased its ownership from 10% to 80% during
the second quarter of 1993. Information services fees are expected to be
further reduced in the second half of 1994 following the Corporation's pending
contribution of its Network Services Division in exchange for a first tier
equity ownership in Electronic Payment Services, Inc. (EPS). Net results from
this investment would be reported on an equity method of accounting, in other
fee revenue. As a result of the Corporation's pending contribution of its
Network Services Division to EPS, credit card fee revenue is also expected to
be lower in the second half of 1994. Credit card processing fees of $13
million were recorded by this division for the full year 1993.
The increase in foreign currency and securities trading fee revenue in the
first quarter of 1994 was attributable to foreign exchange revenue earned,
primarily from global custody customers at The Boston Company. Other fee
revenue included $11 million from the Corporation's seasonal tax refund
anticipation loan program, which will be lower in the second half of 1994. Fee
revenue generated by this seasonal product decreased $7 million compared with
the prior-year period, due primarily to a change in the operating agreements
with tax preparation firms with whom the Corporation does business. Increases
in several other fee revenue categories offset the decreased revenue from the
tax refund anticipation loan program.
-12-
<PAGE> 14
NONINTEREST REVENUE (CONTINUED)
The Corporation recorded $87 million in gains on the sale of securities during
the first quarter of 1993, resulting from the sale of securities in the
available for sale portfolio. These sales were undertaken as part of the
financing plan and balance sheet restructuring related to the acquisition of
The Boston Company. Additional information regarding the Corporation's
securities portfolio is presented in the "Asset/liability management" section
and in note 5 of Notes to Financial Statements.
<TABLE>
OPERATING EXPENSE
<CAPTION>
- - -----------------------------------------------------------------------------------------------------
Three months ended
March 31, Inc/
(dollar amounts in millions) 1994 1993 (Dec)
- - -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Staff expense $215 $155 $ 60
Net occupancy expense 45 37 8
Professional, legal and other purchased services 43 31 12
Amortization of goodwill and other intangibles 38 24 14
Business development 37 15 22
Equipment expense 33 26 7
Communications expense 20 16 4
FDIC assessment and regulatory examination fees 16 14 2
Other expense 32 15 17
- - -----------------------------------------------------------------------------------------------------
Operating expense before the net expense of
acquired property and restructuring expense 479 333 146
- - -----------------------------------------------------------------------------------------------------
Net expense (revenue) of acquired property (8) 25 (33)
- - -----------------------------------------------------------------------------------------------------
Restructuring expense - 175 (175)
- - -----------------------------------------------------------------------------------------------------
Total operating expense $471 $533 $ (62)
- - -----------------------------------------------------------------------------------------------------
Average full-time equivalent staff 21,800 18,100 3,700
- - -----------------------------------------------------------------------------------------------------
Efficiency ratio*:
Including amortization of intangibles 68% 60% 8
Excluding amortization of intangibles 62 56 6
- - -----------------------------------------------------------------------------------------------------
<FN>
* Operating expense before the net expense (revenue) of acquired property and restructuring expense as a percentage of net
interest revenue (computed on a fully taxable equivalent basis) and noninterest revenue, excluding securities gains.
</TABLE>
Operating expense before the net expense of acquired property and restructuring
expense increased by $146 million, or 44%, in the first quarter of 1994,
compared with the first quarter of 1993. The increase was primarily the result
of $98 million of expense attributable to The Boston Company and an increase in
marketing expense of $20 million, primarily related to the introduction of the
Corporation's CornerStone credit card product. The impact of expenses
attributable to AFCO were offset by the decrease in expenses related to the
information services businesses sold in December 1993. Also impacting first
quarter 1994 operating expense were increases in various categories in support
of revenue growth.
Operating expense before the net expense of acquired property and restructuring
expense increased $15 million in the first quarter of 1994 from $464 million in
the fourth quarter of 1993. This increase resulted from a $20 million increase
in marketing expense primarily related to the CornerStone credit card product
as well as increased expense in support of revenue growth. The fourth quarter
of 1993 included $13 million of nonrecurring expenses related to winding down
certain data processing operations.
-13-
<PAGE> 15
OPERATING EXPENSE (CONTINUED)
The increase in the average full-time equivalent staff level, compared with the
prior-year quarter, primarily reflected the addition of the employees of The
Boston Company. The acquisition of The Boston Company contributed
approximately 3,200 to the average full-time equivalent staff in the first
quarter of 1994.
Financial Accounting Standard No. 112, (FAS No. 112) "Employers' Accounting for
Postemployment Benefits" became effective on January 1, 1994. FAS No. 112
requires the Corporation to recognize the obligation to provide postemployment
benefits to former or inactive employees after employment but before retirement
if: the obligation is attributable to employees' services already rendered,
employees' rights to those benefits accumulate or vest, payment of the benefits
is probable, and the amount of the benefits can be reasonably estimated.
Approximately $1 million of the increase in operating expense before the net
expense of acquired property and restructuring expense was attributable to the
adoption of this Standard, resulting in a reduction of approximately $.01 in
net income per common share in the first quarter of 1994. Additional
information regarding the Corporation's adoption of this standard is presented
in note 2 of Notes to Financial Statements.
A restructuring charge of $175 million pretax, or $112 million after-tax, was
recorded in the first quarter of 1993 to reflect management's estimate of
restructuring costs associated with the integration of The Boston Company.
TAXES
The provision for income taxes totaled $83 million in the first quarter of
1994, for an effective tax rate of approximately 38.5%, compared with $34
million in the first quarter of 1993. Excluding the impact of the
restructuring charge and securities gains, the Corporation's effective tax rate
for the first quarter of 1993 was 40%. The decrease in the effective rate
between quarters is primarily the result of tax legislation, enacted in August
1993, which permitted the deductibility of certain intangible amortization
expense. The Corporation currently estimates that the ongoing effective tax
rate will be 38.5% until the completion of the merger with The Dreyfus
Corporation, after which it is currently anticipated that the effective tax
rate will increase to approximately 39%.
-14-
<PAGE> 16
<TABLE>
BALANCE SHEET REVIEW
- - -------------------------------------------------------------------------------------------------------------------
<CAPTION>
ASSET/LIABILITY MANAGEMENT
- - -------------------------------------------------------------------------------------------------------------------
Three months ended
March 31,
(average balances in millions) 1994 1993
- - -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
- - -------------------------------------------------------------------------------------------------------------------
Money market investments $ 1,884 $ 2,997
Trading account securities 504 293
Securities 4,417 4,654
Loans 24,627 19,900
- - -------------------------------------------------------------------------------------------------------------------
Total interest-earning assets 31,432 27,844
Noninterest-earning assets 6,364 4,803
Reserve for credit losses (610) (514)
- - -------------------------------------------------------------------------------------------------------------------
Total assets $37,186 $32,133
- - -------------------------------------------------------------------------------------------------------------------
- - -------------------------------------------------------------------------------------------------------------------
Funds supporting total assets
- - -------------------------------------------------------------------------------------------------------------------
Core funds:
Demand deposits $ 8,284 $ 6,859
Money market and other savings accounts 10,494 8,016
Retail savings certificates 6,712 8,148
Notes and debentures with original maturities
in excess of one year 1,965 1,765
Shareholders' equity 3,352 2,945
Other core funds 1,609 954
- - -------------------------------------------------------------------------------------------------------------------
Total core funds 32,416 28,687
Wholesale and purchased funds:
Foreign office deposits 1,175 811
Federal funds purchased and securities sold
under agreements to repurchase 1,293 963
Negotiable certificates of deposit 903 877
Commercial paper 111 171
U.S. Treasury tax and loan demand notes 594 221
Other wholesale and purchased funds 694 403
- - -------------------------------------------------------------------------------------------------------------------
Total wholesale and purchased funds 4,770 3,446
- - -------------------------------------------------------------------------------------------------------------------
Funds supporting total assets $37,186 $32,133
- - -------------------------------------------------------------------------------------------------------------------
</TABLE>
Balance sheet mix
The change in the mix and size of the Corporation's average balance sheet in
the first quarter of 1994, compared with the first quarter of 1993, was largely
the result of the May 1993 acquisition of The Boston Company, including the
related financing plan and balance sheet restructuring, and the December 1993
acquisition of AFCO. The assets acquired in these acquisitions were primarily
loans which averaged $5.5 billion in the first quarter of 1994. Excluding the
effect of these acquisitions, average loans decreased in the first quarter of
1994, compared with the prior-year period, by approximately $750 million,
reflecting lower loan outstandings for commercial customers, paydowns of
consumer mortgages acquired in the Meritor branch acquisition and paydowns of
commercial real estate loans.
-15-
<PAGE> 17
ASSET/LIABILITY MANAGEMENT (CONTINUED)
For balance sheet management purposes, the Corporation has identified core, and
wholesale and purchased funds as its key categories of funding. Core funds,
which are considered to be stable sources of funding, are defined principally
as all money market and other savings deposits, demand deposits, savings
certificates, shareholders' equity and notes and debentures with original
maturities over one year. Core funds primarily support core assets, which
consist of loans, net of the reserve, and noninterest-earning assets.
Core assets increased $6.2 billion in the first quarter of 1994 from the
prior-year period. This increase primarily reflected loans acquired in The
Boston Company and AFCO acquisitions. Core funds increased $3.7 billion in the
first quarter of 1994 from the prior-year period reflecting the impact of the
core deposits from The Boston Company, as well as a higher level of
shareholders' equity and notes and debentures. Core funds averaged 107% of
core assets in the first quarter of 1994, down from 119% in the first quarter
of 1993.
Wholesale and purchased funds are defined as federal funds purchased and
securities sold under agreements to repurchase, deposits in foreign offices and
other time deposits, negotiable certificates of deposit, U.S. Treasury tax and
loan demand notes, commercial paper and other funds borrowed. Average
wholesale and purchased funds increased $1.3 billion compared with a year ago,
reflecting additional foreign office deposits and federal funds purchased and
securities sold under agreements to repurchase related to The Boston Company
acquisition. As a percentage of total average assets, average wholesale and
purchased funds increased to 13% in the first quarter of 1994 from 11% in the
prior-year period.
Securities
On January 1, 1994, the Corporation adopted Financial Accounting Standard No.
115 (FAS No. 115), "Accounting for Certain Investments in Debt and Equity
Securities." FAS No. 115 requires that investment securities be classified
into the following three categories: debt securities that the Corporation has
the positive intent and ability to hold to maturity are classified as "held to
maturity securities" and reported at amortized cost; debt and equity securities
that are bought and held principally for the purpose of resale in the near
future are classified as "trading securities" and reported at fair value, with
unrealized gains and losses included in current period earnings; debt and
equity securities not classified as either held to maturity securities or
trading securities are classified as "available for sale securities" and
reported at fair value, with unrealized gains and losses, net of tax, excluded
from earnings and reported as a separate component of shareholders' equity.
Adoption of this standard resulted in $15 million, net of tax, of unrealized
losses on assets classified as available for sale at March 31, 1994, recorded
in shareholders' equity. In June 1992, the Corporation began classifying its
investment securities portfolio as either investment securities held to
maturity or as available for sale. The securities classified as available for
sale were stated at the lower of aggregate cost or market value. As a result
of the Corporation's prior classifications of securities, no reclassifications
of securities between security categories was necessary upon adoption of FAS
No. 115.
Additional information regarding the Corporation's securities portfolio is
presented in note 5 of Notes to Financial Statements.
-16-
<PAGE> 18
COMMERCIAL REAL ESTATE LENDING
The Corporation's $1.638 billion domestic commercial real estate loan portfolio
consists of commercial mortgages, which generally are secured by nonresidential
and multi-family residential properties, and commercial construction loans with
maturities of 60 months or less. Also included in this portfolio are loans
which are secured by owner-occupied real estate, but made for purposes other
than the construction or purchase of real estate. The commercial real estate
loan portfolio includes $209 million of loans acquired in the December 1992
Meritor branch acquisition that are subject to a five year 95% loss sharing
arrangement with the Federal Deposit Insurance Corporation. Domestic
commercial real estate loans decreased by approximately $208 million, or 11%,
compared with $1.846 billion at March 31, 1993. The decrease was primarily a
result of paydowns, credit losses and transfers to OREO. Domestic commercial
real estate loan commitments originated in the first quarter of 1994 totaled
$39 million. Commercial real estate loan commitments were $313 million at
March 31, 1994, compared with $307 million at December 31, 1993, and $323
million at March 31, 1993. Domestic commercial real estate loans were 7% of
total loans at March 31, 1994, down from 9% a year earlier. Nonperforming
domestic commercial real estate loans were 3.45% of total domestic commercial
real estate loans at March 31, 1994, compared with 8.91% at March 31, 1993.
<TABLE>
Distribution of domestic commercial real estate loans by size at March 31, 1994
<CAPTION>
(dollar amounts in millions)
- - --------------------------------------------------------------------------------------------------------
Percent
Principal of total
amounts Outstandings outstandings
- - --------------------------------------------------------------------------------------------------------
<S> <C> <C>
Less than $10 $1,128 69%
$10 to $20 273 (a) 17
$20 to $40 179 (b) 11
$40 to $60 58 (c) 3
- - --------------------------------------------------------------------------------------------------------
Total $1,638 100%
- - --------------------------------------------------------------------------------------------------------
<FN>
(a) Represents loans to 20 borrowers.
(b) Represents loans to 6 borrowers.
(c) Represents a loan to a single borrower.
</TABLE>
-17-
<PAGE> 19
COMMERCIAL REAL ESTATE LENDING (CONTINUED)
<TABLE>
Distribution of domestic commercial real estate loans at March 31, 1994
<CAPTION>
- - -------------------------------------------------------------------------------------------------------------
(in millions) Geographic Region
Central
Project type Atlantic Southeast Midwest West Southwest Northeast Total
- - -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Office complexes $193 $ 46 $ 46 $36 $12 $6 $ 339
Retail 106 70 30 22 11 - 239
Hotels 62 48 10 6 12 - 138
Industrial 47 2 2 5 3 - 59
Undeveloped land 6 17 10 9 - - 42
Apartments 27 - 6 - 3 - 36
Health care 11 10 - 4 4 - 29
Other project types 77 - - 3 3 - 83
- - -------------------------------------------------------------------------------------------------------------
Subtotal $529 (a) $193 (b) $104 (c) $85 (d) $48 (e) $6 $ 965
FDIC loss-share loans 209 (f)
Owner-occupied loans 464 (g)
- - -------------------------------------------------------------------------------------------------------------
Total $1,638
- - -------------------------------------------------------------------------------------------------------------
<FN>
(a) Includes $398 million of loans to borrowers located in Pennsylvania.
(b) Includes $74 million of loans to borrowers located in Florida.
(c) Includes $32 million of loans to borrowers located in Ohio.
(d) Includes $70 million of loans to borrowers located in California.
(e) Includes $25 million of loans to borrowers located in Texas.
(f) Commercial real estate loans acquired from the Meritor branch acquisition that are subject to the FDIC loss sharing
arrangement. Meritor commercial real estate loans that become nonperforming loans are transferred to segregated assets.
(g) Includes loans that are secured by owner-occupied commercial real estate but not made for the purpose of real estate
construction or financing.
</TABLE>
<TABLE>
Distribution of nonperforming commercial real estate loans and real estate acquired at March 31, 1994
<CAPTION>
- - -----------------------------------------------------------------------------------------------------------------------
(in millions) Geographic Region
Central
Project type Atlantic Southeast Midwest West Southwest Northeast Canada Total
- - -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Undeveloped land $11 $22 $10 $ - $21 $8 $ - $ 72
Office complexes (a) 41 3 1 - 8 - - 53
Retail 5 12 - 9 - - 16 42
Other project types 33 3 1 2 2 1 - 42
- - -----------------------------------------------------------------------------------------------------------------------
Total by region $90 (b) $40 (c) $12 (d) $11 (e) $31 (f) $9 $16 $209 (g)
- - -----------------------------------------------------------------------------------------------------------------------
<FN>
(a) Includes certain multi-use projects.
(b) Includes $26 million of nonperforming loans to borrowers and $20 million of OREO located in Pennsylvania.
(c) Includes $25 million of OREO located in Florida.
(d) Includes $10 million of nonperforming loans to borrowers located in Illinois.
(e) Entire amount is OREO located in California.
(f) Includes $26 million of OREO located in Texas.
(g) Excludes segregated assets, as well as the reserve for real estate acquired of $35 million.
</TABLE>
-18-
<PAGE> 20
<TABLE>
CAPITAL
- - ---------------------------------------------------------------------------------------------------
<CAPTION>
Selected capital data
- - ---------------------------------------------------------------------------------------------------
(dollar amounts in millions, MARCH 31, Dec. 31, March 31,
except per share amounts) 1994 1993 1993
- - ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Common shareholders' equity $2,793 $2,721 $2,363
Common shareholders' equity to assets ratio 7.63% 7.53% 7.65%
Tangible common equity ratio(a) 5.54 5.37 6.53
Total shareholders' equity $3,385 $3,313 $3,024
Total shareholders' equity to assets ratio 9.25% 9.17% 9.79%
Tier I capital ratio 7.62 7.39 9.49
Total (Tier I plus Tier II) capital ratio 11.17 10.97 13.18
Leverage capital ratio 6.90 6.88 8.13
Book value per common share(b) $42.76 $41.75 $38.03
Closing common stock price 56.125 53.00 60.75
- - ---------------------------------------------------------------------------------------------------
<FN>
(a) Common shareholders' equity less goodwill divided by total assets less goodwill.
(b) The book value per common share assumes full conversion of the Series D preferred stock to common stock. Accordingly, this
includes the additional paid-in capital on the Series D preferred stock because this paid-in capital has no liquidation
preference over the common stock.
</TABLE>
The Corporation's level of common and total shareholders' equity continued to
improve in the first quarter of 1994. Compared with March 31, 1993, the
improvement resulted from earnings retention and the issuance of $115 million
of common stock and $37 million of warrants as part of the purchase price of
The Boston Company. Partially offsetting the increase in total shareholders'
equity, compared with a year ago, was the December 1993 redemption of the
Corporation's $68 million of Series B convertible preferred stock. The
Corporation's capital ratios at March 31, 1994, compared with March 31, 1993,
reflect the positive impact of earnings retention and the issuance of the
common stock and warrants as well as the offsetting effect of higher levels of
goodwill and other intangibles and higher asset levels resulting from the
acquisitions of The Boston Company and AFCO. In the first quarter of 1993, the
Corporation raised $423 million of net proceeds from the issuance of common and
preferred equity in advance of the acquisition of The Boston Company.
-19-
<PAGE> 21
CAPITAL (CONTINUED)
Upon consummation of the merger with The Dreyfus Corporation, which will be
accounted for as a pooling-of-interests, the Corporation expects to issue
approximately 32 million shares of common stock in exchange for the Dreyfus
common stock. The capital ratios of the Corporation following this merger will
be approximately 200 basis points higher than the March 31, 1994 ratios.
<TABLE>
The Corporation's qualifying capital under the Federal Reserve Board's
risk-based capital regulations is shown in the table below.
<CAPTION>
- - -----------------------------------------------------------------------------------------------------------------
Risk-based and leverage capital ratios at March 31, 1994
(dollar amounts in millions)
- - -----------------------------------------------------------------------------------------------------------------
<S> <C>
Tier I capital:
Common shareholders' equity(a) $ 2,771
Qualifying preferred stock(a) 629
Minority interest 12
Goodwill and other intangibles (906)
- - -----------------------------------------------------------------------------------------------------------------
Total Tier I capital $ 2,506
- - -----------------------------------------------------------------------------------------------------------------
Tier II capital $ 1,165
- - -----------------------------------------------------------------------------------------------------------------
Total qualifying capital $ 3,671
- - -----------------------------------------------------------------------------------------------------------------
Risk-adjusted assets:
On-balance-sheet $23,730
Off-balance-sheet 9,138
- - -----------------------------------------------------------------------------------------------------------------
Total $32,868
- - -----------------------------------------------------------------------------------------------------------------
Average assets-leverage capital basis $36,309
- - -----------------------------------------------------------------------------------------------------------------
Tier I capital ratio 7.62%
Total capital ratio 11.17
Leverage capital ratio 6.90
- - -----------------------------------------------------------------------------------------------------------------
<FN>
(a) For the purpose of this computation, the additional paid-in capital on the Series D preferred stock totaling $37 million is
included in "Qualifying preferred stock" rather than in "Common shareholders' equity."
</TABLE>
Federal regulators have adopted a capital-based supervisory system for all
insured financial institutions. Should a financial institution's capital
ratios decline below predetermined levels, it would become subject to a series
of increasingly restrictive regulatory actions. The system categorizes a
financial institution's capital position into one of five categories ranging
from well capitalized to critically undercapitalized. For an institution to
qualify as well capitalized, Tier I capital, Total capital and leverage capital
must be at least 6%, 10% and 5%, respectively. All of the Corporation's
banking subsidiaries qualified as well capitalized at March 31, 1994. The
Corporation intends to maintain the ratios of its banking subsidiaries at the
well capitalized levels.
The Corporation deducts all goodwill and certain other identifiable intangibles
created subsequent to February 19, 1992, except purchased mortgage servicing
rights and purchased credit card intangibles, when computing Tier I capital.
The components of the Corporation's intangible assets are presented in the
table on the following page.
-20-
<PAGE> 22
CAPITAL (CONTINUED)
<TABLE>
Goodwill and other intangibles
<CAPTION>
MARCH 31, Dec. 31, March 31,
(in millions) 1994 1993 1993
- - ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Goodwill $ 810 $ 825 $369
Purchased mortgage servicing rights 176 160 145
Purchased core deposit intangible 149 155 208
Covenants not to compete 51 57 6
Purchased credit card intangibles 61 44 47
Other intangibles 45 46 32
- - ------------------------------------------------------------------------------------------------------
Total $1,292 $1,287 $807
- - ------------------------------------------------------------------------------------------------------
</TABLE>
The increase in goodwill and covenants not to compete at March 31, 1994,
compared with March 31, 1993, primarily resulted from the acquisitions of The
Boston Company in the second quarter of 1993 and AFCO in December of 1993. The
decrease in purchased core deposit intangible from March 31, 1993, primarily
resulted from $26 million of purchased core deposit intangible reclassified to
goodwill in the third quarter of 1993, upon receipt of an independent appraisal
of the intangible and the final valuation of the assets and liabilities
included in the December 1992 Meritor Savings Bank branch acquisition.
FAS No. 115 "Accounting for Certain Investments in Debt and Equity Securities"
became effective on January 1, 1994. Adoption of this standard resulted in $15
million, net of tax, of unrealized losses on assets classified as available for
sale at March 31, 1994 being recorded as a deduction from shareholders' equity.
Increased volatility of shareholders' equity, certain related capital ratios
and book value per common share could result from changes in unrealized gains
and losses on assets classified as available for sale. The impact of recording
the unrealized loss at March 31, 1994 resulted in a reduction of book value per
common share of $.22.
INTEREST RATE SENSITIVITY ANALYSIS
Interest rate risk arises from mismatches in the repricing of assets and
liabilities. The Corporation actively manages the impact of interest rate risk
on assets, liabilities and commitments by entering into financial instruments,
either on- or off-balance sheet, in order to maintain an appropriate balance
between the repricing characteristics of its assets and liabilities. The
interest rate sensitivity table on the following page shows the repricing
characteristics of the Corporation's interest-earning assets, supporting
funds and off-balance-sheet instruments used to neutralize the interest
rate risk in the Corporation's balance sheet, at March 31, 1994.
The data is based upon contractual repricing or maturities and, where
applicable, management's assumptions as to the estimated repricing
characteristics of certain assets and supporting funds.
The cumulative gap at the one-year repricing period, before the
utilization of off-balance-sheet instruments, was asset sensitive in the amount
of $5.6 billion, or 15.3% of total assets, at March 31, 1994. However, the
Corporation did not want to accept this level of interest rate risk presented
by its naturally asset sensitive balance sheet so it entered into
off-balance-sheet instruments that resulted in a net reduction of $5.3 billion
of the asset sensitive position. These instruments reduced the cumulative gap
at the one-year repricing period to an asset sensitive amount of $372 million,
or 1.0% of total assets, at March 31, 1994, which compared with a cumulative
asset sensitive gap of $107 million, or .3% of total assets, at December 31,
1993. Traditionally the Corporation would have used fixed rate investment
securities or other fixed rate interest-earning assets of approximately $5.3
billion to accomplish this objective. By using off-balance-sheet instruments to
manage interest rate risk, the effect is a smaller balance sheet and a more
favorable return on assets and net interest margin with no change in net
interest revenue or the return on common shareholders' equity. Generally, an
asset sensitive gap indicates that rising interest rates could positively
affect net interest
-21-
<PAGE> 23
INTEREST RATE SENSITIVITY ANALYSIS (CONTINUED)
revenue and falling rates could negatively affect net interest revenue.
Assets and liabilities with similar contractual repricing characteristics,
however, may not reprice at the same time or to the same degree. As a result,
the Corporation's static interest rate sensitivity gap position does not
necessarily predict the impact of changes in general levels of interest rates
on net interest revenue.
In order to measure the effects of interest rate fluctuations on the
Corporation's net interest margin, management simulates the potential effects
of changing interest rates through computer modeling, incorporating both the
current gap position and the expected magnitude of the repricing of specific
assets and liabilities. These analyses indicated that a 100-basis-point
upward or downward movement in interest rates over a six month period,
including the effect of off-balance-sheet instruments, would have an
approximately 1% positive or negative effect on the Corporation's anticipated
net interest revenue for the 12 month period following March 31, 1994.
<TABLE>
- - ----------------------------------------------------------------------------------------------------------------------------
Interest Rate Sensitivity Gap at March 31, 1994
<CAPTION>
Repricing period
--------------------------------------------------------------------
0-30 31-90 91-180 181-365 1-5 Over 5
(dollar amounts in millions) days days days days years years Total
- - ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Money market investments $ 1,232 $ 242 $ 2 $ 4 $ 11 $ - $ 1,491
Trading account securities 268 - - - - - 268
Securities 1,123 914 131 828 1,238 1,078 5,312
Loans 9,792 4,362 2,677 2,183 3,312 2,206 24,532
- - ----------------------------------------------------------------------------------------------------------------------------
Total interest-earning assets $12,415 $ 5,518 $ 2,810 $3,015 $4,561 $ 3,284 $31,603
Funds supporting interest-
earning assets:
Interest-bearing deposits $ 3,426 $ 5,331 $ 2,728 $1,477 $3,477 $ 4,048 $20,487
Short-term borrowed funds 2,723 65 1 3 - 111 2,903
Notes and debentures (with original
maturities over one year) 348 - - 3 578 995 1,924
Noninterest-bearing liabilities 1,624 129 271 11 1 4,253 6,289
- - ----------------------------------------------------------------------------------------------------------------------------
Total funds supporting
interest-earning assets $ 8,121 $ 5,525 $ 3,000 $1,494 $4,056 $ 9,407 $31,603
- - ----------------------------------------------------------------------------------------------------------------------------
Subtotal $ 4,294 $ (7) $ (190) $1,521 $ 505 $(6,123) -
- - ----------------------------------------------------------------------------------------------------------------------------
Off-balance-sheet instruments $(2,839) $(3,000) $ 42 $ 551 $4,586 $ 660 $ -
- - ----------------------------------------------------------------------------------------------------------------------------
Interest rate sensitivity gap $ 1,455 $(3,007) $ (148) $2,072 $5,091 $(5,463) $ -
- - ----------------------------------------------------------------------------------------------------------------------------
Cumulative gap $ 1,455 $(1,552) $(1,700) $ 372 $5,463 $ - $ -
- - ----------------------------------------------------------------------------------------------------------------------------
Cumulative gap as a percentage
of total assets 4.0% (4.2)% (4.6)% 1.0% 14.9%
- - ----------------------------------------------------------------------------------------------------------------------------
<FN>
Note: Repricing periods for securities, loans, interest-bearing deposits, noninterest-bearing liabilities and off-balance-sheet
instruments are based upon contractual maturities, where applicable, as well as the Corporation's historical experience of the
impact of interest rate fluctuations on the prepayment, repricing and withdrawal patterns of certain assets and liabilities.
</TABLE>
-22-
<PAGE> 24
INTEREST RATE SENSITIVITY ANALYSIS (CONTINUED)
Managing interest rate risk with derivative instruments
The Corporation uses off-balance-sheet instruments in managing the interest
rate risk on specific liabilities and assets. Interest rate swaps obligate two
parties to exchange fixed or floating rate interest payments based on specified
notional principal amounts. In addition, the Corporation has entered into
other off-balance-sheet instruments, primarily futures and forward contracts
and forward rate agreements, to manage interest rate sensitivity on liability
instruments. The Corporation's aggregate derivative products used to manage
its interest rate risk are shown in the following table.
<TABLE>
Maturities of derivative instruments used to manage interest-rate risk at March 31, 1994
- - ----------------------------------------------------------------------------------------
<CAPTION>
Total at
----------------------------------------------------------------------------- March 31,
(in millions) 1994 1995 1996 1997 1998 1999+ 1994
- - ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Receive fixed/pay floating
generic swaps(a):
Notional amount $ 375 $ 861 $ 250 $ 160 $15 $2,525 $ 4,186
Weighted average rate:
received 5.59% 5.97% 5.32% 6.36% 5.22% 5.45% 5.60%
paid 3.61% 3.57% 3.49% 3.38% 3.56% 3.32% 3.41%
Receive fixed/pay floating
indexed amortizing swaps(b):
Notional value $ 626 $2,380 $1,021 $ 61 $53 $ 833 $ 4,974
Weighted average rate:
received 5.73% 5.62% 5.50% 7.03% 7.19% 7.13% 5.90%
paid 3.35% 3.48% 3.40% 3.34% 3.25% 3.25% 3.40%
Pay fixed/receive floating
generic swaps(a):
Notional amount $1,284 $ 7 $ 7 $2,125 $18 $ 21 $ 3,462
Weighted average rate:
received 3.66% 4.24% 4.01% 3.30% 2.86% 4.78% 3.44%
paid 4.02% 3.81% 11.85% 4.74% 4.80% 7.52% 4.50%
Other derivative products(c) $1,543 $ 120 $ 30 $ 100 $ - $ - $ 1,793
- - ---------------------------------------------------------------------------------------------------------------------------
Total notional amount $3,828 $3,368 $1,308 $2,446 $86 $3,379 $14,415
- - ---------------------------------------------------------------------------------------------------------------------------
<FN>
(a) Generic swaps' notional amounts and lives are not based on interest rate
indices.
(b) Amortizing swaps' notional amounts and lives change based on certain
interest rate indices. Generally, as rates fall, the notional amounts
decline more rapidly and as rates increase, notional amounts decline more
slowly.
(c) Average rates are not meaningful for these products.
</TABLE>
The total gross notional amount of $14.4 billion in the above table is not
indicative of the impact on the Corporation's interest rate risk management
activities. As discussed on page 21, the impact of these off-balance-sheet
instruments was to modify the Corporation's cumulative asset sensitive position
at the one-year repricing period of $5.6 billion, before the utilization of
these instruments, to a cumulative asset sensitive position of $372 million at
March 31, 1994.
<TABLE>
The following table presents the gross notional amounts of derivative
instruments used to manage interest-rate risk, identified by the underlying
interest rate exposures.
<CAPTION>
(in millions) March 31, 1994
- - -------------------------------------------------------------------------------------------------------------------------
<S> <C>
Derivatives associated with deposits $11,105
Derivatives associated with other liabilities 430
Derivatives associated with loans 2,880
- - -------------------------------------------------------------------------------------------------------------------------
Total notional amount $14,415
- - -------------------------------------------------------------------------------------------------------------------------
</TABLE>
-23-
<PAGE> 25
INTEREST RATE SENSITIVITY ANALYSIS (CONTINUED)
The revenue from off-balance-sheet instruments alters on-balance-sheet
yields/rates and must be considered in the context of total interest rate
risk management. The Corporation entered into these off-balance-sheet
instruments--interest rate swaps, futures and forward contracts and other
interest rate agreements--to neutralize the natural interest rate risk embedded
in its assets and liabilities. The net differential of interest received
over interest paid was $46 million in the first quarter of 1994, compared with a
differential of $48 million in the first quarter of 1993. The effect on the
Corporation's financial statements of utilizing off-balance-sheet instruments
as part of its interest rate risk management, versus using on-balance-sheet
assets, is a smaller balance sheet and a more favorable return on assets and
net interest margin. Utilization of off-balance-sheet instruments, versus
on-balance-sheet instruments, results in a comparable amount of net interest
revenue, net income and return on common shareholders' equity. Assuming that
interest rates rise, growth in revenue on interest-earning assets is expected
to offset any reduction of revenue from interest rate swaps, which is
consistent with the Corporation's simulation model described on page 22. This
analysis indicated that a 100-basis point upward or downward movement in
interest rates over a six month period, including the effect of
off-balance-sheet instruments, would have an approximately 1% positive or
negative effect on the Corporation's anticipated net interest revenue for the
12 month period following March 31, 1994.
In the first quarter of 1994, the Corporation terminated $665 million, or 4% of
the year-end 1993 notional amount of interest rate agreements, resulting in
net deferred gains of $2 million. These gains will be amortized over the
remaining lives of the related asset/liability instruments, which is less than
one year. The amortization of these gains increased net interest revenue by
less than $1 million in the first quarter of 1994.
The Corporation also enters into off-balance-sheet financial instruments to
enable its customers to meet their financing objectives and manage their
interest-and currency-rate risk. Supplying these instruments provides the
Corporation with fee revenue. The Corporation also used these instruments as
part of its trading activities. The instruments used for trading activities
are carried at market value with realized and unrealized gains and losses
included in trading revenue. The off-balance-sheet financial instruments table
on page 31 displays total derivative instruments entered into by the
Corporation at March 31, 1994. The Corporation has entered into $14,415
million notional amount of these contracts for interest rate management
purposes as shown on the tables on the previous page. The remainder of these
transactions are used by the Corporation to accommodate customer needs and for
trading activities. For additional information on off-balance-sheet financial
instruments see note 18 in the Corporation's 1993 Annual Report on Form 10-K.
LIQUIDITY AND DIVIDENDS
The Corporation's liquidity management strategy is to achieve an appropriate
balance between the maturities of its assets and liabilities. The Corporation
continually evaluates its funding needs and manages its liquidity position by
maintaining adequate levels of liquid assets, such as money market assets and
securities available for sale. Additional liquidity is available through the
Corporation's ability to participate or sell commercial loans and to securitize
selected loan portfolios. The Corporation also has a $200 million revolving
credit agreement and a $25 million backup line of credit to provide support
facilities for its commercial paper borrowings and for general corporate
purposes.
As shown in the Consolidated Statement of Cash Flows, cash and due from banks
decreased by $373 million during the first quarter of 1994 to $1.796 billion at
March 31, 1994. The decrease reflected the use of $366 million of net cash for
investing activities and $112 million in net cash used for financing
activities, offset in part by $101 million of net cash provided by operating
activities. Cash used for investing activities was largely the result of net
purchases of investment securities. Cash used for financing activities
primarily reflected net decreases in transaction and savings deposits and
customer term deposits offset in part by higher short-term borrowings. Cash
provided by operating activities reflected $131 million of net income adjusted
for noncash charges and credits. Completion of the pending merger with The
Dreyfus Corporation will add approximately $750 million of cash and securities
to the total liquid assets of the Corporation.
-24-
<PAGE> 26
LIQUIDITY AND DIVIDENDS (CONTINUED)
On February 18, 1994, the Corporation retired $55 million of the $200 million
Floating Rate Senior Notes due 1996. This transaction was funded with cash on
hand. Contractual maturities of the Corporation's term debt totaled $10
million in the first quarter of 1994, primarily resulting from the maturity of
fixed- and variable-rate Medium Term Notes. Contractual maturities of term
debt will total $203 million for the remainder of 1994. The Corporation
expects to fund its debt maturities with a combination of cash presently on
hand, other internal funding sources and, if necessary, with the proceeds from
the public and/or private issuance of securities.
The Corporation paid $51 million in dividends on its outstanding shares of
common and preferred stock during the first quarter of 1994. The Corporation
increased its quarterly common stock dividend to $.56 per share for the first
quarter of 1994, an increase of 47% from $.38 per share in the fourth quarter
of 1993. The common stock dividend payout ratio was 32% in the first quarter
of 1994, compared with 121% in the first quarter of 1993. Excluding the
after-tax impact of the restructuring charge and gains on the sale of
securities, the common stock dividend payout ratio would have been 30% in the
first quarter of 1993. At current dividend rates, future annual dividend
requirements for the common and preferred stock are expected to be
approximately $205 million. Completion of the pending merger with The Dreyfus
Corporation will increase the outstanding common shares of the Corporation by
approximately 32 million shares which will result in an increase in annual
common dividends of approximately $72 million, at current dividend levels.
The parent Corporation's principal sources of cash are interest and dividends
from its subsidiaries. There are, however, certain limitations on the payment
of dividends to the parent Corporation by its national bank subsidiaries. The
prior approval of the Office of the Comptroller of the Currency (OCC) is
required if the total of all dividends declared by a national bank subsidiary
in any calendar year exceeds the bank subsidiary's net profits, as defined by
the OCC, for that year, combined with its retained net profits for the
preceding two calendar years. Additionally, national bank subsidiaries may not
declare dividends in excess of net profits on hand, as defined, after deducting
the amount by which the principal amount of all loans on which interest is past
due for a period of six months or more exceeds the reserve for credit losses.
Under the first and currently more restrictive of the foregoing dividend
limitations, the Corporation's national bank subsidiaries can, without prior
regulatory approval, declare dividends for the remainder of 1994 subsequent to
March 31, 1994, of up to approximately $546 million, less any dividends
declared and plus or minus net profits or losses, as defined, between April 1,
1994 and the date of any such dividend declaration. The payment of dividends
is also limited by minimum capital requirements imposed on all national banks
by the OCC. The Corporation's national banks exceed these minimum
requirements.
The national bank subsidiaries declared dividends to the parent Corporation of
$45 million in the first quarter of 1994; this compares with $158 million in
the full year 1993 and $130 million in 1992. Dividends paid to the parent
Corporation by nonbank subsidiaries totaled $5 million in the first quarter of
1994, compared with $116 million in the full year 1993 and $26 million in 1992.
The Federal Reserve Board and the OCC have issued additional guidelines that
require bank holding companies and national banks to continuously evaluate the
level of cash dividends in relation to their respective operating income,
capital needs, asset quality and overall financial condition. As a general
rule, actual dividends from the bank subsidiaries to the parent Corporation are
not expected to exceed earnings for those subsidiaries.
-25-
<PAGE> 27
<TABLE>
NONPERFORMING ASSETS
<CAPTION>
- - --------------------------------------------------------------------------------------------------------------------
MARCH 31, Dec. 31, Sept. 30, June 30, March 31,
(dollar amounts in millions) 1994 1993 1993 1993 1993
- - --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Nonperforming loans $196 $202 $234 $281 $304
Acquired property, net of the OREO reserve 118 139 160 197 228
- - --------------------------------------------------------------------------------------------------------------------
Total nonperforming assets (a) $314 $341 $394 $478 $532
- - --------------------------------------------------------------------------------------------------------------------
Nonperforming loans as a percentage
of total loans .80% .83% 1.00% 1.18% 1.56%
Total nonperforming assets as a percentage
of total loans and net acquired property 1.27% 1.39% 1.67% 1.99% 2.70%
- - --------------------------------------------------------------------------------------------------------------------
<FN>
(a) Excludes segregated assets.
</TABLE>
"Nonperforming assets" is a term used to describe assets on which revenue
recognition has been discontinued or is restricted. Nonperforming assets
include both nonperforming loans and acquired property, primarily other real
estate owned (OREO), acquired in connection with the collection effort on
loans. Nonperforming loans include both nonaccrual and "troubled debt"
restructured loans. Past-due commercial loans are those that are contractually
past due 90 days or more, but are not on nonaccrual status because they are
well-secured and in the process of collection. Additional information regarding
nonperforming assets is presented in the "Nonperforming assets" discussion in
the Corporation's 1993 Annual Report on Form 10-K. Nonperforming assets do not
include the segregated assets acquired in the December 1992 Meritor branch
acquisition. Segregated assets represent commercial real estate and other
commercial loans acquired in the Meritor branch acquisition that are on
nonaccrual status, or are foreclosed properties, and are subject to a loss
sharing arrangement with the FDIC. These delinquent assets, net of reserve,
are reported separately in the balance sheet. The reserve for segregated
assets is not included in the reserve for credit losses.
Nonperforming assets continued to decrease in the first quarter of 1994,
reflecting the Corporation's continued emphasis on loan quality. At March 31,
1994, nonperforming assets totaled $314 million, the lowest level in more than
eleven years, down $27 million, or 8%, compared with December 31, 1993. The
nonperforming assets as a percentage of total loans and net acquired property
ratio at March 31, 1994, was 1.27%.
Domestic nonperforming real estate assets, which consist of nonperforming
commercial and consumer real estate loans and OREO net of the reserve, totaled
$241 million at March 31, 1994, down $47 million from $288 million at December
31, 1993. The reduction resulted primarily from returns to accrual status,
asset sales and repayments. The $12 million increase in domestic commercial
and financial nonperforming loans in the first quarter of 1994 primarily
resulted from the addition of a commercial and industrial borrower while the $9
million increase in international nonperforming loans resulted from the
addition of loans to a real estate developer.
Nonperforming assets decreased by $218 million, or 41%, compared with March 31,
1993, primarily due to the $170 million reduction in domestic nonperforming
real estate assets. These reductions resulted primarily from returns to
accrual status, asset sales and credit losses, offset in part by an increase in
nonperforming consumer mortgages, primarily from The Boston Company.
Commercial and financial nonperforming loans decreased $47 million, from March
31, 1993, primarily due to repayments and credit losses. The $11 million
decrease in other assets acquired, compared with the prior-year period,
resulted from asset sales and write-downs.
-26-
<PAGE> 28
NONPERFORMING ASSETS (CONTINUED)
<TABLE>
- - --------------------------------------------------------------------------------------------------------------------------
NONPERFORMING AND PAST-DUE ASSETS (a)
<CAPTION>
MARCH 31, Dec. 31, Sept. 30, June 30, March 31,
(dollar amounts in millions) 1994 1993 1993 1993 1993
- - --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Domestic nonaccrual loans:
Commercial and financial $ 49 $ 37 $ 53 $ 78 $100
Commercial real estate:
Commercial construction 11 33 35 27 30
Commercial mortgage 32 42 62 91 120
Consumer credit:
Consumer mortgage 67 61 68 73 30
Other consumer credit 3 4 6 1 1
- - --------------------------------------------------------------------------------------------------------------------------
Total domestic nonaccrual loans 162 177 224 270 281
International nonaccrual loans 16 7 7 8 8
- - --------------------------------------------------------------------------------------------------------------------------
Total nonaccrual loans 178 184 231 278 289
- - --------------------------------------------------------------------------------------------------------------------------
Domestic restructured loans:
Commercial and financial 4 4 - - -
Commercial real estate 14 14 3 3 15
- - --------------------------------------------------------------------------------------------------------------------------
Total domestic restructured loans 18 18 3 3 15
- - --------------------------------------------------------------------------------------------------------------------------
Total nonperforming loans:
Domestic 180 195 227 273 296
International 16 7 7 8 8
- - --------------------------------------------------------------------------------------------------------------------------
Total nonperforming loans (b) 196 202 234 281 304
- - --------------------------------------------------------------------------------------------------------------------------
Acquired property:
Real estate acquired through foreclosures 109 100 110 123 99
In-substance foreclosures 43 75 77 83 136
Reserve for real estate acquired (35) (37) (28) (18) (19)
- - --------------------------------------------------------------------------------------------------------------------------
Net real estate acquired 117 138 159 188 216
Other assets acquired 1 1 1 9 12
- - --------------------------------------------------------------------------------------------------------------------------
Total acquired property 118 139 160 197 228
- - --------------------------------------------------------------------------------------------------------------------------
Total nonperforming assets $314 $341 $394 $478 $532
- - --------------------------------------------------------------------------------------------------------------------------
Nonperforming loans as a percentage of
loan portfolio segments:
Domestic commercial and financial loans and leases .53% .41% .61% .87% 1.17%
Domestic commercial real estate loans 3.45 5.17 5.81 6.65 8.91
Domestic consumer mortgage loans .83 .75 .82 .87 .73
Total loans .80 .83 1.00 1.18 1.56
Nonperforming assets as a percentage of
total loans and net acquired property 1.27 1.39 1.67 1.99 2.70
- - --------------------------------------------------------------------------------------------------------------------------
Past-due loans:
Consumer credit $ 53 $ 53 $51 $44 $48
Real estate, primarily consumer mortgages 22 25 24 26 49
Commercial 5 6 - - -
- - --------------------------------------------------------------------------------------------------------------------------
Total past-due loans $ 80 $ 84 $75 $70 $97
- - --------------------------------------------------------------------------------------------------------------------------
<FN>
(a) Excludes segregated assets.
(b) Includes $65 million, $74 million, $90 million, $101 million and $178 million, respectively, of loans with both principal and
interest less than 90 days past due but placed on nonaccrual status by management discretion.
</TABLE>
-27-
<PAGE> 29
NONPERFORMING ASSETS (CONTINUED)
<TABLE>
CHANGE IN NONPERFORMING LOANS (a)
<CAPTION>
FOR THE THREE MONTHS ENDED MARCH 31
Domestic
-------------------------------------- Total
Commercial Commercial Consumer -----------------
(in millions) & Financial Real Estate Credit International 1994 1993
- - -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Nonperforming loans at beginning of period $ 41 $ 89 $ 65 $ 7 $202 $334
Additions 26 1 20 13 60 59
Payments (b) (5) (4) (8) - (17) (25)
Return to accrual status - (27) (2) - (29) (15)
Credit losses (9) (2) (4) (3) (18) (32)
Transfers to acquired property - - (1) (1) (2) (17)
- - -------------------------------------------------------------------------------------------------------------------------------
Nonperforming loans at March 31 $ 53 $ 57 $ 70 $16 $196 $304
- - -------------------------------------------------------------------------------------------------------------------------------
<FN>
(a) Excludes segregated assets.
(b) Includes interest applied to principal and sales.
</TABLE>
<TABLE>
ADDITIONAL DOMESTIC NONACCRUAL LOAN DATA (a)
<CAPTION>
March 31,
(dollar amounts in millions) 1994 1993
- - ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Book balance $162 $281
Contractual balance of nonaccrual loans 247 418
Book balance as a percentage of
contractual balance 66% 67%
Year-to-date interest receipts applied to reduce principal $ 3 $ 3
Year-to-date interest receipts recognized in interest revenue 2 2
- - ------------------------------------------------------------------------------------------------------------------------------
<FN>
(a) Excludes segregated assets.
</TABLE>
<TABLE>
Acquired property consists of OREO and other assets acquired in connection with
loan settlements. OREO, net of the reserve, totaled $117 million at March 31,
1994, compared with $138 million at December 31, 1993, and $216 million at
March 31, 1993. Sales of acquired property during the first quarter of 1994
resulted in gains of $9 million. A summary of the activity in the OREO
portfolio is presented below.
<CAPTION>
- - -------------------------------------------------------------------------------------------------------------------------------
CHANGE IN ACQUIRED PROPERTY (a) Three months ended
March 31,
(in millions) 1994 1993
- - -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
OREO at beginning of period, net of reserve $138 $240
Foreclosures (b) 3 23
Sales (18) (12)
Return to performing - (11)
Write-downs, credit losses, OREO
provision and other (6) (24)
- - -------------------------------------------------------------------------------------------------------------------------------
OREO at end of period, net of reserve $117 $216
- - -------------------------------------------------------------------------------------------------------------------------------
Other acquired assets 1 12
- - -------------------------------------------------------------------------------------------------------------------------------
Total acquired property at end of period, net of reserve $118 $228
- - -------------------------------------------------------------------------------------------------------------------------------
<FN>
(a) Excludes segregated assets.
(b) Includes foreclosures and in-substance foreclosures from loans and the mortgage servicing portfolio.
</TABLE>
-28-
<PAGE> 30
NONPERFORMING ASSETS (CONTINUED)
<TABLE>
The Corporation recognizes any estimated potential decline in the value of OREO
between appraisal dates on a property-by-property basis through periodic
additions to the OREO reserve. Write-downs charged against this reserve are
taken when OREO is sold at a loss or upon the receipt of appraisals which
indicate a deterioration in the fair value of the property. Activity in the
Corporation's OREO reserve is presented in the following table.
<CAPTION>
- - -------------------------------------------------------------------------------------------------------------------------------
RESERVE FOR REAL ESTATE ACQUIRED Three months ended
March 31,
(in millions) 1994 1993
- - -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Beginning balance $37 $10
Write-downs on real estate acquired (2) (12)
Provision charged to operating expense - 21
- - -------------------------------------------------------------------------------------------------------------------------------
Ending balance $35 $19
- - -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
In May 1993, the Financial Accounting Standards Board released FAS No. 114,
"Accounting by Creditors for Impairment of a Loan." FAS No. 114 establishes
standards to determine in what circumstances a creditor should measure
impairment of a loan based on either the present (discounted) value of expected
future cash flows related to the loan, the market price of the loan or the fair
value of the underlying collateral. This standard will become effective in
1995. The Corporation currently estimates that adoption of FAS No. 114 will
not be material to the Corporation's financial position or results of
operations. The existing impaired loans at the date of adoption, however, will
determine the actual impact on the Corporation.
-29-
<PAGE> 31
SEGREGATED ASSETS
Segregated assets represent commercial real estate and other commercial loans
acquired in the Meritor branch acquisition that are on nonaccrual status, or
are foreclosed properties. As a result of a loss sharing arrangement with the
FDIC, any of the performing commercial loans or performing commercial real
estate loans acquired in the December 1992 Meritor branch acquisition that
become nonaccrual before December 31, 1997, will be reclassified to segregated
assets. These delinquent assets are reported separately in the balance sheet,
net of reserve. The reserve for segregated assets is not included in the
reserve for credit losses. Additional information regarding segregated assets
is presented in the "Credit Risk and Asset Quality" discussion and note 8
"Segregated Assets" in the Corporation's 1993 Annual Report on Form 10-K.
<TABLE>
<CAPTION>
- - ------------------------------------------------------------------------------------------------------------------
SEGREGATED ASSETS MARCH 31, Dec. 31, March 31,
(in millions) 1994 1993 1993
- - ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Nonaccrual loans:
Commercial real estate loans $ 78 $ 84 $168
Commercial loans 26 28 29
- - ------------------------------------------------------------------------------------------------------------------
Total nonaccrual loans 104 112 197
- - ------------------------------------------------------------------------------------------------------------------
Real estate acquired 72 75 84
- - ------------------------------------------------------------------------------------------------------------------
Total segregated assets 176 187 281
Less: FDIC loss sharing (a) (167) (178) (267)
- - ------------------------------------------------------------------------------------------------------------------
Maximum credit exposure $ 9 $ 9 $ 14
- - ------------------------------------------------------------------------------------------------------------------
CREDIT LOSS ACTIVITY
- - ------------------------------------------------------------------------------------------------------------------
Segregated asset losses:
Commercial real estate loans $ - $ 10 $ 10
Commercial loans - 4 3
- - ------------------------------------------------------------------------------------------------------------------
Total - 14 13
- - ------------------------------------------------------------------------------------------------------------------
Segregated asset recoveries - - -
- - ------------------------------------------------------------------------------------------------------------------
Segregated asset losses $ - $ 14 $ 13
- - ------------------------------------------------------------------------------------------------------------------
CHANGE IN RESERVE FOR SEGREGATED ASSETS
- - ------------------------------------------------------------------------------------------------------------------
Reserve for segregated assets at beginning of period $ 4 $ 18 $ 18
Segregated asset losses - 14 13
- - ------------------------------------------------------------------------------------------------------------------
Reserve at end of period (b) $ 4 $ 4 $ 5
- - ------------------------------------------------------------------------------------------------------------------
Past-due loans subject to loss sharing $ - $ - $ 19
- - ------------------------------------------------------------------------------------------------------------------
<FN>
(a) Represents the FDIC loss sharing arrangement of 80% of the first $60 million of net credit losses and 95% of the remaining
balance of segregated assets. At March 31, 1994, the entire balance of segregated assets was insured at the 95% rate as the
$60 million credit loss threshold was met in the first quarter of 1993. Total net credit losses on segregated assets, before
FDIC loss sharing, were approximately $1 million in the first quarter of 1994.
(b) This reserve is not included in the reserve for credit losses.
</TABLE>
-30-
<PAGE> 32
OFF-BALANCE-SHEET RISK
In the normal course of business, the Corporation becomes a party to various
financial transactions that generally do not involve funding. These
instruments involve various risks including market and credit risk. Since
these transactions generally are not funded, they are not reflected on the
balance sheet and are referred to as financial instruments with
off-balance-sheet risk. The Corporation limits its exposure to loss from these
instruments by subjecting them to the same credit approval and monitoring
procedures as for on-balance-sheet instruments, as well as by entering into
offsetting or matching positions to hedge interest- and currency-rate risk. The
Corporation offers these financial instruments to enable its customers to meet
their financing objectives, and manage their interest- and currency-rate risk.
Supplying these instruments provides the Corporation with an ongoing source of
fee revenue. The Corporation also enters into these transactions to manage its
own risks arising from movements in interest and currency rates and as a part
of its trading and funding activities.
A discussion of the Corporation's use of off-balance-sheet instruments to
manage interest rate risk is presented on pages 23 and 24. In addition,
further discussion of the Corporation's financial instruments with
off-balance-sheet risk is presented in Note 18 of Notes to Financial Statements
in the 1993 Annual Report on Form 10-K.
<TABLE>
<CAPTION>
Off-balance-sheet financial instruments
- - ----------------------------------------------------------------------------------------------------------------------------
MARCH 31, Dec. 31, Sept. 30, June 30, March 31,
(in millions) 1994 1993 1993 1993 (a) 1993
- - ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Financial instruments with contract amounts that
represent credit risk:
Commitments to extend credit $13,148 (b) $12,507 $12,324 $12,419 $11,888
Standby letters of credit and foreign guarantees 3,345 (c) 2,952 2,896 2,944 3,059
Commercial letters of credit 155 140 148 152 141
Custodian securities lent with indemnification 12,526 11,152 11,994 9,414 938
Financial instruments with notional or contract
amounts that exceed the amount of credit risk(d):
Foreign currency contracts:
Commitments to purchase 10,237 9,219 9,517 9,161 5,647
Commitments to sell 10,131 9,216 9,512 9,166 5,647
Foreign currency and other option contracts written:
Commitments to purchase 192 354 314 303 241
Commitments to sell 114 175 171 194 174
Foreign currency and other option contracts purchased:
Commitments to purchase 201 345 340 301 253
Commitments to sell 375 161 164 161 142
Futures and forward contracts:
Commitments to purchase 1,423 107 602 3,791 1,012
Commitments to sell 1,020 426 611 393 1,185
Interest rate agreements (notional principal amounts):
Interest rate swaps 17,173 (e) 13,647 12,564 11,473 11,176
Other interest rate products 4,175 (f) 2,560 1,564 1,781 1,703
Forward rate agreements 334 595 458 480 22
- - ----------------------------------------------------------------------------------------------------------------------------
<FN>
(a) Increases at June 30, 1993, were due primarily to the acquisition of The Boston Company.
(b) Approximately 31% of these commitments are scheduled to expire within one year, with an additional 55% scheduled to expire
within five years.
(c) Net of participations and cash collateral totaling $322 million.
(d) The amount of credit risk associated with these instruments is limited to the cost of replacing a contract on which a
counterparty has defaulted.
(e) The $3.5 billion increase in interest rate swaps from December 31, 1993, is a result of the increased use of these instruments
for interest rate sensitivity management.
(f) The $1.6 billion increase in other interest rate products from December 31, 1993 is a result of the increased use of these
instruments by the Corporation's customers to meet their financing objectives.
</TABLE>
-31-
<PAGE> 33
<TABLE>
CONSOLIDATED INCOME STATEMENT
Mellon Bank Corporation (and its subsidiaries)
- - --------------------------------------------------------------------------------------------------------------
<CAPTION>
---------
MARCH 31,
(in millions, except per share amounts) 1994
- - --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Interest revenue Loans $406
Loan fees 30
Interest-bearing deposits with banks 10
Federal funds sold and securities purchased
under agreements to resell 6
Trading account securities 7
Securities 58
-----------------------------------------------------------------------------------------
Total interest revenue 517
- - --------------------------------------------------------------------------------------------------------------
Interest expense Deposits in domestic offices 92
Deposits in foreign offices 10
Federal funds purchased and securities sold
under agreements to repurchase 10
U.S. Treasury tax and loan demand notes 4
Commercial paper 1
Other funds borrowed 10
Notes and debentures 28
-----------------------------------------------------------------------------------------
Total interest expense 155
- - --------------------------------------------------------------------------------------------------------------
Net interest Net interest revenue 362
revenue Provision for credit losses 20
-----------------------------------------------------------------------------------------
Net interest revenue after provision for credit losses 342
- - --------------------------------------------------------------------------------------------------------------
Noninterest Fee revenue 343
revenue Gains on sale of securities -
-----------------------------------------------------------------------------------------
Total noninterest revenue 343
- - --------------------------------------------------------------------------------------------------------------
Operating Staff expense 215
expense Net occupancy expense 45
Professional, legal and other purchased services 43
Amortization of goodwill and other intangibles 38
Business development 37
Equipment expense 33
Communications expense 20
FDIC assessment and regulatory examination fees 16
Other expense 32
Net expense (revenue) of acquired property (8)
Restructuring expense -
-----------------------------------------------------------------------------------------
Total operating expense 471
- - --------------------------------------------------------------------------------------------------------------
Income Income before income taxes 214
Provision for income taxes 83
-----------------------------------------------------------------------------------------
Net income 131
Dividends on preferred stock 15
-----------------------------------------------------------------------------------------
Net income applicable to common stock $116
-----------------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------------------------------------
Per common share Primary net income $1.77
Fully diluted net income $1.77
-----------------------------------------------------------------------------------------
<FN>
See accompanying Notes to Financial Statements.
</TABLE>
-32-
<PAGE> 34
<TABLE>
<CAPTION>
Three months ended
- - --------------------------------------------------------------------------------------------------------
Dec. 31, Sept. 30, June 30, March 31,
1993 1993 1993 1993
- - --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
$395 $401 $363 $358
16 13 16 25
11 18 18 15
12 15 17 10
2 4 5 4
59 58 58 68
- - --------------------------------------------------------------------------------------------------------
495 509 477 480
- - --------------------------------------------------------------------------------------------------------
100 108 98 108
10 11 10 9
8 9 9 7
1 2 2 1
1 1 3 1
7 10 10 7
29 31 31 30
- - --------------------------------------------------------------------------------------------------------
156 172 163 163
- - --------------------------------------------------------------------------------------------------------
339 337 314 317
25 30 35 35
- - --------------------------------------------------------------------------------------------------------
314 307 279 282
- - --------------------------------------------------------------------------------------------------------
342 334 281 232
- - - 87
- - --------------------------------------------------------------------------------------------------------
342 334 281 319
- - --------------------------------------------------------------------------------------------------------
207 209 174 155
47 45 39 37
44 45 30 31
32 36 30 24
26 17 17 15
32 29 26 26
19 19 17 16
16 15 15 14
41 34 30 15
7 14 13 25
- - - 175
- - --------------------------------------------------------------------------------------------------------
471 463 391 533
- - --------------------------------------------------------------------------------------------------------
185 178 169 68
71 64 70 34
- - --------------------------------------------------------------------------------------------------------
114 114 99 34
16 16 16 15
- - --------------------------------------------------------------------------------------------------------
$ 98 $ 98 $ 83 $ 19
- - --------------------------------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------------------------------
$1.50 $1.50 $1.32 $.31
$1.50 $1.50 $1.32 $.31
- - --------------------------------------------------------------------------------------------------------
</TABLE>
-33-
<PAGE> 35
<TABLE>
CONSOLIDATED BALANCE SHEET
Mellon Bank Corporation (and its subsidiaries)
- - ------------------------------------------------------------------------------------------------------------------------
<CAPTION>
MARCH 31, Dec. 31, March 31,
(dollar amounts in millions) 1994 1993 1993
- - ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Assets Cash and due from banks $ 1,796 $ 2,169 $ 1,537
Interest-bearing deposits with banks 1,176 893 2,008
Federal funds sold and securities purchased under
agreements to resell 315 574 973
Trading account securities 268 116 215
Securities available for sale (approximate
fair value of $2,920 and $2,273 at Dec. 31, 1993 and
March 31, 1993) 2,589 2,916 2,257
Investment securities (approximate fair value
of $2,663, $2,139 and $2,115) 2,723 2,096 2,068
Loans, net of unearned discount of $71, $74 and $51 24,532 24,473 19,431
Reserve for credit losses (603) (600) (492)
--------------------------------------------------------------------------------------------------------
Net loans 23,929 23,873 18,939
Customers' acceptance liability 112 146 158
Premises and equipment 451 463 437
Acquired property, net of reserves of $35, $37 and $19 118 139 228
Goodwill 810 825 369
Other intangibles 482 462 438
Segregated assets, net of reserves of $4, $4 and $5 172 183 276
Other assets 1,675 1,284 996
--------------------------------------------------------------------------------------------------------
Total assets $36,616 $36,139 $30,899
--------------------------------------------------------------------------------------------------------
- - ------------------------------------------------------------------------------------------------------------------------
Liabilities Noninterest-bearing deposits in domestic offices $ 6,274 $ 6,905 $ 4,912
Interest-bearing deposits in domestic offices 18,889 19,450 17,654
Interest-bearing deposits in foreign offices 1,598 1,183 431
--------------------------------------------------------------------------------------------------------
Total deposits 26,761 27,538 22,997
Federal funds purchased and securities sold under
agreements to repurchase 1,470 978 1,022
U.S. Treasury tax and loan demand notes 895 712 339
Commercial paper 118 134 253
Other funds borrowed 420 302 376
Acceptances outstanding 112 146 158
Other liabilities 1,531 1,026 808
Notes and debentures (with original maturities over one year) 1,924 1,990 1,922
--------------------------------------------------------------------------------------------------------
Total liabilities 33,231 32,826 27,875
- - ------------------------------------------------------------------------------------------------------------------------
Shareholders' Preferred stock 592 592 661
equity Common stock - $.50 par value
Authorized - 200,000,000; 200,000,000; and 120,000,000 shares
Issued - 63,920,279; 63,843,493; and 60,548,111 shares 32 32 30
Additional paid-in capital 1,779 1,774 1,627
Retained earnings 976 898 705
Warrants 37 37 1
Net unrealized loss on assets
available for sale (net of taxes) (15) - -
Treasury stock - 294,567 and 365,700 shares at cost (16) (20) -
--------------------------------------------------------------------------------------------------------
Total shareholders' equity 3,385 3,313 3,024
--------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $36,616 $36,139 $30,899
--------------------------------------------------------------------------------------------------------
<FN>
See accompanying Notes to Financial Statements.
</TABLE>
-34-
<PAGE> 36
<TABLE>
CONSOLIDATED STATEMENT OF CASH FLOWS
Mellon Bank Corporation (and its subsidiaries)
- - --------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Three months ended
March 31,
(in millions) 1994 1993
- - --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from Net income $ 131 $ 34
operating activities Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 59 43
Provision for credit losses 20 35
Provision for real estate acquired and other losses - 25
Restructuring expense - 175
Net gains on sale of assets (8) (79)
Net decrease in accrued interest receivable 1 51
Deferred income tax expense (benefit) 22 (21)
Net increase in trading account securities activity (148) (108)
Net increase in accrued interest payable, net of
amounts prepaid 7 17
Net (increase) decrease in residential mortgages held for sale (52) 144
Net increase in other operating activities 69 164
-------------------------------------------------------------------------------------------------
Net cash provided by operating activities 101 480
- - -------------------------------------------------------------------------------------------------------------------------
Cash flows from Net increase in term deposits (283) (804)
investing activities Net (increase) decrease in federal funds sold and
securities purchased under agreements to resell 259 (697)
Funds invested in securities available for sale (2,730) (2,669)
Proceeds from sales of securities available for sale - 3,998
Proceeds from maturities of securities available for sale 3,053 120
Funds invested in investment securities (803) (36)
Proceeds from maturities of investment securities 175 32
Net decrease in credit card receivables 42 31
Net principal collected on loans to customers (11) 176
Loan portfolio purchases (129) -
Proceeds from the sale of loan portfolios 52 5
Purchases of premises and equipment (17) (30)
Proceeds from sales of premises and equipment 1 1
Proceeds from sales of acquired property 27 16
Net (increase) decrease in other investing activities (2) 38
--------------------------------------------------------------------------------------------------
Net cash provided (used) in investing activities (366) 181
- - -------------------------------------------------------------------------------------------------------------------------
Cash flows from Net decrease in transaction and savings deposits (402) (910)
financing activities Net decrease in customer term deposits (375) (1,223)
Net increase (decrease) in federal funds purchased and
securities sold under agreements to repurchase 492 (75)
Net increase in U.S. Treasury tax and loan demand notes 183 73
Net increase (decrease) in commercial paper (16) 74
Repurchase and repayments of longer-term debt (67) (29)
Net proceeds from issuance of longer-term debt - 351
Net proceeds from issuance of common and preferred stock 5 467
Dividends paid on common and preferred stock (51) (35)
Net increase in other financing activities 119 206
--------------------------------------------------------------------------------------------------
Net cash used in financing activities (112) (1,101)
Effect of foreign currency exchange rates 4 3
- - -------------------------------------------------------------------------------------------------------------------------
Change in cash and Net decrease in cash and due from banks (373) (437)
due from banks Cash and due from banks at beginning of period 2,169 1,974
--------------------------------------------------------------------------------------------------
Cash and due from banks at end of period $ 1,796 $ 1,537
--------------------------------------------------------------------------------------------------
- - -------------------------------------------------------------------------------------------------------------------------
Supplemental Interest paid $148 $146
disclosures Net income taxes paid (refunded) 17 (7)
- - -------------------------------------------------------------------------------------------------------------------------
<FN>
See accompanying Notes to Financial Statements.
</TABLE>
-35-
<PAGE> 37
<TABLE>
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
Mellon Bank Corporation (and its subsidiaries)
- - --------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Three months ended
March 31,
(dollar amounts in millions) 1994 1993
- - --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Shareholders' equity Balance at beginning of period $3,313 $2,557
Net income 131 34
Issuance of 4,312,500 shares of common
stock, net of issuance costs - 229
Issuance of Series K preferred stock, net of
issuance costs - 194
Dividends on preferred stock:
Series B - (1)
Series D (1) (1)
Series H (4) (4)
Series I (4) (4)
Series J (2) (2)
Series K (4) (3)
Dividends on common stock at $.56 per share
in 1994 and $.38 per share in 1993 (36) (23)
Common stock issued under dividend reinvestment and
common stock purchase plan 4 24
Exercise of warrants - 16
Exercise of stock options 1 5
Unrealized loss, net of tax, on assets classified as available
for sale (15) -
Other, including foreign currency translation 2 3
--------------------------------------------------------------------------------------------------
Balance at end of period $3,385 $3,024
--------------------------------------------------------------------------------------------------
<FN>
See accompanying Notes to Financial Statements.
</TABLE>
-36-
<PAGE> 38
NOTES TO FINANCIAL STATEMENTS
Note 1 -- Basis of presentation
The unaudited consolidated financial statements of the Corporation
are prepared in accordance with generally accepted accounting
principles for interim financial information and with the
instructions to Form 10-Q and Rule 10-01 of Regulation S-X. These
financial statements should be read in conjunction with the
Corporation's 1993 Annual Report on Form 10-K. In the opinion of
management, all normal recurring adjustments necessary for a fair
presentation of the financial position and results of operations
for the periods have been included.
Note 2 -- Adoption of Financial Accounting Standards
The Corporation adopted FAS No. 112, "Employers' Accounting for
Postemployment Benefits," FAS No. 115, "Accounting for Certain
Investments in Debt and Equity Securities," and FASB Interpretation
No. 39, "Offsetting of Amounts Related to Certain Contracts," on a
prospective basis in the first quarter of 1994.
The effect of adopting FAS No. 112 was an approximately $1 million
increase in operating expense and a reduction in primary net income
per common share of approximately $.01 in the first quarter of
1994.
The adoption of FAS No. 115 resulted in a decrease in the carrying
value of securities available for sale of $12 million, a decrease
in the carrying value of loans of $11 million and a decrease in
shareholders' equity of $15 million, net of tax. The reduction in
loans related to the valuation of approximately $159 million of
Mexican Brady bonds. No reclassifications of assets were made to
adopt this new accounting standard.
Adoption of interpretation No. 39 increased the Corporation's
assets and liabilities by $309 million at March 31, 1994, and
reduced the leverage capital ratio by 5 basis points.
<TABLE>
Note 3 -- Other assets
<CAPTION>
MARCH 31, Dec. 31, March 31,
(in millions) 1994 1993 1993
--------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Prepaid expense $ 292 $ 265 $282
Interest receivable 153 154 140
Accounts receivable 168 131 211
Interest receivable and
unrealized gains on
off-balance-sheet instruments 309 - -
Other 753 734 363
--------------------------------------------------------------------------------------------
Total other assets $1,675 $1,284 $996
--------------------------------------------------------------------------------------------
</TABLE>
Note 4 -- Commitment to merge with The Dreyfus Corporation
On December 5, 1993, the Corporation entered into a definitive
agreement to merge with The Dreyfus Corporation. A detailed
discussion of this merger is presented in the "Pending Merger with
The Dreyfus Corporation" section on page 4.
-37-
<PAGE> 39
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Note 5 -- Securities
<TABLE>
SECURITIES AVAILABLE FOR SALE
- - -------------------------------------------------------------------------------------------------------------------------
<CAPTION>
MARCH 31, 1994 March 31, 1993
---------------------------------------- ---------------------------------------
AMORTIZED GROSS UNREALIZED FAIR Amortized Gross unrealized Fair
(in millions) COST GAINS LOSSES VALUE cost Gains Losses value
- - -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury $ 609 $ - $ - $ 609 $2,118 $ 8 $ - $2,126
U.S. agency mortgage-backed 551 2 17 536 72 5 - 77
Other U.S. agency 1,386 - - 1,386 10 - - 10
- - -------------------------------------------------------------------------------------------------------------------------
Total U.S. Treasury
and agency securities 2,546 2 17 2,531 2,200 13 - 2,213
Other mortgage-backed 18 - - 18 33 1 - 34
Other securities 37 3 - 40 24 2 - 26
- - -------------------------------------------------------------------------------------------------------------------------
Total securities available for sale $2,601 $ 5 $ 17 $2,589 $2,257 $16 $ - $2,273
- - -------------------------------------------------------------------------------------------------------------------------
<FN>
Note: There were no sales of securities available for sale in the first quarter of 1994. Gross realized gains on the sale of
securities available for sale were $87 million in the first quarter of 1993. Proceeds from the sale of securities available for
sale totaled $3.998 billion in the first quarter of 1993. At March 31, 1994, net unrealized pre-tax losses of $12 million were
recorded in shareholders' equity in accordance with the adoption of FAS No. 115.
</TABLE>
<TABLE>
INVESTMENT SECURITIES
- - -------------------------------------------------------------------------------------------------------------------------
<CAPTION>
MARCH 31, 1994 March 31, 1993
---------------------------------------- ---------------------------------------
AMORTIZED GROSS UNREALIZED FAIR Amortized Gross unrealized Fair
(in millions) COST GAINS LOSSES VALUE cost Gains Losses value
- - -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury $ 17 $ - $ - $ 17 $ 2 $ - $ - $ 2
U.S. agency mortgage-backed 2,545 5 66 2,484 1,927 46 - 1,973
- - -------------------------------------------------------------------------------------------------------------------------
Total U.S. Treasury
and agency securities 2,562 5 66 2,501 1,929 46 - 1,975
Other mortgage-backed 62 - - 62 93 1 - 94
Other investment securities 99 1 - 100 46 - - 46
- - -------------------------------------------------------------------------------------------------------------------------
Total investment securities $2,723 $ 6 $66 $2,663 $2,068 $47 $ - $2,115
- - -------------------------------------------------------------------------------------------------------------------------
<FN>
Note: There were no sales of investment securities during the first quarters of 1994 or 1993.
</TABLE>
Note 6 -- Acquisition of The Boston Company, Inc.
On May 21, 1993, the Corporation completed its acquisition of The
Boston Company, Inc. (TBC), a Shearson Lehman Brothers Inc.
(Shearson) subsidiary based in Boston. TBC, through Boston Safe
Deposit and Trust Company and other subsidiaries, engages in the
businesses of mutual fund administration, institutional trust and
custody, institutional asset management and private asset management.
TBC had total assets of $6.9 billion at March 31, 1994, including
$4.3 billion of loans, $427 million of securities and $1.2 billion of
money market investments. Deposit liabilities totaled $4.1 billion
and consisted primarily of money market, demand and time deposits.
-38-
<PAGE> 40
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Note 6 -- Acquisition of The Boston Company, Inc. (continued)
Under the terms of the stock purchase agreement with Shearson, the
Corporation acquired all of the stock of Boston Group Holdings, Inc.,
the holding company for TBC and its subsidiaries, and paid to
Shearson at the closing a combination of $1.291 billion in cash, 2.5
million shares of the Corporation's common stock and 10-year warrants
to purchase an additional 3 million shares of the Corporation's
common stock at $50 per share.
This transaction was recorded under the purchase method of accounting
in accordance with Accounting Principles Board Opinion No. 16. The
condensed pro forma combined operating results provided in the table
are presented as if the acquisition had been effective on January 1,
1993. The condensed pro forma combined operating results for the
quarter ended March 31, 1993, combines The Boston Company's results
of operations and the Corporation's historical results of operations
for the quarter ended March 31, 1993. The excess of the purchase
price over the estimated fair value of tangible net assets acquired
on May 21, 1993, was approximately $457 million. This included a $55
million noncompete covenant with Shearson. The estimated lives used
for the straight-line amortization of the noncompete covenant and
goodwill are seven and 20 years. Goodwill and other intangible
valuations may vary as a final appraisal and additional information
becomes available. The pro forma results include adjustments for the
effect of the amortization of goodwill and other intangibles, the
elimination of certain assets and liabilities at the closing of the
transaction, as well as the elimination of the revenues and expense
attributable to nine subsidiaries of The Boston Company that were
conveyed via dividend to Shearson prior to the closing date of the
transaction. In addition, restructuring expenses of $175 million, or
$112 million after-tax, have been eliminated from the pro forma
combined results of operations for the quarter ended March 31, 1993,
as these expenses do not represent ongoing expenses of the
Corporation. This charge reflected management's estimates of
additional loan loss reserve, systems conversion costs, severance,
legal and consulting expenses and other restructuring charges. The
pro forma information is intended for informational purposes only and
is not necessarily indicative of the results of operations that would
have actually occurred had the acquisition been in effect for the
period presented.
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------
(Unaudited)
Actual Pro forma
results for combined
the three for the three
months ended months ended
(dollar amounts in millions, March 31, March 31,
except per share amounts) 1994 1993
---------------------------------------------------------------------------------------------
<S> <C> <C>
Net interest income $362 $355
Net income 131 147 (a)
Net income per common share 1.77 1.91 (a)
---------------------------------------------------------------------------------------------
<FN>
(a) Results for March 31, 1993 included $53 million and $.79 earnings per share from after-tax gains on the sale of
securities.
</TABLE>
-39-
<PAGE> 41
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Note 7 -- Supplemental information to the Consolidated Statement of Cash Flows
Noncash investing and financing transactions that appropriately were
not reflected in the Consolidated Statement of Cash Flows are listed
below.
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------
Three months ended
March 31,
(in millions) 1994 1993
------------------------------------------------------------------------------------------
<S> <C> <C>
Net transfers to real estate acquired $ 3 $ 11
Net transfers to segregated assets 10 127
------------------------------------------------------------------------------------------
</TABLE>
Note 8 -- Preferred stock
The following table summarizes the Corporation's preferred stock
outstanding at March 31, 1994. Each series of preferred stock has a
par value of $1.00 per share. A detailed description of the
Corporation's outstanding preferred stock is provided in note 11 of
the Notes to Financial Statements in the 1993 Annual Report on Form
10-K.
<TABLE>
<CAPTION>
- - ------------------------------------------------------------------------------------------------------------------
Balances at
Liquidation ---------------------------------
(dollar amounts in millions, preference Shares Shares MARCH 31, Dec. 31, March 31,
except per share amounts) per share authorized issued 1994 1993 1993
- - ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Convertible preferred stock
(Series B) $ 25 - - $ - $ - $ 68
Junior convertible preferred
stock (Series D) 1 4,388,117 2,236,226 2 2 2
10.40% preferred stock (Series H) 25 6,400,000 6,400,000 155 155 155
9.60% preferred stock (Series I) 25 6,000,000 6,000,000 145 145 145
8.50% preferred stock (Series J) 25 4,000,000 4,000,000 97 97 97
8.20% preferred stock (Series K) 25 8,000,000 8,000,000 193 193 194
---- ---- ----
Total preferred stock $592 $592 $661
==== ==== ====
- - ------------------------------------------------------------------------------------------------------------------
</TABLE>
Note 9 -- Legal proceedings
A discussion of legal actions and proceedings against the Corporation
and its subsidiaries is presented in Part II, Item 1, of this Form
10-Q.
-40-
<PAGE> 42
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
Note 10 -- Computation of primary and fully diluted net income per common share
<CAPTION>
Three months ended
(dollar amounts in millions, except per March 31,
share amounts; common shares in thousands) 1994 1993
- - -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
PRIMARY NET INCOME PER COMMON SHARE
Net income applicable to common stock (a) $117 $19
- - -----------------------------------------------------------------------------------------------------------
Stock and stock equivalents (average shares):
Common shares outstanding 63,553 58,889
Common shares issuable upon conversion
of Series D preferred stock, if dilutive 1,702 -
Other common stock equivalents, net of shares
assumed to be repurchased under the treasury
stock method (b):
Stock options 746 1,274
Warrants 285 261
Common stock subscription rights - 145
Series D preferred stock subscription rights 1 58
- - -----------------------------------------------------------------------------------------------------------
Total stock and stock equivalents 66,287 60,627
- - -----------------------------------------------------------------------------------------------------------
Primary net income per common share (c) $1.77 $.31
- - -----------------------------------------------------------------------------------------------------------
FULLY DILUTED NET INCOME PER COMMON SHARE
Net income applicable to common stock (a) $117 $19
- - -----------------------------------------------------------------------------------------------------------
Stock, stock equivalents and potentially
dilutive items (average shares):
Common shares outstanding 63,553 58,889
Common shares issuable upon conversion of
Series D preferred stock, if dilutive 1,702 -
Other common stock equivalents, net of shares
assumed to be repurchased under the treasury
stock method (d) 1,127 1,875
7 1/4% Convertible Subordinated Capital Notes 89 -
- - -----------------------------------------------------------------------------------------------------------
Total stock, stock equivalents
and other dilutive items 66,471 60,764
- - -----------------------------------------------------------------------------------------------------------
Fully diluted net income per common share (c) $1.77 $.31
- - -----------------------------------------------------------------------------------------------------------
<FN>
See footnotes on following page.
</TABLE>
-41-
<PAGE> 43
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Note 10 -- Computation of primary and fully diluted net income per common share
(continued)
(a) After adding back Series D preferred stock dividends of $1 million in the
first quarter of 1994. The after-tax benefit of interest expense on
assumed conversion of the 7 1/4% Convertible Subordinated Capital Notes
was less than $1 million in the first quarter of 1994.
(b) Shares were assumed to be repurchased at the average common share prices
of $55.11 in the first quarter of 1994 and $57.49 in the first quarter of
1993.
(c) Calculated based on unrounded numbers.
(d) Includes shares issuable upon assumed conversion of stock options,
warrants and Series D preferred stock subscription rights. The first
quarter of 1993 also includes shares issuable upon assumed conversion of
common stock subscription rights. Shares were assumed repurchased at the
beginning of the periods, using the ending common share prices of $56.125
at March 31, 1994 and $60.75 at March 31, 1993.
-42-
<PAGE> 44
SELECTED STATISTICAL INFORMATION
<TABLE>
COMPOSITION OF LOAN PORTFOLIO
<CAPTION>
Mellon Bank Corporation (and its subsidiaries)
- - ------------------------------------------------------------------------------------------------------------------
MARCH 31, Dec. 31, Sept. 30, June 30, March 31,
(in millions) 1994 1993 1993 1993 1993
- - ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
DOMESTIC LOANS
Commercial and financial $ 9,199 $ 9,091 $ 8,020 $ 8,288 $ 7,975
- - ------------------------------------------------------------------------------------------------------------------
Commercial real estate:
Commercial construction 382 (b)(c) 423 425 448 457
Commercial mortgage 1,256 (c) 1,298 1,293 1,365 1,389
- - ------------------------------------------------------------------------------------------------------------------
Total commercial real estate 1,638 (d) 1,721 1,718 1,813 1,846
- - ------------------------------------------------------------------------------------------------------------------
Consumer credit:
Consumer mortgage 8,161 8,180 8,250 8,507 4,138
Other consumer credit 3,966 3,813 3,679 3,674 3,544
- - ------------------------------------------------------------------------------------------------------------------
Total consumer credit 12,127 11,993 11,929 12,181 7,682
- - ------------------------------------------------------------------------------------------------------------------
Lease finance assets 715 718 709 629 633
- - ------------------------------------------------------------------------------------------------------------------
Total domestic loans 23,679 23,523 22,376 22,911 18,136
- - ------------------------------------------------------------------------------------------------------------------
INTERNATIONAL LOANS 853 (e) 950 1,088 933 1,295
- - ------------------------------------------------------------------------------------------------------------------
Total loans, net of unearned discount $24,532 $24,473 $23,464 $23,844 $19,431
- - ------------------------------------------------------------------------------------------------------------------
<FN>
(a) Includes $54 million of FDIC loss share loans.
(b) Includes $289 million of loans related to real estate projects which are designated as "substantially complete," indicating
that no additional funding is required to complete construction of the base building or that a certificate of occupancy has
been obtained from the municipality in which the property is located.
(c) Commercial construction loans and commercial mortgages include $6 million and $203 million, respectively of FDIC loss share
loans.
(d) Includes $464 million of loans secured by owner-occupied commercial real estate but not made for the purpose of real estate
construction or financing.
(e) Includes $11 million, pretax, of unrealized loss on Mexican loans available for sale in accordance with the adoption of FAS
No. 115.
Note: Excludes segregated assets.
</TABLE>
<TABLE>
DEPOSITS
<CAPTION>
Mellon Bank Corporation (and its subsidiaries)
- - ------------------------------------------------------------------------------------------------------------------
MARCH 31, Dec. 31, Sept. 30, June 30, March 31,
(in millions) 1994 1993 1993 1993 1993
- - ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Deposits in domestic offices:
Interest-bearing:
NOW accounts $ 2,175 $ 2,196 $ 2,050 $ 2,046 $ 1,971
Money market and other savings accounts 9,759 10,006 9,468 9,715 7,462
Retail savings certificates 6,610 6,813 7,187 7,683 7,850
Other time deposits 345 435 481 470 371
- - ------------------------------------------------------------------------------------------------------------------
Total interest-bearing 18,889 19,450 19,186 19,914 17,654
Noninterest-bearing 6,274 6,905 5,999 6,099 4,912
- - ------------------------------------------------------------------------------------------------------------------
Total deposits in domestic offices 25,163 26,355 25,185 26,013 22,566
- - ------------------------------------------------------------------------------------------------------------------
Deposits in foreign offices 1,598 1,183 1,120 1,294 431
- - ------------------------------------------------------------------------------------------------------------------
Total deposits $26,761 $27,538 $26,305 $27,307 $22,997
- - ------------------------------------------------------------------------------------------------------------------
</TABLE>
-43-
<PAGE> 45
<TABLE>
CONSOLIDATED BALANCE SHEET -- AVERAGE BALANCES AND INTEREST YIELDS/RATES
<CAPTION>
----------------------
MARCH 31, 1994
AVERAGE AVERAGE
(dollar amounts in millions) BALANCE YIELDS/RATES
- - ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Assets Interest-earning assets:
Interest-bearing deposits with banks $ 1,042 3.67%
Federal funds sold and securities purchased
under agreements to resell 842 3.01
Trading account securities 504 5.57
Securities:
U.S. Treasury and agency securities 4,171 5.36
Other 246 5.16
Loans, net of unearned discount 24,627 7.22
-------
Total interest-earning assets 31,432 6.70%
Cash and due from banks 2,551
Customers' acceptance liability 137
Premises and equipment 459
Net acquired property 130
Other assets 3,087
Reserve for credit losses (610)
----------------------------------------------------------------------------------------------
Total assets $37,186
- - ---------------------------------------------------------------------------------------------------------------
Liabilities Interest-bearing liabilities:
and Deposits in domestic offices:
shareholders' Demand (a) $ 2,158 (.76)%
equity Money market and other savings accounts 9,859 1.55
Retail savings certificates 6,712 3.20
Other time deposits 347 5.91
Deposits in foreign offices 1,167 3.50
-------
Total interest-bearing deposits 20,243 2.04
Federal funds purchased and securities sold
under agreements to repurchase 1,293 3.01
U.S. Treasury tax and loan demand notes 594 3.03
Commercial paper 111 3.26
Other funds borrowed 613 6.70
Notes and debentures (with original maturities
over one year) 1,965 5.77
-------
Total interest-bearing liabilities 24,819 2.53%
Total noninterest-bearing deposits 7,521
Acceptances outstanding 137
Other liabilities 1,357
----------------------------------------------------------------------------------------------
Total liabilities 33,834
----------------------------------------------------------------------------------------------
Shareholders' equity 3,352
----------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $37,186
- - ---------------------------------------------------------------------------------------------------------------
Rates Yield on total interest-earning assets 6.70%
Cost of funds supporting interest-earning assets 2.00%
----------------------------------------------------------------------------------------------
Net interest margin:
Taxable equivalent basis 4.70%
Without taxable equivalent increments 4.67%
----------------------------------------------------------------------------------------------
<FN>
(a) In the first quarter of 1994 and the fourth quarter of 1993, revenue generated through the use of off-
balance-sheet instruments more than offset the interest expense on demand deposits.
Note: Average rates are annualized and calculated on a taxable equivalent basis, at tax rates
</TABLE>
-44-
<PAGE> 46
<TABLE>
<CAPTION>
Three months ended
- - ------------------------------------------------------------------------------------------------------------
Dec. 31, 1993 Sept. 30, 1993 June 30, 1993 March 31, 1993
Average Average Average Average Average Average Average Average
balance yields/rates balance yields/rates balance yields/rates balance yields/rates
- - ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 1,207 3.65% $ 1,855 3.66% $ 2,137 3.41% $ 1,688 3.63%
1,579 3.08 1,967 3.05 2,340 2.94 1,309 3.08
206 4.98 266 5.67 312 6.12 293 5.85
4,186 5.15 3,541 5.49 3,755 5.68 4,406 5.92
355 4.63 834 4.48 381 5.02 248 5.92
23,220 7.05 23,223 7.13 20,623 7.42 19,900 7.86
------- ------- ------- -------
30,753 6.41% 31,686 6.41% 29,548 6.51% 27,844 7.03%
2,330 2,105 2,177 2,041
133 127 143 128
482 492 460 440
150 185 212 246
2,518 2,565 2,429 1,948
(597) (598) (548) (514)
- - ------------------------------------------------------------------------------------------------------------
$35,769 $36,562 $34,421 $32,133
- - ------------------------------------------------------------------------------------------------------------
$ 2,117 (.01)% $ 2,086 .15% $ 1,993 .03% $ 1,937 .28%
9,660 1.53 9,602 1.72 8,139 1.63 7,521 1.78
6,992 3.14 7,405 3.10 7,692 3.13 8,148 3.39
461 6.65 477 5.87 391 5.30 359 6.06
1,096 3.57 1,108 3.77 1,084 3.78 804 4.64
------- ------- ------- -------
20,326 2.15 20,678 2.26 19,299 2.25 18,769 2.53
1,150 2.85 1,215 3.09 1,050 3.07 963 3.04
222 2.86 240 2.91 215 2.77 221 2.84
139 3.11 195 3.23 289 3.26 171 3.21
355 7.44 733 5.57 744 5.72 326 8.15
2,019 5.66 2,124 5.76 2,050 6.19 1,765 6.85
------- ------- ------- -------
24,211 2.57% 25,185 2.71% 23,647 2.76% 22,215 2.98%
7,150 7,069 6,587 6,124
133 128 148 128
946 895 915 721
- - ------------------------------------------------------------------------------------------------------------
32,440 33,277 31,297 29,188
- - ------------------------------------------------------------------------------------------------------------
3,329 3,285 3,124 2,945
- - ------------------------------------------------------------------------------------------------------------
$35,769 $36,562 $34,421 $32,133
- - ------------------------------------------------------------------------------------------------------------
6.41% 6.41% 6.51% 7.03%
2.02% 2.15% 2.21% 2.38%
- - ------------------------------------------------------------------------------------------------------------
4.39% 4.26% 4.30% 4.65%
4.36% 4.23% 4.27% 4.61%
- - ------------------------------------------------------------------------------------------------------------
<FN>
approximating 35%, using dollar amounts in thousands and actual number of days in the periods, and are before the effect of
reserve requirements. Loan fees, as well as nonaccrual loans and their related income effect, have been included in the
calculation of average interest yields/rates.
</TABLE>
-45-
<PAGE> 47
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
Various legal actions and proceedings are pending or are threatened against the
Corporation and its subsidiaries, some of which seek relief or damages in
amounts that are substantial. These actions and proceedings arise in the
ordinary course of the Corporation's businesses and include suits relating to
its lending, collections, servicing, investments and trust activities. Due to
the complex nature of some of these actions and proceedings, it may be a number
of years before such matters ultimately are resolved. After consultation with
legal counsel, management believes that the aggregate liability, if any,
resulting from such pending and threatened actions and proceedings will not
have a material adverse effect on the Corporation's financial condition.
On February 12, 1991, a jury in Colorado rendered a verdict in a lender
liability lawsuit in which the Corporation is one of the defendants. The jury
awarded actual damages of $42 million and punitive damages of $23 million in
favor of the plaintiffs. In the lawsuit, the plaintiffs contended that the
Corporation breached certain obligations and failed to disclose certain
information in connection with its lending relationships with the plaintiffs.
On June 6, 1991, a district judge in Colorado entered a judgment reducing the
award to $16 million in actual damages, plus interest, and $12 million in
punitive damages. On January 27, 1994, the Colorado Court of Appeals affirmed
the judgment for plaintiffs for compensatory damages in the reduced amount of
$5.36 million, plus interest since November 1, 1989, and vacated the judgment
for punitive damages and remanded to the trial court with the direction to
reconsider the amount, if any, of punitive damages. By Colorado law, the
amount of the punitive damages cannot exceed the amount of the compensatory
damages. Both plaintiffs and defendants filed petitions for rehearing before
the Court of Appeals, which were denied on March 31, 1994. Plaintiffs have
petitioned the Supreme Court of Colorado for review. The Corporation is also
planning to file a petition seeking review by the Colorado Supreme Court.
Subsequent to the announcement of the proposed merger with Dreyfus, plaintiffs
who claim to be shareholders of Dreyfus commenced six purported class action
suits in the Supreme Court of the State of New York, County of New York, naming
Dreyfus, the individual directors of Dreyfus and (in two of the cases) the
Corporation as defendants. In these complaints, the plaintiffs, among other
things, object to the terms of the proposed merger and seek injunctive relief
against its consummation, as well as compensatory and punitive damages. The
Corporation believes that these complaints lack merit and intends to defend
them vigorously.
-46-
<PAGE> 48
PART II - OTHER INFORMATION (CONTINUED)
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
10.1 Mellon Bank Corporation Long-Term Profit Incentive Plan (1981), as
amended March 15, 1994.
10.2 Mellon Bank Corporation Retirement Plan for Outside Directors,
effective January 1, 1994.
12.1 Computation of Ratio of Earnings to Fixed Charges and Ratio of
Earnings to Combined Fixed Charges and Preferred Stock Dividends
(parent Corporation).
12.2 Computation of Ratio of Earnings to Fixed Charges and Ratio of
Earnings to Combined Fixed Charges and Preferred Stock Dividends
(Mellon Bank Corporation and its subsidiaries).
(b) Reports on Form 8-K
During the first quarter of 1994, the Corporation filed the following
Current Reports on Form 8-K:
(1) A report dated January 5, 1994, which included, under Items 5 and 7,
the Corporation's press release regarding the Corporation's
litigation settlement with Smith Barney Shearson Inc.
(2) A report dated January 13, 1994, which included, under Item 7, the
Corporation's press release regarding fourth quarter and full-year
1993 financial results.
-47-
<PAGE> 49
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MELLON BANK CORPORATION
(Registrant)
Date: May 10, 1994 By: /s/ Steven G. Elliott
-----------------------------
Steven G. Elliott
Vice Chairman,
Chief Financial Officer
and Treasurer
(Duly Authorized Officer and
Principal Financial Officer of
the Registrant)
-48-
<PAGE> 50
CORPORATE INFORMATION
Business Mellon Bank Corporation is a multibank holding company
of the incorporated under the laws of Pennsylvania and registered
Corporation under the federal Bank Holding Company Act. Its principal
wholly owned subsidiaries are Mellon Bank, N.A., The Boston
Company, Inc., Mellon Bank (DE) National Association, Mellon
Bank (MD) and the companies known as Mellon Financial
Services Corporations. The Corporation's banking
subsidiaries engage in domestic retail banking, worldwide
commercial banking, trust banking, investment management and
other financial services and various securities-related
activities. Through the Mellon Financial Services
Corporations and their subsidiaries, the Corporation
provides commercial financial services, engages in leasing
and residential real estate loan financing, originates
commercial loans, and provides cash management, mortgage
servicing, stock transfer and numerous trust and investment
management services. The Corporation's principal executive
office is located at One Mellon Bank Center, 500 Grant
Street, Pittsburgh, Pennsylvania, 15258-0001 (Telephone:
412-234-5000).
Exchange Mellon Bank Corporation's common, Series H preferred, Series
listing I preferred, Series J preferred and Series K preferred
stocks are traded on the New York Stock Exchange. The
trading symbols are MEL (common stock), and MEL Pr H, MEL Pr
I, MEL Pr J and MEL Pr K (preferred stocks). The Transfer
Agent and Registrar is Mellon Bank, N.A., P.O. Box 444,
Pittsburgh, PA 15230-0444.
Dividend Subject to approval of the board of directors, dividends are
payments paid on Mellon Bank Corporation's common and preferred stocks
on or about the 15th day of February, May, August and
November.
Dividend Under the Dividend Reinvestment and Common Stock Purchase
Reinvestment Plan, registered holders of Mellon Bank Corporation's common
and Common stock may purchase additional common shares at the market
Stock Pur- value for such shares through reinvestment of common dividends
chase Plan and/or optional cash payments. Purchases of shares through
optional cash payments are subject to limitations. Plan
details are in a Prospectus dated December 15, 1993, which
may be obtained from the Secretary of the Corporation.
Phone Corporate Communications (412) 236-1264
contacts Dividend Reinvestment Plan (412) 236-8000
Investor Relations (412) 234-5601
Publication Requests (412) 234-8252
Stock Transfer Agent (412) 236-8000
-49-
<PAGE> 51
Index to Exhibits
<TABLE>
<CAPTION>
Exhibit No. Description
-------------- --------------------------------------
<S> <C>
10.1 Mellon Bank Corporation Long-Term
Profit Incentive Plan (1981), as
amended March 15, 1994.
10.2 Mellon Bank Corporation Retirement
Plan for Outside Directors, effective
January 1, 1994.
12.1 Computation of Ratio of Earnings to
Fixed Charges and Ratio of Earnings
to Combined Fixed Charges and
Preferred Stock Dividends (parent
Corporation).
12.2 Computation of Ratio of Earnings to
Fixed Charges and Ratio of Earnings
to Combined Fixed Charges and
Preferred Stock Dividends (Mellon
Bank Corporation and its
subsidiaries).
</TABLE>
-50-
<PAGE> 1
EX-10.1
MELLON BANK CORPORATION LONG-TERM PROFIT INCENTIVE PLAN (1981)
I. Purpose
The purpose of this Long-Term Profit Incentive Plan (1981), as amended, is to
promote the growth and profitability of Mellon Bank Corporation ("Corporation")
and its subsidiaries and to provide officers and other key executives of the
Corporation and its subsidiaries with an incentive to achieve long-term
corporate objectives, to attract and retain officers and other key executives
of outstanding competence, and to provide such officers and key executives with
an equity interest in the Corporation.
II. Definitions
The following terms shall have the meanings shown:
2.1 "Award Period" shall mean the time period established by the Committee
pursuant to Section 6.4 of the Plan for the purpose of measuring attainment of
performance targets.
2.2 "Board of Directors" shall mean the Board of Directors of the Corporation.
2.3 "Change in Control Event" shall mean any of the following events:
(a) The occurrence with respect to the Corporation of a "control transaction",
as such term is defined in Section 2542 of the Pennsylvania Business
Corporation Law of 1988, as of August 15, 1989; or
(b) Approval by the stockholders of the Corporation of (i) any consolidation or
merger of the Corporation in which the holders of voting stock of the
Corporation immediately before the merger or consolidation will not own 50% or
more of the voting shares of the continuing or surviving corporation
immediately after such merger or consolidation, or (ii) any sale, lease or
exchange or other transfer (in one transaction or a series of related
transactions) of all or substantially all the assets of the Corporation; or
(c) A change of 25% (rounded to the next whole person) in the membership of the
Board of Directors within a 12-month period, unless the election or nomination
for election by stockholders of each new director within such period was
approved by the vote of 85% (rounded to the next whole person) of the directors
then still in office who were in office at the beginning of the 12-month
period.
2.4 "Committee" shall mean the Human Resources Committee of the Board of
Directors, or any successor committee.
2.5 "Common Stock" shall mean Common Stock of the Corporation.
2.6 "Deferred Cash Incentive Award" shall mean an award granted pursuant to
Article VII of the Plan.
2.7 "Fair Market Value" shall mean the mean value between the bid and ask price
of the Common Stock as reported by the National Association of Securities
Dealers through their Automated Quotation System on the relevant date, or, if
no quotations shall have been made on such relevant date, on the next preceding
day on which there were quotations. Notwithstanding the foregoing, if the
Common Stock is listed on a stock exchange, "Fair Market Value" shall mean the
closing price of the Common Stock on the exchange on the relevant date, or, if
no sale shall have been made on such exchange on that date, the closing price
on the next preceding day on which there was a sale.
2.8 "Incentive Stock Option" shall mean an option qualifying under Section 422A
of the Internal Revenue Code of 1986, as amended, granted by the Corporation or
its parent or any subsidiary corporation.
2.9 "Options" shall mean rights to purchase shares of Common Stock granted
pursuant to Article IV of the Plan.
2.10 "Performance Units" shall mean units granted pursuant to Article VI of the
Plan.
2.11 "Plan" shall mean the Mellon Bank Corporation Long-Term Profit Incentive
Plan (1981), as amended.
<PAGE> 2
2.12 "Reload Option Rights" and "Reload Options" shall have the meanings set
forth in Article IV of the Plan.
2.13 "Restricted Stock" shall mean any share of Common Stock granted pursuant
to Article VIII of the Plan.
2.14 "SARs" shall mean stock appreciation rights granted pursuant to Article V
of the Plan.
2.15 "Stated Value" shall mean the value assigned to a Performance Unit by the
Committee pursuant to Section 6.4 of the Plan.
III. General
3.1 Administration.
(a) The Plan shall be administered by the Committee. No member of the Committee
shall have been an officer or employee of the Corporation or any of its
subsidiaries within the previous 12 months.
(b) The Committee shall have the authority in its sole discretion from time to
time: (i) to designate the employees eligible to participate in the Plan; (ii)
to grant awards provided in the Plan; (iii) to prescribe
such limitations, restrictions and conditions upon any such award as the
Committee shall deem appropriate; and (iv) to interpret the Plan, to adopt,
amend and rescind rules and regulations relating to the Plan, and to make all
other determinations and take all other action necessary or advisable for the
implementation and administration of the Plan. A majority of the Committee
shall constitute a quorum, and the action of a majority of members of the
Committee present at any meeting at which a quorum is present, or acts
unanimously adopted in writing without the holding of a meeting, shall be the
acts of the Committee.
(c) All such actions shall be final, conclusive and binding upon the
participating employee. No member of the Committee shall be liable for any
action taken or decision made in good faith relating to the Plan or any award
thereunder.
3.2 Eligibility. The Committee may grant awards under the Plan to any full-time
corporate officer, key executive, administrative or professional employee of
the Corporation or any of its subsidiaries. In granting such awards and
determining their form and amount, the Committee shall give consideration to
the functions and responsibilities of the employee, his potential contributions
to profitability and to the sound growth of the Corporation and such other
factors as the Committee may deem relevant.
3.3 Awards. Awards under the Plan may be in the form of any one or more of the
following:
(a) Options;
(b) SARs;
(c) Performance Units;
(d) Deferred Cash Incentive Awards; and
(e) Restricted Stock.
3.4 Effective and Expiration Dates of Plan. The Plan shall become effective on
the date approved by the holders of a majority of the total number of shares
entitled to vote at the 1981 Annual Meeting of Shareholders of the Corporation.
No award shall be granted after December 31, 1997, except that Reload Options
may be granted pursuant to Reload Option Rights then outstanding.
3.5 Aggregate Limitation on Awards.
(a) Shares of Common Stock which may be issued pursuant to awards granted under
the Plan may be either authorized and unissued shares of Common Stock or
authorized and issued shares of Common Stock held in the Corporation's
Treasury. The number of shares of Common Stock reserved for issue under the
Plan shall not exceed 9,000,000 shares, subject to adjustments pursuant to
Sections 9.7 and 9.8.
(b) For purposes of paragraph (a) of this Section 3.5, shares of Common Stock
that are actually issued upon exercise of an Option shall be counted against
the total number of shares reserved for issuance, except that when Options are
exercised by the delivery of shares of Common Stock, the charge against the
shares reserved for issuance shall be limited to the net new shares of Common
Stock issued. In addition to shares of Common Stock actually issued pursuant to
the exercise of Options, there shall be deemed to have been issued under the
Plan a number of shares of Common Stock equal to (i) the SARs
2
<PAGE> 3
(as described in Article V) which shall have been exercised, (ii) the
Performance Units (as described in Article VI) the value of which the
Corporation shall have paid under the Plan and (iii) the Restricted Stock (as
described in Article VIII) which shall have been granted pursuant to the Plan.
For purposes of paragraph (a) of this Section 3.5, the payment of a Deferred
Cash Incentive Award shall not be deemed to result in the issuance of any
shares of Common Stock in addition to those issued pursuant to the exercise of
the related Option.
(c) Any shares of Common Stock subject to an Option which for any reason either
terminates unexercised or expires except by reason of the exercise of a related
SAR or related Performance Unit, and any shares of Restricted Stock granted
under this Plan which are surrendered or forfeited to the Corporation, shall
again be available for issuance under the Plan.
IV. Options
4.1 Grant of Options. The Committee may from time to time, subject to the
provisions of the Plan, in its discretion grant Options to eligible employees
to purchase for cash or shares of Common Stock the number of shares of Common
Stock allotted by the Committee. In the discretion of the Committee, any
Options or portions thereof granted pursuant to this Plan may be designated as
Incentive Stock Options. The aggregate Fair Market Value (determined as of the
time the Incentive Stock Option is granted) of Common Stock and any other stock
of the Corporation or its parent or any subsidiary corporation with respect to
which such Incentive Stock Options are exercisable for the first time by an
employee in any calendar year under all plans of the Corporation and its
subsidiaries shall not exceed $100,000 or such sum as may from time to time be
permitted under Section 422A of the Internal Revenue Code. The Committee shall
also have the authority, in its discretion, to award reload option rights
("Reload Option Rights") in conjunction with the grant of Options with the
effect described in Section 4.7. Reload Option Rights may be awarded either at
the time an Option is granted or, except in the case of Incentive Stock
Options, at any time thereafter during the term of the Option.
4.2 Option Agreements. The grant of any Option shall be evidenced by a written
"Stock Option Agreement" executed by the Corporation and the optionee, stating
the number of shares of Common Stock subject to the Option evidenced thereby
and such other terms and conditions of the Option as the Committee may from
time to time determine.
4.3 Option Price. The option price for the Common Stock covered by any Option
granted under the Plan shall in no case be less than 100% of the Fair Market
Value of said Common Stock on the date of grant.
4.4 Term of Options. The terms of each Option granted under the Plan shall be
for such period as the Committee shall determine, but for not more than ten
years from the date of grant thereof. Each Option shall be subject to earlier
termination as provided in Sections 4.6, 5.1(b) and 6.5 hereof.
4.5 Exercise of Options. Each Option granted under the Plan shall be
exercisable on such date or dates during the term thereof and for such number
of shares of Common Stock as may be provided in the Stock Option Agreement
evidencing its grant. Pursuant to the terms of the Stock Option Agreement or
otherwise, the Committee may change the date on which an outstanding Option
becomes exercisable; provided, however, that an exercise date designated in a
Stock Option Agreement may not be changed to a later date without the consent
of the holder of the Option. Notwithstanding any other provision of this Plan,
unless expressly provided to the contrary in the applicable Stock Option
Agreement, all Options granted under the Plan shall become fully exercisable
immediately and automatically upon the occurrence of a Change in Control Event.
4.6 Termination of Employment.
(a) If termination of employment of an optionee hereunder is due to retirement
with the consent of the Corporation, the optionee shall have the right to
exercise his Option within the period of one year after such retirement to the
extent exercisable by him at the time of retirement; provided, however, that
such post-retirement exercise period may be extended by action of the Committee
for up to the full remaining term of such Option.
(b) If an optionee hereunder shall die while in the employ of the Corporation
or a subsidiary thereof or within a period of one year after retirement
therefrom, his Option may be exercised to the extent exercisable by the
optionee at the time of his death within a period of one year from the date of
his
3
<PAGE> 4
death by the executor or administrator of the optionee's estate or by the
person or persons to whom the optionee shall have transferred such right by
will or by the laws of descent and distribution.
(c) In the event the employment of an optionee hereunder is terminated for any
reason other than retirement with the consent of the Corporation or death, his
Option shall terminate upon his termination of employment.
(d) Notwithstanding the foregoing, in no event shall an Option granted
hereunder be exercisable after the expiration of its terms.
4.7 Reload Option Rights. Reload Option Rights if awarded with respect to an
Option shall entitle the original grantee of the option (and unless otherwise
determined by the Committee, in its discretion, only such original grantee),
upon exercise of the Option or any portion thereof through delivery of shares
of Common Stock, automatically to be granted on the date of such exercise an
additional Option (a "Reload Option") (i) for that number of shares of Common
Stock not greater than the number of shares delivered by the optionee in
payment of the option price of the original Option and any withholding taxes
related thereto, (ii) having an option price not less than 100% of the Fair
Market Value of the Common Stock covered by the Reload Option on the date of
grant of such Reload Option, (iii) having an expiration date not later than the
expiration date of the original Option so exercised and (iv) otherwise having
terms permissible for the grant of an Option under the Plan. Subject to the
preceding sentence and the other provisions of the Plan, Reload Option Rights
and Reload Options shall have such terms and be subject to such restrictions
and conditions, if any, as shall be determined, in its discretion, by the
Committee. In granting Reload Option Rights, the Committee, may, in its
discretion, provide for successive Reload Option grants upon the exercise of
Reload Options granted hereunder. Unless otherwise determined by the Committee,
in its discretion, Reload Option Rights shall entitle the grantee to be granted
Reload Options only if the underlying Option to which they relate is exercised
by the grantee during employment with the Corporation or any of its
subsidiaries. Except as otherwise specifically provided herein or required by
the context, the term Option as used in this Plan shall include Reload Options
granted hereunder.
V. SARs
5.1 SARs.
(a) SARs, as hereinafter described, may be granted in conjunction with all or
any part of any Option granted under the Plan, either at the time of the grant
of such Option or at any time thereafter during the term of such Option.
(b) SARs shall entitle the holder of an Option in connection with which such
SARs are granted, upon exercise of the SARs, to surrender the Option or the
applicable portion thereof, to the extent then exercisable but unexercised, and
to receive (i) a number of shares of Common Stock, (ii) cash or (iii) cash and
shares of Common Stock as determined pursuant to subparagraph (iii) of
paragraph (c) of this Section 5.1. Such Option shall, to the extent
surrendered, thereupon cease to be exercisable.
(c) SARs shall be subject to the following terms and conditions and to such
other terms and conditions as shall from time to time be approved by the
Committee, including the designation of a maximum on the payments to be made
with respect to any SARs or a holder thereof.
(i) SARs shall be exercisable at such time or times and to such extent, but
only to such extent, that the Option to which they relate shall be
exercisable.
(ii) SARs and any related Option shall not be exercisable during the first 6
months after the date of grant.
(iii) Upon exercise of SARs, the holder thereof shall be entitled to receive
such number of shares of Common Stock as shall be equal in aggregate Fair
Market Value to the amount by which the Fair Market Value per share shall
exceed the option price per share of the related Option, multiplied by the
number of shares in respect of which the SARs shall have been exercised. In
the sole discretion of the Committee, the Corporation may pay all or any
part of its obligation arising out of an exercise of SARs by the payment of
cash in an amount equal to the aggregate Fair Market Value of the shares of
Common Stock (including a fraction of a share) that it would otherwise be
obligated to deliver under the preceding sentence of this subparagraph (iii)
except for cash payment.
4
<PAGE> 5
(d) To the extent that SARs shall be exercised, the Option in connection with
which such SARs shall have been granted shall be deemed to have been exercised,
and the shares of Common Stock which would have been issued upon the exercise
of such Option shall be charged against the maximum number of shares of Common
Stock which may be issued under the Plan as set forth in Section 3.5 hereof.
VI. Performance Units
6.1 Award of Performance Units. The Committee may from time to time, subject to
the provisions of the Plan and such other terms and conditions as it may
prescribe, grant one or more Performance Units to eligible employees. In the
Committee's sole discretion it may relate any such Performance Units to shares
of Common Stock which are subject to an Option being granted concurrently or
granted at some other time under the Plan to the grantee of such Performance
Units.
6.2 Performance Unit Agreements. Performance Units granted under the Plan shall
be evidenced by a written "Performance Unit Agreement" in such form as the
Committee may from time to time determine.
6.3 Number of Performance Units. Upon making an award, the Committee shall
determine (and the Performance Unit Agreement shall state) the number of
Performance Units granted to the grantee, and the Option or Options, if any, to
which such Units are related. Upon the exercise of the related portion of such
Option or Options (or the related SARs, if any) there shall be cancelled that
number of related Performance Units, if any, which is equal to the sum of the
number of shares of Common Stock purchased pursuant to the related portion of
said Options plus the number of SARs which are exercised.
6.4 Stated Value of Performance Units. Upon making an award, the Committee
shall determine (and the Performance Unit Agreement shall set forth) the Stated
Value of the Performance Units awarded to the grantee. The Stated Value of a
Performance Unit shall be stated as a function of the Fair Market Value of the
Common Stock. The earning of the Performance Units by the employee shall be
calculated in a manner prescribed by the Committee with reference to a primary
performance target for such Unit for an Award Period not exceeding four (4)
years and not less than two (2) years, all as established by the Committee
prior to the award.
6.5 Payment of Performance Units. Payment in respect of Performance Units to
the grantee thereof shall commence within 90 days after the Award Period for
such Units has ended, but only to the extent that such Units have been earned
by the partial or total attainment or the exceeding of the performance targets
set for such Units by the Committee pursuant to Section 6.7 hereof, and only
with respect to Performance Units not theretofore cancelled by the exercise of
related portions of Options or SARs pursuant to Section 6.3 hereof or
determined by the Committee to be reserved for future exercise of such Options
or SARs. Such payment of Performance Units shall be made in an amount equal to
the dollar value of the Performance Units earned except to the extent that the
Committee designates a minimum and/or a maximum on such payments. These
payments shall be in one or more equal installments and subject to such terms
and conditions as the Committee shall specify. Upon commencement of payment of
any Performance Units hereunder, the Options to purchase shares of Common Stock
(and any accompanying SARs) related to such Performance Units shall
automatically be cancelled.
6.6 Form of Payment. Payments for Performance Units shall be made in cash,
shares of Common Stock or partly in cash and partly in shares of Common Stock,
as the Committee shall determine. To the extent that payment is made in shares
of Common Stock, the number of shares shall be determined by dividing the
amount of such payment by the Fair Market Value of a share of Common Stock on
the date of payment.
6.7 Performance Targets. Upon the award of any Performance Units, the Committee
shall establish (and the Performance Unit Agreement shall state) one or more
performance targets to be attained by the end of the Award Period as a
condition of such Performance Units being earned at 100%. Each performance
target shall be stated either as a specific dollar amount of growth or as a
percentage rate of improvement in such elements as the Corporation's income
before securities transactions, net income per share, return on equity or such
other measures related to growth or improvement in the rate of growth as the
Committee shall determine. To the extent that the performance target is either
5
<PAGE> 6
not achieved or is exceeded, a proportionate amount, either less or more than
100% of the Performance Unit, will be earned subject to such limitation, if
any, as the Committee may designate pursuant to Section 6.5 hereof.
6.8 Termination of Employment.
(a) In the event the employment of a grantee who has been granted Performance
Units under this Plan shall terminate during an Award Period by reason of death
or retirement with the consent of the Corporation, such grantee, the executor
or administrator of the grantee's estate, or the person or persons to whom the
grantee shall have transferred such award by will or by the laws of descent or
distribution, will be entitled to receive within 90 days after the end of the
Award Period, payment in respect of such Performance Units to the same extent
as if the grantee were an employee throughout the Award Period adjusted by
applying to such payment a percentage equivalent to the percentage of the Award
Period elapsing before such grantee's employment shall have terminated.
(b) Except as provided in paragraph (a) of this Section 6.8, or except as
otherwise determined by the Committee, all Performance Units granted hereunder
shall terminate upon termination of the grantee's employment with the
Corporation or its subsidiaries.
VII. Deferred Cash Incentive Awards
7.1 Granting of Deferred Cash Incentive Awards. Deferred Cash Incentive Awards,
as hereafter described, may be granted in conjunction with all or any part of
any Option granted under the Plan, either at the time of the grant of such
Option or at any time thereafter during the term of such Option.
7.2 Deferred Cash Incentive Agreements. Deferred Cash Incentive Awards shall
entitle the holder of an Option to receive from the Corporation an amount of
cash equal to the aggregate exercise price of all Options exercised by such
holder in accordance with the terms of a written "Deferred Cash Incentive
Agreement" executed by the Corporation and the optionee. Deferred Cash
Incentive Agreements shall specify the conditions under which Deferred Cash
Incentive Awards become payable, the conditions under which Deferred Cash
Incentive Awards are forfeited and any other terms and conditions as the
Committee may from time to time determine. Under no circumstances may a
Deferred Cash Incentive Award be applied to any purpose other than the payment
of the exercise price of a properly exercised related Option.
7.3 Preestablished Performance Goals. Except in the event of death, permanent
disability or a "Change in Control Event" (as defined in Section 2.3), any
Deferred Cash Incentive Award shall only be earned and become payable after
January 1, 1994, if the Corporation achieves performance goals which are
established for a calendar year or longer period by the Committee in compliance
with Section 162(m) of the Internal Revenue Code and regulations thereunder, as
amended from time to time. Performance goals shall be determined by the
Committee and may be based on one or more business criteria (including return
on equity, return on assets, net income and earnings per share) as defined by
the Committee that apply to the individual, a business unit or the Corporation
as a whole. The Committee may retain the discretion to reduce (but not to
increase) the portion of any Deferred Cash Incentive Award which will be earned
for any calendar year based on achieving such performance goals.
VIII. Restricted Stock
8.1 Award of Restricted Stock. The Committee may from time to time, subject to
the provisions of the Plan and such other terms and conditions as it may
prescribe, grant one or more shares of Restricted Stock to eligible employees.
In the discretion of the Committee, shares of Restricted Stock may be granted
alone, in addition to or in tandem with other awards granted under the Plan
and/or cash awards made outside of the Plan.
8.2 Restricted Stock Agreements. Each award of Restricted Stock under the Plan
shall be evidenced by a written Restricted Stock Agreement executed by the
Corporation and the grantee in such form as the Committee shall prescribe from
time to time in accordance with the Plan.
8.3 Restrictions. Shares of Restricted Stock issued to a grantee may not be
sold, assigned, transferred, pledged, hypothecated or otherwise disposed of,
except by will or the laws of descent and distribution, for such period as the
Committee shall determine, beginning on the date on which the award is granted
(the "Restricted Period"). The Committee may also impose such other
restrictions
6
<PAGE> 7
and conditions on the shares or the release of the restrictions thereon as it
deems appropriate. In determining the Restricted Period of an award, the
Committee may provide that the foregoing restrictions shall lapse with respect
to specified percentages of the awarded shares on successive anniversaries of
the date of such award or all at once.
8.4 Stock Certificate. As soon as is practicable following the making of an
award, a certificate bearing an appropriate legend referring to such
restrictions shall be registered in the grantee's name. The certificate shall
be held by the Corporation on behalf of the grantee until the restrictions are
satisfied. Except for the transfer restrictions, the grantee shall have all the
rights of a holder of the shares received in an award, including the right to
receive dividends paid with respect to such shares and the right to vote such
shares. As soon as is practicable following the date on which transfer
restrictions on any shares lapse, the Corporation shall deliver to the grantee
the certificates for such shares, provided that the grantee shall have complied
with all conditions for delivery of such shares contained in the Restricted
Stock Agreement or otherwise reasonably required by the Corporation.
8.5 Termination of Employment.
(a) All restrictions placed upon Restricted Stock shall lapse immediately upon
(i) termination of the grantee's employment with the Corporation if, and only
if, such termination is by reason of the grantee's death or retirement with the
consent of the Corporation or (ii) the occurrence of a Change in Control Event,
unless expressly provided to the contrary in the applicable Restricted Stock
Agreement. In addition, the Committee may in its discretion allow restrictions
on Restricted Stock to lapse prior to the date specified in a Restricted Stock
Agreement.
(b) Upon the effective date of a termination for any reason not specified in
Section 8.5(a), all shares then subject to restrictions immediately shall be
forfeited to the Corporation without consideration or further action being
required of the Corporation. For purposes of this Section 8.5(b), the effective
date of a grantee's termination shall be the date upon which such grantee
ceases to perform services as an employee of the Corporation or any of its
subsidiaries, without regard to accrued vacation, severance or other benefits
or the characterization thereof on the payroll records of the Corporation or
any of its subsidiaries.
IX. Miscellaneous
9.1 General Restriction. Each award under the Plan shall be subject to the
requirement that, if at any time the Committee shall determine that any listing
or registration of the shares of Common Stock or any consent or approval of any
governmental body, or any other agreement or consent is necessary or desirable
as a condition of the granting of an award or issuance of Common Stock or cash
in satisfaction thereof, such award may not be consummated unless such
requirement is satisfied in a manner acceptable to the Committee.
9.2 Non-Assignability. No award under the Plan shall be assignable or
transferable by the recipient thereof, except by will or by the laws of descent
and distribution or by such other means as the Committee may approve from time
to time. During the life of the recipient, such award shall be exercisable only
by such person.
9.3 Withholding Taxes. Whenever the Corporation proposes or is required to
issue or transfer shares of Common Stock under the Plan, the Corporation shall
have the right to require the participant to remit to the Corporation an amount
sufficient to satisfy any federal, state, local or other withholding tax
requirements prior to the delivery of any certificate for such shares. Whenever
under the Plan payments are to be made in cash, such payments shall be net of
an amount sufficient to satisfy any federal, state, local or other withholding
tax requirements.
9.4 No Right to Employment. Nothing in the Plan or in any agreement entered
into pursuant to it shall confer upon any participant the right to continue in
the employment of the Corporation or a subsidiary or affect any right which the
Corporation or a subsidiary may have to terminate the employment of such
participant.
9.5 Non-Uniform Determinations. The Committee's determinations under the Plan
(including without limitation its determinations of the persons to receive
awards, the form, amount and timing of such awards, the terms and provisions of
such awards and the establishment of Stated Values and performance targets)
need not be uniform and may be made by it selectively among persons who
receive, or are eligible to receive, awards under the Plan, whether or not such
persons are similarly situated.
7
<PAGE> 8
9.6 No Rights as Shareholders. Recipients of awards under the Plan shall have
no rights as shareholders of the Corporation with respect thereto, except as
provided in Section 8.4, unless and until certificates for shares of Common
Stock are issued to them.
9.7 Adjustments of Stock. In the event of any change or changes in the
outstanding Common Stock of the Corporation aggregating at least 5%, the
Committee may in its discretion appropriately adjust the number of shares of
Common Stock which may be issued under the Plan, the number of shares of Common
Stock subject to Options theretofore granted under the Plan, the option price
of such Options, the number of SARs theretofore granted in conjunction with an
Option, the number of Performance Units theretofore awarded, the number of
shares of Restricted Stock theretofore granted under the Plan, the performance
targets referred to herein and any and all other matters deemed appropriate by
the Committee. The Committee may, in its discretion for purposes of determining
the extent to which performance targets have been met, with such professional
advice as it may require, restate for Plan purposes the Corporation's reported
figures to take into account any dilutive effects or any changes in accounting
practices or tax laws that may have significantly affected the Corporation's
reported results.
9.8 Reorganization. In the event that the outstanding shares of Common Stock of
the Corporation shall be changed in number, class or character by reason of any
split-up, change of par value, stock dividend, combination or reclassification
of shares, recapitalization, merger, consolidation or other corporate change,
or shall be changed in value by reason of any spin-off, dividend in partial
liquidation or other special distribution, the Committee shall make any changes
it may deem equitable (subject to the approval of the Board of Directors if
required) in outstanding Options, SARs, Performance Units and Restricted Stock
granted pursuant to the Plan.
9.9 Amendment or Termination of the Plan. The Committee, without further
approval of the shareholders, but with the approval of the Board of Directors,
may at any time terminate the Plan or any part thereof and may from time to
time amend the Plan as it may deem advisable; provided, however, that without
shareholder approval, the Committee may not (i) increase the aggregate number
of shares of Common Stock which may be issued under the Plan (other than
increases permitted under Sections 9.7 and 9.8), (ii) extend the term of the
Plan, (iii) extend the period during which an Option may be exercised (other
than as permitted under Section 4.6(a)), or (iv) increase the Stated Value of
any Outstanding Performance Units. The termination or amendment of the Plan
shall not, without the consent of the participant, affect such participant's
rights under an award previously granted.
9.10 Solely for purposes of the options granted under the Employment Agreement
dated June 19, 1987 between Frank V. Cahouet and Mellon Bank, N.A., the
Employment Agreement dated as of July 24, 1987 between Anthony P. Terracciano
and Mellon Bank, N.A. and the Employment Agreement dated as of July 8, 1987
between W. Keith Smith and Mellon Bank, N.A. (each, an "Employment Agreement"),
Sections 4.3 and 4.6 hereof are hereby amended to reflect the provisions of the
Employment Agreement governing each such option.
March 15, 1994
8
<PAGE> 1
EX-10.2
MELLON BANK CORPORATION
RETIREMENT PLAN FOR OUTSIDE DIRECTORS
Effective January 1, 1994
<PAGE> 2
1. PURPOSE
The purpose of the Mellon Bank Corporation
("Corporation") Retirement Plan for Outside Directors
("Plan") is to provide eligible non-employee members of
the Board of Directors of the Corporation ("Board") and
the Advisory Board of the Corporation ("Advisory Board")
with retirement benefits based on their length of
service on the Board.
The Corporate Benefits Committee ("Committee") of the
Corporation shall be the "administrator" responsible for
administering the Plan in accordance with its terms but
such designation of the Committee shall not be
construed, directly or indirectly, as evidencing any
intent on the part of the Corporation that the Plan be
governed by or enforceable under the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"); it
being the intent of the Corporation that such Plan be
governed by and enforceable under the laws of the
Commonwealth of Pennsylvania.
2. ELIGIBILITY
The "Non Employee Members" of the Board and Advisory
Board described in subparagraphs (a) and (b) below shall
be eligible to become participants in the Plan upon
their satisfaction of the service requirements described
in paragraph 3:
a. BOARD MEMBERS. All individuals who are or become
members of the Board on or after January 1, 1994, and
who are not also serving as salaried employees of the
Corporation or one of its subsidiaries.
b. ADVISORY BOARD MEMBERS. All individuals who are
active members of the Advisory Board on or after January
1, 1994, who were active members of the Board prior to
January 1, 1994, and who are not also serving as
salaried employees of the Corporation or one of its
subsidiaries.
3. PARTICIPATION
a. IMMEDIATE PARTICIPATION. Those Non Employee Members
described in paragraph 2 who are credited with sixty
(60) or more months of Board Service as of January 1,
1994 shall become "Participants" entitled to receive a
benefit under this Plan as of January 1, 1994.
b. FUTURE PARTICIPATION. Those Non Employee Members
described in paragraph 2 who are not credited with sixty
(60) or more months of Board Service as of January 1,
-2-
<PAGE> 3
1994 shall become "Participants" entitled to receive a
benefit under this Plan upon their completion of sixty
(60) months of Board Service.
c. BOARD SERVICE. For purposes of this Plan, "Board
Service" shall mean the Non Employee Member's months of
service as an active member of the Board of Directors.
Months of service as a member of the Advisory Board or
as a member of the board of any wholly or partially
owned subsidiary of the Corporation, regardless of the
method by which the subsidiary was established or
acquired, shall not constitute Board Service. Without
intending to limit the generality of the preceding
sentence, a Non Employee Member's months of service as a
member of the board of directors of any company merged
with and into the Corporation shall not constitute
"Board Service" for any purpose under this Plan unless
and until the Nominating Committee of the Board takes
action to provide otherwise.
4. BENEFITS
a. AMOUNT. The monthly benefit payable under this Plan
with respect to any Participant shall be determined as
of the effective date of the Participant's Termination
of Service from the Board and shall be a fixed dollar
amount equal to one-twelfth (1/12th) of the annual
Retainer then being paid to active Non Employee Members
of the Board.
b. DURATION. The amount determined in subparagraph (a)
with respect to any Participant shall be paid for that
number of months equal to the lesser of: the
Participants months of Board Service (as defined in
subparagraph 3(c) above); or one hundred twenty (120)
months.
c. DEFINITIONS. The following words shall have the
meanings ascribed to them:
(1) "RETAINER" means the base annual cash
remuneration established by the Nominating Committee and
the Board and paid to an active Non Employee Member of
the Board as the retainer for his or her services as an
active member of the Board; determined without regard to
any additional cash remuneration paid as a retainer to
any committee chairmanship positions, any noncash
remuneration or benefits, any meeting or per diem fees
paid for attendance or any allowances or reimbursements
for meals, travel, lodging, or other expenses
attributable to attendance at Board meetings.
-3-
<PAGE> 4
(2) "TERMINATION OF SERVICE FROM THE BOARD" means:
(a) with respect to Participant's who ARE NOT
appointed to the Advisory Board following the
termination of their active membership on the
Board, the Participant's termination of active
membership from the Board; and
(b) with respect to Participant's who ARE
appointed to the Advisory Board following the
termination of their active membership on the
Board, the Participant's termination of active
membership from the Advisory Board
in either event with such termination of active
membership being permitted to occur at any age as a
result of retirement, resignation or any other reason.
5. PAYMENT OF BENEFITS
Upon a Participant's Termination of Service from the
Board, the Corporation shall pay to or on behalf of the
Participant a Plan benefit as determined below:
a. UPON TERMINATION OF SERVICE FROM THE BOARD FOR REASON
OTHER THAN DEATH. Except as otherwise provided
in the case of death, the monthly benefit determined in
paragraph 4 shall be paid to the Participant or his
Assignee at the same time as are made monthly
installments of the Retainer paid on behalf of active
Non Employee Members of the Board.
b. ASSIGNMENTS. Any Participant may from time to time
direct the Corporation to pay all or any portion of his
or her benefits hereunder directly to any person or
persons (natural or otherwise, including a trust or an
estate) as the Participant's Assignee or Assignees.
Assignments shall be completely discretionary on the
part of the Participant and may, at the Participant's
election, be either revocable by the Participant without
prior notice to the Assignee(s) or irrevocable. Unless
otherwise provided in the instrument effecting the
assignment, revocable assignments shall become null and
void upon the Participant's death. Assignments shall be
made in writing in the manner prescribed by the
Committee (or its delegate) and will be effective only
when filed with the Committee (or its delegate) during
the Participant's lifetime.
c. UPON DEATH
(1) PRIOR TO TERMINATION OF SERVICE FROM THE
BOARD. In the event that the Participant dies prior to
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<PAGE> 5
his Termination of Service from the Board, the
Corporation shall pay to the Participant's Beneficiary
(or his Assignee(s), if applicable) an amount equal to
fifty percent (50%) of the Present Value of the benefit
the Participant would have received, if any, had the
Participant had a Termination of Service from the Board
for a reason other than death on the day before his or
her death. Such then Present Value shall be paid in a
single sum as soon as administratively possible after
the date of death.
(2) AFTER TERMINATION OF SERVICE FROM THE BOARD.
In the event that the Participant dies after his
Termination of Service from the Board and prior to his
(or his Assignee(s),if applicable) receiving all of the
benefits to which he or she is entitled under this Plan,
the Corporation shall pay to the Participant's
Beneficiary (or his Assignee(s), if applicable) an
amount equal to the then Present Value of the unpaid
portion of the Participant's benefit. Such then Present
Value shall be paid in a single sum as soon as
administratively possible after the date of death.
(3) PRESENT VALUE. For purposes of this
subparagraph (c), the then Present Value shall be
computed using an interest equal to the lesser of: ten
percent (.10); or one percentage point (.01) over the
rate charged by Mellon Bank, N.A., or its successor, to
its best commercial customers determined as of the date
of death.
d. TAX WITHHOLDING. The amounts payable in accordance
with subparagraphs (a) or (b) shall be subject to all
applicable Federal, state and local income and
employment taxes and withholding requirements.
6. DESIGNATION OF BENEFICIARY. Subject to any irrevocable
assignments made pursuant to subparagraph 5(b), each
Participant may from time to time designate any person
or persons (natural or otherwise, including a trust or
an estate) as the Participant's Beneficiary or
Beneficiaries to whom distribution is to be made in the
event the Participant dies before distribution of his or
her entire benefit under this Plan. Each Beneficiary
designation shall be in a manner prescribed by the
Committee (or its delegate) and will be effective only
when filed with the Committee (or its delegate) during
the Participant's lifetime. Each Beneficiary
-5-
<PAGE> 6
designation filed with the Committee (or its delegate)
will cancel all Beneficiary designations previously
filed with the Committee (or its delegate). If a
Participant fails to designate a Beneficiary in the
manner provided above, or if no designated Beneficiary
survives the Participant, then the Corporation shall
distribute the Participant's benefits (or the balance
thereof) to the estate of such Participant.
7. FORFEITURE OF BENEFITS
Notwithstanding any other provision of this Plan to the
contrary, a Participant shall forfeit his or her right
to receive any and all benefits scheduled to be paid on
and after the date that the highest court with
jurisdiction over the matter finally determines that the
Participant has failed to act in accordance with the
fiduciary standard of care established by Section 1712
of the Pennsylvania Business Corporation Law of 1988, as
amended, or its successor Section(s), with respect to a
matter involving the interests of the Corporation or one
of its subsidiaries.
8. FUNDING
a. PARTICIPANT CONTRIBUTIONS. Participant contributions
are neither permitted nor required.
b. CORPORATION CONTRIBUTIONS. Except as otherwise
provided in (d), the Corporation is neither permitted
nor required to make contributions to any funding
vehicle associated with this Plan.
c. BENEFITS PAID FROM GENERAL ASSETS. The Corporation
shall be responsible for the payment of all benefits
provided under this Plan; which benefits are to be paid
from the general assets of the Corporation.
d. TRUST FUND; INSURANCE CONTRACTS. The Corporation
may, solely for its own convenience, purchase insurance
contracts and/or establish one or more trusts, with such
trustees as the Board or the Committee may approve;
which contracts and/or trust assets may, but need not,
be used to provide for the payment of the benefits
provided hereunder. Such trust or trusts may be
irrevocable, but the assets thereof shall be subject to
the claims of the Corporation's creditors. To the
extent any benefits provided under the Plan are actually
paid from any such insurance contract and/or trust
assets, the Corporation shall have no further obligation
with respect thereto, but to the extent not so paid,
such benefits shall remain the obligation of, and shall
be paid by, the Corporation.
-6-
<PAGE> 7
9. ADMINISTRATION
Except as otherwise provided in the provisions of
Article II, ADMINISTRATION, of the Mellon Bank
Corporation 1990 Elective Deferred Compensation Plan for
Directors and Members of the Advisory Board (amended and
restated as of July 21, 1992), which provisions are
incorporated herein, mutatis mutandis, by this
reference, the Committee shall be responsible for
administering the Plan in accordance with its terms and
for the referenced administrative responsibilities with
respect to the Plan.
10. AMENDMENT
The Board or the Nominating Committee of the Board shall
have the right, at any time and without the consent of
any Participant, former Participant or Beneficiary, to
amend or modify the Plan in any respect or to terminate
or repeal the Plan in its entirety. Notwithstanding
anything in the preceding sentence to the contrary, the
Committee shall have the power to amend the Plan to the
extent authorized by paragraph 9.
11. GENERAL PROVISIONS
a. SPENDTHRIFT PROVISIONS. The Corporation shall,
except as otherwise provided in the Plan, pay all
amounts payable hereunder only to the person or persons
entitled thereto hereunder, and all such payments shall
be made directly into the hands of each such person or
persons and not into the hands of any other person
whatsoever, so that said payments may not be liable for
the debts, contracts or engagements of any such
designated person or persons, or taken in execution by
attachment or garnishment or by any other legal or
equitable proceedings, nor shall any such designated
person or persons have any right to alienate, arbitrate,
execute, pledge, encumber, or assign any such payments
or the benefits thereof. If the person entitled to
receive payment be a minor, or a person of unsound mind,
whether or not adjudicated incompetent, the Corporation,
upon the direction of the Committee, may make such
payments to such person or persons as may be, or be
acting as, parent or legal or natural guardian of such
infant or person of unsound mind. The signed receipt of
such person shall be a full and complete discharge to
the Corporation for any such payments.
b. PARTICIPANT RIGHTS. No Participant, former
Participant, person claiming under or through any
Participant or any other person shall have any right or
interest, whether vested or otherwise, in the Plan or
-7-
<PAGE> 8
its continuance, or in or to the payment or the
continuance of any payments under the Plan, except with
respect to payments actually received by the Participant
or former Participant in accordance with the terms,
conditions and provisions of the Plan in effect at the
time any such payments were received. Any and all
payments required to be made to Participants in
accordance with the terms of the Plan shall be general
and unsecured liabilities of the Corporation.
c. RIGHT OF CORPORATION TO REPLACE MEMBERS OF THE BOARD
AND ADVISORY BOARD; OBLIGATIONS. Neither the action of
the Corporation in establishing this Plan, nor any
provisions of this Plan, shall be construed as giving
any member of the Board or Advisory Board the right to
be retained in such capacity and the Board or the
Nominating Committee shall have the right at any time to
replace or fail to renominate any member of the Board or
Advisory Board without any liability for any claim
against the Corporation for any payment whatsoever
except to the extent provided for in this Plan. The
Corporation has no obligation to create any other or
subsequent retirement, deferred compensation or similar
plan for members of the Board or Advisory Board.
d. INDEPENDENCE OF BENEFITS. The benefits payable
under this Plan shall be independent of and in addition
to any other benefits or compensation, whether by
Retainer, salary, bonus or otherwise, payable under any
other agreement or pension, welfare or fringe benefit
plan, fund or program that now exists or may hereafter
be established by the Corporation on behalf of the
Participant or for its other Non Employee Members.
e. TEXT OF PLAN TO CONTROL. The headings of the
paragraphs and subparagraphs are included solely for
convenience of reference, and if there be any conflict
between such headings and the text of this Plan, the
text shall control. This Plan document sets forth the
complete terms of the Plan. In the event of any
discrepancies or conflicts between this Plan document
and any summary or other information regarding the Plan,
the terms of this Plan document shall apply and control.
f. CORPORATE SUCCESSORS. This Plan shall be binding
upon the Corporation, its successors and assigns and the
Participant and his or her heirs, executors,
administrators and legal representatives.
g. APPLICABLE LAW; SEVERABILITY. This Plan shall be
governed by and construed in accordance with the laws of
the Commonwealth of Pennsylvania. If any provisions of
this Plan shall be held invalid or unenforceable for any
-8-
<PAGE> 9
reason, such invalidity or unenforceability shall not
affect the remaining provisions of this Plan, and this
Plan shall be deemed to be modified to the least extent
possible to make it valid and enforceable in its
entirety.
12. EXECUTION
IN WITNESS WHEREOF, the Corporation, intending to be
legally bound, has caused this Plan to be executed and
attested to by its duly authorized officers or
representatives this 10th day of March, 1994, but
effective as of January 1, 1994.
WITNESS MELLON BANK CORPORATION
By /s/ James M. Gockley By /s/ Frank V. Cahouet
James M. Gockley, Frank V. Cahouet,
Secretary Chairman, President and
Chief Executive Officer
[Corporate Seal]
-9-
<PAGE> 1
EX-12.1
<TABLE>
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES AND RATIO
OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
<CAPTION>
Mellon Bank Corporation (parent Corporation) (a)
- - ------------------------------------------------------------------------------------------------------
Three months ended
March 31,
(dollar amounts in thousands) 1994 1993
- - ------------------------------------------------------------------------------------------------------
<S> <C> <C>
Income (loss) before income taxes, and equity in
undistributed net income (loss) of subsidiaries $ 39,794 $(154,829)
Fixed charges: interest expense, one-third of
rental expense net of income from subleases,
and amortization of debt issuance costs 24,370 28,067
- - ------------------------------------------------------------------------------------------------------
Total earnings (loss) (as defined) $ 64,164 $(126,762)
- - ------------------------------------------------------------------------------------------------------
Preferred stock dividend requirements (b) $ 25,049 $ 30,107
- - ------------------------------------------------------------------------------------------------------
Ratio of earnings (loss) (as defined) to fixed charges 2.63 (4.52) (c)
Ratio of earnings (loss) (as defined) to combined fixed
charges and preferred stock dividends 1.30 (2.18) (c)
- - ------------------------------------------------------------------------------------------------------
<FN>
(a) The parent Corporation ratios include the accounts of Mellon Bank Corporation (the "Corporation") and Mellon Financial Company,
a wholly owned subsidiary of the Corporation that functions as a financing entity for the Corporation and its subsidiaries by
issuing commercial paper and other debt guaranteed by the Corporation. Because these ratios exclude from earnings the equity
in undistributed net income (loss) of subsidiaries, these ratios vary with the payments of dividends by such subsidiaries.
(b) Preferred stock dividend requirements represent the pretax amounts required to cover preferred stock dividends. Series K
nonredeemable perpetual preferred stock was issued on January 25, 1993. Accordingly, preferred stock dividends were not
accrued for this security prior to its issue date.
(c) The parent Corporation's earnings (loss) (as defined) did not cover fixed charges as a result of the pretax loss for the
quarter ended March 31, 1993. For the ratio of earnings (loss) (as defined) to fixed charges to have been 1.00, pretax
earnings for the quarter ended March 31, 1993, would have had to increase by approximately $154,829,000. For the ratio of
earnings (loss) (as defined) to combined fixed charges and preferred stock dividends to have been 1.00, pretax earnings for the
quarter ended March 31, 1993, would have had to increase by approximately $184,936,000.
</TABLE>
<PAGE> 1
EX-12.2
<TABLE>
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES AND RATIO
OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
<CAPTION>
Mellon Bank Corporation (and its subsidiaries)
- - ------------------------------------------------------------------------------------------------------
Three months ended
March 31,
(dollar amounts in thousands) 1994 1993
- - ------------------------------------------------------------------------------------------------------
<S> <C> <C>
Income before income taxes $213,660 $ 67,627
Fixed charges: interest expense (excluding
interest on deposits), one-third of rental
expense net of income from subleases, and
amortization of debt issuance costs 61,467 54,085
- - ------------------------------------------------------------------------------------------------------
Total earnings (as defined), excluding
interest on deposits 275,127 121,712
Interest on deposits 101,795 116,953
- - ------------------------------------------------------------------------------------------------------
Total earnings (as defined) $376,922 $238,665
- - ------------------------------------------------------------------------------------------------------
Preferred stock dividend requirements (a) $ 25,049 $ 30,107
- - ------------------------------------------------------------------------------------------------------
Ratio of earnings (as defined) to fixed charges:
Excluding interest on deposits 4.48 2.25
Including interest on deposits 2.31 1.40
Ratio of earnings (as defined) to combined
fixed charges and preferred stock dividends:
Excluding interest on deposits 3.18 1.45
Including interest on deposits 2.00 1.19
- - ------------------------------------------------------------------------------------------------------
<FN>
(a) Preferred stock dividend requirements represent the pretax amounts required to cover preferred stock dividends. Series K
nonredeemable perpetual preferred stock was issued on January 25, 1993. Accordingly, preferred stock dividends were not
accrued for this security prior to its issue date.
</TABLE>
