<PAGE> 1
THIS REPORT HAS BEEN FILED WITH THE SECURITIES
AND EXCHANGE COMMISSION VIA EDGAR
________________________________________________________________________________
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
________________________________________________________________________________
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 SEPTEMBER 30, 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.
<TABLE>
<CAPTION>
Outstanding as of
Class September 30, 1994
----- ------------------
<S> <C>
Common Stock, $.50 par value 97,956,464 (Pre-stock split)
146,934,696 (Post-stock split)
________________________________________________________________________________
</TABLE>
<PAGE> 2
TABLE OF CONTENTS AND 10-Q CROSS-REFERENCE INDEX
<TABLE>
<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 38
Consolidated Balance Sheet 40
Consolidated Statement of Cash Flows 41
Consolidated Statement of Changes in Shareholders' Equity 43
Notes to Financial Statements 44
Selected Statistical Information:
Consolidated Balance Sheet - Average Balances and Interest Yields/Rates 50
Composition of Loan Portfolio 52
Deposits 52
Part II - Other Information
- ---------------------------
Legal Proceedings (Item 1) 53
Submission of Matters to a Vote of Security Holders (Item 4) 54
Exhibits and Reports on Form 8-K (Item 6) 55
Signature 56
Corporate Information 57
Index to Exhibits 58
</TABLE>
<PAGE> 3
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
Three months ended Nine months ended
(dollar amounts in millions, September 30, September 30,
except per share amounts) 1994 1993(a) 1994 1993(a)
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net income $ 78 $ 139 $ 392 $ 322
Net income applicable to common stock 63 123 347 275
Dividends paid on common stock 43 31 128 90
Per common share:
Net income
Pre-stock split $ .64 $ 1.25 $ 3.53 $ 2.84
Post-stock split(b) $ .42 $ .83 $ 2.35 $ 1.89
Dividends paid(c)(d)
Pre-stock split .56 .38 1.68 1.14
Post-stock split(b) .37 .25 1.12 .76
Annualized return on common shareholders' equity 6.76% 14.34% 12.77% 11.37%
Annualized return on assets .81% 1.47% 1.39% 1.22%
Efficiency ratio 64% 66% 65% 63%
Efficiency ratio excluding amortization of intangibles(e) 61% 63% 62% 60%
Average common shares and equivalents
outstanding (in thousands)
Pre-stock split 99,929 99,492 99,499 97,655
Post-stock split(b) 149,893 149,238 149,248 146,483
- ----------------------------------------------------------------------------------------------------------------
RESULTS EXCLUDING CERTAIN ITEMS(f)
Net income $ 167 $ 139 $ 481 $ 381
Net income applicable to common stock 152 123 436 334
Net income per common share:
Pre-stock split $ 1.53 $ 1.25 $ 4.42 $ 3.45
Post-stock split(b) 1.02 .83 2.95 2.30
Annualized return on common shareholders' equity 16.10% 14.34% 15.99% 13.67%
Annualized return on assets 1.74% 1.47% 1.70% 1.44%
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30,
1994 1993(a)
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Loans $26,012 $23,472
Total assets 39,251 35,845
Deposits 27,132 26,333
Common shareholders' equity 3,695 3,485
Book value per common share:
Pre-stock split $ 37.72 $ 35.67
Post-stock split(b) $ 25.15 $ 23.78
Common shareholders' equity to assets ratio 9.41% 9.72%
Tier I capital ratio 10.03% 10.29%
Total (Tier I plus Tier II) capital ratio 13.50% 14.00%
Leverage capital ratio 9.16% 8.94%
- ----------------------------------------------------------------------------------------------------------------
<FN>
(a) Amounts have been restated to reflect the August 24, 1994 merger with
The Dreyfus Corporation accounted for as a pooling-of- interests.
(b) Restated to reflect a three-for-two common stock split declared
September 20, 1994, payable on November 15, 1994.
(c) Dividends per common share have not been restated to reflect the Dreyfus
merger.
(d) In the third quarter of 1994, the Corporation announced a 21% increase
in its common dividend. An additional dividend at the new rate of $.675
per share on a pre-stock split basis, or $.45 per share on a post-stock
split basis, was declared and is payable on November 15, 1994. It is
expected that no additional common dividend will be declared in the
fourth quarter of 1994.
(e) Excludes amortization of goodwill, core deposit, and other identified
intangibles recorded in connection with acquisitions.
(f) Results for the third quarter and first nine months of 1994 exclude $79
million after tax in merger expenses and $10 million after tax of losses
on the disposition of investment securities previously owned by Dreyfus.
Results for the first nine months of 1993 exclude $112 million after tax
in merger expenses and $53 million after tax in gains on the sale of
securities related to the Corporation's acquisition of The Boston
Company.
NOTE: THROUGHOUT THIS REPORT, RATIOS ARE BASED ON UNROUNDED NUMBERS AND
FACTORS CONTRIBUTING TO CHANGES BETWEEN PERIODS ARE NOTED IN DESCENDING
ORDER OF MATERIALITY.
</TABLE>
2
<PAGE> 4
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
SIGNIFICANT EVENTS IN THE THIRD QUARTER OF 1994
Acquisition of Mortgage Origination Business and Servicing Portfolio of U.S.
Bancorp Mortgage Company
On August 11, 1994, the Corporation acquired the retail and wholesale
residential mortgage loan origination network and the bulk of the residential
mortgage servicing portfolio of U.S. Bancorp Mortgage Company. The Corporation
acquired more than 50 wholesale and retail loan origination offices, which are
principally located in the Pacific Northwest, the Rocky Mountain region and
Hawaii, as well as a $3.6 billion residential mortgage loan servicing
portfolio. This acquisition increased the Corporation's total servicing
portfolio to $32 billion. The purchase price was approximately $75 million.
In addition, approximately $80 million of marketable loans were purchased at
market value. This transaction was financed with cash on hand.
Merger with The Dreyfus Corporation
On August 24, 1994, the Corporation merged with The Dreyfus Corporation
(Dreyfus), creating the largest combination of a banking firm and a mutual fund
company in the history of the financial services industry. As a result of the
merger, the Corporation becomes one of the nation's largest investment
management firms, with assets under management totaling $201 billion at
September 30, 1994, and is by far the largest bank manager of mutual funds. As
a result of the merger, the Corporation expects annual revenues to be $3.1
billion, of which more than half will come from fee revenue.
The transaction was accounted for under the pooling-of-interests method, with
prior-period financial results restated to reflect the merger. Dreyfus
shareholders received 0.88017 shares of the Corporation's common stock for each
of the 36.7 million Dreyfus shares outstanding, resulting in 32.2 million
shares of the Corporation's common stock being issued. Following this merger,
the Corporation's return on assets, excluding Dreyfus merger-related charges,
improved 27 basis points to 1.74%. In addition, the Corporation's common
shareholders' equity to assets ratio improved 166 basis points compared with
the pre-merger prior quarter-end ratio. However, as a result of the issuance
of the additional shares, net income per common share for the Corporation's
prior four quarters, on a restated basis, was approximately 17% to 19% lower
than previously reported amounts. Book value per common share for the
Corporation's prior four quarters, on a restated basis, was approximately 13%
lower than previously reported amounts.
In connection with the merger, the Corporation recorded one-time merger
expenses in the third quarter of 1994 of $104 million pretax, or $79 million
after-tax. The Corporation also incurred losses of $15 million, or $10 million
after-tax, on the disposition of securities classified as available for sale
that were held by Dreyfus. These securities did not meet the investment
objectives, interest rate or credit risk characteristics required by the
Corporation. The $10 million after-tax losses on the disposition of these
securities did not impact shareholders' equity because Dreyfus had previously
recorded a fair value adjustment to equity to reflect the net unrealized losses
on these securities in accordance with FAS No. 115. The merger expenses
primarily consisted of: required payouts due under pre-existing employee
benefit programs and severance programs; the write-down of certain facilities
and assets; and professional fees and proxy solicitation expense.
Acquisition of Glendale Bancorporation
On September 20, 1994, the Corporation acquired Glendale Bancorporation
(Glendale), a bank holding company headquartered in Voorhees, New Jersey. This
transaction will enable the Corporation to conduct branch banking in the New
Jersey suburbs of Philadelphia. At September 30, 1994, Glendale had total
assets of $263 million and deposits of $213 million. The total purchase price
was $28 million and included paying cash of $10.50 per share of Glendale stock,
converting preferred shares, cashing out stock options and extinguishing
certain equity notes. The transaction was recorded under the purchase method
of accounting.
3
<PAGE> 5
SIGNIFICANT EVENTS IN THE THIRD QUARTER OF 1994 (CONTINUED)
Dividend increase and three-for-two common stock split
On September 20, 1994, the board of directors of the Corporation approved an
increase in the quarterly cash dividend on the common stock, declared the
fourth quarter dividend and authorized a three-for-two split of the
Corporation's common stock. The Corporation increased its common dividend by
21% to $.675 per share on a pre-split basis. The increased dividend is payable
on November 15, 1994, to shareholders of record on October 31, 1994. As a
result of declaring the dividend on common stock in September, the common
dividend traditionally declared and paid in the fourth quarter is reflected in
the financial statements at September 30, 1994. It is expected that no
additional common dividend will be declared in the fourth quarter of 1994. The
three-for-two common stock split was structured as a special stock dividend of
one additional share of common stock being paid on every two outstanding shares
of common stock. The additional shares resulting from the split will be
distributed on November 15, 1994, to shareholders of record on November 1,
1994. On a post-split basis, the Corporation's quarterly dividend will be $.45
per share.
OVERVIEW OF THIRD QUARTER AND YEAR-TO-DATE RESULTS
The Corporation recorded net income of $78 million, or $.64 per common share,
on a pre-stock split basis, in the third quarter of 1994. The Corporation's
third quarter 1994 results include $79 million after tax in merger expenses
related to the Corporation's August 1994 merger with Dreyfus and $10 million in
after tax, one-time losses on the disposition of investment securities
previously owned by Dreyfus. Excluding these merger-related charges, net
income was $167 million, or $1.53 per common share, on a pre-stock split basis.
Annualized return on common shareholders' equity and return on assets were
6.76% and .81%, respectively, in the third quarter of 1994. Excluding
Dreyfus-related charges, annualized return on common shareholders' equity and
return on assets were 16.10% and 1.74%.
The Corporation's net income and earnings per common share in the third quarter
of 1993 were $139 million and $1.25 per common share, on a pre-stock split
basis, respectively. Annualized return on common shareholders' equity and
return on assets were 14.34% and 1.47%, respectively, in the third quarter of
1993. On a post-stock split basis, third quarter 1994 net income was $.42 per
common share, compared with $.83 per common share in the third quarter of 1993.
Net interest revenue was $376 million in the third quarter of 1994, up 10% from
$343 million in the third quarter of 1993, primarily reflecting a higher
yielding asset mix. Fee revenue was $399 million down $20 million from the
prior-year period. The decrease in fee revenue, offset partially by business
growth, reflects the impact of divestitures and lower mutual fund management
and administration revenues.
The provision for credit losses was $15 million in the third quarter of 1994,
down $15 million from the prior-year period. Net credit losses of $16 million,
including $4 million from Glendale, were down significantly from $28 million in
the third quarter of 1993, reflecting continuing improvement in the credit
quality of the loan portfolio. Nonperforming assets totaled $260 million at
September 30, 1994, the lowest level since 1982. Nonperforming assets were
$264 million at June 30, 1994, and $394 million at September 30, 1993. At
September 30, 1994, the Corporation's ratio of nonperforming assets to total
loans and net acquired property was .99%, the lowest level in more than 15
years, down from 1.06% and 1.67% at June 30, 1994 and September 30, 1993,
respectively.
Operating expense for the third quarter of 1994 was $595 million, compared with
$520 million in the prior-year period. The increase reflects $104 million of
merger expenses associated with the Dreyfus transaction, partially offset by a
$26 million decrease in acquired property expense reflecting gains on the sale
of acquired assets.
4
<PAGE> 6
OVERVIEW OF THIRD QUARTER AND YEAR-TO-DATE RESULTS (continued)
For the first nine months of 1994, the Corporation recorded net income of $392
million, or $3.53 per common share, on a pre-stock split basis. The annualized
return on common shareholders' equity and return on assets were 12.77% and
1.39%, respectively. Excluding the $89 million after tax of Dreyfus-related
charges, net income was $481 million or $4.42 per common share on a pre-stock
split basis, and annualized return on common shareholders' equity and return on
assets were 15.99% and 1.70%, respectively. The Corporation's results for the
first nine months of 1994, excluding Dreyfus related charges, compare with net
income of $381 million, or $3.45 per common share on a pre-stock split basis,
in the first nine months of 1993, and annualized return on common shareholders'
equity and return on assets of 13.67% and 1.44%, excluding first quarter 1993
securities gains and merger expenses related to The Boston Company acquisition.
Including gains on the sale of securities and merger expenses, the
Corporation's net income for the first nine months of 1993 was $322 million, or
$2.84 per common share, on a pre-stock split basis, with annualized return on
common shareholders' equity and return on assets of 11.37% and 1.22%,
respectively.
5
<PAGE> 7
BUSINESS SECTORS
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED SEPTEMBER 30,
(dollar amounts in millions, fully
taxable equivalent basis Consumer Institutional
averages in billions) Investment Services Banking Services Investment Services Banking Services
1994 1993 1994 1993 1994 1993 1994 1993
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue $ 94 $ 92 $ 319 $ 300 $236 $249 $ 105 $ 90
Credit quality expense - - 15 14 - - - 16
Operating expense 71 59 195 192 188 179 43 31
- --------------------------------------------------------------------------------------------------------------------
Income before taxes 23 33 109 94 48 70 62 43
Income taxes 9 14 42 37 21 31 22 15
- --------------------------------------------------------------------------------------------------------------------
Net income (loss) $ 14 $ 19 $ 67 $ 57 $ 27 $ 39 $ 40 $ 28
- --------------------------------------------------------------------------------------------------------------------
Average assets $0.4 $0.4 $20.4 $22.5 $0.9 $0.8 $13.1 $11.3
Average common equity $0.2 $0.2 $ 1.3 $ 1.4 $0.6 $0.6 $ 1.1 $ 1.0
Return on common
shareholders' equity(a) 26% 36% 19% 16% 19% 28% 14% 11%
Return on assets(a) NM NM 1.29% 1.01% NM NM 1.23% .98%
Pretax operating margin 25% 35% 34% 31% 20% 28% 59% 48%
Pretax operating margin excluding
amortization of intangibles 26% 37% 38% 36% 24% 31% 60% 48%
Efficiency ratio excluding
amortization of intangibles 74% 63% 57% 59% 76% 69% 40% 34%
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED SEPTEMBER 30,
(dollar amounts in millions, Consumer Institutional
averages in billions) Investment Services Banking Services Investment Services Banking Services
1994 1993 1994 1993 1994 1993 1994 1993
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue $285 $252 $ 951 $ 901 $736 $579 $ 321 $ 268
Credit quality expense (revenue) - - 48 48 - - 1 46
Operating expense 197 156 622 554 563 410 139 95
- --------------------------------------------------------------------------------------------------------------------
Income (loss) before taxes 88 96 281 299 173 169 181 127
Income taxes 37 40 109 116 77 71 65 45
- --------------------------------------------------------------------------------------------------------------------
Net income (loss) $ 51 $ 56 $ 172 $ 183 $ 96 $ 98 $ 116 $ 82
- --------------------------------------------------------------------------------------------------------------------
Average assets $0.4 $0.3 $20.8 $20.6 $0.9 $0.6 $13.1 $11.7
Average common equity $0.2 $0.2 $ 1.4 $ 1.4 $0.5 $0.4 $ 1.1 $ 1.0
Return on common
shareholders' equity(a) 33% 37% 17% 19% 23% 29% 14% 11%
Return on assets(a) NM NM 1.10% 1.19% NM NM 1.18% .94%
Pretax operating margin 31% 38% 30% 33% 24% 29% 56% 47%
Pretax operating margin excluding
amortization of intangibles 32% 39% 34% 38% 26% 31% 58% 47%
Efficiency ratio excluding
amortization of intangibles 68% 61% 61% 57% 74% 69% 42% 35%
- --------------------------------------------------------------------------------------------------------------------
<FN>
(a) Annualized.
</TABLE>
<TABLE>
<CAPTION>
Customers
--------------------------------------
FOR THE THREE MONTHS Total Total
ENDED SEPTEMBER 30, Consumer Institutional
Services Services
(dollar amounts in millions) 1994 1993 1994 1993
- -------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net income $ 81 $ 76 $ 67 $ 67
Return on common
shareholders' equity(a) 20% 18% 16% 17%
FOR THE NINE MONTHS
ENDED SEPTEMBER 30,
Net income $223 $239 $212 $180
Return on common
shareholders' equity(a) 19% 21% 17% 16%
- -------------------------------------------------------------------------
<FN>
(a) Annualized
NM - Not meaningful.
</TABLE>
6
<PAGE> 8
<TABLE>
<CAPTION>
Total Real Estate Other Total all
core sectors Workout Corporate Activity sectors
1994 1993 1994 1993 1994 1993 1994 1993
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 754 $ 731 $ 3 $ 2 $ 9 $ 40 $ 766 $ 773
15 30 (12) 14 - - 3 44
497 461 2 4 108 41 607 506
- ---------------------------------------------------------------------------------------------------------------
242 240 13 (16) (99) (1) 156 223
94 97 5 (6) (21) (7) 78 84
- ---------------------------------------------------------------------------------------------------------------
$ 148 $ 143 $ 8 $(10) $(78) $ 6 $ 78 $ 139
- ---------------------------------------------------------------------------------------------------------------
$34.8 $35.0 $ 0.3 $0.6 $ 2.9 $1.9 $38.0 $37.5
$ 3.2 $ 3.2 $ - $0.1 $ 0.6 $0.1 $ 3.8 $ 3.4
18% 18% NM NM NM NM 7% 14%
1.68% 1.62% NM NM NM NM .81% 1.47%
32% 33% NM NM NM NM 20% 29%
35% 36% NM NM NM NM 38% 32%
63% 60% NM NM NM NM 61% 63%
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Total Real Estate Other Total all
core sectors Workout Corporate Activity sectors
1994 1993 1994 1993 1994 1993 1994 1993
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$2,293 $2,000 $ 9 $ 4 $ 63 $194 $2,365 $2,198
49 94 (21) 59 4 (1) 32 152
1,521 1,215 7 11 128 272 1,656 1,498
- ---------------------------------------------------------------------------------------------------------------
723 691 23 (66) (69) (77) 677 548
288 272 9 (24) (12) (22) 285 226
- ---------------------------------------------------------------------------------------------------------------
$ 435 $ 419 $ 14 $(42) $(57) $(55) $ 392 $ 322
- ---------------------------------------------------------------------------------------------------------------
$ 35.2 $ 33.2 $0.4 $0.7 $2.3 $1.4 $ 37.9 $ 35.3
$ 3.2 $ 3.0 - $0.1 $0.5 $0.2 $ 3.7 $ 3.3
18% 19% NM NM NM NM 13% 11%
1.65% 1.69% NM NM NM NM 1.39% 1.22%
32% 35% NM NM NM NM 29% 25%
35% 37% NM NM NM NM 37% 33%
63% 58% NM NM NM NM 62% 60%
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Services
-------------------------------------
FOR THE THREE MONTHS Total Total
ENDED SEPTEMBER 30, Investment Banking
Services Services
(dollar amounts in millions) 1994 1993 1994 1993
- -----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net income $ 41 $ 58 $107 $ 85
Return on common
shareholders' equity(a) 21% 30% 17% 14%
FOR THE NINE MONTHS
ENDED SEPTEMBER 30,
Net income $147 $154 $288 $265
Return on common
shareholders' equity(a) 26% 32% 16% 15%
- ------------------------------------------------------------------------
(a) Annualized
</TABLE>
7
<PAGE> 9
BUSINESS SECTORS (CONTINUED)
Upon completion of the merger with Dreyfus, the Corporation's core business
lines were realigned in recognition of the distinct customers which are
serviced--consumers and institutions--and the services which are
offered--investment and banking. Accordingly, the business sector results for
the third quarter and nine months ended September 30, 1994 and 1993 have been
restated to reflect the change in methodology used by the Corporation to
determine business sector results for internal management reporting purposes.
Consumer Investment Services
Consumer Investment Services includes private asset management servies
and retail mutual funds. Income before taxes for the Consumer Investment
sector was $23 million, a decrease of $10 million, compared with the prior-year
period. The decline in profitability reflects lower mutual fund fee revenue
and higher operating expense. Income before taxes for the first nine months of
1994 totaled $88 million, a decrease of $8 million compared with the first nine
months of 1993, primarily reflecting the same factors responsible for the third
quarter decrease, offset partially by the nine month impact of private asset
management of The Boston Company in 1994, compared with a partial impact in
1993. The annualized return on common equity for this sector was 26% and 33%
in the third quarter and first nine months of 1994, respectively, compared with
36% and 37% in the third quarter and first nine months of 1993, respectively.
Consumer Banking Services
Consumer Banking Services includes consumer lending, branch banking, credit
card, mortgage loan origination and servicing, and jumbo mortgage lending.
Income before taxes for the Consumer Banking sector totaled $109 million in the
third quarter of 1994, an increase of $15 million, compared with the third
quarter of 1993. Revenue increased by $19 million compared with the prior-year
period, primarily due to revenue generated by the Corporation's CornerStone(sm)
credit card product, as well as revenue from increased levels of retail loans.
Income before taxes for the first nine months of 1994 was $281 million, a
decrease of $18 million, or 6% compared with the prior-year period, primarily
reflecting increased marketing expense in support of the Corporation's
CornerStone(sm) credit card product. The annualized return on common equity for
this sector was 19% and 17% in the third quarter and first nine months of 1994,
respectively, compared with 16% and 19% in the third quarter and first nine
months of 1993, respectively.
Institutional Investment Services
Institutional Investment Services includes institutional trust and
custody, institutional asset and institutional mutual fund management and
administration, securities lending, foreign exchange, cash management, and stock
transfer. Income before taxes for this sector was $48 million in the third
quarter of 1994, a decrease of $22 million, compared with the third quarter of
1993. Revenue decreased $13 million, or 5%, primarily as a result of the second
quarter 1994 sale of the Boston-based third-party mutual fund administration
business, lower Dreyfus institutional mutual fund management revenue and lower
securities lending revenue. Partially offsetting these decreases was higher
revenue from other institutional trust and investment management products and
foreign exchange fees. The increase in operating expenses of $9 million
primarily reflects expense growth in support of institutional trust and
investment management revenues, offset partially by the sale of the third-party
mutual fund business. Income before taxes for the first nine months of 1994
totaled $173 million, compared with $169 million for the first nine months of
1993. The nine month impact of The Boston Company acquisition more than offset
the factors responsible for the third quarter decrease in income before taxes.
The annualized return on common equity for this sector was 19% and 23% in the
third quarter and first nine months of 1994, respectively, compared with 28% and
29% in the third quarter and first nine months of 1993, respectively.
8
<PAGE> 10
BUSINESS SECTORS (CONTINUED)
Institutional Banking Services
Institutional Banking Services includes large corporate and middle market
lending, asset based lending, certain capital markets and leasing activities,
commercial real estate lending, and insurance premium financing. Income before
taxes for the Institutional Banking sector was $62 million, an increase of $19
million, or 44%, compared with the third quarter of 1993. The $15 million
improvement in revenue principally resulted from the AFCO acquisition, which
contributed $1.3 billion to average loans. No credit quality expense was
recorded in the third quarter of 1994, compared to $16 million in the third
quarter of 1993. The decrease resulted from continued improvement in the
credit quality of the loan portfolio. Operating expenses increased by $12
million primarily as a result of the AFCO acquisition. Income before taxes for
the first nine months of 1994 increased $54 million, compared with the
prior-year period, reflecting the same factors responsible for the third
quarter increase. The annualized return on common equity for this sector was
14% in both the third quarter and first nine months of 1994, compared with
11% in both the third quarter and first nine months of 1993.
Real Estate Workout
Real Estate Workout includes commercial real estate lending and mortgage
banking recovery operations. Income before taxes for Real Estate workout was
$13 million, compared with a pretax loss of $16 million in the third quarter of
1993. The $29 million improvement in profitability was due primarily to the
$26 million decrease in credit quality expense reflecting the lower level of
real estate acquired (OREO). Credit quality expense in the third quarter of
1994 included $12 million in net gains on the sale of acquired property and no
provision to the reserve for OREO, compared with a $14 million provision to the
reserve for OREO in the third quarter of 1993. Income before taxes for the
first nine months of 1994 improved to $23 million, compared to a pretax loss of
$66 million in the first nine months of 1993 due primarily to the same factors
responsible for the third quarter increase.
Other
The Other sector's pretax loss of $99 million in the third quarter of
1994 principally reflects the merger expenses and loss on disposition of
securities recorded in conjunction with the Dreyfus merger, net of $20 million
of earnings on unallocated excess capital. The results for the third quarter
of 1993 primarily reflect operations from certain divestitures. The Other
sector's pretax loss for the first nine months of 1994 primarily reflects the
same factors responsible for the third quarter of 1994. The results for the
first nine months of 1993 include the results of operations from certain
divestitures, as well as gains on the sale of securities of $87 million and
$175 million of merger expenses related to the Corporation's acquisition of The
Boston Company.
Note: The discussion above 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 judgment 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.
9
<PAGE> 11
NET INTEREST REVENUE
<TABLE>
<CAPTION>
Three months ended September 30, Nine months ended September 30,
1994 1993 1994 1993
(taxable equivalent basis, AVERAGE AVERAGE Average Average AVERAGE AVERAGE Average Average
dollar amounts in millions) BALANCE RATE balance rate BALANCE RATE balance rate
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Money market investments $ 1,466 4.41% $ 4,158 3.35% $ 1,806 3.83% $ 4,058 3.35%
Trading account securities 351 6.60 266 5.67 413 6.05 290 5.89
Securities 5,421 5.90 4,703 5.28 5,178 5.57 4,784 5.54
Loans 25,084 7.80 23,232 7.13 24,658 7.47 21,269 7.45
------- ------ ------- -------
Total interest-earning assets $32,322 7.32% $32,359 6.36% $32,055 6.94% $30,401 6.58%
- -------------------------------------------------------------------------------------------------------------------------------
Financed by:
Interest-bearing liabilities $25,601 3.35% $25,213 2.71% $25,128 2.91% $23,724 2.81%
Noninterest-bearing liabilities 6,721 7,146 6,927 6,677
------- ------- ------- -------
Total $32,322 2.66% $32,359 2.11% $32,055 2.28% $30,401 2.19%
- -------------------------------------------------------------------------------------------------------------------------------
Net interest revenue $ 380 4.66% $ 347 4.25% $ 1,118 4.66% $ 999 4.39%
- -------------------------------------------------------------------------------------------------------------------------------
<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 third
quarter of 1994 totaled $380 million, up $33 million, or 10%, compared with the
third quarter of 1993. The net interest margin was 4.66% in the third quarter
of 1994, up 41 basis points from 4.25% in the third quarter of 1993.
The improvement in net interest revenue and the net interest margin in
the third quarter of 1994, compared with the third quarter of 1993, primarily
resulted from a higher yielding asset mix as lower-yielding money market assets
were replaced with higher-yielding loans and securities. Average loans
increased $1.9 billion and average securities increased $700 million replacing
$2.7 billion of money market assets. The increase in average loans included
$1.3 billion related to the December 1993 acquisition of AFCO, a $600 million
increase in retail lending and a $475 million increase in credit card loans.
The increase in average credit card loans in the third quarter of 1994,
compared with the prior-year period, was primarily driven by the CornerStone
(sm) credit card product introduced during the first quarter of 1994. At
September 30, 1994, this product had generated 627,000 new accounts with total
outstandings of $500 million. A further reduction in nonperforming assets, a
lower level of long-term debt and a higher level of loan fees also contributed
to the improved net interest revenue and net interest margin compared with the
prior-year period.
Net interest revenue, on a fully taxable equivalent basis, in the first nine
months of 1994 totaled $1,118 million, up $119 million, or 12%, compared with
the first nine months of 1993. The improvement principally resulted from the
same factors responsible for the third quarter increase, as well as a higher
level of average interest-earning assets resulting from the second quarter 1993
acquisition of The Boston Company. The net interest margin on a fully taxable
equivalent basis was 4.66% in the first nine months of 1994, up 27 basis points
from the first nine months of 1993.
10
<PAGE> 12
CREDIT QUALITY EXPENSE AND RESERVE FOR CREDIT LOSSES
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
(in millions) 1994 1993 (Decrease) 1994 1993 (Decrease)
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Provision for credit losses $15 $30 $(15) $ 55 $100 $ (45)
Net expense (revenue) of acquired property (12) 14 (26) (23) 52 (75)
- -------------------------------------------------------------------------------------------------------------------------------
Credit quality expense $ 3 $44 $(41) $ 32 $152 $(120)
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Credit quality expense, defined as the provision for credit losses plus the net
expense (revenue) of acquired property, was $41 million lower in the third
quarter of 1994, compared with the prior-year period, reflecting the improved
credit quality of the loan portfolio and a lower level of real estate acquired
(OREO). The $12 million in net revenue from acquired property in the third
quarter of 1994 resulted from $12 million in net gains on the sale of acquired
property, as well as no provision to the reserve for OREO. Net expense of
acquired property in the third quarter of 1993 resulted from a $14 million
provision to the reserve for OREO.
Credit quality expense was $120 million lower in the first nine months of 1994,
compared with the first nine months of 1993. Improved credit quality led to a
$45 million decrease in the provision for credit losses. The net expense
(revenue) of acquired property decreased $75 million as the first nine months
of 1994 included $24 million in net gains on the sale of acquired property and
no provision to the reserve for OREO, compared with the first nine months of
1993 that included a $44 million OREO reserve provision.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
CREDIT LOSS RESERVE ACTIVITY(a)
Three months ended Nine months ended
September 30, Inc/ September 30, Inc/
(dollar amounts in millions) 1994 1993 (Dec) 1994 1993 (Dec)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Reserve balance at beginning of period $609 $586 $ 23 $600 $506 $ 94
Reserve acquired 3 - 3 3 99 (96)
Additions (deductions):
Credit losses (36) (49) (13) (104) (177) (73)
Recoveries 20 21 (1) 57 60 (3)
- -----------------------------------------------------------------------------------------------------------------------------
Net credit losses (16) (28) (12) (47) (117) (70)
- -----------------------------------------------------------------------------------------------------------------------------
Provision charged to expense 15 30 (15) 55 100 (45)
- -----------------------------------------------------------------------------------------------------------------------------
Reserve balance at end of period $611 $588 $ 23 $611 $588 $ 23
- -----------------------------------------------------------------------------------------------------------------------------
Reserve as a percentage of total loans 2.35% 2.50% (15) bp 2.35% 2.50% (15) bp
- -----------------------------------------------------------------------------------------------------------------------------
<FN>
(a) Excludes the reserve for segregated assets and net credit losses on
segregated assets.
</TABLE>
The Corporation maintains a credit loss reserve which, in management's
judgment, is adequate to absorb future losses inherent in the loan portfolio.
Management establishes the loan loss reserve using a documented loan loss
assessment process which estimates loss potential in the portfolio as a whole,
not merely nonperforming loans. The ratio of the loan loss reserve to
nonperforming loans at September 30, 1994 was 391%, compared to 251% at
September 30, 1993. This ratio is not the result of a target or objective, but
rather is an outcome of two interrelated but separate processes: the
establishment of an appropriate loan loss reserve level for the portfolio as a
whole, including but not limited to the nonperforming component in the
portfolio; and the classification of certain assets as nonperforming in
accordance with established accounting, regulatory and management policies.
The ratio can vary significantly over time because the reserve level is based
on the credit quality characteristics of the entire loan portfolio. This ratio
can also vary with shifts in portfolio mix as the consumer portfolio (excluding
certain residential mortgages) typically shows significantly lower
nonperforming characteristics than the commercial portfolio. Both of these
factors have increased the ratio of the loan loss reserve to nonperforming
loans over the last several years. The decrease in the level of nonperforming
loans was the principal reason for the increase in this ratio at September 30,
1994, compared with September 30, 1993.
11
<PAGE> 13
CREDIT QUALITY EXPENSE AND RESERVE FOR CREDIT LOSSES (CONTINUED)
A summary of the Corporation's net credit losses is presented in the table
below. The decrease in net credit losses for the third quarter of 1994,
compared with the prior-year period, primarily resulted from lower commercial
real estate and consumer net credit losses. The decrease for the first nine
months of 1994, compared with the prior-year period, primarily resulted from
lower commercial real estate net credit losses.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
NET CREDIT LOSSES (RECOVERIES)
Three months ended Nine months ended
September 30, Inc/ September 30, Inc/
(dollar amounts in millions) 1994 1993 (Dec) 1994 1993 (Dec)
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
CREDIT LOSSES
Domestic:
Commercial and financial $11 $13 $ (2) $30 $ 40 $(10)
Commercial real estate 3 11 (8) 8 73 (65)
Consumer credit:
Credit card 15 12 3 42 35 7
Consumer mortgage 3 4 (1) 8 8 -
Other consumer credit 4 7 (3) 12 17 (5)
- -------------------------------------------------------------------------------------------------------------------
Total domestic 36 47 (11) 100 173 (73)
- -------------------------------------------------------------------------------------------------------------------
International - 2 (2) 4 4 -
- -------------------------------------------------------------------------------------------------------------------
Total credit losses 36 49 (13) 104 177 (73)
- -------------------------------------------------------------------------------------------------------------------
RECOVERIES
Domestic:
Commercial and financial (10) (10) - (24) (32) (8)
Commercial real estate (2) (5) (3) (10) (10) -
Consumer credit:
Credit card (2) (3) (1) (7) (6) 1
Consumer mortgage (1) - 1 (3) (1) 2
Other consumer credit (5) (2) 3 (12) (7) 5
- -------------------------------------------------------------------------------------------------------------------
Total domestic (20) (20) - (56) (56) -
- -------------------------------------------------------------------------------------------------------------------
International - (1) (1) (1) (4) (3)
- -------------------------------------------------------------------------------------------------------------------
Total recoveries (20) (21) (1) (57) (60) (3)
- -------------------------------------------------------------------------------------------------------------------
NET CREDIT LOSSES (RECOVERIES)
Domestic:
Commercial and financial 1 3 (2) 6 8 (2)
Commercial real estate 1 6 (5) (2) 63 (65)
Consumer credit:
Credit card 13 9 4 35 29 6
Consumer mortgage 2 4 (2) 5 7 (2)
Other consumer credit (1) 5 (6) - 10 (10)
- -------------------------------------------------------------------------------------------------------------------
Total domestic 16 27 (11) 44 117 (73)
- -------------------------------------------------------------------------------------------------------------------
International - 1 (1) 3 - 3
- -------------------------------------------------------------------------------------------------------------------
Total net credit losses $16 $28 $(12) $47 $117 $(70)
- -------------------------------------------------------------------------------------------------------------------
Annualized net credit losses
to average loans .25% .48% (23) bp .25% .74% (49) bp
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
12
<PAGE> 14
NONINTEREST REVENUE
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, Inc/ September 30, Inc/
(in millions) 1994 1993 (Dec) 1994 1993 (Dec)
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Fee revenue:
Trust and investment management:
Mutual fund:
Management $ 72 $ 78 $ (6) $222 $231 $ (9)
Administration/Custody 36 47 (11) 124 74 50
Institutional trust 56 57 (1) 173 124 49
Institutional asset management 34 36 (2) 108 81 27
Private asset management 34 34 - 102 82 20
- ---------------------------------------------------------------------------------------------------------------------
Total trust and investment management 232 252 (20) 729 592 137
Cash management and deposit
transaction charges 49 48 1 148 143 5
Information services 20 40 (20) 58 117 (59)
Mortgage servicing 21 15 6 54 48 6
Credit card 19 15 4 51 43 8
Foreign currency and securities trading 21 16 5 54 30 24
Other 37 33 4 153 136 17
- ---------------------------------------------------------------------------------------------------------------------
Total fee revenue 399 419 (20) 1,247 1,109 138
Gains (losses) on sale of securities (15) 7 (22) (5) 90 (95)
- ---------------------------------------------------------------------------------------------------------------------
Total noninterest revenue $384 $426 $(42) $1,242 $1,199 $ 43
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
Revenues from the Corporation's fee-generating businesses represented 52% of
the Corporation's total revenue for the quarter. These revenues decreased in
the third quarter of 1994 by $20 million, or 5%, from the third quarter of 1993
reflecting the impact of divestitures and lower mutual fund management and
administration revenues.
The merger with Dreyfus substantially increased the Corporation's trust and
investment management fee revenue to 58% of total fee revenue and 31% of total
revenue. The $20 million decrease in trust and investment management fees in
the third quarter of 1994, compared with the prior-year period, resulted from
several factors. Mutual fund administration/custody fees decreased $11 million
and included a $7 million decrease in revenue related to the second quarter
1994 sale of the Boston-based third-party mutual fund administration business.
In addition, revenue from the management of Dreyfus mutual fund assets
decreased $6 million while securities lending revenue decreased $5 million.
The decrease in Dreyfus mutual fund management revenue is discussed on page 15.
The decrease in securities lending revenue, which is included in institutional
trust revenue, primarily resulted from narrowing margins in a period of rapidly
rising short-term interest rates. These margins could continue to narrow
depending on the frequency and the magnitude of increases in short-term
interest rates. Partially offsetting these decreases was higher revenue from
growth in other trust and investment products. Total fee revenue for Dreyfus
was $76 million and $245 million in the third quarter and first nine months of
1994, compared with $85 million and $262 million in the third quarter and first
nine months of 1993.
13
<PAGE> 15
NONINTEREST REVENUE (CONTINUED)
As shown in the table below, the market value of assets under management and
administration/custody for the Corporation, was $860 billion at September 30,
1994, up $42 billion, compared with $818 billion at June 30, 1994. The $41
billion increase in the market value of assets under administration/custody
primarily reflected higher levels of institutional business resulting from new
clients, increased funding by existing clients and a general market increase.
The S&P 500 index increased 4.15% from June 30, 1994.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
ASSETS UNDER MANAGEMENT AND ADMINISTRATION/CUSTODY
SEPT. 30, June 30, March 31, Dec. 31, Sept. 30,
(in billions) 1994 1994 1994 1993 1993
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Institutional trust:
Management $ 2 $ 2 $ 2 $ 1 $ 2
Administration/Custody 538 498 491 479 479
Mutual fund:
Management 76 77 79 82 84
Administration/Custody 108 107 130 128 126
Institutional asset management:
Management 101 100 101 104 104
Private asset management:
Management 22 21 21 24 22
Administration/Custody 13 13 13 13 13
- ----------------------------------------------------------------------------------------------------------------------
Total:
Management $201 $200 $203 $211 $212
Administration/Custody $659 $618 $634 $620 $618
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
MANAGED MUTUAL FUND ASSETS BY FUND CATEGORY
SEPT. 30, June 30, March 31, Dec. 31, Sept. 30,
(in billions) 1994 1994 1994 1993 1993
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Proprietary Funds:
Taxable money market funds:
Institutions $ 18 $ 19 $ 21 $ 23 $ 24
Individuals 10 10 10 10 11
Tax-exempt money market funds 8 9 9 8 9
Tax-exempt bond funds 19 19 19 21 21
Fixed income funds 4 5 5 5 5
Equity funds 10 9 9 9 9
- ----------------------------------------------------------------------------------------------------------------------
Total proprietary funds 69 71 73 76 79
Other managed funds 7 6 6 6 5
- ----------------------------------------------------------------------------------------------------------------------
Total managed mutual fund assets $ 76 $ 77 $ 79 $ 82 $ 84
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
14
<PAGE> 16
NONINTEREST REVENUE (CONTINUED)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
MANAGED MUTUAL FUND REVENUE
Three months ended Nine months ended
September 30, Inc/ September 30, Inc/
(in millions) 1994 1993 (Dec) 1994 1993 (Dec)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Managed mutual fund fees $87 $93 $(6) $264 $275 $(11)
Less: Amount of fees waived 12 12 - 34 36 (2)
Less: Fund expense reimbursements 3 3 - 8 8 -
- ----------------------------------------------------------------------------------------------------------------------
Total managed mutual fund fees,
as reported $72 $78 $(6) $222 $231 $ (9)
- ----------------------------------------------------------------------------------------------------------------------
Managed mutual fund fees by fund
category, as reported:
Proprietary funds:
Taxable money market funds:
Institutions $10 $14 $(4) $ 33 $ 45 $(12)
Individuals 9 12 (3) 30 39 (9)
Tax-exempt money market funds 5 5 - 15 14 1
Tax-exempt bond funds 26 26 - 78 74 4
Fixed income funds 5 6 (1) 16 15 1
Equity funds 14 12 2 41 35 6
- ----------------------------------------------------------------------------------------------------------------------
Total proprietary funds 69 75 (6) 213 222 (9)
Other managed funds 3 3 - 9 9 -
- ----------------------------------------------------------------------------------------------------------------------
Total managed mutual fund
fees, as reported $72 $78 $(6) $222 $231 $ (9)
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
Mutual fund management fees are based on the average net assets of each fund.
Average funds managed at Dreyfus in the third quarter of 1994 were $66 billion,
compared with $76 billion in the third quarter of 1993. This decrease resulted
from a $7 billion reduction in average institutional money market assets
managed as well as an overall drop in the market values of assets managed
paralleling the decline in the bond markets over the past 12 months. At
September 30, 1994, compared to September 30, 1993, the Lehman Brothers Long
Term Government Bond Index decreased 11%. Management fee rates charged to
money market funds are generally lower than rates charged to other sponsored
funds.
As a way of promoting the growth of mutual fund assets, as well as increasing
the rate of return to mutual fund investors, the Corporation will periodically
waive certain management fees and/or reimburse certain mutual fund expenses.
The Corporation may continue to follow this practice in the future; however, it
is not possible to predict what impact it will have on the future level of
mutual fund assets under management.
Information services fees decreased $20 million compared with the prior-year
period, primarily as a result of the Corporation's December 1993 sale of two
information services businesses that generated quarterly revenues of
approximately $21 million. Information services fees are expected to be
further reduced in the fourth quarter 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). For the
first nine months of 1994, the Network Services Division recorded information
services
15
<PAGE> 17
NONINTEREST REVENUE (CONTINUED)
fee revenue of $28 million. In the third quarter of 1994, the Corporation
announced the signing of a letter of intent with Chemical Bank to form a joint
venture that will provide stock transfer and related shareholder services to
publicly held companies. The letter of intent provides for the Corporation to
contribute its Mellon Securities Transfer Services (MSTS) subsidiary to the
joint venture. The joint venture is expected to become operational in the
first half of 1995. For the first nine months of 1994 MSTS recorded
information services fee revenue of $23 million. Net results from the EPS
transaction and the joint venture with Chemical Bank will be reported on the
equity method of accounting, in other fee revenue. It is expected that these
transactions will not have a significant impact on the Corporation's financial
results.
The $6 million increase in mortgage servicing fees, compared with the
prior-year period, resulted from acquisitions of mortgage servicing rights
coupled with a lower rate of prepayments. The August 11, 1994 U.S. Bancorp
Mortgage Company transaction generated $1 million in fees in the third quarter
of 1994. The Corporation expects the U.S. Bancorp transaction to increase
mortgage servicing revenue approximately $3 million on a quarterly basis. At
September 30, 1994, the Corporation's total servicing portfolio was $32
billion.
The $4 million increase in credit card revenue in the third quarter of 1994,
compared with the third quarter of 1993, primarily resulted from fee revenue
generated by the Corporation's CornerStone(sm) credit card product. As a result
of the Corporation's pending contribution of its Network Services Division to
EPS, credit card fee revenue is expected to be lower in the fourth quarter of
1994. For the first nine months of 1994, the Network Services Division
recorded credit card fee revenue of $10 million. The increase in foreign
currency and securities trading fee revenue in the third quarter of 1994
primarily was attributable to foreign exchange fees earned, primarily as a
result of increased global custody and corporate customer activity.
The $15 million in pretax, or $10 million after-tax, of losses on securities
available for sale in the third quarter of 1994 related to the disposition of
securities held by Dreyfus that did not meet the investment objectives,
interest rate or credit risk characteristics required by the Corporation. The
$10 million after-tax losses on the disposition of these securities did not
impact shareholders' equity because Dreyfus had previously recorded a fair
value adjustment to reflect the net unrealized losses on these securities in
accordance with FAS No. 115.
Fee revenue in the first nine months of 1994 was up $138 million, or 12%, from
the first nine months of 1993, primarily as a result of a nine month impact of
The Boston Company in 1994, compared with a partial impact in 1993. Other fee
revenue includes revenue from the Corporation's seasonal tax refund
anticipation loan program. Year-to-date fee revenue of $32 million generated
by this seasonal product decreased $5 million compared with the prior
nine-month period. On October 26, 1994, the U.S. Treasury Department announced
that the Internal Revenue Service will no longer provide timely notice of those
instances where IRS liens exist against taxpayers, making them ineligible for a
refund anticipation loan. The absence of timely notice of IRS liens may
significantly reduce the volume of loans made under this program. The
Corporation is exploring various alternatives in order to continue making this
program available to its customers in 1995. It is anticipated that any such
reduction in the volume of this program would reduce fee revenue; however, such
reductions in future periods should not be material to the financial results of
the Corporation.
The Corporation recorded $90 million in gains on the sale of securities during
the first nine months of 1993. Included in the $90 million in gains were $87
million in gains which resulted from sales that were undertaken as part of the
financing plan and balance sheet restructuring related to the acquisition of
The Boston Company.
16
<PAGE> 18
OPERATING EXPENSE
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, Inc/ September 30, Inc/
(dollar amounts in millions) 1994 1993 (Dec) 1994 1993 (Dec)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Staff expense $237 $237 $ - $ 719 $ 620 $ 99
Net occupancy expense 50 50 - 152 134 18
Professional, legal and other purchased services 51 48 3 148 115 33
Business development 35 34 1 128 94 34
Equipment expense 30 31 (1) 97 86 11
Amortization of goodwill, core deposit
and other identified intangibles
recorded in connection with acquisitions 23 23 - 73 56 17
Communications expense 21 20 1 62 56 6
FDIC assessment and regulatory examination fees 15 16 (1) 47 45 2
Amortization of purchased mortgage servicing
rights and purchased credit card relationships 9 12 (3) 31 34 (3)
Other expense 32 35 (3) 95 83 12
- ----------------------------------------------------------------------------------------------------------------------
Operating expense before the net expense
(revenue) of acquired property and
merger expenses 503 506 (3) 1,552 1,323 229
- ----------------------------------------------------------------------------------------------------------------------
Net expense (revenue) of acquired property (12) 14 (26) (23) 52 (75)
- ----------------------------------------------------------------------------------------------------------------------
Merger expenses 104 - 104 104 175 (71)
- ----------------------------------------------------------------------------------------------------------------------
Total operating expense $595 $520 $ 75 $1,633 $1,550 $ 83
- ----------------------------------------------------------------------------------------------------------------------
Average full-time equivalent staff 24,400 24,000 400 24,100 21,700 2,400
- ----------------------------------------------------------------------------------------------------------------------
Efficiency ratio(a) 64% 66% (2) 65% 63% 2
Efficiency ratio excluding amortization
of goodwill, core deposit and other
identified intangibles recorded in
connection with acquisitions 61 63 (2) 62 60 2
- ----------------------------------------------------------------------------------------------------------------------
<FN>
(a) Operating expense before the net expense (revenue) of acquired property
and merger expenses as a percentage of revenue, computed on a fully
taxable equivalent basis, excluding securities gains (losses).
</TABLE>
Operating expense before the net expense (revenue) of acquired property and
merger expenses decreased by $3 million in the third quarter of 1994, compared
with the third quarter of 1993. This decrease was the result of the sale of
the information services businesses in December 1993 and the third-party mutual
fund administration business in the second quarter of 1994. The decrease in
expenses resulting from the sale of these businesses more than offset modest
expense growth, as well as an increase in expenses related to the December 1993
AFCO acquisition and other smaller acquisitions that have occurred in 1994. On
a stand-alone basis, Dreyfus' operating expense before merger expenses
increased to $62 million in the third quarter of 1994, compared with $57
million in the prior-year period, primarily due to higher professional and
legal, equipment and marketing expenses.
Operating expense before the net expense (revenue) of acquired property
and merger expenses totaled $1,552 million in the first nine months of 1994,
compared with $1,323 million in the first nine months of 1993. The increase
primarily was the result of a nine month impact of The Boston Company in 1994,
compared with a partial year impact in 1993, as well as an increase in marketing
expense of $27 million, recorded in the first nine months of 1994, primarily
related to the introduction of the Corporation's CornerStone(sm) credit card
product. Dreyfus incurred operating expenses before merger expenses of $174
million and $163 million in the first nine months of 1994 and 1993,
respectively.
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
17
<PAGE> 19
OPERATING EXPENSE (CONTINUED)
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 staff
expense in the first nine months of 1994 was attributable to the adoption of
this Standard, resulting in a reduction of approximately $.01 in net income per
common share, on a post-stock split basis.
Merger expenses of $104 million pretax, or $79 million after-tax, were recorded
in the third quarter of 1994 to reflect expenses associated with the Dreyfus
merger.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
MERGER EXPENSES ANALYSIS (THE DREYFUS CORPORATION)
Expected
Expenditures expenditures
and asset ---------------------------------------------
Total adjustments at Fourth quarter
(in millions) expenses Sept. 30, 1994 1994 1995 1996
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Merger expenses:
Benefit and
severance programs $ 42 $17 $2 $13 $10
Professional, consulting
and other 27 22 3 1 1
Facilities and assets 25 25 - - -
Proxy solicitation 10 9 1 - -
- -----------------------------------------------------------------------------------------------------------------------
Total merger expenses $104 $73 $6 $14 $11
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
At September 30, 1994, the Corporation had used 70% of the reserve established
to implement merger activities. Of the remaining reserve, the Corporation
expects to spend approximately $6 million in the fourth quarter of 1994, $14
million in 1995 and $11 million in 1996.
Merger expenses of $175 million, or $112 million after-tax, were recorded in
the first quarter of 1993 for expenses associated with the acquisition of The
Boston Company.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
MERGER EXPENSES ANALYSIS (THE BOSTON COMPANY)
Expected
Expenditures expenditures
Estimated and asset -----------------------------------
total adjustments at Fourth quarter Full year
(in millions) expenses Sept. 30, 1994 1994 1995
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Merger expenses:
Systems integration $ 67 $ 25 $30 $12
Adjustment to The Boston Company
credit loss reserve 51 51 - -
Professional and consulting 16 14 2 -
Severance, incentive retention plan,
relocation and travel 12 7 2 3
Facilities expense 8 4 1 3
Other 21 17 4 -
- -----------------------------------------------------------------------------------------------------------------------
Total merger expenses $175 $118 $39 $18
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
At September 30, 1994, the Corporation had used 67% of the reserve established
to implement merger activities. Of the remaining reserve, the Corporation
expects to spend approximately $39 million in the fourth quarter of 1994 and
$18 million in 1995, primarily to complete the initial systems integration
plan.
18
<PAGE> 20
TAXES
The provision for income taxes totaled $269 million in the first nine months of
1994, compared with $213 million in the first nine months of 1993. Excluding
the impact of the Dreyfus merger-related expenses and losses on the disposition
of securities in the third quarter of 1994, the Corporation's effective tax
rate for the first nine months was 38.25%. Excluding the impact of The Boston
Company merger-related expenses and securities gains and a one-time tax benefit
of $5 million resulting from a 1993 change in tax legislation, the
Corporation's effective tax rate for the first nine months of 1993 was 39%.
The Corporation's effective tax rate for the third quarter of 1994 was 38%, and
it is currently anticipated that the effective income tax rate will remain at
approximately 38% for the foreseeable future.
BALANCE SHEET REVIEW
ASSET/LIABILITY MANAGEMENT
<TABLE>
<CAPTION>
Three months ended
September 30,
(average balances in millions) 1994 1993
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
- ----------------------------------------------------------------------------------------------------------------------
Money market investments $ 1,466 $ 4,158
Trading account securities 351 266
Securities 5,421 4,703
Loans 25,084 23,232
- ----------------------------------------------------------------------------------------------------------------------
Total interest-earning assets 32,322 32,359
Noninterest-earning assets 6,311 5,705
Reserve for credit losses (617) (598)
- ----------------------------------------------------------------------------------------------------------------------
Total assets $38,016 $37,466
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
Funds supporting total assets
- ----------------------------------------------------------------------------------------------------------------------
Core funds:
Demand deposits $ 7,436 $ 7,425
Money market and other savings accounts 9,935 10,310
Retail savings certificates 6,495 7,405
Notes and debentures with original maturities
in excess of one year 1,618 2,124
Shareholders' equity 4,346 4,080
Other core funds 1,680 1,211
- ----------------------------------------------------------------------------------------------------------------------
Total core funds 31,510 32,555
Wholesale and purchased funds:
Foreign office deposits 2,275 1,115
Federal funds purchased and securities sold
under agreements to repurchase 2,039 1,215
Negotiable certificates of deposit 772 1,305
Commercial paper 181 195
U.S. Treasury tax and loan demand notes 528 240
Other wholesale and purchased funds 711 841
- ----------------------------------------------------------------------------------------------------------------------
Total wholesale and purchased funds 6,506 4,911
- ----------------------------------------------------------------------------------------------------------------------
Funds supporting total assets $38,016 $37,466
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
The change in the mix of the Corporation's average assets in the third quarter
of 1994, compared with the third quarter of 1993, reflects a higher-yielding
asset mix as a $1.9 billion increase in average loans and a $700 million
increase in investment securities primarily offset a $2.7 billion decrease in
money market investments. The increase in loans included $1.3 billion of loans
acquired in the December 1993
19
<PAGE> 21
ASSET/LIABILITY MANAGEMENT (CONTINUED)
AFCO acquisition, a $600 million increase in retail lending, a $475 million
increase in credit card loans, and a $260 million increase in domestic
wholesale loans. Partially offsetting the increase in average loans were
prepayments of consumer mortgages acquired in the 1992 Meritor branch
acquisition and paydowns on commercial real estate loans. The mix of the
Corporation's funding also changed in the third quarter of 1994, compared with
the prior-year quarter. Approximately $1.0 billion of core funds were replaced
with wholesale and purchased funds, as retail savings certificates were
replaced with shorter-term, lower-cost funding.
Average loans increased $830 million in the third quarter of 1994, compared
with the second quarter of 1994, a 14% annualized increase. The increase
primarily resulted from a $270 million increase in credit card loans, a $200
million increase in retail lending and a $180 million increase in domestic
wholesale loans.
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 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 $2.4 billion in the third quarter of 1994 from the
prior-year period, primarily reflecting increased loan levels. Core funds
decreased $1.0 billion in the third quarter of 1994 from the prior-year period
primarily reflecting a lower level of retail savings certificates. Core funds
averaged 102% of core assets in the third quarter of 1994, down from 108% in
the second quarter of 1994 and 115% in the third quarter of 1993.
Wholesale and purchased funds are defined as deposits in foreign offices and
other time deposits, federal funds purchased and securities sold under
agreements to repurchase, negotiable certificates of deposit, U.S. Treasury tax
and loan demand notes, commercial paper and other funds borrowed. Average
wholesale and purchased funds increased $1.6 billion compared with a year ago,
primarily reflecting an increase in overnight foreign office deposits as the
Corporation continued to take advantage of slightly lower cost short-term
Eurodeposit rates. As a percentage of total average assets, average wholesale
and purchased funds increased to 17% in the third quarter of 1994 from 14% in
the second quarter of 1994 and 13% in the prior-year period.
20
<PAGE> 22
CAPITAL
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
SELECTED CAPITAL DATA
(dollar amounts in millions, SEPT. 30, June 30, Dec. 31, Sept. 30,
except per share amounts) 1994 1994 1993 1993
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common shareholders' equity $3,695 $3,716 $3,546 $3,485
Common shareholders' equity to assets ratio 9.41% 9.80% 9.57% 9.72%
Tangible common equity ratio(a) 6.88 7.33 6.84 7.01
Total shareholders' equity $4,285 $4,308 $4,138 $4,145
Total shareholders' equity to assets ratio 10.92% 11.37% 11.17% 11.56%
Tier I capital ratio 10.03 10.27 9.70 10.29
Total (Tier I plus Tier II) capital ratio 13.50 13.74 13.22 14.00
Leverage capital ratio 9.16 9.54 9.00 8.94
Book value per common share:
Pre-stock split $37.72 $38.03(c) $36.42(c) $35.67(c)
Post-stock split(b) $25.15 $25.35(c) $24.28(c) $23.78(c)
Closing common stock price:
Pre-stock split $56.25 $56.25 $53.00 $55.00
Post-stock split(b) $37.50 $37.50 $35.375 $36.625
- --------------------------------------------------------------------------------------------------------------------
<FN>
(a) Common shareholders' equity less goodwill, core deposit and other
identified intangibles recorded in connection with acquisitions divided by
total assets less goodwill, core deposit and other identified intangibles
recorded in connection with acquisitions.
(b) Restated to reflect the three-for-two stock split declared September 20,
1994, payable November 15, 1994.
(c) The book value per common share assumed full conversion of the Series D
preferred stock to common stock. Accordingly, this included the additional
paid-in capital on the Series D preferred stock because this paid-in
capital had no liquidation preference over the common stock.
</TABLE>
On September 20, 1994, the board of directors of the Corporation approved a
three-for-two common stock split structured as a special stock dividend to be
distributed on November 15, 1994 to shareholders of record on November 1, 1994.
The decrease in the Corporation's common and total shareholders' equity in the
third quarter of 1994, compared with June 30, 1994, resulted from the
declaration of two common dividends in the third quarter of 1994. The
Corporation typically declares one common dividend per quarter, but an
additional common dividend of $66 million was declared in the third quarter
when a 21% common dividend increase and the common stock split were announced.
As a result of the additional common dividend declaration in the third quarter
that is payable November 15, 1994, it is anticipated that no common dividend
will be declared in the fourth quarter. The declaration of the additional
common dividend in the third quarter of 1994 resulted in a 17 basis point
reduction in the common shareholders' equity to assets ratio, with the
remaining reduction resulting from a higher level of assets. The additional
common dividend declaration in the third quarter of 1994 reduced the book value
per common share at September 30, 1994 by $.68 on a pre-stock split basis.
The increase in the Corporation's common and total shareholders' equity,
compared with a year ago, primarily was the result of earnings retention.
Partially offsetting the increase in total shareholders' equity was the
December 1993 redemption of the Corporation's $68 million of Series B
convertible preferred stock.
21
<PAGE> 23
CAPITAL (CONTINUED)
During the third quarter of 1994, all of the remaining Series D junior
convertible preferred stock was converted to common stock pursuant to the terms
of the Series D statement of designation. Each share of the Series D preferred
stock was converted to .7609 shares of common stock for a total of 1,702,921
shares. The exchange had an immaterial effect on the level of the
Corporation's additional paid-in capital and common shareholders' equity in the
third quarter of 1994, because the additional paid-in capital on the Series D
preferred stock exchanged had been included in common shareholders' equity
since it had no liquidation preference over the common stock.
FAS No. 115, "Accounting for Certain Investments in Debt and Equity
Securities," became effective on January 1, 1994. Adoption of this Standard
resulted in $32 million, net of tax, of unrealized losses on assets classified
as available for sale at September 30, 1994, being recorded as a deduction from
shareholders' equity. The impact of recording the unrealized loss at September
30, 1994 resulted in a reduction of book value per common share of $.33 on a
pre-stock split basis, or $.22 on a post-stock split basis, and a reduction of
8 basis points in the common shareholders' equity to assets ratio. Increased
volatility of shareholders' equity, certain related capital ratios and book
value per common share could result from future changes in unrealized gains and
losses on assets classified as available for sale.
The Corporation's qualifying capital under the Federal Reserve Board's
risk-based capital regulations is shown in the table below.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
RISK-BASED AND LEVERAGE CAPITAL RATIOS AT SEPTEMBER 30, 1994
(dollar amounts in millions)
- --------------------------------------------------------------------------------
<S> <C>
Tier I capital:
Common shareholders' equity(a) $ 3,727
Qualifying preferred stock 590
Minority interest 13
Goodwill and certain other intangibles (929)
- --------------------------------------------------------------------------------
Total Tier I capital $ 3,401
- --------------------------------------------------------------------------------
Tier II capital $ 1,178
- --------------------------------------------------------------------------------
Total qualifying capital $ 4,579
- --------------------------------------------------------------------------------
Risk-adjusted assets:
On-balance-sheet $25,482
Off-balance-sheet 8,441
- --------------------------------------------------------------------------------
Total $33,923
- --------------------------------------------------------------------------------
Average assets-leverage capital basis $37,117
- --------------------------------------------------------------------------------
Tier I capital ratio(b) 10.03%
Total capital ratio(b) 13.50
Leverage capital ratio(b) 9.16
- --------------------------------------------------------------------------------
<FN>
(a) In accordance with current regulatory guidelines, the $32 million, net of
tax, of unrealized losses on securities classified as available for sale at
September 30, 1994, has been excluded.
(b) The required minimum Tier I, Total and Leverage capital ratios are 4%, 8%
and 3%, respectively.
</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, total and leverage capital ratios must be
at least 6%, 10% and 5%, respectively. All of the Corporation's banking
subsidiaries qualified as well capitalized at September 30, 1994. The
Corporation intends to maintain the ratios of its banking subsidiaries at the
well capitalized levels.
22
<PAGE> 24
CAPITAL (CONTINUED)
The Corporation deducts all goodwill and certain other identifiable intangibles
acquired subsequent to February 19, 1992, except purchased mortgage servicing
rights and purchased credit card relationships, when computing Tier I capital.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
SEPT. 30, June 30, Dec. 31, Sept. 30,
(in millions) 1994 1994 1993 1993
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Goodwill $843 $776 $826 $773
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
The $67 million increase in goodwill at September 30, 1994, compared with June
30, 1994, primarily resulted from $27 million related to the U.S. Bancorp
Mortgage Company transaction and $22 million related to the acquisition of
Glendale. The $70 million increase from September 30, 1993 also includes the
goodwill relating to the acquisition of AFCO partially offset by amortization
of $47 million during the last 12 months. The future annual amortization of
goodwill is expected to be approximately $52 million, based upon the current
level and amortization schedule.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
SEPT. 30, June 30, Dec. 31, Sept. 30,
(in millions) 1994 1994 1993 1993
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Purchased core deposit intangible $138 $144 $155 $169
Covenants not to compete 43 47 57 56
Other identified intangibles 43 43 46 48
- -----------------------------------------------------------------------------------------------------------------------
Total purchased core deposit
and other identified intangibles $224 $234 $258 $273
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
The future annual amortization of purchased core deposit and other identified
intangibles will be approximately $43 million, based upon the current level and
amortization schedule.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
SEPT. 30, June 30, Dec. 31, Sept. 30,
(in millions) 1994 1994 1993 1993
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Purchased mortgage servicing rights $266 $201 $160 $150
Purchased credit card relationships 57 58 44 44
- -----------------------------------------------------------------------------------------------------------------------
Total purchased mortgage servicing rights
and purchased credit card relationships $323 $259 $204 $194
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
The increase in purchased mortgage servicing rights at September 30, 1994,
compared with June 30, 1994, primarily resulted from the purchased mortgage
servicing rights acquired in the U.S. Bancorp Mortgage Company transaction.
23
<PAGE> 25
INTEREST RATE SENSITIVITY ANALYSIS
Interest rate risk arises from mismatches in the repricing of assets and
liabilities. The Corporation actively manages its interest rate sensitivity
position 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 and supporting funds at September 30,
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 Corporation
manages the impact of interest rate risk on assets, liabilities and commitments
by entering into financial instruments, either on- or off-balance-sheet.
The cumulative gap at the one year repricing period, before the utilization of
off-balance-sheet instruments, was asset sensitive in the amount of $6.0
billion, or 15.3% of total assets, at September 30, 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 $4.4 billion
of the cumulative asset sensitive position at the one-year repricing period.
These instruments reduced the cumulative gap at the one-year repricing period
to an asset sensitive amount of $1.6 billion, or 4.0% of total assets, at
September 30, 1994. Alternatively the Corporation could have used fixed rate
investment securities or other fixed rate interest-earning assets of
approximately $4.4 billion to accomplish this objective. Correspondingly, the
Corporation would also have been required to increase its level of wholesale
funds by approximately $4.4 billion in order to fund these interest earning
assets. By using off-balance-sheet instruments to manage interest rate risk,
the effect is a smaller balance sheet, with a lower wholesale funding
requirement, and a higher return on assets and net interest margin with a
comparable level of net interest revenue and return on common shareholders'
equity.
Generally, an asset sensitive gap indicates that rising interest rates could
positively affect net interest 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
asset and liability categories. These analyses indicated that a
100-basis-point upward movement in interest rates over a six month period,
including the effect of off-balance-sheet instruments, would have an
approximately 0.6%, or $.06 per share on a pre-stock split basis, positive
effect on the Corporation's anticipated net interest revenue for the 12 month
period following September 30, 1994.
24
<PAGE> 26
INTEREST RATE SENSITIVITY ANALYSIS (CONTINUED)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
INTEREST RATE SENSITIVITY GAP AT SEPTEMBER 30, 1994
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 $ 931 $ 68 $ 20 $ 6 $ - $ - $ 1,025
Trading account securities 310 - - - - - 310
Securities 933 993 1,205 968 715 1,334 6,148
Loans 9,888 5,575 2,998 1,860 3,439 2,252 26,012
- -----------------------------------------------------------------------------------------------------------------------
Total interest-earning assets $12,062 $ 6,636 $ 4,223 $2,834 $4,154 $ 3,586 $33,495
Funds supporting interest-
earning assets:
Interest-bearing deposits $ 4,527 $ 5,347 $ 3,051 $1,627 $3,051 $ 3,801 $21,404
Other borrowed funds 4,398 - - - - 117 4,515
Notes and debentures (with original
maturities over one year) 4 3 - 127 659 779 1,572
Noninterest-bearing liabilities 46 197 296 130 - 5,335 6,004
- -----------------------------------------------------------------------------------------------------------------------
Total funds supporting
interest-earning assets $ 8,975 $ 5,547 $ 3,347 $1,884 $3,710 $10,032 $33,495
- -----------------------------------------------------------------------------------------------------------------------
Subtotal $ 3,087 $ 1,089 $ 876 $ 950 $ 444 $(6,446) $ -
- -----------------------------------------------------------------------------------------------------------------------
Off-balance-sheet instruments $(2,990) $(2,493) $ 296 $ 769 $3,662 $ 756 $ -
- -----------------------------------------------------------------------------------------------------------------------
Interest rate sensitivity gap $ 97 $(1,404) $ 1,172 $1,719 $4,106 $(5,690) $ -
- -----------------------------------------------------------------------------------------------------------------------
Cumulative gap $ 97 $(1,307) $ (135) $1,584 $5,690 $ - $ -
- -----------------------------------------------------------------------------------------------------------------------
Cumulative gap as a percentage
of total assets .2% (3.3)% (.3)% 4.0% 14.5%
- -----------------------------------------------------------------------------------------------------------------------
<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>
25
<PAGE> 27
INTEREST RATE SENSITIVITY ANALYSIS (CONTINUED)
Managing interest rate risk with off-balance-sheet 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 off-balance- sheet products used to
manage its interest rate risk are shown in the following table.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
MATURITIES OF OFF-BALANCE-SHEET INSTRUMENTS USED TO MANAGE INTEREST RATE RISK AT SEPTEMBER 30, 1994
Total at
Sept. 30,
(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 $ 75 $ 483 $ 250 $ 160 $15 $2,525 $ 3,508
Weighted average rate:
received 4.30% 6.17% 5.32% 6.36% 5.22% 5.45% 5.56%
paid 4.89% 4.96% 4.91% 4.89% 5.00% 4.88% 4.89%
Receive fixed/pay floating
indexed amortizing swaps:(b)
Notional value $ 257 $ 970 $2,143 $ 621 $53 $ 833 $ 4,877
Weighted average rate:
received 5.75% 6.14% 5.18% 6.11% 7.19% 7.13% 5.88%
paid 4.81% 4.96% 4.91% 4.87% 4.81% 4.81% 4.89%
Pay fixed/receive floating
generic swaps:(a)
Notional amount $1,076 $ 602 $ 10 $2,128 $18 $ 12 $ 3,846
Weighted average rate:
received 4.84% 4.90% 5.35% 4.82% 3.39% 5.11% 4.83%
paid 4.22% 5.38% 10.75% 4.75% 5.25% 6.87% 4.72%
Other products(c) $ 21 $ 185 $ 50 $ 100 $ 4 $ 67 $ 427
- -----------------------------------------------------------------------------------------------------------------------
Total notional amount $1,429 $2,240 $2,453 $3,009 $90 $3,437 $12,658
- -----------------------------------------------------------------------------------------------------------------------
<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 gross notional amount of off-balance-sheet products used to manage the
Corporation's interest rate risk was $12.7 billion at September 30, 1994, a
decrease of $.3 billion from June 30, 1994. This gross notional amount which
is presented in the table above is not indicative of the impact on the
Corporation's interest rate risk management activities. As discussed on page
24, the impact of these off-balance-sheet instruments was to modify the
Corporation's asset sensitive position, including the modification of the
cumulative asset sensitive position at the one-year repricing period of $6.0
billion, before the utilization of these instruments, to a cumulative one-year
asset sensitive position of $1.6 billion at September 30, 1994.
26
<PAGE> 28
INTEREST RATE SENSITIVITY ANALYSIS (CONTINUED)
The following table presents the gross notional amounts of off-balance-sheet
instruments used to manage interest rate risk, identified by the underlying
interest rate sensitive instruments.
<TABLE>
<CAPTION>
(in millions) September 30, 1994
- -----------------------------------------------------------------------------------------------------------------------
<S> <C>
Instruments associated with deposits $10,717
Instruments associated with other liabilities 485
Instruments associated with loans 1,456
- -----------------------------------------------------------------------------------------------------------------------
Total notional amount $12,658
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
The revenue from off-balance-sheet instruments alters on-balance-sheet
yield/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 on these instruments was $20 million and $104 million in the
third quarter and first nine months of 1994, compared with a differential of
$52 million and $151 million in the third quarter and first nine months of
1993. The lower net differential of interest received over interest paid in
the 1994 periods compared with the 1993 periods resulted from the impact of
rising interest rates. As expected, this impact was offset by higher net
interest revenue generated from on-balance-sheet instruments. 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 and liabilities, is a smaller balance sheet, reduced
wholesale funding requirements and a higher 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 interest rates continue to
rise, growth in revenue on interest-earning assets would be expected to
mitigate any reduction of revenue from interest rate swaps, which is consistent
with the Corporation simulation model described on page 24. This analysis
indicated that a 100-basis-point upward movement in interest rates over a six
month period, including the effect of off-balance-sheet instruments, would have
an approximately 0.6%, or $.06 per share on a pre-stock split basis, positive
effect on the Corporation's anticipated net interest revenue for the 12 month
period following September 30, 1994.
In response to tactical asset/liability management considerations, the
Corporation terminated $1.025 billion, of interest rate agreements in the first
nine months of 1994, with no terminations in the third quarter of 1994. Both
pay and receive fixed-rate interest rate agreements were terminated. All of
the terminated agreements were designated as deposit hedges, specifically NOW
accounts and retail savings certificates. The terminated agreements were not
replaced. These terminations resulted in net deferred gains of $3 million in
the first nine months of 1994. These gains are being amortized over the
remaining period of the original hedge, which is less than one year. The
amortization of these gains was $2 million in net interest revenue in the first
nine months 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 foreign currency and securities trading revenue. The gross
unrealized market value gains and losses of off-balance-sheet instruments used
for trading purposes, in part foreign exchange contracts, were $188 million and
$172 million, respectively, at September 30, 1994.
The off-balance-sheet financial instruments table on page 37 displays total
off-balance-sheet instruments entered into by the Corporation at September 30,
1994. The Corporation has entered into $12,658 million notional amount of
these contracts for interest rate management purposes as shown on the tables
above and on the previous page. The remainder of these transactions are used
by the Corporation in conjunction with dealer and 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.
27
<PAGE> 29
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.
During the third quarter of 1994, Moody's and Standard & Poor's, two public
credit rating agencies, upgraded their ratings on the Corporation's senior debt
securities and other obligations, primarily as a result of the Corporation's
improved capital position, lower level of nonperforming assets and continued
growth in core earnings. This upgrade should enable the Corporation to issue
debt at lower rates of interest, and overall, enhance the Corporation's access
to funding markets.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
SEPT. 30, Dec. 31, Dec. 31,
SENIOR DEBT RATINGS 1994 1993 1992
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Mellon Bank Corporation
Moody's A2 A3 Baa1
Standard & Poor's A A- A-
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
As shown in the Consolidated Statement of Cash Flows, cash and due from banks
increased by $51 million during the first nine months of 1994 to $2,222 million
at September 30, 1994. The increase reflected $1,160 million of net cash
provided by financing activities and $682 million of net cash provided by
operating activities offset, in part, by the net use of $1,804 million of cash
for investing activities. Cash provided by financing activities primarily
reflected net increases in short-term borrowed funds offset, in part, by
decreases in transaction and savings deposits and longer-term debt. Cash
provided by operating activities reflected $392 million of net income adjusted
for noncash charges and credits. Cash used for investing activities was the
result of an increase in loan outstandings and net purchases of investment
securities.
Included in noncash charges and credits is the amortization expense of
goodwill, core deposit and other identified intangibles which the Corporation
has recorded as a result of accounting for business combinations under the
purchase method of accounting, prior to the Dreyfus merger. Had the
Corporation accounted for these transactions under the pooling-of-interests
method of accounting, these intangibles and their related amortization would
not have been reported. Excluding the Dreyfus merger-related charges, net
income, excluding the after-tax impact of the amortization expense of
intangibles recorded in purchase acquisitions of $16 million and $56 million
for the third quarter and first nine months of 1994, would have been $183
million and $537 million, respectively.
On July 1, 1994, the Corporation retired the $145 million of Floating Rate
Senior Notes due 1996. Also, on July 21, 1994, the Corporation's $200 million
Floating Rate Notes due 1994 matured. These transactions were funded with cash
on hand. Contractual maturities of the Corporation's term debt were less than
$1 million in the third quarter of 1994. Contractual maturities of term debt
will total $3 million in the fourth quarter of 1994 and $327 million in 1995.
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.
28
<PAGE> 30
LIQUIDITY AND DIVIDENDS (CONTINUED)
On September 20, 1994, the board of directors of the Corporation approved a
three-for-two common stock split and a 21% increase in the common dividend to
$.675 per share on a pre-stock split basis. On a post-stock split basis, the
Corporation's quarterly dividend will be $.45 per share. In conjunction with
the common stock split and dividend increase, the board of directors also
declared the fourth quarter common dividend, payable on November 15, 1994.
This dividend declaration resulted in the Corporation declaring two common
dividends in the third quarter. The Corporation paid $107 million in common
dividends, or $1.68 per common share on a pre-stock split basis, prior to the
merger with Dreyfus, in the first nine months of 1994. This compared with $70
million, or $1.14 per common share on a pre-stock split basis, in the first
nine months of 1993. Dreyfus paid dividends of $21 million, or $.57 per
Dreyfus common share, prior to the merger in 1994, and $20 million, or $.55 per
Dreyfus common share, in the first nine months of 1993.
On a restated basis, including Dreyfus, the Corporation paid $128 million in
common dividends for the first nine months of 1994 compared with $90 million in
the prior year period. In addition, the Corporation paid $46 million in
dividends on its outstanding shares of preferred stock during the first nine
months of 1994. The common stock dividend payout ratio, excluding the
additional dividend declared in the third quarter, was 68% in the third quarter
of 1994, compared with 26% in the third quarter of 1993. Excluding the
after-tax impact of the Dreyfus-related merger expenses and losses on the sale
of securities, the common stock dividend payout ratio would have been 28% in
the third quarter of 1994. Using the new post-stock split common dividend rate
of $.45 per share, annualized dividend requirements for the common and
preferred stock are expected to be approximately $320 million.
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
September 30, 1994, of up to approximately $776 million, less any dividends
declared and plus or minus net profits or losses, as defined, between October
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
$254 million in the first nine months of 1994, $158 million in the full year
1993 and $130 million in 1992. Dividends paid to the parent Corporation by
nonbank subsidiaries totaled $103 million in the first nine months of 1994,
$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.
29
<PAGE> 31
<TABLE>
<CAPTION>
NONPERFORMING ASSETS
- -----------------------------------------------------------------------------------------------------------------------
SEPT. 30, June 30, March 31, Dec. 31, Sept. 30,
(dollar amounts in millions) 1994 1994 1994 1993 1993
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Nonperforming loans $156 $155 $196 $202 $234
Acquired property, net of the OREO reserve 104 109 118 139 160
- -----------------------------------------------------------------------------------------------------------------------
Total nonperforming assets (a) $260 $264 $314 $341 $394
- -----------------------------------------------------------------------------------------------------------------------
Nonperforming loans as a percentage
of total loans .60% .63% .80% .83% 1.00%
Total nonperforming assets as a percentage
of total loans and net acquired property .99% 1.06% 1.27% 1.39% 1.67%
- -----------------------------------------------------------------------------------------------------------------------
<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.
The level of nonperforming assets dropped to the lowest level in more than 12
years at the end of the third quarter of 1994. At September 30, 1994,
nonperforming assets totaled $260 million, down slightly compared with June 30,
1994 despite the addition of $12 million of nonperforming assets, net of $4
million of credit losses, from the September 1994 acquisition of Glendale.
Domestic nonperforming real estate assets, which consist of nonperforming
commercial and consumer real estate loans and OREO net of the reserve, totaled
$186 million at September 30, 1994, down $18 million from $204 million at June
30, 1994. The reduction resulted primarily from loans returning to accrual
status, asset sales and repayments. The increase in commercial and financial
nonperforming loans resulted from the addition of a loan to a consumer finance
company and $9 million of commercial loans from Glendale. The $5 million
decrease in international nonperforming loans resulted from repayments.
Nonperforming assets decreased by $134 million, or 34%, compared with September
30, 1993, primarily due to the $141 million reduction in domestic nonperforming
real estate assets. These reductions resulted primarily from loans returning
to accrual status, asset sales and repayments. The ratio of nonperforming
assets to total loans and net acquired property at September 30, 1994, was
.99%, the lowest level in more than 15 years, down from 1.67% at September 30,
1993.
30
<PAGE> 32
NONPERFORMING ASSETS (CONTINUED)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
NONPERFORMING AND PAST-DUE ASSETS (a)
SEPT. 30, June 30, March 31, Dec. 31, Sept. 30,
(dollar amounts in millions) 1994 1994 1994 1993 1993
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Domestic nonaccrual loans:
Commercial and financial $ 62 $ 43 $ 49 $ 37 $ 53
Commercial real estate 29 32 43 75 97
Consumer credit:
Consumer mortgage 51 61 67 61 68
Other consumer credit 1 2 3 4 6
- -----------------------------------------------------------------------------------------------------------------------
Total domestic nonaccrual loans 143 138 162 177 224
International nonaccrual loans 1 6 16 7 7
- -----------------------------------------------------------------------------------------------------------------------
Total nonaccrual loans 144 144 178 184 231
- -----------------------------------------------------------------------------------------------------------------------
Domestic restructured loans:
Commercial and financial 9 8 4 4 -
Commercial real estate 3 3 14 14 3
- ------------------------------------------------------------------------------------------------------------------------
Total domestic restructured loans 12 11 18 18 3
- ------------------------------------------------------------------------------------------------------------------------
Total nonperforming loans:
Domestic 155 149 180 195 227
International 1 6 16 7 7
- ------------------------------------------------------------------------------------------------------------------------
Total nonperforming loans (b) 156 155 196 202 234
- -------------------------------------------------------------------------------------------------------------------------
Acquired property:
Real estate acquired through foreclosures 105 109 109 100 110
In-substance foreclosures 28 30 43 75 77
Reserve for real estate acquired (30) (31) (35) (37) (28)
- --------------------------------------------------------------------------------------------------------------------------
Net real estate acquired 103 108 117 138 159
Other assets acquired 1 1 1 1 1
- --------------------------------------------------------------------------------------------------------------------------
Total acquired property 104 109 118 139 160
- --------------------------------------------------------------------------------------------------------------------------
Total nonperforming assets $260 $264 $314 $341 $394
- --------------------------------------------------------------------------------------------------------------------------
Nonperforming loans as a percentage of
loan portfolio segments:
Domestic commercial and financial loans and leases .67% .51% .53% .41% .61%
Domestic commercial real estate loans 1.98 2.15 3.45 5.17 5.81
Domestic consumer mortgage loans .61 .75 .83 .75 .82
Total loans .60 .63 .80 .83 1.00
Nonperforming assets as a percentage of
total loans and net acquired property .99 1.06 1.27 1.39 1.67
- --------------------------------------------------------------------------------------------------------------------------
Past-due loans:
Consumer credit $ 61 $ 52 $ 53 $ 53 $ 51
Real estate, primarily consumer mortgages 19 23 22 25 24
Commercial 45(c) 43(c) 5 6 -
- --------------------------------------------------------------------------------------------------------------------------
Total past-due loans $125 $118 $ 80 $ 84 $ 75
- ---------------------------------------------------------------------------------------------------------------------------
<FN>
(a) Excludes segregated assets.
(b) Includes $60 million, $47 million, $65 million, $74 million, and $90
million, respectively, of loans with both principal and interest less than
90 days past-due but placed on nonaccrual status by management discretion.
(c) Includes approximately $38 million of leases fully guaranteed by the
Canadian government.
</TABLE>
31
<PAGE> 33
NONPERFORMING ASSETS (CONTINUED)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
CHANGE IN NONPERFORMING LOANS (a)
FOR THE THREE MONTHS ENDED SEPTEMBER 30
- ---------------------------------------
Domestic
------------------------------------ Total
Commercial Commercial Consumer ------------------
(in millions) & Financial Real Estate Credit International 1994 1993
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Nonperforming loans at June 30 $ 51 $ 35 $ 63 $ 6 $155 $281
Acquired from Glendale Corporation 13 - - - 13 -
Additions 36 7 14 - 57 63
Payments (b) (17) (3) (9) (5) (34) (54)
Return to accrual status (2) (3) (11) - (16) (19)
Credit losses (10) (3) (3) - (16) (33)
Transfers to acquired property - (1) (2) - (3) (4)
- ---------------------------------------------------------------------------------------------------------------------------
Nonperforming loans at September 30 $ 71 $ 32 $ 52 $ 1 $156 $234
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED SEPTEMBER 30
- --------------------------------------
Domestic
-------------------------------------- Total
Commercial Commercial Consumer -------------------
(in millions) & Financial Real Estate Credit International 1994 1993
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Nonperforming loans at December 31 $ 41 $ 89 $ 65 $ 7 $202 $334
Acquired from The Boston Company - - - - - 53
Acquired from Glendale Corporation 13 - - - 13 -
Additions 78 10 42 13 143 195
Payments (b) (34) (13) (21) (15) (83) (109)
Return to accrual status (4) (45) (19) - (68) (107)
Credit losses (23) (8) (9) (3) (43) (103)
Transfers to acquired property - (1) (6) (1) (8) (29)
- ---------------------------------------------------------------------------------------------------------------------------
Nonperforming loans at September 30 $ 71 $ 32 $ 52 $ 1 $156 $234
- ---------------------------------------------------------------------------------------------------------------------------
<FN>
(a) Excludes segregated assets.
(b) Includes interest applied to principal and sales.
</TABLE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
ADDITIONAL DOMESTIC NONACCRUAL LOAN DATA (a)
September 30,
(dollar amounts in millions) 1994 1993
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Book balance $143 $224
Contractual balance of nonaccrual loans 194 320
Book balance as a percentage of
contractual balance 74% 70%
Interest receipts applied to reduce principal
Third quarter $ - $ 1
Year-to-date 4 8
Interest receipts recognized in interest revenue
Third quarter 3 3
Year-to-date 8 8
- ---------------------------------------------------------------------------------------------------------------------------
<FN>
(a) Excludes segregated assets.
</TABLE>
32
<PAGE> 34
NONPERFORMING ASSETS (CONTINUED)
Acquired property consists of OREO and other assets acquired in connection with
loan settlements. OREO, net of the reserve, totaled $103 million at September
30, 1994, compared with $108 million at June 30, 1994, and $159 million at
September 30, 1993. Sales of acquired property during the third quarter and
first nine months of 1994 resulted in net gains of $12 million and $24 million,
respectively. A summary of the activity in the OREO portfolio is presented in
the table below.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
CHANGE IN ACQUIRED PROPERTY (a) Three months ended Nine months ended
September 30, September 30,
(in millions) 1994 1993 1994 1993
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
OREO at beginning of period, net of reserve $108 $188 $138 $240
OREO acquired from The Boston Company - - - 15
OREO acquired from Glendale Corporation 3 - 3 -
Foreclosures (b) 5 7 11 39
Sales (13) (18) (44) (66)
Return to performing - - - (11)
Write-downs, credit losses, OREO
provision and other - (18) (5) (58)
- -------------------------------------------------------------------------------------------------------------------------
OREO at end of period, net of reserve 103 159 103 159
- -------------------------------------------------------------------------------------------------------------------------
Other acquired assets 1 1 1 1
- ------------------------------------------------------------------------------------------------------------------------
Total acquired property at end of period, net of reserve $104 $160 $104 $160
- ------------------------------------------------------------------------------------------------------------------------
<FN>
(a) Excludes segregated assets.
(b) Includes foreclosures and in-substance foreclosures from loans and the
mortgage servicing portfolio.
</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.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
RESERVE FOR REAL ESTATE ACQUIRED
Three months ended Nine months ended
September 30, September 30,
(in millions) 1994 1993 1994 1993
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Beginning balance $31 $18 $37 $10
Write-downs on real estate acquired (1) (4) (7) (26)
Provision charged to operating expense - 14 - 44
- ----------------------------------------------------------------------------------------------------------------------
Ending balance $30 $28 $30 $28
- ----------------------------------------------------------------------------------------------------------------------
</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 how 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.
33
<PAGE> 35
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 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 SEPT. 30, June 30, Dec. 31, Sept. 30,
(in millions) 1994 1994 1993 1993
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Nonaccrual loans:
Commercial real estate loans $ 55 $ 61 $ 84 $147
Commercial loans 11 22 28 32
- ---------------------------------------------------------------------------------------------------------------------
Total nonaccrual loans 66 83 112 179
- ---------------------------------------------------------------------------------------------------------------------
Real estate acquired 49 68 75 65
- ---------------------------------------------------------------------------------------------------------------------
Total segregated assets 115 151 187 244
Less: FDIC loss sharing (a) (109) (143) (178) (232)
- ---------------------------------------------------------------------------------------------------------------------
Maximum credit exposure $ 6 $ 8 $ 9 $ 12
- ---------------------------------------------------------------------------------------------------------------------
CREDIT LOSS ACTIVITY
- ---------------------------------------------------------------------------------------------------------------------
Segregated asset losses:
Commercial real estate loans $ - $ - $ - $ 1
Commercial loans - - - -
- ---------------------------------------------------------------------------------------------------------------------
Total segregated asset losses - - - 1
- ---------------------------------------------------------------------------------------------------------------------
Segregated asset recoveries - - - -
- ---------------------------------------------------------------------------------------------------------------------
Net segregated asset losses $ - $ - $ - $ 1
- ---------------------------------------------------------------------------------------------------------------------
CHANGE IN RESERVE FOR SEGREGATED ASSETS (b)
- ---------------------------------------------------------------------------------------------------------------------
Reserve for segregated assets at beginning of period $ 4 $ 4 $ 4 $ 5
Net segregated asset losses - - - 1
- ---------------------------------------------------------------------------------------------------------------------
Reserve at end of period $ 4 $ 4 $ 4 $ 4
- ---------------------------------------------------------------------------------------------------------------------
Past-due loans subject to loss sharing $ 2 $ - $ - $ -
- ---------------------------------------------------------------------------------------------------------------------
<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 September 30, 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. There were $6
million of recoveries on segregated assets in the third quarter of 1994.
The recoveries in the third quarter offset credit losses recorded earlier
in 1994, resulting in no net credit losses in the first nine months of
1994.
(b) This reserve is not included in the reserve for credit losses.
</TABLE>
34
<PAGE> 36
COMMERCIAL REAL ESTATE LENDING
The Corporation's $1.608 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 $157 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 $110 million, or 6%, compared with
$1.718 billion at September 30, 1993. The decrease primarily was a result of
paydowns, asset sales and transfers to OREO. New domestic commercial real
estate loan commitments totaled $71 million in the third quarter of 1994 and
$124 million in the first nine months of 1994. Most of these new loan
commitments were funded shortly after origination. Unused commercial real
estate loan commitments were $212 million at September 30, 1994, compared with
$289 million at June 30, 1994, and $295 million at September 30, 1993.
Domestic commercial real estate loans were 6% of total loans at September 30,
1994, down from 7% a year earlier. Nonperforming domestic commercial real
estate loans were 1.98% of total domestic commercial real estate loans at
September 30, 1994, compared with 5.81% at September 30, 1993.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
DISTRIBUTION OF DOMESTIC COMMERCIAL REAL ESTATE LOANS BY SIZE AT SEPTEMBER 30, 1994
(dollar amounts in millions)
- -----------------------------------------------------------------------------------------------------------------------
Percent
of total
Principal amounts Outstandings outstandings
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Less than $10 $1,109 69%
$10 to $20 263(a) 16
$20 to $40 177(b) 11
$40 to $60 59(c) 4
- ------------------------------------------------------------------------------------------------------------------------
Total $1,608 100%
- ------------------------------------------------------------------------------------------------------------------------
<FN>
(a) Represents loans to 20 borrowers.
(b) Represents loans to 6 borrowers.
(c) Represents a loan to a single borrower.
</TABLE>
35
<PAGE> 37
COMMERCIAL REAL ESTATE LENDING (CONTINUED)
DISTRIBUTION OF DOMESTIC COMMERCIAL REAL ESTATE LOANS AT SEPTEMBER 30, 1994
<TABLE>
<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 $175 $ 46 $ 46 $35 $12 $6 $320
Retail 124 69 49 22 10 - 274
Hotels 56 48 9 6 12 - 131
Industrial 35 2 2 5 2 - 46
Undeveloped land 5 15 9 9 - - 38
Apartments 29 - 3 - 3 - 35
Health care 11 - - 4 4 - 19
Other project types 70 - - - 3 - 73
- ------------------------------------------------------------------------------------------------------------------------
Subtotal $505(a) $180(b) $118(c) $81(d) $46(e) $6 $ 936
FDIC loss share loans 157(f)
Owner-occupied loans 515(g)
- ------------------------------------------------------------------------------------------------------------------------
Total $1,608
- ------------------------------------------------------------------------------------------------------------------------
<FN>
(a) Includes $350 million of loans to borrowers located in Pennsylvania.
(b) Includes $62 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 $23 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>
DISTRIBUTION OF NONPERFORMING COMMERCIAL REAL ESTATE LOANS AND REAL ESTATE
ACQUIRED AT SEPTEMBER 30, 1994
<TABLE>
<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 $ 8 $19 $10 $ - $20 $ 8 $ - $ 65
Retail 4 10 - 8 - - 17 39
Office complexes (a) 23 - - - 8 - - 31
Other project types 24 2 - 1 1 2 - 30
- ------------------------------------------------------------------------------------------------------------------------
Total by region $59(b) $31(c) $10(d) $ 9(e) $29(f) $10 $17 $165(g)
- ------------------------------------------------------------------------------------------------------------------------
<FN>
(a) Includes certain multi-use projects.
(b) Includes $16 million of nonperforming loans to borrowers and $18 million
of OREO located in Pennsylvania.
(c) Includes $20 million of OREO located in Florida.
(d) Includes $9 million of nonperforming loans to borrowers located in
Illinois.
(e) Entire amount is OREO located in California.
(f) Includes $25 million of OREO located in Texas.
(g) Excludes segregated assets, as well as the reserve for real estate
acquired of $30 million.
</TABLE>
36
<PAGE> 38
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 26 and 27. 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 SEPT. 30, June 30, March 31, Dec. 31, Sept 30,
(in millions) 1994 1994 1994 1993 1993
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Financial instruments with contract amounts that
represent credit risk:
Commitments to extend credit $14,453(a) $13,268 $13,154 $12,521 $12,335
Standby letters of credit and foreign guarantees 2,826(b) 3,154 3,345 2,952 2,896
Commercial letters of credit 150 166 155 140 148
Residential mortgage loans serviced with recourse 193 203 303 546 462
Custodian securities lent with indemnification
against broker default of return of securities 14,057 13,515 12,526 11,152 11,994
Financial instruments with notional or contract
amounts that exceed the amount of credit risk: (c)
Foreign currency contracts:
Commitments to purchase 10,901 9,183 10,237 9,219 9,517
Commitments to sell 10,988 9,217 10,151 9,226 9,512
Foreign currency and other option contracts written:
Commitments to purchase 227 338 192 354 334
Commitments to sell 185 246 118 180 181
Foreign currency and other option contracts purchased:
Commitments to purchase 260 306 212 350 371
Commitments to sell 460 475 401 219 231
Futures and forward contracts:
Commitments to purchase 499 442 1,490 114 617
Commitments to sell 663 714 1,020 432 628
Interest rate agreements (notional principal amounts):
Interest rate swaps 16,713 16,846 17,173 13,647 12,564
Other interest rate products 5,280 4,475 4,175 2,560 1,564
Forward rate agreements 80 202 334 595 458
- --------------------------------------------------------------------------------------------------------------------------------
<FN>
(a) Approximately 30% of these commitments are scheduled to expire within one
year, with an additional 55% scheduled to expire within five years.
(b) Net of participations and cash collateral totaling $293 million.
(c) The amount of credit risk associated with these instruments is limited to
the cost of replacing a contract on which a counterparty has defaulted.
</TABLE>
37
<PAGE> 39
CONSOLIDATED INCOME STATEMENT
Mellon Bank Corporation (and its subsidiaries)
<TABLE>
<CAPTION>
Nine months ended
-----------------------
SEPT. 30, Sept. 30,
(in millions, except per share amounts) 1994 1993
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest revenue Loans $1,306 $1,122
Loan fees 65 55
Interest-bearing deposits with banks 26 47
Federal funds sold and securities purchased
under agreements to resell 21 42
Other money market investments 4 11
Trading account securities 19 13
Securities 213 195
-------------------------------------------------------------------------------------------------
Total interest revenue 1,654 1,485
- ---------------------------------------------------------------------------------------------------------------------
Interest expense Deposits in domestic offices 312 314
Deposits in foreign offices 51 30
Federal funds purchased and securities sold
under agreements to repurchase 46 25
U.S. Treasury tax and loan demand notes 17 5
Commercial paper 4 5
Other funds borrowed 34 28
Notes and debentures 83 92
-------------------------------------------------------------------------------------------------
Total interest expense 547 499
- ---------------------------------------------------------------------------------------------------------------------
Net interest Net interest revenue 1,107 986
revenue Provision for credit losses 55 100
-------------------------------------------------------------------------------------------------
Net interest revenue after provision for credit losses 1,052 886
- ---------------------------------------------------------------------------------------------------------------------
Noninterest Fee revenue 1,247 1,109
revenue Gains (losses) on sale of securities (5) 90
-------------------------------------------------------------------------------------------------
Total noninterest revenue 1,242 1,199
- ---------------------------------------------------------------------------------------------------------------------
Operating Staff expense 719 620
expense Net occupancy expense 152 134
Professional, legal and other purchased services 148 115
Business development 128 94
Equipment expense 97 86
Amortization of goodwill, core deposit and other identified intangibles
recorded in connection with acquisitions 73 56
Communications expense 62 56
FDIC assessment and regulatory examination fees 47 45
Amortization of purchased mortgage servicing rights and
purchased credit card relationships 31 34
Other expense 95 83
Net expense (revenue) of acquired property (23) 52
Merger expenses 104 175
-------------------------------------------------------------------------------------------------
Total operating expense 1,633 1,550
- ---------------------------------------------------------------------------------------------------------------------
Income Income before income taxes 661 535
Provision for income taxes 269 213
-------------------------------------------------------------------------------------------------
Net income 392 322
Dividends on preferred stock 45 47
-------------------------------------------------------------------------------------------------
Net income applicable to common stock $ 347 $ 275
-------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
Per common share Primary net income
Pre-stock split $3.53 $2.84
Post-stock split $2.35 $1.89
Fully diluted net income
Pre-stock split $3.53 $2.84
Post-stock split $2.35 $1.89
-------------------------------------------------------------------------------------------------
See accompanying Notes to Financial Statements.
</TABLE>
38
<PAGE> 40
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
Three months ended
- ---------------------------------------------------------------------------------------------------------------------
SEPT. 30, June 30, March 31, Dec. 31, Sept. 30,
1994 1994 1994 1993 1993
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 473 $ 427 $ 406 $ 395 $ 401
18 17 30 16 14
8 9 9 11 17
7 7 7 12 15
1 1 2 3 2
6 6 7 2 4
80 72 61 61 62
- ----------------------------------------------------------------------------------------------------------------------
593 539 522 500 515
- ----------------------------------------------------------------------------------------------------------------------
120 100 92 100 108
25 17 9 10 11
23 13 10 8 9
6 7 4 1 2
2 1 1 1 1
14 9 11 7 10
27 28 28 29 31
- ----------------------------------------------------------------------------------------------------------------------
217 175 155 156 172
- ----------------------------------------------------------------------------------------------------------------------
376 364 367 344 343
15 20 20 25 30
- ----------------------------------------------------------------------------------------------------------------------
361 344 347 319 313
- ----------------------------------------------------------------------------------------------------------------------
399 412 436 429 419
(15) 8 2 10 7
- ----------------------------------------------------------------------------------------------------------------------
384 420 438 439 426
- ----------------------------------------------------------------------------------------------------------------------
237 237 245 235 237
50 52 50 52 50
51 51 46 48 48
35 40 53 45 34
30 30 37 34 31
23 23 27 22 23
21 20 21 21 20
15 16 16 16 16
9 10 12 10 12
32 32 31 44 35
(12) (3) (8) 7 14
104 - - - -
- ----------------------------------------------------------------------------------------------------------------------
595 508 530 534 520
- ----------------------------------------------------------------------------------------------------------------------
150 256 255 224 219
72 98 99 85 80
- ----------------------------------------------------------------------------------------------------------------------
78 158 156 139 139
15 15 15 16 16
- ----------------------------------------------------------------------------------------------------------------------
$ 63 $ 143 $ 141 $ 123 $ 123
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
$ .64 $1.45 $1.44 $1.25 $1.25
$ .42 $ .97 $ .96 $ .84 $ .83
$ .64 $1.45 $1.44 $1.25 $1.25
$ .42 $ .97 $ .96 $ .84 $ .83
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
39
<PAGE> 41
CONSOLIDATED BALANCE SHEET
Mellon Bank Corporation (and its subsidiaries)
<TABLE>
<CAPTION>
SEPT. 30, Dec. 31, Sept. 30,
(dollar amounts in millions) 1994 1993 1993
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Assets Cash and due from banks $ 2,222 $ 2,171 $ 1,616
Interest-bearing deposits with banks 472 889 1,425
Federal funds sold and securities purchased under
agreements to resell 513 574 612
Other money market investments 40 303 341
Trading account securities 310 116 301
Securities available for sale (approximate
fair value of $2,920 and $2,749 at Dec. 31, 1993 and
September 30, 1993) 2,847 2,916 2,740
Investment securities (approximate fair value
of $3,130, $2,486 and $2,444) 3,301 2,432 2,368
Loans, net of unearned discount of $72, $74 and $45 26,012 24,484 23,472
Reserve for credit losses (611) (600) (588)
------------------------------------------------------------------------------------------------------
Net loans 25,401 23,884 22,884
Customers' acceptance liability 219 146 142
Premises and equipment 546 524 542
Acquired property, net of reserves of $30, $37 and $28 104 139 160
Goodwill 843 826 773
Core deposit and other identified intangibles recorded in
connection with acquisitions 224 258 273
Purchased mortgage servicing rights and
purchased credit card relationships 323 204 194
Segregated assets, net of reserves of $4, $4 and $4 111 183 240
Other assets 1,775 1,487 1,234
------------------------------------------------------------------------------------------------------
Total assets $39,251 $37,052 $35,845
------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
Liabilities Noninterest-bearing deposits in domestic offices $ 5,728 $ 6,906 $ 6,000
Interest-bearing deposits in domestic offices 18,244 19,475 19,213
Interest-bearing deposits in foreign offices 3,160 1,183 1,120
------------------------------------------------------------------------------------------------------
Total deposits 27,132 27,564 26,333
Federal funds purchased and securities sold under
agreements to repurchase 2,591 978 1,319
U.S. Treasury tax and loan demand notes 939 711 267
Commercial paper 242 134 122
Other funds borrowed 743 310 519
Acceptances outstanding 219 146 142
Other liabilities 1,528 1,081 977
Notes and debentures (with original maturities over one year) 1,572 1,990 2,021
------------------------------------------------------------------------------------------------------
Total liabilities 34,966 32,914 31,700
- ---------------------------------------------------------------------------------------------------------------------
Shareholders' Preferred stock 590 592 660
equity Common shareholders' equity:
Common stock - $.50 par value
Authorized - 200,000,000 shares
Issued - 146,934,696 (a); 103,427,262; and 103,426,971 shares 73 52 52
Additional paid-in capital 1,844 2,038 2,038
Retained earnings 1,773 1,629 1,549
Warrants 37 37 37
Net unrealized loss on assets
available for sale (net of taxes) (32) - -
Treasury stock, - ;7,774,346; and 7,413,377 shares at cost - (210) (191)
------------------------------------------------------------------------------------------------------
Total common shareholders' equity 3,695 3,546 3,485
------------------------------------------------------------------------------------------------------
Total shareholders' equity 4,285 4,138 4,145
------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $39,251 $37,052 $35,845
------------------------------------------------------------------------------------------------------
<FN>
(a) Restated for the three-for-two stock split declared
September 20,1994 effective November 15, 1994. See
accompanying Notes to Financial Statements.
</TABLE>
40
<PAGE> 42
CONSOLIDATED STATEMENT OF CASH FLOWS
Mellon Bank Corporation (and its subsidiaries)
<TABLE>
<CAPTION>
Nine months ended
September 30,
(in millions) 1994 1993
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from Net income $ 392 $ 322
operating activities Adjustments to reconcile net income to net
cash provided by operating activities:
Amortization of goodwill, core deposit and other identified
intangibles recorded in connection with acquisitions 73 56
Amortization of purchased mortgage servicing rights
and purchased credit card relationships 31 34
Depreciation and other amortization 71 66
Deferred income tax expense 38 37
Provision for credit losses 55 100
Provision for real estate acquired and other losses 1 54
Merger expenses 104 175
Net gains on dispositions of acquired property (24) (8)
Net (increase) decrease in accrued interest receivable (39) 75
Net increase in trading account securities activity (192) (189)
Net increase (decrease) in accrued interest payable,
net of amounts prepaid 35 (10)
Net decrease in residential mortgages held for sale 188 92
Net increase (decrease) in other operating activities (51) 92
-------------------------------------------------------------------------------------------
Net cash provided by operating activities 682 896
- ---------------------------------------------------------------------------------------------------------------------
Cash flows from Net decrease in term deposits 680 394
investing activities Net (increase) decrease in federal funds sold and
securities purchased under agreements to resell 61 (331)
Funds invested in securities available for sale (9,838) (7,958)
Proceeds from sales of securities available for sale 2,370 8,700
Proceeds from maturities of securities available for sale 7,718 1,446
Funds invested in investment securities (1,408) (504)
Proceeds from sales of investment securities - 641
Proceeds from maturities of investment securities 381 178
Net increase in credit card receivables (484) (34)
Net principal collected (disbursed) on loans to customers (1,028) 593
Loan portfolio purchases (182) (56)
Proceeds from the sale of loan portfolios 136 32
Purchases of premises and equipment (112) (81)
Proceeds from sales of premises and equipment 1 4
Proceeds from sales of acquired property 70 85
Cash paid in purchase of U.S. Bancorp Mortgage Company (154) -
Cash paid in purchase of Glendale Bancorporation,
net of cash received (13) -
Cash paid in purchase of The Boston Company, net of cash received - (1,134)
Net (increase) decrease in other investing activities (2) 4
--------------------------------------------------------------------------------------------
Net cash provided (used) in investing activities (1,804) 1,979
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
41
<PAGE> 43
CONSOLIDATED STATEMENT OF CASH FLOWS (CONTINUED)
Mellon Bank Corporation (and its subsidiaries)
<TABLE>
<CAPTION>
Nine months ended
September 30,
(in millions) 1994 1993
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from Net decrease in transaction and savings deposits (793) (269)
financing activities Net increase (decrease) in customer term deposits 148 (2,421)
Net increase (decrease) in federal funds purchased and
securities sold under agreements to repurchase 1,613 (335)
Net increase (decrease) in U.S. Treasury tax and loan demand notes 228 (10)
Net increase (decrease) in commercial paper 108 (57)
Repurchase and repayments of longer-term debt (420) (872)
Net proceeds from issuance of longer-term debt 1 949
Net proceeds from issuance of common and preferred stock 14 494
Repurchase of common stock - (35)
Dividends paid on common and preferred stock (174) (135)
Net increase (decrease) in other financing activities 435 (567)
--------------------------------------------------------------------------------------------
Net cash provided (used) in financing activities 1,160 (3,258)
Effect of foreign currency exchange rates 13 24
- ---------------------------------------------------------------------------------------------------------------------
Change in cash and Net increase (decrease) in cash and due from banks 51 (359)
due from banks Cash and due from banks at beginning of period 2,171 1,975
--------------------------------------------------------------------------------------------
Cash and due from banks at end of period $ 2,222 $ 1,616
--------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
Supplemental Interest paid $512 $509
disclosures Net income taxes paid 217 162
- ---------------------------------------------------------------------------------------------------------------------
See accompanying Notes to Financial Statements.
</TABLE>
42
<PAGE> 44
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
Mellon Bank Corporation (and its subsidiaries)
<TABLE>
<CAPTION>
Nine months ended
September 30,
(dollar amounts in millions, except per share amounts) 1994 1993
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Shareholders' equity Balance at beginning of period $4,138 $3,337
Net income 392 322
Issuance of 6,812,500 shares of common
stock, net of issuance costs - 344
Issuance of Series K preferred stock, net of
issuance costs - 193
Issuance of warrants - 37
Dividends on preferred stock:
Series B - (3)
Series D (3) (3)
Series H (13) (13)
Series I (11) (11)
Series J (6) (6)
Series K (12) (11)
Dividends on common stock (194) (90)
Common stock issued under dividend reinvestment and
common stock purchase plan 8 35
Exercise of stock options 8 9
Unrealized loss, net of tax, on assets classified as available
for sale (32) -
Exercise of warrants - 19
Purchase of treasury stock - (35)
Exercise of common stock and Series D
subscription rights - 8
Other 10 13
--------------------------------------------------------------------------------------------
Balance at end of period $4,285 $4,145
--------------------------------------------------------------------------------------------
See accompanying Notes to Financial Statements.
</TABLE>
43
<PAGE> 45
NOTES TO FINANCIAL STATEMENTS
Note 1 -- Basis of presentation
On August 24, 1994, the Corporation merged with The Dreyfus
Corporation. The merger was accounted for as a pooling-of-
interests. The financial information for all prior periods have
been restated to present the combined balance sheet and results of
operations of both companies as if the merger had been in effect
for all periods presented. Further information pertaining to the
merger is presented in Note 3 -- Merger with The Dreyfus
Corporation.
All per common share and average common share information has been
restated for the three-for-two common stock split effective
November 15, 1994.
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 and Dreyfus' 1993 Annual Reports 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 immaterial to operating
expense in the third quarter of 1994, but resulted in an
approximately $1 million increase in operating expense and a
reduction in primary net income per common share, on a post-stock
split basis, of approximately $.01 in the first nine months of
1994.
At September 30, 1994, the adjustments to fair value required by
FAS No. 115 were unrealized losses of $29 million on securities
available for sale and $20 million on loans with a corresponding
reduction in shareholders' equity of $32 million net of tax. The
reduction in loans related to the valuation of approximately $159
million (carrying value before adjustment) of Mexican Brady bonds.
Implementation of Interpretation No. 39 increased the Corporation's
assets and liabilities by $197 million at September 30, 1994.
Note 3 -- Merger with The Dreyfus Corporation
On August 24, 1994, the Corporation merged with The Dreyfus
Corporation, a mutual fund company that employs approximately 2,000
people and is headquartered in New York City. The transaction was
accounted for under the pooling- of-interests method of accounting.
As provided for in the merger agreement, each share of Dreyfus
common stock was converted into 0.88017 shares of the Corporation's
common stock, resulting in 32.2 million shares of the Corporation's
common stock being issued.
In accordance with the pooling-of-interests method of accounting,
the Corporation's financial statements have been restated for all
periods presented to reflect the results of Dreyfus. Operating
results for the Corporation and Dreyfus for the six months ended
June 30, 1994, and three and nine months ended September 30, 1993,
prior to restatement, are presented on the following page.
44
<PAGE> 46
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Note 3 -- Merger with The Dreyfus Corporation (continued)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
Six months ended Three months ended Nine months ended
(in millions) June 30, 1994 September 30, 1993 September 30, 1993
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
The Corporation
Total revenue $1,398 $ 671 $1,902
Net income $ 265 $ 114 $ 247
- -----------------------------------------------------------------------------------------------------------------------
Dreyfus
Total revenue $ 191 $ 98 $ 283
Net income $ 49 $ 25 $ 75
- -----------------------------------------------------------------------------------------------------------------------
Combined
Total revenue $1,589 $ 769 $2,185
Net income $ 314 $ 139 $ 322
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
Note 4 -- Securities
SECURITIES AVAILABLE FOR SALE
<TABLE>
<CAPTION>
SEPTEMBER 30, 1994 September 30, 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 $1,138 $ - $ - $1,138 $ 768 $ 4 $ - $ 772
U.S. agency mortgage-backed 534 1 33 502 167 3 - 170
Other U.S. agency 1,090 - - 1,090 1,702 - - 1,702
- ----------------------------------------------------------------------------------------------------------------------
Total U.S. Treasury
and agency securities 2,762 1 33 2,730 2,637 7 - 2,644
Other mortgage-backed 10 - - 10 26 - - 26
Other securities 104 4 1 107 77 2 - 79
- ----------------------------------------------------------------------------------------------------------------------
Total securities available for sale $2,876 $ 5 $34 $2,847 $2,740 $ 9 $ - $2,749
- ----------------------------------------------------------------------------------------------------------------------
<FN>
Note: Gross realized gains were $1 million and $14 million in the third
quarter and first nine months of 1994, respectively. Gross realized
losses were $16 million and $19 million in the third quarter and first
nine months of 1994, respectively. Gross realized gains on the sale of
securities available for sale were $87 million in the first nine months
of 1993. Proceeds from the sale of securities available for sale totaled
$1.509 billion and $2.370 billion in the third quarter and first nine
months of 1994, respectively. Proceeds from the sale of securities
available for sale totaled $2.642 billion and $8.700 billion in the third
quarter and first nine months of 1993, respectively. At September 30,
1994, net unrealized losses of $29 million is recorded in shareholders'
equity, net of its tax effect, in accordance with FAS No. 115.
</TABLE>
INVESTMENT SECURITIES
<TABLE>
<CAPTION>
SEPTEMBER 30, 1994 September 30, 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 $ 43 $ - $ 1 $ 42 $ 30 $ - $ - $ 30
U.S. agency mortgage-backed 3,023 2 172 2,853 1,792 69 - 1,861
Other U.S. agency 4 - - 4 - - - -
- ----------------------------------------------------------------------------------------------------------------------
Total U.S. Treasury
and agency securities 3,070 2 173 2,899 1,822 69 - 1,891
Other mortgage-backed 52 - - 52 122 - - 122
Other investment securities 179 1 1 179 424 13 6 431
- ----------------------------------------------------------------------------------------------------------------------
Total investment securities $ 3,301 $ 3 $ 174 $ 3,130 $2,368 $ 82 $ 6 $2,444
- ----------------------------------------------------------------------------------------------------------------------
<FN>
Note: There were no sales of investment securities during the third
quarter and first nine months of 1994. Gross realized gains were $7
million and $29 million in the third quarter and first nine months of
1993, respectively. Gross realized losses were $26 million in the first
nine months of 1993. Proceeds from the sale of securities totaled $77
million and $641 million in the third quarter and first nine months of
1993, respectively.
</TABLE>
45
<PAGE> 47
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Note 5 -- Other assets
<TABLE>
<CAPTION>
SEPT. 30, Dec. 31, Sept. 30,
(in millions) 1994 1993 1993
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Prepaid expense $ 303 $ 284 $ 296
Interest receivable 195 156 151
Accounts receivable 184 147 180
Receivables related to
off-balance-sheet instruments 197 - -
Other 896 900 607
- ----------------------------------------------------------------------------------------------------------------------
Total other assets $1,775 $1,487 $1,234
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
Note 6 -- Preferred stock
The following table summarizes the Corporation's preferred stock outstanding at
September 30, 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 SEPT. 30, Dec. 31, Sept. 30,
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)(a) 1 - - - 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 8,000,000 193 193 193
---- ---- ----
Total preferred stock $590 $592 $660
==== ==== ====
- ----------------------------------------------------------------------------------------------------------------------
<FN>
(a) The Series D junior convertible preferred stock was converted to common
stock in the third quarter of 1994.
</TABLE>
46
<PAGE> 48
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>
---------------------------------------------------------------
Nine months ended
September 30,
(in millions) 1994 1993
----------------------------------------------------------------
<S> <C> <C>
Net transfers to real estate acquired $ 11 $ 27
Purchase of The Boston Company:
Fair value of noncash assets acquired - 7,338
Liabilities assumed - (6,052)
Stock issued - (115)
Warrants issued - (37)
----- ------
Net cash paid - 1,134
Purchase of U.S. Bancorp Mortgage Company:
Fair value of noncash assets acquired 154 -
Liabilities assumed - -
----- ------
Net cash paid 154 -
Purchase of Glendale Bancorporation:
Fair value of noncash assets acquired 236 -
Liabilities assumed (223) -
---- ------
Net cash paid 13 -
Net transfers to segregated assets 3 147
------------------------------------------------------------
</TABLE>
Note 8 -- 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.
47
<PAGE> 49
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Note 9 -- Computation of primary and fully diluted net income per common share
<TABLE>
<CAPTION>
Three months ended Nine months ended
(dollar amounts in millions, except per September 30, September 30,
share amounts; common shares in thousands) 1994 1993 1994 1993
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PRIMARY NET INCOME PER COMMON SHARE
Net income applicable to common stock (a) $ 64 $ 124 $ 351 $ 278
- ----------------------------------------------------------------------------------------------------------------------
Stock and stock equivalents (average shares)(b):
Common shares outstanding 145,591 143,610 144,355 140,852
Common shares issuable upon conversion
of Series D preferred stock 1,692 2,469 2,263 2,430
Other common stock equivalents, net of shares
assumed to be repurchased under the treasury
stock method:
Stock options 2,012 2,474 2,086 2,536
Warrants 597 508 543 406
Common stock subscription rights - 126 - 185
Series D preferred stock subscription rights 1 51 1 74
- ----------------------------------------------------------------------------------------------------------------------
Total stock and stock equivalents 149,893 149,238 149,248 146,483
- ----------------------------------------------------------------------------------------------------------------------
Primary net income per common share (c) $ .42 $ .83 $ 2.35 $ 1.89
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
FULLY DILUTED NET INCOME PER COMMON SHARE
<TABLE>
<S> <C> <C> <C> <C>
Net income applicable to common stock (a) $ 64 $124 $351 $278
- ----------------------------------------------------------------------------------------------------------------------
Stock, stock equivalents and potentially
dilutive items (average shares)(b):
Common shares outstanding 145,591 143,610 144,355 140,852
Common shares issuable upon conversion of
Series D preferred stock 1,692 2,469 2,263 2,430
Other common stock equivalents, net of shares
assumed to be repurchased under the treasury
stock method 2,612 3,201 2,632 3,251
7 1/4% Convertible Subordinated Capital Notes 133 135 134 137
- ----------------------------------------------------------------------------------------------------------------------
Total stock, stock equivalents
and other dilutive items 150,028 149,415 149,384 146,670
- ----------------------------------------------------------------------------------------------------------------------
Fully diluted net income per common share (c) $ .42 $ .83 $2.35 $1.89
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
See footnotes on following page.
48
<PAGE> 50
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Note 9 -- 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 both
the third quarter of 1994 and 1993, and $4 million and $3 million in the
first nine months of 1994 and 1993, respectively. The after-tax benefit
of interest expense on assumed conversion of the 7 1/4% Convertible
Subordinated Capital Notes was less than $1 million for all periods shown.
(b) Common share amounts have been restated to reflect a three-for-two common
stock split declared September 20, 1994, payable November 15, 1994.
(c) Calculated based on unrounded numbers.
49
<PAGE> 51
CONSOLIDATED BALANCE SHEET -- AVERAGE BALANCES AND INTEREST YIELDS/RATES
<TABLE>
<CAPTION>
Nine months ended
------------------------------------------------------
SEPT. 30, 1994 Sept. 30, 1993
AVERAGE AVERAGE Average Average
(dollar amounts in millions) BALANCE YIELDS/RATES balance yields/rates
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Assets Interest-earning assets:
Interest-bearing deposits with banks $ 865 4.06% $ 1,723 3.61%
Federal funds sold and securities purchased
under agreements to resell 772 3.60 1,876 3.01
Other money market investments 169 3.74 459 3.74
Trading account securities 413 6.05 290 5.89
Securities:
U.S. Treasury and agency securities 4,673 5.64 4,092 5.61
Obligations of states and political
subdivisions 114 7.22 176 6.72
Other 391 4.36 516 4.61
Loans, net of unearned discount 24,658 7.47 21,269 7.45
------ ------
Total interest-earning assets 32,055 6.94% 30,401 6.58%
Cash and due from banks 2,395 2,115
Customers' acceptance liability 139 133
Premises and equipment 530 513
Net acquired property 118 214
Other assets 3,250 2,458
Reserve for credit losses (612) (554)
--------------------------------------------------------------------------------------------------------
Total assets $37,875 $35,280
- -------------------------------------------------------------------------------------------------------------------------
Liabilities Interest-bearing liabilities:
and Deposits in domestic offices:
shareholders' Demand (a) $ 2,159 (.20)% $ 2,006 .15%
equity Money market and other savings accounts 9,613 1.84 8,458 1.71
Retail savings certificates 6,586 3.46 7,746 3.21
Other time deposits 272 6.24 409 5.75
Deposits in foreign offices 1,710 4.02 1,000 4.01
------- ------
Total interest-bearing deposits 20,340 2.39 19,619 2.35
Federal funds purchased and securities sold
under agreements to repurchase 1,582 3.88 1,077 3.07
U.S. Treasury tax and loan demand notes 603 3.67 225 2.84
Commercial paper 144 4.00 218 3.24
Other funds borrowed 625 7.28 604 6.09
Notes and debentures (with original maturities
over one year) 1,834 6.04 1,981 6.23
------- ------
Total interest-bearing liabilities 25,128 2.91% 23,724 2.81%
Total noninterest-bearing deposits 6,904 6,598
Acceptances outstanding 139 135
Other liabilities 1,440 919
--------------------------------------------------------------------------------------------------------
Total liabilities 33,611 31,376
--------------------------------------------------------------------------------------------------------
Shareholders' equity 4,264 3,904
--------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $37,875 $35,280
- -------------------------------------------------------------------------------------------------------------------------
Rates Yield on total interest-earning assets 6.94% 6.58%
Cost of funds supporting interest-earning assets 2.28% 2.19%
-----------------------------------------------------------------------------------------------------
Net interest margin:
Taxable equivalent basis 4.66% 4.39%
Without taxable equivalent increments 4.62% 4.33%
-----------------------------------------------------------------------------------------------------
<FN>
(a) In the first nine months 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>
50
<PAGE> 52
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
Three months ended
- ---------------------------------------------------------------------------------------------------------------------------
SEPT. 30, 1994 June 30, 1994 March 31, 1994 Dec. 31, 1993 Sept. 30, 1993
AVERAGE AVERAGE Average Average Average Average Average Average Average Average
BALANCE YIELDS/RATES balance yields/rates balance yields/rates balance yields/rates balance yields/rates
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 670 4.58% $ 893 4.08% $ 1,033 3.68% $ 1,203 3.66% $ 1,853 3.66%
697 4.24 779 3.64 844 3.01 1,580 3.08 1,967 3.05
99 4.40 141 4.05 270 3.33 337 3.71 338 3.41
351 6.60 386 6.15 504 5.57 206 4.98 266 5.67
4,987 5.92 4,784 5.56 4,239 5.37 4,203 5.15 3,989 5.25
108 7.23 109 7.03 125 7.38 135 7.35 165 6.58
326 5.09 413 4.13 434 4.01 523 4.13 549 5.14
25,084 7.80 24,251 7.38 24,636 7.22 23,229 7.05 23,232 7.13
------ ------ ------ ------ -------
32,322 7.32% 31,756 6.85% 32,085 6.65% 31,416 6.37% 32,359 6.36%
2,253 2,381 2,554 2,333 2,121
147 132 137 133 127
541 526 523 534 541
108 116 130 150 185
3,262 3,196 3,294 2,719 2,731
(617) (610) (610) (597) (598)
- -------------------------------------------------------------------------------------------------------------------------
$38,016 $37,497 $38,113 $36,688 $37,466
- -------------------------------------------------------------------------------------------------------------------------
$ 2,162 .79% $ 2,157 (.66)% $ 2,158 (.76)% $ 2,117 (.01)% $ 2,086 .15%
9,372 2.13 9,588 1.84 9,885 1.56 9,686 1.53 9,630 1.73
6,495 3.73 6,552 3.45 6,712 3.20 6,992 3.14 7,405 3.10
165 10.77 307 4.13 347 5.91 461 6.65 477 5.87
2,265 4.33 1,685 3.97 1,167 3.50 1,096 3.57 1,108 3.77
------ ------ ------ ------ -------
20,459 2.81 20,289 2.31 20,269 2.04 20,352 2.15 20,706 2.26
2,039 4.45 1,406 3.83 1,293 3.01 1,150 2.85 1,215 3.09
528 4.35 689 3.69 594 3.03 222 2.86 240 2.91
181 4.53 138 3.88 111 3.26 139 3.11 195 3.23
776 7.36 476 7.86 619 6.71 365 7.25 733 5.56
1,618 6.52 1,924 5.92 1,965 5.77 2,019 5.66 2,124 5.76
------ ------ ------ ------ -------
25,601 3.35% 24,922 2.83% 24,851 2.53% 24,247 2.56% 25,213 2.71%
6,504 6,700 7,521 7,151 7,070
147 132 137 133 128
1,418 1,483 1,419 1,016 975
- -------------------------------------------------------------------------------------------------------------------------
33,670 33,237 33,928 32,547 33,386
- -------------------------------------------------------------------------------------------------------------------------
4,346 4,260 4,185 4,141 4,080
- -------------------------------------------------------------------------------------------------------------------------
$38,016 $37,497 $38,113 $36,688 $37,466
- -------------------------------------------------------------------------------------------------------------------------
7.32% 6.85% 6.65% 6.37% 6.36%
2.66% 2.22% 1.96% 1.98% 2.11%
- ------------------------------------------------------------------------------------------------------------------------
4.66% 4.63% 4.69% 4.39% 4.25%
4.62% 4.59% 4.64% 4.34% 4.20%
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
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.
51
<PAGE> 53
SELECTED STATISTICAL INFORMATION
COMPOSITION OF LOAN PORTFOLIO
Mellon Bank Corporation (and its subsidiaries)
<TABLE>
<CAPTION>
SEPT. 30, June 30, March 31, Dec. 31, Sept. 30,
(in millions) 1994 1994 1994 1993 1993
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
DOMESTIC LOANS
Commercial and financial $ 9,903 (a) $ 9,339 $ 9,199 $ 9,091 $ 8,020
- ----------------------------------------------------------------------------------------------------------------------
Commercial real estate 1,608 (b) 1,622 1,638 1,721 1,718
- ----------------------------------------------------------------------------------------------------------------------
Consumer credit:
Consumer mortgage 8,503 8,156 8,166 8,191 8,258
Credit card 1,985 1,666 1,485 1,441 1,365
Other consumer credit 2,418 2,378 2,481 2,372 2,314
- ----------------------------------------------------------------------------------------------------------------------
Total consumer credit 12,906 12,200 12,132 12,004 11,937
- ----------------------------------------------------------------------------------------------------------------------
Lease finance assets 744 704 715 718 709
- ----------------------------------------------------------------------------------------------------------------------
Total domestic loans 25,161 23,865 23,684 23,534 22,384
- ----------------------------------------------------------------------------------------------------------------------
INTERNATIONAL LOANS 851 866 853 950 1,088
- ----------------------------------------------------------------------------------------------------------------------
Total loans, net of unearned discount (c) $26,012 $24,731 $24,537 $24,484 $23,472
- ----------------------------------------------------------------------------------------------------------------------
<FN>
(a) Includes $36 million of FDIC loss share loans.
(b) Includes $157 million of FDIC loss share loans. Includes $515 million
of loans secured by owner-occupied commercial real estate but not made
for the purpose of real estate construction or financing.
(c) Excludes segregated assets.
</TABLE>
DEPOSITS
Mellon Bank Corporation (and its subsidiaries)
<TABLE>
<CAPTION>
SEPT. 30, June 30, March 31, Dec. 31, Sept. 30,
(in millions) 1994 1994 1994 1993 1993
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Deposits in domestic offices:
Interest-bearing:
NOW accounts $ 2,121 $ 2,175 $ 2,175 $ 2,196 $ 2,050
Money market and other savings accounts 9,391 9,601 9,783 10,031 9,495
Retail savings certificates 6,566 6,513 6,610 6,813 7,187
Other time deposits 166 280 345 435 481
- ----------------------------------------------------------------------------------------------------------------------
Total interest-bearing 18,244 18,569 18,913 19,475 19,213
Noninterest-bearing 5,728 5,772 6,275 6,906 6,000
- ----------------------------------------------------------------------------------------------------------------------
Total deposits in domestic offices 23,972 24,341 25,188 26,381 25,213
- ----------------------------------------------------------------------------------------------------------------------
Deposits in foreign offices 3,160 1,867 1,598 1,183 1,120
- ----------------------------------------------------------------------------------------------------------------------
Total deposits $27,132 $26,208 $26,786 $27,564 $26,333
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
52
<PAGE> 54
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 was 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. All parties
petitioned the Supreme Court of Colorado for review. On September 29, 1994, the
parties entered into a settlement agreement regarding all aspects of this
litigation, and on October 4, 1994, the suit was dismissed. The terms of
settlement did not have a material adverse effect on the Corporation's
financial condition.
Subsequent to the announcement of the merger with Dreyfus but prior to its
consummation, 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
five of the cases) the Corporation as defendants. In those complaints, the
plaintiffs, among other things, objected to the terms of the proposed merger
and sought injunctive relief against its consummation, as well as compensatory
and punitive damages. The Corporation believes that these complaints lack
merit.
53
<PAGE> 55
PART II - OTHER INFORMATION (CONTINUED)
Item 4. Submission of Matters to a Vote of Security Holders
At the Corporation's special meeting of shareholders held on August 23, 1994,
for which proxies were solicited pursuant to Regulation 14 under the Securities
Exchange Act of 1934, the following matter was voted upon by shareholders. The
same matter was voted upon by Shareholders of The Dreyfus Corporation at a
special meeting held on August 23, 1994.
Approval of the Amended and Restated Agreement and Plan of Merger dated as of
December 5, 1993, by and among The Dreyfus Corporation ("Dreyfus"), Mellon Bank
Corporation (the "Corporation"), Mellon Bank, N.A. ("Mellon Bank"), and XYZ Sub
Corporation, a wholly owned subsidiary of Mellon Bank ("Merger Subsidiary"),
pursuant to which Merger Subsidiary would be merged with and into Dreyfus, and
Dreyfus would become a wholly owned subsidiary of Mellon Bank and an indirect
wholly owned subsidiary of the Corporation (the "Merger").
<TABLE>
<CAPTION>
Mellon Bank Corporation Shareholder Voting Results
<S> <C>
For 54,812,228
Against 1,167,777
Abstain 115,708
</TABLE>
Abstentions and broker non-votes are not counted for voting purposes under
Pennsylvania law, the jurisdiction of the Corporation's incorporation.
<TABLE>
<CAPTION>
The Dreyfus Corporation Shareholder Voting Results
<S> <C>
For 30,748,948
Against 697,950
Abstain 114,571
</TABLE>
Abstentions and broker non-votes are not counted for voting purposes under New
York law, the jurisdiction of Dreyfus' incorporation.
54
<PAGE> 56
PART II - OTHER INFORMATION (CONTINUED)
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
10.1 First Amendment to the Employment Agreement dated as of July 25, 1993
between Mellon Bank, N.A. and W. Keith Smith. (Management contract
or compensatory plan arrangement.)
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 third quarter of 1994, the Corporation filed the following
Current Reports on Form 8-K:
(1) A report dated July 15, 1994, which included, under Items 5 and 7, the
unaudited pro forma condensed income statement of the Corporation and
The Boston Company (TBC) for the full year of 1993 as if the
Corporation's acquisition of TBC had been effective January 1, 1993.
(2) A report dated July 19, 1994, which included, under Item 7, the
Corporation's press release regarding second quarter and first six
months 1994 financial results.
(3) A report dated August 24, 1994, which included, under Items 2 and 7,
the Corporation's press release announcing the merger with The Dreyfus
Corporation.
(4) A report dated September 20, 1994, which included, under Item 5, the
Corporation's press release announcing the increase in the
Corporation's common stock dividend and a three-for-two split of the
Corporation's common stock.
55
<PAGE> 57
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: November 10, 1994 By: Steven G. Elliott
----------------------
Steven G. Elliott
Vice Chairman,
Chief Financial Officer
and Treasurer
(Duly Authorized Officer and
Principal Financial Officer of
the Registrant)
56
<PAGE> 58
CORPORATE INFORMATION
<TABLE>
<S> <C>
Business Mellon Bank Corporation is a multibank holding company incorporated under the laws of
of the Pennsylvania and registered under the federal Bank Holding Company Act. Its principal
Corporation 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 Dreyfus Corporation, one
of the nation's largest mutual fund companies, is a wholly owned subsidiary of Mellon Bank, N.A. The Corporation's
banking subsidiaries engage in retail banking, commercial banking, trust and investment management services,
residential real estate loan financing, mortgage servicing and various securities-related activities. The Mellon
Financial Services Corporations and their subsidiaries provide commercial financial services, engage in leasing and
originate commercial loans, and provide cash management, stock transfer and trust and investment management
services. The Corporation's principal executive office is located at One Mellon Bank Center, 500 Grant Street,
Pittsburgh, PA, 15258-0001 (Telephone: 412-234-5000).
Exchange Mellon Bank Corporation's common, Series H preferred, Series I preferred, Series J
listing 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 paid on Mellon Bank
payments 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 Plan, registered holders
Reinvestment of Mellon Bank Corporation's common stock may purchase additional common shares at
and Common market value without brokerage commissions through reinvestment of common dividends
Stock Pur- and/or optional cash payments. Purchases of shares through optional cash payments are
chase Plan 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
</TABLE>
57
<PAGE> 59
Index to Exhibits
<TABLE>
<CAPTION>
Exhibit No. Description
----------------- ------------------------------------------------------------
<S> <C>
10.1 First Amendment to the Employment Agreement
dated as of July 25, 1993 between Mellon
Bank, N.A. and W. Keith Smith
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).
27 Financial Data Schedule
</TABLE>
58
<PAGE> 1
EX-10.1
FIRST AMENDMENT
TO THE
EMPLOYMENT AGREEMENT DATED AS OF JULY 25, 1993
BETWEEN MELLON BANK, N.A. AND W. KEITH SMITH
THIS AGREEMENT, dated as of August 1, 1994, by and between
Mellon Bank, N.A. (the "Company"), a national banking association,
and W. Keith Smith (the "Executive").
W I T N E S S E T H
- - - - - - - - - -
WHEREAS, the parties hereto have entered into an employment
agreement, dated as of July 25, 1993 (the "Employment Agreement")
which sets forth the terms and conditions with respect to the
employment of Executive by the Company; and
WHEREAS, the Company and Executive agree that it is in
their mutual interest to amend the Employment Agreement as
hereinafter set forth;
NOW, THEREFORE, in consideration of the covenants and
agreements herein contained and in the Employment Agreement, the
parties hereto, intending to be legally bound, hereby agree to amend
the Employment Agreement as follows:
1. Section 5(d) of the Employment Agreement is amended
and restated as follows:
"Section 5(d). For purposes of calculating
benefits accruing to the Executive under any
severance program now or hereafter in effect for
employees of the Holding Company or any of its
subsidiaries, the Executive has been granted and
has been vested in a credit for 8 years of past
service to the Company, its subsidiaries and
affiliates, such credit to be added to any years
of actual service that the Executive shall have
accrued prior to severance. In addition, under
Paragraph 7 (a)(ii) of this Agreement, on and
after August 1, 1994 the Executive may earn and
become vested in up to an additional 5 years of
service for the purpose of calculating severance
benefits.
2. Section 7(a) of the Employment Agreement is
amended and restated to read as follows:
Section 7(a) Past Service Credit.
(i) For purposes of calculating benefits
accruing to the Executive under the Mellon Bank
Retirement Plan or any successor plan (the
"Retirement Plan") and all related excess benefit
and other benefit restoration plans maintained by
the Company, the Executive has been granted a
credit for 8 years of past service to the
59
<PAGE> 2
Company, such credit to be added to any years of
actual service with the Company and the Holding
Company or their subsidiaries and affiliates that
the Executive shall have accrued upon his
retirement. The Executive has been and shall be
considered to be fully vested in such additional
years of service for all purposes under the
Retirement Plan and all related excess benefit
and other benefit restoration plans maintained by
the Company.
(ii) The Executive may also earn and be
granted upon his retirement an additional credit
for up to 5 years of service. Such service
credit shall be added to the above past service
credit and to the years of service with the
Company and the Holding Company and their
subsidiaries and affiliates that the Executive
shall have accrued upon his retirement for the
purposes of calculating benefits under the
Retirement Plan and all related excess benefit
and other benefit restoration plans maintained by
the Company. The service credit granted to the
Executive under this Paragraph (ii) shall equal 5
times a fraction whose numerator equals (A) and
whose denominator equals (B), where:
(A) is the Executive's actual months of
service with the Company and the Holding
Company and their subsidiaries and
affiliates after August 1, 1994 through the
date of his retirement (but not to exceed 63
months); and
(B) is 63.
This additional service credit will continue to
be earned after the end of the Term; provided,
that the Executive continues to be employed by
the Company or Holding Company or their
subsidiaries or affiliates.
2. This Amendment shall be effective as of August 1,
1994, and except as otherwise amended hereby, the Employment
Agreement shall remain in full force and effect.
Mellon Bank, N.A.
Attest: JAMES M. GOCKLEY By: FRANK V. CAHOUET
---------------------- -------------------------
James M. Gockley Frank V. Cahouet
Assistant Secretary Chairman, President and
Chief Executive Officer
W. KEITH SMITH
-----------------------------
W. Keith Smith
60
<PAGE> 1
EX-12.1
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES AND RATIO
OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
Mellon Bank Corporation (parent Corporation) (a)
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
(dollar amounts in thousands) 1994 1993 1994 1993
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Income before income taxes and equity in
undistributed net income (loss) of subsidiaries 195,584 $65,184 $315,144 $215,408
Fixed charges: interest expense, one-third of
rental expense net of income from subleases,
and amortization of debt issuance costs 22,829 26,620 72,244 84,182
- ------------------------------------------------------------------------------------------------------------------
Total earnings (as defined) $218,413 $91,804 $387,388 $299,590
- ------------------------------------------------------------------------------------------------------------------
Preferred stock dividend requirements (b) $ 26,464 $24,730 $ 76,475 $ 78,227
- ------------------------------------------------------------------------------------------------------------------
Ratio of earnings (as defined) to fixed charges 9.57 3.45 5.36 3.56
Ratio of earnings (as defined) to combined fixed
charges and preferred stock dividends 4.43 1.79 2.60 1.84
- ------------------------------------------------------------------------------------------------------------------
<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.
</TABLE>
61
<PAGE> 1
EX-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>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
(dollar amounts in thousands) 1994 1993 1994 1993
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Income before income taxes $150,364 $218,833 $ 661,095 $ 534,769
Fixed charges: interest expense (excluding
interest on deposits), one-third of rental
expense net of income from subleases, and
amortization of debt issuance costs 81,547 64,202 212,833 181,930
- ----------------------------------------------------------------------------------------------------------------------
Total earnings (as defined), excluding
interest on deposits 231,911 283,035 873,928 716,699
Interest on deposits 144,720 118,197 363,433 344,154
- ----------------------------------------------------------------------------------------------------------------------
Total earnings (as defined) $376,631 $401,232 $1,237,361 $1,060,853
- ----------------------------------------------------------------------------------------------------------------------
Preferred stock dividend requirements (a) $ 26,464 $ 24,730 $ 76,475 $ 78,227
- ----------------------------------------------------------------------------------------------------------------------
Ratio of earnings (as defined) to fixed charges:
Excluding interest on deposits 2.84 4.41 4.11 3.94
Including interest on deposits 1.66 2.20 2.15 2.02
Ratio of earnings (as defined) to combined
fixed charges and preferred stock dividends:
Excluding interest on deposits 2.15 3.18 3.02 2.75
Including interest on deposits 1.49 1.94 1.90 1.76
- ----------------------------------------------------------------------------------------------------------------------
<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>
62
<TABLE> <S> <C>
<ARTICLE> 9
<CIK> 0000064782
<NAME> MELLON BANK CORP
<MULTIPLIER> 1,000,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1994
<PERIOD-END> SEP-30-1994
<EXCHANGE-RATE> 1
<CASH> 2,222
<INT-BEARING-DEPOSITS> 472
<FED-FUNDS-SOLD> 513
<TRADING-ASSETS> 310
<INVESTMENTS-HELD-FOR-SALE> 2,847
<INVESTMENTS-CARRYING> 3,301
<INVESTMENTS-MARKET> 3,130
<LOANS> 26,012
<ALLOWANCE> (611)
<TOTAL-ASSETS> 39,251
<DEPOSITS> 27,132
<SHORT-TERM> 4,515
<LIABILITIES-OTHER> 1,747
<LONG-TERM> 1,572
<COMMON> 73
0
590
<OTHER-SE> 3,622
<TOTAL-LIABILITIES-AND-EQUITY> 39,251
<INTEREST-LOAN> 1,371
<INTEREST-INVEST> 213
<INTEREST-OTHER> 51
<INTEREST-TOTAL> 1,654
<INTEREST-DEPOSIT> 363
<INTEREST-EXPENSE> 547
<INTEREST-INCOME-NET> 1,107
<LOAN-LOSSES> 55
<SECURITIES-GAINS> (5)
<EXPENSE-OTHER> 1,633
<INCOME-PRETAX> 661
<INCOME-PRE-EXTRAORDINARY> 661
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 392
<EPS-PRIMARY> $2.35
<EPS-DILUTED> $2.35
<YIELD-ACTUAL> 4.66
<LOANS-NON> 156
<LOANS-PAST> 125
<LOANS-TROUBLED> 12
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> (600)
<CHARGE-OFFS> 104
<RECOVERIES> 57
<ALLOWANCE-CLOSE> 611
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
