<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
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FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 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.
Outstanding as of
Class June 30, 1994
------ -------------------
Common Stock, $0.50 par value 63,829,481
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<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 Balance Sheet 37
Consolidated Income Statement 38
Consolidated Statement of Cash Flows 40
Consolidated Statement of Changes in Shareholders' Equity 42
Notes to Financial Statements 43
Selected Statistical Information:
Consolidated Balance Sheet - Average Balances and Interest Yields/Rates 48
Composition of Loan Portfolio 50
Deposits 50
Part II - Other Information
- ---------------------------
Legal Proceedings (Item 1) 51
Submission of Matters to a Vote of Security Holders (Item 4) 52
Exhibits and Reports on Form 8-K (Item 6) 53
Signature 54
Corporate Information 55
Index to Exhibits 56
</TABLE>
<PAGE> 3
<TABLE>
_______________________________________________________________________________________________________________________
FINANCIAL HIGHLIGHTS
<CAPTION>
Three months Six months
(dollar amounts in millions, ended June 30, ended June 30,
except per share amounts) 1994 1993 1994 1993
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net income $ 134 $ 99 $ 265 $ 133
Net income applicable to common stock 119 83 235 102
Dividends on common stock 35 23 71 46
Per common share:
Net income $ 1.80 $ 1.32 $ 3.57 $ 1.63
Dividends .56 .38 1.12 .76
Annualized return on common shareholders' equity 17.04% 13.69% 17.14% 8.71%
Annualized return on assets 1.47% 1.16% 1.45% .80%
Efficiency ratio:
Including amortization of intangibles 66% 63% 67% 62%
Excluding amortization of intangibles (a) 63% 60% 63% 59%
Average common shares and equivalents
outstanding (In thousands) 66,633 65,031 66,458 63,645
- -----------------------------------------------------------------------------------------------------------------------
RESULTS EXCLUDING CERTAIN ITEMS (B)
Net income $ 134 $ 99 $ 265 $ 192
Net income applicable to common stock 119 83 235 161
Net income per common share $ 1.80 $ 1.32 $ 3.57 $ 2.59
Annualized return on common shareholders' equity 17.04% 13.69% 17.14% 13.60%
Annualized return on assets 1.47% 1.16% 1.45% 1.16%
- -----------------------------------------------------------------------------------------------------------------------
1994 1993
- -----------------------------------------------------------------------------------------------------------------------
BALANCES AT JUNE 30
Loans $24,726 $23,844
Total assets 36,974 36,166
Deposits 26,183 27,307
Common shareholders' equity 2,867 2,586
Book value per common share (c) $ 43.75 $ 39.81
Common shareholders' equity to assets ratio 7.75% 7.15%
Tier I capital ratio 7.90% 7.42%
Total (Tier I plus Tier II) capital ratio 11.41% 10.63%
Leverage capital ratio 7.38% 6.99%
_______________________________________________________________________________________________________________________
<FN>
Note: Throughout this report, ratios are based on unrounded numbers and
factors contributing to changes between periods are noted in descending order of
materiality.
(a) Excludes amortization of goodwill, core deposit and other identified
intangibles recorded in connection with acquisitions.
(b) Results for the first half of 1993 exclude $112 million after-tax in
merger expenses and $53 million in after-tax gains on the sale of
securities related to the Corporation's acquisition of The Boston
Company.
(c) Book value per common share assumes full conversion of the Series D
preferred stock to common stock. Accordingly, this includes the
additional paid-in capital on the Series D preferred stock because this
paid-in capital has no liquidation preference over the common stock.
</TABLE>
2
<PAGE> 4
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
________________________________________________________________________________
The Corporation recorded a 36% increase in earnings per common share on a 35%
increase in net income in the second quarter of 1994 compared with the second
quarter of 1993. Net income was $134 million, or $1.80 per common share, in
the second quarter of 1994. The annualized return on common shareholders'
equity and return on assets were 17.04% and 1.47%, respectively, for the
quarter. The Corporation's net income and earnings per common share in the
second quarter of 1993 were $99 million and $1.32 per common share,
respectively. The annualized return on common shareholders' equity and return
on assets were 13.69% and 1.16%, respectively, in the second quarter of 1993.
Compared with the same period a year ago, results in the second quarter of 1994
reflected increases in net interest and fee revenue and a lower provision for
credit losses, offset in part by higher operating expenses.
INCOME STATEMENT HIGHLIGHTS
________________________________________________________________________________
<TABLE>
<CAPTION>
Three months ended
June 30, Inc (Dec)
----------------------- -----------------------
(dollar amounts in millions) 1994 1993 Amount Percent
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net interest revenue (taxable
equivalent basis) $359 $317 $ 42 14%
Provision for credit losses 20 35 (15) (43)
Fee revenue 336 281 55 20
Operating expense 456 391 65 16
Provision for income taxes 83 70 13 20
Net income 134 99 35 35
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Net interest revenue was $357 million in the second quarter of 1994, up 14%
from $314 million in the second quarter of 1993. The increase in net interest
revenue was primarily attributable to the Corporation's 1993 acquisitions of
The Boston Company and AFCO Credit Corporation (AFCO), which were accounted for
under the purchase method of accounting. Fee revenue was $336 million, up 20%
from $281 million in the prior- year period, primarily reflecting an increase
of $67 million of fee revenue attributable to The Boston Company acquisition
completed in May 1993. Also impacting fee revenue was the approximately $25
million reduction in fee revenue resulting from the divestiture of three
fee-based businesses.
The provision for credit losses was $20 million in the second quarter of 1994,
down $15 million from the prior-year period. Net credit losses were $14
million, down $26 million from a year earlier, reflecting continuing
improvement in the credit quality of the loan portfolio. Nonperforming assets
totaled $264 million at June 30, 1994, representing the lowest level in twelve
years. Nonperforming assets were $314 million at March 31, 1994, and $478
million at June 30, 1993. At June 30, 1994, the Corporation's ratio of
nonperforming assets to total loans and net acquired property was 1.06%,
compared with 1.27% and 1.99% at March 31, 1994 and June 30, 1993,
respectively.
Operating expense for the second quarter of 1994 was $456 million, compared to
$391 million in the second quarter of 1993. The increase was primarily due to
the impact of acquisitions, higher marketing expense related to the
introduction of the Corporation's CornerStone(sm) credit card product
introduced during the first quarter, as well as increased expense in support
of revenue growth.
3
<PAGE> 5
PENDING MERGER WITH THE DREYFUS CORPORATION
In December 1993, the Corporation entered into a definitive agreement to merge
with The Dreyfus Corporation (Dreyfus). Dreyfus is the nation's sixth-largest
mutual fund company, based on assets under management, with approximately $71
billion of assets under management and administration at June 30, 1994. The
merger of the Corporation and Dreyfus is expected to create a diversified
financial services organization with annual revenues of approximately $3.2
billion, including fee revenue of about $1.7 billion. Dreyfus is headquartered
in New York City and employs approximately 2,100.
Dreyfus stockholders will receive 0.88017 shares of the Corporation's common
stock for each share of Dreyfus common stock outstanding. Dreyfus has
approximately 37 million shares outstanding. The transaction will be accounted
for under the pooling-of-interests method, with prior period financial results
restated to reflect the merger. The Corporation's capital ratios following the
merger will be approximately 200 basis points higher than the June 30, 1994
ratios. However, as a result of the approximately 33 million additional shares
of the Corporation's common stock to be issued to the Dreyfus stockholders, the
Corporation's book value per common share, on a pro forma basis, would have
been $38.03, or 13% lower, at June 30, 1994. Earnings per common share, on a
pro forma basis, would have been $1.45 and $2.89, or 19% lower, for the second
quarter and first half of 1994. In connection with the transaction, the
Corporation expects to record one-time after-tax merger expenses of
approximately $85 million at closing. Including these merger expenses and the
additional common shares to be issued to the Dreyfus stockholders, the
Corporation's book value per common share, on a pro forma basis, would have
been $37.16 at June 30, 1994.
The Corporation has received approval from all required regulatory agencies for
this proposed merger. Completion of the merger is contingent upon the approval
of the shareholders of the Corporation and Dreyfus and certain approvals by the
shareholders of the mutual funds managed, advised or administered by Dreyfus.
Following these approvals, the merger is anticipated to occur during the third
quarter of 1994.
ACQUISITION OF GLENDALE BANCORPORATION
On May 6, 1994, the Corporation entered into a definitive agreement to acquire
Glendale Bancorporation (Glendale), a bank holding company headquartered in
Voorhees, New Jersey. Upon completion of the transaction the Corporation will,
for the first time, conduct branch banking in the New Jersey suburbs of
Philadelphia. At March 31, 1994, Glendale had total assets of approximately
$250 million and deposits of approximately $230 million. The acquisition is
subject to approvals by various federal and state banking regulators, and is
expected to close as early as the end of the third quarter of 1994.
4
<PAGE> 6
<TABLE>
BUSINESS SECTORS
____________________________________________________________________________________________________________________
FOR THE THREE MONTHS ENDED JUNE 30
<CAPTION>
(dollar amounts in millions, Retail Total
averages in billions) Wholesale Banking Financial Services Service Products core sectors
1994 1993 1994 1993 1994 1993 1994 1993
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue(a) $ 89 $ 83 $ 266 $ 260 $323 $253 $ 678 $ 596
Credit quality expense 1 4 13 17 1 1 15 22
Operating expense 33 29 163 155 246 189 442 373
- --------------------------------------------------------------------------------------------------------------------
Income before taxes(a) 55 50 90 88 76 63 221 201
Income taxes(a) 20 19 33 37 35 25 88 81
- --------------------------------------------------------------------------------------------------------------------
Net income $ 35 $ 31 $ 57 $ 51 $ 41 $ 38 $ 133 $ 120
- --------------------------------------------------------------------------------------------------------------------
Average assets $11.1 $11.0 $15.3 $18.1 $7.2 $3.6 $33.6 $32.7
Average common equity $ 1.0 $ .7 $ 1.0 $ 1.0 $1.0 $ .5 $ 3.0 $ 2.2
Return on common
shareholders' equity(b) 14% 17% 22% 18% 17% 26% 18% 19%
Return on assets(b) 1.24% 1.15% 1.49% 1.13% NM NM 1.56% 1.46%
Efficiency ratio:
Including amortization of
intangibles 37% 35% 61% 60% 77% 75% 65% 63%
Excluding amortization of
intangibles(c) 37% 35% 56% 54% 73% 73% 62% 60%
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Real Estate Total all
Banking Other sectors
1994 1993 1994 1993 1994 1993
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Revenue(a) $ 11 $ 9 $ 8 $ (7) $ 697 $ 598
Credit quality expense (revenue) (3) 25 5 1 17 48
Operating expense 6 5 11 - 459 378
- ---------------------------------------------------------------------------------------------------------------------
Income (loss) before taxes(a) 8 (21) (8) (8) 221 172
Income taxes(a) 3 (7) (4) (1) 87 73
- ---------------------------------------------------------------------------------------------------------------------
Net income (loss) $ 5 $(14) $ (4) $ (7) $ 134 $ 99
- ---------------------------------------------------------------------------------------------------------------------
Average assets $1.1 $1.7 $1.9 $ - $36.6 $34.4
Average common equity $ .1 $ .2 $(.3) $ .1 $ 2.8 $ 2.5
Return on common
shareholders' equity(b) NM * NM NM 17% 14%
Return on assets(b) NM * NM NM 1.47% 1.16%
Efficiency ratio:
Including amortization of intangibles 47% 73% NM NM 66% 63%
Excluding amortization of intangibles(c) 47% 73% NM NM 63% 60%
- ---------------------------------------------------------------------------------------------------------------------
<FN>
(a) Fully taxable equivalent basis.
(b) Annualized.
(c) Excludes amortization of goodwill, core deposit and other identified
intangibles recorded in connection with acquisitions.
NM - Not a meaningful measure of performance for this sector.
* Loss
Note: The tables above present 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.
</TABLE>
5
<PAGE> 7
<TABLE>
BUSINESS SECTORS
____________________________________________________________________________________________________________________
FOR THE SIX MONTHS ENDED JUNE 30
<CAPTION>
(dollar amounts in millions, Retail Total
averages in billions) Wholesale Banking Financial Services Service Products core sectors
1994 1993 1994 1993 1994 1993 1994 1993
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue(a) $ 187 $ 167 $ 519 $ 527 $660 $447 $1,366 $1,141
Credit quality expense 1 18 32 30 1 1 34 49
Operating expense 71 61 344 304 501 334 916 699
- --------------------------------------------------------------------------------------------------------------------
Income before taxes(a) 115 88 143 193 158 112 416 393
Income taxes(a) 42 33 54 81 69 43 165 157
- --------------------------------------------------------------------------------------------------------------------
Net income $ 73 $ 55 $ 89 $ 112 $ 89 $ 69 $ 251 $ 236
- --------------------------------------------------------------------------------------------------------------------
Average assets $11.2 $11.0 $16.0 $18.1 $7.0 $2.4 $ 34.2 $ 31.5
Average common equity $ 1.0 $ .6 $ 1.0 $ 1.0 $1.0 $ .5 $ 3.0 $ 2.1
Return on common
shareholders' equity(b) 15% 15% 18% 20% 18% 28% 17% 20%
Return on assets(b) 1.33% 1.01% 1.13% 1.25% NM NM 1.48% 1.51%
Efficiency ratio:
Including amortization of
intangibles 38% 37% 66% 58% 76% 75% 67% 61%
Excluding amortization of
intangibles(c) 38% 37% 61% 52% 73% 74% 63% 58%
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Real Estate Total all
Banking Other sectors
1994 1993 1994 1993 1994 1993
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Revenue(a) $ 23 $ 21 $ 16 $ 74 $1,405 $1,236
Credit quality expense (revenue) (10) 57 5 2 29 108
Operating expense 11 13 11 174 938 886
- ---------------------------------------------------------------------------------------------------------------------
Income (loss) before taxes(a) 22 (49) - (102) 438 242
Income taxes(a) 8 (18) - (30) 173 109
- ---------------------------------------------------------------------------------------------------------------------
Net income (loss) $ 14 $(31) $ - $(72) $ 265 $ 133
- ---------------------------------------------------------------------------------------------------------------------
Average assets $1.1 $1.8 $1.6 $ - $ 36.9 $ 33.3
Average common equity $ .1 $ .2 $(.3) $ .1 $ 2.8 $ 2.4
Return on common
shareholders' equity(b) NM * NM NM 17% 9%
Return on assets(b) NM * NM NM 1.45% .80%
Efficiency ratio:
Including amortization of intangibles 45% 66% NM NM 67% 62%
Excluding amortization of intangibles(c) 45% 66% NM NM 63% 59%
- ---------------------------------------------------------------------------------------------------------------------
<FN>
(a) Fully taxable equivalent basis.
(b) Annualized.
(c) Excludes amortization of goodwill, core deposit and other identified
intangibles recorded in connection with acquisitions.
NM - Not a meaningful measure of performance for this sector.
* Loss
Note: The tables above present 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.
</TABLE>
6
<PAGE> 8
BUSINESS SECTORS (CONTINUED)
________________________________________________________________________________
Income before taxes, on a fully taxable equivalent basis, for the Corporation's
core sectors was $221 million in the second quarter of 1994, an increase of $20
million, or 10%, compared with the second quarter of 1993. The improvement
resulted primarily from the impact of The Boston Company and AFCO Credit
Corporation acquisitions and lower credit quality expense, partially offset by
higher marketing expenses related to the introduction of the Corporation's
CornerStone credit card product. Annualized return on common shareholders'
equity and return on assets for the core sectors was 18% and 1.56% in the
second quarter of 1994 compared with 19% and 1.46% in the prior-year period.
Results in the second quarter of 1994 also reflected significant improvement in
the Real Estate Banking sector primarily related to improved asset quality.
This sector had income before taxes of $8 million in the second quarter of
1994, compared to a loss before taxes of $21 million in the prior-year period.
Income before taxes, on a fully taxable equivalent basis, for the core sectors
in the first six months of 1994 totaled $416 million, up $23 million or 6%,
compared with the first six months of 1993. This improvement principally
reflected the same factors responsible for the second quarter increase.
Annualized return on common shareholders' equity and return on assets for the
core businesses were 17% and 1.48%, respectively, in the first half of 1994,
compared with 20% and 1.51%, respectively, in the first half of 1993.
WHOLESALE BANKING
Wholesale Banking includes large corporate and middle market lending,
asset-based lending and certain capital markets and leasing activities. Income
before taxes for this sector increased $5 million, or 8%, in the second quarter
of 1994, compared with the prior-year period. This improvement resulted
primarily from higher foreign currency and trading fee revenue and lower credit
quality expense reflecting continued improvement in the credit quality of the
loan portfolio. Income before taxes for the first half of 1994 totaled $115
million, an increase of $27 million, or 33%, compared with the first half of
1993, primarily reflecting the same factors responsible for the second quarter
increase. The annualized return on common equity for this sector was 14% and
15% in the second quarter and first six months of 1994, respectively, compared
with 17% and 15% in the second quarter and first six months of 1993,
respectively.
RETAIL FINANCIAL SERVICES
Retail Financial Services' income before taxes totaled $90 million in the
second quarter of 1994, an increase of $2 million compared with the prior-year
period. Revenue increased $6 million compared with the second quarter of 1993.
This increase partially resulted from higher fee revenue generated by the
Corporation's CornerStone credit card product, as well as higher revenue
relating to the Corporation's seasonal tax refund anticipation loan program.
The increase in operating expense reflected the $7 million of increased
marketing expense related to the CornerStone credit card product. Income
before taxes for the first six months of 1994 totaled $143 million, a decrease
of $50 million, or 26%, compared with the prior-year period primarily
reflecting the increased marketing expense in support of the CornerStone credit
card product, as well as lower net interest revenue, primarily related to lower
levels of deposits and related average interest earning assets. The annualized
return on common equity for this sector was 22% and 18% in the second quarter
and first half of 1994, compared with 18% and 20% for the second quarter and
first half of 1993.
SERVICE PRODUCTS
Service Products includes trust and investment, cash management, information
services, jumbo mortgage lending, mortgage loan origination and servicing and
insurance premium financing.
7
<PAGE> 9
BUSINESS SECTORS (CONTINUED)
________________________________________________________________________________
Income before taxes for this sector totaled $76 million, an increase of $13
million, or 19%, compared with the second quarter of 1993, primarily reflecting
earnings from The Boston Company and AFCO acquisitions. The $70 million, or
27%, improvement in revenue resulted from higher net interest revenue from The
Boston Company and AFCO acquisitions and higher trust and investment management
fees earned at The Boston Company as well as internal growth, partially offset
by a decrease in fee revenue resulting from the divestiture of three fee-based
businesses. The increase in operating expenses resulted primarily from The
Boston Company and in support of internal revenue growth, net of the impact of
divestitures. The pretax operating margin in this sector was 23% and 24% in
the second quarter and first half of 1994, compared with 25% in both the second
quarter and first half of 1993. Income before taxes for the first half of 1994
increased $46 million, or 40%, compared with the prior-year period. This
improvement primarily reflected the same factors responsible for the second
quarter increase. This sector's annualized return on common shareholders'
equity was 17% and 18% in the second quarter and first half of 1994, compared
with 26% and 28% in the second quarter and first half of 1993. The decrease in
the annualized return on common shareholders' equity from the 1993 periods
primarily resulted from the higher level of shareholders' equity allocated to
this sector as a result of The Boston Company acquisition.
REAL ESTATE BANKING
Real Estate Banking includes commercial real estate lending and mortgage
banking recovery operations. This sector's income before taxes in the second
quarter of 1994 was $8 million, compared to a pretax loss of $21 million in the
second quarter of 1993. The $29 million improvement in profitability was due
primarily to the $28 million decrease in credit quality expense. Credit
quality expense in the second quarter of 1994 included $3 million in net gains
on the sale of acquired property. Income before taxes for the first half of
1994 was $22 million, an increase of $71 million compared with the prior-year
period. This improvement resulted from a $67 million decrease in credit
quality expense.
OTHER
The "Other" sector's pretax loss of $8 million in the second quarter of 1993
primarily reflected the preacquisition negative spread related to the fixed
rate term debt issued in connection with The Boston Company acquisition. The
"Other" sector's pretax loss of $102 million in the first half of 1993
primarily reflected $175 million of merger expenses related to the
Corporation's acquisition of The Boston Company, partially offset by $87
million in gains on the sale of securities. There were no gains or losses on
the sale of securities in the first half of 1994.
8
<PAGE> 10
<TABLE>
NET INTEREST REVENUE
_______________________________________________________________________________________________________________________________
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
Three months ended June 30, Six months ended June 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 $ 1,676 3.88% $ 4,477 3.16% $ 1,779 3.61% $ 3,741 3.25%
Trading account securities 386 6.15 312 6.12 445 5.82 303 5.99
Securities 4,785 5.54 4,136 5.62 4,602 5.44 4,394 5.78
Loans 24,245 7.38 20,623 7.42 24,435 7.30 20,263 7.63
------ ------ ------ ------
Total interest-earning assets $31,092 6.89% $29,548 6.51% $31,261 6.80% $28,701 6.76%
- -------------------------------------------------------------------------------------------------------------------------------
Financed by:
Interest-bearing liabilities $24,897 2.82% $23,647 2.76% $24,858 2.68% $22,935 2.87%
Noninterest-bearing liabilities 6,195 - 5,901 - 6,403 - 5,766 -
------- ------ ------ ------
Total $31,092 2.26% $29,548 2.21% $31,261 2.13% $28,701 2.29%
- -------------------------------------------------------------------------------------------------------------------------------
Net interest revenue $ 359 4.63% $ 317 4.30% $ 724 4.67% $ 636 4.47%
- -------------------------------------------------------------------------------------------------------------------------------
<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 second
quarter of 1994 totaled $359 million, up $42 million, or 14%, compared with the
second quarter of 1993. The net interest margin was 4.63% in the second
quarter of 1994, compared with 4.30% in the second quarter of 1993.
The improvement in net interest revenue in the second quarter of 1994, compared
with the second quarter of 1993, primarily reflected a $1.5 billion higher
level of average interest-earning assets, resulting from the second quarter
1993 acquisition of The Boston Company and the December 1993 acquisition of
AFCO. In addition, these acquisitions enabled the Corporation to replace
lower-margin money market assets with higher-margin loans and securities.
Average loans increased $3.6 billion and average securities increased $650
million, partially offset by a decrease of $2.8 billion in money market assets.
Average credit card loans increased approximately $200 million, or 17%, in the
second quarter of 1994, compared with the prior-year period, primarily driven
by the CornerStone credit card product. At June 30, 1994, this product had
generated 495,000 new accounts with total outstandings of approximately $215
million. At July 31, 1994, this new product had grown to 561,000 new accounts
with total outstandings of $308 million. A further reduction in nonperforming
assets also contributed to the improved net interest revenue and net interest
margin compared with the prior-year period.
Net interest revenue, on a fully taxable equivalent basis, in the first six
months of 1994 totaled $724 million, up $88 million, or 14%, compared with the
first half of 1993. The improvement resulted principally from the same factors
responsible for the second quarter increase. The net interest margin on a
fully taxable equivalent basis was 4.67% in the first six months of 1994, up 20
basis points from 4.47% in the first half of 1993.
9
<PAGE> 11
<TABLE>
CREDIT QUALITY EXPENSE AND RESERVE FOR CREDIT LOSSES
_____________________________________________________________________________________________________________________________
<CAPTION>
Three months Six months
ended June 30, ended June 30,
(in millions) 1994 1993 (Decrease) 1994 1993 (Decrease)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Provision for credit losses $20 $35 $(15) $40 $ 70 $(30)
Net expense (revenue) of acquired property (3) 13 (16) (11) 38 (49)
- -----------------------------------------------------------------------------------------------------------------------------
Credit quality expense $17 $48 $(31) $29 $108 $(79)
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
Credit quality expense, defined as the provision for credit losses plus the net
expense of acquired property, was $31 million lower in the second quarter of
1994, compared with the prior-year period, reflecting continuing improvement in
the credit quality of the loan portfolio and the lower level of real estate
acquired (OREO). The $3 million in net revenue from acquired property in the
second quarter of 1994 resulted from $3 million in net gains on the sale of
acquired property. Net expense of acquired property of $13 million in the
second quarter of 1993 included $9 million of provision to the reserve for
OREO. No provision to the reserve for OREO was recorded in the second quarter
of 1994.
Credit quality expense was $29 million for the first six months of 1994,
compared with $108 million in the first half of 1993. Improved credit quality
led to a $30 million decrease in the provision for credit losses in the first
half of 1994, compared with the prior-year period. The net expense of acquired
property decreased $49 million in the first half of 1994, compared with the
prior-year period. The $11 million in net revenue from acquired property in
the first half of 1994 resulted from $12 million in net gains on the sale of
acquired property. No provision to the reserve for OREO was recorded in the
first half of 1994, compared to $30 million in the first half of 1993.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
CREDIT LOSS RESERVE ACTIVITY (a) Three months Six months
ended June 30, Inc/ ended June 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 $603 $492 $111 $600 $506 $94
Reserve acquired - 99 (99) - 99 (99)
Additions (deductions):
Credit losses (32) (60) (28) (68) (128) (60)
Recoveries 18 20 (2) 37 39 (2)
- -----------------------------------------------------------------------------------------------------------------------------
Net credit losses (14) (40) (26) (31) (89) (58)
- -----------------------------------------------------------------------------------------------------------------------------
Provision charged to expense 20 35 (15) 40 70 (30)
- -----------------------------------------------------------------------------------------------------------------------------
Reserve balance at end of period $609 $586 $23 $609 $586 $23
- -----------------------------------------------------------------------------------------------------------------------------
Reserve as a percentage of total loans 2.46% 2.46% - 2.46% 2.46% -
- -----------------------------------------------------------------------------------------------------------------------------
<FN>
(a) Excludes the reserve for segregated assets and net credit losses on
segregated assets.
</TABLE>
The reserve for credit losses was $609 million at June 30, 1994, or 2.46% of
total loans, an increase of $23 million from June 30, 1993. This increase
includes $9 million of reserve acquired in the December 1993 AFCO acquisition.
The ratio of reserve to total loans was 2.46% at June 30, 1993. The
Corporation maintains a credit loss reserve which, in management's judgment, is
adequate to absorb future losses inherent in the loan portfolio.
10
<PAGE> 12
CREDIT QUALITY EXPENSE AND RESERVE FOR CREDIT LOSSES (CONTINUED)
________________________________________________________________________________
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 June 30, 1994 was 392% compared to 208% at June 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, not just the level of
nonperforming loans. 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 June 30, 1994, compared with June 30, 1993.
A summary of the Corporation's net credit losses is presented in the table on
the following page. The decrease in net credit losses for the second quarter
and first half of 1994, compared with the respective prior-year periods,
resulted primarily from lower commercial real estate net credit losses.
11
<PAGE> 13
CREDIT QUALITY EXPENSE AND RESERVE FOR CREDIT LOSSES (CONTINUED)
________________________________________________________________________________
<TABLE>
___________________________________________________________________________________________________________________
NET CREDIT LOSSES (RECOVERIES)
<CAPTION>
Three months Six months
ended June 30, Inc/ ended June 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 $ 8 $12 $ (4) $19 $27 $ (8)
Commercial real estate 3 31 (28) 5 62 (57)
Consumer credit:
Credit card 15 11 4 27 23 4
Consumer mortgage 2 2 - 5 4 1
Other consumer credit 3 4 (1) 8 10 (2)
- -------------------------------------------------------------------------------------------------------------------
Total domestic 31 60 (29) 64 126 (62)
- -------------------------------------------------------------------------------------------------------------------
International 1 - 1 4 2 2
- -------------------------------------------------------------------------------------------------------------------
Total credit losses 32 60 (28) 68 128 (60)
- -------------------------------------------------------------------------------------------------------------------
RECOVERIES
Domestic:
Commercial and financial (6) (13) (7) (14) (22) (8)
Commercial real estate (3) (3) - (8) (5) 3
Consumer credit:
Credit card (3) (1) 2 (5) (3) 2
Consumer mortgage (1) (1) - (2) (1) 1
Other consumer credit (4) (2) 2 (7) (5) 2
- -------------------------------------------------------------------------------------------------------------------
Total domestic (17) (20) (3) (36) (36) -
- -------------------------------------------------------------------------------------------------------------------
International (1) - 1 (1) (3) (2)
- -------------------------------------------------------------------------------------------------------------------
Total recoveries (18) (20) (2) (37) (39) (2)
- -------------------------------------------------------------------------------------------------------------------
NET CREDIT LOSSES (RECOVERIES)
Domestic:
Commercial and financial 2 (1) 3 5 5 -
Commercial real estate - 28 (28) (3) 57 (60)
Consumer credit:
Credit card 12 10 2 22 20 2
Consumer mortgage 1 1 - 3 3 -
Other consumer credit (1) 2 (3) 1 5 (4)
- -------------------------------------------------------------------------------------------------------------------
Total domestic 14 40 (26) 28 90 (62)
- -------------------------------------------------------------------------------------------------------------------
International - - - 3 (1) 4
- -------------------------------------------------------------------------------------------------------------------
Total net credit losses $14 $40 $(26) $31 $89 $(58)
- -------------------------------------------------------------------------------------------------------------------
Annualized net credit losses
to average loans .24% .78% (54)bp .25% .89% (64)bp
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
12
<PAGE> 14
<TABLE>
NONINTEREST REVENUE
_____________________________________________________________________________________________________________________
<CAPTION>
Three months Six months
ended June 30, Inc/ ended June 30, Inc/
(in millions) 1994 1993 (Dec) 1994 1993 (Dec)
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Fee revenue:
Trust and investment management:
Institutional trust $ 55 $ 38 $17 $117 $ 67 $ 50
Mutual fund 37 14 23 78 14 64
Institutional asset management 39 25 14 77 45 32
Private asset management 34 29 5 68 53 15
- ---------------------------------------------------------------------------------------------------------------------
Total trust and investment management 165 106 59 340 179 161
Cash management and deposit
transaction charges 48 47 1 99 95 4
Information services 19 41 (22) 39 77 (38)
Mortgage servicing 17 15 2 33 32 1
Credit card 18 15 3 32 28 4
Foreign currency and securities trading 18 9 9 40 13 27
Other 51 48 3 96 89 7
- ---------------------------------------------------------------------------------------------------------------------
Total fee revenue 336 281 55 679 513 166
Gains on sale of securities - - - - 87 (87)
- ---------------------------------------------------------------------------------------------------------------------
Total noninterest revenue $336 $281 $55 $679 $600 $ 79
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
Revenues from the Corporation's fee-generating businesses in the second quarter
of 1994 increased by $55 million, or 20%, from the second quarter of 1993 and
represented 49% of total revenue for the quarter. Approximately $67 million of
this increase was attributable to The Boston Company acquisition in May 1993.
Partially offsetting this increase was an approximately $25 million reduction
in fee revenue resulting from the divestiture of three fee-based businesses.
Trust and investment management fees of $165 million for the second quarter of
1994 comprised 49% of total noninterest revenue and 24% of total revenue for
the quarter. The $59 million improvement in trust and investment management
fees in the second quarter of 1994, compared with the prior-year period,
resulted principally from $55 million of fee revenue earned at The Boston
Company. Partially offsetting this increase was the May 6, 1994, sale of part
of the Corporation's Boston-based third-party mutual fund administration
business. As a result of the sale of this business, trust and investment
management fee revenue was reduced by approximately $4 million in the second
quarter of 1994 and will be reduced by approximately $7 million per quarter in
the future.
The securities lending component of trust and investment management revenue was
$10 million in the second quarter of 1994, an increase of $5 million compared
with the second quarter of 1993. This increase was primarily the result of The
Boston Company acquisition. However, when compared with the first quarter of
1994, securities lending revenue decreased $7 million. The decrease from the
first quarter of 1994 was primarily the result of narrowing margins, in a
period of rapidly rising short-term interest rates.
Upon completion of the merger with The Dreyfus Corporation, the Corporation
expects to substantially increase its trust and investment management fee
revenue to about $1 billion on an annual basis, or 57% of total noninterest
revenue and 31% of total revenue, and become the largest bank manager of mutual
funds. At June 30, 1994, The Dreyfus Corporation had approximately $71 billion
of mutual fund assets under management and administration. On a pro forma
basis, the combined market value of assets under management and
administration/custody of the Corporation and Dreyfus at June 30, 1994 would
have been approximately $820 billion.
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 $747 billion at June 30, 1994,
compared with $763 billion at March 31, 1994. The $16 billion decrease in the
market value of assets under administration/custody reflected the sale of the
Boston-based third-party mutual fund administration business which resulted in
a decrease of $18 billion in assets. This decrease was partially offset by new
institutional business. During the first half of 1994, the S&P 500 index
decreased approximately 5% and the Lehman Brother Long Term Government Bond
Index decreased approximately 9%.
<TABLE>
______________________________________________________________________________________________________________________
ASSETS UNDER MANAGEMENT AND ADMINISTRATION/CUSTODY
<CAPTION>
JUNE 30, March 31, Dec. 31, Sept. 30, June 30,
(in billions) 1994 1994 1993 1993 1993
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Institutional trust:
Management $ 2 $ 2 $ 1 $ 2 $ 1
Administration/Custody 498 491 479 479 428
Institutional asset management:
Management 99 100 103 103 100
Private asset management:
Management 21 21 24 22 22
Administration/Custody 13 13 13 13 12
Mutual fund:
Management 10 9 9 9 8
Administration/Custody 104 127 125 123 113
- ----------------------------------------------------------------------------------------------------------------------
Total
Management $132 $132 $137 $136 $131
Administration/Custody $615 $631 $617 $615 $553
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
Information services fees decreased $22 million compared with the prior-year
period, primarily as a result of the Corporation's December 1993 sale of two
information services businesses. The two businesses sold generated quarterly
revenues of approximately $21 million. 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). Net results
from this investment would be reported on an equity method of accounting, in
other fee revenue.
The increase in mortgage servicing fees, compared with the prior-year period,
resulted principally from mortgage servicing rights acquired in the first half
of 1994 and the second half of 1993. On July 8, 1994, Mellon Mortgage Company,
the Corporation's mortgage banking subsidiary, signed a definitive agreement
with U.S. Bancorp Mortgage Company to purchase its residential mortgage loan
origination network and $3.6 billion of its residential mortgage servicing
portfolio. At June 30, 1994, the Corporation's residential servicing portfolio
was nearly $24 billion. On a pro forma basis including the U.S. Bancorp
transaction, the Corporation's servicing portfolio would have been
approximately $27.4 billion. The Corporation expects this transaction to
increase mortgage servicing revenue approximately $3 million, on a quarterly
basis. The Corporation expects to complete this transaction during the third
quarter of 1994, pending approvals.
The increase in credit card revenue in the second quarter of 1994, compared
with the second quarter of 1993, primarily resulted from revenue generated by
the Corporation's CornerStone 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 full year 1993, the Network Services Division recorded credit card
processing fees of $13 million.
14
<PAGE> 16
NONINTEREST REVENUE (CONTINUED)
________________________________________________________________________________
The increase in foreign currency and securities trading fee revenue in the
second quarter of 1994 was attributable to foreign exchange revenue earned,
primarily from global custody customers at The Boston Company. Other fee
revenue included $20 million from the Corporation's seasonal tax refund
anticipation loan program. Fee revenue generated by this seasonal product
increased $2 million compared with the prior-year period. No significant
revenue is expected in the second half of 1994 from this product.
Fee revenue in the first six months of 1994 was up $166 million, or 32%, from
the first six months of 1993, primarily as a result of the same factors
responsible for the second quarter increase.
The Corporation recorded $87 million in gains on the sale of securities during
the first six months of 1993, resulting from the sale of securities in the
available for sale portfolio. These sales were undertaken as part of the
financing plan and balance sheet restructuring related to the acquisition of
The Boston Company.
<TABLE>
OPERATING EXPENSE
______________________________________________________________________________________________________________________
<CAPTION>
Three months Six months
ended June 30, Inc/ ended June 30, Inc/
(dollar amounts in millions) 1994 1993 (Dec) 1994 1993 (Dec)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Staff expense $210 $174 $ 36 $425 $329 $ 96
Net occupancy expense 47 39 8 92 76 16
Professional, legal and other purchased services 47 30 17 90 61 29
Business development 30 17 13 67 32 35
Equipment expense 28 26 2 61 52 9
Amortization of goodwill, core deposit
and other identified intangibles
recorded in connection with acquisitions 23 17 6 50 33 17
Communications expense 18 17 1 38 33 5
FDIC assessment and regulatory examination fees 16 15 1 32 29 3
Amortization of purchased mortgage servicing
rights and purchased credit card relationships 10 13 (3) 21 21 -
Other expense 30 30 - 62 45 17
- ----------------------------------------------------------------------------------------------------------------------
Operating expense before the net expense
(revenue) of acquired property and
merger expenses 459 378 81 938 711 227
- ----------------------------------------------------------------------------------------------------------------------
Net expense (revenue) of acquired property (3) 13 (16) (11) 38 (49)
- ----------------------------------------------------------------------------------------------------------------------
Merger expenses - - - - 175 (175)
- ----------------------------------------------------------------------------------------------------------------------
Total operating expense $456 $391 $ 65 $927 $924 $ 3
- ----------------------------------------------------------------------------------------------------------------------
Average full-time equivalent staff 21,800 19,100 2,700 21,800 18,600 3,200
- ----------------------------------------------------------------------------------------------------------------------
Efficiency ratio(a):
Including amortization of intangibles 66% 63% 3 67% 62% 5
Excluding amortization of intangibles(b) 63 60 3 63 59 4
- ----------------------------------------------------------------------------------------------------------------------
<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.
(b) Excludes amortization of goodwill, core deposit and other identified
intangibles recorded in connection with acquisitions.
</TABLE>
15
<PAGE> 17
OPERATING EXPENSE (CONTINUED)
_______________________________________________________________________________
Operating expense before the net expense of acquired property and merger
expenses increased by $81 million, or 21%, in the second quarter of 1994,
compared with the second quarter of 1993. The increase was primarily the
result of an increase of $58 million of expense attributable to The Boston
Company, acquired in May 1993, and an increase in marketing expense of $7
million, primarily related to the Corporation's CornerStone credit card
product. The increase in expense attributable to AFCO was approximately offset
by the decrease in expense related to the information services businesses sold
in December 1993. Also impacting second quarter 1994 operating expense were
increases in various categories in support of revenue growth.
Operating expense before the net expense of acquired property and merger
expenses totaled $938 million in the first six months of 1994, compared with
$711 million in the first half of 1993. The increase was primarily the result
of the same factors responsible for the second quarter increase, including the
increased marketing expense of $27 million, recorded in the first six months,
primarily related to the introduction of the Corporation's CornerStone credit
card product.
The increase in the average full-time equivalent staff level, compared with the
prior-year period, primarily reflected the addition of the employees of The
Boston Company.
Financial Accounting Standard No. 112 (FAS No. 112), "Employers' Accounting for
Postemployment Benefits," became effective on January 1, 1994. FAS No. 112
requires the Corporation to recognize the obligation to provide postemployment
benefits to former or inactive employees after employment but before retirement
if: the obligation is attributable to employees' services already rendered,
employees' rights to those benefits accumulate or vest, payment of the benefits
is probable and the amount of the benefits can be reasonably estimated.
Approximately $1 million of the increase in operating expense before the net
expense of acquired property and merger expenses, in the first half of 1994,
was attributable to the adoption of this Standard, resulting in a reduction of
approximately $.01 in net income per common share in the first half of 1994.
16
<PAGE> 18
OPERATING EXPENSE (CONTINUED)
________________________________________________________________________________
Merger expenses of $175 million pretax, or $112 million after-tax, were
recorded in the first half of 1993 to reflect management's estimate of expenses
associated with the acquisition of The Boston Company.
<TABLE>
MERGER EXPENSES ANALYSIS
_______________________________________________________________________________________________________________________
<CAPTION>
Expected
Expenditures expenditures
Estimated and asset --------------------------------
total adjustments at Second half Full year
(in millions) expenses June 30, 1994 1994 1995
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Merger expenses:
Systems integration $ 67 $ 16 $38 $13
Adjust The Boston Company credit
loss reserve 51 51 - -
Professional and consulting 16 13 3 -
Severance, incentive retention plan,
relocation and travel 12 6 2 4
Facilities expense 8 3 2 3
Other 21 17 4 -
- -----------------------------------------------------------------------------------------------------------------------
Total merger expenses $175 $106 $49 $20
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
As of June 30, 1994, the Corporation has used approximately 61% of the reserve
established to implement merger activities through the first 13 months
following the acquisition. Of the remaining reserve, the Corporation expects
to spend $49 million in the second half of 1994 and $20 million in 1995,
primarily to complete the initial systems integration plan.
TAXES
_______________________________________________________________________________
The provision for income taxes totaled $166 million in the first half of 1994,
for an effective tax rate of approximately 38.5%, compared with $104 million in
the first half of 1993. Excluding the impact of the merger expenses and
securities gains, the Corporation's effective tax rate for the first half of
1993 was 41%. The decrease in the effective rate between periods is primarily
the result of tax legislation, enacted in August 1993, which permitted the
deductibility of certain intangible amortization expense. After completion of
the merger with The Dreyfus Corporation, it is currently anticipated that the
effective tax rate will increase to approximately 39%.
17
<PAGE> 19
<TABLE>
BALANCE SHEET REVIEW
______________________________________________________________________________________________________________________
ASSET/LIABILITY MANAGEMENT
______________________________________________________________________________________________________________________
<CAPTION>
Three months ended
June 30,
(average balances in millions) 1994 1993
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
- ----------------------------------------------------------------------------------------------------------------------
Money market investments $ 1,676 $ 4,477
Trading account securities 386 312
Securities 4,785 4,136
Loans 24,245 20,623
- ----------------------------------------------------------------------------------------------------------------------
Total interest-earning assets 31,092 29,548
Noninterest-earning assets 6,089 5,421
Reserve for credit losses (610) (548)
- ----------------------------------------------------------------------------------------------------------------------
Total assets $36,571 $34,421
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
Funds supporting total assets
- ----------------------------------------------------------------------------------------------------------------------
Core funds:
Demand deposits $ 7,652 $ 7,194
Money market and other savings accounts 10,129 8,777
Retail savings certificates 6,552 7,692
Notes and debentures with original maturities
in excess of one year 1,924 2,050
Shareholders' equity 3,416 3,124
Other core funds 1,672 1,172
- ----------------------------------------------------------------------------------------------------------------------
Total core funds 31,345 30,009
Wholesale and purchased funds:
Foreign office deposits 1,693 1,093
Federal funds purchased and securities sold
under agreements to repurchase 1,406 1,050
Negotiable certificates of deposit 762 937
Commercial paper 138 289
U.S. Treasury tax and loan demand notes 689 215
Other wholesale and purchased funds 538 828
- ----------------------------------------------------------------------------------------------------------------------
Total wholesale and purchased funds 5,226 4,412
- ----------------------------------------------------------------------------------------------------------------------
Funds supporting total assets $36,571 $34,421
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
BALANCE SHEET MIX
The change in the mix and size of the Corporation's average balance sheet in
the second quarter of 1994, compared with the second quarter of 1993, was
largely the result of the May 1993 acquisition of The Boston Company and the
December 1993 acquisition of AFCO. The assets acquired in these acquisitions
were primarily loans and securities, which enabled the Corporation to replace
lower-margin money market assets with these higher-margin assets. Excluding
the effect of these acquisitions, average loans decreased in the second quarter
of 1994, compared with the prior-year period, by approximately $220 million,
reflecting lower loan outstandings for commercial customers, paydowns of
commercial real estate loans and paydowns of consumer mortgages acquired in the
1992 Meritor branch acquisition, offset, in part, by an approximately 9%
increase in consumer and small business loans.
18
<PAGE> 20
ASSET/LIABILITY MANAGEMENT (CONTINUED)
_______________________________________________________________________________
For balance sheet management purposes, the Corporation has identified core, and
wholesale and purchased funds as its key categories of funding. Core funds,
which are considered to be stable sources of funding, are defined principally
as all money market and other savings deposits, demand deposits, savings
certificates, shareholders' equity and notes and debentures with original
maturities over one year. Core funds primarily support core assets, which
consist of loans, net of the reserve, and noninterest-earning assets.
Core assets increased $4.2 billion in the second quarter of 1994 from the
prior-year period. This increase primarily reflected loans acquired in The
Boston Company and AFCO acquisitions. Core funds increased $1.3 billion in the
second quarter of 1994 from the prior-year period reflecting the impact of the
core deposits from The Boston Company, as well as a higher level of
shareholders' equity. Core funds averaged 105% of core assets in the second
quarter of 1994, down from 118% in the second 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 $814 million compared with a year ago,
primarily reflecting an increase in foreign office deposits as the Corporation
took advantage of lower cost short-term Eurodeposit rates. As a percentage of
total average assets, average wholesale and purchased funds increased to 14% in
the second quarter of 1994 from 13% in the prior-year period.
19
<PAGE> 21
<TABLE>
CAPITAL
__________________________________________________________________________________________________________________
<CAPTION>
Selected capital data
- -------------------------------------------------------------------------------------------------------------------
(dollar amounts in millions, JUNE 30, March 31, Dec. 31, June 30,
except per share amounts) 1994 1994 1993 1993
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common shareholders' equity $2,867 $2,793 $2,721 $2,586
Common shareholders' equity to assets ratio 7.75% 7.63% 7.53% 7.15%
Tangible common equity ratio(a) 5.16 4.89 4.67 4.29
Total shareholders' equity $3,459 $3,385 $3,313 $3,246
Total shareholders' equity to assets ratio 9.36% 9.25% 9.17% 8.97%
Tier I capital ratio 7.90 7.62 7.39 7.42
Total (Tier I plus Tier II) capital ratio 11.41 11.17 10.97 10.63
Leverage capital ratio 7.38 6.90 6.88 6.99
Book value per common share(b) $43.75 $42.76 $41.75 $39.81
Closing common stock price 56.25 56.125 53.00 56.375
- -------------------------------------------------------------------------------------------------------------------
<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) The book value per common share assumes full conversion of the Series D
preferred stock to common stock. Accordingly, this includes the additional
paid-in capital on the Series D preferred stock because this paid-in
capital has no liquidation preference over the common stock.
</TABLE>
The Corporation's level of common and total shareholders' equity continued to
improve in the second quarter of 1994 as the result of earnings retention.
Partially offsetting the increase in total shareholders' equity, compared with
a year ago, was the December 1993 redemption of the Corporation's $68 million
of Series B convertible preferred stock.
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 June 30, 1994 being recorded as a deduction from
shareholders' equity. The impact of recording the unrealized loss at June 30,
1994 resulted in a reduction of book value per common share of $.49, 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.
20
<PAGE> 22
CAPITAL (CONTINUED)
________________________________________________________________________________
Upon consummation of the merger with The Dreyfus Corporation, which will be
accounted for as a pooling-of-interests, the Corporation expects to issue
approximately 33 million shares of common stock in exchange for the Dreyfus
common stock. The capital ratios of the Corporation following this merger will
be approximately 200 basis points higher than the June 30, 1994 ratios.
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 June 30, 1994
(dollar amounts in millions)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C>
Tier I capital:
Common shareholders' equity(a) $ 2,862
Qualifying preferred stock(a) 629
Minority interest 12
Goodwill and certain other intangibles (866)
- ----------------------------------------------------------------------------------------------------------------------
Total Tier I capital $ 2,637
- ----------------------------------------------------------------------------------------------------------------------
Tier II capital $ 1,172
- ----------------------------------------------------------------------------------------------------------------------
Total qualifying capital $ 3,809
- ----------------------------------------------------------------------------------------------------------------------
Risk-adjusted assets:
On-balance-sheet $24,046
Off-balance-sheet 9,342
- ----------------------------------------------------------------------------------------------------------------------
Total $33,388
- ----------------------------------------------------------------------------------------------------------------------
Average assets-leverage capital basis $35,734
- ----------------------------------------------------------------------------------------------------------------------
Tier I capital ratio(b) 7.90%
Total capital ratio(b) 11.41
Leverage capital ratio(b) 7.38
- ----------------------------------------------------------------------------------------------------------------------
<FN>
(a) For the purpose of this computation, the additional paid-in capital on the
Series D preferred stock totaling $37 million is included in "Qualifying
preferred stock" rather than in "Common shareholders' equity."
(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 June 30, 1994. The Corporation
intends to maintain the ratios of its banking subsidiaries at the well
capitalized levels.
The Corporation deducts all goodwill and certain other identifiable intangibles
created subsequent to February 19, 1992, except purchased mortgage servicing
rights and purchased credit card relationships, when computing Tier I capital.
21
<PAGE> 23
CAPITAL (CONTINUED)
_______________________________________________________________________________
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
JUNE 30, March 31, Dec. 31, June 30,
(in millions) 1994 1994 1993 1993
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Goodwill $775 $810 $825 $768
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
The decrease in goodwill at June 30, 1994, compared with March 31, 1994,
primarily resulted from the second quarter sale of part of the Corporation's
Boston-based third-party mutual fund administration business. The $7 million
increase from June 30, 1993 includes $55 million of goodwill relating to the
acquisition of AFCO and a $26 million reclassification from the purchased core
deposit intangible, partially offset by amortization of $45 million during the
last 12 months. The future annual amortization of goodwill will be
approximately $47 million, based upon the current level and amortization
schedule.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
JUNE 30, March 31, Dec. 31, June 30,
(in millions) 1994 1994 1993 1993
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Purchased core deposit intangible $144 $149 $155 $201
Covenants not to compete 47 51 57 60
Other identified intangibles 43 45 46 50
- -----------------------------------------------------------------------------------------------------------------------
Total purchased core deposit
and other identified intangibles $234 $245 $258 $311
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
The decrease in the purchased core deposit intangible from June 30, 1993,
primarily resulted from $26 million of purchased core deposit intangible
reclassified to goodwill in the third quarter of 1993, upon receipt of an
independent appraisal of the intangible and the final valuation of the assets
and liabilities purchased in the December 1992 Meritor Savings Bank branch
acquisition. 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>
- -----------------------------------------------------------------------------------------------------------------------
JUNE 30, March 31, Dec. 31, June 30,
(in millions) 1994 1994 1993 1993
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Purchased mortgage servicing rights $201 $176 $160 $149
Purchased credit card relationships 58 61 44 46
- -----------------------------------------------------------------------------------------------------------------------
Total purchased mortgage servicing rights
and purchased credit card relationships $259 $237 $204 $195
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
The increase in purchased mortgage servicing rights at June 30, 1994, compared
with March 31, 1994, primarily resulted from purchased mortgage servicing
rights acquired through contractual servicing obligations.
22
<PAGE> 24
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 June 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 $5.7
billion, or 15.4% of total assets, at June 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 $4.7 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 $1.0 billion, or 2.8% of total assets, at June 30, 1994,
which compared with a cumulative asset sensitive gap of $372 million, or 1.0%
of total assets, at March 31, 1994. Alternatively the Corporation could have
used fixed rate investment securities or other fixed rate interest-earning
assets of approximately $4.7 billion to accomplish this objective.
Correspondingly, the Corporation would also have been required to increase its
level of wholesale funds by approximately $4.7 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 or downward movement in interest rates over a six month
period, including the effect of off-balance-sheet instruments, would have an
approximately 1.5%, or $.21 per share negative effect on the Corporation's
anticipated net interest revenue for the 12 month period following June 30,
1994.
23
<PAGE> 25
INTEREST RATE SENSITIVITY ANALYSIS (CONTINUED)
________________________________________________________________________________
<TABLE>
______________________________________________________________________________________________________________________
INTEREST RATE SENSITIVITY GAP AT JUNE 30, 1994
<CAPTION>
Repricing period
----------------------------------------------------------
0-30 31-90 91-180 181-365 1-5 Over 5
(dollar amounts in millions) days days days days years years Total
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Money market investments $ 802 $ 317 $ 6 $ - $ 6 $ - $ 1,131
Trading account securities 365 - - - - - 365
Securities 1,450 858 164 1,463 681 1,357 5,973
Loans 10,119 4,431 2,892 1,764 3,332 2,188 24,726
- -----------------------------------------------------------------------------------------------------------------------
Total interest-earning assets $12,736 $ 5,606 $ 3,062 $3,227 $4,019 $ 3,545 $32,195
Funds supporting interest-
earning assets:
Interest-bearing deposits $ 3,368 $ 5,388 $ 2,560 $1,919 $3,115 $ 4,062 $20,412
Other borrowed funds 3,839 1 - - - 111 3,951
Notes and debentures (with original
maturities over one year) 343 - 3 28 555 992 1,921
Noninterest-bearing liabilities 1,041 179 269 10 2 4,410 5,911
- -----------------------------------------------------------------------------------------------------------------------
Total funds supporting
interest-earning assets $ 8,591 $ 5,568 $ 2,832 $1,957 $3,672 $ 9,575 $32,195
- -----------------------------------------------------------------------------------------------------------------------
Subtotal $ 4,145 $ 38 $ 230 $1,270 $ 347 $(6,030) $ -
- -----------------------------------------------------------------------------------------------------------------------
Off-balance-sheet instruments $(3,106) $(2,552) $ 96 $ 907 $3,948 $ 707 $ -
- -----------------------------------------------------------------------------------------------------------------------
Interest rate sensitivity gap $ 1,039 $(2,514) $ 326 $2,177 $4,295 $(5,323) $ -
- -----------------------------------------------------------------------------------------------------------------------
Cumulative gap $ 1,039 $(1,475) $(1,149) $1,028 $5,323 $ - $ -
- -----------------------------------------------------------------------------------------------------------------------
Cumulative gap as a percentage
of total assets 2.8% (4.0)% (3.1)% 2.8% 14.4%
- -----------------------------------------------------------------------------------------------------------------------
<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>
24
<PAGE> 26
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.
MATURITIES OF OFF-BALANCE-SHEET INSTRUMENTS USED TO MANAGE INTEREST-RATE RISK
AT JUNE 30, 1994
<TABLE>
<CAPTION>
Total at
-------------------------------------------------------------------- June 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 $ 340 $ 469 $ 250 $ 160 $15 $2,525 $ 3,759
Weighted average rate:
received 5.18% 6.15% 5.32% 6.36% 5.22% 5.45% 5.54%
paid 4.57% 4.42% 4.49% 4.34% 4.63% 4.23% 4.31%
Receive fixed/pay floating
indexed amortizing swaps:(b)
Notional value $ 435 $2,043 $1,478 $ 108 $53 $ 833 $ 4,950
Weighted average rate:
received 5.66% 5.89% 5.11% 7.12% 7.19% 7.13% 5.89%
paid 4.33% 4.38% 4.34% 4.38% 4.25% 4.25% 4.34%
Pay fixed/receive floating
generic swaps:(a)
Notional amount $1,620 $ - $ 8 $2,125 $18 $ 21 $ 3,792
Weighted average rate:
received 4.34% - 5.00% 4.28% 2.86% 5.19% 4.30%
paid 4.22% - 11.85% 4.74% 4.63% 5.86% 4.54%
Other products(c) $ 47 $ 320 $ 30 $ 100 $ - $ 50 $ 547
- -----------------------------------------------------------------------------------------------------------------------
Total notional amount $2,442 $2,832 $1,766 $2,493 $86 $3,429 $13,048
- -----------------------------------------------------------------------------------------------------------------------
<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 $13.0 billion at June 30, 1994, a decrease
of $1.4 billion from March 31, 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
23, 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 $5.7
billion, before the utilization of these instruments, to a cumulative asset
sensitive position of $1.0 billion at June 30, 1994.
25
<PAGE> 27
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) June 30, 1994
- -----------------------------------------------------------------------------------------------------------------------
<S> <C>
Instruments associated with deposits $11,179
Instruments associated with other liabilities 430
Instruments associated with loans 1,439
- -----------------------------------------------------------------------------------------------------------------------
Total notional amount $13,048
- -----------------------------------------------------------------------------------------------------------------------
</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 was $38 million and $84 million in the second quarter and first
half of 1994, compared with a differential of $51 million and $99 million in
the second quarter and first half 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. This impact was
substantially 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 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 23. This analysis indicated that a 100-basis-point upward or downward
movement in interest rates over a six month period, including the effect of
off-balance-sheet instruments, would have an approximately 1.5%, or $.21 per
share negative effect on the Corporation's anticipated net interest revenue for
the 12 months period following June 30, 1994.
In response to tactical asset/liability management considerations, the
Corporation terminated $400 million and $1.025 billion, of interest rate
agreements in the second quarter and first half of 1994, respectively. Both
pay and receive fixed-rate interest rate agreements were terminated. All of
the terminated agreements were designated as deposit hedges, specifically
checking with interest accounts and retail savings certificates. The
terminated agreements were not replaced. These terminations resulted in net
deferred gains of $3 million in the first half of 1994. These gains will be
amortized over the remaining period of the original hedge, which is less
than one year. The amortization of these gains increased net interest
revenue by $1 million in the first half 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 $243 million and
$234 million, respectively, at June 30, 1994. The off-balance-sheet financial
instruments table on page 36 displays total off-balance-sheet instruments
entered into by the Corporation at June 30, 1994. The Corporation has entered
into $13,048 million notional amount of these contracts for interest rate
management purposes as shown on the tables above and on the previous page. The
notional value of off-balance-sheet instruments, used for interest rate
management purposes, decreased $1.4 billion from March 31, 1994, primarily as a
result of maturities. 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.
26
<PAGE> 28
LIQUIDITY AND DIVIDENDS
_______________________________________________________________________________
The Corporation's liquidity management strategy is to achieve an appropriate
balance between the maturities of its assets and liabilities. The Corporation
continually evaluates its funding needs and manages its liquidity position by
maintaining adequate levels of liquid assets, such as money market assets and
securities available for sale. Additional liquidity is available through the
Corporation's ability to participate or sell commercial loans and to securitize
selected loan portfolios. The Corporation also has a $200 million revolving
credit agreement and a $25 million backup line of credit to provide support
facilities for its commercial paper borrowings and for general corporate
purposes.
As shown in the Consolidated Statement of Cash Flows, cash and due from banks
decreased by $468 million during the first half of 1994 to $1.701 billion at
June 30, 1994. The decrease reflected the net use of $1,152 million of cash
for investing activities offset in part by $366 million of net cash provided by
operating activities and $310 million of net cash provided by financing
activities. Cash used for investing activities was largely the result of net
purchases of investment securities. 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 customer term deposits.
Cash provided by operating activities reflected $265 million of net income
adjusted for noncash charges and credits.
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 historically accounting for mergers under the
purchase method of accounting. 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. Net
income for the second quarter and first half of 1994, excluding the $19 million
and $40 million after-tax impact of the amortization expense of these
intangibles recorded in purchase acquisitions, would have been $153 million and
$305 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 second quarter of 1994. Excluding the $200 million Floating
Rate Notes due July 1994, contractual maturities of term debt will total $3
million in the second half of 1994. The Corporation expects to fund its debt
maturities with a combination of cash presently on hand, other internal funding
sources and, if necessary, with the proceeds from the public and/or private
issuance of securities.
The Corporation paid $101 million in dividends on its outstanding shares of
common and preferred stock during the first half of 1994. The common stock
dividend payout ratio was 31% in the second quarter of 1994, compared with 29%
in the second quarter of 1993. At current dividend rates, future annual
dividend requirements for the common and preferred stock are expected to be
approximately $205 million. Completion of the pending merger with Dreyfus will
increase the outstanding common shares of the Corporation by approximately 33
million shares which will result in an increase in annual common dividends of
approximately $72 million, at current dividend levels. This merger is also
expected to add approximately $750 million of cash and securities to the total
assets of the Corporation.
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
27
<PAGE> 29
LIQUIDITY AND DIVIDENDS (CONTINUED)
________________________________________________________________________________
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 June 30, 1994, of up to approximately $606
million, less any dividends declared and plus or minus net profits or losses,
as defined, between July 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
$95 million in the first half of 1994, $158 million in the full year 1993 and
$130 million in 1992. Dividends paid to the parent Corporation by nonbank
subsidiaries totaled $31 million in the first half 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.
28
<PAGE> 30
NONPERFORMING ASSETS
_______________________________________________________________________________
<TABLE>
<CAPTION>
JUNE 30, March 31, Dec. 31, Sept. 30, June 30,
(dollar amounts in millions) 1994 1994 1993 1993 1993
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Nonperforming loans $155 $196 $202 $234 $281
Acquired property, net of the OREO reserve 109 118 139 160 197
- -----------------------------------------------------------------------------------------------------------------------
Total nonperforming assets (a) $264 $314 $341 $394 $478
- -----------------------------------------------------------------------------------------------------------------------
Nonperforming loans as a percentage
of total loans .63% .80% .83% 1.00% 1.18%
Total nonperforming assets as a percentage
of total loans and net acquired property 1.06% 1.27% 1.39% 1.67% 1.99%
- -----------------------------------------------------------------------------------------------------------------------
<FN>
(a) Excludes segregated assets.
</TABLE>
"Nonperforming assets" is a term used to describe assets on which revenue
recognition has been discontinued or is restricted. Nonperforming assets
include both nonperforming loans and acquired property, primarily other real
estate owned (OREO), acquired in connection with the collection effort on
loans. Nonperforming loans include both nonaccrual and "troubled debt"
restructured loans. Past-due commercial loans are those that are contractually
past due 90 days or more, but are not on nonaccrual status because they are
well-secured and in the process of collection. Additional information regarding
nonperforming assets is presented in the "Nonperforming assets" discussion in
the Corporation's 1993 Annual Report on Form 10-K. Nonperforming assets do not
include the segregated assets acquired in the December 1992 Meritor branch
acquisition. Segregated assets represent commercial real estate and other
commercial loans acquired in the Meritor branch acquisition that are on
nonaccrual status, or are foreclosed properties, and are subject to a loss
sharing arrangement with the FDIC. These delinquent assets, net of reserve,
are reported separately in the balance sheet. The reserve for segregated
assets is not included in the reserve for credit losses.
Nonperforming assets continued to decrease in the second quarter of 1994,
reflecting the results of the Corporation's continued emphasis on loan quality.
At June 30, 1994, nonperforming assets totaled $264 million, the lowest level
in twelve years, down $50 million, or 16%, compared with March 31, 1994.
Domestic nonperforming real estate assets, which consist of nonperforming
commercial and consumer real estate loans and OREO net of the reserve, totaled
$204 million at June 30, 1994, down $37 million from $241 million at March 31,
1994. The reduction resulted primarily from returns to accrual status, asset
sales and repayments. The $10 million decrease in international nonperforming
loans resulted from the sale of loans made to a real estate developer.
Nonperforming assets decreased by $214 million, or 45%, compared with June 30,
1993, primarily due to the $178 million reduction in domestic nonperforming
real estate assets. These reductions resulted primarily from asset sales,
returns to accrual status and repayments. Commercial and financial
nonperforming loans decreased $27 million, from June 30, 1993, primarily due to
repayments and credit losses. The $8 million decrease in other assets
acquired, compared with the prior-year period, resulted from asset sales. The
ratio of nonperforming assets to total loans and net acquired property at June
30, 1994, was 1.06%, down from 1.99% at June 30, 1993.
29
<PAGE> 31
NONPERFORMING ASSETS (CONTINUED)
_______________________________________________________________________________
<TABLE>
______________________________________________________________________________________________________________________
NONPERFORMING AND PAST-DUE ASSETS (a)
<CAPTION>
JUNE 30, March 31, Dec. 31, Sept. 30, June 30,
(dollar amounts in millions) 1994 1994 1993 1993 1993
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Domestic nonaccrual loans:
Commercial and financial $ 43 $ 49 $ 37 $ 53 $ 78
Commercial real estate:
Commercial construction 3 11 33 35 27
Commercial mortgage 29 32 42 62 91
Consumer credit:
Consumer mortgage 61 67 61 68 73
Other consumer credit 2 3 4 6 1
- ----------------------------------------------------------------------------------------------------------------------
Total domestic nonaccrual loans 138 162 177 224 270
International nonaccrual loans 6 16 7 7 8
- ----------------------------------------------------------------------------------------------------------------------
Total nonaccrual loans 144 178 184 231 278
- ----------------------------------------------------------------------------------------------------------------------
Domestic restructured loans:
Commercial and financial 8 4 4 - -
Commercial real estate 3 14 14 3 3
- ----------------------------------------------------------------------------------------------------------------------
Total domestic restructured loans 11 18 18 3 3
- ----------------------------------------------------------------------------------------------------------------------
Total nonperforming loans:
Domestic 149 180 195 227 273
International 6 16 7 7 8
- ----------------------------------------------------------------------------------------------------------------------
Total nonperforming loans (b) 155 196 202 234 281
- ----------------------------------------------------------------------------------------------------------------------
Acquired property:
Real estate acquired through foreclosures 109 109 100 110 123
In-substance foreclosures 30 43 75 77 83
Reserve for real estate acquired (31) (35) (37) (28) (18)
- ----------------------------------------------------------------------------------------------------------------------
Net real estate acquired 108 117 138 159 188
Other assets acquired 1 1 1 1 9
- ----------------------------------------------------------------------------------------------------------------------
Total acquired property 109 118 139 160 197
- ----------------------------------------------------------------------------------------------------------------------
Total nonperforming assets $264 $314 $341 $394 $478
- ----------------------------------------------------------------------------------------------------------------------
Nonperforming loans as a percentage of
loan portfolio segments:
Domestic commercial and financial loans and leases .51% .53% .41% .61% .87%
Domestic commercial real estate loans 2.15 3.45 5.17 5.81 6.65
Domestic consumer mortgage loans .75 .83 .75 .82 .87
Total loans .63 .80 .83 1.00 1.18
Nonperforming assets as a percentage of
total loans and net acquired property 1.06 1.27 1.39 1.67 1.99
- ----------------------------------------------------------------------------------------------------------------------
Past-due loans:
Consumer credit $ 52 $ 53 $ 53 $ 51 $ 44
Real estate, primarily consumer mortgages 23 22 25 24 26
Commercial 43(c) 5 6 - -
- ----------------------------------------------------------------------------------------------------------------------
Total past-due loans $118 $ 80 $ 84 $ 75 $ 70
- ----------------------------------------------------------------------------------------------------------------------
<FN>
(a) Excludes segregated assets.
(b) Includes $47 million, $65 million, $74 million, $90 million and $101
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>
30
<PAGE> 32
NONPERFORMING ASSETS (CONTINUED)
________________________________________________________________________________
<TABLE>
_______________________________________________________________________________________________________________________
CHANGE IN NONPERFORMING LOANS (a)
FOR THE THREE MONTHS ENDED JUNE 30
<CAPTION>
Domestic
------------------------------------- Total
Commercial Commercial Consumer -------------------
(in millions) & Financial Real Estate Credit International 1994 1993
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Nonperforming loans at March 31 $ 53 $ 57 $ 70 $ 16 $196 $304
Acquired from The Boston Company - - - - - 53
Additions 16 2 8 - 26 73
Payments (b) (12) (6) (4) (10) (32) (30)
Return to accrual status (2) (15) (6) - (23) (73)
Credit losses (4) (3) (2) - (9) (38)
Transfers to acquired property - - (3) - (3) (8)
- ----------------------------------------------------------------------------------------------------------------------------
Nonperforming loans at June 30 $ 51 $ 35 $ 63 $ 6 $155 $281
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
FOR THE SIX MONTHS ENDED JUNE 30
<CAPTION>
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
Additions 42 3 28 13 86 132
Payments (b) (17) (10) (12) (10) (49) (55)
Return to accrual status (2) (42) (8) - (52) (88)
Credit losses (13) (5) (6) (3) (27) (70)
Transfers to acquired property - - (4) (1) (5) (25)
- ----------------------------------------------------------------------------------------------------------------------------
Nonperforming loans at June 30 $ 51 $ 35 $ 63 $ 6 $155 $281
- ----------------------------------------------------------------------------------------------------------------------------
<FN>
(a) Excludes segregated assets.
(b) Includes interest applied to principal and sales.
</TABLE>
<TABLE>
____________________________________________________________________________________________________________________________
ADDITIONAL DOMESTIC NONACCRUAL LOAN DATA (a)
<CAPTION>
June 30,
(dollar amounts in millions) 1994 1993
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Book balance $138 $270
Contractual balance of nonaccrual loans 218 382
Book balance as a percentage of
contractual balance 63% 71%
Interest receipts applied to reduce principal
Second quarter $ 2 $ 4
Year-to-date 5 7
Interest receipts recognized in interest revenue
Second quarter 3 3
Year-to-date 5 5
- ---------------------------------------------------------------------------------------------------------------------------
<FN>
(a) Excludes segregated assets.
</TABLE>
31
<PAGE> 33
NONPERFORMING ASSETS (CONTINUED)
_______________________________________________________________________________
Acquired property consists of OREO and other assets acquired in connection with
loan settlements. OREO, net of the reserve, totaled $108 million at June 30,
1994, compared with $117 million at March 31, 1994, and $188 million at June
30, 1993. Sales of acquired property during the second quarter and first half
of 1994 resulted in net gains of $3 million and $12 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 Six months
ended June 30, ended June 30,
(in millions) 1994 1993 1994 1993
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
OREO at beginning of period, net of reserve $117 $216 $138 $240
OREO acquired from The Boston Company - 15 - 15
Foreclosures (b) 3 9 6 32
Sales (13) (36) (31) (48)
Return to performing - - - (11)
Write-downs, credit losses, OREO
provision and other 1 (16) (5) (40)
- ----------------------------------------------------------------------------------------------------------------------
OREO at end of period, net of reserve 108 188 108 188
- ----------------------------------------------------------------------------------------------------------------------
Other acquired assets 1 9 1 9
- ----------------------------------------------------------------------------------------------------------------------
Total acquired property at end of period, net of reserve $109 $197 $109 $197
- ----------------------------------------------------------------------------------------------------------------------
<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 Six months
ended June 30, ended June 30,
(in millions) 1994 1993 1994 1993
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Beginning balance $ 35 $ 19 $ 37 $ 10
Write-downs on real estate acquired (4) (10) (6) (22)
Provision charged to operating expense - 9 - 30
- ----------------------------------------------------------------------------------------------------------------------
Ending balance $ 31 $ 18 $ 31 $ 18
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
In May 1993, the Financial Accounting Standards Board released FAS No. 114,
"Accounting by Creditors for Impairment of a Loan." FAS No. 114 establishes
standards to determine in what circumstances a creditor should measure
impairment of a loan based on either the present (discounted) value of expected
future cash flows related to the loan, the market price of the loan or the fair
value of the underlying collateral. This standard will become effective in
1995. The Corporation currently estimates that adoption of FAS No. 114 will
not be material to the Corporation's financial position or results of
operations. The existing impaired loans at the date of adoption, however, will
determine the actual impact on the Corporation.
32
<PAGE> 34
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 JUNE 30, March 31, Dec. 31, June 30,
(in millions) 1994 1994 1993 1993
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Nonaccrual loans:
Commercial real estate loans $ 61 $ 78 $ 84 $ 161
Commercial loans 22 26 28 35
- ---------------------------------------------------------------------------------------------------------------------
Total nonaccrual loans 83 104 112 196
- ---------------------------------------------------------------------------------------------------------------------
Real estate acquired 68 72 75 73
- ---------------------------------------------------------------------------------------------------------------------
Total segregated assets 151 176 187 269
Less: FDIC loss sharing (a) (143) (167) (178) (256)
- ---------------------------------------------------------------------------------------------------------------------
Maximum credit exposure $ 8 $ 9 $ 9 $ 13
- ---------------------------------------------------------------------------------------------------------------------
CREDIT LOSS ACTIVITY
- ---------------------------------------------------------------------------------------------------------------------
Segregated asset losses:
Commercial real estate loans $ - $ - $ 10 $ -
Commercial loans - - 4 -
- ---------------------------------------------------------------------------------------------------------------------
Total - - 14 -
- ---------------------------------------------------------------------------------------------------------------------
Segregated asset recoveries - - - -
- ---------------------------------------------------------------------------------------------------------------------
Segregated asset losses $ - $ - $ 14 $ -
- ---------------------------------------------------------------------------------------------------------------------
CHANGE IN RESERVE FOR SEGREGATED ASSETS
- ---------------------------------------------------------------------------------------------------------------------
Reserve for segregated assets at beginning of period $ 4 $ 4 $ 18 $ 5
Segregated asset losses - - 14 -
- ---------------------------------------------------------------------------------------------------------------------
Reserve at end of period (b) $ 4 $ 4 $ 4 $ 5
- ---------------------------------------------------------------------------------------------------------------------
Past-due loans subject to loss-sharing $ - $ - $ - $ -
- ---------------------------------------------------------------------------------------------------------------------
<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 June 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. Total net credit losses
on segregated assets, before FDIC loss sharing, were $5 million and $6
million in the second quarter and first half of 1994.
(b) This reserve is not included in the reserve for credit losses.
</TABLE>
33
<PAGE> 35
COMMERCIAL REAL ESTATE LENDING
________________________________________________________________________________
The Corporation's $1.622 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 $192 million of loans acquired in the December 1992
Meritor branch acquisition that are subject to a five year 95% loss-sharing
arrangement with the Federal Deposit Insurance Corporation. Domestic
commercial real estate loans decreased by approximately $191 million, or 11%,
compared with $1.813 billion at June 30, 1993. The decrease was primarily a
result of paydowns, transfers to OREO and credit losses. Domestic commercial
real estate loan commitments originated totaled $14 million in the second
quarter of 1994 and $53 million in the first half of 1994. Commercial real
estate loan commitments were $289 million at June 30, 1994, compared with $313
million at March 31, 1994, and $305 million at June 30, 1993. Domestic
commercial real estate loans were 7% of total loans at June 30, 1994, down from
8% a year earlier. Nonperforming domestic commercial real estate loans were
2.15% of total domestic commercial real estate loans at June 30, 1994, compared
with 6.65% at June 30, 1993.
<TABLE>
_______________________________________________________________________________________________________________________
DISTRIBUTION OF DOMESTIC COMMERCIAL REAL ESTATE LOANS BY SIZE AT JUNE 30, 1994
<CAPTION>
(dollar amounts in millions)
- -----------------------------------------------------------------------------------------------------------------------
Percent
Principal of total
amounts Outstandings outstandings
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Less than $10 $1,135 70%
$10 to $20 275 (a) 17
$20 to $40 153 (b) 9
$40 to $60 59 (c) 4
- -----------------------------------------------------------------------------------------------------------------------
Total $1,622 100%
- -----------------------------------------------------------------------------------------------------------------------
<FN>
(a) Represents loans to 20 borrowers.
(b) Represents loans to 5 borrowers.
(c) Represents a loan to a single borrower.
</TABLE>
34
<PAGE> 36
COMMERCIAL REAL ESTATE LENDING (CONTINUED)
_______________________________________________________________________________
Distribution of domestic commercial real estate loans at June 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 $179 $ 46 $ 46 $36 $12 $6 $ 325
Retail 104 69 30 22 11 - 236
Hotels 57 48 9 6 12 - 132
Industrial 38 2 2 5 2 - 49
Undeveloped land 5 17 9 8 - - 39
Apartments 27 - 6 - 3 - 36
Health care 10 - - 4 4 - 18
Other project types 77 - - - 3 - 80
- -----------------------------------------------------------------------------------------------------------------
Subtotal $497(a) $182(b) $102(c) $81(d) $47(e) $6 $ 915
FDIC loss-share loans 192(f)
Owner-occupied loans 515(g)
- -----------------------------------------------------------------------------------------------------------------
Total $1,622
- -----------------------------------------------------------------------------------------------------------------
<FN>
(a) Includes $367 million of loans to borrowers located in Pennsylvania.
(b) Includes $63 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 $24 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 June 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 $ 9 $19 $10 $ - $20 $8 $ - $ 66
Retail 4 10 - 9 - - 16 39
Office complexes (a) 25 1 1 - 8 - - 35
Other project types 29 2 - 2 1 - - 34
- -----------------------------------------------------------------------------------------------------------------
Total by region $67(b) $32(c) $11(d) $11(e) $29(f) $8 $16 $174(g)
- -----------------------------------------------------------------------------------------------------------------
<FN>
(a) Includes certain multi-use projects.
(b) Includes $19 million of nonperforming loans to borrowers and $19 million
of OREO located in Pennsylvania.
(c) Includes $22 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 $24 million of OREO located in Texas.
(g) Excludes segregated assets, as well as the reserve for real estate
acquired of $31 million.
</TABLE>
35
<PAGE> 37
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 25 and 26. 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 JUNE 30, March 31, Dec. 31, Sept. 30, June 30,
(in millions) 1994 1994 1993 1993 1993
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Financial instruments with contract amounts that
represent credit risk:
Commitments to extend credit $13,263(a) $13,148 $12,507 $12,324 $12,419
Standby letters of credit and foreign guarantees 3,154(b) 3,345 2,952 2,896 2,944
Commercial letters of credit 166 155 140 148 152
Residential mortgage loans serviced with recourse 203 303 546 462 377
Custodian securities lent with indemnification 13,515 12,526 11,152 11,994 9,414
Financial instruments with notional or contract
amounts that exceed the amount of credit risk(c):
Foreign currency contracts:
Commitments to purchase 9,183 10,237 9,219 9,517 9,161
Commitments to sell 9,206 10,131 9,216 9,512 9,166
Foreign currency and other option contracts written:
Commitments to purchase 338 192 354 314 303
Commitments to sell 235 114 175 171 194
Foreign currency and other option contracts purchased:
Commitments to purchase 297 201 345 340 301
Commitments to sell 449 375 161 164 161
Futures and forward contracts:
Commitments to purchase 330 1,423 107 602 3,791
Commitments to sell 714 1,020 426 611 393
Interest rate agreements (notional principal amounts):
Interest rate swaps 16,846 17,173 13,647 12,564 11,473
Other interest rate products 4,475 4,175 2,560 1,564 1,781
Forward rate agreements 202 334 595 458 480
- -------------------------------------------------------------------------------------------------------------------
<FN>
(a) Approximately 32% of these commitments are scheduled to expire within one
year, with an additional 54% scheduled to expire within five years.
(b) Net of participations and cash collateral totaling $269 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>
36
<PAGE> 38
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
Mellon Bank Corporation (and its subsidiaries)
- ---------------------------------------------------------------------------------------------------------------------
JUNE 30, Dec. 31, June 30,
(dollar amounts in millions) 1994 1993 1993
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Assets Cash and due from banks $ 1,701 $ 2,169 $ 1,875
Interest-bearing deposits with banks 756 893 1,667
Federal funds sold and securities purchased under
agreements to resell 375 574 838
Trading account securities 365 116 165
Securities available for sale (approximate
fair value of $2,920 and $2,705 at Dec. 31, 1993 and
June 30, 1993) 2,756 2,916 2,691
Investment securities (approximate fair value
of $3,085, $2,139 and $2,260) 3,217 2,096 2,194
Loans, net of unearned discount of $70, $74 and $48 24,726 24,473 23,844
Reserve for credit losses (609) (600) (586)
------------------------------------------------------------------------------------------------------
Net loans 24,117 23,873 23,258
Customers' acceptance liability 138 146 120
Premises and equipment 449 463 491
Acquired property, net of reserves of $31, $37 and $18 109 139 197
Goodwill 775 825 768
Core deposit and other identified intangibles recorded in
connection with acquisitions 234 258 311
Purchased mortgage servicing rights and
purchased credit card relationships 259 204 195
Segregated assets, net of reserves of $4, $4 and $5 147 183 264
Other assets 1,576 1,284 1,132
------------------------------------------------------------------------------------------------------
Total assets $36,974 $36,139 $36,166
------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
Liabilities Noninterest-bearing deposits in domestic offices $ 5,771 $ 6,905 $ 6,099
Interest-bearing deposits in domestic offices 18,545 19,450 19,914
Interest-bearing deposits in foreign offices 1,867 1,183 1,294
------------------------------------------------------------------------------------------------------
Total deposits 26,183 27,538 27,307
Federal funds purchased and securities sold under
agreements to repurchase 1,631 978 1,116
U.S. Treasury tax and loan demand notes 1,607 712 126
Commercial paper 119 134 229
Other funds borrowed 594 302 1,100
Acceptances outstanding 138 146 129
Other liabilities 1,322 1,026 900
Notes and debentures (with original maturities over one year) 1,921 1,990 2,013
------------------------------------------------------------------------------------------------------
Total liabilities 33,515 32,826 32,920
- ---------------------------------------------------------------------------------------------------------------------
Shareholders' Preferred stock 592 592 660
equity Common shareholders' equity:
Common stock - $.50 par value
Authorized - 200,000,000 shares
Issued - 63,924,983; 63,843,493; and 63,337,695 shares 32 32 32
Additional paid-in capital 1,780 1,774 1,753
Retained earnings 1,055 898 764
Warrants 37 37 37
Net unrealized loss on assets
available for sale (net of taxes) (32) - -
Treasury stock - 95,502 and 365,700 shares at cost (5) (20) -
------------------------------------------------------------------------------------------------------
Total common shareholders' equity 2,867 2,721 2,586
------------------------------------------------------------------------------------------------------
Total shareholders' equity 3,459 3,313 3,246
------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $36,974 $36,139 $36,166
------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying Notes to Financial Statements.
37
<PAGE> 39
CONSOLIDATED INCOME STATEMENT
<TABLE>
<CAPTION>
Mellon Bank Corporation (and its subsidiaries)
- ---------------------------------------------------------------------------------------------------------------------
Six months ended
----------------------
JUNE 30, June 30,
(in millions, except per share amounts) 1994 1993
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest revenue Loans $ 833 $721
Loan fees 47 41
Interest-bearing deposits with banks 19 33
Federal funds sold and securities purchased
under agreements to resell 13 27
Trading account securities 13 9
Securities 124 126
-------------------------------------------------------------------------------------------------
Total interest revenue 1,049 957
- ---------------------------------------------------------------------------------------------------------------------
Interest expense Deposits in domestic offices 192 206
Deposits in foreign offices 27 19
Federal funds purchased and securities sold
under agreements to repurchase 23 16
U.S. Treasury tax and loan demand notes 11 3
Commercial paper 2 4
Other funds borrowed 19 17
Notes and debentures 56 61
-------------------------------------------------------------------------------------------------
Total interest expense 330 326
- ---------------------------------------------------------------------------------------------------------------------
Net interest Net interest revenue 719 631
revenue Provision for credit losses 40 70
-------------------------------------------------------------------------------------------------
Net interest revenue after provision for credit losses 679 561
- ---------------------------------------------------------------------------------------------------------------------
Noninterest Fee revenue 679 513
revenue Gains on sale of securities - 87
-------------------------------------------------------------------------------------------------
Total noninterest revenue 679 600
- ---------------------------------------------------------------------------------------------------------------------
Operating Staff expense 425 329
expense Net occupancy expense 92 76
Professional, legal and other purchased services 90 61
Business development 67 32
Equipment expense 61 52
Amortization of goodwill, core deposit and other identified intangibles
recorded in connection with acquisitions 50 33
Communications expense 38 33
FDIC assessment and regulatory examination fees 32 29
Amortization of purchased mortgage servicing rights and
purchased credit card relationships 21 21
Other expense 62 45
Net expense (revenue) of acquired property (11) 38
Merger expenses - 175
-------------------------------------------------------------------------------------------------
Total operating expense 927 924
- ---------------------------------------------------------------------------------------------------------------------
Income Income before income taxes 431 237
Provision for income taxes 166 104
-------------------------------------------------------------------------------------------------
Net income 265 133
Dividends on preferred stock 30 31
-------------------------------------------------------------------------------------------------
Net income applicable to common stock $ 235 $102
-------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
Per common share Primary net income $3.57 $1.63
Fully diluted net income $3.57 $1.63
-------------------------------------------------------------------------------------------------
</TABLE>
See accompanying Notes to Financial Statements.
38
<PAGE> 40
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
Three months ended
- ----------------------------------------------------------------------------------------------------------------------
JUNE 30, March 31, Dec. 31, Sept. 30, June 30,
1994 1994 1993 1993 1993
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$427 $406 $395 $401 $363
17 30 16 13 16
9 10 11 18 18
7 6 12 15 17
6 7 2 4 5
66 58 59 58 58
- ----------------------------------------------------------------------------------------------------------------------
532 517 495 509 477
- ----------------------------------------------------------------------------------------------------------------------
100 92 100 108 98
17 10 10 11 10
13 10 8 9 9
7 4 1 2 2
1 1 1 1 3
9 10 7 10 10
28 28 29 31 31
- ----------------------------------------------------------------------------------------------------------------------
175 155 156 172 163
- ----------------------------------------------------------------------------------------------------------------------
357 362 339 337 314
20 20 25 30 35
- ----------------------------------------------------------------------------------------------------------------------
337 342 314 307 279
- ----------------------------------------------------------------------------------------------------------------------
336 343 342 334 281
- - - - -
- ----------------------------------------------------------------------------------------------------------------------
336 343 342 334 281
- ----------------------------------------------------------------------------------------------------------------------
210 215 207 209 174
47 45 47 45 39
47 43 44 45 30
30 37 26 17 17
28 33 32 29 26
23 27 22 24 17
18 20 19 19 17
16 16 16 15 15
10 11 10 12 13
30 32 41 34 30
(3) (8) 7 14 13
- - - - -
- ----------------------------------------------------------------------------------------------------------------------
456 471 471 463 391
- ----------------------------------------------------------------------------------------------------------------------
217 214 185 178 169
83 83 71 64 70
- ----------------------------------------------------------------------------------------------------------------------
134 131 114 114 99
15 15 16 16 16
- ----------------------------------------------------------------------------------------------------------------------
$119 $116 $ 98 $ 98 $ 83
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
$1.80 $1.77 $1.50 $1.50 $1.32
$1.80 $1.77 $1.50 $1.50 $1.32
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
39
<PAGE> 41
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Mellon Bank Corporation (and its subsidiaries)
- ---------------------------------------------------------------------------------------------------------------------
Six months ended
June 30,
(in millions) 1994 1993
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from Net income $ 265 $ 133
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 50 33
Amortization of purchased mortgage servicing rights
and purchased credit card relationships 21 21
Depreciation and other amortization 41 38
Provision for credit losses 40 70
Provision for real estate acquired and other losses - 39
Merger expenses - 175
Net gains on dispositions of acquired property (12) (4)
Net (increase) decrease in accrued interest receivable (15) 53
Deferred income tax expense 45 43
Net increase in trading account securities activity (244) (55)
Net increase (decrease) in accrued interest payable,
net of amounts prepaid 16 (1)
Net decrease in residential mortgages held for sale 220 6
Net increase (decrease) in other operating activities (61) 63
-------------------------------------------------------------------------------------------
Net cash provided by operating activities 366 614
- ---------------------------------------------------------------------------------------------------------------------
Cash flows from Net decrease in term deposits 137 279
investing activities Net (increase) decrease in federal funds sold and
securities purchased under agreements to resell 199 (562)
Funds invested in securities available for sale (5,655) (4,529)
Proceeds from sales of securities available for sale 715 6,058
Proceeds from maturities of securities available for sale 5,093 676
Funds invested in investment securities (1,409) (36)
Proceeds from maturities of investment securities 286 15
Net increase in credit card receivables (151) (1)
Net principal collected (disbursed) on loans to customers (318) 260
Loan portfolio purchases (136) -
Proceeds from the sale of loan portfolios 78 18
Purchases of premises and equipment (39) (49)
Proceeds from sales of premises and equipment 1 2
Proceeds from sales of acquired property 45 56
Cash paid in purchase of The Boston Company, net of cash received - (1,134)
Net decrease in other investing activities 2 57
--------------------------------------------------------------------------------------------
Net cash provided (used) in investing activities (1,152) 1,110
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
40
<PAGE> 42
CONSOLIDATED STATEMENT OF CASH FLOWS (CONTINUED)
<TABLE>
<CAPTION>
Mellon Bank Corporation (and its subsidiaries)
- ---------------------------------------------------------------------------------------------------------------------
Six months ended
June 30,
(in millions) 1994 1993
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from Net decrease in transaction and savings deposits (940) (42)
financing activities Net decrease in customer term deposits (415) (1,639)
Net increase (decrease) in federal funds purchased and
securities sold under agreements to repurchase 653 (538)
Net increase (decrease) in U.S. Treasury tax and loan demand notes 895 (151)
Net increase (decrease) in commercial paper (15) 50
Repurchase and repayments of longer-term debt (70) (278)
Net proceeds from issuance of longer-term debt - 701
Net proceeds from issuance of common and preferred stock 10 476
Dividends paid on common and preferred stock (101) (75)
Net increase (decrease) in other financing activities 293 (337)
--------------------------------------------------------------------------------------------
Net cash provided (used) in financing activities 310 (1,833)
Effect of foreign currency exchange rates 8 10
- ---------------------------------------------------------------------------------------------------------------------
Change in cash and Net decrease in cash and due from banks (468) (99)
due from banks Cash and due from banks at beginning of period 2,169 1,974
--------------------------------------------------------------------------------------------
Cash and due from banks at end of period $ 1,701 $ 1,875
--------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
Supplemental Interest paid $314 $296
disclosures Net income taxes paid 141 79
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying Notes to Financial Statements.
41
<PAGE> 43
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Mellon Bank Corporation (and its subsidiaries)
- ---------------------------------------------------------------------------------------------------------------------
Six months ended
June 30,
(dollar amounts in millions, except per share amounts) 1994 1993
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Shareholders' equity Balance at beginning of period $3,313 $2,557
Net income 265 133
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 - (2)
Series D (3) (2)
Series H (8) (8)
Series I (7) (7)
Series J (4) (4)
Series K (8) (8)
Dividends on common stock at $1.12 per share
in 1994 and $.76 per share in 1993 (71) (46)
Common stock issued under dividend reinvestment and
common stock purchase plan 6 29
Exercise of warrants - 19
Exercise of stock options 4 5
Unrealized loss, net of tax, on assets classified as available
for sale (32) -
Other, including foreign currency translation 4 6
--------------------------------------------------------------------------------------------
Balance at end of period $3,459 $3,246
--------------------------------------------------------------------------------------------
</TABLE>
See accompanying Notes to Financial Statements.
42
<PAGE> 44
NOTES TO FINANCIAL STATEMENTS
Note 1 -- Basis of presentation
The unaudited consolidated financial statements of the Corporation
are prepared in accordance with generally accepted accounting
principles for interim financial information and with the
instructions to Form 10-Q and Rule 10-01 of Regulation S-X. These
financial statements should be read in conjunction with the
Corporation's 1993 Annual Report on Form 10-K. In the opinion of
management, all normal recurring adjustments necessary for a fair
presentation of the financial position and results of operations
for the periods have been included.
Note 2 -- Adoption of Financial Accounting Standards
The Corporation adopted FAS No. 112, "Employers' Accounting for
Postemployment Benefits," FAS No. 115, "Accounting for Certain
Investments in Debt and Equity Securities," and FASB Interpretation
No. 39, "Offsetting of Amounts Related to Certain Contracts," on a
prospective basis in the first quarter of 1994.
The effect of adopting FAS No. 112 was immaterial to operating
expense in the second quarter of 1994, but resulted in an
approximately $1 million increase in operating expense and a
reduction in primary net income per common share of approximately
$.01 in the first half of 1994.
At June 30, 1994, the adjustments to fair value required by FAS No.
115 were unrealized losses of $26 million on securities available
for sale and $23 million on loans with a corresponding reduction in
shareholders' equity of $32 million, net of tax, a $17 million
increase from March 31, 1994. The reduction in loans related to
the valuation of approximately $159 million (carrying value before
adjustment) of Mexican Brady bonds. No reclassifications of assets
were made to adopt this new accounting standard.
Implementation of Interpretation No. 39 increased the Corporation's
assets and liabilities by $249 million at June 30, 1994.
43
<PAGE> 45
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
________________________________________________________________________________
Note 3 -- Securities
<TABLE>
<CAPTION>
SECURITIES AVAILABLE FOR SALE
- ---------------------------------------------------------------------------------------------------------------------------------
JUNE 30, 1994 June 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 $ 627 $ - $ - $ 627 $2,261 $ 4 $- $2,265
U.S. agency mortgage-backed 542 1 31 512 62 5 - 67
Other U.S. agency 1,560 1 - 1,561 199 1 - 200
- ---------------------------------------------------------------------------------------------------------------------------------
Total U.S. Treasury
and agency securities 2,729 2 31 2,700 2,522 10 - 2,532
Other mortgage-backed 14 - - 14 30 - - 30
Other securities 39 3 - 42 139 4 - 143
- ---------------------------------------------------------------------------------------------------------------------------------
Total securities available for sale $2,782 $5 $31 $2,756 $2,691 $14 $- $2,705
- ---------------------------------------------------------------------------------------------------------------------------------
<FN>
Note: There were no gross realized gains or losses on the sale of securities
available for sale in the second quarter and first half of 1994. Gross
realized gains on the sale of securities available for sale were $87 million in
the first half of 1993. Proceeds from the sale of securities available for
sale totaled $715 million in the second quarter and first half of 1994.
Proceeds from the sale of securities available for sale totaled $2.060 billion
and $6.058 billion in the second quarter and first half of 1993, respectively.
Sales of securities available for sale in the second quarter of 1994 and 1993
consisted primarily of U.S. Treasury bills with resultant gross gains of
approximately $1 million in the second quarter of 1993 recognized as an
adjustment to the Corporation's interest revenue. At June 30, 1994, net
unrealized losses of $26 million net of its tax effect is recorded in
shareholders' equity in accordance with FAS No. 115.
</TABLE>
<TABLE>
<CAPTION>
INVESTMENT SECURITIES
- ---------------------------------------------------------------------------------------------------------------------------------
JUNE 30, 1994 June 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 $ 17 $- $ 1 $ 16 $ 17 $ - $- $ 17
U.S. agency mortgage-backed 3,061 3 134 2,930 1,879 65 - 1,944
- ---------------------------------------------------------------------------------------------------------------------------------
Total U.S. Treasury
and agency securities 3,078 3 135 2,946 1,896 65 - 1,961
Other mortgage-backed 55 - - 55 174 1 - 175
Other investment securities 84 - - 84 124 - - 124
- ---------------------------------------------------------------------------------------------------------------------------------
Total investment securities $3,217 $3 $135 $3,085 $2,194 $66 $- $2,260
- ---------------------------------------------------------------------------------------------------------------------------------
<FN>
Note: There were no sales of investment securities during the second quarters
and first six months of 1994 or 1993.
</TABLE>
<TABLE>
<CAPTION>
Note 4 -- Other assets
JUNE 30, Dec. 31, June 30,
(in millions) 1994 1993 1993
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Prepaid expense $ 283 $ 265 $ 267
Interest receivable 169 154 169
Accounts receivable 159 131 207
Receivables related to
off-balance-sheet instruments 249 - -
Other 716 734 489
- ----------------------------------------------------------------------------------------------------------------------
Total other assets $1,576 $1,284 $1,132
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
44
<PAGE> 46
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
________________________________________________________________________________
Note 5 -- Preferred stock
The following table summarizes the Corporation's preferred stock
outstanding at June 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 JUNE 30, Dec. 31, June 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 4,388,117 2,236,226 2 2 2
10.40% preferred stock (Series H) 25 6,400,000 6,400,000 155 155 155
9.60% preferred stock (Series I) 25 6,000,000 6,000,000 145 145 145
8.50% preferred stock (Series J) 25 4,000,000 4,000,000 97 97 97
8.20% preferred stock (Series K) 25 8,000,000 8,000,000 193 193 193
---- ---- ----
Total preferred stock $592 $592 $660
==== ==== ====
<FN>
______________________________________________________________________________________________________________________
(a) The Series D junior convertible preferred stock will be converted to common stock in the third quarter of 1994.
</TABLE>
Note 6 -- 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>
----------------------------------------------------------------------------------------------------------
Six months ended
June 30,
(in millions) 1994 1993
----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net transfers to real estate acquired $6 $ 21
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
Net transfers to segregated assets - 143
---------------------------------------------------------------------------------------------------------
</TABLE>
Note 7 -- Commitment to merge with The Dreyfus Corporation
On December 5, 1993, the Corporation entered into a definitive
agreement to merge with The Dreyfus Corporation. A detailed
discussion of this merger is presented in the "Pending Merger with
The Dreyfus Corporation" section on page 4.
45
<PAGE> 47
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
________________________________________________________________________________
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.
Note 9 -- Computation of primary and fully diluted net income per common share
<TABLE>
<CAPTION>
Three months Six months
(dollar amounts in millions, except per ended June 30, ended June 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) $120 $84 $237 $104
- ----------------------------------------------------------------------------------------------------------------------
Stock and stock equivalents (average shares):
Common shares outstanding 63,729 61,852 63,642 60,379
Common shares issuable upon conversion
of Series D preferred stock 1,702 1,607 1,702 1,607
Other common stock equivalents, net of shares
assumed to be repurchased under the treasury
stock method (b):
Stock options 802 1,189 770 1,231
Warrants 399 183 343 227
Common stock subscription rights - 143 - 144
Series D preferred stock subscription rights 1 57 1 57
- ----------------------------------------------------------------------------------------------------------------------
Total stock and stock equivalents 66,633 65,031 66,458 63,645
- ----------------------------------------------------------------------------------------------------------------------
Primary net income per common share (c) $1.80 $1.32 $3.57 $1.63
- ----------------------------------------------------------------------------------------------------------------------
FULLY DILUTED NET INCOME PER COMMON SHARE
Net income applicable to common stock (a) $120 $84 $237 $104
- ----------------------------------------------------------------------------------------------------------------------
Stock, stock equivalents and potentially
dilutive items (average shares):
Common shares outstanding 63,729 61,852 63,642 60,379
Common shares issuable upon conversion of
Series D preferred stock 1,702 1,607 1,702 1,607
Other common stock equivalents, net of shares
assumed to be repurchased under the treasury
stock method (d) 1,202 1,572 1,114 1,659
7 1/4% Convertible Subordinated Capital Notes 90 90 90 92
- ----------------------------------------------------------------------------------------------------------------------
Total stock, stock equivalents
and other dilutive items 66,723 65,121 66,548 63,737
- ----------------------------------------------------------------------------------------------------------------------
Fully diluted net income per common share (c) $1.80 $1.32 $3.57 $1.63
- ----------------------------------------------------------------------------------------------------------------------
<FN>
See footnotes on following page.
</TABLE>
46
<PAGE> 48
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 second quarter of 1994 and 1993, and $2 million in both the first half
of 1994 and 1993. 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) Shares were assumed to be repurchased at the average common share price of
$57.57 in the second quarter of 1994, $56.33 in the first half of 1994,
$56.40 in the second quarter of 1993 and $56.94 in the first half of 1993.
(c) Calculated based on unrounded numbers.
(d) Since the average share price was greater than the ending share price for
all periods shown, the other common stock equivalents, net of shares
assumed to be repurchased under the treasury stock method is the same for
both primary and fully diluted net income per common share.
47
<PAGE> 49
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEET -- AVERAGE BALANCES AND INTEREST YIELDS/RATES
- ------------------------------------------------------------------------------------------------------------------------
Six months ended
------------------------------------------------
JUNE 30, 1994 June 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 $ 970 3.86% $ 1,914 3.51%
Federal funds sold and securities purchased
under agreements to resell 809 3.31 1,827 2.99
Trading account securities 445 5.82 303 5.99
Securities:
U.S. Treasury and agency securities 4,376 5.46 4,079 5.81
Other 226 5.25 315 5.38
Loans, net of unearned discount 24,435 7.30 20,263 7.63
------ ------
Total interest-earning assets 31,261 6.80% 28,701 6.76%
Cash and due from banks 2,463 2,109
Customers' acceptance liability 134 136
Premises and equipment 457 450
Net acquired property 123 229
Other assets 3,048 2,190
Reserve for credit losses (609) (531)
--------------------------------------------------------------------------------------------------------
Total assets $36,877 $33,284
- -------------------------------------------------------------------------------------------------------------------------
Liabilities Interest-bearing liabilities:
and Deposits in domestic offices:
shareholders' Demand (a) $ 2,158 (.71)% $ 1,965 .15%
equity Money market and other savings accounts 9,710 1.69 7,832 1.70
Retail savings certificates 6,632 3.33 7,919 3.26
Other time deposits 327 5.07 375 5.66
Deposits in foreign offices 1,427 3.78 945 4.15
------- ------
Total interest-bearing deposits 20,254 2.17 19,036 2.39
Federal funds purchased and securities sold
under agreements to repurchase 1,350 3.44 1,007 3.06
U.S. Treasury tax and loan demand notes 642 3.39 218 2.80
Commercial paper 124 3.60 230 3.25
Other funds borrowed 544 7.21 536 6.45
Notes and debentures (with original maturities
over one year) 1,944 5.84 1,908 6.49
------- ------
Total interest-bearing liabilities 24,858 2.68% 22,935 2.87%
Total noninterest-bearing deposits 7,108 6,356
Acceptances outstanding 134 138
Other liabilities 1,393 820
--------------------------------------------------------------------------------------------------------
Total liabilities 33,493 30,249
--------------------------------------------------------------------------------------------------------
Shareholders' equity 3,384 3,035
--------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $36,877 $33,284
- -------------------------------------------------------------------------------------------------------------------------
Rates Yield on total interest-earning assets 6.80% 6.76%
Cost of funds supporting interest-earning assets 2.13% 2.29%
-----------------------------------------------------------------------------------------------------
Net interest margin:
Taxable equivalent basis 4.67% 4.47%
Without taxable equivalent increments 4.64% 4.43%
-----------------------------------------------------------------------------------------------------
<FN>
(a) In the first half 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>
48
<PAGE> 50
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
Three months ended
- ------------------------------------------------------------------------------------------------------------------------------
JUNE 30, 1994 March 31, 1994 Dec. 31, 1993 Sept. 30, 1993 June 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>
$ 900 4.08% $ 1, 042 3.67% $ 1,207 3.65% $ 1,855 3.66% $ 2,137 3.41%
776 3.64 842 3.01 1,579 3.08 1,967 3.05 2,340 2.94
386 6.15 504 5.57 206 4.98 266 5.67 312 6.12
4,578 5.54 4,171 5.36 4,186 5.15 3,541 5.49 3,755 5.68
207 5.35 246 5.16 355 4.63 834 4.48 381 5.02
24,245 7.38 24,627 7.22 23,220 7.05 23,223 7.13 20,623 7.42
------ ------ ------ ------ -------
31,092 6.89% 31,432 6.70% 30,753 6.41% 31,686 6.41% 29,548 6.51%
2,377 2,551 2,330 2,105 2,177
132 137 133 127 143
454 459 482 492 460
116 130 150 185 212
3,010 3,087 2,518 2,565 2,429
(610) (610) (597) (598) (548)
- ------------------------------------------------------------------------------------------------------------------------------
$36,571 $37,186 $35,769 $36,562 $34,421
- ------------------------------------------------------------------------------------------------------------------------------
$ 2,157 (.66)% $ 2,158 (.76)% $ 2,117 (.01)% $ 2,086 .15% $ 1,993 .03%
9,563 1.84 9,859 1.55 9,660 1.53 9,602 1.72 8,139 1.63
6,552 3.45 6,712 3.20 6,992 3.14 7,405 3.10 7,692 3.13
307 4.13 347 5.91 461 6.65 477 5.87 391 5.30
1,685 3.97 1,167 3.50 1,096 3.57 1,108 3.77 1,084 3.78
------ ------ ------ ------ -------
20,264 2.31 20,243 2.04 20,326 2.15 20,678 2.26 19,299 2.25
1,406 3.83 1,293 3.01 1,150 2.85 1,215 3.09 1,050 3.07
689 3.69 594 3.03 222 2.86 240 2.91 215 2.77
138 3.88 111 3.26 139 3.11 195 3.23 289 3.26
476 7.86 613 6.70 355 7.44 733 5.57 744 5.72
1,924 5.92 1,965 5.77 2,019 5.66 2,124 5.76 2,050 6.19
------ ------ ------ ------ -------
24,897 2.82% 24,819 2.53% 24,211 2.57% 25,185 2.71% 23,647 2.76%
6,700 7,521 7,150 7,069 6,587
132 137 133 128 148
1,426 1,357 946 895 915
- ------------------------------------------------------------------------------------------------------------------------------
33,155 33,834 32,440 33,277 31,297
- ------------------------------------------------------------------------------------------------------------------------------
3,416 3,352 3,329 3,285 3,124
- ------------------------------------------------------------------------------------------------------------------------------
$36,571 $37,186 $35,769 $36,562 $34,421
- ------------------------------------------------------------------------------------------------------------------------------
6.89% 6.70% 6.41% 6.41% 6.51%
2.26% 2.00% 2.02% 2.15% 2.21%
- ------------------------------------------------------------------------------------------------------------------------------
4.63% 4.70% 4.39% 4.26% 4.30%
4.60% 4.67% 4.36% 4.23% 4.27%
- ------------------------------------------------------------------------------------------------------------------------------
<FN>
approximating 35%, using dollar amounts in thousands and actual number of
days in the periods, and are before the effect of reserve requirements.
Loan fees, as well as nonaccrual loans and their related income effect, have
been included in the calculation of average interest yields/rates.
</TABLE>
49
<PAGE> 51
SELECTED STATISTICAL INFORMATION
COMPOSITION OF LOAN PORTFOLIO
<TABLE>
<CAPTION>
Mellon Bank Corporation (and its subsidiaries)
- ----------------------------------------------------------------------------------------------------------------------
JUNE 30, March 31, Dec. 31, Sept. 30, June 30,
(in millions) 1994 1994 1993 1993 1993
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
DOMESTIC LOANS
Commercial and financial $ 9,339 (a) $ 9,199 $ 9,091 $ 8,020 $ 8,288
- ----------------------------------------------------------------------------------------------------------------------
Commercial real estate:
Commercial construction 391 (b)(c) 382 423 425 448
Commercial mortgage 1,231 (c) 1,256 1,298 1,293 1,365
- ----------------------------------------------------------------------------------------------------------------------
Total commercial real estate 1,622 (d) 1,638 1,721 1,718 1,813
- ----------------------------------------------------------------------------------------------------------------------
Consumer credit:
Consumer mortgage 8,152 8,161 8,180 8,250 8,507
Other consumer credit 4,043 3,966 3,813 3,679 3,674
- ----------------------------------------------------------------------------------------------------------------------
Total consumer credit 12,195 12,127 11,993 11,929 12,181
- ----------------------------------------------------------------------------------------------------------------------
Lease finance assets 704 715 718 709 629
- ----------------------------------------------------------------------------------------------------------------------
Total domestic loans 23,860 23,679 23,523 22,376 22,911
- ----------------------------------------------------------------------------------------------------------------------
INTERNATIONAL LOANS 866 853 950 1,088 933
- ----------------------------------------------------------------------------------------------------------------------
Total loans, net of unearned discount $24,726 $24,532 $24,473 $23,464 $23,844
- ----------------------------------------------------------------------------------------------------------------------
<FN>
(a) Includes $46 million of FDIC loss share loans.
(b) Includes $287 million of loans related to real estate projects which are
designated as "substantially complete," indicating that no additional
funding is required to complete construction of the base building or
that a certificate of occupancy has been obtained from the municipality
in which the property is located.
(c) Commercial construction loans and commercial mortgages include $8
million and $184 million, respectively of FDIC loss share loans.
(d) Includes $515 million of loans secured by owner-occupied commercial real
estate but not made for the purpose of real estate construction or
financing.
Note: Excludes segregated assets.
</TABLE>
DEPOSITS
<TABLE>
<CAPTION>
Mellon Bank Corporation (and its subsidiaries)
- ----------------------------------------------------------------------------------------------------------------------
JUNE 30, March 31, Dec. 31, Sept. 30, June 30,
(in millions) 1994 1994 1993 1993 1993
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Deposits in domestic offices:
Interest-bearing:
NOW accounts $ 2,175 $ 2,175 $ 2,196 $ 2,050 $ 2,046
Money market and other savings accounts 9,577 9,759 10,006 9,468 9,715
Retail savings certificates 6,513 6,610 6,813 7,187 7,683
Other time deposits 280 345 435 481 470
- ----------------------------------------------------------------------------------------------------------------------
Total interest-bearing 18,545 18,889 19,450 19,186 19,914
Noninterest-bearing 5,771 6,274 6,905 5,999 6,099
- ----------------------------------------------------------------------------------------------------------------------
Total deposits in domestic offices 24,316 25,163 26,355 25,185 26,013
- ----------------------------------------------------------------------------------------------------------------------
Deposits in foreign offices 1,867 1,598 1,183 1,120 1,294
- ----------------------------------------------------------------------------------------------------------------------
Total deposits $26,183 $26,761 $27,538 $26,305 $27,307
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
50
<PAGE> 52
PART II - OTHER INFORMATION
________________________________________________________________________________
Item 1. LEGAL PROCEEDINGS.
Various legal actions and proceedings are pending or are threatened against the
Corporation and its subsidiaries, some of which seek relief or damages in
amounts that are substantial. These actions and proceedings arise in the
ordinary course of the Corporation's businesses and include suits relating to
its lending, collections, servicing, investments and trust activities. Due to
the complex nature of some of these actions and proceedings, it may be a number
of years before such matters ultimately are resolved. After consultation with
legal counsel, management believes that the aggregate liability, if any,
resulting from such pending and threatened actions and proceedings will not
have a material adverse effect on the Corporation's financial condition.
On February 12, 1991, a jury in Colorado rendered a verdict in a lender
liability lawsuit in which the Corporation is one of the defendants. The jury
awarded actual damages of $42 million and punitive damages of $23 million in
favor of the plaintiffs. In the lawsuit, the plaintiffs contended that the
Corporation breached certain obligations and failed to disclose certain
information in connection with its lending relationships with the plaintiffs.
On June 6, 1991, a district judge in Colorado entered a judgment reducing the
award to $16 million in actual damages, plus interest, and $12 million in
punitive damages. On January 27, 1994, the Colorado Court of Appeals affirmed
the judgment for plaintiffs for compensatory damages in the reduced amount of
$5.36 million, plus interest since November 1, 1989, and vacated the judgment
for punitive damages and remanded to the trial court with the direction to
reconsider the amount, if any, of punitive damages. By Colorado law, the
amount of the punitive damages cannot exceed the amount of the compensatory
damages. Both plaintiffs and defendants filed petitions for rehearing before
the Court of Appeals, which were denied on March 31, 1994. All parties have
petitioned the Supreme Court of Colorado for review.
Subsequent to the announcement of the proposed merger with Dreyfus, plaintiffs
who claim to be shareholders of Dreyfus commenced six purported class action
suits in the Supreme Court of the State of New York, County of New York, naming
Dreyfus, the individual directors of Dreyfus and (in two of the cases) the
Corporation as defendants. In these complaints, the plaintiffs, among other
things, object to the terms of the proposed merger and seek injunctive relief
against its consummation, as well as compensatory and punitive damages. The
Corporation believes that these complaints lack merit and intends to defend
them vigorously.
51
<PAGE> 53
PART II - OTHER INFORMATION (CONTINUED)
________________________________________________________________________________
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
At the Corporation's annual meeting of shareholders held on April 19, 1994, for
which proxies were solicited pursuant to Regulation 14 under the Securities
Exchange Act of 1934, the following matters were voted upon by shareholders.
1. The election of seven directors for a term expiring in 1997 (Common
Stock and Series D Junior Preferred Stock voting together as a class):
<TABLE>
<CAPTION>
Name of Director Votes For Votes Withheld
---------------- --------- --------------
<S> <C> <C>
Burton C. Borgelt 53,172,088 152,835
Carol R. Brown 53,164,014 160,909
Frank V. Cahouet 53,167,428 157,495
Charles A. Corry 53,183,018 141,905
C. Frederick Fetterolf 53,167,454 157,469
Andrew W. Mathieson 53,179,495 145,428
Seward Prosser Mellon 53,181,293 143,630
</TABLE>
2. Ratification of KPMG Peat Marwick as independent public accountants of
the Corporation for the year 1994 (Common Stock and Series D Junior
Preferred Stock voting together as a class):
<TABLE>
<S> <C>
For: 53,085,040
Against: 134,413
Abstain: 105,470
</TABLE>
Abstentions are not counted for voting purposes under Pennsylvania law, the
jurisdiction of the Corporation's incorporation.
52
<PAGE> 54
PART II - OTHER INFORMATION (CONTINUED)
__________________________________________________________________________
Item 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
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 second quarter of 1994, the Corporation filed the following
Current Report on Form 8-K:
(1) A report dated April 19, 1994, which included, under Item 7, the
Corporation's press release regarding first quarter 1994 financial
results.
53
<PAGE> 55
_______________________________________________________________________________
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: August 9, 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)
54
<PAGE> 56
CORPORATE INFORMATION
_______________________________________________________________________________
<TABLE>
<S> <C>
BUSINESS Mellon Bank Corporation is a multibank holding company incorporated under the laws of Pennsylvania
OF THE and registered under the federal Bank Holding Company Act. Its principal wholly owned subsidiaries
CORPORATION are Mellon Bank, N.A., The Boston Company, Inc., Mellon Bank (DE) National Association, Mellon Bank (MD)
and the companies known as Mellon Financial Services Corporations. The Corporation's banking subsidiaries
engage in 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 preferred and Series K
LISTING 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 Corporation's common and
PAYMENTS 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 of Mellon Bank
REINVESTMENT Corporation's common stock may purchase additional common shares at market value through reinvestment
AND COMMON of common dividends and/or optional cash payments. Purchases of shares through optional cash payments
STOCK PUR- are subject to limitations. Plan details are in a Prospectus dated December 15, 1993, which may be
CHASE PLAN 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>
55
<PAGE> 57
Index to Exhibits
Exhibit No. Description
___________ _________________________________________
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).
56
<PAGE> 1
EXHIBIT 12.1
<TABLE>
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES AND RATIO
OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
<CAPTION>
Mellon Bank Corporation (parent Corporation) (a)
- ------------------------------------------------------------------------------------------------------------------
Three months ended Six months ended
June 30, June 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 $58,874 $291,707 $ 98,668 $136,878
Fixed charges: interest expense, one-third of
rental expense net of income from subleases,
and amortization of debt issuance costs 25,045 29,495 49,415 57,562
- ------------------------------------------------------------------------------------------------------------------
Total earnings (as defined) $83,919 $321,202 $148,083 $194,440
- ------------------------------------------------------------------------------------------------------------------
Preferred stock dividend requirements (b) $25 075 $ 25,075 $ 50,124 $ 55,182
- ------------------------------------------------------------------------------------------------------------------
Ratio of earnings (as defined) to fixed charges 3.35 10.89 3.00 3.38
Ratio of earnings (as defined) to combined fixed
charges and preferred stock dividends 1.67 5.89 1.49 1.72
- ------------------------------------------------------------------------------------------------------------------
<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>
57
<PAGE> 1
EXHIBIT 12.2
<TABLE>
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES AND RATIO
OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
<CAPTION>
Mellon Bank Corporation (and its subsidiaries)
- ----------------------------------------------------------------------------------------------------------------------
Three months ended Six months ended
June 30, June 30,
(dollar amounts in thousands) 1994 1993 1994 1993
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Income before income taxes $217,807 $169,102 $431,467 $236,729
Fixed charges: interest expense (excluding
interest on deposits), one-third of rental
expense net of income from subleases, and
amortization of debt issuance costs 67,037 61,259 128,504 115,344
- ----------------------------------------------------------------------------------------------------------------------
Total earnings (as defined), excluding
interest on deposits 284,844 230,361 559,971 352,073
Interest on deposits 116,505 108,441 218,300 225,394
- ----------------------------------------------------------------------------------------------------------------------
Total earnings (as defined) $401,349 $338,802 $778,271 $577,467
- ----------------------------------------------------------------------------------------------------------------------
Preferred stock dividend requirements (a) $ 25,075 $ 25,075 $ 50,124 $ 55,182
- ----------------------------------------------------------------------------------------------------------------------
Ratio of earnings (as defined) to fixed charges:
Excluding interest on deposits 4.25 3.76 4.36 3.05
Including interest on deposits 2.19 2.00 2.24 1.69
Ratio of earnings (as defined) to combined
fixed charges and preferred stock dividends:
Excluding interest on deposits 3.09 2.67 3.13 2.06
Including interest on deposits 1.92 1.74 1.96 1.46
- ----------------------------------------------------------------------------------------------------------------------
<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>
58
